Hanryu Holdings Inc

NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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:

NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.)

NOTE 1 — NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.)

Risks and Uncertainties

The Company is subject to a number of risks similar to other companies in its industries, including rapid technological change and transitions in Hanryu trends. The extent of the impact of the COVID-19 pandemic on the Company’s business continues to be highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a lasting national and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the entertainment industry and economy as a whole.

To date, the Company has experienced significant changes in the business as a result of the COVID-19 pandemic. The impact has delayed the Company’s ability to generate revenue as result of the diversification of potential customer budgets towards the COVID-19 pandemic. The extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.

Going Concern

The Company has experienced recurring losses from operations and has a stockholders’ equity(deficit) and working capital of $13,068,465 and $10,140,579 respectively, as of December 31, 2023 and $(1,340,515), and $(757,981) as of December 31, 2022. Also, the Company has operating losses of $10,527,845 and $5,421,525 for the years ended December 31, 2023 and December 31, 2022, 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.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements follows:

Principles of Consolidation

The 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 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 2022. 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 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 consolidated subsidiary as of December 31, 2022, was 49.2%. Since HBC sold owned whole shares of Hanryu Times, Fantoo Entertainment, and K-Commerce, at December 28, 2023, they are not consolidated from December 28, 2024, and N 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 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 consolidated balance sheet as of December 31, 2023 and December 31, 2022. During the year ended December 31, 2023, there was a fluctuation in the exchange rates ranging from KRW 1,219.30/USD $1 to KRW 1,340.20/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 consolidated balance sheets

Use of Estimates

The preparation of the Company’s 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 exceed the federal insurance limit as of December 31, 2023.

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 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 consolidated balance sheets as of December 31, 2023 and December 31, 2022. 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 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 $12,941 on the accompanying consolidated balance sheets as of December 31, 2023 and December 31, 2022 respectively. The Company does not have any off-balance-sheet credit exposure related to its customers.

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.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES(cont.)

For the years ended December 31, 2023 and December 31, 2022, the Company recognized product sales revenue amounting to $71,242 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 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 years ended December 31, 2023 and December 31, 2022 are $1,014,266 and $889,045. 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.

The customers and sales amount with more than 10% of total revenue as a gross basis for the years ended December 31, 2023 and December 31, 2022 are as follows, and they are the advertising revenue.

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:

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 year ended December 31, 2023, and the year ended December 31, 2022.

Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. There were no significant long-lived assets impairment charges recorded during the year ended December 31, 2023 and the year ended December 31, 2022.

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 years ended December 31, 2023 and December 31, 2022, 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 December 31, 2023 and December 31, 2022, 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.

A change to the level of an asset or liability within the fair value hierarchy is determined at the end of a reporting period.

The Company’s investments are carried at historical cost. As of December 31, 2023 and December 31, 2022, 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 years ended December 31, 2023 and 2022, the Company reported net losses and, accordingly, potential common shares were not included since such inclusion would have been anti-dilutive. As a result, our basic and diluted net loss per share are the same because the Company generated a net loss in all periods presented.

Income Taxes

Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. We have determined that all of our deferred tax benefits are not likely to be realized due to our historical and expected future taxable losses. Accordingly, we have maintained a full valuation allowance.

The Company applies the provisions of FASB ASC Topic 740-10,Uncertainty in Income Taxes. The Company has evaluated our tax positions, and there are none as of December 31, 2023 and December 31, 2022.

Income taxes on the Company’s taxable income from operating activities are subject to various tax laws and determinations of the authority in the ROK. Regarding taxes payable in the ROK, if a certain portion of taxable income is not used for investments or for increases in wages or dividends, in accordance with the Tax System for Recirculation of Corporate Income, the Company is liable to pay additional income tax calculated based on Korean tax law.

The Company assesses uncertainty over a tax treatment. When the Company concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Company will reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the Company expects to better predict the resolution of the uncertainty;

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.

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 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.

The Company is reviewing the effects of following recent updates. The Company has no expectation that any of these items will have a material effect upon the financial statements.** **

NOTE 3 — SHORT-TERM LOAN RECEIVABLES

The following table summarizes information with regard to short-term loan receivables outstanding as of December 31, 2023 and December 31, 2022, and the interest income from short-term loan receivables is $30,613 and$0 for the year ended December 31, 2023 and December 31, 2022.

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.

NOTE 4 — PREPAID EXPENSES AND OTHER RECEIVABLES

The following table summarizes information with regard to prepaid expenses and other receivables as of December 31, 2023 and December 31, 2022.

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:

Total depreciation expense for the years ended December 31, 2023 and December 31, 2022 are $381,917 and $215,111 Depreciation expense is reflected in operating cost and expenses in the consolidated statements of operations.

NOTE 6 — INVESTMENTS

The following table summarizes information with regard to investments outstanding as of December 31, 2023 and December 31, 2022.

Changes in investments, for the years ended December 31, 2023 and December 31, 2022, are as follows

On October 18, 2021, the Company purchased bonds with warrants issued by Setopia Co., Ltd. (“Setopia”), for total consideration of $1,687,052 (the “Setopia Bonds with warrants”). The form of consideration was a mix of:(i) warrants to purchase 666,666 Common Shares of HBC, valued at $873,805; and (ii) distribution of 100,000,000 KDC.

The transaction with Setopia as a beneficial owner of more than 10% of the Company’s outstanding securities, was a related-party transaction. However, neither Setopia nor the Company control the other by any methods including, without limitation, contract, lease, agreements between shareholders, or court decree. Further, each of Setopia and HBC have different principal owners, management, and there have been no transactions between any members of the principal owners’ or managements’ immediate families. On October 27, 2022, Setopia became an unaffiliated and unrelated third party of the Company since, as of that date, Setopia is a stockholder who owns less than 10% of the Company’s outstanding securities.

NOTE 6 — INVESTMENTS(cont.)

The Company accounted for the investment in Setopia at fair value. The Company determined this investment to be a “debt security” classified into trading debt securities under ASC 320-10-20, as the Company intended to sell it in the near term at the time of acquisition. There has been no unrealized holding gains and losses for trading securities included in earnings since the value of the Setopia Bonds with warrants did not change until it is sold to the third party for the year ended December 31, 2022. Prior to the acquisition of the Setopia Bonds with warrants, the Company owned no interest in Setopia. After the acquisition the Setopia Bonds with warrants, the Company became the owner of record or known beneficial owner of 2.06% of the voting interest of Setopia.

The acquisition of the Setopia Bonds with warrants is a related-party transaction under ASC 850-10-05-3(d).

On February 11, 2022, the Company sold the acquired Setopia Bonds with warrants to an unaffiliated and unrelated third party in exchange for the consideration of cash totaling $696,621 and a non-trade receivable for $851,426 due by December 30, 2022, which resulted in a decrease of the investment balance of $1,687,052 including the currency translation adjustment of ($139,004) as of December 31, 2022. The Company and a third party entered into an extension agreement for a non-trade receivable due by April 30, 2023.

On October 4, 2022, the Company purchased convertible bonds issued by Setopia, for total consideration of $635,000 (the “Setopia Convertible Bonds”). The Setopia Convertible Bonds were initially issued on January 27, 2022, with no annual interest and a maturity date of January 27, 2025. The form of consideration was to accept the consideration of warrants with an exercise price of $1.27 to purchase 500,000 shares of Common Stock. On October 4, 2022, warrants were exercised with an exercise price of $1.27 to purchase 500,000 shares of common stock.

On December 30, 2022, the Company sold the Setopia Convertible Bonds to an unaffiliated and unrelated party by receiving non-trade receivables of $710,171 due by February 28, 2023, which resulted in a decrease of the investment balance of $635,000 including the currency translation adjustment of $75,171 as of December 31, 2022. The Company collected such non-trade receivables by cash in full on March 23, 2023. There was no gain or loss realized on this transaction during the year ended December 31, 2022.

On June 30, 2021, HBC and Sewang entered into the Contract and Share Assignment, pursuant to which HBC acquired: (i) the Marine Island Shares, and thereby the Lien, which gave Marine Island the right to use and occupy the Seoul Marina until the Lien is repaid; (ii) the SMC Shares; and (iii) the SMC Receivable.

The aggregate consideration paid to Sewang for the rights and assets under the Contract was $2,943,905, initially allocated as follows:(1) $8,247 to the purchase SMC Shares at a price of $0.87 per share, constituting 24.53% of the issued and outstanding common shares of SMC; and (2) $2,935,658 to SMC Receivable and the Lien, calculated by determining the present value of leasing the Seoul Marina facilities for free over 10 years. Sewang received $2,009,752 in the form of 23,000,000 KDC, and the remaining $934,153 in the form of cash.

On December 30, 2022, the Company sold the SMC shares to an unaffiliated and unrelated third party in exchange for the consideration of cash totaling $774, which resulted in a decrease of the investment balance of $8,247 including the currency translation adjustment of ($679) as of December 31, 2022 and loss on sale of investments of $6,794 for the year ended December 31, 2022.

The Company recorded the Marine Island Shares as affiliated stocks, and the SMC Shares as an investment, and the remaining SMC Receivable and Lien as Operating Lease Right-Of-Use Asset which is being amortized over a ten year period under the guidelines of ASC 842. See Note 7 “Lease”. The SMC Shares and the Marine Island Shares were calculated by the number of shares multiplied by the par value of $0.87 and $0.44. The value of SMC Receivable and the Lien was calculated by determining the present value of the Lien on the assumption the Company would lease the Seoul Marina facilities for free for at least 10 years.

The Company is not a principal owner of SMC. In addition, neither SMC nor the Company control the other by any methods including, without limitation, contract, lease, agreements between shareholders, or court decree. Further, each of SMC and HBC have different principal owners, management, and there have been no transactions between any members of the principal owners’ or managements’ immediate families.

For the Marine Island Shares, the Company applied ASC 805 as the Company owns more than 50% of the issued and outstanding shares of Marine Island, and the Company consolidates the financial statements. For the SMC Shares, the Company applies ASC Topic 321-10-20 and 321-10-35-2, and it is recorded as an equity investment by the cost method. For SMC right, the Company recorded these rights as Operating Lease Right-Of-Use Asset-see Note 7.

NOTE 7 — LEASE

The Company uses approximately 19,200 square feet of office space at the Seoul Marina described in in Note 6 — Investments, 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 December 31, 2023 and December 31, 2022, the balances of the Right-of-Use-Asset was $1,918,966 and $2,212,754, respectively.

Lease cost consists of approximately $287,487 and $255,357, for the years ended December 31, 2023 and December 31, 2022, respectively. The weighted average remaining lease term in years for operating leases is 8 years and the weighted average discount rate for operating leases is 3%.

NOTE 8 — SHORT-TERM LOAN PAYABLES

The following table summarizes information with regard to short-term loan payables outstanding as of December 31, 2023 and December 31, 2022.

The company recorded interest expense of $13,497 and$8,989for the year ended December 31, 2023 and December 31, 2022, and The company paid $2,595 and $8,989 for interest expense for the year ended December 31, 2023 and December 31, 2022

NOTE 9 — SHORT-TERM LOAN PAYABLES FROM RELATED PARTIES

The following table summarizes information with regard to short-term loan payables from related parties outstanding as of December 31, 2023 and December 31, 2022. SiYoung Jang and Munjoong Kang are HBC’s co-founders and shareholders of Hanryu Holdings, and Changhyuk Kang serves as Chief Executive Officers and Director of Hanryu Holdings and HBC.

These loan payables have no interest and financial covenants.

NOTE 10 — BONDS WITH WARRANTS

Bonds with warrants were issued by HBC from December 17, 2018 through July 2, 2021. The terms and conditions of the bonds with warrants at the time of acquiring bonds and issuance of such bonds are set forth below. Currently, the Company and all bondholders have entered into an agreement that the bondholders will waive all interest payments due for the life of the bonds.

The entire face amount of the bonds is the maximum number of Common Shares for which the attached warrants can be exercised by each bondholder, with exercise prices from $0.42 to $1.27 per common share.

On March 31, 2021, HBC issued 4,150,000 Common Shares to the shareholders of RnDeep pursuant to the RnDeep Merger. As the surviving company in the RnDeep Merger, HBC assumed the RnDeep Warrants, therefore allowing the RnDeep Warrants to be exercised for Common Shares of HBC, in the following amounts:

After the RnDeep Merger, HBC and the RnDeep Holders entered into an agreement that the RnDeep Holders would waive the interest accruing on the RnDeep Warrants. Therefore, the Company recognized the RnDeep Warrants acquired at the respective face value of each respective RnDeep Warrant. Furthermore, HBC held RnDeep Warrants an aggregate value of $2,586,850, and offset such value against HBC’s assets.

On April 7, 2021, HBC issued bonds with warrants for an aggregate purchase price of $3,153,714. The bonds accrue interest at an annual rate of 1% and mature on March 31, 2022. The warrants have an exercise price of $0.42 and can be exercised at any time after the date that is three months after the date the bond was issued, and expire if not exercised prior to the maturity date of the bonds.

On July 1, 2021, HBC issued bonds with warrants for an aggregate purchase price of $1,096,584. The bond accrues no annual interest and matures on July 1, 2024. The warrants have an exercise price of $0.42, and can be exercised at any time after the issuance date, and expire the month preceding the maturity date of the bonds.

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.

HBC has the right to make early repayments before maturity for these bonds with warrants and has exercised its right to do so in the amounts of $11,420,268 and $919,118 for the Year ended December 31, 2021 and the year ended December 31, 2020, respectively.

On March 31, 2021, holders of certain bonds and warrants with an aggregate value of $1,687,906 exercised their warrants to purchase common shares of HBC. As of December 31, 2021 and 2020, the fair value of bonds with warrants was $3,795,867 and $6,709,559, respectively.

The following two tables summarizes information with regard to bonds with warrant outstanding as of December 31, 2023 and December 31, 2022.

Terms and conditions of bonds with warrants at the inception are as follows:

Warrants

There are no remaining outstanding warrants as of December 31, 2023.

There is not a viable market for the Company’s Common Stock to determine its fair value, therefore management is required to estimate the fair value to be utilized in the determining warrant costs and value. In estimating the fair value, management considers the comparable value of public companies from the same industry. Considerable management judgment is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.

Option valuation models require the input of highly subjective assumptions. The fair value of warrants was estimated using the Black-Scholes option model with a volatility figure derived from public companies in the same industry. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of warrants based on the maturity of warrants. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The fair value of warrants during the years ended December 31, 2021 and December 31, 2020 was estimated using the Black-Scholes pricing model.

On March 31 2021, HBC acquired an aggregate of 12,066,666 warrants to purchase HBC Common Shares in connection with RnDeep Merger at the exercise prices of $0.42 (9,000,000 warrants) and $1.27 (3,666,666 warrants) per share for a term of one to two years, exercisable immediately.

The fair value of the issued warrants were determined using the Black Scholes option pricing model with the following assumptions:

The fair value of $691,267 was charged to operations as financing costs for the year ended December 31, 2021.

On July 1, 2021 and July 2, 2021, HBC issued an aggregate of 13,077,455 warrants to purchase HBC Common Shares at the exercise prices of $0.42 (10,077,455 warrants) and $1.27 (3,000,000 warrants) per share for a term of nine months to three years exercisable immediately.

The fair value of the issued warrants were determined using the Black Scholes option pricing model with the following assumptions:

The fair value of $1,065,018 was charged to operations as financing costs for the year ended December 31, 2021.

A summary of the warrant activity for the year ended December 31, 2023 and the year ended December 31, 2022 is as follows:

NOTE 11 — 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 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 December 31, 2023 and December 31, 2022 are summarized in the table below.

NOTE 11 — FAIR VALUE MEASUREMENTS(cont.)

Financial Items Measured at Fair Value on a Nonrecurring Basis

There areno financial assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2023 and December 31, 2022.

Nonfinancial Items Measured at Fair Value on a Recurring Basis

There areno nonfinancial assets measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022.

Nonfinancial Items Measured at Fair Value on a Nonrecurring Basis

The fair value of long-lived assets is measured whenever the carrying value of long-lived asset or asset group is not recoverable on an undiscounted cash flow basis. No impairment is recognized for long-lived assets as of as of December 31, 2023 and December 31, 2022.

NOTE 12 — SIGNIFICANT NON-CASH TRANSACTION

The company engaged in the following significant non-cash investing and financing activities for the years ended December 31, 2023 and 2022.

For the year ended December 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. For the year ended December 31, 2022, investment of $635,000 was increased by exercising warrants to purchase 500,000 shares of common stock, and investments of $1,578,158 were reduced by receiving non-trade receivables with an aggregate value of $1,578,158.

NOTE 13 — OTHER INCOME

The Company entered into an agreement with a creditor of HBC to pay such creditor 3,000,000 KDC in exchange for the extinguishment of $232,207 in debt. The Company accounts for such non-cash consideration at the effective date of agreement in accordance with the non-cash consideration guidance included in FASB ASC Topic 470,Debt(“ASC 470”), and FASB ASC Topic 606,Revenue from Contracts with Customers (“ASC 606”). As a result, the Company recognized gain of settlement of debt of $232,207 for the year ended December 31, 2022.

NOTE 14 — OTHER

The Company believes that KDC meets the definition of indefinite-lived intangible assets under ASC 350, as it is nonfinancial asset that lacks physical substance. Therefore, KDC was recognized and measured at historical cost. In addition, the Company determined that KDC has an indefinite life since there is no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of KDC, in accordance with ASC 350-30-35-4.

NOTE 14 — OTHER (cont.)

The Company initially created KDC, a public digital cryptocurrency separate and apart from the FANTOO platform, as a method of onboarding and offboarding FP to and from the FANTOO platform through the Kingdom Wallet. However, on June 22, 2022, the Company entered into a Business Transfer Agreement (the “KDC Agreement”) with Kingdom Coin Holdings, a corporation incorporated in the Cayman Islands (the “KDC Foundation”), pursuant to which the Company transferred all of its KDC to the KDC Foundation, and no longer conducts or controls the operations, issuance, or sales of KDC in order to substantially reduce our involvement with blockchain technologies. This shift in our business plan was undertaken both to protect our users from potential risks associated with speculation in KDC, and because of the recent market and regulatory conditions surrounding cryptocurrency in general. As such, the Company no longer supports or operates Kingdom Wallet, and no longer allows the conversion of FP into KDC (and vice-versa). Neither Hanryu Holdings, nor any of its subsidiaries, have any affiliation with the KDC Foundation.

Additionally, and for the avoidance of doubt, the control person of Plus Meta PTE Ltd., KDC Foundation’s management company, is not an affiliate, and is not in any way related to, any officer, director, or shareholder of the Company. The KDC Foundation does not, has not, and will not coordinate any of its activities with the Company or the Company’s operation of FANTOO. Further, KDC will not be marketed to FANTOO users.

Pursuant to the KDC Agreement, in exchange for the Company transferring (a) its then-existing outstanding KDC balance of 299,651,320,620, (b) blockchain mainnet known as the Fandomchain, and (c) the Kingdom Wallet to the KDC Foundation, the KDC Foundation will (y) assume all obligations and liabilities with respect to KDC and Kingdom Wallet, and (z) pay to the Company the following contingent amounts, if, at December 31, 2024:

For the avoidance of doubt, sales generated from the transferred assets do not include any post-transfer newly created KDC. KDC Foundation planned to generate revenue by integrating KDC, FandomChain, and the Kingdom Wallet into mobile games, and monetizing such games. Due to current cryptocurrency-related market conditions, the Company does not expect to receive any payments from KDC Foundation through December 31, 2024 in accordance with the terms of the Business Transfer Agreement.

The KDC agreement included contingent earn-out consideration, the fair value of which was estimated on June 22, 2022, as the present value of the expected future contingent receivables which the Company determined using a probability-weighted discounted cash flow model for probabilities of possible future receivables. The Company determined the fair value of contingent consideration as zero on June 22, 2022. Contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in profit or loss in most circumstances. The Company recorded zero value of the contingent consideration on the accompanying consolidated balance sheets as of December 31, 2022.

The Company believes that the transfer of KDC meets the definition of a “Component of an Entity” under FASB ASC Topic 205-20,Discontinued Operations, and as such can be disposed of by a means other than sale. The divestiture of KDC and its associated operations does not represent a strategic shift, nor has (and will not have), a major effect on the Company’s operations and financial results because the blockchain/KDC operations did not represent:

The Company did not present the divestiture of its holdings of KDC and KDC-related activity as discontinued operations because there was no revenue, asset value, or net income from the divestiture of KDC and the related operations.

NOTE 15 — SHARE CAPITAL

As of December 31, 2023, and December 31, 2022, 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 3,066,666 shares 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 toone vote for each share of Common Stock held at all meetings of stockholders.

NOTE 16 — 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 consolidated balance sheet in the amount of $116,333 as of December 31, 2023, and $118,362 as of December 31, 2022.

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 $112,368 and $140,070 for the years ended December 31, 2023 and December 31, 2022.

NOTE 16 — COMMITMENTS AND CONTINGENCIES(cont.)

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 consolidated financial position or results of operations of the Company. For the year ended December 31, 2023, the Company two suspended legal cases as follows, and as of July 10, 2024, the result of the two cases are not certain.

Other Matters

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally.. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.

The management of the Company is actively monitoring its financial condition, liquidity, operations, suppliers, industry, and workforce. Although the Company cannot estimate the length or gravity of the impacts of this event at this time, if the pandemic continues, it may have an adverse effect on the Company’s consolidated financial condition, liquidity, and future results of operations.

NOTE 17 — RELATED PARTY TRANSACTIONS

The Company is affiliated with several individuals that have common ownership, and transacts a portion of its business with related parties.

Short-Term Loan Payables

Siyoung Jang

On December 8, 2021, the Company and Siyoung Jang, one of our co-founders, entered into an interest-free, short-term borrowing agreement with a principal amount of $84,352, which matures on December 7, 2022. The Company received the amount of $84,352 in the form of cash. The Company and Siyoung Jang entered into an extension agreement with $5,444 of translation adjustment, which matures on December 7, 2023.

On June 30, 2023, the Company repaid short-term borrowings in the aggregate amount of $38,778 to Siyoung Jang, in cash.

On July 10, 2023, July 13, 2023, and September 5, 2023, the Company repaid short-term borrowings in the aggregate amount of $38,778 to Siyoung Jang, in cash.

The remaining amount of $1,353 in outstanding balance as of December 31, 2023, compared to the balance as of December 31, 2022 was currency translation adjustment.

NOTE 17 — RELATED PARTY TRANSACTIONS(cont.)

Changhyuk Kang

On July 1, 2021, the Company exchanged $590,468 in short-term borrowings held by Changhyuk Kang, now the Company’s Chief Executive Officer, for bonds with warrants in an equal amount. The bond accrues no annual interest and matures on July 1, 2024. The warrants have an exercise price of $0.42, and can be exercised at any time after the issuance date, and expire the month preceding the maturity date of the bonds.

On October 27, 2021, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $168,705, which matured on October 26, 2021. The Company received the amount of $168,705 in cash. On December 21, the Company partially repaid the short-term borrowing in the amount of $130,746, in the form of cash. The Company and Mr. Kang entered into an extension agreement, which matures on October 26, 2023.

On January 28, 2022, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $15,782, which matures on January 27, 2023. The Company received the amount of $15,782 in cash. On February 15, 2022, the Company repaid the short-term borrowing of $15,782 in full, in the form of cash.

On April 5, 2022, the Company and Mr. Kang, entered into an interest-free, short-term borrowing agreement with a principal amount of $31,563, which matures on April 4, 2023. The Company received the amount of $31,563 in cash.

On January 19, 2023, the Company repaid short-term borrowings in the aggregate amount of $31,022 to Mr. Kang, in cash.

The remaining amount of $541 in outstanding balance as of December 31, 2023, compared to the balance as of December 31, 2022 was currency translation adjustment.

The following table shows Changhyuk Kang’s loan payables balance in detail:

Munjoong Kang

On January 1, 2021, Munjoong Kang, one of our co-founders, bought the rights to receive $2,783,636 from the Company in the form of an interest-free, short-term borrowing from an unrelated third-party, Dongwook Lee, and $12,653 in the form of an interest-free, short-term borrowing from an unrelated third-party, Daepil Seo. Both borrowings’ maturity date was December 31, 2021. On January 1, 2021, the Company assigned non-trade receivables in the amount of $1,114 to offset a portion of the short-term borrowings purchased by Mr. Kang. The Company and Mr. Kang agreed to reduce the amount of the short-term borrowings by an additional $486,366 as an offset against debt owed to the Company by Mr. Kang Munjoong of $45,956, and Ms. Siyoung Jang of $440,410.

On January 1, 2021, $326,755 of Munjoon Kang’s short-term borrowings were exchanged for a short-term loan owed by Mr. Kang to other creditors based on the agreements made by parties.

During the year ended December 31, 2021, the Company repaid short-term borrowings owed to Mr. Kang in the aggregate amount of $331,479, in cash.

On March 31, 2021, pursuant to the RnDeep Merger, the Company assumed certain interest-free, short-term borrowings of RnDeep owed to Mr. Kang in the amount of $107,469, which matured on May 29, 2022.

On November 15, 2021, Mr. Kang bought interest free, short-term borrowings of $124,420 from an unrelated third party. The short-term borrowings have a maturity date of November 14, 2022.

On December 13, 2021, December 14, 2021, and December 20, 2021, Mr. Kang sold his rights to receipt of debt obligations of HBC of $337,410, $1,518,347, and $200,905, respectively, to unrelated third parties.

On December 21, 2021, the Company issued Mr. Kang 295,000 common shares of HBC as payment in full for certain short-term borrowings held by Mr. Kang in the aggregate amount of $124,420.

On January 25, 2022, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $315,632, and which matures on January 24, 2023. The Company received the amount of $315,632 in cash. On dates from January 26, 2022 through May 31, 2022, the Company repaid the short-term borrowings in full in cash.

On March 4, 2022, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $236,724, which matures on March 3, 2023. The Company received the amount of $236,724 in cash. On June 29, 2022, through December 28, 2022, the Company repaid the full amount of $236,724 to Mr. Kang in the form of cash.

NOTE 17 — RELATED PARTY TRANSACTIONS(cont.)

On May 11, 2022 through December 12, 2022, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreements with an aggregate principal amount of $164,523, which mature on dates between May 10, 2023 through December 11, 2023. The Company received the amount of $164,523 in cash. On December 30, 2022, the Company made a partial repayment of $15,401 to Mr. Kang in the form of cash.

On January 11, 2023 through February 27, 2024, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $610,247, which matured on dates between January 10, 2024 through February 26, 2024. The Company received the amount of $610,247 in cash.

On January 9, 2023, through March 23, 2023, the Company repaid short-term borrowings in the aggregate amount of $649,614 to Mr. Kang, in cash, of which the outstanding balance of $149,122 as of December 31, 2022, was repaid in full, and the borrowing amount of $500,492 from January 11, 2023, and February 27, 2023, was repaid partially.

On April 18, 2023 through May 26, 2024, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with an aggregate principal amount of $140,375, which matured on dates between April 17, 2024 through May 25, 2024. The Company received the amount of $140,375 in cash.

On April 4, 2023, through June 22, 2023, the Company repaid short-term borrowings in the aggregate amount of $202,500 to Mr. Kang, in cash.

On July 3, 2023, the Company repaid short-term borrowings in the aggregate amount of $38,778 to Mr. Kang, in cash.

On November 8, 2023, the Company and Mr. Kang entered into an interest-free, short-term borrowing agreement with a principal amount of $23,267, which matured on November 7, 2024. The Company received the amount of $140,375 in cash.

On October 31, 2023 thorough November 9, 2023, the Company repaid short-term borrowings in the aggregate amount of $29,564 to Mr. Kang, in cash.

The remaining amount of ($2,555) in outstanding balance as of December 31, 2023, was currency translation adjustment.

The following table shows Munjoong Kang’s loan payables balance in detail:

On October 18, 2021, the Company purchased bonds with warrants issued by Setopia, for total consideration of $1,687,052 (the “Setopia Bonds with warrants”) from a non-related party. The form of consideration was a mix of:(i) warrants to purchase 666,666 Common Shares of HBC, valued at $873,805; and (ii) distribution of 100,000,000 KDC valued at $873,805. On February 11, 2022, the Company sold the Setopia Bonds with warrants to a non-related party for cash totaling $696,621 and a non-trade receivable for $867,987 due by April 30, 2023.

On October 4, 2022, the Company purchased convertible bonds issued by Setopia, for total consideration of $635,000 (the “Setopia Convertible Bonds”). The Setopia Convertible Bonds were initially issued on January 27, 2022, with no annual interest and a maturity date of January 27, 2025. The form of consideration was to accept the consideration of warrants with an exercise price of $1.27 to purchase 500,000 shares of Common Stock.

On October 27, 2022, Setopia sold the warrants of the Company with an exercise price of $1.27 to purchase 3,000,000 shares of Common stock for a total sale consideration of $95,272, to an unaffiliated and unrelated third party, and Setopia becomes an unaffiliated and unrelated third party, not a related party of the Company since Setopia is a stockholder who owns less than 10% of the Company’s outstanding securities.

NOTE 18 — 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:

The financials of the three companies for the years ended December 31, 2023 and December 31, 2022 are as follows.

NOTE 19 — SUBSEQUENT EVENTS

The Company has evaluated subsequent events that occurred subsequent to December 31, 2023 through June 27, 2024 at which the consolidated financial statements were prepared.

The maturity of short-term loan payables from Kye Sook Kim and other ($620,443) originally maturing in June 2024 is extended to June 2025,

Bond with warrants ($3,489,995) maturing on July 2, 2024 will be converted into equity by the agreement between the Company and Bond with warrants holder in July 2024.

EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.