ITEM
1. INTERIM FINANCIAL STATEMENTS
eMARINE
Global Inc.
Condensed
Consolidated Balance Sheets
September
30, 2017 and December 31, 2016
(In
thousands of Korean Won, except share and per share amounts)
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
₩
|
294,449
|
|
|
₩
|
157,971
|
|
Short-term
financial instruments
|
|
|
314,000
|
|
|
|
65,000
|
|
Accounts
receivable, net of allowance for doubtful accounts of ₩22,264 and ₩5,830, as of September 30, 2017 and
December 31, 2016, respectively
|
|
|
1,016,661
|
|
|
|
307,116
|
|
Inventories
|
|
|
51,800
|
|
|
|
231,290
|
|
Loans
to related parties
|
|
|
159,866
|
|
|
|
164,000
|
|
Other
current assets
|
|
|
61,559
|
|
|
|
68,972
|
|
Total
Current Assets
|
|
|
1,898,335
|
|
|
|
994,349
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
45,372
|
|
|
|
24,987
|
|
Goodwill
|
|
|
1,930,625
|
|
|
|
1,930,625
|
|
Intangible
assets, net
|
|
|
3,278
|
|
|
|
7,239
|
|
Deposits
|
|
|
150,448
|
|
|
|
87,798
|
|
Total
Assets
|
|
₩
|
4,028,058
|
|
|
₩
|
3,044,998
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
₩
|
822,168
|
|
|
₩
|
956,395
|
|
Nontrade
payables
|
|
|
999,935
|
|
|
|
1,167,347
|
|
Other
current liabilities
|
|
|
625,618
|
|
|
|
287,615
|
|
Short-term
borrowings
|
|
|
3,069,468
|
|
|
|
2,632,725
|
|
Current
portion of long-term debt
|
|
|
203,000
|
|
|
|
120,000
|
|
Total
Current Liabilities
|
|
|
5,720,189
|
|
|
|
5,164,082
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
757,000
|
|
|
|
730,000
|
|
Loans
from related parties
|
|
|
91,340
|
|
|
|
221,505
|
|
Accrued
benefit pension liability
|
|
|
752,985
|
|
|
|
880,656
|
|
Total
Liabilities
|
|
|
7,321,514
|
|
|
|
6,996,243
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
Equity - Redeemable convertible preferred stock
|
|
|
-
|
|
|
|
636,007
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT:
|
|
|
|
|
|
|
|
|
Stock
subscriptions
|
|
|
129,963
|
|
|
|
-
|
|
Common
stock, $0.001 par value, 300,000,000 shares authorized, 17,072 shares issued and outstanding as of December 31, 2016; $0.001
par value, 100,000,000 shares authorized, 21,731,317 shares issued and outstanding as of September 30, 2017
|
|
|
24,559
|
|
|
|
21
|
|
Additional
paid-in capital
|
|
|
6,362,925
|
|
|
|
3,327,413
|
|
Other
comprehensive income (loss)
|
|
|
86,006
|
|
|
|
(73,138
|
)
|
Accumulated
deficit
|
|
|
(9,896,909
|
)
|
|
|
(7,841,548
|
)
|
Total
Stockholders’ Deficit
|
|
|
(3,293,456
|
)
|
|
|
(4,587,252
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
₩
|
4,028,058
|
|
|
₩
|
3,044,998
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
eMARINE
Global Inc.
Condensed
Consolidated Statements of Operations and Comprehensive
Income
For
the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In
thousands of Korean Won, except share and per share amounts)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
₩
|
316,430
|
|
|
₩
|
507,323
|
|
|
₩
|
1,215,231
|
|
|
₩
|
1,679,552
|
|
Service
|
|
|
609,998
|
|
|
|
208,957
|
|
|
|
1,681,319
|
|
|
|
1,289,647
|
|
Total
revenue
|
|
|
926,428
|
|
|
|
716,280
|
|
|
|
2,896,550
|
|
|
|
2,969,199
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
141,551
|
|
|
|
350,935
|
|
|
|
983,841
|
|
|
|
1,054,712
|
|
Service
|
|
|
405,869
|
|
|
|
694,090
|
|
|
|
1,488,539
|
|
|
|
1,751,262
|
|
Total
cost of revenue
|
|
|
547,420
|
|
|
|
1,045,025
|
|
|
|
2,472,380
|
|
|
|
2,805,974
|
|
Gross
margin
|
|
|
379,008
|
|
|
|
(328,745
|
)
|
|
|
424,170
|
|
|
|
163,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,337,646
|
|
|
|
742,292
|
|
|
|
2,324,769
|
|
|
|
2,174,784
|
|
Loss
from operations
|
|
|
(958,638
|
)
|
|
|
(1,071,037
|
)
|
|
|
(1,900,599
|
)
|
|
|
(2,011,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(77,377
|
)
|
|
|
(56,139
|
)
|
|
|
(180,862
|
)
|
|
|
(166,153
|
)
|
Other
income (expense), net
|
|
|
(1,907
|
)
|
|
|
9,169
|
|
|
|
(11,385
|
)
|
|
|
(5,052
|
)
|
Total
other expense
|
|
|
(79,284
|
)
|
|
|
(46,970
|
)
|
|
|
(192,247
|
)
|
|
|
(171,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income tax benefit
|
|
|
(1,037,922
|
)
|
|
|
(1,118,007
|
)
|
|
|
(2,092,846
|
)
|
|
|
(2,182,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (benefit)
|
|
|
(9,605
|
)
|
|
|
-
|
|
|
|
(37,485
|
)
|
|
|
(16,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(1,028,317
|
)
|
|
₩
|
(1,118,007
|
)
|
|
₩
|
(2,055,361
|
)
|
|
₩
|
(2,166,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
₩
|
(0.10
|
)
|
|
₩
|
(65.49
|
)
|
|
₩
|
(0.59
|
)
|
|
₩
|
(126.91
|
)
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
10,094,682
|
|
|
|
17,072
|
|
|
|
3,468,071
|
|
|
|
17,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(1,028,317
|
)
|
|
₩
|
(1,118,007
|
)
|
|
₩
|
(2,055,361
|
)
|
|
₩
|
(2,166,560
|
)
|
Other
comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange translation income
|
|
|
26,244
|
|
|
|
-
|
|
|
|
26,244
|
|
|
|
-
|
|
Remeasurement
of pension liabilities
|
|
|
34,055
|
|
|
|
-
|
|
|
|
132,900
|
|
|
|
57,453
|
|
Other
comprehensive income, net of tax:
|
|
|
60,299
|
|
|
|
-
|
|
|
|
159,144
|
|
|
|
57,453
|
|
Comprehensive
loss
|
|
₩
|
(968,018
|
)
|
|
₩
|
(1,118,007
|
)
|
|
₩
|
(1,896,217
|
)
|
|
₩
|
(2,109,107
|
)
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
eMARINE
Global Inc.
Condensed
Consolidated Statements of Cash Flows
For
the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
(In
thousands of Korean Won)
|
|
Period
Ended
|
|
|
Period
Ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(2,055,361
|
)
|
|
₩
|
(2,166,560
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,671
|
|
|
|
13,667
|
|
Pension
plan expenses
|
|
|
165,654
|
|
|
|
200,250
|
|
Bad
debt
|
|
|
17,209
|
|
|
|
5,830
|
|
Deferred
income taxes
|
|
|
(37,485
|
)
|
|
|
(16,205
|
)
|
Warrants
issued for professional service
|
|
|
620,994
|
|
|
|
-
|
|
Other
|
|
|
6,429
|
|
|
|
(5,805
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(725,979
|
)
|
|
|
473,861
|
|
Inventories
|
|
|
179,490
|
|
|
|
58,870
|
|
Other
current assets
|
|
|
6,638
|
|
|
|
(14,622
|
)
|
Deposits
|
|
|
(62,650
|
)
|
|
|
-
|
|
Accounts
payable
|
|
|
(140,656
|
)
|
|
|
215,983
|
|
Nontrade
payables
|
|
|
(167,412
|
)
|
|
|
220,636
|
|
Other
current liabilities
|
|
|
338,002
|
|
|
|
817,988
|
|
Pension
benefits payments
|
|
|
(122,939
|
)
|
|
|
(73,460
|
)
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,958,395
|
)
|
|
|
(269,567
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease
in loans to related parties
|
|
|
3,966
|
|
|
|
3,000
|
|
Purchase
of short-term financial instruments
|
|
|
(249,000
|
)
|
|
|
(70,996
|
)
|
Purchase
of property and equipment
|
|
|
(33,699
|
)
|
|
|
(11,178
|
)
|
Purchase
of intangible assets
|
|
|
(2,395
|
)
|
|
|
(21,867
|
)
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(281,128
|
)
|
|
|
(101,041
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from private placement, net
|
|
|
1,864,683
|
|
|
|
-
|
|
Stock
subscriptions
|
|
|
129,963
|
|
|
|
-
|
|
Drawdown
of short-term borrowings
|
|
|
436,744
|
|
|
|
-
|
|
Repayment
of short-term borrowings
|
|
|
-
|
|
|
|
(563,277
|
)
|
Repayment
of current portion of long-term debt
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
Borrowings
of long-term debt
|
|
|
200,000
|
|
|
|
507,101
|
|
Issuance
of redeemable convertible preferred stock
|
|
|
-
|
|
|
|
636,007
|
|
Increase
in loans from related parties
|
|
|
131,922
|
|
|
|
|
|
Repayment
of loans from related parties
|
|
|
(262,087
|
)
|
|
|
-
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,411,225
|
|
|
|
489,831
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
(35,224
|
)
|
|
|
-
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
136,478
|
|
|
|
119,223
|
|
CASH
AND CASH EQUIVALENTS- beginning of year
|
|
|
157,971
|
|
|
|
153,595
|
|
CASH
AND CASH EQUIVALENTS- end of year
|
|
₩
|
294,449
|
|
|
₩
|
272,818
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
₩
|
180,508
|
|
|
₩
|
164,927
|
|
Income
taxes
|
|
₩
|
-
|
|
|
₩
|
-
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Conversion
of redeemable convertible preferred stock to common stock
|
|
₩
|
636,007
|
|
|
₩
|
-
|
|
Exchange
of debt for common stock
|
|
₩
|
4,759,322
|
|
|
₩
|
-
|
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
eMARINE
Global Inc.
Condensed
Consolidated Statements of Changes in Stockholders’
Deficit
For
the Nine Months Ended September 30, 2017
(Unaudited)
(In
thousands of Korean Won, except share amounts)
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
$0.001
Par Value
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Subscriptions
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance,
December 31, 2016
|
|
₩
|
-
|
|
|
|
17,072
|
|
|
₩
|
21
|
|
|
₩
|
3,327,413
|
|
|
₩
|
(73,138
|
)
|
|
₩
|
(7,841,548
|
)
|
|
₩
|
(4,587,252
|
)
|
Exchange
of debt for common stock
|
|
|
|
|
|
|
982,361
|
|
|
|
1,110
|
|
|
|
4,758,212
|
|
|
|
|
|
|
|
|
|
|
|
4,759,322
|
|
Conversion
of redeemable convertible preferred stock to common stock
|
|
|
-
|
|
|
|
12,800
|
|
|
|
128,000
|
|
|
|
508,007
|
|
|
|
|
|
|
|
|
|
|
|
636,007
|
|
Recapitalization
on reverse merger - purging previous shares
|
|
|
-
|
|
|
|
(1,012,233
|
)
|
|
|
(129,131
|
)
|
|
|
(8,593,632
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,722,763
|
)
|
Recapitalization
on reverse merger - issuance of new shares
|
|
|
|
|
|
|
16,001,317
|
|
|
|
18,084
|
|
|
|
3,883,724
|
|
|
|
|
|
|
|
|
|
|
|
4,031,771
|
|
Private
placement
|
|
|
129,963
|
|
|
|
3,530,000
|
|
|
|
3,989
|
|
|
|
1,990,656
|
|
|
|
|
|
|
|
|
|
|
|
1,994,645
|
|
Stock
issuance cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,963
|
)
|
|
|
|
|
|
|
|
|
|
|
(129,963
|
)
|
Warrants
issued on professional service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620,994
|
|
|
|
|
|
|
|
|
|
|
|
620,994
|
|
Shares
issued on professional service
|
|
|
|
|
|
|
2,200,000
|
|
|
|
2,486
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
exchange translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,244
|
|
|
|
|
|
|
|
26,244
|
|
Remeasurement
of pension liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,900
|
|
|
|
|
|
|
|
132,900
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,055,361
|
)
|
|
|
(2,055,361
|
)
|
Balance,
September 30, 2017
|
|
₩
|
129,963
|
|
|
|
21,731,317
|
|
|
₩
|
24,559
|
|
|
₩
|
6,362,925
|
|
|
₩
|
86,006
|
|
|
₩
|
(9,896,909
|
)
|
|
₩
|
(3,293,456
|
)
|
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
References
to the “eMarine,” “EMRN,” the “Company,” “we,” “us,” and “our”
and other similar designations refer to eMarine Global Inc. and its wholly-owned subsidiary, e-Marine Co, Ltd. (“e-Marine”),
on a consolidated basis.
1.
Description of Business and Organization
eMarine
Global Inc. is a Nevada corporation (the “Company”) formed under the name “Web Views Corporation” on November
2, 2001. On October 20, 2008, we changed our name to “Pollex, Inc.”
On
July 25, 2017, we entered into a share exchange agreement (the “Exchange Agreement”) with e-Marine Co., Ltd., a corporation
organized under the laws of the Republic of Korea (“e-Marine”), and the shareholders of e-Marine (the “e-Marine
Shareholders”), pursuant to which the e-Marine Shareholders assigned, transferred and delivered, free and clear of all liens,
100% of the issued and outstanding shares of common stock of e-Marine, representing 100% of the equity interest in e-Marine (the
“e-Marine Shares”) to us in exchange for 14,975,000 restricted shares of our Common Stock (the “Share Exchange”).
As a result of the Share Exchange, e-Marine became our wholly-owned subsidiary, and the e-Marine Shareholders acquired a controlling
interest in the Company.
At
the time of the Share Exchange, the Company was engaged in the online games business by acquiring gaming licenses in order to
make them commercially available abroad. As a result of the Share Exchange, we have now assumed e-Marine’s business operations
as our own. The acquisition of e-Marine is treated as a reverse acquisition, and the business of e-Marine became the business
of the Company.
e-Marine
Co., Ltd. was organized under the laws of the Republic of Korea on January 2, 2001, and is a maritime information and communications
technology provider based in South Korea. e-Marine seeks to achieve safety of life at sea through the use of various technologies,
such as e-Navigation, Maritime Internet-of-Things (otherwise known as “I.o.T.”) and marine big data technology (collectively,
“Maritime ICT Convergence”). e-Marine’s main products and services are divided into four categories: (1) Electronic
Chart Display & Information System (“ECDIS”); (2) Smart Ship; (3) Overseas Solutions Distributions; and (4) Aids
to Navigation.
On
August 15, 2017, we entered into an agreement and plan of (the “Merger Agreement”), pursuant to which we merged with
and into our newly formed wholly-owned subsidiary (the “Merger Sub” and, the transaction, the “Merger”).
As
permitted by Chapter 92A.180 of Nevada Revised Statutes, the purpose of the Merger was to effect a change of the Company’s
name from “Pollex, Inc.” to “eMARINE Global Inc.” Upon the filing of articles of merger with the Secretary
of State of Nevada on August 15, 2017 in order to effect the Merger, the Company’s articles of incorporation were deemed
amended to reflect the change in the Company’s corporate name. Upon consummation of the Merger, the separate existence of
Merger Sub ceased.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles
generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the
instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on
the same basis as the Company prepares its annual audited financial statements. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, unless
otherwise indicated, considered necessary for a fair presentation of such interim results.
The
results for the condensed consolidated statements of operations are not necessarily indicative of results to be expected for the
year ending December 31, 2017 or for any future interim period. The condensed consolidated balance sheet at September 30, 2017
has been derived from unaudited financial statements; however, it does not include all of the information and notes required by
GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction
with the financial statements for the year ended December 31, 2016, and notes thereto included in the Company’s current
report on Form 8-K/A filed on October 6, 2017.
Use
of Estimates and Assumptions
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining, among
other items, allowance for doubtful accounts, inventory reserve, impairment testing for goodwill and other intangible assets,
pension liabilities, income taxes and contingencies. Actual results could differ from those estimates. These financial statements
have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Fair
Value of Financial Instruments
The
Company adopted Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”,
for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value
to be applied to existing GAAP that requires the use of fair value measurements, establishes a framework for measuring fair value
and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s
financial position or operating results, but did expand certain disclosures.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs.
These
inputs are prioritized below:
Level
1:
|
Observable
inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level
2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market data
|
Level
3:
|
Unobservable
inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
Under
the standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant
to the fair value measurement.
The
carrying values reported in balance sheets for current financial assets and current financial liabilities approximate their estimated
fair market values based on the short-term maturity of these instruments.
Goodwill
and Other Intangible Assets
The
Company accounts for goodwill and intangible assets in accordance with ASC 350 “Intangibles - Goodwill and Other”.
ASC 350 requires that goodwill and other intangible assets with indefinite lives be tested for impairment annually or on an interim
basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.
Goodwill
represents the excess of the purchase price over the fair value of net assets acquired in business combinations. ASC 350 requires
that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment)
on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill
may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant
judgment is required to estimate the fair value of reporting units including estimating future cash flows, determining appropriate
discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of
fair value and/or goodwill impairment.
The
Company’s business includes one goodwill reporting unit. The Company annually reviews goodwill for possible impairment by
comparing the fair value of the reporting unit to reporting unit’s carrying amount. If the fair value exceeds the carrying
amount, no goodwill impairment is deemed to exist. If the fair value does not exceed the carrying amount, goodwill is tested for
impairment and written down to its implied fair value if it is determined to be impaired. The Company performs its annual goodwill
impairment test at December 31 on an annual basis.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Goodwill
and Other Intangible Assets (continued)
Amortization
is computed utilizing the straight-line method over the estimated useful life of 5 years for industrial property rights, software
and others. Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating or macroeconomic
environment. If an evaluation of the undiscounted future cash flows indicates impairment, the asset is written down to its estimated
fair value, which is based on its discounted future cash flows. Based upon its qualitative assessment, the Company determined
that intangible assets were not impaired on September 30, 2017 and December 31, 2016, respectively.
Revenue
Recognition
Revenue
recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can
be accounted for as separate units of accounting and, if so, the fair value of each element.
The
Company will recognize revenue for the sale of goods when:
|
●
|
Persuasive
evidence of an arrangement exists:
|
|
●
|
Delivery
has occurred;
|
|
●
|
Price
is fixed or determinable; and
|
|
●
|
Collectability
is reasonably assured.
|
Revenue
from services is recognized by reference to the stage of performance of the services when the Company can reliably measure the
amount of revenue and the recovery of the consideration is considered probable.
The
Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (“ASC”)
605, “Revenue Recognition”, which includes the guidelines of Staff Accounting Bulletin No. 104 as described above.
Income
Taxes
The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC
740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The
asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided
to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset
will not be realized. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount
of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.
The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed,
there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions.
The
portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected
as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not
to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
Functional
and Reporting Currency
The
Company uses Korean Won as its functional currency since the majority of the Company’s revenues, expenses, assets and liabilities
are recognized in the Republic of Korea and the reporting currency is the same as the functional currency.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Earnings
(Loss) per Share
Earnings
(loss) per share are calculated in accordance with ASC 260 “Earnings Per Share,” which provides for the calculation
of “basic” and “diluted” earnings (loss) per share. Basic earnings (loss) per share includes no dilution
and is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise
of stock options. The following securities were not included in the diluted net loss per share calculation because their effect
was anti-dilutive for the periods presented.
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Redeemable
convertible preferred stock
|
|
|
-
|
|
|
|
12,800
|
|
Common
stock warrants
|
|
|
8,825,000
|
|
|
|
-
|
|
Potential
dilutive shares
|
|
|
8,825,000
|
|
|
|
12,800
|
|
These
shares were excluded due to their antidilutive effect.
Recent
Accounting Pronouncements
In
February 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-02, Leases (Topic 842). FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing
lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative
and quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. The new
ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption
permitted. The Company is currently evaluating this ASU to determine its impact on the Company’s operations, financial position,
cash flows and disclosures.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date
of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning
after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including:
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus
agent considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing , which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
, which contains certain provision and practical expedients in response to identified implementation issues. The Company is planning
to adopt ASU 2014-09 and related ASUs on February 1, 2018. Companies may use either a full retrospective or a modified retrospective
approach to adopt these ASUs. The Company is currently evaluating these ASUs, including which transition approach to use, but
does not expect these ASUs to materially impact the Company’s net income, financial position or cash flows.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 along with amending other parts of the goodwill impairment
test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of
the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting
unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption
permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require
a prospective approach. The Company is currently evaluating this ASU to determine its impact on the Company’s operations,
financial position, cash flows and disclosures.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are
not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
3.
Inventories
The
components of inventories are as follows (in thousands of Korean Won):
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Finished
goods
|
|
₩
|
-
|
|
|
₩
|
98,100
|
|
Raw
materials
|
|
|
51,800
|
|
|
|
133,190
|
|
|
|
|
51,800
|
|
|
|
231,290
|
|
Less:
Inventory reserve
|
|
|
-
|
|
|
|
-
|
|
Total,
net
|
|
₩
|
51,800
|
|
|
₩
|
231,290
|
|
Inventories
are stated at the lower of cost, determined by the first-in, first-out (“FIFO”) method, or net realizable value. If
the cost of the inventories exceeds their net realizable value, provisions are recorded to write down excess inventory to its
net realizable value.
4.
Debt
Short-term
Borrowings
As
of September 30, 2017, the Company had ₩3,069,468 thousand of short-term borrowings from 4 financial institutions, with
a weighted-average interest rate of 4.37% and maturities ranging from 34 days to 365 days. As of December 31, 2016, the Company
had ₩2,632,725 thousand of short-term borrowings from 4 financial institutions, with a weighted-average interest rate of
5.31% and maturities ranging from 9 days to 307 days. The estimated fair values of the short-term borrowings approximate their
carrying values.
Long-term
Debt
The
components of the long-term debt, including the current portion, and the associated interest rates are as follows (in thousands
of Korean Won):
|
|
Interest
Rate
|
|
|
September
31, 2017
|
|
|
December
31, 2016
|
|
Loans
from financial institutions
|
|
|
4.39
- 5.90
|
%
|
|
₩
|
960,000
|
|
|
₩
|
850,000
|
|
Less:
current portion
|
|
|
|
|
|
|
(203,000
|
)
|
|
|
(120,000
|
)
|
Total
long-term debt
|
|
|
|
|
|
₩
|
757,000
|
|
|
₩
|
730,000
|
|
As
of September 30, 2017 and for the year-ended December 31, 2016, the estimated fair value of the long-term debt, including
the current portion, were
₩960,000 thousand and ₩850,000 thousand, respectively. These
estimated fair values are based on Level 2 inputs.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Future
principal payments of the Company’s long-term debt
for
each of the next five years and thereafter are summarized in the following table (in thousands of Korean Won):
Year Ending
December 31,
|
|
|
|
2017
|
|
₩
|
30,000
|
|
2018
|
|
|
245,240
|
|
2019
|
|
|
332,260
|
|
2020
|
|
|
233,160
|
|
2021
|
|
|
119,340
|
|
Total
|
|
₩
|
960,000
|
|
As
of September 30, 2017, and for the year-ended December 31, 2016, the Company was in compliance with the financial
covenant in credit agreements as defined in the credit agreements.
6.
Redeemable Convertible Preferred Stock
On
May 17, 2016, the Company’s subsidiary, e-Marine Co., Ltd. entered into a securities purchase agreement with an accredited
investor to place 12,800 redeemable convertible preferred shares (the “Preferred Stock”), par value ₩10,000
per share, in the aggregate principal amount of ₩640,000 thousand (the “Transaction”). The proceeds from sales
of the Preferred Stock, net of issuance cost of ₩3,993 thousand, were received in full on June 8, 2016.
Once
issued, the
Preferred
Stock had the following rights, privileges and preferences:
|
●
|
Dividends.
Holders of the Preferred Stock were entitled to receive dividends of 1% of par value of the common stock, as
declared by the board of directors and had participation rights.
|
|
●
|
Liquidation.
In the event of a liquidation of the Company, including a change of control transaction,
holders of the Preferred Stock were entitled to be paid an amount equal to their
investment amount before any payment would have been made to any other holder
of the Company’s common stock.
|
|
●
|
Voting.
Holders of the Preferred Stock held the same voting rights as those of the common
stock.
|
|
●
|
Conversion.
The Preferred Stock was convertible into shares of common stock at any time at
the holder’s election. Shares of the Preferred Stock automatically converted
into common stock one year after the date of issuance unless, at the option
of the holder, the Preferred Stock was redeemed before such date. The
Preferred Stock is convertible on a one-to-one basis into common stock.
|
|
●
|
Redemption.
The Preferred Stock was redeemable at its issuance cost plus a redemption
premium of 8% of interest on such cost if the Company failed to list
its shares on a securities exchange within 11-months after the date of issuance at the
holder’s election.
|
On
May 30, 2017, all redeemable convertible preferred shares were converted into 12,800 shares of common stock of e-Marine Co. Ltd.
On July 25, 2017, as a result of the Share Exchange, the Company acquired all of the issued and outstanding equity interests of
e-Marine Co. Ltd., and e-Marine Co., Ltd. became the Company’s wholly-owned subsidiary.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
7.
Stockholders’ Equity (Deficit)
Authorized
and Outstanding Capital Stock
We
have authorized 300,000,000 shares of common stock, par value $0.001, of which 21,961,317 are currently issued and outstanding.
We currently have 10,000,000 shares of “blank check” preferred stock, par value $0.001 per share. There are currently
no shares of preferred stock outstanding.
Common
Stock
The
holders of our common stock have equal ratable rights to dividends from funds legally available therefore, when, as and if declared
by the Board of Directors and are entitled to share ratably in all of our assets available for distribution to holders of common
stock upon the liquidation, dissolution or winding up of our affairs. Holders of shares of common stock do not have preemptive,
subscription or conversion rights.
Holders
of shares of common stock are entitled to one vote per share on all matters which stockholders are entitled to vote upon at all
meetings of stockholders. The holders of shares of common stock do not have cumulative voting rights, which would allow
the holders of more than 50% of our outstanding voting securities to elect all of our directors.
The
payment of dividends, if any, in the future rests within the sole discretion of our Board of Directors and will depend,
among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have
not paid any dividends since our inception and do not intend to pay any cash dividends in the foreseeable future, but intend to
retain all earnings, if any, for use in our business.
Blank
Check Preferred Stock
Our
Board of Directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders,
to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number
of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined
by our Board of Directors, which may include, among other things, dividend rights, voting rights, liquidation preferences, conversion
rights and preemptive rights.
Warrants
As
of September 30, 2017, we have outstanding warrants to purchase up to an aggregate of 9,400,000 shares of common stock, par value
$0.001 per share, for a period of three (3) years from the date of issuance, July 25, 2017, at an exercise price of $0.60 per
share, subject to adjustments as set forth in the warrant. We also have outstanding warrants to purchase up to an aggregate of
1,100,000 shares of common stock, par value $0.001 per share, for a period of three (3) years from the date of issuance, July
25, 2017, at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.
The
Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with guidance in ASC
Topic 718, the cost of warrants issued to non-employees is measured on the grant date based on the fair value. The fair value
is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis
over the period in which the Company expects to receive the benefit, which is generally the vesting period. During the nine months
ended September 30, 2017,
₩620,994 was charged to expense.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Private
Placement Offering
On
July 25, 2017, Pollex entered into a subscription agreement (the “Subscription Agreement”) with selected accredited
investors (each, an “Investor” and, collectively, the “Investors”). Pursuant to the terms of the Subscription
Agreement, Pollex offered in a private placement (the “Offering”) $2,250,000 of units (each, a “Unit”
and, collectively, the “Units”). Each Unit has a purchase price of $0.50 and consisted of (i) one (1) share of Pollex’s
common stock, par value $0.001 per share (the “Shares”); and (ii) warrants to purchase two and one-half (2.5) shares
of Pollex’s common stock (each, a “Warrant” and, collectively, the “Warrants”). The Warrants are
exercisable for a period of three (3) years from the date of issuance at an exercise price of $0.60 per share, subject to adjustment
as provided in the agreement evidencing the Warrants. The Shares underlying the Warrants may hereinafter be referred to as the
“Warrant Shares”.
The
Offering closed on July 25, 2017 (the “Closing”). At the Closing, Pollex received subscriptions for the full Offering
of $2,250,000, with gross proceeds of $1,765,000 (approximately ₩2,009,844 thousand) being received by Pollex as
of such date. Pollex issued a total of 3,530,000 Shares and 8,825,000 Warrants to purchase up to 8,825,000 shares of Pollex’s
common stock.
It
is anticipated that proceeds for the remaining $485,000 of Units subscribed for will be funded, in two tranches, on or before
November 30, 2017, at which time Pollex will issue to the relevant Investor an aggregate of 970,000 Shares and Warrants to purchase
2,425,000 Shares.
Since
the Closing until September 30, 2017, the Company received gross proceeds in the amount of $115,000 (approximately ₩129,963
thousand), representing a portion of the remaining subscription of gross proceeds were received additionally and are reported
as Stock subscriptions within stockholders’ deficit.
Consulting
Agreement
On
July 25, 2017, the Company entered into a consulting agreement (the “Consulting Agreement”) with Peach Management
LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (“Consultant”), for a
term of twenty four months, effective as of July 25, 2017 (the “Term”). Pursuant to the terms of the Consulting Agreement,
Consultant will assist the Company with introductions to investor relation firms located within and outside the United States
to develop and implement capital markets messaging reflected in press releases, shareholder letters, PowerPoint presentations,
social media and traditional media (the “Services”) during the Term. In consideration of the Services to be rendered
by Consultant, the Company shall issue to Consultant warrants to purchase up to 1,100,000 shares of the Company’s common
stock, par value $0.001 per share (the “Consultant Warrants”). The Consultant Warrants shall have a term of three
years and have an exercise price equal to $0.08 per share.
In
connection with the issuance of these warrants, the Company charged approximately
₩620,994
thousand of professional fees to expense.
The
fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes
option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free
rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected
to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee
exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate
is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend
yield assumption is based on historical patterns and future expectations for the Company dividends.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
The
following table includes the estimates and assumptions used in the Black Scholes model:
Stock
price
|
|
$
|
0.57
|
|
Exercise price
|
|
$
|
0.08
|
|
Expected
term
|
|
|
3
|
|
Expected
volatility
|
|
|
70.22
|
%
|
Annual
risk-free rate
|
|
|
1.53
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
Other
Issuances
In
connection with the Exchange Agreement and Subscription Agreement, the Company issued to certain consultants an aggregate of 2,200,000
shares of the Company’s common stock, par value $0.001 per share. The fair value of such shares issued is approximately
₩1,417,159 thousand and is recorded as additional paid in capital.
8.
Grant Income
During
the nine months ended September 30, 2017, the Company received ₩310,882 thousand of grants awarded from the Korean government.
The grants compensated the Company for research and development of Smart RMS for maritime vessels. The value of unused
grants is approximately ₩23,736 thousand and is recorded in the other current liabilities account
on the consolidated balance sheet.
9.
Related Party Transaction
As
of September 30, 2017 and December 31, 2016, the Company loaned ₩159,866 thousand and ₩164,000 thousand, respectively,
to the Company’s officers and employees. The loans receivable bear interest of 6.9% and are redeemable on demand.
As
of September 30, 2017 and December 31, 2016, the Company’s officers and employees advanced the Company ₩91,340 thousand
and ₩221,505 thousand, respectively, during the normal course of business. The loans payable bear interest of 4.6% to 6.9%
and are payable in December 2018.
10.
Commitments and Contingencies
Maintenance
Bond
In
connection with service agreements with certain customers, the Company is required to provide a maintenance bond to guarantee
the maintenance for a specified period of time following completion of service. The Company purchases maintenance
bonds from third-party guarantors and is not exposed to contingent liabilities.
Legal
Proceedings
From
time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government
actions, administrative actions, investigations or claims are pending against the Company or involve the Company that, in the
opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
eMARINE
Global Inc.
Notes
to Condensed Consolidated Financial Statements
September
30, 2017
(Unaudited)
Share
Exchange Agreement
On
July 25, 2017, the Company entered into a share exchange agreement (the “Exchange Agreement”) with Pollex, Inc., a
Nevada corporation (“Pollex”), and the shareholders of the Company (the “Shareholders”), pursuant to which
the Shareholders assigned, transferred and delivered, free and clear of all liens, 100% of the issued and outstanding shares of
common stock of the Company, representing 100% of the equity interest in the Company (the “Shares”) to Pollex in exchange
for 14,975,000 restricted shares of common stock of Pollex (the “Exchange Shares”). The transaction closed on July
25, 2017 (the “Closing Date”).
As
a result, the Company became a wholly-owned subsidiary of Pollex, and the Shareholders acquired a controlling interest in Pollex
(the “Share Exchange”). For accounting purposes, the Share Exchange was treated as an acquisition of Pollex and a
recapitalization of the Company. The Company is the accounting acquirer, and the results of its operations carryover. Accordingly,
the operations of Pollex are not carried over and have been adjusted to ₩0. The assets and liabilities of the Company
have been brought forward at its book value and no goodwill has been recognized.
11.
Income Taxes
The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC
740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The
asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided
to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset
will not be realized. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount
of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.
The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed,
there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions.
The
portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected
as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not
to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
12.
Subsequent Events
Management
has evaluated subsequent events occurring after year end and through the date the financial statements were available to be issued
between September 30, 2017 and November 21, 2017. No significant matters were identified impacting the Company’s
financial position or requiring further disclosure.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The
following discussion should be read in conjunction with our unaudited financial statements and the notes thereto.
Forward-Looking
Statements
This
Management’s Discussion and Analysis and Results Operations includes a number of forward-looking statements that reflect
Management’s current views with respect to future events and financial performance. You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. Those statements include statements regarding the intent,
belief or current expectations of us and members of our management team as well as the assumptions on which such statements are
based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking
statements.
Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially
from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that
our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made
that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors
that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing
for our products, and competition.
In
this quarterly report, the “eMarine,” “EMRN,” the “Company,” “we,” “us,”
and “our” and other similar designations refer to eMarine Global Inc. and its wholly-owned subsidiary, e-Marine Co,
Ltd. (“e-Marine”).
Company
Overview
eMarine
Global Inc. is a Nevada corporation (the “
Company
”) formed under the name “Web Views Corporation”
on November 2, 2001. On October 20, 2008, we changed our name to “Pollex, Inc.”
On
July 25, 2017, we entered into a share exchange agreement (the “
Exchange Agreement
”) with e-Marine Co., Ltd.,
a corporation organized under the laws of the Republic of Korea (“
e-Marine
”), and the shareholders of e-Marine
(the “e-
Marine Shareholders
”), pursuant to which the e-Marine Shareholders assigned, transferred and delivered,
free and clear of all liens, 100% of the issued and outstanding shares of common stock of e-Marine, representing 100% of the equity
interest in e-Marine (the “e-
Marine Shares
”) to us in exchange for 14,975,000 restricted shares of our Common
Stock (the “
Share Exchange
”). As a result of the Share Exchange, e-Marine became our wholly-owned subsidiary,
and the e-Marine Shareholders acquired a controlling interest in the Company.
At
the time of the Share Exchange, the Company was engaged in the online games business by acquiring gaming licenses in order to
make them commercially available abroad. As a result of the Share Exchange, we have now assumed e-Marine’s business operations
as our own. The acquisition of e-Marine is treated as a reverse acquisition, and the business of e-Marine became the business
of the Company.
e-Marine
Co., Ltd. was organized under the laws of the Republic of Korea on January 2, 2001, and is a maritime information and communications
technology provider based in South Korea. e-Marine seeks to achieve safety of life at sea through the use of various technologies,
such as e-Navigation, Maritime Internet-of-Things (otherwise known as “I.o.T.”) and marine big data technology (collectively,
“Maritime ICT Convergence”). e-Marine’s main products and services are divided into four categories: (i) Electronic
Chart Display & Information System (“
ECDIS
”); (ii) Smart Ship; (iii) Overseas Solutions Distributions;
and (iv) Aids to Navigation.
On
August 15, 2017, we entered into an agreement and plan of (the “
Merger Agreement
”), pursuant to which we merged
with and into our newly formed wholly-owned subsidiary (the “
Merger Sub
” and, the transaction, the “
Merger
”).
As
permitted by Chapter 92A.180 of Nevada Revised Statutes, the purpose of the Merger was to effect a change of the Company’s
name from “Pollex, Inc.” to “eMARINE Global Inc.” Upon the filing of articles of merger with the Secretary
of State of Nevada on August 15, 2017 in order to effect the Merger, the Company’s articles of incorporation were deemed
amended to reflect the change in the Company’s corporate name. Upon consummation of the Merger, the separate existence of
Merger Sub ceased.
Description
of Business and Business Model
We,
through our wholly-owned subsidiary, e-Marine, are an information and communications technology solutions provider for the global
maritime industry. We provide solutions for the collection, integration and display of maritime information abroad and ashore
by electronic means to enhance berth to berth navigation and other related services. These solutions provide the most efficient
means to secure the safety of life at sea and to protect the marine environment. All products and services are offered through
subscription, installation, updates and/or maintenance contracts. Our main products and services are divided into four categories:
(i) Electronic Chart Display & Information Systems, or ECDIS; (ii) Smart Ship; (iii) Overseas Solutions Distributions; and
(iv) Aids to Navigation.
Electronic
Chart Display and Information Systems
ECDIS’
hardware and basic software provides display monitor that shows digital charts and other information generated by linked-systems,
such as Radar, GPS and echo sounder. ECDIS standards are regulated by IMO and only the software and solutions are subjects to
patents. Regarding ECDIS, e-Marine obtained several software and solution patents. e-Marine also continuously provides ECDIS maintenance
services to an average of 200 navy vessels annually, with contracts renewed every one to two years.
e-Marine
has been the leading provider of ECDIS in Korea, constantly supplying and operating maintenance service for Navy, Coast Guard,
other public and commercial ships. e-Marine holds 90% market share in South Korea, including Navy, Coast Guard and Ministry of
Ocean and Fisheries.
Smart
Ship
We
believe that I.o.T. is one of the key fields of any information technology based business and we further believe that the maritime
industry will heavily rely on it. I.o.t technologies enable “things”, such as equipment, people, and goods to inter-connect
through wireless technology. As such, marine I.o.T. has been e-Marine’s top priority because we believe it is an important
factor in achieving “Smart Ships.”
e-Marine
has been developing Smart Ship technology under the exclusive partnership with Hyundai Heavy Industries. This partnership has
resulted in a number of products that are supplied to Hyundai ships by e-Marine, particularly.
|
1.
|
ISIG
(Intra-Ship Integrated Gateway)
|
Transferred
from Korean ETRI (Electronics and Telecommunication Research Institute), ISIG has become one of the most important technologies
e-Marine has obtained. Consisting of both hardware and software, its main function is to send data collected from a fleet via
Smart-Sensing Technology to ground control. ISIG is the device that mostly embodies the key idea of Vessel I.o.T. Platform. e-Marine
supplies average 50 ISIGs to Hyundai Heavy Industries per year and the numbers are growing.
|
2.
|
Collision
Avoidance System
|
The
Collision Avoidance System was developed by e-Marine in collaboration with Hyundai Heavy Industries. It analyzes potential dangers,
calculates the probability of collision, and recommends a route and a heading to avoid such danger. The system is displayed above
digital chart displayed on ECDIS monitor, and it complements mariner’s decision making process.
e-Marine
has acquired the patent to the core technology of the Optimal Voyage System, which assists mariners to navigate safely and efficiently
with safer and faster routes the solution informs. While displaying the most efficient route, the solution might come across weather
disaster at one point of the route; the solution then switches over to its next best route option avoiding the dangerous area.
Again, the information is displayed on the chart to support mariner’s navigation.
|
4.
|
RMS
(Remote Maintenance System)
|
The
RMS serves two main functions (i) it automatically predicts and detects failures in a ship’s equipment, system and machinery
and reports it to operators, and (ii) it continuously monitors status of all parts of a ship and provides relevant information
to the operators on shore. RMS utilizes marine Big Data technology and also provides 3D modeling of ship and its parts, and software
patch for remote maintenance.
|
5.
|
Engine
Monitoring System
|
Engine
Monitoring System collects status information of a ship’s engine in real time. As the collected information is processed
in a customized database, the operator can monitor the organized information through a web-based software installed on a ship’s
bridge or control center on shore.
|
6.
|
Fleet
Management System
|
We
believe that the main beneficiaries of FMS are shipping companies because it allows such to easily determine the location of vessels,
and also determine its intended destination, the weather during transit, and fuel usage. In addition, it stored information with
respect to the cargo of the vessel, and allows the operator to track and monitor such vessel. We believe that when this information
is accumulated, it may be used in effective ways such as calculating average usage of fuel in certain weather conditions, and
evaluating captains’ abilities to navigate with fuel efficiency. The more data is accumulated with the system, the more
beneficial it will become.
We
believe that eco-Ship solution is the ultimate fruition of Marine Big Data, and the solution upholds its value only by big data,
collected by related systems and solutions. The following two main facts have led e-Marine’s interest in the development
of Eco-Ship solution:
Fuel
Saving
-
Fuel consumption cost consists 40% of the total vessel operation cost; with Eco-Ship solution, the fuel can be saved up to 10%.
-
With the data collected, the solution calculates four main variables fuel consumption depends on: trim, speed, engine, and route,
plus the real-time weather information.
-
The analyzed optimal information is displayed on monitors to support mariner’s decisions.
IMO
Regulations
-
IMO has addressed policies regulating hazardous chemical emission from vessels around the globe.
-
Ozone depletion material, NOx gas, SOx gas, carbon, etc. are subject to regulations.
-
Currently ECA (Emission Control Area) Zone has been created in Baltic, North, and North American seas; and more ECA Zones are
to be designated in the near future.
-
The emission of these materials is directly related to the fuel usages; therefore, less vessel fuel consumption will solve most
of the emission problems.
-
Knowing this, IMO has strongly recommended fleets to use the solution or ones similar.
Overseas
Solutions Distribution
e-Marine
has agreements with a number of manufacturers of admiralty navigation and other related products, which grant e-Marine both exclusive
and non-exclusive distributorship rights for the sale of various maritime-related products, including navigational charts, software
and hardware in Korea. Pursuant to an agent agreement with Hatteland Display AS (“Hatteland”), a worldwide leading
maritime-specialized hardware manufacturer, e-Marine is the exclusive distributor of Hatteland’s products. Pursuant to
an international distributor agreement with Teledyne CARIS, Inc. (“CARIS”), a worldwide leading maritime-specialized
software developer, e-Marine is a non-exclusive distributor of certain products and services of CARIS. These agreements allow
e-Marine to generate revenue with minimal operational resources through its established distribution channels.
Aids
to Navigation
While
Vessel I.o.T. Platform focuses on data generated on-board, our A2N I.o.T. Platform focuses on data generated from the environment
around the shore. e-Marine’s A2N I.o.T. Platform consists of various devices that may be attached to navigational aids that
collects and transfers data to the control tower, on shore.
e-Marine
has implemented a number of Aids to Navigation and maritime weather signals module and software. Currently, e-MARINE’s Aids
to Navigation solutions are installed and operated in eleven out of thirteen maritime offices in South Korea.
Our
Aids to Navigation Systems consist of the following:
|
1.
|
Maritime
Weather Signals Total Management System
|
This
system collects weather signals in various format (AIS, CDMA, TRS) and displays organized information such as tidal height, wind
directivity, wind speed and sea temperature. The collected weather information is may also be transmitted to all major ports and
maritime offices for public and civic use.
e-Marine
has implemented over a dozen maritime information systems in major port cities such as Busan, Incheon and Ulsan. e-Marine is currently
in the process of implementing Total Management System which gathers all maritime weather information to one central center; National
Maritime PNT Office. When e-Navigation initiates the System will be the backbone of developing the Total Maritime Traffic System
in future.
In
the past, mariners depended only on light houses and buoy as navigational aids along the ocean shore. Unmanned light houses and
buoys are typically powered by batteries, and were manually inspected in order to determine whether any issues can cause it to
malfunction.
e-Marine’s
e-A2N device is intended to automate the detection of issues that may cause navigational aids to malfunction and is a device that
is attached to aids to detect and send real-time data such as battery status and weather conditions to ground control. Through
this device, unnecessary man power and cost could be saved, while providing other benefits such as assisting crews, passengers,
pilots, and seafarers with weather information display on port dashboards and smartphone applications. e-Marine has begun to install
e-A2Ns to over 4,000 navigational aids in Korea.
Limited
Operating History
We
are in the early stages of development and have a limited operating history. We have a history of operating losses and may not
achieve or maintain profitability and positive cash flow. We may not successfully address these risks and uncertainties or successfully
implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease
operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we
accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future. We cannot guarantee
we will be successful in our business operations.
The
following discussion and analysis should be read in conjunction with the audited financial statements for the Pollex, Inc., for
the period ended December 31, 2016, and accompanying notes, in the Company’s Annual Report on Form 10-K filed with the Securities
and Exchange Commission (“Commission”) on April 18, 2017, as well as the audited financial statements for e-Marine
Co., Ltd. for the period ending April 30, 2017, and accompanying notes, in the Company’s Current Report on Form 8-K filed
with the Commission on October 6, 2017.
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. In consultation with our board of directors, we have identified the following accounting policies that
we believe are key to an understanding of our financial statements. These are important accounting policies that require management’s
most difficult, subjective judgments.
Revenue
Recognition
Revenues
are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery has occurred
or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.
Off-balance
Sheet Arrangements
We
have no off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is deemed by our management to be material to investors.
RESULTS
OF OPERATIONS
Three
Months Ended September 30, 2017 Compared to September 30, 2016
The
following table summarizes the results of our operations during the three months ended September 30, 2017 and 2016, respectively,
and provides information regarding the dollar (in Korean Won) and percentage increase or (decrease) from the current 3-month
period to the prior 3-month period:
Line
Item
|
|
9/30/2017
(unaudited)
|
|
|
9/30/2016
(unaudited)
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Increase
(Decrease)
|
|
Revenue
|
|
₩
|
926,427,927
|
|
|
₩
|
716,279,668
|
|
|
₩
|
210,148,259
|
|
|
|
29
|
%
|
Operating expense
|
|
₩
|
1,954,745,647
|
|
|
₩
|
1,834,286,803
|
|
|
₩
|
120,458,844
|
|
|
|
7
|
%
|
Net loss
|
|
₩
|
(1,028,317,720
|
)
|
|
₩
|
(1,118,007,135
|
)
|
|
₩
|
(89,689,415
|
)
|
|
|
(8
|
)%
|
Revenue
.
Total revenue for the three months ended September 30, 2017 and 2016 was ₩926,427,927 and ₩716,279,668, respectively.
The increase of ₩210,148,259, or 29%, was primarily due to an increase in service revenue from a new order of the Red-tide
Monitoring and Prediction System, which offset a decrease in product revenue due to a decrease in demand for Hatteland products
and CARIS software updates, as well as a delay in certain ECDIS projects during the quarter.
Cost
of Revenue
. Total cost of revenue for the three months ended September 30, 2017 and 2016 was ₩547,420,133 and ₩1,045,025,565,
respectively. The decrease of ₩497,605, or 48%, was due to decreases in both cost of product revenue and cost of service
revenue, resulting from a decrease in sales of Hattleand products, CARIS software updates, delays in ECDIS projects, as well as
a decrease in sales of certain materials relating to the Red-tide Monitoring and Prediction Systems project, which was postponed
to October 2017. Such expenses will be accounted for in the next quarter.
Selling,
General and Administrative Expenses
. Selling, general and administrative expenses for the three months ended September
30, 2017 and 2016 was ₩1,337,646,313 and ₩742,291,212, respectively. The increase of ₩595,354,718, or 80%,
was primarily due to an increase in legal and other service fees relating to the Company’s private placement offering and
share exchange agreement.
Loss
from Operations.
Loss from operations for the three months ended September 30, 2017 and 2016 was ₩958,638,519 and
₩1,071,037,492, respectively. The decrease of ₩112,398,973, or 10%, was primarily due to the improved gross margin
offset by the increase in selling, general and administrative expenses.
Other
Expense
. Other expense for the three months ended September 30, 2017 and 2016 was ₩79,284,462 and ₩46,959,642,
respectively. The increase of ₩32,314,819, or 69%, was primarily due to the increased borrowing rates and an increase in
foreign exchange loss.
Net
Loss
. Net loss for the three months ended September 30, 2017 and 2016 was ₩1,028,317,720 and ₩1,118,007,135,
respectively. The decrease of ₩89,689,415, or 8%, was primarily due to the improved gross margin offset by the increase
in selling, general and administrative expenses and other expenses
Nine
Months Ended September 30, 2017 Compared to September 30, 2016
The
following table summarizes the results of our operations during the nine months ended September 30, 2017 and 2016, respectively,
and provides information regarding the dollar (in Korean Won) and percentage increase or (decrease) from the current 9-month
period to the prior 9-month period:
Line
Item
|
|
9/30/2017
(unaudited)
|
|
|
9/30/2016
(unaudited)
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Increase
(Decrease)
|
|
Revenue
|
|
₩
|
2,896,550,370
|
|
|
₩
|
2,969,198,524
|
|
|
₩
|
(72,648,154
|
)
|
|
|
(2
|
)
%
|
Operating
expense
|
|
₩
|
4,951,911,768
|
|
|
₩
|
5,135,758,243
|
|
|
₩
|
(183,846,475
|
)
|
|
|
(4
|
)%
|
Net
loss
|
|
₩
|
(2,055,361,398
|
)
|
|
₩
|
(2,166,559,719
|
)
|
|
₩
|
(111,198,321
|
)
|
|
|
(5
|
)%
|
Revenue
.
Total revenue for the nine months ended September 30, 2017 and 2016 was ₩2,896,550,370 and ₩2,969,198,524, respectively.
The decrease of ₩72,648,154, or 2%, was primarily due to an increase in service revenue from a new order of Red-tide Monitoring
and Prediction System, which offset a decreased in product revenue due to a decrease in demand for Hatteland products, CARIs software
updates, and delays in both the Intra-Ship Integrated Gateway project and the ECDIS project.
Cost
of Revenue
.
Total cost of revenue for the nine months ended September 30, 2017 and 2016 was ₩2,472,379,902
and ₩2,805,973,666, respectively. The decrease of ₩333,593,764, or 12%, was due to decreases in both coast of product
and service revenues, resulting primarily from a decrease in sales of certain materials relating to the Red-tide Monitoring and
Prediction Systems project, which was postponed to October 2017. Such expenses will be accounted for in the next quarter.
Selling,
General and Administrative Expenses
.
Selling, general and administrative expenses for the nine months ended September
30, 2017 and 2016 was ₩2,324,769,460 and ₩2,174,784,304, respectively. The increase of ₩149,985,156, or 7%,
was primarily due to an increase in legal and other service fees relating to the Company’s private placement offering and
share exchange agreement. This increase was offset by a decrease in office rental and management expenses resulting from an effort
to reduce operational inefficiencies.
Loss
from Operations
.
Loss from operations for the nine months ended September 30, 2017 and 2016 was ₩1,900,598,992
and ₩2,011,559,446, respectively. The decrease of ₩110,960,454, or 6%, was primarily due to the improved gross margin
offset by the increase in selling, general and administrative expenses.
Other
Expense
. Other expense for the nine months ended September 30, 2017 and 2016 was ₩192,247,053 and ₩171,204,888,
respectively. The increase of ₩21,042,165, or 13%, was primarily due to the increased borrowing rates and an increase in
foreign exchange loss.
Net
Loss
. Net loss for the nine months ended September 30, 2017 and 2016 was ₩2,055,361,398 and ₩2,166,559,719,
respectively. The decrease of ₩111,198,321, or 5%, was primarily due to the improved gross margin offset by the increase
in selling, general and administrative expenses and other expenses.
LIQUIDITY
AND CAPITAL RESOURCES
These
consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As
of September 30, 2017, the Company had ₩294,449 thousand of cash on hand. For the nine months ended September 30, 2017,
the Company reported loss from operations of ₩1,900,599 thousand and net cash used in operating activities of ₩1,958,395
thousand. The Company continues to experience liquidity constraints due to the continuing losses. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
During
2017, management addressed going concern remediation by conducting a private placement offering to fund operations, and is continuing
initiatives to raise capital to meet future working capital requirements. However, additional capital is required to reduce the
Company’s risk of going concern uncertainties beyond the next twelve months as of September 30, 2017. There is no certainty
that the Company will be able to arrange sufficient funding to continue its operations.
Operating
Cash Flows
. Net cash used in operating activities for the nine months ended September 30, 2017 was ₩1,958,395,391,
which was due to the net loss of ₩2,055,361,398 and the changes in operating assets and liabilities of ₩695,506,417
offset by noncash expenses of ₩792,471,938.
Investing
Cash Flows
.
Net cash used in investing activities for the nine months ended September 30, 2017 was ₩281,128,239,
which was due to the increase in short-term financial instruments of ₩249,000,000 and the purchase of other long-lived
assets of ₩36,094,046 offset by the decrease in loans to related parties.
Financing
Cash Flows.
Net cash provided by financing activities for the nine months ended September 30, 2017 was
₩
2,411,223,868
,
which was primarily due to the receipt of proceeds from the private placement offering in the amount of approximately
₩
1,994,645,467,
the increase in borrowings of
₩
636,743,687
offset by repayments of borrowings of
₩
90,000,000
and net decrease in loans from related parties of
₩
130,165,286
.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.