Hanryu (HRYU) - 2023 Q4 - Annual Report

Financial Reporting and Internal Controls - The company has experienced ineffective internal control over financial reporting, leading to the restatement of financial statements[383] - The company has been advised that its internal controls over financial reporting are currently ineffective, as evidenced by the restatement of financial statements[411] - The company has identified weaknesses in its internal controls over financial reporting, which could lead to material misstatements and loss of investor confidence[468] - The company is not required to evaluate the effectiveness of its internal control over financial reporting until after filing its Annual Report on Form 10-K for the years ending December 31, 2023, and December 31, 2022[527] Financial Performance and Projections - The company incurred a net loss of approximately $(9.4) million for the year ended December 31, 2023, compared to a net loss of $(6.4) million for the year ended December 31, 2022[402] - As of December 31, 2023, the company had an accumulated deficit of approximately $(38.9) million, up from $(29.6) million as of December 31, 2022[402] - The company anticipates continued operating losses and cash usage through the foreseeable future, necessitating significant additional capital[402] - The company believes its current cash and net proceeds from debt issuances will be sufficient to fund working capital requirements beyond the next 12 months, assuming successful equity financing[402] Regulatory and Compliance Risks - The company is subject to various foreign and domestic laws regarding user privacy and data protection, which could increase compliance costs and affect business operations[385] - The introduction of new regulations, such as the GDPR and CCPA, may impose additional operational requirements and increase costs for the company[386] - Compliance with laws governing anti-money laundering and electronic funds transfer may require significant management resources and could lead to penalties if violated[387] - The company is exposed to potential fines and penalties under the U.S. Foreign Corrupt Practices Act, which could adversely affect its business[388] - The company faces risks related to government regulations that could restrict access to its services in certain countries, impacting user growth and engagement[385] - The company is subject to scrutiny by the Korean Fair Trade Commission regarding its business relationships and transactions with subsidiaries, which may lead to administrative fines if violations are found[417] - The company is committed to compliance with anti-corruption laws, but violations could result in substantial fines and damage to its reputation[445] - Regulatory changes regarding digital assets could negatively impact the company's operations and prospects[454] - The company is subject to various regulations in South Korea, which may affect its operations and the issuance of digital assets[455] Currency and Economic Risks - A significant portion of the company's revenue and costs are denominated in Korean Won, which may adversely affect liquidity and cash flows due to currency fluctuations[389] - Fluctuations in the exchange rate between the Korean Won and the U.S. dollar could materially impact the company's operational costs and financial results[389] - The company is exposed to fluctuations in exchange rates due to foreign subsidiaries' accounts maintained in local currencies[524] - The company is at risk of adverse effects from developments in the Korean economy, which could impact customer spending and revenue growth[392] Operational Challenges and Investments - The company expects to continue investing heavily in product development and operations, particularly focusing on the FANTOO platform to increase its user base[402] - The company relies on interoperability with mobile operating systems like Android and iOS, which it does not control, potentially affecting user growth and engagement[421] - The company’s products depend on complex software and hardware systems, and any errors or vulnerabilities could lead to negative user experiences and financial losses[423] - The company anticipates ongoing efforts related to privacy and security will identify misuse of user data, which could impact user trust and engagement[422] - The company has faced challenges related to copyright and patent infringement, which could result in sanctions or penalties affecting its operations in Korea[392] - Rapid technological changes in the social media market require the company to continuously adapt, with risks associated with the adoption of new technologies[450] Stock and Market Risks - The company is facing potential delisting from Nasdaq due to failure to comply with continued listing requirements, including timely filing of reports and maintaining a minimum bid price of $1.00 per share[460] - The company received a delinquency compliance alert from Nasdaq for not timely filing its Quarterly Report for Q1 2024 and Annual Report for 2023, with a deadline to submit a compliance plan by June 17, 2024[460] - If the compliance plan is accepted, the company may have an extension of up to 180 days to regain compliance, until October 14, 2024[460] - The trading price of the company's common stock may fluctuate significantly, influenced by market conditions and factors beyond its control[461] - Future issuances of debt or preferred stock may adversely affect the returns for common stockholders[463] - The company has not paid cash dividends in the past and does not expect to do so in the foreseeable future, limiting returns to stock price appreciation[463] - The company does not expect to pay dividends in the foreseeable future, relying instead on stock price appreciation for returns[469] Cybersecurity and Information Security - The company may face significant costs related to cybersecurity incidents, which could adversely affect its business and reputation[460] - The company has an information security program in place to manage cybersecurity risks, but there are no assurances of its effectiveness[471] Growth Potential - The company has significant potential for user base growth due to the popularity of K-Culture, which generated approximately $21.5 billion in global revenue in 2019[444] - The company may experience intellectual property infringement claims, which could divert resources and incur legal costs[457] - The company expects significant legal, accounting, and compliance costs as it transitions to a public company, particularly after losing its emerging growth company status[465] - The company may take advantage of scaled disclosures available to smaller reporting companies, which could affect the attractiveness of its common stock to investors[468]