As of May 14, 2020, there are 23,159,105
shares of the common stock outstanding.
PART
I
ITEM
1. BUSINESS.
Organizational
History
On
July 25, 2017, we entered into a share exchange agreement with e-Marine and the stockholders of e-Marine (the “e-Marine
Stockholders”), pursuant to which the e-Marine Stockholders 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 to
the Company in exchange for 14,975,000 restricted shares of common stock (the “Share Exchange”) of the Company. As
a result, e-Marine became our wholly-owned subsidiary, and the e-Marine Stockholders acquired a controlling interest in the Company.
At
the time of the Share Exchange, we were engaged in the online games business by acquiring gaming licenses in order to make them
commercially available abroad. As a result of the acquisition of all the issued and outstanding shares of common stock of e-Marine,
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 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;
(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.
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.
Smart
Ship solutions are navigation oriented hardware and software that are developed by utilizing maritime I.o.T and big data technology.
We develop Smart Ship technology under the partnership with HHI. This partnership has resulted in the development of a number
of Smart Ship solutions that we supplied to HHI’s newly-built ships. By applying marine I.o.T. and big data technologies,
we believe we will continue to expand the development of Smart Ship solutions, by gradually entering the autonomous ship and unmanned
ship market. Some of our current Smart Ship Solutions include the following:
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 9th 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.
Industry
Overview and Market Opportunity
Global
Maritime Industry and Market
The
global maritime industry and related markets suffered as a result of a decrease in demand for global shipping and a decrease in
investment, which in turn has resulted in a reduction of the number of newly-built ships. This regression lasted until early 2017,
which was the lowest point of the industry’s economic cycle. As a result, the Company’s largest customer, Hyundai
Heavy Industries, decreased its shipbuilding production and therefore resulted in a decrease of the Company’s Ship Solutions
output for Hyundai’s new ships. Further, as a result of this regression in the industry, many market participants concentrated
on maintaining old ships with existing navigation solutions, causing a decrease in new navigation solutions during that time period.
The global maritime economy has gained steam while international oil price is in a steady state. Shipbuilder’s order intakes
are likely to see upturn consistently. According to industry experts, global shipbuilding market condition is expected to show
expediential curve by representing significant improvements after getting better slowly over the next two-three years. From the
analysis of Korea Institute for Industrial Economics & Trade, the shipping market condition is to show a rebound after hitting
rock bottom last 2017. The shipbuilding industry’s situation has improved, showing a significant upturn since then.
Korean
Shipbuilding Industry
In
2017, many Korean shipbuilders surpassed their annual projections, indicating a recovery from the severe order drought of 2016.
According to Clarkson Research, in 2017 new-buildings of a combined 6.45m cgt were reported to have been contracted at Korean
yards, representing an increase of 199% compared to the prior year. This growth rate is higher than that of China and Japan. Korean
shipbuilders have led global tanker newbuilding market. According to industry statistics and ASIASIS’s survey, HHI obtained
orders for 150 units of merchant vessels worth around $10 billion in 2017. Korean ‘Big 3’ shipbuilders, HHI, Daewoo
and Samsung, have set their 2018 order goals higher than 2017’s, indicating positive growth in the order sales market going
forward. As the Korean shipbuilding industry recovers and expands its technological innovation aimed at autonomous/unmanned ships
in 2020, we anticipate an increased demand for our navigation and Smart Ship solutions from Korean shipbuilders. We also expect
to continue supplying HHI ISIG and our Collision Avoidance Systems and Optimal Voyage Systems.
Market
Opportunity
Beginning
in July of 2018, the IMO will mandate every ship to be equipped with ECDIS. The IMO will initiate its Strategic Implementation
Plan for e-Navigation in 2019. The plan will require that all navigation equipment be globally standardized, digitalized and inter-connected.
The IMO’s goal is to increase safety of navigation in commercial shipping through better organization of data on ships by
2020. We believe that the IMO’s plan will consequently increase demand for smart ships. Out of 3,500 new ships already
planned HHI over the next three years, approximately 700 ships will be equipped with the Total Smart Ship Solution Package.
HHI’s Total Smart Ship Package consists of various Smart Ship Solutions that we develop, such as our Navigation Information
Management System, our Engine Information System, and our Energy Management System.
Manufacturing
We
manufacture our products and solutions at our Research and Development Center in Busan. We develop our own software, as
well as incorporate our software into customized hardware. These hardware products are assembled either in our factory or at a
location requested by our customers. Our manufacturing processes are in accordance with IDO 9001:2008, which is discussed below
under the heading “Government Approvals.” These manufactured products are also compliant with international standards
for function and performance, such as those set forth by the International Electrotechnical Commission.
Competition
ECIDIS
& Navigation Systems
We
lead the military and security market in South Korea. Our major competitors are Japan Radio Co., Ltd. and Furuno Electric Co.,
Ltd., who each hold 30% of South Korean commercial market share respectively. The majority of the commercial market is made up
of European and Japanese navigation and communication products. With its ECDIS technology, we plan to develop a new solution:
eMarine Integrated Communication System (“e-ICS”). We allocated $1,060,000 for the system’s development and
introduced it during the second quarter of 2018. In 2019, we integrated e-CIS with our Smart Ship technology to produce Integrated
Navigation System (“INS”) In developing e-ICS, its protocols and interface specifications will be provided by Hyundai
in cooperation with communication equipment’s suppliers.
Smart
Ship Solutions
We
provide ISIG, which undergirds our Smart Ship Solutions. We have provided 315 ISIGs to HHI since 2012. The Company has developed
various Smart Ship solutions with HHI for HHI’s newly built ships. Beginning in 2018, HHI began implementing the jointly
developed Smart Ship Solutions to most of their new ships. In 2019, more than 120 HHI’s ships are equipped with our Smart
Ship solutions. We derive approximately 15-20% of our revenue from our partnership with HHI.
The
Unmanned/Autonomous Ship market is led by Rolls-Royce, Konsberg and Wartsila. By further developing systems such as ENC, ISIG,
Collision Avoidance System and Track Control System, all of which we believe to be essential components of unmanned ships, we
believe we will be well-positioned to enter the Unmanned/Autonomous Ship market by 2020.
Further,
NAPA and ENRIAM, two Finnish companies, are leaders in providing fuel-saving solutions to the market; however, they mainly operate
in the European passenger ship sector.
Aids
to Navigation
South
Korea leads in the application of I.o.T technology to AtoN systems. To date, we have implemented 13 maritime weather management
modules in South Korea, which we believe to be the most among competitors. We also believe that we will maintain our position
as a market leader by applying Big Data and Augmented Reality & Artificial Intelligence (“AR/AI”) technology to
both our planned and future AtoN projects, such as our Integrated Maritime Weather Signal Control & Monitoring System project
(2016 – 2017). We plan to implement a comprehensive management and operation system that connects all regional AtoN management
systems for the Ministry of Oceans and Fisheries, which will establish a protocol for standardization of all maritime traffic
and weather data. We believe that our role as the architect of this system will allow us to continue to play a major role in similar
projects that utilize the system in the future.
Distribution
We
have been South Korea’s sole distributor of CARIS, a maritime GIS solution, for nearly 17 years. Globally, CARIs has the
highest market share in the maritime GIS field. Norway’s Hatteland Monitor holds the largest market share in its field while
competing with MOXA and L3’s low-cost products, while we provide Hatteland products directly to Hyundai, Samsung and Doosan
ships in South Korea
Customers
Our
customers operate within the maritime and shipbuilding industries. Our main customers operate within the maritime security organizations
such as R.O.K. Navy, the Korean Coast Guard, and the Korean Ministry of Fisheries, as well as shipbuilding companies such as HHI
and Hanjin Heavy Industries.
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. We derive approximately 95% of our ECDIS sales
revenue from our South Korean government contracts with Navy, Coast Guard and Ministry of Oceans and Fisheries. Through government
contracts won by official bidding, we implement Aids to Navigation software, sensors and servers. The official bids are evaluated
primarily on two factors: (i) the sophistication of the technology and (ii) the bid price. Winning bids typically result in contracts
ranging from one to two years.
In
addition, we develop our Smart Ship solutions through our partnership with Hyundai Heavy Industries and through our research and
development contracts with the South Korean government, which we obtain through government-administrated bidding-process. Further,
through our partnership with Hyundai Heavy Industries, we install our Smart Ship solutions into Hyundai’s newly-built ships,
which are then sold to customers. We also supply overseas navigation-related solutions such as maritime PC hardware, Hatteland,
and maritime GIS software, CARIS, to maritime agencies and shipbuilders.
Intellectual
Property and Patent Rights
There
is no specific patent policy in South Korea. Instead, intellectual property rights to original software are protected by Computer
Program Protection Law of Korea. In addition, a company can report the copyright to its software under the Program Registration
Policy, which is administered by Korea Copyright Commission. Among our three original software programs, Map Digitizer and ENC
Text View are registered under the Computer Program Registration Policy. We have yet to register our Presentation Software.
Below
is a list of our software and hardware in which we hold either patents or copyrights:
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Voice
Controlled Ship Design and its steering control system (2007)
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Automatic
Identification System for Small Ships based on TRS (Trunked Radio System) (2011)
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Operation
System design and structured procedure of operation for remote light houses and remote buoys (2012)
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Dynamic
Electronic Chart Display and Information System using object-oriented relational data base management system and its distribution
method (2015)
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Voyage
Optimization System Module Design (2015)
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Voyage
Optimization System Integration (2015)
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Presentation
Software for ship’s multi-purpose RADAR display
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Map
Digitizer : Automated Digitizing Software for Electronic Navigational Chart
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ENC
Text Viewer : Text viewer on Electronic Navigation Chart
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Government
Approvals
Depending
on the locality of projects and sales, we may require government approval or meet certain requirements in order to provide our
solutions. In most instances, government granted approvals are granted on the basis of a company’s compliance with domestic
government and international regulations. Approvals and certificates require renewal primarily on an annual or bi-annual basis.
In some cases, the renewal period could be longer than two years. For past projects, we have obtained following certificates and
approvals:
The
International Organization for Standardization (“ISO”) 9001:2008 specifies requirements for a quality management system
where an organization needs to demonstrate its ability to consistently provide product that meets customer and applicable statuary
and regulatory requirements. All requirements of ISO 9001:2008 are generic and are intended to apply to all organizations, regardless
of the type, size and product indicated.
Located
in Norway, Det Norske Veritas, Germanischer Lloyd (“DNV-GL”) is the world’s largest classification society,
providing services for 13,175 vessels and mobile offshore units, or MOUs, amounting to 265.4 mill gt, which represents a global
market share of 21%. It is also the largest technical consultancy and supervisory to the global renewable energy (particularly
wind, wave, tidal and solar) and oil & gas industry - 65% of the world’s offshore pipelines are designed and installed
to DNV-GL’s technical standards.
In
South Korea, companies that provide electronic devices to government organizations and agencies must obtain a Korean Register
(“KR”) certificate for their products. Such certificates indicate that a product has been properly registered, categorized
and tested according to Korean standards for electronic devices.
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4.
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Direct
Manufacture Confirmation Approval
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This
approval confirms that we directly produce our main solution, ECDIS. Companies are required to obtain this approval to provide
evidence that the products they offer are domestically produced in South Korea. This is especially important to obtain, as many
government-funded projects require domestic products and solutions.
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5.
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Information
Communication Technology (“ICT”) Certificate
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The
ICT Certificate allows us to execute and/or participate in information communication technology-related projects in South Korea.
The certificate is granted to companies that exhibit both appropriate internal structure and professional experiences for digital
information technology.
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6.
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Korean
Register Hellas (“KRH”) Certificate
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We
hold a KRH Certificate, which is a products certification that is issued on the basis of a company’s reputation and knowledge
of the Korean register’s certification. A KRH Certificate guarantees access for a company and its products to European markets.
KRH complies strictly with international conformity assessment procedures to ensure that the certification is accepted worldwide.
Government
Regulations
We
are required to obtain certain certifications for our ECDIS and Smart Ship solutions from governmental authorities prior to the
sale and implementation of our products.
Companies
that offer ECDIS are required to obtain certification from accredited registrars and classification societies. These registrars,
such as the DNV-GL of Norway, the Korean Hellas (“KRH”) and the Federal Maritime and Hydrographic Agency of Germany,
or BSH, conduct third-party inspection, verification and testing of materials to ensure the safe operation and quality of ships
and other offshore installations of products. The South Korean government mandates company’s offering ECDIS to obtain KR
approval. We have approval from both KR and the DNV-GL.
Our
Smart Ship Solutions are not yet subject to any specific regulations and/or approvals. The IMO in collaboration with the International
Electrotechnical Commission and the International Hydrographic Organization have formed a working group for the implementation
of international standards applicable to the operation and performance of solutions such as Smart Ship.
Research
and Development
We
operate the Maritime Shipbuilding & ICT Research and Development Center at our principal executive offices in Ulsan, South
Korea. Our main focus in research and development has been the development of our Smart Ship solutions. In 2015 and 2016, we developed
a number of products and solutions, including the S-100-based ECDIS, Maritime Augmented Reality, the Collision Avoidance System,
the Ship Motion Monitoring System, the Voyage Optimization System, the AI-based Remote Maintenance System and Ship’s Data
Platform. Our research and development costs include researchers’ salary, the center’s operating fees, R&D materials
etc.
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1.
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Research
& Development Center Security
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All
entries and exits of the R&D center is equipped with solutions of S-1 Corporation’s SECOM. The solutions verify identities
of all verified R&D members and record the outside personnel’s entrances and exits. Finger-print verification is used
for entrance. Research & Development processes, results and intellectual assets are saved and managed in a separately installed
NAS, Network-Attached Server. The network within the R&D center is internal, blocked from external approaches. All R&D
members use ID/Password access to the main system.
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2.
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The
Company’s Capital for Research & Development (in USD)
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Year
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R&D
Capital
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2015
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$
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430,000
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2016
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$
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575,000
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2017
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$
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387,903
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2018
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$
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374,944
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2019
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$
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164,743
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Seasonality
Our
operations in the private and public market are seasonal. Government organizations, which are our main customers, historically
make purchases directly from the public market beginning in the second quarter. For these orders, we complete most of our deliveries
during the second half of the year. As a result, profits tend to be highest in the fourth quarter. On the other hand, commercial
operators make purchases throughout the year.
Employees
As
of May [*], 2020, we have 40 full-time employees as follows: (i) 5 management employees; (ii) 4 human resources
and accounting employees; (iii) 7 sales employees; (iv) 6 service employees; and (v) 18 research and development employees. We
also employ part-time employees as well as temporary or contract personnel, when necessary, to provide short-term and/or specialized
support for production and other functional projects.
We
believe our future success will depend upon the continued service of our key management personnel and upon our continued ability
to attract and retain highly qualified technical and managerial personnel. We consider our relationship with our employees to
be good.
Our
Corporate Information
Our
principal executive offices are located at 4th Floor, 273-30, Gaejwa-Ro, Geumjeong-Gu, Busan, South Korea. Our
sales office is located at 2nd Floor, Achasan-ro 78-44, Gwangjin-gu, Seoul, Republic of Korea. Our telephone
number is +82-70-7204-9313. Our website address is http://emarine-global.com. Information contained on our website
is not incorporated into this Form 10-K. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports are available free of charge through the Securities and Exchange Commission’s (“SEC”)
website at http://www.sec.gov as soon as reasonably practicable after those reports are electronically filed with or furnished
to the SEC.
ITEM
1A. RISK FACTORS
Some
of the following risks relate principally to us, the industry in which we operate and our business in general. Other risks relate
principally to the securities market and ownership of our common shares. The occurrence of any of the events described in this
section could significantly and negatively affect our business, financial condition, operating results or cash available for dividends,
if any, or the trading price of our common shares.
Industry
Specific Risk Factors
Risks
associated with operating ocean-going vessels in the future could affect our business and reputation, which could adversely affect
our revenues and stock price.
The
operation of ocean-going vessels carries inherent risks. These risks include the possibility of:
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marine
disaster;
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environmental
accidents;
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cargo
and property losses or damage;
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business
interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes
or adverse weather conditions; and
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piracy.
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These
hazards may result in death or injury to persons, loss of revenues or property, environmental damage, damage to our customer relationships,
delay or rerouting.
World
events could adversely affect our results of operations and financial condition.
Terrorist
attacks and the threat of future terrorist attacks around the world may cause uncertainty in the world’s financial markets
and may affect our ability to revive manufacturing operations, operating results and financial condition. Continuing conflicts
and recent developments in the Middle East, including Egypt, and North Africa, and the presence of U.S. or other armed forces
in the Middle East, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further
economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional
financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, such
as the attack on the MT Limburg, a vessel unaffiliated with us, in October 2002, mining of waterways and other efforts to disrupt
international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading
in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material
adverse impact on our operating results.
In
the highly competitive international shipping industry, we may not be able to compete for contracts with new entrants or established
companies with greater resources which may have a material adverse effect on our business, prospects, financial conditions, liquidity
and results of operations.
The
naval navigation and communication systems market is highly competitive. Some competitors have substantially greater resources
than we have. Competition for the contracts is intense and depends on price, location and reputation. Our competitors with greater
resources and access to capital than we have may be able to offer lower rates and higher quality products than we may be able
to offer. If this were to occur, we may be unable to attract new or former customers on attractive terms or at all, which may
have a material adverse effect on our business, prospects, financial condition, liquidity and results of operations.
Our
competitors may develop products that are less expensive, are safer or more effective, and thus may diminish or eliminate the
commercial success of any potential products that we may commercialize.
If
our competitors’ market products that are less expensive, safer or more effective than our future products developed from
our product candidates, or that reach the market before our product candidates, we may not achieve commercial success. The market
may choose to continue utilizing the existing products for any number of reasons, including familiarity with or pricing of these
existing products. The failure of any of our product candidates to compete with products marketed by our competitors would impair
our ability to generate revenue, which would have a material adverse effect on our future business, financial condition and results
of operations.
We
expect to compete with several companies and our competitors may:
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develop
and market products that are less expensive or more effective than our future products;
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commercialize
competing products before we or our partners can launch any products developed from our product candidates;
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operate
larger research and development programs or have substantially greater financial resources than we do;
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initiate
or withstand substantial price competition more successfully than we can;
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have
greater success in recruiting skilled technical and scientific workers from the limited pool of available talent;
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more
effectively negotiate third-party licenses and strategic relationships; and
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take
advantage of acquisition or other opportunities more readily than we can.
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Our
products are subject to government regulations and customer requirements regarding safety matters that may require significant
expenditures by us to ensure compliance.
Our
products (and certain uses of our products) may be subject to governmental regulations for compliance with applicable safety standards.
Any failure to comply with such standards could subject us to both governmental fines as well as possible claims by consumers.
Risks
Related to Doing Business in Korea
The
movement of the Korean Won against the U.S. dollar and other currencies may have a material adverse effect on us.
The
Korean Won has fluctuated significantly against major currencies in recent years, especially as a result of the recent global
financial crisis and the relatively speedy recovery of Korean economy therefrom. The appreciation of the Won against U.S. dollar
and other foreign currencies typically results in a material increase in the cost of fuel and equipment purchased from overseas
and the cost of servicing our foreign currency-denominated debt as the prices for substantially all of the fuel materials and
a significant portion of the equipment we purchase are stated in currencies other than the Won, generally in U.S. dollars. As
a result, any significant depreciation of Won against the U.S. dollar or other major foreign currencies will have a material adverse
effect on our profitability and results of operations.
Because
we generate all of our revenues in Korean Won but incur a portion of our expenses in other currencies, exchange rate fluctuations
could have an adverse impact on our results of operations.
We
generate substantially all of our revenues in Korean Won but certain of our expenses are incurred in currencies other than the
Korean Won. This difference could lead to fluctuations in net income due to changes in the value of the Korean Won relative to
these other currencies, in particular the Euro. Expenses incurred in foreign currencies against which the Korean Won falls in
value could increase, decreasing our net income and cash flow from operations.
Most
of the registrant’s operations are carried out in the Republic of Korea. As a result, our operations are subject to various
political, economic, and other risks and uncertainties.
Our
main operations are in the Republic of Korea. Our operations are subject to various political, economic, and other risks and uncertainties
inherent to the country. Among other risks, the registrant’s operations are subject to the risks of political conditions
and governmental regulations. If there are any changes to government regulations that affect our ability to operate, we may face
significant losses
Escalations
in tensions with North Korea could have an adverse effect on us.
Relations
between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas
has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened
security concerns stemming from North Korea’s nuclear weapon and long- range missile programs and increased uncertainty
regarding North Korea’s actions and possible responses from the international community. In December 2002, North Korea removed
the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations International
Atomic Energy Agency. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since
the renouncement, Korea, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral
talks in an effort to resolve issues relating to North Korea’s nuclear weapons program.
There
can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in
tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts break down or military
hostilities occur, could have a material adverse effect on our operations and the market value of our common stock.
It
may not be possible for investors to enforce U.S. judgments against us.
Our
operations are primarily conducted outside of the United States. In addition, all of our directors and officers are non-residents
of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States.
As a result, it may be difficult or impossible for U.S. investors to serve process within the United States upon us, our subsidiaries
or our directors and officers or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should
not assume that courts in the countries in which we or our subsidiaries are incorporated or where our or the assets of our subsidiaries
are located (1) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil
liability provisions of applicable U.S. federal and state securities laws or (2) would enforce, in original actions, liabilities
against us or our subsidiaries based on those laws.
Risks
Relating to Our Business
We
have received a going concern opinion from our auditors.
We
have received a “going concern” opinion from our independent registered public accounting firm, reflecting substantial
doubt about our ability to continue as a going concern. Our consolidated financial statements contemplate that we will continue
as a going concern and do not contain any adjustments that might result if we were unable to continue as a going concern. Our
ability to continue as a going concern is dependent upon our ability to raise additional capital and implement our business plan.
If we are unable to achieve or sustain profitability or to secure additional financing on acceptable terms, we may not be able
to meet our obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such
inability to continue as a going concern may result in our stockholders losing their entire investment. There is no guarantee
that we will become profitable or secure additional financing on acceptable terms. We are striving to raise business efficiency
to improve the margin and achieve sales increase through more marketing efforts and advantage in technological advantage. We are
also planning on funding through private placements and continuing initiatives to raise capital to meet future working capital
requirements.
Failure
to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties and an adverse effect on our business.
We
may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are
committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and
ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject,
however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may
take actions determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in
substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely
affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our
reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive
and can consume significant time and attention of our senior management.
We
may conduct business in China, where the legal system has inherent uncertainties that could limit the legal protections available
to us.
Any
contracts that we may enter into in the future may be subject to new regulations in China that may require us to incur new or
additional compliance or other administrative costs and may require that we pay to the Chinese government new taxes or other fees.
Changes in laws and regulations, including with regards to tax matters, and their implementation by local authorities could affect
vessels chartered to Chinese customers as well as vessels calling to Chinese ports and could have a material adverse impact on
our business, financial condition and results of operations.
We
may not be able to raise equity and debt financing sufficient to meet our capital and operating needs and to comply with the covenants
that we expect will be contained in our debt agreements, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
We
cannot assure you that the net proceeds from any future equity offering or debt financing would be sufficient to satisfy our capital
and operating needs and enable us to comply with various debt covenants that we expect will be contained in future debt agreements.
In such case, we may not be able to raise additional equity capital or obtain additional debt financing or refinance our existing
indebtedness, if necessary. If we are not able to comply with the covenants that we expect will be contained in future debt agreements
and our lenders choose to accelerate our indebtedness and foreclose their liens, we could be required to sell any vessels we may
own and our ability to continue to conduct our business would be impaired.
We
are currently in default under certain of our borrowings, and our continued inability to repay these borrowings may adversely
affect our financial condition and results of operations.
We
are currently in default under certain of our borrowings. As of December 31, 2019, we are currently in default of an aggregate
of ₩335,000 thousand in borrowings from two lenders. The borrowings are unsecured and bear an interest of 6.00% per annum.
We are currently in negotiations with both lenders to extend the maturity date for each of the borrowings to reduce the risk of
further defaults in the near term. However, there can be no assurance that we will be successful in renegotiating these extensions
or that we will be able to secure additional funding to repay these borrowings. If we are unable to renegotiate these extensions
or secure additional funding to repay these borrowings, this may adversely affect our financial condition and results of operations.
Most
of our ECDIS sales revenues come from South Korean government contracts.
ECDIS
sales are a major part of our business. South Korean government contracts make up approximately 95% of our ECDIS sales. Should
we fail in the future to obtain South Korean government contracts or are unable to win government contracts at the rate we are
currently, our revenues may decrease significantly.
A
material failure, inadequacy, interruption or security failure of our technology networks and related systems could harm our business.
Our
information technology networks and related systems are essential to our ability to conduct our day to day operations. As a result,
we face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware,
computer viruses, attachments to emails, persons who access our systems from inside or outside our organization and other significant
disruptions of our information technology networks and related systems. A security breach or other significant disruption involving
our information technology networks and related systems or those of our vendors could: disrupt our operations; result in the unauthorized
access to, and the destruction, loss, theft, misappropriation or release of, proprietary, personally identifiable, confidential,
sensitive or otherwise valuable information including tenant information and lease data, which others could use to compete against
us or which could expose us to damage claims by third parties for disruptive, destructive or otherwise harmful outcomes; require
significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract,
damages, credits, penalties or termination of leases or other agreements; or damage our business relationships or reputation generally.
Any or all of the foregoing could materially and adversely affect our business and the value of our stock.
The
risk of counterparties failing to meet their obligations could cause us to suffer losses or otherwise adversely affect our business.
We
may enter into in the future, among other things, credit facilities with banks and interest rate swap agreements. Such agreements
also would subject us to counterparty risks. The ability of each of the counterparties to perform its obligations under a contract
with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions,
the condition of our industry sector, the overall financial condition of the counterparty, and various expenses. Should a counterparty
fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
We
or our Managers may be unable to attract and retain key management personnel and other employees in the shipping industry, which
may negatively impact the effectiveness of our management and results of operations.
Our
success depends to a significant extent upon the abilities and efforts of our management team, including our ability to retain
key members of our management team and to hire new members as may be necessary. The loss of any of these individuals could adversely
affect our business prospects and financial condition. Difficulty in hiring and retaining replacement personnel could adversely
affect our business, results of operations and ability to pay dividends. We do not intend to maintain “key man” life
insurance on any of our officers or other members of our management team.
Our
success is dependent upon our ability to adequately and appropriately serve our customers.
Our
operations are heavily dependent upon the delivery of superior customer service across a broad customer base, by which negative
feedback from agents, insureds or internal staff could result in a loss of revenue for the Company.
We
may have to pay tax on U.S. source income, which would reduce our earnings.
As
a foreign corporation to the United States, our operating income generally is taxable in the United States if it is effectively
connected with the conduct of a trade or business in the United States. In order to be effectively connected with the conduct
of a trade or business in the United States, operating income must be from sources within the United States. The income we derive
from the sale of our products and solutions is not derived from sources within the United States. Our products and solutions are
provided to companies operating outside the United States and consist of services performed outside the United States. Accordingly,
we do not believe that we would be taxable in the United States on our general operating income. However there can be no assurance
that we will not have to pay tax on U.S. source income and, if we do, our earnings would be reduced.
U.S.
tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income
tax consequences to U.S. shareholders.
A
foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for U.S. federal income tax
purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income”
or (2) at least 50% of the average value of the corporation’s assets produce, or are held for the production of, those types
of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains
from the sale or exchange of investment property, and rents and royalties other than rents and royalties which are received from
unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from
the performance of services does not constitute “passive income.” U.S. shareholders of a PFIC are subject to a disadvantageous
U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and
the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based
on our prior method of operations, we do not believe that we will be a PFIC with respect to any taxable year as a result of any
income that we may earn. In this regard, we intend to treat the gross income we derive or are deemed to derive from our service
activities as services income. Accordingly, we believe that income from our service activities does not constitute “passive
income,” and the assets that we own and operate in connection with the production of that income do not constitute assets
that produce, or are held for the production of, “passive income.” However, no assurance can be given that the IRS
or a court of law will accept our position, and there is a risk that the IRS or a court of law could determine that we are a PFIC.
Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if there were to be changes
in the nature of our operations.
If
the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. federal
income tax consequences and information reporting obligations. Under the PFIC rules, unless those U.S. shareholders make an election
available under the Code (which election could itself have adverse consequences for such U.S. shareholders), such U.S. shareholders
would be liable to pay U.S. federal income tax at the then prevailing U.S. federal income tax rates on ordinary income plus interest
upon “excess distributions” and upon any gain from the disposition of our common shares, as if such “excess
distribution” or gain had been recognized ratably over the U.S. shareholder’s holding period of our common shares.
The
current state of global financial markets and current economic conditions may adversely impact our ability to obtain additional
financing or refinance our existing indebtedness on acceptable terms which may hinder or prevent us from expanding our business.
Global
financial markets and economic conditions continue to be volatile. This volatility has negatively affected the general willingness
of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile
asset values of vessels. The current state of global financial markets might adversely impact our ability to issue additional
equity at prices which will not be dilutive to our existing shareholders or preclude us from issuing equity at all.
Also,
as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the
cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending
standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased,
to provide funding to borrowers. Due to these factors, we cannot be certain that additional financing will be available if needed
and to the extent required, or that we will be able to refinance our existing indebtedness, on acceptable terms or at all. If
additional financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable
to meet our obligations as they come due or we may be unable to revive our shipping operations, complete potential vessel acquisitions
or otherwise take advantage of business opportunities as they arise.
The
instability of the euro or the inability of countries to refinance their debts could have a material adverse effect on our revenue,
profitability and financial position.
As
a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and Spain, the European Commission
created the European Financial Stability Facility (the “EFSF”), and the European Financial Stability Mechanism (the
“EFSM”), to provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011,
the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability
Mechanism, which was established on September 27, 2012 to assume the role of the EFSF and the EFSM in providing external financial
assistance to Eurozone countries. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries
and their ability to meet future financial obligations and the overall stability of the euro. An extended period of adverse developments
in the outlook for European countries could reduce the overall demand for our products and services. These potential developments,
or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash
flows.
Risks
Related to Our Common Stock
There
is not an active liquid trading market for the Company’s common stock.
The
Company’s common stock is quoted on the OTC Pink Market under the symbol “EMRN”. However, there has been minimal
reported trading to date in the Company’s common stock, and we cannot give an assurance that an active trading market will
develop. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities.
This severely limits the liquidity of the common stock and may adversely affect the market price of our common stock. A limited
market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other
companies or assets by using common stock as consideration.
If
an active market for the Company’s common stock develops, there is a significant risk that the Company’s stock price
may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:
●
variations in our quarterly operating results;
●
announcements that our revenue or income are below analysts’ expectations;
●
general economic slowdowns;
●
sales of large blocks of the Company’s common stock; and
●
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments.
Our
common stock may be subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it
more difficult for stockholders to sell our common stock.
The
SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving
a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny
stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity
and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information
and investment experience objectives of the person and make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating
the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination,
and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and
may cause a decline in the market value of its stock.
Because
we became a public company by means of a reverse acquisition, we may not be able to attract the attention of brokerage firms.
Because
we became public through a “reverse acquisition”, securities analysts of brokerage firms may not provide coverage
of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given
that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Applicable
regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for
the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business
and its ability to obtain or retain listing of its common stock.
We
may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for
effective management because of the rules and regulations that govern publicly held companies, including, but not limited to,
certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series
of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of
new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter
qualified individuals from accepting roles as directors and executive officers.
Further,
some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s
independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting
and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors,
the management of its business and its ability to obtain or retain listing of our shares of common stock on any stock exchange
(assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
Public
company compliance may make it more difficult to attract and retain officers and directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of
public companies. As a public company, we expect these new rules and regulations to increase our compliance costs in 2017 and
beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules
and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers.
We
do not intend to pay dividends for the foreseeable future.
We
have paid no dividends on our common stock to date and we do not anticipate paying any cash dividends to holders of our common
stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of
the business, we currently anticipate that we will retain any earnings to finance our future expansion and for the implementation
of our business plan. A lack of a dividend can further affect the market value of our stock and could significantly affect the
value of any investment in our Company.
Our
stockholders may experience significant dilution.
We
have a significant number of warrants to purchase our common stock outstanding, the exercise of which would be dilutive to stockholders.
In certain instances, the exercise prices are subject to adjustment if we issue or sell shares of our common stock or equity-based
instruments at a price per share less than the exercise price then in effect. In such case, both the issuance and the adjustment
would be dilutive to stockholders.
We
may from time to time finance our future operations or acquisitions through the issuance of equity securities, which securities
may also have rights and preferences senior to the rights and preferences of our common stock. We may also grant options to purchase
shares of our common stock to our directors, employees and consultants, the exercise of which would also result in dilution to
our stockholders.
As
an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward looking statements
does not apply to us.
Although
federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under
the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit
of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary
to make the statements not misleading. Such an action could hurt our financial condition.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not
applicable.
ITEM
2. PROPERTIES.
Our
executive offices are located at 4th Floor, 273-30, Gaejwa-Ro, Geumjeong-Gu, Busan, South Korea, where we lease
approximately 3,500 square feet of space. We operate our Maritime Shipbuilding & ICT Research and Development Center
at our headquarters, where a majority of our employees work, including our finance, administrative, engineering, and information
technology staff. Our security deposit is KRW 10,000,000 (approximately $9,000 USD) and our monthly rental payments
for this location are KRW3,300,000 (approximately $2,900 USD). The lease expires on August 31, 2020.
We
also lease approximately 820 square feet of office space in Seoul, located at 2nd Floor, Achasan-ro 78-44,
Gwangjin-gu, Seoul, Republic of Korea, where our sales employees are located. Our security deposit is KRW 15,000,000
(approximately $12,000 USD) and our monthly rental payments for this location are KRW 1,100,000 (approximately $950
USD). The lease expires on September 30, 2020.
ITEM
3. LEGAL PROCEEDINGS.
From
time to time we may be involved in litigation incidental to the conduct of our business. In the ordinary course of business, we
may be a party to inquiries, legal proceedings and claims including, from time to time, disagreements with vendors and customers.
On
January 18, 2018, the Company commenced a lawsuit in the district court in the Republic of Korea against a customer, Shinwoo E&D.,
Ltd. (“Shinwoo”), to recover an unpaid balance of ₩ 84,095,000 which was due during fiscal year 2017. The district
court ruled in favor of the Company. On February 1, 2018, Shinwoo filed an appeal against the district court’s decision.
The Company has not recorded any reserve related to this dispute as of December 31, 2019.
Other
than the legal proceedings disclosed above, as of December 31, 2019, we are not aware of other legal proceedings, government actions,
administrative actions, investigations or claims pending against the Company or involving the Company that, in the opinion of
management, could reasonably be expected to have a material adverse effect on its business and financial condition.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors
and Executive Officers
The
following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions
held by each person. The directors serve one year terms until their successors are elected. The executive officers serve terms
of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family
relationships among any of the directors and officers.
Name
and Address
|
|
Age
|
|
Date
First Elected or Appointed
|
|
Position(s)
|
|
|
|
|
|
|
|
Ung
Gyu Kim
|
|
60
|
|
July
25, 2017
|
|
Chief
Executive Officer, Chief Financial Officer and Director
|
Seung
Ho “Brian” Yang
|
|
46
|
|
January
24, 2018
|
|
Chief
Operating Officer and Director
|
Min
Sik “Primo” Park
|
|
46
|
|
January
24, 2018
|
|
Chief
Technology Officer and Director
|
Woo
Seok “Lukas” Kim
|
|
29
|
|
August
30, 2017
|
|
Secretary
|
Biographical
Information
Dr.
Ung Gyu Kim, Ph.D – Chief Executive Officer, Chief Financial Officer and Director
Dr.
Kim, age 60, is internationally renowned maritime expert who holds total 35 years of career experience in the maritime industry.
This includes sailing overseas as a navigation officer, studying at prestigious universities well known for maritime studies,
and working for Korean Air and LG CNS. Joining e-Marine as CEO since 2003, he has successfully run for 14 years, reforming as
a maritime IT company with dominant standing in domestic market. Dr. Kim appeared on number of Korean news and magazine articles,
was invited to many authoritative international maritime conferences, and received the following awards: Maritime Minister Award
(2011), Knowledge & Economic Minister Award (2011), Industrial Minister Award (2014), and Maritime Safety Expert (2014). Dr.
Kim obtained his Navigation Major from the Korean Maritime & Ocean University. He also has an MBA from Finland Alto University
and a Ph.D. in Maritime Information Systems from Mokpo Maritime University.
Seung
Ho “Brian” Yang – Chief Operating Officer and Director
Mr.
Yang joined e-Marine Co., Ltd. in 2001, where he worked as a software developer until 2004. Since 2004, Mr. Yang served in various
capacities including as sales manager and as project manager for various maritime solutions projects, including electronic chart
display and information systems (“ECDIS”) requirements and maintenance for the Republic of Korea Navy. He also worked
on the implementation of maritime information and communication systems for the Ministry of Oceans and Fisheries in South Korea.
Mr. Yang currently serves as head of e-Marine Co., Ltd.’s Maritime Information and Communications Technology Solutions department,
where he manages all sales and maintenance services relating to ECDIS, digital charts and other maritime solutions. Mr. Yang also
heads the management support department and overseas all general planning and marketing of e-Marine Co., Ltd. He received his
degree in Information Communication Engineering from Daeduk University.
Min
Sik “Primo” Park – Chief Technology Officer and Director
Mr.
Park began working for e-Marine Co., Ltd., the Company’s wholly-owned subsidiary, in 2002, where he worked as a software
developer. Currently, Mr. Park is the head of eMarine Co., Ltd.’s research and development center, where he oversees the
development of Smart Ship solutions and other e-Navigation research projects. Mr. Park also serves as a maritime technical expert
for the Ministry of Science and Information and Communication Technology and the Ministry of Trade, Industry and Energy for the
Republic of Korea. Mr. Park received his degree in Maritime Shipbuilding Technology from the Korea Maritime University.
Woo
Seok “Lukas” Kim - Secretary
Mr.
Kim, age 30, graduated in 2012 from the University of Illinois at Urbana-Champaign with a degree in Psychology.
His career in maritime field began in 2013, serving as a Republic Of Korea Marine Corps military police officer of the 6th
brigade in Bangryung Island. During his early tenures at Korean Institute of Ocean Science & Technology, where he worked
during 2013, and GMT, Co., Ltd., where he worked from 2015 to 2016, he worked as both a translator and assistant project manager
for international maritime projects, including S-100 development, Bangladesh Global Maritime Distress and Safety System and Malaysia
Smart Surveillance System. Since 2016, Lukas Kim has been an investor relations manager and U.S. representative of eMarine Global
Inc.
Family
Relationships
Woo
Seok “Lukas” Kim is the son of the Company’s Chief Executive Officer, Dr. Ung Gyu Kim.
Involvement
in Certain Legal Proceedings
To
our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten
years:
|
1.
|
any
bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
|
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
|
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or
banking activities or to be associated with any person practicing in banking or securities activities;
|
|
|
|
|
4.
|
being
found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have
violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
|
|
|
5.
|
being
subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or
regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or
|
|
|
|
|
6.
|
being
subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization,
any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over
its members or persons associated with a member.
|
Other
Directorships
None
of our officers and directors are directors of any company with a class of securities registered pursuant to section 12 of the
Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under
the Investment Company Act of 1940.
Director
Independence
Our
board of directors has determined that currently none of it members qualify as “independent” as the term is used in
Item 407 of Regulation S-K as promulgated by the SEC.
Board
Leadership Structure and Role in Risk Oversight
Although
we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined,
we have traditionally determined that it is in the best interests of the Company and its stockholders to partially combine these
roles. Due to the small size of the Company, we believe it is currently most effective to have the Chairman and Chief Executive
Officer positions partially combined.
Dr.
Ung Gyu Kim, our Chairman, also serves as the Company’s Chief Executive Officer. The Company is seeking other qualified
individuals to serve on the Company’s Board of Directors. At this time, the Company does not have Directors and Officers
liability insurance which has been a deterring factor in seeking other qualified directors. Dr. Kim is actively involved in oversight
of the Company’s day-to-day activities.
Our
Board of Directors is primarily responsible for overseeing our risk management processes. The Board of Directors receives and
reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our Company’s
assessment of risks. The Board of Directors focuses on the most significant risks facing our Company and our Company’s general
risk management strategy, and also ensures that risks undertaken by our Company are consistent with the Board’s appetite
for risk. While the Board oversees our Company, our Company’s management is responsible for day-to-day risk management processes.
We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that
our Board leadership structure supports this approach.
Board
Diversity
While
we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type
and length of business experience of our Board members as well as a particular nominee’s contributions to that mix. Although
there are many other factors, the Board seeks individuals with experience on public company boards as well as experience with
advertising, marketing, legal and accounting skills.
Board
Assessment of Risk
Our
risk management function is overseen by our Board. Our management keeps our Board apprised of material risks and provides our
directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect
the Company, and how management addresses those risks. Once material risks are identified, Dr. Ung Gyu Kim, our Chairman and Chief
Executive Officer, determines how to best address such risk. If the identified risk poses an actual or potential conflict with
management, our independent directors, if any, may conduct the assessment. The Board focuses on these key risks and interfaces
with management on seeking solutions. Currently we have three members on the board of directors of the Company.
Meetings
and Committees of the Board of Directors
Our
Board of Directors did not hold any formal meetings during the fiscal year ended December 31, 2019.
We
currently do not maintain any committees of the Board of Directors. Given our size and the development of our business to date,
we believe that the board through its meetings can perform all of the duties and responsibilities which might be contemplated
by a committee.
Except
as may be provided in our bylaws, we do not currently have specified procedures in place pursuant to which security holders may
recommend nominees to the Board of Directors.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934, as Amended
Section
16(a) of the Exchange Act requires that our executive officers and directors, and persons who own more than ten percent of a registered
class of our equity securities, file reports of ownership and changes in ownership with the SEC. Executive officers, directors
and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file.
Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons
that they have complied with the relevant filing requirements, we believe that, during the year ended December 31, 2018, all of
our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements,
except that, due to administrative error, the following form was filed late:
|
●
|
Ung
Gyu Kim filed a Form 3 on March 2, 2018 to report transactions that occurred on February 27, 2018.
|
Code
of Ethics and Business Conduct
We
have not yet adopted a Code of Ethics, although we expect to do so as we develop our infrastructure and business.
ITEM
11. EXECUTIVE COMPENSATION.
Executive
Officers and Directors
The
following tables set forth certain information about compensation paid, earned or accrued for services by (i) our Chief Executive
Officer and (ii) all other executive officers who earned in excess of $100,000 in the fiscal year ended December 31, 2019 (“Named
Executive Officers”):
Name
and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seong Sam Cho
|
|
|
2019
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Chief Executive
Officer,
President, and Director (1)
|
|
|
2018
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ung Gyu Kim
|
|
|
2019
|
|
|
|
114,852
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
114,852
|
|
Chairman and Chief Executive Officer
(2)
|
|
|
2018
|
|
|
|
115,329
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min Sik “Primo” Park
|
|
|
2019
|
|
|
|
98,039
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98,039
|
|
Chief Technology Officer and Director
(3)
|
|
|
2018
|
|
|
|
105,168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seung Ho “Brian” Yang
|
|
|
2019
|
|
|
|
98,039
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98,039
|
|
Chief Operating Officer and Director
(4)
|
|
|
2018
|
|
|
|
105,168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
105,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wee Seok “Lukas” Kim
|
|
|
2019
|
|
|
|
31,480
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,480
|
|
Secretary (5)
|
|
|
2018
|
|
|
|
32,728
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,728
|
|
|
(1)
|
Mr.
Seong Sam Cho resigned from all positions with the Company on July 25, 2017.
|
|
(2)
|
Dr.
Ung Gyu Kim was appointed Chairman and Chief Executive Officer of the Company on July 25, 2017.
|
|
(3)
|
Mr.
Min Sik “Primo” Park was appointed as a director and as Chief Technology Officer of the Company on January 24,
2018.
|
|
(4)
|
Mr.
Seung Ho “Brian” Yang was appointed as a director and as Chief Operating Officer of the Company on January 24,
2018.
|
|
(5)
|
Mr.
Lukas Kim was appointed as Secretary of the Company on August 30, 2017.
|
Employment
Contracts and Change-in-Control
There
are no current agreements or arrangements which will result in a change of control.
Executive
Officer Compensation
Ung
Gyu Kim, Chief Executive Officer. On March 1, 2018, we entered into an employment (salary) agreement with Ung Gyu Kim,
which sets forth the terms of Mr. Kim’s annual salary for the period commencing March 1, 2018 through February 28, 2019.
The agreement provides that Mr. Kim shall receive an annual base salary of KRW130,380,000 (approximately $115,329 USD), payable
monthly in accordance with the Company’s standard practices, which includes legal overtime pay and other allowances for
meals. The annual base salary is subject to adjustment in the sole discretion of the Company. The agreement also provides Mr.
Kim with a company car for use while conducting business as Chief Executive Officer of the Company.
Seung
Ho Yang, Chief Operating Officer. On March 1, 2018, we entered into an employment (salary) agreement with Seung Ho Yang,
which sets forth the terms of Mr. Yang’s annual salary for the period commencing March 1, 2018 through February 28, 2019.
The agreement provides that Mr. Yang shall receive an annual base salary of KRW118,892,858 (approximately $105,168 USD), payable
monthly in accordance with the Company’s standard practices, which includes legal overtime pay and other allowances for
meals. The annual base salary is subject to adjustment in the sole discretion of the Company. The agreement also provides Mr.
Yang with a company car for use while conducting business as Chief Operating Officer of the Company.
Min
Sik Park, Chief Technology Officer. On March 1, 2018, we entered into an employment (salary) agreement with Min Sik Park,
which sets forth the terms of Mr. Park’s annual salary for the period commencing March 1, 2018 through February 28, 2019.
The agreement provides that Mr. Park shall receive an annual base salary of KRW130,380,000 (approximately $115,329 USD), payable
monthly in accordance with the Company’s standard practices, which includes legal overtime pay and other allowances for
meals. The annual base salary is subject to adjustment in the sole discretion of the Company. The agreement also provides Mr.
Park with a company car for use while conducting business as Chief Technology Officer of the Company.
Director
Compensation
We
do not provide any compensation to our directors for serving as directors.
Outstanding
Equity Awards at Fiscal Year-End
We
have not granted any equity or option awards to our executive officers as of December 31, 2019.
Equity
Compensation Plan Information
The
Company has not adopted an equity compensation plan.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of our common stock as of May [*], 2020:
(i) by each of our directors, (ii) by each of the named executive officers, (iii) by all of our executive officers and directors
as a group, and (iv) by each person or entity known by us to beneficially own more than five percent (5%) of any class of our
voting securities. As of May [*], 2020, there were [*] shares of our common stock outstanding. Unless otherwise indicated,
the mailing address of stockholders is c/o eMARINE Global Inc., 4th Floor, 273-30, Gaejwa-Ro, Geumjeong-gu, Busan,
46257, South Korea.
Name
and Address of Beneficial Owner (1)
|
|
|
|
|
Amount
and
Nature
of
Beneficial
Ownership
|
|
|
Percent
of
Common Stock
|
|
Directors and Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ung Gyu Kim
|
|
|
|
|
|
|
4,136,627
|
(2)
|
|
|
17.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Woo Seok “Lukas”
Kim
|
|
|
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min Sik “Primo”
Park
|
|
|
|
|
|
|
58,075
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seung Ho “Brian”
Yang
|
|
|
|
|
|
|
58,075
|
|
|
|
0.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All officers and directors as a group (4
persons)
|
|
|
|
|
|
|
4,100,952
|
|
|
|
18.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Owners
of more than 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMT Co., Ltd.
|
|
|
(3
|
)
|
|
|
1,742,254
|
(4)
|
|
|
7.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Venture PTE Ltd
|
|
|
(5
|
)
|
|
|
1,363,953
|
|
|
|
5.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Da Young Lee
|
|
|
|
|
|
|
1,435,908
|
|
|
|
6.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hwa Soo Kim
|
|
|
|
|
|
|
1,574,475
|
|
|
|
6.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RACE Holdings, LLC
|
|
|
(6
|
)
|
|
|
2,936,518
|
(6)
|
|
|
12.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peach Management LLC
|
|
|
(7
|
)
|
|
|
1,985,000
|
(7)
|
|
|
4.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daesun Chung
|
|
|
|
|
|
|
2,582,021
|
|
|
|
11.15
|
%
|
*
|
Denotes
less than 1%.
|
(1)
|
Applicable
percentage ownership is based on 23,159,105 shares of common stock outstanding
as of April 10, 2019. “Beneficial ownership” includes shares for which an
individual, directly or indirectly, has or shares voting or investment power, or both,
and also includes options that are exercisable within the next 60 days. Unless otherwise
indicated, all of the listed persons have sole voting and investment power over the shares
listed opposite their names. Beneficial ownership as reported in the above table has
been determined in accordance with Rule 13d-3 of the Exchange Act. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason of these
acquisition rights.
|
(2)
|
Includes
151,825 shares of the Company’s common stock held by Jeong Min Seo, Dr. Ung Gyu Kim’s brother-in-law.
|
(3)
|
Ju
Hwan Lee, Chief Executive Officer, holds voting and dispositive power over these shares.
|
(4)
|
Represents
(i) 1,742,254 shares held in the name GMT Co., Ltd. (“GMT”), (ii) 58,075 shares held by Ju Hwan Lee, CEO of GMT,
(iii) 46,460 shares held by Jung Soo No, director of GMT, and (iv) 29,037 shares held by Hyun Ju Shim, a member of GMT.
|
(5)
|
Foo
Chew Tuck, director, holds sole voting and dispositive power over these shares.
|
(6)
|
Represents
2,936,518 shares of common stock sold to the selling stockholder in the Company’s private placement, which closed
in the third quarter of 2017. Excludes 7,500,000 shares of common stock issuable upon exercise of warrants, which contains
a 4.99% beneficial ownership blocker, sold to the selling stockholder in the Company’s private placement, which closed
in the third quarter of 2017. Keith Michael Jensen, managing member, holds sole voting and dispositive power.
|
(7)
|
Represents
(i) 1,100,000 shares of common stock issuable upon exercise of warrants, which contains a 4.99% beneficial ownership blocker;
(ii) 210,000 shares of common stock; and (iii) 675,000 shares of common stock issuable upon exercise of warrants sold to the
selling stockholder in the Company’s private placement offering, which closed in the third quarter of 2017. The Briggs
Family 2017 Trust, managing member, holds sole voting and dispositive power over these shares.
|
The
issuer is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding
securities of any class of the issuer, other than as set forth above. There are no classes of stock other than common stock issued
or outstanding.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Certain
Relationships and Related Transactions
As
of December 31, 2019 and 2018, the Company loaned nil and ₩45,980, respectively to the Company’s
officers and employees. The loans receivable bear an interest of 4.60% and are redeemable on demand.
The
Company borrowed ₩141,216 from Ung Gyu Kim, President, on February 25, 2018, with a maturity of June 25, 2020. The borrowings
bear an interest of 4.60 % per annum. As of December 31, 2019 and December 31, 2018, the balance for the borrowings was nil and
₩45,980, respectively.
The
Company borrowed ₩2,000 from Tak Gu Gyun, Senior Manager, on August 28, 2019. The borrowings bear an interest of 4.60 %
per annum. As of December 30, 2019, the balance for the borrowings was nil.
Director
Independence
The
Company currently has three directors, neither of whom meet the definition of “independent.”
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit
Fees
During
the year ended December 31, 2019 and 2018, Turner, Stone & Company LLP billed us $62,000 and 123,000, respectively,
in fees for professional services for the audit of our financial statements and review of financial statements included in
our Form 10-K, as applicable.
Audit-Related
Fees
During
the years ended December 31, 2019 and 2018, Turner, Stone & Company LLP billed us $1,500 and $8,800 respectively relating
to procedures performed in connection with proxy and registration information filed with the SEC. There were no amounts billed
related to any assurance and related services related to the performance of the audit or review of our financial statements.
Tax
Fees
During
the years ended December 31, 2019 and 2018, Turner, Stone & Company LLP billed us $0 and $0 respectively for professional
services for tax preparation.
All
Other Fees
During
the years ended December 31, 2019 and 2018, Turner, Stone & Company LLP. did not bill us for any other fees.
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We
do not currently have an Audit Committee. The policy of our Board of Directors, which acts as our Audit Committee, is to pre-approve
all audit and permissible non-audit services provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval
is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent
auditors and management are required to periodically report to our Board of Directors regarding the extent of services provided
by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of
Directors may also pre-approve particular services on a case-by-case basis.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
NOTE
1 – DESCRIPTION OF BUSINESS AND ORGANIZATION
eMarine
Global Inc. is a Nevada corporation (the “Company”) formed under the name of Web Views Corporation on November 2,
2001. On October 20, 2008, the Company changed its name to Pollex, Inc. (“Pollex”)
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.
NOTE
2 – LIQUIDITY FINANCIAL CONDITION AND MANAGEMENT PLANS
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 December 31, 2019, the Company had cash of ₩592,327 thousand. Historically, the Company had net losses and negative
cash flows from operations. The Company continues to experience liquidity constraints due to the continuing losses. These factors
contributed to the Company’s substantial doubt of its ability to continue as a going concern.
During
the years ended December 31, 2019 and 2018, management has addressed going concern remediation through funding through the private
placement and is continuing initiatives to raise capital to meet future working capital requirements. However, additional capital
is required to reduce the risk of going concern uncertainties for the Company beyond the next twelve months as of the reporting
date. There is no certainty that the Company will be able to arrange sufficient funding to continue its operations.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”).
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.
Use
of Estimates
The
preparation of the consolidated 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 consolidated 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.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments with a maturity of less than three months at purchase to be cash equivalents.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
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 defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
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
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.
Accounts
Receivable and Allowance for Doubtful accounts
Accounts
receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’
financial condition and reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible.
The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve based
on historical experience, in its overall allowance for doubtful accounts.
Inventories
Inventories
are stated at the lower of cost, determined by the first-in, first-out (“FIFO”) method, or market.
The
Company continually analyzes its slow-moving and excess inventories. Based on historical and projected sales volumes and anticipated
selling prices, the Company establishes reserves. Inventory that is in excess of current and projected use is reduced by an allowance
to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net
realizable value.
Property
and Equipment
Property
and equipment are stated at cost. The Company provides for depreciation generally on the straight-line method based upon estimated
useful life of 5 years for vehicles, Office equipment, fixtures and furniture and others.
Costs
related to repair and maintenance activities are expensed in the period in which they are incurred unless leading to an extension
of the original lifetime or capacity.
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.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
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.
Identifiable
intangible assets are recorded at cost, or when acquired as part of a business acquisition, at estimated fair value. The Company
periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
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 December 31, 2019 and 2018, respectively.
Pension
The
amounts recognized in the consolidated financial statements relating to employees’ severance payments and pension plans
are determined on an actuarial basis utilizing certain assumptions in the calculation of such amounts. The assumptions used in
determining net periodic costs and liabilities for employees’ severance payments include discount rate, rate of increase
in compensation levels, average remaining years of service and other factors.
Preferred
Stock
The
Company accounts for preferred stock in accordance with ASC 480 “Distinguishing Liabilities From Equity”. ASC 480
requires, when determining the classification and measurement of its preferred stock, preferred shares subject to mandatory redemption
would be classified as liability instruments and are measured at fair value.
Conditionally
redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) would be
classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.
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 for each of the elements. Revenue for sale of goods
is recognized when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration
is probable, the associated costs and possible return of the goods can be estimated reliably, there is no continuing involvement
with goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount
can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
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.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
Research
and Development
Research
and development expenditures for the Company’s projects are expensed as incurred. Research and development costs were ₩164,743
thousand and ₩374,944 thousand for the years ended December 31, 2019 and 2018, respectively, and are reported within selling,
general and administrative expenses.
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 consolidated 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 consolidated 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.
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.
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Common
stock warrants
|
|
|
12,916,688
|
|
|
|
12,916,688
|
|
Potential dilutive shares
|
|
|
12,916,688
|
|
|
|
12,916,688
|
|
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), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing
arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic
842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard
establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet
for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting
the pattern and classification of expense recognition in the income statement.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
These
ASUs are effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption
permitted. On January 1, 2019, the Company adopted these ASUs, using modified retrospective transition approach.
A
modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial
application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period
presented in the financial statements as its date of initial application. The adopted the effective date as the date of initial
application. Consequently, financial information will not be updated and the disclosures required under the new standard will
not be provided for dates and periods before January 1, 2019.
On
adoption, the Company recognized additional operating liabilities of ₩318,835 thousand, with corresponding ROU assets
of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing
operating leases.
In
January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
This ASU 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. This ASU 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 consolidated 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.
NOTE
4 — INVENTORIES
The
components of inventories are as follows (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Finished goods
|
|
₩
|
-
|
|
|
₩
|
-
|
|
Raw
materials
|
|
|
23,317
|
|
|
|
7,217
|
|
|
|
|
23,317
|
|
|
|
7,217
|
|
Less:
Inventory reserve
|
|
|
-
|
|
|
|
-
|
|
Total, net
|
|
₩
|
23,317
|
|
|
₩
|
7,217
|
|
NOTE
5 — PROPERTY AND EQUIPMENT
The
components of property and equipment are as follows (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Office equipment
|
|
₩
|
232,207
|
|
|
₩
|
219,980
|
|
Fixtures and furniture
|
|
|
48,520
|
|
|
|
48,520
|
|
Other
|
|
|
285,113
|
|
|
|
285,112
|
|
Total, at cost
|
|
|
565,840
|
|
|
|
553,612
|
|
Less:
Accumulated depreciation
|
|
|
(525,230
|
)
|
|
|
(509,388
|
)
|
Total, net
|
|
₩
|
40,610
|
|
|
₩
|
44.224
|
|
Depreciation
expense amounted to ₩15,842 thousand and ₩15,584 thousand for the years ended December 31, 2019 and 2018, respectively.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
NOTE
6 – GOODWILL
In
2011, the Company acquired Intra-Ship Integrated Gateway business from Hyundai BS&C Co., Ltd. and recognized the goodwill
of ₩1,430,625 thousand along with the other identifiable assets and liabilities.
The
Company assessed relevant events and circumstances in evaluating whether it was more likely than not that its fair value of the
reporting unit was less than reporting unit’s carrying amount. The Company concluded that it is more likely than not that
the fair value of a reporting unit is not less than its carrying amount and did not perform the two–step impairment test.
NOTE
7 – INTANGIBLE ASSETS
The
components of intangible assets that are carried at cost less accumulated amortization are as follows (in thousands of Korean
Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Description
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
Industrial Property Rights
|
|
₩
|
5,960
|
|
|
₩
|
(5,646
|
)
|
|
₩
|
314
|
|
|
₩
|
5,960
|
|
|
₩
|
5,260
|
|
|
₩
|
700
|
|
Software
|
|
|
62,782
|
|
|
|
(62,782
|
)
|
|
|
-
|
|
|
|
62,782
|
|
|
|
62,782
|
|
|
|
0
|
|
Customers relationship
|
|
|
500,000
|
|
|
|
(300,000
|
)
|
|
|
200,000
|
|
|
|
500,000
|
|
|
|
200,000
|
|
|
|
300,000
|
|
Other
|
|
|
22,021
|
|
|
|
(21,004
|
)
|
|
|
1,017
|
|
|
|
22,021
|
|
|
|
20,565
|
|
|
|
1,455
|
|
Total
|
|
₩
|
590,763
|
|
|
₩
|
(389,432
|
)
|
|
₩
|
201,331
|
|
|
₩
|
590,763
|
|
|
₩
|
288,607
|
|
|
₩
|
302,155
|
|
Amortization
expense for intangible assets was ₩100,824 thousand and ₩100,899 thousand for the years ended December 31, 2019
and 2018, respectively.
The
following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2019 (in
thousands of Korean Won):
Year Ending December 31,
|
|
|
|
2020
|
|
₩
|
100,794
|
|
2021
|
|
|
100,479
|
|
2022
|
|
|
58
|
|
Total
|
|
₩
|
201,331
|
|
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
NOTE
8 — DEBT
Short-term
Borrowings
The
Company borrowed ₩260,000 thousand from Kookmin Bank at October 8, 2015 with the maturity of October 2, 2018. The borrowings
bear an interest at 6.09% per annum for 2019 and 2018. The Company paid ₩26,000 thousand and entered
into a refinancing agreement at September 29, 2017. The Company paid ₩234,000 thousand at October 2, 2019. At December
31, 2019 and 2018, the balance for the borrowings was nil and ₩234,000 thousand, respectively. The borrowings are guaranteed
by Korea Technology Finance Corporation, a government-funded institution.
The
Company borrowed ₩260,000 thousand from Kookmin Bank at November 4, 2015 with the maturity of November 14, 2019.
The borrowings bear an interest at 6.13% per annum for 2019 and 2018. The Company paid ₩26,000 thousand
and entered into a refinancing agreement at November 3, 2017. The Company paid ₩234,000 thousand at November 4, 2019. At
December 31, 2019 and 2018, the balance for the borrowings was nil and ₩234,000 thousand, respectively. The borrowings
are guaranteed by Korea Technology Finance Corporation, a government-funded institution.
The
Company borrowed ₩1,000,000 thousand from Woori Bank at June 2, 2015 with the maturity of June 1, 2019. The borrowings
bear an interest at 4.57% per annum for 2019 and 2018. The Company paid ₩1,000,000 thousand and entered into
an extension agreement at May 25, 2018 through which the maturity was extended to May 29, 2020. At December 31, 2019 and 2018,
the balance for the borrowings was ₩900,000 thousand and ₩1,000,000 thousand, respectively. The borrowings are guaranteed
by Korea Technology Finance Corporation, a government-funded institution.
The
Company borrowed ₩500,000 thousand from Suhyup Bank at July 18, 2016 with the original maturity of July 18, 2018. The maturity
was extended to July 18, 2020. The borrowings bear an interest at 2.50 % per annum for 2019 and 2018. At December 31, 2019
and 2018, the balance for the borrowings was ₩392,000 thousand and ₩428,000 thousand, respectively. The borrowings
are collateralized by the savings account of ₩3,000 thousand and guaranteed by Hyundai BS&C Co., Ltd., a nonaffiliated
company.
The
Company borrowed ₩550,000 thousand from GMT Co., Ltd. at April 19, 2017 with the maturity of November 30, 2017. The borrowings
bear an interest at 6.00 % per annum for 2019 and 2018. At December 31, 2019 and 2018, the balance for the borrowings was
₩195,000 thousand and ₩200,000 thousand. The Company is in negotiation with the lender to extend the maturity. The
balance is currently in default.
The
Company borrowed ₩300,000 thousand from GNC Co., Ltd. at April 18, 2017 with the maturity of November 30, 2017. The borrowings
bear an interest at 6.00 % per annum for 2019 and 2018. At December 31, 2019 and 2018, the balance for the borrowings was
₩140,000 thousand ₩300,000 thousand. The Company is in negotiation with the lender to extend the maturity. The balance
is currently in default.
The
Company borrowed ₩130,000 thousand from Kwangju Bank at September 27, 2018 with the maturity of August 24, 2019. The borrowings
bear an interest at 5.65 % per annum for 2018 and 2019. At December 31, 2019 and 2018, the balance for the borrowings was nil
and ₩94,545 thousand. The borrowings are guaranteed by Ung Gyu Kim, President.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
The
Company borrowed ₩234,000 thousand from Suhyup Bank at October 2, 2019 with the maturity of September 25, 2020. The borrowings
bear an interest at 3.94 % per annum for 2019. At December 31, 2019, the balance for the borrowings was ₩234,000 thousand.
The
Company borrowed ₩234,000 thousand from Suhyup Bank at November 1, 2019 with the maturity of October 30, 2020. The borrowings
bear an interest at 3.94 % per annum for 2019. At December 31, 2019, the balance for the borrowings was ₩234,000 thousand.
As
of December 31, 2019 and 2018, the estimated fair value of the short-term borrowings approximate their carrying values.
Long-term
Debt
The
components of the long-term debt, including the current portion, are as follows (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Loans from Small & medium
Business Corporation borrowed at March 23, 2016 with the maturity of March 22, 2021 and at an interest of 4.22% and 4.22%
per annum for 2019 and 2018, respectively, guaranteed by Ung Gyu Kim, President
|
|
₩
|
237,900
|
|
|
₩
|
374,760
|
|
|
|
|
|
|
|
|
|
|
Loans from Small & medium Business
Corporation borrowed at February 28, 2017 with the maturity of February 28, 2022 and at an interest of 2.65% and 2.65% per
annum for 2019 and 2018, respectively, guaranteed by Ung Gyu Kim, President
|
|
|
144,300
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Loans from Small & medium Business
Corporation borrowed at August 13, 2018 with the maturity of August 14, 2023 and at an interest of 2.43% and 2.43% per annum
for 2019 and 2018, respectively, guaranteed by Ung Gyu Kim, President
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Loan from National Federation of
Fisheries Cooperatives (1) The Company borrowed ₩100,000 thousand from Suhyup Bank at August 19, 2019 with the original
maturity of August 19, 2022. The borrowings bear an interest at 5.40 % per annum for 2019. At December 31, 2019 and, the balance
for the borrowings was ₩88,889 thousand
|
|
|
88,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from National
Federation of Fisheries Cooperatives (1) The Company borrowed ₩124,000 thousand from Suhyup Bank at August 19, 2019
with the original maturity of August 19, 2022. The borrowings bear an interest at 4.40 % per annum for 2019. At December 31,
2019 and, the balance for the borrowings was ₩110,222 thousand
|
|
|
110,222
|
|
|
|
-
|
|
Total
|
|
|
681,311
|
|
|
|
674,760
|
|
|
|
|
|
|
|
|
|
|
Less: current
portion
|
|
|
(342,947
|
)
|
|
|
(222,260
|
)
|
Total long-term
debt less current portion
|
|
₩
|
338,364
|
|
|
₩
|
452,500
|
|
As
of December 31, 2019 and 2018, the estimated fair value of the long-term debt, including the current portion, were ₩681,311and
₩674,760, respectively.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
Maturities
of the long-term debt for each of the next five years and thereafter are as follows (in thousands of Korean Won):
Year Ending December 31,
|
|
|
|
2020
|
|
₩
|
342,947
|
|
2021
|
|
|
222,087
|
|
2022
|
|
|
94,118
|
|
2023
|
|
|
22,159
|
|
Total
|
|
₩
|
681,311
|
|
As
of December 31, 2019 and 2018, respectively, the Company was in compliance with the financial covenant in credit agreements as
defined in the credit agreements.
NOTE
9 – PENSION PLANS
The
Company has a defined benefit plan covering all full time employees who met certain requirements of age, length of service and
hours worked per year. Benefits paid to retirees are based upon age at retirement and years of credited service.
Information
with respect to changes in benefit obligation and the funded status of the plans is as follows (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Change
in projected benefit liability
|
|
|
|
|
|
|
|
|
Liability at beginning of
year
|
|
₩
|
1,180,730
|
|
|
₩
|
930,098
|
|
Service cost
|
|
|
215,063
|
|
|
|
205,742
|
|
Interest cost
|
|
|
14,074
|
|
|
|
11,175
|
|
Benefit payments
|
|
|
(153,364
|
)
|
|
|
(42,877
|
)
|
Prior service cost
|
|
|
-
|
|
|
|
-
|
|
Remeasurement
of defined benefit liabilities
|
|
|
(35,855
|
)
|
|
|
76,592
|
|
Liability at end of year
|
|
|
1,220,648
|
|
|
|
1,180,730
|
|
|
|
|
|
|
|
|
|
|
Plan assets at
end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Funded status
and net liability recognized
|
|
₩
|
(1,220,648
|
)
|
|
₩
|
(1,180,730
|
)
|
The
components of benefit expense are as follows (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Service cost
|
|
₩
|
215,063
|
|
|
₩
|
205,742
|
|
Interest cost
|
|
|
14,074
|
|
|
|
11,175
|
|
Prior service
cost
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
₩
|
229,137
|
|
|
₩
|
216,917
|
|
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
The
weighted-average assumptions used to determine projected benefit liability and benefit expense for pension plans are as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Discount rate
|
|
|
2.43
|
%
|
|
|
2.78
|
%
|
Expected long-term rate of return on
plan assets
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
The
estimated future benefit payments are as follows (in thousands of Korean Won):
Year Ending December 31,
|
|
|
|
2020
|
|
₩
|
35,467
|
|
2021
|
|
|
57,265
|
|
2022
|
|
|
42,639
|
|
2023
|
|
|
47,298
|
|
2024
|
|
|
51,602
|
|
Thereafter
|
|
|
2,478,842
|
|
Total
|
|
₩
|
2,713,113
|
|
NOTE
10 – STOCKHOLDERS’ DEFICIT
Authorized
and Outstanding Capital Stock
The
Company authorized 300,000,000 shares of common stock, par value $0.001, of which 23,159,105 are currently issued and outstanding.
The Company also has 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
shareholders of common stock (the “Shareholders”) 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 the Company’s
assets available for distribution to the Shareholders upon the liquidation, dissolution or winding up of business. The Shareholders
do not have preemptive, subscription or conversion rights.
The
Shareholders are entitled to one vote per share on all matters which they are entitled to vote upon at all meetings of the Shareholders.
The Shareholders do not have cumulative voting rights, which would allow the Shareholders of more than 50% of outstanding voting
securities to elect all of directors.
The
payment of dividends, if any, in the future rests within the sole discretion of the Board of Directors and will depend, among
other things, upon earnings, capital requirements and financial condition, as well as other relevant factors. The Company has
not paid any dividends since its 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 its business.
Blank
Check Preferred Stock
The
Board of Directors will be authorized, subject to any limitations prescribed by law, without further vote or action by the Shareholders,
to issue from time to time 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
the Board of Directors, which may include, among other things, dividend rights, voting rights, liquidation preferences, conversion
rights and preemptive rights.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
Warrants
As
of December 31, 2019, the Company has outstanding warrants to purchase up to an aggregate of 12,916,688 shares of common stock,
comprising warrants to purchase 9,650,000 shares at an exercise price of $0.60 per share, 2,166,688 shares at an exercise price
of $0.70 per share and 1,100,000 shares at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.
On
April 17, 2019, the Company issued 231,133 shares of warrants to purchase up to an aggregate of 231,133 shares of common stock,
par value $0.001 per share, for a period of three years from the date of issuance, April 17, 2022, 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 ASC 718, “Compensation—Stock
Compensation”, 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.
NOTE
11 – INCOME TAXES
The
provision for income taxes consisted of the following (in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Current
|
|
₩
|
15,675
|
|
|
₩
|
-
|
|
Deferred
|
|
|
(7,888
|
)
|
|
|
16,850
|
|
Total
|
|
₩
|
7,787
|
|
|
₩
|
16,850
|
|
The
table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows
for the years ended December 31, 2019 and 2018:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Income taxes at Federal
statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Foreign tax rate differential
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
Change in valuation allowance
|
|
|
(22.00
|
)%
|
|
|
(22.00
|
)%
|
Other
|
|
|
-%
|
|
|
|
-%
|
|
Effective
tax rate
|
|
|
-%
|
|
|
|
-%
|
|
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
Significant
components of the Company’s deferred tax assets and liabilities are as follows (in thousands of Korean Won):
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Inventories
|
|
₩
|
748,300
|
|
|
₩
|
593,362
|
|
Goodwill and intangible assets
|
|
|
1,424,262
|
|
|
|
1,455,155
|
|
Accounts payable
|
|
|
-
|
|
|
|
94,553
|
|
Pension benefits
|
|
|
268,543
|
|
|
|
259,761
|
|
Other
|
|
|
137,999
|
|
|
|
80,690
|
|
Net operating losses
|
|
|
-
|
|
|
|
59,103
|
|
Tax credit carryforwards
|
|
|
863,456
|
|
|
|
931,344
|
|
Total deferred tax asset
|
|
|
3,442,560
|
|
|
|
3,473,968
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(68,892
|
)
|
Property and equipment
|
|
|
(3,760
|
)
|
|
|
(4,275
|
)
|
Total deferred tax liability
|
|
|
(3,760
|
)
|
|
|
(73,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,438,801
|
|
|
|
3,400,800
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
(3,438,801
|
)
|
|
|
(3,400,800
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
|
-
|
|
|
|
-
|
|
The
Company has a net operating loss carryforward for tax purposes totaling ₩ nil thousand ₩268,650 thousand at December
31, 2019 and 2018, expiring through the year 2029.
The
Company’s tax jurisdiction is the Republic of Korea.
After
consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December
31, 2019 and 2018, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by
₩38,001 thousand and ₩236,014 thousand for the years ended December 31, 2019 and 2018, respectively. The Company’s
tax years for 2015 through 2019 may still be subject to tax examination.
NOTE
12 – RELATED PARTY TRANSACTIONS
The
Company borrowed ₩141,216 thousand from Ung Gyu Kim, President, at February 25, 2018 with the maturity of June 25, 2020.
The borrowings bear an interest at 4.60 % per annum. At December 31, 2019, the balance for the borrowings was nil
and ₩45,980 thousand, respectively.
The
Company borrowed ₩2,000 from Tak Gu Gyun, Senior Manager, at August 28, 2019. The borrowings bear an interest at 4.60 %
per annum. At December 30, 2019, the balance for the borrowings was nil.
NOTE
13 – 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
except for the lawsuit against Shinwoo E&D Co., Ltd. (“Shinwoo”). There was an unpaid amount due ₩84,095,000
from Shinwoo in dispute as of December 31, 2017. The Company filed a lawsuit and the ruling by the district court at January 18,
2018 was in favor of the Company. Shinwoo appealed against the court decision at February 1, 2018. The Company has not recorded
any reserve related to this dispute as of December 31, 2019.
NOTE
14 — CONCENTRATION OF CREDIT RISK
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts
receivable. Credit risk with respect to trade accounts receivable was concentrated with three and four of the Company’s
customers at December 31, 2019 and 2018, respectively.
At
December 31, 2019, G2 ICT Co., Ltd., Shinwoo E&D Co., Ltd. and Hanjin Heavy Industries & Construction Co., Ltd. represented
56%, 19% and 15% of accounts receivable outstanding.
At
December 31, 2018, G2 ICT Co., Ltd., Shinwoo E&D Co., Ltd., Hyundai Heavy Industries Co., Ltd. and Hanjin Heavy Industries
& Construction Co., Ltd. represented 44%, 15%, 13% and 11% of accounts receivable outstanding.
The
Company performs ongoing credit evaluations of its customers’ financial condition to mitigate its credit risk. The deterioration
of the financial condition of its major customers could adversely impact the Company’s operations. From time to time where
the Company determines that circumstances warrant, the Company extends payment terms beyond its standard payment terms.
During
the year ended December 31, 2019, Naval Logistics Command, Ulsan ICT Promotion Agency, Hyundai Global Service Co., Ltd. and Korea
Coast Guard. represented 23%, 10%, 6% and 5% of the Company’s net sales.
During
the year ended December 31, 2018, Naval Logistics Command, represented 33% of the Company’s net sales.
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2019 AND 2018
NOTE
15 — REVENUE CLASSES
Revenue
from the sale of products and services is recorded when the performance obligation is fulfilled, usually at the time of shipment
or when the service is provided, at the net sales price (transaction price). The Company elected to present revenue net of value
added tax and other similar taxes and account for shipping and handling activities as fulfillment costs rather than separate performance
obligations.
The
Company recognizes revenue in accordance with the following five-step model:
|
●
|
identify
arrangements with customers;
|
|
●
|
identify
performance obligations;
|
|
●
|
determine
transaction price;
|
|
●
|
allocate
transaction price to the separate performance obligations in the arrangement, if more than one exists; and
|
|
●
|
recognize
revenue as performance obligations are satisfied.
|
Accounting
Policy
Revenue
for sale of goods is recognized when the significant risks and rewards of ownership have been transferred to the customer, recovery
of the consideration is probable, the associated costs and possible return of the goods can be estimated reliably, there is no
continuing involvement with goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be
granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
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
Disaggregation
of Revenue
Selected
financial information for the Company’s operating revenue for disaggregated revenue purposes by revenue source are as follows
(in thousands of Korean Won):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Shipbuilding ICT
|
|
₩
|
2,248,333
|
|
|
₩
|
609,229
|
|
Maritime ICT
|
|
|
1,298,794
|
|
|
|
1,693,093
|
|
e-Navigation
|
|
|
2,301,316
|
|
|
|
2,286,881
|
|
|
|
₩
|
5,848,444
|
|
|
₩
|
4,589,203
|
|
NOTE
16 — 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.