EMRN eMARINE Global Inc (CE)

NOTE 14 — SUBSEQUENT EVENTS

The Company has evaluated events that have occurred after the balance sheet date but before the consolidated financial statements are issued and determined that there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements.

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.

Our principal execute offices are located at 4th Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan, 44715 South Korea.

Overview of Business

We are a leading provider of information and communications technology for the 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 related services. We believe that these solutions provide the most efficient means to secure the safety of life at sea and to protect the marine environment. We offer all of our products and services through subscription, installation, updates and/or maintenance contracts.

Our Products & Solutions

We offer onboard and onshore products and solutions to customers operating within the maritime and shipbuilding industries through our two business divisions: (i) our maritime information and communications technology (“Maritime ICT”) division and (ii) our shipbuilding information and communications (“Shipbuilding ICT”) division.

We focus our business on four main hardware and software products : (i) Electronic Chart Display & Information System (“ECDIS”); (ii) Smart Ship solutions; (iii) distribution of overseas solutions; and (iv) Aids to Navigation management solutions.

Electronic Chart Display and Information Systems

We offer e-Navigator, our branded electronic chart display and information system (“ECDIS”), which is a computer-based navigation system that complies with International Maritime Organization (“IMO”) regulations and can be used as an alternative to paper navigation charters. Integrating a variety of real-time information, it is an automated decision aid capable of continuously determining a vessel’s position in related to land, charted objects, navigation aids and unseen hazards, which is key in helping operators monitor and plan routes. An ECDIS includes electronic navigation charts (“ENC”), which we also offer, and integrates position information from the global positioning system (“GPS”) and other navigational sensors, such as radar, fathometer and automatic identification systems. It can also provide additional navigation-related information, such as sailing directions. Only the hardware is regulated by the IMO, while the software is subject to patents. We have obtained ECDIS software and South Korean patents for ECDIS technology.

Smart Ship Solutions

Our Smart Ship technology is the result of our partnership with Hyundai Heavy Industries (“HHI”) and much of it has been implemented on HHI’s newly-built ships. These systems use the marine Internet of Things (“I.o.T.”) and big data technologies to provide solutions such as the Intra-Ship Integrated Gateway (“ISIG”), an intra-ship network that promotes greater communication amongst a fleet while at sea; the Collision Avoidance and Optimal Voyage Systems, both dedicated to helping mariners determine the best routes and avoid incidents at sea; and the Remote Maintenance and Engine Monitoring Systems, which similarly promote crews’ safety by ensuring that vessels are kept in shipshape condition. Through the further development of our Smart Ship solutions, we believe will make greater in-roads into the autonomous ship and unmanned ship markets.

Overseas Solutions Distribution

We have agreements with a number of maritime products manufacturers. We have an exclusive agreement with Teledyne Technologies International Corp for the distribution of CARIS, maritime GIS software. We distribute digital charts from C-Map, The United Kingdom Hydrographic Office and the Korea Hydrography and Research Association. In 2017, we began providing services related to a maritime-training simulator for the Republic of Korea Navy in cooperation with ECA-Sindel. We also are the exclusive distributor of Hatteland’s maritime-specialized hardware.

Aids to Navigation Management Systems

We implement Aids to Navigation (“AtoN”) management systems for public maritime agencies. AtoN systems include sensors that are attached to navigational aids at sea and management software installed at the ground control level for information collection, display and analysis. Our AtoN System consists of the (i) Maritime Weather Signals Total Management System and the (ii) e-A2N device.

The Maritime Weather Signals Total Management System is a technology that collects weather information that is then transmitted to all major ports and maritime offices for public and civic use. It collects weather signals in various formats, including AIS, CDMA and TRS, and then simultaneously displays such information as tidal height, wind directivity, wind speed and sea temperature. We have implemented over a dozen maritime information systems in major port cities such as Busan, Incheon and Ulsan. In 2017, we implemented our Total Management System, which compiles all maritime weather information and delivers it through one central center, at the National Maritime Positioning, Navigation, and Timing Office. We believe that once the IMO begins its e-Navigation initiative, the Total AtoN Management System will be a part of the Total Maritime Traffic System.

Our e-A2N device detects technical malfunctions and sends real-time data such as battery status and weather conditions to ground control, bringing attention to ship components in need of maintenance. We believe that our e-A2N device results in cost reduction and unnecessary manpower while also benefiting users, such as crew members, passengers, pilots and seaferers, by providing access to weather information via port dashboards and smart applications. To date, we have installed e-A2N devices in over 4,000 navigational aids throughout Korea.

Key Factors of Our Business Model

We cover every aspect of the ENC technology within our e-Navigator from manufacturing, modification, personalization, distribution and maintenance. We offer our customers our e-Navigator ECDIS and ENC separately or as a package, which we believe provides us with a cost competitive edge, as well as seamless integration and on-going maintenance.

We have developed our e-Navigator and our ECN products in an effort to offer our customers what we believe to be the best product possible in the market. Currently, we hold approximately 90% of the market of private ships through our government contracts with the Republic of Korea (“R.O.K”) Navy and Coast Guard, and we hold approximately 60% of the public sector market share. The rest of the market is held by other domestic and foreign competitors, including Japan Radio Co., Ltd., Furuno Electric Co., Ltd. and Martin Electric Co., Ltd. We have been the market leader of ECDIS in Korea, consistently supplying and operating maintenance service for the Republic of Korea Navy, the Coast Guard and other public and commercial ships. We continuously provide ECDIS maintenance services to an average of 200 navy vessels annually, with contracts renewed every one to two years

In September 2018, we won a contract from the R.O.K. Navy to provide maintenance services to navy ships through fiscal year 2020. This marks the 9 ^th consecutive year in which we have won such contracts.

We are a Smart Ship solutions development partner of Hyundai Heavy Industries. We supply ISIG, Optimal Navigation System and Engine Status Monitoring System to Hyundai Heavy Industries and anticipate supplying subsequent Smart Ship products to Hyundai Heavy Industries and other shipbuilders in South Korea such as Hanjin Heavy Industries and Samsung Heavy Industries

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 our audited financial statements for the fiscal year ended December 31, 2018, and accompanying notes, in the our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2019.

CRITICAL ACCOUNTING POLICIES  

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the consolidated financial statements.

We base our estimates on our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

There have been no material changes except to the Company’s critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Company’s 2018 Annual Report, which we believe are the most critical to our business and the understanding of our results of operations and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2019 and 2018

The following table summarizes the results of our operations during the three months ended June 30, 2019 and 2018, respectively, and percentage increase or (decrease) from the current 3-month period to the prior 3-month period (in thousands of Korean Won):

Revenue . Total revenue for the three months ended June 30, 2019 and 2018 was ￦666,921 thousand and ￦1,049,202 thousand, respectively. The decrease of ￦382,281 thousand, or 36%, was primarily due to the delay of contracting the annual Navy ASWTT maintenance project.

Cost of Revenue . Total cost of revenue for the three months ended June 30, 2019 and 2018 was ￦394,931 thousand and ￦690,973 thousand, respectively. The decrease of ￦296,042 thousand, or 43%, was primarily due to the decreased cost of revenue on maintenance projects.

Selling, General and Administrative Expenses . Selling, general and administrative expenses for the three months ended June 30, 2019 and 2018 was ￦721,587 thousand and ￦741,295 thousand, respectively. The decrease of ￦19,708 thousand, or 3%, was primarily due to the expense saving efforts, including the reduction of rent and service fees, resulting in the decrease in general and administrative expense.

Research and Development . Research and development expenses for the three months ended June 30, 2019 and 2018 was ￦105,184 thousand and ￦29,810, respectively. The increase of ￦75,374 thousand, or 253%, was primarily due to the increase in the research and development activities on smart ship technology enhancement.

Loss from Operations. Loss from operations for the three months ended June 30, 2019 and 2018 was ￦554,781 thousand and ￦412,876 thousand, respectively. The increase of ￦141,905 thousand, or 34%, was due to the combination of the decrease in gross margin and the increase in legal and professional fees.

Other Expense . Other expense for the three months ended June 30, 2019 and 2018 was ￦52,748 thousand and ￦27,803 thousand, respectively. The increase of ￦24,945 thousand, or 90%, was primarily due to the increase in interest expense.

Net Loss . Net loss for the three months ended June 30, 2019 and 2018 was ￦620,808 thousand and ￦445,805 thousand, respectively. The increase of ￦175,003 thousand, or 39%, was due to the combination of the decrease in gross margin and the increase in the research and development expenses.

Six Months Ended June 30, 2019 and June 30, 2018

The following table summarizes the results of our operations during the six months ended June 30, 2019 and 2018, respectively, and percentage increase or (decrease) from the current 6-month period to the prior 6-month period (in thousands of Korean Won):

Revenue . Total revenue for the six months ended June 30, 2019 and 2018 was ￦1,947,252 thousand and ￦2,358,685 thousand, respectively. The decrease of ￦411,433 thousand, or 17%, was primarily due to the delay of contracting the annual Navy ASWTT maintenance project.

Cost of Revenue . Total cost of revenue for the six months ended June 30, 2019 and 2018 was ￦1,128,395 thousand and ￦1,545,988 thousand, respectively. The decrease of ￦417,593 thousand, or 27%, was primarily due to the decrease in outsourcing costs and the increase in government subsidy.

Selling, General and Administrative Expenses . Selling, general and administrative expenses for the six months ended June 30, 2019 and 2018 was ￦1,045,921 thousand and ￦978,849 thousand, respectively. The increase of ￦67,072 thousand, or 7%, was primarily due to the increase in legal and professional fees.

Research and Development . Research and development expenses for the six months ended June 30, 2019 and 2018 was ￦177,044 thousand and ￦216,334, respectively. The decrease of ￦39,290 thousand, or 18%, was primarily due to the decrease in the research and development activities on typhoon monitoring system algorithms.

Loss from Operations. Loss from operations for the six months ended June 30, 2019 and 2018 was ￦404,108 thousand and ￦382,486 thousand, respectively. The increase of ￦21,622 thousand, or 6%, was due to the combination of the decrease in revenue and the increase in the selling, general and administrative expenses.

Other Expense . Other expense for the six months ended June 30, 2019 and 2018 was ￦96,632 thousand and ￦71,664 thousand, respectively. The increase of ￦24,968 thousand, or 35%, was primarily due to the increase in interest expense.

Net Loss . Net loss for the six months ended June 30, 2019 and 2018 was ￦512,399 thousand and ￦456,346 thousand, respectively. The increase of ￦56,053 thousand, or 12%, was due to the combination of the decrease in revenue and the increase in the selling, general and administrative expenses. 

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

As of June 30, 2019, the Company had ￦84,339 thousand of cash on hand as compared to ￦126,406 thousand as of December 31, 2018. For the six months ended June 30, 2019, the Company reported loss from operations of ￦404,108 thousand and net cash provided by operating activities of ￦196,386 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 2019, management has been 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 August 14, 2019. There is no certainty that the Company will be able to arrange sufficient funding to continue its operations.

Operating Cash Flows. Net cash provided by operating activities for the six months ended June 30, 2019 was ￦196,386 thousand, which was due to the net loss of ￦512,399 thousand, the increase in net operating assets of ￦102,563, and payments of pension benefits of ￦27,327 offset by the adjustment of noncash items of ￦618,072 thousand to the net loss and increase in operating liabilities of ￦220,603 thousand.

Investing Cash Flows. Net cash used in investing activities for the six months ended June 30, 2019 was ￦18,000 thousand, which was due to the purchase of short-term financial instruments of ￦18,000 thousand.

Financing Cash Flows. Net cash used in financing activities for the six months ended June 30, 2019 was ￦221,985 thousand, which was due the proceeds from warrants exercised of ￦20,944 thousand offset by the net decrease in short-term borrowings of ￦70,909, repayment of current portion of long-term debt of ￦64,040 thousand, payment of lease obligations of ￦58,647 thousand and net decrease in loans from related parties of ￦49,333 thousand.

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.