F-1: TRYHARD HOLDINGS: Resale Offering Amidst Profit Decline

TRYHARD HOLDINGS LIMITED files an F-1 registration for the resale of 3.6 million Ordinary Shares by existing shareholders, with the company not receiving any proceeds, as its net income significantly declined in the latest fiscal year.

Summary

• TRYHARD HOLDINGS LIMITED is registering 3,600,000 Ordinary Shares for resale by Comet Moment Limited and Legend One Capital Limited; the company will not receive any proceeds from this sale.
• The company's total revenues increased by 2.2% to JPY3,538.9 million (US$24.5 million) for the year ended June 30, 2025, from JPY3,461.2 million in 2024.
• Net income for the year ended June 30, 2025, was JPY15.1 million (US$0.1 million), a substantial decrease from JPY137.4 million in 2024.
• Gross profit decreased by 10.3% to JPY700.5 million (US$4.9 million) in 2025 from JPY780.6 million in 2024, with gross margin falling from 22.6% to 19.8%.
• Operating expenses increased by 22.5% to JPY774.5 million (US$5.4 million) in 2025, driven by higher selling, marketing, and general & administrative costs.
• The consultancy and management segment revenue increased by 14.3% to JPY2,480.3 million in 2025, primarily due to the opening of three new clubs and enhanced marketing.
• The sub-leasing segment revenue significantly declined by 76.2% to JPY67.3 million in 2025, mainly due to a reclassification of an arrangement as a finance sublease and liquidated damages from an early lease termination.
• The restaurants segment revenue decreased by 17.9% to JPY92.5 million in 2025, primarily due to the closing of a restaurant.
• The company is an 'emerging growth company' and a 'controlled company' under Nasdaq rules, with Mr. Otsuki holding approximately 70.48% of the voting power.
• A material weakness in internal control over financial reporting was identified, related to a lack of sufficient competent financial reporting and accounting personnel.

Sentiment

Score: 4

Explanation: The significant decline in net income and gross profit margin for the latest fiscal year, coupled with increasing operating expenses and identified material weaknesses in internal controls, indicates a negative financial trend. While revenue saw a slight increase and some segments performed well, the overall profitability deterioration and the nature of the resale offering (no proceeds to the company) suggest a cautious outlook.

Positives

• Total revenues increased by 2.2% to JPY3,538.9 million (US$24.5 million) for the year ended June 30, 2025.
• Consultancy and management segment revenue grew by 14.3% to JPY2,480.3 million in 2025, driven by new club openings and enhanced marketing efforts.
• Event curation revenue remained stable at approximately JPY898.8 million in 2025, with plans for future growth through collaborations with government entities and strategic partners.
• The negative gross margin in the restaurants segment improved from -58.2% in 2024 to -30.2% in 2025 due to optimization strategies.
• Other income significantly increased by JPY166.0 million in 2025, primarily from a gain on derecognition of right-of-use assets and lease terminations.
• The company has established a robust supply chain ecosystem and strong brand recognition in Japan.
• Strategic partnerships with government agencies, event sponsors, and beverage companies are in place to promote tourism and regional revitalization.

Negatives

• Net income for the year ended June 30, 2025, was JPY15.1 million (US$0.1 million), a significant decrease from JPY137.4 million in 2024.
• Gross profit decreased by 10.3% to JPY700.5 million (US$4.9 million) in 2025, and the gross margin declined from 22.6% to 19.8%.
• Operating expenses increased substantially by 22.5% to JPY774.5 million (US$5.4 million) in 2025.
• The sub-leasing segment experienced a significant revenue decline of 76.2% to JPY67.3 million in 2025, partly due to reclassification of a lease and liquidated damages.
• The restaurants segment continues to operate at a negative gross margin, despite improvement.
• General and administrative expenses increased by 24.3% in 2025, partly due to higher allowance for credit losses and increased legal/professional fees related to the IPO.
• Other expenses increased by JPY46.9 million in 2025, primarily due to a loss on disposal of equipment and furniture from a restaurant closure.
• The company identified a material weakness in internal control over financial reporting due to a lack of sufficient competent financial reporting and accounting personnel.

Risks

• Unpredictable event demand due to economic conditions, consumer preferences, and competition could adversely impact event curation revenue.
• Event cancellations caused by external factors like weather, public health concerns (e.g., pandemics), or venue issues could disrupt revenue projections and result in sunk costs and reputational damage.
• Changes or tightening of stringent regulations in the nightlife and club industry (licensing, noise, health, safety, alcohol laws) could increase operating costs or limit profitability.
• Operational liabilities from accidents, safety violations, or security issues in clubs could result in financial liabilities or damage to brand image.
• Inability to secure long-term tenants for sub-leased venues at favorable rates or tenant defaults could lead to the company still being responsible for rent, pressuring margins.
• Fluctuations in the real estate market, including rental prices and property values, could negatively impact sub-leasing operations.
• Operational challenges in the restaurant industry, such as high operating costs, changing consumer preferences, food supply cost fluctuations, food safety incidents, or poor customer reviews, could negatively impact revenue and profitability.
• Economic downturns could reduce discretionary spending on entertainment and dining, negatively impacting club and restaurant businesses.
• Reliance on key entertainers and talent means failure to attract or retain high-quality performers could affect audience draw and profitable operations.
• Loss of key management personnel could disrupt business operations or strategic initiatives.
• Economic volatility, including inflation and rising costs for materials, labor, utilities, and food ingredients, could erode profit margins.
• Exposure to risk of accidents and injuries during events could impose significant costs and liability exposure.
• Current insurance coverage may not sufficiently protect against all risks, and insurance premiums may increase.
• Need to raise additional capital for business growth, with no assurance of obtaining it on acceptable terms or at all.
• Executive officers lack prior experience operating a U.S. public company, potentially harming compliance and reputation.
• Planned increases to executive officer compensation will raise operating costs, requiring commensurately higher revenue to maintain profitability.
• The market price of Ordinary Shares may be volatile or decline regardless of operating performance.
• Holders of Series A Preferred Shares (Mr. Otsuki) have significant influence over the company (70.48% voting power), potentially leading to decisions adverse to other shareholders.
• Extreme stock price volatility unrelated to actual performance, especially for small-capitalization companies with small public floats, making it difficult for investors to assess value.
• Substantial future sales of Ordinary Shares, including the 3,600,000 shares in this resale prospectus, could cause the share price to decline.
• Failure of securities or industry analysts to publish research, or negative reports, could cause share price and trading volume to decline.
• Ceasing to qualify as a foreign private issuer would incur significant additional legal, accounting, and other expenses.
• Difficulties in protecting interests and limited ability to protect rights through U.S. courts due to incorporation under Cayman Islands law.
• Potential delisting from Nasdaq Capital Market if listing requirements are not satisfied, negatively impacting share price and liquidity.
• As an emerging growth company, taking advantage of certain exemptions makes performance comparison with other public companies more difficult.
• As a controlled company, the company may choose to exempt itself from certain corporate governance requirements, potentially affecting public shareholders.
• Cayman Islands laws may not provide shareholders with benefits comparable to those in the United States.
• Shareholders may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
• Classification as a passive foreign investment company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.
• Certain existing shareholders can sell shares under Rule 144 after IPO and lock-up expiration, potentially impacting trading price.

Future Outlook

The company plans to expand its consultancy and management segment through strategic collaborations with advertising companies to reach new markets and secure long-term partnerships. Significant growth is anticipated from the expansion of self-produced events, aiming for higher revenue and enhanced brand recognition by diversifying offerings. The company remains committed to optimizing revenue streams and driving operational efficiencies in sub-leasing and restaurants, including exploring geographic expansion and investing in technology to enhance customer experiences. Management acknowledges that success is contingent on market demand, regulatory changes, competition, and broader economic conditions, which will be closely monitored.

Management Comments

• We are dedicated to improving operational efficiency and streamlining our cost structure to enhance net profit margins and ensure long-term financial stability and profitability.
• We believe we are poised to capture new opportunities and drive sustainable growth within the entertainment and hospitality sectors.
• We plan to drive event curation revenue growth through collaborations with government entities and tourism associations, as well as co-hosting events with strategic partners.
• We aim to expand our event portfolio, diversify revenue sources, and enhance profitability over the medium term by leveraging both our production and operational expertise and the branding strength of strategic partners.
• Management remains focused on delivering long-term value to our stakeholders and is confident in our ability to adapt to evolving market conditions while capitalizing on growth opportunities.

Industry Context

The company operates in Japan's highly competitive and fragmented lifestyle entertainment industry, which includes event curation, club management, sub-leasing, and restaurant operations. The industry is characterized by evolving consumer preferences, high operating costs, and strict regulations. The broader Japanese tourism industry is projected to grow at a CAGR of 3.8% from 2024 to 2028, and the global lifestyle entertainment market at 7% CAGR, with Asia Pacific leading at 7.5%. The company's asset-light model and focus on unique Japanese content aim to differentiate it in this dynamic landscape, capitalizing on increasing demand for experiential events and nightlife. However, it faces challenges from rising rent costs, changing consumer tastes, and intense competition from various entertainment options.

Comparison to Industry Standards

• The company's asset-light operating model is a competitive strength, enabling minimization of capital expenditures, maximization of scalability, and reduction of risk, which contrasts with traditional entertainment businesses that often require heavy asset ownership.
• The company's strategy of partnering with local businesses and organizations to create events showcasing Japanese culture, such as MUSIC CIRCUS and Senshu Dream Fireworks, provides uniquely Japanese content that may differentiate it from global entertainment conglomerates.
• The company's extensive experience and track record of over 30 events in the past three years, including large-scale festivals like MUSIC CIRCUS (attracting 626,500 people over 10 years), positions it as a significant player in the Japanese event curation market, comparable to established event organizers.
• The company's portfolio of 16 managed clubs across major Japanese cities (Tokyo, Osaka, Nagoya, Kyoto, Hiroshima, Okinawa) indicates a strong domestic presence and market penetration in the nightlife sector, allowing it to leverage local markets and tourism.
• The company's gross margin of 19.8% in 2025, while lower than 2024, operates within an industry known for high operating costs and competitive pressures, particularly in the restaurant segment which continues to show negative margins, reflecting the inherent difficulties of that sector.
• The company's collaboration with NEXYZ.Group Corporation, SBI Holdings Inc, and Risenet Co., Ltd. for Music Circus Co. demonstrates a strategic approach to leverage collective strengths, similar to joint ventures seen in larger entertainment and media industries to expand reach and capabilities.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of the prospectus, the company is not party to any significant legal proceedings.

Related Party Transactions

• Music Circus Co., an associate of the company, generated JPY135.89 million (US$0.94 million) in revenue for the company and incurred JPY30.98 million (US$0.22 million) in cost of revenue for the year ended June 30, 2025.
• Music Circus Co. also accounted for JPY7.33 million (US$0.05 million) in selling and marketing expenses for the year ended June 30, 2025.
• As of June 30, 2025, the company had JPY0.11 million (US$0.001 million) in accounts receivable from Music Circus Co., JPY12.9 million (US$0.09 million) in accounts payable to Music Circus Co., and JPY26.63 million (US$0.18 million) as an amount due to Music Circus Co.
• Capital contributions from the shareholder amounted to JPY30.0 million in 2024 and JPY379.36 million (US$2.63 million) in 2025.
• Banking facilities from Resona Bank were secured by a personal guarantee of Mr. Otsuki.
• Banking facilities from Osaka Shinkin Bank were secured by personal guarantees of Mr. Otsuki and Yoichi Hiraoka.
• Banking facilities from Mizuho Bank were secured by a personal guarantee of Mr. Hiraoka.
• A policy loan from Dai-ichi Life Insurance Co., Ltd. was secured by Mr. Otsuki's insurance, which was repaid in 2025 due to the termination of his insurance.

Stakeholder Impact

• Shareholders: The resale offering by existing shareholders means no direct capital infusion for the company, potentially leading to downward pressure on share price due to increased supply. The significant decline in net income and gross profit margin could negatively impact investor confidence and share value. The controlled company status means Mr. Otsuki has significant voting power, potentially influencing decisions in ways that may not align with minority shareholders' interests.
• Employees: The company leases properties for employee dormitories, which can enhance operational efficiency and employee satisfaction by reducing commuting time and improving work-life balance, supporting welfare and retention. However, the identified material weakness in internal controls and the need for additional competent personnel suggest potential strain or gaps in the finance and accounting functions.
• Customers: The company's focus on innovative, multi-sensory entertainment experiences, diverse event curation, and exceptional dining aims to captivate audiences and foster memorable connections. Strategic partnerships and expansion plans are intended to enhance offerings and reach a broader customer base. However, risks like unpredictable event demand, cancellations, and operational challenges could impact customer experience and satisfaction.
• Suppliers: The company has established a robust supply chain ecosystem and partnerships with various suppliers (e.g., beverage companies, event service providers), fostering collaboration and efficiency. This network is crucial for delivering high-quality events and services. Risks related to economic volatility and rising costs could impact supplier relationships and payment terms.
• Creditors: The company's liquidity position, with cash and cash equivalents of JPY13.3 million and current liabilities of JPY1,267.7 million as of June 30, 2025, indicates a tight current ratio. While management believes it has sufficient funds for the next 12 months, the need for additional capital and the reliance on cash flow from operations highlight potential risks for creditors, especially given the decline in net cash from operating activities in 2025.

Next Steps

• Expand consultancy and management segment through strategic collaborations with advertising companies.
• Increase self-produced events to maximize revenue and enhance brand recognition.
• Explore opportunities to enhance the sub-leasing and restaurant segments.
• Explore potential geographic expansion, including international markets like the United States, China, and Southeast Asia.
• Invest in technology to enhance customer experiences, including virtual/augmented reality and AI.
• Improve internal processes to support sustainable growth and optimize revenue streams.
• Implement measures to improve internal control over financial reporting and remediate the identified material weakness, including additional review procedures and hiring/engaging external accounting experts.
• Monitor market demand for entertainment services, regulatory changes, competition, and broader economic conditions.
• Continue to review and assess the risk portfolio and make necessary adjustments to insurance practices.

Key Dates

Recommendation

The filing presents a mixed picture. While the company shows revenue growth in its core consultancy and management segment and has strategic plans for expansion, the significant decline in net income and gross profit margin for the latest fiscal year is a major concern. The identified material weakness in internal controls and the fact that this is a resale offering (no new capital for the company) add to the caution. The controlled company structure also presents potential governance risks. Given the existing IPO and Nasdaq listing, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to reverse the profitability decline, address internal control weaknesses, and execute its growth strategies effectively before considering further investment. The current financial performance does not warrant a 'buy' despite growth initiatives, nor a 'sell' given the established business and market presence.

Keywords

Entertainment, Nightlife, Event Curation, Club Management, Sub-leasing, Restaurants, Japan, Nasdaq, F-1 Filing, IPO, Resale Offering, Financial Performance, Corporate Governance, Risk Factors, Cayman Islands, Emerging Growth Company, Controlled Company