Hanryu (HRYU) - 2023 Q2 - Quarterly Report

User Base and Revenue Growth - FANTOO platform's user base has exceeded 27 million since its launch in May 2021, primarily driven by the popularity of K-Culture[214] - Revenue for the six months ended June 30, 2023, was $630,973, a 435% increase from $117,964 in the same period in 2022[234] - Gross profit for the six months ended June 30, 2023, was $241,911, representing a 257% increase from $67,725 in 2022[234] Cost and Expenses - Cost of revenue for the same period increased to $389,062, up 674% from $50,239 in 2022, reflecting the substantial growth in revenue[234][236] - Marketing and advertising expenses rose to $832,800, a 351% increase from $184,457 in the previous year[234] - Research and development expenses increased to $231,743, up 192% from $79,485 in 2022[234] - General and administrative expenses were $4,974,991, a 36% increase from $3,664,609 in the same period last year[234] - Marketing and advertising expenses for the six months ended June 30, 2023, increased to $832,800 from $184,457 in the same period of 2022, primarily due to the launch of the FANTOO platform[238] - Research and development expenses rose to $231,743 for the six months ended June 30, 2023, compared to $79,485 in 2022, driven by increased personnel costs related to the upgraded FANTOO app[239] - General and administrative expenses increased by $1,310,382 or 36% to $4,973,000 for the six months ended June 30, 2023, mainly due to higher commissions and consulting costs[240] Cash Flow and Financing Activities - Net cash used in operating activities for the six months ended June 30, 2023, was $6,313,522, reflecting a net loss of $6,059,252[252] - Net cash provided by financing activities was $15,796,985 for the six months ended June 30, 2023, significantly up from $838,077 in the same period of 2022[254] - The company completed its IPO on July 2023, selling 877,328 shares at $10.00 per share, generating gross proceeds of $8,773,280, with net proceeds of approximately $6.8 million after expenses[248][249] - The company reported a decrease in cash provided by investing activities to $7,053,691 for the six months ended June 30, 2023, a decline of 798.92% compared to the previous year[253] Financial Obligations and Risks - As of June 30, 2023, the remaining outstanding principal amount of bonds with warrants was approximately $3,427,788, down from $3,550,856 at the end of 2022[255] - The company has fixed contractual obligations totaling $164,978, with $106,321 due within one year[258] - The company is exposed to foreign currency risk, particularly with fluctuations in the Korean Won (KRW) against the USD, which can impact financial results[265][266] - The company is exposed to market risks primarily due to fluctuations in foreign currency and credit, impacting its financial position[263] - A hypothetical 10% adverse change in average exchange rates would have resulted in a decline in total net revenues of $48,000 and a change in net loss of $1.2 million for the year ended December 31, 2021[267] - The company generates the majority of its revenue from customers within Korea, which makes it vulnerable to KRW volatility against foreign currencies[266] Company Status and Reporting - The company expects to remain an "emerging growth company" for up to five years, unless the market value of its common stock held by non-affiliates exceeds $700 million[280] - The company will adopt the provisions of ASU 2016-02 related to leases starting January 1, 2022, which requires recognition of a single lease cost allocated over the lease term[273] - The company may take advantage of reporting exemptions applicable to "emerging growth companies," resulting in less rigorous ongoing public reporting requirements[279] - The company evaluates contingent liabilities related to legal proceedings and may disclose potential losses if they are reasonably possible or probable but cannot be estimated[276] - The company places cash and cash equivalents with financial institutions of high credit quality to manage credit risk[269] - The company’s functional and reporting currency is USD, while its primary operating subsidiaries use KRW, leading to translational exposure[267] - The company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements, which changes the accounting for convertible instruments[274]