Crucialtec Issues 'Disclaimer' Opinion Due to Capital Impairment... 10-for-1 Free Capital Reduction① [Listed Companies at a Crossroads]

The CrucialTec headquarters in Pangyo, Seongnam, Gyeonggi-do, where the 'Innovation Venture Policy Research Institute,' which will serve as a think tank for the venture industry including the creation of a venture ecosystem, has been established.

[Asia Economy Reporter Jang Hyowon] Crucialtec, which has been suspended from trading due to five consecutive years of losses, recorded a loss again in the first half of this year and received a "qualified" opinion on its semi-annual review. Accordingly, Crucialtec decided on a 10-for-1 free capital reduction. However, since it is also considering a third-party allotment capital increase in the future, small shareholders are expected to suffer losses.

According to the Financial Supervisory Service's electronic disclosure on the 30th, Crucialtec recorded consolidated sales of 13.6 billion KRW and an operating loss of 2.6 billion KRW in the first half of this year. The total equity decreased to 10 billion KRW, which is lower than the capital stock of 23 billion KRW. The capital erosion ratio stands at 56.5%.

In addition, the audit received a "qualified" opinion stating that it was difficult to review inventory assets, allowance for inventory valuation losses, cost of sales, receivables, and payables. A qualified opinion on the semi-annual review is a reason for designation as a management item.

The auditor also pointed out significant uncertainties regarding Crucialtec's ability to continue as a going concern. As of the end of the first half of this year, a pre-tax loss of 3.6 billion KRW was recorded, and the debt ratio was 455%, raising doubts about the company's ability to continue operations.

Crucialtec is a company engaged in the mobile phone parts business. It supplies three major types of mobile phone parts: Biotrackpad (fingerprint sensor module), optical trackpad, and MFM/PL lenses. In particular, sales related to the fingerprint sensor module account for the majority of total sales.

Crucialtec has recorded operating losses for five consecutive years since 2017. Sales, which reached 320 billion KRW in 2016, shrank to 41.7 billion KRW last year. As a result, trading was suspended from March 16. According to KOSDAQ listing regulations, five consecutive years of operating losses is grounds for delisting. Crucialtec was granted an improvement period until June 27, 2023.

To resolve capital erosion, Crucialtec decided on a 10-for-1 free capital reduction. This is a capital reduction by free consolidation of 10 shares of common stock with a face value of 1,000 KRW into one share with the same face value. If the capital reduction proceeds, the capital stock will decrease from the current 23 billion KRW to 2.3 billion KRW, potentially resolving the capital erosion.

However, free capital reductions are perceived negatively in the market as they cover losses with shareholders' money. Also, a free capital reduction by face value consolidation reduces the number of shares, which may damage existing shareholders' stock value if a large number of new shares are issued to specific individuals through a third-party allotment capital increase in the future.

Accordingly, some companies conduct free capital reductions by adjusting the face value to minimize shareholder value dilution or implement differential capital reductions where management takes responsibility.

However, Crucialtec plans to proceed with a third-party allotment capital increase involving CEO An Geonjun, the largest shareholder, after the free capital reduction. In this case, the shareholding ratio of small shareholders will decrease while CEO An's control may increase. As of the first half of this year, CEO An and related parties hold 8.04% of the shares.

A Crucialtec official stated, "We are conducting the free capital reduction because we need to record a profit and improve the financial structure within this year," adding, "To this end, we are reducing fixed costs, visualizing performance in new businesses such as micro LED and VSS, and increasing existing sales to Samsung."