Global Interactive Technologies, Inc 10-Q for FY2023 Q3
Global Interactive Technologies, Inc. (GITS)
About this 10-Q
Global Interactive Technologies, Inc filed this 10-Q on November 17, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $713.76K
- down 4.7% from $748.66K a year earlier
- Net loss
- $3.1M
- compared with a net loss of $1.42M a year earlier
- Diluted EPS
- -$0.06
- compared with -$0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from __________ to __________
Commission File Number:
(Exact name of Registrant as specified in its charter)
| 7370 | ||||
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
+
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Nasdaq Stock Market LLC ( |
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 ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| ☐ | Emerging growth company |
If an emerging growth company, 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.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The registrant has
TABLE OF CONTENTS
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to management, and which statements involve substantial risk and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and objectives for future operations are forward-looking statements. Forward- looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward- looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.
These risks and uncertainties include, among other things, the risk that we may not be able to successfully implement our growth strategy due to the following reasons;
| ● | overall strength and stability of general economic conditions and of the social media platform and content creation industry in the United States and globally; |
| ● | changes in consumer demand for, and acceptance of, our services, including our platform, as well as social media platforms in general; |
| ● | changes in the competitive environment, including adoption of technologies, services and products that compete with our own; |
| ● | our expectations regarding our future operating and financial performance; |
| ● | our ability to effectively execute our business plan and continue to expand internationally; |
| ● | our ability to recruit, retain, and motivate skilled personnel, including key members of senior management; |
| ● | changes in the price of equipment, network infrastructure, hosting and maintenance; |
| ● | uncertainties around the successful improvement and modification of our existing applications and development of new products and services, which may require significant expenditures and time; |
| ● | changes in laws or regulations governing our business and operations; |
| ● | our ability to maintain adequate liquidity and financing sources and an appropriate level of debt on terms favorable to us; |
| ● | our ability to effectively market our services; |
| ● | costs and risks associated with litigation brought against us; |
| ● | our ability to obtain and protect our existing intellectual property protections, including trademarks and copyrights; |
| ● | changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on earnings; |
| ● | our ability to list our shares on the Nasdaq Capital Market or any other exchange and maintain such listing; and |
| ● | other risks described from time to time in periodic and current reports that we file with the SEC. |
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described elsewhere in this Quarterly Report on Form 10-Q and in the section titled “Risk Factors” in the Company’s recently filed registration statement on Form S-1 (File No. 333-269419). We undertake no obligation to update any forward- looking statements after the date of this Quarterly Report on Form 10-Q or to conform such statements to actual results or revised expectations, except as required by law.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
HANRYU HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
September 30, 2023 and December 31, 2022
(Unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Short-term loan receivables | ||||||||
| Accounts receivable, net of allowance | ||||||||
| Non-trade receivables | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| PROPERTY PLANT AND EQUIPMENT, NET | ||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | ||||||||
| OTHER ASSETS | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term loan payables | $ | $ | ||||||
| Short-term payables from related parties | ||||||||
| Account Payable | ||||||||
| Non-trade accounts payable | ||||||||
| Bonds with warrants, net | ||||||||
| Short-term lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Bonds with warrants, net | ||||||||
| Long-term loan payables | ||||||||
| Long-term lease liabilities | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDER’S DEFICIENCY: | ||||||||
| Common Stock, $ | ||||||||
| Authorized | ||||||||
| Additional paid-in and other capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Equity/(Deficit) attributable to owners of the Company | ( | ) | ||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity/(Deficit) | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements
1
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| SALES | ||||||||||||||||
| Cost of Revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating cost and expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME(EXPENSE): | ||||||||||||||||
| Gain on exemption of debt | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Gain and Loss on foreign currency transaction | ( | ) | ||||||||||||||
| Other expense, net | ( | ) | ||||||||||||||
| Net other expense | ||||||||||||||||
| Loss before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Tax | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss attributable to: | ||||||||||||||||
| The common stockholders of the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss per share: | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements
2
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Common Stock | Additional Paid-in and Other | Accumulated | Accumulated other Comprehensive Gain | Non-controlling | Total Stockholder’s Equity | |||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) | interests | (Deficit) | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Share Exchange | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Currency translation adjustment | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Capital contribution | ||||||||||||||||||||||||||||
| Share Exchange | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Currency translation adjustment | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Capital contribution | ||||||||||||||||||||||||||||
| Share Exchange | ( | ) | ( | ) | ||||||||||||||||||||||||
| Currency translation adjustment | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Issuance of common stock for Cash | ||||||||||||||||||||||||||||
| Warrant exercise | ||||||||||||||||||||||||||||
| Currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Issuance of common stock for Cash | ||||||||||||||||||||||||||||
| Warrant exercise | ||||||||||||||||||||||||||||
| Currency translation adjustment | — | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stock for Cash | ||||||||||||||||||||||||||||
| Currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements
3
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| September 30, 2023 | September 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on exemption of debt | ( | ) | ||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Non-trade receivables | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Non-trade payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Receipt from collection of short-term loan receivables | ||||||||
| Receipt from collection of long-term loan receivables | ||||||||
| Sales of investments | ||||||||
| Payment for short-term loan receivables | ( | ) | ( | ) | ||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in/provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term loan payables | ||||||||
| Proceeds from short-term loan payables from related parties | ||||||||
| Proceeds from exercising warrants | ||||||||
| Proceeds from issuance of common stock | ||||||||
| - Repayment of short-term loan payables | ( | ) | ( | ) | ||||
| Repayment of short-term loan payables from related parties | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF THE PERIOD | ||||||||
| Cash receipt during the period for interest | ||||||||
| Cash paid during the period for interest | ||||||||
| ( | ) | |||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Offsetting short-term loan payables by exercising warrant | ( | ) | ||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements
4
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Change in foreign currency translation adjustment to attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less : Comprehensive Income/(Loss) attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive Income(Loss) attributable to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
The accompanying footnotes are an integral part of these unaudited consolidated financial statements
5
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Business
Hanryu Holdings, Inc., a Delaware corporation (“Hanryu Holdings”), together with its wholly owned subsidiaries Hanryu Bank Co., Ltd (“HBC”), FNS Co., Ltd. (“FNS”), Hanryu Times Co., Ltd. (“Hanryu Times”), Fantoo Entertainment Co. Ltd (“Fantoo Entertainment”), Marine Island Co., Ltd (“Marine Island”), and its majority owned subsidiary, K-Commerce Co. Ltd (“K- Commerce”) all incorporated under the laws of the Republic of Korea (“Korea” or “ROK”) (collectively, the “Company”, “we”, or “us”), aims to be the leader in the global Korean entertainment market, also known as “Hanryu” or “K-Culture”, through its engaging social-media platform, FANTOO. The FANTOO platform is an all-inclusive global playground for fans, where they can consume, create, and get rewarded for all things related to their interests, and interact with other like-minded fans.
Corporate History
Since the inception of HBC in 2018, we have accomplished a number of key objectives, as follows:
| Date | Event/Milestone | |
| October 18, 2018 | HBC is incorporated under the laws of the ROK with the idea of creating an all-in-one product to capture the growing global momentum and popularity of K-Culture. | |
| October 29, 2020 | HBC establishes FNS,and begins the initial stages of designing and implementing a platform that can create a fandom networking system. | |
| March 11, 2021 | HBC establishes Hanryu Times. Hanryu Times begins operations as HBC’s media outlet, reporting on and providing up-to-date K-Culture news within the FANTOO platform, across a number of languages, including English, Japanese, Chinese (simplified/traditional), Indonesian, Spanish, Russian, and Portuguese. | |
| March 31, 2021 | HBC consummates an agreement and plan of merger (the “Merger Agreement”) with RnDeep, Co. Ltd, a Korean corporation (“RnDeep”), pursuant to which RnDeep merged with and into HBC, with HBC continuing as the surviving corporation (the “RnDeep Acquisition”). As consideration for the RnDeep Acquisition, HBC ratably issued a total
As a result of the RnDeep Acquisition, HBC acquired the underlying technologies that the Company plans on utilizing in the future development of new functions and integrations within the FANTOO platform. Once the FANTOO platform is ready to integrate the technology acquired, this technology will support new functions and integrations including, without limitation, the Company’s enterprise resource planning solution, and its artificial intelligence (“AI”), which the Company plans on using to power many of FANTOO’s upcoming features such as speech synthesis, curated content delivery, deepfake detection and blocking, and nudity detection and blocking. | |
| May 17, 2021 | The FANTOO platform is launched and made available to the public. | |
| June 30, 2021 | HBC enters into an agreement to acquire all the issued and outstanding common shares of Marine Island (the “Marine Island Acquisition”), which owns the right to use and occupy |
6
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.)
| Date | Event/Milestone | |
| August 30, 2021 | HBC establishes FANTOO Entertainment. FANTOO Entertainment provides a variety of content to the Company’s FANTOO platform, which contributes to the spread of the Korean Wave by promoting new entertainers and artists. | |
| October 3, 2021 | HBC consummates the Marine Island Acquisition, making it the owner of | |
| October 3, 2021 | HBC consummates a strategic acquisition of
HBC’s investment into K-Commerce was a strategic acquisition in order to integrate K-Commerce’s retail platform, “SelloveLive” into the FANTOO ecosystem as the FANTOO Fanshop. When launched as the FANTOO Fanshop, K-Commerce’s platform will offer combined services of shopping and live broadcasting, allowing users to easily live-stream travel and share local attractions, local festivals, cultures, and news from around the world.
Prior to HBC’s acquisition of its shares in K-Commerce, K-Commerce was | |
| October 20, 2021 | Hanryu Holdings is incorporated in the State of Delaware. | |
| February 25, 2022 through May 10, 2022 | Hanryu Holdings, HBC, and the shareholders of HBC (the “HBC Shareholders”) enter into a share exchange agreement (the “Share Exchange Agreement”), pursuant to which the HBC Shareholders agreed to assign, transfer, and deliver, free and clear of all liens,
Concurrently with entering into the Share Exchange Agreement, the Company, HBC, and the holders (the “HBC Warrantholders”) of all outstanding warrants to purchase Common Shares (“HBC Warrants”) enter into a warrant exchange agreement, pursuant to which the HBC Warrantholders agreed to assign, transfer, and delivery, free and clear of any liens,
The Warrants and Common Shares of HBC transferred to the Company in the Share Exchange and the Warrant Exchange constituted | |
| June 16, 2022 | Hanryu Holdings, HBC, the HBC Shareholders, and the HBC Warrantholders consummate the Share Exchange and Warrant Exchange concurrently, pursuant to which HBC became a wholly owned subsidiary of the Company, and the HBC Stockholders and HBC Warrantholders, collectively, acquired a controlling interest in the Company. |
7
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.)
| Date | Event/Milestone | |
|
June 22, 2022
|
The Company divests itself of all Kingdom Coin (“KDC”) holdings and terminates all crypto-currency-related activity, including, without limitation, the operation of the MainNet (FandomChain) and the Kingdom Wallet, pursuant to a Business Transfer Agreement (the “Divestiture Agreement”) between HBC and an unaffiliated and unrelated third party, Kingdom Coin Holdings, a Cayman Islands Foundation Company (the “KDC Foundation”) (the “KDC Divestiture”), to substantially reduce its involvement with blockchain technologies. Pursuant to the Divestiture Agreement, as of June 22, 2022, the Company no longer owns any KDC, and no longer conducts or controls the operations, issuances, or sales of KDC. In connection with the KDC Divestiture, the Company revised its procedures regarding FP and no longer allows, nor has the technology to allow, for the transfer of FP outside of the FANTOO platform or the exchange of FP and KDC.
| |
| August 1, 2023 | The shares of the Company are listed at NASDAQ exchange market. |
Risks and Uncertainties
The Company is subject to a number of risks similar to other companies in its industries, including rapid technological change and transitions in Hanryu trends. The extent of the impact of the COVID-19 pandemic on the Company’s business continues to be highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a lasting national and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the entertainment industry and economy as a whole.
To date, the Company has experienced significant changes in the business as a result of the COVID-19 pandemic. The impact has delayed the Company’s ability to generate revenue as result of the diversification of potential customer budgets towards the COVID-19 pandemic. The extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
Going Concern
The Company has experienced recurring losses from
operations and has a stockholders’ deficit and working capital of $
Our future operations are dependent upon multiple factors, including (i) the success of our FANTOO platform business; (ii) competition from existing and future services from other companies; and (iii) securing new sources of capital to fund operations and develop markets. We maintain an ongoing effort to increase user base with respect to our FANTOO platform to generate funds for our operations. In addition, we maintain an ongoing effort to raise funds for our operations from current investors and new sources of capital through the issuance of additional common stock and/or short-term notes. However, there can be no assurance as to the outcome of these factors or that future funding efforts will generate sufficient capital to maintain our operations.
8
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed by the Company in the preparation of the accompanying condensed consolidated financial statements follows:
Principles of Consolidation
The condensed consolidated financial statements
of the Company include the financial statements of Hanryu Holdings, and its four wholly owned subsidiaries, HBC, FNS, Hanryu Times, and
Marine Island, and majority-owned subsidiary (
Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the consolidated group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
The ownership of non-controlling interests of
K-Commerce, our significant consolidated subsidiary as of September 30, 2023, is
Foreign Currency
The Company’s functional currency for all
operations is the KRW. The Company’s accounting records are maintained in KRW, and translated into U.S. Dollars at year-end
for the purposes of presentation. During the translation process, the year-end closing exchange rate is used for the valuation of all
assets and liabilities, historical exchange rate is used to value stockholder’s equity, and the average exchange rate for the year
is used for the calculation of the condensed consolidated financial statements. The net impact of the translation into the U.S. Dollar
is included in the accumulated other comprehensive income (loss) of the Company’s condensed consolidated balance sheet as of September
30, 2023 and December 31, 2022. During the nine months ended September 30, 2023, there was a fluctuation in the exchange rates ranging
from KRW
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements and related disclosures in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed the federal insurance limit.
Accounts Receivable
Accounts receivables are recorded at the invoiced
amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities
in the condensed consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses
inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted
to take into account current market conditions and customers’ financial condition in dispute, and the current receivables aging
and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Past-due balances over 90 days and
over a specified amount are reviewed individually for collectability. Account balances are written off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. The Company recorded the allowance of $
9
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Non-Trade Receivables
Non-trade receivables are recorded at the
invoiced amount and do not bear interest. Amounts collected on non-trade receivables are included in net cash provided by operating activities
in the condensed consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses
inherent in its non-trade receivables portfolio. In establishing the required allowance, management considers historical losses adjusted
to take into account current market conditions and customers’ financial condition in dispute, and the current receivables aging
and current payment patterns. The Company reviews its allowance for doubtful accounts quarterly. Past-due balances over 90 days and
over a specified amount are reviewed individually for collectability. Account balances are written off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. The Company recorded the allowance of $
Revenue Recognition
The Company generates revenues from (i) FANTOO platform through advertising, and the Company anticipates generating direct sales, and user to user commissions, and (ii) other businesses. Revenue billed or collected in advance will be recorded as deferred revenue until the event occurs or until applicable performance obligations are satisfied.
Revenue is recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. In this regard, revenue is recognized when: (i) the parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations; (ii) the entity can identify each party’s rights regarding the goods or services to be transferred; (iii) the entity can identify the payment terms for the goods or services to be transferred; (iv) the contract has commercial substance (that is, the risk, timing, or amount of the entity’s future cash flows is expected to change as a result of the contract); and (v) it is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.
Transaction prices are based on the amount of consideration to which we expect to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, if any. We consider the explicit terms of the revenue contract, which are typically written and executed by the parties, our customary business practices, the nature, timing, and the amount of consideration promised by a customer in connection with determining the transaction price for our revenue arrangements. Refunds and sales returns historically have not been material.
For the nine months ended September 30, 2023
and September 30, 2022, the Company recognized online product sales revenue amounting to $
10
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue is recognized when control of the product passes to the customer, typically at the date of delivery of the merchandise to the customer, or the date a service is provided and is recognized in an amount that reflects the expected consideration to be received in exchange for such goods or services. As such, customer orders are recorded as unearned revenue prior to delivery of products or services ordered. If the Company ships high volumes of packages through multiple carriers, the Company will use estimates to determine which shipments are to be delivered and, therefore, recognized as revenue at the end of the period. Delivery date estimates are based on average shipping transit times, which are calculated using the following factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfilment source; (iii) the delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to eight business days from the date of shipment. The Company reviews and updates our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates.
Generally, the Company requires authorization from credit card or other payment vendors whose services the Company offers to customers or verification of receipt of payment, before the Company ships products to purchasers. The Company generally receives payments from our customers before our payments to our suppliers are due. The Company does not recognize assets associated with costs to obtain or fulfill a contract with a customer.
Shipping and handling is considered a fulfillment activity, as it takes place together prior to the customer obtaining control of the merchandise, and fees charged to customers are included in net revenue upon completion of our performance obligations. The Company presents revenue net of sales taxes, discounts, and expected refunds.
Merchandise sales contracts include terms that
could cause variability in the transaction price for items such as discounts, credits, or sales returns. Accordingly, the transaction
price for product sales includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue
recognized will not occur. At the time of sale, the Company estimates a sales return liability for the variable consideration based on
historical experience, which is recorded within “Accrued Liabilities” in the condensed consolidated balance sheet, and the
company recorded $
The Company evaluates the criteria outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606-10-55, Principal versus Agent Considerations, in determining whether it is appropriate to record the gross amount of merchandise sales and related costs or the net amount earned as commissions. When the Company is the principal in a transaction and controls the specific good or service before it is transferred to the customer, revenue is recorded gross; otherwise, revenue is recorded on a net basis. Through contractual terms with our partners, we have the ability to control the promised goods or services and as a result record the majority of the revenue on a gross basis.
11
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Cost of Revenue
Cost of revenue is recognized at the time the products or services are delivered to the customers. Cost of revenue includes all direct labor, material, shipping and handling cost and other direct costs such as travel, postage, telecommunication, vehicle charge, printing, and training, and allocated indirect costs related to revenue such as supplies, utilities, office equipment rental, and computers.
Property Plant and Equipment
| Classification | Estimated Useful Life in Years | |||
| Vehicles | ||||
| Fixtures | ||||
| Equipment | ||||
Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.
The Company evaluates property plant and equipment for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, the Company first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, the Company determines if there is an impairment loss by comparing the carrying value of the asset to the asset’s estimated fair value and recognizes an impairment charge when the asset’s carrying value exceeds its estimated fair value. The fair value of the asset is estimated using a discounted cash flow model based on forecasted future revenues and operating costs, using internal projections. There were no significant property plant and equipment asset impairment charges recorded during the nine months ended September 30, 2023, and the year ended December 31, 2022.
Impairment of Long-Lived Assets
The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value.
12
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Concentrations of Credit Risk
Cash and cash equivalents are financial instruments that potentially subject the Company to concentrations of credit risk. The Company may maintain deposits in financial institutions in excess of government insured limits. The Company believes that it is not exposed to significant credit risk as its deposits are held at financial institutions that management believes to be of high credit quality and the Company has not experienced any losses on these deposits. The Company is also potentially subject to concentrations of credit risk in its accounts receivable and loans. Credit risk with respect to receivables is limited due to the number of companies comprising the Company’s customer base. Credit risk with respect to loans is limited since they are made principally related to the collaborative activities between the Company and loan holders. Also, there were no significant concentrations in loans of credit risk to any companies and individuals. Although the Company is directly affected by the financial condition of its customers and loan holders, management does not believe significant credit risks exist. Generally, the Company does not require collateral or other securities to support its accounts receivable and loans.
Fair Value of Financial Instruments
The fair value of Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, debt receivables, debt payables approximate their recorded amounts due to their relatively short settlement terms.
Fair Value Measurements
The Company applies a three-level valuation hierarchy for fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based on the lowest level of input that is significant to the measurement of fair value.
| Level 1 | Inputs to the valuation methodology utilize unadjusted quoted market prices in active markets for identical assets and liabilities. |
| Level 2 | Inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets and liabilities, quoted prices for identical and similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 | Inputs to the valuation methodology are unobservable inputs based on management’s best estimate of the inputs that market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. |
A change to the level of an asset or liability within the fair value hierarchy is determined at the end of a reporting period.
Investments
13
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Earnings (Loss) Per Share
Basic Earnings (loss) per share is computed by dividing the income or loss by the weighted-average number of outstanding shares of Common Stock for the applicable period. Diluted earnings (loss) per share is computed by dividing the income or loss by the weighted-average number of outstanding shares of Common Stock for the applicable period, including the dilutive effect of Common Stock equivalents. Potentially dilutive Common Stock equivalents primarily consist of warrants issued in connection with financing. For purposes of computing both basic and diluted earnings (loss) per share, income or loss shall exclude the income or loss attributable to the non-controlling interest. The Company calculates net loss per share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic net loss per share amounts have been computed by dividing net loss excluded loss attributable to the non-controlling interest by the weighted-average number of common shares outstanding during the period. For the nine months ended September 30, 2023 and 2022, the Company reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive. As a result, our basic and diluted net loss per share are the same because the Company generated a net loss in all periods presented.
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. We have determined that all of our deferred tax benefits are not likely to be realized due to our historical and expected future taxable losses. Accordingly, we have maintained a full valuation allowance.
The Company applies the provisions of FASB ASC Topic 740-10, Uncertainty in Income Taxes. The Company has evaluated our tax positions, and there are none as of September 30, 2023 and December 31, 2022.
Income taxes on the Company’s taxable income from operating activities are subject to various tax laws and determinations of the authority in the ROK. Regarding taxes payable in the ROK, if a certain portion of taxable income is not used for investments or for increases in wages or dividends, in accordance with the Tax System for Recirculation of Corporate Income, the Company is liable to pay additional income tax calculated based on Korean tax law.
The Company assesses uncertainty over a tax treatment. When the Company concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Company will reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the Company expects to better predict the resolution of the uncertainty;
| ● | The most likely amount: The single most likely amount in a range of possible outcomes. |
| ● | The expected value: The sum of the probability-weighted amounts in a range of possible outcomes. |
Lease
Under ASC 842, the determination of whether an arrangement is a lease is made at the lease’s inception and a contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined under the standard as having both the right to obtain substantially all of the economic benefits from use of the asset and the right to direct the use of the asset. Management only reassesses its determination if the terms and conditions of the contract are changed. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our balance sheets. Finance leases are included in property, plant and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance.
In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which amended the effective date of the various topics. As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending September 30, 2023 for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period.
14
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when it is readily determinable. Since most of the Company’s leases do not provide an implicit rate, to determine the present value of lease payments, management uses the Company’s incremental borrowing rate based on the information available at lease commencement. Operating lease ROU assets also includes any lease payments made and excludes any lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 changes how entities account for convertible instruments and contracts in an entity’s own equity and simplifies the accounting for convertible instruments by removing certain separation models for convertible instruments. ASU 2020-06 also modifies the guidance on diluted earnings per share calculations. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of ASU 2020-06 on the condensed consolidated financial statements.
As part of its adoption of the new lease accounting standard, the Company also updated accounting policies and procedures, operational processes and documentation practices to enable the preparation of financial information on adoption. Refer to Note 7 Lease for additional disclosures required as a result of the adoption of this new standard.
15
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES (cont.)
Acquisitions that do not meet the definition of a business under ASC 805 are accounted for as an asset acquisition, utilizing a cost accumulation model. Assets acquired and liabilities assumed are recognized at cost, which is the consideration the acquirer transfers to the seller, including direct transaction costs, on the acquisition date. The cost of the acquisition is then allocated to the assets acquired based on their relative fair values. Goodwill is not recognized in an asset acquisition. Direct transaction costs include those third-party costs that can be directly attributable to the asset acquisition and would not have been incurred absent the acquisition transaction.
Contingent consideration, representing an obligation of the acquirer to transfer additional assets or equity interests to the seller if future events occur or conditions are met, is recognized when probable and reasonably estimable. Contingent consideration recognized is included in the initial cost of the assets acquired, with subsequent changes in the recorded amount of contingent consideration recognized as an adjustment to the cost basis of the acquired assets. Subsequent changes are allocated to the acquired assets based on their relative fair value. Depreciation and/or amortization of adjusted assets are recognized as a cumulative catch-up adjustment, as if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement.
Contingent consideration that is paid to sellers that remain employed by the acquirer and linked to future services is generally considered compensation cost and recorded in the statement of operations in the post-combination period.
NOTE 3 — SHORT-TERM LOANS RECEIVABLES
These loan receivables except for short-term loan
to PRT Korea Co., Ltd. and AMERIDGE CORPORATION, have no interest and financial covenants. The Company made short-term loan with PRT Korea
Co., Ltd. as a one-year loan with
| September 30, 2023 | December 31, 2022 | |||||||
| PRT Korea Inc. | $ | $ | ||||||
| Kim, Hyun-Ah | ||||||||
| Kim, Nah-Eun | ||||||||
| Ticket Land Inc. | ||||||||
| LA PRIMERA CAPITAL INVESTMENTS | ||||||||
| AMERIDGE CORPORATION | ||||||||
| AVAJAR | ||||||||
| Others | ||||||||
| Total short-term loans | $ | $ | ||||||
16
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 4 — PREPAID EXPENSES
| September 30, 2023 | December 31, 2022 | |||||||
| Daeho Construction, Co., Ltd | $ | $ | ||||||
| Toping, Co., Ltd | ||||||||
| Top Eng, Co., Ltd. | ||||||||
| Starcall, Co., Ltd | ||||||||
| Darum Co., Ltd, | ||||||||
| Asia Model Festival Organization Foundation | ||||||||
| Orum Plus Design, Co., Ltd | ||||||||
| Woojoo Works, Co., Ltd | ||||||||
| Manstar, Co., Ltd | ||||||||
| Others | ||||||||
| Total prepaid expenses | $ | $ | ||||||
On August 9, 2023, the Company made the contract
with Starcall Co., Ltd to develop the games to launch at Fantoo App, and the company has paid $
On November 17. 2022, the Company made the contract
with Top Eng Co., Ltd to develop retail products to sell FANTOO App, and the Company has paid $
NOTE 5 — PROPERTY, PLANT AND EQUIPMENT
| September 30, 2023 | December 31, 2022 | |||||||
| Vehicles | $ | $ | ||||||
| Fixtures | ||||||||
| Equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property plant and equipment, net | $ | $ | ||||||
Total depreciation expense for the nine months
ended September 30, 2023 is $
17
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 6 — INVESTMENTS
The following table summarizes information with regard to investments outstanding as of September 30, 2023 and December 31, 2022.
(1)
| September 30, 2023 | December 31, 2022 | |||||||
| Beginning | $ | $ | ||||||
| Increase | ||||||||
| Decrease | ( | ) | ||||||
| Translation Adjustment | ( | ) | ||||||
| Total Investments | $ | $ | ( | ) | ||||
On October 18, 2021, the Company purchased
bonds with warrants issued by Setopia Co., Ltd. (“Setopia”), for total consideration of $
The transaction with Setopia as a beneficial owner
of more than
The Company accounted for the investment in Setopia
at fair value. The Company determined this investment to be a “debt security” classified into trading debt securities under
ASC 320-10-20, as the Company intended to sell it in the near term at the time of acquisition. There has been no unrealized holding
gains and losses for trading securities included in earnings since the value of the Setopia Bonds with warrants did not change until it
is sold to the third party for the years ended December 31, 2022. Prior to the acquisition of the Setopia Bonds with warrants,
the Company owned no interest in Setopia. After the acquisition the Setopia Bonds with warrants, the Company become the owner of record
or known beneficial owner of
The acquisition of the Setopia Bonds with warrants is a related-party transaction under ASC 850-10-05-3(d).
On February 11, 2022, the Company sold the
acquired Setopia Bonds with warrants to an unaffiliated and unrelated third party in exchange for the consideration of cash totaling $
On October 4, 2022, the Company purchased
convertible bonds issued by Setopia, for total consideration of $
18
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 6 — INVESTMENTS (cont.)
On December 30, 2022, the Company sold the
Setopia Convertible Bonds to an unaffiliated and unrelated party by receiving non-trade receivables of $
On June 30, 2021, HBC and Sewang entered into the Contract and Share Assignment, pursuant to which HBC acquired: (i) the Marine Island Shares, and thereby the Lien, which gave Marine Island the right to use and occupy the Seoul Marina until the Lien is repaid; (ii) the SMC Shares; and (iii) the SMC Receivable.
The aggregate consideration paid to Sewang for
the rights and assets under the Contract was $
On December 30, 2022, the Company sold the
SMC shares to an unaffiliated and unrelated third party in exchange for the consideration of cash totaling $
The Company recorded the Marine Island Shares
as affiliated stocks, and the SMC Shares as an investment, and the remaining SMC Receivable and Lien as Operating Lease Right-Of-Use Asset
which is being amortized over a ten year period under the guidelines of ASC 842. See Note 7 “Lease”. The SMC Shares
and the Marine Island Shares were calculated by the number of shares multiplied by the par value of $
The Company is not a principal owner of SMC. In addition, neither SMC nor the Company control the other by any methods including, without limitation, contract, lease, agreements between shareholders, or court decree. Further, each of SMC and HBC have different principal owners, management, and there have been no transactions between any members of the principal owners’ or managements’ immediate families.
For the Marine Island Shares, the Company applied
ASC 805 as the Company owns more than
19
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 7 — LEASE
The Company leased a vehicle for use in our operations under operating leases on September 16, 2021 with the following conditions.
Monthly Lease payment –
Deposit –
Lease Term –
Applied Discount Rate –
Operating lease cost for the nine months
ended September 30, 2023 and 2022 was $
| Amount | ||||
| From October 1, 2023 to December 31, 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | - | |||
| 2027 | - | |||
| Thereafter | - | |||
| Total minimum lease payments | ||||
| Interest expense | ( | ) | ||
| Total | $ | |||
The Company uses approximately
Annual lease cost —
Assumed annual rent increase -
Interest cost -
10-year bond rate on Korean Bonds
Exchange rate:
The Company determined that the present value
of ten years of free rent amount to $
As of September 30, 2023 and December 31,
2022, the balances of the Right-of-Use-Asset was $
Lease cost consists of approximately $
20
HANRYU HOLDINGS, INC. AND
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 8 — SHORT-TERM LOAN PAYABLES
| September 30, 2023 | December 31, 2022 | |||||||
| Joonwoo Choi maturing in July 2024 | $ | $ | ||||||
Jacob Asset Inc. maturing in April 2024 | ||||||||
| Byung Ik maturing in July 2024 | ||||||||
| Seorin Partners maturing in September 2024 | ||||||||
| Bongsang Kim maturing in April 2024 | ||||||||
| Sungil Jeon maturing in December 2023 | ||||||||
| Minja Nam maturing in November 2023 | ||||||||
| Gwanmin Park maturing in December 2023 | ||||||||
| Taeshin Tax Accounting Corporation maturing in October 2023 | ||||||||
| Total | ||||||||
These loan payables except for short-term borrowings
from Minja Nam have no interest and financial covenants. The short-term loan payables from Minja Nam have
NOTE 9 — SHORT-TERM BORROWINGS FROM RELATED PARTIES
| September 30, 2023 | December 31, 2022 | |||||||
| Munjoong Kang maturing in February 2024 | ||||||||
| Changhyuk Kang maturing in April 2024 | ||||||||
| Short-term loan payables from Donghoon Park maturing in April 2023 through January 2024 | ||||||||
| Short-term loan payables from Siyoung Jang maturing in December 2023 | ||||||||
| Total short-term borrowings from related parties | $ | $ | ||||||
These borrowings have no interest and financial covenants.
NOTE 10 – BONDS WITH WARRANTS
Bonds with warrants were issued by HBC from December 17, 2018 through July 2, 2021. The terms and conditions of the bonds with warrants at the time of acquiring bonds and issuance of such bonds are set forth below. Currently, the Company and all bondholders have entered into an agreement that the bondholders will waive all interest payments due for the life of the bonds.
The entire face amount of the bonds is the maximum
number of Common Shares for which the attached warrants can be exercised by each bondholder, with exercise prices from $
On March 31, 2021, HBC issued
| ● | RnDeep Warrants issued on March 17, 2020, for an aggregate purchase price of $ |
| ● | RnDeep Warrants issued on April 13, 2020, for an aggregate purchase price of $ |
| ● | RnDeep Warrants issued on May 6, 2020, for an aggregate purchase price of $ |
21
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 10 — BONDS WITH WARRANTS (cont.)
After the RnDeep Merger, HBC and the RnDeep Holders entered into an
agreement that the RnDeep Holders would waive the interest accruing on the RnDeep Warrants. Therefore, the Company recognized the RnDeep
Warrants acquired at the respective face value of each respective RnDeep Warrant. Furthermore, HBC held RnDeep Warrants an aggregate value
of $
On April 7,2021, HBC issued bonds with warrants
for an aggregate purchase price of $
On July 1, 2021, HBC issued bonds with warrants
for an aggregate purchase price of $
On July 2, 2021, HBC issued bonds with warrants
for an aggregate purchase price of $
HBC has the right to make early repayments before
maturity for these bonds with warrants and has exercised its right to do so in the amounts of $
On March 31, 2021, holders of certain bonds and
warrants with an aggregate value of $
| Amount as of December 31, 2019 | $ | |||
| Issued | ||||
| Paid in cash | ( | ) | ||
| Translation adjustment | ||||
| Amount as of December 31, 2020 | $ | |||
| Issued | ||||
| Acquired from the RnDeep Merger | ||||
| Converted to Common Shares | ( | ) | ||
| Changed to Short-term borrowings | ( | ) | ||
| Paid in cash | ( | ) | ||
| Paid in cryptocurrency | ( | ) | ||
| Translation adjustment | ( | ) | ||
| Amount as of December 31, 2021 | $ | |||
| Translation adjustment | ( | ) | ||
| Amount as of December, 2022 | $ | |||
| Translation adjustment | ( | ) | ||
| Amount as of September 30, 2023 | $ |
| No. | Issue Date | Maturity | Amount | Nominal Interest Rate | Interest Rate of Return | |||||||||||||
| 11 | $ | % | % | |||||||||||||||
| Total | $ | |||||||||||||||||
| * | Nominal interest rate and interest rate of return are waived by the separate agreements between the Company and the bondholders. |
22
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 10 — BONDS WITH WARRANTS (cont.)
Warrants
| Exercise | Number | Expiration | ||||||
| Price | Outstanding | Date | ||||||
There is not a viable market for the Company’s Common Stock to determine its fair value, therefore management is required to estimate the fair value to be utilized in the determining warrant costs and value. In estimating the fair value, management considers the comparable value of public companies from the same industry. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Option valuation models require the input of highly subjective assumptions. The fair value of warrants was estimated using the Black-Scholes option model with a volatility figure derived from public companies in the same industry. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of warrants based on the maturity of warrants. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The fair value of warrants during the years ended September 30, 2023 and December 31, 2022 was estimated using the Black-Scholes pricing model.
On March 31 2021, HBC acquired an aggregate of
| Dividend yield: | ||||
| Volatility | ||||
| Risk free rate: | ||||
| Expected life: | ||||
| Estimated fair value of the Company’s Common Stock | $ |
The fair value of $
| Weighted- | Weighted Average Remaining | |||||||||||
| Shares | Average Exercise Price | Contractual Term | ||||||||||
| Outstanding at December 31, 2019 | $ | |||||||||||
| Canceled | ||||||||||||
| Outstanding at December 31, 2020 | $ | |||||||||||
| Issued | ||||||||||||
| Acquired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at December 31, 2021 | $ | |||||||||||
| Expired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Expired | ||||||||||||
| Exercised | ||||||||||||
| Outstanding at September 30,2023 | ||||||||||||
23
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 11 — LONG-TERM LOAN PAYABLES
| September 30, 2023 | December 31, 2022 | |||||||
| Haengsoo Yeo maturing in October 2024 | $ | |||||||
| Gyesook Kim maturing in October 2024 | ||||||||
| Jincheol Ra maturing in October 2024 | ||||||||
| Sukman Choi maturing in October 2024 | ||||||||
| Byungsoo Kim maturing in October 2024 | ||||||||
| Total | ||||||||
These long-term loan payables except have no interest and financial covenants.
NOTE 12 — FAIR VALUE MEASUREMENTS
Fair value has been determined on a basis consistent with the requirements of FASB ASC Topic 825, Financial Instruments, and the Company adopted on a prospective basis required provisions of FASB ASC Topic 820, Fair Value Measurement.
Financial Items Measured at Fair Value on a Recurring Basis
The carrying amounts reported in the condensed consolidated balance sheet for short-term financial instruments, including cash and cash equivalents, short-term loans, accounts receivable, prepaid expenses, short-term borrowings, accrued expense and other current liabilities due to the short maturities of these instruments.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022are summarized in the table below.
| September 30, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Bonds with warrants | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | |||||||||||||
| Liabilities | ||||||||||||||||
| Bonds with warrants | $ | $ | $ | $ | ||||||||||||
Financial Items Measured at Fair Value on a Nonrecurring Basis
There are no financial assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022.
Nonfinancial Items Measured at Fair Value on a Recurring Basis
There are no nonfinancial assets measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022.
Nonfinancial Items Measured at Fair Value on a Nonrecurring Basis
The fair value of long-lived assets is measured whenever the carrying value of long-lived asset or asset group is not recoverable on an undiscounted cash flow basis. No impairment is recognized for long-lived assets as of as of September 30, 2023 and December 31, 2022.
24
HANRYU HOLDINGS, INC. AND
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 13 — SIGNIFICANT NON-CASH TRANSACTION
| September 30, 2023 | September 30, 2022 | |||||||
| Offsetting short-term loan payables by exercising warrants to purchase | $ | ( | ) | $ | ||||
For the nine months ended September
30, 2023, conversion to equity by offsetting short-term loan payables was $
NOTE 14 — OTHER INCOME
The Company entered into an agreement with a
creditor of HBC to pay such creditor
25
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 15 — OTHER
The Company believes that KDC meets the definition of indefinite-lived intangible assets under ASC 350, as it is nonfinancial asset that lacks physical substance. Therefore, KDC was recognized and measured at historical cost. In addition, the Company determined that KDC has an indefinite life since there is no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of KDC, in accordance with ASC 350-30-35-4.
The Company initially created KDC, a public digital cryptocurrency separate and apart from the FANTOO platform, as a method of onboarding and offboarding FP to and from the FANTOO platform through the Kingdom Wallet. However, on June 22, 2022, the Company entered into a Business Transfer Agreement (the “KDC Agreement”) with Kingdom Coin Holdings, a corporation incorporated in the Cayman Islands (the “KDC Foundation”), pursuant to which the Company transferred all of its KDC to the KDC Foundation, and no longer conducts or controls the operations, issuance, or sales of KDC in order to substantially reduce our involvement with blockchain technologies. This shift in our business plan was undertaken both to protect our users from potential risks associated with speculation in KDC, and because of the recent market and regulatory conditions surrounding cryptocurrency in general. As such, the Company no longer supports or operates Kingdom Wallet, and no longer allows the conversion of FP into KDC (and vice-versa). Neither Hanryu Holdings, nor any of its subsidiaries, have any affiliation with the KDC Foundation.
Additionally, and for the avoidance of doubt, the control person of Plus Meta PTE Ltd., KDC Foundation’s management company, is not an affiliate, and is not in any way related to, any officer, director, or shareholder of the Company. The KDC Foundation does not, has not, and will not coordinate any of its activities with the Company or the Company’s operation of FANTOO. Further, KDC will not be marketed to FANTOO users.
Pursuant to the KDC Agreement, in exchange for
the Company transferring (a) its then-existing outstanding KDC balance of
| ● | The KDC Foundation generates sales in excess of $ |
| ● | The KDC Foundation generates sales in excess of $ |
| ● | The Company will receive no consideration from the KDC Foundation if the assets transferred from the Company generates sales under $ |
For the avoidance of doubt, sales generated from the transferred assets do not include any post-transfer newly created KDC. KDC Foundation planned to generate revenue by integrating KDC, FandomChain, and the Kingdom Wallet into mobile games, and monetizing such games. Due to current cryptocurrency-related market conditions, the Company does not expect to receive any payments from KDC Foundation through December 31, 2024 in accordance with the terms of the Business Transfer Agreement.
The KDC agreement included contingent earn-out consideration, the fair value of which was estimated on June 22, 2022, as the present value of the expected future contingent receivables which the Company determined using a probability-weighted discounted cash flow model for probabilities of possible future receivables. The Company determined the fair value of contingent consideration as zero on June 22, 2022. Contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in profit or loss in most circumstances. The Company recorded zero value of the contingent consideration on the accompanying consolidated balance sheets as of December 31, 2022.
The Company believes that the transfer of KDC meets the definition of a “Component of an Entity” under FASB ASC Topic 205-20, Discontinued Operations, and as such can be disposed of by a means other than sale. The divestiture of KDC and its associated operations does not represent a strategic shift, nor has (and will not have), a major effect on the Company’s operations and financial results because the blockchain/KDC operations did not represent:
| ● |
| ● | Geographical area that represents |
| ● |
The Company did not present the divestiture of its holdings of KDC and KDC-related activity as discontinued operations because there was no revenue, asset value, or net income from the divestiture of KDC and the related operations.
26
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 16 — SHARE CAPITAL
As of September 30, 2023, and December 31,
2022, Hanryu Holdings’ total authorized capital stock is
On January 4, 2023, through March 8,
2023, warrants of $
In February and March of 2023, the Company closed
two private placements solely to accredited investors (as defined by Rule 501(a) of Regulation D of the Securities Act)
pursuant to which the Company sold an aggregate amount of
On March 24, 2023, warrants of $
On April 13, 2023, through May 4, 2023, warrants
of $
On May 31, 2023, the Company completed a
private placement to solely to an accredited investor (as defined by Rule 501(a) of Regulation D of the Securities Act)
pursuant to which the Company sold an aggregate amount of
On July
31 2023, the Company consummated its initial public offering (the “IPO”) of
The Company
also granted the underwriters a 45-day option to purchase up to
As a result, the total number of issued and outstanding
shares of Common Stock issued increased from
27
HANRYU HOLDINGS, INC. AND
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 17 — COMMITMENTS AND CONTINGENCIES
Operating Leases
On September 15, 2023, the Company entered
into a one-year lease agreement which expired on September 14, 2024. Upon entering into the lease, the Company paid a deposit, which
is recorded as Other Assets in the consolidated balance sheet in the amount of $
The Company has an operating lease agreement for
a vehicle which was initially made on September 16, 2021, and matures on September 21, 2025. The deposit paid on the beginning
date of the lease agreement is recorded as other asset in the consolidated balance sheet in the amount of $
| Year ending December 31, 2023 | $ | |||
| Year ending December 31, 2024 | ||||
| Year ending December 31, 2025 | ||||
| $ |
Expense related to these leases totaled approximately
$
Legal Matters
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the outcome of these matters will not have a material adverse effect on the condensed consolidated financial position or results of operations of the Company.
NOTE 18 — RELATED PARTY TRANSACTIONS
The Company is affiliated with several individuals that have common ownership, and transacts a portion of its business with related parties.
| September 30, 2023 | December 31, 2022 | |||||||
| Munjoong Kang maturing in February 2024 | $ | $ | ||||||
| Changhyuk Kang maturing in April 2024 | ||||||||
| Donghoon Park maturing in April 2023 through January 2024 | ||||||||
| Siyoung Jang maturing in December 2023 | ||||||||
| Total | ||||||||
Siyoung Jang
On December 8, 2021, the Company and Siyoung
Jang, one of our co-founders, entered into an interest-free, short-term borrowing agreement with a principal amount of $
On June 30, 2023, July 10, 2023, July 13, 2023, and September 5, 2023, the Company repaid all remaining short-term borrowings to Siyoung Jang, in cash.
Donghoon Park
On July 1, 2021, the Company exchanged $
28
HANRYU
HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
On October 3, 2021, in connection with HBC’s
acquisition of a portion its common shares of K-Commerce from Mr. Park, the Company assumed certain debt of K-Commerce owed to Mr. Park,
in the form of interest-free, short-term borrowing agreements with an aggregate principal amount of $
On October 6, 2021, the Company and Mr. Park
entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $
On January 19, 2022, through January 24,
2022, the Company repaid short-term borrowings in the aggregate amount of $
On April 29, 2022, the Company and Mr. Park
entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $
On July 27, 2022 and on August 8, 2022,
the Company and Mr. Park entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $
On August 29, 2022 through December 27,
2022, the Company and Mr. Park entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of
$
On December 8, 2022, the Company repaid short-term
borrowings in the aggregate amount of $
On December 8, 2022, the Company and Mr. Park
entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $
On January 13, 2023 and January 26,
2023, the Company and Mr. Park entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of
$
On February 23, 2023, the Company repaid
short-term borrowings in the aggregate amount of $
On April 12, 2023, the Company repaid short-term
borrowings in the aggregate amount of $
On June 26, 2023, the Company repaid short-term
borrowings in the aggregate amount of $
By September 30, 2023 the Company repaid all remaining short-term borrowings to Mr. Park, in cash.
| September 30, 2023 | December 31, 2022 | |||||||
| Loan payables maturing in January 25, 2024 and May 24, 2024 | $ | - | $ | |||||
| Loan payables maturing in April 28, 2023 | ||||||||
| Loan payables maturing in August 28, 2023 through December 26, 2023 | ||||||||
| Total | - | |||||||
29
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
Changhyuk Kang
On July 1, 2021, the Company exchanged $
On October 27, 2021, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On January 28, 2022, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On April 5, 2022, the Company and Mr. Kang,
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On January 19, 2023, the Company repaid short-term
borrowings in the aggregate amount of $
The remaining amount of ($
| September 30, 2023 | December 31, 2022 | |||||||
| Loan payables maturing in October 26, 2023 | $ | $ | ||||||
| Loan payables maturing in April 4, 2023 | ||||||||
| Total | ||||||||
Munjoong Kang
On January 1, 2021, Munjoong Kang, one of
our co-founders, bought the rights to receive $
On January 1, 2021, $
During the year ended December 31, 2021,
the Company repaid short-term borrowings owed to Mr. Kang in the aggregate amount of $
On March 31, 2021, pursuant to the RnDeep
Merger, the Company assumed certain interest-free, short-term borrowings of RnDeep owed to Mr. Kang in the amount of $
On November 15, 2021, Mr. Kang bought
interest free, short-term borrowings of $
On December 13, 2021, December 14, 2021,
and December 20, 2021, Mr. Kang sold his rights to receipt of debt obligations of HBC of $
On December 21, 2021, the Company issued
Mr. Kang
30
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 18 — RELATED PARTY TRANSACTIONS (cont.)
On January 25, 2022, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On March 4, 2022, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On May 11, 2022 through December 12,
2022, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreements with an aggregate principal amount
of $
On January 11, 2023, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On February 6, 2023, the Company repaid the
principal amount of $
On February 7, 2023, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On February 23, 2023, and February 27,
2023, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $
On January 9, 2023, through March 23,
2023, the Company repaid short-term borrowings in the aggregate amount of $
On April 10, 2023, the Company repaid the principal
amount of $
On April 18, 2023, the Company and Mr. Kang
entered into an interest-free, short-term borrowing agreement with a principal amount of $
On May 18, 2023, and May 26, 2023, the Company
and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $
On April 5, 2023, through June 22, 2023, the Company
repaid short-term borrowings in the aggregate amount of $
On July 5, 2023, the Company repaid short-term
borrowings in the aggregate amount of $
The remaining amount of ($
| September 30, 2023 | December 31, 2022 | |||||||
| Loan payables maturing in May 12, 2023 through May 30, 2023 | $ | $ | ||||||
| Loan payables maturing in July 29, 2023 through August 7, 2023 | ||||||||
| Loan payables maturing in October 17, 2023 | ||||||||
| Loan payables maturing in December 11, 2023 | ||||||||
| Loan payables maturing in February 26, 2024 | ||||||||
| Loan payables maturing in May 17, 2024 | ||||||||
| Loan payables maturing in May 25, 2024 | ||||||||
| Total | ||||||||
NOTE 19 — SUBSEQUENT EVENTS
The Company has evaluated subsequent events that occurred subsequent to September 30, 2023 through November 14, 2023 at which the condensed consolidated financial statements were prepared.
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Prospectus on Form S-1 (File No. 333-269419). As discussed in the section titled “Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in our Prospectus filed on Form S-1.
Overview
Hanryu Holdings, Inc., a Delaware corporation (“Hanryu Holdings”), along with our wholly owned operating subsidiaries, Hanryu Bank Co., Ltd. (“HBC”), FNS Co., Ltd. (“FNS”), Hanryu Times Co., Ltd. (“Hanryu Times”), Marine Island Co., Ltd. (“Marine Island”), FANTOO Entertainment Co., Ltd., and majority owned subsidiary, K-Commerce Co., Ltd. (“K-Commerce”), all incorporated under the laws of the Republic of Korea (collectively, the “Company”, “we”, “us”, or “our”), is the creator of the engaging and innovative social media platform, “FANTOO”. FANTOO connects users around the world that share similar interests by providing distinctive service offerings, technologies, applications, and websites. Through FANTOO, we provide a global multi-media platform for our users to interact with other like-minded users, to share their appreciation of various types of entertainment and cultures, create their own content, enjoy other users’ content, engage in commerce, and experience a “fandom” community unlike any other.
Although we anticipate expanding into additional entertainment genres, currently, the majority of FANTOO’s users are enthusiasts of Korean culture (“K-Culture”), also known as the “Korean Wave.” The growing popularity of the Korean Wave has historically been driven by social networking services and online video sharing platforms. Through these channels, the dispersion and exportation of Korean arts, music and entertainment has grown rapidly from a regional influence into a global appreciation of South Korean culture. The expansion of the Korean Wave into a global phenomenon provides a significant opportunity to unite fans across the globe within the FANTOO platform. We aim to become a leading global platform for fans who are passionate about the Korean Wave, eventually expanding into other areas of fandom. Since the FANTOO platform launch in May 2021, its user base has exceeded 27 million users.
We differentiate ourselves from potential competition through the power of a fully-integrated platform, and established partnerships with leaders in the K-Culture entertainment industry within South Korea. Our core strategy is to pursue initiatives that promote the viral growth of our user base, and in doing so, drive advertising revenue, user-generated revenue, and create other new revenue streams.
Our Business Model and Growth Strategies
We focus on providing user-centric services to provide a single platform that can address and satisfy all the needs of fans within that platform. FANTOO will enrich users’ fandom experience by providing an all-in-one platform for fandom content, including news, popular culture, discussions, live shows, fan creativity. FANTOO is currently available in 17 languages, with real-time translation services. These real time translation services enable our users to communicate with each other across the globe without language barriers. For languages that are not available for real-time translation, the FANTOO platform provides a solution through the use of translation matching services among users. Through the translation matching services, the FANTOO platform ensures that content is accurately translated and available to a greater number of global fans in their own languages The FANTOO platform further allows users to freely create and monetize their own content, and enables fast and secure user-to-user sales on the FANTOO platform.
We intend to create value for our shareholders through developing multiple revenue streams, including (1) direct sales revenue, driven by advertisement, content and commerce sales; and (2) revenue derived from collecting a percentage of user-to-user sales of emojis, online stickers, web novels, webtoons, translation matching, and other user-to-user transactions.
In the long term, we expect the majority of our revenue will be generated from commissions from user-to-user transactions. Deriving revenue from user-to-user transactions gives our platform an advantage over other existing platforms that primarily rely on advertisement sales. We recognize both the creative power and purchasing power of our users and fans in general, and as such, we designed our platform to maximize the economic effects of FANTOO users. Since May 2021, we have experienced a significant growth in the number of FANTOO users, with our current user base exceeding 27 million users.
Due to the surge in popularity of Korean culture (“K-Culture”), we believe that we have great potential to continue growing our user base, while maintaining a high percentage of Monthly Active Users (“MAUs”). According to the Korea Foundation and Korean Ministry of Foreign Affairs, in 2021, Korean culture had 156.6 million fans in 116 countries, and generated approximately $21.5 billion in global revenue in 2019. Furthermore, K-Culture was ranked as the seventh most influential global culture in 2021, and contributed over $10 billion in exports in 2020, as reported by the Korean Foundation for International Cultural Exchange. The global purchasing power of K-Culure was at $124.3 billion in 2020, based on the 2021 report by the Organization for Economic Co-operation and Development.
32
Components of Results of Operations
Revenue
We anticipate that our primary source of revenue will be generated from the FANTOO platform. Additionally, we intend to generate revenue from other affiliated businesses in the future.
We expect that our primary sources of revenue on the FANTOO platform will be derived from (i) direct sales and (ii) commissions from user-to-user sales.
Direct Sales. We anticipate generating direct sales revenue through: (i) original content sales, such as FANTOO produced web series that can be purchased by users on our platform or licensed to distributors; (ii) e-commerce goods through FANTOO’s Fanshop, which sells items such as the latest fandom goods and upcoming concert tickets; and (iii) advertising sales, including banner placements, splash advertising, pop-up advertisements within the platform, in-platform promotions, and branded content productions. For advertising sales, we act as an agent in arranging third-party promotions to our users. Our business model provides for the distribution of a percentage of our advertising revenue to FANTOO users in the form of Fantoo Point(“FP”) as incentives for certain activities within the FANTOO platform. Users can then spend FP within the FANTOO platform to purchase goods and/or services, either directly from us or from other users.
User-to-User Commissions. We intend to generate commissions on user-to-user transactions when FANTOO users sell their own products, content, and services to other users. Users can sell: (i) items they have created or produced such as emojis, online stickers, web novels, and webtoons; and (ii) tangible goods or other non-FANTOO platform based fandom items, such as concert tickets. For each sale by a user of content and non-tangible goods, we intend to collect a percentage of the gross purchase price. For sales of tangible goods and non-FANTOO platform based fandom goods, transactions are processed through a secure escrow account, for which we will receive a commission based upon the aggregate purchase price of the transaction.
As we continue to diversify our product and service offerings throughout 2023, we anticipate additional revenue streams, including:
Enterprise Resource Planning. Our enterprise resource planning (“ERP”) service provides business management services, such as email, document storage, and inventory management for emerging companies in the entertainment and content creation industries. Currently, ERP clients receive these services for no charge in exchange for participation and engagement in the FANTOO platform. We anticipate the rollout of a premium service option, which will be available to clients for a subscription fee.
Entertainment Agency. Our entertainment agency business, FANTOO Entertainment, will assist influencers in growing their influence base both within and outside of the FANTOO platform. As each influencer’s status grows, we expect to monetize their influencer status through entering into advertisement agreements or performance-based contracts. We anticipate earning revenue from this business model by 2024.
While we anticipate generating revenue from sales of ERP and FANTOO Entertainment by the end of the year ended December 31, 2023, no assurances can be given that we will successfully launch such affiliated businesses, and if so, whether such businesses will be successful.
Cost of Revenue
Cost of revenue consists primarily of service costs, hosting costs, and production costs such as advertising costs, down payments, and royalty payments to artists under entertainment contracts for original FANTOO platform content, such as web series and concerts. We expect that cost of revenue will increase proportionately with the growth of the user base for the FANTOO platform.
33
Sales, Marketing and Advertising Expense
Sales and marketing expense consists of compensation and commission costs of the sales and related support teams, as well as travel, trade show, and other marketing related costs. Advertising costs are expensed to operations when incurred. Expense also includes the cost of creating and implementing marketing strategies, conducting market research, and producing advertisements. Those expenses are recognized as incurred based on the accrual basis of accounting. We expect that sales, advertising, and marketing expense will increase on a proportionate basis with user-growth, and will vary from period-to-period as a percentage of revenue for the foreseeable future. This variation is due to our plans to continue to invest in marketing in order to grow both sales and our user-base by way of increasing brand awareness. The trend and timing of our marketing costs will depend in part on the timing of marketing campaigns.
Research and Development Expense
Research and development expense includes costs to maintain and develop the FANTOO platform. Costs incurred for research and product development are expensed as incurred and include salaries, taxes and benefits, contracting, and travel expense related to research and development.
General and Administrative Expense
General and administrative expense consists primarily of personnel-related costs, including salaries and benefits, non-cash stock compensation expense, equipment expense, office and facilities costs, legal, accounting and other professional fees, public relations costs and other corporate and administrative costs.
Results of Operations
Three and nine months Ended September 30, 2023 Compared to three and nine months ended September 30, 2022
The following table sets forth a summary of our statements of operations for the three and nine months ended September 30,2023 and 2022:
| Nine months ended | ||||||||||||||||
| September 30, | Increase / (Decrease) | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue | $ | 1,347,975 | $ | 904,040 | $ | 443,935 | 49 | % | ||||||||
| Cost of Revenue | 832,915 | 463,586 | 369,329 | 80 | % | |||||||||||
| Gross Profit | 515,060 | 440,454 | 74,606 | 17 | % | |||||||||||
| Operating Expense | ||||||||||||||||
| Marketing and advertising expense | 1,914,786 | 302,688 | $ | 1,612,098 | 533 | % | ||||||||||
| Research and Development | 277,624 | 231,697 | $ | 45,927 | 20 | % | ||||||||||
| General and administrative expense | 7,663,382 | 5,183,728 | $ | 2,479,654 | 48 | % | ||||||||||
| Total operating expense | 9,855,792 | 5,718,111 | $ | 4,137,681 | 72 | % | ||||||||||
| Total Other Income (Expense) | 176,906 | 238,839 | $ | (61,933 | ) | (26 | )% | |||||||||
| Net Loss | $ | (9,163,826 | ) | $ | (5,038,818 | ) | $ | (4,125,008 | ) | 82 | % | |||||
34
| Three months ended | ||||||||||||||||
| September 30, | Increase / (Decrease) | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Revenue | $ | 713,763 | $ | 748,661 | $ | (34,898 | ) | (5 | )% | |||||||
| Cost of Revenue | $ | 441,842 | $ | 393,355 | 48,487 | 12 | % | |||||||||
| Gross Profit | $ | 271,921 | $ | 355,306 | (83,385 | ) | (23 | )% | ||||||||
| Operating Expense | ||||||||||||||||
| Marketing and advertising expense | $ | 1,081,986 | $ | 118,231 | $ | 963,755 | 815 | % | ||||||||
| Research and Development | $ | 45,881 | $ | 152,212 | $ | (106,331 | ) | (70 | )% | |||||||
| General and administrative expense | $ | 2,688,391 | $ | 1,532,310 | $ | 1,156,081 | 75 | % | ||||||||
| Total operating expense | $ | 3,570,976 | $ | 1,802,753 | $ | 1,768,223 | 98 | % | ||||||||
| Total Other Income (Expense) | $ | (194,481 | ) | $ | 26,319 | (220,800 | ) | (839 | )% | |||||||
| Net Loss | $ | (3,104,574 | ) | $ | (1,421,128 | ) | $ | (1,683,446 | ) | 118 | % | |||||
| Nine months ended | Three months ended | |||||||||||||||
| September 30, | September 30p | |||||||||||||||
| (as a percentage of revenues) | (as a percentage of revenues) | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Cost of Revenue | 62 | % | 51 | % | 62 | % | 53 | % | ||||||||
| Gross Profit | 38 | % | 49 | % | 38 | % | 47 | % | ||||||||
| Operating Expense | ||||||||||||||||
| Marketing and advertising expense | 142 | % | 33 | % | 152 | % | 16 | % | ||||||||
| Research and Development | 21 | % | 26 | % | 6 | % | 20 | % | ||||||||
| General and administrative expense | 569 | % | 573 | % | 377 | % | 205 | % | ||||||||
| Total operating expense | 731 | % | 633 | % | 500 | % | 241 | % | ||||||||
| Total Other Income (Expense) | 13 | % | 27 | % | (27 | )% | 0 | % | ||||||||
| Net Loss | (680 | )% | (557 | )% | (435 | )% | (193 | )% | ||||||||
We have generated revenue from the FANTOO platform, and we have started to generate contents sales through FNS and Hanryu Times through other platforms, including third party news agencies and YouTube. While the FANTOO platform itself has not yet generated revenue enough, we began implementing our business plan and commenced distributing content to build up and raise brand awareness. Revenue for the nine months ended September 30, 2023 was $1,347,975, as compared to revenue of $904,040 for the nine months ended September 30, 2022. This increase of $443,935 was due to $891,389 in advertising and content sales through FANTOO platform and FNS even if service sales is decreased from $788,284 to $0
Cost of Revenues
Cost of revenue for the nine months ended September 30, 2023 and 2022 was $832,915, and $463,586, respectively. The substantial increase in cost of revenue is principally due to the substantial increase in revenue reported during the nine-month period ending September 30, 2023, compared to the corresponding period in 2022.
35
Operating Expense
Marketing and Advertising
Marketing and advertising expense for the nine months ended September 30, 2023 was $1,914,786, as compared to $302,688 for the nine months ended September 30, 2022. The increase is due to the launch of the FANTOO platform, and the costs associated with promoting the newly launched FANTOO platform to targeted users.
Research and Development
Research and development expense for the nine months ended September 30, 2023 was $277,624, as compared to $231,697 for the nine months ended September 30, 2022. The increase in research and development expense is primarily due to the increase in the Company’s research personnel related cost as a result of the Company’s focus on the upgraded version of FANTOO app as of September 22, 2022.
General and Administrative
General and administrative expense for the nine months ended September 30, 2023 increased $2,479,654 or 48%, as compared to the nine months ended September 30, 2022. The increase was primarily due to an increase in commissions and consulting costs of $2,413,706, an increase in travel expense of $902,995. The substantial increase in general and administrative expense is principally attributable to the increase in consulting costs and Travel expense as required for Initial Public Offering of the company to support the growth of the FANTOO platform.
Other income (expense)
Other income (expense) for the nine months ended September 30, 2023 was $176,906 an decrease of $66,231, or 27%, as compared to the nine months ended September 30, 2022, which was primarily driven by $236,425 recognized due to the extinguishment of debt during the six months ended September 30, 2022.
Liquidity and Going Concern
Our primary uses of cash are for operational expenditures, and our main sources of liquidity have been cash flows from borrowings from related parties and third parties, and sales of common shares.
On January 4, 2023, through March 8, 2023, warrants of $1,729,325 were exercised with an exercise price of $1.27 to purchase 1,427,653 shares of Common Stock.
In February and March of 2023, the Company closed two private placements solely to accredited investors (as defined by Rule 501(a) of Regulation D of the Securities Act) pursuant to which the Company sold an aggregate amount of 240,000 shares of common stock for $10.00 per share, resulting in gross proceeds of $2,400,000. The purchase price of the common stock purchased in the private placements is subject to adjustment to the price of the common stock sold in the Company’s IPO, such that additional common stock shall be issued to the purchasers if the price of common stock sold in the IPO is less than $10.00 per share, or the purchasers shall return common stock to the Company if the price of the common stock sold in the IPO is greater than $10.00 per share, in each case resulting in the purchasers purchasing an aggregate amount of $2,400,000 of Company common stock at the IPO price. The offerings were exempt from registration under Section 4(a)(2) of the Securities Act. The subscription agreements pursuant to which the common stock was sold to accredited investors contain customary representations and warranties of the Company and the investors and customary indemnification rights and obligations of the parties.
On March 24, 2023, warrants of $8,400 were exercised with an exercise price of $0.42 to purchase 20,000 shares of Common Stock.
On April 13, 2023, through May 4, 2023, warrants of $4,316,665 were exercised with an exercise price of $0.42 ~ $1.27 to purchase 4,066,666 shares of Common Stock.
On May 31, 2023, the Company completed a private placement to solely to an accredited investor (as defined by Rule 501(a) of Regulation D of the Securities Act) pursuant to which the Company sold an aggregate amount of 760,000 shares of common stock for $10.00 per share, resulting in gross proceeds of $7,600,000.
In July 2023, the Company consummated its initial public offering (the “IPO”) of 877,328 shares of its class A common stock at a public offering price of $10.00 per share, generating gross proceeds of $8,174,860. Net proceeds from the IPO were approximately $6.8 million after deducting underwriting discounts and commissions and other offering expenses of approximately $1.9 million.
We believe that expected cash flow from operations and the proceeds from the IPO will be adequate to fund operating lease obligations, capital expenditures and working capital obligations for at least the next 12 months and thereafter.
36
Summary of Cash Flows
The following table summarizes changes in cash for the nine months ended September 30, 2023 and 2022:
| 2023 | 2022 | |||||||
| Statement of Cash Flow Data: | ||||||||
| Net cash used in operating activities | $ | (11,444,953 | ) | $ | (3,421,125 | ) | ||
| Net cash (used in) provided by investing activities | (1,281,103 | ) | 1,445,741 | |||||
| Net cash provided by financing activities | 23,566,502 | 1,715,561 | ||||||
Cash Flows from Operating Activities.
Net cash used in operating activities for the nine months ended September 30, 2023 was $11.444.953, which primarily reflected our net loss of $9,163,826, net of adjustments to reconcile net loss to net cash provided by operating activities of $460,811 which included a depreciation charge of $270,526. Changes in working capital primarily reflected increases in receivables and the settlement of payables in the ordinary course. Net cash used in operating activities for the nine months ended September 30, 2022 was $3,421,125, which primarily reflected our net loss of $5,038,818, net of adjustments to reconcile net loss to net cash provided by operating activities of $122,489, which included a depreciation charge of $163,917, and excluded $236,425 of non-cash other income for a gain on the extinguishment of debt. Changes in working capital primarily reflected increases in receivables and the settlement of payables in the ordinary course.
Cash Flows from Investing Activities.
Our net cash provided in investing activities was $1,281,103 for the nine months ended September 30, 2023, representing an decrease of $2,726,844, or 188.61%, as compared to $1,445,741 of cash used in investing activities for the nine months ended September 30, 2022. This decrease was driven by a $5,700,469 decrease in repayment of short term loan receivables and $722,209decrease in purchase of property.
Cash Flows from Financing Activities.
Our net cash provided by financing activities was $23,566,502for the nine months ended September 30, 2023, consisting of a $18,260,395 increase in cash proceeds from issuing of common stock, a $5,719,579 increase in cash proceeds from exercising warrants, partially offset by a $332,853 and $2,438,828 decrease in repayments of short-term loan payables and short-term loan payables from related parties respectively. Our net cash provided by financing activities was $1,715,561 for the nine months ended September 30, 2022, consisting of a $219,980 increase in cash proceeds from short-term loan receivables, a $777,918 increase in cash proceeds from short-term loan receivables from related parties, a $1,409,489 increase in cash proceeds from exercising warrants, partially offset by a $14,974 and 676,852 decrease in repayments of short-term loan payables and short-term loan payables from related parties respectively.
Convertible Debt.
As of September 30, 2023, the remaining outstanding principal amount of bonds with warrants was approximately $3,346,222. There was no issuance of bonds with warrants for the six months ended September 30, 2023. A $204,634 decrease in bonds with warrants compared to the balance of $3,550,856 as of December 31,2022 was due to currency translation adjustment.
37
Contractual Obligations
The following table summarizes our fixed contractual obligations and commitments (in millions) as of September 30, 2023:
| Total | Less than 1 year | 1-3 years | 3-5 Years | More than 5 years | ||||||||||||||||
| Payments Due | ||||||||||||||||||||
| Operating leases | 165,345 | 32,682 | 132,663 | - | - | |||||||||||||||
| Total | $ | 165,345 | 32,682 | $ | 132,663 | - | - | |||||||||||||
The Company has an operating lease agreement for a vehicle, which was entered into on September 16, 2021 by HBC, and matures on September 21, 2025. The deposit paid on the beginning date of the lease agreement is $109,578 as of September 30, 2023, and $116,279 as of December 31, 2022.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our financial statements included elsewhere in this prospectus. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency and credit.
Foreign Currency Risk
We have accounts on our foreign subsidiaries’ ledgers, which are maintained in the respective subsidiary’s local currency and translated into USD for reporting of our condensed consolidated financial statements. As a result, we are exposed to fluctuations in the exchange rates of various currencies against the USD and other currencies, including KRW.
Transactional
We generate the majority of our revenue from customers within Korea. Typically, we aim to align costs with revenue denominated in the same currency, but we are not always able to do so. As a result of the geographic spread of our operations and due to our reliance on certain products and services priced in currencies other than KRW, our business, results of operations, and financial condition have been and will continue to be impacted by the volatility of the KRW against foreign currencies.
38
Translational
Our functional currency and reporting currency is the USD. The local and functional currency for our Korean subsidiaries, Hanryu Bank, FSN, K-commerce, Marine Island, FANTOO entertainment and Hanryu Times, which are our primary operating subsidiaries, is the KRW. Assets and liabilities of each subsidiary are translated into USD at the exchange rate in effect at the end of each period. Revenue and expenses for these subsidiaries are translated into USD using average rates that approximate those in effect during the period. Consequently, increases or decreases in the value of the USD affect the value of these items with respect to the non-USD-denominated businesses in the condensed consolidated financial statements, even if their value has not changed in their original currency. For example, a stronger USD will reduce the reported results of operations of non-USD-denominated businesses and conversely a weaker USD will increase the reported results of operations of non-USD-denominated businesses. An assumed hypothetical 10% adverse change in average exchange rates used to translate foreign currencies to USD would have resulted in a decline in total net revenues of $80,822 and a change in net loss of $621,500 for the year ended December 31, 2022. An assumed hypothetical 10% adverse change in average exchange rates used to translate foreign currencies to USD would have resulted in a decline in total net revenues of $122,543 and a change in net loss of $833,075 for the nine months ended September 30, 2023.
At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Credit Risk
Our cash and cash equivalents, deposits, and loans with banks and financial institutions are potentially subject to concentration of credit risk. We place cash and cash equivalents with financial institutions that management believes are of high credit quality. The degree of credit risk will vary based on many factors including the duration of the transaction and the contractual terms of the agreement. As appropriate, management evaluates and approves credit standards and oversees the credit risk management function related to investments.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates and assumptions include the fair value of the Company’s common stock, stock-based compensation, the recoverability and useful lives of long-lived assets, and the valuation allowance relating to the Company’s deferred tax assets.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”, which amended the effective date of the various topics. As the Company is a smaller reporting company, the provisions of ASU 2016-13 and the related amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 (quarter ending September 30, 2023 for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period.
39
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 changes how entities account for convertible instruments and contracts in an entity’s own equity and simplifies the accounting for convertible instruments by removing certain separation models for convertible instruments. ASU 2020-06 also modifies the guidance on diluted earnings per share calculations. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of ASU 2020-06 on the consolidated financial statements.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Relaxed Ongoing Reporting Requirements
We expect to become a public reporting company under the Exchange Act, and will be required to publicly report on an ongoing basis. We expect to elect to report as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange Act. For so long as we remain an “emerging growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to other Exchange Act reporting companies that are not “emerging growth companies,” including but not limited to:
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; |
| ● | taking advantage of extensions of time to comply with certain new or revised financial accounting standards; |
| ● | being permitted to comply with reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and |
| ● | being exempt from the requirement to hold a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our stockholders could receive less information than they might expect to receive from more mature public companies.
We expect to take advantage of these reporting exemptions until we are no longer an emerging growth company. We would remain an “emerging growth company” for up to five years, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an “emerging growth company” as of the following December 31.
40
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by 17 C.F.R. 229.10(f)(1) and are not required to provide information under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, our disclosure controls and procedures were ineffective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission (“SEC”) rules and forms and (b) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.
Management has identified control deficiencies regarding inadequate accounting resources, the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting outsourced staff may prevent adequate controls in the future due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis. In light of this material weakness, we performed additional analyses and procedures in order to conclude that our financial statements for the quarter ended September 30, 2023 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with GAAP. Accordingly, management believes that despite our material weaknesses, our financial statements for the quarter ended September 30, 2023 are fairly stated, in all material respects, in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ending December 31, 2023. As a result, this Quarterly Report does not address whether there have been any changes in our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
In the future, the Company may be subject to various legal proceedings from time to time as part of its business. We and our subsidiaries are not currently a party, nor is our property subject, to any material pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We have not made any sales of unregistered equity securities during the quarterly period ended September 30, 2023.
In August 2023, the Company consummated its initial public offering (the “IPO”) of 877,328 shares of its class A common stock at a public offering price of $10.00 per share, generating gross proceeds of $7,986,918 pursuant to our Registration Statement on Form S-1 (as amended) (File No. 333-269419), which was declared effective by the SEC on July 31, 2023. Aegis Capital, Corp., acted as the representative of the underwriters of the IPO. After deducting underwriting discounts and commissions and other offering expenses payable by us, we received approximately $6.8 million in net proceeds from the IPO.
There has been no material change in the planned use of proceeds from the IPO as described in our final prospectus, dated August 2, 2023, which was filed with the SEC on August 2, 2023 pursuant to Rule 424(b) under the Securities Act.
We plan to use the net proceeds of the IPO as follows:
| ● | 5% of the net proceeds (approximately $338,571) for investment in corporate infrastructure; |
| ● | 7% of the net proceeds (approximately $473,999) for the construction of a data center for our AI technology and hiring approximately 23 software engineers; |
| ● | 8% of the net proceeds (approximately $541,713) for increasing our engineering team to staff our planned AI technology data center; |
| ● | 30% of the net proceeds (approximately $2,031,425) to market and host events such as live K-pop concerts; |
| ● | 30% of the net proceeds (approximately $2,031,425) to develop services within the FANTOO ecosystem such as the fan shop, digital stickers, Augmented Reality filters, and emojis; and |
| ● | 20% of the net proceeds (approximately $1,354,284) for general working capital purposes, operating expenses, and/or acquisitions of, or investments in, businesses, products, services or technologies. |
Our expected use of net proceeds from the IPO represents our current intentions based upon our present plans and business conditions. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors. As a result, our management will have broad discretion in the application of the net proceeds of the IPO, and investors will be relying on our judgment regarding the application of the net proceeds.
Pending other uses, we intend to invest the proceeds to us in investment-grade, interest-bearing securities such as money market funds, certificates of deposit, or direct or guaranteed obligations of the U.S. government, or hold as cash. We cannot predict whether the proceeds invested will yield a favorable return.
No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries.
42
Item 6. Exhibits.
The following exhibits are included herein or incorporated herein by reference:
| * | Filed herewith. |
| ** | Furnished herewith. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Hanyru Holdings, Inc |
| Signature | Title | Date | ||
| /s/ Changhyuk Kang | Chief Executive Officer | November 17, 2023 | ||
| Changhyuk Kang | (Principal Executive Officer) | |||
| /s/ Juhyun Shin | Chief Financial Officer | November 17, 2023 | ||
| Juhyun Shin | (Principal Financial and Accounting Officer) |
44
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HANRYU HOLDINGS, INC.
A Delaware Corporation
ARTICLE I
NAME
The name of this corporation shall be Hanryu Holdings, Inc. (the “Corporation”).
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, Suite 403-B, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is VCorp Services, LLC.
ARTICLE III
CORPORATE PURPOSE
The purpose or purposes of the corporation shall be to carry on any and all business and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
The total number of shares of stock which the Corporation shall have authority to issue is one hundred ten million (110,000,000), consisting of one hundred million (100,000,000) shares of Common Stock, par value $0.001 per share, and ten million (10,000,000) shares of Preferred Stock, par value $0.001 per share.
1. Common Stock. Each share of Common Stock shall be equal to every other share of Common Stock in every respect. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(h)(2) of the General Corporation Law.
2. Preferred Stock. The Board of Directors of the Corporation may divide the Preferred Stock into any number of series, fix the designation and number of each such series, and determine or change the designation, relative rights, preferences, and limitations of any series of Preferred Stock. The Board of Directors (within the limits and restrictions of the adopting resolutions) may also increase or decrease the number of shares of Preferred Stock initially fixed for any series, but no decrease may reduce the number below the shares of Preferred Stock then outstanding and duly reserved for issuance.
ARTICLE V
BYLAWS PROVISIONS
1. Amendment of Bylaws. Subject to any additional vote required by this Certificate or bylaws of the Corporation (the “Bylaws”), in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws.
2. Number of Directors. Subject to any additional vote required by this Certificate, the number of directors of the Corporation will be determined in the manner set forth in the Bylaws.
3. Ballot. Elections of directors need not be by written ballot unless the Bylaws so provide.
4. Meeting and Books. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board or in the Bylaws.
ARTICLE VI
LIMITATION OF DIRECTORS’ LIABILITY
A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the Director derived any improper personal benefit. If the DGCL is amended after the effective date of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the DGCL.
ARTICLE VII
INDEMNIFICATION
(A) To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of, and advancement of expenses to, directors, officers, employees, other agents of the corporation and any other persons to which the DGCL permits the corporation to provide all indemnification. Such right to indemnification shall continue as to a person who has ceased to be a Director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal legal representatives.
(B) The rights to indemnification and to the advance of expenses conferred in this Article X shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the Bylaws, any statute, agreement, vote of stockholders or disinterested Directors or otherwise.
2
(C) Any repeal or modification of this Article X, by amendment of such section or by operation of law, shall not adversely effect any right or protection of a director, officer, employee or other agent of the corporation existing at the time of, or increase the liability of any such person with respect to acts or omissions in their capacity as a director, officer, employee, or other agent of the corporation occurring prior to, such repeal or modification.
ARTICLE VIII
EXCLUSIVE FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware or. as further provided below, the United States District Court for the District of Delaware, shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or this Certificate of Incorporation or the Bylaws of the Corporation, (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine, in each case subject to the Court of Chancery of the State of Delaware having jurisdiction over the subject matter and personal jurisdiction over the indispensable parties name as defendants therein, or (v) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. Cases involving claims for which the Court of Chancery lacks jurisdiction shall, to the fullest extent permitted by law, be brought in the United States District Court for the District of Delaware. This Article VIII shall not apply to actions arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934.
ARTICLE IX
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLEX
ARRANGEMENTS BETWEEN CREDITORS
Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may he, and also on this corporation.
ARTICLE XI
STOCK REPURCHASES
For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Certificate of Incorporation from employees, officers, directors or consultants of the Company in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board of Directors (in addition to any other consent required under this Certificate of lncorporation), such repurchase may be made without regard to any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero (0).
3
IN WITNESS WHEREOF, Hanryu Holdings, Inc. has caused this certificate to be signed by , its , on this day of December, 2022.
| By: | ||
| Title: | ||
4
Exhibit 3.2
BYLAWS
OF
HANRYU HOLDINGS, INC.
ARTICLE I
Offices
Section 1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall be set forth in the Certificate of Incorporation of the corporation (as amended, modified or restated, the “Certificate of Incorporation”).
Section 1.2 Other Offices.
The corporation may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
Stockholders’ Meetings
Section 2.1 Place of Meetings.
(a) Meetings of stockholders may be held at such place, either within or without this State, as may be designated by or in the manner provided in these Bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 2.1.
(b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1) Participate in a meeting of stockholders; and
(2) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
(c) For purposes of this Section 2.1, “remote communication” shall include( 1) telephone or other voice communications and (2) electronic mail or other form of written or visual electronic communications satisfying the requirements of Section 2.11(b).
Section 2.2 Annual Meetings.
The annual meetings of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors, or, if not so designated, then at 10:00 a.m. on April 30 in each year if not a legal holiday, and, if a legal holiday, at the same hour and place on the next succeeding day not a holiday.
Section 2.3 Special Meetings.
Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or the Board of Directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate one-fifth of the voting power of all stockholders delivered in person or sent by registered mail to the Chairman of the Board, President or Secretary of the Corporation, the Secretary shall call a special meeting of stockholders to be held as provided in Section 2.1 at such time as the Secretary may fix, such meeting to be held not less than 10 nor more than 60 days after the receipt of such request, and if the Secretary shall neglect or refuse to call such meeting within seven days after the receipt of such request, the stockholder making such request may do so.
Section 2.4 Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would entitle shareholders fulfilling the requirements of section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2
(d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
(e) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of Delaware General Corporation Law, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this subparagraph (e) shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
Section 2.5 Quorum and Voting.
(a) At all meetings of stockholders except where otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
3
(b) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation.
(c) Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter, and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class.
Section 2.6 Voting Rights.
(a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or to execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given.
(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telephone, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telephone, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telephone, telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization.
If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
4
(d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 2.7 Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Sections 211(e) or 212(c)(2) of the Delaware General Corporation Law, or any information provided pursuant to Section 211(a)(2)(B)(i) or (iii) thereof, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
5
Section 2.8 List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. The corporation need not include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
Section 2.9 Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than 45 days nor more than 75 days prior to the date on which the corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or the date on which the corporation mails its proxy materials for the current year if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than 30 days from the prior year). A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business.
6
Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in Section 2.1 and this Section 2.9, provided, however, that nothing in this Section 2.9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of Section 2.1 and this Section 2.9, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to request inclusion of a proposal in the corporation’s proxy statement to the extent that such right is provided by an applicable rule of the Securities and Exchange Commission.
Section 2.10 Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 45 days nor more than 75 days prior to the date on which the corporation first mailed its proxy materials for the previous year’s annual meeting of shareholders (or the date on which the corporation mails its proxy materials for the current year if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than 30 days from the prior year). Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
7
Section 2.11 Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing setting forth the action so taken are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
(b) A telegram, cablegram or other electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in this State, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if to the extent and in the manner provided by resolution of the Board of Directors of the corporation.
(c) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
8
ARTICLE III
Directors
Section 3.1 Number and Term of Office.
The number of directors of the corporation shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board of Directors, until changed by amendment of the Certificate of Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the vote or written consent of holders of a majority of the outstanding shares or by the Board of Directors. Subject to the foregoing provisions for changing the number of directors, the initial number of directors of the corporation has been fixed at One.
With the exception of the first Board of Directors, which shall be elected by the incorporator or incorporators, and except as provided in Section 3.3 of this Article III, the directors shall be elected by a plurality vote of the shares represented in person or by proxy, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 3.2 Powers.
The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.
Section 3.3 Vacancies.
Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board.
9
Section 3.4 Resignations and Removals.
(a) Any director may resign at any time by delivering his resignation to the Secretary in writing or by electronic transmission, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors or any individual director may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.
1. Unless the Certificate of Incorporation otherwise provides, if the Board of Directors is classified, shareholders may effect removal only for cause.
2. If the corporation has cumulative voting for directors, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if voted cumulatively at an election of the entire board.
Section 3.5 Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary, and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place, within or without the State of Delaware, which has been designated by resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors.
(d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission or other form of electronic transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.
10
Section 3.6 Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1 of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present, all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 3.7 Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 3.8 Fees and Compensation.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.
Section 3.9 Committees.
(a) Executive Committee: The Board of Directors may appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, except such committee shall not have the power or authority to amend these Bylaws or to approve or recommend to the stockholders any action which must be submitted to stockholders for approval under the General Corporation Law.
11
(b) Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 3.9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
12
ARTICLE IV
Officers
Section 4.1 Officers Designated.
The officers of the corporation shall be a President, a Secretary and a Treasurer. The Board of Directors or the President may also appoint a Chairman of the Board, one or more Vice- Presidents, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The order of the seniority of the Vice- Presidents shall be in the order of their nomination unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 4.2 Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation.
(b) Duties of Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) when present shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation, which may be maintained in either paper or electronic form. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any assistant secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each assistant secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
13
(f) Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any assistant treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each assistant treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
Section 5.1 Execution of Corporate Instruments.
(a) The Board of Directors may in its discretion determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice- President and by the Secretary or Treasurer or any assistant secretary or assistant treasurer. All other instruments and documents requiring the corporate signature but not requiring the corporate seal may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
(d) Execution of any corporate instrument may be effected in such form, either manual, facsimile or electronic signature, as may be authorized by the Board of Directors.
14
Section 5.2 Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the corporation for itself or for other parties in any capacity shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
Section 6.1 Form and Execution of Certificates.
The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice-President and by the Treasurer or assistant treasurer or the Secretary or assistant secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 6.2 Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
15
Section 6.3 Transfers.
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.
Section 6.4 Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent or electronic transmission setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded; provided that any such electronic transmission shall satisfy the requirements of Section 2.11(b) and, unless the Board of Directors otherwise provides by resolution, no such consent by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing or by electronic transmission without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
16
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 6.5 Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an assistant secretary, or the Treasurer or an assistant treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an assistant treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon has ceased to be an officer of the corporation before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
17
ARTICLE VIII
Indemnification of Officers, Directors, Employees and Agents
Section 8.1 Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any director or officer as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter “Expenses”); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 8.3 of this Article, the corporation shall indemnify any director or officer seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right.
Section 8.2 Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other employees or agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon.
Section 8.3 Right of Claimant to Bring Suit.
If a claim under Section 8.1 or 8.2 of this Article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
18
Section 8.4 Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate of Incorporation, agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence.
Section 8.5 Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent (hereafter an “Agent”) against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article.
Section 8.6 Survival of Rights.
The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
Section 8.7 Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation’s written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
Section 8.8 Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification.
Section 8.9 Subrogation.
In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
Section 8.10 No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
19
ARTICLE Ix
Notices
Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 2.4(e) of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by either of the methods hereinabove stated, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of electronic communication) such e-mail address, facsimile telephone number or other form of electronic address as such director shall have filed in writing or by electronic communication with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by means of electronic transmission shall be deemed to have been given as at the sending time recorded by the electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
ARTICLE x
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 2.11 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting, unless a larger vote is required by these Bylaws or the Certificate of Incorporation. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors.
20
Bylaws
OF
HANRYU HOLDINGS, INC.,
a Delaware corporation
21
Exhibit 10.1
Form of Lock-Up Agreement
______, 2023
Aegis Capital Corp.
1345 Avenue of the Americas
27th Floor
New York, NY 10105
Ladies and Gentlemen:
The undersigned understands that Aegis Capital Corp. (the “Underwriter”), proposes to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Hanryu Holdings, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) of shares of common stock, $0.001 par value, of the Company (the “Shares").
To induce the Underwriter to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Underwriter, the undersigned will not, during the period commencing on the date hereof and ending one hundred eighty (180) days after the date of the Underwriting Agreement (the “Lock-Up Period”), (1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock- Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Underwriter in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other public announcement shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift, by will or intestacy or to a family member or trust for the benefit of the undersigned (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities to a charity or educational institution; (d) if the undersigned is a corporation, partnership, limited liability company or other business entity, (i) any transfers of Lock-Up Securities to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (ii) distributions of Lock-Up Securities to members, partners, stockholders, subsidiaries or affiliates (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned; (e) if the undersigned is a trust, to a trustee or beneficiary of the trust; provided that in the case of any transfer pursuant to the foregoing clauses (b), (c) (d) or (e), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Underwriter a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 13 or Section 16(a) of the Exchange Act or other public announcement shall be required or shall be voluntarily made during the Lock-Up Period; (f) the receipt by the undersigned from the Company of Shares upon the vesting of restricted stock awards or stock units or upon the exercise of options to purchase the Company’s Shares issued under an equity incentive plan of the Company or an employment arrangement described in the Pricing Prospectus (as defined in the Underwriting Agreement) (the “Plan Shares”) or the transfer or withholding of Shares or any securities convertible into Shares to the Company upon a vesting event of the Company’s securities or upon the exercise of options to purchase the Company’s securities, in each case on a “cashless” or “net exercise” basis or to cover tax obligations of the undersigned in connection with such vesting or exercise, provided that if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report to the effect that the purpose of such transfer was to cover tax withholding obligations of the undersigned in connection with such vesting or exercise and, provided further, that the Plan Shares shall be subject to the terms of this lock-up agreement; (g) the transfer of Lock-Up Securities pursuant to agreements described in the Pricing Prospectus under which the Company has the option to repurchase such securities or a right of first refusal with respect to the transfer of such securities, provided that if the undersigned is required to file a report under Section 13 or Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of Shares during the Lock-Up Period, the undersigned shall include a statement in such schedule or report describing the purpose of the transaction; (h) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Lock-Up Securities, provided that (i) such plan does not provide for the transfer of Lock-Up Securities during the Lock-Up Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such public announcement or filing shall include a statement to the effect that no transfer of Lock-Up Securities may be made under such plan during the Lock-Up Period; (i) the transfer of Lock-Up Securities that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee agrees to sign and deliver a lock-up agreement substantially in the form of this lock-up agreement for the balance of the Lock-Up Period, and provided further, that any filing under Section 13 or Section 16(a) of the Exchange Act that is required to be made during the Lock-Up Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law; and (j) the transfer of Lock- Up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Shares involving a change of control (as defined below) of the Company after the closing of the Public Offering and approved by the Company’s board of directors; provided that in the event that the tender offer, merger, consolidation or other such transaction is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions contained in this lock-up agreement. For purposes of clause (j) above, “change of control” shall mean the consummation of any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as defined in Rules 13d-3 and 13d- 5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.
If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” securities that the undersigned may purchase in the Public Offering; (ii) the Underwriter agrees that, at least three (3) Business Days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Underwriter will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) Business Days before the effective date of the release or waiver. Any release or waiver granted by the Underwriter hereunder to any such officer or director shall only be effective two (2) Business Days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.
The undersigned understands that the Company and the Underwriter are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.
The undersigned understands that, if the Underwriting Agreement is not executed by [●], 2023 or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.
Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriter.
2
This letter agreement, and any claim, controversy or dispute arising under or related to this letter agreement, is to be governed by, and construed in accordance with, the laws of the State of New York.
| Very truly yours, | ||
| (Name - Please Print) | ||
| (Signature) | ||
| (Name of Signatory, in the case of entities - Please Print) | ||
| (Title of Signatory, in the case of entities - Please Print) | ||
| Address: | ||
3
Exhibit 10.2
Real Estate (Studio) Monthly Rent Agreement
Lessor and lessee conclude the following lease agreement with the conditions below on the real estate as follows.
| Location | Boutique Monaco (Seochodae-ro, 397) Room 1702, at 1316-5 Seocho-dong, Seocho-gu, Seoul, Korea | |||||||||||||||
| Land | Type | Large | Area | 4284.8m2 | Type of Ownership Site Right Site Right |
in Expenses of Site Right | 23.75 of 4284.8 | |||||||||
| Building | Structure | Steel concrete | Purpose | Work facility | Area | 158.04m2 | ||||||||||
| Parts to lease The entire room 1702 | Area | 158.04m2 | ||||||||||||||
2. Contract contents
Only for the lease of the real estate listed in the Article 1 (Purpose), the lessor and the lessee shall pay for the lease security and amount as follows in the agreement.
| Security | KRW 50,000,000 |
| Contract amount | KRW 5 million shall be paid at the time of concluding the contract. Received by (Signature) |
| Balance | KRW 45,000,000 shall be paid on April 2, 2020 |
| Lease amount | KRW 5.7 million shall be (pre) paid on the 2nd of every month. VAT to be (separately applied) |
Article 2 (Duration)
The Lessor shall deliver the above property to the lessee until April 2, 2020, with the above property available for rental purposes, and the lease period shall be from the date of delivery to April 1, 2021 (12 months).
Article 3 (Change of Use and Squadron, etc.)
The lessee shall not change the use or structure of the above property without the consent of the lessee, transfer or provide collateral for the entire lease, and shall not use it for any purpose other than the lease.
Article 4 (Termination of Contract)
In the event that the arrears amount of the lessee to the third term or violate Article 3, the lessee may immediately terminate this agreement.
Article 5 (Termination of the Contract) If the lease agreement is terminated, the lessee shall restore the above property to its original state and return it to the lessee. In such cases, the lessor returns the deposit to the lessee, removes it when there is a late payment or damages, and returns the balance.
Article 6 (Termination of the Contract) Until the lessee pays the lessee a mid-payment (the balance in the absence of a mid-payment), the lessee shall repay the multiples of the down payment, and the lessee shall waive the down payment and terminate this agreement.
Article 7 (Defaulting and Restitution) If the lessor or lessee defaults on the contents of this agreement, the other party may terminate the contract at its best in writing to the defaulted person. In this case, the parties to the contract may claim damages in accordance with the termination of the contract, and the down payment shall be viewed as a basis for damages unless there is a separate agreement for damages.
Article 8 (Intermediary Maintenance) The practitioner shall not be liable for the failure of this agreement by the lessor and the lessee. In addition, intermediary remuneration shall be paid by both parties to the Agreement at the same time as the conclusion of this Agreement, and intermediary remuneration shall be paid even if this agreement is void, cancelled, or terminated without willful or negligent action by the practitioner. In the event of a joint brokerage, the lessor and the lessee shall pay the brokerage remuneration to the practitioner broker who has requested the brokerage.
Article 9 (Issuance of Intermediary Object confirmation Manual, etc.) The practitioner shall complete the intermediary object confirmation manual and attach a copy of the business guarantee relationship certificate (deduction certificate, etc.) to both parties of the trading party (Date of issuance: March 27, 2020)
(Special Terms)
1. This is a lease agreement that the lessee enters into after confirming the purpose of the lease.
2. In the event of damage/loss of facilities and fixtures due to the willful/negligent negligence of the lessee, it shall be restored to its original condition.
3. In the event of an incident such as a malfunction of the facility, the lessee shall repair it if it is not the willful/careless of the lessee.
(However, coffee makers and microwaves cannot be used and repaired due to supplier bankruptcy)
4. As of the date of the contract, there is no defect in the registered loan or right, and the lessor shall maintain this condition until the date of the balance.
5. Value-added tax (KRW 570,000) is borne by the lessee separately, and the lessor issues a tax invoice.
6. The management fee and electricity/gas/water fee shall be borne by the lessee in accordance with the boutique Monaco management regulations.
7. The lessee shall bear all damages incurred by the lessor in violation of the Contract of business registration as a business studio (non-transfer notification).
8. In the event of delinquency of the monthly rent, the delinquent interest of 18% of the year shall be calculated and paid one day from the date of delinquency.
9. If the rent is more than three years overdue, the lessor may immediately terminate the contract, enforce the name, and the name cost shall be borne by the lessee.
10. The rental difference and brokerage fee shall be borne by the lessee upon leaving before maturity.
11. Other matters shall be in accordance with the Civil Code, the Lease Protection Act, and the general custom of the real Estate lease agreement.
** The parties to this Agreement agree to provide personal information and use the information required for the contract.
** Renter’s account number: Shinhan Bank 110-154-385180 Sunnam Ko (Prepay on 2nd day of each month)
2
In order to prove the conclusion of this contract, both parties confirm that all the information above is correct and sign/seal on them. March 27, 2020
Lessor |
Address | C-dong, Room 3603 at Unju-ro 30-gil, Gangnam-gu, Seoul, Korea (Dogok-dong, | ||||||||||||
Resident registration number |
450318-2046914 | Telephone number | 010- 6339- 6802 | Name | Sunnam Ko | (Signature) | ||||||||
| Lessee | Address | 32 Bongeunsa-ro 20-gil, Gangnam-gu, Seoul, Korea (Yeoksam-dong) |  | |||||||||||
| Corporate registration number | 10111-6894467 | Telephone number | 010- 8632- 0806 | Name | Hanryu Bank Co., Ltd. CEO: Sungmin Hong |
|||||||||
| Private licensed real estate agent | Address of office |
Room 114 on the floor 1 at Jinheung Building at 389 Seochodae-ro, Seocho-gu, Seoul, Korea | ||||||||||||
| Name of office | Seocho Sarang Licensed Real Estate Office | Name of CEO | Signature or seal | Ilhyung Sohn | ||||||||||
Telephone number |
02-599-0059 | Registration number |
11650-2018-00321 | Licensed real estate agent |
Signature or seal |  | ||||||||
| Joint licensed real estate agent |
Address of office | President office at a part of the entire floor 1 at Yongma Building at 522 Nonhyeon-ro, Gangnam-gu, Seoul, Korea | ||||||||||||
| Telephone number | 02-557-9836 | Registration number | 11680-2018- 00246 | Name of CEO | Signature or seal | Sinju Park | ||||||||
| Name of office | The First Real Estate Agent | Licensed real estate agent |
Signature or seal |  | ||||||||||
3
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Changhyuk Kang, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2023 of Hanryu Holdings, Inc.; |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Amendment is being prepared; |
| b. | [Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
| d. | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 17, 2023 | By: | /s/ Changhyuk Kang |
| Changhyuk Kang | ||
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
PURSUANT TO RULE
13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Juhyun Shin, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended September 30, 2023 of Hanryu Holdings, Inc.; |
| 2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Amendment is being prepared; |
| b. | [Paragraph intentionally omitted in accordance with SEC Release Nos. 34-47986 and 34-54942]; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and |
| d. | Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 17, 2023 | By: | /s/ Juhyun Shin |
| Juhyun Shin | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Quarterly Report of Hanryu Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Changhyuk Kang, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 17, 2023 | By: | /s/ Changhyuk Kang |
| Changhyuk Kang | ||
| Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C.
1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Quarterly Report of Hanryu Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended Septemer 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Juhyun Shin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 17, 2023 | By: | /s/ Juhyun Shin |
| Juhyun Shin | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |