​

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

​

FORM 20-F

​

​

​

Commission file number 001-39809

​

MEDIROM HEALTHCARE TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

​

Japan

(Jurisdiction of incorporation or organization)

2-3-1 Daiba,

Minato-ku

Tokyo 135-0091, Japan

(Address of principal executive offices)

Fumitoshi Fujiwara

Chief Financial Officer

Telephone: +81-(0)3-6721-7364

Email: ir@medirom.co.jp

2-3-1 Daiba, Minato-ku,

Tokyo 135-0091, Japan

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

​

Securities registered pursuant to Section 12(b) of the Act:

​

*   Not for trading, but only in connection with the listing of the American Depositary Shares on The Nasdaq Stock Market LLC.

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

​

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 7,901,950 Common Shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐ No ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☐

​

​

​

​

TABLE OF CONTENTS

​

​

​

​

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this annual report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning our possible or assumed future results of operations, financial condition, business strategies and plans, market opportunity, competitive position, industry environment, and potential growth opportunities. In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “believe”, “expect”, “could”, “intend”, “plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”, “potential”, “target,” “goal” or other words that convey the uncertainty of future events or outcomes. You can also identify forward-looking statements by discussions of strategy, plans or intentions. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, because forward-looking statements relate to matters that have not yet occurred, they are inherently subject to significant business, competitive, economic, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These and other important factors, including, among others, those discussed in this annual report under the headings “Risk Factors”, “Operating and Financial Review and Prospects”, and “Business Overview” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements in this annual report. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements in this annual report include:

Given the foregoing risks and uncertainties, you are cautioned not to place undue reliance on the forward-looking statements in this annual report. The forward-looking statements contained in this annual report are not guarantees of future performance and our actual results of operations and financial condition may differ materially from such forward-looking statements. In addition, even if our results of operations and financial condition are consistent with the forward-looking statements in this annual report, they may not be predictive of results or developments in future periods.

​

Any forward-looking statement that we make in this annual report speaks only as of the date of this annual report. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements in this annual report, whether as a result of new information, future events or otherwise, after the date of this annual report.

PART I.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

​

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

​

ITEM 3. KEY INFORMATION

A.[Reserved]

B.Capitalization and Indebtedness

Not applicable.

C.Reasons for the Offer and Use of Proceeds

Not applicable.

D.Risk Factors

RISK FACTORS

We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the factors described below, together with all of the other information contained in this annual report, including the audited financial statements and the related notes included in this annual report. These risk factors are not presented in the order of importance or probability of occurrence. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected. Some statements in this annual report, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

As used this annual report, the terms “the Company”, “Medirom”, “we”, “our” or “us” may, depending upon the context, refer solely to the Company, to one or more of the Company’s consolidated subsidiaries or to all of them taken as a whole.

Our functional currency and reporting currency is the Japanese yen (which we refer to as “JPY” or “¥”). The terms “dollar,” “USD,” “US$” or “$” refer to U.S. dollars, the legal currency of the United States. Convenience translations included in this annual report of Japanese yen into U.S. dollars have been made at the exchange rate of ¥ 157.37 = US$1.00, which was the foreign exchange rate on December 31, 2024 as reported by the Board of Governors of the Federal Reserve System (which we refer to as the “U.S. Federal Reserve”) in weekly release on January 6, 2025. Historical and current exchange rate information may be found at www.federalreserve.gov/releases/h10/.

Summary Risk Factors

Investing in our company involves significant risks. You should carefully consider all of the information in this annual report before making an investment in our company. These risks include the following:

Risks Related to Our Company and Our Business

Risks and uncertainties related to our Company and our business include, but are not limited to, the following:

Risks Related to Our Relationships with Franchisees

Risks and uncertainties related to our relationships with franchisees include, but are not limited to, the following:

Risks Related to Our Industry

Risks and uncertainties related to our industry include, but are not limited to, the following:

Risks Related to Ownership of the ADSs

Risks and uncertainties related to our ownership of the American Depositary Shares (the “ADSs”) include, but are not limited to, the following:

Risks Related to Japan

Risks and uncertainties related to Japan include, but are not limited to, the following:

General Risk Factors

Other general risk factors include, but are not limited to, the following:

Risks Related to Our Company and Our Business

We may not achieve our development goals, which could adversely affect our operations and financial results.

Our number of relaxation salons was 308 as of December 31, 2024, which decreased from 314 as of December 31, 2023. Going forward, we intend to increase our number of salons either through developing additional directly-operated salons or through new salon development by acquisition, both in existing markets and in new markets, particularly in Japan. Such development involves substantial risks, including the risk of:

Although we manage our growth and development activities to help reduce such risks, we cannot provide assurance that our present or future growth and development activities will perform in accordance with our expectations. Our inability to expand in accordance with our plans or to manage the risks associated with our growth could have a material adverse effect on our results of operations and financial condition.

We are implementing new growth strategies, priorities and initiatives and any inability to execute and evolve our strategy over time could adversely impact our financial condition and results of operations.

We seek to accelerate the growth of our acquisition model while at the same time improve the performance of directly-operated salons. Our success also depends, in part, on our ability to grow our franchise model, including attracting and retaining qualified franchisees. Our ability to open new relaxation salons is dependent upon a number of factors, many of which are beyond our control, including our and our franchisees’ ability to:

The growth of our acquisition model will take time to execute and may create additional costs, expose us to additional legal and compliance risks, cause disruption to our current business and impact our short-term operating results. Further, in order to enhance services to its franchisees, we may need to invest in certain new capabilities and/or services.

Our success also depends, in part, on our ability to improve sales, as well as both cost of service and product and operating margins at our directly-operated salons. Same-store sales are affected by average ticket and same-store guest visits. A variety of factors affect same-store guest visits, including the guest experience, salon locations, staffing and retention of therapists and salon leaders, price competition, current economic conditions, marketing programs and weather conditions. These factors may cause our same-store sales to differ materially from prior periods and from our expectations.

As part of our longer-term growth strategy, we may enter new geographical markets, including the United States and Southeast Asia, where we have little or no prior operating or franchising experience. The challenges of entering new markets include: difficulties in hiring experienced personnel; unfamiliarity with local real estate markets and demographics; consumer unfamiliarity with our brand; and different competitive and economic conditions, consumer tastes and discretionary spending patterns that are more difficult to predict or satisfy than in our existing markets. Consumer recognition of our brand has been important in the success of both directly-operated and franchised relaxation salons in our existing markets. Relaxation salons that we open in new markets may take longer to reach expected sales and profit levels and may have higher construction, occupancy and operating costs than existing relaxation salons, thereby negatively affecting our operating results. Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new relaxation salons. Expanding our franchise system could require the implementation, expense and management of enhanced business support systems, management information systems and financial controls as well as additional staffing, franchise support and capital expenditures and working capital.

Sales of our salons to investors could depend heavily on a number of factors, and as a result, our annual revenue from sale of salons may vary from year to year.

Since December 2021, we have implemented our strategy of selling certain of our owned salons to investors and charging management fees from such sold salons. For the year ended December 31, 2024, the total transaction amount from such salon sales was JPY2,564 million (US$16 million), compared to JPY1,711million (US$11 million) for the year ended December 31, 2023. Our salon sales activities will depend on a number of factors including the interest of potential investors, financial market conditions, available interest rates, and expected return of other comparable types of investments, none of which we will have control over. In addition, our management fees from the sold salons will depend on the actual contractual terms subject to our negotiation with potential investors in the future.

Furthermore, our ability to successfully implement this strategy will depend on our ability to maintain highly profitable salons, revitalize less profitable salons, and otherwise maintain an appropriate level of salon inventory. The failure to continue to implement this growth strategy will adversely affect our business, financial condition and results of operations.

We are working to actively expand in Japan and also plan to increase our presence in overseas markets, and we may be adversely affected if Japanese and global economic conditions and financial markets deteriorate.

While our operations outside of Japan are currently limited, we seek to proactively expand our business overseas in the future including into new regions for us, particularly the United States and Southeast Asia. We also intend to explore growth opportunities in other markets that we believe exhibit the following characteristics: low cost of entry, friendly franchising or partnership relationships and the existence of an economic staying power for our relaxation salon brand locally. We remain opportunistic on strategic mergers and acquisitions, joint ventures, and partnerships in these international markets. As a result, our financial condition and results of operations may be materially affected by general economic conditions and financial markets in Japan and foreign countries, which would be influenced by changes in various factors. These factors include fiscal and monetary policies, and laws, regulations and policies on financial markets. In the event of an economic downturn in Japan or the United States, consumer spending habits could be adversely affected, and we could experience lower than expected net sales, which could force us to delay or slow our growth strategy and have a material adverse effect on our business, financial condition, profitability and cash flows. In addition, we could be impacted by labor shortages in Japan or other markets. Increasing economic inflation in Japan and overseas may also increase our labor costs and other operating expenses, and we may be unable to adequately reflect such cost increases in our prices to customers. The deterioration of Japanese and global economic conditions, or financial market turmoil, could result in a worsening of our liquidity and capital conditions, an increase in our credit costs, and, as a result, adversely affect our business, financial condition and results of operations.

Our Digital Preventative Healthcare Segment businesses may not continue to grow as we intend or achieve or sustain profitability.

For the fiscal year ended December 31, 2024, 1.9% of our revenue was derived from our Digital Preventative Healthcare Segment, which includes our Lav® application supporting the Specific Health Guidance Program and our MOTHER Bracelet®. By comparison, 89.7% of our revenue was derived from our Relaxation Salon Segment, and 8.3% from our Luxury Beauty Segment during the same period. Our Digital Preventative Healthcare Segment generated a total revenue of JPY153,633 thousand (US$976 thousand) for the fiscal year ended December 31, 2024, as compared to a total revenue of JPY200,397 thousand (US$1,246 thousand) for the year ended December 31, 2023, a decrease that we believe was primarily due to temporary suspension of shipments of MOTHER Bracelet® and MOTHER Gateway devices caused by technological issues such as malfunctioning of MOTHER Bracelet® devices due to static electricity generated from friction with blankets in nursing homes in winter, and data connectivity issues between multiple MOTHER Bracelet® and multiple MOTHER Gateway devices. As of the date of this annual report, the data connectivity issue has been fully resolved. In addition, we have implemented a remedial measure for the static electricity issue that does not require changing the design architecture of the affected products, and we will prioritize marketing these products towards spa facilities and factories, where the static electricity issue does not arise until we fully resolve this issue in the next generation of the MOTHER Bracelet®, which is currently in development. From July 1, 2024 through December, 2024, we received purchase orders for an aggregate of over 25,000 MOTHER Bracelet® units from our business customers, 2,112 of which were shipped and generated revenue in 2024, while the remaining orders are expected to be fulfilled in 2025. Of these purchase orders, orders for 20,000 units were placed by NFES Technologies Inc. Accordingly, any disputes with NFES or delays in manufacturing or delivery of the units ordered by NFES, or NFES’s inability to sell the units as anticipated, could affect our ability to fulfill the orders in full and receive full payment from NFES. We expect that we will begin to deliver MOTHER Bracelet® units to NFES during the second calendar quarter of 2025. While we aim to continue to grow our Digital Preventative Healthcare Segment as a proportion of our overall business, we cannot guarantee that we will not experience such development delays or other setbacks in the future, or that our current businesses or any other businesses we develop or acquire in the segment will achieve or increase market acceptance. The degree of market acceptance of our businesses in this segment will depend on a number of factors, including the competitive landscape and the adequacy and success of distribution, sales and marketing efforts. Customers, third-party payors or advertisers in general may be unwilling to accept, utilize or recommend any of our businesses.

Furthermore, the manufacturing of our MOTHER Bracelet® involves a number of third parties and requires our use of a patent license, and we may be adversely affected by any deterioration of business relationships with such third parties or their financial soundness. In particular, the self-charging functionality of our MOTHER Bracelet® is derived from a core semiconductor provided by Matrix Industries, Inc. (“Matrix”), a startup based in California, United States. In addition, we currently rely on a third-party manufacturer in Japan to manufacture the MOTHER Bracelet®. If a natural disaster, a labor strike, or any other accident or incident were to occur at the manufacturer’s facilities or the manufacturer were to significantly increase the assembly price, our sales or profitability could be adversely affected. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability in this business unit, if at all.

Our MOTHER Bracelet® and Gateway incorporate various components, and component price inflation may increase our cost of producing these products.

Following the start of sales of our MOTHER Bracelet® in 2021, we released our “MOTHER Gateway” device in 2023 as well as our device-based monitoring system, “REMONY®”. These electronic devices utilize an array of components, a few of which we directly obtain from suppliers, while the others are indirectly purchased by our contracted assembly factory and shipped to our warehouse in the form of finished goods. Although most of the components other than the core semiconductor provided by Matrix are commodities, there exists the potential for the prices of these components to significantly increase in the future, influenced by foreign currency exchange rates, potential macroeconomic shifts, prospective supply chain disruptions, embargoes or any other trade restrictions resulting from geopolitical issues, tariffs, and potential spikes in global demand. If such an upward trend in the cost of these crucial components were to materialize, it could place upward pressure on our production expenditures. This, in turn, may adversely affect our profit margins, especially if we are unable to pass on any such increased costs to our customers.

Our system-wide relaxation salon base is geographically concentrated in the Tokyo metropolitan area of Japan, and we could be negatively affected by conditions specific to that region.

Approximately 64.6% of our relaxation salons, including our directly-owned, franchised, and investor- owned salons, are located in the Tokyo metropolitan area of Japan as of December 31, 2024. Adverse changes in demographic, unemployment, economic, regulatory or weather conditions or natural disasters affecting the Kanto region of Japan have had, and may continue to have, material adverse effects on our business. As a result of our concentration in this market, we have been, and in the future may be, disproportionately affected by these adverse conditions compared to other chain relaxation salons with a greater national footprint.

In addition, our competitors could open additional relaxation salons in the Kanto region of Japan, which could result in reduced market share for us and may adversely impact our profitability.

We are also implementing a strategy of expanding our relaxation salons business in the Kansai region in western Japan. We opened no new salons in the Kansai region during fiscal year 2024, since we prioritized improving the profitability of existing salons over long-term expansion in the region. As a result, the total number of our salons in the Kansai region continued to be 15 as of December 31, 2024. We will continue to balance achieving long-term growth targets and improving profitability. However, there can be no assurance that our growth strategy to geographically expand the business will be successful.

Our past and future acquisitions, minority investments, venture financings, joint ventures and strategic alliances could fail to deliver the anticipated benefits or otherwise have an adverse effect on our businesses and results of operations.

As part of our business strategy, we actively engage in acquisitions, minority investments, joint ventures and other strategic alliances with third parties to expand our product and service offerings, enter into new business areas and geographies and acquire related technologies, with a primary focus on businesses operating in Japan. For example, on October 1, 2021, we acquired a 60% ownership interest in ZACC, a high-end hair salon company operating in Japan, and we acquired the remaining 40% interest in January 2022. In 2021, we also acquired a 100% ownership interest in SAWAN CO. LTD., which owns the “Ruam Ruam” brand luxury relaxation salons and also operates in Japan. In 2019 we acquired a minority interest in Matrix Industries, Inc., which is based in the United States and develops a thermoelectric generator and boost converter, and we purchased a convertible note from Matrix in February 2021 which subsequently converted into series A preferred stock in April 2023. In addition, our subsidiary MML commenced a series A financing round in August 2024 and entered into capital and business alliances with two Japanese companies in connection with the financing round.

We intend to continue to actively consider acquisitions and other strategic investments or alliances in the future as attractive opportunities emerge, particularly if we find attractive opportunities to enhance or supplement the capabilities or product offerings, expand the geographic reach of our salon business or our luxury brand portfolio, effectively acquire new customers, if we find businesses, technologies, sales forces, or other growth drivers that meet our criteria for investment in the Digital Preventative Healthcare Segment, or if we identify acquisitions that we believe can otherwise allow us to expand into new or related businesses.

As part of our acquisition strategy, we have in the past acquired and may in the future acquire or invest in unprofitable companies or businesses, or may make minority investments in early stage or emerging companies that hold or are developing technologies, intellectual property or capabilities that we believe are important for our own business development. Such prior or future acquisitions or minority investments may adversely affect our consolidated results of operations. In addition, we may have difficulty accurately assessing the future viability and growth trajectory of the acquired businesses, especially if the synergies we expect to realize in connection with the acquisitions or minority investments do not materialize in the amounts we expect or at all, or if we are unable to manage the acquired businesses in an effective manner. We may also face uncertainties when we acquire or invest in companies with limited operating capabilities or a management system that requires improvement, which is often the case for small privately owned businesses, including potential compliance issues or liabilities that were not identified in due diligence, poor management by the former owners, or any continuing management personnel who may lose motivation to meet our financial targets after monetizing their own equity interests in the acquired business. When a subsidiary of ours accepts venture capital or other investment from a third-party investor, there is a risk of future disagreements with the investor relating to strategic focus, long-term vision, corporate governance, future financing expectations, exit opportunities, or other matters.

Acquisitions, strategic investments and alliances entail a number of risks, including, among others: 

As a result of such risks, we may not be able to fully realize the benefits that we anticipate from any given transaction, including increased revenue and profits and other expected strategic benefits, within the expected timeframe or at all. Although we conduct due diligence reviews of acquisition targets, there can be no assurance that our due diligence process will disclose all relevant risks, legal, compliance or regulatory issues, losses and other liabilities or that our assessment of the target’s risks and liabilities will be accurate. 

Our planned acquisition of Japan Gene Medicine Corporation may not be completed on a timely basis, on our anticipated terms, or at all, and there are uncertainties and risks to consummating the acquisition and integrating the acquired business.

As part our acquisition strategy, on June 30, 2024, we entered into a share transfer agreement for the purpose of acquiring 70% of the issued and outstanding common shares of Japan Gene Medicine Corporation (“JGMC”) and making JGMC our subsidiary (the “Initial Acquisition”). The purchase price under the Initial Acquisition is ¥2,000,000 thousand and will be paid in cash. In addition, we entered into a binding Memorandum of Understanding (the “MOU” and together with the share transfer agreement, the “Acquisition Agreements”) under which we were granted an option to purchase the remaining 30% of the issued and outstanding shares of JGMC that we will not acquire as part of the Initial Acquisition (the “Remaining Shares”). Notice of our intention to exercise such option must be provided by June 30, 2027. If we exercise the purchase option, the purchase price for the Remaining Shares will be paid in cash and will be based on a multiple of JGMC’s operating results for the year ending December 31, 2026, as described in more detail in the MOU and under “Item 4. Information on the Company——Planned Acquisition of Japan Gene Medicine Corporation”.

Under the Acquisition Agreements, the consummation of the Initial Acquisition is conditioned on, among other factors, our obtaining a letter of commitment from a bank to provide us with financing in an amount exceeding 70% of the purchase price under the Initial Acquisition. As of the date of this annual report, we are still in negotiations with multiple banks and financial institutions for financing for a significant portion of the purchase price for the Initial Acquisition. However, we may be unable to consummate the planned Initial Acquisition, or the Initial Acquisition may be delayed further for a significant period of time, if any one of the conditions to consummation fails to be satisfied or waived, or for other reasons, including those beyond our control.

We face risks and uncertainties due to the planned Initial Acquisition, including:

Furthermore, even if the planned Initial Acquisition is consummated, the acquisition would remain subject to the risks described above in “—Our past and future acquisitions, minority investments, venture financings, joint ventures and strategic alliances could fail to deliver the anticipated benefits or otherwise have an adverse effect on our businesses and results of operations.” In particular, even if the planned Initial Acquisition is completed, our ability to realize the anticipated benefits of the acquisition will depend, to a large extent, on our ability to integrate JGMC into our business.

The combination of two independent businesses is a complex, costly and time-consuming process and there can be no assurance that we will be able to successfully integrate JGMC into our business, or if such integration is successfully accomplished, that such integration will not be more costly or take longer than presently contemplated. If we cannot successfully integrate and manage JGMC within a reasonable time following the acquisition, we may not be able to realize the potential and anticipated benefits of the acquisition, which could have a material adverse effect on our share price, business, cash flows, results of operations and financial position.

Additionally, we currently intend to fund a majority of the purchase price of the Initial Acquisition through bank loans and may issue a significant amount of equity or equity-linked securities in the future to repay a portion of such bank loans. A significant increase in our indebtedness could adversely affect our business, financial position and results of operations, and the issuance of additional equity or equity-linked securities may dilute our current shareholders’ ownership in us and could also result in a decrease in the market price of the ADSs. See “—Our level of indebtedness could materially and adversely affect our business, financial condition and results of operations.” and “—We may need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute current shareholders’ ownership interests.”

​

Our success depends substantially on the value of our brands.

Our success is dependent, in large part, upon our ability to maintain and enhance the value of our brands, our customers’ connection to our brands, and a positive relationship with our franchisees. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity, including via social media, or result in litigation. Some of these incidents may relate to the way we manage our relationship with our franchisees, our growth strategies, our development efforts, or the ordinary course of our, or our franchisees’, business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare, or otherwise; litigation and claims; security breaches or other fraudulent activities associated with our payment systems; and illegal activity targeted at us or others. Consumer demand for our products and services and our brands’ value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services, which would likely result in lower sales and, ultimately, lower royalty income, which in turn could materially and adversely affect our business and operating results.

The failure to enforce and maintain our trademarks and protect our other intellectual property could materially adversely affect our business, including our ability to establish and maintain brand awareness.

We regard our trademarks, trade secrets, know-how, and similar intellectual property as critical to our success. As of December 31, 2024, we had registered 50 trademarks, including the names and logos used by our Company, of which 47 were registered with the Japan Patent Office, two of which are registered with the U.S. Patent and Trademark Office and one of which is registered with the China National Intellectual Property Administration. Our principal intellectual property rights include the trademark “Re.Ra.Ku®”, which is our core brand, and “MOTHER Bracelet®”, “Lav®”, and “REMONY®”, which are key brands in our Digital Preventative Healthcare Segment, copyrights in our website and software assets, rights to our domain names, https://medirom.co.jp, https://reraku.jp, and https://mother-bracelet.com, trade secrets and know-how with respect to our training, servicing, sales and marketing and other aspects of our business, and our digital innovations such as the MOTHER application, REMONY® software, Gateway device, and Lav® application. The success of our business strategy depends on our continued ability to use our existing intellectual property in order to increase brand awareness and develop our branded services. If our efforts to protect our intellectual property are not adequate, or if any third party misappropriates or infringes on our intellectual property, whether in print, on the Internet or through other media, the value of our brands may be harmed, which could have a material adverse effect on our business, including the failure of our brands and branded services to achieve and maintain market acceptance. There can be no assurance that the steps we have taken to protect our intellectual property in Japan or outside Japan in relevant foreign countries will be adequate. In addition, in light of our intention to expand internationally, the laws of some foreign countries may not protect intellectual property rights to the same extent as do the laws of Japan. If any of our trademarks, trade secrets or other intellectual property are infringed, our business, financial condition and results of operations could be materially adversely affected.

We may need to raise additional capital to meet our business requirements in the future, and such capital raising may be costly or difficult to obtain and could dilute current shareholders’ ownership interests.

We expect that our cash and cash equivalents as of December 31, 2024 of JPY329,399 thousand (US$2,093 thousand) will not be sufficient to fund our operating expenses, capital expenditure requirements, and debt service obligations for the 12 months following the issuance date of the audit opinion for the financial statements contained in this annual report and that we will require additional capital. These conditions, among others, raise substantial doubt about our ability to continue as a going concern. In the short term, we intend to address this in part by generating cash through the sales of certain of our owned salons. However, such sales may not successfully raise sufficient capital, and are subject to other risks as described in “—Sales of our salons to investors could depend heavily on a number of factors, and as a result, our annual revenue from sale of salons may vary from year to year” for risks related to sale of our owned salons. See Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Going Concern.” Accordingly, we may need to raise additional capital to meet our business requirements.

Our future capital requirements will depend on many factors, including the speed and geographic area of relaxation salon and other business growth, progress and results of our businesses, the number and development requirements of other businesses that we pursue, including acquisition costs for our planned acquisition of 70% of JGMC and future costs to develop its business, and the costs of commercialization activities, including marketing and sales. Because of the numerous risks and uncertainties associated with the development and commercialization of our businesses, we are unable to reasonably estimate the amounts of increased capital outlays and operating expenditures that our business will require. It is likely that we will need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:

Any additional capital raised through the sale of equity or equity-linked securities may dilute our current shareholders’ ownership in us and could also result in a decrease in the market price of the ADSs. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of the ADSs.

Furthermore, any debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business, and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.

We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition. Thus, holders of the ADSs bear the risk that our future offerings may reduce the market price of the ADSs and dilute their shareholdings in us.

If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our services, other businesses, and technology, and we will be unable to develop and commercialize our services, other businesses, and technologies.

Our present and future capital requirements depend on many factors, including:

If we are unable to obtain the funds necessary for our operations, we will be unable to develop and commercialize our services and technologies, which would materially and adversely affect our business, liquidity and results of operations.

Our level of indebtedness could materially and adversely affect our business, financial condition and results of operations.

Our total indebtedness as of December 31, 2024 was JPY1,876,679 thousand (US$11,925 thousand) on a consolidated basis, including the corporate convertible bonds in the aggregate amount of JPY500,000 thousand (US$3,177 thousand) issued to Kufu Company Inc., a Japanese company, in December 2022, the terms of which we amended on November 1, 2024. In addition, we issued a convertible bond in October 2024 in the aggregate amount of JPY300,000 thousand (US$1,906 thousand) to Triple One Investment Partnership, a Japanese limited liability investment partnership. We may incur additional indebtedness to finance our planned acquisition of 70% of JGMC, although the amount and terms of such indebtedness are subject to negotiation as of the date of this annual report and may change. We may enter into additional financing arrangements, and may also take on additional indebtedness, in connection with the Initial Acquisition, our potential purchase of Remaining Shares of JGMC, and any other existing or future acquisitions or investment transactions, depending on the terms and conditions offered by financial institutions. Our indebtedness could have significant effects on our business, such as:

In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our other cash needs. If we are not able to pay our debts as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our ability to generate revenues.

Moreover, the Bank of Japan raised its overnight interest rate from -0.1% to 0-0.1% in March 2024, and further increased such rate to 0.25% in July 2024 and increased the rate again in January 2025 to 0.5%. Long-term interest rates in Japan have been steadily increasing in recent years in connection with the Bank of Japan scaling back and then, in March 2024, eliminating most of its measures to control long-term government bond yields. In July 2024, the Bank of Japan also decided to tighten monetary policy by gradually reducing its monthly purchases of Japanese government bonds. In January 2025, the Bank of Japan further increased its short-term interest rate to 0.5%, which may cause long-term interest rates to rise further. Interest rates in Japan could further increase in the future due to changes in the interest rate policy pursued by the Bank of Japan or otherwise. An increase in Japanese interest rates will increase the interest expense associated with our current floating rate debt obligations and any floating or fixed rate debt obligations that we may incur in the future, including debt that we incur to refinance our existing borrowings. A rapid and significant rise in Japanese interest rates may increase our borrowing costs and adversely affect our financial condition and results of operations. For information regarding our sensitivity to interest rates, see “Item 11. Quantitative and Qualitative Disclosure About Market Risk—Interest Rate Risk.”

Furthermore, we issued corporate convertible bonds in the aggregate amount of JPY500,000 thousand (US$3,177 thousand) to Kufu Company Inc., a Japanese company, in December 2022, the terms of which we amended on November 1, 2024. The bonds are unsecured, accrue interest at a rate of 5.0% per annum, payable on June 30, 2023 and semi-annually thereafter, and will mature on December 31, 2025, unless earlier converted. At any time between the six-month anniversary date of December 28, 2022 and before the close of business on December 30, 2025, Kufu Company Inc., as the bond holder, may convert the bonds at its option, in whole or in part, into our common shares by exercising stock options that were issued to Kufu Company in connection with the bonds. The exercise price for the stock options is JPY755 (US$4.80) per common share. This price is subject to reasonable adjustment under certain circumstances, including the Company’s issuance of shares at a price lower than the exercise price, but Kufu Company has waived any right to an adjustment in connection with the Company’s capital-raising transactions occurring prior to the maturity date. A downward adjustment to the exercise price would result in more shares being issued to Kufu Company upon conversion of the convertible bonds. If Kufu Company Inc. elects to convert the bonds into our common shares, the price of the ADSs could be materially adversely affected. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Convertible Bonds” for additional information regarding the convertible bonds held by Kufu Company.

We issued corporate convertible bonds in the amount of JPY300,000 thousand (US$1,906 thousand) to Triple One Investment Limited Partnership, a Japanese limited liability investment partnership, in October 2024. The bonds are unsecured, accrue interest at a rate of 2.0% per annum, payable on June 30, 2025 and semi-annually thereafter, and will mature on October 29, 2027. At any time between October 25, 2024 and October 29, 2027, Triple One may exercise the stock acquisition right that is incorporated into each bond, which are issued in denominations of JPY100,000 thousand at an exercise price of JPY957 (US$6.08) per common share in which case the corresponding portion of the bonds will be deemed to have been acquired by the Company as a capital contribution and will be extinguished (effectively, a conversion of the bonds into shares at the JPY957 (US$6.08) per common share exercise price). Our obligations in respect of such bonds and their associated stock acquisition rights shall, in principle, be extinguished or cease to be exercisable simultaneously, and such bonds and their associated stock acquisition rights may not be transferred or dealt with separately from each other. In addition, there are certain conditions under the bond indenture, such as our failure to timely pay interest and remedy the nonpayment within a cure period, upon the occurrence of which Triple One is entitled to demand immediate repayment of the bonds. If Triple One elects to exercise the stock acquisition rights incorporated into the bonds or demand immediate repayment of the bond prior to the maturity date based on a default, our cash flows, financial condition, and the price of our common shares and ADSs could be materially adversely affected. For additional information regarding the Triple One convertible bonds, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Convertible Bonds.”

Our outstanding debt agreements may limit our flexibility in operating and expanding our business.

As of December 31, 2024, we had a total of 17 loans with seven Japanese financial institutions for an aggregate principal amount of JPY1,042,983 thousand (US$6,628 thousand) on a consolidated basis. None of the loan agreements contain any material financial covenants, although certain of the government-sponsored loans set a limit on the total loan amount we may borrow from other government-sponsored lenders. However, five of the loan agreements have our Chief Executive Officer as a personal guarantor of such debt obligations of our Company. In addition, Kazuyoshi Takahashi, the representative director of ZACC Kabushiki Kaisha (“ZACC”), is also a guarantor with respect to three out of five corporate loans of ZACC. If we release our Chief Executive Officer or Mr. Takahashi from such guarantor obligations, the relevant lenders may request that we provide them with alternative collateral and/or seek additional negative covenants under the existing loan agreements. This could limit our discretion to invest, utilize, and/or dispose of our assets.

As of the date of this annual report, we are in negotiations with multiple banks and financial institutions to finance our planned acquisition of 70% of the equity of JGMC. The amount and terms of this financing are subject to change, and we may seek additional acquisition financing arrangements going forward. Furthermore, we may take on additional indebtedness for the purchase of Remaining Shares of JGCM in the future, or to finance other transactions. The restrictive covenants contained in any future loan agreements may restrict our access to future debt financing, on which our business operations and expansion plans, in part, depend. If our revenues decrease materially or we experience a significant increase in our interest expenses, we may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to make any required prepayment or repay such indebtedness at the time any such event of default occurs. In such an event, we may be required to delay, limit, reduce or terminate our business development or expansion efforts. Our business, financial condition and results of operations could be materially adversely affected as a result.

We depend on key members of our management and advisory team and will need to add and retain additional leading experts.

We are highly dependent on our executive officers, including our Chief Executive Officer, Mr. Kouji Eguchi, our Chief Financial Officer, Mr. Fumitoshi Fujiwara, and other key management and technical personnel. We do not have employment agreements with either Mr. Kouji Eguchi or Mr. Fumitoshi Fujiwara.

Furthermore, our ability to manage our salon expansion will require us to continue to train, motivate, and manage our associates. We will need to attract, motivate, and retain additional qualified executive, managerial, and merchandising personnel and salon associates. Competition for this type of personnel is intense, and we may not be successful in attracting, assimilating, and retaining the personnel required to grow and operate our business profitably. We presently maintain a “key person” life insurance policy only for our Chief Executive Officer. There can be no assurance that we will be able to retain our existing personnel, including our Chief Executive Officer, Chief Financial Officer and other key management personnel, or attract additional qualified employees. The loss of key personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, financial condition and results of operation.

We may suffer losses from litigation or other claims, including if our services cause harm to customers.

From time-to-time we may be involved in a variety of claims or litigation. Such proceedings may initially be viewed as immaterial but may develop to become significant. Litigation is inherently unpredictable and there is a possibility of unexpectedly large damage awards. Given the inherent uncertainties in litigation, even when we can reasonably estimate the amount of possible loss or range of loss, the actual outcome may differ significantly from our estimates. In addition, such claims or litigation could involve significant expense and diversion of management’s attention and resources from other matters.

In particular, although we screen our customers for major illnesses and injury, our services could potentially cause harm or injury to customers. Unexpected and undesirable side effects caused by our services for which we have not provided sufficient warnings, which may have been performed negligently, could result in the discontinuance of our relaxation services or prevent us from achieving or maintaining market acceptance of our services. Such side effects or injury incidents could also expose us to liability lawsuits. We currently maintain a comprehensive general liability policy; however, if any general liability lawsuits or claims are successfully brought against us, we could suffer from increased insurance premiums. Moreover, if damages exceed our policy limits, we may incur substantial financial losses. These claims could cause negative publicity regarding our Company, or brand, which could in turn harm our reputation and net revenue, which could have a material adverse effect on our business, financial condition, profitability, and cash flows.

Our prepaid cards are heavily regulated under Japanese law and violations of the relevant law could subject us to sanctions.

We began issuing prepaid cards called “Re.Ra.Ku® Cards” to relaxation salon customers on December 1, 2008. Re.Ra.Ku® Card users can continuously use and also replenish their cards at most of our Company’s relaxation salons. Prepaid cards are generally considered “prepaid payment methods” (which we refer to as “PPMs”) under the Act on Settlement of Funds (Act No. 59 of 2009) (which we refer to as the “Settlement Act”). PPMs are regulated under the Settlement Act so long as there is a possibility that the cards could be valid for a period of more than six months. The Re.Ra.Ku® Cards do not have expiration dates and therefore are regulated under the Settlement Act. Moreover, the Re.Ra.Ku® Cards can be used at salons operated by franchisees, and because the franchisees are considered third parties for the purposes of the Settlement Act, we fall under the category of a Public Use PPM Provider.

A Public Use PPM Provider must be registered with the relevant Local Financial Bureau and follow detailed deposit procedures to assure that there are adequate funds for the individuals who are effectively loaning their money to the Public Use PPM Provider, including an obligation to deposit half of the prepaid balance to the Legal Affairs Bureau. As of December 31, 2024, the total amount we had deposited with the Legal Affairs Bureau in connection with Re.Ra.Ku Card balances was JPY127,006 thousand (US$807 thousand). If we fail to comply with these procedures, we may be assessed a monetary fine, and in certain circumstances, a member of our Company could face a criminal penalty of imprisonment, which could adversely impact our financial results as well as our brand image.

Furthermore, one of the requirements for issuers of prepaid cards under the Settlement Act is to maintain net assets of not less than JPY100 million based on Japanese GAAP. We were in compliance with the net assets requirement as of December 31, 2024. However, there is no assurance that we can continue to be compliant with it in the future.

Given the heavy burden imposed on us as a Public Use PPM Provider, we decided to introduce a new payment system and developed “Re.Ra.Ku PAY”, a proprietary payment app which works on customers’ smart phones. The most important difference between the Re.Ra.Ku Card and Re.Ra.Ku PAY is that balances on Re.Ra.Ku PAY have an expiration period of 150 days, while Re.Ra.Ku Card balances do not have an expiration date. The Settlement Act regulates only prepaid cards with balances that remain effective for more than six months. Hence, by limiting the expiration period to less than six months, we believe Re.Ra.Ku PAY can be exempted from the regulations and requirements under the Settlement Act, including the net assets requirement and the Legal Affairs Bureau deposit obligation.

We disallowed further balance deposits on Re.Ra.Ku Cards beginning on February 1, 2024. Accordingly, we expect the total balance of funds on Re.Ra.Ku Cards to decrease, as customers can only use their Re.Ra.Ku Cards for payment, and the amounts deposited to the Legal Affairs Bureau will be refunded to us over time as the total balance of funds on Re.Ra.Ku Cards decreases.

Moreover, in October 2024, we introduced several kinds of prepayment tickets, all of which expire within 180 days, for customers who prefer paying with paper-based prepaid tickets over the Re.Ra.Ku PAY application.

However, even after introducing Re.Ra.Ku PAY and the prepaid tickets, we continue to be regulated as a Public Use PPM Provider in connection with Re.Ra.Ku Cards, and there is no assurance that we will be able to continue satisfying the minimum net asset requirement. If we fail to meet this requirement, there is a risk that our registration as an issuer of the prepaid cards (that is, Re.Ra.Ku Cards) may be revoked. While we believe such a revocation would not affect our ability to offer Re.Ra.Ku PAY, we would be required to immediately repay the remaining balances of Re.Ra.Ku Cards. As of December 31, 2024, the total amount of remaining Re.Ra.Ku Card balances and the prepaid tickets were JPY247,323 thousand (US$1,572 thousand) and JPY143,218 thousand (US$910 thousand), respectively.

If we or our franchisees face labor shortages or increased labor costs, our results of operations and our growth could be adversely affected.

Labor is a primary component in the cost of operating our directly-operated and franchised relaxation salons. As of December 31, 2024, we had 334 employees on a full-time basis, 621 employees on a part-time basis, and 96 employees on a fixed-term basis. Most of our employees are therapists who provide services at our directly-operated salons and franchised salons. If we or our franchisees face labor shortages or increased labor costs because of increased competition for employees, higher employee-turnover rates, or increases in the relevant minimum wage, change in employment status standards, or other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), our and our franchisees’ operating expenses could increase, and our growth could be adversely affected.

If such events occur, we may be unable to increase our prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected. Also, reduced margins of franchisees could make it more difficult to sell franchises. If prices are increased by us and our franchisees to cover increased labor costs, the higher prices could adversely affect transactions which could lower sales and thereby reduce our margins and the royalties that we receive from franchisees.

In addition, our success depends in part upon our and our franchisees’ ability to attract, motivate and retain a sufficient number of well-qualified relaxation salon operators, management personnel and other employees, including relaxation therapists. Qualified individuals needed to fill these positions can be in short supply in some geographic areas. In addition, relaxation salons have traditionally experienced relatively high employee turnover rates. Our and our franchisees’ ability to recruit and retain such individuals may delay the planned openings of new relaxation salons or result in higher employee turnover in existing relaxation salons, which could increase our and our franchisees’ labor costs and have a material adverse effect on our business, financial condition, results of operations or cash flows. If we or our franchisees are unable to recruit and retain sufficiently qualified individuals, our business and our growth could be adversely affected.

Competition for these employees could require us or our franchisees to pay higher wages, which would also result in higher labor costs and adversely affect our results of operation.

We are subject to the risks associated with leasing space subject to long-term non-cancelable leases.

We generally lease the spaces in which our and our franchisees’ relaxation salons operate, and in the case of our franchisees’ salons, we sublease the space to our franchisees. Payments under leases account for a significant portion of our operating expenses and we expect the new salons we operate or franchise in the future will similarly be leased. Our leases generally have terms of three or five years. We enter into one of two types of lease agreements depending on the lessor: regular lease agreements or term lease agreements, both of which are common in Japan. Regular leases can be cancelled by the lessee subject to notice periods defined in the lease agreement. However, in principle, term leases cannot be cancelled by the lessee. If we or a franchisee decide to close a relaxation salon subject to a term lease, including due to a lack of profitability, we may nonetheless be committed to perform our payment obligations under the applicable term lease.

For franchised salons subject to term leases, if the salon is subleased by us to the franchisee, we are exposed to such risk while primarily depending upon the franchisee’s capabilities to maintain the profitable operation of the salon. In addition, as each of our leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to pay increased occupancy costs or to close salons in desirable locations. If we fail to negotiate renewals, we may have to dispose of assets at such salon locations and incur closure costs as well as impairment of property and equipment. Furthermore, if we fail to negotiate renewals, we may incur additional costs associated with moving transferable fixtures and equipment. These potential costs, as well as closures of salons, could materially adversely affect our business, financial condition or results of operations.

​

Macroeconomic conditions, including economic downturns, may cause landlords of our leases to be unable to obtain financing or remain in good standing under their existing financing arrangements, resulting in failure to perform their lease obligations to us. In addition, other tenants at the shopping centers and commercial areas in which our and our franchisees’ salons are located may fail to operate or may cease operations during an economic slowdown. Decreases in total tenant occupancy in these areas may affect traffic at and around our and our franchisees’ salons. All of these factors could have a material adverse impact on our business, financial condition or results of operations.

​

We are exposed to the risk of natural disasters, unusual weather conditions, pandemic outbreaks such as COVID-19, political events, war and terrorism that could disrupt business and result in lower sales, increased operating costs and capital expenditures.

Our headquarters, directly-operated and franchised relaxation salon locations and other businesses, as well as certain of our vendors and customers, are located in areas which have been and could be subject to natural disasters such as floods, typhoons, tsunamis, tornadoes, fires or earthquakes, as well as global pandemics such as COVID-19. Adverse weather conditions or other extreme changes in weather, including resulting electrical and technological failures and even nuclear leaks, in areas where our relaxation salons are concentrated, may disrupt our and our franchisees’ businesses and may adversely affect our and our franchisees’ ability to offer services. Such disruptions could influence customer trends and purchases and negatively impact our and our franchisees’ revenues, properties or operations.

In addition, if we experience the effects of other events, such as natural or other disasters, we could suffer physical damage to one or more of our or our franchisees’ properties, the temporary closure of some or all of our directly-operated relaxation salons and franchised relaxation salons, the temporary lack of an adequate work force in a market, temporary or long-term disruption in the transport of goods, delay in the delivery of goods and supplies to our directly-operated and franchised relaxation salons, disruption of our technology support or information systems, or fuel or electricity shortages or dramatic increases in fuel or electricity prices, all of which would increase the cost of doing business. These events also could have indirect consequences such as increases in the costs of insurance or taxes if they result in significant loss of property or other insurable damage. Any of these factors, or any combination thereof, could adversely affect our operations and our financial results.

As we expand our businesses internationally, we will become subject to foreign laws and regulations, and we could be adversely affected by violations of these laws as well as the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws.

As we expand our business in Japan and other parts of the world, including in the United States in the future, we become subject to risks customarily associated with such global operations, including the complexity of laws, regulations, and markets in the countries in which we operate; the uncertainty of enforcement of remedies in certain jurisdictions; the effect of currency exchange rate fluctuations; export control laws; the impact of foreign labor laws and disputes; the ability to attract and retain key personnel; the economic, tax, and regulatory policies of local governments; compliance with applicable anti-money laundering, anti-bribery, and anti-corruption laws, including the Foreign Corrupt Practices Act and other anti-corruption laws that generally prohibit persons and companies and their agents from offering, promising, authorizing, or making improper payments to foreign government officials for the purpose of obtaining or retaining business; and compliance with applicable sanctions regimes regarding dealings with certain persons or countries. Certain of these laws also contain provisions that require accurate recordkeeping and further require companies to devise and maintain an adequate system of internal accounting controls. We cannot assure you that we will be successful in preventing our franchisees or other agents from taking actions in violation of these foreign laws or regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations and cash flows.

There is a risk that we will be a passive foreign investment company (which we refer to as “PFIC”) for the current or any future taxable year, which could result in material adverse U.S. federal income tax consequences if you are a U.S. holder.

​

A non-U.S. corporation, such as our Company, is classified as a PFIC for any taxable year in which, after applying relevant look-through rules with respect to the income and assets of its subsidiaries, either: (i) 50% or more of the value of the corporation’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets; or (ii) at least 75% of the corporation’s gross income is passive income. “Passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. In determining the value and composition of our assets, cash will generally be considered to be held for the production of passive income and thus will be considered a passive asset.

​

The determination of whether a corporation is a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules that are subject to differing interpretations. In addition, the determination of whether a corporation will be a PFIC for any taxable year can only be made after the close of such taxable year. Furthermore, because we may value our goodwill based on the market price of the ADSs, a decrease in the market price of the ADSs may also cause us to be classified as a PFIC for the current or any future taxable year. Based upon the foregoing, we do not believe that we were a PFIC for the taxable year ended December 31, 2023. However, as of the date of this annual report, in light of recent declines in the market price of the ADSs, our risk of becoming a PFIC has increased. The market price of the ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for the current or any future taxable year.

If we are a PFIC for any taxable year during which a U.S. holder (as defined below) owns common shares or ADSs, certain adverse U.S. federal income tax consequences could apply to such U.S. holder. We have not determined, if we were to be classified as a PFIC for a taxable year, whether we will provide information necessary for a U.S. holder to make a “qualified electing fund” election which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs. Accordingly, U.S. holders should assume that they will not be able to make a qualified electing fund election with respect to the common shares or ADSs. The PFIC rules are complex, and each U.S. holder should consult its own tax advisor regarding the PFIC rules, the elections which may be available to it, and how the PFIC rules may affect the U.S. federal income tax consequences relating to the ownership and disposition of our common shares or ADSs.

Risks Related to Our Relationships with Franchisees

The financial performance of our franchisees can negatively impact our business.

Approximately 28.6% of our relaxation salons were franchised locations as of December 31, 2024. We derive revenues associated with our franchised locations from royalty fees and other fees to franchised locations.

Our financial results are therefore dependent in part upon the operational and financial success of our franchisees. We have established operational standards and guidelines for our franchisees; however, we have limited control over how our franchisees’ businesses are run. While we are responsible for ensuring the success of our entire system of relaxation salons and for taking a longer-term view with respect to system improvements, our franchisees have individual business strategies and objectives, which might conflict with our interests. Our franchisees may not be able to secure adequate financing to continue operating their relaxation salons. If they incur too much debt or if economic or sales trends deteriorate such that they are unable to repay existing debt, our franchisees could experience financial distress or even bankruptcy. If a significant number of franchisees become financially distressed, it could harm our operating results through reduced royalty revenues, and the impact on our profitability could be greater than the percentage decrease in the royalty revenues. Closure of franchised relaxation salons would reduce our royalty revenues and could negatively impact margins, because we may not be able to reduce fixed costs which we continue to incur.

​

We have limited control with respect to the operations of our franchisees, which could have a negative impact on our business.

Franchisees are independent business operators and are not our employees. Though we have established operational standards and guidelines, they own, operate and oversee the daily operations of their salon locations. We provide training and support to franchisees and set and monitor operational standards, but the quality of franchised relaxation salons may be diminished by any number of factors beyond our control.

Consequently, franchisees may not successfully operate relaxation salons in a manner consistent with our standards and requirements or may not hire and train qualified managers and other relaxation salon personnel, including relaxation therapists. If franchisees do not operate to our expectations, our image and reputation, and the image and reputation of other franchisees, may suffer materially, and franchise-wide sales could decline significantly, which would reduce our royalty revenues, and the impact on profitability could be greater than the percentage decrease in royalties and fees.

In addition, our franchisees are subject to the same general economic risks as our Company, and their results are influenced by competition for both guests and therapists, market trends, price competition and disruptions in their markets due to severe weather and other external events. Like us, they rely on external vendors for some critical functions and to protect their company data. They may also be limited in their ability to open new locations by an inability to secure adequate financing, especially since many of them are small businesses with much more limited access to financing than our Company, or by the limited supply of favorable real estate for new salon locations. They may experience financial distress as a result of over-leveraging, which could negatively affect our operating results as a result of delayed payments to us.

We rely on franchise agreements that could be breached and may be difficult to enforce, which could result in franchisees improperly managing relaxation salons.

Although we believe that we take reasonable steps to protect the quality of services provided at our franchised locations, including the use of franchise agreements with detailed and rigorous obligations on the part of franchisees, the agreements can be difficult and costly to enforce. Although we seek to require strict adherence to properly structured franchise agreements, disputes may arise related to revenue, financing, or intellectual property rights associated with our franchise. If a dispute arises, a court may determine that a third party’s rights were infringed. In addition, enforcement of our rights can be costly and unpredictable. We also rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our franchisees, employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risks that:

We rely in part on the financial health of our franchisees. If we do not screen and monitor them appropriately, it could adversely affect our operations and financial results if they experience financial hardship.

We rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business. It is possible that some franchisees could under-report sales, file for bankruptcy or become delinquent in their payments to us, which could have a significant adverse impact on our business due to loss or delay in payments of royalties and other fees. Bankruptcies by our franchisees could negatively impact our market share and operating results as we may have fewer well-performing relaxation salons, and adversely impact our ability to attract new franchisees.

Although we have developed criteria to evaluate and screen prospective franchisees, we cannot be certain that the franchisees we select will have the business acumen or financial resources necessary to open and sustainably operate successful franchises in their franchise areas, and Japanese contract laws may limit our ability to terminate or modify these franchise arrangements. Moreover, franchisees may not hire qualified managers or may not successfully operate relaxation salons in a manner consistent with our standards and requirements.

The failure of developers and franchisees to open and operate franchises successfully could have a material adverse effect on us, our reputation, our brand and our ability to attract prospective franchisees and could materially adversely affect our business, financial condition, results of operations and cash flows.

Franchisees may not have access to the financial or management resources that they need to open the relaxation salons contemplated by their agreements with us. Franchisees may not be able to negotiate acceptable lease or purchase terms for relaxation salon sites, obtain the necessary permits and government approvals or meet construction schedules. Any of these problems could slow our growth and reduce our franchise revenues. Additionally, our franchisees typically depend on financing from banks and other financial institutions, which may not always be available to them, in order to construct and open new relaxation salons. For these reasons, franchisees may not be able to meet the new relaxation salon opening dates required under franchise agreements.

Franchisee turnover could affect our ability to recruit new franchisees.

Although we make great efforts with the aid of our franchise support team to help franchisees who run into difficulties, we may suffer from low franchisee retention. Low franchisee retention could harm our image and deter prospective franchisees. If franchisee turnover increases and we begin to struggle to recruit new franchisees to take over relinquished salon locations or establish new ones, such an occurrence could harm our financial results.

Premature termination of franchise agreements can cause losses.

Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a monetary default or abandonment of the franchise. If terminations occur for this or other reasons, we may need to enforce our right to damages for breach of contract and related claims, which may cause us to incur significant legal fees and expenses and/or to take back and operate such salons as directly-operated. Any damages we ultimately collect could be less than the projected future value of the fees and other amounts we would have otherwise collected under the franchise agreement. In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter into a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchise agreements due to premature terminations could hurt our financial performance or our ability to grow our business.

The interests of our franchisees may conflict with ours in the future and we could face liability from our franchisees or related to our relationship with our franchisees.

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the respective franchise agreements and the terms and conditions of the franchisee/franchisor relationship. This may lead to disputes with our franchisees, and we expect such disputes to occur from time to time in the future as we continue to offer franchises. Such disputes may result in legal action against us. To the extent we have such disputes, the attention, time and financial resources of our management and our franchisees will be diverted from our relaxation salons and other businesses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows even if we have a successful outcome in the dispute.

We are subject to various Japanese laws that may affect our relationship with our franchisees.

Various Japanese laws govern our relationship with our franchisees and our potential sale of a franchise.

A franchisee and/or a government agency may bring legal action against us based on the franchisee/franchisor relationships that could result in the award of damages to franchisees and/or the imposition of fines or other penalties against us.

The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of 1947, as amended) (which we refer to as the “Antimonopoly Act”) prohibits any activities that inappropriately induce or mislead customers to enter into a business relationship by demonstrating seemingly preferable trade terms and conditions that could create a false impression over other competitor franchisors. The Japan Fair Trade Commission (which we refer to as the “JFTC”), which enforces the Antimonopoly Act and other Japanese antitrust laws, set forth “Guidelines Concerning the Franchise System Under the Antimonopoly Act” which suggest that a franchisor adequately disclose and explain material trade terms to a potential franchisee (willing to join the franchise relationship) to prevent any material terms and conditions inappropriately inducing or misleading such potential franchisee. In addition, when a franchisor markets its franchise, in the event a franchisor provides a prospective franchisee with an estimate of the revenue or profit that might possibly be earned upon becoming a franchisee, such estimated revenue or profit must be based on a reasonable method of calculation and established facts, such as the results of an existing franchise operating in a similar environment. The franchisor is required to present to the prospective franchisee such methods and facts. The guidelines also suggest that, in explaining business hours and temporary closures, a franchisor should provide to a prospective franchisee then-known information that may adversely impact management of the franchise, such as the occurrence of a shortage of human resources during specified business hours or a rapid increase in personnel costs. If the JFTC finds that any of our activities violate the Antimonopoly Act, including any “deceptive customer inducement” and “abuse of superior bargaining positions”, then the JFTC may order us to cease and desist from engaging in such unlawful activities, delete any relevant unlawful clauses from the franchise contract, or carry out any other measures necessary to eliminate such unlawful activities.

In the event the JFTC suspects any violation of the Antimonopoly Act or alleges our Company has misled or wrongly induced based on any particular trade terms, our Company could be exposed to risks including governmental action against our Company.

Risks Related to Our Industry

We are vulnerable to changes in consumer preferences and economic conditions that could harm our business, financial condition, results of operations and cash flow.

Relaxation salon businesses depend on discretionary consumer spending and are often affected by changes in consumer tastes, national, regional and local economic conditions, and demographic trends.

Factors such as traffic patterns, weather, local demographics, and the type, number and locations of competing salons may adversely affect the performance of individual locations. In addition, economic downturns, rapid inflation, tight labor market conditions and the resulting increase of general wage levels and increases in salon lease expenses could harm the relaxation industry in general and our relaxation salon locations in particular. Adverse changes in any of these factors could reduce consumer traffic or impose practical limits on pricing that could harm our business, financial condition, results of operations and cash flow. There can be no assurance that consumers will continue to regard our brand of relaxation salons favorably or that we will be able to develop new services that appeal to consumer preferences. Our business, financial condition and results of operations depend in part on our ability to anticipate, identify and respond to changing consumer preferences and economic conditions. If we are unable to adapt to changes in consumer preferences and trends, we may lose customers and our revenues may decline.

We may not be able to compete successfully with other relaxation salon businesses, which could materially and adversely affect our results of operations.

We may not be able to compete successfully with other relaxation salon businesses. Intense competition in the relaxation industry could make it more difficult to expand our business and could also have a negative impact on our operating results if customers favor our competitors, or if we are forced to change our pricing and other marketing strategies.

The relaxation industry, particularly in Japan, is intensely competitive. In addition, the Tokyo metropolitan area (consisting of Tokyo, Kanagawa, Saitama, and Chiba) of Japan, the primary market in which we compete, contains what we believe to be the most competitive relaxation services market in Japan. We expect competition in this market to continue to be intense because relaxation salons are comparatively inexpensive to start and operate, and new competitors are regularly entering the market due to the low barrier to entry. Competition in our industry is primarily based on price, convenience, quality of service, brand recognition, and location of the relaxation salons. If our directly-operated and franchised relaxation salons cannot compete successfully with other relaxation salon companies in new and existing markets, we could lose customers and our revenues could decline. Our directly-operated and franchised relaxation salons compete with national and regional relaxation salon chains for customers, relaxation salon locations and qualified management and other staff, including licensed relaxation therapists. Some of our competitors may have substantially greater financial and other resources, may have been in business longer, may have greater brand recognition, or may be better established in the markets where our relaxation salons are located or are planned to be located. Any of these competitive factors may materially adversely affect our business, financial condition or results of operations.

We face significant competition and continuous technological change.

In our Digital Preventative Healthcare Segment, if our competitors develop and commercialize services faster than we do or develop and commercialize services that are superior to ours, our commercial opportunities will be reduced or eliminated. The extent to which any of our services achieve market acceptance will depend on competitive factors, many of which are beyond our control. Competition in the relaxation and health technology industries is intense. Our main competitors in the Specific Health Guidance Program, promoted by the Ministry of Health, Labor and Welfare of Japan, include SOMPO Health Support Inc., Benefit One Inc., and FitsPlus Inc.

Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.

We and our franchisees rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our relaxation salons. In addition, our Lav® application and the platform under which we collect data from our MOTHER Bracelets® are heavily dependent on information technology systems. We also use Amazon Web Services, Microsoft Azure and Google Cloud Platform as our cloud service providers. Our and our franchisees’ operations depend upon our and our franchisees’ ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems, network infrastructure, or cloud servers that cause an interruption in our operations could have a material adverse effect on our business and subject us to litigation or actions by regulatory authorities. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a material network breach in security of these systems as a result of cyber-attack or any other failure to maintain a continuous and secure cyber network could further result in substantial harm, or in delays in customer service and reduce efficiency in our and our franchisees’ operations. This could include the theft of our intellectual property or trade secrets, or the improper use of personal information or other “identity theft.” While we utilize our personnel, as well as a variety of hardware and software, to monitor our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent damage, breaches or other disruptive problems, there can be no assurance that these security measures will be successful. Any such claim, proceeding or action by a regulatory authority, or any adverse publicity resulting from these allegations, could adversely affect our business and results of operations.

Cybersecurity breaches and other disruptions could compromise our information, result in the unauthorized disclosure of confidential guest, employee, Company and/or business partners’ information, damage our reputation, and expose us to liability, which could negatively impact our business.

In the ordinary course of our business, we collect and process sensitive and confidential data, including our proprietary business information and that of our guests, users, suppliers and business partners, and personally identifiable information of our guests, users and employees, in our data centers and on our networks. For example, our customers are asked to complete a survey, often digitally on iPads, prior to first receiving services at our relaxation salons. The surveys contain questions requesting private health-related information of our relaxation salon patrons. In connection with credit and debit card sales, we and our franchisees transmit confidential credit and debit card information by way of secure private retail networks. In addition, we collect a large amount of health-related information from users of our Lav® smartphone application and our MOTHER Bracelet®.

The secure processing, maintenance, and transmission of this information is critical to our operations. We rely on commercially available systems, software, tools, and monitoring to provide security for processing, transmission, and storage of confidential information. Despite the security measures we have in place and continual vigilance in regard to the protection of sensitive information, our systems and those of our third-party service providers may be vulnerable to security breaches, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similar events. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, damage our reputation, and cause a loss of confidence in our business, products, and services, which could adversely affect our business, financial condition, profitability, and cash flows.

Furthermore, although we currently carry cyber liability insurance, such insurance has limited coverage to cover liabilities incurred by breaches of our customers’ data caused by security breaches, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors, or other similar events. A significant claim not covered by our insurance, in full or in part, may result in significant expenditures by us. Moreover, we may not be able to maintain insurance policies in the future at reasonable costs or on acceptable terms, which may adversely affect our business and the trading price of the ADSs.

Negative publicity could reduce sales at some or all of our relaxation salons.

Although we actively screen all personnel and staff members, including relaxation therapists, who interact with customers, we cannot guarantee that our staff or customers will not engage in illegal or inappropriate behavior that could have a negative effect on our brand image, as well as the health and well-being of our customers or staff, as the case may be. In addition, negative publicity may adversely affect us, regardless of whether the allegations are valid or whether we are held to be responsible. Any such negative impact of adverse publicity relating to one relaxation salon may extend far beyond the relaxation salon involved, especially due to the high geographic concentration of many of our relaxation salons, to affect some or all of our other relaxation salons, including our franchised relaxation salons. The risk of negative publicity is particularly great with respect to our franchised relaxation salons because we are limited in the manner in which we can regulate them, especially on a real-time basis, and negative publicity from our franchised relaxation salons may also significantly impact directly-operated relaxation salons. In addition, the relaxation industry can often be held under legal and legislative scrutiny as a result of some fringe relaxation businesses that engage in illegal or anti-social activities.

Employee claims against us based on, among other things, wage and hour violations, discrimination, harassment, wrongful termination, or similar claims may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. Certain of these types of employee claims, such as tort claims, could be asserted against us by employees of our franchisees. A significant increase in the number of these claims or an increase in the number of successful claims could materially adversely affect our business, financial condition, results of operations and cash flows.

We are potentially subject to government regulations, and we may experience delays in obtaining required regulatory approvals, if required, to market our proposed businesses.

Various aspects of our operations are or may become subject to Japanese law or the laws of another relevant country or jurisdiction, any of which may change from time to time. Costs arising out of any regulatory developments could be time-consuming, expensive and could divert management resources and attention and, consequently, could adversely affect our business operations and financial performance.

Delays in regulatory clearance, approval, limitations in regulatory approval and withdrawals of regulatory approval, if any are required, may have a negative impact on our results. If we experience significant delays in obtaining any regulatory approvals, our business development costs will increase and or our ability to commercialize future businesses will be adversely affected.

Risks Related to Ownership of the ADSs

We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common shares and ADSs may be less attractive to investors.

We are an “emerging growth company,” as defined in the U.S. Jumpstart Our Business Startups Act of 2012 (which we refer to as the “JOBS Act “), and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 (which we refer to as the “Sarbanes-Oxley Act”), reduced disclosure about executive compensation arrangements, no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements, and not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. We have elected to adopt these reduced disclosure requirements.

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement declared effective under the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised financial accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result, our financial statements may not be comparable to companies that comply with public company effective dates.

We would cease to be an “emerging growth company” upon the earliest of (i) December 31, 2025, (ii) the last day of the fiscal year during which our annual gross revenues are US$1.235 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt securities, and (iv) as of the end of any fiscal year in which the market value of our common shares held by non-affiliates exceeded US$700 million as of the end of the second quarter of that fiscal year (and we have been a public company for at least 12 months and have filed at least one annual report on Form 20-F).

We cannot predict if investors will find the ADSs less attractive as a result of our taking advantage of these exemptions. If some investors find the ADSs less attractive as a result of our choices, there may be a less active trading market for the ADSs and our stock price may be more volatile.

As a “foreign private issuer” we are permitted, and intend to continue, to follow certain home country corporate governance and other practices instead of otherwise applicable SEC and NASDAQ requirements, which may result in less protection than is accorded to investors under rules applicable to domestic U.S. issuers.

Our status as a foreign private issuer exempts us from compliance with certain SEC laws and regulations and certain regulations of The Nasdaq Capital Market (which we refer to as “NASDAQ”), including certain governance requirements such as independent director oversight of the nomination of directors and executive compensation. Further, consistent with corporate governance practices in Japan, we do not have a standalone compensation committee or nomination and corporate governance committee under our board. In addition, we are not required under the Exchange Act to file current reports and financial statements with the U.S. Securities and Exchange Commission (which we refer to as the “SEC”) as frequently or as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and we are generally exempt from filing quarterly reports with the SEC. Also, we are not required to provide the same executive compensation disclosures regarding the annual compensation of our five most highly compensated senior executives on an individual basis as are required of U.S. domestic issuers. As a foreign private issuer, we are permitted to disclose executive compensation on an aggregate basis and need not supply a Compensation Discussion & Analysis, as is required for domestic companies. Furthermore, as a foreign private issuer, we are also not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. These exemptions and accommodations will reduce the frequency and scope of information and protections to which you are entitled as an investor.

ADSs representing our common shares are listed on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of the ADSs, which could make it more difficult for us to sell securities in a financing and for you to sell your ADSs.

ADSs representing our common shares are listed on the Nasdaq Capital Market. As such, we are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those regarding director independence and independent committee requirements, minimum shareholders’ equity, minimum share price and certain other corporate governance requirements. In particular, we are required to satisfy the listing standards set forth in Nasdaq Listing Rule 5550(b), which sets forth minimum standards for stockholders’ equity, the market value of listed securities and net income, at least one of which must be satisfied.

As previously disclosed in reports on Form 6-K filed with the SEC and in our report on Form 20-F filed on May 30, 2023, we were not in compliance with the $35 million market value of listed securities requirement set forth in Nasdaq Listing Rule 5550(b)(2) as of December 27, 2022. After the hearing before a Nasdaq Hearings Panel (the “Panel”) for continued listing on Nasdaq, we regained compliance on June 1, 2023 based on the net income standard set forth in Nasdaq Listing Rule 5550(b)(3), which requires a minimum net income from continuing operations of $500,000 in the most recently completed fiscal year or two of the last three most recently completed fiscal years. As of the date of this annual report, the total market value of our listed securities is significantly below the $35 million requirement, and as a result, we continue to rely on the net income standard under Nasdaq Listing Rule 5550(b)(3) to maintain the listing of the ADSs on the NASDAQ Capital Market. On December 9, 2024, we closed our second public equity financing to raise $5,005 thousand before deducting underwriting discounts and other expenses, which enabled us to reach the minimum stockholders’ equity level of $2,500,000 required to satisfy the continued listing standard set forth in Nasdaq Listing Rule 5550(b)(1), making it unnecessary for us to satisfy the market value standard or net income standard to maintain the listing of our common shares on the Nasdaq Capital Market, provided that we are able to maintain the minimum required stockholders’ equity. However, there is no assurance that we will remain in compliance with the minimum stockholders’ equity standard or the minimum net income standard in the future. In particular, our ability to generate the minimum net income required under Nasdaq Listing Rule 5550(b)(3) on which we are currently relying is subject to the risk factors described in this annual report, many of which are beyond our control, including the risk that our net income may be negatively impacted by interest accruing on borrowings we expect to incur to finance our proposed acquisition of JGMC. We cannot guarantee that any actions we take to prevent future non-compliance or to regain compliance with Nasdaq’s listing requirements in the future will be successful.

In addition, on February 27, 2025, we received a written notification (the “Notification Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”), notifying the Company that it is not in compliance with the minimum bid price requirement set forth in the Nasdaq Listing Rules for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.

Based on the closing bid price of the Company’s American Depositary Shares representing common shares of the Company for the 31 consecutive business days from January 13, 2025 to February 26, 2025, the Company failed to meet the minimum bid price requirement and has not regained compliance with such requirement as of the date of this annual report.

The Notification Letter does not impact the Company’s listing on The Nasdaq Capital Market at this time. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided 180 calendar days, or until August 26, 2025, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the Company’s American Depositary Shares must have a closing bid price of at least $1.00 for a minimum of 10 consecutive business days. In the event the Company does not regain compliance by August 26, 2025, the Company may be eligible for additional time to regain compliance or may face delisting.

The Company aims to enhance its business performance and intends to monitor the bid price of its American Depositary Shares and may, if appropriate, consider implementing available measures to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. The Company’s business operations are not affected by the receipt of the Notification Letter. However, we cannot assure that we can regain compliance with the minimum bid price requirement.

If we do not meet these continued listing requirements, the ADSs could be delisted. Delisting of the ADSs from the Nasdaq Capital Market would cause us to pursue eligibility for trading on other markets or exchanges, including over-the-counter (“OTC”) markets. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, the ADSs would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities. There can be no assurance that the ADSs, if delisted from the Nasdaq Capital Market in the future, would be listed on a national securities exchange, a national quotation service or the OTC markets. Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity, make it more difficult for us to raise additional capital, adversely affect the market liquidity of our common shares, reduce security analysts’ coverage of us and diminish investor, supplier and employee confidence. Additionally, the threat of delisting or a delisting of the ADSs from the Nasdaq Capital Market could reduce the number of investors willing to hold or acquire our common shares, thereby further restricting our ability to obtain equity financing, and it could reduce our ability to retain, attract and motivate our directors, officers and employees. In addition, as a consequence of any such delisting, our share price could be negatively affected and our shareholders would likely find it more difficult to sell, or to obtain accurate quotations as to the prices of, the ADSs.

​

We may be, and have in the past been, delayed in complying with our periodic reporting obligations under the Exchange Act.

We are subject to the periodic reporting obligations under the Exchange Act. In particular, as our fiscal year ends December 31 of each year, the prescribed due date for us to file our annual report on Form 20-F is, in principle, April 30 of each year. However, we did not file our annual report for the fiscal year ended December 31, 2023 until June 18, 2024 due to delays in completing the audit of our consolidated financial statements for the year ended December 31, 2023. In addition, for the fiscal year ended December 31, 2022, we did not file our annual report until May 30, 2023, and we experienced delays with respect to prior fiscal years as well. While we believe we have made certain improvements to our internal controls over financial reporting, material weaknesses in such internal controls remain, and we may be delayed in complying with our periodic reporting obligations in the future. See “—We have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal control to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.”

Further, any failure by us to comply with our SEC reporting obligations in the future may materially and adversely affect investors’ investment in the ADSs. For instance, in the event that we fail to timely file any periodic reports or current reports, investors in the ADSs may not receive up-to-date disclosure of matters affecting their investment decisions, and the ADSs may be considered riskier than those of other issuers as a result. Additionally, under Nasdaq Listing Rule 5250(c)(1), a foreign private issuer listed on Nasdaq is required to timely file all required periodic financial reports with the SEC, and noncompliance creates a risk that the ADSs could be delisted. In the event that the ADSs are delisted from Nasdaq, the value and liquidity of investors’ investment in the ADSs would be materially and adversely affected. See also “—ADSs representing our common shares are listed on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of the ADSs, which could make it more difficult for us to sell securities in a financing and for you to sell your ADSs.”

Our Chief Executive Officer owns a “golden share” with key veto rights, thereby limiting a shareholder’s ability to influence our business and affairs.

Kouji Eguchi, our Chief Executive Officer and director, is the sole holder of our Class A common share, which we refer to as a “golden share,” entitling him to certain veto rights on key matters presented to our shareholders. Consequently, Mr. Eguchi is able to control key corporate decisions, thus limiting the ability of the holders of the ADSs to influence matters affecting our Company. As a shareholder, Mr. Eguchi may be able to influence the outcome of matters submitted to shareholders for approval, including amendments of our organizational documents, issuance of additional common shares, approval of any merger, sale of assets, or other major corporate transactions. This may prevent or discourage unsolicited acquisition proposals or offers for our common shares or ADSs that you may feel are in your best interest as one of our shareholders. Circumstances may occur in which the interests of our Chief Executive Officer could be in conflict with your interests or the interests of other shareholders. Accordingly, a shareholder’s ability to fully influence our business and affairs through voting its common shares may be limited.

The requirements of being a U.S. public company may strain our resources and divert management’s attention.

As a public company with ADSs listed on NASDAQ, we incur significant legal, accounting, and other expenses that we did not incur as a private company. The reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and the listing standards of NASDAQ as applicable to a foreign private issuer, which are different in some material respects from those required for a U.S. public company, impose various requirements on the corporate governance practices of public companies. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” Further, these rules and regulations may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage, which could make it more difficult for us to attract and retain qualified members of our board of directors.

Pursuant to Section 404 of the Sarbanes-Oxley Act, once we are no longer an emerging growth company, we may be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of complying with Section 404 of the Sarbanes-Oxley Act will significantly increase, and management’s attention may be diverted from other business concerns, which could adversely affect our business and results of operations. We may need to hire more employees in the future or engage outside consultants to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, which will further increase our cost and expense. In addition, enhanced legal and regulatory regimes and heightened standards relating to corporate governance and disclosure for public companies result in increased legal and financial compliance costs and make some activities more time-consuming.

As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition is more visible as compared to a private company, which may increase the risk to us of threatened or actual litigation, including by competitors, shareholders or third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, financial condition and results of operations.

We have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal control to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

In connection with the preparation of our financial statements for the fiscal year ended December 31, 2023, we identified several material weaknesses and other control deficiencies including significant deficiencies in our internal control over financial reporting. As defined in the standards established by the Public Company Accounting Oversight Board of the United States, or PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements as of and for the fiscal year ended December 31, 2024, we have identified material weaknesses in our financial reporting related to the following:

​

We have already taken some steps and have continued to implement measures to remediate the material weaknesses identified, including but not limited to, (i) utilization of the systems, (ii) streamlining of business processes, (iii) improving the capacity of the financial closing team through internal personnel assignments and support from external professionals, and (iv) performing user access controls, including provisioning, deprovisioning and periodic reviews.

Section 404 of the Sarbanes-Oxley Act (which we refer to as “Section 404”), requires that as a U.S. public company, we assess the effectiveness of our internal control over financial reporting at the end of each fiscal year. In addition, once we cease to be an “emerging growth company” as defined in the JOBS Act, our independent registered public accounting firm may be required to attest to and report on the effectiveness of our internal control over financial reporting. In the event this becomes required, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal control or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

We cannot assure you that our remedial measures will successfully remediate the material weaknesses identified so far, or that other material weaknesses will not be discovered in the future. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from NASDAQ, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.

We cannot assure you that the ADSs will remain liquid or that they will remain listed on NASDAQ.

Our ADSs representing our common shares are listed on The Nasdaq Capital Market; however, we cannot assure you that we will be able to maintain such listing. See “—ADSs representing our common shares are listed on the Nasdaq Capital Market. As such, we must meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of the ADSs, which could make it more difficult for us to sell securities in a financing and for you to sell your ADSs.” In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling ADSs representing our common shares, which may further affect the liquidity of the ADSs. This would also make it more difficult for us to raise additional capital or attract qualified employees or partners.

Although the ADSs are currently listed on NASDAQ under the symbol “MRM”, an active trading market for the ADSs may never develop or be sustained. If an active trading market does not develop or is not sustained, you may have difficulty selling your ADSs at an attractive price, or at all. An inactive market may also impair our ability to raise capital by selling our common shares or ADSs, and it may impair our ability to attract and motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our common shares or ADSs as consideration.

The price of the ADSs may fluctuate substantially.

The stock market in general, and the price for the ADSs are subject to fluctuation, and changes in the price of our ADSs may be unrelated to our operating performance. Some factors that may cause the market price of the ADSs to fluctuate, in addition to the other risks mentioned in this section of the annual report, are:

These and other market and industry factors may cause the market price and demand for the ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of the ADSs. Future market fluctuations may also materially adversely affect the market price of the ADSs.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company. Any such class action suit or other securities litigation would divert the attention of our senior management, require us to incur significant expense and, whether or not adversely determined, could materially adversely affect our business, financial condition, results of operations and prospects.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ADSs and trading volume could decline.

The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If few or no securities or industry analysts cover us, the trading price for the ADSs would be negatively impacted. If one or more of the analysts who covers us downgrades the ADSs, publishes incorrect or unfavorable research about our business, ceases coverage of our Company, or fails to publish reports on us regularly, demand for the ADSs could decrease, which could cause the price of the ADSs or trading volume to decline.

We do not currently intend to pay dividends on our common shares for the foreseeable future.

We currently do not intend to pay any dividends to holders of our common shares for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Any determination to pay dividends in the future will be at the discretion of our board of directors and subject to limitations under applicable law. Therefore, you are not likely to receive any dividends on your ADSs for the foreseeable future, and the success of an investment in the ADSs will depend upon any future appreciation in its value. Moreover, any ability to pay may be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries. Consequently, investors may need to sell all or part of their holdings of our common shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in valueor even maintain the price at which our shareholders have purchased the ADSs.

Sales of a substantial number of our common shares or ADSs in the public markets by our existing shareholders in the future could cause the price of the ADSs to fall.

Sales of a substantial number of our common shares or ADSs in the public market in the future or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities from time to time. We are unable to predict the effect that any such sales may have on the prevailing market price of the ADSs.

The future issuance of additional common shares in connection with our stock option plan, convertible bonds, acquisitions or otherwise may adversely affect the market of the ADSs.

As of December 31, 2024, there were an aggregate of 436,000 of our common shares issuable upon exercise of outstanding stock options, at a weighted average exercise price of JPY1,193 (US$7.58) per share, assuming a foreign currency exchange rate of JPY157.37 = US1.00 for purposes of determining the Japanese yen exercise price of the Tenth Series of Stock Options, which has an exercise price of US$2.1875. If and when more options are exercised for our common shares, the number of common shares outstanding will increase. Such an increase in our outstanding securities, and any sales of such shares, could have a material adverse effect on the market for the ADSs, and the market price of the ADSs.

On March 8, 2024, our board of directors adopted the MEDIROM Healthcare Technologies Inc. 2024 Equity Incentive Compensation Plan (the “2024 Equity Incentive Plan”), which was approved at our annual meeting of the shareholders held on March 29, 2024. Under the 2024 Equity Incentive Plan, we may grant stock options, stock appreciation rights, restricted stock, restricted stock units and performance share awards to our Company’s directors, internal corporate auditors, officers, employees and consultants. A total of 497,500 shares of common stock are authorized for issuance under the 2024 Equity Incentive Plan. We currently plan to continue granting stock options and other incentives so that we can continue to secure talented personnel in the future. We may issue all of these common shares without any further action or approval by our shareholders, subject to certain exceptions. Any common shares, issued in connection with our stock option plan, the exercise of outstanding stock options, or otherwise, would dilute your ownership interest.

In addition, we have used in the past, and may in the future use, convertible bonds in our financing activities. For example, we issued corporate convertible bonds in the aggregate amount of JPY500,000 thousand (US$3,108 thousand) to Kufu Company Inc., a Japanese company, in December 2022, the terms of which we amended on November 1, 2024. The bonds are unsecured, accrue interest at a rate of 5.0% per annum, payable on June 30, 2023 and semi-annually thereafter, and will mature on December 31, 2025, unless earlier converted. At any time between the six-month anniversary date of December 28, 2022 and before the close of business on December 30, 2025, Kufu Company Inc., as the bond holder, may convert the bonds at its option, in whole or in part, into our common shares.

In addition, we issued corporate convertible bonds in the amount of JPY300,000 thousand (US$1,906 thousand) to Triple One Investment Limited Partnership, a Japanese limited liability investment partnership, in October 2024. The bonds are unsecured, accrue interest at a rate of 2.0% per annum, payable on June 30, 2025 and semi-annually thereafter, and will mature on October 29, 2027. At any time between October 25, 2024 and October 29, 2027, Triple One may exercise the stock acquisition right that is incorporated into each bond, in which case the corresponding portion of the bonds will be deemed to have been acquired by the Company as a capital contribution and will be extinguished (effectively, a conversion of the bonds into shares at the JPY957 (US$6.08) per common share exercise price).

We may also issue stock to provide consideration in connection with future acquisitions or other corporate transactions. The conversion of any convertible bonds into our capital stock, or the issuance of our capital stock in connection with corporate transactions, would dilute your ownership interest.

The right of holders of ADSs to participate in any future rights offerings may be limited, especially with respect to offerings other than distributions of cash, which may cause dilution to their holdings and holders of ADSs may not receive cash dividends if it is impractical to make them available to them.

We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make any such rights available to the ADS holders in the United States unless we register such rights and the securities to which such rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.

The depositary has agreed to pay ADS holders the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. However, because of these deductions, ADS holders may receive less, on a per share basis with respect to their ADSs than they would if they owned the number of shares or other deposited securities directly. ADSs holders will receive these distributions in proportion to the number of common shares the ADSs represent. In addition, the depositary may, at its discretion, decide that it is not lawful or practical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and ADS holders will not receive such distribution.

Holders of ADSs may be subject to limitations on transfer of their ADSs.

ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or withdrawing the underlying common shares.

We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a material right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or cancelling the ADSs and withdrawing the underlying common shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.

Holders of ADSs may not receive distributions on our common shares or any value for them if it is illegal or impractical to make them available to such holders.

The depositary of ADSs has agreed to pay holders of ADSs the cash dividends or other distributions it or the custodian for the ADSs receives on common shares or other deposited securities after deducting its fees and expenses. Holders of ADSs will receive these distributions in proportion to the number of our common shares that such ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act, but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit distributions on our common shares to holders of ADSs. This means that holders of ADSs may not receive the distributions we make on our common shares if it is illegal or impractical to make them available to such holders. These restrictions may materially reduce the value of the ADSs.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our common shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our common shares, the ADSs or the deposit agreement, which may include any claim under the U.S. federal securities laws.

If we or the depositary were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action. Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs (including purchasers of the ADSs in the secondary market) or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Risks Related to Japan

We are incorporated in Japan, and it may be more difficult to enforce judgments against us that are obtained in courts outside of Japan.

We are incorporated in Japan as a joint stock corporation (kabushiki kaisha) with limited liability. All of our directors are non-U.S. residents, and a substantial portion of our assets and the personal assets of our directors are located outside the United States. As a result, when compared to a U.S. company, it may be more difficult for investors to effect service of process upon us in the United States, or to enforce against us, or our directors or executive officers, judgments obtained in U.S. courts predicated upon civil liability provisions of U.S. federal or state securities laws or similar judgments obtained in other courts outside of Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon U.S. federal and state securities laws.

Substantially all of our revenues are generated in Japan, but an increase of our international presence could expose us to fluctuations in foreign currency exchange rates, or a change in monetary policy may harm our financial results.

Our functional currency and reporting currency is the Japanese yen. Substantially all of our revenues are generated in Japan, but an increase in our international presence could expose us to fluctuations in foreign currency exchange rates. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies which, among other factors, may be influenced by governmental policies and domestic and international economic and political developments. If our non-Japanese revenues increase substantially in the future, any significant change in the value of the currencies of the countries in which we do business against the Japanese yen could adversely affect our financial condition and results of operations due to translational and transactional differences in exchange rates.

We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the amount of our revenues that will be generated in other countries, the variability of currency exposures, and the potential volatility of currency exchange rates. We do not take actions to manage our foreign currency exposure, such as entering into hedging transactions.

We have business relationships with enterprises and professionals located outside of Japan and we may make payment to such parties in foreign currency, which exposes us to market risk associated with exchange rate movements of the Japanese yen against the U.S. dollar and other foreign currencies.

Our Japanese yen expenses consist principally of compensation, subcontractor expenses, and rent. While many of our business partners are Japanese domestic enterprises, we also have relationships with foreign enterprises and professionals to which our expenses may be paid in foreign currency. As our business expands overseas, our foreign currency exposure gives rise to more market risk associated with exchange rate movements of the Japanese yen mainly against the U.S. dollar, because most of our revenues are denominated in Japanese yen, while such expansion efforts outside Japan will cause us to incur more expenses in foreign currencies. Going forward, we anticipate that a certain portion of our expenses will continue to be denominated in foreign currencies. If such expansion efforts outside Japan are successful, however, a substantial amount of revenue could also be denominated in foreign currencies, particularly if we are able to develop and expand sales of MOTHER Bracelet® to markets outside Japan in the future. Our financial position, results of operations and cash flow are subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in such exchange rates.

To date, we have not engaged in hedging our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the adverse effects of such fluctuations.

Rights of shareholders under Japanese law may be different from rights of shareholders in other jurisdictions.

Our articles of incorporation and the Companies Act of Japan (which we refer to as the “Companies Act”) govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ fiduciary duties and obligations, and shareholders’ rights under Japanese law may be different from, or less clearly defined than, those that would apply to a company incorporated in any other jurisdiction. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of uncertainty as to what duties the directors of a Japanese joint stock corporation may have in response to an unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions.

Holders of ADSs have fewer rights than shareholders under Japanese law, and their voting rights are limited by the terms of the deposit agreement.

The rights of shareholders under Japanese law to take actions, including with respect to voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records, and exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its custodian agents, is the record holder of our common shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited common shares. ADS holders will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the depositary.

Holders of ADSs may exercise their voting rights only in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from the ADS holders in the manner set forth in the deposit agreement, the depositary will make efforts to vote the common shares underlying the ADSs in accordance with the instructions of the ADS holders. The depositary and its agents may not be able to send voting instructions to ADS holders or carry out their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, holders of ADSs may not be able to exercise their right to vote.

Under the deposit agreement, if you do not vote, the depositary may give us a discretionary proxy to vote the common shares underlying the ADSs at shareholders’ meetings if we have timely provided the depositary with notice of the meeting and related voting materials and (i) we have instructed the depositary that we wish a discretionary proxy to be given, (ii) we have informed the depositary that there is no substantial opposition as to a matter to be voted on at the meeting, and (iii) a matter to be voted on at the meeting would not have a material adverse impact on shareholders. The effect of this discretionary proxy is that you cannot prevent the underlying common shares represented by the ADSs from being voted, except under the circumstances described above. This may make it more difficult for ADS holders to influence the management of the company. Holders of common shares are not subject to this discretionary proxy.

Direct acquisition of our common shares, in lieu of ADSs, is subject to a prior filing requirement under recent amendments to the Japanese Foreign Exchange and Foreign Trade Act and related regulations.

Under recent amendments in 2019 to the Japanese Foreign Exchange and Foreign Trade Act and related regulations (which we refer to as “FEFTA”), direct acquisition of our common shares, in lieu of ADSs, by a Foreign Investor (as defined herein under “Memorandum and Articles of Association—Exchange Controls”) could be subject to the prior filing requirement under FEFTA. A Foreign Investor wishing to acquire direct ownership of our common shares, rather than ADSs, will be required to make a prior filing with the relevant governmental authorities through the Bank of Japan and wait until clearance for the acquisition is granted by the applicable governmental authorities, which approval may take up to 30 days and could be subject to further extension.

A prior filing requirement as set forth above is not triggered for acquiring or trading the ADSs because the depositary received clearance for the acquisition of our common shares underlying the ADS. Without such clearance, the Foreign Investor will not be permitted to acquire our common shares directly. As such, prior to accepting our common shares for deposit, the depositary obtained such pre-clearance from the applicable Japanese governmental authority. In addition, any Foreign Investor expecting to receive delivery of our common shares upon surrender of ADSs must also obtain pre-clearance from the applicable Japanese governmental authority prior to accepting delivery, which approval may take up to 30 days and could be subject to further extension. Although such prior filing requirement is not triggered for trading the ADSs once the depositary receives clearance for the deposit of the underlying common shares, we cannot assure you that there will not be delays for additional Foreign Investors who wish to acquire our common shares or for holders of the ADSs who are Foreign Investors and who wish to surrender their ADSs and acquire the underlying common shares. In addition, we cannot assure you that the applicable Japanese governmental authorities will grant such clearance in a timely manner or at all.

Dividend payments and the amount you may realize upon a sale of ADSs that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Japanese yen.

Cash dividends, if any, in respect of our common shares represented by the ADSs will be paid to the depositary in Japanese yen and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a holder of ADSs would receive upon sale in Japan of our common shares obtained upon surrender of ADSs, and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of common shares.

General Risk Factors

Third party claims with respect to intellectual property assets, if decided against us, may result in competing uses or require adoption of new, non-infringing intellectual property, which may in turn adversely affect sales and revenues.

There can be no assurance that third parties will not assert infringement or misappropriation claims against us, or assert claims that our rights in our trademarks, patents and other intellectual property assets are invalid or unenforceable. Any such claims could have a material adverse effect on us or our franchisees if such claims were to be decided against us. If our rights in any intellectual property were invalidated or deemed unenforceable, it could permit competing uses of intellectual property which, in turn, could lead to a decline in relaxation salon, Digital Preventative Healthcare business, and other revenues. If the intellectual property became subject to third party infringement, misappropriation or other claims, and such claims were decided against us, we may be forced to pay damages, be required to develop or adopt non-infringing intellectual property or be obligated to acquire a license to the intellectual property that is the subject of the asserted claim. There could be significant expenses associated with the defense of any infringement, misappropriation, or other third-party claims.

Changes in regulatory requirements, or in application of current regulatory requirements, may have an adverse effect on our business and results of operations.

Relaxation salons such as ours are not currently regulated by the Japanese government. The main law in Japan governing the massage industry is the Act on Practitioners of Massage, Acupressure, Acupuncture and Moxibustion, and etc. (Act No. 217 of 1947) (which we refer to as the “Massage Act”). However, our Company does not market or provide massage, acupressure, acupuncture, moxibustion or other services regulated under the Massage Act, and this information is clearly provided to all customers prior to receiving our services, as well as all franchisees to prevent unauthorized services. Moreover, all of our customers are required to sign a waiver acknowledging this prior to receiving our services. Nevertheless, the Japanese government could later include our industry within the meaning of the Massage Act, or enact a separate law to regulate our industry. If such an occurrence were to happen, our costs associated with licensing and training staff, as well as any additional wages required for hiring licensed staff, as necessary, could add to our expenses and harm our results of operation.

Matters relating to employment and labor law may adversely affect our business.

Various Japanese labor laws govern our relationships with our employees and affect operating costs. These laws include employment classifications of employee, independent contractor, or contract worker; minimum wage requirements; employer contributions to social security, unemployment insurance, and workers’ accident compensation insurance, and other wage and benefit requirements. Significant additional government regulations and new laws, including mandating increases in minimum wages, changes in employment status requirements, or other labor law changes could materially affect our business, financial condition, operating results or cash flow. Additionally, if our or our franchisees’ employees unionize, it could materially affect our business, financial condition, operating results or cash flow.

We are also subject in the ordinary course of business to employee claims against us based, among other things, on discrimination, harassment, wrongful termination, or violation of labor laws. Such claims could also be asserted against us by employees of our franchisees. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. The ongoing expense of any resulting lawsuits, and any substantial settlement payment or damage award against us, could adversely affect our business, brand image, employee recruitment, financial condition, operating results or cash flows.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ADSs and trading volume could decline.

The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. We are not currently aware of coverage by any such securities or industry analysts. If few or no securities or industry analysts cover us, the trading price for the ADSs could be negatively impacted. In the future, if one or more of the analysts who covers us downgrades the ADSs, publishes incorrect or unfavorable research about our business, ceases coverage of our Company, or fails to publish reports on us regularly, demand for the ADSs could decrease, which could cause the price of the ADSs or trading volume to decline.

Sales of a substantial number of our common shares or ADSs in the public markets by our existing shareholders in the future could cause the price of the ADSs to fall.

Sales of a substantial number of our common shares or ADSs in the public market in the future or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of additional equity securities from time to time. We are unable to predict the effect that any such sales may have on the prevailing market price of the ADSs.

​

ITEM 4. INFORMATION ON THE COMPANY

Our Company was originally incorporated in Japan on July 13, 2000 under the name “Kabushiki Kaisha Young Leaves.” In November 2001, we changed our name to “ReRaKu Inc.” and in January 2017, we changed our name to “MEDIROM Inc.” In March 2020, our Company’s English name was changed to “MEDIROM Healthcare Technologies Inc.” In December 2020, the Company listed its ADSs representing its common shares on The Nasdaq Capital Market. We are a joint-stock corporation incorporated in Japan under the Companies Act.

Our Company has developed our business both through organic development of our branded relaxation salons (primarily Re.Ra.Ku salons) and through acquisitions. On April 17, 2018, we established Bell Epoc Wellness Inc. (which we refer to as “BEW”). On May 28, 2018, 46 relaxation salons with the brand name “Bell Epoc” were transferred from Kabushiki Kaisha Bell Epoc to BEW for cash. Pursuant to an operating agreement entered into in 2018, by and between Kabushiki Kaisha Bell Epoc and BEW, Kabushiki Kaisha Bell Epoc has continued to manage the relaxation salons and BEW pays operation fees to Kabushiki Kaisha Bell Epoc based on revenue.

On April 20, 2018, we formed JOYHANDS WELLNESS Inc. (which we refer to as “JW”) to acquire the relaxation business operated by Kabushiki Kaisha Joyhands. Kabushiki Kaisha Joyhands was party to a number of outsource agreements with various spa operators, whereby Kabushiki Kaisha Joyhands provided relaxation services to customers of spa facilities. JW began entering into assignment and novation agreements with such spa facility operators, under which JW was substituted for Kabushiki Kaisha Joyhands as the counterparty to the existing outsource agreements with the spa facility operators.

On April 27, 2018, we established Medirom Human Resources Inc. (which we refer to as “MHR”) under the trade name Re.Ra.Ku Wellness Inc. MHR operates our therapist dispatch business. Previously, we hired therapists pursuant to an exemption that allowed us to forego obtaining permission from the Ministry of Health, Labor and Welfare of Japan under the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers and dispatched such therapists to our franchisees. When the Ministry of Health, Labor and Welfare of Japan eliminated the exemption in September 2018, we created MHR and transferred the therapist dispatch business to it. We subsequently terminated our therapist dispatch business to franchisees and, as of the date of this annual reports, MHR dispatches our therapists only to our directly-operated salons. On October 1, 2018, we acquired Decollte Wellness Corporation (which we refer to as “DW”) from Decollte Corporation for cash.

On May 6, 2021, we acquired SAWAN CO. LTD. (which we refer to as “SAWAN”) by purchasing a 100% ownership interest of SAWAN for cash. As a result, 13 “Ruam Ruam” salons, which is a luxury relaxation salon brand held by SAWAN, became part of our portfolio of directly-operated salons.

In July 2021, in order to speed up the decision-making process, improve business efficiency, and maximize business value, we reorganized and re-designated certain parts of our wholly-owned subsidiaries by business function. As part of the reorganization, DW merged with and into BEW with BEW being the surviving entity, and we transferred our Re.Ra.Ku salon business to BEW. As a result of the reorganization, BEW (currently known as Wing Inc.) now operates the salons previously owned by us and DW, and since July 1, 2021, it has been managing a majority of our relaxation salon operations, excluding those located in spa facilities or under the “Ruam Ruam” brand. In addition, we established Bell Epoc Power Partners Inc., which succeeded to the rights and obligations relating to the salon management entrusted division previously operated by BEW.

In November 2021, BEW changed its name to “Wing Inc.” and Bell Epoc Power Partner Inc. changed its name to “Bell & Joy Power Partners Inc.”

On October 1, 2021, we acquired a 60% ownership interest in ZACC Kabushiki Kaisha (which we refer to as “ZACC”), a high-end hair salon company, and we acquired the remaining 40% interest in ZACC in January 2022. ZACC owns and operates four luxury hair salons under three brands (ZACC vie, ZACC raffine, and ZACC ginza), all of which have been recognized by customers for over 30 years for their high level of techniques and hospitality.

On May 31, 2023, our board of directors approved a second reorganization (the “Second Reorganization”), consisting of an incorporation-type company split plan and an absorption-type company split agreement. Under the incorporation-type company split plan, the Company transferred its Digital Preventative Healthcare business to MEDIROM MOTHER Labs Inc. (“MML”), a newly established subsidiary that we wholly owned at the time of establishment, which operates our entire Digital Preventative Healthcare business since the reorganization, and under the absorption-type company split agreement, the Company transferred its existing salon development department, which is responsible for sourcing and setting up store spaces, and general corporate departments, which include accounting, legal, general affairs, human resources, IT and other corporate functions, and had Bell & Joy Power Partners Inc., an existing wholly-owned subsidiary, assume such operations going forward. On the same day, Bell & Joy Power Partners Inc. was renamed Medirom Shared Services Inc. The Second Reorganization became effective on July 3, 2023.

On November 26, 2024, our board of directors approved an additional reorganization, which was completed on January 1, 2025. This reorganization consisted of (i) an absorption-type company split, pursuant to which Wing Inc. acquired the spa business of Joyhands Wellness Inc. and assumed such operations; and (ii) an absorption-type merger, pursuant to which Wing Inc. merged with Medirom Human Resources Inc., with Wing Inc. being the surviving entity and changing its name to “MEDIROM Wellness Co.” Through this reorganization, we aim to allocate our therapist resources among our salons more smoothly, reduce the headcount at our headquarters, and improve the efficiency of inter-company administrative matters.

As of December 31, 2023, the Company had entered into six share transfer agreements, pursuant to which we have agreed to sell and transfer an aggregate of 1,781 shares in MML, or approximately 3.56% of its total shares outstanding, to certain third-party investors. The purpose of our 2023 reorganization and the transfer of MML shares was to make quicker decisions and seek external equity financing of MML as a spun-off startup to accelerate its growth. In August 2024, MML entered into a binding agreement with the lead investor for its series A financing round, and in September and October of 2024, MML entered into agreements with additional investors participating in MML’s series A financing round. As a result, approximately 6.3% of MML’s shares were held by third-party investors as of December 31, 2024. See “Item 4. Information on the Company—Capital and Businesses Alliances of MEDIROM MOTHER Labs Inc.” We intend to maintain our status as the controlling shareholder of MML.

On June 30, 2024, we signed an agreement to acquire 70% of the issued and outstanding equity of Japan Gene Medicine Corporation and make it a subsidiary of the Company. See “—Planned Acquisition of Japan Gene Medicine Corporation.”

As of December 31, 2024, we had the following subsidiaries: JOYHANDS WELLNESS Inc., Wing Inc., Medirom Shared Services Inc., SAWAN CO., LTD, ZACC Kabushiki Kaisha, MEDIROM MOTHER Labs Inc., Medirom Human Resources Inc. and MEDIROM Rehab Solutions Inc. The chart below illustrates our corporate structure as of January 1, 2025 after giving effect to our corporate reorganization, which was completed on the same date.

Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168. Our principal executive offices are located in 2-3-1 Daiba, Minato- ku, Tokyo 135-0091, Japan, and our main telephone number is +81(0)3-6721-7364. Our website is https://medirom.co.jp/en/. The information contained in, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this annual report. You should not consider any information on our website to be a part of this annual report. We have included our website address in this annual report solely for informational purposes.

The SEC maintains an internet site (http://www.sec.gov), which contains reports, information we are required to provide to our shareholders or otherwise make public under our home country laws, and other information regarding us that we file electronically with the SEC.

We are one of the leading holistic health services providers in Japan. Medirom is a franchiser and operator of healthcare salons across Japan, an operator of luxury hair salons in select central Tokyo locations, a preferred platform partner for healthcare service providers and government entities to affect positive health outcomes, and a provider of healthcare technology platforms.

We operate three synergistic lines of businesses: (1) Relaxation Salon Segment; (2) Luxury Beauty Segment; and (3) Digital Preventative Healthcare Segment (HealthTech). By combining brand strength and core retail competencies, including a broad physical footprint in population dense areas across the country, with proprietary technologies and partnerships, our business provides unique, value-added healthcare services to our customers with scale, customization, and cross-network effects that we believe few other companies in the industry can emulate. As of December 31, 2024, all of our principal business activities were focused on Japan.

As of December 31, 2024, the Relaxation Salon Segment had 308 locations across Japan, located within the country’s major cities, primarily in the Tokyo metropolitan area. We utilize our proprietarily customized customer relationship management system to record customer data, facilitate reservations and point-of-sale and business intelligence functions at the 283 salons integrated into such system as of December 31, 2024. Our salons are generally located in metro stations/subways, shopping malls, plazas and high-traffic streets. The Relaxation Salon Segment is our core business and accounted for ¥7,446 million (US$47.3 million), or approximately 89.7% of our total revenue, for the year ended December 31, 2024 and ¥6,060 million (US$38.5 million), or approximately 88.8% of our total revenue, for the year ended December 31, 2023.

The Luxury Beauty Segment consists of ZACC, our high-end hair salon, which accounted for ¥699 million (US$4.4 million), or approximately 8.4% of our total revenue, for the year ended December 31, 2024 and ¥568 million (US$3.6 million), or approximately 8.3% of our total revenue, for the year ended December 31, 2023.

The Digital Preventative Healthcare Segment consists of a government-sponsored Specific Health Guidance program, utilizing our internally-developed on-demand health monitoring smartphone application, Lav®; our MOTHER Bracelet® for fitness and health applications; and preventative healthcare services utilizing our experienced nutritionists and health nurses. The Digital Preventative Healthcare Segment accounted for ¥154 million (US$1.0 million), or approximately 1.9% of our total revenue, for the year ended December 31, 2024 and ¥200 million (US$1.3 million), or approximately 2.9% of our total revenue, for the year ended December 31, 2023.

Consumers increasingly recognize the value of services in the relaxation sector after the COVID-19 pandemic. The relaxation sector continues to offer a service that we believe many consumers view as nearly non-discretionary. Bodily health, joint alignment, and therapeutic bodyworks impact the health and wellness of our customers and require physical contact—continuing to buoy our core relaxation salon business. We believe general interest among consumers in managing and maintaining personal health is also growing, especially with respect to balancing sleep, diet and exercise. With this growing interest in critical factors for health, we believe our services are viewed as a more necessary item of consumer spending that we expect will increase demand for our services given the strength of our brand. We also anticipate that our planned acquisition of 70% of the equity of Japan Gene Medicine Corporation will provide opportunities for us to grow our presence in the healthcare technology space and expand the portfolio of services we offer to our relaxation salon clients. See “—Planned Acquisition of Japan Gene Medicine Corporation.”

Relaxation Salon Segment

Our goal is to improve our customers’ quality of life by providing alternative, non-invasive wellness care. We use therapeutic techniques encompassing finger-pressure style bodywork therapy, stretch therapy, posture and joint alignment, as well as physical therapy elements. Our salons are designed to appeal to individuals seeking to improve their mental and/or physical well-being. Our customers vary from individuals seeking stress and pain relief to other individuals who are just looking to improve their overall mental and physical health. Our relaxation salons provide a variety of individual services, including traditional Japanese massage therapy, anti-fatigue therapy, athletic support therapy, slim-down therapy and reflexology.

The Relaxation Salon Segment is the core of our business and consists of directly-operated salons (including salons which we have sold to third party investors who then outsource the management of such salons back to us) as well as franchised salons. Our salon locations cover major cities throughout Japan, with strong market presence in the Tokyo metropolitan area, which includes Tokyo, Kanagawa, Saitama and Chiba. According to the Survey on Basic Resident Registration System as of October 1, 2022, by the Ministry of Internal Affairs and Communications, the population (registered residents) of the Tokyo metropolitan area was estimated to be 36.9 million. According to the 2022 Yano Report, in terms of the number of salons, we are one of the top three companies, on a consolidated basis, in the Kanto region (Tokyo, Kanagawa, Saitama, Chiba, Gunma, Ibaraki and Tochigi), and in the top four nationwide.

Our salons operate under several brand names. Our core brand is Re.Ra.Ku®. Our salons are generally located in metro stations/subways, shopping malls, plazas and high-traffic streets. As of December 31, 2024, on average, our salons measure approximately 719 square feet (which excludes data from salons in spa facilities and salons where the franchisees have direct contracts with the landlords) and contain a reception area and treatment space. A typical salon under the Re.Ra.Ku® brand is staffed by six relaxation therapists. As of December 31, 2024, we had an average of 6.5 beds per salon, excluding salons located within spa facilities.

We intend to continue to grow our salon business over time through both organic growth and acquisitions. As of December 31, 2024, we had 308 salons in operation throughout Japan, of which 163 were directly- owned salons.

Our largest source of revenue derives from our directly-operated salons. Revenue from operating our directly-operated salons accounted for 53.4% of our consolidated revenue for the year ended December 31, 2024. Revenue from our franchise business consists of recurring franchise royalties, franchise membership fees, staffing services fees, sublease revenue and other franchise revenues and accounted for 9.5% of our consolidated revenue for the year ended December 31, 2024. As part of our growth strategy, we have sold, and plan to continue to sell, certain of our owned salons to investors and charge management fees to the owners of such salons. Our revenue from salon sales accounted for 26.7% of our consolidated revenue for the year ended December 31, 2024.

Our franchisees are expected to meet the same quality and customer service standards as our directly- operated locations. We select potential franchisees based on a set of strict qualification criteria which includes background checks, financial net worth assessment and personal interviews. We enter into a franchise agreement with each of our franchisees, stipulating a standard set of terms and conditions for operating the salons and each party’s duties and responsibilities.

Customers

Our relaxation salons are designed to appeal to individuals seeking to improve their mental and/or physical well-being. Our customers include individuals who are health conscious and other individuals seeking stress and pain relief, therapeutic reflexology, or to improve their overall mental and physical health. The majority of our customers are employed females with disposable income, but our demographic mix varies by salon and geography. We benefit from and rely on the value and recognition of our Re.Ra.Ku® and other brands which drive word of mouth and direct referrals. Additionally, we utilize an omnichannel advertising strategy across print, affiliate referrals and digital marketing to reach out to and cultivate potential customers.

Services

Our relaxation salons offer a variety of individual services, each with multiple price ranges, including: anti-fatigue therapy; athletic support therapy; slim-down therapy; and reflexology. Anti-fatigue therapy is designed to relieve fatigue and discomfort, and concentrates on the shoulder blades, neck, lower back and posture. We suggest that first-time customers begin with anti-fatigue therapy because most new customers visit our salons with stiff muscles and are unable to do more difficult stretches. Anti-fatigue therapy helps enhance the customer’s stretching ability. Athletic support therapy is intended to provide quick gains in active and passive range of motion to help improve athletic performance and increase flexibility, by performing shoulder blade alignment adjustments and resistance exercise. Slim-down therapy focuses on pelvic and shoulder blade alignment and is intended to help dieting by moving the muscles near the pelvis, which normally get little exercise, thereby increasing metabolism and improving posture. Our reflexology therapy is designed to target specific pressure points and areas on the feet to promote relaxation, improve circulation and reduce pain. While most Re.Ra.Ku® locations offer these four therapies, some individual salons offer other select therapy methods, such as Thai traditional stretching. Pursuant to the terms of our standard franchise agreements, our approval is required for any changes to the services provided in franchised salons.

Our customers can arrive at our salons with or without appointments at times convenient to their schedule. Upon checking in, salon staff provides customers with a questionnaire that asks for their contact information and certain health information to help the therapist identify the service that is most appropriate for the customer and whether the customer is experiencing muscle pain or other health problems. Upon completion of the therapy, the therapist will meet with the customers to obtain feedback on the services provided.

​

Prepayment Systems and Loyalty Programs

In December 2008, we began issuing prepaid cards, called the Re.Ra.Ku® Card, to relaxation salon customers. Users of the Re.Ra.Ku® Card can continuously use the card at most of our Company’s relaxation salons. The customer receives rewards on a tiered basis, so the more the customer spends on the Re.Ra.Ku® Card, the greater the reward that can be used at Re.Ra.Ku® locations. Following the acquisition of SAWAN, we started issuing another line of prepaid cards called the Free Pass, which can be used at Ruam Ruam branded salons. In addition, in October 2024 we issued various prepaid tickets to customers who prefer paper-based tickets. These prepaid tickets include year-end “Thanksgiving Tickets” and “Value Tickets”, under which customers receive a small premium service credit above the price paid for such ticket and participation rights in a lottery for prizes, depending on marketing campaigns. As of December 31, 2024, customers’ aggregate prepaid balance on the Re.Ra.Ku® Cards, the Free Passes, the Thanksgiving Tickets, and the Value Tickets was JPY476,100 thousand (US$3,025 thousand).

In 2023, the Company decided to decrease our reliance on the Re.Ra.Ku® Card, and in February 2024 the Company introduced a new payment system by launching “Re.Ra.Ku PAY”, a proprietary payment app which works on customers’ smart phones. As of December 31 2024, Re.Ra.Ku PAY had 14,037 unique users, of which 35.1% were active, which we define as those who have actually made payments using Re.Ra.Ku PAY during the month of December 2024. Customers can charge their balance at our salons or remotely with their credit cards. During the twelve months ended December 31, 2024, the cumulative amount charged by customers through Re.Ra.Ku PAY was JPY1,079,935 thousand (US$6,862 thousand). An important difference between the Re.Ra.Ku Card and Re.Ra.Ku PAY is that Re.Ra.Ku PAY balances have an expiration period of 150 days, while the Re.Ra.Ku Card balances do not have an expiration date. Moreover, rather than giving customers a certain percentage of points when they charge a certain amount of the card balance on the Re.Ra.Ku Card, we give customers using Re.Ra.Ku PAY a certain percentage of points when they pay with the app in accordance with each customer’s loyalty status, which is either “Bronze”, “Silver”, “Gold”, “Platinum”, or “Diamond”. We believe this approach contributes to more revenue generation by giving customers points at payment rather than at charging. As of December 31, 2024, the outstanding aggregate account balance of all users of Re.Ra.Ku PAY was JPY83,307 thousand (US$529 thousand).

The Company aims to utilize Re.Ra.Ku PAY for various marketing campaigns and to expand the scope of possible payments from only relaxation services at present to merchandise or other uses. We launched Re.Ra.Ku PAY on February 1, 2024, and disallowed further balance deposits on Re.Ra.Ku Cards beginning on the same date. As a result, Re.Ra.Ku Card users can pay with their current balances but cannot add to their balances. Except for limited circumstances, the prepaid balances on the Re.Ra.Ku® Card, the Free Passes, Re.Ra.Ku PAY, and prepaid cards are generally non-refundable. See “—Introduction of New Payment App ‘Re.Ra.Ku PAY’ and Prepaid Cards” for more details.

Market

Most of our relaxation salons are located in the Kanto region of Japan. Kanto is commonly considered the economic and political center of Japan, and includes cities such as Tokyo, Yokohama, and Saitama, among other large cities and prefectures. According to the Statistics Bureau of Japan, as of October 1, 2023, the population of Kanto was 43.5 million, which accounted for 35.0% of the total population of Japan (124.4 million). According to the 2022 Yano Report, in terms of the number of salons, we are one of the top three companies, on a consolidated basis, in the Kanto region (Tokyo, Kanagawa, Saitama, Chiba, Gunma, Ibaraki and Tochigi) and in the top four nationwide.

​

According to the 2022 Yano Report, growth of the Japanese relaxation sector is expected to continue to outpace overall GDP growth, which is expected to increase 1.72% from JPY114 billion (US$724 million) in 2022 to JPY120 billion (US$763 million) in 2025, while national GDP is expected to grow by 1.2% from 2022 to 2026, according to Daiwa Research Institute Economic Report (dated January 24, 2022).

​

​

Source: 2022 Yano Report

​

We believe the sector continues to see outsized growth as consumers in an already health-conscious country increasingly value health and wellness of both body and mind. Concurrently, large companies, in partnership with or through subsidies received from the government, increasingly factor in employee wellness for both productivity and for retention, loyalty, and satisfaction with the employer. This has led to the creation of corporate budgets, often with government subsidies, earmarked for employee health and wellness programs, insurance programs, fitness and gym memberships which further increases spend in the market. While 51% of the market is occupied by mid to large chains like ours, most of the market consists of small, locally-owned salons, 68.9% of which are estimated to be individual-run single outlets, according to the 2022 Yano Report.

M&A, Consolidation, and Industry Rationalizations

The relaxation sector in Japan faces structural changes that have accelerated mergers and acquisitions and consolidations. As smaller, private operators either fail to grow sufficient revenue to cover costs and owners of larger, established companies seek to exit for retirement or other reasons, an increasing number of sellers have attracted both industry players as well as financial sponsors. We believe the gating factors remain synergies between the acquirer and target, including a pragmatic approach to M&A integration, post- acquisition operations, and preservation of brand and customer base. Purchase price remains a more muted factor which affords compelling value-creation opportunities for the right strategic acquirer.

Our long-term goal is to have 1,000 salons nationwide and become the number one salon network in Japan. In order to achieve this goal, we opportunistically look for acquisition targets while continuing to organically develop our own branded salons. In addition, we may pursue opportunities to acquire similar businesses in other geographic regions such as the United States and Southeast Asia.

Site Selection, Design and Construction

Our real estate department identifies and recommends the salon sites for directly-operated and franchise locations. The real estate department analyzes the sites based on criteria such as the average population, income and gender demographics, proximity to train stations and foot traffic in front of the salon. A score is then assigned to each potential site location. Once our Company identifies a potential site, it will enter into a lease agreement with the landlord. Street locations generally have a three-year lease term, while locations inside train stations or shopping centers have a five-year lease term. Our Company subleases salon locations to franchisees and passes through all of the associated rental costs. Franchisees are required to pay us an upfront fee for design and construction of the leased location as well as a nominal monthly management fee during the term of the lease to cover processing and service charges. It takes approximately 90 days to complete the design and construction of a new salon. We believe the sublease arrangements are more suitable for our business because our reputation and size allow us to negotiate for more favorable lease terms than would otherwise be provided to individual franchisees.

​

Recruiting and Training

As a complement to our salons, we also operate Re.Ra.Ku® College (which we refer to as the “College”).

The flagship College is located in the Odaiba area in Tokyo. The College offers continuing training for franchise owners, home office staff, and salon staff, covering topics such as customer service, salon operations, and relaxation techniques. The College also provides training for students who wish to become qualified as “Relaxation Therapists”, which is a private qualification granted by the Association of Japan Relaxation Industry, an industry group for relaxation services providers. In addition, franchise owners, salon managers and relaxation therapists engage in recurring monthly education at the College. We do not charge students any fees for the training provided at the College. However, upon completion of the initial training program, we assist students with obtaining employment at our franchised salons in exchange for a fixed monthly payment from the franchise owners. We also employ students at our directly-operated salons. The College enables us to implement and promote our corporate culture and mission and we believe it helps improve job satisfaction and employee retention.

To be admitted into the College, students must pass a qualification check and an interview. This initial qualification program consists of 41 courses that typically extend for a month. The curriculum used at the College teaches 133 skills to students via a combination of live training and online videos. Although there is no qualification requirement for a therapist in Japan, students have to pass this initial qualification program before working at our salons. Currently, our Company has College campuses in Tokyo, Nagoya and Osaka.

Seasonality

Our Relaxation Salon Segment experiences seasonal trends due primarily to changes in weather and in line with holiday schedules. Generally, our revenue is strongest from May to October. Sales tend to slow in November due to the shorter day length and lower temperatures in Japan, but then increase in December for the holiday season. Fewer operating days and cold weather lead to weaker sales figures in January and February. March and April are transition months before the high season. We typically carry out spring sales promotion in April to boost the sales in May.

Franchises

As of December 31, 2024, 88 of our 308 salons were operated by franchisees. We strive to ensure that each of our franchise locations meets the same quality and customer service standards as our directly-operated locations in order to preserve the consistency and reliability of our brand and maintain the trust of our customers.

We are committed to providing the tools that our franchisees need to succeed before, during and after a salon opening, including guidance with site selection and development, training, operations and marketing support. We have a franchisee support team that we use to help provide continuous assistance to franchisees. This support team is sent directly to meet with franchisees to help identify any areas that could be improved with regard to the franchisee’s business, and devise strategies to overcome such obstacles the franchisees may be facing.

We identify potential franchisees through a variety of methods, including word-of-mouth and referrals from existing franchise owners. We also employ qualification criteria in the selection of franchisees, including reviewing the candidates’ backgrounds and financial situations, conducting interviews and determining the candidates’ compatibility with our Company’s culture. Our franchise agreements set forth a high standard of conduct across all franchised locations. As such, our franchisees are curated to confirm with the high standards of quality, expertise, and customer centricity which form the core of our brand and culture. We provide our franchisees with ongoing training and advertising support. We continuously monitor the financial performance of each franchised location using customized software called Peak Manager.

Additionally, all of our franchisees join an organization, the “Franchisees’ Friendship Club”, that facilitates discussion among the franchisees regarding our Company’s business model and shared know-how. The Club also makes proposals to our Company regarding the franchise agreement, Company business and other matters related to the franchisor-franchisee relationship, to maximize mutual benefits. The Franchisees’ Friendship Club holds a meeting once per month. Apart from the Franchisees’ Friendship Club, our Company holds a “Franchise Owners Meeting” every quarter to share our Company’s salon business strategy, key performance indicators, and other matters of common interest. Our Chief Executive Officer attends meetings to interact directly with the franchisees.

Franchise Agreements

Our franchise model requires minimal capital expenditures by our Company while generating recurring revenue streams from franchise fees and salon sales. For each franchised salon, we enter into a franchise agreement stipulating a standard set of terms and conditions.

A franchise agreement allows an owner to open a single salon at a specific location. The initial term of a franchise agreement is five years from the salon’s opening date. Unless either party provides notice of nonrenewal by at least six (6) months prior to the franchise agreement’s expiration, the franchise term extends for an additional five-year period, and the same provision applies thereafter. Franchisees must pay an initial fee for our salons at the time the franchise agreement is signed. Franchisees that renew their franchises after the initial term must pay a renewal fee on a per salon basis. Under our standard franchise agreements, franchisees are also required to pay a monthly royalty fee. The royalty rates vary depending on the number of salons operated by a franchisee, ranging from 6-8% of the total revenue of the franchisee.

Our franchise agreements set forth certain material duties and responsibilities of the franchisees, including, but not limited to: (i) cooperating with our Company’s advertising initiatives prior to and after the opening of a salon; (ii) maintaining the design, layout and equipment of a salon as designated by our Company; (iii) undergoing periodic skills training in accordance with our policies; and (iv) complying with restrictions on transfer of the franchise. We provide our franchisees with license to use our registered trademarks, including CLP CARE LIFE PLANNER®, in connection with the operation of their franchised salons. We utilize this trademark in our franchise agreements to designate therapists who have completed a required technique training program. We retain the right to approve any change to a salon location, the service menu and the types of products sold at the salon other than those products supplied or purchased from us. Franchisees are subject to non-compete provisions during the term of the franchise agreement and for one year after termination thereof. Franchisees are responsible for hiring and compensating their own employees.

We have the right to terminate the franchise agreement for cause, including failure of the franchisees to pay our fees as set forth in the franchise agreement or failing to meet our established profitability metrics.

Either we or the franchisee may terminate the franchise agreement without cause upon six months’ prior written notice to the other party and prior consultation to attempt to resolve any disputes and prior consultation with the franchisees. The franchisee may be required to pay us a termination fee under certain circumstances. The franchise agreement may only be amended upon mutual consent of both parties in writing. In exceptional circumstances, we may temporarily waive our right to receive franchise royalties under a franchise agreement if we have agreed to temporarily take over the operations of a poorly performing franchised salon to turn around the salon’s performance.

Luxury Beauty Segment

Our Luxury Beauty Segment consists of the management and operation of high-end hair salon brands under ZACC. ZACC salons are located in Omote-sando and Ginza, which are fashion center areas in Tokyo. The Aoyama flagship salon located in Omote-sando has 443 square meters of store space and 44 seats. The Ginza salon has 81 square meters of store space and 10 seats.

ZACC operates three luxury hair salon brands, ZACC vie, ZACC raffine, and ZACC ginza. At ZACC’s salons, only qualified “stylists” cut customers’ hair at the salons’ standard prices. “Stylists” are hairdressers who are permitted to provide haircuts after completing a certain period of trainee work experience as “assistants.” In 2023, ZACC began permitting assistants to provide haircuts to consenting customers at a discounted price to accelerate the training of assistants and their qualification as stylists. ZACC is actively recruiting additional talented assistants who have the potential to become top stylists and train the current stylists to better promote their services via various social networking services. For the year ended December 31, 2024, more than 96.5% of ZACC’s service revenue was generated from customers who specifically request their preferred stylists, and more than 81.7% of customers were repeat customers for the year ended December 31, 2024, compared to 85.5% for the year ended December 31, 2023.

Revenue contributed by the operations of ZACC branded salons increased by JPY22,206 thousand (US$141 thousand) from JPY567,695 thousand (US$3,607 thousand) for the year ended December 31, 2023 to JPY589,901 thousand (US$3,748 thousand) for the year ended December 31, 2024. ZACC had total customers of 37,496 and 37,520 in 2023 and 2024, respectively, and revenue per customer increased from JPY15,331 (US$97) in the year ended December 31, 2023 to JPY15,683 (US$100) in the year ended December 31, 2024. In addition to salon operation revenue, as part of our strategy to sell salons to investors, we sold our ZACC Ginza salon to an investor during the year ended December 31, 2024, which generated revenue of JPY109,400 thousand (US$695 thousand).

For the year ended December 31, 2024, we increased our focus on the sale of merchandise in addition to attracting new customers. We are working to improve ZACC’s financial performance through efforts to hire additional talented assistants who have the potential to become top stylists and train current stylists to better promote their services via social networking services such as Instagram.

Digital Preventative Healthcare Segment

The aim of our diverse health related product and service offerings will help us collect and manage healthcare data from users and customers and enable us to become a leader in big data in the healthcare industry. Our Digital Preventative Healthcare Segment consists of the following businesses.

Specific Health Guidance Program via Lav® Application.  We serve small and medium size businesses, large corporations, and government entities in their implementation of health and wellness programs as outlined by the Ministry of Health, Labor and Welfare of Japan’s Specific Health Guidance Program. Japan is confronting a rapidly-aging society, as well as inflation of medical expenses from increasing occurrences of fatal diseases, such as diabetes, heart attack and stroke. To tackle this nationwide issue, the government initiated the Specific Health Guidance Program in April 2008. In this program, 40-through-74-year-old people who have received a diagnosis warning of lifestyle diseases at a health check-up are requested by a doctor to take a series of courses that are tailored to reduce the risk of developing certain lifestyle diseases. Because Japanese citizens and permanent residents are required to maintain health insurance through government or employer sponsored programs, it is the health insurance providers’ responsibility to have participants take the courses if they are requested to do so. By partnering with a number of health insurance providers, we provide support to connect those who need to take the courses with health care professionals via our proprietary on-demand health monitoring application for smartphones called Lav®. We charge fees to health insurance providers, depending on how many participants use the program and which type of program is used. A portion of these fees is subsidized by the Japanese government.

Until recently, the goals of health checkups and health guidance have been the early identification and treatment of illnesses. By focusing on visceral-fat obesity and providing health guidance to patients for improving living habits that cause visceral-fat obesity, specific health checkups and specific health guidance are used as preventative measures to decrease the numbers of persons who suffer from, or are at risk of, lifestyle-related conditions such as diabetes. Since lifestyle-related conditions progress with no visible symptoms, specific health checkups, which are comprised of health screenings intended to identify those who require health guidance to prevent lifestyle-related conditions, are considered to be an excellent opportunity to review the individual’s living habits. Health guidance is provided to help the individual change his or her behavior. All those who have undergone specific health checkups are provided with information suited to their own individual circumstances.

Based on the results of specific health checkups, persons eligible for specific health guidance are identified by level (that is, those eligible for motivational support and those eligible for active support) in accordance with their risk levels, by focusing on the degree of visceral fat buildup and the presence of other of risk factors. The goals of specific health guidance are to enable eligible persons to be aware of their own health conditions and make voluntary efforts, on a continual basis, to improve their own living habits. Participants are provided with a variety of motivational information and advice to help them live healthier lifestyles on their own. Motivational support is, in principle, the one-time provision of encouragement for the participant to make improvements in living habits.

The Specific Health Guidance Program provides continual support in multiple sessions over three months or longer. An action plan is prepared with the guidance of the specialists such as doctors, health nurses, and nutritionists, and provides motivational support to improve the patients’ health-related daily habits. We have engaged several experienced nutritionists and healthcare professionals as designated coaches by entering into service agreements for this purpose. These therapists and nutritionists help provide integrated bodywork (physical body-oriented support), encouragement and inspiration (mental support), and dietary guidelines (metabolic/diet support). Specialists provide regular, continual support for efforts to improve living habits over a period of three months or longer.

In addition to the Specific Health Guidance Program, we provide similar services to younger generations as well. Certain large Japanese companies work in collaboration with their own corporate-sponsored health insurance associations to provide their younger employees, who are not covered by the Specific Health Guidance Program, with services similar to those we provide under the government-sponsored program. We receive payment for these services from the sponsoring companies or their corporate-sponsored health insurance associations. Because these programs are not regulated by the government, we are able to engage our in-house therapists as coaches to provide guidance and feedback to the program participants through the Lav® app.

Lav® Application. We launched an upgraded version of Lav® as a consumer application in July 2021. The updated Lav® application offers options such as detox, weight control, and exercise programs. On this consumer version of the Lav® application, we also currently engage our in-house therapists as coaches to provide guidance and feedback through the app. We also have been promoting the Lav® consumer application to our existing customers at relaxation salon locations.

MOTHER Bracelet®.  Our MOTHER Bracelet® fitness device is designed to track and collect the health data of the wearer, such as calorie consumption, activity and sleep patterns. We believe the MOTHER Bracelet® is the only fitness tracker that requires no electric charging, as it utilizes innovative technology such as Gemini TEG (Thermoelectric Generator) and Mercury Boost Converter to enable the user’s body heat to generate electricity. We are not aware of any other wearable devices equipped with near field communication (“NFC”) functionality currently in the market with equivalent capabilities. MOTHER Bracelet® is our registered trademark in Japan. We intend to pursue other opportunities in Japan and the United States for large-scale private label contracts for our device.

Rather than selling MOTHER Bracelet® devices on a stand-alone basis to individual consumers, we believe corporate customers are a more ideal customer base because they are able to benefit from monitoring the health data of a large number of MOTHER Bracelet® users, such as patients in hospitals, residents in nursing homes, drivers or employees in transportation or construction businesses.

Hence, in 2023, we developed a platform consisting of MOTHER Bracelet®, Gateway, which is a telecommunication tool containing a subscriber identity module, and REMONY®, which is a centralized monitoring software system. Through this platform, data are collected from each MOTHER Bracelet® worn by a large number of users, then sent to REMONY® via Gateway, and our business customers can centrally monitor all individual users’ health data on a nearly real time basis. The system is designed to notify facility managers and family members when it detects abnormal health-related signs and signals on the wearers. This platform has been in commercialization and generating revenue since September 2023.

In May 2024, REMONY®, which can only be coupled with the MOTHER Bracelet®, became qualified for the Nursing Robots Implementation Support Subsidy Program, which is sponsored by Kanagawa prefecture, the second most populated prefecture in Japan after Tokyo, with a population of approximately 9.2 million as of June 1, 2024. Under this subsidy program, nursing homes or home care providers can be subsidized for 75% (up to JPY7,500 thousand (US$47 thousand)) of the expenses paid to implement nursing robots that can improve the efficiency of nursing operations and/or reduce the burden of nursing workers. We are aiming to expand the subsidy coverage of our MOTHER platform to other regions and other types of programs and assist our customers in applying for these programs in order to reduce their out-of-pocket costs and increase the number of units ordered by each business customer without decreasing the price per unit.

Our standard character trademark application for MOTHER Bracelet® was approved and registered by the Japan Patent Office in February 2022. The MOTHER Bracelet logo was also approved and registered by the Japan Patent Office in July 2023. We have entered into contracts with 86 corporate insurance associations for our Specific Health Guidance Program provided by Lav®, our on-demand training app, as of December 31, 2024, compared to 68 as of December 31, 2023. We also provided lifestyle improvement programs via Lav® for people under 40 years of age, and have entered into service agreements with 20 corporate insurance associations as of December 31, 2024. In addition, we launched an upgraded version of Lav® as a subscription-based consumer application on July 1, 2021. The updated Lav® application offers options such as detox, weight control, and exercise programs. The following graphs show the number of corporate insurance associations we have contracts with as of December 31 of each year, and total number of users of the respective years.

​

Note: The number of clients and the number of users served represent the sum of the number of unique clients in our Specific Health Guidance Program and in our lifestyle improvement programs via Lav® for people under 40 years of age, and the sum of the number of users of each of these programs, respectively.

During the year ended December 31, 2024, we sold a total of 2,356 MOTHER Bracelet® units and 254 Gateway units, generating total revenue of JPY153,646 thousand (US$976 thousand). This followed sales of 4,203 units of MOTHER Bracelet® for JPY125,280 thousand (US$796thousand) in the year ended December 31, 2023.

During the first half of 2024, we experienced a temporary suspension of shipments of MOTHER Bracelet® and MOTHER Gateway devices caused by technological issues such as malfunctioning of MOTHER Bracelet® devices due to static electricity generated from friction with blankets in nursing homes in winter, and data connectivity issues between multiple MOTHER Bracelet® and multiple MOTHER Gateway devices. As of the date of this annual report, the data connectivity issue has been fully resolved. In addition, we have implemented a remedial measure for the static electricity issue that does not require changing the design architecture of the affected products, and we will prioritize marketing these products towards spa facilities and factories, where the static electricity issue does not arise, until we fully resolve this issue in the next generation of MOTHER Bracelet®, which is currently in development. From July 1, 2024 through December, 2024, we received purchase orders for an aggregate of over 25,000 MOTHER Bracelet® units from our business customers, 2,112 of which were shipped and generated revenue in 2024, while the remaining orders are expected to be fulfilled in 2025.

In August 2024, our subsidiary MML entered into a capital and business alliance with NFES Technologies Inc., under which NFES agreed to act as lead investor in the series A equity financing round of MML and to act as a distributor of MOTHER Bracelet® units. In October 2024, MML entered into a capital and business alliance with Elematec Corporation under which Elematec participated in MML’s series A equity financing round on the same economic terms as NFES and was also granted a right of first offer to handle the procurement of components for, and manufacturing of, any next generation or improved recharge-free wearable devices, and under which Elematec will also sell MOTHER Bracelet® units on a non- exclusive basis. See “Item 4. Information on the Company—Capital and Businesses Alliances of MEDIROM MOTHER Labs Inc.” As of December 31, 2024, MML had raised an aggregate of JPY260,280 thousand (US$1,654thousand) from its series A equity financing. See “—Our Growth Strategy—The HealthTech Business as a Standalone Startup.”

Customers

Specific Health Guidance Program.  We charge fees to health insurance providers, depending on how many participants use the program and which type of program is used. We plan on continuing to grow both provider count, including corporate sponsors, insurance providers, and government entities, as well as the end-participant pool, which are end users of our Lav® application. Our consumer Lav® application charges fees for fixed-term health coaching services to date.

MOTHER Bracelet ®. As of December 31, 2024, our existing customers are hospitals, nursing homes, acupuncture clinics, sports clubs (gyms), transportation companies, wholesalers to electronics retail stores, foreign government entities as well as individual consumers. As of the date of this annual report, of the purchase orders we received for MOTHER Bracelet® units during 2024, NFES Technologies Inc. was responsible for a significant majority of the orders.

Services

Specific Health Guidance Program.  Through our Lav® application, we provide participants in a health insurance plan the ability to search for professionals tailored to each individual’s preferences, lifestyle, and health conditions. Participants can enjoy benefits from specific health guidance based on provided information. In addition, our therapists, composed of licensed nutritionists and registered dieticians, provide coaching services to program participants. This allows us to leverage idle time from therapists to generate additional revenue, which effectively results in improved efficiency ratios.

​

MOTHER Bracelet®.  Our MOTHER Bracelet® is designed to monitor and collect the health data of the wearer and can work seamlessly with our Lav® application and most of the other health monitoring applications that are available on the market. We also offer a Software Development Kit, or SDK, to our partners for their application or software development convenience.

Market

Our Lav® healthcare application and its Specific Health Guidance Program primarily compete in the Specific Health Guidance Program market sponsored by the Ministry of Health, Labor and Welfare of Japan. According to the Ministry, approximately 1.29 million participants completed the Specific Health Guidance Program in the governmental fiscal year ended March 31, 2021. Based on the participant data from that fiscal year and the assumption (based in part on data from certain local medical associations from the year ended March 31, 2024) that the average service fees per participant paid by health insurers is JPY20,000 (US$127), we estimate the market size for the Specific Health Guidance Program is JPY26 billion (US$165 million). In addition, we have been providing similar services through the Lav® healthcare app to members of younger generations who are participants in company-sponsored health insurance programs. The market size of medical services in Japan exceeded JPY45 trillion (US$286 billion) in the governmental fiscal year ended March 31, 2021, and is expected to continue to grow due to Japan’s rapidly aging demographics. As a response, the Japanese government has been focusing more on preventative care. Hence, the preventative healthcare sub-segment of the broader medical and healthcare market in Japan has received proportionally increasing funding from the Japanese government’s health insurance budget, as have the participants in the Specific Health Guidance Program. Secular shifts toward prevention versus treatment, increasing insurance premiums and greater government subsidies make this a growing and attractive submarket to capture.

The Japanese healthcare system itself is well-regarded worldwide, leading most other countries on key outcomes including availability of hospital beds, public expenditure as a percentage of GDP, and infant mortality. These qualities allow leaders in the market to capture significant revenues and receive favorable prioritization in the budgets of both the public and private sectors. One notable deficiency is in the low number of practicing physicians per population density, which reflects both the highly populous cities of Japan and the relative dearth of medical practitioners.

Our Lav® app was created to address the aforementioned shortfall by leveraging co-medical practitioners and therapists to advise patients digitally. We believe this telehealth approach is fortified by our strong brand, retail scale which allows for drop-in appointments, and technical and live support.

Our MOTHER Bracelet® operates in the wearable device space though we focus on specific market segments tailored towards businesses that monitor large groups of employees or clientele and have a strong incentive to monitor their health conditions such as: hospitals, nursing homes and medical facilities serving the elderly population, transportation, construction, and national security sectors where employers have a strong incentive to monitor the health conditions of the their employees or officials.

Integrated Health Solutions, Analytics and Targeting

The Japanese government and major corporate sponsors in the country have accelerated needs for preventative care and ascribing key factors affecting health outcomes. As demographics continue to focus on the elderly and insurance plans face uncertain or insufficient returns relative to premiums, major health insurance companies and the government require solutions to target problems, streamline costs, and save lives through a preventative focus. This has resulted in government budgets and subsidies earmarked for improving employee health and increased incentives for understanding, diagnosing, and creating action plans to address health issues. We believe our platform and technology allow us to serve government and corporate entities with a one-stop shop, data-driven and targeted solution service.

Global Expansion Opportunities

We focus on core competencies within the local markets of Japan, although we opportunistically assess franchising or partnerships abroad for our core salon business, and business-to-business-to-consumer distribution models for MOTHER Bracelet® and other digital businesses through online marketing, commerce, and joint ventures. We believe the wearables market and omnichannel distribution trends, particularly online commerce, remain attractive avenues of growth for our Digital Preventative Healthcare Segment.

Components and Materials

The self-charging functionality of our MOTHER Bracelet® is derived from the core semiconductor provided by Matrix Industries, Inc. (“Matrix”), a startup based in California, United States. Matrix is a developer of a thermoelectric generator and boost converter. In 2019, we made a strategic investment for a minority interest in Matrix. In furtherance of our strategic investment, we entered into a production and development agreement with Matrix in August 2020 to use Matrix’s technology in development and manufacturing of the MOTHER Bracelet®. The agreement grants us exclusivity as to third parties in the Asia territory, except for certain prior contractual obligations of Matrix, for use of Matrix’s thermoelectric power module and software in our MOTHER Bracelet® wearable device for one year following receipt of the sample product, or end of 2022, whichever is earlier. On December 8, 2022, the exclusivity agreement was extended to December 31, 2024, and we are currently negotiating for a further extension of this agreement.

In addition, our MOTHER Bracelet® and “MOTHER Gateway” utilize an array of components, a few of which we directly obtain from suppliers, while the others are indirectly purchased by our contracted assembly factory and shipped to our warehouse in the form of finished goods. Although most of the components other than the core semiconductor provided by Matrix are commodities, the available supply and price of these components are influenced by potential macroeconomic shifts, tariffs, supply chain integrity, embargoes or any other trade restrictions resulting from geopolitical issues, and global demand. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Business—Our MOTHER Bracelet® and Gateway incorporate various components, and component inflation may increase our cost of producing these products.”

Our Growth Strategy

Our goal is not only to capture a significant market share for relaxation salons but also expand our Digital Preventative Healthcare business lines. We intend to achieve this growth by employing a variety of strategic initiatives, including increasing the number of directly-operated and franchised salons through new store openings and acquisitions.

Growth in the Japanese Market. According to the 2022 Yano Report, in terms of the number of salons, we are one of the top three companies, on a consolidated basis, in the Kanto region (Tokyo, Kanagawa, Saitama, Chiba, Gunma, Ibaraki and Tochigi), and in the top four nationwide. The total number of relaxation salons under major brands in Japan, according to the 2022 Yano Report, was 2,944, with the largest operator having 613 salons. Our mid-term business plan goal is to operate 500 salons on a system-wide basis (regardless of whether such salons are company-owned, franchise-owned, or investor- owned) by the end of 2028.

Workforce Optimization to Significantly Improve Margins and Increase Revenue. We currently employ therapists at a large majority of our directly-operated salons under permanent, fixed-term, or part-time employment contracts. A substantial majority of these therapists are paid wages at or close to the statutory minimum wage. From 2012 to 2023, the minimum wage in Tokyo increased by 29.4% from JPY850 (US$5.40) to JPY1,113 (US$7.07), and from 2023 to 2024, the minimum wage in Tokyo increased by 4.5% to JPY1,163 (US$7.39). We are required to pay certain social security expenses associated with them and must pay for their down time when they are not serving our customers. Alternatively, we typically pay contractor therapists a commission of 42-44% of sales they earn, regardless of how many hours they are present at our salons. Under these circumstances, the relative cost to serve a customer using a fixed- salary therapist has increased dramatically in recent years compared to that of a commission-based contractor therapist. Accordingly, we believe we can improve our margins at many of our salons by utilizing a greater proportion of such commission-based therapists.

In connection with this objective, our new mid-term business plan emphasizes the strategic reorganization of our salon workforce mix. Specifically, we plan to increase the proportion of contractor therapists at all of our salons, where they will work alongside a certain number of fixed-salary therapists under the supervision of store managers. Our goal is to adjust the workforce mix at each of our directly-operated salons to maximize profitability by considering a number of factors such as the salon’s fixed cost ratio as a percentage of store sales, operation ratio and fluctuations in customer demand.

In addition to cost saving, we also believe employing a larger proportion of commission-based therapists will increase our sales per salon by increasing bed occupancy. Because we must pay wages to our fixed-salary therapists when they are at our salons but are not serving customers, it is costly for us to maintain idle fixed salary therapists, and we must carefully hire and manage the shifts to meet customer demand.

Therefore, a salon consisting only of fixed-salary therapists may not be able to utilize all of the available beds during times of high demand due to a lack of available therapists. Alternatively, with contract therapists, we will be able to maintain more idle therapists at any given time, allowing us to better respond to fluctuations in customer demand and increase bed occupancy.

In order to achieve this initiative and monitor store-by-store workforce optimization, cost-efficiencies, potential to improve profitability, as well as any potential need to shut down certain locations, we established a new division on July 1, 2024 that engages exclusively in store-level analyses and advising our management on these matters. With the insights provided by the new division, we believe that our management will be able to improve its oversight of store-by-store operations.

Expansion of Salons Located at Spa Facilities. Compared to standalone salons and salons located in commercial properties, salons located within spa facilities incur no security deposits and require substantially lower capital expenditures. In addition, salons located at spas are more resilient to large fluctuations in customer visits because a majority of the therapists at such locations are contract therapists. Although our salons located within spas tend to have less monthly revenue compared to a similar standalone salon or a salon located in a commercial property, by focusing on salons located at spas, we aim to accelerate our new salon development and generate more stable profits while minimizing capital expenditures.

Consolidation via Targeted Acquisitions. As the domestic Japanese relaxation sector faces structural changes that accelerate consolidation, we believe that we are positioned strategically to harness value, realize synergies, and maximize our pipeline of acquisition targets at bargain prices. Our corporate acquisitions team aims to buy businesses at relatively low multiples, leveraging our brand, the strong reputation of our CEO, and the halo effect of joining Japan’s first relaxation company to be publicly listed in the United States.

We believe we have the competitive advantage and significant negotiating power to structure accretive deals, integrate both the culture and operations of target companies, and grow long-term value. As part of our robust utilization of such capabilities to originate and execute acquisitions in the domestic relaxation sector, we are continuously searching for opportunities to acquire salon brands that have at least 10 stores, and we may potentially seek opportunities to acquire a major competitor under the right circumstances.

Growing Salon Sales via Operation Outsourcing Model. In the fourth quarter of 2021, we started an additional business model where we sell our directly-owned salons to investors and enter into service agreements to manage the operations on behalf of the investors. Under this model, we are entitled to a contingent fee equal to 80% to 90% of the amount of profit that exceeds a 6% to 8% investment yield on the purchase price of each acquired salon. Through this model, we aim to maximize the return on capital investment, accelerate salon openings by reinvesting the proceeds from the sales of salons, improve operational efficiency by further focusing on salon operations, and generate additional income from the salons that were sold to investors and are under our management. Since the inception of this model, we have gradually decreased the yield to investors of the salons that we sell, and we have repurchased certain salons we had previously sold at higher investment yields in order to later resell them at lower yields. As of December 31, 2024, 57 investor-owned salons were under our management, as compared to 41 salons as of December 31, 2023.

Increasing Sales through Marketing and Advertising. We conduct most of our marketing and advertising through our website and through HOT PEPPER Beauty, a dominant web aggregator of salon businesses in Japan. In addition, our salons are strategically located in high density and foot traffic areas near train stations and shopping centers that are advertising and marketing drivers. Furthermore, we are working to enhance our digital marketing initiatives, including through our smart phone apps, to retain our repeat customers and improve the frequency of customer visits. The Re.Ra.Ku® application, which is a specialized app for our relaxation salons, was released in October 2022. The application had 185,022 cumulative downloads as of the end of December 2024, and 13.2% of all reservations at our relaxation salons were made through the application in the month of December 2024.

In addition, we intend to grow through our various loyalty marketing programs. We award customers a certain percentage of points when they pay with Re.Ra.Ku PAY in accordance with the customer’s loyalty status, which is either “Bronze”, “Silver”, “Gold”, “Platinum”, or “Diamond”. We also aim to promote marketing campaigns in which we award customers a certain percentage of points when they purchase points through Re.Ra.Ku PAY. By incentivizing customers to charge more using their Re.Ra.Ku PAY balances, which expire after 150 days, we believe we can induce such customers to visit our salons more frequently.

Furthermore, we aim to expand the scope of possible uses of Re.Ra.Ku PAY points, which are currently limited to payment only for relaxation services and merchandise.

Moreover, in October 2024, we newly introduced several kinds of prepayment tickets, all of which expire within 180 days, for customers who prefer paying with paper-based prepaid tickets over the Re.Ra.Ku PAY application. The total number of such prepayment tickets, other than Re.Ra.Ku Card, purchased by customers in 2024 was 42,028. As of December 31, 2024, the outstanding balance of all such prepaid cards was JPY145,470 thousand (US$924 thousand).

Continue Aggressive Investment and Expansion in the Digital Preventative Healthcare Segment. We plan to invest in and grow the Digital Preventative Healthcare Segment and increase the segment’s profit margin. In order to increase revenue from the Specific Health Guidance Program, in addition to our continuous sales efforts to increase the number of contracts with corporate insurance associations, we are renegotiating with existing corporate insurance association clients to transition from initial discounted service prices to standard ones. We also intend to accelerate the production of our MOTHER Bracelet®. We intend to grow our existing sales forces and utilize external sales representatives to obtain larger purchase orders from businesses such as hospitals, nursing homes and medical facilities serving the elderly population, transportation, construction, and national security sectors. In order to accelerate our aggressive sales activities, we developed and commercially launched the MOTHER Gateway and REMONY®. Rather than promoting the MOTHER Bracelet® as a standalone product, we intend to emphasize how all these products and services can work as an integrated platform, with the MOTHER Bracelet® collecting health data from a large number of users and sending the data to REMONY® via Gateway, allowing business clients to monitor user health data. We intend to continuously invest in and improve the functionality of the MOTHER Bracelet® by developing algorithms to more accurately measure health data, expand the scope of available health data, improve the data connectivity between a larger number of MOTHER Bracelet® products and Gateway tools at the same time, and improve the user experience of REMONY® software. As part of this strategy, in October 2024, we issued convertible bonds in the aggregate principal amount of ¥300,000 thousand to an investor, and we intend to use a portion of the proceeds from this issuance for investment in our Digital Preventative Healthcare Segment. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Convertible Bonds.” From July 1, 2024 through December, 2024, we received purchase orders for an aggregate of over 25,000 MOTHER Bracelet® units from our business customers, 2,112 of which were shipped and generated revenue in 2024, while the remaining orders are expected to be fulfilled in 2025.

​

The HealthTech Business as a Standalone Startup. In order to accelerate the growth of our HealthTech business, we transferred our Digital Preventative Healthcare business to our subsidiary MEDIROM MOTHER Labs Inc. in July 2023. We believe this spinoff will allow our Digital Preventative Healthcare business to fulfill its financing needs for its investments in inventory, software development, and marketing activities. In August 2024, MML entered into a capital and business alliance with NFES Technologies Inc., under which NFES purchased 556 newly issued series A preferred shares of MML (approximately 1.1% of MML’s equity ownership immediately after NFES’s investment in MML) for JPY100,080 thousand (US$636 thousand) at a pre- money equity valuation of JPY9 billion (US$57.2 million) as the lead investor in the series A equity financing round of MML. The capital and business alliance agreement with NFES includes certain other commercial terms. In addition, in October 2024, MML and Elematec Corporation, a Japanese joint-stock corporation, entered into a capital and business alliance agreement under which Elematec participated in MML’s series A financing round by purchasing 556 newly issued series A preferred shares of MML for a total price of JPY100,080 thousand (US$636 thousand). Until December 31, 2024, MML had entered into agreements with six investors for aggregate financing of JPY260,280 thousand (US$1,654 thousand). We continuously seek attractive financing opportunities for our Digital Preventative Healthcare business, and may seek to raise additional capital to aggressively expand the business, though we intend to continue to be the controlling shareholder of MML. For additional details regarding our capital and business alliance agreements, see “Item 4. Information on the Company—Capital and Businesses Alliances of MEDIROM MOTHER Labs Inc.”

Our Competitive Strengths

Brand Value. We believe our trademarks and other intellectual property create a strong competitive advantage in our Relaxation Salon Segment, Luxury Beauty Segment and Digital Preventative Healthcare Segment. With widespread recognition in the Kanto region and across Japan, our Company benefits from a loyal customer base and brand recognition that enables the growth of our businesses.

Employee Satisfaction. High turn-over rates and difficulty in hiring skilled labor are challenges facing the relaxation industry. We have invested culturally and economically to create a career progression for our therapists so they will stay and grow with our Company. We believe that our employee satisfaction levels contribute to employees’ high morale. This is evidenced by us being awarded the Grand Prix for the relaxation sector’s top therapist and best salon award in Japan in 2019, as well as the Semi-Grand Prix for the individual therapist and the Grand Prix for the best salon award in 2021, which, as of December 31, 2024, is the most recent year these awards were provided due to the impact of COVID-19. This is particularly important as high turnover reduces or disrupts available investment in capital because of the costs associated with hiring and training new employees. We continue to optimize our working environment for therapists in an effort to improve morale and productivity and cultivate a long-term orientation among our therapists toward their work and status within the Company.

Re.Ra.Ku® College. We believe that we own one of the largest in scale and best in-class education and training facilities for relaxation therapists in the Japanese relaxation industry. Re.Ra.Ku® College enables us to provide continuous training to our franchise owners and salon staff, as well as continuous direct access to a pool of newly trained and job-ready staff. We focus on providing continuous training and learning opportunities to all of our therapists to ensure the quality of our services is consistent throughout our salons. We require a certain level of relaxation therapist training before therapists are allowed to work with clients at our salons, and we believe the level of required training for our therapists is one of the highest among leading relaxation service providers in Japan. We find that this rigorous skill training system better prepares our therapists and has proven effective for our salons. We provide 54 hours of training programs. Each training module can be taken on demand, rather than in a series, for the trainee’s convenience. Moreover, we provide follow-up training courses based on how we evaluate and grade the practitioner’s skills.

Innovative Services Provided by Our Relaxation Salons.  Our relaxation salons’ services are innovative and differ from traditional shiatsu-style bodywork. For example, we created our unique wing stretch method, which focuses especially on the shoulder blades. This is important because the shoulder blades are a critical part of the body, as they connect and balance the bones from the neck to the lower back and support the body to ensure the body moves smoothly. Unlike other salons who provide traditional shiatsu-style bodywork and typically use body weight pressure on the muscles, which can cause damage, our relaxation therapists use stretch techniques on the muscles, thereby preventing damage. We believe our non-pressure method mitigates the risk of severe malpractice and other similar claims. Finally, our relaxation therapists are trained to converse with our customers, to ask them questions in order to tailor the therapy to their unique needs, and to promote self-care by communicating about their current body ailments and providing advice for future visits.

​

​

Strong Positioning for the Continued Growth of the Specific Health Guidance Program.  We have been engaged in the government-initiated Specific Health Guidance Program for the use of our on-demand health monitoring application, Lav®. Because this is a Ministry of Health, Labour and Welfare subsidized program, participating companies need to maintain quality controls. Partners and service providers are vetted and must adhere to standards that are established by each of the health insurance providers. We believe this business is currently entering a growth phase and that our developed systems and adherence to strict regulation and oversight provides us a competitive advantage in the business. As of December 31, 2024, we have entered into contracts with 86 corporate insurance associations for the use of Lav® in the Specific Health Guidance Program. We have begun to renegotiate these contracts to increase the unit price for our services with existing corporate insurance association clients, who contracted with us at deeply discounted prices, by showing our achievement of the participants’ program completion ratio. In addition, we continue to market and sell our Lav® solution to new potential clients.

Uniqueness of Our Lav® Application for Consumers. We believe that the Lav® application is unique by providing comprehensive support and physician-supervised guidance and methods for not only nutrition but also exercise and sleep. We believe that we have a competitive advantage in securing a sufficient number of coaches as needed because we are able to recruit our existing therapists to become coaches.

Uniqueness of Our MOTHER Bracelet®. We believe our MOTHER Bracelet® is the only fitness tracker that requires no electric charging by utilizing the innovative technology of the Gemini TEG (Thermoelectric Generator) and Mercury Boost Converter. These technologies enable the user’s body heat to generate electricity. As of December 31, 2024, we are not aware of any other wearable devices in the market with equivalent capabilities.

In addition, we believe we have a competitive advantage selling our MOTHER Bracelet® to businesses because of our open Software Development Kit (SDK) policy. By making the SDK publicly available, we allow and encourage software and hardware developers to customize the management of healthcare data for their own purposes.

Employees and Contractors

As of December 31, 2024, we had 334 employees on a full-time basis, 621 employees on a part-time basis, and 96 employees on a fixed-term basis. As of December 31, 2023, 2022 and 2021, we had 430, 390, and 411 employees on a full-time basis, respectively, 561, 622, and 520 employees on a part-time basis, respectively, and 95, 89, and 48 employees on a fixed-term basis, respectively. Most of our employees are directly employed by our wholly-owned subsidiary, Medirom Human Resources Inc. Our Company is not currently, and has not in the past, been unionized. As such, neither we nor our franchisees are required to engage in collective bargaining procedures with any unions under Japanese labor laws. As of December 31, 2024, all of our employees were located in Japan.

The majority of our relaxation therapists are employed by us under permanent, term or part-time employment contracts, and all of our relaxation therapists, including those we engage as independent contractors, receive training at Re.Ra.Ku® College before starting work at our salons. Our employees are paid on a salary basis. We also offer various incentive programs which vary based on employment status. Our new incentive program, which became effective on July 1, 2022, aims to reward employees who make continuous efforts to improve their skills and performance and raise the overall quality level of our employees. These rewards are generally provided in the form of a cash bonus, promotion, or both. In addition, we introduced a new equity incentive compensation plan in 2024, under which employees are eligible to receive stock options and other types of equity awards. However, at present, we plan to provide equity compensation awards only to certain key personnel who drive our growth and profitability such as executives, directors, corporate auditors, and certain senior managers. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employee Stock Options.”

We also engage a portion of our relaxation therapists directly as self-employed independent contractors to work at our salons. As of December 31, 2024, we engaged 318 contractor therapists, which only include therapists who worked for at least an hour at our salons in December 2024. Contractor therapists are paid a commission as a proportion of the sales they generate, and the commission percentage varies depending on their qualified skill level, ranging from 40% for an intern therapist to 52% for our most experienced therapists.

Competition

We experience significant competition in all aspects of our business, including for highly skilled relaxation therapists and for the best salon locations. Our directly-operated and franchised relaxation salons compete with national and regional relaxation salon chains for customers, relaxation salon locations and qualified management and other staff, including relaxation therapists. Competition in our industry is primarily based on price, convenience, quality of service, brand recognition, and location. We consider our biggest competitors to be K.K. Factory Japan (which does business under the “Karada Factory” brand) and K.K. Bodywork (which does business under the “Raffine” brand), both of which are operators of relaxation salons in Japan.

Although our Luxury Beauty Segment also experiences competition, ZACC is comparatively less susceptible to price competition due to the strength of its brand. A key factor for brand strength is the retention rate of the senior hair stylists employed by ZACC.

In our Digital Preventative Healthcare Segment, we face competition from large incumbents in the traditional and digital advertising space and, to a lesser extent, startups in the health tech industry. Given the unique value proposition and startup nature of our growth segments, we remain focused on transaction level priorities, winning clients through our platform capabilities and features and benefits and leveraging relationships over what other incumbents may be doing in the space.

Property and Equipment

As of December 31, 2024, we had 308 relaxation salons, each of which is leased at train and subway stations, shopping malls, plazas, and high-traffic streets throughout Japan. We invest in leasehold improvement, equipment, and furniture in our directly-operated salons. The terms and conditions of the lease arrangements vary by agreement.

Our corporate headquarters are located at 2-3-1 Daiba, Minato-ku, Tokyo, Japan. The term of our lease for this location was renewed on December 1, 2022 for an additional term of two years. Our Re.Ra.Ku® College is annexed to our corporate headquarters, and we also have branch school locations in Nagoya and Osaka.

Intellectual Property

To establish and protect our proprietary rights, we rely on a combination of trademarks, confidentiality policies and procedures, non-disclosure agreements with third parties, employee non-disclosure agreements, and other contractual and implicit rights worldwide. As of December 31, we had registered 50 trademarks, including the names and logos used by our Company, of which 47 were registered with the Japan Patent Office, two of which are registered with the U.S. Patent and Trademark Office and one of which is registered with the China National Intellectual Property Administration. Our principal intellectual property rights include the trademark “Re.Ra.Ku®”, which is our core brand, and “MOTHER Bracelet®”, “Lav®”, and “REMONY®”, which are key brands in our Digital Preventative Healthcare Segment, copyrights in our website and software assets, rights to our domain names, https://medirom.co.jp, https://reraku.jp, and https://mother-bracelet.com, trade secrets and know-how with respect to our training, servicing, sales and marketing and other aspects of our business, and our digital innovations such as the MOTHER application, REMONY® software, Gateway device, and Lav® application.

Our intellectual property is subject to certain risks described under “Item 3. Key Information—D. Risk Factors”, including the risks described under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Business—The failure to enforce and maintain our trademarks and protect our other intellectual property could materially adversely affect our business, including our ability to establish and maintain brand awareness.” and “Item 3. Key Information—D. Risk Factors—General Risk Factors—Third party claims with respect to intellectual property assets, if decided against us, may result in competing uses or require adoption of new, non-infringing intellectual property, which may in turn adversely affect sales and revenues.” Furthermore, the manufacturing of our MOTHER Bracelet® requires our use of a patent license, and we may be adversely affected by changes in our business relationship with the licensor or its financial soundness.

Financial Contracts

As of December 31, 2024, we had 17 business loans outstanding from seven Japanese financial institutions. None of the loan agreements contain any material financial covenants, although certain of the government- sponsored loans set a limit on the total loan amount we may borrow from other government-sponsored lenders. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Business Loans.”

Introduction of New Payment App “Re.Ra.Ku PAY” and Prepaid Cards

One of the requirements for issuers of prepaid cards under the Settlement Act is to maintain net assets of not less than JPY100 million based on Japanese GAAP. As of December 31, 2022, our net assets had fallen below JPY100 million based on Japanese GAAP on a standalone basis. On March 20, 2023, we reported this matter to the Kanto Local Financial Bureau.

In order to address this issue, as well as to increase convenience for our customers, the Company decided to introduce a new payment system and developed “Re.Ra.Ku PAY”, a proprietary payment app which works on customers’ smart phones. Customers can charge the balance at our salons or remotely with their own credit cards and use the app to pay at our salons (Re.Ra.Ku PAY can be used at Re.Ra.Ku branded salons, Bell Epoc branded salons, and Ruam Ruam branded salons). The most important difference between the Re.Ra.Ku Card and Re.Ra.Ku PAY is that Re.Ra.Ku PAY balances have an expiration period of 150 days, while the Re.Ra.Ku Card balances do not have an expiration date. The Settlement Act regulates only prepaid cards with balances that remain effective for more than six months. Hence, by limiting the expiration period to less than six months, we believe Re.Ra.Ku PAY can be exempted from the regulations and requirements under the Settlement Act, which include the net assets requirement and an obligation to deposit half of the prepaid balance with the Legal Affairs Bureau.

Moreover, rather than giving customers a certain percentage of points when they charge their card balances on the Re.Ra.Ku Card, we give customers a certain percentage of points when they pay with the Re.Ra.Ku PAY app in accordance with each’s customer loyalty status, which is either “Bronze”, “Silver”, “Gold”, “Platinum”, or “Diamond”. We believe this approach contributes to more revenue generation by giving customers points at payment rather than at charging. The Company aims to utilize Re.Ra.Ku PAY for various marketing campaigns and to expand the scope of possible payments from only relaxation services at present to merchandise or other uses. We launched Re.Ra.Ku PAY on February 1, 2024, and disallowed further balance deposits on Re.Ra.Ku Cards beginning on the same date. As a result, Re.Ra.Ku Card users can pay with their current balances but cannot add to their balances.

As a supplemental alternative to Re.Ra.Ku PAY, primarily for customers who are not familiar with smartphone applications, we also introduced seasonal paper-based prepaid tickets in October 2024. These tickets provide a small discount compared to paying with cash and have expirations of less than 180 days, depending on marketing campaigns.

Although we have introduced Re.Ra.Ku PAY and the prepaid tickets, and disallowed new balance deposits on Re.Ra.Ku Cards, we are still regulated under the Settlement Act because some of our customers still have outstanding Re.Ra.Ku Card balances. However, as of December 31, 2024, our net assets exceeded the JPY100 million threshold on a standalone basis, meaning that we satisfied the net asset test as of that date. See “Item 4. Information on the Company—Regulations Governing Prepaid Cards” for more detail.

Legal and Administrative Matters

We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of our business, including matters involving our franchisees, among others. Any litigation or other legal or administrative proceedings, regardless of the outcome, are likely to result in substantial costs and a diversion of our resources, including our management’s time and attention.

Planned Acquisition of Japan Gene Medicine Corporation

Overview

On June 30, 2024, we entered into a share transfer agreement for the purpose of acquiring 70% of the issued and outstanding common shares of Japan Gene Medicine Corporation (“JGMC”) and making JGMC our subsidiary (the “Initial Acquisition”). In addition, we concurrently entered into a binding memorandum of understanding (the “MOU” and, together with the share transfer agreement, the “Acquisition Agreements”) under which we were granted an option to purchase the remaining 30% of the issued and outstanding shares of JGMC that we will not acquire as part of the Initial Acquisition.

Business of JGMC and Purpose of the Acquisition

JGMC is a company engaged in the prenatal diagnosis business, providing genetic testing and analysis, and the company does business with major private, public and university hospitals in Japan. By understanding the condition of the fetus and the presence of any diseases or disorders, medical professionals can consider the most appropriate method of delivery and therapeutic education tailored to the condition of the fetus.

Although in other countries, especially in Europe and the United States, similar prenatal genetic testing services have become commonly available and utilized, in Japan, such services have not been common.

According to a 2024 research report prepared by SDKI Analytics (the “SDKI Report”), a Japanese market research company, only approximately 3.5% of pregnant women in Japan receive NIPT tests, as compared to 28-50%, 30%, 51%, and 75% in the United States, Germany, the Netherlands, and Belgium, respectively.

In terms of the market size, according to the SDKI Report, the North America region is estimated to be US$1,692.84 million (accounting for 37.35% of global NIPT market) in 2024, with Europe, Asia Pacific excluding Japan, and Japan, accounting for US$1,102.33 million (24.32%), US$897.62 million (19.80%), and US$203.95 million (4.50%), respectively. Although Japan currently has relatively small market share, the SDKI Report estimates the Japanese NIPT market to grow at an average rate of approximately 8% per year from 2025 to 2037.

Furthermore, in Japan and the Asian region at large, certain demographic trends point to JGMC’s significant growth potential. In the region, the childbearing age is increasing and the birthrate is declining rapidly. Therefore, the potential need and benefits of genetic testing and analysis are increasing.

We believe that JGMC is one of the most competitive companies in the genetic testing and analysis services space in Japan and we expect future demand in Japan to grow rapidly. We believe that in the past there has been insufficient marketing and education regarding such services and their value and that this presents a significant market opportunity.

We also believe there are significant synergies with our wellness salon business, Re.Ra.Ku®. JGMC’s target age group for women is in their 20s to 40s, which matches Re.Ra.Ku’s. We anticipate that this will allow us to expand our service offering and improve our value proposition and customer experience.

The acquisition of JGMC is in line with our strategic objective to become a holistic healthcare company that provides comprehensive solutions and services for prevention and treatment. Upon the closing of this acquisition, we will obtain assets that further expand our presence in Japan and our commitment to grow in the healthcare technology industry. JGMC adds to our healthtech solutions portfolio, which consists of our on-demand training application “Lav®” that provides specific health guidance; our development and manufacturing of the world’s first smart tracker bracelet that does not require charging, “MOTHER Bracelet®”; and our deployment of our device-based monitoring system, “REMONY”.

Terms of the Share Transfer Agreement and the MOU

Under the share transfer agreement, we agreed, subject to the terms and conditions therein, to purchase 70% of the issued and outstanding shares of JGMC for ¥2,000,000 thousand (the “Initial Acquisition Purchase Price”). As a condition precedent to consummation of the share transfer, the terms and conditions of certain subcontracted testing and analysis service agreements between JGMC and two other companies substantially owned by the seller shall be amended in a form reasonably satisfactory to us. Based on our negotiations with the seller, it is expected that such agreements will be amended so that substantially all of the economic benefits from the genetic testing and analysis business accrue to JGMC by increasing the price for the subcontracted services that JGMC is contracted to provide.

Assuming hypothetically that such economic revisions had already been applied for the one-year period ended December 31, 2023, the Company and the seller calculated, as set forth in the share transfer agreement, the Adjusted EBITDA (defined in the share transfer agreement as operating income plus depreciation, amortization of intangibles, and expenses incurred at the seller’s direction other than for the purpose of operating JGMC’s business) for such one-year period, and applied a multiplier of 6 times to the Adjusted EBITDA to reach an enterprise value for JGMC. We and the seller negotiated minor adjustments to that figure, which was then multiplied by 350/500 (70%) to reach the Initial Acquisition Purchase Price in the share transfer agreement.

The Initial Acquisition Purchase Price will be paid in cash and according to a schedule to be decided between us and the seller after consideration of the timing and details of one or more bank loans that we intend to obtain to fund a majority of the Initial Acquisition Purchase Price. We are currently negotiating the terms of our bank loan financing with financial institutions. In addition to customary closing conditions, our obligations to close the transaction under the share transfer agreement are subject to the conditions, among others, that (i) we obtain a letter of commitment from a bank to provide us with financing in an amount exceeding 70% of the Initial Acquisition Purchase Price and (ii) as described above, JGMC enters into service contracts for the provision of genetic testing services to certain companies on terms reasonably acceptable to us. The share transfer agreement requires that the seller continue to cooperate with us in the management of JGMC after the closing date for the purpose of achieving JGMC’s performance targets for at least five years following the closing date. Furthermore, we are required to continue to employ the existing employees of JGMC for a period of one year after the closing date, subject to certain exceptions.

Under the MOU, we are granted an option (the “Company’s Option”), subject to the terms and conditions therein and pursuant to a second binding agreement to be entered into if we exercise the option, to purchase the remaining 30% of the common shares of JGMC that are to be retained by the seller after the Initial Acquisition (the “Remaining Shares”). The closing of the purchase of the Remaining Shares must be completed prior to June 30, 2027, and we must notify the seller of our intention to exercise the Company’s Option at least four weeks prior to June 30, 2027. The purchase price for the Remaining Shares under the option will be paid in cash and will be calculated as (i) (A) JGMC’s adjusted EBITDA, defined as operating profit before depreciation, amortization of goodwill and other intangible assets, and expenses related to transactions with our group, during the fiscal year ending December 31, 2026 multiplied by 6 (the “Multiplier”), minus (B) JGMC’s outstanding borrowings under bank loans as of December 31, 2026 (excluding borrowings incurred by us in connection with the payment of the Initial Acquisition Purchase Price), plus (C) JGMC’s balance of cash and deposits as of December 31, 2026; and (ii) multiplying the amount calculated in clause (i) by 30%. If JGMC’s adjusted EBITDA during the fiscal year ended December 31, 2026 is greater than ¥930,000 thousand, the Multiplier will be increased to 7. If the aforementioned adjusted EBITDA of JGMC is expected to temporarily decrease as a result of capital expenditures and/or expenses in connection with new business activities, we and the seller will discuss the terms of the purchase price for the Remaining Shares prior to the commencement of such new business activities.

In addition, under the MOU, we will promptly notify the seller if any of the following events is foreseen to occur after the transfer of shares under the share transfer agreement: (i) the Company records negative net assets for two consecutive fiscal years under its audited consolidated financial statements prepared in accordance with U.S. GAAP; (ii) the Company records negative net income for two consecutive fiscal years under the aforementioned financial statements; or (iii) the Company undergoes a substantial change in its management structure. If the seller determines that such event will not be resolved within a certain period of time after such notification, and we have not exercised the Company’s Option, then the seller may repurchase 101 shares of JGMC owned by the Company at the fair market value of such shares (the “Seller’s Repurchase Option”). We may not exercise the Company’s Option once the seller exercises the Seller’s Repurchase Option. As of the date of this annual report, 101 shares of JGMC is equal to slightly more than one- fifth of JGMC’s issued and outstanding shares, and the sale of such amount to the seller, following the Initial Acquisition, would be expected to make us a minority owner of JGMC.

In addition, if we do not exercise the Company’s Option, under the MOU, the seller may demand that we sell back to the seller or its designee all or a portion of the shares of JGMC held by us. In such case, the sale price for the shares will be the fair market value at the time the demand is made.

Under the terms of the MOU, once we notify the seller of our intention to exercise the option to purchase the Remaining Shares, we will enter into a separate share transfer agreement for the sale of the Remaining Shares and the MOU will terminate. The MOU sets forth customary closing conditions and will be terminated if the share transfer agreement with respect to the Initial Acquisition is terminated for any reason. In addition, the MOU may be terminated by either party for a number of reasons, including but not limited to the transfer of the Remaining Shares not being completed prior to September 30, 2027 due to reasons not attributable to the terminating party.

In addition to the above, the share transfer agreement contains customary covenants and each of the Acquisition Agreements contains customary representations and warranties. Under each Acquisition Agreement, indemnification for damages caused by a breach of representations and warranties or obligations is capped at ¥10,000 thousand in the aggregate for each party, subject to certain exceptions. We may be unable to consummate the Initial Acquisition or the purchase of the Remaining Shares if any of the closing conditions in the Acquisition Agreements fails to be satisfied or for other reasons, in which case we would not realize some or all of the anticipated benefits of the Initial Acquisition. Furthermore, even if the Initial Acquisition is consummated, we and the acquired business would remain subject to various risks as described in “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Business—Our past and future acquisitions, minority investments, venture financings, joint ventures and strategic alliances could fail to deliver the anticipated benefits or otherwise have an adverse effect on our businesses and results of operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Business—Our planned acquisition of Japan Gene Medicine Corporation may not be completed on a timely basis, on our anticipated terms, or at all, and there are uncertainties and risks to consummating the acquisition and integrating the acquired business.”

​

Capital and Businesses Alliances of MEDIROM MOTHER Labs Inc.

MEDIROM MOTHER Labs Inc. has entered into two capital and business alliance agreements since August 2024 in connection with its Series A financing as described below. The price per series A preferred share in this financing round of JPY180,000 (US$1,143.8) represents a pre-money valuation of JPY9 billion (US$57.2 million) based on MML’s 50,000 total outstanding shares as of August 31, 2024, prior to the commencement of the Series A financing. As of December 31, 2024, MML had entered into agreements with six investors for aggregate financing of JPY260,280 thousand (US$1,654 thousand). We continuously seek attractive financing opportunities for our Digital Preventative Healthcare business and may seek to raise additional capital to aggressively expand the business, although we intend to continue to be the controlling shareholder of MML.

Agreement with NFES Technologies Inc.

In August 2024, MML entered into a capital and business alliance with NFES Technologies Inc. (“NFES”), under which NFES purchased 556 newly issued series A preferred shares of MML (approximately 1.1% of MML’s equity ownership immediately after NFES’s investment in MML) for JPY100,080 thousand (US$636 thousand) at a pre-money equity valuation of JPY9 billion (US$57.2 million) as the lead investor in the series A equity financing round of MML. The capital and business alliance agreement with NFES (the “NFES Agreement”) contains certain other commercial terms, including granting NFES certain benefits as the sole designated distributor, and status as one of three main distributors, of MOTHER Bracelet® and MOTHER Gateway products domestically. Furthermore, the NFES Agreement designates NFES as the only third- party distributor of MOTHER Bracelet® and MOTHER Gateway products to end users through e-commerce channels, provided that MML may sell its products directly to end users through its e-commerce stores.

The NFES Agreement requires that MML return, to the fullest extent permitted under law, the proceeds of NFES’s investment if MML is unable to obtain any necessary patents, licenses or rights relating to the thermoelectric charging functionality of its products.

Agreement with Elematec Corporation

In October 2024, MML and Elematec Corporation (“Elematec”) entered into a capital and business alliance agreement (the “Elematec Agreement”). Under the Elematec Agreement, Elematec participated in MML’s series A financing round by purchasing 556 newly issued series A preferred shares of MML for a total price of JPY100,080 thousand (US$636 thousand). The Elematec Agreement also provides, among other commitments, that MML will exclusively outsource to Elematec the procurement of components for and manufacturing of MML’s recharge-free wearable devices that use thermoelectric generator technology (“Recharge-Free Wearables”), such as the MOTHER Bracelet 2.0, and accessory devices such as the MOTHER Gateway. Elematec will also have a right of first offer to handle the procurement of components for, and manufacturing of, any next generation or improved Recharge-Free Wearable devices. In addition, under the Elematec Agreement, Elematec will sell MOTHER Bracelets on a non-exclusive basis.

The Elematec Agreement includes customary termination provisions and may be terminated if MML loses the right to use the thermoelectric generator technology it has licensed from Matrix Industries, Inc. In the event that Elematec terminates the Elematec Agreement, it will have a right to have its series A preferred shares repurchased by MML at the original purchase price of JPY180,000 (US$1,143.8) per share or the fair value of the preferred shares at the time of Elematec’s repurchase demand, whichever is higher.

Under the Elematec Agreement, MML has made certain commitments regarding the time to be dedicated to MML’s business by Kouji Eguchi, our Chief Executive Officer, and Yoshio Uekusa, the Representative Director of MML. MML has also committed that Messrs. Eguchi and Uekusa will not engage in certain activities that would compete with MML’s business while such persons are a shareholder, officer or employee of MML and for a period of two years thereafter.

Subsequent Events

Reorganization of Wellness Salon Business

On January 1, 2025, we completed a corporate reorganization in order to integrate our relaxation salon business subsidiaries into a single entity to allocate our therapist resources more efficiently and dynamically. Specifically, Wing Inc., as the surviving entity (i) merged with Medirom Human Resources Inc. and (ii) succeeded the wellness salon business at spa facilities from Joyhands Wellness Inc. On the same date, WING Inc. changed its corporate name to “Medirom Wellness Co.”

Sale of Joyhands Wellness Inc.

After the reorganization mentioned above, Joyhands Wellness Inc.’s sole operations consisted of its linen cleaning business. On the same date as the reorganization described above, we entered into an agreement to sell 100% of Joyhands Wellness Inc.’s shares to a third party.

Borrowings from Japanese Banks

On March 7, 2025, we entered into a loan agreement with Resona Bank, one of Japan’s leading banks, to borrow JPY350 million (US$2,224 thousand), part of which was used to repay an existing loan of JPY200 million (US$1,271 thousand) from Resona Bank. This increased our net borrowing amount by JPY150 million (US$953 thousand) and extended the repayment date on our borrowings from Resona Bank by approximately nine months.

In addition, on March 31, 2025, we also renewed our existing loan from Mitsubishi UFJ Bank, one of Japan’s largest banks. The borrowed amount under this loan is JPY267 million (US$1,695 thousand) and it is scheduled to mature on June 30, 2025.

Regulations Governing our Relaxation Salons

Relaxation salons such as ours are not currently regulated by the Japanese government. The main law in Japan governing the massage industry is the Act on Practitioners of Massage, Acupressure, Acupuncture and Moxibustion, and etc. (Act No. 217 of 1947). However, we do not market or provide massage, finger pressure, acupuncture, moxa-cauterization or other services regulated under this Act, and this information is clearly provided to all customers prior to them receiving our salon services.

Regulations Governing our Franchises

Japan has antitrust laws that protect consumers and regulate how companies operate their businesses. Among the various Japanese antitrust laws, the seminal antitrust law is the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (Act No. 54 of 1947, as amended) (which we refer to as the “Antimonopoly Act”). The Antimonopoly Act prohibits certain activities that inappropriately induce or mislead persons into entering into a business relationship with us through our granting of seemingly preferable trade terms and conditions that could create false impressions in relation to other franchisors we compete with.

The Japan Fair Trade Commission (which we refer to as the “JFTC”) enforces the Antimonopoly Act and other Japanese antitrust laws. The JFTC issued the “Guidelines Concerning the Franchise System Under the Antimonopoly Act” on April 24, 2002 (last amended on April 28, 2021) (which we refer to as the “Guidelines”), under which the JFTC suggests that, prior to entering into a franchise relationship, a franchisor should adequately disclose and explain material trade terms to a potential franchisee in order to prevent any misunderstanding of the material trade terms, and to prevent such potential franchisee from being misled or improperly induced into entering into such franchise relationship. Material trade terms include terms relating to the following:

In addition, when a franchisor markets its franchise, in the event such franchisor provides a prospective franchisee with an estimate of the revenue or profit that could possibly be generated upon becoming a franchisee, such estimated revenue or profit must be based on a reasonable method of calculation and established facts, such as the results of an existing franchise operating in a similar environment. The franchisor is required to present to the prospective franchisee such methods and facts. The Guidelines also suggest that, in explaining business hours and temporary closures, a franchisor should provide to a prospective franchisee then-known information that may adversely impact management of the franchise, such as the occurrence of a shortage of human resources during specified business hours or a rapid increase in personnel costs.

In terms of trades between a franchisor and franchisees after entry into a franchise agreement, the Guidelines provide suggestions that the franchisor should not place franchisees at an undue disadvantage, which could be deemed an “abuse of superior bargaining position” or other violation of law.

If the JFTC finds any activities that violate the Antimonopoly Act, including any “deceptive customer inducement”, then the JFTC may order the offending franchisor to cease and desist from engaging in such unlawful activities, delete any applicable unlawful clauses from the franchise contract, or carry out any other measures necessary to eliminate such unlawful activities.

In the event the JFTC suspects any violation of the Antimonopoly Act or alleges that we have misled or wrongly induced any of our franchisees based upon any particular trade terms, we could be exposed to risks, including governmental action against us.

Regulations Governing Prepaid Cards

We began issuing our prepaid Re.Ra.Ku® Cards to relaxation salon customers starting in December 2008.

Re.Ra.Ku® Card users can continuously use and, until February 1, 2024, could also replenish their card balances at our relaxation salons. Prepaid cards are generally considered “prepaid payment methods” (which we refer to as “PPMs”) under the Act on Settlement of Funds (Act No. 59 of 2009) (which we refer to as the “Settlement Act”). PPMs are regulated under the Settlement Act so long as there is a possibility that the cards could be valid for a period of more than six months. The Re.Ra.Ku® Cards currently do not have expiration dates and therefore are regulated under the Settlement Act.

Issuers of prepaid cards with a validity of longer than six months are referred to as “PPM Providers.” There are two categories of PPM Providers:

The Re.Ra.Ku® Card can be used at salons operated by our franchisees, which are considered third parties for the purposes of the Settlement Act. As such, we are considered a Public Use PPM Provider. A Public Use PPM Provider must file an application with the Kanto Local Financial Bureau and be allowed for a registration to issue PPM cards. On September 30, 2016, our registration was accepted by the Kanto Local Financial Bureau.

A PPM Provider typically holds a certain amount of its customers’ cash in the form of prepaid amounts on the cards that have not yet been exchanged for goods or services. The total of such amounts for all customers of a PPM Provider is referred to as the “Outstanding Amount.” A Public Use PPM Provider is required to maintain deposits of at least half of its Outstanding Amount at the local Legal Affairs Bureau (although other arrangements are possible), in order to ensure that there are adequate funds for the card holders who are effectively loaning their money to the Public Use PPM Provider through their purchase of the prepaid card. At the end of March and September each year, the Public Use PPM Provider must calculate its Outstanding Amount and deposit half that amount at the Legal Affairs Bureau within two months. In the following year, if the Outstanding Amount has increased, the Public Use PPM Provider must pay the difference between such Outstanding Amount and the amount deposited with the Legal Affairs Bureau. We made our initial deposit of our Outstanding Amount with the Legal Affairs Bureau on November 28, 2016, in the amount of JPY125,261 (US$779 thousand), and made additional deposits and adjustments with each semi-annual reporting.

One of the requirements for issuers of prepaid cards under the Settlement Act is to maintain net assets of not less than JPY100 million based on Japanese GAAP. As of December 31, 2022, our net assets had fallen below JPY100 million based on Japanese GAAP on a standalone basis. On March 20, 2023, we reported the matter to the Kanto Local Financial Bureau. However, as of December 31, 2023, our net assets exceeded the JPY100 million threshold on a standalone basis, meaning that we satisfied the net asset test as of that date.

Given the heavy burden imposed on us as a Public Use PPM Provider, we decided to introduce a new payment system and developed “Re.Ra.Ku PAY”, a proprietary payment app which works on customers’ smart phones. The most important difference between the Re.Ra.Ku Card and Re.Ra.Ku PAY is that balances on Re.Ra.Ku PAY have an expiration period of 150 days, while Re.Ra.Ku Card balances do not have an expiration date. The Settlement Act regulates only prepaid cards with balances that remain effective for more than six months. Hence, by limiting the expiration period to less than six months, Re.Ra.Ku PAY can be exempted from the regulations and requirements under the Settlement Act, which include the net assets requirement and an obligation to deposit half of the prepaid balance to the Legal Affairs Bureau.

As a supplemental alternative to Re.Ra.Ku PAY, primarily for customers who are not familiar with smartphone applications, we also introduced seasonal paper-based prepaid tickets in October 2024. These tickets provide a small discount compared to paying with cash and have expirations of less than 180 days, depending on marketing campaigns.

We disallowed further balance deposits on Re.Ra.Ku Cards beginning on February 1, 2024. Accordingly, we expect the total balance of funds on Re.Ra.Ku Cards to decrease, as customers can only use their Re.Ra.Ku Cards for payment, and the deposited amount to the Legal Affairs Bureau to be refunded to us over time as the total balance of funds on Re.Ra.Ku Cards decreases. As of December 31, 2024, the total amount we had deposited with the Legal Affairs Bureau in connection with the Re.Ra.Ku Card balances was JPY127,006 thousand (US$807 thousand).

Personal Information Protection

We are subject to laws and regulations regarding privacy and protection of user data and personal information, due to our customer data collection operations in connection with our Digital Preventative Healthcare Segment. The application and interpretation of these and other similar international laws and regulations regarding privacy and protection of user data and personal information is often uncertain, particularly with respect to the new and rapidly evolving industry in which we operate.

In Japan, the Act on the Protection of Personal Information (which we refer to as the “APPI”) and its related guidelines impose various requirements on businesses, including us, that use databases containing personal information.

Under the APPI, we are required to lawfully use personal information we have obtained within the purpose of use we have specified and take appropriate measures to maintain the security of such personal information. We are also restricted from providing personal information to third parties without the consent of the applicable user. The APPI also includes regulations relating to the handling of sensitive personal data and anonymous personal data and the transfer of personal information to foreign countries. We collect information from our relaxation salon customers through the questionnaire completed by each first-time customer. Some of the information we collect through that questionnaire could fall under the category of sensitive personal data under the APPI.

We obtained the “PrivacyMark” certification in Japan in July 2022. “PrivacyMark” is a certification which is given to enterprises that take appropriate measures to protect personal information. The “PrivacyMark” System was established by the Japan Information Processing Development Corporation (JIPDEC) in April 1998, and the “PrivacyMark” is certified and granted by JIPDEC as well as other designated organizations. Such private enterprises are granted the right to display “PrivacyMark” in the course of their business activities. The system is in compliance with Japan Industrial Standards (JIS Q 15001: Personal Information Protection Management System - Requirements). This “PrivacyMark” certification is highly valued and provides credibility. Therefore, it is often required by our business associates in the Digital Preventative Healthcare Segment, including health insurance providers, hospitals, and nursing homes. We intend to continue to take actions necessary to maintain this certification.

C.Organizational Structure

Our principal operating subsidiaries as of December 31, 2024 are as follows:

D.Property, Plants and Equipment

Please see a detailed discussion of our property, plants and equipment under “Item 4. Information of the Company—Property and Equipment”.

ITEM 4.A. UNRESOLVED STAFF COMMENTS

None.

​

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections of this annual report entitled “Information on the Company”, and our consolidated financial statements and related notes thereto, included elsewhere in this annual report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current plans, expectations, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our fiscal year ends on December 31 and references to fiscal years 2022, 2023, and 2024 are to the fiscal years ended December 31, 2022, 2023 and 2024, respectively. In accordance with Instruction 6 to Item 5 of Form 20-F, we are omitting from this annual report a discussion of our results of operations for fiscal year 2022. For a discussion of our results of operations for the fiscal year ended December 31, 2022 compared with the fiscal year ended December 31, 2023, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results” from our Annual Report on Form 20-F for the fiscal year ended December 31, 2023, as filed with the SEC on June 18, 2024.

Overview

Our principal business is to own, develop, operate, manage, and support relaxation salons through franchising, through direct ownership of such salons, or through selling salons to investors and managing such salon operations on behalf of the investors, throughout Japan. We seek to be the leading provider of relaxation and bodywork services in the markets we serve and to become the most recognized brand in our industry through the steady and focused expansion of relaxation salons in key markets throughout Japan and potentially abroad.

As of December 31, 2024, we and our franchisees operated 308 salons, of which 163 were operated as Company-owned salons, 88 were operated by our franchisees, and 57 were investor-owned salons which the Company operated on their behalf. We consider both Company-owned salons and investor-owned salons which are managed by us as “directly-operated salons”.

Our current strategy is to grow our business through development of additional franchises, and to continue to expand the number of our directly-operated salons in a deliberate and measured manner. In addition, we believe that we can continue the development of, and revenue generation from, Company-operated salons through further selective acquisition of existing franchised salons and the opening of greenfield units. We will seek to acquire existing franchised salons that meet our criteria for demographics, site attractiveness, proximity to other salons, and other suitability factors.

Key Financial Definitions

Revenue.   Revenue consists of the following items: revenue from directly-operated salons, franchise revenue, and other revenues.

Cost of Revenue. The total cost of delivering services to customers consists of the following items: cost of goods sold, subcontract expenses, cost of franchise royalty and affiliation revenue, salon operating cost, salaries for therapists, legal and welfare expenses, provision for paid annual leave, travelling expenses, salon rent, depreciation and amortization, gain/loss from asset retirement obligation, interest expenses for asset retirement obligation, business consignment expenses, and others.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses, or SG&A, includes the costs to sell and deliver services and the costs to manage the company as follows: directors’ compensations, salaries and allowances, bonuses, legal welfare expenses, provision for paid annual leave, recruiting expenses, travel expenses, advertising expenses, rent, taxes and duties, commission fees, compensations, depreciation and amortization, provision for doubtful accounts, and others.

Impairment Loss on Long-lived Assets. Long-lived assets include property and equipment, right-of-use lease assets, internal use software, and definite-lived intangible assets. The Company reviews the carrying value of long-lived assets for impairment whenever events or circumstances occur that indicate that the carrying value of the assets may not be recoverable. If the assets are not deemed to be recoverable, an impairment is recorded if the fair value of the asset grouping is less than the carrying value.

Non-U.S. GAAP Measures

Adjusted EBITDA.   We define Adjusted EBITDA as net income (loss), adjusted to exclude: (i) dividend and interest income, (ii) interest expense, (iii) gain from bargain purchases, (iv) income tax expense, (v) depreciation and amortization, (vi) losses on sales of directly-owned salons to franchisees, (vii) gains (losses) on disposal of property and equipment, and other intangible assets (viii) impairment loss on long-lived assets and (ix) stock-based compensation expense. Management considers Adjusted EBITDA to be a measurement of performance which provides useful information to both management and investors. Adjusted EBITDA should not be considered an alternative to net income or other measurements under GAAP. Adjusted EBITDA is not calculated identically by all companies and, therefore, our measurements of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

We use Adjusted EBITDA to enhance our understanding of our operating performance, which represents our views concerning our performance in the ordinary, ongoing and customary course of our operations. We historically have found it helpful, and believe that investors have found it helpful, to consider an operating measure that excludes certain expenses relating to transactions not reflective of our core operations. Stock-based compensation expense represents non-cash charges related to equity awards granted by us. Our management believes the measurement of these amounts can vary considerably from period to period and depend substantially on factors that are not direct consequences of the performance of our Company and are not within our management’s control. Therefore, our management believes that excluding these expenses facilitates comparisons of our operational results and financial performances in different periods, as well as comparisons against similarly determined non-GAAP financial measures of comparable companies.

The information about our operating performance provided by this financial measure is used by our management for a variety of purposes. We regularly communicate Adjusted EBITDA results to our board of directors, and we discuss with the board our interpretation of such results. We also compare our Adjusted EBITDA performance against internal targets as a key factor in evaluating our periodic operating performance at each salon level, segment level, and consolidated level, largely because we believe that this measure is indicative of how the fundamental business is performing and is being managed.

Adjusted EBITDA Margin.   Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA for a period by total revenue for the same period.

Key Performance Indicators

In assessing the performance of our relaxation business, we consider several key performance indicators used by management. We receive monthly performance reports from our system and our relaxation salons which include key performance indicators per salon including sales, number of customers, number of newly-acquired customers, number of repeat customers, sales per customer, and operation ratio. We believe these indicators provide us with useful data with which to measure our performance and to measure the performance of our own and our franchisees’ relaxation salons.

These key indicators include:

The following table sets forth the above key performance indicators for the periods presented:

​

​

​

​

​

The following table sets forth sales of store operating rights for the periods presented.

​

Our Number of Salons was 308 as of December 31, 2024, compared to 314 as of December 31, 2023.

The number of Salons with Data was 283 as of December 31, 2024, compared to 290 as of December 31, 2023.

Total Customers Served was 945,395 for the year ended December 31, 2024, compared to 979,252 in the year ended December 31 2023. We believe this decrease was primarily due to a decrease in the number of our salons and a shortage of our therapists due to increased competition for labor in Japan.

Sales per Customer were JPY7,111 (US$45.2) in the year ended December 31, 2024, an increase from JPY6,852 (US$43.5) in the year ended December 31, 2023. We believe the increase is primarily attributable to the full year contribution of our new pricing introduced in May 2023.

Our Repeat Ratio was 76.3% in the year ended December 31, 2024, a slight decrease from 76.8% in the year ended December 31, 2023. While our Repeat Ratio at newly developed salons has been increasing during the last few years, our average Repeat Ratio has slightly decreased. We believe this was primarily due to consumer attitudes shifting towards spending less in response to general inflationary trends in Japan.

Our Operation Ratio was 45.7% in the year ended December 31, 2024, a slight decrease from 46.8% in the year ended December 31, 2023. We believe this decrease was primarily caused by the decreased number of repeat customers due to the aforementioned factors.

The total number of salon locations for which we sold operating rights was 60, and the gross contractual value from such sales totaled JPY2,563,705 thousand (US$16,291 thousand) in the year ended December 31, 2024, as compared to 38 stores, with the gross contractual value of JPY1,710,500 thousand (US$10,869 thousand), during the year ended December 31, 2023. We believe this increase in locations sold and revenue is primarily attributable to continuously strong demand from investors.

Factors Impacting our Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on the global economy, general market conditions, customer preference, and the competitive environment.

Our revenues, operating results and financial performance are impacted by a multitude of factors, including, but not limited to:

Business Environment.   According to the 2022 Yano Report, the relaxation market continues to see industry consolidation and notable category entrants from athletic and personal training services, and body stretching. We believe that market share will be further transferred to the category leaders in the industry, as smaller, private operators sell their businesses for retirement and/or market competition reasons, which industry trends, as we believe, may benefit us if realized.

Cost of Services.   The cost of service of relaxation business has been increasing. In our relaxation business, a substantial majority of our personnel are paid wages at or close to the statutory minimum wage. For the past decade, such minimum wage has been continuously increasing throughout Japan. In 2012, the minimum wage in Tokyo was JPY850 (US$5.40), but had risen to JPY1,072 (US$6.81) as of December 31, 2022, according to the Ministry of Health, Labor and Welfare. The trend continued in 2023 and in 2024. The minimum wage in Tokyo increased annually by 3.8% to JPY1,113 (US$7.07) as of December 31, 2023, and by 4.5% to JPY1,163 (US$7.39) as of December 31, 2024.

In addition, we are facing inflationary trends in general prices, including utility costs, due to factors such as geo-political developments and the recovery of the Japanese economy. We have updated our service prices in May 2023 as part of a renewal of our primary service lines in order to deal with such increased costs, as well as to adjust to the long-term trend of minimum wage increases. We may also consider further updates to our service prices to reflect such increases in our costs in the future.

Update of Business Model.   Since the fourth quarter of 2021, we have sought to become more asset-light by selling our owned salons to third-party investors and continuing to operate these sold salons on behalf of the investors. We believe this model will maximize the return on capital investment in our relaxation salon segment and allow us to accelerate salon openings by reinvesting the proceeds from the sales of salons, improve operational efficiency by focusing on salon operations, and generate additional income from the salons that were sold to investors and are under our management. In 2024, we sold 60 salons, while we sold 38 salons in 2023.

Specific Health Guidance Program.   In our Digital Preventative Healthcare Segment, we have been continuously involved in the Specific Health Guidance Program, promoted by the Ministry of Health, Labor and Welfare of Japan, which utilizes our upgraded Lav® application. We had active subscription orders from 86 corporate insurance associations as of December 31, 2024, an increase from 68 as of December 31, 2023. The number of users under the Specific Health Guidance Program was 2,393 in the year ended December 31, 2024, a slight increase from 2,389 in the same period in 2023. In addition, during the year ended December 31, 2024, we focused more on providing similar services to young employees at large corporations who are not eligible for the Specific Health Guidance Program. The number of younger generation users, which we define as users below the age of forty, who participated in the program for younger generations was 736 in the year ended December 31, 2024, as compared to 414 in the prior fiscal year. As of December 31, 2024, we had active subscription orders from 20 corporate insurance associations, compared with 12 as of December 31, 2023. The total number of active subscription orders from corporate insurance associations as of the end of 2024 and 2023 was 97 and 74, respectively, and the total number of users who participated in our Specific Health Guidance Program or the program for younger generations in 2024 and 2023 was 3,129 and 2,803, respectively.

Planned Acquisition of JGMC

On June 30, 2024, we entered into a share transfer agreement for the purpose of acquiring 70% of the issued and outstanding common shares of Japan Gene Medicine Corporation (“JGMC”) for ¥2,000,000 thousand (the “Initial Acquisition Purchase Price”) and making JGMC our subsidiary (the “Initial Acquisition”). In addition, we concurrently entered into a binding memorandum of understanding (the “MOU”) under which we were granted an option to purchase the remaining 30% of the issued and outstanding shares of JGMC that we will not acquire as part of the Initial Acquisition (the “Remaining Shares”). As of the date of this annual report, we are in negotiations with multiple banks and financial institutions to finance our planned acquisition of 70% of the equity of JGMC. However, as of the date of this annual report, we have not determined how much cash on hand, if any, will be used for this purpose.

In addition, the amount and terms of the financing are subject to change, and we may seek additional acquisition financing arrangements going forward. We expect the incurrence of this additional indebtedness to significantly increase our interest costs in future periods.

See also “—Liquidity and Capital Resources—Business Loans.” We may also incur further indebtedness in connection with the Initial Acquisition or if we decide to exercise our option to purchase the Remaining Shares.

We expect to record a significant amount of goodwill in connection with the Initial Acquisition, reflecting the sum by which the aggregate fair value of consideration for the Initial Acquisition exceeds the estimated fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. Such goodwill will be subject to impairment testing. If circumstances arise indicating that goodwill recorded in connection with the acquisition may be impaired, such as if we are unable to successfully realize the expected benefits of the acquisition, we may be required to record an impairment loss up to the full value of such goodwill on our consolidated balance sheet. For additional information regarding goodwill, see Note 1 to the consolidated financial statements included elsewhere in this annual report.

We also expect to record a certain amount of intangible assets and other assets of JGMC in connection with the Initial Acquisition, which we plan to reflect on our balance sheet after completion of the purchase price allocation. While JGMC’s business has continued to experience significant growth since its establishment and we believe it has strong potential for further growth, we estimate that, even assuming a hypothetical consolidation as of January 1, 2023 of JGMC (as it is expected to be structured upon our acquisition) with us, a substantial majority of our hypothetical consolidated total revenue for the year ended December 31, 2023 would have been derived from our existing businesses. We are currently assessing the potential impact of JGMC’s operations on our future results of operations, including the impact of any potential synergies with our existing businesses that we may realize.

For additional information regarding our acquisition of JGMC, see“Item 4. Information on the Company—Planned Acquisition of Japan Gene Medicine Corporation.”

A.Operating Results

Comparison of the Results for the Year Ended December 31, 2024 and December 31, 2023

​