UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
☐ TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File Number: 001-41763
Hanryu Holdings, Inc
(Exact name of Registrant as specified in its
charter)
Delaware | | 7370 | | 88-1368281 |
(State or other jurisdiction of
incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer
Identification Number) |
160, Yeouiseo-ro, Yeongdeungpo-gu, Seoul, Republic
of Korea 07231
+82-2-564-8588
(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 |
Class A Common Stock, $0.001 par value per share | | HRYU | | The Nasdaq Stock Market LLC (Nasdaq Capital Market) |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted 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). Yes
☒ No ☐
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 | ☐ |
Non-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 52,808,589 shares of the common stock outstanding
as of March 31, 2024.
TABLE OF CONTENTS
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 in the section titled “Risk Factors” and found on Form 10-K/A filed for the year ended December 31, 2023. 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.
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
HANRYU HOLDINGS, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2024 and December 31, 2023
(Unaudited)
| |
March 31, 2024 | | |
December 31,
2023 | |
ASSETS | |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash and Cash Equivalents | |
$ | 9,996 | | |
$ | 5,427,830 | |
Short-term loans receivable | |
| 8,945,261 | | |
| 3,789,900 | |
Accounts receivable, net of allowance | |
| 310,563 | | |
| 324,413 | |
Non-trade receivables | |
| 34,480 | | |
| 171,892 | |
Prepaid expenses and other receivable | |
| 7,626,903 | | |
| 7,903,035 | |
Total current assets | |
| 16,927,203 | | |
| 17,617,070 | |
| |
| | | |
| | |
PROPERTY PLANT AND EQUIPMENT, NET | |
| 434,150 | | |
| 629,185 | |
OPERATING LEASE RIGHT-OF-USE ASSET | |
| 1,775,941 | | |
| 1,918,966 | |
OTHER ASSETS | |
| 363,551 | | |
| 379,735 | |
Total Assets | |
$ | 19,500,845 | | |
$ | 20,544,956 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDER’S EQUITY | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Short-term loans payable | |
$ | 1,963,914 | | |
$ | 1,589,887 | |
Non-trade accounts payable | |
| 2,630,440 | | |
| 2,312,669 | |
Bonds with warrants, net | |
| 3,341,253 | | |
| 3,489,995 | |
Accrued expenses and other current liabilities | |
| 86,549 | | |
| 83,940 | |
Total current liabilities | |
| 8,022,156 | | |
| 7,476,491 | |
| |
| | | |
| | |
Total Liabilities | |
| 8,022,156 | | |
| 7,476,491 | |
Commitments and contingencies (Note 13) | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER’S EQUITY: | |
| | | |
| | |
Common Stock, $0.001 par value | |
| | | |
| | |
Authorized 110,000,000 (common:100,000,000, preferred:10,000,000) shares; Issued and outstanding 52,808,589 common shares as of March 31, 2024 and December 31, 2023 | |
| 52,809 | | |
| 52,809 | |
Additional paid-in capital | |
| 51,415,476 | | |
| 51,415,476 | |
Accumulated deficit | |
| (39,940,833 | ) | |
| (38,893,762 | ) |
Accumulated other comprehensive income | |
| (48,763 | ) | |
| 493,942 | |
Total Stockholders’ Equity | |
| 11,478,689 | | |
| 13,068,465 | |
Total Liabilities and Stockholders’ Equity | |
$ | 19,500,845 | | |
$ | 20,544,956 | |
The accompanying footnotes
are an integral part of these unaudited consolidated financial statements
HANRYU HOLDINGS, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| |
March 31,
2024 | | |
March 31,
2023 | |
| |
| | |
| |
Sales | |
$ | 185 | | |
$ | 223 | |
Cost of Revenue | |
| — | | |
| — | |
Gross profit | |
| 185 | | |
| 223 | |
| |
| | | |
| | |
Operating cost and expenses | |
| (1,098,186 | ) | |
| (2,806,680 | ) |
| |
| | | |
| | |
Loss from operations | |
| (1,098,001 | ) | |
| (2,806,457 | ) |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Loss on disposal of tangible assets | |
| (24,577 | ) | |
| — | |
Interest income (expense), net | |
| 76,313 | | |
| (2,627 | ) |
Gain (loss) on foreign currency transactions | |
| 991 | | |
| (150 | ) |
Other expense, net | |
| (1,797 | ) | |
| (14,025 | ) |
Net other income | |
| 50,930 | | |
| (16,802 | ) |
Net Loss from continuing operations before taxes | |
| (1,047,071 | ) | |
| (2,823,259 | ) |
Net loss from continuing operations | |
| (1,047,071 | ) | |
| (2,823,259 | ) |
Discontinued operations: | |
| | | |
| | |
Loss from discontinued operations | |
| — | | |
| (244,072 | ) |
Loss from discontinued operation | |
| — | | |
| (244,072 | ) |
Net Loss | |
| (1,047,071 | ) | |
| (3,067,331 | ) |
Less net loss attributable to non-controlling interest | |
| - | | |
| (5,776 | ) |
Net Loss attributable to equity holders of the Company | |
| (1,047,071 | ) | |
| (3,061,555 | ) |
Net Loss | |
| (1,047,071 | ) | |
| (3,067,331 | ) |
Basic net loss per share: | |
| | | |
| | |
Loss from continuing operations | |
| (0.02 | ) | |
| (0.06 | ) |
Loss from discontinued operations | |
| — | | |
| (0.01 | ) |
Total basic net loss per share | |
| (0.02 | ) | |
| (0.07 | ) |
| |
| | | |
| | |
Diluted net loss per share | |
| | | |
| | |
Loss from continuing operations | |
| (0.02 | ) | |
| (0.06 | ) |
Loss from discontinued operations | |
| — | | |
| (0.01 | ) |
Total diluted net loss per share | |
| (0.02 | ) | |
| (0.07 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | |
Basic and Diluted | |
| 52,808,589 | | |
| 46,375,977 | |
The accompanying footnotes are an integral part
of these unaudited consolidated financial statements
HANRYU HOLDINGS, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| |
Common Stock | | |
Additional Paid-in and Other | | |
Accumulated | | |
Accumulated other Comprehensive | | |
Non-controlling | | |
Total Stockholder’s Equity | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Gain (Loss) | | |
interests | | |
(Deficit) | |
Balance at December 31, 2022 | |
| 45,416,942 | | |
$ | 45,417 | | |
| 27,578,666 | | |
$ | (29,607,852 | ) | |
$ | 879,420 | | |
$ | (236,166 | ) | |
$ | (1,340,515 | ) |
Issuance of common stock at $10.00 per share by private placement, net of issuance costs | |
| 240,000 | | |
| 240 | | |
| 2,399,760 | | |
| — | | |
| — | | |
| — | | |
| 2,400,000 | |
Exercise of warrants at $0.42 per share by cash considerations, net of issuance costs | |
| 20,000 | | |
| 20 | | |
| 8,380 | | |
| — | | |
| — | | |
| — | | |
| 8,400 | |
Exercise of warrants at $1.27 per share by cash considerations, net of issuance costs | |
| 1,118,223 | | |
| 1,118 | | |
| 1,419,025 | | |
| — | | |
| — | | |
| — | | |
| 1,420,143 | |
Exercise of warrants at $1.27 per share by non-cash consideration, net of issuance costs | |
| 309,430 | | |
| 309 | | |
| 392,667 | | |
| — | | |
| — | | |
| — | | |
| 392,976 | |
Currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| (69,107 | ) | |
| 5,042 | | |
| (64,065 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| (3,061,555 | ) | |
| — | | |
| (5,776 | ) | |
| (3,067,331 | ) |
Balance at March 31, 2023 | |
| 47,104,595 | | |
$ | 47,104 | | |
| 31,798,498 | | |
$ | (32,669,407 | ) | |
$ | 810,313 | | |
$ | (236,900 | ) | |
$ | (250,392 | ) |
Balance at December 31, 2023 | |
| 52,808,589 | | |
$ | 52,809 | | |
| 51,415,476 | | |
$ | (38,893,762 | ) | |
$ | 493,942 | | |
$ | — | | |
$ | 13,068,465 | |
Currency translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| (542,705 | ) | |
| — | | |
| (542,705 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| (1,047,071 | ) | |
| | | |
| — | | |
| (1,047,071 | ) |
Balance at March 31, 2024 | |
| 52,808,589 | | |
$ | 52,809 | | |
| 51,415,476 | | |
$ | (39,940,833 | ) | |
$ | (48,763 | ) | |
$ | — | | |
$ | 11,478,689 | |
The accompanying footnotes are an integral part
of these unaudited consolidated financial statements
HANRYU HOLDINGS, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| |
March 31, 2024 | | |
March 31, 2023 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss from continuing operations | |
$ | (1,047,071 | ) | |
$ | (2,823,259 | ) |
| |
| | | |
| | |
Depreciation | |
| 59,620 | | |
| 62,363 | |
Loss on disposal of tangible assets | |
| 24,577 | | |
| — | |
Amortization of right-of-use asset | |
| 62,085 | | |
| 64,659 | |
Accounts receivable | |
| 23 | | |
| (186 | ) |
Non-trade receivable | |
| 131,882 | | |
| (28,258 | ) |
Prepaid expenses and other current assets | |
| (61,531 | ) | |
| (672,576 | ) |
Other assets | |
| — | | |
| (1,686 | ) |
Non-trade payable | |
| 422,089 | | |
| (508,095 | ) |
Accrued expenses and other current liabilities | |
| 6,272 | | |
| (51,831 | ) |
Net cash used in operating activities of continuing operations | |
| (402,054 | ) | |
| (3,958,869 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Receipt from collection of short-term loan receivable | |
| 55,117 | | |
| 784,487 | |
Proceeds from the sale of property, plant, and equipment | |
| 86,000 | | |
| — | |
Sales of investments | |
| — | | |
| 705,561 | |
Payment for short-term loan receivable | |
| (5,430,389 | ) | |
| (352,859 | ) |
Purchase of property plant and equipment | |
| — | | |
| (483,899 | ) |
Net cash (used in) provided by investing activities of continuing operations | |
| (5,289,272 | ) | |
| 653,290 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from short-term loan payable | |
| 447,890 | | |
| 73,632 | |
Proceeds from short-term loan payable from related parties | |
| — | | |
| 616,859 | |
Proceeds from exercising warrants | |
| — | | |
| 1,428,543 | |
Net proceeds from issuance of common stock | |
| — | | |
| 2,400,000 | |
Repayment of short-term loan payable | |
| (15,055 | ) | |
| (200,693 | ) |
Repayment of short-term loan payable from related parties | |
| — | | |
| (688,010 | ) |
Net cash provided by financing activities of continuing operations | |
| 432,835 | | |
| 3,630,331 | |
Net change in cash – continued operations | |
| (5,258,491 | ) | |
| 324,752 | |
| |
| | | |
| | |
Cash from discontinued operations: | |
| | | |
| | |
Net cash used in operating activities of discontinued operations | |
| — | | |
| (257,865 | ) |
Net cash used in investing activities of discontinued operations | |
| — | | |
| (2,265 | ) |
Net cash used in financing activities of discontinued operations | |
| — | | |
| (13,779 | ) |
Net change in cash – discontinued operations | |
| — | | |
| (273,909 | ) |
| |
| | | |
| | |
Cash beginning of the year- continued operations | |
| 5,427,830 | | |
| 118,263 | |
Cash beginning of the year - discontinued operations | |
| — | | |
| 695 | |
Beginning cash | |
| 5,427,830 | | |
| 118,958 | |
| |
| | | |
| | |
Cash end of the year – continued operations | |
| 9,996 | | |
| 66,661 | |
Cash end of the year - discontinued operations | |
| — | | |
| 6,323 | |
Ending cash | |
| 9,996 | | |
| 72,984 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | |
| (5,258,491 | ) | |
| 50,843 | |
| |
| | | |
| | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | |
| (159,343 | ) | |
| (96,817 | ) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD | |
| 5,427,830 | | |
| 118,958 | |
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD | |
$ | 9,996 | | |
$ | 72,984 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash receipt (paid) for interest – all operations | |
| 6,281 | | |
| (2,626 | ) |
Less Cash receipt for interest - discontinued operations | |
| — | | |
| 1 | |
Cash receipt (paid) for interest – continued operations | |
$ | 6,281 | | |
$ | (2,627 | ) |
Cash receipt (paid) during the period for interest | |
$ | 6,281 | | |
$ | (2,626 | ) |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Offsetting short-term loan payables by exercising warrants to purchase 309,430 common stock | |
| — | | |
| (392,976 | ) |
Total | |
$ | — | | |
$ | (392,976 | ) |
The accompanying footnotes are an integral part
of these unaudited consolidated financial statements
HANRYU HOLDINGS,
INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
For the Three Months Ended
March 31, 2024 and 2023
(Unaudited)
| |
March 31, 2024 | | |
March 31, 2023 | |
NET LOSS | |
$ | (1,047,071 | ) | |
$ | (3,067,331 | ) |
Other comprehensive income (loss): | |
| | | |
| | |
Change in foreign currency translation adjustment | |
| (542,705 | ) | |
| (69,107 | ) |
Change in foreign currency translation adjustment to attributable to noncontrolling interest | |
| — | | |
| 5,042 | |
COMPREHENSIVE LOSS | |
$ | (1,589,776 | ) | |
$ | (3,131,396 | ) |
Less : Comprehensive Income/(Loss) attributable to noncontrolling interest | |
| — | | |
| (734 | ) |
Comprehensive Income(Loss) attributable to the Company | |
| (1,589,776 | ) | |
| (3,130,661 | ) |
The accompanying footnotes are an integral part
of these unaudited consolidated financial statements
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”), , and Marine Island Co., Ltd (“Marine Island”), 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 4,150,000 HBC common shares, par value $0.45 per share (“Common Shares”), to the former shareholders of RnDeep. 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 19,200 square-feet of office space within the iconic Seoul Marina, located at 160 Yeouiseo-ro, Yeungdeungpo-gu, Seoul, Korea (the “Seoul Marina”) from Sewang Co., Ltd. (“Sewang”), for the purchase price of 3,500,000,000 Korean Won (“KRW”), along with the assumption of all Marine Island’s liabilities. |
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 100% of the issued and outstanding common shares of Marine Island. |
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October 3, 2021 | | HBC consummates a strategic acquisition of 50.8% of the outstanding common shares of K-Commerce. In consideration for the shares of K-Commerce, HBC forgave a short-term loan of $270,530 (KRW 309,600,000) owed to HBC by K-Commerce. 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 100% owned by Changhyuk Kang, the Company’s Chief Executive Officer and Donghoon Park, the Company’s Chief Marketing Officer. |
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October 20, 2021 | | Hanryu Holdings is incorporated in the State of Delaware. |
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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, 100% of the issued and outstanding Common Shares, representing 100% of the voting securities in HBC, to the Company in exchange for the Company issuing 42,565,786 restricted shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) to the HBC Shareholders (the “Share Exchange”). 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, 100% of the outstanding HBC Warrants to the Company in exchange for the Company issuing to the HBC Warrantholders 10,046,666 warrants to purchase restricted shares of Common Stock (the “Warrant Exchange”). The Warrants and Common Shares of HBC transferred to the Company in the Share Exchange and the Warrant Exchange constituted 100% of the outstanding equity securities of HBC. |
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 16, 2022
June 22, 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.
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
|
|
|
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August 1, 2023 |
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The shares of the Company are listed at NASDAQ exchange market. |
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|
December 28, 2023 |
|
HBC sold owned whole shares of Hanryu Times, Fantoo Entertainment, and K-Commerce, so the business from the three companies became the discontinued operations. |
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 1 — NATURE OF OPERATIONS
AND BASIS OF PRESENTATION (cont.)
Going Concern
The Company has experienced recurring losses from
operations and has a stockholders’ equity and working capital of $11,478,689 and $8,905,047 respectively, as of March 31,
2024 and $13,068,465 and $10,140,579 as of December 31, 2023 and. Also, the Company has operating losses of $1,098,001 and $2,806,457
for the three months ended March 31, 2024 and March 31, 2023, respectively. These uncertainties raise substantial doubt about the Company’s
ability to continue as a going concern for twelve (12) months after the issuance date of these financial statements. The accompanying
financial statements have been prepared under the assumption that we will continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification
of liabilities that may result from the possible inability of us to continue as a going concern.
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 will maintain an ongoing effort
to improve and innovate FANTOO platform business to generate funds for our operations. For instance, we recently launched FANTOO House
which is located in Seoul, and at FANTOO platform, we will launch (i) Epic branded ecommerce platform that we will expect it as a major
source of new income, and (ii) dedicated video production operations that will create short episodic content that focuses on K-POP fandom.
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.
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 three wholly owned subsidiaries, HBC, FNS, and Marine Island
in the 1st quarter of 2024 and in 2023, and its five wholly owned subsidiaries, HBC, FNS, Hanryu Times, Fantoo Entertainment,
and Marine Island and majority-owned subsidiary (50.8%), K-Commerce in the 1st quarter of 2023. All significant intercompany
transactions and balances have been eliminated in consolidation.
Non-controlling interests are measured at their
proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the Condensed 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, out significant Condensed Consolidated subsidiary as of March 31, 2023, was 49.2%. Since HBC sold owned whole shares of Hanryu
Times, Fantoo Entertainment, and K-Commerce, at December 28, 2023, they are not Condensed Consolidated from December 28, 2023, and the
controlling interests of K-Commerce become $0
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 March
31, 2024 and December 31, 2023. During the three months ended March 31, 2024, there was a fluctuation in the exchange rates ranging from
KRW 1,289.40/USD $1 to KRW 1,346.80/USD $1. Also, cash flows are also translated at average translation rates for the periods, therefore,
amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the Condensed
Consolidated balance sheets
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, and the balance of deposit accounts of the Company doesn’t exceed
the federal insurance limit as of March 31, 2024.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING
POLICIES (cont.)
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 $0
on the accompanying Condensed Consolidated balance sheets as of March 31, 2024 and December 31, 2023. The Company does not have any off-balance-sheet
credit exposure related to its customers.
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 $0
and $0 on the accompanying Condensed Consolidated balance sheets as of March 31, 2024 and December 31, 2023 respectively. The Company
does not have any off-balance-sheet credit exposure related to its customers.
Credit Losses
The Company maintains current receivable amounts
with most of its customers and vendors. The Company regularly monitors and assesses its risk of not collecting amounts owed by them. This
evaluation is based upon an analysis of current and past due amounts, along with relevant history and facts particular to the customer.
The Company records its allowance for credit losses based on the results of this analysis. The analysis requires the Company to make significant
estimates and as such, changes in facts and circumstances could result in material changes in the allowance for credit losses. The Company
considers as past due any receivable balance not collected within its contractual terms.
The Company wrote off $193,289 of short term receivables
and $995,622 of prepaid expenses and other receivables as of December 31, 2023.
Revenue Recognition
The Company anticipates generating revenues from
(i) FANTOO platform through advertising, 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.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING
POLICIES (cont.)
For the three months ended March 31, 2024 and
March 31, 2023, the Company recognized product sales revenue amounting to $0 and $0. Revenue is derived at the point in time when merchandise
is sold and shipped or delivered to customers. Merchandise sales are fulfilled with inventory sourced from our owned inventory. Although
the Company does not currently have any inventory as of the balance sheet date, the Company, from time to time, may hold products in inventory
for an abbreviated amount of time before shipping such inventory and recognizing the corresponding revenue.
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 cards 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 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. The Company
records an allowance for returns based on current period revenues and historical returns experience. The Company analyzes actual historical
returns, current economic trends and changes in order volume, and acceptance of our products when evaluating the adequacy of the sales
returns allowance in any accounting period.
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. Currently,
the Company records all advertising revenue as a net basis, and other revenues are recorded as a gross basis, and the revenues as a gross
basis for the three months ended March 31, 2024 and March 31, 2023 are $185 and $223. 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.
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
Property plant and equipment are carried at cost
(see Note 5). Depreciation expense is provided over the estimated useful lives of the assets using the straight line method for vehicles
and the declining balance method for fixtures and equipment. A summary of the estimated useful lives is as follows:
Classification | | Estimated Useful Life in Years |
Vehicles | | 5 |
Fixtures | | 5 |
Equipment | | 5 |
Maintenance and repairs are charged to expense
as incurred, while any additions or improvements are capitalized.
The Company evaluates property 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 and equipment asset impairment
charges recorded during the three months ended March 31, 2024, and the year ended March 31, 2023.
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. There were no significant long-lived
assets impairment charges recorded during the three months ended March 31, 2024 and March 31, 2023.
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. Since the Company
is directly affected by the financial condition of its customers and loan holders, management carefully watch if any significant credit
risks exist, and they will make actions to remove or mitigate such risks if there are any. For the three months ended March 31, 2024 and
March 31, 2023, over 10% of the revenues are from two customers and one customer, but there are no receivable balances from them. Also,
over 10% of the account receivable for the year ended December 31, 2023 is from Hanryu Times, which was the affiliated company by December
28, 2023, and Hanryu Times and the company already agreed to the payment plan that Hanryu Times would pay back all by the end of December
31, 2024. Therefore, as of March 31, 2024 and December 31, 2023, the Company believes that the credit risk for the account receivables
is manageable and controllable. 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
The Company’s investments are carried at
historical cost. As of March 31, 2024 and December 31, 2023, there is no balance of investments.
Earning (Loss) Per Share
Basic earning (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 earning
(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 financings. For purposes of computing both basic and diluted earning (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
three months ended March 31, 2024 and 2023, 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.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING
POLICIES (cont.)
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 March 31,
2024 and December 31, 2023.
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 and equipment, other current liabilities, and other long-term liabilities in our balance sheets.
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.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 2 — SIGNIFICANT ACCOUNTING
POLICIES (cont.)
The Company has lease agreements with lease and
non-lease components, which are generally accounted for separately with amounts allocated to the lease and non-lease components based
on stand-alone prices or for which it has made an accounting policy election to account for these as a single lease component. For certain
equipment leases, like vehicles, the Company accounts for the lease and non-lease components as a single lease. Refer to Note 7 for
additional disclosures required as a result of the adoption of this new standard.
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) Improvements
to Income Tax Disclosures. ASU 2023-09 will improve the transparency and decision usefulness of income tax disclosures
to better assess how operations and related tax risks affect tax rates and future cash flows on an interim and annual basis. It will be
effective for us on May 1, 2025, with the option to early adopt at any time prior to the effective date and will require adoption on a
retrospective basis. We are currently evaluating the impacts of the standard on our financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment
Reporting (Topic 280) Improvements to Reportable Segment Disclosures. ASU 2023-07 will improve reportable segment disclosure
requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. It will be effective
for our annual period beginning May 1, 2024, and interim periods beginning May 1, 2025, with the option to early adopt at any time prior
to the effective date and will require adoption on a retrospective basis. We are currently evaluating the impacts of the standard on our
financial statements and disclosures.
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.
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.
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.
NOTE 3 — SHORT-TERM
LOAN RECEIVABLES
The following table summarizes information with
regard to short-term loan receivables outstanding as of March 31, 2024 and December 31, 2023. The interest income from short-term
loan receivables is $87,449 and $0 for the three months ended March 31, 2024 and March 31, 2023, and the Company received $6,281 and $0 for interest income for the
three months ended March 31, 2024 and March 31, 2023.
| |
Interest Rate | | |
March 31, 2024 | | |
December 31, 2023 | |
Hanryu Times | |
| 0 | % | |
$ | 989,605 | | |
$ | 1,033,659 | |
K-Commerce | |
| 0 | % | |
| 75,549 | | |
| 76,586 | |
FANTOO Entertainment | |
| 0 | % | |
| 365,764 | | |
| 381,270 | |
LA PRIMERA CAPITAL INVESTMENTS | |
| 0 | % | |
| 29,365 | | |
| 30,672 | |
Jacob Asset | |
| 4.6 | % | |
| 7,089,770 | | |
| 2,087,578 | |
Ticket Land | |
| 4.6 | % | |
| 76,329 | | |
| 79,727 | |
AMERIDGE CORPORATION | |
| 0.1 | % | |
| 96,129 | | |
| 100,408 | |
KD Korea Corporation | |
| 5.0 | % | |
| 222,750 | | |
| — | |
Total short-term loans | |
| | | |
$ | 8,945,261 | | |
$ | 3,789,900 | |
For the year ended December 31, 2023, the company
wrote off $193,889 of short-term loan receivables from PRT Korea since PRT Korea has not paid back it by the maturity, June 13, 2024,
and they have not provided any plan for the payment.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 4 — PREPAID EXPENSES AND
OTHER RECEIVABLES
The following table summarizes information with
regard to prepaid expenses and other receivables as of March 31, 2024 and December 31, 2023.
| |
March 31, 2024 | | |
December 31, 2023 | |
Jacob Asset, Co.Ltd | |
| 7,536,125 | | |
| 7,755,545 | |
Orumplus Design, Co., Ltd | |
| — | | |
| 25,593 | |
Asia Model Festival Organization Foundation | |
| 74,250 | | |
| 77,556 | |
Others | |
| 16,528 | | |
| 44,341 | |
Total prepaid expenses and other receivables | |
$ | 7,626,903 | | |
$ | 7,903,035 | |
For the year ended December 31, 2023, the company
wrote off $995,622 of prepaid expenses and other receivables from Top Eng Co., Ltd since they don’t make contracted business obligation
to the Company more than 1 year and they have not provided the confirmed plan to the Company.
NOTE 5 — PROPERTY PLANT AND
EQUIPMENT
Property plant and equipment consist of the following:
| |
March 31, 2024 | | |
December 31, 2023 | |
Vehicles | |
$ | 91,671 | | |
$ | 222,733 | |
Fixtures | |
| 337,339 | | |
| 352,356 | |
Equipment | |
| 677,286 | | |
| 707,437 | |
| |
| 1,106,296 | | |
| 1,282,526 | |
Less accumulated depreciation | |
| (672,146 | ) | |
| (653,341 | ) |
Property plant and equipment, net | |
$ | 434,150 | | |
$ | 629,185 | |
Total depreciation expense for the three months
ended March 31, 2024 and December 31, 2023 are $59,620 and $381,917. Depreciation expense is reflected in operating cost and expenses
in the Condensed Consolidated statements of operations.
The Company disposed one of Vehicles with $86,000
on February 28, 2024, and $24,577 was recorded as loss on disposal for the three months ended March 31, 2024.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 6 — LEASE
The Company uses approximately 19,200 square feet
of office space at the Seoul Marina at no cost. Although no formal lease exists, the Company believes that ASC 842 accounting guidelines
apply to determine the fair market value of ten years of free rent as well as recording rent expense on its Statement of Operations.
Using the following variables:
Annual lease cost — 300,000,000
Korean Won
10-year present value calculation
Assumed annual rent increase -4.96%
Interest cost -3%
10-year bond rate on Korean Bonds 2.11%
Exchange rate: 1188.5 Korean Won to the US dollar
The Company determined that the present value
of ten years of free rent amount to $2,775,512 which was recorded as a long-term ROU asset as of June 30, 2021. Since there
were no liabilities associated with this asset since the Company is receiving free rent, the ROU assets is being amortized at a rate of
approximately $23,000 per month over a ten year term. Since the Company had initially allocated a value of $2,935,658 to SMC Receivable
and the Lien, the Company recorded an impairment of $158,278 on its Right-of-Use Asset for the year ended December 31, 2021.
As of March 31, 2024 and December 31, 2023, the
balances of the Right-of-Use-Asset was $1,775,941 and $1,918,966, respectively.
Lease cost consists of approximately $62,085 and
$64,659, for the three months ended March 31, 2024 and March 31, 2023, respectively. The weighted average remaining lease term in years
for operating leases is 7.75 years and the weighted average discount rate for operating leases is 3%.
NOTE 7 — SHORT-TERM LOAN PAYABLES
The following table summarizes information with
regard to short-term loan payables outstanding as of March 31, 2024 and December 31, 2023.
| |
Interest Rate | | |
March 31, 2024 | | |
December 31, 2023 | |
Short-term loan payables from Hyun Joo Kim and others maturing in January 2025 | |
| 0 | % | |
| 441,789 | | |
| — | |
Short-term loan payables from Junwoo Choi maturing in August 2024 | |
| 0 | % | |
| 185,625 | | |
| 193,889 | |
Short-term loan payables from Kye Sook Kim and others maturing in June 2024 | |
| 4.6 | % | |
| 594,000 | | |
| 620,443 | |
Short-term loan payables from Byoung Ik Choi maturing in September 2024 | |
| 0 | % | |
| 148,500 | | |
| 155,111 | |
Short-term loan payables from Bong Sang Kim and others maturing in September 2024 | |
| 0 | % | |
| 222,750 | | |
| 232,666 | |
Short-term loan payables from Se Kyoung Kim and others maturing in November 2024 | |
| 4.6 | % | |
| 371,250 | | |
| 387,778 | |
Total short-term loan payables | |
| | | |
$ | 1,963,914 | | |
$ | 1,589,887 | |
The Company recorded interest expense of $11,223
and $2,655 for the three months ended March 31, 2024 and March 31, 2023, and the Company paid $0 and $2,626 for interest expense for the
three months ended March 31, 2024 and March 31, 2023.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 8 — SHORT-TERM LOAN PAYABLES
FROM RELATED PARTIES
As of March 31, 2024, and December 31, 2023, there
were no outstanding short-term loan payables from related parties.
NOTE 9 — BONDS WITH WARRANTS
Bonds with warrants were issued by HBC from December 17,
2018 through July 2, 2021, and the terms and conditions of the remaining outstanding bonds with warrants as of March 31, 2024 and
December 31, 2023 at the time of acquiring bonds and issuance of such bonds are set forth below.
On July 2, 2021, HBC issued bonds with warrants
for an aggregate purchase price of $3,795,867. The bond accrues no annual interest and mature on July 2, 2024. The warrants have
an exercise price of $1.27 and can be exercised at any time after the issuance date, and expire the month preceding the maturity date
of the bonds.
The following two tables summarizes information
with regard to bonds with warrant outstanding as of March 31, 2024 and December 31, 2023.
Amount as of December 31, 2023 | |
$ | 3,489,995 | |
Translation adjustment | |
| (148,742 | ) |
Amount as of March 31, 2024 | |
$ | 3,341,253 | |
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 9 — BONDS WITH WARRANTS (cont.)
Terms and conditions of bonds with warrants at
the inception are as follows:
No. | | Issue Date | | Maturity | | | Amount | | | Nominal Interest Rate | | | Interest Rate of Return | |
11 | | 7/2/2021 | | | 7/2/2024 | | | $ | 3,341,253 | | | | 0 | % | | | 3 | % |
Total | | | | | | | | $ | 3,341,253 | | | | | | | | | |
* | Nominal
interest rate and interest rate of return are waived by the separate agreements between the Company and the bondholders. |
Warrants
There are no remaining outstanding warrants as
of March 31, 2024 and December 31, 2023.
NOTE 10 — 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 March 31, 2024 and December 31, 2023 are summarized in the table below.
| |
March 31, 2024 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets | |
| | |
| | |
| | |
| |
Investments | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Bonds with warrants | |
$ | — | | |
$ | — | | |
$ | 3,341,253 | | |
$ | 3,341,253 | |
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 10 — FAIR VALUE MEASUREMENTS
(cont.)
| |
December 31, 2023 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Assets | |
| | |
| | |
| | |
| |
Investments | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Bonds with warrants | |
$ | — | | |
$ | — | | |
$ | 3,489,995 | | |
$ | 3,489,995 | |
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 March 31, 2024 and December 31, 2023.
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 March 31, 2024 and December 31, 2023.
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 March 31, 2024 and December 31, 2023.
NOTE 11 — SIGNIFICANT NON-CASH TRANSACTION
The company engaged in the following significant
non-cash investing and financing activities for the three months ended March 31, 2024 and March 31, 2023.
| |
March 31, 2024 | | |
March 31, 2023 | |
Offsetting short-term loan payables by exercising warrants to purchase 309,430 common stock | |
| — | | |
| (392,976 | ) |
Total | |
$ | — | | |
$ | (392,976 | ) |
For the three months ended March 31, 2023,
conversion to equity by offsetting short-term loan payables was $392,976, which reflected 309,430 shares of common stock issued and a
decrease of $392,976 in short-term loan payables.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 12 — SHARE CAPITAL
As of March 31, 2024 and December 31, 2023, Hanryu
Holdings’ total authorized capital stock is 110,000,000 shares, consisting of 100,000,000 shares of Common Stock, par value $0.001
per share, and 10,000,000 shares of undesignated preferred stock, par value $0.001 per share.
On January 4, 2023, through March 8,
2023, warrants of $1,813,120 were exercised with an exercise price of $1.27 to purchase 1,427,653 shares of Common Stock by cash of $1,420,144
and debt conversion of $392,776.
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 by cash.
On April 13, 2023, warrants of $420,000 were
exercised with an exercise price of $0.42 to purchase 1,000,000 shares of Common stock by cash.
On May 4, 2023, thorough May 8, 2023, warrants
of $3,894,666 were exercised with an exercise price of $1.27 to purchase 3,066,666shares of Common stock by cash.
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.
On July 31 2023, the Company consummated its initial
public offering (the “IPO”) of 877,328 shares of Comon stock at a public offering price of $10.00 per share, generating gross
proceeds of $8,773,280. Net proceeds from the IPO was approximately $7.7 million after deducting underwriting discounts and commissions
and other offering expenses of approximately $1.1 million.
The Company also granted the underwriters a 45-day
option to purchase up to 131,599 additional shares (equal to 15% of the shares of Common stock sold in the IPO) to cover over-allotments,
if any, which the underwriters did not exercise. In addition, the Company issued to the representative of the underwriters warrants to
purchase a number of shares of Common stock equal to 5.0% of the aggregate number of Common stocks sold in the IPO (including shares of
Common stock sold upon exercise of the over-allotment option). The representative’s warrants will be exercisable at any time and
from time to time, in whole or in part, during the four-and-½-year period commencing six months from the date of commencement of
the sales of the shares of Common stock in connection with the IPO, at an initial exercise price per share of $10.00 (equal to 125% of
the initial public offering price per share of class A common stock). No representative’s warrants have been exercised.
As a result, the total number of issued and outstanding
shares of Common Stock issued increased from 45,416,942 to 52,808,589. Each holder of Common Stock is entitled to one vote for each share
of Common Stock held at all meetings of stockholders.
HANRYU HOLDINGS, INC. AND
SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 13 — COMMITMENTS AND CONTINGENCIES
Other Leases
On September 14, 2022, the Company entered
into a one-year lease agreement which expired on September 14, 2023. And the Company expand its lease term to September 14, 2024.
Upon entering into the lease, the Company paid a deposit, which is recorded as Other Assets in the Condensed Consolidated balance sheet
in the amount of $111,375 as of March 31, 2024 and $116,333 as of December 31, 2023.
The Company has a 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 Condensed Consolidated balance sheet in the amount of $116,279 as of December 31,
2022. On December 28, 2023, the Company terminated the lease agreement earlier than the original contract, and the deposit amount of $64,725
was returned to the Company and the remaining of $51,554 was paid as the penalties.
Expenses related to these leases totaled approximately
$24,088 and $24,695 for the three months ended March 31, 2024 and March 31, 2023.
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. For the three months ended March
31, 2024, the Company two suspended legal cases as follows, and as of September 30, 2024, the result of the two cases are not certain.
Case Number | | Opponent | | Case Summary | | Litigation Value | |
Seoul South Federal Court ; 2023GADAN218067 | | Seoul Yacht Marina, Co.Ltd, and another | | Building Delivery | | $ | 85,686 | |
Seoul South Federal Court ; 2024GASO214189 | | Seoul Yacht Marina, Co.Ltd | | Compensation for damages | | $ | 10,644 | |
NOTE 14 — RELATED PARTY TRANSACTIONS
The Company is affiliated with several individuals
that have common ownership, and transacts a portion of its business with related parties. There are no remaining outstanding related party
transactions as of March 31, 2024 and December 31, 2023.
HANRYU HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE 15 — DISPOSAL OF SUBSIDIARIES
AND DISCONTINUED OPERATIONS
HBC sold owned whole shares of Hanryu Times with
$153,265, Fantoo Entertainment with $76,604, and K-Commerce with $229,813 on December 28, 2023. The company would not consolidate the
three companies’ financials from that time, and the business from the three companies by that time became the discontinued operations
of the Company. By selling shares, the Company didn’t recognize any loss on sale of investments, but the Company recorded $3,390,323
as Gain on disposal of subsidiary. On December 28, 2023, the Company calculated a gain regarding the divestiture of subsidiaries as follows:
| |
As of December 28, 2023 | |
Considerations | |
$ | 459,682 | |
| |
| | |
The carrying amount of any noncontrolling interest | |
| 236,166 | |
Net liabilities | |
| (2,694,475 | ) |
Gain on disposal of subsidiaries | |
$ | 3,390,323 | |
The financials of the three companies for the
years ended December 31, 2023 are as follows.
| |
December 31, 2023 | |
CURRENT ASSETS: | |
$ | 62,216 | |
Cash and Cash Equivalents | |
| 1,996 | |
Short-term loans | |
| 7,756 | |
Accounts receivable, net of allowance | |
| 2,863 | |
Non-trade receivables | |
| 33,850 | |
Prepaid expenses and other receivables | |
| 15,751 | |
PROPERTY PLANTAND EQUIPMENT, NET | |
| 98,682 | |
Total Assets | |
$ | 160,898 | |
| |
| | |
CURRENT LIABILITIES: | |
$ | 2,855,373 | |
Short-term borrowings | |
| 1,527,104 | |
Account Payable | |
| 369,266 | |
Non-trade accounts payable | |
| 941,968 | |
Accrued expenses and other current liabilities | |
| 17,035 | |
Total Liabilities | |
$ | 2,855,373 | |
| |
| | |
Total Stockholder's Equity (Deficiency) | |
$ | (2,694,475 | ) |
| |
December 31, 2023 | |
Sales | |
| 33,323 | |
Cost of Revenue | |
| 10,506 | |
Gross profit (Loss) | |
$ | 22,817 | |
OPERATING EXPENSES: | |
| 1,235,907 | |
OPERATING LOSS | |
| (1,213,090 | ) |
OTHER INCOME(EXPENSE): | |
| (2,562 | ) |
| |
| | |
Net loss before taxes | |
| (1,215,652 | ) |
Income tax expense | |
| — | |
NET INCOME(LOSS) | |
$ | (1,215,652 | ) |
NOTE 16 — SUBSEQUENT EVENTS
The Company has evaluated subsequent events that
occurred subsequent to December 31, 2023 through September 30, 2024 at which the Condensed Consolidated financial statements were prepared.
Among the short-term loan payables from Kye Sook
Kim and others of ($577,865) originally maturing in June 2024, the Company made the repayment of $16,135 on April 1, 2024, and the maturity
of the remaining amount ($577,865) is extended to June 2025,
The Company is in discussion to convert Bond with
warrants ($3,341,253) maturing on July 2, 2024 into equity by the agreement with warrants holder.
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 condensed 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 on
Form 10-K for the year ending December 31, 2023. 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” on Form 10-K/A for the year ending December 31, 2023.
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”), and Marine Island Co., Ltd. (“Marine Island”)a, 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.
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.
Components of Results of Operations
Revenue
We anticipate that our primary source of revenue will be generated
from FANTOO platform operations. Additionally, we have generated limited revenue from the Company’s other subsidiaries’ operations,
such as revenue from marketing services, retail sales, and content sales. We started generating revenue from FANTOO business, and we anticipate
earning more steady revenue from the Company’s other businesses by 2024.
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.
Revenue from FANTOO business 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. We started generating
revenue from FANTOO platform.
(i) Direct Sales We started 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 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.
(ii) 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.
Revenue from Retail Sales Revenue from retail sales which offers
a wide variety of products for purchase. Although we have generated limited revenue from such services in the past, we anticipate earning
more steady revenue from this business model by 2024.
Revenue from Marketing Services Revenue from marketing services
provided by the Company’s other subsidiaries such as Hanryu Bank, which will include activities such as creating and distributing
flyers, hosting events and giveaways, producing advertisement videos, and more. Although we have generated limited revenue from such services
in the past, we anticipate earning more steady revenue from this business model by 2024.
Revenue from News Agency Revenue from news agency content sales,
which provides news articles and original content to other third-party media outlets. Although we have generated a de minimis amount
of revenue from such services in the past, we anticipate earning more steady revenue from this business model by 2024.
As we continue to diversify our product and service offerings, we anticipate
additional revenue streams, including
Revenue from Entertainment Agency Our entertainment agency business
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 our entertainment agency business by the end of the year ended December 31, 2024, 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.
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 months Ended March 31, 2024 Compared
to three months ended March 31, 2023
The following table sets forth a summary of our
statements of operations for the three months ended March 31,2024 and 2023:
| |
Three months ended | | |
| |
| |
March 31, | | |
Increase / (Decrease) | |
| |
2024 | | |
2023 | | |
$ | | |
% | |
Revenue | |
$ | 185 | | |
$ | 223 | | |
$ | (38 | ) | |
| (17 | )% |
Cost of Revenue | |
| - | | |
| - | | |
| - | | |
| | |
Gross Profit | |
| 185 | | |
| 223 | | |
| (38 | ) | |
| (17 | )% |
| |
| | | |
| | | |
| | | |
| | |
Operating Expense | |
| | | |
| | | |
| | | |
| | |
Marketing and advertising expense | |
| 3,500 | | |
| 289,473 | | |
$ | (285,973 | ) | |
| (99 | )% |
Research and Development | |
| - | | |
| 71,732 | | |
$ | (71,732 | ) | |
| (100 | )% |
General and administrative expense | |
| 1,094,686 | | |
| 2,445,475 | | |
$ | (1,350,789 | ) | |
| (55 | )% |
Total operating expense | |
| 1,098,186 | | |
| 2,806,680 | | |
$ | (1,708,494 | ) | |
| (61 | )% |
| |
| | | |
| | | |
| | | |
| | |
Total Other Income (Expense) | |
| 50,930 | | |
| (16,802 | ) | |
$ | 67,732 | | |
| 403 | % |
| |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (1,047,071 | ) | |
$ | (3,067,331 | ) | |
$ | 2,020,260 | | |
| (66 | )% |
| |
Three months ended | |
| |
March 31, | |
| |
(as a percentage of revenues) | |
| |
2024 | | |
2023 | |
Revenue | |
| 100 | % | |
| 100 | % |
Cost of Revenue | |
| 0 | % | |
| 0 | % |
Gross Profit | |
| 100 | % | |
| 100 | % |
| |
| | | |
| | |
Operating Expense | |
| | | |
| | |
Marketing and advertising expense | |
| 1,892 | % | |
| 129,809 | % |
Research and Development | |
| 0 | % | |
| 32,167 | % |
General and administrative expense | |
| 591,722 | % | |
| 1,096,626 | % |
Total operating expense | |
| 593,614 | % | |
| 1,258,601 | % |
| |
| | | |
| | |
Total Other Income (Expense) | |
| 27,530 | % | |
| (7,535 | )% |
| |
| | | |
| | |
Net Loss | |
| (565,984 | )% | |
| (1,375,485 | )% |
We have generated revenue from the FANTOO platform,
and we have started to generate contents sales through FNS and 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 three months ended March 31, 2024 was $185, as compared to revenue of $223 for
the three months ended March 31, 2023. This decrease of $38 was due to $38 in advertising and content sales through FANTOO platform and
FNS.
Cost of Revenues
Cost of revenue for three months ended March 31,
2024 and 2023 was $0, respectively since there are no direct cost of revenues related the revenues.
Operating Expense
Marketing and Advertising
Marketing and advertising expense for the three
months ended March 31, 2024 was $3,500, as compared to $289,973 for the three months ended March 31, 2023. The decrease is due to the
restructuring of the FANTOO platform and the strategic decision of the management to improve FANTOO platform to efficiently reach the
targeted users.
Research and Development
Research and development expense for the three
months ended March 31, 2024 was $0, as compared to $71,732 for the three months ended March 31, 2023. The decrease in research and development
expense is primarily due to the restructuring of the FANTOO platform and the strategic decision of the management.
General and Administrative
General and administrative expense for the three
months ended March 31, 2024 decreased $1,350,789 or 55%, as compared to the three months ended March 31, 2023. The decrease was primarily
due to a decrease in commissions and consulting costs of $591,944, a decrease in labor related costs of $495,424, and a decrease in travel
expense of $372,287. The substantial decrease in general and administrative expense is principally attributable to the decrease in consulting
costs, labor related costs and Travel expense by the restructuring of the FANTOO platform and the strategic decision of the management.
Other income (expense)
Other income (expense) for the three months ended
March 31, 2024 was $50,930 an increase of $67,732, or 403%, as compared to the three months ended March 31, 2023, which was primarily
driven by $76,313 of the interest income.
Liquidity and Going Concern
We have a history of operating losses and negative cash flow in operating
activities. We have incurred recurring net losses, including net losses from operations before income taxes of $1,047,071 and $2,823,259
for the three months ended March 31, 2024 and 2023, respectively. We used $402,054 and $3,958,869of cash for operating activities for
the three months ended March 31, 2024 and 2023, respectively.
Our cash needs will depend on numerous factors, including our revenues,
completion of our product development activities, customer and market acceptance of our product, and our ability to reduce and control
costs. We expect to devote substantial capital resources to, among other things, fund operations and continue development plans.
In July 2023, we consummated our IPO of 877,328 shares of its common
stock at a public offering price of $10.00 per share, generating gross proceeds of $8,773,280. Net proceeds from the IPO were approximately
$7.7 million after deducting underwriting discounts and commissions and other offering expenses of approximately $1.1 million.
To support our existing and planned business model, we need to raise
additional capital to fund our future operations. We have not experienced any difficulty in raising funds through loans and have not experienced
any liquidity problems in settling payables in the normal course of business and repaying loans when they fall due. Successful renewal
of our loans, however, is subject to numerous risks and uncertainties. In addition, the increasingly competitive industry conditions under
which we operate may negatively impact our results of operations and cash flows. Additional debt financing is anticipated to fund our
operations in the near future. However, there are no current agreements or understandings with regard to the form, time or amount of such
financing and there is no assurance that any of this financing can be obtained or that we can continue as a going concern.
Summary of Cash Flows
The following table summarizes changes in cash
for the three months ended March 31, 2024 and 2023:
| |
2024 | | |
2023 | |
Statement of Cash Flow Data: | |
| | |
| |
Net cash used in operating activities | |
$ | (402,054 | ) | |
$ | (3,958,869 | ) |
Net cash (used in) provided by investing activities | |
| (5,289,272 | ) | |
| 653,290 | |
Net cash provided by financing activities | |
| 432,835 | | |
| 3,630,331 | |
Cash Flows from Operating Activities.
Net cash used in operating activities for the
three months ended March 31, 2024 was $402,054, which primarily reflected our net loss of $1,047,071, net of adjustments to reconcile
net loss to net cash provided by operating activities of $646,017 which included a depreciation charge of $59,620. 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 three months ended March 31, 2023 was $3,958,869 which primarily reflected our net loss of $2,823,259, net of adjustments
to reconcile net loss to net cash provided by operating activities of $1,135,619, which included a depreciation charge of $62,363. 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 $5,288,926 for the three months ended March 31, 2024, representing a decrease of $5,942,216, or 909.58%, as compared to $653,290 of
cash used in investing activities for the three months ended March 31, 2023. This decrease was driven by a $5,430,389 decrease in payment
for the short term loan receivables.
Cash Flows from Financing Activities.
Our net cash provided by financing activities
was $432,835 for the three months ended March 31, 2024, consisting of a $432,835 net increase of proceeds from short-term loan payables.
Our net cash provided by financing activities was $3,630,331 for the three months ended March 31, 2023, consisting of a $71,151 net decrease
in cash payment of short-term loan receivables from related parties, a $1,428,543 increase in cash proceeds from exercising warrants,
a $2,400,000 increase in cash proceeds from issuance of common stock.
Convertible Debt.
As of March 31, 2024, the remaining outstanding
principal amount of bonds with warrants was approximately $3,341,253. There was no issuance of bonds with warrants for the three months
ended March 31, 2024. A $148,742 decrease in bonds with warrants compared to the balance of $3,489,995 as of December 31,2023 was due
to currency translation adjustment.
Contractual Obligations
We have no contractual obligations as of March 31, 2024.
On September 14, 2022, the Company entered into a one-year lease
agreement which expired on September 14, 2023. And the Company expand its lease term to 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 $111,375 as of
March 31, 2024, and $116,333 as of December 31, 2023.
The Company has a 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 $116,279 as of December 31, 2022. On December 28, 2023,
the Company terminated the lease agreement earlier than the original contract, and the deposit amount of $64,725 was returned to the Company
and the remaining of $51,554 was paid as the penalties.
Expenses related to these leases totaled approximately $24,088 and
$24,695 for the three month ended March 31, 2024 and March 31, 2023.
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.
Translational
Our functional currency and reporting currency
is the USD. The local and functional currency for our Korean subsidiaries, Hanryu Bank, FSN, and Marine Island, 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 $72,197
and a change in net loss of $744,726 for the year ended December 31, 2023. 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 $21 and a change in net loss
of $256,660 for the three months ended March 31, 2024.
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 December 2023, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) Improvements
to Income Tax Disclosures. ASU 2023-09 will improve the transparency and decision usefulness of income tax disclosures
to better assess how operations and related tax risks affect tax rates and future cash flows on an interim and annual basis. It will be
effective for us on May 1, 2025, with the option to early adopt at any time prior to the effective date and will require adoption on a
retrospective basis. We are currently evaluating the impacts of the standard on our financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment
Reporting (Topic 280) Improvements to Reportable Segment Disclosures. ASU 2023-07 will improve reportable segment disclosure
requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. It will be effective
for our annual period beginning May 1, 2024, and interim periods beginning May 1, 2025, with the option to early adopt at any time prior
to the effective date and will require adoption on a retrospective basis. We are currently evaluating the impacts of the standard on our
financial statements and disclosures.
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.
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.
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.
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.
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 March 31, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that as of March 31, 2024, 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.
Our management believes that these material weaknesses are due to the small size of our accounting staff. The small size of our 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 March 31, 2024, 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 March 31, 2024, are fairly stated, in all material respects, in accordance with GAAP.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting
during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
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. For the three months ended March
31, 2024, the Company two suspended legal cases as follows, and as of September 30, 2024, the result of the two cases are not certain.
Case Number | |
Opponent | |
Case Summary | |
Litigation Value | |
Seoul South Federal Court ; 2023GADAN218067 | |
Seoul Yacht Marina, Co.Ltd, and another | |
Building Delivery | |
$ | 85,686 | |
Seoul South Federal Court ; 2024GASO214189 | |
Seoul Yacht Marina, Co.Ltd | |
Compensation for damages | |
$ | 10,644 | |
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10
of Regulation S-K, we are not required to provide information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended March 31, 2024, none of our directors
or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading
arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.
Item 6. Exhibits.
The following exhibits are included herein or incorporated herein by
reference:
* |
Filed herewith. |
** |
Furnished herewith. |
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.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Taehoon Kim |
|
Interim Chief Executive Officer |
|
September 30, 2024 |
Taehoon Kim |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Juhyon Shin |
|
Chief Financial Officer |
|
September 30, 2024 |
Juhyon Shin |
|
(Principal Financial and Accounting Officer) |
|
|
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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.
(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).
IN WITNESS WHEREOF,
Hanryu Holdings, Inc. has caused this certificate to be signed by ________________________, its _________, on this ______ day of December, 2022.
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.
(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.
(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.
(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.
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.
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.
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.
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.
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.
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.
(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.
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.
(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.
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.
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.
(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.
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.
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.
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.
Bylaws
OF
HANRYU HOLDINGS, INC.,
a
Delaware corporation
Exhibit 4.1
CERTIFICATE NUMBER |
SHARES |
HANRYU
HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF DELAWARE
COMMON STOCK
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that |
CUSIP 411292 105 |
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON
STOCK OF THE PAR
VALUE OF $0.001 EACH OF
HANRYU
HOLDINGS, INC.
transferable on the books of the Company in
person or by duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers.
Dated:
The following abbreviations, when used in the
inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or
regulations:
TEN COM – |
as tenants in common |
UNIF GIFT MIN ACT - _____ Custodian ______ |
TEN ENT – |
as tenants by the entireties |
(Cust) (Minor) |
JT TEN – |
as joint tenants with right of survivorship |
under Uniform Gifts to Minors |
|
and not as tenants in common |
Act ______________ |
|
|
(State) |
Additional abbreviations may also be used though
not in the above list.
Hanryu Holdings, Inc.
For value received, ___________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER |
IDENTIFYING NUMBER OF ASSIGNEE |
|
|
|
|
|
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) |
|
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
to transfer the said stock on the books of
the within named Company with full power of substitution in the premises.
Dated _________________
|
|
Notice: |
The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. |
Signature(s) Guaranteed:
|
|
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15). |
|
Exhibit 4.3
DESCRIPTION OF SECURITIES
Under “Description of Securities,”
“we,” “us,” “our,” the “Company” and “our Company” refer to Hanryu Holdings,
Inc. and not to any of its subsidiaries.
General
The following description of our capital stock
and certain provisions of our certificate of incorporation and bylaws are summaries and are qualified by reference to the certificate
of incorporation and the bylaws.
Authorized Capitalization
The total amount of our authorized share capital
consists of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001
per share.
Common Stock
Holders of shares of our common stock are entitled
to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including the election
or removal of directors. The holders of our common stock do not have cumulative voting rights in the election of directors.
Holders of shares of our common stock are entitled
to receive dividends at the same rate when, as and if declared by our board of directors out of funds legally available therefor, subject
to any statutory or contractual restrictions on the payment of dividends and to the rights of the holders of one or more outstanding series
of our preferred stock.
Upon our liquidation, dissolution or winding up,
and after payment in full of all amounts required to be paid to creditors, the holders of shares of our common will be entitled to receive
pro rata our remaining assets available for distribution.
All shares of our common stock that are outstanding
are fully paid and non-assessable. The common stock is to be subject to further calls or assessments by us. Holders of shares of our common
stock do not have preemptive, subscription, redemption or conversion rights. There will be no redemption or sinking fund provisions applicable
to the common stock. The rights, powers, preferences and privileges of holders of our common stock will be subject to those of the holders
of any shares of our preferred stock or any other series or class of stock we may authorize and issue in the future.
No shares of common stock are subject to redemption
or have preemptive rights to purchase additional shares of common stock. Holders of shares of our common stock do not have subscription,
redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock.
Anti-Takeover Provisions
Because our stockholders do not have cumulative
voting rights, stockholders holding a majority of the voting power of our shares of common stock will be able to elect all our directors.
A special meeting of stockholders may be called by a majority of our board of directors, the chair of our board of directors, or our chief
executive officer. Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of
our stockholders, including proposed nominations of persons for election to our board of directors.
This will make it more difficult for another party
to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers,
these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. This intended
to preserve our existing control structure following this offering, facilitate our continued product innovation and the risk-taking that
it requires, permit us to continue to prioritize our long-term goals rather than short-term results, enhance the likelihood of continued
stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve
an actual or threatened acquisition of us. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition
proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in our control
or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from
actual or rumored takeover attempts.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder
for a period of three years after the date that such stockholder became an interested stockholder, subject to certain exceptions.
Exclusive Forum
Our bylaws contain an exclusive forum provision
providing that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (1) any derivative action or proceeding
brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any of our directors,
officers, employees, agents or stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General
Corporation Law, our certificate of incorporation or our bylaws, or (4) any action asserting a claim that is governed by the internal
affairs doctrine. However, the exclusive forum provision states that it shall not apply to actions arising under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934.
In addition, Section 22 of the Securities Act
creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities
Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any
duty or liability created by the Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction,
and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
Any person purchasing or otherwise acquiring any
interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision included in our
bylaws. The exclusive forum provision, if enforced, may limit a stockholder’s ability to bring a claim in a judicial forum that
it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively,
if a court were to find the exclusive forum provision to be inapplicable or unenforceable in an action, we may incur additional costs
associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition,
results of operations and growth prospects. For example, the Court of Chancery of the State of Delaware recently determined that a provision
stating that U.S. federal district courts are the exclusive forum for resolving any complaint asserting a cause of action arising under
the Securities Act is not enforceable.
Corporate Opportunities
Our certificate of incorporation provides that
we renounce any interest or expectancy in the business opportunities of our its officers, directors, agents, stockholders, members, partners,
affiliates and subsidiaries and each such party shall not have any obligation to offer us those opportunities unless presented to one
of our directors or officers in his or her capacity as a director or officer.
Transfer Agent and Registrar
Our transfer agent and registrar is Colonial Stock
Transfer Company. The transfer agent’s address is 7840 S 700E, Sandy, UT 84070 and the telephone number is (801) 355-5740.
Listing on the Nasdaq Capital Market
Our common stock is listed on the Nasdaq Capital
Market under the symbol “HRYU”.
Exhibit 31.1
CERTIFICATION
PURSUANT TO RULE
13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Taehoon Kim, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended March 31, 2024 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: September 30, 2024
|
/s/ Taehoon Kim |
|
Taehoon Kim |
|
Interim 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, Juhyon Shin, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q (this “Report”) for the quarterly period ended March 31, 2024 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: September 30, 2024
|
/s/ Juhyon Shin |
|
Juhyon 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 March 31, 2024, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Taehoon Kim, Interim 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: September 30, 2024
|
/s/ Taehoon Kim |
|
Taehoon Kim |
|
Interim 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 March 31, 2024, 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: September 30, 2024
|
/s/ Juhyon Shin |
|
Juhyon Shin |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
v3.24.3
Cover
|
3 Months Ended |
Mar. 31, 2024
shares
|
Document Information [Line Items] |
|
Document Type |
10-Q
|
Document Quarterly Report |
true
|
Document Transition Report |
false
|
Entity Interactive Data Current |
Yes
|
Amendment Flag |
false
|
Document Period End Date |
Mar. 31, 2024
|
Document Fiscal Year Focus |
2024
|
Document Fiscal Period Focus |
Q1
|
Entity Information [Line Items] |
|
Entity Registrant Name |
Hanryu Holdings, Inc
|
Entity Central Index Key |
0001911545
|
Entity File Number |
001-41763
|
Entity Tax Identification Number |
88-1368281
|
Entity Incorporation, State or Country Code |
DE
|
Current Fiscal Year End Date |
--12-31
|
Entity Current Reporting Status |
No
|
Entity Shell Company |
false
|
Entity Filer Category |
Non-accelerated Filer
|
Entity Small Business |
true
|
Entity Emerging Growth Company |
true
|
Entity Ex Transition Period |
false
|
Entity Contact Personnel [Line Items] |
|
Entity Address, Address Line One |
160, Yeouiseo-ro
|
Entity Address, Address Line Two |
Yeongdeungpo-gu
|
Entity Address, City or Town |
Seoul
|
Entity Address, Country |
KR
|
Entity Address, Postal Zip Code |
07231
|
Entity Phone Fax Numbers [Line Items] |
|
City Area Code |
+82
|
Local Phone Number |
2-564-8588
|
Entity Listings [Line Items] |
|
Title of 12(b) Security |
Class A Common Stock, $0.001 par value per share
|
Trading Symbol |
HRYU
|
Security Exchange Name |
NASDAQ
|
Entity Common Stock, Shares Outstanding |
52,808,589
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v3.24.3
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
|
Mar. 31, 2024 |
Dec. 31, 2023 |
CURRENT ASSETS: |
|
|
Cash and Cash Equivalents |
$ 9,996
|
$ 5,427,830
|
Short-term loans receivable |
8,945,261
|
3,789,900
|
Accounts receivable, net of allowance |
310,563
|
324,413
|
Non-trade receivables |
34,480
|
171,892
|
Prepaid expenses and other receivable |
7,626,903
|
7,903,035
|
Total current assets |
16,927,203
|
17,617,070
|
PROPERTY PLANT AND EQUIPMENT, NET |
434,150
|
629,185
|
OPERATING LEASE RIGHT-OF-USE ASSET |
1,775,941
|
1,918,966
|
OTHER ASSETS |
363,551
|
379,735
|
Total Assets |
19,500,845
|
20,544,956
|
CURRENT LIABILITIES: |
|
|
Short-term loans payable |
1,963,914
|
1,589,887
|
Non-trade accounts payable |
2,630,440
|
2,312,669
|
Bonds with warrants, net |
3,341,253
|
3,489,995
|
Accrued expenses and other current liabilities |
86,549
|
83,940
|
Total current liabilities |
8,022,156
|
7,476,491
|
Total Liabilities |
8,022,156
|
7,476,491
|
Commitments and contingencies (Note 13) |
|
|
STOCKHOLDER’S EQUITY: |
|
|
Authorized 110,000,000 (common:100,000,000, preferred:10,000,000) shares; Issued and outstanding 52,808,589 common shares as of March 31, 2024 and December 31, 2023 |
52,809
|
52,809
|
Additional paid-in capital |
51,415,476
|
51,415,476
|
Accumulated deficit |
(39,940,833)
|
(38,893,762)
|
Accumulated other comprehensive income |
(48,763)
|
493,942
|
Total Stockholders’ Equity |
11,478,689
|
13,068,465
|
Total Liabilities and Stockholders’ Equity |
$ 19,500,845
|
$ 20,544,956
|
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