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 Form 10-K. 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 Form 10-K, and see "Risk Factors" beginning on page 12 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.
References to the "Company," "eMarine," "EMRN," "we," "us" and "our" refer to
Marine Global Inc., a Nevada corporation (formerly Pollex, Inc.), 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.
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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.
RESULTS OF OPERATIONS FOR EMARINE GLOBAL INC.
Twelve Months Ended December 31, 2019 and 2018
Revenues, Expenses and Loss from Operations
Our revenues, expenses and net loss for the years ended December 31, 2019 and
2018 are as follows: (in thousand won)
Year Ended Year Ended
December 31, 2019 December 31, 2018
Revenue ? 5,848,443 4,589,203
Cost of Revenue ? 3,600,606 3,069,644
Gross Margin ? 2,247,837 1,519,559
Revenue. Total revenue for the years ended December 31, 2019 and 2018 was
?5,848,443 thousand and ?4,589,203 thousand, respectively. The increase of
?1,259,240 thousand, or 27%, was primarily due to the increased in CARIS
merchandise sales and new contract in Vessel Traffic System business field.
Cost of Revenue . Total cost of revenue for the years ended December 31, 2019
and 2018 was ?3,600,606 thousand and ?3,069,644 thousand, respectively. The
increase of ?530,962 thousand, or 17%, was due to the increase in revenue and
new contracts in new business field.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the years ended December 31, 2019 and 2018 were
?2,204,582 thousand and ?2,108,221 thousand, respectively. The increase of
?96,631 thousand or 5%, was primarily due to increase in legal and professional
fees and running royalty for Smart Station project.
Research and Development. Research and development expenses for the years ended
December 31, 2019 and 2018 were ?164,743 thousand and ?374,944 thousand,
respectively. The decrease of ?210,201 thousand or 56%, was primarily due to the
increase in research projects sponsored by government subsidy.
Loss from Operations. Loss from operations for the years ended December 31,
2019 and 2018 was ?121,488 thousand and ?963,606 thousand, respectively. The
decrease of ?842,118 thousand, or 87%, was due to the combination of the
increase in gross profit and decrease in research and development cost offset by
the increase in general and administrative costs as previously described.
Other Expense. Other expense for the years ended December 31, 2019 and 2018 was
?171,104 thousand and ?158,204 thousand, respectively. The increase of ?12,900
thousand, or 8%, was primarily due to the increase in interest expense.
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Net Loss. Net loss for the years ended December 31, 2019 and 2018 was ?300,379
thousand and ?1,138,660 thousand, respectively. The decrease of ?838,281
thousand, or 74%, was primarily due to the combination of the improvement in
loss from operations offset by the increase in other expense.
LIQUIDITY AND CAPITAL RESOURCES FOR EMARINE GLOBAL INC.
These consolidated financial statements have been prepared on the basis of a
going concern which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
As of December 31, 2019, we had ?592,327 thousand of cash and cash equivalents.
For the year ended December 30, 2019, we reported loss from operations of
?121,488 thousand and net cash provided by operating activities of ?886,646
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 2019, 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 May 14, 2020. 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.
Operations
Operating Cash Flows. Net cash provided by operating activities for the year
ended December 31, 2019 was ?886,646 thousand, which was due to the net loss of
?300,379 thousand, pension benefits payments of ?153,364 and payment of lease
liabilities of ?116,039 thousand offset by the increase in net operating
liabilities of ?630,855 thousand and noncash expenses of ?825,573 thousand.
Investments
Investing Cash Flows. Net cash used in investing activities for the year ended
December 31, 2019 was ?7,381 thousand which was due to the proceeds from
disposals of short-term financial instruments of ?36,000 thousand and the
decrease in loans to related parties of ?4,846 thousand offset by the increase
in short-term financial instruments of ?36,000 thousand and purchase of property
and equipment of ?12,227 thousand.
Financing
Financing Cash Flows. Net cash used in financing activities for the year ended
December 31, 2019 was ?352,166 thousand, which was due to the receipt of
proceeds from warrants exercised of ?20,945 thousand and the increase in
borrowings of ?692,000 thousand offset by decrease in loans from related parties
of ?89,117 thousand and repayments of borrowings of ?975,994 thousand.
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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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. In consultation with our board of directors, we have identified the
following accounting policies that we believe are key to an understanding of our
financial statements. These are important accounting policies that require
management's most difficult, subjective judgments.
Revenue Recognition
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.
Recent Accounting Pronouncements
Refer to Note 3 in the notes to our consolidated financial statements beginning
on F-11.
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, Cowan,
Gunteski & Co., P.A. ("Cowan") informed us 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.
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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.
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