EOFlow has been granted a one-year improvement period after facing delisting risks. While it has temporarily avoided delisting, concerns over a lawsuit risk with the American medical device company Insulet and funding shortages are expected to persist. Kim Jae-jin, CEO of EOFlow, has hinted at a sale of management rights, indicating a direct approach, but analyses suggest there are no suitable solutions.
The Korea Exchange announced on the 31st that EOFlow, which faced delisting due to receiving an audit opinion of 'disclaimer' on its 2024 financial statements, has been granted an improvement period until April 10, 2026. This follows EOFlow's submission of an objection regarding delisting on the 28th. The suspension of trading will remain in effect during the improvement period.
Although delisting risks have been temporarily avoided, the issue lies in the lack of sharp measures to overcome the crisis. Hanul Accounting Corporation, EOFlow's external auditor, pointed out that the ongoing lawsuit with the American medical device company Insulet is an element that creates uncertainty concerning the corporation's viability.
Previously, Insulet claimed that EOFlow's wearable insulin pump 'EOPatch' infringes on its patent and filed a lawsuit for 'overseas intellectual property violations and unfair competition.' In that lawsuit, jurors ruled in favor of Insulet, and based on the jury's verdict, EOFlow was ordered to pay Insulet $452 million (about 663 billion won) in damages for trade secret infringement.
Last year, EOFlow's annual sales were around 5 billion won, and as of the end of last year, total assets did not even reach 60 billion won. If the ruling is confirmed and EOFlow accounts for the compensation of 660 billion won as a liability, it will inevitably face complete capital erosion.
As a result, Hanul Accounting Corporation explained that there is 'a state where liabilities that could be incurred as a result of the lawsuit are not recorded in the financial statements,' and 'whether the company can continue as a going concern is surrounded by significant uncertainty, depending on the outcome of the lawsuit and the success of the company’s future funding plans and management improvement plans.'
In connection with this, EOFlow stated that 'the reason for receiving a disclaimer from the external accounting firm is due to the excessive risk of the lawsuit compensation and uncertainty about the outcome of the lawsuit,' adding, 'the company will actively attract investments during the trading suspension period to improve finances and will do its best to achieve a swift victory in the appellate trial.'
Ultimately, how to secure financing is crucial, yet this situation is also not easy. Even before the external auditor's 'disclaimer' emerged, institutional investors began exercising conversion rights to recoup funds despite the risks. Creditors of the third conversion bond (CB) issued at 17 billion won have exercised their conversion rights four times since last month, leaving only 1 billion won remaining.
Kim Jae-jin, CEO of EOFlow, has hinted at the possibility of selling management rights. Kim noted, 'The funds secured from the shares sold by the family of the CEO were used entirely for taxes and company operational funds, and the company secured 8 billion won through cost reductions from restructuring last year and asset sales,' adding, 'the company plans to actively accept changes accompanying the transfer of major shareholders during the process of attracting new investments.'
Even if an improvement period has been granted, there are concerns that not many corporations solve fundamental problems during that time. An official from the financial investment industry stated, 'While the ratio of corporations graduating from improvement periods without being delisted is not low, that does not mean the company’s sustainability can be considered high,' and added, 'even after avoiding delisting at the end of the improvement period, patterns of falling profitability and poor stock returns often lead to corporate stagnation.'