[At a Crossroads] Saltwear③ Smart Farm Sales '0'... Related Subsidiary Investment Loss Recognized

Pre-IPO Smart Farm Subsidiary's Rosy Outlook Promotion Controversy
Reflected in Merger Ratio Calculation, Contributing to Increased Shareholding of CEO Lee Jeong-geun's Family

Saltware, a KOSDAQ-listed company, has been found to have its smart farm business, which was promoted as a growth engine at the time of listing, in a state of inactivity. Moreover, it has been revealed that the subsidiary established for the smart farm business had already written off the entire investment before the listing, raising expectations of controversy.

Lee Jeong-geun, CEO of Saltware.

According to the Financial Supervisory Service's electronic disclosure on the 31st, Saltware recorded zero sales from smart farm and other sources last year. Sales were also nonexistent in the first quarter of this year.

Saltware is a system integration (SI) company that provides cloud services and HW/SW construction to public institutions, universities, and corporations. In 2010, Saltware entered the smart farm sector aiming to create synergy with its existing business.

As part of its smart farm business, Saltware established a subsidiary, Salt A&B, in April 2019. Salt A&B's main technologies include plant cultivation systems and soilless seedling pots. These technologies were transferred from the Gyeonggi-do Agricultural Research and Extension Services.

Saltware invested 270 million KRW when establishing Salt A&B. In 2020, it additionally lent 540 million KRW as a loan. At that time, Saltware announced that it had secured smart farm-related orders in Qatar and was officially entering the Middle East market. The investment and loan funds are presumed to have been used for this business.

However, less than two years later, all these funds became difficult to recover. According to the audit report, Saltware wrote off the entire investment in Salt A&B as an impairment loss at the end of 2020. An impairment loss is an accounting method that recognizes losses in advance when it is judged that funds are unlikely to be recovered. In 2021, the loan was also fully written off as an impairment loss. Currently, Salt A&B's book value is zero.

The problem is that despite having written off all related investments as losses by August last year when Saltware went public, the company promoted the smart farm business as successful. Furthermore, Saltware identified the smart farm business as a future growth engine.

At the listing briefing, a Saltware official stated, “We plan to diversify product items and increase sales to grow the smart farm business as the company's next-generation growth engine,” adding, “Based on the ‘success’ of the 2019 pilot project for a plant factory in Qatar, we are exporting smart farm facilities and solutions to Middle Eastern countries.” However, after the Qatar pilot project, Saltware's smart farm business generated almost no sales. The success of the Qatar project also appears difficult to assess.

Despite this situation, Saltware announced at the time of listing that the smart farm-related business would generate rosy sales. In its securities registration statement, Saltware stated that smart farm sales recorded 400 million KRW last year and projected sales of 1 billion KRW in 2023, 2 billion KRW in 2024, and 2.5 billion KRW in 2025. This was directly reflected in the merger ratio calculation, which could affect corporate value, contributing to increasing the shareholding ratio of CEO Lee Jeong-geun's family.

However, as actual performance showed a significant gap from the company's forecasts, the stock price plummeted. Ultimately, while CEO Lee Jeong-geun's family secured many shares, investors who trusted the rosy sales outlook suffered losses.

Meanwhile, inquiries were made to Lee Seong-hee, Executive Director of Saltware's New Business Headquarters and CEO of Salt A&B, but no response was received.