{"url_path":"/sec/kwmww/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 A. Operating Results**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/2000756/0001829126-26-005357-index.html","accession_number":"0001829126-26-005357","cik":"0002000756","ticker":"KWM","issuer_name":"Nexus Advanced Technologies Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/2000756/0001829126-26-005357-index.html","primary_entity_key":"0002000756","primary_entity_name":"K Wave Media Ltd."},"word_count":5758,"has_tables":true,"body_markdown":"**Item 5.A. Operating Results**\n\n \n\nFor a description of the four segments of our operations, see Item 4. Information on the Company-B. Business Overview.\n\n \n\n**Basis of Presentation**\n\n \n\nThe accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), expressed in Korean Won (“KRW”).\n\n \n\n**Key Components of Statement of Operations**\n\n \n\nK Wave’s reporting currency is the KRW and its operating results and cash flows have been translated to U.S. dollar using the following exchange rates that represent the average daily rate in place for the respective period:\n\n \n\n \n●\nAt the period exchange rate as of December 31, 2025 of US$1.00 to KRW1,434.90 for the balance sheet;\n\n \n \n \n\n \n●\nAt the average exchange rate for the year ended December 31, 2025 of US$1.00 to KRW1,422.22 for the statements of operations and cash flow;\n\n \n \n \n\n \n●\nAt the average exchange rate for the year ended December 31, 2024 of US$1.00 to KRW 1,363.98 for the statements of operations and cash flow;\n\n \n\n**Results of operations**\n\n \n\nPresented below is summary consolidated statement of income information for the periods indicated:\n\n \n\n*Comparison of the years ended December 31, 2025 and 2024*\n\n \n\n \n \n**Year Ended December 31, 2025**\n \n \n**Year Ended December 31, 2024**\n \n\n \n \n**(In millions of Korean won and US dollar)**\n \n\n**Income Statement:**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\n**Revenues**\n \n₩\n78,081\n \n \n$\n54,900,854\n \n \n₩\n43,010\n \n \n$\n31,545,495\n \n\n**Cost of sales**\n \n \n(71,203\n)\n \n \n(50,065,043\n)\n \n \n(41,912\n)\n \n \n(30,739,899\n)\n\n**Gross profit**\n \n \n6,878\n \n \n \n4,835,811\n \n \n \n1,098\n \n \n \n805,596\n \n\n**Operating expenses**\n \n \n(201,605\n)\n \n \n(141,754,352\n)\n \n \n(4,605\n)\n \n \n(3,377,691\n)\n\n**Operating income(loss)**\n \n \n(194,727\n)\n \n \n(136,918,542\n)\n \n \n(3,507\n)\n \n \n(2,572,095\n)\n\n**Other expense**\n \n \n(12,947\n)\n \n \n(9,103,352\n)\n \n \n(805\n)\n \n \n(590,384\n)\n\n**Profit(Loss) before taxes**\n \n \n(207,674\n)\n \n \n(146,021,894\n)\n \n \n(4,312\n)\n \n \n(3,162,479\n)\n\n**Income tax benefit (expense)**\n \n \n(436\n)\n \n \n(305,921\n)\n \n \n754\n \n \n \n552,757\n \n\n**Net income(loss)**\n \n₩\n(208,110\n)\n \n$\n(146,327,815\n)\n \n₩\n(3,558\n)\n \n$\n(2,609,722\n)\n\n \n\n60\n\n \n\n \n\nPresented below is additional information regarding our operations for each of our reportable segments for the periods indicated:\n\n \n\n**Revenues by operating segments**\n\n \n\n \n \n**Year Ended December 31, 2025**\n \n \n**Year Ended December 31, 2024**\n \n\n \n \n**(In millions of Korean won and US dollar)**\n \n\n**Content Merchandising**\n \n₩\n44,416\n \n \n$\n31,230,095\n \n \n₩\n28,380\n \n \n$\n20,806,662\n \n\n**Food and beverages**\n \n \n12,229\n \n \n \n8,665,335\n \n \n \n14630\n \n \n \n10726263\n \n\n**Content production**\n \n \n20,691\n \n \n \n14,548,411\n \n \n \n-\n \n \n \n-\n \n\n**Content investment**\n \n \n745\n \n \n \n523927\n \n \n \n-\n \n \n \n-\n \n\n**Total**\n \n \n78,081\n \n \n \n54,967,768\n \n \n \n43,010\n \n \n \n31,532,925\n \n\n \n\n**Gross Profit by operating segments**\n\n \n\n \n \n**Year Ended December 31, 2025**\n \n \n**Year Ended December 31, 2024**\n \n\n \n \n**(In millions of Korean won and US dollar)**\n \n\n**Content Merchandising**\n \n₩\n6,045\n \n \n$\n4,250,196\n \n \n₩\n1,846\n \n \n$\n1,353,688\n \n\n**Food and beverages**\n \n \n129\n \n \n \n90,852\n \n \n \n(748\n)\n \n \n(548,413\n)\n\n**Content production**\n \n \n(12\n)\n \n \n(8,639\n)\n \n \n-\n \n \n \n-\n \n\n**Content investment**\n \n \n716\n \n \n \n503,402\n \n \n \n-\n \n \n \n-\n \n\n**Total**\n \n \n6,878\n \n \n \n4,835,811\n \n \n \n1,098\n \n \n \n805,275\n \n\n \n\n**Operating expenses by operating segments**\n\n \n\n \n \n**Year Ended December 31, 2025**\n \n \n**Year Ended December 31, 2024**\n \n\n \n \n**(In millions of Korean won and US dollar)**\n \n\n**Content Merchandising**\n \n₩\n2,404\n \n \n$\n1,690,181\n \n \n₩\n2,815\n \n \n$\n2,064,109\n \n\n**Food and beverages**\n \n \n1,738\n \n \n \n1,222,084\n \n \n \n1,520\n \n \n \n1,114,726\n \n\n**Content production**\n \n \n196,147\n \n \n \n137,916,857\n \n \n \n-\n \n \n \n-\n \n\n**Content investment**\n \n \n1,316\n \n \n \n925,230\n \n \n \n-\n \n \n \n-\n \n\n**Total**\n \n \n201,605\n \n \n \n141,754,352\n \n \n \n4,335\n \n \n \n3,178,835\n \n\n \n\n**2025 Compared to 2024**\n\n \n\n**Operating Revenue**\n\n \n\nOur consolidated operating revenue increased by 81.5% to KRW 78,081 million (USD $54.9 million) in 2025 from KRW 43,010 million (USD $31.5 million) in 2024, primarily due to incremental content production and content investment revenues resulting from the acquisition of Six Korean Entities. The increase was also driven by an increase in content merchandising revenue, partially offset by a decrease in food and beverages revenue.\n\n \n\nThe following sets forth additional information about our operating revenues with respect to each of our reportable segments.\n\n \n\n61\n\n \n\n \n\n*Content Merchandising*\n\n \n\nFor the years ended December 31, 2025 and 2024, content merchandising segment revenue increased by KRW 16,036 million (USD $10.0 million). This is primarily attributable to an increase in merchandise revenue resulted from a K-pop boyband’s tours in Europe and USA during 2025.\n\n \n\n*Food and Beverages*\n\n \n\nFor the years ended December 31, 2025 and 2024, food and beverages segment revenue decreased by KRW 2,306 million (USD $2.0 million). The decrease in food and beverages segment revenue was primarily attributable to the closure of certain store locations following the expiration of lease agreements.\n\n \n\n*Content Production and Content Investment*\n\n \n\nThe increase in content production segment revenue and content investment segment revenue is primarily due to incremental revenues from the acquisition of Six Korean Entities. These revenues were included for the year ended December 31, 2025 subsequent to the completion of the business combination, whereas no such revenues were included in the year ended December 31, 2024.\n\n \n\n**Gross Profit**\n\n \n\nOur consolidated gross profit significantly increased by 526.4% to KRW 6,878 million (USD $4.8 million) in 2025 from KRW 1,098 million (USD $0.8 million) in 2024 as the increase in operating revenue outpaced the increase in cost of sales in 2025.\n\n \n\nThe following sets forth additional information about our gross profit with respect to each of our reportable segments.\n\n \n\n*Content Merchandising*\n\n \n\nContent merchandising segment’s gross profit increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW 4,199 million (USD $3.0 million), or 227.5%, due to the increase in revenue of KRW 16,036 million (USD $10.0 million), or 56.5%. The higher growth rate in gross profit compared to the increase in revenue was primarily attributable to the increase in revenue driven by an effort of reducing the cost of merchandises for K-pop boyband’s overseas tour in Europe and USA in 2025.\n\n \n\n*Food and Beverages*\n\n \n\nFood and beverages segment’s gross profit increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW 877 million (USD $1.0 million), or 117.2%, despite a decrease in revenue of KRW 2,306 million (USD $2.0 million), or 15.8%. Food and beverages segment generates revenue through the sale of coffee and bakery products, with key raw materials consisting primarily of milk, fresh cream, flour, butter, and related ingredients. For the year ended December 31, 2025, gross profit increased primarily due to improvements in the cost structure resulting from the renegotiation of purchase prices with raw material suppliers and the replacement of suppliers, which led to lower raw material unit costs and an overall recovery in margins as compared to the year ended December 31, 2024.\n\n \n\n*Content production*\n\n \n\nGross profit consists of total revenue less cost of revenue. Cost of revenue of content production segment consists primarily of direct production costs, including pre-production expenditures such as planning, scripting, directing, and producer-related fees; staff and talent-related costs, including royalties, casting, performers’ fees, stunt services, and other production personnel expenses; production-stage costs, including camera and lighting equipment, special effects, vehicles, set construction, art department materials, costumes, props, location rentals, insurance, and other on-site production support costs such as lodging, meals, transportation, consumables, communications, and related miscellaneous expenses. Cost of revenue also includes post-production costs, such as color correction, editing, music composition and licensing, recording services, and post-production support, as well as general production management expenses.\n\n \n\n62\n\n \n\n \n\n*Content investment*\n\n \n\nGross profit consists of total revenue less cost of revenue. Cost of revenue of content investment segment consists primarily of investment expenses and losses from investments in associates.\n\n \n\n**Operating Expenses**\n\n \n\nOur consolidated operating expenses significantly increased by 4,278.0% to KRW 201,605 million (USD $141.8 million) in 2025 from KRW 4,605 million (USD $3.4 million) in 2024, primarily due to a 247.1% increase in payroll and payroll related costs to KRW 8,499 million (USD $6.0 million) in 2025 from KRW 2,449 million (USD $1.8 million) in 2024, as well as the recognition of share‑based payment expenses of KRW 25,511 million (USD $17.9 million) and listing expenses of KRW 25,075 million (USD $17.6 million), which did not occur in 2024. The increase was further driven by impairment losses on goodwill of KRW 129,072 million (USD $90.8 million) recognized in 2025.\n\n \n\nThe following sets forth additional information about our operating expenses with respect to each of our reportable segments.\n\n \n\n*Content Merchandising*\n\n \n\nFor the year ended December 31, 2025 and 2024, content merchandising segment’s operating expenses were primarily driven by payroll and payroll related costs of KRW 1,564 million (USD $1.1 million) and KRW 1,428 million (USD $1.0 million), respectively, and depreciation expenses of KRW 684 million (USD $0.5 million) and KRW 356 million (USD $0.3 million), respectively. Content merchandising segment’s operating expenses decreased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW 411 million (USD $0.3 million). This is primarily attributable to bad debt expenses of KRW 297 million (USD $0.2 million) for the year ended December 31, 2024, which did not recur during the year ended December 31, 2025, and other bad debt expenses of KRW 347 million (USD $0.3 million) which also did not recur during the year ended December 31, 2025. This decrease is partially offset by a reversal of other bad debt expenses of KRW 156 million (USD $0.1 million) for the year ended December 31, 2025, which did not occur for the year ended December 31, 2024.\n\n \n\n*Food and Beverages*\n\n \n\nFor the year ended December 31, 2025 and 2024, food and beverages segment’s operating expenses were primarily driven by payroll and payroll related costs of KRW 1,187 million (USD $0.8 million) and KRW 841 million (USD $0.6 million), respectively, and rental income of KRW 472 million (USD $0.3 million) and KRW 808 million (USD $0.6 million), respectively, and losses on disposal or retirement of property and equipment of KRW 711 million (USD $0.5 million) and KRW 307 million (USD $0.2 million), respectively, and impairment loss of property and equipment of KRW 153 million (USD $0.1 million) and KRW 965 million (USD $0.7 million), respectively. Food and beverages segment’s operating expenses increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW 218 million (USD $0.2 million).\n\n \n\n*Content production*\n\n \n\nFor the year ended December 31, 2025, content production segment’s operating expenses were primarily driven by listing expenses of KRW 25,075 million (USD $17.6 million) arising from the De-SPAC transaction, which was accounted under IFRS 2, payroll and payroll related costs of KRW 4,950 million (USD $3.5 million), and commissions expenses of KRW 8,166 million (USD $5.7 million). This is also driven by share-based payments expenses of KRW 25,511 million (USD $17.9 million) due to the Share Purchase Agreement with Hyoungseok Cho, CEO of Play Company and impairment loss on goodwill of KRW 129,072 million (USD $90.8 million).\n\n \n\n*Content Investment*\n\n \n\nFor the year ended December 31, 2025, content investment segment’s operating expenses were primarily driven by payroll and payroll related costs of KRW 923 million (USD $0.6 million), depreciation expenses of KRW 84 million (less than USD $0.1 million), and commissions expenses of KRW 172 million (USD $0.1 million).\n\n \n\n63\n\n \n\n \n\n**Finance Income and Finance Costs. **\n\n \n\nOur finance income increased by 4,174.9% to KRW 24,648 million (USD $17.3 million) in 2025 from KRW 577 million (USD $0.4 million) in 2024, primarily due to recognition of gain relating to financial instruments at fair value through profit or loss, primarily reflecting the valuation gains on derivatives financial instruments, including warrants and embedded conversion features of senior secured convertible notes, recognized in 2025 following the initial issuance and subsequent fair value remeasurement of these instruments issued to Anson Funds and Galaxy Digital. These gains were recognized primarily due to the decrease in the share price of K Wave as of December 31, 2025.\n\n \n\nOur finance costs increased by 2,621.2% to KRW 37,594 million (USD $26.4 million) in 2025 from KRW 1,382 million (USD $1.0 million) in 2024, primarily due to a significant increase in interest expense to KRW 3,904 million (USD $2.7 million) in 2025 from KRW 1,257 million (USD $0.9 million) in 2024 and losses on initial recognition of financial liabilities measured at fair value through profit or loss of KRW 26,228 million (USD 18.4 million) recognized in 2025. These losses arose in connection with the issuance of senior secured convertible notes and warrants, where the fair value of the financial liabilities recognized at issuance exceeded the cash proceeds received, resulting in immediate recognition of the difference as finance costs.\n\n \n\n**Income Tax**\n\n \n\nIncome tax expense was KRW 436 million (USD $0.3\nmillion) in 2025, compared to income tax benefits of KRW 754 million (USD $0.6 million) in 2024. This is primarily attributable to an\nincrease in profit before income taxes, particularly in the content merchandising segment, in 2025, whereas in 2024, a loss before income\ntaxes was recorded, resulting in the recognition of income tax benefits. The increase in income tax expense in the content merchandising\nsegment was partially offset by incremental income tax benefits from the acquisition of Six Korean Entities. These income tax expenses\nwere included for the year ended December 31, 2025 subsequent to the completion of the business combination, whereas no such income\ntax benefits were included in the year ended December 31, 2024. Our effective tax rate in 2025 and 2024 is not calculated as we incurred\na loss before income taxes for years ended December 31, 2025 and 2024.\n\n \n\n**Loss for the Year**\n\n \n\nPrincipally as a result of the factors discussed above, our loss for the year increased by 5,749.1% to KRW 208,110 million (USD 146.3 million) in 2025 from KRW 3,558 million (USD 2.6 million) in 2024.\n\n \n\n**B. Liquidity and Capital Resources**\n\n \n\nK Wave has incurred significant losses and negative cash flows from operations. K Wave’s net loss was KRW 208,110 million (USD $146.3 million) for the period ended December 31, 2025.\n\n \n\nDuring the period ended December 31, 2025, K Wave had negative cash flows from operations of KRW 9,773 million (USD $6.9 million). K Wave has funded its operations to date through equity and debt financing and had cash equivalents of KRW 8,364 million (USD $5.8 million) as of December 31, 2025. Additionally, as of December 31, 2025, K Wave had a net working capital deficit of KRW 82,255 million (USD $57.3 million).\n\n \n\nThe Company expects to receive additional financing from Anson Funds pursuant to the sale of SPA Notes and SPA Warrants under the SPA, including anticipated proceeds from such sales of approximately USD $50 million in June 2026 and approximately USD $40 million during the second half of 2026, subject to the satisfaction of applicable closing conditions and the terms of the SPA. K Wave monitors its cash flow projections on a current basis and takes active measures to obtain the funding it requires to continue its operations. However, these cash flow projections are subject to various uncertainties concerning their fulfilment such as the ability to increase revenues by attracting and expanding K Wave’s customer base and completing additional financing. Additionally, as we have a limited operating history, K Wave’s liquidity and capital resources may change substantially from past results. K Wave expects to fund its continued operations using cash on hand and raising additional proceeds through equity and debt financing. There are no assurances, however, that K Wave will be able to generate the revenue necessary to support its cost structure or that it will be successful in obtaining the level of financing necessary for its operations. These conditions raise substantial doubt as to K Wave’s ability to continue as a going concern.\n\n \n\n64\n\n \n\n \n\nOur future capital requirements will depend on many factors, including K Wave’s revenue growth rate, the timing and extent of spending to support future sales and marketing and research and development efforts. In order to finance these opportunities, we may need to raise additional financing. While there can be no assurances, if additional capital is required, we intend to raise such capital through operations, additional issuances of securities such as convertible notes and preferred stock, and through the follow on offering. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, K Wave’s business, results of operations and financial condition would be materially and adversely affected.\n\n \n\n**Cash Flow:**\n\n \n\nA summary of K Wave’s operating, investing, and financing cash flows prepared under IFRS is as follows:\n\n \n\n*Comparison of the years ended December 31, 2025 and 2024*\n\n \n\n \n \n**Year Ended December 31, 2025**\n \n \n**Year Ended December 31, 2024**\n \n\n \n \n**(In millions of Korean won and US dollar)**\n \n\n**Net cash provided by (used in)**\n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n\nOperating activities\n \n₩\n(9,773\n)\n \n$\n(6,871,810\n)\n \n₩\n(2,857\n)\n \n$\n(2,094,726\n)\n\nInvesting activities\n \n \n(16,345\n)\n \n \n(11,492,686\n)\n \n \n(361\n)\n \n \n(264,694\n)\n\nFinancing activities\n \n \n30,291\n \n \n \n21,298,472\n \n \n \n(1,287\n)\n \n \n(943,836\n)\n\nEffect of exchange rates on cash\n \n \n41\n \n \n \n28,905\n \n \n \n71\n \n \n \n51,700\n \n\n**Net change in cash and cash equivalents**\n \n₩\n4,214\n \n \n$\n2,962,881\n \n \n₩\n(4,434\n)\n \n$\n(3,251,556\n)\n\n \n\nNet cash flows used in\noperating activities increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW\n6,916 million (USD $4.8 million). The increase in net cash flow was primarily attributable to a higher net loss of KRW 204,552\nmillion (USD $143.7 million), which is offset by certain non-cash transactions incurred during the year. Fluctuations on major\nnon-cash transactions include an increase in listing fee of KRW 25,075 million (USD $17.6 million), an increase in losses on\ndisposal of long-term investment securities of KRW 2,132 million (USD $1.5 million), and an increase in interest expenses of KRW\n2,647 million (USD $1.8 million). In addition, net cash outflows from operating activities increased due to an increase in\nshare-based payments expenses of KRW 25,656 million (USD $18.0 million), an increase in impairment losses on intangible assets of\nKRW 2,898 million (USD $2.0 million), an increase in impairment losses on goodwill of KRW 129,072 million (USD $90.8 million), and\nan increase in losses on initial recognition of financial liabilities measured at fair value through profit or loss of KRW 26,228\nmillion (USD $18.4 million). This was partially offset by an increase in gains from changes in the fair value of warrants of KRW\n16,622 million (USD $11.7 million).\n\n \n\nNet cash flows used in investing activities increased for the year ended December 31, 2025 as compared to the year ended December 31, 2024 by KRW 15,984 million (USD $11.2 million). This increase was primarily attributable to the purchase of intangible assets of KRW 13,824 million (USD $9.7 million) and prepayment made related to the acquisition of subsidiary of KRW 3,000 million (USD $2.1 million), partially offset by an increase in cash flows from the acquisition of Six Korean Entities of KRW 3,571 million (USD $2.5 million).\n\n \n\nK Wave’s cash flows provided by financing activities for the year ended December 31, 2025 was KRW 30,291 million (USD $21.3 million), compared to KRW 1,287 million (USD $0.9 million) of cash flows used in financing activities for the year ended December 31, 2024. This increase was primarily attributable to the proceeds from convertible notes issued of KRW 25,573 million (USD $18.0 million) and cash inflows from short-term borrowings of KRW 5,482 million (USD $4.5 million), partially offset by the repayments made of short-term borrowings of KRW 3,016 million (USD $2.1 million).\n\n \n\n65\n\n \n\n \n\n**Contractual obligations and commitments**\n\n \n\n**PIPE Securities Purchase Agreement**\n\n \n\nOn January 31, 2025, the Company entered into a Securities Purchase Agreement (the “PIPE Securities Purchase Agreement”), with certain accredited investors (collectively, the “PIPE Investors”) and another institutional, accredited investor (the “Other PIPE Investor”), pursuant to which the PIPE Investors and the Other PIPE Investor agreed to subscribe for and purchase, and the Company agreed to issue and sell to the PIPE Investors and the Other PIPE Investor, at the closing of the transactions contemplated by the Merger Agreement, Convertible Senior Unsecured Promissory Notes (the “PIPE Notes”) convertible into shares Ordinary Shares (the financing under the PIPE Securities Purchase Agreement hereinafter referred to as the “PIPE Financing”) with an aggregate original principal amount of $4.5 million.\n\n \n\nOn May 13, 2025, upon the closing of the Business Combination, the Company issued and sold an original aggregate principal amount of $4.4 million of the PIPE Notes (the “Aggregate Closing PIPE Proceeds”) to the PIPE Investors in accordance with the terms and conditions of the PIPE Securities Purchase Agreement. In connection with the closing of the PIPE Financing, the Other PIPE Investor failed to pay for $100,000 for the PIPE Note for which the Other PIPE Investor had committed to purchase pursuant to the PIPE Securities Purchase Agreement.\n\n \n\nThe PIPE Notes are convertible into Ordinary Shares at a price of $5.00 per Ordinary Share, provided, that, under the terms of the PIPE Notes, a PIPE Investor may not convert its PIPE Notes to the extent (but only to the extent) such PIPE Investor or any of its affiliates would beneficially own a number of Ordinary Shares which would exceed 4.99% of the outstanding Ordinary Shares of the Company. The PIPE Notes bear interest at a rate of 3.00% per annum, which interest is payable semi-annually. The PIPE Notes mature and all principal and unpaid accrued interest will be payable on the date that is thirty-sixth (36) months following the issuance date of the PIPE Notes.\n\n \n\nThe Aggregate Closing PIPE Proceeds were released to the Company in connection with the transactions contemplated by the Business Combination Agreement.\n\n \n\nOn January 21, 2026, the Company issued to the PIPE Investors an aggregate of 893,200 Ordinary Shares upon the PIPE Investors’ conversion in full of all principal and interest outstanding under the PIPE Notes in accordance with their terms. As a result of the conversion of the PIPE Notes by the PIPE Investors, the PIPE Notes were cancelled in their entirety.\n\n \n\n**Standby Equity Purchase Agreement**\n\n \n\nOn June 3, 2025, we entered into the SEPA with Bitcoin Strategic Reserve KWM LLC (“Bitcoin Strategic”), pursuant to which K Wave has the right to sell to Bitcoin Strategic up to $500 million of its Ordinary Shares, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA. Sales of Ordinary Shares to Bitcoin Strategic under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any Ordinary Shares to Bitcoin Strategic under the SEPA.\n\n \n\n**Anson Funds Securities Purchase Agreement**\n\n \n\nOn July 3, 2025, we entered into the SPA, by and among the Company and Anson Funds, and Anson Investments Master Fund L.P., as collateral agent for the Selling Shareholders (the “SPA”), pursuant to which we (i) issued and sold Senior Secured Convertible Notes on July 11, 2025 to the Anson Funds in the aggregate principal amount of $15,789,473.68 and warrants to purchase up to $15,789,478.29 of our Ordinary Shares, and, subject to the terms and conditions of the SPA being met, (ii) may issue and sell to the Selling Shareholders up to $485 million in senior secured convertible notes and warrants to purchase up to $510,526,316 of Ordinary Shares. Pursuant to the SPA, the Company will use proceeds from the sale of future notes and warrants exclusively for AI infrastructure investment,\n\n \n\n66\n\n \n\n \n\n**Galaxy Digital Securities Purchase Agreement**\n\n \n\nOn September 26, 2025, the Company entered into the Galaxy Securities Purchase Agreement. Pursuant to the Galaxy Securities Purchase Agreement, on January 26, 2026, the Company issued and sold to Galaxy Digital LP (i) 400,000 Ordinary Shares for an aggregate purchase price of $1,000,000, and (ii) warrants to purchase 200,000 Ordinary Shares (the “Galaxy Warrants”).\n\n \n\nThe Galaxy Warrants provide Galaxy Digital LP the right to purchase an aggregate of 200,000 Ordinary Shares at an exercise price of $2.75 per Ordinary Share (subject to customary adjustment provisions in the Warrants, including adjustments upon dividends by the Company of Ordinary Shares and upon any stock splits effectuated by the Company) and are immediately exercisable. The Galaxy Warrants expire on the fifth anniversary of the date of the Galaxy Digital Securities Purchase Agreement.\n\n \n\nPursuant to the Galaxy Warrants, Galaxy Digital LP will not have the right to exercise the Galaxy Warrants, to the extent that after giving effect to the exercise, Galaxy Digital LP and certain of its affiliates would beneficially own in excess of 4.99% of the number of Ordinary Shares outstanding immediately after giving effect to the exercise.\n\n \n\n**Service Provider Agreements**\n\n \n\nOn September 24, 2023, Global Star engaged EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”), to act as the exclusive placement agent (“Placement Agent”) for the Company, in connection with the proposed offering by private placement of equity or equity-linked securities in the form of a PIPE, forward purchase arrangement or similar type of equity line financing (each, a “Placement”) to “qualified institutional buyers” as such term is defined in Rule 144A promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and to the institutional accredited investors as such term is defined in Regulation D promulgated under the Securities Act of the Company’s equity or equity-linked securities, including warrants, options or other rights to purchase such securities (collectively, the “Securities”). In case of successful Placements, a non-refundable cash placement fee (the “Placement Fee”), payable at each closing of a Placement, in an amount equal to 7.0%, as well as foreign placement fee of 1% and reduced placement fee of 1% of the aggregate gross proceeds from the sale of all Securities in the Placement would be due and payable to EF Hutton.\n\n \n\nOn January 31, 2025, Global Star and EF Hutton entered into a satisfaction and discharge of indebtedness agreement (the “Satisfaction and Discharge Agreement”), effective November 5, 2024, pursuant to which, in lieu of the $3.2 million deferred underwriting commission payable by K Wave to EF Hutton in connection with the consummation of the Business Combination, EF Hutton agreed to accept (i) $500,000 in cash, payable starting from the date of the consummation of the Business Combination (ii) 50,000 Ordinary Shares of K Wave; and (iii) a promissory note in the principal amount of $2,000,000 (the “EF Hutton Note”). Accordingly, at the closing of the Business Combination on May 13, 2025, K Wave paid to EF Hutton $150,000 in cash and delivered the EF Hutton Note. The number of Ordinary shares of K Wave deliverable within 60 following the closing of the Business Combination stipulated in the Satisfaction and Discharge Agreement are subject various provisions, including a make whole provision and a floor price at the date of their issuance and can range to, but not exceed 100,000. The Company accounts for such shares as financial liability which is remeasured at the fair value at the end of each reporting period subsequent to the date of the agreement with resulting gain or loss recorded in the Company’s statement of operations for the respective period. As of December 31, 2025, the amount of liability to settle in shares was $39,110.\n\n \n\nThe EF Hutton Note bears interest at 5% per annum solely if there is an event of default under the EF Hutton Note. The EF Hutton note matures on January 31, 2027, and, if by such date, K Wave fails to (i) consummate any EF Hutton Financing (as defined below), or (ii) consummate a sufficient amount of EF Hutton Financings so as to satisfy the outstanding amount owed under the EF Hutton Note, the EF Hutton Note will expire and any unpaid amounts thereunder will be forgiven. As of December 31, 2025, the amount outstanding under EF Hutton Note was $1,500,000.\n\n \n\n67\n\n \n\n \n\nPursuant to the EF Hutton Note, K Wave is only obligated to pay to EF Hutton the amounts of principal, interest (if any) and other amounts payable thereunder from the gross proceeds pursuant to the closing, if any, of one or more financings from the sale of any equity, equity derivative or debt instruments of K Wave and/or any of its subsidiaries involving EF Hutton (an “EF Hutton Financing”). Pursuant to the EF Hutton Note, K Wave is obligated to pay to EF Hutton 10% of the gross proceeds of any EF Hutton Financing until amounts payable under the EF Hutton Note are paid in full.\n\n \n\nOn May 13, 2025, K Wave entered into an engagement letter agreement with EF Hutton (the “May 2025 EF Hutton Engagement Letter”), pursuant to which EF Hutton was engaged to serve as the sole underwriter and/or placement agent for the proposed registered and/or unregistered offering of the Company’s equity, debt and/or equity derivative instruments (or the equity, debt and/or equity derivative instruments of any legal successor of the Company, including K Wave). As consideration for such services, the Company agreed to pay to EF Hutton, upon the closing of the Offering, 7% of the gross proceeds of the offering (provided that this percentage would be reduced to 3.5% if the Company raised proceeds outside of the United States), plus 1%) of the gross proceeds of the Offering for non-accountable expenses (together, the “8% Placement Fee”).\n\n \n\nOn July 4, 2025, K Wave and EF Hutton entered into Amendment No. 1 to the May 2025 EF Hutton Letter Agreement, pursuant to which (i) K Wave paid the $1,200,000 payable under the May 2025 EF Hutton Letter Agreement in connection with the Initial Closing (representing the 8% Placement Fee in connection with such offering), and, (ii) K Wave and EF Hutton agreed to amend the payment terms in the EF Hutton Note, as they pertain solely to the Initial Closing, such that K Wave would pay to EF Hutton at the time of the Initial Closing $500,000 as partial payment on the EF Hutton Note, rather than a payment of $1,500,000 (as required under the EF Hutton Note), leaving a balance of $1,500,000 of principal due on the EF Hutton Note. Pursuant to the Amendment No. 1, the parties also agreed to reduce the amount of gross proceeds payable under the EF Hutton Note in connection with the Second Closing and any Additional Closing (as such terms are defined in the SPA) from 10% to 7%.\n\n \n\n**Shareholders’ agreement in relation to the Share Purchase Agreement of Play Company Co., Ltd.**\n\n \n\nK Enter entered into a Share Purchase Agreement on March 31, 2023 (which became effective on January 3, 2025) with Cho, Hyungseok, CEO of Play Company Co., Ltd (the “Play Share Purchase Agreement”), under which K Wave acquired all of the issued and outstanding shares of Play Company. The Play Share Purchase Agreement includes option rights and earn-out provisions as follows:\n\n \n\n \n \n**Equity Price Protection Right**\n \n**Earn-out**\n\nExercise right holder\n \nCho, Hyungseok\n(CEO of Play Company Co., Ltd.)\n \nCho, Hyungseok\n(CEO of Play Company Co., Ltd.)\n\n \n \n \n \n \n\nExercise right obligor\n \nBuyer (K Enter)\n \nBuyer (K Enter)\n\n \n \n \n \n \n\nObject of exercise\n \nK Wave shares received as consideration (listed on Nasdaq)\n \nAdditional purchase price adjustment based on Play Company’s average net profit for FY2023–FY2025\n\n \n \n \n \n \n\nExercise period\n \nDuring 3 months following 6-month lock-up expiration\n \nSettlement due on Jan 31, 2027 and Jan 31, 2028\n\n \n \n \n \n \n\nExercise price / Settlement basis\n \nBuyer to compensate Seller for any shortfall if shares sold below initial value; adjusted for gains realized/distributable up to December 31, 2026.\n \nIf the achievement rate is less than 75% or greater than 125% of the target of KRW 16.14 billion, the settlement amount will be calculated as the achieved percentage multiplied by KRW 9.05 billion. If the achievement rate falls between 75% and 125%, the settlement amount will be a fixed KRW 9.05 billion per year.\n\n \n\n68\n\n \n\n \n\nAs of December 31, 2025, liabilities related to Equity Price Protection Right (which is accounted under share based payment and classified as employees benefits liabilities in the consolidated financial statements) and Earn-out provision (which is classified as employees benefits liabilities in the Consolidated financial statements) amount to KRW 25,738,891 thousand and KRW 1.410,055 thousand (approximately USD $18,920,444).\n\n \n\nOn April 28, 2026, K Wave’s board of directors approved the entry into a Rescission and Termination Agreement (the “Play Rescission Agreement”) with Cho Hyung Seok, pursuant to which the parties intend to fully unwind the transactions consummated pursuant to the Play Share Purchase Agreement, including K Wave’s purchase of all of the outstanding shares of Play Company. Pursuant to the Play Share Purchase Agreement, in consideration of K Wave’s purchase of Play Company from Mr. Cho, K Wave issued approximately 8,622,587 Ordinary Shares to Mr. Cho and agreed to pay additional cash consideration of approximately USD $25,000,000, which remains unpaid as of the date of these financial statements. Pursuant to the Play Rescission Agreement, K Wave will transfer 100% of the shares of Play Company back to Mr. Cho free and clear of all encumbrances and, in consideration therefor, Mr. Cho will irrevocably and unconditionally release and discharge K Wave and its affiliates from all obligations arising under the Play Share Purchase Agreement, including the outstanding USD $25,000,000 cash consideration payable to Mr. Cho, all contingent and accrued liabilities, any price guarantee obligations, and all other known and unknown claims. The Company has further agreed to waive any right to clawback the Ordinary Shares previously issued to Mr. Cho (other than the 46,280 shares retained by Mr. Cho as of the date hereof), and the parties will grant each other a full mutual release of all claims, whether known or unknown, fixed or contingent, arising out of or relating to the Play Share Purchase Agreement.\n\n \n\nThe Play Rescission Agreement is currently being finalized and its effectiveness is conditioned upon, among other things, execution by both parties, approval of the Play Rescission Agreement by K Wave’s shareholders, and receipt of any necessary regulatory or third-party consents. Upon satisfaction of all such conditions precedent, all liabilities of the Company to Mr. Cho described above shall be conclusively and irrevocably extinguished, and the Company expects to derecognize the assets and liabilities associated with Play Company and record the extinguishment of the approximately USD $25,000,000 payable and related obligations in the period in which the Play Rescission Agreement becomes effective.\n\n \n\n**C. Research and Development, Patents and Licenses, etc.**\n\n \n\nSee “Item 4. Information on the Company-B. Business Overview- Intellectual Property.”\n\n \n\n**D. Trend Information**\n\n \n\nFor a discussion of trend information, see “Item 4. Information on the Company-B. Business Overview-Key Market Trends.”\n\n \n\n**E. Critical Accounting Estimates**\n\n \n\nOur consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS Accounting Standards”) issued by the International Accounting Standards Board (“IASB”). In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates, presenting the significant accounting policies in Note 5 of our audited consolidated financial statements included elsewhere in this annual report.\n\n \n\n69"}