Filing and business context
This is Hanryu Holdings, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, filed November 17, 2023. The request identifies Global Interactive Technologies, Inc.; that company name does not match the registrant named in the filing. Hanryu operates the FANTOO social-media platform focused primarily on Korean culture and entertainment, alongside related content and commerce businesses. It reported more than 27 million platform users. Its Class A common stock began trading on Nasdaq in August 2023.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $713,763, down 5% year over year | $1,347,975, up 49% |
| Gross profit / margin | $271,921 / 38%, versus $355,306 / 47% | $515,060 / 38%, versus $440,454 / 49% |
| Operating loss | $3,299,055, versus $1,447,447 | $9,340,732, versus $5,277,657 |
| Net loss | $3,104,574, versus $1,421,128 | $9,163,826, versus $5,038,818 |
| Basic and diluted loss per share | $0.06, versus $0.03 | $0.18, versus $0.13 |
For the nine-month period, operating expenses rose 72% to $9.86 million. Marketing and advertising expense increased to $1.91 million from $0.30 million; general and administrative expense increased 48% to $7.66 million, with management citing higher commissions, consulting and travel costs, including IPO-related costs. Revenue growth included advertising and content sales, while service sales fell from $788,284 to zero, according to management.
Cash and cash equivalents were $11.71 million at September 30, versus $118,957 at year-end 2022. Current assets were $17.19 million and current liabilities $6.59 million. Total liabilities were $7.37 million; these included $3.35 million of bonds with warrants, $0.84 million of short-term loans and $0.74 million of long-term loans. Total stockholders’ equity was $13.06 million, compared with a $1.34 million deficit at year-end 2022. Accumulated deficit was $38.74 million.
For the nine months, operating cash outflow was $11.44 million, investing cash outflow $1.28 million and financing cash inflow $24.29 million. Financing included stock issuance and warrant exercises. The company raised approximately $6.8 million in net IPO proceeds. It spent $3.33 million on a contract to develop games for FANTOO, reported as prepaid expense. No income tax expense was recorded.
Changes, outlook and risks
- Revenue increased year over year for the first nine months, but the third quarter declined and gross margin narrowed. Losses and operating cash use increased substantially.
- Management said it expects cash flow from operations and IPO proceeds to fund operating lease, capital expenditure and working-capital needs for at least 12 months. The filing provides no quantified revenue or earnings guidance and cautions that planned new business launches may not succeed.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and expected further losses and negative operating cash flow. The company says it will seek capital through equity and/or short-term notes; sufficiency of future funding is uncertain.
- Management cites competition, user demand, execution and product-development challenges, financing needs, foreign-exchange exposure, litigation, intellectual-property protection and Nasdaq-listing risks. A hypothetical 10% adverse currency-rate change was estimated to reduce nine-month revenue by $122,543 and change net loss by $833,075.
- Disclosure controls and procedures were deemed ineffective as of September 30. Reported material weaknesses include limited accounting resources, inadequate segregation of duties and a need for a stronger control environment. Management says additional procedures supported the financial statements’ fair presentation.
- The filing says there are no material pending legal proceedings and no material adverse outcome is expected from ordinary-course claims. The company divested its KDC cryptocurrency-related operations in 2022 and does not expect payments from the contingent earn-out through 2024.
Important facts to verify
- Confirm the intended issuer: the supplied request names Global Interactive Technologies, Inc., while this filing is for Hanryu Holdings, Inc.
- Review the filing’s inconsistent liquidity and equity disclosures: the going-concern note cites working capital of $13,229,461 and a stockholders’ deficit, although the balance sheet shows current assets less current liabilities of approximately $10.60 million and positive stockholders’ equity of $13.06 million. The cited $38.74 million equals accumulated deficit, not total equity.
- Reconcile the cash-flow figures: the cash-flow statement reports financing inflow of $24.29 million, while MD&A reports $23.57 million and describes some investing-cash-flow amounts inconsistently.
- Assess cash burn, funding needs and the going-concern disclosure against management’s stated 12-month liquidity outlook; verify progress and spending on IPO-funded plans and the $3.33 million game-development prepayment.
- Verify reporting compliance: the cover page marks “No” for having filed all required Exchange Act reports during the preceding 12 months.