[KOSDAQ Company at a Crossroads] Neofect① Never Turned a Profit Since Listing... Will This Time Be Different?

Accumulated Losses Over Several Years...
Surviving Through Paid-in Capital Increases and Convertible Bonds
Focus on Management Moves of New Largest Shareholder

The ownership of Neofect, a KOSDAQ-listed company, is set to change. Since its listing, Neofect has posted losses for seven consecutive years, surviving through external capital injections such as paid-in capital increases and the issuance of convertible bonds (CBs). As a result, there is significant interest in how the new owner will manage the company.

According to the Financial Supervisory Service's electronic disclosure system on July 18, the largest shareholder of Neofect, Scandi New Technology Association No. 278 and two other parties, signed a contract on June 27 to transfer 13.5 million shares, representing management control, to Petafield and three other parties at 2,000 won per share, for a total of 27 billion won.

Neofect develops rehabilitation medical devices and rehabilitation content for patients with neurological and musculoskeletal disorders, such as stroke, based on artificial intelligence (AI) and Internet of Things (IoT) technologies. Its main products include the "Smart Glove," a wearable device for stroke patients' hands, and the "Smart Board," a rehabilitation device for shoulders and elbows. The company also operates senior welfare centers, such as day and night care centers and home care centers.

Founded in 2010, Neofect was listed on the KOSDAQ market in November 2018 through a technology exception listing. This system allows companies with losses to be listed if they receive a rating of A or higher from a certification agency. Although Neofect was operating at a loss at the time of its listing, it was evaluated based on projections that it would turn a profit from 2018, with expected sales of 30.2 billion won and operating profit of 9.8 billion won in 2020.

However, in reality, Neofect recorded sales of 18.6 billion won and an operating loss of 14.2 billion won in 2020. The company has continued to post losses up to the first quarter of this year. As of the end of the first quarter, accumulated deficits amounted to 61.2 billion won. As a result, Neofect's share price, which was 11,000 won at the time of the public offering, fell to the 800 won range.

The main cause of the losses is interpreted to be sluggish sales that have failed to reach the break-even point. Last year, on a consolidated basis, Neofect posted sales of 21.1 billion won and an operating loss of 2.4 billion won. Operating expenses amounted to 23.5 billion won, exceeding sales and resulting in a loss. In particular, other expenses, whose specific uses were difficult to identify, reached 2.5 billion won. In 2023, the company also spent 4.1 billion won on other expenses.

Although the change in the largest shareholder to Scandi New Technology Association No. 278 in 2023 led to new businesses generating some profit, it was not enough to turn Neofect's overall performance into the black. Since 2023, Neofect has acquired new technology finance company Knightsbridge and freight forwarder Cheonji Agency. As of the end of last year, Knightsbridge and Cheonji Agency posted net profits of 450 million won and 500 million won, respectively.

Despite the losses, Neofect was able to continue operating for several years thanks to frequent paid-in capital increases and the issuance of convertible bonds (CBs). Since 2020, starting with a general public offering, Neofect has conducted a total of 13 paid-in capital increases, raising 48.6 billion won. The company also issued convertible bonds six times, raising an additional 36.6 billion won. All of these are methods of financing that raise concerns about dilution of existing shareholders' equity.

As a result, the market is focused on the management direction of the new largest shareholder. Petafield, the acquirer, has publicly stated through the media that after acquiring Neofect, it will both upgrade the existing rehabilitation medical devices and pursue new businesses to diversify revenue streams.

A Petafield representative said, "We plan to determine the direction of Neofect's existing business after a thorough review, and new businesses will be pursued after considering various situations and conditions. We will disclose specific details and directions through corporate briefings (IR) after the acquisition is completed."