Micware Co., Ltd.

Micware Co., Ltd. is a Japan-based provider of software development services and innovative IT solutions mainly focused on the automotive and mobility sectors. The company's main focus is the development and sale of in-vehicle infotainment (IVI) systems that cover a broad range of modern car functionality from multimedia to navigation, human machine interface, telematics, and driver assistance. The company also specializes in the development of navigation software and location information-based smartphone applications. The automotive software industry is characterized by fragmented global competition, diverse technological approaches, and varying regional leaders, and the company's customers, primarily automotive OEMs, possess strong in-house software development capabilities, making them both clients and potential competitors.

Micware faces competition from a wide range of players across several categories. In software development services, the company competes with SCSK Corporation, SKY Corporation, and Panasonic Corporation in Japan, and with TATA Consultancy Services Limited, KPIT Technologies Limited, and Wipro Limited from India. In software licensing, peers include Aisin Corporation, Pioneer Corporation, ZENRIN DataCom Co., Ltd., and Panasonic Corporation. In digital map and software maintenance services, the company competes with HERE Technologies, TomTom N.V., Google (Alphabet) LLC, Environmental Systems Research Institute, Inc (ESRI), and Mapbox Inc. Many of the company's customers, primarily automotive OEMs, possess strong in-house software development capabilities, making them both clients and potential competitors. Since 2013, with the introduction of Linux OS into its products, the company has started to act as a Tier 1 Software Supplier. In 2020 and 2022, the OEMs Toyota and Honda, respectively, who are also customers, became shareholders, testifying to the company's brand reputation in the industry. As of the date of this annual report, the company's business is operated across Japan through six operating entities and 13 branch offices.

Micware generates revenue through three primary streams: software development services, licensing, and software-related services. For the fiscal years ended February 28, 2026 and 2025 and February 29, 2024, revenue generated from software development services was JPY17,521.6 million (approximately $112.3 million), JPY17,178.2 million and JPY13,429.1 million, respectively, constituting 80.0%, 81.4% and 76.7% of total revenue. Software development services involve helping customers, OEMs or Tier 1 suppliers, develop certain software based on specific requirements or agile development methodology, and under the terms of certain agreements, intellectual property rights arising from the course of performing the software development belong to the customers. Licensing revenue is generated from licensing the company's proprietary software products, including IVI system software, navigation software, and other middleware. Software-related services revenue is generated from maintenance, support, and other services related to the company's software products. The company's primary customer segments are automotive OEMs and Tier 1 suppliers, with a significant portion of revenue derived from a few major customers, including Honda Group, Toyota Group, and Uni Electronics.

The company's SDV segment relates to the development and sale of software systems designed for software-defined vehicles, including IVI system software and other mobility-enhancing software products, conducted by Japanese subsidiaries. For the fiscal year ended February 28, 2026, SDV segment revenue was JPY16,200.0 million, compared to JPY15,200.0 million in the prior fiscal year. The LBS segment relates to the development and sale of location-based services, including navigation software and location information-based smartphone applications. For the fiscal year ended February 28, 2026, LBS segment revenue was JPY5,700.0 million, compared to JPY5,800.0 million in the prior fiscal year. The company's core product offerings include the micAuto-PF platform for IVI systems, the naviAZ navigation software, the BeatMap app which uses NLP tools powered by Transformer models and a proprietary AI filtering algorithm, the DynaPlanet (formerly DSMM) geospatial information framework that reconstructs and updates wide-area spatial data using limited visual inputs, and the Mvcube video data collection and search engine platform. The company also offers products such as PinnAR, an augmented reality navigation mobile application, and various B2C services including navigation apps and other location-based services.

The company's SDV segment includes the development and sale of software systems designed for software-defined vehicles, including IVI system software and other mobility-enhancing software products. For the fiscal year ended February 28, 2026, SDV segment revenue was JPY16,200.0 million ¹, compared to JPY15,200.0 million ² in the prior fiscal year. The LBS segment includes the development and sale of location-based services, including navigation software and location information-based smartphone applications. For the fiscal year ended February 28, 2026, LBS segment revenue was JPY5,700.0 million ³, compared to JPY5,800.0 million ⁴ in the prior fiscal year. The company's core product offerings include the micAuto-PF platform for IVI systems, the naviAZ navigation software, the BeatMap app which uses NLP tools powered by Transformer models and a proprietary AI filtering algorithm, the DynaPlanet (formerly DSMM) geospatial information framework that reconstructs and updates wide-area spatial data using limited visual inputs, and the Mvcube video data collection and search engine platform. The company also offers PinnAR, an augmented reality navigation mobile application, and various B2C services including navigation apps and other location-based services.

On April 26, 2024, Micware Mobility entered into a business transfer agreement with Denso to transfer its businesses related to smartphone applications known as "NaviCon" in the Japanese market and "NaviBridge" in the international market, for a consideration of JPY165 million ⁵, including consumption tax, with the transfer becoming effective on March 31, 2025. On January 31, 2025, Micware Mobility entered into a business transfer agreement with Denso Ten to transfer its business relating to the provision, development, and maintenance of taxi dispatch system for a consideration of JPY60.5 million ⁶, including consumption tax, with the transfer becoming effective on April 1, 2025. On March 28, 2024, Micware and O-Well entered into a share purchase and assignment agreement to acquire O-Well Germany GmbH for a consideration of EUR1 ⁷, with the name changed to Micware Europe GmbH on the same day. On May 13, 2026, the company entered into an underwriting agreement for its initial public offering of 2,850,000 ⁸ ADSs at a public offering price of $8.00 ⁹ per ADS, and granted the underwriter a 45-day option to purchase up to an additional 427,500 ¹⁰ ADSs to cover over-allotments. On May 20, 2026, the underwriter exercised the over-allotment option in full to purchase the additional 427,500 ¹¹ ADSs, resulting in additional gross proceeds of $3,420,000 ¹². The company issued and sold an aggregate of 3,277,500 ¹³ ADSs and raised aggregate gross proceeds of approximately $26,220,000 ¹⁴ in the IPO, including the full exercise of the over-allotment option. The company also completed a 241-for-1 share split of its issued and outstanding Ordinary Shares which became effective on March 31, 2026.

For the fiscal year ended February 28, 2026, total revenue was JPY21,900.0 million ¹⁵ (approximately $140.3 million), compared to JPY21,100.0 million ¹⁶ in the prior fiscal year. Net income was JPY2,200.0 million ¹⁷ for the fiscal year ended February 28, 2026, compared to JPY2,000.0 million ¹⁸ in the prior fiscal year. Revenue generated from software development services was JPY17,521.6 million ¹⁹ (approximately $112.3 million), constituting 80.0% ²⁰ of total revenue, compared to JPY17,178.2 million ²¹ in the prior fiscal year. The company's revenue growth was driven primarily by the SDV segment, which increased from JPY15,200.0 million ²² to JPY16,200.0 million ²³, while the LBS segment saw a slight decline from JPY5,800.0 million ²⁴ to JPY5,700.0 million ²⁵.

A key growth vector is the DynaPlanet project, formerly known as Dynamic Street Map & Market Place (DSMM), which is a new geospatial information framework that reconstructs and updates wide-area spatial data using limited visual inputs collected from everyday devices such as dashcams. The company plans to increase its internal data acquisition capabilities by collecting spatial information for DynaPlanet itself, which may require significant investment in technology, personnel, and infrastructure. The company is also actively developing and monetizing other location-based software products and services that directly target consumers, in an effort to expand its revenue streams and reduce reliance on OEM revenue. The company's BeatMap app uses NLP tools powered by Transformer models and a proprietary AI filtering algorithm, and the company's work in this domain has resulted in several critical patents, including Patent No. 6788637 and Patent No. 7023821, protecting methods of location inference and data generation using AI. The DynaPlanet project also uses AI to generate 3D reconstructions of urban space.

The company believes that a key feature of the automotive software industry is the significant buying power held by OEMs, and without careful management, there is a risk of becoming relegated to a subcontractor role. To mitigate this risk, the company is pursuing business domains that do not rely on revenue from OEMs, with the current DynaPlanet project representing a concrete initiative under this strategy. The company is also actively developing and monetizing other location-based software products and services that directly target consumers, in an effort to expand its revenue streams. The company's participation in the markets for the products and services it is developing or has just launched is relatively new, and it is uncertain whether these areas will ever result in significant revenue. The company must continue to hire, train, and effectively manage new employees, and if new hires perform poorly or if the company is unsuccessful in hiring, training, managing and integrating new employees, its business, financial condition and results of operations may be materially harmed. The company faces challenges in ensuring the productivity of a large employee base and recruiting, training and retaining highly skilled personnel, including in the areas of sales and marketing, technical development operations, and customer service for their growing operations. The company also faces challenges in responding to evolving industry standards and government regulation that impact its business and the automotive software industry in general, such as laws and regulations on data protection and the use of AI.

The company's capital allocation strategy includes R&D spending, capital expenditure plans, and share repurchase authorizations. The filing does not disclose specific R&D spending levels or capital expenditure plans for the upcoming period. The company does not intend to pay dividends for the foreseeable future, as it currently intends to retain all available funds and any future earnings to fund the operation, development, and growth of its business. The company completed an initial public offering on May 15, 2026, issuing and selling an aggregate of 3,277,500 ²⁶ ADSs and raising aggregate gross proceeds of approximately $26,220,000 ²⁷ in the IPO, including the full exercise of the over-allotment option. Pursuant to the underwriting agreement, the company agreed not to, for a period of six months from the closing of the IPO, offer, pledge, sell, contract to sell, or otherwise transfer or dispose of any Ordinary Shares, ADSs, or any securities convertible into or exercisable or exchangeable for Ordinary Shares, without prior consent of the underwriter. In connection with the IPO, on May 13, 2026, the company's directors, corporate auditors, executive officer, and 5% or greater shareholders entered into lock-up agreements and agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of any securities of the company without the underwriter's prior written consent for up to six months from the effective date of the registration statement on May 13, 2026.

The company faces several structural headwinds and execution risks. The automotive software industry is intensely competitive, with the company facing competition from a wide range of players including SCSK Corporation, SKY Corporation, Panasonic Corporation, TATA Consultancy Services Limited, KPIT Technologies Limited, Wipro Limited, Aisin Corporation, Pioneer Corporation, ZENRIN DataCom Co., Ltd., HERE Technologies, TomTom N.V., Google (Alphabet) LLC, Environmental Systems Research Institute, Inc (ESRI), and Mapbox Inc. Many of the company's customers, primarily automotive OEMs, possess strong in-house software development capabilities, making them both clients and potential competitors. The company has a high concentration of revenue from a few major customers, with Honda Group, Toyota Group, and Uni Electronics representing 50.6%, 16.3%, and 11.4% of revenue, respectively, for the fiscal year ended February 28, 2026. Two of these major customers are also major suppliers, creating potential conflicts of interest. The company's significant customers are also its shareholders, including Honda, Toyota, and O-Well (parent of Uni Electronics), who are beneficial owners of 5% or more of the company's Ordinary Shares. The company's operations are subject to natural disasters, adverse weather conditions, operating hazards, and labor disputes. The company is currently operating in a period of economic uncertainty and capital markets disruption, significantly impacted by geopolitical instability due to the ongoing military conflict involving Iran, military actions in the Middle East, and the war in Ukraine. Recent changes in U.S. tariff policies may also adversely affect the company's business, financial condition, and results of operations.

The company faces significant customer concentration risk, with Honda Group, Toyota Group, and Uni Electronics representing 50.6% ²⁸, 16.3% ²⁹, and 11.4% ³⁰ of revenue, respectively, for the fiscal year ended February 28, 2026. The loss of any of these major customers could have a material adverse effect on the business. Two of these major customers are also major suppliers, and all three are also shareholders, creating potential conflicts of interest. The company's directors, executive officers, and major shareholders together beneficially own approximately 27.6% ³¹ of the company's Ordinary Shares, allowing them to determine the outcome of all matters requiring shareholder approval. The company faces intense competition from a wide range of players including SCSK Corporation, SKY Corporation, Panasonic Corporation, TATA Consultancy Services Limited, KPIT Technologies Limited, Wipro Limited, Aisin Corporation, Pioneer Corporation, ZENRIN DataCom Co., Ltd., HERE Technologies, TomTom N.V., Google (Alphabet) LLC, Environmental Systems Research Institute, Inc (ESRI), and Mapbox Inc. The company has identified a material weakness in its internal control over financial reporting as of February 28, 2026, related to the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements.

Management's message emphasizes the company's over 20 years of experience in software development in the automotive industry, which has translated into significant business growth. The company's strategic priorities include accelerating talent acquisition and retention through geographic and industry expansion, expanding and monetizing digital mapping software services through the DynaPlanet project, and pursuing business domains that do not rely on revenue from OEMs to mitigate the risk of becoming relegated to a subcontractor role. The company is also focused on enhancing the capability of its development platform, micAuto-PF, and regularly updating its proprietary navigation algorithm, Navi Core, with major updates being performed around every two years, and minor updates two to three times every year. The company's management emphasizes the importance of continuing to innovate and keep pace with technological developments, particularly in the areas of SDV, AI, and digital mapping.