{"url_path":"/sec/lgps/10-k/2026/item-3","section_key":"item-3","section_title":"Item 3 KEY INFORMATION**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-07-13","source_url":"https://www.sec.gov/Archives/edgar/data/2040290/0001493152-26-032936-index.html","accession_number":"0001493152-26-032936","cik":"0002040290","ticker":"LGPS","issuer_name":"LOGPROSTYLE INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/2040290/0001493152-26-032936-index.html","primary_entity_key":"0002040290","primary_entity_name":"LOGPROSTYLE INC."},"word_count":16871,"has_tables":true,"body_markdown":"**ITEM\n3. KEY INFORMATION**\n\n \n\n**A.\n[Reserved]**\n\n \n\n**B.\nCapitalization and Indebtedness**\n\n \n\nNot\napplicable.\n\n \n\n**C.\nReasons for the Offer and Use of Proceeds**\n\n \n\nNot\napplicable.\n\n \n\n**D.\nRisk Factors**\n\n \n\n**RISK\nFACTORS**\n\n \n\n*An\ninvestment in our Common Shares involves a high degree of risk. Before deciding whether to invest in our Common Shares, you should consider\ncarefully the risks described below, together with all of the other information set forth in this annual report, including Item 5 and\nour consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results\nof operations, or cash flow could be materially and adversely affected, which could cause the trading price of our Common Shares to decline,\nresulting in a loss of all or part of your investment. The risks described below and discussed in other parts of this annual report are\nnot the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business.\nYou should only consider investing in our Common Shares if you can bear the risk of loss of your entire investment. Some statements in\nthis annual report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section\nentitled “Cautionary Statement Regarding Forward-Looking Statements.”*\n\n \n\nAs\nused in this annual report, the terms the “Company,” “LogProstyle,” “we,” “our,” or “us”\nmay, depending upon the context, refer solely to the Company, to one or more of the Company’s consolidated subsidiaries or to all\nof them taken as a whole.\n\n \n\nOur\nfunctional currency and reporting currency is the Japanese yen. Convenience translations included in this annual report of Japanese yen\ninto U.S. dollars have been made at the exchange rate of ¥159.0800= US$1.00, which was the foreign exchange rate on March 31, 2026,\nas reported by the Board of Governors of the Federal Reserve System in its weekly release on April 6, 2026. Historical and current exchange\nrate information may be found at *www.federalreserve.gov/releases/h10/*.\n\n \n\n1\n\n \n\n \n\n**Summary\nRisk Factors**\n\n \n\n*Risks\nRelated to our Business and Industry*\n\n \n\n \n●\nWe\nare a holding company and depend upon our operating subsidiaries for our cash flows;\n\n \n \n \n\n \n●\nPre-owned\ncondominium units and land in Tokyo are limited and if we cannot continue to successfully identify and secure an adequate inventory\nin these areas at commercially reasonable costs, our operations could be adversely impacted;\n\n \n \n \n\n \n●\nOur\nbusiness is geographically concentrated, which subjects us to greater risks from changes in local or regional conditions;\n\n \n \n \n\n \n●\nThe\nresidential real estate markets in which we participate are intensely competitive, and if we do not compete effectively, our operating\nresults could be adversely affected;\n\n \n \n \n\n \n●\nThe\nresults of our operations may fluctuate from period to period as we derive our revenue principally from the sale of properties;\n\n \n \n \n\n \n●\nThe\nilliquidity of real estate properties could significantly impede our ability to resell properties that we purchase;\n\n \n \n \n\n \n●\nOur\nsubstantial indebtedness could materially and adversely affect our business, financial condition, results of operations, and cash\nflows;\n\n \n \n \n\n \n●\nWe\nrely on key relationships with service providers and agencies across the real estate development industry, and to the extent they\nexperience shortages in raw materials, labor, or defectives in timely construction and delivery of projects, such developments could\nhave an adverse impact on our business, prospect, liquidity, financial condition, and results of operations;\n\n \n \n \n\n \n●\nOur\nreal estate renovation and resale business and residential real estate development business are dependent on the availability, skill,\nand performance of contractors;\n\n \n \n \n\n \n●\nWe\nmay be unable to complete our real estate property development projects on time, or at all;\n\n \n \n \n\n \n●\nWe\nmay incur losses due to defects in pre-owned condominium units we procured for our real estate renovation and resale business;\n\n \n \n \n\n \n●\nWe\nmay incur losses due to defects relating to our properties;\n\n \n \n \n\n \n●\nWe\nare subject to various laws and regulations, including those relating to the purchase and sale of real estate, and violations of,\nor changes to, such laws and regulations may adversely affect our business;\n\n \n \n \n\n \n●\nA\nshortage of building materials or labor, or increases in their costs, could delay home construction or increase its cost, which could\nmaterially and adversely affect us;\n\n \n \n \n\n \n●\nA\ndownturn in the real estate market or changes in industry trends would negatively impact our business;\n\n \n \n \n\n \n●\nChanges\nin the policies of the Japanese government that affect demand for residential properties may adversely affect the ability or willingness\nof prospective buyers to purchase residential real estate;\n\n \n \n \n\n \n●\nOur\nhotel operations are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could\nreduce our revenue and limit opportunities for growth; and\n\n \n \n \n\n \n●\nWe\nmay be unsuccessful in expanding and operating our business internationally, which could adversely affect our results of operations.\n\n \n\n2\n\n \n\n* *\n\n*Risks\nRelating to the Trading Market*\n\n \n\n \n●\nShare\nownership is concentrated in the hands of our management, who are able to exercise a direct or indirect controlling influence on\nus;\n\n \n \n \n\n \n●\nWe\nare a “controlled company” within the meaning of the NYSE American listing standards and intend to follow certain exemptions\nfrom certain corporate governance requirements that could adversely affect our public shareholders;\n\n \n \n \n\n \n●\nThe\nsale or availability for sale of substantial amounts of the Common Shares could adversely affect their market price;\n\n \n \n \n\n \n●\nThe\nmarket price of our Common Shares may be volatile or may decline regardless of our operating performance;\n\n \n \n \n\n \n●\nIf\nwe fail to implement and maintain an effective system of internal control, we may fail to meet our reporting obligations or be unable\nto accurately report our results of operations or prevent fraud, and investor confidence and the market price of our Common Shares\nmay be materially and adversely affected;\n\n \n \n \n\n \n●\nWe\nincur substantial increased costs as a result of being a public company;\n\n \n \n \n\n \n●\nOur\nCommon Shares may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities\nclassified as “penny stock”;\n\n \n \n \n\n \n●\nRights\nof shareholders under Japanese law may be different from rights of shareholders in other jurisdictions;\n\n \n \n \n\n \n●\nWe\nare incorporated in Japan, and it may be more difficult to enforce judgments obtained in courts outside Japan;\n\n \n \n \n\n \n●\nThe\npayment of future dividends on our Common Shares, if any, must be approved by our shareholders at the annual meeting of the shareholders,\nor our board of directors only once during a business year, and will depend on many factors on which the shareholders may determine\nnot to do so;\n\n \n \n \n\n \n●\nBecause\nwe are a foreign private issuer and intend to take advantage of exemptions from certain NYSE American corporate governance standards\napplicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer;\n\n \n \n \n\n \n●\nIf\nwe cannot continue to satisfy the listing requirements and other rules of NYSE American, the Common Shares may be delisted, which\ncould negatively impact the price of the Common Shares and your ability to sell them;\n\n \n \n \n\n \n●\nWe\nare an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions\nfrom disclosure requirements available to emerging growth companies, this will make it more difficult to compare our performance\nwith other public companies;\n\n \n \n \n\n \n●\nBecause\nwe are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to,\nwhich could affect investor confidence in us and our Common Shares; and\n\n \n \n \n\n \n●\nIf\nwe are classified as a passive foreign investment company, United States taxpayers who own our Common Shares may have adverse United\nStates federal income tax consequences.\n\n \n\n**Risks\nRelated to Our Business and Industry**\n\n \n\n**We\nare a holding company and depend upon our operating subsidiaries for our cash flows.**\n\n \n\nAs\na holding company incorporated under Japanese law with no material operations of its own, LogProstyle’s operations have been conducted\nprimarily in Japan by its subsidiaries. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows\nof our operating subsidiaries and the payment of funds by these operating subsidiaries to us in the form of dividends, distributions\nor otherwise. The ability of our operating subsidiaries to make any payments to us depends on their earnings, the terms of their indebtedness,\nincluding the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our operating\nsubsidiaries when needed could have a material adverse effect on our business, results of operations or financial condition.\n\n \n\n3\n\n \n\n** **\n\n**Pre-owned\ncondominium units and land in Tokyo are limited and if we cannot continue to successfully identify and secure an adequate inventory in\nthese areas at commercially reasonable costs, our operations could be adversely impacted.**\n\n \n\nOur\nsubsidiary, LogSuite, acquires pre-owned condominium units for our real estate renovation and resale business, while another subsidiary,\nProstyle, acquires land for our residential real estate development business. Prostyle also purchases and demolishes existing buildings\nto build new condominium buildings. During the fiscal years ended March 31, 2026 and 2025, 100% and 84.0%, respectively, of LogSuite’s\nrevenue and 67.0% and 100%, respectively, of Prostyle’s revenue were derived from the sales of properties located in Tokyo. The\nresidential property market in Tokyo is highly competitive with limited pre-owned condominium units, land, and existing buildings for\ndemolishment available for acquisitions. The results of our property development operations depend in part upon our continuing ability\nto successfully identify and acquire an adequate number of pre-owned condominium units, land, and existing buildings for demolishment\nto renovate pre-owned condominium units for the purpose of resale or to build new condominium buildings, in desirable locations in our\nmarket. To date, we have primarily identified pre-owned condominium units, land, and existing buildings for demolishment through real\nestate agencies. We also acquire pre-owned condominium units through our active market search and the information obtained from other\ncompanies in the same industry. However, there can be no assurance that our long-standing relationships with these real estate agencies\nwill continue, or that an adequate supply of land and development sites that meet our specifications will continue to be available to\nus on terms similar to those available in the past, or that we will not be required in the future to devote a greater amount of capital\nto the acquisitions of such real estate properties than we have historically.\n\n \n\nAn\ninsufficient supply of pre-owned condominium units, land, or existing buildings for demolishment in Tokyo or our inability to purchase\nor finance such real estate properties on reasonable terms could have a material adverse effect on our sales, profitability, reputation,\nability to service our debt obligations, and future cash flows, which could impact our ability to compete for real estate properties.\nAny general real estate property shortage or any decline in the availability of suitable real estate properties that may be purchased\nat the prices that we deem commercially reasonable could limit our ability to develop new projects or result in increased deposit requirements\nor real estate property costs. Moreover, the supply of potential development sites in Tokyo will diminish over time and we may find it\nincreasingly difficult to identify and acquire attractive real estate properties through real estate agencies at the prices we deem commercially\nreasonable in the future. Our real estate property acquisition costs are a major component of our cost of real estate development and\nsales and increases in such costs could reduce our gross margin. We may not be able to pass through to our customers any increased land\ncosts, which could adversely impact our revenue, earnings, and margins.\n\n \n\n**Our\nbusiness is geographically concentrated, which subjects us to greater risks from changes in local or regional conditions.**\n\n \n\nOur\nsubsidiaries, LogSuite and Prostyle, primarily operate in the real estate development market in Tokyo. Specifically, during the fiscal\nyears ended March 31, 2026 and 2025, 100% and 84.0%, respectively, of LogSuite’s revenue and 67.0% and 100%, respectively, of Prostyle’s\nrevenue were derived from the sales of properties located in Tokyo. Additionally, as of March 31, 2026 and 2025, 98.0% and 98.0%, respectively,\nof LogSuite’s inventories and 91.4% and 59.9%, respectively, of Prostyle’s inventories were located in Tokyo. Due to this\ngeographic concentration, our results of operations and financial conditions are subject to greater risks from changes in general economic\nand other conditions in these areas, than the operations of more geographically diversified competitors. These risks include:\n\n \n\n \n●\nchanges\nin economic conditions and unemployment rates;\n\n \n \n \n\n \n●\nchanges\nin laws and regulations;\n\n \n \n \n\n \n●\na\ndecline in the number of home purchasers;\n\n \n \n \n\n \n●\nchanges\nin competitive environment; and\n\n \n \n \n\n \n●\nnatural\ndisasters.\n\n \n\nAs\na result of the geographic concentration of our business, we face a greater risk of a negative impact on our business, financial condition,\nresults of operations, and prospects in the event that any of the areas in which we develop real properties is more severely impacted\nby any such adverse condition, as compared to other areas or countries.\n\n \n\n4\n\n \n\n** **\n\n**The\nresidential real estate markets in which we participate are intensely competitive, and if we do not compete effectively, our operating\nresults could be adversely affected.**\n\n \n\nThe\nresidential real estate industry is highly competitive, and we face competition from many sources, including from other real estate developers\nboth in the immediate vicinity and the geographic market where our condominium units, either renovated or newly developed, are and will\nbe located. Specifically, we compete, or will compete, with numerous housing alternatives in attracting residents, including condominiums\nas well as single and multifamily homes available to rent or purchase. Increased competition may prevent us from acquiring attractive\npre-owned condominium units or land parcels or make such acquisitions more expensive, hinder our market share expansion, or lead to pricing\npressures that may adversely impact our margins and revenue. See “—*Pre-owned condominium units and land in Tokyo are limited\nand if we cannot continue to successfully identify and secure an adequate inventory in these areas at commercially reasonable costs,\nour operations could be adversely impacted*.” Competitors may independently renovate condominium units or develop land and construct\nhousing units that are superior or substantially similar to our products and because they are or may be significantly larger, have a\nlonger operating history, and have greater resources or lower cost of capital than us, may be able to compete more effectively in one\nor more of the markets in which we operate or plan to operate.\n\n \n\nAny\nof our current or future competitors may also receive investments from or enter into other commercial or strategic relationships with\nlarger, well-established and well-financed companies and obtain significantly greater financial, marketing, and real estate development\nresources than us. We cannot assure you that we will be able to compete successfully against our current or future competitors. Any failure\nto compete effectively in the residential real estate developers in Japan, particularly in Tokyo, would have a material adverse effect\non our business, financial condition, and results of operations.\n\n \n\n**The\nresults of our operations may fluctuate from period to period as we derive our revenue principally from the sale of properties.**\n\n \n\nWe\nderive the majority of our revenue from the sale of condominiums that we have renovated or developed. Our results of operations tend\nto fluctuate from period to period due to a combination of factors, including the overall schedule of our property development projects,\nthe timing of the sale of properties that we have renovated or developed, the size of our land and condominium unit to be renovated or\ndeveloped, our revenue recognition policies and changes in costs and expenses, such as land acquisition and construction costs. The number\nof properties that we can complete during any particular period is limited due to the size of our pre-owned condominium units and land\ninventories, the substantial capital required for land acquisition and construction, as well as the development periods required before\npositive cash flows may be generated.\n\n \n\nFor\ncondominium sales contracts, revenue is recognized at a point in time when the customer obtains control of the property and we do not\nhave continuing involvement with the property, which is generally upon the delivery of the property. Our operating history shows that\nrevenue tends to concentrate during March, the peak season for Japanese real estate industry coinciding with our fiscal year end, and\nduring the period when our newly developed condominiums’ construction is completed. Consequently, if an expected delivery date\nis postponed regardless of the reasons for such postponement, the revenue might not be recognized within a certain fiscal year, adversely\naffecting our financial condition and results of operations.\n\n \n\nAdditionally,\nwhile the renovation of pre-owned condominium units may take approximately twelve months, the development of new condominium buildings,\nfrom acquisition to sale, typically spans several months or years. The selling prices of the residential units tend to change over time\ndue to several factors, such as changes in housing demand in certain geographic markets and the interest rates. Moreover, our residential\nreal estate development projects may be delayed or adversely affected by a combination of factors beyond our control. Failure to complete\nour development project as planned may lead to a higher interest expense for our company.\n\n \n\nWhile\nwe believe that the prices of our renovated condominium units are primarily influenced by their locations and interior design, the prices\nof newly built condominium units are generally determined by their recent construction. Since newer real estate properties generally\ncommand higher prices, any delays in the sales of our properties may force us to sell the properties at the prices lower than the ones\nwe originally anticipated. These delays, therefore, may adversely affect our revenue and, consequently, our cash flows or our results\nof operations. As a result of fluctuations in our operating results, our period-to-period comparisons of results of operations and cash\nflow positions may not be indicative of our future results of operations and may not be taken as meaningful measures of our financial\nperformance for any specific period.\n\n \n\n5\n\n \n\n** **\n\n**The\nilliquidity of real estate properties could significantly impede our ability to resell properties that we purchase.**\n\n \n\nOnce\nwe identify a pre-owned condominium unit or underdeveloped property meeting our needs, we negotiate with the owner in order to purchase\nthat property. In general, real estate properties may be relatively illiquid. As a result, we may not be able to sell a property or facilitate\nthe sale of a property quickly or on favorable terms in response to the changing economic, financial and investment conditions when it\notherwise may be prudent to do so. Any possible deterioration in the Japanese economy and credit markets may make it difficult to sell\nproperties or facilitate the sale of properties at attractive prices. We cannot predict whether we will be able to sell or facilitate\nsales of any property for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser\nwould be acceptable to us or the real estate developers we work with in certain collaborative development projects. We also cannot predict\nthe length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct\ndefects in the property before the property may be sold, and we cannot provide any assurances that we will have funds available to correct\nsuch defects. Our inability to dispose of properties or facilitate the sale of properties at opportune times or upon favorable terms\ncould adversely affect our cash flows and results of operations.\n\n \n\n**Overdependence\non a certain type of condominiums may adversely affect our business and financial results.**\n\n \n\nOur\nsubsidiary, Prostyle, designs and develops two types of condominium buildings: “Family Type Condominiums” for individual\ncustomers and “Compact Condominiums” for institutional customers. Family Type Condominiums typically feature spacious layouts\nand are primarily located in central Tokyo, while Compact Condominiums offer smaller units and are intended for institutional buyers.\nEach type of the condominiums presents unique risks and advantages. For Compact Condominiums, we generally initiate construction only\nafter entering into purchase agreements with institutional buyers, which mitigates inventory risk but can limit our ability to negotiate\nfavorable contract prices. Conversely, Family Type Condominiums are sold directly to homeowners, providing greater pricing flexibility\nand potentially higher profit margins, as we can incorporate construction costs and real estate market conditions into the selling price.\nSee “Business—Real Estate Development—iii. Condominium Sales and After-sales Services.” However, if we become\noverly reliant on a single condominium type due to challenges in sourcing suitable land parcels or difficulties in attracting prospective\nbuyers, our ability to balance inventory risk, pricing, and profit margins could be adversely affected. Such dependence on one product\ntype could materially impact our business operations and lead to a significant decline in our financial condition and results of operations.\n\n \n\n**Our\nsubstantial indebtedness could materially and adversely affect our business, financial condition, results of operations, and cash flows.**\n\n \n\nAs\nof March 31, 2026, we had approximately JPY1,608,400 thousand (approximately $10,111 thousand) in short-term borrowings and JPY15,542,783\nthousand (approximately $97,704 thousand) in long-term borrowings outstanding.\n\n \n\nThe\namount of our debt could have significant consequences on our operations, including:\n\n \n\n \n●\nreducing\nthe availability of our cash flow to fund working capital, capital expenditures, acquisitions, and other general corporate purposes\nas a result of our debt service obligations;\n\n \n \n \n\n \n●\nlimiting\nour ability to obtain additional financing;\n\n \n \n \n\n \n●\nlimiting\nour flexibility in planning for, or reacting to, changes in our business, the industry in which we operate, and the general economy;\n\n \n \n \n\n \n●\nincreasing\nthe cost of any additional financing; and\n\n \n \n \n\n \n●\nlimiting\nthe ability of our subsidiaries to pay dividends to us for working capital or return on our investment.\n\n \n\nAny\nof these factors and other consequences that may result from our substantial indebtedness could have a material adverse effect on our\nbusiness, financial condition, results of operations, and cash flows impacting our ability to meet our payment obligations under our\ndebts. Our ability to meet our payment obligations under our outstanding indebtedness depends on our ability to generate significant\ncash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative, and regulatory factors\nas well as other factors that are beyond our control.\n\n \n\n6\n\n \n\n** **\n\n**Our\nbusiness may rely on one or more suppliers that account for more than 10% of our total purchases, and interruption in operations of a\nsignificant supplier, if any, may have an adverse effect on our business, financial condition, and results of operations.**\n\n \n\nWe\ndid not have any supplier which accounted for more than 10% of the total supplies purchased during the fiscal years ended March 31, 2026\nand 2025. However, for the fiscal year ended March 31, 2023, Kabushiki Kaisha Sunagogumi (“Sunagogumi”) accounted for 25.1%\nof the total supplies purchased. See “Business—Suppliers.” We cannot ensure that we will have no concentration of suppliers\nagain in the future. Such third-party supplier is run by an independent entity that is subject to its own unique operational and financial\nrisks, which are beyond our control. If any significant supplier breaches or terminates its contracts with us, or experiences significant\ndisruptions to its operations, we will be required to find and enter into arrangements with one or more replacement suppliers. Finding\nalternative suppliers could involve significant delays and other costs and these suppliers may not be available to us on reasonable terms\nor at all. As a result, this could harm our business, financial condition, and results of operations and result in lost or deferred revenue.\n\n \n\n**We\nrely on key relationships with service providers and agencies across the real estate development industry, and to the extent they experience\nshortages in raw materials, labor, or defectives in timely construction and delivery of projects, such developments could have an adverse\nimpact on our business, prospect, liquidity, financial condition, and results of operations.**\n\n \n\nWe\nprimarily rely on service providers, including contractors, to perform the construction of substantially all of our condominiums, including\nthe procurement of raw materials apart from natural solid wood supplied by our subsidiaries, construction, and delivery of the projects.\nIf our contractors fail to timely construct and deliver projects, we will be subject to penalties for such delay under our contracts\nwith customers. We also primarily rely on real estate agencies to identify land and development sites for acquisition. Therefore, to\nthe extent such service providers and agencies experience pressures in raw materials (including an increase in the price of lumber),\nlabor (including an increase in labor cost), or timely construction and delivery of projects, such pressures may pass through to us,\nwhich could increase our cost and adversely impact our business, prospects, liquidity, financial condition, and results of operations.\n\n \n\n**Our\nreal estate renovation and resale business and residential real estate development business are dependent on the availability, skill,\nand performance of contractors.**\n\n \n\nWe\nengage contractors to renovate and construct substantially all of our condominiums and to select and obtain raw materials used in the\nrenovation and construction. Accordingly, the timing and quality of our renovation and construction depend on the availability and skill\nof our contractors. While we have been in the past able to cooperate with reliable contractors and believe that we have a good professional\nrelationship with our contractors, we can provide no assurance that these relationships will not deteriorate and that skilled contractors\nwill continue to be available at reasonable rates in our markets. In addition, as we expand into new markets, we typically must develop\nnew relationships with contractors in such markets, and there can be no assurance that we will be able to do so in a cost-effective and\ntimely manner, or at all. The inability to enter into business relationships with skilled contractors at reasonable rates on a timely\nbasis could have a material adverse effect on our business, prospects, liquidity, financial condition, and results of operations.\n\n \n\nWe\nare exposed to risks that the performance of our contractors may not meet our standards or specifications. Under our contracts with customers\nwith respect to our condominiums and in accordance with Japanese law, the properties we develop are subject to warranty of quality. Specifically,\nour condominium units, whether renovated or newly constructed, are covered by a two-year nonconformity warranty under the terms of our\nsales agreements. For newly constructed condominium units, the Housing Quality Assurance Act mandates that sellers provide a 10-year\nwarranty against defects in primary structural components. Additionally, the Act on Assurance of Performance of Specified Housing Defect\nWarranty obliges sellers to secure their ability to fulfill this warranty by either depositing security funds with the Legal Affairs\nBureau of the Ministry of Justice or obtaining housing defect warranty insurance. We have selected to purchase housing defect warranty\ninsurance to meet this requirement. Beyond these legal requirements, we offer an extended after-sales service warranty for both renovated\nand newly constructed condominium units, with coverage periods ranging from two to 10 years, depending on the type of defect and the\nspecific characteristics of each component. Lastly, for renovated condominium units, although not legally required, we purchase housing\ndefect warranty insurance to ensure our financial capacity to address any defects that may arise.\n\n \n\n7\n\n \n\n \n\nEven\nthough we put our best efforts in quality control and, to date, we have not discovered that our contractors have engaged in improper\nrenovation or construction practices or have installed defective materials in our residential condominiums or buildings, we cannot guarantee\nthat our contractors will continuously provide the services meeting our standards. Negligence or poor work quality by any contractors\nmay result in structural defects or substandard construction quality in our condominiums, which could in turn cause us to suffer project\ndelays, cost overruns, and financial losses, harm our reputation, or expose us to third-party claims. Even if the contractor performing\nthe construction work in such instances is ultimately held responsible for the consequences of any such property defects, any such incidents\ncould have lasting adverse effects on us and our business reputation. We work with more than 130 contractors on different projects and\nwe cannot guarantee that we can effectively monitor their work at all times. In addition, contractors may make use of third-party subcontractors\nwith which we have no direct relationship, further limiting our ability to manage the foregoing risks. Although our construction contracts\nwith contractors contain provisions designed to protect us, we may be unable to successfully enforce these provisions and, even if we\nare able to successfully enforce these provisions, the contractor may not have sufficient financial resources to compensate us. Moreover,\nthe contractors may undertake projects from other property developers, engage in risky undertakings, or encounter financial or other\ndifficulties, such as supply shortages, labor disputes, or work accidents, which may cause delays in the completion of our property projects\nor increases in our costs.\n\n \n\n**We\nmay be unable to complete our real estate property development projects on time, or at all.**\n\n \n\nThe\nprogress and costs for our real estate property development projects can be adversely affected by many factors, including:\n\n \n\n \n●\ndelays\nin obtaining necessary licenses, permits, or approvals from government agencies or authorities;\n\n \n \n \n\n \n●\nshortages\nof materials, equipment, contractors, and skilled labor;\n\n \n \n \n\n \n●\ndisputes\nwith our contractors;\n\n \n \n \n\n \n●\nfailures\nby our contractors to comply with our designs, specifications, or standards;\n\n \n \n \n\n \n●\ndifficult\ngeological situations or other geotechnical issues;\n\n \n \n \n\n \n●\nonsite\nlabor disputes or work accidents;\n\n \n \n \n\n \n●\nepidemics\nor pandemics; and\n\n \n \n \n\n \n●\nnatural\ncatastrophes or adverse weather conditions.\n\n \n\nAny\nconstruction delays, or failure to complete a project according to our planned specifications or budget, may delay our property sales\nor our hotel operation, which could harm our revenue, cash flows, and reputation.\n\n \n\n**We\nmay incur losses due to defects in pre-owned condominium units we procured for our real estate renovation and resale business.**\n\n \n\nAs\npart of our real estate renovation and resale business, we purchase pre-owned condominium units to renovate and resell to our customers.\nIt is our policy to carefully conduct research and inspection to detect defects or other elements which may result in any structural\nor environmental damages. However, we cannot guarantee that we will be able to detect all defects or damage during the inspection. If\nwe find any non-conformity after the delivery but no later than the warranty period, we may, subject to the terms of the relevant agreements,\nask the sellers to rectify such non-conformity, request compensation, cancel the purchase transaction or seek other remedies. The method\nand extent in which we will be able to request remedies depend on the terms of the relevant agreement and a negotiation with each seller\nand therefore may vary. We may also initiate necessary legal proceedings to hold the seller liable for such non-conformity and damages.\nHowever, we cannot guarantee that we will obtain favorable outcomes in any litigation.\n\n \n\nFor\nthe earthquake-proof properties, we often request sellers to purchase a five-year defect insurance from Jutaku Anshin Hosho Co., Ltd.,\na company designated by the Minister of Land, Infrastructure, Transport and Tourism to support risk management in various housing-related\nscenarios, including used home and renovations. Nevertheless, the insurance coverage may be insufficient to cover losses due to defects\nin pre-owned condominiums we purchased, and our business, financial condition, or results of operations could be adversely affected if\nwe are not adequately compensated.\n\n \n\n8\n\n \n\n** **\n\n**We\nmay incur losses due to defects relating to our properties.**\n\n \n\nWe\nmay be liable for unforeseen losses, damages, or injuries suffered by third parties due to defects in structures or properties that we\ndevelop, own, sell, possess or use in our hotel operation. In Japan, pursuant to the Civil Code of Japan, the possessor or owner of a\nstructure or property attached to land is strictly liable to a third party who suffers damages due to defects in such structure or property.\nOur business, financial condition, or results of operations could be adversely affected as a result of our incurring any such liability.\n\n \n\nWhen\nselling condominium units, we have internal systems enabling us to manage and oversee our condominium units’ design and construction\nto avoid defects and to provide our customers with condition report when delivering the property. However, we could not guarantee that\nthe customers will not claim or commence any legal proceedings if they are unsatisfied with our condominium units, even after the property\ninspection. Additionally, we also have internal systems to ensure that our hotel facilities are properly maintained. Nevertheless, if\nany customers are injured or their properties are damaged during their stays, we could not guarantee that they will not claim or commence\nany legal proceedings against us, even if the injury does not result from the defects in our facilities and is not attributable to our\nresponsibility. We may also incur significant costs to remedy construction defects in properties that we develop, own, sell under warranty,\nor operate as hotel facilities. Following the completion of our real estate development projects, we may be liable for unforeseen losses,\ndamages, or injuries to third parties at properties we own or sell arising from construction defects.\n\n \n\n**We\nare subject to various laws and regulations, including those relating to the purchase and sale of real estate, and violations of, or\nchanges to, such laws and regulations may adversely affect our business.**\n\n \n\nOur\nbusinesses are subject to various laws and regulations in Japan. For further description of the laws and regulations, including those\nreferred to below, that are material to our business, see “Regulations.”\n\n \n\nWe\nare subject to the Building Lots and Buildings Transaction Business Act of Japan, which regulates the lease, sale, and purchase of buildings\nand building lots or brokerage of the sale and purchase or leasing thereof and which requires a license from the Minister of Land, Infrastructure,\nTransport, and Tourism of Japan or the governor of a prefecture, as the case may be. Violations of the Building Lots and Buildings Transaction\nBusiness Act could result in our licenses being revoked or our business being suspended, which could materially affect our ability to\ncontinue our operations in these businesses.\n\n \n\nOur\nbusinesses also rely on licenses required under various laws and regulations, including the Construction Business Act, the Architect\nAct, the Hotel Business Act, the Food Sanitation Act, the Act on Advancement of Proper Condominium Management, the Act on Proper Management\nof Rental Housing, and the Specified Joint Real Estate Ventures Act. Violations of such laws and regulations could result in our licenses\nbeing revoked or our business being suspended, which could adversely affect our business, financial condition, and results of operations.\n\n \n\nIn\naddition to licenses, our business is subject to various national and local regulations relating to a variety of matters such as zoning,\npublic bidding procedures, environmental restrictions, health and safety compliance, and consumer protection, and we are required to\nobtain numerous governmental permits and approvals or restrict our business operations.\n\n \n\nAs\nan example, the Building Standards Act of Japan subjects our construction operations to extensive regulation and oversight with respect\nto construction methods and safety matters, and requires us or our partners to obtain a certificate for the proposed construction in\nadvance and upon completion of the construction to confirm that the building complies with various requirements under the Act. Violations\nof the Building Standards Act could result in the suspension of construction, the demolition, or the reconstruction of a building, repairs,\nor restriction of use of a building.\n\n \n\nApplicable\nregulations also include requirements and restrictions imposed by the laws, under which we are licensed, as well as restrictions imposed\nby the City Planning Act regulating certain land developments, the Land and Building Lease Act regulating terms of leases for buildings\nand building lots, the Subcontracting Act protecting subcontractors from exploitation, the Personal Information Protection Act, the Act\nagainst Unjustifiable Premiums and Misleading Representations, the Housing Quality Assurance Act, and the Consumer Contracts Act, which\nprotect certain rights of individuals or consumer, and labor laws protecting employees.\n\n \n\n9\n\n \n\n \n\nLocal\nregulations, including municipal or local ordinances, restrictions may limit our use of our properties and operations and may require\nus to obtain prior approval from local officials. Such local regulations may cause us to incur additional costs to construct or renovate\ncondominiums and other buildings.\n\n \n\nThe\nenforcement of or changes in laws and regulations specifically relevant to our business and operations may adversely affect our ability\nto complete the development of our real estate projects on our projected timelines, as well as the timing or cost of our future acquisitions,\nconstruction, or renovations, which will have adverse effects on our business, financial condition, and results of operations.\n\n \n\nLastly,\nthe enforcement of or changes in other laws and regulations of more general applicability to Japanese corporations, such as tax laws\nand accounting rules, could also have an impact on our financial condition and results of operations. Although we strive to ensure that\nour operations are in compliance with applicable laws and regulations, we cannot assure you that no violation will arise in the future.\nViolations of laws and regulations could result in significant regulatory sanctions against us, including the suspension or revocation\nof our governmental permits and approvals, which could harm our reputation and materially affect our results of operations.\n\n \n\nAs\na result, changes in applicable laws and regulations could also result in reduced flexibility in conducting our business and increased\ncompliance costs or may have other adverse effects on our business, financial condition, and results of operations.\n\n \n\n**Environmental\ncontamination on properties that we own or have sold could adversely affect our results of operations.**\n\n \n\nIn\nJapan, under the Soil Contamination Countermeasures Act of Japan, if a relevant local governor determines that, based on applicable standards,\nthere is a risk that the land is contaminated by a specified hazardous substance or that there is a risk of harm to human health due\nto soil contamination by a specified hazardous substance, the governor may order the owner, manager or occupant of the land to have a\ndesignated investigation organization investigate the soil contamination status of the land and report the results. If, as a result of\nthe investigation, the governor determines that the soil contamination status exceeds the applicable standards and if the governor determines\nthat the land is harmful or poses a risk of harm to human health under the applicable standard, the governor shall designate the area\nof the land as a contaminated area and the governor shall order the owner, manager, or occupant of such land to submit a plan to remove\nthe hazardous substance, prevent its dispersal, or take other action, and the owner, manager, or occupant shall implement the plan.\n\n \n\nThe\nenvironmental surveys that we generally conduct in connection with our properties, such as to discover hazardous or toxic substances\nin the soil, groundwater, and buildings, may be inadequate to fully uncover the problems of the types they are intended to identify,\nwhich are often hidden or impossible to detect without special expertise and equipment. The presence of hazardous or toxic substances\non our properties, or our failure to properly remediate any such contamination, may adversely affect our ability to sell, develop, or\nlease our properties or borrow using the affected properties as collateral. If hazardous or toxic substances are discovered on any of\nour properties, the affected properties could fall in value, completion of development may be delayed, and we may be required to incur\nsubstantial unforeseen costs to remediate the underlying hazard and discharge the related environmental liabilities. Furthermore, if\nactual harm to human health results from the presence of hazardous or toxic substances on our properties, we may incur significant damages,\nregulatory sanctions, or damage to our brand and reputation. The realization of any of such risks related to environmental contamination\ncould have a material adverse effect on our business, financial condition, and results of operations.\n\n \n\n**A\nshortage of building materials or labor, or increases in their costs, could delay home construction or increase its cost, which could\nmaterially and adversely affect us.**\n\n \n\nThe\nreal estate development industry experiences labor and raw material shortages from time to time. These labor and raw material shortages\ncan be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact\non existing residential and commercial structures, or a result of broader economic disruptions.\n\n \n\nIn\naddition, our success in our existing markets or those we may choose to enter in the future depends substantially on our ability to source\nlabor and local materials on terms that are favorable to us. Such markets may exhibit a reduced level of skilled labor relative to increased\nproperty development demand in these markets. In the event of shortages in labor or raw materials in such markets, local contractors,\ntradespeople, and suppliers may choose to allocate their resources to developers with an established presence in the market and with\nwhom they have longer-standing relationships with. Labor and raw material shortages and price increases for labor and raw materials could\ncause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects,\nfinancial condition, and results of operations.\n\n \n\n10\n\n \n\n \n\n**Our\nreliance on imported solid wood from the United States exposes us to various risks that could adversely affect our business, financial\ncondition, and results of operations.**\n\n \n\nYantai\nPropolife, our Chinese subsidiary, is capable of developing and producing natural solid wood for our real estate renovation and resale\nbusiness and real estate development business. OkinawaIgeto, our Japanese subsidiary, sources raw wood materials from CK International,\nLLC, a U.S. hardwood lumber company that supplies wood from North America (“CK International”), and our reliance on this\nmaterial exposes us to risks related to supply chain disruptions, cost fluctuations, regulatory changes, as well as the potential loss\nof timberland to alternative uses. Any interruption in the supply of solid wood, whether due to natural disasters, trade restrictions,\nglobal pandemic, labor strikes, or transportation delays, could delay our projects and increase our construction costs. For example,\nthere was significant inflation in the price of lumber, largely as a result of supply shortages specific to the lumber industry that\nresulted from the COVID-19 pandemic. Since we were able to anticipate further price spikes early and managed to secure adequate supply\nof raw wood materials at the onset of the inflation and effectively pass the costs to customers, the adverse effect of the price inflation\nto our business was minimal. However, we cannot guarantee that we will be able to anticipate the lumber price fluctuation in the future,\nand our business may be negatively affected.\n\n \n\nAs\nwe expand our business, our demand for imported solid wood is expected to increase. The expansion may create a reliance on CK International\nto supply sufficient quantities of high-quality wood meeting our specifications. However, CK International itself may face challenges\nthat could hinder its ability to meet our needs, or it may prioritize other larger or more strategically significant clients, which could\nresult in insufficient supply allocations for our needs. As we enter into a separate sales contract with CK International for each order,\nthe quantity, quality, delivery of natural solid wood, and other terms and conditions are determined through individual negotiations\nbetween the parties. Although we believe we have maintained a strong relationship with CK International, we cannot assure that future\nsales contracts will be established on terms and conditions favorable to us. Although we have connections with alternative U.S. suppliers,\nthey may not adequately provide suitable materials at reasonable prices or within required timelines. These supply challenges could result\nin higher costs, production delays, or the use of lower-quality materials, adversely impacting our operations, reputation, financial\ncondition, and results of operations.\n\n \n\nAdditionally,\nfluctuations in currency exchange rates between the U.S. dollar, Chinese yuan (renminbi). and the Japanese yen may impact our ability\nto procure solid wood at competitive prices, potentially increasing our production costs and adversely affecting our profitability. Changes\nin U.S., Chinese, or Japanese trade policies, tariffs, or environmental regulations could increase the cost of importing raw wood material\nor restrict our access to this material. While natural solid wood supply procurement and production have not been affected by the changes\nin currency exchange rates and governmental policies and regulations thus far, we cannot guarantee that we will not be affected by these\nchanges in the future. If we are unable to source solid wood at reasonable costs, we may be forced to pass on these costs to our customers,\nwhich could affect demand for our services. Alternatively, we may need to seek alternative materials or suppliers, which could be less\nreliable or more expensive, and may impact the quality of our projects. These risks related to the use of imported solid wood could materially\nand adversely affect our business, financial condition, and results of operations.\n\n \n\n**Our\nbusiness could be materially and adversely disrupted by an epidemic or pandemic, or similar public threat, or fear of such an event,\nand the measures that the governmental authorities implement to address it.**\n\n \n\nAn\nepidemic, pandemic, or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could\nsignificantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, along with\nany associated economic and social instability or distress, have a material adverse impact on our business, prospects, liquidity, financial\ncondition, and results of operations.\n\n \n\nOn\nMarch 11, 2020, the World Health Organization declared the current outbreak of the COVID-19 virus to be a global pandemic, and in April\n2020, the Japanese government issued the Declaration of a State of Emergency, whereby the Japanese government ordered non-essential activities\nand businesses across Japan to close as a preemptive safeguard against the COVID-19 pandemic. This adversely impacted many business sectors\nacross Japan, including the sectors in which we operate, especially in Tokyo. The COVID-19 pandemic impacted our business operations\nand operating results during 2020. Core demand for condominiums and our hotel facilities declined due to uncertainty. Nevertheless, the\ndemand for condominiums and hotel facilities in general real estate markets had fully recovered by 2021, reaching the levels seen prior\nto the COVID-9 pandemic. On the supply and construction side, our business has faced inflation in the prices of raw materials and labor\ncosts associated with supply chain shortages resulting from the pandemic, which may adversely impact our margins. In addition, the COVID-19\npandemic has resulted in changes to the way we conduct our real estate development and sales, including holding remote meetings with\ncustomers and taking certain precaution measures for customers who visit our offices (such as using alcohol disinfectant).\n\n \n\n11\n\n \n\n \n\nWe\ncannot estimate or predict with any degree of certainty the full impact of any future epidemic or pandemic on our financial condition\nand future results of operations. The ultimate impacts of a future epidemic or pandemic and related mitigation efforts will depend on\nfuture developments, including the duration of the epidemic or pandemic, the acceptance and effectiveness of vaccines, the impact of\nepidemic or pandemic and related containment and mitigation measures on our customers, contractors, and employees, workforce availability,\nand the timing and extent to which normal economic and operating conditions resume.\n\n \n\n**A\ndownturn in the real estate market or changes in industry trends would negatively impact our business.**\n\n \n\nThe\nreal estate industry is susceptible to economic trends, policy interest rate trends, land price trends, real estate sales price trends,\nreal estate taxation, etc. Therefore, a downturn in the real estate market, a significant increase in interest rates, or other changes\nin the situation could affect our performance.\n\n \n\nAccording\nto the 2026 land price publication (Chika Koji) issued by the Ministry of Land, Infrastructure, Transport and Tourism in March 2026,\nJapan’s land prices rose for the fifth consecutive year, with the nationwide average increasing 2.8% for all uses, 2.1% for residential\nland, and 4.3% for commercial land, and the rate of increase expanding for the all-use average and for commercial land. Housing demand\nremained firm in urban centers and convenient areas with superb living environments, and land prices in the three major metropolitan\nareas, including the greater Tokyo metropolitan area, continued to rise, with the rate of increase expanding. Nevertheless, we cannot\nguarantee that this trend will continue. For example, in response to elevated inflation, the Bank of Japan ended its negative interest\nrate policy in March 2024—its first policy interest rate increase in 17 years (since February 2007)—and has since raised\nits policy rate in stages, most recently to around 0.75% in December 2025. Reflecting this monetary policy normalization, the Flat 35,\na long-term fixed residential mortgage rate established through the partnership among private financial institutions and the Japan Housing\nFinance Agency, has risen, and interest rates on variable-rate mortgages, which had previously been declining, have also begun to rise.\nSee “Business—Market Opportunities—Real Estate Markets in Japan—Market outlook for new condominium units.”\nWhile higher interest rates may theoretically result in lower real estate prices and a slower real estate market, the long-term impact\nof these policy initiatives on Japan’s economy remains uncertain. In addition, the occurrence of pandemics, such as the COVID-19\npandemic, the occurrence of large-scale natural disasters, such as earthquakes and typhoons, as well as other policy changes (see also\n“—Changes in the policies of the Japanese government that affect demand for residential properties may adversely affect the\nability or willingness of prospective buyers to purchase residential real estate.”), may also adversely impact the Japanese real\nestate markets. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative\nimpact on demand for our real properties and their prices.\n\n**Changes\nin the policies of the Japanese government that affect demand for residential properties may adversely affect the ability or willingness\nof prospective buyers to purchase residential real estate.**\n\n \n\nDemand\nin the Japanese residential real estate market is significantly affected by the policies of the Japanese government, which currently\ninclude low-interest rate policies that result in the availability of housing loans from banks with highly discounted mortgage rates\nand preferential income tax treatment in connection with housing loans, and the availability of publicly sponsored long-term mortgage\nproducts. On December 14, 2023, the Japanese government also released the 2024 Tax Reform Proposals which planned to continue the current\ntax system where property tax on land is reduced by local ordinance until 2026 to promote economic recover after the COVID-19 pandemic.\nSee also “Business—Market Opportunities—Real Estate Markets in Japan.” Nevertheless, such policies may change\nor be discontinued in the future or may not continue to contribute to increased demand for condominiums as intended. Changes in residential\nproperty taxes, consumption taxes incurred when purchasing a residence, or other housing-related policies that increase the cost of owning,\nacquiring, or selling real estate may adversely affect the ability or willingness of prospective home buyers to purchase a single-family\nhome or condominium, which may materially and adversely affect our business, prospects, financial condition, and results of operations.\n\n \n\n12\n\n \n\n** **\n\n**Our\nhotel operations are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could\nreduce our revenue and limit opportunities for growth.**\n\n \n\nOur\nhotel operations are subject to a number of business, financial, and operating risks inherent to the hospitality industry, including:\n\n \n\n \n●\ncompetition\nfrom hospitality providers in the localities where we operate our hotels;\n\n \n \n \n\n \n●\nrelationships\nwith business partners;\n\n \n \n \n\n \n●\nincreases\nin costs due to inflation or other factors that may not be fully offset by increases in revenue in our business, as well as increases\nin overall prices and the prices of our offerings due to inflation, which could weaken consumer demand for travel and the other products\nwe offer and adversely affect our revenue;\n\n \n \n \n\n \n●\nthe\nability of third-party Internet and other travel intermediaries who sell our hotel services to guests to attract and retain customers;\n\n \n \n \n\n \n●\ncyclical\nfluctuations and seasonal volatility in the hospitality industry;\n\n \n \n \n\n \n●\nchanges\nin desirability of geographic regions of our hotels, changes in geographic concentration of our operations and customers, and shortages\nof desirable locations for development;\n\n \n \n \n\n \n●\nchanges\nin the supply and demand for hotel services, including rooms, food and beverage, and other products and services;\n\n \n \n \n\n \n●\nchanges\nin governmental policies (including in areas such as trade, travel, immigration, healthcare, and related issues); and\n\n \n \n \n\n \n●\npolitical\ninstability, pandemics, geopolitical conflict, heightened travel security measures, and other factors that may affect travel.\n\n \n\nAny\nof these factors could increase our costs or limit or reduce the prices we are able to charge for hospitality products and services,\nor otherwise affect our ability to maintain existing properties or develop new properties. As a result, any of these factors can reduce\nour revenue and limit opportunities for growth.\n\n \n\n**Contraction\nin the global economy or low levels of economic growth could adversely affect our revenue and profitability as a hotel operator.**\n\n \n\nConsumer\ndemand for our hotel services is linked to the performance of the general economy and is sensitive to business and personal discretionary\nspending levels. Decreased global or regional demand for hospitality products and services can be especially pronounced during periods\nof economic contraction or low levels of economic growth, and the recovery period in our industry may lag overall economic improvement.\nDeclines in demand for our products and services due to general economic conditions could negatively affect our business by limiting\nthe amount of fee revenue we are able to generate from our hotel properties and decreasing the revenue and profitability of our hotel\nproperties. In addition, many of the expenses associated with our business, including personnel costs, interest, rent, property taxes,\ninsurance, and utilities, are relatively fixed. During a period of overall economic weakness, if we are unable to meaningfully decrease\nthese costs as demand for our hotel services decreases, our business, financial condition, and results of operations may be adversely\naffected.\n\n \n\n**If\nwe are unable to attract, train, assimilate, and retain employees that embody our culture and support our one-stop service business model,\nwe may not be able to grow or successfully operate our business.**\n\n \n\nA\nkey characteristic and differentiating factor of our business model is the one-stop service system, where our subsidiaries provide comprehensive\nservices in our renovation and resale business from construction materials production to condominium sales. This model necessitates a\nsubstantial workforce. Therefore, our success depends in part upon our ability to attract, train, assimilate, and retain a sufficient\nnumber of employees to maintain our one-stop service business model. Failure to retain a sufficient number of employees or attract additional\nstaff as our businesses expand could impair the functionality of our one-stop service system, and materially and adversely affecting\nour business, financial condition, and results of operations. Our brand image may also be negatively impacted. Our growth strategy will\nrequire us to attract, train, and assimilate even more personnel. Any failure to meet our staffing needs or any material increases in\nteam member turnover rates could have a material adverse effect on our business or results of operations.\n\n \n\n13\n\n \n\n \n\nWe\nplace substantial reliance on the industry experience and knowledge of our senior management team as well as their relationships with\nother industry participants. Mr. Yasuyuki Nozawa, our founder, chief executive officer, and representative director, is particularly\nimportant to our future success due to his substantial experience and reputation in the real estate development industry. We do not carry,\nand do not intend to procure, key person insurance on any members of our senior management team. The loss of the services of one or more\nmembers of our senior management team due to their departure, or otherwise, could hinder our ability to effectively manage our business\nand implement our growth strategies. Finding suitable replacements for our current senior management could be difficult, and competition\nfor such personnel of similar experience is intense. If we fail to retain our senior management, our business and results of operations\ncould be materially and adversely affected.\n\n \n\n**We\nrely on our brand recognition to compete in Japanese real estate market, and any unauthorized use of our brand or trademark may adversely\naffect our business.**\n\n \n\nThe\nreal estate industry in Japan is less oligopolistic than other sectors, encompassing a diverse range of small and medium-sized businesses\nas well as large, well-known operators. Given the significant expense of real estate, customers are more cautious in their purchase decisions,\nmaking the seller’s brand recognition a crucial factor. Consequently, any damage to our brand could significantly deter customers\nfrom choosing our products, thereby materially and adversely affecting our business, financial condition, and results of operations.\n\n \n\nAs\nof March 31, 2026, we owned 17 trademarks for real estate related services in Japan and have no pending trademark applications in Japan.\nWe rely on the Japanese intellectual property and anti-unfair competition laws and contractual restrictions to protect our brand name\nand trademarks. We believe our brand, trademarks, and other intellectual property rights are important to our success. Any unauthorized\nuse of our brand, trademarks, and other intellectual property rights could harm our competitive advantages and business. Monitoring and\npreventing unauthorized use are difficult. The measures we take to protect our intellectual property rights may not be adequate. If we\nare unable to adequately protect our brand, trademarks, and other intellectual property rights, our reputation may be harmed, and our\nbusiness may be adversely affected.\n\n \n\n**We\nare subject to claims and legal proceedings that arise in the ordinary course of business.**\n\n \n\nWe\nare subject to various claims and legal proceedings, including adverse rulings in current or future litigation against us and/or our\ndirectors or officers, covering a wide range of matters that arise in the ordinary course of business activities. Each of these matters\nis subject to various uncertainties and it is possible that some of these matters may be resolved unfavorably to us. In addition, we\nmay be involved in disputes with other parties in the future that may result in litigation, which may have a material adverse impact\non our future cash flows, profitability, results of operations and financial condition. Additionally, we may be subject to frivolous\nand/or nuisance claims resulting from our operation. While such claims are often dismissed, there can be no assurance that all such claims\nwill be dismissed entirely, or that we will not be required to incur significant expenses defending such claims.\n\n \n\n**We\nmay become involved in legal and other proceedings from time to time and may suffer significant liabilities or other losses as a result.**\n\n \n\nFrom\ntime to time, we may become involved in disputes with the development and sale of our properties or other aspects of our business and\noperations, including labor disputes with employees. These disputes may lead to legal or other proceedings and may result in substantial\ncosts and diversion of resources and management’s attention. Disputes and legal and other proceedings may require substantial time\nand expense to resolve, which could divert valuable resources, such as management time and working capital, delay our planned projects,\nand increase our costs. Third parties that are found liable to us may not have the resources to compensate us for our incurred costs\nand damages. We could also be required to pay significant costs and damages if we do not prevail in any such disputes or proceedings.\nIn addition, we may have disagreements with regulatory bodies in the course of our operations, which may subject us to administrative\nproceedings and unfavorable decrees that result in pecuniary liabilities and cause delays to our property developments.\n\n \n\n**Our\nfailure to successfully manage our business expansion would have a material adverse effect on our results of operations and prospects.**\n\n \n\nWe\nplan to continue the development and expansion of ProstyleRyokan’s business and our renovation and resale business conducted under\nthe “LogMansion” brand. See “Business— Growth Strategies—Strategic expansion and growth in the real estate\nrenovation and resale, and hotel development and management businesses.” Our expansion has created, and will continue to place,\nsubstantial demand on our resources. Managing our growth and integrating the acquired businesses will require us to, among other things:\n\n \n\n \n●\ncomply\nwith the laws, regulations and policies applicable to the acquired businesses, including obtaining timely approval for the construction\nas required under Japanese laws;\n\n \n●\nmaintain\nadequate control on our business expansion to prevent, among other things, project delays or cost overruns;\n\n \n\n14\n\n \n\n \n\n \n●\nmanage\nrelationships with employees, customers and business partners during the course of our business expansion;\n\n \n●\nattract,\ntrain and motivate members of our management and qualified workforce to support successful business expansion;\n\n \n●\naccess\ndebt, equity or other capital resources to fund our business expansion, which may divert financial resources otherwise available\nfor other purposes;\n\n \n●\ndivert\nsignificant management attention and resources from our existing businesses; and\n\n \n●\nstrengthen\nour operational, financial and management controls to maintain the reliability of our reporting processes.\n\n \n\nAny\ndifficulty meeting the foregoing or similar requirements could significantly delay or otherwise constrain our ability to implement our\nexpansion plans or result in failure to achieve the expected benefits of our business expansions, which in turn would limit our ability\nto increase operational efficiency, reduce costs or otherwise strengthen our market position. Failure to obtain the intended economic\nbenefits from the business expansion could adversely affect our business, financial condition, results of operations and prospects. In\naddition, we may also experience mixed results from our expansion plans in the short term.\n\n \n\n**We\nmay be unsuccessful in expanding and operating our business internationally, which could adversely affect our results of operations.**\n\n \n\nWe\nhave established subsidiaries in China and Vietnam and may expand our operations into these markets and into the United States, the United\nArab Emirates, and Asia in the future. The entry and operation of our business in these markets could cause us to be subject to unexpected,\nuncontrollable, and rapidly changing events and circumstances outside Japan. As we grow our international operations, we may need to\nrecruit and hire new project management, sales, marketing, and support personnel in the countries in which we have or will establish\nnew subsidiaries or otherwise have a significant presence. Entry into new international markets typically requires the establishment\nof new marketing and sales channels. Our ability to continue to expand into international markets involves various risks, including the\npossibility that our expectations regarding the level of returns we will achieve on such expansion will not be achieved in the near future,\nor ever, and that competing in markets with which we are unfamiliar may be more difficult than anticipated. If we are less successful\nthan we expect in a new market, we may not be able to realize an adequate return on our initial investment and our operating results\ncould suffer. Our international operations may also fail due to other risks inherent in foreign operations, including:\n\n \n\n \n●\nvaried,\nunfamiliar, unclear, and changing legal and regulatory restrictions, including different legal and regulatory standards applicable\nto real estate development and sales;\n\n \n \n \n\n \n●\navailably\nof land, raw materials and labor;\n\n \n \n \n\n \n●\ncompliance\nwith multiple and potentially conflicting regulations in the United States and Asia;\n\n \n \n \n\n \n●\ndifficulties\nin staffing and managing foreign operations;\n\n \n \n \n\n \n●\nlonger\ncollection cycles;\n\n \n \n \n\n \n●\ndiffering\nintellectual property laws that may not provide sufficient protections for our intellectual property;\n\n \n \n \n\n \n●\nproper\ncompliance with local tax laws, which can be complex and may result in unintended adverse tax consequences;\n\n \n \n \n\n \n●\nlocalized\nspread of infection resulting from epidemic or pandemic, including any economic downturns and other adverse impacts;\n\n \n \n \n\n \n●\ndifficulties\nin enforcing agreements through foreign legal systems;\n\n \n\n15\n\n \n\n \n\n \n●\nimpact\nof different real estate trends in different regions;\n\n \n \n \n\n \n●\nfluctuations\nin currency exchange rates that may affect real property demand and may adversely affect the profitability in JPY of real properties\nprovided by us in foreign markets where payment for our real properties is made in the local currency;\n\n \n \n \n\n \n●\nchanges\nin general economic, health, and political conditions in countries where our properties are sold;\n\n \n \n \n\n \n●\npotential\nlabor strike, lockouts, work slowdowns, and work stoppages; and\n\n \n \n \n\n \n●\ndifferent\nconsumer preferences and requirements in specific international markets.\n\n \n\nOur\ncurrent and any future international expansion plans will require management attention and resources and may be unsuccessful. We may\nfind it impossible or prohibitively expensive to continue expanding internationally or we may be unsuccessful in our attempt to do so,\nand our business, financial condition, and results of operations could be adversely impacted.\n\n \n\n**Failure\nto select suitable business partners for our business expansion may adversely affect our business, financial condition, and results of\noperations.**\n\n \n\nAs\npart of our strategy to expand ProstyleRyokan’s business operation, we plan to form joint ventures with local companies to develop\nMachinaka Ryokans in the United States and the United Arab Emirates. For the expansion of our real estate renovation and resale business,\nwe anticipate investing or acquiring local real estate in our target markets. See “Business— Growth Strategies—Strategic\nexpansion and growth in the real estate renovation and resale, and hotel development and management businesses.” The success of\nour business expansion efforts depends on our ability to select business partners who possess the necessary industry knowledge, market\naccess, and operational capabilities in each target areas. If we fail to identify and engage with suitable partners, we may experience\noperational, legal, and financial challenges, which could delay or hinder our expansion plans.\n\n \n\nSelecting\ninappropriate partners may expose us to various risks, including inadequate control over local operations, insufficient local market\ninsight, potential regulatory non-compliance, and cultural misalignments. In addition, our business partners may experience financial\ndifficulties or disputes with us, which could lead to disruptions in operations, reputational damage, and unanticipated financial losses.\nThese risks could materially and adversely affect our business, financial condition, results of operations, and our ability to achieve\nour strategic objectives in our target markets.\n\n \n\n**Our\nbusinesses are subject to risks related to natural or man-made disasters, pandemics, and other catastrophic events.**\n\n \n\nOur\nbusiness is subject to the risk of natural disasters, such as earthquakes, typhoons, tsunamis, flooding, and volcanic eruptions, as well\nas man-made disasters, such as fire, industrial accidents, war, riots, or terrorism. We are also exposed to the risk of pandemics, public\nhealth issues, and other catastrophic events. Should a disaster or other catastrophic event occur, our personnel could suffer injuries,\nour operations could be disrupted, and we may experience construction delays, including delays in initiating development or construction\nof properties, or become unable to complete the construction of properties under development. In addition, we may be unable to sell our\nproperties in inventory and our properties could decrease in value or be directly and severely damaged. We may also be required to incur\nexpenses to restore or replace damaged properties in inventory or other facilities we rely on to operate our business.\n\n \n\nJapan\nis earthquake-prone and has historically experienced numerous large earthquakes that have resulted in extensive property damage, such\nas the earthquake on March 11, 2011, or the Great East Japan Earthquake, and the earthquakes that occurred in Noto Peninsular in January\n2024. Developments on reclaimed land are subject to an increased risk of soil liquefaction, which can be triggered by an earthquake.\nIt is, therefore, possible that some of our future developments will be located on reclaimed land. Although we will conduct assessments\nof the reclaimed land as we deem necessary, the assessments may not be sufficient to detect the extent of any risk of liquefaction in\nthe event of an earthquake. Typhoons also frequently hit various regions of Japan. For instance, major typhoons affected parts of Japan\nin the fall of 2019. Although we have not experienced material disruptions to our business or physical damage resulting from typhoons\nin the past, we cannot guarantee that such disruptions or physical damage will not happen in the future. In addition, we focus primarily\non developing and selling real estate located in the greater Tokyo metropolitan area, making us particularly vulnerable to any natural\nor man-made disasters that occur in this area. Even if our facilities do not suffer physical damage, any loss or limit to our use of\nutilities, such as electricity, could disrupt our businesses. Our insurance against damage or liability caused by typhoons and other\nnatural disasters may not be sufficient to cover repair costs or other losses, and we generally maintain no insurance coverage relating\nto earthquakes or business interruption insurance.\n\n \n\n16\n\n \n\n** **\n\n**Future\nacquisitions may have a material adverse effect on our ability to manage our business, our financial condition and our results of operations.**\n\n \n\nWe\nmay acquire businesses, technologies, services, or products which are complementary to our core real estate development and sales business.\nFuture acquisitions may expose us to potential risks, including risks associated with the integration of new operations, services, and\npersonnel, unforeseen or hidden liabilities, the diversion of resources and management attention from our existing business and technology,\nour potential inability to generate sufficient revenue to offset new costs, the costs and expenses incurred in connection with such acquisitions,\nor the potential loss of or harm to relationships with suppliers, employees, and customers resulting from our integration of new businesses.\n\n \n\nAny\nof the potential risks listed above could have a material adverse effect on our ability to manage our business, our results of operations,\nor our financial condition. In addition, we may need to fund any such acquisitions through the incurrence of additional debt or the sale\nof additional debt or equity securities, which would result in increased debt service obligations, including additional operating and\nfinancing covenants, or liens on our assets, that would restrict our operations, or dilution to our shareholders.\n\n \n\n**Risks\nRelating to the Trading Market**\n\n \n\n**Share\nownership is concentrated in the hands of our management, who are able to exercise a direct or indirect controlling influence on us.**\n\n \n\nOur\ndirectors and executive officers collectively beneficially own approximately 73.1% of our Common Shares issued and outstanding as of\nMarch 31, 2026.  As a result, these shareholders, acting together, will have significant influence over all matters that require\napproval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate action\nmight be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing\na change of control of our Company that other shareholders may view as beneficial.\n\n \n\n**We\nare a “controlled company” within the meaning of the NYSE American listing standards, and intend to follow certain exemptions\nfrom certain corporate governance requirements that could adversely affect our public shareholders.**\n\n \n\nOur\nlargest shareholder, Mr. Yasuyuki Nozawa, aggregately owns more than a majority of the voting power of our outstanding Common Shares\nand is able to determine all matters requiring approval by our shareholders. Under the NYSE American listing standards, a company of\nwhich more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and\nis permitted to phase in its compliance with the independent committee requirements. We intend to avail ourselves under the “controlled\ncompany” exemptions under the NYSE American listing standards as long as we meet the requirements for such exception. This will\nenable us to follow certain exemptions from certain corporate governance requirements that could adversely affect our public shareholders.\nFor example, a majority of the members of our board of directors might not be independent directors and our nominating and corporate\ngovernance and compensation committees might not consist entirely of independent directors. Accordingly, if we rely on the exemptions,\nduring the period we remain a controlled company and during any transition period following a time when we are no longer a controlled\ncompany, you would not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance\nrequirements of NYSE American.\n\n \n\n**The\nsale or availability for sale of substantial amounts of the Common Shares could adversely affect their market price.**\n\n \n\nSales\nof substantial amounts of the Common Shares in the public market, or the perception that these sales could occur, could adversely affect\nthe market price of the Common Shares and could materially impair our ability to raise capital through equity offerings in the future.\nWe cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the\navailability of these securities for future sale will have on the market price of the Common Shares.\n\n \n\n17\n\n \n\n** **\n\n**If\nsecurities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding\nour Common Shares, the price of our Common Shares and trading volume could decline.**\n\n \n\nAny\ntrading market for our Common Shares may depend in part on the research and reports that industry or securities analysts publish about\nus or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price\nof our Common Shares would likely decline. If one or more of these analysts cease coverage of our Company or fail to regularly publish\nreports on us, we could lose visibility in the financial markets, which could cause the price of our Common Shares and the trading volume\nto decline.\n\n \n\n**The\nmarket price of our Common Shares may be volatile or may decline regardless of our operating performance.**\n\n \n\nThe\nmarket price of the Common Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control,\nincluding:\n\n \n\n \n●\nactual\nor anticipated fluctuations in our revenue and other operating results;\n\n \n \n \n\n \n●\nthe\nfinancial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;\n\n \n \n \n\n \n●\nactions\nof securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow\nour company, or our failure to meet these estimates or the expectations of investors;\n\n \n \n \n\n \n●\nannouncements\nby us or our competitors of significant products, technical innovations, acquisitions, strategic partnerships, joint ventures, or\ncapital commitments;\n\n \n \n \n\n \n●\nprice\nand volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;\n\n \n \n \n\n \n●\nthe\ntrading volume of the Common Shares on NYSE American;\n\n \n \n \n\n \n●\nsales\nof the Common Shares by us, our executive officers and directors, or our shareholders or the anticipation that such sales may occur\nin the future;\n\n \n \n \n\n \n●\nlawsuits\nthreatened or filed against us; and\n\n \n \n \n\n \n●\nother\nevents or factors, including those resulting from war or incidents of terrorism, or responses to these events.\n\n \n\nIn\naddition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market\nprices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate\nto the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods\nof market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources\nand the attention of management from our business, and adversely affect our business.\n\n \n\n**Our\nindependent registered public accounting firm has identified material weaknesses in our internal control over financial reporting in\nthe fiscal years ended March 31, 2026 and 2025. If we are unable to remediate these material weaknesses or fail to implement and maintain\nan effective system of internal control, we may fail to meet our reporting obligations or be unable to accurately report our results\nof operations or prevent fraud, and investor confidence and the market price of our Common Shares may be materially and adversely affected.**\n\n \n\nWe\nare subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the NYSE American.\nOur independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However,\nin the course of auditing our consolidated financial statements as of and for the fiscal years ended March 31, 2026 and 2025, our independent\nregistered public accounting firm identified two material weaknesses in our internal control over financial reporting as well as other\ncontrol deficiencies. As defined in standards established by the Public Company Accounting Oversight Board, a “material weakness”\nis a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility\nthat a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material\nweaknesses identified relate to: (i) inadequate control design and documentation, including insufficiently precise documentation to prevent\nor detect a material misstatement, lack of thorough and timely financial closing process, lack of entity-level controls, particularly\nover subsidiary financial information review, and lack of evidence supporting effective review in control operations, and (ii) the improper\ndesign and ineffective general control over certain information technology systems. As a consequence of the material weaknesses, our\nindependent registered public accounting firm has implemented significantly enhanced audit procedures by increasing the scrutiny of high-risk\nareas and adding substantive procedures to verify accuracy. The material weaknesses could also result in other misstatements of our accounts\nor disclosures, which may result in additional material misstatements in our annual or interim financial statements that would not be\nprevented or detected.\n\n \n\n18\n\n \n\n \n\nFollowing\nthe identification of the material weaknesses described above, we plan to take remedial measures, including (i) hiring additional qualified\naccounting and compliance personnels with expertise in Sarbanes-Oxley compliance to enhance our financial reporting, compliance functions,\nand internal control framework; and (ii) engaging an external consulting firm to assist us with the assessment of Sarbanes-Oxley compliance\nrequirements and improvement of overall internal control. With the implementation of these measures, we aim to become fully compliant\nwith the relevant U.S. GAAP and SEC reporting requirements.\n\n \n\nHowever,\nwe cannot assure you that all these measures will be sufficient to address all the potential internal control issues for the financial\nreporting, and we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future.\nIn addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, our Common Shares may not be able to\nremain listed on the NYSE American.\n\n \n\nSection\n404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting\nin our annual report on Form 20-F beginning with our annual report beginning with our second annual report on Form 20-F. In addition,\nonce we cease to be an “emerging growth company” as such term is defined under the JOBS Act, our independent registered public\naccounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude\nthat our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control\nover financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing,\nmay issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented,\ndesigned, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public\ncompany, our reporting obligations may place a significant strain on our management, operational and financial resources and systems\nfor the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.\n\n \n\nDuring\nthe course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley\nAct of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail\nto maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented, or amended\nfrom time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting.\nIf we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial\nstatements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial\ninformation. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading\nprice of our Common Shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of\nfraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations\nand civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.\n\n \n\n19\n\n \n\n** **\n\n**We\nincur substantial increased costs as a result of being a public company.**\n\n \n\nAs\na public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company. The Sarbanes-Oxley\nAct of 2002, as well as rules subsequently implemented by the SEC and NYSE American, impose various requirements on the corporate governance\npractices of public companies.\n\n \n\nCompliance\nwith these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming\nand costlier. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult\nfor us to find qualified persons to serve on our board of directors or as executive officers.\n\n \n\nWe\nare an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier\nof (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual\ngross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value\nof our Common Shares that is held by non-affiliates equals or exceeds $700 million as of the prior December 31, and (2) the date on which\nwe have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take\nadvantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions\ninclude exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s\ninternal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those\nstandards apply to private companies.\n\n \n\nAfter\nwe are no longer an “emerging growth company,” or until five years following the completion of our initial public offering,\nwhichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance\nwith the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we will be required\nto increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.\n\n \n\nWe\nare currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with\nany degree of certainty the amount of additional costs we may incur or the timing of such costs.\n\n \n\n**Our\nCommon Shares may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified\nas “penny stock.”**\n\n \n\nOur\nCommon Shares may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price\nbelow $5.00) in the future. While our Common Shares are not currently considered “penny stock” since they will be listed\non NYSE American, if we are unable to maintain that listing and our Common Share is no longer listed on NYSE American, unless we maintain\na per-share price above $5.00, our Common Shares will become “penny stock.” These rules impose additional sales practice\nrequirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established\ncustomers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying\npersons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt\nfrom the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock\nmarket. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation\nof the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny\nstock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for\nthe purchaser, and receive the purchaser’s written agreement to the transaction.\n\n \n\nLegal\nremedies available to an investor in “penny stocks” may include the following:\n\n \n\n●\nIf\na “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities\nlaws, the investor may be able to cancel the purchase and receive a refund of the investment.\n\n●\nIf\na “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms\nthat committed the fraud for damages.\n\n \n\nThese\nrequirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes\nsubject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers\nfrom effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements\nmay restrict the ability of broker-dealers to sell our Common Shares and may affect your ability to resell our Common Shares.\n\n \n\n20\n\n \n\n \n\nMany\nbrokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest\nin penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial\nrisk generally associated with these investments.\n\n \n\nFor\nthese reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what point in\ntime, if ever, our Common Shares will not be classified as a “penny stock” in the future.\n\n \n\n**Rights\nof shareholders under Japanese law may be different from rights of shareholders in other jurisdictions.**\n\n \n\nOur\narticles of incorporation and the Companies Act of Japan, or the Companies Act, govern our corporate affairs. Legal principles relating\nto matters such as the validity of corporate procedures, directors’ and executive officers’ fiduciary duties, and obligations\nand shareholders’ rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company\nincorporated in any other jurisdiction. Shareholders’ rights under Japanese law may not be as extensive as shareholders’\nrights under the law of other countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights\nor our outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as\nto what duties the directors of a Japanese joint-stock corporation may have in response to an unsolicited takeover bid, and such uncertainty\nmay be more pronounced than that in other jurisdictions.\n\n \n\n**We\nare incorporated in Japan, and it may be more difficult to enforce judgments obtained in courts outside Japan.**\n\n \n\nWe\nare incorporated in Japan as a joint-stock corporation with limited liability. Most of our directors, corporate auditors and executive\nofficers are non-U.S. residents, and a substantial portion of our assets and the personal assets of our directors, corporate auditors\nand executive officers are located outside the United States. As a result, when compared to a U.S. company, it may be more difficult\nfor investors to effect service of process in the United States upon us or those persons, or to enforce against us or them, judgments\nobtained in U.S. courts, including judgments predicated upon civil liability provisions of the federal or state securities laws of the\nU.S. or judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese, in original actions brought\nin Japan or in actions to enforce judgments of U.S. courts, of civil liabilities predicated upon the federal and state securities laws\nof the United States. See “Enforceability of Civil Liabilities.”\n\n \n\n**The\npayment of future dividends on our Common Shares, if any, must be approved by our shareholders at the annual meeting of the shareholders,\nor our board of directors only once during a business year, and will depend on many factors on which the shareholders may determine not\nto do so.**\n\n \n\nThe\npayment of future dividends on our Common Shares, if any, must be approved by our shareholders at the annual meeting of the shareholders,\nor our board of directors only once during a business year, and will depend on, among other things, our results of operations, cash requirements\nand surplus, financial condition, contractual restrictions and other factors that our shareholders may deem relevant, including retaining\nfuture earnings, if any, for reinvestment in the development and expansion of our business. Therefore, you may not receive any dividends\non the Common Shares for the foreseeable future, and the success of an investment in our Common Shares will depend upon any future appreciation\nin its value. Moreover, any ability to pay dividends may be restricted by the terms of any future credit agreement or any future debt\nor preferred equity securities of us or our subsidiaries. Consequently, investors may need to sell all or part of their holdings of our\nCommon Shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There\nis no guarantee that the Common Shares will appreciate or even maintain the price at which our shareholders have purchased the Common\nShares.\n\n \n\n**If\nwe cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange\nAct applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting, and other expenses that we would\nnot incur as a foreign private issuer.**\n\n \n\nWe\nqualify as a foreign private issuer. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing\nthe furnishing and content of proxy statements, our executive officers, directors, and principal shareholders are exempt from\nthe short-swing profit recovery provisions contained in Section 16 of the Exchange Act, and non-executive officer/director principal shareholders are exempt\nfrom the reporting requirements of Section 16. In addition, we are not required\nunder the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic\nissuers, and we are not required to disclose in our periodic reports all of the information that United States domestic issuers are\nrequired to disclose. While we currently qualify as a foreign private issuer, we may cease to qualify as a foreign private issuer in\nthe future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of\noperations.\n\n \n\n21\n\n \n\n** **\n\n**Because\nwe are a foreign private issuer and intend to take advantage of exemptions from certain NYSE American corporate governance standards\napplicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.**\n\n \n\nThe\nNYSE American listing standards require listed companies to have, among other things, a majority of its board members be independent.\nAs a foreign private issuer, however, we are permitted to, and we intend to follow home country practice in lieu of the above requirements.\nThe corporate governance practice in our home country, Japan, does not require a majority of our board to consist of independent directors.\nThus, although a director must act in the best interests of the company, it is possible that fewer board members will be exercising independent\njudgment and the level of board oversight on the management of our company may decrease as a result.\n\n \n\nIn\naddition, the NYSE American listing standards also require U.S. domestic issuers to have an audit committee, a compensation committee,\nand a nominating committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as\na foreign private issuer, are not subject to these requirements. Consistent with corporate governance practices in Japan, we do not have\na standalone compensation committee or nominating committee of our board. As a result of these exemptions, investors would have less\nprotection than they would have if we were a domestic issuer.\n\n \n\nThe\nNYSE American listing standards may require shareholder approval for certain corporate matters, such as requiring that shareholders be\ngiven the opportunity to vote on all equity compensation plans and material revisions to those plans, certain common share issuances.\nWe intend to comply with the requirements of the NYSE American listing standards in determining whether shareholder approval is required\non such matters.\n\n \n\n**If\nwe cannot continue to satisfy the listing requirements and other rules of NYSE American, the Common Shares may be delisted, which could\nnegatively impact the price of the Common Shares and your ability to sell them.**\n\n \n\nOur\nCommon Shares are listed on the NYSE American. We cannot assure you that our Common Shares will continue to be listed on NYSE American.\n\n \n\nIn\norder to maintain our listing on NYSE American, we will be required to comply with certain rules of NYSE American, including those regarding\nminimum shareholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements.\nWe may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy NYSE American criteria\nfor maintaining our listing, our Common Shares could be subject to delisting.\n\n \n\nIf\nNYSE American subsequently delists our Common Shares from trading, we could face significant consequences, including:\n\n \n\n \n●\na\nlimited availability for market quotations for our Common Shares;\n\n \n \n \n\n \n●\nreduced\nliquidity with respect to our Common Shares;\n\n \n \n \n\n \n●\na\ndetermination that our Common Shares are a “penny stock,” which will require brokers trading in our Common Shares to\nadhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our\nCommon Shares;\n\n \n \n \n\n \n●\nlimited\namount of news and analyst coverage;\n\n \n \n \n\n \n●\nstate\nlaws and regulations applicable to our Common Shares;\n\n \n \n \n\n \n●\nincreased\nrisk of shareholder litigation; and\n\n \n \n \n\n \n●\na\ndecreased ability to issue additional securities or obtain additional financing in the future.\n\n \n\n22\n\n \n\n** **\n\n**We\nare an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions\nfrom disclosure requirements available to emerging growth companies, this will make it more difficult to compare our performance with\nother public companies.**\n\n \n\nWe\nare an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1)\nof the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until\nprivate companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class\nof securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS\nAct provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging\ngrowth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period,\nwhich means that when a standard is issued or revised and it has different application dates for public or private companies, we, as\nan emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This\nwill make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging\ngrowth company which has opted out of using the extended transition period difficult or impossible because of the potential differences\nin accounting standards used.\n\n \n\n**Because\nwe are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which\ncould affect investor confidence in us and our Common Shares.**\n\n \n\nFor\nas long as we remain an “emerging growth company,” as defined in the JOBS Act, we will elect to take advantage of certain\nexemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,”\nincluding, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure\nobligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of shareholder\napproval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders\nwould be left without information or rights available to shareholders of other public companies. If some investors find our Common Shares\nless attractive as a result, there may be a less active trading market for our Common Shares and the price may be more volatile. See\n“Implications of Our Being an ‘Emerging Growth Company.’”\n\n \n\n**If\nwe are classified as a passive foreign investment company, United States taxpayers who own our Common Shares may have adverse United\nStates federal income tax consequences.**\n\n \n\nA\nnon-U.S. corporation such as ourselves will be classified as a passive foreign investment company (“PFIC”) for any taxable\nyear if, for such year, either:\n\n \n\n \n●\nat\nleast 75% of our gross income for the year is passive income; or\n\n \n \n \n\n \n●\nthe\naverage percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or\nwhich are held for the production of passive income is at least 50%.\n\n \n\nPassive\nincome generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of\na trade or business), and gains from the disposition of passive assets.\n\n \n\nIf\nwe are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who\nholds our Common Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional\nreporting requirements.\n\n \n\nIt\nis possible that more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which\ncould have adverse U.S. federal income tax consequences for U.S. taxpayers who are shareholders. We will make this determination following\nthe end of any particular tax year.\n\n \n\nThe\nclassification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence\nwhether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain\nIRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially\nsubject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive\nincome or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.\n\n \n\nFor\na more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined\nto be a PFIC, see “Material Income Tax Consideration — United States Federal Income Taxation — PFIC.”\n\n \n\nU.S.\nHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY\nAND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A PFIC.\n\n \n\n**Risks\nRelated to Restrictions on Foreign Investment**\n\n \n\n**We\nmay face restrictions on foreign investment related to Foreign Exchange and Foreign Trade Act in Japan.**\n\n \n\nIf\nwe develop a new business or plan a merger or acquisition, we have to consider the impact from restrictions of foreign direct investment\nunder the Foreign Exchange and Foreign Trade Act of Japan and related cabinet orders and ministerial ordinances, as amended (collectively,\nthe “FEFTA”). We have listed our Common Shares, not American Depository Receipt, on the NYSE American. In this case, an investment\nin our Company may be subject to a prior filing or a post-investment report. Under the FEFTA, when Foreign Investors (as defined in the\nFEFTA) acquire shares issued by a Japanese corporation, they may be required to submit a prior filing or post-investment report with\nthe Japanese government via the Bank of Japan, depending on the circumstances. Under the FEFTA, among other triggering events, a Foreign\nInvestor seeking to acquire shares of a Japanese corporation that are not listed on a stock exchange in Japan is required to submit a\nprior filing requirement, regardless of the number of shares acquired, if such Japanese corporation or its subsidiaries in Japan engage\nin any of the businesses designated under the FEFTA (“Designated Businesses”), and required to wait until the acquisition\nis approved by the relevant governmental authorities. Therefore, if we develop a new business or plan a merger or acquisition in the\nfuture, we have to consider whether the business to be developed or acquired falls within the Designated Businesses, and if so, we may\nhave to forego such new business or plans in order to avoid triggering the prior filing requirement under the FEFTA, which may materially\nand adversely impact our financial condition and results of operations in future periods. See “JAPANESE FOREIGN DIRECT INVESTMENT\nREGULATIONS”.\n\n \n\n23"}