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Emarine Global Inc. – ‘10-Q’ for 9/30/19

On:  Tuesday, 11/19/19, at 4:06pm ET   ·   For:  9/30/19   ·   Accession #:  1493152-19-17983   ·   File #:  0-49933

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/19/19  Emarine Global Inc.               10-Q        9/30/19   61:2.6M                                   M2 Compliance/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarter ended September 30, 2019

Commission File Number: 000-49933

EMARINE GLOBAL INC.

(Exact name of registrant as specified in its charter)

4th Floor, 15-14, Samsan-ro 308beon-gil, Nam-gu, Ulsan, 44715 Republic of Korea

(Address of principal executive offices)

+82-70-7204-9352

Registrant’s telephone number, including area code

Former address if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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.

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 pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [  ] Yes [X] No

Securities registered pursuant to Section 12(b) of the Act:

As of November 19, 2019, the registrant had 23,159,105 shares of common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS 

PART I – FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

eMARINE Global Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of Korean Won, except share and per share amounts)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

eMARINE Global Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands of Korean Won, except share and per share amounts)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

eMARINE Global Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of Korean Won)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

eMARINE Global Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine Months Ended September 30, 2019 and 2018

(In thousands of Korean Won, except share amounts)

(Unaudited)

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

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.

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, 2019, the Company had cash of ￦213,009 thousand. Historically, the Company had net losses and negative cash flows from operations. The Company continues to experience liquidity constraints due to the continuing losses. These factors contributed to the Company’s substantial doubt of its ability to continue as a going concern.

During the nine months ended September 30, 2019 and the year ended December 31, 2018, management has addressed going concern remediation through funding through the private placement and is continuing initiatives to raise capital to meet future working capital requirements. However, additional capital is required to reduce the risk of going concern uncertainties for the Company beyond the next twelve months as of the reporting date. There is no certainty that the Company will be able to arrange sufficient funding to continue its operations.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2019 or for any future interim period. The condensed consolidated balance sheet at September 30, 2019 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, 2018, and notes thereto included in the Company’s annual report on Form 10-K filed on April 15, 2019.

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 15, 2019.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

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 table shows the calculation of diluted shares using the treasury stock method:

The diluted share base excludes the following incremental shares due to their antidilutive effect:

Recent Accounting Pronouncements

In February 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

These ASUs are effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. On January 1, 2019, the Company adopted these ASUs, using modified retrospective transition approach.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The adopted the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

On adoption, the Company recognized additional operating liabilities of $￦109,138 thousand, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 along with amending other parts of the goodwill impairment test. Under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. At adoption, this update will require a prospective approach. The Company is currently evaluating this ASU to determine its impact on the Company’s operations, financial position, cash flows and disclosures.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

NOTE 4 — INVENTORIES

The components of inventories are as follows (in thousands of Korean Won):

NOTE 5 — PROPERTY AND EQUIPMENT

The components of property and equipment are as follows (in thousands of Korean Won):

Depreciation expense amounted to ￦86,997 thousand and ￦87,407 thousand for the periods ended September 30, 2019 and 2018, respectively.

Amortization expense on right-of-use lease assets amounted to ￦91,790 and nil for the periods ended September 30, 2019 and 2018, 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 — DEBT

Short-term Borrowings

The Company borrowed ￦260,000 thousand from Kookmin Bank at October 8, 2015 with the maturity of October 2, 2019. The borrowings bear an interest at 6.09% and 4.70% per annum for 2019 and 2018, respectively. The Company paid ￦26,000 thousand and entered into a refinancing agreement at October 2, 2018. At September 30, 2019 and December 31, 2018, 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.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

The Company borrowed ￦260,000 thousand from Kookmin Bank at November 4, 2015 with the maturity of November 4, 2019. The borrowings bear an interest at 6.13% and 5.05% per annum for 2019 and 2018, respectively. The Company paid ￦26,000 thousand and entered into a refinancing agreement at November 2, 2018. At September 30, 2019 and December 31, 2018, 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, 2018. The borrowings bear an interest at 4.79% and 4.27% per annum for 2019 and 2018. The Company paid ￦1,000,000 thousand and entered into an extension agreement at May 1, 2019 through which the maturity was extended through May 29, 2020. At September 30, 2019 and December 31, 2018, the balance for the borrowings was ￦900,000 thousand and ￦900,000 thousand, respectively. The borrowings are guaranteed by Korea Technology Finance Corporation, a government-funded institution.

The Company borrowed ￦500,000 thousand from Suhyup Bank at July 18, 2016 with the original maturity of July 18, 2018. The maturity was extended 1 year, which is July 18, 2019 and then extended another 1 year, which is July 18, 2020. The borrowings bear an interest at 2.50 % per annum for 2019 and 2018. At September 30, 2019 and December 31, 2018, the balance for the borrowings was ￦392,000 thousand and ￦428,000 thousand, respectively. The borrowings are collateralized by the savings account of ￦3,000 thousand and guaranteed by Hyundai BS&C Co., Ltd., a nonaffiliated company.

The Company borrowed ￦550,000 thousand from GMT Co., Ltd. at April 19, 2017 with the maturity of November 30, 2017. The borrowings bear an interest at 6.00 % per annum for 2019 and 2018. At September 30, 2019 and December 31, 2018, the balance for the borrowings was ￦195,000 thousand. The Company is in negotiation with the lender to extend the maturity. The balance is currently in default.

The Company borrowed ￦300,000 thousand from GNC Co., Ltd. at April 18, 2017 with the maturity of November 30, 2017. The borrowings bear an interest at 6.00 % per annum for 2019 and 2018. At September 30, 2019 and December 31, 2018, the balance for the borrowings was ￦250,000 thousand and ￦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 2019 and 2018. At September 30, 2019 and December 31, 2018, the balance for the borrowings was nil and ￦94,545 thousand, respectively. The borrowings are guaranteed by Ung Gyu Kim, President.

As of September 30, 2019 and December 31, 2018, the estimated fair value of the short-term borrowings approximate their carrying values.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

Long-term Debt

The components of the long-term debt, including the current portion, are as follows (in thousands of Korean Won):

As of September 30, 2019 and December 31, 2018, the estimated fair value of the long-term debt, including the current portion, were ￦764,208 thousand and ￦674,760 thousand, respectively.

As of September 30, 2019 and December 31, 2018, respectively, the Company was in compliance with the financial covenant in credit agreements as defined in the credit agreements.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

NOTE 8 – 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.

The components of benefit expense are as follows (in thousands of Korean Won):

NOTE 9 – STOCKHOLDERS’ DEFICIT

Authorized and Outstanding Capital Stock

The Company authorized 300,000,000 shares of common stock, par value $0.001, of which 23,159,105 shares 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, 2019, the Company has outstanding warrants to purchase up to an aggregate of 12,916,688 shares of common stock, comprising warrants to purchase 9,650,000 shares at an exercise price of $0.60 per share, 2,166,688 shares at an exercise price of $0.70 per share and 1,100,000 shares at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.

On April 17, 2019, the Company issued 231,133 shares of warrants to purchase up to an aggregate of 231,133 shares of common stock, par value $0.001 per share, for a period of three years from the date of issuance, April 17, 2022, at an exercise price of $0.08 per share, subject to adjustments as set forth in the warrant.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

The Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with ASC 718, “Compensation—Stock Compensation”, the cost of warrants issued to non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

NOTE 10 – RELATED PARTY TRANSACTIONS

The Company borrowed ￦141,216 thousand from Ung Gyu Kim, President, at February 25, 2018 with the maturity of June 25, 2020. The borrowings bear an interest at 4.60 % per annum. At September 30, 2019 and December 31, 2018, the balance for the borrowings was ￦24,000 thousand and ￦45,980 thousand, respectively.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Operating leases

The Company entered into noncancelable operating leases for office facilities and vehicles. The leases do not include renewal options and, in the normal course of business, it is expected that these leases will be renewed. Rent expense under the operating leases totaled ￦107,972 thousand and ￦87,876 thousand for the nine month periods ended September 30, 2019 and 2018, respectively.

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of September 30, 2019 (in thousands of Korean Won):

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.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

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 thousand from Shinwoo in dispute as of September 30, 2019. 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, 2019.

NOTE 12 — 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 two and four of the Company’s customers at September 30, 2019 and December 31, 2018, respectively.

At September 30, 2019, G2 ICT Co., Ltd.and Shinwoo E&D Co., Ltd. represented 46% and 11% of accounts receivable outstanding.

At December 31, 2018, G2 ICT Co., Ltd., Shinwoo E&D Co., Ltd., Hyundai Heavy Industries Co., Ltd. and Hanjin Heavy Industries & Construction Co., Ltd. represented 44%, 15%, 13% and 11% of accounts receivable outstanding.

The Company performs ongoing credit evaluations of its customers’ financial condition to mitigate its credit risk. The deterioration of the financial condition of its major customers could adversely impact the Company’s operations. From time to time where the Company determines that circumstances warrant, the Company extends payment terms beyond its standard payment terms.

During the nine month period ended September 30, 2019, Naval Logistics Command represented 26% of the Company’s net sales.

During the nine month period ended September 30, 2018, Naval Logistics Command represented 31% of the Company’s net sales.

eMARINE Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

NOTE 13 — REVENUE CLASSES

Revenue from the sale of products and services is recorded when the performance obligation is fulfilled, usually at the time of shipment or when the service is provided, at the net sales price (transaction price). The Company elected to present revenue net of value added tax and other similar taxes and account for shipping and handling activities as fulfillment costs rather than separate performance obligations.

The Company recognizes revenue in accordance with the following five-step model:

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):

NOTE 14 — SUBSEQUENT EVENTS

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS

The following discussion should be read in conjunction with our unaudited financial statements and the notes thereto.

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or can be can achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties, and other important factors that could cause actual results to differ include, among others, the risk, uncertainties and factors set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and in other filings we make from time to time with the U.S. Securities and Exchange Commission (“SEC”).

We caution you that the risks, uncertainties, and other factors set forth in our periodic filings with the SEC may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that: (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of the report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise.

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”).

Company Overview

eMarine Global Inc. is a Nevada corporation (the “Company”) formed under the name “Web Views Corporation” on November 2, 2001. On October 20, 2008, we changed our name to “Pollex, Inc.”

On July 25, 2017, we entered into a share exchange agreement (the “Exchange Agreement”) with e-Marine Co., Ltd., a corporation organized under the laws of the Republic of Korea (“e-Marine”), and the shareholders of e-Marine (the “e-Marine Shareholders”), pursuant to which the e-Marine Shareholders assigned, transferred and delivered, free and clear of all liens, 100% of the issued and outstanding shares of common stock of e-Marine, representing 100% of the equity interest in e-Marine (the “e-Marine Shares”) to us in exchange for 14,975,000 restricted shares of our Common Stock (the “Share Exchange”). As a result of the Share Exchange, e-Marine became our wholly-owned subsidiary, and the e-Marine Shareholders acquired a controlling interest in the Company.

At the time of the Share Exchange, the Company was engaged in the online games business by acquiring gaming licenses in order to make them commercially available abroad. As a result of the Share Exchange, we have now assumed e-Marine’s business operations as our own. The acquisition of e-Marine is treated as a reverse acquisition, and the business of e-Marine became the business of the Company.

e-Marine Co., Ltd. was organized under the laws of the Republic of Korea on January 2, 2001, and is a maritime information and communications technology provider based in South Korea. e-Marine seeks to achieve safety of life at sea through the use of various technologies, such as e-Navigation, Maritime Internet-of-Things (otherwise known as “I.o.T.”) and marine big data technology (collectively, “Maritime ICT Convergence”). e-Marine’s main products and services are divided into four categories: (i) Electronic Chart Display & Information System (“ECDIS”); (ii) Smart Ship; (iii) Overseas Solutions Distributions; and (iv) Aids to Navigation.

On August 15, 2017, we entered into an agreement and plan of (the “Merger Agreement”), pursuant to which we merged with and into our newly formed wholly-owned subsidiary (the “Merger Sub” and, the transaction, the “Merger”).

As permitted by Chapter 92A.180 of Nevada Revised Statutes, the purpose of the Merger was to effect a change of the Company’s name from “Pollex, Inc.” to “eMARINE Global Inc.” Upon the filing of articles of merger with the Secretary of State of Nevada on August 15, 2017 in order to effect the Merger, the Company’s articles of incorporation were deemed amended to reflect the change in the Company’s corporate name. Upon consummation of the Merger, the separate existence of Merger Sub ceased.

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

Overview of Business

We are a leading provider of information and communications technology for the maritime industry. We provide solutions for the collection, integration and display of maritime information abroad and ashore by electronic means to enhance berth-to-berth navigation and related services. We believe that these solutions provide the most efficient means to secure the safety of life at sea and to protect the marine environment. We offer all of our products and services through subscription, installation, updates and/or maintenance contracts.

Our Products & Solutions

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

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

Electronic Chart Display and Information Systems

We offer e-Navigator, our branded electronic chart display and information system, or 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 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.

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

In September 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.

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.

Limited Operating History

We are in the early stages of development and have a limited operating history. We have a history of operating losses and may not achieve or maintain profitability and positive cash flow. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future. We cannot guarantee we will be successful in our business operations.

The following discussion and analysis should be read in conjunction with our audited financial statements for the fiscal year ended December 31, 2017, and accompanying notes, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2018.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2019 and 2018

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

Revenue. Total revenue for the three months ended September 30, 2019 and 2018 was ￦1,647,969 thousand and ￦1,053,739 thousand, respectively. The increase of ￦594,230 thousand, or 56%, was primarily due to the increase in CARIS S/W merchandise sales.

Cost of Revenue. Total cost of revenue for the three months ended September 30, 2019 and 2018 was ￦740,883 thousand and ￦877,720 thousand, respectively. The decrease of ￦136,837 thousand, or 16%, was primarily due to the decrease in labor cost and change in sales mix (i.e. increase in high-margin merchandise sales).

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended September 30, 2019 and 2018 was ￦187,595 thousand and ￦384,803 thousand, respectively. The decrease of ￦197,208 thousand, or 51%, was primarily due to the expense saving efforts, including the reduction of headcount.

Research and Development. Research and development expenses for the three months ended September 30, 2019 and 2018 was ￦52,486 thousand and ￦17,841, respectively. The increase of ￦34,645 thousand, or 194%, was primarily due to the increase in the research and development activities on Vessel Traffic System projects.

Income (Loss) from Operations. Income (Loss) from operations for the three months ended September 30, 2019 and 2018 was ￦667,005 thousand and ￦(226,625) thousand, respectively. The increase of ￦893,630 thousand, or 394%, was due to the combination of the improvement of gross profit and decline in selling, general and administrative expenses offset by the growth of research and development expenses.

Other Expense. Other expense for the three months ended September 30, 2019 and 2018 was ￦31,547 thousand and ￦44,368 thousand, respectively. The decrease of ￦12,821 thousand, or 29%, was primarily due to the decrease in other miscellaneous expenditures.

Net Income (Loss). Net income (loss) for the three months ended September 30, 2019 and 2018 was ￦636,130 thousand and ￦(270,698) thousand, respectively. The increase of ￦906,828 thousand, or 335%, was due to the combination of the improvement of gross profit and decline in selling, general and administrative expenses and other expenses offset by the growth of research and development expenses.

Nine Months Ended September 30, 2019 and 2018

The following table summarizes the results of our operations during the nine months ended September 30, 2019 and 2018, respectively, and percentage increase (decrease) from the prior 9-month period to the current 9-month period (in thousands of Korean Won):

Revenue. Total revenue for the nine months ended September 30, 2019 and 2018 was ￦3,595,221 thousand and ￦3,412,423 thousand, respectively. The increase of ￦182,798 thousand, or 5%, was primarily due to the increase in CARIS S/W merchandise sales offset by the decrease in service projects.

Cost of Revenue. Total cost of revenue for the nine months ended September 30, 2019 and 2018 was ￦1,669,278 thousand and ￦2,423,708 thousand, respectively. The decrease of ￦754,430 thousand, or 31%, was primarily due to the decrease in labor cost and change in sales mix (i.e. increase in high-margin merchandise sales).

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2019 and 2018 was ￦1,433,516 thousand and ￦1,365,043 thousand, respectively. The increase of ￦68,473 thousand, or 5%, was primarily due to the growth of legal and professional fees.

Research and Development. Research and development expenses for the nine months ended September 30, 2019 and 2018 was ￦229,530 thousand and ￦234,174, respectively. The decrease of ￦4,644 thousand, or 2%, was primarily due to the decrease in activities on typhoon monitoring system algorithms.

Income (Loss) from Operations. Income (loss) from operations for the nine months ended September 30, 2019 and 2018 was ￦262,897 thousand and ￦(610,502) thousand, respectively. The increase of ￦873,399 thousand, or 143%, was due to the combination of the improvement of gross profit and decline in research and development expenses offset by the growth of selling, general and administrative expenses.

Other Expense. Other expense for the nine months ended September 30, 2019 and 2018 was ￦128,179 thousand and ￦116,034 thousand, respectively. The increase of ￦12,145 thousand, or 10%, was primarily due to the increase in interest expense.

Net Income (Loss). Net income (loss) for the nine months ended September 30, 2019 and 2018 was ￦123,731 thousand and ￦(728,437) thousand, respectively. The increase of ￦852,168 thousand, or 117%, was due to the combination of the combination of the improvement of gross profit and decline in research and development expenses and other expenses offset by the growth of selling, general and administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

As of September 30, 2019, the Company had ￦213,009 thousand of cash on hand as compared to ￦126,406 thousand as of December 31, 2018. For the nine months ended September 30, 2019, the Company reported income from operations of ￦262,897 thousand and net cash provided by operating activities of ￦235,585 thousand. The Company continues to experience liquidity constraints due to the continuing losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

During 2019, management has been continuing initiatives to raise capital to meet future working capital requirements. However, additional capital is required to reduce the Company’s risk of going concern uncertainties beyond the next twelve months as of November 19, 2019. There is no certainty that the Company will be able to arrange sufficient funding to continue its operations.

Operating Cash Flows. Net cash provided by operating activities for the nine months ended September 30, 2019 was ￦235,585 thousand, which was due to the net income of ￦123,731 thousand, adjustments of noncash items of ￦749,358 thousand to the net income and increase in operating liabilities of ￦140,017 thousand offset by the increase in net operating assets of ￦628,893 thousand and payments of pension benefits of ￦56,838 thousand and lease liabilities of ￦91,790 thousand, respectively.

Investing Cash Flows. Net cash provided by investing activities for the nine months ended September 30, 2019 was ￦6,909 thousand, which was due to the proceeds from disposal of short-term financial instruments of ￦18,000 offset by the purchase of short-term financial instruments of ￦9,000 thousand and property and equipment of ￦2,091 thousand, respectively.

Financing Cash Flows. Net cash used in financing activities for the nine months ended September 30, 2019 was ￦147,725 thousand, which was due the proceeds from warrants exercised of ￦20,945 thousand, the increase in long-term debt of ￦224,000 and the increase in loans from related parties of ￦398,061 offset by the decrease in short-term borrowings of ￦180,545 thousand, repayment of current portion of long-term debt of ￦134,552 thousand, and the decrease in loans from related parties of ￦475,634 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

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 in Part I, Item I, and “Legal Proceedings” contained in Part II, Item I of this Quarterly Report on Form 10-Q 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, 2019 or for any future interim period. The condensed consolidated balance sheet at September 30, 2019 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, 2018, and notes thereto included in the Company’s annual report on Form 10-K filed on April 18, 2019.

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, 2018. 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management has concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report to provide the reasonable assurance discussed above.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Our management has concluded that, as of September 30, 2019, our internal control over financial reporting is not effective based on these criteria. 

Turner Stone & Company, the independent registered public accounting firm that audited our financial statements included in this Quarterly Report on Form 10-Q, was not required to issue an attestation report on our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. 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.

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 thousand from Shinwoo in dispute as of March 31, 2019. 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, 2019. 

ITEM 1A. RISK FACTORS.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

None. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

SIGNATURES

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing		Date		Other Filings
		8/14/23
		8/19/22
		4/17/22
		2/28/22
		3/22/21
		9/30/20
		7/18/20
		6/25/20
		5/29/20
		12/31/19		10-K
		12/15/19
Filed on:		11/19/19
		11/4/19
		10/2/19
For Period end:		9/30/19		NT 10-Q
		8/24/19
		8/19/19
		7/18/19
		5/1/19
		4/18/19
		4/17/19
		4/15/19		10-K
		3/31/19		10-Q,  NT 10-Q
		1/1/19
		12/31/18		10-K,  NT 10-K
		12/15/18
		11/2/18
		10/2/18
		9/30/18		10-Q
		9/27/18
		9/4/18
		8/13/18
		7/18/18
		6/1/18
		4/17/18		10-K
		2/25/18
		2/1/18
		1/18/18
		1/1/18
		12/31/17		10-K,  NT 10-K
		12/15/17
		11/30/17		3,  SC 13G
		8/15/17
		7/25/17		3,  3/A
		4/19/17
		4/18/17		10-K
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Filing Submission 0001493152-19-017983   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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