As
filed with the Securities and Exchange Commission on November 21 , 2018.
SEC
File No. 333- 227500
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 1
TO
FORM S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
EMARINE
GLOBAL INC.
(Exact
name of registrant as specified in its charter)
Nevada
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7389
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98-4886472
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(State
or other jurisdiction of
incorporation or organization)
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(Primary
Standard Industrial
Classification Code Number)
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(I.R.S.
Employer
Identification Number)
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4th
Floor, 15-14, Samsan-ro 308beon-gil
Nam-gu, Ulsan, 44715 South Korea
Telephone: +82-70-7204-9352
(Address,
including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Dr.
Ung Gyu Kim
4th Floor, 15-14, Samsan-ro 308beon-gil
Nam-gu, Ulsan, 44715 South Korea
Telephone: +82-70-7204-9352
(Name,
address, including zip code, and telephone number,
including area code, of agent for service)
Copies
of all communications, including communications sent to agent for service, should be sent to:
Darrin
M. Ocasio, Esq.
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 37th Fl.
New York, New York 10036
Phone: (212) 930-9700
Approximate
date of commencement of proposed sale to the public:
From
time to time after this registration statement becomes effective, as determined by the selling stockholders.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check
one):
Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ X ]
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Smaller
reporting company
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[X]
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Emerging
growth company
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[ ]
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
CALCULATION
OF REGISTRATION FEE
TITLE
OF EACH
CLASS OF SECURITIES
TO BE REGISTERED
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AMOUNT
TO BE REGISTERED (1)(2)
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PROPOSED
MAXIMUM
OFFERING
PRICE PER
SHARE
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PROPOSED
MAXIMUM
AGGREGATE
OFFERING
PRICE
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AMOUNT
OF
REGISTRATION
FEE (7)
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Common Stock, par value $0.001
per share
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3,150,000
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(2)
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$
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0.90
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(3)
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$
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2,835,000
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(2)
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$
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352.96
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Common Stock, par value $0.001 per share, underlying
warrants
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9,400,000
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(4)
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$
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0.60
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(6)
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$
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5,640,000
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(6)
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$
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702.18
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Common Stock, par value $0.001 per share, underlying
warrants
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1,100,000
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(5)
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$
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0.08
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(6)
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$
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88,000
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(6)
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$
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10.96
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Total
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13,650,000
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$
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8,563,000
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$
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1,066.09
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(1)
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The
shares of common stock being registered hereunder are being registered for resale by the selling stockholders named in the
accompanying prospectus.
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(2)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), the securities being registered
hereunder include such indeterminate number of additional shares of common stock as may from time to time become issuable
by reason of anti-dilution provisions, stock splits, stock dividends, recapitalizations or other similar transactions.
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(3)
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Estimated
solely for purposes of calculating the amount of the registration fee pursuant to Rule
457(c) under the Securities Act of 1933, based on the average of the high and low prices
of $0.90 for the registrant’s common stock on September 20, 2018, as reported on
the OTC Pink Tier of the OTC Markets Group, Inc.
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(4)
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Represents
shares of common stock issuable upon the exercise of warrants at an exercise price per share of $0.60, offered by the selling
stockholders.
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(5)
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Represents
shares of common stock issuable upon the exercise of warrants at an exercise price per share of $0.08, offered by the selling
stockholders.
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(6)
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Estimated
solely for purposes of calculating the amount of the registration fee pursuant to Rule
457(g) of the Securities Act.
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(7)
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Previously
paid.
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The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission acting pursuant to said Section 8(a) may determine.
The
information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to
sell these securities and it is not a solicitation of an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted.
PRELIMINARY
PROSPECTUS
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SUBJECT
TO COMPLETION
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DATED
NOVEMBER 21, 2018
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EMARINE
GLOBAL INC.
13,650,000
Shares of Common Stock
This
prospectus relates to the sale or other disposition from time to time of up to 13,650,000 shares of our common stock, par value
$0.001 per share (the “
Common Stock
”), which consists of (i) 3,150,000 shares of Common Stock currently outstanding,
and (ii) and 10,500,000 shares issuable upon the exercise of outstanding warrants. All of the shares of Common Stock being registered
in this prospectus are being offered for resale by the selling stockholders named in this prospectus (the “
Selling Stockholders
”).
We are registering the sale of these shares to satisfy registration rights we have granted to the Selling Stockholders.
Our
Common Stock is quoted on the OTC Pink Tier of the OTC Markets Group, Inc. under the symbol “EMRN”. As of the date
of this prospectus, our Common Stock is subject to only limited quotation on the OTC Pink, and it is not otherwise regularly quoted
on any other over-the-counter market or eligible for trading on any national securities exchange. Until such time as our Common
Stock is so quoted on the OTCQB or OTCQX, or listed on a national securities exchange, the Selling Stockholders may, from time
to time, sell any or all of the shares of Common Stock covered by this prospectus only at a fixed price of $0.90 per share, representing
the average of the high and low prices as reported on the OTC Pink Tier of the OTC Markets Group, Inc. on September 20, 2018.
We
anticipate applying for quotation of our shares of Common Stock on the OTCQB Marketplace. There can be no assurance that our application
will be approved or, if quoted, that a liquid public market for our shares of Common Stock will develop, and if developed, be
sustained. If and when our Common Stock is regularly quoted on an over-the-counter market, such as the OTCQX or the OTXQB, or
on a national securities exchange, the Selling Stockholders may sell their respective shares of Common Stock, from time to time,
at prevailing market prices or in privately negotiated transactions. See “Plan of Distribution.”
We
will not receive any proceeds from the sale of these shares by the Selling Stockholders. However, we will receive proceeds for
any exercise of warrants, but not for the subsequent sale of the shares underlying the warrants. All expenses of registration
incurred in connection with this offering are being borne by us, but all selling and other expenses incurred by the Selling Stockholders
will be borne by the Selling Stockholders.
Investing
in our Common Stock is highly speculative and involves a high degree of risk. We may amend or supplement this prospectus from
time to time by filing amendments or supplements as required. You should carefully consider the risks and uncertainties in
the section entitled “Risk Factors” beginning on page 3 of this prospectus before making a decision to purchase our
stock.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The
date of this prospectus is , 2018.
TABLE
OF CONTENTS
You
should rely only on the information contained in this prospectus. We have not, and the Selling Stockholders have not, authorized
any other person to provide you with different information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where offer or sale is not
permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
For
investors outside the United States, we have not done anything that would permit this offering or possession or distribution of
this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required
to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside
of the United States.
This
prospectus includes estimates, statistics and other industry and market data that we obtained from industry publications, research,
surveys and studies conducted by third parties and publicly available information. Such data involves a number of assumptions
and limitations and contains projections and estimates of the future performance of the industries in which we operate that are
subject to a high degree of uncertainty. This prospectus also includes data based on our own internal estimates. We caution you
not to give undue weight to such projections, assumptions and estimates.
Prospectus
Summary
This
summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain
all of the information that you should consider before investing in our securities and it is qualified in its entirety by, and
should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the
entire prospectus carefully, especially the section entitled “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” before deciding to buy our securities. Unless otherwise stated,
all references to “eMarine,” “EMRN,” the “Company,” “we,” “us,” and
“our” and other similar designations refer to eMarine Global Inc. and its wholly-owned subsidiary, e-Marine Co, Ltd.
(“e-Marine”).
This prospectus contains
translations of Korean Won (
₩
) amounts into USD solely
for the convenience of the reader. On November 21, 2018, the exchange rate was
₩
1,125.79
for $1 USD.
Corporate
History & Background
eMarine
Global Inc., formerly Pollex, Inc., was originally incorporated in the State of Nevada on November 2, 2001 under the name “Web
Views Corporation.” In June 2003, the Company acquired 100% of Cascade Mountain Mining Corp. (“Cascade Corp.”)
pursuant to an exchange agreement. As a result of the acquisition of Cascade Corp., and the change in focus of the Company’s
business, the Company changed its name from “Web Views Corporation” to “Cascade Mountain Mining Company, Inc.”
on June 17, 2003, in connection with a Certificate of Amendment to the Company’s Articles of Incorporation. The Certificate
of Amendment also affected a 60:1 forward stock split, which became effective on June 24, 2003, and reauthorized 300,000,000 shares
of common stock.
On
January 7, 2005, we changed our name to “National Parking Systems, Inc.” and effected a 1:4,000 reverse stock split,
re-authorized 300,000,000 shares of common stock, par value $.001 per share, and re-authorized 10,000,000 shares of preferred
stock, par value $.001 per share. On November 18, 2005, we changed our name to “BioStem, Inc.” and the Company’s
common stock traded under the new stock symbol “BTEM”. The Company’s focus was parking and parking related services,
including valet parking services which the Company operated through its wholly owned subsidiary BH holding Company, Inc. (“BH”)
and vehicle immobilization services which the Company operated through its wholly owned subsidiary ABS Holding Company, Inc. (“ABS”).
On
October 12, 2007, we entered into a Stock Exchange Agreement with Joytoto Co., Ltd., a Korean public company traded on the KOSDAQ
(“Joytoto Korea”), and Joyon Entertainment Co., Ltd, a Korean company, to purchase 100% of the issued and outstanding
capital stock of Joyon Entertainment, Inc., a Delaware corporation (“JEI”), in exchange for 115,000,000 shares of
our common stock (after giving effect to a one-for-forty reverse split of our common stock) as well as the divestment of our two
subsidiaries, BH Holding Company, Inc. and ABS Holding Company, Inc. Effective on October 31, 2007, our name was changed to “Joytoto
USA, Inc.” and our common stock commenced trading under the new symbol “JYTO”. We operated as a majority owned
subsidiary of Joytoto Korea. We had one wholly-owned subsidiary, JEI, and two sub-subsidiaries, Joytoto Technologies, Inc., a
Nevada corporation (“JTI”) and Joytoto America, Inc., a California corporation (“JAI”), both of which
were wholly-owned subsidiaries of JEI. Our operations were organized into two business segments: Consumer Electronics and Video
Games. On October 21, 2008, we filed a Certificate of Amendment to our Articles of Incorporation to change our name to “Pollex,
Inc.,” thus resulting in our symbol change to “PLLX”, effective October 24, 2008.
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.
Business
Overview
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.
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 (“AtoN”) systems.
We
have incurred cumulative losses and negative cash flows from operating activities.
For the
year ended December 31, 2017, the Company had revenues of
₩3,972,111 thousand (approximately
$3,658,302) and
sustained a net loss of
₩2,650,990 thousand (approximately
$2,441,554)
. For the nine months ended September 30, 2018 the Company
revenues of
₩
3,412,423 thousand (approximately $3,045,175) and sustained a net loss of
₩
728,437 thousand (approximately $650,042)
. In addition, the Company
had an accumulated deficit of ₩11,220,972 thousand (approximately $10,084,454) and ₩10,492,538 thousand (approximately
$9,429,800) as of September 30, 2018 and December 31, 2017, respectively. 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 condensed 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. See “Risk Factors” beginning on
page 3.
Our
Corporate Information
Our
principal executive offices are located at 4
th
Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan 44715, South
Korea. Our sales office is located at 14
th
Floor, 201, Songpa-daero, Songpa-gu, Seoul, 05854, Republic of Korea.
Our telephone number is +82-70-7204-9352. Our website address is
http://emarine-global.com
. The references to our
website in this prospectus are inactive textual references only. The information on our website is neither incorporated by reference
into this prospectus nor intended to be used in connection with this offering.
Summary
of the Offering
Common
Stock offered by the Selling Stockholders:
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13,650,000
shares of our common stock, par value $0.001 per share, which includes 10,500,000 shares
of common stock issuable upon the exercise of outstanding warrants.
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Common
Stock outstanding before and after this offering (1):
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22,927,992
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Common
Stock outstanding after this offering (1)(2):
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33,427,992
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Terms
of the Offering:
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The
Selling Stockholders will determine when and how they will sell the shares of Common
Stock being offered in this prospectus.
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Use
of proceeds:
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We
will not receive any proceeds from the sales of Common Stock offered by the Selling Stockholders. However, we will receive
proceeds for any exercise of warrants, but not for the subsequent sale of the shares underlying the warrants, which we are
hereby registering. If all of the warrants exercisable for shares of Common Stock being registered in this offering are exercised,
we could receive net proceeds of up to $5,728,000. The holders of the warrants are not obligated to exercise the warrants
and we can provide no assurance that the holders of the warrants will choose to exercise all or any of the warrants. We will
use these proceeds for general corporate purposes, including for working capital and acquisitions. See “Use of Proceeds.”
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OTCPink
symbol:
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EMRN
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Risk
Factors:
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You
should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth
in the “Risk Factors” section beginning on page 3 of this prospectus before deciding whether or not to invest
in shares of our Common Stock.
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(1)
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The
number of shares outstanding before and after the offering is based upon 22,927,992 shares
outstanding as of November 21 , 2018.
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(2)
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The
number of shares after the offering is based on the assumption that all warrants for which the underlying shares of Common
Stock being offered have been exercised. This number does not include any other outstanding warrants. See “Description
of Securities.”
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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.
Risks
Relating to Our Business
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis as of and for the nine month
period and year ended September 30, 2018 and December 31, 2017, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. For the year ended December 31, 2017, the Company had revenues of
₩3,972,111
thousand (approximately $3,658,302) and
sustained a net loss of
₩2,650,990
thousand (approximately $2,441,554)
. For the nine months ended September 30, 2018 the Company
revenues
of
₩
3,412,423 thousand (approximately $3,045,175) and sustained a net loss
of
₩
728,437 thousand (approximately $650,042)
. In addition, the Company
had an accumulated deficit of ₩11,220,972 thousand (approximately $10,084,454) and ₩10,492,538 thousand (approximately
$9,429,800) as of September 30, 2018 and December 31, 2017, respectively.
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 condensed 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
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 September 30, 2018, we are currently in default of an aggregate
of ₩500,000 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 management 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.
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.
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.
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.
See “Item 10. Additional Information—E. Taxation—Material U.S., Marshall Islands Income Tax Considerations—U.S.
Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Status and Significant Tax Consequences”
for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
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;
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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 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.
Risks
Relating to this Offering
If
the Selling Stockholders sell a large number of shares all at once or in blocks, the market price of our shares would most likely
decline.
A
significant number of shares of Common Stock may be resold by the Selling Stockholders through this prospectus and as a result
of any other registration statement we may file in the future. Should the Selling Stockholders decide to sell their shares at
a price below the market price as quoted on the OTC Markets Group, Inc., or any other exchange or market on which our Common Stock
might be listed in the future, the price may continue to decline. A steep decline in the price of our Common Stock would adversely
affect our ability to raise additional equity capital, and even if we were successful in raising such capital, the terms of such
raise may be substantially dilutive to current stockholders
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements. Such statements include statements regarding our expectations, hopes, beliefs
or intentions regarding the future, including but not limited to statements regarding our market, strategy, competition, development
plans (including acquisitions and expansion), financing, revenues, operations, and compliance with applicable laws. Forward-looking
statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in any such
statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks
described in greater detail in the following paragraphs. All forward-looking statements in this document are made as of the date
hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking
statement. Market data used throughout this prospectus is based on published third party reports or the good faith estimates of
management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly
available information.
In
some cases, you can identify forward-looking statements by terminology, such as “expects”, “anticipates”,
“intends”, “estimates”, “plans”, “potential”, “possible”, “probable”,
“believes”, “seeks”, “may”, “will”, “should”, “could”
or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties
that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified
in their entirety by reference to the factors discussed throughout this prospectus.
You
should review carefully the section entitled “Risk Factors” beginning on page 3 of this prospectus for a discussion
of these and other risks that relate to our business and investing in shares of our common stock.
USE
OF PROCEEDS
The
Selling Stockholders will receive all of the proceeds from the sale of the shares offered by them under this prospectus. We will
not receive any proceeds from the sale of the shares by the Selling Stockholders covered by this prospectus, but we would receive
any proceeds from the exercise of such warrants. If all of the warrants are exercised, we would receive $5,728,000 in proceeds.
We will use any proceeds from any exercise for working capital purposes.
PRICE
RANGE OF COMMON STOCK
Our
Common Stock is currently quoted on OTC Pink Tier of the OTC Markets Group, Inc. under the symbol “EMRN”. Trading
in stocks on the OTC Markets is often thin and is characterized by wide fluctuations in trading prices due to many factors that
may have little to do with a company’s operations or business prospects.
The
following table sets forth the high and low bid quotations for our Common Stock for the periods indicated. The information reflects
prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.
Fiscal
Year
Ended
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Bid
Prices
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December
31,
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Period
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High
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Low
|
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2016
|
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First Quarter
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$
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24.02
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$
|
7.51
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Second Quarter
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$
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17.52
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$
|
6.01
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Third Quarter
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|
$
|
10.48
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$
|
6.01
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Fourth Quarter
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$
|
45.92
|
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|
$
|
9.81
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|
|
|
|
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2017
|
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First Quarter
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$
|
149.70
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|
|
$
|
9.00
|
|
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Second Quarter
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$
|
44.40
|
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$
|
11.25
|
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|
|
Third Quarter
|
|
$
|
134.40
|
|
|
$
|
0.31
|
|
|
|
Fourth Quarter
|
|
$
|
30.00
|
|
|
$
|
6.49
|
|
|
|
|
|
|
|
|
|
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2018
|
|
First Quarter
|
|
$
|
30.00
|
|
|
$
|
13.00
|
|
|
|
Second Quarter
|
|
$
|
13.00
|
|
|
$
|
5.50
|
|
|
|
Third Quarter
|
|
$
|
6.50
|
|
|
$
|
0.90
|
|
|
|
Fourth
Quarter (through November 21,
2018)
|
|
$
|
0.90
|
|
|
$
|
0.40
|
|
Our
transfer agent is Corporate Stock Transfer.
Holders
As
of November 21 , 2018, the number of holders of record of shares of our Common Stock is 92.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on shares of our capital stock. We currently intend to retain all available funds
to support operations and to finance the growth and development of our business. Any determination related to payments of future
dividends will be at the discretion of our board of directors after taking into account various factors that our board of directors
deems relevant, including our financial condition, operating results, current and anticipated cash needs, plans for expansion
and debt restrictions, if any.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of financial condition and results of operations should be read together with our financial
statements and accompanying notes appearing elsewhere in this Prospectus. This Management’s Discussion and Analysis contains
forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” set forth
in the beginning of this Prospectus, and see “Risk Factors” beginning on page 3 for a discussion of certain risk factors
applicable to our business, financial condition, and results of operations. Operating results are not necessarily indicative of
results that may occur in future periods.
Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially
from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that
our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made
that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors
that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing
for our products, and competition.
The
following discussion provides information that management believes is relevant to an assessment and understanding of our past
financial condition and plan of operations. The discussion below should be read in conjunction with the financial statements and
accompanying notes contained elsewhere in this prospectus.
In
this registration statement, references to the “Company,” “eMarine,” “EMRN,” “we,”
“us” and “our” refer to eMarine Global Inc., a Nevada corporation, and our wholly-owned subsidiary, e-Marine
Co., Ltd., a company organized under the laws of the Republic of Korea (“e-Marine”).
Our
financial statements are expressed in Korean Won, the functional currency of our operating subsidiary. Our results of operations
are translated at average exchange rates during the relevant financial periods, assets and liabilities are translated at the unified
exchange rate at the end of these periods and equity is translated at historical exchange rates.
Overview
We
were incorporated on November 2, 2001, in the State of Nevada, under the name “Web Views Corporation.” On October
20, 2008, we changed our name to “Pollex, Inc.” Formerly a subsidiary of Joytoto Co., Ltd, we operated as an online
gaming business by acquiring new game licenses and making such games commercially available in South Korea and the United States.
On
July 25, 2017, we entered into an Exchange Agreement with e-Marine Co., Ltd. and the e-Marine Shareholders, pursuant to which
we acquired all of the outstanding equity of e-Marine in exchange for 14,975,000 restricted shares of our Common Stock (the “
Share
Exchange
”). As a result of the Share Exchange, e-Marine became our wholly-owned subsidiary. On August 15, 2017, we changed
our name from “Pollex, Inc.” to “eMarine Global Inc.” As a result of the Share Exchange, we have discontinued
our online gaming business and have now assumed e-Marine’s business operations.
We,
through our wholly-owned subsidiary, e-Marine, are an information and communications technology solutions provider for the global
maritime industry. We provide solutions for the collection, integration and display of maritime information abroad and ashore
by electronic means to enhance berth to berth navigation and other related services. These solutions provide the most efficient
means to secure the safety of life at sea and to protect the marine environment. All products and services are offered through
subscription, installation, updates and/or maintenance contracts. 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 (“
AtoN
”) systems.
Recent
Developments
On
September 4, 2018, we won a renewal of our contract with the R.O.K. Navy to provide ECDIS maintenance services to navy ships through
the end of February 2020. The total contract is valued at ₩1,569,000,000, payable as follows: (i) ₩ 328,000,000
in 2018; (ii) ₩ 996,229,950 in 2019; and (iii) ₩244,770,050 in 2020.
RESULTS
OF OPERATIONS FOR EMARINE GLOBAL INC.
Three
Months Ended September 30, 2018 and 2017
The
following table summarizes the results of our operations during the three months ended September 30, 2018 and 2017, respectively,
and the increase (decrease) from the current 3-month period to the prior 3-month period (in thousands of Korean Won):
Line
Item
|
|
September
30, 2018
(unaudited)
|
|
|
September
30, 2017
(unaudited)
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Increase
(Decrease)
|
|
Revenue
|
|
₩
|
1,053,739
|
|
|
₩
|
926,428
|
|
|
₩
|
127,311
|
|
|
|
14
|
%
|
Operating
expense
|
|
₩
|
1,324,437
|
|
|
₩
|
1,954,744
|
|
|
₩
|
(630,307
|
)
|
|
|
(32
|
)%
|
Net
loss
|
|
₩
|
270,698
|
|
|
₩
|
1,028,316
|
|
|
₩
|
(757,618
|
)
|
|
|
(44
|
)%
|
Revenue
.
Total revenue for the three months ended September 30, 2018 and 2017 was
₩1,053,739
thousand and ₩926,428 thousand, respectively. The increase of ₩127,311 thousand, or 14%, was primarily due to new
service sales to Research Institute of Medium & Small Shipbuilding.
Cost
of Revenue
. Total cost of revenue for the three months ended September 30, 2018 and 2017 was
₩877,720
thousand and ₩547,420 thousand, respectively. The increase of ₩330,300 thousand, or 60%, was primarily due to the
increase in revenue accompanied by the hike in manufacturing cost.
Selling,
General and Administrative Expenses
. Selling, general and administrative expenses for the three months ended September
30, 2018 and 2017 was
₩402,644
thousand and ₩1,337,646 thousand, respectively. The decrease of ₩935,002 thousand, or 70%, was primarily due to
government subsidy applied to diminishing the general and administrative costs.
Loss
from Operations.
Loss from operations for the three months ended September 30, 2018 and 2017 was
₩226,625
thousand and ₩958,638 thousand, respectively. The decrease of ₩732,013 thousand, or 76%, was due to the decrease
in the selling, general and administrative expenses.
Other
Expense
. Other expense for the three months ended September 30, 2018 and 2017 was
₩44,366
thousand and ₩79,283 thousand, respectively. The decrease of ₩34,917 thousand, or 44%, was primarily due to the
decline in interest expense on lesser borrowings.
Net
Loss
. Net loss for the three months ended September 30, 2018 and 2017 was
₩270,698
thousand and ₩1,028,316 thousand, respectively. The decrease of ₩757,618 thousand, or 74%, was due to the combination
of the increase in revenue and the decrease in the selling, general and administrative expenses.
Nine
Months Ended September 30, 2018 and September 30, 2017
The
following table summarizes the results of our operations during the nine months ended September 30, 2018 and 2017, respectively,
and percentage increase or (decrease) from the current 9-month period to the prior 9-month period (in thousands of Korean Won):
Line
Item
|
|
September
30, 2018 (unaudited)
|
|
|
September
30, 2017 (unaudited)
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Increase (Decrease)
|
|
Revenue
|
|
₩
|
3,412,423
|
|
|
₩
|
2,896,550
|
|
|
₩
|
515,873
|
|
|
|
18
|
%
|
Operating expense
|
|
₩
|
4,140,860
|
|
|
₩
|
4,951,911
|
|
|
₩
|
(811,051
|
)
|
|
|
(16
|
)%
|
Net loss
|
|
₩
|
728,437
|
|
|
₩
|
2,055,361
|
|
|
₩
|
(1,326,924
|
)
|
|
|
(65
|
)%
|
Revenue
.
Total revenue for the nine months ended September 30, 2018 and 2017 was
₩3,412,423
thousand and ₩2,896,550 thousand, respectively. The increase of ₩515,873 thousand, or 18%, was primarily due to
the increased merchandise sales and new service sales to Research Institute of Medium & Small Shipbuilding.
Cost
of Revenue
. Total cost of revenue for the nine months ended September 30, 2018 and 2017 was
₩2,423,708
thousand and ₩2,472,380 thousand, respectively. The decrease of ₩48,672 thousand, or 2%, was primarily due to the
decrease in outsourcing costs and the increase in government subsidy.
Selling,
General and Administrative Expenses
. Selling, general and administrative expenses for the nine months ended September
30, 2018 and 2017 was
₩1,599,217
thousand and ₩2,324,769 thousand, respectively. The decrease of ₩725,552 thousand, or 31%, was primarily due to
due to government subsidy applied to diminishing the general and administrative costs.
Loss
from Operations.
Loss from operations for the nine months ended September 30, 2018 and 2017 was
₩610,502
thousand and ₩1,900,599 thousand, respectively. The decrease of ₩1,290,097 thousand, or 68%, was due to the combination
of the increase in revenue and decrease in selling, general and administrative expenses.
Other
Expense
. Other expense for the nine months ended September 30, 2018 and 2017 was
₩116,034
thousand and ₩192,247 thousand, respectively. The decrease of ₩76,213 thousand, or 40%, was primarily due to the
decrease in interest expense.
Net
Loss
. Net loss for the nine months ended September 30, 2018 and 2017 was
₩728,437
thousand and ₩2,055,361 thousand, respectively. The decrease of ₩1,326,924 thousand, or 65%, was due to the combination
of the increase in gross margin and the slight decrease in selling, general and administrative expenses.
Twelve
Months Ended December 31, 2017 and 2016
Revenues,
Expenses and Loss from Operations
Our
revenues, expenses and net loss for the years ended December 31, 2017 and 2016 are as follows:
|
|
Year
Ended
December 31, 2017
|
|
|
Year
Ended
December 31, 2016
|
|
Revenue
|
|
₩
|
3,972,111,548
|
|
|
₩
|
4,865,140,088
|
|
Operating expense
|
|
₩
|
6,623,102,044
|
|
|
₩
|
6,148,520,342
|
|
Net Loss
|
|
₩
|
(2,650,990,496
|
)
|
|
₩
|
(1,283,380,254
|
)
|
Revenue
.
Total revenue for the year ended December 30, 2017 and 2016 was ₩3,972,111 thousand and ₩4,865,140 thousand,
respectively. The decrease of ₩893,029 thousand, or 18%, was primarily due to the delay in the progress of certain projects
leading to the deferral of the relevant revenue to the subsequent year
Cost
of Revenue
.
Total cost of revenue for the year ended December 30, 2017 and 2016 was ₩3,615,738 thousand and ₩3,690,554
thousand, respectively. The decrease of ₩74,816 thousand, or 2%, was due to the diminishing revenue. The gross margin has
been deteriorated because of the increase in the outsourcing costs and operating leverage effect (i.e. fixed costs generated regardless
of the revenue).
Selling,
General and Administrative Expenses
.
Selling, general and administrative expenses for the year ended December 30, 2017
and 2016 was ₩2,783,121 thousand and ₩2,286,685 thousand, respectively. The increase of ₩496,436 thousand
or 22%, was primarily due to the increase in the legal and professional fees of ₩7 million offset by cost reduction efforts
inclusive of decrease in the headcount of ₩4 million.
Loss
from Operations
.
Loss from operations for the year ended December 30, 2017 and 2016 was ₩2,426,748 thousand and
₩1,112,099 thousand, respectively. The increase of ₩1,314,649 thousand, or 118%, was due to the decrease in gross
profit combined with the growth of selling, general and administrative expense as described.
Other
Expense
.
Other expense for the years ended December 30, 2017 and 2016 was ₩233,360 thousand and ₩187,486
thousand, respectively. The increase of ₩45,874 thousand, or 24%, was primarily due to the increase in the interest expense
of ₩10,000 thousand and decrease in interest income of ₩17,000 thousand. The interest generating debts increased
and the lending to the related party was matured.
Net
Loss
.
Net loss for the twelve months ended December 30, 2017 and 2016 was ₩2,650,990 thousand and ₩1,283,380
thousand, respectively. The increase of ₩ 1,367,610 thousand, or 107%, was primarily due to the increase in operating loss
combined with the increase in other expense as described.
LIQUIDITY
AND CAPITAL RESOURCES
Sources
of Liquidity
As
of September 30, 2018, the Company had ₩374,680 thousand of cash on hand as compared to ₩109,316 thousand as of
December 31, 2017. For the nine months ended September 30, 2018, the Company reported loss from operations of ₩610,502
thousand and net cash used in operating activities of ₩234,760 thousand. The Company continues to experience liquidity
constraints due to the continuing losses. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
During
2018, management addressed going concern remediation by conducting a private placement offering to fund operations, and is continuing
initiatives to raise capital to meet future working capital requirements. However, additional capital is required to reduce the
Company’s risk of going concern uncertainties beyond the next twelve months as of November 14, 2018. There is no
certainty that the Company will be able to arrange sufficient funding to continue its operations.
Operating
Cash Flows.
Net cash used in operating activities for the nine months ended September 30, 2018 was
₩234,760
thousand, which was due to the net loss of ₩728,437 thousand, the increase in operating assets of ₩77,378, and payments
of pension benefits of ₩35,048 offset by the adjustment of noncash items of ₩258,820 thousand to the net loss and
increase in operating liabilities of ₩312,235 thousand.
Investing
Cash Flows.
Net cash provided by investing activities for the nine months ended September 30, 2018 was
₩432,276
thousand, which was due to the net decrease in loans to related parties of ₩163,276 thousand and proceeds from disposals
of short-term financial instruments of ₩269,000 thousand.
Financing
Cash Flows.
Net cash provided by financing activities for the nine months ended September 30, 2018 was
₩78,480
thousand, which was due the proceeds from private placement of ₩557,336 thousand, the increase in long-term debt of ₩100,000
and the net increase in loans from related parties of ₩37,081 thousand offset by the net decrease in short-term borrowings
of ₩302,337, repayment of current portion of long-term debt of ₩313,600 thousand.
Our
audited 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, 2017, we had ₩109,316 thousand of cash on hand. For the year ended December 30, 2017, we reported loss
from operations of ₩2,426,748 thousand and net cash used in operating activities of ₩1,755,770 thousand. We continue
to experience liquidity constraints due to the continuing losses. These factors raise substantial doubt about our ability to continue
as a going concern.
During
2017, management addressed going concern remediation by conducting a private placement offering to fund operations, and is continuing
initiatives to raise capital to meet future working capital requirements. However, additional capital is required to reduce the
Company’s risk of going concern uncertainties beyond the next twelve months as of April 17, 2018. There is no certainty
that we will be able to arrange sufficient funding to continue its operations.
Cash
Requirements
As
noted, we anticipate that our cash requirements will increase substantially as we seek to expand our operations geographically
in order to generate greater revenue.
Operating
Cash Flows.
Net cash used in operating activities for the year ended December 31, 2017 was ₩1,755,770 thousand,
which was due to the net loss of ₩2,650,990 thousand and the increase in net operating assets of ₩93,864 thousand
offset by noncash expenses of ₩989,084 thousand.
Investing
Cash Flows.
Net cash used in investing activities for the year ended December 31, 2017 was ₩338,623 thousand which
was due to the increase in short-term financial instruments of ₩273,000 thousand, the purchase of other long-lived assets
of ₩53,819 thousand and the increase in loans to related parties of ₩11,804 thousand.
Financing
Cash Flows.
Net cash provided by financing activities for the year ended December 31, 2017 was ₩2,121,488 thousand,
which was primarily due to the receipt of proceeds from the private placement offering of ₩2,086,936 thousand, the increase
in borrowings of ₩3,507,992 thousand offset by repayments of borrowings of ₩3,270,830 thousand and net decrease
in loans from related parties of ₩202,610 thousand.
Off-Balance
Sheet Arrangements
We
do not have
any off-balance sheet arrangements that have or are reasonably likely to have
a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to investors.
Contingencies
Maintenance
Bond
In connection with service
agreements with certain customers, the Company is required to purchase a maintenance bond to guarantee no-charge
maintenance for a specified period of time following completion of service, typically for one year periods. In such arrangements,
the Company purchases maintenance bonds, also known as surety bonds, from third-party guarant ors, which range from 1.0% to
10.0% of the total contract price, 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. We record a provision for a liability
when we believe that it is both probable that a liability has been incurred, and that the amount can be reasonably estimated.
If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss
in the accompanying notes to the consolidated financial statements. Significant judgment is required to determine both probability
and the estimated amount of loss. Such matters are inherently unpredictable and subject to significant uncertainties, some of
which are beyond our control. Should any of these estimates and assumptions change or prove to be incorrect, it could have a material
impact on our results of operations, financial position, and cash flows.
See
Note 14 – Commitments and Contingencies in the notes to the consolidated financial statements included elsewhere in this
prospectus for additional information regarding contingencies.
Recently
Issued Accounting Pronouncements
In
February 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-02, Leases (Topic 842). This ASU will increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and
quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. This ASU is
effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted.
The Company is currently evaluating this ASU to determine its impact on the Company’s operations, financial position, cash
flows and disclosures.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date
of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning
after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including:
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus
agent considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing , which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,
which contains certain provision and practical expedients in response to identified implementation issues. The Company has adopted
ASU 2014-09 and related ASUs on January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach
to adopt these ASUs. On January 1, 2018, the Company adopted ASU 2014-09, using the full retrospective method, which requires
reporting entities to apply the standard as of the earliest period presented in their financial statements. The Company completed
its review of its material revenue streams and determined that the adoption of Topic 606 did not have a material impact on the
Company’s condensed consolidated statements of operations and condensed consolidated balance sheets.
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.
Critical
Accounting Policies and Estimates
Our
condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to
Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission and on the same basis as the Company prepares
its annual audited consolidated financial statements.
The preparation of these condensed
consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, costs and expenses, and related disclosures. These estimates form the basis for judgments we make about the carrying
values of our assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on
historical experience and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis,
we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation of such interim results.
The
results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the
year ending December 31, 2018 or for any future interim period. The condensed consolidated balance sheet at June 30, 2018 has
been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S.
GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2017, and notes thereto included in the Company’s
annual report on Form 10-K filed on April 17, 2018.
There
have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s
annual report on Form 10-K for the fiscal year ended December 31, 2017.
Changes
In and Disagreements with Accountants on Accounting and Financial Disclosure
As
previously reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2016, on
April 18, 2016, we were informed Cowan, Gunteski & Co., P.A. (“Cowan”), that it had effectively resigned as our
independent registered public accounting firm. As a result of the resignation, MSPC Certified Public Accountants and Advisors,
P.C. (“MSPC” and together with Cowan, the “Prior Accountants”) became our independent registered public
accounting firm. The engagement of MSPC as our independent registered public accounting firm was ratified by the Board of Directors
on April 22, 2016.
As
previously reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 8, 2017,
on
September 7, 2017, our Board of Directors (the “Board”) approved the dismissal
of MSPC as its registered independent public accounting firm, effective September 1, 2017, and approved the engagement of Turner,
Stone & Company (“Turner Stone”) as the Company’s independent registered public accounting firm, effectively
September 1, 2017.
The
audit reports of the Prior Accountants included within our financial statements as of and for the years ended December 31, 2016
and 2015 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles, except as to its ability to continue as a going concern.
In
connection with the audits of our financial statements for each of the fiscal years ended December 31, 2016 and 2015, and through
the date of the Current Report, there were no disagreements (within the meaning of Item 304(a) of Regulation S-K) between us and
the Prior Accountants on any matters of accounting principles or practices, financial statement disclosure, or auditing scope
or procedures, which disagreement(s), if not resolved to the satisfaction of the Prior Accountants, would have caused the Prior
Accountants to make reference to the subject matter of the disagreement(s) in its reports on our financial statements for such
years, and (ii) no reportable events of the type described in Item 304(a)(1)(v) of Regulation S-K.
During
our two fiscal years ended December 31, 2016 and 2015 and through August 31, 2017, we did not consult with the Prior Accountants
on (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit
opinion that may be rendered on the our financial statements, and the Prior Accountants did not provide either a written report
or oral advice to us that the Prior Accountants concluded was an important factor considered by us in reaching a decision as to
any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304(a)(1)(iv)
of Regulation S-K or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.
BUSINESS
eMarine
Global Inc., formerly Pollex, Inc., was originally incorporated in the State of Nevada on November 2, 2001 under the name “Web
Views Corporation.” In June 2003, the Company acquired 100% of Cascade Mountain Mining Corp. (“Cascade Corp.”)
pursuant to an exchange agreement. As a result of the acquisition of Cascade Corp., and the change in focus of the Company’s
business, the Company changed its name from “Web Views Corporation” to “Cascade Mountain Mining Company, Inc.”
on June 17, 2003, in connection with a Certificate of Amendment to the Company’s Articles of Incorporation. The Certificate
of Amendment also affected a 60:1 forward stock split, which became effective on June 24, 2003, and reauthorized 300,000,000 shares
of common stock.
On
January 7, 2005, we changed our name to “National Parking Systems, Inc.” and effected a 1:4,000 reverse stock split,
re-authorized 300,000,000 shares of common stock, par value $.001 per share, and re-authorized 10,000,000 shares of preferred
stock, par value $.001 per share. On November 18, 2005, we changed our name to “BioStem, Inc.” and the Company’s
common stock traded under the new stock symbol “BTEM”. The Company’s focus was parking and parking related services,
including valet parking services which the Company operated through its wholly owned subsidiary BH holding Company, Inc. (“BH”)
and vehicle immobilization services which the Company operated through its wholly owned subsidiary ABS Holding Company, Inc. (“ABS”).
On
October 12, 2007, we entered into a Stock Exchange Agreement with Joytoto Co., Ltd., a Korean public company traded on the KOSDAQ
(“Joytoto Korea”), and Joyon Entertainment Co., Ltd, a Korean company, to purchase 100% of the issued and outstanding
capital stock of Joyon Entertainment, Inc., a Delaware corporation (“JEI”), in exchange for 115,000,000 shares of
our common stock (after giving effect to a one-for-forty reverse split of our common stock) as well as the divestment of our two
subsidiaries, BH Holding Company, Inc. and ABS Holding Company, Inc. Effective on October 31, 2007, our name was changed to “Joytoto
USA, Inc.” and our common stock commenced trading under the new symbol “JYTO”. We operated as a majority owned
subsidiary of Joytoto Korea. We had one wholly-owned subsidiary, JEI, and two sub-subsidiaries, Joytoto Technologies, Inc., a
Nevada corporation (“JTI”) and Joytoto America, Inc., a California corporation (“JAI”), both of which
were wholly-owned subsidiaries of JEI. Our operations were organized into two business segments: Consumer Electronics and Video
Games. On October 21, 2008, we filed a Certificate of Amendment to our Articles of Incorporation to change our name to “Pollex,
Inc.,” thus resulting in our symbol change to “PLLX”, effective October 24, 2008.
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 (“AtoN”) systems.
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
We
implement 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 e-Navigation solutions market of public ships
through our government contracts with the Republic of Korea (“R.O.K”) Navy and Coast Guard, and we hold approximately
60% of the private sector e-Navigation solutions market share , which includes products and solutions sold for
use in ships that are privately-owned and operated by entities or individuals . 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 2017, we won a contract from the R.O.K. Navy to provide maintenance services to navy ships through fiscal year 2018.
This marks the 8
th
consecutive year in which we have won such contracts.
We
are a Smart Ship solutions development partner of Hyundai Heavy Industries. We supply ISIG, Optimal Navigation System and Engine
Status Monitoring System to Hyundai Heavy Industries and anticipate supplying subsequent Smart Ship products to Hyundai Heavy
Industries and other shipbuilders in South Korea such as Hanjin Heavy Industries and Samsung Heavy Industries.
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 will improve slowly until 2020, before 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 2018, 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
2019. We believe that the IMO’s plan will consequently increase demand for smart ships. Out of 6,500 new ships already planned
HHI over the next five 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 Ulsan. 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 have allocated $1,060,000 for the system’s development
and plan to introduce it during the second quarter of 2018. However, there can be no assurance that our new solution will be ready
at such time. In developing e-ICS, its protocols and interface specifications will be provided by Hyundai in cooperation with
communication equipment’s suppliers. While we currently operate primarily within the military and Korean markets, we plan
to expand into Southeast Asia later in 2018 and further to the Middle East, East Asia and North America by 2019. The overseas
reach will begin in 2018 with $1.5 million budget set for exhibitions, sales network and training, then increasing the budget
to $3million.
Smart
Ship Solutions
We
provide ISIG, which undergirds our Smart Ship Solutions. We have provided 269 ISIGs to HHI since 2012. Beginning in 2018, HHI
will implement Smart Ship Solutions to most of their new ships. 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:
|
-
|
Voice
Controlled Ship Design and its steering control system (2007)
|
|
|
|
|
-
|
Automatic
Identification System for Small Ships based on TRS (Trunked Radio System) (2011)
|
|
|
|
|
-
|
Operation
System design and structured procedure of operation for remote light houses and remote buoys (2012)
|
|
|
|
|
-
|
Dynamic
Electronic Chart Display and Information System using object-oriented relational data base management system and its distribution
method (2015)
|
|
|
|
|
-
|
Voyage
Optimization System Module Design (2015)
|
|
|
|
|
-
|
Voyage
Optimization System Integration (2015)
|
|
-
|
Presentation
Software for ship’s multi-purpose RADAR display
|
|
|
|
|
-
|
Map
Digitizer : Automated Digitizing Software for Electronic Navigational Chart
|
|
|
|
|
-
|
ENC
Text Viewer : Text viewer on Electronic Navigation Chart
|
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.
|
4.
|
Direct
Manufacture Confirmation Approval
|
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.
|
5.
|
Information
Communication Technology (“ICT”) Certificate
|
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.
|
6.
|
Korean
Register Hellas (“KRH”) Certificate
|
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.
1.
Research & Development Center Security
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.
2.
The Company’s Capital for Research & Development (in USD)
Year
|
|
|
R&D
Capital
|
|
2014
|
|
|
$
|
1,050,000
|
|
2015
|
|
|
$
|
430,000
|
|
2016
|
|
|
$
|
575,000
|
|
2017
|
|
|
$
|
387,903
|
|
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 November 21 , 2018, we employed 36 full-time employees as follows: (i) 3 management employees; (ii) 5 human resources
and accounting employees; (iii) 5 sales employees; (iv) 9 service employees; and (v) 1 4 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 4
th
Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan 44715, South Korea.
Our sales office is located at 14
th
Floor, 201, Songpa-daero, Songpa-gu, Seoul, 05854, Republic of Korea. Our telephone
number is +82-70-7204-9352. Our website address is http://emarine-global.com. The references to our website in this prospectus
are inactive textual references only. The information on our website is neither incorporated by reference into this prospectus
nor intended to be used in connection with this offering.
Properties
We
do not own any real property.
Our
executive offices are located at 4
th
Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan 44715, South Korea, where we
lease approximately 2,704 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 20,000,000 (approximately $19,000 USD) and our monthly rental payments for this
location are KRW2,700,000 (approximately $2,500 USD). The lease expires on January 20, 2019.
We
also lease approximately 1,636 square feet of office space in Seoul, located at 14
th
Floor, 201, Songpa-daero, Songpa-gu,
Seoul, 05854, Republic of Korea, where our sales employees are located. Our security deposit is KRW 30,000,000 (approximately
$29,000 USD) and our monthly rental payments for this location are KRW 3,200,000 (approximately $2,950 USD). The lease expires
on September 30, 2018. As of the date of this prospectus, we are currently in discussions with the landlord to renew or extend
this lease.
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.
As
of September 30, 2018, there were no 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.
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 believes it is probable that it will prevail and that it will not suffer an adverse outcome related to the case. As
of September 30, 2018, the Company did not reserve any loss accrual related to this matter.
MANAGEMENT
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
|
|
59
|
|
July 25, 2017
|
|
Chief Executive Officer, Chief Financial Officer
and Director
|
Seung Ho “Brian” Yang
|
|
45
|
|
January 24, 2018
|
|
Chief Operating Officer and Director
|
Min Sik “Primo” Park
|
|
45
|
|
January 24, 2018
|
|
Chief Technology Officer and Director
|
Woo Seok “Lukas” Kim
|
|
28
|
|
August 30, 2017
|
|
Secretary
|
Biographical
Information
Dr.
Ung Gyu Kim, Ph.D – Chief Executive Officer, Chief Financial Officer and Director
Dr.
Kim
, is an 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
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 6
th
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.
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, 2017.
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 Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own
more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the best of the Company’s knowledge, officers, directors and greater than 10% stockholders have been in compliance
with Section 16(a) of the Securities Exchange Act of 1934 for the year ended December 31, 2017.
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.
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 $100,000 in the fiscal year ended December 31, 2017 (“Named
Executive Officers”):
Name
and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seong Sam Cho
|
|
2017
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Chief Executive
Officer,
President, and Director (1)
|
|
2016
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ung Gyu Kim
|
|
2017
|
|
|
187,417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
187,417
|
|
Chairman and Chief Executive Officer
(2)
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Min Sik “Primo” Park
|
|
2017
|
|
|
86,454
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86,454
|
|
Chief Technology Officer and Director
(3)
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seung Ho “Brian” Yang
|
|
2017
|
|
|
87,211
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,211
|
|
Chief Operating Officer and Director
(4)
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wee Seok “Lukas” Kim
|
|
2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Secretary (5)
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(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, 2017, 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, 2017 through February 28, 2018.
The agreement provides that Mr. Kim shall receive an annual base salary of KRW202,411,080 (approximately $187,417 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, 2017, 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, 2017 through February 28, 2018.
The agreement provides that Mr. Yang shall receive an annual base salary of KRW94,188,353 (approximately $87,211 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, 2017, 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, 2017 through February 28, 2018.
The agreement provides that Mr. Park shall receive an annual base salary of KRW93,370,393 (approximately $86,454 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, 2017.
Equity
Compensation Plan Information
The
Company has not adopted an equity compensation plan.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain
Relationships and Related Transactions
As
of June 30, 2018 and December 31, 2017, the Company loaned nil and ₩290,812 thousand, respectively to the Company’s
officers and employees. The loans receivable bear an interest of 6.9% and 4.6% per annum for 2018 and 2017, respectively, and
are redeemable on demand.
The
Company borrowed ₩53,000 thousand from Min Sik Park, Senior Vice President, at December 31, 2015 with the maturity of December
30, 2018. The borrowings bear an interest at 9.50 % per annum. At June 30, 2018 and December 31, 2017, the balance for the borrowings
was ₩9,606 thousand and ₩18,895 thousand, respectively.
The
Company borrowed ₩141,216 thousand from Ung Gyu Kim, President, at February 26, 2018 with the maturity of February 25,
2019. The borrowings bear an interest at 4.60 % per annum. At June 30, 2018 and December 31, 2017, the balance for the borrowings
was ₩48,044 thousand and nil, respectively
Director
Independence
Our
board of directors has determined that currently none of its members qualify as “independent” as the term is used
in Item 407 of Regulation S-K as promulgated by the SEC.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of our common stock as of November 21 , 2018:
(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 November 21 , 2018, there were 22,927,992 shares of our common stock outstanding. Unless otherwise
indicated, the mailing address of stockholders is c/o eMARINE Global Inc., 4
th
Floor, 15-14, Samsan-ro 308beon-gil,
Nam-gu, Ulsan 44715, 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
|
|
|
|
|
4,042,877
|
(2)
|
|
|
17.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Woo
Seok “Lukas” Kim
|
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Min
Sik “Primo” Park
|
|
|
|
|
58,075
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Seung
Ho “Brian” Yang
|
|
|
|
|
58,075
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All
officers and directors as a group (4 persons)
|
|
|
|
|
4,159,027
|
|
|
|
18.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Owners of more than 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMT
Co., Ltd.
|
|
(3)
|
|
|
1,875,826
|
(4)
|
|
|
8.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Jason
Venture PTE Ltd
|
|
(5)
|
|
|
1,363,953
|
|
|
|
5.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Da
Young Lee
|
|
|
|
|
1,435,908
|
|
|
|
6.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Hwa
Soo Kim
|
|
|
|
|
1,574,475
|
|
|
|
6.87
|
%
|
|
|
|
|
|
|
|
|
|
|
|
RACE
Holdings, LLC
|
|
(6)
|
|
|
3,150,000
|
(6)
|
|
|
13.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Peach
Management LLC
|
|
(7)
|
|
|
1,635,000
|
(7)
|
|
|
4.99
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Daesun
Chung
|
|
|
|
|
2,582,021
|
|
|
|
11.26
|
%
|
*
|
Denotes
less than 1%.
|
(1)
|
Applicable
percentage ownership is based on 22,927,992 shares of common stock outstanding as of November 21 , 2018. “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 60 days of November 21 , 2018. 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
58,075 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
3,150,000 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. Christian Briggs is the
trustee of The Briggs Family 2017 Trust.
|
The
Company 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.
SELLING
STOCKHOLDERS
This
prospectus covers the resale, from time to time by the selling stockholders identified below, of up to 13,650,000 shares of common
stock, which includes 10,500,000 shares of common stock issuable upon the exercise of outstanding warrants , and all of which
were issued to the selling stockholders in the July 25, 2017 private placement. All of these shares of our common stock are
being offered for resale by the selling stockholders.
We
are registering the shares hereby pursuant to the terms of our agreements with such stockholders, in order to permit the
selling stockholders identified in the table below to offer the shares for resale from time to time.
The
table below sets forth certain information regarding the selling stockholders and the shares of our common stock offered by them
in this prospectus. The selling stockholders have not had a material relationship with us within the past three years other than
as described in the footnotes to the table below or as a result of acquisition of our shares or other securities. To the
best of our knowledge, none of the selling stockholders is a broker dealer or an affiliate of a broker dealer other than as described
in the footnotes to the table below. Unless otherwise indicated, the mailing address of all listed selling stockholders is c/o
eMARINE Global Inc., 4
th
Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan 44715, South Korea.
|
|
Number
of Shares
|
|
|
Number
of
|
|
|
Number
of Shares
|
|
|
|
Beneficially
Owned
|
|
|
Shares
|
|
|
Beneficially
Owned
|
|
|
|
Prior
to this Offering
|
|
|
Being
Sold
|
|
|
After
this Offering**
|
|
Selling
Stockholder
|
|
Number
|
|
|
Percent
(1)
|
|
|
Offered
|
|
|
Number
|
|
|
Percent
(1)
|
|
RACE
Holdings, LLC
|
|
|
10,650,000
|
(2)
|
|
|
35.00
|
%
|
|
|
10,650,000
|
|
|
|
-
|
|
|
|
-
|
%
|
Charles
Caswell Brewer III
|
|
|
210,000
|
(3)
|
|
|
*
|
%
|
|
|
150,000
|
|
|
|
60,000
|
|
|
|
*
|
%
|
Matthew
B. Ely
|
|
|
35,000
|
(4)
|
|
|
*
|
%
|
|
|
25,000
|
|
|
|
10,000
|
|
|
|
*
|
%
|
Raley
Holdings, LLC
|
|
|
1,015,000
|
(5)
|
|
|
4.29
|
%
|
|
|
725,000
|
|
|
|
290,000
|
|
|
|
1.28
|
%
|
John
Charles Johannesmeyer Jr.
|
|
|
175,000
|
(6)
|
|
|
*
|
%
|
|
|
125,000
|
|
|
|
50,000
|
|
|
|
*
|
%
|
Fred
Schaner
|
|
|
35,000
|
(7)
|
|
|
*
|
%
|
|
|
25,000
|
|
|
|
10,000
|
|
|
|
*
|
%
|
Gabrielle
Pinto
|
|
|
175,000
|
(8)
|
|
|
*
|
%
|
|
|
125,000
|
|
|
|
50,000
|
|
|
|
*
|
%
|
Stuart
Singer
|
|
|
70,000
|
(9)
|
|
|
*
|
%
|
|
|
50,000
|
|
|
|
20,000
|
|
|
|
*
|
%
|
Deacon
Shields
|
|
|
35,000
|
(10)
|
|
|
*
|
%
|
|
|
25,000
|
|
|
|
10,000
|
|
|
|
*
|
%
|
David
Mitchell
|
|
|
70,000
|
(11)
|
|
|
*
|
%
|
|
|
50,000
|
|
|
|
20,000
|
|
|
|
*
|
%
|
Adam
Poynor Brewer
|
|
|
35,000
|
(12)
|
|
|
*
|
%
|
|
|
25,000
|
|
|
|
10,000
|
|
|
|
*
|
%
|
Radical
Hope, LLC
|
|
|
210,000
|
(13)
|
|
|
*
|
%
|
|
|
150,000
|
|
|
|
60,000
|
|
|
|
*
|
%
|
Peach
Management LLC
|
|
|
1,635,000
|
(14)
|
|
|
6.69
|
%
|
|
|
1,525,000
|
|
|
|
110,000
|
|
|
|
*
|
%
|
*
**
|
Denotes
less than 1%.
Assumes
that all the shares are sold
|
(1)
|
Applicable percentage
ownership is based on 22,927,992 shares of common stock outstanding as of November 21 , 2018. “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 60 days of November 21, 2018. 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)
|
Represents (i) 3,150,000
shares of common stock and (ii) 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.
|
(3)
|
Represents (i) 60,000
shares of common stock and (ii) 150,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(4)
|
Represents (i) 10,000
shares of common stock and (ii) 25,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(5)
|
Represents (i) 290,000
shares of common stock and (ii) 725,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017. Richard Raley, managing member, holds
sole voting and dispositive power.
|
(6)
|
Represents (i) 50,000
shares of common stock and (ii) 125,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(7)
|
Represents (i) 10,000
shares of common stock and (ii) 25,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(8)
|
Represents (i) 50,000
shares of common stock and (ii) 125,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(9)
|
Represents (i) 20,000
shares of common stock and (ii) 50,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(10)
|
Represents (i) 10,000
shares of common stock and (ii) 25,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(11)
|
Represents
(i) 20,000 shares of common stock and (ii) 50,000 shares of common stock issuable upon exercise of warrants sold to the selling
stockholder in the Company’s private placement, which closed in the third quarter of 2017.
|
(12)
|
Represents (i) 10,000
shares of common stock and (ii) 25,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017.
|
(13)
|
Represents (i) 60,000
shares of common stock and (ii) 150,000 shares of common stock issuable upon exercise of warrants sold to the selling stockholder
in the Company’s private placement, which closed in the third quarter of 2017. Steve Markham, managing member, holds
sole voting and dispositive power.
|
(14)
|
The selling stockholder
is a consultant to the Company. The shares being offered by the selling stockholder consist of: (i) 1,100,000 shares of common
stock issuable upon exercise of warrants, which contains a 4.99% beneficial ownership blocker, issued pursuant to a consulting
agreement; and (ii) 110,000 shares of common stock and 425,000 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.
|
DESCRIPTION
OF SECURITIES
The
following description of our capital stock summarizes the material terms and provisions of our Common Stock and preferred stock.
Authorized
Capital Stock
Our
authorized capital stock consists of 300,000,000 shares of common stock, par value $0.001 per share, of which 22,927,992 are currently
issued and outstanding, and 10,000,000 shares of “blank check” preferred stock, par value $0.001 per share. There
are no shares of preferred stock outstanding.
Common
Stock
The
holders of our common stock have equal ratable rights to dividends from funds legally available therefore, when, as and if declared
by the Board of Directors and are entitled to share ratably in all of our assets available for distribution to holders of common
stock upon the liquidation, dissolution or winding up of our affairs. Holders of shares of common stock do not have preemptive,
subscription or conversion rights.
Holders
of shares of common stock are entitled to one vote per share on all matters which stockholders are entitled to vote upon at all
meetings of stockholders. The holders of shares of common stock do not have cumulative voting rights, which means that the holders
of more than 50% of our outstanding voting securities can elect all of our directors.
The
payment of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other
things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any
dividends since our inception and do not intend to pay any cash dividends in the foreseeable future, but intend to retain all
earnings, if any, for use in our business.
Blank
Check Preferred Stock
Our
Board of Directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders,
to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number
of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined
by our Board of Directors, which may include, among other things, dividend rights, voting rights, liquidation preferences, conversion
rights and preemptive rights.
Warrants
As
of the date of this prospectus, we have outstanding warrants to purchase up to an aggregate of 12,666,668 shares of common
stock, par value $0.001 per share, which consists of: (i) three-year warrants to purchase up to 9,400,000 shares of common
stock, par value $0.001 per share at an exercise price of $0.60 per share, subject to adjustments as set forth in the warrant ;
(ii) three-year warrants to purchase up to an aggregate of 1,100,000 shares of common stock, par value $0.001 per share at
an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant ; and (iii) three-year warrants to
purchase up to 2,166,688 shares of common stock, par value $0.001 per share, at an exercise price of $0.70 per share.
PLAN
OF DISTRIBUTION
This
prospectus relates to the resale of an aggregate of 13,650,000 shares of our common stock, par value $0.001 per share, which includes
10,500,000 shares issuable upon conversion of outstanding warrants.
The
Selling Stockholders may, from time to time, sell any or all of the shares of our common stock covered by this prospectus only
at a fixed price of $ 0.90
per share, representing the average of the high and low prices
as reported on the OTC Pink Tier of the OTC Markets Group, Inc. on September 20 , 2018. If and when our Common Stock is
regularly quoted on an over-the-counter market , such as the OTCQX or the OTCQB, or on a national securities exchange, the
Selling Stockholders may sell their respective shares of Common Stock, from time to time, at prevailing market prices or in privately
negotiated transactions. A selling stockholder may use any one or more of the following methods when selling securities:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
●
|
privately
negotiated transactions;
|
|
●
|
settlement
of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
|
|
●
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
●
|
a
combination of any such methods of sale; or
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
Selling Stockholders
may also sell shares under Rule 144 under the Securities Act
of 1933, as amended, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as may be set forth in a supplement to this prospectus, in the case
of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case
of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close
out such short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one
or more derivative securities that require the delivery to such broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus
(however, in such case, we must file a prospectus supplement or an amendment to this registration statement under applicable provisions
of the Securities Act amending it to include such successors in interest as Selling Stockholders under this prospectus).
The
Selling Stockholders might not sell any, or all, of the shares of our common stock offered pursuant to this prospectus. In addition,
we cannot assure you that the Selling Stockholders will not transfer the shares of our common stock by other means not described
in this prospectus.
The
Selling Stockholders
and any brokers, dealers, agents or underwriters that participate
with the
Selling Stockholders
in the distribution of our common stock pursuant to
this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such
sales. In this case, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of
our common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition,
any profits realized by the
Selling Stockholders
may be deemed to be underwriting
commissions. If the selling stockholders and any brokers, dealers, agents or underwriters that participate with the selling stockholders
in the distribution of our common stock pursuant to this prospectus are deemed to be an underwriter, the
Selling
Stockholders
and such other participants in the distribution may be subject to certain statutory liabilities and would
be subject to the prospectus delivery requirements of the Securities Act in connection with sales of shares of our common stock.
The
resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities
laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and
is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale
securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholder will be
subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of securities of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling stockholders and will inform them of the need to deliver
a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the
Securities Act).
LEGAL
MATTERS
Sichenzia
Ross Ference LLP, New York, New York, will pass upon the validity of the shares of common stock sold in this offering.
EXPERTS
The
financial statements of the Company for the fiscal years ended December 31, 2017 and 2016 have been audited by Turner, Stone &
Company, an independent registered public accounting firm as set forth in its report, and are included in reliance upon such report
given on the authority of such firm as experts in accounting.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with any amendments and
related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus. The registration
statement contains additional information about us and our shares of common stock that we are offering in this prospectus.
We
file annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities
Exchange Act. Our Securities and Exchange Commission filings are available to the public over the Internet at the Securities and
Exchange Commission’s website at http://www.sec.gov. Access to these electronic filings is available as soon as practicable
after filing with the Securities and Exchange Commission. You may also read and copy any document we file at the Securities and
Exchange Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. You may
also request a copy of those filings, excluding exhibits, from us at no cost. Any such request should be addressed to us at: 4th
Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan, 44715 South Korea, Attention: Ung Gyu Kim, CEO.
INDEX
TO FINANCIAL STATEMENTS
eMarine
Global Inc.
Index
to Consolidated Financial Statements
eMARINE
Global Inc. and subsidiary
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands of Korean Won, except share and per share amounts)
|
|
September
30 2018
|
|
|
December
31 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
₩
|
374,680
|
|
|
₩
|
109,316
|
|
Short-term financial
instruments
|
|
|
69,000
|
|
|
|
338,000
|
|
Accounts receivable,
net of allowance for doubtful accounts of ₩11,227 and ₩11,227, as of September 30, 2018 and December 31, 2017,
respectively
|
|
|
528,123
|
|
|
|
480,673
|
|
Inventories
|
|
|
16,873
|
|
|
|
6,200
|
|
Loans to related
parties
|
|
|
-
|
|
|
|
164,000
|
|
Other
current assets
|
|
|
93,343
|
|
|
|
65,087
|
|
Total Current
Assets
|
|
|
1,082,019
|
|
|
|
1,163,276
|
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
|
48,075
|
|
|
|
59,808
|
|
Goodwill
|
|
|
1,430,625
|
|
|
|
1,430,625
|
|
Intangible assets,
net
|
|
|
327,379
|
|
|
|
403,053
|
|
Deposits
|
|
|
100,199
|
|
|
|
120,499
|
|
Total
Assets
|
|
₩
|
2,988,297
|
|
|
₩
|
3,177,261
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
₩
|
1,059,717
|
|
|
₩
|
1,129,854
|
|
Nontrade payables
|
|
|
1,540,145
|
|
|
|
1,131,517
|
|
Other current
liabilities
|
|
|
182,915
|
|
|
|
193,048
|
|
Short-term borrowings
|
|
|
2,487,549
|
|
|
|
2,789,886
|
|
Loans from related
parties
|
|
|
55,976
|
|
|
|
18,895
|
|
Current
portion of long-term debt
|
|
|
205,610
|
|
|
|
245,240
|
|
Total Current
Liabilities
|
|
|
5,531,912
|
|
|
|
5,508,440
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
510,790
|
|
|
|
684,760
|
|
Loans from related
parties
|
|
|
-
|
|
|
|
-
|
|
Accrued
benefit pension liability
|
|
|
1,066,377
|
|
|
|
930,098
|
|
Total Liabilities
|
|
|
7,109,079
|
|
|
|
7,123,298
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note
14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT :
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value,
100,000,000 shares authorized, 22,927,992 and 22,061,317 shares issued and outstanding as of September 30, 2018 and December
31, 2017, respectively
|
|
|
26,198
|
|
|
|
25,265
|
|
Additional paid-in
capital
|
|
|
7,136,825
|
|
|
|
6,577,829
|
|
Accumulated other
comprehensive loss
|
|
|
(62,833
|
)
|
|
|
(56,593
|
)
|
Accumulated
deficit
|
|
|
(11,220,972
|
)
|
|
|
(10,492,538
|
)
|
Total
Stockholders' Deficit
|
|
|
(4,120,782
|
)
|
|
|
(3,946,037
|
)
|
Total
Liabilities and Stockholders' Deficit
|
|
₩
|
2,988,297
|
|
|
₩
|
3,177,261
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
eMARINE
Global Inc. and subsidiary
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In
thousands of Korean Won, except share and per share amounts)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
₩
|
379,398
|
|
|
₩
|
316,430
|
|
|
₩
|
1,397,830
|
|
|
₩
|
1,215,231
|
|
Service
|
|
|
674,341
|
|
|
|
609,998
|
|
|
|
2,014,593
|
|
|
|
1,681,319
|
|
Total
revenue
|
|
|
1,053,739
|
|
|
|
926,428
|
|
|
|
3,412,423
|
|
|
|
2,896,550
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
262,999
|
|
|
|
141,551
|
|
|
|
938,817
|
|
|
|
983,841
|
|
Service
|
|
|
614,721
|
|
|
|
405,869
|
|
|
|
1,484,891
|
|
|
|
1,488,539
|
|
Total
cost of revenue
|
|
|
877,720
|
|
|
|
547,420
|
|
|
|
2,423,708
|
|
|
|
2,472,380
|
|
Gross
margin
|
|
|
176,019
|
|
|
|
379,008
|
|
|
|
988,715
|
|
|
|
424,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative expenses
|
|
|
402,644
|
|
|
|
1,337,646
|
|
|
|
1,599,217
|
|
|
|
2,324,769
|
|
Loss from
operations
|
|
|
(226,625
|
)
|
|
|
(958,638
|
)
|
|
|
(610,502
|
)
|
|
|
(1,900,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
|
|
(43,325
|
)
|
|
|
(77,377
|
)
|
|
|
(122,231
|
)
|
|
|
(180,862
|
)
|
Other
income (expense), net
|
|
|
(1,041
|
)
|
|
|
(1,906
|
)
|
|
|
6,197
|
|
|
|
(11,385
|
)
|
Total
other expense
|
|
|
(44,366
|
)
|
|
|
(79,283
|
)
|
|
|
(116,034
|
)
|
|
|
(192,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income
taxes
|
|
|
(270,991
|
)
|
|
|
(1,037,921
|
)
|
|
|
(726,536
|
)
|
|
|
(2,092,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision (benefit)
|
|
|
(295
|
)
|
|
|
(9,605
|
)
|
|
|
1,901
|
|
|
|
(37,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
₩
|
(270,698
|
)
|
|
₩
|
(1,028,316
|
)
|
|
₩
|
(728,437
|
)
|
|
₩
|
(2,055,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
₩
|
(12
|
)
|
|
₩
|
(102
|
)
|
|
₩
|
(32
|
)
|
|
₩
|
(593
|
)
|
Weighted average common shares
outstanding
|
|
|
22,927,992
|
|
|
|
10,094,682
|
|
|
|
22,661,323
|
|
|
|
3,468,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
₩
|
(270,698
|
)
|
|
₩
|
(1,028,316
|
)
|
|
₩
|
(728,437
|
)
|
|
₩
|
(2,055,361
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
translation loss
|
|
|
(9,622
|
)
|
|
|
-
|
|
|
|
(1,545
|
)
|
|
|
26,244
|
|
Remeasurement
of pension liabilities
|
|
|
1,047
|
|
|
|
34,055
|
|
|
|
(7,786
|
)
|
|
|
132,900
|
|
Other comprehensive
income (loss), net of tax:
|
|
|
(8,575
|
)
|
|
|
34,055
|
|
|
|
(6,241
|
)
|
|
|
159,144
|
|
Comprehensive
loss
|
|
₩
|
(279,273
|
)
|
|
₩
|
(994,261
|
)
|
|
₩
|
(734,678
|
)
|
|
₩
|
(1,896,217
|
)
|
See
accompanying notes to unaudited condensed consolidated financial statements
eMARINE
Global Inc. and subsidiary
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands of Korean Won)
|
|
Nine
Months Ended
|
|
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(728,437
|
)
|
|
₩
|
(2,055,360
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
87,407
|
|
|
|
19,671
|
|
Pension plan
expenses
|
|
|
162,687
|
|
|
|
165,654
|
|
Bad debt
|
|
|
-
|
|
|
|
17,209
|
|
Deferred income
taxes
|
|
|
1,901
|
|
|
|
(37,485
|
)
|
Foreign currency
loss
|
|
|
6,825
|
|
|
|
6,429
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(58,749
|
)
|
|
|
(725,979
|
)
|
Inventories
|
|
|
(10,673
|
)
|
|
|
179,490
|
|
Other current
assets
|
|
|
(28,256
|
)
|
|
|
6,638
|
|
Deposits
|
|
|
20,300
|
|
|
|
(62,650
|
)
|
Accounts payable
|
|
|
(65,663
|
)
|
|
|
(140,656
|
)
|
Nontrade payables
|
|
|
408,627
|
|
|
|
(167,412
|
)
|
Other current
liabilities
|
|
|
4,319
|
|
|
|
338,002
|
|
Pension
benefits payments
|
|
|
(35,048
|
)
|
|
|
(122,940
|
)
|
NET CASH USED
IN OPERATING ACTIVITIES
|
|
|
(234,760
|
)
|
|
|
(1,958,395
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease in loans
to related parties
|
|
|
163,276
|
|
|
|
3,966
|
|
Proceeds from
disposals of short-term financial instruments
|
|
|
269,000
|
|
|
|
-
|
|
Purchase of property
and equipment
|
|
|
-
|
|
|
|
(33,699
|
)
|
Purchase
of intangible assets
|
|
|
-
|
|
|
|
(2,395
|
)
|
NET CASH PROVIDED
BY (USED IN) INVESTING ACTIVITIES
|
|
|
432,276
|
|
|
|
(281,128
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from
private placement, net
|
|
|
557,336
|
|
|
|
1,864,683
|
|
Drawdown of short-term
borrowings
|
|
|
168,738
|
|
|
|
436,744
|
|
Repayment of
short-term borrowings
|
|
|
(471,075
|
)
|
|
|
-
|
|
Repayment of
current portion of long-term debt
|
|
|
(313,600
|
)
|
|
|
(90,000
|
)
|
Borrowings of
long-term debt
|
|
|
100,000
|
|
|
|
200,000
|
|
Repayment of
long-term debt
|
|
|
-
|
|
|
|
53,695
|
|
Increase in loans
from related parties
|
|
|
217,304
|
|
|
|
131,922
|
|
Repayment
of loans from related parties
|
|
|
(180,223
|
)
|
|
|
(315,783
|
)
|
NET CASH PROVIDED
BY FINANCING ACTIVITIES
|
|
|
78,480
|
|
|
|
2,281,261
|
|
Effect of exchange rate on cash and
cash equivalents
|
|
|
(10,632
|
)
|
|
|
(35,222
|
)
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
265,364
|
|
|
|
6,516
|
|
CASH AND CASH
EQUIVALENTS- beginning of year
|
|
|
109,316
|
|
|
|
157,971
|
|
CASH AND CASH
EQUIVALENTS- end of period
|
|
₩
|
374,680
|
|
|
₩
|
164,487
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
₩
|
121,355
|
|
|
₩
|
180,508
|
|
Income
taxes
|
|
₩
|
-
|
|
|
₩
|
-
|
|
See
accompanying notes to unaudited condensed consolidated financial statements
eMARINE
Global Inc.
and subsidiary
Notes
to Condensed Consolidated Financial Statements
September
30, 2018
(Unaudited)
References
to the “eMarine,” “EMRN,” the “Company,” “we,” “us,” and “our”
and other similar designations refer to eMarine Global Inc. and its wholly-owned subsidiary, e-Marine Co, Ltd. (“e-Marine”),
on a consolidated basis.
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”)
On
July 25, 2017, the Company entered into a share exchange agreement (the “Exchange Agreement”) with e-Marine Co., Ltd.,
a corporation organized under the laws of the Republic of Korea (“e-Marine”), and the shareholders of e-Marine (the
“e-Marine Shareholders”), pursuant to which the e-Marine Shareholders assigned, transferred and delivered, free and
clear of all liens, 100% of the issued and outstanding shares of common stock of e-Marine, representing 100% of the equity interest
in e-Marine (the “e-Marine Shares”) in exchange for 14,975,000 restricted shares of its common stock (the “Share
Exchange”). As a result of the Share Exchange, e-Marine became the Company’s wholly-owned subsidiary, and the e-Marine
Shareholders acquired a controlling interest in the Company.
For
accounting purposes, the Share Exchange was treated as an acquisition of Pollex and a recapitalization of the Company. The Company
is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Pollex are not carried
over and have been adjusted to ₩0. The assets and liabilities of the Company have been brought forward at its book value
and no goodwill has been recognized as a result of the transaction.
At
the time of the Share Exchange, the Company was engaged in the online games business by acquiring gaming licenses in order to
make them commercially available abroad. As a result of the Share Exchange, the Company assumed e-Marine’s business operations
as its own. The acquisition of e-Marine is treated as a reverse acquisition, and the business of e-Marine became the business
of the Company.
As
part of the recapitalization, the Pollex Shareholders assigned, transferred and delivered, free and clear of all liens, 1,012,233
of the issued and outstanding shares of common stock of Pollex, in exchange for 1,026,317 restricted shares of its common stock.
e-Marine
Co., Ltd. was organized under the laws of the Republic of Korea on January 2, 2001, and is a maritime information and communications
technology provider based in South Korea. e-Marine seeks to achieve safety of life at sea through the use of various technologies,
such as e-Navigation, Maritime Internet-of-Things (otherwise known as “I.o.T.”) and marine big data technology (collectively,
“Maritime ICT Convergence”). e-Marine’s main products and services are divided into four categories: (1) Electronic
Chart Display & Information System (“ECDIS”); (2) Smart Ship; (3) Overseas Solutions Distributions; and (4) Aids
to Navigation.
On
August 15, 2017, the Company entered into an agreement and plan of (the “Merger Agreement”), pursuant to which it
merged with and into a 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.
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 September 30, 2018, the Company had cash of ₩374,680 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.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
During
the nine months ended September 30, 2018 and the year ended December 31, 2017, 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
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to
the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and
on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair presentation of such interim results.
The
results for the condensed consolidated statement of operations are not necessarily indicative of results to be expected for the
year ending December 31, 2018 or for any future interim period. The condensed consolidated balance sheet at September 30, 2018
has been derived from unaudited financial statements; however, it does not include all of the information and notes required by
U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2017, and notes thereto included in the Company’s
annual report on Form 10-K filed on April 17, 2018.
There
have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s
annual report on Form 10-K, which was filed with the Securities and Exchange Commission on April 17, 2018.
Earnings
(Loss) Per Share
Earnings
(loss) per share are calculated in accordance with Accounting Standards Codification (“ASC”) 260 “Earnings Per
Share,” which provides for the calculation of “basic” and “diluted” earnings (loss) per share. Basic
earnings (loss) per share includes no dilution and is computed by dividing net earnings by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per share reflect, in periods in which they have a dilutive effect,
the effect of common shares issuable upon exercise of stock options. The following securities were not included in the diluted
net loss per share calculation because their effect was anti-dilutive for the periods presented.
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
Common
stock warrants
|
|
|
12,916,688
|
|
|
|
-
|
|
Potential
dilutive shares
|
|
|
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). This ASU will increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and
quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. This ASU is
effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted.
The Company is currently evaluating this ASU to determine its impact on the Company’s operations, financial position, cash
flows and disclosures.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date
of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning
after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including:
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus
agent considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing , which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
, which contains certain provision and practical expedients in response to identified implementation issues. The Company has adopted
ASU 2014-09 and related ASUs on January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach
to adopt these ASUs. On January 1, 2018, the Company adopted ASU 2014-09, using the full retrospective method, which requires
reporting entities to apply the standard as of the earliest period presented in their financial statements. The Company completed
its review of its material revenue streams and determined that the adoption of Topic 606 did not have a material impact on the
Company’s condensed consolidated statements of operations and condensed consolidated balance sheets.
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):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Finished
goods
|
|
₩
|
-
|
|
|
₩
|
-
|
|
Raw
materials
|
|
|
16,873
|
|
|
|
6,200
|
|
|
|
|
16,873
|
|
|
|
6,200
|
|
Less:
Inventory reserve
|
|
|
-
|
|
|
|
-
|
|
Total,
net
|
|
₩
|
16,873
|
|
|
₩
|
6,200
|
|
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
NOTE
5 — PROPERTY AND EQUIPMENT
The
components of property and equipment are as follows (in thousands of Korean Won):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Office
equipment
|
|
₩
|
219,980
|
|
|
₩
|
219,980
|
|
Fixtures
and furniture
|
|
|
48,520
|
|
|
|
48,520
|
|
Other
|
|
|
285,113
|
|
|
|
285,113
|
|
Total,
at cost
|
|
|
553,613
|
|
|
|
553,613
|
|
Less:
Accumulated depreciation
|
|
|
(505,538
|
)
|
|
|
(493,805
|
)
|
Total,
net
|
|
₩
|
48,075
|
|
|
₩
|
59,808
|
|
Depreciation
expense amounted to ₩11,733 thousand and ₩13,314 thousand for the nine month periods ended September 30, 2018 and
2017, respectively.
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):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Description
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
Industrial
Property Rights
|
|
₩
|
5,960
|
|
|
₩
|
(5,156
|
)
|
|
₩
|
804
|
|
|
₩
|
5,960
|
|
|
₩
|
(4,841
|
)
|
|
₩
|
1,119
|
|
Software
|
|
|
62,782
|
|
|
|
(62,782
|
)
|
|
|
-
|
|
|
|
62,782
|
|
|
|
(62,782
|
)
|
|
|
-
|
|
Customers
relationship
|
|
|
500,000
|
|
|
|
(175,000
|
)
|
|
|
325,000
|
|
|
|
500,000
|
|
|
|
(100,000
|
)
|
|
|
400,000
|
|
Other
|
|
|
22,021
|
|
|
|
(20,446
|
)
|
|
|
1,575
|
|
|
|
22,020
|
|
|
|
(20,086
|
)
|
|
|
1,934
|
|
Total
|
|
₩
|
590,763
|
|
|
₩
|
(263,384
|
)
|
|
₩
|
327,379
|
|
|
₩
|
590,762
|
|
|
₩
|
(187,709
|
)
|
|
₩
|
403,053
|
|
Amortization
expense for intangible assets was ₩75,674 thousand and ₩6,357 thousand for the nine month periods ended September
30, 2018 and 2017, respectively.
The
following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2018
(in thousands of Korean Won):
Year
Ending December 31,
|
|
|
|
2018
|
|
₩
|
25,224
|
|
2019
|
|
|
100,899
|
|
2020
|
|
|
100,759
|
|
2021
|
|
|
100,479
|
|
2022
|
|
|
18
|
|
Total
|
|
₩
|
327,379
|
|
eMARINE
Global Inc.
and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
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 maturity
was extended 1 year, which is October 2, 2019. The borrowings bear an interest at 4.70% per annum for 2018 and 2017. The Company
paid ₩26,000 thousand and entered into a refinancing agreement at September 29, 2017. At September 30, 2018 and December
31, 2017, the balance for the borrowings was ₩234,000 thousand 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 2, 2018. The maturity
was extended 1 year, which is November 1, 2019. The borrowings bear an interest at 5.05% per annum for 2018 and 2017. The Company
paid ₩26,000 thousand and entered into a refinancing agreement at November 3, 2017. At September 30, 2018 and December
31, 2017, the balance for the borrowings was ₩234,000 thousand 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 4.79% and 4.27% per annum for 2018 and 2017. The Company paid ₩1,000,000 thousand and entered into
an extension agreement at May 25, 2018 through which the maturity was extended one more year. At September 30, 2018 and December
31, 2017, 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 had a bank overdraft from Woori Bank. The overdraft bears an interest at 14.00% per annum for 2018 and 2017. At September
30, 2018 and December 31, 2017, the balance for the bank overdraft was ₩61,549 thousand and ₩57,886 thousand, respectively.
The overdraft is collateralized by the savings account of ₩5,000 thousand and guaranteed by Ung Gyu Kim, President.
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 1 year, which is July 18, 2019. The borrowings bear an interest at 2.50 % per annum
for 2018 and 2017. At September 30, 2018 and December 31, 2017, the balance for the borrowings was ₩428,000 thousand and
₩464,000 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
₩300,000 thousand from Hana Bank at August 4, 2017 with the maturity of
August 1, 2018. The borrowings bear an interest at 2.56% per annum for 2018 and 2017. The borrowings were paid off at maturity.
At September 30, 2018 and December 31, 2017, the balance for the borrowings was nil and ₩300,000 thousand, respectively.
The borrowings are collateralized by the savings account of ₩300,000 thousand.
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 2017. At September 30, 2018 and December 31, 2017, the balance for the borrowings was
₩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 2017. At September 30, 2018 and December 31, 2017, the balance for the borrowings was
₩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 September 30, 2018, the balance
for the borrowings was ₩130,000 thousand. The borrowings are guaranteed by Ung Gyu Kim, President.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
As
of September 30, 2018 and December 31, 2017, 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):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
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 2018 and 2017, respectively, guaranteed by Ung Gyu Kim, President
|
|
₩
|
416,400
|
|
|
₩
|
500,000
|
|
|
|
|
|
|
|
|
|
|
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% per annum, guaranteed by Ung Gyu Kim, President
|
|
|
200,000
|
|
|
|
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% per annum, guaranteed by Ung Gyu Kim, President
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loans
from Kwangju Bank borrowed at September 24, 2015 with the maturity of September 24, 2018 and at an interest 6.06% and 6.08%
per annum for 2018 and 2017, respectively, guaranteed by Ung Gyu Kim, President. The borrowings are secured by the personal
property owned by Ung Gyu Kim, President. The borrowings were paid off at maturity.
|
|
|
-
|
|
|
|
230,000
|
|
Total
|
|
|
716,400
|
|
|
|
930,000
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(205,610
|
)
|
|
|
(245,240
|
)
|
Total
long-term debt less current portion
|
|
₩
|
510,790
|
|
|
₩
|
684,760
|
|
As
of September 30, 2018 and December 31, 2017, the estimated fair value of the long-term debt, including the current portion, were
₩716,400 and ₩930,000, respectively.
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 September 30,
|
|
|
|
2019
|
|
₩
|
205,610
|
|
2020
|
|
|
236,210
|
|
2021
|
|
|
183,120
|
|
2022
|
|
|
60,990
|
|
2023
|
|
|
30,470
|
|
Total
|
|
₩
|
716,400
|
|
As
of September 30, 2018 and December 31, 2017, 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.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
Information
with respect to changes in benefit obligation and the funded status of the plans is as follows (in thousands of Korean Won):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Change
in projected benefit liability
|
|
|
|
|
|
|
|
|
Liability
at beginning of year
|
|
₩
|
930,098
|
|
|
₩
|
880,656
|
|
Service
cost
|
|
|
154,307
|
|
|
|
226,787
|
|
Interest
cost
|
|
|
8,381
|
|
|
|
10,991
|
|
Benefit
payments
|
|
|
(35,048
|
)
|
|
|
(146,892
|
)
|
Prior
service cost
|
|
|
-
|
|
|
|
-
|
|
Remeasurement
of defined benefit liabilities
|
|
|
8,639
|
|
|
|
(41,444
|
)
|
Liability
at end of year
|
|
|
1,066,377
|
|
|
|
930,098
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Funded
status and net liability recognized
|
|
₩
|
(1,066,377
|
)
|
|
₩
|
(930,098
|
)
|
The
components of benefit expense are as follows (in thousands of Korean Won):
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Service
cost
|
|
₩
|
154,307
|
|
|
₩
|
226,787
|
|
Interest
cost
|
|
|
8,381
|
|
|
|
10,991
|
|
Prior
service cost
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
₩
|
162,688
|
|
|
₩
|
237,778
|
|
The
weighted-average assumptions used to determine projected benefit liability and benefit expense for pension plans are as follows:
|
|
September
30, 2018
|
|
|
December
31, 2017
|
|
Discount
rate
|
|
|
3.05
|
%
|
|
|
3.21
|
%
|
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 September 30,
|
|
|
|
2019
|
|
₩
|
45,555
|
|
2020
|
|
|
51,936
|
|
2021
|
|
|
55,446
|
|
2022
|
|
|
59,937
|
|
2023
|
|
|
63,384
|
|
Thereafter
|
|
|
2,234,465
|
|
Total
|
|
₩
|
2,509,723
|
|
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
NOTE
10 – REDEEMABLE CONVERTIBLE PREFERRED STOCK
On
May 17, 2016, the Company entered into a securities purchase agreement with an accredited investor to place 12,800 redeemable
convertible preferred shares (the “Preferred Stock”), par value ₩10,000 per share, in the aggregate principal
amount of ₩640,000 thousand (the “Transaction”). The proceeds from sales of the Preferred Stock, net of issuance
cost of ₩3,993 thousand were fully received at June 8, 2016.
On
May 30, 2017, all redeemable convertible preferred shares were converted into 12,800 shares of common stock of e-Marine Co. Ltd.
On July 25, 2017, as a result of the Share Exchange, the Company acquired all of the issued and outstanding equity interests of
e-Marine Co. Ltd., and e-Marine Co., Ltd. became the Company’s wholly-owned subsidiary.
NOTE
11 – STOCKHOLDERS’ DEFICIT
Authorized
and Outstanding Capital Stock
The
Company authorized 300,000,000 shares of common stock, par value $0.001, of which 22,927,992 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.
Warrants
As
of September 30, 2018, the Company has outstanding warrants to purchase up to an aggregate of 12,916,688 shares of common stock,
par value $0.001 per share, for a period of three years from the date of issuance, July 25, 2017, at an exercise price of $0.60
per share, subject to adjustments as set forth in the warrant. The Company also has outstanding warrants to purchase up to an
aggregate of 1,100,000 shares of common stock, par value $0.001 per share, for a period of three years from the date of issuance,
July 25, 2017, at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.
The
Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with 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. For the year
ended December 31, 2017, ₩620,994 thousand was charged to expense.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
Private
Placement Offering
On
July 25, 2017, the Company entered into a subscription agreement with selected accredited investors. Pursuant to the terms of
the subscription agreement, the Company offered in a private placement $2,250,000 of units. Each unit has a purchase price of
$0.50 and consisted of (i) one (1) share of the Company’s common stock, par value $0.001 per share; and (ii) warrants to
purchase two and one-half (2.5) shares of the Company’s common stock. The warrants are exercisable for a period of three
(3) years from the date of issuance at an exercise price of $0.60 per share, subject to adjustment as provided in the agreement
evidencing the warrants.
The
offering closed on July 25, 2017. At the closing, the Company received subscriptions for the full offering of $2,250,000, with
gross proceeds of $1,765,000 (approximately ₩2,009,844 thousand) being received by the Company as of such date. The Company
issued a total of 3,530,000 shares and 8,825,000 warrants to purchase up to 8,825,000 shares of the Company’s common stock.
Since
the closing, the Company received gross proceeds in the amount of $165,000 (approximately ₩184,190 thousand), and issued
to the relevant investors an aggregate of 330,000 shares and warrants to purchase 825,000 shares.
On
March 23, 2018, the Company entered into a subscription agreement with selected accredited investors. Pursuant to the terms of
the Subscription Agreement, the Company sold in a private placement an aggregate of 866,675 units at a purchase price of $0.60
per unit. Each unit consists of (i) one (1) share of the Company’s common stock, par value $0.001 per share; and (ii) warrants
to purchase two and one-half (2.5) shares of the Company’s common stock. The warrants are exercisable for a period of three
(3) years from the date of issuance at an exercise price of $0.70 per share, subject to adjustment as provided in the agreement
evidencing the warrants.
At
closing, the Company issued an aggregate of 866,675 shares and 2,166,688 warrants for total gross proceeds of $520,005.
Consulting
Agreement
On
July 25, 2017, the Company entered into a consulting agreement (the “Consulting Agreement”) with Peach Management
LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (“Consultant”), for a
term of twenty four months, effective as of July 25, 2017 (the “Term”). Pursuant to the terms of the Consulting Agreement,
Consultant will assist the Company with introductions to investor relation firms located within and outside the United States
to develop and implement capital markets messaging reflected in press releases, shareholder letters, PowerPoint presentations,
social media and traditional media (the “Services”) during the Term. In consideration of the Services to be rendered
by Consultant, the Company shall issue to Consultant warrants to purchase up to 1,100,000 shares of the Company’s common
stock, par value $0.001 per share (the “Consultant Warrants”). The Consultant Warrants shall have a term of three
years and have an exercise price equal to $0.08 per share.
In
connection with the issuance of these warrants, the Company charged approximately ₩620,994 thousand of professional fees
to expense.
The
fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model (the “Black-Scholes
model”) The Black-Scholes model requires management to make various estimates and assumptions, including expected term,
expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation
awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual
term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s
stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation
instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
The
following table includes the estimates and assumptions used in the Black-Scholes model:
Stock
price
|
|
$
|
0.57
|
|
Exercise price
|
|
$
|
0.08
|
|
Contractual
term (Years)
|
|
|
3
|
|
Volatility
|
|
|
70.22
|
%
|
Risk-free
rate
|
|
|
1.53
|
%
|
Expected
dividend rate
|
|
|
0.00
|
%
|
Other
Issuances
In
connection with the Exchange Agreement and Subscription Agreement, the Company issued to RedChip Companies, Inc. and Sichenzia
Ross Ference LLP an aggregate of 2,200,000 shares of the Company’s common stock, par value $0.001 per share. The fair value
of such shares issued is approximately ₩1,417,159 thousand and is recorded as additional paid in capital as these shares
were issued as the consideration for services rendered in connection with the share exchange.
NOTE
12 – INCOME TAXES
The
provision for income taxes consisted of the following (in thousands of Korean Won):
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
Current
|
|
₩
|
-
|
|
|
₩
|
-
|
|
Deferred
|
|
|
1,901
|
|
|
|
(37,485
|
)
|
Total
|
|
₩
|
1,901
|
|
|
₩
|
(37,485
|
)
|
The
table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows
for the nine months ended September 30, 2018 and 2017:
|
|
September
30, 2018
|
|
|
September
30, 2017
|
|
Income
taxes at Federal statutory rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
Foreign
tax rate differential
|
|
|
1.00
|
%
|
|
|
(12.00
|
)%
|
Change
in valuation allowance
|
|
|
(22.00
|
)%
|
|
|
(22.00
|
)%
|
Other
|
|
|
-%
|
|
|
|
-
|
%
|
Effective
tax rate
|
|
|
-%
|
|
|
|
-
|
%
|
NOTE
13 – RELATED PARTY TRANSACTIONS
As
of September 30, 2018 and December 31, 2017, the Company loaned nil and
₩164,000 thousand
and nil, respectively to the Company’s officers and employees. The loans receivable bear an interest of 6.9% and are redeemable
on demand.
The
Company borrowed ₩53,000 thousand from Min Sik Park, Senior Vice President, at December 31, 2015 with the maturity of December
30, 2018. The borrowings bear an interest at 9.50 % per annum. At September 30, 2018 and December 31, 2017, the balance for the
borrowings was ₩4,847 thousand and ₩18,895 thousand, respectively.
eMARINE
Global Inc. and subsidiary
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2018
(Unaudited)
The
Company borrowed ₩141,216 thousand from Ung Gyu Kim, President, at February 26, 2018 with the maturity of February 25,
2019. The borrowings bear an interest at 4.60 % per annum. At September 30, 2018 and December 31, 2017, the balance for the borrowings
was ₩51,129 thousand and nil, respectively.
NOTE
14 – 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 believes it is
probable that it will not suffer from an adverse outcome related to the case. The Company has not recorded any reserve related
to this dispute as of September 30, 2018.
NOTE
15 — 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 three of the Company’s
customers in September 30, 2018 and December 31, 2017, respectively.
At
September, 2018, Naval Logistics Command, HANCOM MDS, Co., Ltd. and Shinwoo E&D Co., Ltd. represented 31%, 20% and 16% of
accounts receivable outstanding.
At
December 31, 2017, Naval Logistics Command, Hyundai Heavy Industries Co., Ltd. and Shinwoo E&D Co., Ltd. represented 38%,
22% and 17% 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 nine month period ended September 30, 2018, Naval Logistics Command represented 31% of the Company’s net sales.
During
the nine month period ended September 30, 2017, Naval Logistics Command, National Information Society Agency and Hyundai Electric
& Energy System Co., Ltd. represented 20%, 16% and 13% of the Company’s net sales.
NOTE
16 — REVENUE RECOGNITION
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):
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Products
|
|
e-Navigation
|
|
₩
|
268,738
|
|
|
₩
|
307,862
|
|
|
₩
|
1,221,981
|
|
|
₩
|
1,118,013
|
|
|
|
Smart
Ship
|
|
|
110,659
|
|
|
|
8,569
|
|
|
|
175,849
|
|
|
|
97,219
|
|
Projects
|
|
e-Navigation
|
|
|
329,523
|
|
|
|
423,751
|
|
|
|
1,074,767
|
|
|
|
1,328,242
|
|
|
|
Smart
Ship
|
|
|
344,819
|
|
|
|
186,245
|
|
|
|
939,826
|
|
|
|
353,076
|
|
Total
|
|
|
|
₩
|
1,053,738
|
|
|
₩
|
926,428
|
|
|
₩
|
3,412,423
|
|
|
₩
|
2,896,550
|
|
NOTE
17 — 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.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of eMarine Global Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of eMarine Global Inc. (the “Company”) as of December 31,
2017 and 2016, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit,
and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Explanatory
Paragraph – Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has suffered liquidity constraints due to recurring losses. These conditions
raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Turner, Stone & Company, L.L.P.
Turner,
Stone & Company, L.L.P.
Dallas,
Texas
April
17, 2018
This
is our first year to serve as the Company’s auditor.
eMARINE
Global Inc. (Formerly Known as e-Marine Co., Ltd.)
CONSOLIDATED
BALANCE SHEETS
(In
thousands of Korean Won, except share and per share amounts)
|
|
December
31 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
₩
|
109,316
|
|
|
₩
|
157,971
|
|
Short-term
financial instruments
|
|
|
338,000
|
|
|
|
65,000
|
|
Accounts
receivable, net of allowance for doubtful accounts of ₩11,226,700 and ₩5,830,000, as of December 31, 2017 and
2016, respectively
|
|
|
480,673
|
|
|
|
307,116
|
|
Inventories
|
|
|
6,200
|
|
|
|
231,290
|
|
Loans
to related parties
|
|
|
164,000
|
|
|
|
164,000
|
|
Other
current assets
|
|
|
65,087
|
|
|
|
68,972
|
|
Total
Current Assets
|
|
|
1,163,276
|
|
|
|
994,349
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
59,808
|
|
|
|
24,987
|
|
Goodwill
|
|
|
1,430,625
|
|
|
|
1,430,625
|
|
Intangible
assets, net
|
|
|
403,053
|
|
|
|
507,239
|
|
Deposits
|
|
|
120,499
|
|
|
|
87,798
|
|
Total
Assets
|
|
₩
|
3,177,261
|
|
|
₩
|
3,044,998
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
₩
|
1,129,854
|
|
|
₩
|
956,395
|
|
Nontrade
payables
|
|
|
1,131,517
|
|
|
|
1,167,347
|
|
Other
current liabilities
|
|
|
193,048
|
|
|
|
287,615
|
|
Short-term
borrowings
|
|
|
2,789,886
|
|
|
|
2,632,725
|
|
Loans
from related parties
|
|
|
18,895
|
|
|
|
-
|
|
Current
portion of long-term debt
|
|
|
245,240
|
|
|
|
120,000
|
|
Total
Current Liabilities
|
|
|
5,508,440
|
|
|
|
5,164,082
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
684,760
|
|
|
|
730,000
|
|
Loans
from related parties
|
|
|
-
|
|
|
|
221,505
|
|
Accrued
benefit pension liability
|
|
|
930,098
|
|
|
|
880,656
|
|
Total
Liabilities
|
|
|
7,123,298
|
|
|
|
6,996,243
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies (Note 14)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Temporary
Equity - Redeemable convertible preferred stock
|
|
|
-
|
|
|
|
636,007
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT :
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 300,000,000 shares authorized, 245,286 shares issued and outstanding as of December 31, 2016; $0.001
par value, 100,000,000 shares authorized, 22,061,317 shares issued and outstanding as of December 31, 2017
|
|
|
25,265
|
|
|
|
21
|
|
Additional
paid-in capital
|
|
|
6,577,829
|
|
|
|
3,327,413
|
|
Other
comprehensive loss
|
|
|
(56,593
|
)
|
|
|
(73,138
|
)
|
Accumulated
deficit
|
|
|
(10,492,538
|
)
|
|
|
(7,841,548
|
)
|
Total
Stockholders’ Deficit
|
|
|
(3,946,037
|
)
|
|
|
(4,587,252
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
₩
|
3,177,261
|
|
|
₩
|
3,044,998
|
|
eMARINE
Global Inc. (Formerly Known as e-Marine Co., Ltd.)
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In
thousands of Korean Won, except share and per share amounts)
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Product
|
|
₩
|
1,866,863
|
|
|
₩
|
2,321,425
|
|
Service
|
|
|
2,105,248
|
|
|
|
2,543,715
|
|
Total
revenue
|
|
|
3,972,111
|
|
|
|
4,865,140
|
|
Cost
of revenue
|
|
|
|
|
|
|
|
|
Product
|
|
|
1,677,034
|
|
|
|
1,959,184
|
|
Service
|
|
|
1,938,704
|
|
|
|
1,731,370
|
|
Total
cost of revenue
|
|
|
3,615,738
|
|
|
|
3,690,554
|
|
Gross
margin
|
|
|
356,373
|
|
|
|
1,174,586
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
2,783,121
|
|
|
|
2,286,685
|
|
Loss
from operations
|
|
|
(2,426,748
|
)
|
|
|
(1,112,099
|
)
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(226,721
|
)
|
|
|
(198,556
|
)
|
Other
income (expense), net
|
|
|
(6,639
|
)
|
|
|
-11,070
|
|
Total
other expense
|
|
|
(233,360
|
)
|
|
|
(187,486
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(2,660,108
|
)
|
|
|
(1,299,585
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
(9,118
|
)
|
|
|
(16,205
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(2,650,990
|
)
|
|
₩
|
(1,283,380
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share
|
|
₩
|
(308.18
|
)
|
|
₩
|
(5,227.92
|
)
|
Weighted
average common shares outstanding
|
|
|
8,601,977
|
|
|
|
245,486
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(2,650,990
|
)
|
|
₩
|
(1,283,380
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign
exchange translation loss
|
|
|
(15,781
|
)
|
|
|
-
|
|
Remeasurement
of pension liabilities
|
|
|
32,326
|
|
|
|
57,453
|
|
Other
comprehensive income, net of tax:
|
|
|
16,545
|
|
|
|
57,453
|
|
Comprehensive
loss
|
|
₩
|
(2,634,445
|
)
|
|
₩
|
(1,225,927
|
)
|
eMARINE
Global Inc. (Formerly Known as e-Marine Co., Ltd.)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the Year Ended December 31, 2017
(In
thousands of Korean Won, except share amounts)
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
Total
|
|
|
|
$0.001
Par Value
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance,
December 31, 2015
|
|
|
17,072
|
|
|
₩
|
21
|
|
|
₩
|
3,327,413
|
|
|
₩
|
(130,591)
|
|
|
₩
|
(6,558,168)
|
|
|
₩
|
(3,361,325)
|
|
Remeasurement
of pension liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,453
|
|
|
|
|
|
|
|
57,453
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,283,380
|
)
|
|
|
(1,283,380
|
)
|
Balance,
December 31, 2016
|
|
|
17,072
|
|
|
|
21
|
|
|
|
3,327,413
|
|
|
|
(73,138
|
)
|
|
|
(7,841,548
|
)
|
|
|
(4,587,252
|
)
|
Exchange
of debt for common stock - post reverse merger
|
|
|
982,361
|
|
|
|
1,110
|
|
|
|
4,758,212
|
|
|
|
|
|
|
|
|
|
|
|
4,759,322
|
|
Conversion
of redeemable convertible preferred stock to common stock - pre reverse merger
|
|
|
12,800
|
|
|
|
128,000
|
|
|
|
508,007
|
|
|
|
|
|
|
|
|
|
|
|
636,007
|
|
Recapitalzation
on reverse merger
|
|
|
14,989,084
|
|
|
|
(111,047
|
)
|
|
|
(4,709,908
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,820,955
|
)
|
Private
placement
|
|
|
3,860,000
|
|
|
|
4,695
|
|
|
|
2,212,204
|
|
|
|
|
|
|
|
|
|
|
|
2,216,899
|
|
Stock
issuance cost
|
|
|
|
|
|
|
|
|
|
|
(129,963
|
)
|
|
|
|
|
|
|
|
|
|
|
(129,963
|
)
|
Warrants
issued on professional service
|
|
|
|
|
|
|
|
|
|
|
614,350
|
|
|
|
|
|
|
|
|
|
|
|
614,350
|
|
Shares
issued for stock placement fee
|
|
|
2,200,000
|
|
|
|
2,486
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Foreign
exchange translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,781
|
)
|
|
|
|
|
|
|
(15,781
|
)
|
Remeasurement
of pension liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,326
|
|
|
|
|
|
|
|
32,326
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,650,990
|
)
|
|
|
(2,650,990
|
)
|
Balance,
December 31, 2017
|
|
|
22,061,317
|
|
|
₩
|
25,265
|
|
|
₩
|
6,577,829
|
|
|
₩
|
(56,593)
|
|
|
₩
|
(10,492,538)
|
|
|
₩
|
(3,946,037)
|
|
eMARINE
Global Inc. (Formerly Known as e-Marine Co., Ltd.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands of Korean Won)
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
₩
|
(2,650,990
|
)
|
|
₩
|
(1,283,380
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
123,184
|
|
|
|
18,449
|
|
Pension
plan expenses
|
|
|
237,779
|
|
|
|
210,059
|
|
Bad
debt
|
|
|
18,255
|
|
|
|
5,830
|
|
Deferred
income taxes
|
|
|
(9,118
|
)
|
|
|
(16,205
|
)
|
Warrants
issued for professional service
|
|
|
614,350
|
|
|
|
-
|
|
Payroll
offset against loan to affiliate
|
|
|
10,140
|
|
|
|
6,000
|
|
Foreign
currency loss (gain)
|
|
|
(5,506
|
)
|
|
|
5,258
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(191,811
|
)
|
|
|
571,442
|
|
Inventories
|
|
|
225,090
|
|
|
|
(162,570
|
)
|
Other
current assets
|
|
|
3,885
|
|
|
|
(21,564
|
)
|
Deposits
|
|
|
(32,702
|
)
|
|
|
(7,000
|
)
|
Accounts
payable
|
|
|
178,964
|
|
|
|
252,283
|
|
Nontrade
payables
|
|
|
(35,830
|
)
|
|
|
344,627
|
|
Other
current liabilities
|
|
|
(94,567
|
)
|
|
|
(160,009
|
)
|
Pension
benefits payments
|
|
|
(146,893
|
)
|
|
|
(84,268
|
)
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,755,770
|
)
|
|
|
(321,138
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Decrease
(Increase) in loans to related parties
|
|
|
(225,101
|
)
|
|
|
-
|
|
Decrease
in loans to related parties
|
|
|
213,297
|
|
|
|
-
|
|
Purchase
of short-term financial instruments
|
|
|
(273,000
|
)
|
|
|
(123,110
|
)
|
Proceeds
from disposals of short-term financial instruments
|
|
|
-
|
|
|
|
85,114
|
|
Purchase
of property and equipment
|
|
|
(51,424
|
)
|
|
|
(11,178
|
)
|
Purchase
of intangible assets
|
|
|
(2,395
|
)
|
|
|
-
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(338,623
|
)
|
|
|
(49,174
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from private placement, net
|
|
|
2,086,936
|
|
|
|
-
|
|
Drawdown
of short-term borrowings
|
|
|
1,459,992
|
|
|
|
1,898,665
|
|
Repayment
of short-term borrowings
|
|
|
(1,302,830
|
)
|
|
|
(2,588,489
|
)
|
Repayment
of current portion of long-term debt
|
|
|
(120,000
|
)
|
|
|
(120,000
|
)
|
Borrowings
of long-term debt
|
|
|
200,000
|
|
|
|
500,000
|
|
Advances
from a related party
|
|
|
3,470
|
|
|
|
162,000
|
|
Issuance
of redeemable convertible preferred stock
|
|
|
-
|
|
|
|
636,007
|
|
Repayment
of loans from related parties
|
|
|
(202,610
|
)
|
|
|
(113,495
|
)
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,121,488
|
|
|
|
374,688
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
(75,750
|
)
|
|
|
-
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(48,655
|
)
|
|
|
4,376
|
|
CASH
AND CASH EQUIVALENTS- beginning of year
|
|
|
157,971
|
|
|
|
153,595
|
|
CASH
AND CASH EQUIVALENTS- end of year
|
|
₩
|
109,316
|
|
|
|
157,971
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
₩
|
235,408
|
|
|
₩
|
223,408
|
|
Income
taxes
|
|
₩
|
-
|
|
|
₩
|
-
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Conversion
of redeemable convertible preferred stock to common stock
|
|
₩
|
636,007
|
|
|
₩
|
-
|
|
Consideration
due for the business acquisition
|
|
₩
|
-
|
|
|
₩
|
500,000
|
|
Exchange
of debt for common stock
|
|
₩
|
4,759,322
|
|
|
₩
|
-
|
|
Offset
of loans from related parties against loans to related parties
|
|
₩
|
-
|
|
|
₩
|
200,000
|
|
Refinancing
of short-term borrowings
|
|
₩
|
1,828,000
|
|
|
₩
|
1,600,000
|
|
eMARINE
Global Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2017 AND 2016
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”)
On
July 25, 2017, the Company entered into a share exchange agreement (the “Exchange Agreement”) with e-Marine Co., Ltd.,
a corporation organized under the laws of the Republic of Korea (“e-Marine”), and the shareholders of e-Marine (the
“e-Marine Shareholders”), pursuant to which the e-Marine Shareholders assigned, transferred and delivered, free and
clear of all liens, 100% of the issued and outstanding shares of common stock of e-Marine, representing 100% of the equity interest
in e-Marine (the “e-Marine Shares”) in exchange for 14,975,000 restricted shares of its common stock (the “Share
Exchange”). As a result of the Share Exchange, e-Marine became the Company’s wholly-owned subsidiary, and the e-Marine
Shareholders acquired a controlling interest in the Company.
For
accounting purposes, the Share Exchange was treated as an acquisition of Pollex and a recapitalization of the Company. The Company
is the accounting acquirer, and the results of its operations carryover. Accordingly, the operations of Pollex are not carried
over and have been adjusted to ₩0. The assets and liabilities of the Company have been brought forward at its book value
and no goodwill has been recognized as a result of the transaction.
At
the time of the Share Exchange, the Company was engaged in the online games business by acquiring gaming licenses in order to
make them commercially available abroad. As a result of the Share Exchange, the Company assumed e-Marine’s business operations
as its own. The acquisition of e-Marine is treated as a reverse acquisition, and the business of e-Marine became the business
of the Company.
As
part of the recapitalization, the Pollex Shareholders assigned, transferred and delivered, free and clear of all liens, 1,012,233
of the issued and outstanding shares of common stock of Pollex, in exchange for 1,026,317 restricted shares of its common stock.
e-Marine
Co., Ltd. was organized under the laws of the Republic of Korea on January 2, 2001, and is a maritime information and communications
technology provider based in South Korea. e-Marine seeks to achieve safety of life at sea through the use of various technologies,
such as e-Navigation, Maritime Internet-of-Things (otherwise known as “I.o.T.”) and marine big data technology (collectively,
“Maritime ICT Convergence”). e-Marine’s main products and services are divided into four categories: (1) Electronic
Chart Display & Information System (“ECDIS”); (2) Smart Ship; (3) Overseas Solutions Distributions; and (4) Aids
to Navigation.
On
August 15, 2017, the Company entered into an agreement and plan of (the “Merger Agreement”), pursuant to which it
merged with and into a 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.
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, 2017, the Company had cash of ₩109,316 thousand. For the years ended December 31, 2017 and 2016, the Company
reported loss from operations of ₩2,426,748 thousand and ₩1,112,099 thousand, respectively, and net cash used in
operating activities of ₩755,770 thousand and ₩299,271 thousand, respectively. 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
2017, 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.
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.
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, 2017 and 2016, 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.
Research
and Development
Research
and development expenditures for the Company’s projects are expensed as incurred. Research and development costs were ₩51,766
thousand and ₩33,464 thousand for the years ended December 31, 2017 and 2016, 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 years presented.
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Redeemable
convertible preferred stock
|
|
|
-
|
|
|
|
12,800
|
|
Common
stock warrants
|
|
|
10,750,000
|
|
|
|
-
|
|
Potential
dilutive shares
|
|
|
10,750,000
|
|
|
|
12,800
|
|
These
shares were excluded due to their antidilutive effect.
Recent
Accounting Pronouncements
In
February 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-02, Leases (Topic 842). This ASU will increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Certain qualitative and
quantitative disclosures are required, as well as a retrospective recognition and measurement of impacted leases. This ASU is
effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted.
The Company is currently evaluating this ASU to determine its impact on the Company’s operations, financial position, cash
flows and disclosures.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a comprehensive new revenue
recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an
amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date
of ASU 2014-09 to reporting periods beginning after December 15, 2017, with early adoption permitted for reporting periods beginning
after December 15, 2016. Subsequently, FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including:
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross
versus Net) , which is intended to improve the operability and understandability of the implementation guidance on principal versus
agent considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and
Licensing , which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation
guidance; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
, which contains certain provision and practical expedients in response to identified implementation issues. The Company is planning
to adopt ASU 2014-09 and related ASUs on January 1, 2018. Companies may use either a full retrospective or a modified retrospective
approach to adopt these ASUs. The Company is currently evaluating this ASU to determine its impact on the Company’s operations,
financial position, cash flows and disclosures.
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.
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments (Topic
230). This ASU will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement
of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017. The Company will require adoption on
a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments
prospectively as of the earliest date practicable. 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, 2017
|
|
|
December
31, 2016
|
|
Finished
goods
|
|
₩
|
-
|
|
|
₩
|
98,100
|
|
Raw
materials
|
|
|
6,200
|
|
|
|
133,190
|
|
|
|
|
6,200
|
|
|
|
231,290
|
|
Less:
Inventory reserve
|
|
|
-
|
|
|
|
-
|
|
Total,
net
|
|
₩
|
6,200
|
|
|
₩
|
231,290
|
|
NOTE
5 — PROPERTY AND EQUIPMENT
The
components of property and equipment are as follows (in thousands of Korean Won):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Office
equipment
|
|
₩
|
219,980
|
|
|
₩
|
208,356
|
|
Fixtures
and furniture
|
|
|
48,520
|
|
|
|
8,720
|
|
Other
|
|
|
285,113
|
|
|
|
285,113
|
|
Total,
at cost
|
|
|
553,613
|
|
|
|
502,189
|
|
Less:
Accumulated depreciation
|
|
|
(493,805
|
)
|
|
|
(477,202
|
)
|
Total,
net
|
|
₩
|
59,808
|
|
|
₩
|
24,987
|
|
Depreciation
expense amounted to ₩16,603 thousand and ₩10,330 thousand for the years ended December 31, 2017 and 2016, respectively.
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. Then the implied fair value of goodwill for the reporting
unit was compared to the carrying amount of goodwill. With regard to the implied fair value of goodwill, such was determined in
the same manner as the amount of goodwill recognized in a business combination. To that end, the Company assigned the fair value
of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired. The excess
of the fair value of the reporting unit over the amounts assigned to its net assets was an indication of the implied fair value
of goodwill.
The
Company then evaluated the fair value of its reporting unit by estimating through the use of discounted cash flow models, which
required management to make significant estimates and assumptions considered to be Level 3 fair value inputs, including anticipated
future revenue opportunities, operating margins, and discount rates, among others. As a result of such analysis, the Company concluded
that the implied fair value of the goodwill is greater than reporting unit’s carrying amount of goodwill as of December
31, 2017 and 2016, respectively.
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, 2017
|
|
|
December
31, 2016
|
|
Description
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying Amount
|
|
Industrial Property Rights
|
|
₩
|
5,960
|
|
|
₩
|
(4,841
|
)
|
|
₩
|
1,119
|
|
|
₩
|
5,960
|
|
|
₩
|
(4,397
|
)
|
|
₩
|
1,563
|
|
Software
|
|
|
62,782
|
|
|
|
(62,782
|
)
|
|
|
-
|
|
|
|
62,782
|
|
|
|
(57,106
|
)
|
|
|
5,676
|
|
Customers relationship
|
|
|
500,000
|
|
|
|
(100,000
|
)
|
|
|
400,000
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
Other
|
|
|
22,020
|
|
|
|
(20,086
|
)
|
|
|
1,934
|
|
|
|
19,625
|
|
|
|
(19,625
|
)
|
|
|
-
|
|
Total
|
|
₩
|
590,762
|
|
|
₩
|
(187,709
|
)
|
|
₩
|
403,053
|
|
|
₩
|
588,367
|
|
|
₩
|
(81,128
|
)
|
|
₩
|
507,239
|
|
Amortization
expense for intangible assets was ₩106,581 thousand and ₩8,119 thousand for the years ended December 31, 2017 and
2016, respectively.
The
following table outlines the estimated future amortization expense related to intangible assets held as of December 31, 2017 (in
thousands of Korean Won):
Year
Ending December 31,
|
|
|
|
2018
|
|
₩
|
100,880
|
|
2019
|
|
|
100,880
|
|
2020
|
|
|
100,741
|
|
2021
|
|
|
100,461
|
|
2022
|
|
|
91
|
|
Total
|
|
₩
|
403,053
|
|
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 4.70% and 2.95% per annum for 2017 and 2016, respectively. The Company paid ₩26,000 thousand and entered
into a refinancing agreement at September 29. 2017. At December 31, 2017 and 2016, the balance for the borrowings was ₩234,000
thousand and ₩260,000 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 2, 2018. The borrowings
bear an interest at 5.05% and 2.95% per annum for 2017 and 2016, respectively. The Company paid ₩26,000 thousand and entered
into a refinancing agreement at November 3. 2017. At December 31, 2017 and 2016, the balance for the borrowings was ₩234,000
thousand and ₩260,000 thousand, respectively. The borrowings are guaranteed by Korea Technology Finance Corporation, a
government-funded institution.
The
Company borrowed ₩1,000,000 thousand from Shinhan Bank at March 23, 2012 with the maturity of March 23, 2013. The maturity
of borrowings has been modified multiple times and last set as July 10, 2017. The borrowings bear an interest at 12.00% and 12.00%
per annum for 2017 and 2016, respectively. At December 31, 2017 and 2016, the balance for the borrowings was ₩nil and ₩400,000
thousand, respectively. The borrowings are guaranteed by Hyundai BS&C Co., Ltd., a nonaffiliated company.
The
Company borrowed ₩1,000,000 thousand from Woori Bank at June 2, 2015 with the maturity of June 1, 2018. The borrowings
bear an interest at 4.27% and 4.16% per annum for 2017 and 2016, respectively. At December 31, 2017 and 2016, the balance for
the borrowings was ₩1,000,000 and ₩1,000,000 thousand, respectively. The borrowings are guaranteed by Korea Technology
Finance Corporation, a government-funded institution.
The
Company borrowed ₩80,000 thousand from Woori Bank at December 16, 2015 with the maturity of September 10, 2017. The borrowings
bear an interest at 14.00% and 10.79% per annum for 2017 and 2016, respectively. At December 31, 2017 and 2016, the balance for
the borrowings was ₩nil and ₩80,000 thousand, respectively. The borrowings are collateralized by the savings account
of ₩4,000 thousand.
The
Company had a bank overdraft from Woori Bank. The overdraft bears an interest at 14.00% and 10.24% per annum for 2017 and 2016,
respectively. At December 31, 2017 and 2016, the balance for the bank overdraft was ₩57,886 thousand and ₩132,725
thousand, respectively. The overdraft is collateralized by the savings account of ₩5,000 thousand and guaranteed by Ung
Gyu Kim, President.
The
Company borrowed ₩500,000 thousand from Suhyup Bank at July 18, 2016 with the maturity of July 18, 2018. The borrowings
bear an interest at 2.50 % and 2.50% per annum for 2017 and 2016, respectively. At December 31, 2017 and 2016, the balance for
the borrowings was ₩464,000 and ₩500,000 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 ₩300,000 thousand from Hana Bank at August 4, 2017 with the maturity of August 1, 2018. The borrowings
bear an interest at 2.56 % per annum for 2017. At December 31, 2017, the balance for the borrowings was ₩300,000 thousand.
The borrowings are collateralized by the savings account of ₩300,000 thousand.
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 2017. At December 31, 2017, the balance for the borrowings was ₩200,000 thousand.
The Company is in negotiation with the lender to extend the maturity.
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 2017. At December 31, 2017, the balance for the borrowings was ₩300,000 thousand.
The Company is in negotiation with the lender to extend the maturity.
As
of December 31, 2017 and 2016, 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, 2017
|
|
|
December
31, 2016
|
|
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 4.39% per annum for 2017 and 2016, respectively, guaranteed by Ung Gyu Kim, President
|
|
₩
|
500,000
|
|
|
₩
|
500,000
|
|
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% per annum, guaranteed by Ung Gyu Kim, President
|
|
|
200,000
|
|
|
|
-
|
|
Loans
from Kwangju Bank borrowed at September 24, 2015 with the maturity of September 24, 2018 and at an interest of 6.06%, 6.08%
and 5.90% per annum for 2018, 2017 and 2016, respectively, guaranteed by Ung Gyu Kim, President. The borrowings are secured
by the personal property owned by Ung Gyu Kim, President.
|
|
|
230,000
|
|
|
|
350,000
|
|
Total
|
|
|
930,000
|
|
|
|
850,000
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
(245,240
|
)
|
|
|
(120,000
|
)
|
Total
long-term debt less current portion
|
|
₩
|
684,760
|
|
|
₩
|
730,000
|
|
As
of December 31, 2017 and 2016, the estimated fair value of the long-term debt, including the current portion, were ₩930,000
and ₩850,000, respectively. These estimated fair values are based on Level 2 inputs.
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,
|
|
|
|
2018
|
|
₩
|
245,240
|
|
2019
|
|
|
332,260
|
|
2020
|
|
|
233,160
|
|
2021
|
|
|
108,240
|
|
2022
|
|
|
11,100
|
|
Total
|
|
₩
|
930,000
|
|
As
of December 31, 2017 and 2016, 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 contribution plans 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, 2017
|
|
|
December
31, 2016
|
|
Change
in projected benefit liability
|
|
|
|
|
|
|
|
|
Liability
at beginning of year
|
|
₩
|
880,656
|
|
|
₩
|
828,523
|
|
Service
cost
|
|
|
226,787
|
|
|
|
200,789
|
|
Interest
cost
|
|
|
10,991
|
|
|
|
9,269
|
|
Benefit
payments
|
|
|
(146,892
|
)
|
|
|
(84,268
|
)
|
Prior
service cost
|
|
|
-
|
|
|
|
-
|
|
Remeasurement
of defined benefit liabilities
|
|
|
(41,444
|
)
|
|
|
(73,657
|
)
|
Liability
at end of year
|
|
|
930,098
|
|
|
|
880,656
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Funded
status and net liability recognized
|
|
₩
|
(930,098
|
)
|
|
₩
|
(880,656
|
)
|
The
components of benefit expense are as follows (in thousands of Korean Won):
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Service
cost
|
|
₩
|
226,787
|
|
|
₩
|
200,790
|
|
Interest
cost
|
|
|
10,991
|
|
|
|
9,269
|
|
Prior
service cost
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
₩
|
237,778
|
|
|
₩
|
210,059
|
|
The
weighted-average assumptions used to determine projected benefit liability and benefit expense for pension plans are as follows:
|
|
2017
|
|
|
2016
|
|
Discount
rate
|
|
|
3.21
|
%
|
|
|
2.68
|
%
|
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,
|
|
|
|
2018
|
|
₩
|
42,802
|
|
2019
|
|
|
55,189
|
|
2020
|
|
|
51,151
|
|
2021
|
|
|
54,757
|
|
2022
|
|
|
57,537
|
|
|
|
|
2,150,664
|
|
Total
|
|
₩
|
2,412,100
|
|
NOTE
10 – REDEEMABLE CONVERTIBLE PREFERRED STOCK
On
May 17, 2016, the Company entered into a securities purchase agreement with an accredited investor to place 12,800 redeemable
convertible preferred shares (the “Preferred Stock”), par value ₩10,000 per share, in the aggregate principal
amount of ₩640,000 thousand (the “Transaction”). The proceeds from sales of the Preferred Stock, net of issuance
cost of ₩3,993 thousand were fully received at June 8, 2016.
The
Preferred Stock has the following rights, privileges and preferences:
|
●
|
Dividends.
Holders of the Preferred Stock are entitled to receive dividends of 1% of par value as declared by the board of directors
on the common stock and have the participation rights.
|
|
|
|
|
●
|
Liquidation.
In the event of a liquidation of the Company, including a change of control transaction, holders of the Preferred Stock are
entitled to be paid an amount equal to their investment amount before any payment is made to any other holders of the common
stock.
|
|
|
|
|
●
|
Voting.
Holders of the Preferred Stock have the same voting rights as those of the common stock.
|
|
|
|
|
●
|
Conversion.
The Preferred Stock is convertible into shares of the common stock at any time at the holder’s election. The Shares
automatically convert into common stock one year after the issuance unless the Preferred Stock is redeemed at the option of
the investor. The Preferred Stock is convertible on a one to one basis into common stock.
|
|
|
|
|
●
|
Redemption.
The Preferred Stock is redeemable at its issuance cost plus redemption premium of 8% of interest on the cost if the Company
fails to be listed in stock exchanges market within 11 months after the issuance at the holder’s election.
|
On
May 30, 2017, all redeemable convertible preferred shares were converted into 12,800 shares of common stock of e-Marine Co. Ltd.
On July 25, 2017, as a result of the Share Exchange, the Company acquired all of the issued and outstanding equity interests of
e-Marine Co. Ltd., and e-Marine Co., Ltd. became the Company’s wholly-owned subsidiary.
NOTE
11 – STOCKHOLDERS’ DEFICIT
Authorized
and Outstanding Capital Stock
The
Company authorized 300,000,000 shares of common stock, par value $0.001, of which 22,061,317 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.
Warrants
As
of December 31, 2017, the Company has outstanding warrants to purchase up to an aggregate of 9,650,000 shares of common stock,
par value $0.001 per share, for a period of three years from the date of issuance, July 25, 2017, at an exercise price of $0.60
per share, subject to adjustments as set forth in the warrant. The Company also has outstanding warrants to purchase up to an
aggregate of 1,100,000 shares of common stock, par value $0.001 per share, for a period of three years from the date of issuance,
July 25, 2017, at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.
The
Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with 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. For the year
ended December 31, 2017, ₩620,994 thousand was charged to expense.
Private
Placement Offering
On
July 25, 2017, the Company entered into a subscription agreement (the “Subscription Agreement”) with selected accredited
investors (each, an “Investor” and, collectively, the “Investors”). Pursuant to the terms of the Subscription
Agreement, the Company offered in a private placement (the “Offering”) $2,250,000 of units (each, a “Unit”
and, collectively, the “Units”). Each Unit has a purchase price of $0.50 and consisted of (i) one (1) share of the
Company’s common stock, par value $0.001 per share (the “Shares”); and (ii) warrants to purchase two and one-half
(2.5) shares of the Company’s common stock (each, a “Warrant” and, collectively, the “Warrants”).
The Warrants are exercisable for a period of three (3) years from the date of issuance at an exercise price of $0.60 per share,
subject to adjustment as provided in the agreement evidencing the Warrants. The Shares underlying the Warrants may hereinafter
be referred to as the “Warrant Shares”.
The
Offering closed on July 25, 2017 (the “Closing”). At the Closing, the Company received subscriptions for the full
Offering of $2,250,000, with gross proceeds of $1,765,000 (approximately ₩2,009,844 thousand) being received by the Company
as of such date. Pollex issued a total of 3,530,000 Shares and 8,825,000 Warrants to purchase up to 8,825,000 shares of the Company’s
common stock.
Since
the Closing, the Company received gross proceeds in the amount of $165,000 (approximately ₩184,190 thousand), and issued
to the relevant Investors an aggregate of 330,000 Shares and Warrants to purchase 825,000 Shares.
Consulting
Agreement
On
July 25, 2017, the Company entered into a consulting agreement (the “Consulting Agreement”) with Peach Management
LLC, a limited liability company organized under the laws of the Commonwealth of Puerto Rico (“Consultant”), for a
term of twenty four months, effective as of July 25, 2017 (the “Term”). Pursuant to the terms of the Consulting Agreement,
Consultant will assist the Company with introductions to investor relation firms located within and outside the United States
to develop and implement capital markets messaging reflected in press releases, shareholder letters, PowerPoint presentations,
social media and traditional media (the “Services”) during the Term. In consideration of the Services to be rendered
by Consultant, the Company shall issue to Consultant warrants to purchase up to 1,100,000 shares of the Company’s common
stock, par value $0.001 per share (the “Consultant Warrants”). The Consultant Warrants shall have a term of three
years and have an exercise price equal to $0.08 per share.
In
connection with the issuance of these warrants, the Company charged approximately ₩620,994 thousand of professional fees
to expense.
The
fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model (the “Black-Scholes
model”) The Black-Scholes model requires management to make various estimates and assumptions, including expected term,
expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation
awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual
term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s
stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation
instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
The
following table includes the estimates and assumptions used in the Black-Scholes model:
Stock
price
|
|
$
|
0.57
|
|
Exercise
price
|
|
$
|
0.08
|
|
Contractual
term (Years)
|
|
|
3
|
|
Volatility
|
|
|
70.22
|
%
|
Risk-free
rate
|
|
|
1.53
|
%
|
Expected
dividend rate
|
|
|
0.00
|
%
|
Other
Issuances
In
connection with the Exchange Agreement and Subscription Agreement, the Company issued to RedChip Companies, Inc. and Sichenzia
Ross Ference Kesner LLP an aggregate of 2,200,000 shares of the Company’s common stock, par value $0.001 per share. The
fair value of such shares issued is approximately ₩1,417,159 thousand and is recorded as additional paid in capital as
these shares were issued as the consideration for the capital raising.
NOTE
12 – INCOME TAXES
The
provision for income taxes consisted of the following (in thousands of Korean Won):
|
|
2017
|
|
|
2016
|
|
Current
|
|
₩
|
-
|
|
|
₩
|
-
|
|
Deferred
|
|
|
9,118
|
|
|
|
16,205
|
|
Total
|
|
₩
|
9,118
|
|
|
₩
|
16,205
|
|
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, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Income
taxes at Federal statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
Foreign
tax rate differential
|
|
|
(12.00
|
)%
|
|
|
(12.00
|
)%
|
Change
in valuation allowance
|
|
|
(22.00
|
)%
|
|
|
(22.81
|
)%
|
Other
|
|
|
0.43
|
%
|
|
|
2.06
|
%
|
Effective
tax rate
|
|
|
0.43
|
%
|
|
|
1.25
|
%
|
Significant
components of the Company’s deferred tax assets and liabilities are as follows (in thousands of Korean Won):
|
|
2017
|
|
|
2016
|
|
Accounts
receivable
|
|
₩
|
(17,887
|
)
|
|
₩
|
58,331
|
|
Inventories
|
|
|
537,232
|
|
|
|
301,786
|
|
Property
and equipment
|
|
|
(2,610
|
)
|
|
|
(1,414
|
)
|
Goodwill
and intangible assets
|
|
|
1,398,851
|
|
|
|
1,199,275
|
|
Accounts
payable
|
|
|
-
|
|
|
|
68,521
|
|
Pension
benefits
|
|
|
204,622
|
|
|
|
193,744
|
|
Other
|
|
|
67,520
|
|
|
|
(2,288
|
)
|
Net
operating losses
|
|
|
105,558
|
|
|
|
85,893
|
|
Tax
credit carryforwards
|
|
|
871,500
|
|
|
|
681,695
|
|
Deferred
tax assets, gross
|
|
|
3,164,787
|
|
|
|
2,585,543
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowances
|
|
|
(3,164,787
|
)
|
|
|
(2,585,543
|
)
|
Deferred
tax assets, net
|
|
₩
|
-
|
|
|
₩
|
-
|
|
The
Company has a net operating loss carryforward for tax purposes totaling ₩105,558 thousand ₩85,893 thousand at December
31, 2017 and 2016, expiring through the year 2027.
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, 2017 and 2016, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by
₩579,244 thousand and ₩297,420 thousand for the years ended December 31, 2017 and 2016, respectively. The Company’s
tax years for 2013 through 2017 may still be subject to tax examination.
NOTE
13 – RELATED PARTY TRANSACTIONS
As
of December 31, 2017 and 2016, the Company loaned ₩290,812 thousand and ₩164,000 thousand, respectively to the Company’s
officers and employees. The loans receivable bear an interest of 4.6% and are redeemable on demand.
The
Company borrowed ₩53,000 thousand from Min Sik Park, Senior Vice President, at December 31, 2015 with the maturity of December
30, 2018. The borrowings bear an interest at 9.50 % per annum. At December 31, 2017 and 2016, the balance for the borrowings was
₩18,895 thousand and ₩36,550 thousand, respectively.
The
Company borrowed ₩120,000 thousand from Seung Ho Yang, Senior Vice President, at December 30, 2015 with the maturity of
December 29, 2018. The borrowings bear an interest at 9.50 % per annum. At December 31, 2017 and 2016, the balance for the borrowings
was ₩nil and ₩82,755 thousand, respectively.
The
Company borrowed ₩9,000 thousand from Yong Seuk Suh, Senior Manager, at May 23, 2016 with the maturity of January 20, 2017.
The borrowings bear an interest at 4.60 % per annum. At December 31, 2017 and 2016, the balance for the borrowings was ₩nil
and ₩9,000 thousand, respectively.
The
Company borrowed ₩30,000 thousand from Dal Gyu Kim, Senior Vice President, at November 30, 2016 with the maturity of January
26, 2017. The borrowings bear an interest at 4.60 % per annum. At December 31, 2017 and 2016, the balance for the borrowings was
₩nil and ₩30,000 thousand, respectively.
The
Company borrowed ₩123,000 thousand from Ung Gyu Kim, President, at May 23, 2016 with the maturity of April 7, 2017. The
borrowings bear an interest at 4.60 % per annum. At December 31, 2017 and 2016, the balance for the borrowings was ₩nil
and ₩63,200 thousand, respectively.
NOTE
14 – 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 count at January 18,
2018 was in favor of the Company. Shinwoo appealed against the court decision at February 1, 2018. The Company believes it is
probable that it will not suffer from an adverse outcome related to the case. The Company does not record any reserve related
to this dispute as of December 31, 2017.
NOTE
15 — CONCENTRATION OF CREDIT RISK
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist principally of deposits
in banks and accounts receivable.
The
Company maintains cash in accounts which are in excess of the Korea Deposit Insurance Corporation (“KDIC”) insured
limited of ₩50,000 thousand. As of December 31, 2017, the balance for two deposit accounts was in excess of the KDIC insurance
coverage limit by ₩252,509 thousand and ₩17,983 thousand.
Credit
risk with respect to trade accounts receivable was concentrated with four and three of the Company’s customers in 2017 and
2016, respectively.
At
December 31, 2017, Naval Logistics Command, Hyundai Heavy Industries Co., Ltd. and Shinwoo E&D Co., Ltd. represented 38%,
22% and 17% of accounts receivable outstanding.
At
December 31, 2016, National Information Society Agency, Naval Logistics Command, Shinwoo E&D Co., Ltd., KC Device Co., Ltd.
and Hanjin Heavy Industry Co., Ltd. represented 33%, 30%, 27%, 24% and 10% 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, 2017, Naval Logistics Command and National Information Society Agency represented 25% and 11% of the
Company’s net sales.
During
the year ended December 31, 2016, Hyundai Heavy Industries Co., Ltd., National Information Society Agency and Ministry of Ocean
and Fisheries represented 16%, 11% and 11% of the Company’s net sales.
NOTE
16 — SUBSEQUENT EVENTS
The
Company evaluates events that have occurred after the balance sheet date but before the consolidated financial statements are
issued.
On
March 23, 2018, the “Company entered into a subscription agreement (the “Subscription Agreement”) with selected
accredited investors (each, an “Investor” and, collectively, the “Investors”). Pursuant to the terms of
the Subscription Agreement, the Company sold in a private placement (the “Offering”) an aggregate of 866,675 units
(each, a “Unit” and, collectively, the “Units”) at a purchase price of $0.60 per Unit. Each Unit consists
of (i) one (1) share of the Company’s common stock, par value $0.001 per share (the “Shares”); and (ii) warrants
to purchase two and one-half (2.5) shares of the Company’s common stock (each, a “Warrant” and, collectively,
the “Warrants”). The Warrants are exercisable for a period of three (3) years from the date of issuance at an exercise
price of $0.70 per share, subject to adjustment as provided in the agreement evidencing the Warrants. At closing, the Company
issued an aggregate of 866,675 Shares and 2,166,688 Warrants for total gross proceeds of $520,005.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
We
are paying all of the expenses related to this offering. The fees and expenses payable by us in connection with this Registration
Statement are estimated as follows:
Securities
and Exchange Commission Registration Fee
|
|
$
|
|
|
Accounting
Fees and Expenses
|
|
|
|
|
Legal
Fees and Expenses
|
|
|
|
|
Miscellaneous
Fees and Expenses
|
|
|
|
|
Total
|
|
$
|
|
|
Item
14. Indemnification of Directors and Officers.
Neither
our articles of incorporation nor bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted
under the Nevada Revised Statute (“NRS”). NRS Section 78.7502, provides that a corporation may indemnify any director,
officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred
by him in connection with any defense to the extent that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense
of any claim, issue or matter therein.
NRS
78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except
an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding
if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
NRS
Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or
(b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to
the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
NRS
Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually
liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The
court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will
be governed by the final adjudication of such issue.
Item
15. Recent Sales of Unregistered Securities.
Share
Exchange
On
July 25, 2017, we completed a private placement offering entered into a share exchange agreement with e-Marine Co., Ltd.,
a corporation formed under the laws of South Korea (“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
us in exchange for 14,975,000 restricted shares of our common stock. The transaction closed on July 25, 2017.
The
Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act in connection
with this transaction.
July
2017 Private Placement Offering
On
July 25, 2017, we entered into a subscription agreement with selected accredited investors. Pursuant to the terms of the a greement,
we offered in a private placement (the “
July O
ffering
”) $2,250,000 of units (each, a “
Unit
”
and, collectively, the “
Units
”) at a purchase price of $0.50 per share. Each Unit consisted of (i) one
(1) share of our common stock, par value $0.001 per share (the “
Shares
”); and (ii) warrants to purchase two
and one-half (2.5) shares of our common stock (the “
Warrants
”). The Warrants are exercisable for a period of
three (3) years from the date of issuance at an exercise price of $0.60 per share, subject to adjustment as provided in the agreement
evidencing the Warrants. The July Offering closed on July 25, 2017. At such time , we received subscriptions for
the full Offering of $2,250,000, and we received gross proceeds of $1,765,000 as of such date. At such time, we issued a total
of 3,530,000 Shares and 8,825,000 Warrants to purchase up to 8,825,000 shares of our common stock. On October 19, 2017, we
received gross proceeds of $115,000 and issued a total of 230,000 Shares and Warrants to purchase up to 575,000 shares of
our common stock. On November 30, 2017, the funds for the remaining Units were not received, and on December 7, 2017, we notified
the relevant investors of our intention to reject the remaining subscriptions and closed the July Offering. In connection with
this transaction, t
he Company relied upon the exemption from securities registration provided
by Section 4(a)(2) under the Securities Act of 1933, as amended (the “
Securities Act
”) for transactions not
involving a public offering.
Consulting
Agreement
On
July 25, 2017, we entered into a consulting agreement (the “
Consulting Agreement
”) with Peach Management LLC,
a limited liability company organized under the laws of the Commonwealth of Puerto Rico ( the “
Consultant
”),
for a term of twenty four months, effective as of July 25, 2017 (the “
Term
”). Pursuant to the terms of the
Consulting Agreement, the Consultant will assist the Company with introductions to investor relation firms located within
and outside the United States to develop and implement capital markets messaging reflected in press releases, shareholder letters,
PowerPoint presentations, social media and traditional media (the “
Services
”) during the Term. In consideration
of the Services to be rendered by the Consultant, the Company issued to the Consultant warrants to purchase up to
1,100,000 shares of the Company’s common stock, par value $0.001 per share (the “
Consultant Warrants
”).
The Consultant Warrants shall have a term of three (3) years and have an exercise price equal to $0.08 per share. In connection
with this transaction, t
he Company relied upon the exemption from securities registration
provided by Section 4(a)(2) under the Securities Act for transactions not involving a public offering.
Other
Issuances
In
connection with the Exchange Agreement and Subscription Agreement, we issued to certain consultants an aggregate of 2,225,567
shares of the Company’s common stock, par value $0.001 per share. In connection with these issuances, t
he
Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act for transactions
not involving a public offering.
During
the quarter ended June 30, 2017, we entered into Loan Conversion Agreements with certain lenders and debtholders pursuant to which
outstanding loans and debt were exchanged for shares of our common stock. A total aggregate amount due of $4,140,126.34 and debt
owed of $71,250 was discharged in exchange for an aggregate of 294,707,931 shares. In connection with this transaction, t
he
Company relied upon the exemption from securities registration provided by Section 4(a)(2) under the Securities Act for transactions
not involving a public offering.
March
2018 Private Placement Offering
On
March 23, 2018, we entered into a subscription agreement with selected accredited investors, pursuant to which we sold in a private
placement offering an aggregate of 866,675 units at a purchase price of $0.60 per unit. Each unit consisted of (i) one (1) share
of our common stock, par value $0.001 per share and (ii) warrants to purchase two and one-half (2.5) shares of our common stock.
The warrants are exercisable for a period of three (3) years from the date of issuance at an exercise price of $0.70 per share,
subject to adjustment as provided in the agreement evidencing the warrants. At the closing, we issued an aggregate of 866,675
shares of our common stock and 2,166,688 warrants to purchase shares of our common stock for total gross proceeds of $520,005.
In connection with this transaction, the Company relied upon the exemption from securities
registration provided by Section 4(a)(2) under the Securities Act for transactions not involving a public offering.
Item
16. Exhibits and Financial Statement Schedules.
The
following exhibits are filed as part of this Registration Statement.
SEC
Ref. No.
|
|
Description
|
3.1
|
|
Articles
of Incorporation dated September 20, 2001 (Incorporated by reference from our Registration Statement on Form 10SB12G filed
with the Commission on July 23, 2002)
|
3.2
|
|
Articles
of Amendment to Articles of Incorporation dated June 17, 2003 (Incorporated by reference from our Current Report on Form 8-K
filed with the Commission on June 25, 2003)
|
3.3
|
|
Certificate
of Amendment to Articles of Incorporation dated January 7, 2005 (Incorporated by reference from our Current Report on Form
8-K filed with the Commission on January 7, 2005)
|
3.4
|
|
Certificate
of Amendment to Articles of Incorporation dated November 18, 2005 (Incorporated by reference from our Quarterly Report on
Form 10-Q filed with the Commission on November 14, 2007)
|
3.5
|
|
Certificate
of Amendment to Articles of Incorporation dated Effective October 31, 2007 (Incorporated by reference from our Current Report
on Form 8-K filed with the Commission on November 6, 2007.)
|
3.6
|
|
Certificate
of Amendment dated June 20, 2017 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on July 12, 2017)
|
3.7
|
|
Articles
of Merger, dated August 15, 2017 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on September 12, 2017)
|
3.8
|
|
Agreement
and Plan of Merger, dated August 15, 2017 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on September 12, 2017)
|
3.9
|
|
Bylaws
of Web Views Corporation dated November 10, 2001 (Incorporated by reference from our Registration Statement on Form 10SB12G
filed with the Commission on July 23, 2002)
|
5.1**
|
|
Form
of Opinion of Sichenzia Ross Ference LLP
|
10.1
|
|
Stock
Exchange Agreement, dated October 12, 2007 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on October 31, 2007)
|
10.2
|
|
Agreement
to Purchase Subsidiaries and Cancel Shares, dated October 12, 2007 (Incorporated by reference from our Current Report on Form
8-K filed with the Commission on October 31, 2007)
|
10.3
|
|
License
Agreement dated February 23, 2007 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on December 14, 2007)
|
10.4
|
|
Lease
Agreement dated February 26, 2007 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on December 14, 2007)
|
10.5
|
|
Master
License Agreement dated April 18, 2007 (Incorporated by reference from our Current Report on Form 8-K filed with the Commission
on December 14, 2007)
|
10.6
|
|
Exclusive
Distributorship Agreement dated June 11, 2007 (Incorporated by reference from our Current Report on Form 8-K filed with the
Commission on December 14, 2007)
|
10.7
|
|
Stock
Purchase Agreement (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 16,
2010)
|
10.8
|
|
Conversion
and Release Agreement (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March 25,
2011)
|
10.9
|
|
Employment
Agreement with Seong Sam Cho (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on March
25, 2011.)
|
10.10
|
|
Employment
Agreement with Seong Sam Cho (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on April
7, 2017)
|
10.11 **
|
|
Share
Exchange Agreement, by and between Pollex, Inc. and e-Marine Co., Ltd., dated July 25, 2017
|
10.12
|
|
Form
of Separation Agreement (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August
1, 2017)
|
10.13
|
|
Form
of Subscription Agreement (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August
1, 2017)
|
10.14
|
|
Form
of Consulting Agreement (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August
1, 2017)
|
10.15
|
|
Form
of Termination Agreement and Mutual General Release (Incorporated by reference from our Current Report on Form 8-K filed with
the Commission on August 1, 2017)
|
10.16
|
|
Form
of Warrant (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 1, 2017)
|
10.17
|
|
Form
of Consultant Warrant (Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 1,
2017)
|
10.18*
|
|
International
Distributor Agreement, dated April 11, 2017, by and between Teledyne CARIS, Inc. and e-Marine Co., Ltd.
|
10.19*
|
|
Distributorship
Agreement for Admiralty Navigation and other Related Products, dated August 10, 2005, by and between the United Kingdom Hydrographic
Office and e-Marine Co., Ltd.
|
10.20*
|
|
Distributor
Agreement, dated April 2012, by and between Jeppesen Norway AS and e-Marine Co., Ltd.
|
10.21*
|
|
Agent
Agreement, dated May 31, 2011, by and between Hatteland Display AS and e-Marine Co., Ltd.
|
10.22*
|
|
Memorandum
of Understanding, dated January 2011, by and between ECA Sindel S.R.L. and e-Marine Co., Ltd.
|
10.23*
|
|
Reseller
Agreement, dated September 2009, by and between SevenCs GMbH and e-Marine Co., Ltd.
|
10.24*
|
|
English
Summary – Contract for Electronic System Development, dated March 29, 2017, by and between Hyundai Heavy Industries
and e-Marine Co., Ltd.
|
10.25*
|
|
English
Summary – Intra-Ship Integrated Gateway Contract, dated January 23, 2017, by and between Hyundai Heavy Industries and
e-Marine Co., Ltd.
|
10.26*
|
|
English
Summary – Optimal Voyage System Development Contract, dated December 28, 2016, by and between Hyundai Heavy Industries
Co., Ltd. and e-Marine Co., Ltd.
|
10.27*
|
|
English
Summary – Information Communication R&D Business Contract, dated September 29, 2016, by and between National IT
Industry Promotion Agency and e-Marine Co., Ltd.
|
10.28*
|
|
English
Summary – Integrated Bridge System ECDIS Contract, dated October 15, 2014, by and between Hyundai Heavy Industries Co.,
Ltd. and e-Marine Co., Ltd.
|
10.29*
|
|
English
Summary – ECDIS on R.O.K. Navy P154 (AOE-II) Contract, dated April 1, 2016, by and between Hyundai Heavy Industries
Co., Ltd. and e-Marine Co., Ltd.
|
10.30*
|
|
English
Summary – Supply Contract, dated June 3, 2014, by and between Hyundai Heavy Industries Co., Ltd. and e-Marine Co., Ltd.
|
10.31*
|
|
English
Summary – Employment (Salary) Agreement, dated February 28, 2018, by and between Min Sik Park and e-Marine Co., Ltd.
|
10.32*
|
|
English
Summary – Employment (Salary) Agreement, dated February 28, 2018, by and between Seung Ho Yang and e-Marine Co., Ltd.
|
10.33*
|
|
English
Summary – Employment (Salary) Agreement, dated February 28, 2018, by and between Ung Gyu Kim and e-Marine Co., Ltd.
|
10.34**
|
|
English
Summary - Anti-Submarine War-Training Simulator (ASWTT) Maintenance Contract, dated December 27, 2017, by and between R.O.K.
Navy Logistic Command and e-Marine Co., Ltd.
|
10.35**
|
|
English
Summary - Electronic Chart display & Information System (ECDIS) Maintenance Contract, dated September 4, 2018, by and
between R.O.K. Navy Logistic Command and e-Marine Co., Ltd.
|
21.1*
|
|
List
of Subsidiaries
|
23.1**
|
|
Consent
of Sichenzia Ross Ference LLP (contained in Exhibit 5.1)
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23.2**
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Consent of Turner, Stone & Company, LLP
|
*
Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2018.
**
Filed herewith.
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities Act;
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(ii)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table
in the effective registration statement; and
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|
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(iii)
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
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(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at
the termination of the offering.
(4)
That, for the purpose of determining liability of the undersigned registrant under the Securities Act to any purchaser in the
initial distribution of the securities:
The
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (§ 230.424 of this chapter);
|
|
|
|
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(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
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|
|
|
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(iii)
|
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
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|
|
|
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(iv)
|
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
For
the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b)
as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other
than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included
in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in
a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to
a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date
of first use.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, on November 21 , 2018.
|
EMARINE
GLOBAL, INC.
|
|
|
|
|
By:
|
/s/
Ung Gyu Kim
|
|
Name:
|
Ung
Gyu Kim
|
|
Title:
|
Chief
Executive Officer , Chief Financial Officer and Director
|
|
|
(Principal
Executive Officer, Principal Financial Officer, and Principal Accounting Officer)
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Ung Gyu Kim
|
|
Chief
Executive Officer, Chief Financial Officer and Director
(Principal
Executive Officer , Principal Financial Officer, and Principal Accounting Officer)
|
|
November
21,
2018
|
Ung
Gyu Kim
|
|
|
|
|
|
|
|
|
|
/s/
Seung Ho “Brian” Yang
|
|
Chief
Operating Officer and Director
|
|
November
21
, 2018
|
Seung
Ho “Brian” Yang
|
|
|
|
|
|
|
|
|
|
/s/
Min Sik “Primo” Park
|
|
Chief
Technology Officer and Director
|
|
November
21
, 2018
|
Min
Sik “Primo” Park
|
|
|
|
|
|
|
|
|
|
/s/
Woo Seok “Lukas” Kim
|
|
Secretary
|
|
November
21
, 2018
|
Woo
Seok “Lukas” Kim
|
|
|
|
|
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