I-ON Digital Corp. - Annual Report: 2018 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission File Number 000-549995
|
I-ON DIGITAL CORP.
|
(Exact name of registrant as specified in its charter)
(formerly known as I-ON Communications Corp.)
|
Delaware
|
46-3031328
|
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification Number)
|
|
15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea
|
06234
|
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
+82-2-3430
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Name of each exchange on which registered
|
|
|
Common Stock, par value $0.001 per share
|
OTC Markets LLC
|
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Non-accelerated filer ☒
|
Smaller reporting company ☒
|
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of June 29, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common stock
held by non-affiliates of the registrant was approximately $45.8 million based on the closing sales price of $2.55 on the OTC Markets. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing
calculation, to be “affiliates” of the registrant.
As of April 15, 2019, there were approximately 35,030,339 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
TABLE OF CONTENTS
|
PART I
|
Page
|
|
|
Item 1.
|
2 | |
|
Item 1A
|
14 | |
|
Item 1B
|
22 | |
|
Item 2.
|
22 | |
|
Item 3.
|
22 | |
|
Item 4.
|
22 | |
| 22 | ||
|
PART II
|
||
|
Item 5.
|
23 | |
|
Item 6.
|
27 | |
|
Item 7.
|
27 | |
|
Item 7A
|
31 | |
|
Item 8.
|
31 | |
|
Item 9.
|
31 | |
|
Item 9A
|
31 | |
|
Item 9B.
|
31 | |
|
PART III
|
||
|
Item 10.
|
32 | |
|
Item 11.
|
33 | |
|
Item 12.
|
35 | |
|
Item 13.
|
35 | |
|
Item 14.
|
35 | |
|
PART IV
|
||
|
Item 15.
|
36 |
|
| 39 | ||
PART I
|
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words
such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. No
assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ
significantly from management’s expectations.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors
currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no
obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
|
Organization and Corporate History
I-ON Digital Corp. (formerly known as I-ON Communications Corp.) was incorporated under the laws of the State of Delaware on June 18, 2013 as ALPINE 3 Inc.
Alpine 3 Inc. was set up to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business. ALPINE 3 did not undertake any effort to cause a market to develop in
its securities, either debt or equity, before it successfully concluded a business combination. On April 4, 2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of common stock which was all of the outstanding shares of Alpine
3, Inc., and subsequently changed the name to Evans Brewing Company Inc. (“EBC”) on May 29, 2014. On October 9, 2014 the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of
common stock.
On October 15, 2014, Bayhawk and EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), subject to receiving approval of the
independent Bayhawk shareholders who voted on the transaction. On September 17, 2015, the independent Bayhawk shareholders approved the agreement and Bayhawk sold to EBC and EBC purchased from Bayhawk assets of Bayhawk, including but not limited to
the assets relating to the Bayhawk Ales label and the Evans Brands (collectively, the “Transferred Assets”). Bayhawk retained ownership of 100% of the stock in Evans Brewing Co. (CA) (“Evans Brewing California”) which has the brewers license at City
Brewery in Lacrosse, WI. Based on the affirmative vote by the independent Bayhawk shareholders to approve the Asset Purchase transaction, EBC proceeded with the share exchange and tender offer to the Bayhawk shareholders, pursuant to which EBC
offered to exchange shares of EBC common stock for shares of Bayhawk common stock, on a one-for-one basis (the “Exchange Offer”). At the close of the share exchange on December 2, 2015, 4,033,863 Bayhawk shares were accepted and exchanged for
4,033,863 shares of EBC common stock.
On January 25, 2018, Evans Brewing Company, Inc. consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with I-ON
Communications Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) and I-ON Acquisition Corp., a wholly-owned subsidiary of the Company (“Acquisition”). Pursuant to the terms of the Merger Agreement,
Acquisition merged with and into I-ON in a statutory reverse triangular merger (the “Merger”) with I-ON surviving as a wholly-owned subsidiary of the Registrant. As consideration for the Merger, the Registrant agreed to issue the shareholders of
I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock, in accordance with their pro rata ownership of I-ON capital stock. Following the Merger, the Registrant adopted the business plan of I-ON in information technology
consultancy and software development. On December 14, 2017, in connection with the Merger, the Company’s Board of Directors approved an amendment to its Certificate of Incorporation (the “Amendment”) to change its name to I-ON Communications Corp.
At the effective time of the Merger, our board of directors and officers were reconstituted by the appointment of Jae Cheol James Oh as Chairman, Chief
Executive Officer, and Chief Financial Officer, Hong Rae Kim as Executive Director and Jae Ho Cho as Director. Michael Rapport resigned as President, Chief Executive Officer, and Chairman in connection with the Transaction and Evan Rapport resigned
as Vice President and Director, Kenneth Wiedrich resigned as Chief Financial Officer and Director and Kyle Leingang resigned as Secretary. Roy Robertson, Mark Lamb, Joe Ryan, and Kevin Hammons resigned as members of the Board of Directors and their
respective committees.
On March 21, 2019, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to change the name of the Company to
I-ON Digital Corp.
ITEM I: BUSINESS
Evans Brewing Company
Until the date of the Merger, I-ON Digital Corp., formerly known as I-ON Communications Corp. and Evans Brewing Company Inc. (“EBC”) was a craft brewery based on Orange County, California that produces and sells premium craft beers, including a variety of ales and lagers. EBC’s beers are currently produced in its 17-barrel
brewery in Irvine, California, the oldest continuously operating brewing facility in Orange County and one of the oldest in all of Southern California. This facility has been producing craft beers since January 1995. The brewery is located in a
leased building in the McCormick & Schmick’s Seafood Restaurant.
In addition to manufacturing and selling the products above, EBC also produces and packages beers for other craft breweries in Southern California on a
contract-basis. Further, in addition to beer production and sales generally, EBC also produces and offers for sale certain “Evans Brewing Company” branded merchandise including apparel, glassware and other beer accessories.
On September 29, 2016, Evans Brewing Company, Inc., closed the acquisition of a restaurant business located in the downtown SOCO District of Fullerton,
California, through the acquisition of all the outstanding stock of EBC Public House, Inc., which the Company now operates as its first branded restaurant and taproom under the trade name “The Public House by Evans Brewing Company”. The Public House
features the Company’s beers – as well as beers from other selected local Orange County, California breweries, -- food and, potentially, occasional entertainment.
In connection with such closing, the Company acquired 100% of the outstanding shares of EBC Public House from Mr. Rapport and issued 1,000,000 shares of the
Company’s Series A Preferred Stock to Mr. Rapport. The asset purchase and share exchange have been treated as business combination as both companies are controlled by the same management.
Background
EBC and Bayhawk filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission (the “Registration Statement”), which went
effective on August 10, 2015. The Registration Statement included a proxy statement seeking the votes of the Bayhawk shareholders on the Asset Purchase Transaction by written consent. On September 17, 2015, the voting period closed, and EBC announced
that approximately 99% of the shares that were voted had voted in favor of the Asset Purchase Transaction.
In connection with the Asset Purchase Transaction, EBC and Bayhawk entered into a General Assignment and Bill of Sale agreement (the “Bill of Sale”) which
outlined the specific assets purchased, as well as an Assignment and Assumption of Liabilities agreement (the “Assumption Agreement) which outlined the specific liabilities of Bayhawk assumed by EBC.
In connection with the closing of the Asset Purchase Transaction and the entry into the Bill of Sale and the Assumption Agreement, EBC acquired the assets
(other than the ownership of Evans Brewing California), the liabilities, and the operations of Bayhawk. As such, on December 10, 2015, in connection with this acquisition, EBC ceased to be a shell company as defined in Rule 12b-2, in that it had
assets consisting of more than cash and cash equivalents, and has a business plan and operations.
Bayhawk Ales
Bayhawk Ales, Inc. (formerly Orange County Brewing Company) (“Bayhawk”) was formed in February 1994 for the purpose
of developing and operating one or more breweries in California for the production of high quality, hand-crafted ales for sale in bottle and draft. The Company built a 17-barrel showcase brewery (the “Southern California Brewery”) in a leased
building in the McCormick & Schmick’s Seafood Restaurant in Irvine, California.
I-ON Digital
Following the Merger, as described more fully herein, the Company adopted the business plan of I-ON. I-ON was founded by Jae Cheol James Oh, who currently serves as CEO.
The Company’s roots are in IT consultancy and software development. I-ON services South Korea’s enterprise content management system’s (CMS) market and specializes in advancing market-leading internet software applications to capitalize on rapidly
growing market sectors.
After being awarded its first of numerous international patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of
on-premise and cloud-based enterprise-class unstructured data management, digital experience and digital marketing software and solutions. I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of
organizations, enabling clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery, while
increasing the return on their investments in digital communication and marketing spend. As of its founding, the Company has serviced and continues to service over 1,000 blue-chip and middle-market clients across virtually all verticals in both
private and public sectors. The Company has meaningfully expanded its reach over the past decade and now currently markets, licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore,
Malaysia, Indonesia, Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.
I-ON currently holds 6 international and over 20 domestic patents for both products and methodologies built into the 10 product offerings the Company currently has at
market. These encompass enterprise CMS, digital experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions as well as sports software and IT convergence services.
Beginning in the fourth quarter of 2018, the Company started endorsing its 7th generation cloud based Digital Experience (DXP) platform as a service offering known as ICE, which encompasses a more feature-rich front and back end CMS. The Company has
designed and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology). I-ON also holds numerous domestic and global industry awards, earning high rankings and
recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.
In addition to South Korea, Japan has particularly helped fuel I-ON’s growth over the past 10 years owing to the success of an exclusive licensing deal with
Ashisuto, a large Japan-based technology services firm that employs approximately 800 technical, engineering and marketing staff across 9 office locations. Ashisuto, which has provided technology services to Japan’s enterprises and government
entities since 1973, currently white labels and sells I-ON’s core CMS offering ICS6 to over 600 clients as NOREN 6.
As a result of global enterprise digital marketing trends and I-ON’s nearly 20 -year track record in South Korea, Japan and now, Southeast Asia, the
Company’s objective is to continue to gain market share in these markets. I-ON will continue to closely engage and consult with existing and prospective clients as their subject matter expert and digital strategist of choice across multiple
touchpoints in the digital marketing and technology ecosystem, helping Chief Marketing Officers (CMO) and Chief Information Officers (CIO) drive critical change and growth for their organizations.
I-ON has invested and continues to spend substantial revenue on research and development. The Company has over 100 employees as of December 31, 2018, approximately 90%
of whom are considered full-time. Research and development typically comprises of approximately 80 junior, mid to senior level engineers and developers, most of whom are based at the Company’ headquarters located at 15 Teheran-ro 10-gil,
Gangnam-gu, Seoul, South Korea, 06234.
PRODUCTS AND SERVICES
I-ON’s product line is comprised of:
|
Enterprise CMS & Digital Experience (IaaS/PaaS):
|
|
|
I-ON Content Server - ICS6
|
I-ON Content Application Framework Engine - ICAFE
|
|
I-ON Deploy Server - IDS
|
I-ON Content Ecosystem - ICE
|
|
I-ON Digital Asset Management System - IDAS
|
|
|
I-ON Web Analytics Server
|
|
|
|
|
Software as a Service (SaaS) :
|
Energy Management Solutions :
|
|
Distributed Repository Service - GAIA
|
Load Aggregator’s Management System - LAMS
|
|
iDrive - E-Document Management System
|
- Demand Resource Management
|
|
e.Form - mobile contract platform
Assist9 – mobile ERP dashboard
|
- DLMS/COSEM -Advanced two-way metering infrastructure
|
Sports & IT Convergence Service
Ticket Advanced Marketing Management – TAMM- pro-sports marketing & analytics
VoiceBall – Amateur League Umpire & Data Service
The following is a brief description of I-ON’s key products:
ICS6 (I-ON Content Server) – ICS6 is I-ON’s generation 6 web content
management system that helps reduce burdens of complex website management by organizing vast amounts of ever-increasing digital content and big data into physical directory and logical site structure. ICS6 is one of South Korea’s first-to-market
cloud-based CMS platforms and a market share leader in both Korea & Japan.
ICE (I-ON Content Ecosystem) - ICE is I-ON’s 7th generation DXP offering that
manages the digital content management lifecycle commencing from creation, registration, distribution, deletion, billing to analytics. ICE is geared for SOs seeking ways to enhance business to business to consumer (B2B2C) value.
IDS (I-ON Deploy Server) – IDS, in conjunction with ICS6, securely,
conveniently and automatically deploys files and content between servers when distribution inefficiencies and services issues arise.
IDAS (I-ON Digital Asset Management System) – IDAS, in conjunction
with ICS6, ensures a virtuous cycle of an organization’s digital assets through an integrated framework that collects, manages, deploys and distributes content. It also provides ample storage and categorization functionalities necessary to address
high multi-media content demand including high-resolution video. The software supports digital archiving, scalability and changes in physical environment.
iCAFE (I-ON Content Application Framework Engine) – iCAFE is a content delivery platform optimized for N-Screen environments, offering a robust wire-wireless service
delivery platform for broadcasting, imaging & mobile content
e.Form – e.Form is a one-stop mobile contract solution for
smartphones and tablets that digitizes and expedites document creation and execution processes for organizations. The platform supports over 200 application programming interfaces (APIs).
iDrive – iDrive is a SaaS-based EDMS (e-document management system)
which centralizes all categories of e-documents within an organization, iDrive is geared for streamlining and managing the e-document lifecycle from creation, approval, archiving to destruction.
LAMS (Load Aggregator’s Management System) - LAMS is one of South
Korea’s first Open ADR 2.0-based demand response management solutions designed to manage and reduce electricity consumption and peak demand through demand response program participation.
Assist9 – Assist9 is a mobile all-in-one work flow process and data
management dashboard geared towards small and medium-sized businesses and startups. Core functions revolve around ERP, PMS, SFA, HR, and e-approval – with up to fifteen others- and are designed to improve operational efficiencies and provide CEOs
with greater analytical insight into their businesses.
ADDRESSABLE MARKETS
South Korea, Japan and Southeast Asia
Econsultancy and Adobe reported in recent studies that less than 15% of CMO respondents identified as working for digital-first organizations, despite a study by Forrester
Research that indicated 51% of B2B enterprises were ratcheting up digital marketing initiatives in 2018 and into 2019. A key driver of I-ON’s ability to tap further into existing and future addressable markets, the Company believes, will depend on
how quickly mid to large enterprises can adopt a digital-first mindset through continued client engagement.
According to many industry researchers, such as Forrester and Gartner, the combined enterprise digital marketing and CMS sector in South Korea and Japan is
expected to generate a high single digit compounded annual growth rate to over $800 million by 2020.
Given its market share-leading in both South Korea and Japan, I-ON remains uniquely positioned to serve as a localized partner and to address the evolving
marketing needs of mid to large enterprises. CMOs continue to seek new and innovative ways to analyze, improve return on investment (ROI) and justify the value of increased digital marketing spending.
According to numerous industry sources, including Forbes, South Korea has emerged as one of Asia’s fastest growing technology startup hubs, attracting
increasing investment from domestic funds and foreign investment.
Today, South Korea remains the eleventh largest economy in the world and, with 51 million people, the twenty-eighth largest population in the world, while
boasting the world’s highest broadband penetration at 97%. South Korea was recently highlighted in Bloomberg’s list of most innovative countries, owing to the country’s research and development intensity, as well as productivity and educational
standards. Home to Samsung, Hyundai and over 10 other Fortune 500 companies, South Korea, for the past several decades, has also been on a path pivoting from big industry and manufacturing to transformative technology, thanks to government and
private/public partnership initiatives. Favorable policy initiatives have recently led to larger budget allocation towards science and technology, matching funds with international investors, establishing international entrepreneurship programs at
universities, opening up many of the country’s research institutes, and providing safety nets for technologists and scientists that take capital risk.
Similarly, Japan remains the third largest economy and second largest developed economy in the world, the third largest automobile manufacturing, and the
largest electronics goods industry in the world. Despite being home to over 50 Fortune 500 companies, and facing growing competition from China and South Korea, manufacturing and investment in Japan have also pivoted toward software development,
high-technology, and precision goods sectors, such as robotics and optical instruments.
Asia-Pacific and Global
Across not only South Korea and Japan, but the entire Asia-Pacific region, businesses and consumers today increasingly demand personalized content and
experiences in their online interactions, across multiple digital channels and devices. This is accelerating growth in the CMS and digital marketing arenas as well demand from marketers seeking solutions that optimize customers’ experiences,
demonstrate the success of their programs with objective metrics, and deliver the greatest return on their marketing spend.
According to Gartner, the enterprise CMS market across the Asia-Pacific region, which includes China, South Korea, Hong Kong, Japan, Indonesia, Malaysia,
Singapore and Vietnam – exceeded $700 million in 2016, up significantly from $500 million in 2014 and is projected to exceed $900 million by 2019, reflecting a compounded annual growth rate of at least 12%. Malaysia, Indonesia and Singapore
collectively generated $180 million in enterprise CMS revenue last year and Gartner projects a 16% annual growth rate into 2020.
In North America, aggregate digital marketing spend, which includes CMS for both products and professional services by both mid and large-sized enterprises,
exceeded $135 billion in 2016 from approximately $95 billion in 2014, and according to forecasts from both IDC and Statista, is projected to grow 18% annually to over $225 billion by 2019.
Globally, sources such as the CMO Council and Gartner estimate the current web and mobile digital marketing industry size at $450 billion, while forecasting
a high single digit 5 year compounded annual growth rate to over $600 billion by 2019.
Between North America, Western Europe and developed economies within the Asia-Pac, the CMO Council currently foresees enterprise CMS implementation, content
creation and optimization as representing over 50% of digital marketing spend, while mobile advertising, search engine and social media advertising contribute about 20%, 15% and 15%, respectively.
MARKETING AND GROWTH STRATEGY
Growth in omni-channel DXP, digital marketing and big data
CMS and digital marketing budgets at global brands continue to increase relative to traditional marketing dollars, according to Gartner and many CMO surveys,
which describe a general atmosphere keen on shifting marketing dollars towards ROI enhancing tools such as audience analytics and curation, consumer engagement, smart mobility and artificial intelligence. In South Korea, existing and prospective
clients across many sectors are often consulting with I-ON on how best to integrate disparate and increasingly complex needs, which may for example apply digital asset management, e-commerce, sports software and SaaS capabilities. As competition
has been intensifying, the pace of overall M&A activity has also been accelerating as small and mid-size players such as I-ON, seek to diversify and address the trends and demands. Accordingly, enterprise CMS globally is being viewed less as
tools for building web pages and standard analytics, but more so as vital software and value-added solutions that can help drive the effectiveness of often complex, data driven and expensive digital strategies and marketing campaigns.
Interoperability remains a key differentiator across the dynamic South Korean and East Asian markets. Companies small and large, particularly those with intricate distribution and supply chain responsibilities, not only require a portal for their
intranet for external needs, but demand that their CMS software facilitate a real-time connection between the business, people and things that allow all to communicate, transact and even negotiate with each other across all touch points. As a
result, I-ON also intends to play further into the unstructured and big data, analytics, e-commerce and smart mobility arenas as part of its DXP offering.
Defining Value Proposition
I-ON believes it remains uniquely positioned to address the evolving digital experience and marketing needs of medium to large enterprises. Given the growth
across the global enterprise digital marketing spectrum and I-ON’s 19-year track record serving a marquee clientele in South Korea, Japan, and parts of Southeast Asia, I-ON’s objective is to continue to aggressively gain market share by closely
engaging with existing and prospective clients, while driving sales for both its core CMS offering and complementary solutions that enable organizations to transform traditional marketing initiatives into analytics and data-driven strategies vital to
delivering measurable results.
I-ON believes that its software products and solutions will continue to be a primary revenue source for the Company over time and that its growing portfolio
of products may generate profitable demand for associated maintenance, support, implementation, consulting, and training services that the Company, and a channel of licensees and value-added resellers (VARs), can provide.
Near-term, I-ON intends to do the following to drive organic growth:
| · |
Continue to leverage knowledge and experience into new or enhanced solutions and products
|
| · |
Continue to deploy secure pilot environments for prospective customers to evaluate and envision additional uses for customized application development
|
| · |
Continue to procure contracts directly, via strategic partnerships and increasing sales personnel
|
| · |
Recruit seasoned executives as well as younger talent to utilize unique training model that addresses resource shortages
|
| · |
Incubate and build-out focused profitable technology practices
|
| · |
Continue to participate in multi-lateral joint R&D projects in concert with its partners across many different countries
|
South East Asia
According to Gartner, Malaysia, Indonesia and Singapore generated $180 million in enterprise CMS revenue last year and project a 16% annual growth rate by
2020. As a result, I-ON intends to continue to build off of its initial successes in the Southeast Asia region, which include, among other projects, the following: implementation of a fully integrated mobile/online trading solution for Malaysia’s
MNC Securities; a CMS implementation for a leading USA cable manufacturer, Commscope- supporting 13 languages to meet global standards; the implementation of a CMS solution based on CSDP (Convergence Service Delivery Platform) for Indonesia’s BOLEH
Mobile; and an integration of CMS platforms for the Malaysia Ministry of Works.
Announced on October 1, 2018, I-ON and Singapore-based Hyper Resources Interactive Pte Ltd. executed an MoU whereby Hyper Resources will assist with marketing and utilize
I-ON’s core CMS suite of ICS6, IDAS, IDS, ICS and eForm solutions to address the needs of Singaporean enterprises. I-ON will assist with operational and technical support as well as solutions training.
Sports ICT
I-ON absorbed the TAMM team and technology in 2016. Currently the exclusive and secure web and mobile payment gateway provider
for the KLGPA and technology partners with most of the major sponsors of the events, TAMM and its next generation omni-channel sports data management solution are well-positioned to address the $5 billion global sports software market, which is
projected to increase at a 13% CAGR through 2024. Significant global investment in sports infrastructure including stadiums, complexes and leagues has been the leading driver of sports software development and implementation, which helps
organizers automate various administrative functions, ticket sales, promotions, as well as player and game management utilizing both cloud-based and on-premise technology. North America currently holds a market share of close to 60% and is expected
to continue its dominant trend through 2024, according to Hexa Research.
As announced in 2018, I-ON formed a partnership with the Ministry of Culture, Sports and Tourism and the Korea Institute of Sports Science to develop a
domestic multi-sport marketing and analytics platform addressing amateur and pro golf and baseball participants and engagement. The initiative also integrates reputable University research and high-tech private sector resources. More recently in
January 2019, I-ON announced a letter of intent, subject to a multi-year framework, with California-based Pacific Pro Football league, a new amateur-pro D-league targeting future NFL recruits, which is led by a distinguished team of former NFL
executives, players and coaches. The engagement represents I-ON’s initial foray into the US market with respect to TAMM and sports software initiatives. I-ON’s scope of service is broad, but entails building out the league’s CMS infrastructure
while serving as their digital strategist of choice leading up to the 2020 league launch and well beyond. This could be in association with Pacific Pro’s exclusive sponsor Adidas.
In early 2018, I-ON and its various partners including Japan-based TIS INTEC Group – a leading systems integrator- began a deeper dive on how to best
address the fast-growing need for distributed energy management and virtual power plant (VPP) solutions for grid connected renewable energy sources in hopes of delivering an enhanced, reliable energy and cost-efficient product offering to East Asia
markets. By employing key components of I-ON’s energy management system to address the demand response needs of power grid companies, I-ON intends to introduce its own proprietary next generation VPP solution that operate within cloud-based
service environments to address the energy management needs of enterprises.
Popular in the U.S. and Europe, but a rapidly emerging sector in Japan and across East Asia, VPP is a cloud-based distributed power plant that aggregates
the capacities of energy resources at the requests of power transmission and distribution service providers for the purposes of enhancing power generation more reliably. VPP typically integrates small-scale power plants or energy storage
facilities for residential settings, buildings, factories and incorporates them into a remotely controlled virtual power station using a sophisticated set of software and IT systems. These systems tap into existing grid networks to tailor
electricity supply and demand services under changing load conditions both quickly and in real time, thus maximizing value for both the power generator and end user. Most industry observers currently peg the global VPP industry at $8-$12 billion
-- double from just a few years ago -- and forecast the industry will grow annually at a mid to high double-digit rate through 2025, driven by investment in the U.S., Europe and Australia with South Korea and Japan leading the way in East Asia.
Announced on November 21, 2018, Sweden-based Telenor Connexion and I-ON formed a collaboration agreement in order to provide South Korean customers in the
energy sector with high-value and quality IoT solutions and services by utilizing I-ON’s capabilities in data management, smart mobility, and advanced analytics.
Acquisition Strategy
I-ON intends to continue to leverage its international partnerships and ongoing success in enterprise CMS to move upstream, cross-sell, and serve clients more directly as
either their digital strategist of choice and/or by acquiring businesses with (i) a revenue producing platform with existing enterprise clients, (ii) subject matter expertise and or (iii) rights to intellectual property in at least one of the following
digital marketing-related disciplines: predictive analytics, smart mobility, marketing automation, search engine optimization (SEO), enterprise resource planning (ERP), workflow automation, and eCommerce. I-ON has already identified multiple
compelling acquisition opportunities within these domains, particularly in South Korea and Japan. However, there can be no assurance that I-ON will be able to acquire one or more of these businesses or that it will be able to do so on terms that are
favorable to I-ON.
Notably, I-ON believes that overall macro conditions that drive consolidation and acquisitions also remain ideal including the historical low interest rate
environment, a large, evolving and fragmented technology services and solutions market across South Korea and East Asia, and the relatively low organic growth opportunities that ordinarily may not exist for smaller businesses. These existential
conditions could enable I-ON to identify and purchase compelling assets inexpensively.
Expand Product Offering and Geographic Coverage over the long-term
Over the next 5 years, I-ON’s growth strategy is to significantly expand its client base in South Korea, Japan, and Southeast Asia, while also expanding into
new geographic areas, such as the U.S. and Europe to provide clients with global coverage and around the clock services that CMS and digital marketing requires. I-ON’s continued business model is to allow its work and unique technical skills to
attract new clients as well as win repeat projects with past and current clients. At the same time, ION intends to expand its core offerings and increase brand awareness with new service capabilities and software products that produce significant
value for clients.
PATENTS AND TRADEMARKS
Key Patents:
| · |
Integrated certification system using electronic contract #10-1132672
|
| · |
Website construction and management methodology #0457428
|
| · |
Website integrated management system and management methodology #10-0764690
|
| · |
Internet Reaction application reaction survey methodology and systems #0366708
|
| · |
Modification and restoration methodology on comment utilizing digital items #10-0634047
|
| · |
Power Quantity Reduction Compensation System management method #10-1046943
|
| · |
Mobile Chat Systems for Supporting Cartoon Story-Style Communication on Webpage #9973458
|
| · |
Enhancement to Sports Game Assistance System #10223448
|
| · |
I-ON holds over 20 additional domestic patents
|
Key Certifications:
| · |
I-ON e.Form Server Green Technology Certificate #GT-12-00040
|
| · |
I-ON Content Server v6.1 Certificate of Software Quality – GS (Good Software) #14-0017
|
| · |
DRMS OpenADR 2.0a/b Certificate of System Conformance
|
| · |
Certificate for Company Research Institute #20022427
|
AWARDS AND INDUSTRY RECOGNITION HISTORY
| · |
Selected to participate in ‘IP-Star Company development’ project by Seoul Business Agency (2013)
|
| · |
Designated as Best Small and Medium Company Workplace by Small and Medium Business Corporation (2012-2014)
|
| · |
Designated as Global Small Giant Company by Small and Medium Business Administration (2012-2014)
|
| · |
Grand prize at New Software Solution in General Software section by Ministry of Knowledge Economy (2012)
|
| · |
Designated as top Promising Future-Leading Company by Money Today (Economic newspaper 2012)
|
| · |
Certified ‘Promising Export Firm’ by Small and Medium Business Administration (2011-2013)
|
| · |
KOSA (Korea Software Industry Association)
|
| · |
Best prize at 11th Korean Software Companies’ Competitiveness Award - Mobile SW section (2012)
|
| · |
Best prize at 10th Korean Software Companies’ Competitiveness Award– KMS/EMC/BMP section (2011)
|
| · |
Best prize at SoftBank Mobile Solution Contest in Japan (2011)
|
| · |
Citation of Prime Minister awarded on the SW Industrial Day (2011)
|
| · |
Tower of million USD exports award (2007)
|
| · |
Grand prize in Internet Service Section (oneul.com) (2012)
|
| · |
Winner of Brand Service Section (Lotte Duty Free) (2012)
|
| · |
Grand prize in Business Improvement section (e.Form) (2012)
|
| · |
Grand Prize in Information Management (Real-time Power demand resources Operation System) (2012)
|
| · |
Grand Prize in Location Based System (LBS) (Lucky Bird) (2012)
|
| · |
Grand Prize in Product brand (Catch Chevrolet) (2011)
|
| · |
Grand Prize eBook (Kyowon Aesop) (2011)
|
CUSTOMERS
Because organizations in virtually every sector of the economy perform or need the functions I-ON supports, the Company has successfully deployed its
software solutions to over 1,000 blue-chip and middle-market enterprises across virtually all industries and verticals in both the private and public sectors. Such industries include but are not limited to financial services, banking, informational
technology services, telecommunications, internet, automotive, healthcare, publishing, media, education, energy, logistics, retail, consumer and business services, as well as government institutions. Over 400 enterprise clients in South Korea, 500 in
Japan, and 100 across Southeast Asia and globally currently utilize I-ON products, solutions and professional services capabilities.
Given its current foothold, I-ON believes it remains uniquely positioned to address the evolving marketing needs of medium to large enterprises as CMOs
continue to lack the wherewithal to analyze, improve ROI, and justify the value of increased digital marketing spend. I-ON’s diversified product suite, introduction of new products, tools and data sources, combined with media consumption devices
such as mobile and tablets have created an environment that’s been uncharted by numerous enterprise marketers and their CMOs, particularly in South Korea, Japan, Southeast Asia and China.
Below is a sample of I-ON’s clientele based on region.
Entry into new markets combined with relevant new product introductions has also enabled I-ON to diversify its client mix, thereby minimizing client
concentration risk as reflected by the decline in top 10 client contribution since 2013.
Below highlights I-ON’s top 10 clients as percentage of total revenue (Fiscal Years 2016-2018):
|
2015 |
2016 |
2017 |
|
2018 |
|
|||||||||||||||||
|
KT Corporation |
8.0 |
% |
|
JoongAng Ilbo |
7.0 |
% |
JoongAng Ilbo |
8.6 |
% |
KEPCO |
10.1 |
% |
||||||||||
|
KCA |
7.7 |
% |
|
K.K I-ON |
5.0 |
% |
|
KBS |
6.7 |
% |
K.K. I-ON |
7.7 |
% |
|||||||||
|
K.K. I-ON |
6.6 |
% |
|
Samsung Electro |
5.0 |
% |
|
Hyundai Auto |
6.3 |
% |
Samsung Electro |
6.5 |
% |
|||||||||
|
KT DS |
6.3 |
% |
|
GlobalTelecom |
4.0 |
% |
|
Samsung Electro |
6.0 |
% |
SBDC |
6.5 |
% |
|||||||||
|
Samsung Card |
5.3 |
% |
|
Hyunday Auto |
4.0 |
% |
|
KTDS |
5.7 |
% |
Finger |
6.3 |
% |
|||||||||
|
K.K. Ashisuto |
3.7 |
% |
|
Kolonbenit |
4.0 |
% |
|
K.K. I-ON |
5.5 |
% |
Mnwise |
5.9 |
% |
|||||||||
|
Hyundai ESG |
3.6 |
% |
|
KEPCO |
3.0 |
% |
|
Jeju Tourism |
4.8 |
% |
K.K. Ashisuto |
4.7 |
% |
|||||||||
|
KyoWon |
3.6 |
% |
|
Ssangyong |
3.0 |
% |
|
KLPGA |
4.2 |
% |
Shinhan Card |
4.7 |
% |
|||||||||
|
MBC |
3.6 |
% |
|
K.K. Ashisuto |
3.0 |
% |
|
YTN |
4.0 |
% |
Samsung SDS |
4.1 |
% |
|||||||||
|
Accenture |
3.2 |
% |
|
Korea Comm. |
3.0 |
% |
|
CJ Digital Music |
3.9 |
% |
Jeju Tourism |
3.9 |
% |
|||||||||
|
|
51.7 |
% |
|
|
41.0 |
% |
|
|
55.7 |
% |
|
60.4 |
% |
|||||||||
MARKETING, SALES AND DISTRIBUTION
I-ON relies both on inside and outside sales efforts as well as value-added resellers based in specific geographies to drive a bulk of their business
development efforts. The Company has over 100 partners, formal and informal, across 28 countries that provides client leads The Company also relies on client references and its track record and regularly attends reputable industry and technology
conferences internationally.
COMPETITION
The market for I-ON’s products and solutions, primarily in South Korea, Japan and Southeast Asia is competitive but not considerably fragmented. We compete primarily with
digital marketing agencies, systems consulting firms and boutique consulting firms, that maintain specialized skills or products or are geographically focused, and clients’ own IT firms. Many of the firms we compete with have longer operating
histories and are more developed than we are. The principal competitive factors in these addressable markets include the ability to solve problems; the ability to deliver creative concepts and solutions; expertise and talent with advanced
technologies; availability of resources; the quality and speed of solutions; a deep understanding of user experiences; and the price of solutions. I-ON competes favorably when considering these factors and believes that its ability to deliver
business innovation and outstanding value to its clients on time and on budget, along with its successful track record, distinguishes them from competitors.
Interoperability has emerged as a key differentiator in I-ON’s addressable markets, as CMS is now seldom viewed as a stand-alone system for an enterprise’s online
presence. Large enterprises and to a growing extent small and middle market companies, particularly those with complex distribution and supply chain issues, not only require a portal for their intranet for external needs, but expect CMS platforms to
allow for a real-time connection between the business, people, behavior and things that allow all to communicate, transact and even negotiate with each other. Thus, in order to be better served and remain competitive in their own circles, clients
are increasingly looking to I-ON to consult with and integrate disparate and increasingly complex systems.
In addition to holding a first mover advantage, I-ON has been able to compete by offering flexible and often less expensive pricing, offering time-tested & proven
licensing joint venture partnerships such as with Ashisuto in Japan and focusing on R&D to drive product upgrade cycles such as ICE and introduce new products built off existing technology related to sports, energy and mobile. From a domestic DXP
front, I-ON competes with companies such as deCos Interactive and contentWise. Much larger competitors such as Adobe, Stellent, and IBM which service at significantly higher prices and complexity, lack mid-market cachet, are not built locally for
scale, or are merely focused on other disciplines. Opensource models tend to have a truer SME focus, are vague & lack vendor responsibilities, and do not address the needs of complex large to blue-chip enterprises.
RESEARCH AND DEVELOPMENT
Because the verticals in which I-ON competes are characterized by rapid technological change, the Company’s ability to compete successfully depends upon
maintaining and enhancing expertise in its core business segments and product lines. As a result, I-ON has reinvested and continues to spend substantial revenue on research and development. The Company currently employs over 100 junior, mid to
senior level engineers and developers, most of whom are based at the Company’s headquarters in Seoul. In order enable its employees to provide expert, timely, competitive services to the marketplace, I-ON also provides ongoing training and sponsors
advanced university education to enhance employee skills and knowledge of all current and future product offerings.
MANAGEMENT AND EMPLOYEES
As of the date of this Report, I-ON has 150 full time and 10 part time employees. We believe we enjoy good employee relations. None of our employees are
members of any labor union, and we are not a party to any collective bargaining agreement.
PROPERTIES
The Company does not own any physical location. I-ON currently leases its corporate headquarters and other offices
in Seoul, South Korea which expires on December 31, 2020. I-ON’s lease for its Tokyo, Japan office expires on September 30, 2019. We believe that our current offices are sufficient in size for current and future operations.
POTENTIAL FUTURE PROJECTS AND CONFLICTS OF INTEREST
Members of the Company’s management may serve in the future as an officer, director or investor in other entities. Neither the Company nor any of its
shareholders would have any interest in these other companies’ projects. Management believes that it has sufficient resources to fully discharge its responsibilities for all current and future projects.
GOVERNMENT REGULATION
We believe we are in compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure compliance going
forward. There are no regulatory notifications or actions pending.
LEGAL MATTERS
None.
RELATED PARTY TRANSACTIONS
The following are material related party transactions that have occurred during December 31, 2018 and 2017, but because the consolidated financial statements are
presented on a consolidated basis, the transactions and balances have been eliminated.
|
|
2018
|
2017
|
||||||
|
Sales to affiliate
|
$
|
525,881
|
$
|
494,338
|
||||
| Receivables from affiliate |
$
|
161,079
|
$
|
139,188
|
||||
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash provided as collateral
to the Company’s chief executive officer’s loans.
Available Information
We will make available free of charge any of our filings as soon as reasonably practicable after we electronically file these materials
with, or otherwise furnish them to, the Securities and Exchange Commission (“SEC”). We are not including the information contained in our website as part of, or incorporating it by reference into, this report on Form 10-K.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Within our website’s “Investor” section, “SEC Filings” tab, all of our filings with the Commission and all amendments to these reports
are available as soon as reasonably practicable after filing.
Website
Our website address is www.i-on.net.
Our Information
Our principal executive offices are located at 15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea 06234 and our telephone number is
82-2-3430-1200 . We can be contacted by email at intlbiz@i-on.net.
Our business, financial condition, operating results and prospects are subject to the following risks. Additional risks and
uncertainties not presently foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the
trading price of our common stock could decline, and our stockholders may lose all or part of their investment in the shares of our common stock.
This Form 10-K contains forward-looking statements that involve risks and uncertainties. These forward-looking statements can be
identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words
or language. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Form 10-K.
Risks Specific to Our Business
Our proprietary software or service delivery may not operate properly, which could damage our reputation, give rise to
claims against us, or divert application of our resources from other purposes, any of which could harm our business and operating results.
We may encounter human or technical obstacles that prevent our proprietary applications from operating properly. If our applications do not function reliably
or fail to achieve customer expectations in terms of performance, customers could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain
customers. We provide a limited warranty, have not paid warranty claims in the past, and do not have a reserve for warranty claims.
Moreover, information services as complex as those we offer have in the past contained, and may in the future develop or contain, undetected defects or
errors. We cannot assure you that material performance problems or defects in our products or services will not arise in the future. Errors may result from receipt, entry, or interpretation of customer information or from interface of our services
with legacy systems and data that we did not develop and the function of which is outside of our control. Despite testing, defects or errors may arise in our existing or new software or service processes. These defects and errors and any failure by
us to identify and address them could result in loss of revenue or market share, liability to customers or others, failure to achieve market acceptance or expansion, diversion of development resources, injury to our reputation, and increased service
and maintenance costs. Defects or errors in our software might discourage existing or potential customers from purchasing our products and services. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in
correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely affect our operating results.
If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service
may be perceived as insecure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.
Our services involve the web-based storage and transmission of customers’ proprietary information. We rely on proprietary and commercially available systems,
software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage of such information. Because of the sensitivity of this information and due to requirements under applicable laws and
regulations, the effectiveness of our security efforts is very important. If our security measures are breached or fail as a result of third-party action, acts of terror, social unrest, employee error, malfeasance or for any other reasons, someone
may be able to obtain unauthorized access to customer data. Improper activities by third-parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or
result in a compromise or breach of our security systems. Our security measures may not be effective in preventing unauthorized access to the customer data stored on our servers. If a breach of our security occurs, we could face damages for contract
breach, penalties for violation of applicable laws or regulations, possible lawsuits by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In addition, whether there is an actual or a
perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose current or potential customers.
Disruptions in Internet or telecommunication service or damage to our data centers could adversely affect our business
by reducing our customers’ confidence in the reliability of our services and products.
Our information technologies and systems are vulnerable to damage or interruption from various causes, including acts of God and other natural disasters,
war and acts of terrorism and power losses, computer systems failures, internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events. Data regarding our business and our customers’
insurance claims and encounters resides on computer hardware located domestically and abroad. Although we conduct business continuity planning to protect against fires, floods, other natural disasters and general business interruptions to mitigate
the adverse effects of a disruption, relocation or change in operating environment at our data centers, the situations we plan for and the amount of insurance coverage we maintain may not be adequate in any particular case. In addition, the
occurrence of any of these events could result in interruptions, delays or cessations in service to our customers. Any of these events could impair or prohibit our ability to provide our services, reduce the attractiveness of our services to
current or potential customers and adversely impact our financial condition and results of operations.
In addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we interface with or utilize, including the
internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third-parties seeking to disrupt operations
or misappropriate information or similar physical or electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result, we may be required
to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.
We depend on key information systems and third party service providers.
We depend on key information systems to accurately and efficiently transact our business. These systems and services are vulnerable to interruptions or other
failures resulting from, among other things, natural disasters, terrorist attacks, software, equipment or telecommunications failures, processing errors, computer viruses, other security issues or supplier defaults. Security, backup and disaster
recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use
the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.
As cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internal and external parties’
intent on extracting confidential information, disrupting business processes or corrupting information. These risks could arise from external parties or from acts or omissions of internal or service provider personnel. Such unauthorized access could
disrupt our business and could result in the loss of assets, litigation, remediation costs, damage to our reputation and failure to retain or attract customers following such an event, which could adversely affect our business.
We may be unable to adequately establish, protect or enforce our intellectual property rights.
Our success depends in part upon our ability to establish, protect and enforce our intellectual property and other proprietary rights. If we fail to
establish, protect or enforce our intellectual property rights, we may lose an important advantage in the market in which we compete. We rely on a combination of trademark, copyright and trade secret law and contractual obligations to protect our key
intellectual property rights, all of which provide only limited protection. Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages.
We hold several patents and also rely on trade secrets to protect certain of our proprietary technology. However, trade secrets may not be protectable if not
properly kept confidential. We strive to enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information. However, the steps we have taken may not
be sufficient to prevent unauthorized use of our technology, and adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and proprietary technology. Moreover, others may reverse engineer or
independently develop technologies that are competitive to ours or infringe our intellectual property.
Accordingly, despite our efforts, we may be unable to prevent third-parties from using our intellectual property for their competitive advantage. Any such
use could have a material adverse effect on our business, results of operations and financial condition. Monitoring unauthorized uses of and enforcing our intellectual property rights can be difficult and costly. Legal intellectual property actions
are inherently uncertain and may not be successful, and may require a substantial amount of resources and divert our management’s attention.
Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the
way we conduct our business.
Our competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual property. We have not
conducted an independent review of patents and other intellectual property issued to third-parties, who may have patents or patent applications relating to our proprietary technology. We may receive letters from third parties alleging, or inquiring
about, possible infringement, misappropriation or violation of their intellectual property rights. Any party asserting that we infringe, misappropriate or violate proprietary rights may force us to defend ourselves, and potentially our customers,
against the alleged claim. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and/or invalidation of our proprietary rights or interruption or cessation of our operations. Any such claims or
lawsuit could:
| ● |
be time-consuming and expensive to defend, whether meritorious or not;
|
| ● |
require us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property;
|
| ● |
divert the attention of our technical and managerial resources;
|
| ● |
require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable;
|
| ● |
prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and
may make the performance or value of our product or service offerings less attractive;
|
| ● |
subject us to significant liability for damages or result in significant settlement payments; or
|
| ● |
require us to indemnify our customers.
|
Furthermore, during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery
requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual property litigation could materially adversely affect our business. Some of our competitors may be able to sustain the costs of
intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, any litigation could significantly harm our relationships with current and prospective customers. Any of the foregoing could
disrupt our business and have a material adverse effect on our business, operating results and financial condition.
The continued success of our business model is heavily dependent upon our offshore operations, and any disruption to
those operations will adversely affect us.
The majority of our operations, including the development and maintenance of our Web-based platform and our customer support services, are performed by our
highly educated workforce of approximately 120 employees in South Korea which may experience unrest due to the threats posed by North Korea. The performance of our operations in South Korea, and our ability to maintain our offshore offices, is an
essential element of our business model, as South Korea is a tech hub for Enterprise CMS/Digital marketing as well as all of our senior leadership are located in South Korea. Our competitive advantage will be greatly diminished and may disappear
altogether if our operations in South Korea are negatively impacted.
Our offshore operations expose us to additional business and financial risks which could adversely affect us and
subject us to civil and criminal liability.
The risks and challenges associated with our operations outside the United States include laws and business practices favoring local competitors; compliance
with multiple, conflicting and changing governmental laws and regulations, including employment and tax laws and regulations; and fluctuations in foreign currency exchange rates. Foreign operations subject us to numerous stringent U.S. and foreign
laws, including the Foreign Corrupt Practices Act, or FCPA, and comparable foreign laws and regulations that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business
entities for the purpose of obtaining or retaining business. Safeguards we implement to discourage these practices may prove to be less than effective and violations of the FCPA and other laws may result in severe criminal or civil sanctions, or
other liabilities or proceedings against us, including class action lawsuits and enforcement actions from the SEC, Department of Justice and overseas regulators.
Future product development is dependent upon access to and reliability of third party software products and open
source software.
Certain of our software products contain components developed and maintained by third party software vendors. We expect that we may have
to incorporate software from third party vendors in our future products. We also incorporate open source software in certain of our software products. We may not be able to replace the functionality provided by the third party or open source software
currently offered with our products if that software becomes obsolete, defective, non-compliant with third party patent restrictions or incompatible with future versions of our products or is not adequately maintained or updated, or if our
relationship with the third party vendor terminates. In addition, we must carefully monitor and manage our use of, and compliance with the licensing requirements of, open source software. Any significant interruption in the availability of these
third party software products on commercially acceptable terms, defects in these products, non-compliance with third party patent restrictions or our inability to comply with the licensing terms of either third party commercial software or open
source software could delay development of future products or enhancement of future products and could have a material adverse effect on our business, financial condition, operating results and cash flows.
Future product development is dependent on adequate research and development resources.
In order to remain competitive, we must continue to develop new products and enhancements to our existing products. This is particularly
true as we further expand our cloud and SaaS offerings and capabilities. Maintaining adequate research and development resources to meet the demands of the market is essential, and failure to do so could present an advantage to our competitors. If we
are unable to develop products due to certain constraints, such as high employee turnover, lack of management ability or a lack of other development resources, including through third party outsourcing firms, our competitiveness could be harmed.
Discovery of errors in our software could adversely affect our earnings.
The software products we offer are inherently complex. Despite testing and quality control, we cannot be certain that errors will not be
found in current versions, new versions or enhancements of our products after commencement of commercial delivery. If new or existing customers have difficulty deploying our products or require significant amounts of customer support, our operating
margins could be harmed. Moreover, we could face possible claims and higher development costs if our software contains undetected errors or if we fail to meet our customers’ expectations. With our BSM strategy, these risks increase because we are
combining already complex products to create solutions that are even more complicated than the aggregation of their product components. Significant technical challenges could also arise with our products because our customers purchase and deploy our
products across a variety of computer platforms and integrate them with a number of third party software applications and databases. These combinations increase our risk further because in the event of a system-wide failure, it may be difficult to
determine which product is at fault; thus, we may be harmed by the failure of another supplier’s products.
As a result of the foregoing, we could experience loss of or delay in revenue and loss of market share; loss of customers; damage to our
reputation; failure to achieve market acceptance; diversion of development resources; increased service and warranty costs; legal actions by customers against us which could, whether or not successful, increase costs and distract our management; and
increased insurance costs.
Risks Related to Securities Markets and Investments in Our Securities
Our executive officers and certain stockholders possess the majority of our voting power, and through this ownership,
control our Company and our corporate actions.
Our current executive officers, directors and largest stockholders of the Company, hold approximately 37% of the voting power of the
outstanding shares as of December 31, 2018. These officers, directors and certain stockholders have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including
mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. The interests of our executive officers and certain shareholders may give rise to a conflict of interest
with the Company and the Company’s stockholders. For additional details concerning voting power please refer to the section below entitled “Description of Securities.”
Liquidity of our common stock has been limited.
Our common stock is quoted on OTC Markets under the symbol “IONI”. The liquidity of our common stock is very limited and is affected by
our limited trading market. The OTC Markets is an inter-dealer market much less regulated than the major exchanges, and is subject to abuses, volatilities and shorting. There is currently no broadly followed and established trading market for our
common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the
liquidity of the shares traded.
The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the
fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such
persons, they may tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be
periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share
price. We cannot give any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for
our common stock while on the OTC Markets may not necessarily be a reliable indicator of its fair market value.
Because we became public by means of a “reverse business combination,” we may not be able to attract the attention of
major brokerage firms.
There may be risks associated with us becoming public through a “reverse business combination.” Securities analysts of major brokerage
firms and securities institutions may not provide coverage of us because there were no broker-dealers who sold our stock in a public offering that would be incentivized to follow or recommend the purchase of our common stock. The absence of such
research coverage could limit investor interest in our common stock, resulting in decreased liquidity. No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or
other financings on our behalf.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors,
many of which are beyond our control, including the following:
|
·
|
the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;
|
|
·
|
limited “public float” with a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the
market price for our common stock;
|
|
·
|
additions or departures of key personnel;
|
|
·
|
loss of a strategic relationship;
|
|
·
|
variations in operating results from the expectations of securities analysts or investors;
|
|
·
|
announcements of new products or services by us or our competitors;
|
|
·
|
reductions in the market share of our products;
|
|
·
|
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
|
|
·
|
investor perception of our industry or prospects;
|
|
·
|
insider selling or buying;
|
|
·
|
investors entering into short sale contracts;
|
|
·
|
regulatory developments affecting our industry; and
|
|
·
|
changes in our industry;
|
|
·
|
competitive pricing pressures;
|
|
·
|
our ability to obtain working capital financing;
|
|
·
|
sales of our common stock;
|
|
·
|
our ability to execute our business plan;
|
|
·
|
operating results that fall below expectations;
|
|
·
|
revisions in securities analysts’ estimates or reductions in security analysts’ coverage; and
|
|
·
|
economic and other external factors.
|
Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating
performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the
sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability
to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the
Company’s competitors or the Company itself.
A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our
ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations and strategic plans. Such reductions may force us to reallocate funds from other planned uses and may have a
significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we will be able to raise
additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.
Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.
The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our
common stock.
Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the
market for your shares and have a depressive effect on the price of the shares of our common stock.
A substantial majority of the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the
Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from
registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common
stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of
a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent
registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
We do not plan to declare or pay any dividends to our stockholders in the near future.
We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment
and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors
as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the Securities Act. These rules, regulations and requirements are extensive. We may incur significant costs associated with our public company corporate governance and reporting
requirements. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations
may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.
Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting
fluctuations and affect reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of
transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current
practices may adversely affect our reported financial results or the way we conduct business.
“Penny Stock” rules may make buying or selling our common stock difficult.
Trading in our common stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define
a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and
accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to
both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market price and liquidity of our common stock.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED
None.
ITEM 2: PROPERTIES.
We do not own any physical location. I-ON currently leases its corporate headquarters and other offices in Seoul, South Korea which
expires on December 31, 2020. I-ON’s lease for its Tokyo, Japan office expires on September 30, 2019. We believe that our current offices are sufficient in size for current and future operations.
ITEM 3: LEGAL PROCEEDINGS.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business.
As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.
ITEM 4: MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5: MARKET FOR
REGISTRANT’S COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
| (a) |
Market Information
|
Our common stock first became quoted on the OTC Markets under the trading symbol “EVBW” on March 27, 2014. On February 24, 2016, our
common stock began trading under the name Evans Brewing Company, Inc. and under the trading symbol “ALES”. On April 21, 2016, the common stock was uplisted to the OTCQB Venture Marketplace and on August 2, 2018 our trading symbol was changed to IONI.
Over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. The following table lists the high and low sale information for our common stock
as quoted on the OTC Markets for the fiscal years ended 2018 and 2017:
|
Price Range
|
||||||||
|
Quarter Ended
|
High ($)
|
Low ($)
|
||||||
|
December 31, 2018
|
$
|
0.42 |
0.40
|
|||||
|
September 30, 2018
|
$
|
2.00
|
1.30
|
|||||
|
June 30, 2018
|
$
|
2.55
|
2.55
|
|||||
|
March 31, 2018
|
$
|
2.35
|
2.35
|
|||||
|
December 31, 2017
|
$
|
3.25
|
1.75
|
|||||
|
September 30, 2017
|
$
|
0.75
|
0.75
|
|||||
|
June 30, 2017
|
$
|
2.05
|
2.05
|
|||||
|
March 31, 2017
|
$
|
2.25
|
2.25
|
|||||
The above quotations from the OTC Markets reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
(b) Holders
The number of record holders of our common stock as of December 31, 2018, was approximately 70 based on information received from our
transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name with a brokerage firm or other fiduciary.
(c) Dividends
We have not paid or declared any cash dividends on our common stock and we do not anticipate paying dividends on our common stock for the
foreseeable future.
(d) Securities authorized for issuance under equity compensation plans
As of December 31, 2018, the Company did not have any equity compensation plans.
DESCRIPTION OF SECURITIES
General
The Company’s authorized capital stock consists of 110,000,000 shares of capital stock, par value $0.0001 per share, of which 100,000,000
shares are common stock, par value $0.0001 per share and 10,000,000 shares are “blank check” preferred stock, par value $0.0001 per share.
Common Stock
Holders of Company’s common stock are entitled to one vote per share on each matter submitted to vote at a meeting of Company’s
stockholders. Holders of common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares of Company’s common stock or other securities. Subject to preferences that
may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution
or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock entitles its holder to participate ratably in all remaining assets of the Company that are available for
distribution to stockholders after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued.
Preferred Stock
The Company’s Certificate of Incorporation authorizes the issuance of 10,000,000 shares of “Blank Check” Preferred Stock, par value
$0.0001 per share, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of Preferred Stock shall have such
number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Company’s board of directors, which may include, among others, dividend rights, voting rights,
liquidation preferences, conversion rights and preemptive rights. There are no shares of Preferred Stock outstanding.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company’s Certificate of Incorporation and By-laws provide, to the fullest extent permitted by Delaware law, that the officers and
directors of the Company who was or is a party to or is threatened to be made a party to, any threatened, or pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of fact that he/she is
or was acting as the incorporator, officer, director or nominee officer/director or was serving in any capacity at any time. Furthermore, it is the responsibility of the Company to pay for all legal expenses that may occur on behalf of the party who
may come under any such type of action.
Delaware General Corporation Law (“GCL”) Section 145 provides the Company with the power to indemnify any of our directors and officers.
The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to our best interests. In a criminal action, the director, officer, employee or agent must not have had
reasonable cause to believe his/her conduct was unlawful.
Under GCL Section 145, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes
he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.
Pursuant to the Company’s Certificate of Incorporation and By-laws, we may indemnify an officer or director who is made a party to any
proceeding, because of his position as such, to the fullest extent authorized by GCL, as the same exists or may hereafter be amended. In certain cases, we may advance expenses incurred in defending any such proceeding.
To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons
controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for
indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our
directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.
Anti-Takeover Effects of Provisions of Delaware State Law
We may be or in the future we may become subject to Delaware’s control share law. We are subject to Section 203 of the Delaware General
Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder,
unless:
· prior to such date, the Board of Directors approved
either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
· upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
· on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines a business combination to include:
· any merger or consolidation involving the
corporation and the interested stockholder;
· any sale, transfer, pledge or other disposition of
10% or more of the assets of the corporation involving the interested stockholder;
· subject to certain exceptions, any transaction that
results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
· any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
· the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or
more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of
determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by such entity or person.
Anti-Takeover Charter Provisions
Our Certificate of Incorporation and Bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers
or delaying or preventing a change in control of our company, including changes a stockholder might consider favorable. In particular, our Certificate of Incorporation and Bylaws, as applicable, among other things, will:
· provide our Board of Directors with the ability to
alter our Bylaws without stockholder approval;
· provide for an advance notice procedure with regard
to the nomination of candidates for election as directors and with regard to business to be brought before a meeting of stockholders; and
· provide that vacancies on our Board of Directors may be
filled by a majority of directors in office, although less than a quorum.
Such provisions may have the effect of discouraging a third-party from acquiring our company, even if doing so would be beneficial to its stockholders.
These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or
threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing changes in our management.
A corporation is subject to Delaware’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of
record and residents of Delaware, and if the corporation does business in Delaware or through an affiliated corporation.
The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares is sufficient, but
for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third, (2) one-third or more but less than a
majority, or (3) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person, and those acting in association with that person, obtain only such
voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once
by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an
acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed
by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the
voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s shares.
Delaware’s control share law may have the effect of discouraging corporate takeovers.
In addition to the control share law, Delaware has a business combination law, which prohibits certain business combinations between
Delaware corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination in advance. For purposes of Delaware
law, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the
corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business
combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the
corporation and its other stockholders.
The effect of Delaware’s business combination law is to potentially discourage parties interested in taking control of
the Company from doing so if it cannot obtain the approval of our Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
On August 22, 2018, we entered into an equity purchase agreement (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P. (“Buyer”), whereby Buyer
agreed to invest up to $540,000.00 (the “Purchase Price”) in our Company in exchange for convertible debentures, upon the terms and subject to the conditions thereof. Pursuant to the SPA, we issued a convertible debenture to the Buyer in the
original principal amount of $200,000.00 (the “Signing Debenture”). Each convertible debenture issued pursuant to the SPA, coupled with the accrued and unpaid interest relating to each convertible debenture, is due and payable three years from the
issuance date of the respective convertible debenture. Any amount of principal or interest that is due under each convertible debenture, which is not paid by the respective maturity date, will bear interest at the rate of 18% per annum until it is
satisfied in full. Additionally, the Buyer has the right at any time to convert amounts owed under each convertible debenture into shares of our common stock. Each debenture shall contain representations, warranties, events of default, beneficial
ownership limitations, and other provisions that are customary of similar instruments. As consideration for the Purchase Agreement we issued the Buyer warrants to purchase 50,000 shares of Common Stock at the exercise price of $2.75 expiring five
years after issuance (the “Warrants”).
Pursuant to the Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with I-ON Acquisition Corp., a wholly-owned subsidiary of the
Registrant, and I-ON Communications, Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) the Company issued the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock
(the “Merger Shares”) in accordance with the pro rata ownership of the I-ON Holders immediately prior to the Merger.
All of the securities referred to above were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in
reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D and/or Regulations promulgated thereunder. The securities have not been registered under the Securities Act or any other
applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act
We are a smaller reporting company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this
heading.
The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes
thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Readers
should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”, “we”, “our”, and “us” refer to I-ON Digital Corp., a Delaware corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking
statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other
variations or similar words or language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on
information currently available to us, and we assume no obligation to update them
Business History of Company
I-ON Digital Corp. (the “Company”) was incorporated under the laws of the State of Delaware on June 18, 2013. On April 4,
2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of the Company’s common stock which was all of the outstanding shares of Alpine 3, Inc., and subsequently changed the name to Evans Brewing Company Inc. (“EBC”) on May 29,
2014. On October 9, 2014, the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of common stock. From April 2014 through December 2015, EBC has been in the process of
acquiring the Bayhawk brands and related assets, as discussed in more detail below.
On October 15, 2014, EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), with Bayhawk Ales,
Inc. (“Bayhawk”) whereby Bayhawk sold to EBC, and EBC purchased from Bayhawk, assets of Bayhawk, in exchange for 4,033,863 shares of EBC common stock upon the terms and subject to the conditions set forth in the Asset Purchase and Share Exchange
Agreement.
On September 29, 2016, Evans Brewing Company, Inc., closed the acquisition of a restaurant business located in the downtown
SOCO District of Fullerton, California, through the acquisition of all the outstanding stock of EBC Public House, Inc., which the Company now operates as its first branded restaurant and taproom under the trade name “The Public House by Evans
Brewing Company”. The Public House features the Company’s beers – as well as beers from other selected local Orange County, California breweries, -- food and, occasional entertainment. In connection with such closing, the Company acquired 100% of
the outstanding shares of EBC Public House from Mr. Rapport and issued 1,000,000 shares of the Company’s Series A Preferred Stock to Mr. Rapport. The asset purchase and share exchange have been treated as business combination as both companies are
controlled by the same management.
On January 25,
2018, the Company consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with I-ON Communications Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) and I-ON Acquisition
Corp., a wholly-owned subsidiary of the Registrant (“Acquisition”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into I-ON in a statutory reverse triangular merger (the “Merger”) with I-ON surviving as a wholly-owned
subsidiary of the Registrant. As consideration for the Merger, the Registrant agreed to issue the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock. Following the Merger, the Registrant adopted the
business plan of I-ON in information technology consultancy and software development. On December 14, 2017, in connection with the Merger, the Registrant’s Board of Directors approved an amendment to its Certificate of Incorporation (the
“Amendment”) to change its name to I-ON Communications Corp. On April 2, 2019, the Company amended its Certificate of Incorporation to change the name of the Company to “I-ON Digital Corp.”
Overview
Prior to the Merger, the Company operated a craft brewery based on Orange County, California that produces and sells premium
craft beers, including a variety of ales and lagers. EBC’s beers are currently produced in its 17-barrel brewery in Irvine, California, the oldest continuously operating brewing facility in Orange County and one of the oldest in all of Southern
California. This facility has been producing craft beers since January 1995.
Following the Merger, the Company adopted the business plan of I-ON. I-ON was founded by Jae Cheol James Oh, who currently serves as CEO, the Company’s roots of which are in IT consultancy and software development. I-ON services South Korea’s Enterprise
Content Management system’s market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.
After being awarded its first of 6 patents in 2003, I-ON has since evolved into an industry-leading and recognized software
developer and provider of enterprise-class unstructured data management and digital marketing software and solutions. I-ON services over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public sectors.
The Company has meaningfully expanded its reach over the past decade and now currently licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and
the U.S. through value-added resellers and partnerships.
I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling
clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery and increase the return on their
investments in digital communication.
I-ON currently holds 6 international patents for both products and methodologies (with 3 more pending) built into the 11
product offerings the Company currently has at market. These encompass enterprise web content management (CMS), web experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy
management solutions. The Company has designed and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology). I-ON also holds numerous domestic and global
industry awards, earning high rankings and recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.
Results of Operations for the year ended December 31, 2018 as Compared to the year ended December 31, 2017
Revenues
During the year ended December 31, 2018, total sales of the Company were $7,091,647 compared to $9,206,355 for the same period ending December 31, 2017. Customers included Samsung SDS, POSCO ICT, AXA, and KBS during the period. The decline in revenue was attributable to delayed launch of certain project
implementations, timing of revenue recognition and the Company’s focus on new product launches and related marketing spend. The Company also believes that seasonality and uncertain geopolitical environment partially contributed to the year over
year decline in new project wins.
Operating Expenses
Operating expenses for the year ended December 31, 2018, were $2,264,265 compared to $2,420,290 for the year ended December 31, 2017. The decrease
in expenses was primarily a result of the Company’s reduction in staff and therefore its payroll expense. Research and development comprised $329,366 of the expense compared to $670,714
for the comparable period in 2017; however, our general and administrative expenses increased to $1,934,899 for the year ended December 31, 2018, as compared to 1,749,576 for the year ended December 31, 2017.
Other Income (Loss):
Other income (expense) for the year ended December 31, 2018, was $124,443 compared to ($366,660) for the year ended December 31, 2017. The change
was primarily a result of our reduction in staff. Income (loss) before provision for income taxes, loss on equity investments in affiliates and non-controlling interest for the year ended
December 31, 2018 was ($307,574) compared to $220,019 for the same period in 2017.
Net Income:
Net income from operations for the year ended December 31, 2018, was $82,171 compared to $19,109, for the year ended December 31, 2017. Our increase in net
income from operations can primarily be attributed to an increase in our benefit from income tax, which was $423,093 for the year ended December 31, 2018, as compared to a provision for income tax of $146,901 for the year ended December 31, 2017,
and an increase in our total other income, which was $124,443 for the year ended December 31, 2018, as compared to total other expenses of $366,660 for the year ended December 31, 2017.
Liquidity and Capital Resources
At December 31, 2018, the Company had cash and cash equivalents of $3,235,481. We estimate we will require up to $3,000,000 of capital for the next twelve
months of operations. We estimate that our expenses will be comprised of general operating expenses including particularly marketing, research and development costs, overhead, legal and accounting fees.
The Company may require substantial additional financing in order to execute our business expansion and development plans and we may require additional
financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to
execute on our plans in full, or on terms which are economically feasible. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.
Off Balance Sheet Arrangements
As of December 31, 2018, there were no off balance sheet arrangements.
Basis of Presentation
The financial statements of the Company are presented in United States dollars and have been prepared in accordance with
accounting principles generally accepted in the United States.
Summary of Significant Accounting Policies
Our significant accounting policies are more fully described in the notes to our consolidated financial statements included in
this Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
The information required by Item 8 appears after the signature page to this report.
Not applicable.
Management’s Report on Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our
disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the
reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company had no audit committee. Such officer also confirmed that there was no change
in our internal control over financial reporting during the fiscal year period ended December 21, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
The table below lists all current officers and directors of the Company as of the date of this report. All officers serve at the discretion of the Board of
Directors. The term of office of each of our directors expire at our next Annual Meeting of Shareholders or until their successors are duly elected and qualified.
|
Name
|
Age
|
Position
|
|
Jae Cheol Oh
|
49
|
Chairman, Chief Executive Officer, Chief Financial Officer
|
|
|
|
|
|
Hong Rae Kim
|
48
|
Executive Director
|
|
|
|
|
|
Jae Ho Cho
|
44
|
Director
|
|
|
|
|
|
Eugene Hong
|
61 |
Director
|
|
|
|
|
|
Armand Pastine
|
52 |
Director
|
|
|
|
|
|
Jean Koh
|
58 |
Director
|
|
|
|
|
|
Charlie Baik
|
49 |
Director
|
Jae Cheol Oh, Chairman, Chief Executive Officer, Chief Financial Officer
James Jae Cheol Oh has served as founder and CEO of I-ON since 1999 and Chairman, CEO and CFO of the Company since the Merger. He is also an affiliated professor of Management Engineering at Sangmyung University. Mr. Oh holds a B.A. in Economics from Kyung Hee University and a M.S. in Management Engineering from Sangmyung
University. We believe Mr. Oh’s experience founding and running I-ON qualifies him to serve on our board of directors.
Jae Ho Cho, Director
Jae Ho Cho joined I-ON Communications in February 2003 and serves as head of the Service Delivery Platform Business department. He has been a director
of the Company since the Merger. During his time with I-ON he has participated in the development of many of I-ONs core products. He holds a M.S. from Cheng Ju Graduate School. We
believe Mr. Cho’s depth of experience in information technology consultancy and software development qualifies him to serve on our board of directors.
Hong Rae Kim, Executive Director
Hong Rae Kim is a co-founder of I-ON and has served as CEO of PT.IONSoft, a company located in Indonesia, since 2012. He has been an executive director
of the Company since the Merger. Mr. Kim has also previously served as a PMO and COO of I-ON. Mr. Kim graduated from Gang Nam University with a bachelor’s degree in Economics. We
believe Mr. Kim’s experience founding and working with I-ON qualifies him to serve on our board of directors.
Mr. Eugene Hong, Independent Director
Mr. Hong’s career at Samsung, most recently as Executive Vice President of Samsung Venture Investment Co, Ltd., spans over 25 years. Between 1992 and 1998, he served as a Director in the production, planning and strategy divisions for both Samsung Motors Co., Ltd. and Samsung Techwin Co., Ltd. In 1999, Mr. Hong transitioned to the Samsung Venture team initially as a Director, rising to Vice President, Senior Vice President and eventually to his current role as Executive Vice President, focusing primarily on managing technology and industrial related investments. Since 2013, Mr. Hong has originated, spearheaded and overseen over twenty investments across multiple high growth sectors including, among others, enterprise software, network security solutions, AI, optical equipment/OLED laser, autonomous driving, block chain, mobile and battery technologies. Mr. Hong received his B.S. from Korea University in 1984, M.S. from Texas Tech University in 1986 and PhD from Arizona State University in 1991. Mr Hong has served as a director since August 10 2018.
Mr. Armand Pastine, Independent Director
Mr. Pastine has served as a director since August 10, 2018 and serves as the CEO of CG Capital Markets, LLC, a New York and Florida -based investment banking boutique specializing in Middle Market Sales and Trading, Institutional Structured Credit Products, and Capital Markets Placements of debt and equity investments to Qualified Institutional Buyers. Mr. Pastine began his career in the Financial Strategies Group at Prudential Securities, with a primary focus on Mortgage and Asset-Backed related securities. He previously worked as a Vice President in Goldman Sachs’ Principal Finance Group and held various positions at a number of leading middle-market investment banks specializing in Structured Products and Esoteric Securities including more recently at Maxim Group, LLC, where he served as Executive Managing Director and the Head of Fixed Income. Mr. Pastine received his B.A. in Political Communications from the University of Rhode Island and his J.D. with an emphasis on Public Policy Analysis, from CUNY School of Law. He is admitted to the Bar in New Jersey.
Dr. Jean Koh, Independent Director
Dr. Jean Koh has served as a director since August 10, 2018 and has over 25 years of
technology and senior executive experience with publicly and privately held companies within the multimedia and mobile content technology verticals. Dr. Koh is currently serving as the Chairman of the Korea Mobile Internet Business Association
(MOIBA), an association with well over 500 mobile internet companies and industry executives. In 1994, Dr. Koh founded Baro Vision - now KOSDAQ-listed Galaxia Communications - a leading domestic developer of proprietary video compression
technology, which has since transformed itself into one of South Korea´s leading providers of comprehensive e-payment solutions. Dr. Koh received his PhD. in Computer Science from Syracuse University and currently serves as a key member on the
‘Presidential Committee of the Fourth Industrial Revolution’ under the Moon Jae-In Administration.
Mr. Charlie Baik, Independent Director
Mr. Charlie Seung Taik Baik has served as a director since August 10, 2018 and
currently serves as the Chief Operating Officer and Chief Compliance Officer of EZER, Inc., a leading multi-purpose engineering firm that addresses the needs of the utility, sustainable energy and industrial sectors. Since August 2006, Mr.
Baik has also served as EZER, Inc.´s Chief Marketing Officer. Previously, Mr. Baik held the positions of Senior Executive Vice President and Chief Marketing Officer of NASDAQ-listed Gravity Co., Ltd, a leading PC and mobile game publisher with
numerous titles under its belt and the maker of the world famous ‘Ragnarok Online’, a massive multiplayer online role-playing game. Mr. Baik also served as the Chief Operating Officer of Gravity Co., Ltd. from August 2006 to June 2008 and as
the Chief Executive Officer of NEOCYON, Inc. since 2000.
Code of Ethics
As part of our system of corporate governance, the Company adopted a Code of Business Conduct and Ethics (the
“Code”) for directors and executive officers of the Company. This Code is intended to focus each director and executive officer on areas of ethical risk, provide guidance to directors and executive officer to help them recognize and deal
with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director and executive officer must comply with the letter and spirit of this Code. We intend to disclose
any changes in or waivers from our Code of Business Conduct and Ethics and our Code of Ethics for Financial Executives by filing a Form 8-K or by posting such information on our website.
Item 11. Executive Compensation
The following tables lists the compensation of the Company’s principal executive officers and board members for the years ended December 31, 2018 and
2017. The following information includes the dollar value of base salaries, bonus awards, the number of non-qualified Company Options granted and certain other compensation, if any, whether paid or deferred.
|
Name and
Principal
Position
|
Year
|
Salary
($) |
Bonus
($) |
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Comp.
($) |
Total
($) |
|||||||||||||||||||||||||||
|
Michael J. Rapport, President/Chief Executive Officer(1)
|
2018
|
$
|
0
|
-
|
$
|
0
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||
|
2017
|
$
|
0
|
-
|
$
|
0
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||||
|
Evan Rapport, Vice President
|
2018
|
$
|
0
|
-
|
$
|
-
|
-
|
-
|
-
|
$
|
0
|
|||||||||||||||||||||||||
|
2017
|
$
|
0
|
$
|
10,680
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
10,680
|
||||||||||||||||||||||||
|
Mark Lamb, Director
|
2018
2017
|
$
|
0
|
-
|
$
|
13,600
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
13,600
|
||||||||||||||||||||||
|
Roy Roberson, Director
|
2018
|
$
|
0
|
-
|
$
|
0
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||
|
2017
|
$
|
0
|
-
|
$
|
13,600
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
13,600
|
|||||||||||||||||||||||
|
Joe Ryan, Director
|
2018
|
$
|
0
|
-
|
$
|
0
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||
|
2017
|
$
|
0
|
-
|
$
|
13,600
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
13,600
|
|||||||||||||||||||||||
|
Dr. David Thomas, Director
|
2018
|
$
|
0
|
-
|
$
|
0
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||
|
2017
|
$
|
0
|
-
|
$
|
13,600
|
(2
|
)
|
-
|
-
|
-
|
-
|
$
|
13,600
|
|||||||||||||||||||||||
|
Kenneth C. Wiedrich. CFO(2)
|
2018
|
-
|
-
|
-
|
-
|
-
|
-
|
$
|
0
|
|||||||||||||||||||||||||||
|
2017
|
$
|
24,000
|
-
|
$
|
13,600
|
(3
|
)
|
-
|
-
|
-
|
-
|
$
|
37,600
|
|||||||||||||||||||||||
|
Jae Cheol Oh, Chairman, Chief Executive Officer, Chief Financial Officer (5)
|
2018
|
$
|
88,344
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
88,344
|
||||||||||||||||||||||||
|
Hong Rae Kim, Director (5)
|
2018
|
$
|
17,414
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
17,414
|
||||||||||||||||||||||||
|
Jae Ho Cho, Director (5)
|
2018
|
$
|
86,795
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
86,795
|
||||||||||||||||||||||||
|
Eugene Hong, Director (6)
|
2018
|
$
|
0
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||
|
Armand Pastine, Director (6)
|
2018
|
$
|
7,500
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
7,500
|
||||||||||||||||||||||||
|
Jean Koh, Director (6)
|
2018
|
$
|
0
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
0
|
||||||||||||||||||||||||
|
Charlie Baik, Director (6)
|
2018
|
$
|
5,453
|
-
|
$
|
-
|
-
|
-
|
-
|
-
|
$
|
5,453
|
||||||||||||||||||||||||
|
(5)
|
Appointed January 25, 2018.
|
|
(6)
|
Appointed August 10, 2018.
|
Compensation of Directors
Option Grants Table
There were no individual grants of stock options to purchase our common stock made to the executive officers named
in the Summary Compensation Table through to date.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
There were no stock options exercised during periods ending December 31, 2018 and December 31, 2017 by the executive officer named in the Summary
Compensation Table.
Long-Term Incentive Plan (‘LTIP’) Awards Table
There were no awards made to a named executive officer in the last completed fiscal year under any LTIP.
Compensation Arrangements with Executive Management
There were no compensation contracts for any of the executives of the Company at the end of December 31, 2018.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following tables set forth, as of the date of this Annual
Report, the beneficial ownership of Common Stock for: (1) each director currently serving on our Board of Directors; (2) each of our named executive officers; (3) our directors and executive officers as a group; and (3) each person known to the
Company to beneficially own more than 5% of the outstanding shares of Common Stock. As of April 16, 2019, there were 35,030,339 shares of Common
Stock outstanding. Except as otherwise noted, each stockholder has sole voting and investment power with respect to the shares beneficially owned. Beneficial ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated.
|
Shareholder (1)
|
Beneficial
Ownership
|
Percent of
Class (2)
|
||||||
|
Jae Cheol Oh
|
12,898,600
|
36.9
|
%
|
|||||
|
Hong Rae Kim
|
915,200
|
2.6
|
%
|
|||||
|
Jae Ho Cho
|
0
|
0
|
%
|
|||||
|
Hong Rae Kim
|
0
|
0
|
%
|
|||||
|
Eugene Hong
|
0
|
0
|
%
|
|||||
|
Armand Pastine
|
0
|
0
|
%
|
|||||
|
Jean Koh
|
0
|
0
|
%
|
|||||
|
Charlie Baik
|
0
|
0
|
%
|
|||||
|
Officers and Directors as a Group (3 persons)
|
12,898,600
|
36.9
|
%
|
|||||
(1) The address for all officers, directors and beneficial owners
is 15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea.
The following are material related party transactions that have occurred during December 31, 2018 and 2017, but because the consolidated financial statements are
presented on a consolidated basis, the transactions and balances have been eliminated.
| 2018 | 2017 | |||||||
| Sales to affiliate | $ | 525,881 |
$
|
494,338 | ||||
|
Receivable from affiliate
|
$
|
161,079 |
$
|
139,188 | ||||
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash provided
as collateral to the Company’s chief executive officer’s loans.
Item 14. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees for professional audit services and the fees billed for other services
rendered by our auditors, in connection with the audit of our financial statements for the years ended December 31, 2018 and 2017, and any other fees billed for services rendered by our auditors during these periods.
|
Year Ended
December 31,
2018(1)
($)
|
Year Ended
December 31,
2017(2)
($)
|
|||||||
|
Audit fees
|
$ | 66,000 |
$
|
38,000
|
||||
|
Audit-related fees
|
-0-
|
-0-
|
||||||
|
Tax fees
|
-0-
|
-0-
|
||||||
|
All other fees
|
-0-
|
-0-
|
||||||
|
Total
|
$ | 66,000 |
$
|
38,000
|
||||
| (1) |
Performed by Benjamin & Young, LLP
|
| (2) |
Performed by Kenne Ruan CPA, P.C.
|
Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least
annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended December 31, 2018.
Audit Related Fees
None.
Tax Fees
The Company has paid Lucas, Horsfall, Accountants $5,000 for preparation of taxes for the year ended December 31, 2017.
PART IV
ITEM 15. EXHIBITS
PART IV
ITEM 15. EXHIBITS
|
Number
|
Description
|
|
|
Agreement of Merger and Plan of Reorganization among Evans Brewing Company, Inc., I-ON
Communications Co., Ltd., I-ON Acquisition Corp. and I-on Communications, Ltd. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 26, 2017, and incorporated herein by reference)
|
||
|
Spin-Off Agreement among Evans Brewing Company, Inc., Michael J. Rapport Trust, Evans
Brewing Company, Inc. and EBC Public House, Inc. (previously filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K, filed on February 1, 2018, and incorporated herein by reference)
|
||
|
Certificate of Incorporation of the Company (previously filed as Exhibit 3.1 to the
Company’s Registration Statement on Form 10, filed on July 3, 2013, and incorporated herein by reference)
|
||
|
Certificate of Amendment of Certificate of Incorporation (previously filed as Exhibit 3.3
to the Company’s Current Report on Form 8-K, filed on April 22, 2014, and incorporated herein by reference)
|
||
|
Certificate of Amendment of Certificate of Incorporation (previously filed as Exhibit 3.1
to the Company’s Current Report on Form 8-K, filed on October 23, 2015, and incorporated herein by reference)
|
|
Certificate of Amendment of Certificate of Incorporation (previously filed as Exhibit 3.1
to the Company’s Current Report on Form 8-K, filed on February 1, 2018, and incorporated herein by reference)
|
||
|
Certificate of Amendment of Certificate of Incorporation (previously filed as Exhibit 3.1
to the Company’s Current Report on Form 8-K, filed on April 3, 2019, and incorporated herein by reference)
|
||
|
By-laws of the Company (previously filed as Exhibit 3.2 to the Company’s Registration
Statement on Form 10, filed on July 3, 2013, and incorporated herein by reference)
|
||
|
Certificate of Designation of Rights and Preferences for Series A Convertible Preferred
Stock (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on December 15, 2015, and incorporated herein by reference)
|
||
|
Convertible Note Debenture in favor of Peak One Opportunity Fund, L.P., due August 13,
2021 (previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
|
||
|
Common Stock Purchase Warrant of Peak One Opportunity Fund, L.P. (previously filed as
Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
|
||
|
Securities Purchase Agreement between the Company and Peak One Opportunity Fund, L.P.
(previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
|
||
|
Equity Purchase Agreement between the Company and Peak One Opportunity Fund, L.P.
(previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
|
||
|
Registration Rights Agreement between the Company and Peak One Opportunity Fund, L.P.
(previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
|
||
| 14.1 |
Code of Business Conduct and Ethics (previously filed as Exhibit 14.1 to the Company’s Registration Statement on Form S-1, filed on September 27, 2017, and
incorporated herein by reference)
|
|
|
List of Subsidiaries*
|
||
|
Certification of Chief Executive and Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as
amended*
|
||
|
Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
|
101.INS
|
XBRL Instance Document*
|
|
|
101.SCH
|
XBRL Schema Document*
|
|
|
101.CAL
|
XBRL Calculation Linkbase Document*
|
|
|
101.DEF
|
XBRL Definition Linkbase Document*
|
|
|
101.LAB
|
XBRL Label Linkbase Document*
|
|
|
101.PRE
|
XBRL Presentation Linkbase Document*
|
|
*
|
Furnished herewith.
|
|
**
|
Filed herewith.
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 16, 2019
|
I-ON DIGITAL CORP.
|
|||
|
By:
|
/s/ Jae Cheol Oh
|
||
|
Name: Jae Cheol Oh
|
|||
|
Title:
|
Chairman, Chief Executive Officer and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
|
April 16, 2019
|
|
|
/s/ Jae Cheol Oh
|
|
|
Name: Jae Cheol Oh
|
|
|
Title: Chairman, Chief Executive Officer and Chief Financial officer
|
|
|
(Principal Executive, Financial and Accounting Officer)
|
|
|
April 16, 2019
|
/s/ Hong Rae Kim
|
|
Name: Hong Rae Kim
|
|
|
Title: Executive Director
|
|
April 16, 2019
|
/s/ Jae Ho Cho
|
|
Name: Jae Ho Cho
|
|
|
Title: Director
|
|
April 16, 2019
|
/s/ Eugene Hong
|
|
Name: Eugene Hong
|
|
|
Title: Director
|
|
April 16, 2019
|
/s/ Armand Pastine
|
|
Name: Armand Pastine
|
|
|
Title: Director
|
|
April 16, 2019
|
/s/ Jean Koh
|
|
Name: Jean Koh
|
|
|
Title: Director
|
|
April 16, 2019
|
/s/ Charlie Baik
|
|
Name: Charlie Baik
|
|
|
Title: Director
|
I-ON Communications Co., Ltd
And Subsidiary
I-ON Communications Co., Ltd and Subsidiary
Table of Contents
|
3
|
||
|
Consolidated Financial Statements
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
7
|
||
|
9
|
||
 |
1100 N. Tustin Ave., Suite
200
Anaheim, CA 92807
Office: (714) 238-0000
www.bycpas.com
|
To the Board of Directors and Stockholders
Of I-On Digital Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of I-On Digital Corp. and subsidiaries (the “Company”) as of December 31, 2018
and 2017 and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Anaheim, California
April 16, 2019
Serving as the Company’s auditor since 2017
|
December 31,
2018
|
December 31,
2017
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
1,709,210
|
$
|
1,439,700
|
||||
|
Restricted cash
|
1,699,331
|
1,795,781
|
||||||
|
Short-term financial instruments
|
741,417
|
746,687
|
||||||
|
Short-term loans
|
25,000
|
112,003
|
||||||
|
Accounts Receivables, net of allowance for doubtful accounts $724,292 and $667,886, respectively
|
2,692,933
|
4,014,388
|
||||||
|
Deferred tax assets
|
65,947
|
-
|
||||||
|
Prepaid expenses and other current assets
|
856,959
|
537,402
|
||||||
|
Total current assets
|
7,790,797
|
8,645,961
|
||||||
|
|
||||||||
|
Non-current assets:
|
||||||||
|
Investments
|
102,756
|
136,271
|
||||||
|
Property and equipment, net
|
163,995
|
69,455
|
||||||
|
Intangible assets, net
|
136,432
|
74,642
|
||||||
|
Deposits
|
358,028
|
392,095
|
||||||
|
Derivate asset
|
109,343
|
-
|
||||||
|
Deferred tax assets
|
1,211,621
|
879,957
|
||||||
|
Total non-current assets
|
2,082,175
|
1,552,420
|
||||||
|
Total Assets
|
$
|
9,872,972
|
$
|
10,198,381
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
375,318
|
$
|
520,045
|
|||||
|
Accrued expenses and other
|
790,676
|
1,197,005
|
||||||
|
Value added tax payable
|
108,534
|
184,186
|
||||||
|
Income tax payable
|
20,353
|
-
|
||||||
|
Short-term loan
|
626,062
|
-
|
||||||
|
Current portion of long term debt
|
89,509
|
-
|
||||||
|
Government grants outstanding
|
-
|
-
|
||||||
|
Total current liabilities
|
2,010,452
|
1,901,236
|
||||||
|
Convertible debt
|
25,000
|
-
|
||||||
|
Long term debt, net of current portion
|
402,397
|
280,007
|
||||||
|
Total liabilities
|
2,437,849
|
2,181,243
|
||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders’ Equity
|
||||||||
|
Common stock, $0.001 par
value; authorized 100,000,000 shares; [35,130,339] shares issued and outstanding at December 31, 2018; 26,000,000 shares issued and outstanding at December 31, 2017
|
3,603
|
2,600
|
||||||
|
Treasury stock
|
(709,478
|
)
|
-
|
|||||
|
Additional paid-in-capital
|
3,582,987
|
3,212,037
|
||||||
|
Accumulated other comprehensive loss
|
(52,193
|
)
|
274,468
|
|||||
|
Accumulated retained earnings
|
4,609,785
|
4,527,781
|
||||||
|
Total company stockholders’ equity
|
7,434,704
|
8,016,886
|
||||||
|
Non-controlling interests
|
419
|
252
|
||||||
|
Total stockholders’ equity
|
7,435,123
|
8,017,138
|
||||||
|
Total Liabilities and Stockholders’ Equity
|
$
|
9,872,972
|
$
|
10,198,381
|
||||
See accompanying notes to consolidated financial statements.
I-ON Communications Co., Ltd and Subsidiary
|
Years Ended December 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
Net sales
|
$
|
7,091,647
|
$
|
9,206,355
|
||||
|
Cost of goods sold
|
5,259,399
|
6,199,386
|
||||||
|
Gross profit
|
1,832,248
|
3,006,969
|
||||||
|
Operating expense
|
||||||||
|
Research and development
|
329,366
|
670,714
|
||||||
|
General and administrative
|
1,934,899
|
1,749,576
|
||||||
|
Total operating expense
|
2,264,265
|
2,420,290
|
||||||
|
Income (loss) from operations
|
(432,017
|
)
|
586,679
|
|||||
|
Interest income
|
-
|
49,020
|
||||||
|
Gain on foreign currency exchange, net
|
-
|
(12,525
|
)
|
|||||
|
Miscellaneous income (expense), net
|
147,206 |
(393,006
|
)
|
|||||
|
Interest expense
|
(22,763 | ) |
(10,149
|
)
|
||||
|
Total other income (expense), net
|
124,443
|
(366,660
|
)
|
|||||
|
Income (loss) before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
|
(307,574
|
)
|
220,019
|
|||||
|
Provision for (benefit from) income tax
|
(423,093
|
)
|
146,901
|
|||||
|
Net income before income or loss on equity investments in affiliates and non-controlling interest
|
115,519
|
73,118
|
||||||
|
Loss on equity investments in affiliates
|
(33,515
|
)
|
(54,100
|
)
|
||||
|
Net income before non-controlling interest
|
82,004
|
19,018
|
||||||
|
Non-controlling interest income
|
167
|
91
|
||||||
|
Net income
|
$
|
82,171
|
$
|
19,109
|
||||
|
Comprehensive income statement:
|
||||||||
|
Net income (loss)
|
$
|
82,171
|
$
|
19,018
|
||||
|
Foreign currency translation
|
(326,661
|
)
|
747,785
|
|||||
|
Total Comprehensive income (loss)
|
$
|
(244,490
|
)
|
$
|
766,803
|
|||
|
Earnings per share - Basic
|
||||||||
|
Net income (loss) before non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Non-controlling interest
|
0.00
|
0.00
|
||||||
|
Earnings per share to stockholders
|
0.00
|
0.00
|
||||||
|
Earnings per share - Diluted
|
||||||||
|
Net income (loss) before non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Non-controlling interest
|
0.00
|
0.00
|
||||||
|
Earnings per share to stockholders
|
0.00
|
0.00
|
||||||
|
Weighted average number of common shares outstanding:
|
||||||||
|
Basic
|
35,030,339
|
26,000,000
|
||||||
|
Diluted
|
35,030,339
|
26,000,000
|
||||||
See accompanying notes to consolidated financial statements.
| |
Accumulated
|
Total
|
||||||||||||||||||||||||||||||||||
|
Additional
|
Other
|
Company
|
Non-
|
Total
|
||||||||||||||||||||||||||||||||
|
Common Stock
|
Paid-in
|
Retained
|
Treasury
|
Comprehensive
|
Stockholders’
|
Controlling
|
Stockholders’
|
|||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
Equity
|
Interest
|
Equity
|
||||||||||||||||||||||||||||
|
Balance - January 1, 2017
|
2,808,214
|
$
|
1,203,383
|
$
|
1,949,690
|
$
|
4,508,763
|
$
|
-
|
$
|
(473,317
|
)
|
$
|
7,188,519
|
$
|
161
|
$
|
7,188,680
|
||||||||||||||||||
|
To reflect the merger & reorganization
|
||||||||||||||||||||||||||||||||||||
|
with Evans Brewing Company Inc.
|
23,191,786
|
$
|
(1,200,783
|
)
|
$
|
1,200,783
|
||||||||||||||||||||||||||||||
|
Foreign currency translation
|
-
|
-
|
-
|
-
|
-
|
747,785
|
747,785
|
-
|
747,785
|
|||||||||||||||||||||||||||
|
Stock compensation expense
|
-
|
-
|
61,564
|
-
|
-
|
61,564
|
-
|
61,564
|
||||||||||||||||||||||||||||
|
Net Income
|
-
|
-
|
-
|
19,018
|
-
|
-
|
19,018
|
91
|
19,109
|
|||||||||||||||||||||||||||
|
Balance - December 31, 2017
|
26,000,000
|
$
|
2,600
|
$
|
3,212,037
|
$
|
4,527,781
|
$
|
-
|
$
|
274,468
|
$
|
8,016,886
|
$
|
252
|
$
|
8,017,138
|
|||||||||||||||||||
|
Issuance of common stock
|
9,030,339
|
903
|
-
|
-
|
-
|
-
|
903
|
-
|
903
|
|||||||||||||||||||||||||||
|
Recognition of beneficial conversion feature
|
||||||||||||||||||||||||||||||||||||
|
in connection with convertible debt
|
-
|
-
|
85,212
|
-
|
-
|
-
|
85,212
|
-
|
85,212
|
|||||||||||||||||||||||||||
|
Recognition of common stock warrant issued
|
||||||||||||||||||||||||||||||||||||
|
in connection with convertible debt
|
-
|
-
|
89,788
|
-
|
-
|
-
|
89,788
|
-
|
89,788
|
|||||||||||||||||||||||||||
|
Issuance of common stock in connection with
|
||||||||||||||||||||||||||||||||||||
|
equity purchase agreement
|
100,000
|
100
|
109,243
|
109,343
|
-
|
109,343
|
||||||||||||||||||||||||||||||
|
Foreign currency translation
|
-
|
-
|
-
|
-
|
-
|
(326,661
|
)
|
(326,661
|
)
|
-
|
(326,661
|
)
|
||||||||||||||||||||||||
|
Repurchase of treasury stock
|
-
|
-
|
-
|
-
|
(709,478
|
)
|
-
|
(709,478
|
)
|
-
|
(709,478
|
)
|
||||||||||||||||||||||||
|
Stock compensation expense
|
-
|
-
|
86,707
|
-
|
-
|
-
|
86,707
|
-
|
86,707
|
|||||||||||||||||||||||||||
|
Net income
|
-
|
-
|
-
|
82,004
|
-
|
-
|
82,004
|
167
|
82,171
|
|||||||||||||||||||||||||||
|
Balance - December 31, 2018
|
35,130,339
|
$
|
3,603
|
$
|
3,582,987
|
$
|
4,609,785
|
$
|
(709,478
|
)
|
$
|
(52,193
|
)
|
$
|
7,434,704
|
$
|
419
|
$
|
7,435,123
|
|||||||||||||||||
See accompanying notes to consolidated financial statements.
|
Years ended December 31,
|
2018
|
2017
|
||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$
|
82,171
|
$
|
19,109
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Non-controlling interest
|
(167
|
)
|
(91
|
)
|
||||
|
Bad debt expense
|
-
|
70,759
|
||||||
|
Loss on equity investments in affiliates
|
33,515
|
54,100
|
||||||
|
Depreciation and amortization
|
76,818
|
115,155
|
||||||
|
Stock options expense
|
86,707
|
61,564
|
||||||
|
Foreign exchange gain (loss)
|
1,490
|
(884
|
)
|
|||||
|
Amortization of debt discount
|
25,000
|
-
|
||||||
|
|
||||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Account receivable, net
|
1,144,298
|
(692,185
|
)
|
|||||
|
Prepaid expenses and other current assets
|
(347,528
|
)
|
(51,887
|
)
|
||||
|
Deposit
|
17,977
|
(7,873
|
)
|
|||||
|
Deferred taxes
|
(441,081
|
)
|
109,661
|
|||||
|
Account payable
|
(96,846
|
)
|
197,131
|
|||||
|
Accrued expenses and other
|
(362,098
|
)
|
141,691
|
|||||
|
Value added tax payable
|
(69,058
|
)
|
(3,949
|
)
|
||||
|
Income tax payable
|
20,683
|
(10,384
|
)
|
|||||
|
Net cash used in operating activities
|
171,880
|
1,917
|
||||||
|
Cash flows from investing activities:
|
||||||||
|
Purchases of short-term investments
|
(2,480,233
|
)
|
(120,265
|
)
|
||||
|
Proceeds from sales of short-term investments
|
2,475,688
|
-
|
||||||
|
Purchases of property and equipment
|
(155,312
|
)
|
(91,067
|
)
|
||||
|
Purchases of patent
|
(86,480
|
)
|
(22,962
|
)
|
||||
|
Purchases of other intangible assets
|
-
|
116
|
||||||
|
Borrowings from short-term loans
|
83,657
|
(106,116
|
)
|
|||||
|
Net cash provided by (used in) investing activities
|
(162,680
|
)
|
(340,294
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Net receipt of government grants
|
-
|
(299,709
|
)
|
|||||
|
Proceeds from short-term borrowings
|
636,190
|
-
|
||||||
|
Purchase of treasury stock
|
(709,478
|
)
|
-
|
|||||
|
Proceeds from convertible debt, net of debt discount
|
175,000
|
-
|
||||||
|
Borrowings from loans payable
|
227,211
|
-
|
||||||
|
Repayments of loans payable
|
-
|
(162,057
|
)
|
|||||
|
Net cash provided by (used in) financing activities
|
328,923
|
(461,766
|
)
|
|||||
|
Effect of foreign currency translation on cash and cash equivalents
|
(165,063
|
)
|
407,645
|
|||||
|
Net decrease in cash and cash equivalents
|
173,060
|
(392,498
|
)
|
|||||
|
Cash and cash equivalents including restricted cash, beginning of year
|
$
|
3,235,481
|
3,627,979
|
|||||
|
Cash and cash equivalents including restricted cash, end of year
|
$
|
3,408,541
|
$
|
3,235,481
|
||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Interest paid
|
$
|
22,763
|
$
|
10,149
|
||||
|
Taxes paid
|
$
|
17,988
|
$
|
37,239
|
||||
|
Supplemental disclosure of noncash financing activities:
|
||||||||
|
Issuance of 100,000 shares of common stock pursuant to issuance of equity purchase agreement
|
$
|
109,343
|
$
|
-
|
||||
See accompanying notes to consolidated financial statements.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
| Note 1. |
Organization and Operations
|
I-ON Communications Co., Ltd (“the Company”) was incorporated on July 5, 1999, and is engaged in developing and supplying computerized system.
The corporate headquarter is located at 15 Teheran-ro 10-gil Gangnam-gu Seoul, South Korea. The Company provides enterprise content management services to customers primarily in Korea, Japan and Indonesia, by developing industry-leading products
such as ICS (web content management system), iDrive (e-document management system), LAMS (load aggregator’s management system), e.Form (mobile contract system), IDAS (digital asset management system) and ICE (content delivery system).
I-ON, Ltd is the Japanese subsidiary of the Company incorporated in 2002. The total assets of I-ON, Ltd is approximately $241,000. The Company
has 99.5% ownership of I-ON, Ltd. PT ION-soft is the Indonesian affiliate of the Company incorporated in October 2011. The Company has 20% of ownership of PT I-ON-soft, which is accounted for under the equity method.
| Note 2. |
Summary of Significant Accounting Policies
|
The summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial
statements. The consolidated financial statements and notes are representations of the Company’s management, who is responsible for integrity and
objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements. The accompanying
consolidated financial statements and the notes hereto are reported in US Dollars.
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of I-ON Communication Co., Ltd. and its 99.5% owned subsidiary, I-ON, Ltd. All
intercompany accounts, transactions, and profits have been eliminated upon consolidation.
The consolidated financial statements were prepared and presented in
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. Non-controlling interests represent the portion of earnings that is not within the parent Company’s control. These amounts are required to be reported as equity instead of as a liability on the consolidated balance
sheet. ASC requires net income or loss from non-controlling interests to be shown separately on the consolidated statements of income.
The Company is also required to consolidate any variable interest entities (VIEs), of which it is the primary beneficiary, as defined. Based
on the Company’s analysis pursuant to ASC 810-10-25, Consolidations, the Company does not have any VIEs that need to be consolidated at this
time. When the Company does not have a controlling interest in an entity, but exerts a significant influence over the entity, the Company would apply the equity method of accounting.
Foreign Currency Transaction and Translation
The Company’s principal country of operations is Korea. The financial position and results of operations of the Company are determined
using the local currency, Korean Won (“KRW”), as the functional currency.
I-ON Communications Co., Ltd and Subsidiary
The financial position and results of operations of I-ON, Ltd, the Japanese subsidiary of the Company, are initially recorded using its
local currency, Japanese Yen (“JPY”). Assets and liabilities denominated in foreign currency are translated to the functional currency at the functional currency rate of exchange at the balance sheet date. The results of operations
denominated in foreign currency are translated at the average rate of exchange during the reporting period. All differences are reflected in profit or loss. As of December 31, 2018 and 2017, the exchange rate was JPY 10.13 and JPY 9.49 per
KRW, respectively. The average exchange rate for the years ended December 31, 2018 and 2017 was JPY 9.96 and JPY 10.08 per KRW, respectively.
Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at the
balance sheet date. The results of operations are translated from KWR to US Dollar at the weighted average rate of exchange during the reporting period. The registered equity capital denominated in the functional currency is translated at
the historical rate of exchange at the time of capital contribution. All translation adjustments resulting from the translation of the financial statements into the reporting currency, US Dollar, are dealt with as a component of
accumulated other comprehensive income. Translation adjustments net of tax were a net loss of approximately $327,000 and net gain of $748,000 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017,
the exchange rate was KRW 1,118.10 and KRW 1,071.40 per US Dollar, respectively. The average exchange rate for the twelve months ended December 31, 2018 and 2017 was KRW 1,100.30 and KRW 1,130.84, respectively.
Segment Reporting
FASB ASC 280, Segment Reporting,
requires public companies to report financial and descriptive information about their reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available and that
is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer has
been identified as the chief decision maker.
The Company generates revenues from two geographic areas,
consisting of Korea and Japan. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements:
|
2018
|
2017
|
|||||||
|
Korea
|
||||||||
|
Current assets
|
$
|
7,550,184
|
$
|
8,454,367
|
||||
|
Non-current assets
|
2,081,897
|
1,552,148
|
||||||
|
Current liabilities
|
1,802,402
|
1,728,657
|
||||||
|
Non-current liabilities
|
427,397
|
280,007
|
||||||
|
Japan
|
||||||||
|
Current assets
|
$
|
240,613
|
$
|
191,593
|
||||
|
Non-current assets
|
278
|
271
|
||||||
|
Current liabilities
|
208,050
|
172,582
|
||||||
|
Non-current liabilities
|
-
|
-
|
||||||
|
Net Sales
|
285,679
|
303,975
|
||||||
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Revenue Recognition
Revenue from services provided is measured at the fair value of the consideration received or receivable, net of returns, discounts and sales
incentive, which are recognized as a reduction of revenue. The Company recognizes revenue when the amount of revenue can be reliably measured, and it is probable that future economic benefits will flow to the entity.
The Company’s revenue consists of services provided and commissions. These revenue sources are as follows:
| · |
Royalty – the Company receives a fixed amount of royalties from company in Japan for providing rights to sell the Company’s products in Japanese market.
|
| · |
License Solution & Services – the Company recognizes revenue on installation of the web-content management software, services provided for installation, and
customization.
|
| · |
Customizing Services – the Company recognizes revenue from processing transactions between businesses and their customers.
|
| · |
Maintenance – the Company recognizes revenue over the contract term based on percentage-of-completion method.
|
Investments
The Company classifies its investment securities as available-for-sale securities in accordance with FASB ASC 320, Investments and records these securities at fair value. Unrealized gains and losses as results of changes in the fair value of the available-for-sale investments are
recorded as a separate component within accumulated other comprehensive income in the accompanying balance sheets. At December 31, 2018 and 2017, cost approximates investment value resulting in zero unrealized gain or loss, therefore, the changes
in available for sale securities during 2018 and 2017 are the result of the foreign currency translation which is included in the foreign currency translation and recorded under accumulated other comprehensive income or loss statements.
The Company’s investment securities include privately-held companies where quoted market prices are not available and the cost method, combined
with other intrinsic information, is used to assess the fair value of the investment. If the carrying value is below the fair value of an investment at the end of any period, the investment is considered for impairment. Investments are considered
impaired when a decline in fair value is judged to be other-than-temporary. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded, and a new cost basis in the investment is established.
Cash and Cash Equivalents
The Company considers all money market funds and highly liquid financial instruments with original maturities of three months or less to be
cash equivalents.
Restricted Cash
Restricted cash represents cash deposits which is restricted by the financial institutions for the loans the financial institutions having with
the Company’s chief executive officer. The loans with the financial institutions are amounted to approximately $1,556,000 and $1,624,000 at December 31, 2018 and 2017, respectively, and expires on various days during 2018 and 2019, unless
extended. The loans, bearing various interest rates, are guaranteed by the Company and the restricted cash deposits of the Company are provided to the financial institutions as collateral. The Company’s chief executive officer pays interest from
the loans without any default at December 31, 2018 and 2017. The amount of restricted cash as of December 31, 2018 and 2017 was $1,699,331 and $1,795,781, respectively.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
This arrangement could be considered as a violation of Section 402 of the Sarbanes-Oxley Act of 2002 amended the Securities Exchange Act of
1934 to prohibit U.S. and foreign companies with securities traded in the United States from making, or arranging for third parties to make, nearly any type of personal loan to their directors and executive officers. Violations of the
Sarbanes-Oxley loan prohibition are subject to the civil and criminal penalties applicable to violations of the Exchange Act.
Short-Term Financial Instruments
Short-term financial instruments represent interest-bearing certificates of deposits with original maturities between three months to twelve
months.
Short-Term Loans
The Company had short-term loans
receivables from a third-parties with interest bearing 9% per annum that expires in 2018, unless extended. Interest income were $49,990 and $49,020 for the years ended December 31, 2018 and 2017, respectively.
Accounts Receivable
Accounts receivables are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivables are included in
net cash provided by operating activities in the consolidated cash flow statements. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the trade accounts receivable. Management primarily
determines the allowance based on the aging of accounts receivable balances, historical write-off experience, customer concentrations, customer credit worthiness and current industry and economic trends. The Company’s provision for uncollectible
receivables are included in selling, marketing, general and administrative expense in the consolidated statements of operation and comprehensive loss. At December 31, 2018 and 2017, allowance for doubtful accounts was approximately $724,000 and
$668,000, respectively. The Company does not have any off-balance sheet exposure related to its customers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the declining balance method, based on
the estimated useful lives as follows:
|
Facility equipment
|
4 years
|
|
Automobile
|
4 years
|
|
Office equipment
|
4 years
|
Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When
property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts, and any gain or loss is included in operations.
The Company is working on a government research project and many other technical innovation projects. The Company receives government grants
that it uses to offset the amount of assets acquired or expenses incurred.
Research and Development
Research and development costs are expensed as incurred. Research and development costs include travel, payroll, and other general expenses
specific to research and development activities. Research and development cost for the years ended December 31, 2018 and 2017 were approximately $329,000 and $671,000, respectively.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Intangible Assets
When the Company acquires an intangible asset, it is recorded at acquisition cost (the purchase price of the intangible asset and the costs
directly related to the preparation of the asset for its intended purpose). The cost of an intangible asset acquired in a business combination is measured at the fair value of the acquisition date according to the accounting standards for
business combinations. Other intangible assets with a finite life are amortized using the straight-line method over their estimated useful lives.
The estimated useful lives of the respective asset categories are as follows:
|
Development costs
|
3 years
|
|
Intangible asset excluding development costs
|
10 years
|
|
Other Intangible assets
|
3 to 5 years
|
Severance and Retirement Benefits
In accordance with the Korean Labor Standard Law, employees and directors with at least one year of service are entitled to receive a lump-sum
payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent an amount which would be payable assuming all eligible employees and directors were to
terminate their employment as of the balance sheet date. The annual severance benefits expense charged to operations is calculated based upon the net change in the accrued severance benefits payable at the balance sheet date based on the guidance
of FASB ASC 960, Accounting – Defined Benefit Pension Plans.
The Company’s retirement pension plan is a defined contribution plan, and the Company pays the defined contribution regardless of the results
of the operation of the plan. The Company recognizes the contributions to be paid in the current accounting period as retirement benefits expense. The amounts recognized as costs related to defined contribution plans were $421,647 and $437,996
for the years ended December 31, 2018 and 2017, respectively.
Compensated Absences
Employees of the Company are entitled to be compensated for absences depending on job classification, length of service, and other factors. At
December 31, 2018 and 2017, the amounts were deemed to be immaterial.
Impairment analysis for long-lived assets and intangible assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for
impairment in accordance with the guidance of the FASB ASC 360, Property, Plant, and Equipment and FASB ASC 205 Presentation
of Financial Statements. The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and
cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow
models, quoted market values and third-party independent appraisals, as considered necessary. The Company had not experienced impairment losses on its long-lived assets and intangible assets during any of the periods presented.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Earnings Per Share
FASB ASC Topic 260, Earnings Per Share,
requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations. Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the
weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
Fair Value Measurements
The Company follows FASB ASC Topic 820, Fair
Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820
as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.
ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable
inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information
available.
Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable
inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for
financial instruments measured at fair value on a recurring basis.
The three levels of inputs are as follows:
| Level 1 |
Quoted prices in active markets for identical assets or liabilities that the Company has an ability to access as of the measurement date.
|
| Level 2 |
Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities.
|
| Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. Our financial instruments include cash and cash equivalents, restricted cash, short-term financial instruments, short-term loans, accounts receivable,
investments, accounts payables and debt. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of our debt approximates fair value because the interest rates on these
instruments approximate the interest rate on debt with similar terms available to us.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The Company also has financial instruments classified within the fair value hierarchy, which consists of the following:
| · |
Investments in privately-held companies, where quoted market prices are not available, accounted for as available-for-sale
securities, classified as Level 3 within the fair value hierarchy, and are recorded as an asset on the consolidated balance sheet
|
| · |
Detachable warrants issued in connection with the convertible debt that meets the definition of a derivative, classified as Level 2 within the fair value
hierarchy, which is recorded as additional paid-in-capital on the consolidated balance sheet
|
| · |
An equity purchase put option that meets the definition of a derivative, classified as Level 3 within the fair value hierarchy, which is recorded as an asset on
the consolidated balance sheet
|
The derivatives are evaluated under the hierarchy of ASC 480-10, ASC Paragraph 815-25-1 and ASC Subparagraph 815-10-15-74 addressing embedded
derivatives. The fair value of the Level 3 financial instruments was determined with the assistance of an independent third-party valuation specialist using an Option Pricing Model.
The following table summarize the Company’s fair value measurements by level at December 31, 2018 for the assets measured at fair value on a
recurring basis:
|
December 31, 2018
|
||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Available-for-sale securities
|
$
|
-
|
$
|
-
|
$
|
98,784
|
||||||
|
Common stock purchase warrant
|
-
|
89,788
|
-
|
|||||||||
|
Equity purchase put option
|
-
|
-
|
109,343
|
|||||||||
|
Fair value, at December 31, 2018
|
$
|
-
|
$
|
89,788
|
$
|
208,127
|
||||||
The following table summarize the Company’s fair value measurements by level at December 31, 2017 for the assets measured at fair value on a
recurring basis:
|
December 31, 2017
|
|
|||||||||||
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Available-for-sale securities
|
$
|
-
|
$
|
-
|
$
|
103,090
|
||||||
|
Fair value, at December 31, 2017
|
$
|
-
|
$
|
-
|
$
|
103,090
|
||||||
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consisted of taxes currently due and
deferred taxes. Deferred taxes are recognized for the differences between the basis of assets and liabilities for financial statement and income tax purposes.
The Company follows FASB ASC 740, Income Taxes,
which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized
for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in
which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
FASB ASC 740-10-25 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company
must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize additional liabilities for
uncertain tax positions pursuant to FASB ASC 740-10-25 for the year ended December 31, 2018 and 2017.
Contingencies
Accounting guidance requires that the Company record an estimated loss from a loss contingency when information available prior to issuance
of the consolidated financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated.
Accounting for contingencies such as legal matters requires significant judgment. Many of these legal matters can take years to resolve. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of
changes to the estimate of the ultimate outcome increases.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and trade receivable arising from its
normal business activities. The Company deposits its cash in high credit quality institutions. The Company performs ongoing credit evaluations to its customers and establishes allowances when appropriate.
Cash and cash equivalents are maintained at various financial institutions located in Korea. The Company has never experienced any losses
related to these balances.
Advertising
Costs associated with advertising and promotions are expensed as incurred. Advertising expense amounted to $43,158 and $39,772 for the years
ended December 31, 2018 and 2017, respectively.
Employee Stock Based Compensation
The Company accounts for its share-based compensation plan in accordance with FASB ASC 718, Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. The Company records stock compensation expense based on the value of the number of shares
vesting specified periods over three years.
Stock-based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated
fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
For purposes of determining the variables used in the calculation of stock-based compensation issued to employees, the Company performs an
analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we
use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated
statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our consolidated financial statements.
Non-controlling Interests
Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Government Grants
Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grants’ conditions and that
the grants will be received. Government borrowings, which are lower than the market interest rate, are regarded as government grants. The grant is measured from the difference between the fair values of the government borrowings computed using
the market interest rate and the acquisition cost of the grant. Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the
asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Government grants which are intended to compensate the Company for expenses incurred are recognized as other income in profit or loss over
the periods in which the Company recognizes the related costs as expenses. There were no amounts of government grants outstanding as of December 31, 2018 and 2017.
Value Added Tax
National Tax Service in Korea administered Value Added Tax under the
Tax Reform Act of 1976 promulgated by the National Assembly. Value added tax is imposed on goods sold in or imported into Korea and on services provided within Korea. Value added tax in Korea is charged on an aggregated basis at a rate of 10%
on the full price collected for the goods sold or for the taxable services provided. Value added tax paid were $466,338 and $462,764 for the years ended December 31, 2018 and 2017, respectively.
Recent Accounting Pronouncement
Pronouncements adopted in 2018
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU
2016-01”). ASU 2016-01 applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation and disclosure of financial instruments.
Among other things, ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value
recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the
fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to
estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (v) requires public business entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes; (vi) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) requires separate presentation of financial assets and financial liabilities by measurement category
and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a
deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. The adoption of this standard did not have a material impact to our consolidated financial statements and related disclosures.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which
includes multiple provisions intended to simplify various aspects of accounting for share-based payments. The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or
are settled. It also will allow entities to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
We do not expect this standard will have a significant impact on our consolidated financial statements and related disclosures.
In May 2016, the FASB issued ASU No. 2016-11, Revenue
Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (“ASU 2016-11”) which clarifies guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity
reports revenue on a gross or net basis. ASU 2016-11 is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. Adoption of this ASU is not expected to have a
significant impact on our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU
2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted. Adoption of this ASU is not expected to have a significant impact on our consolidated statement of cash flows.
In January 2017, the FASB issued ASU 2017-1, Clarifying
the Definition of a Business (Topic 805) (“ASU 2017-1”). The new guidance that changes the definition of a business to assist entities
with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a
group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely
aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant
impact on our consolidated results of operations, cash flows and financial position.
In May 2017, the FASB issued ASU 2017-09, Scope
of Modification Accounting (Topic 718) (“ASU 2017-09”). The guidance clarifies the accounting for when the terms of a share-based award are modified. The ASU is effective for annual reporting periods beginning after December 15, 2017,
and for interim periods within those years, with early adoption permitted. This new guidance would only impact our consolidated financial statements if, in the future, we modified the terms of any of our share-based awards.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Pronouncements Not Yet Effective
In February 2016, the FASB
issued ASU No. 2016-02, Lease (Topic 842) (“ASU 2016-02”)
which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either
operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align
with certain changes to the lessee model and the new revenue recognition standard. ASU 2016-02 is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We are currently evaluating
the potential impact this standard will have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, which is codified in ASC 606 “Revenue from Contracts with Customers” and supersedes both the
revenue recognition requirement in ASC 605 “Revenue Recognition” and most industry-specific guidance. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the five steps set forth in ASC 606. An entity must also
disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative information
about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. These provisions can be implemented using a full retrospective or modified retrospective
approach and the FASB has clarified this guidance in various updates (e.g., ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20 and ASU 2017-05). The effective date for ASC 606 for public business entities is annual reporting
periods beginning after December 15, 2017. The effective date for all other entities is annual reporting periods beginning after December 15, 2018. As part of the IPO relief provided to emerging growth companies (EGC), an EGC may elect to adopt
new standards on the timeline afforded a private company. The Company elects to adopt the new standard in annual reporting period beginning after December 15, 2018, and is currently assessing the impact of this standard on the Company’s
consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350) (“ASU 2017-04”). The guidance
removes “Step Two” of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the
carrying amount of goodwill. The ASU is effective for annual reporting periods beginning after December 15, 2019, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact
on our consolidated financial statements and related disclosures.
In July 2017, the FASB issued ASU 2017-11, Earnings
Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging
(Topic 815) (“ASU 2017-11”). The guidance eliminates the requirement to consider “down round” features when determining whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Our warrants
issued with our convertible notes are treated as derivative instruments, because they include a “down round” feature. The ASU is effective for annual periods beginning after December 15, 2018, and for interim periods within those years, with
early adoption permitted. Early adoption of this guidance could have a significant impact on our financial statements, as it would effectively eliminate the warrant derivative liability and the gain or loss from changes in the fair value of the
warrant derivative liability. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
| Note 3. |
Merger and Plan of Reorganization
|
On January 25, 2018, The Company entered into an agreement of merger and plan of reorganization (“Merger Agreement”) with Evans Brewing
Company, Inc. (“Evans”), current registrant in the Securities and Exchange Commission. Pursuant to the terms of the Merger Agreement, Evans merged into the Company in a statutory reverse merger (“Merger”) and the Company is a surviving entity
as a wholly-owned subsidiary of Evans. As a consideration for the Merger, Evans agreed to issue the shareholders of the Company an aggregate of 26,000,000 shares of common stock, par value $0.001 per share in accordance with the pro rata
ownership of the Company’s capital stock. Following the Merger, Evans adopted the business plan of the Company in information technology consultancy and software development.
Immediately prior to the Merger, the Registrant had 4,784,293 shares of common stock issued and outstanding. In connection with the Merger,
the shareholders of Evans agreed to convert 1,000,000 shares of preferred stock and forgive $1,000,000 in unpaid advances in exchange for the spin-off of the Evans’ current operations. (“Spin-Off”) Following the consummation of the Merger, and
upon the issuance of the shares from the Merger and the shares to be issued in connection with the Spin-Off, Evans will have approximately 32,000,000 shares of common stock issued and outstanding and the shareholders of the Company will
beneficially own 26,000,000 shares, or approximately eighty-one percent of such issued and outstanding common stock. The Company’s
shares as of December 31, 2017 have been retroactively restated to reflect the share exchange of the merger.
| Note 4. |
Property and Equipment
|
Property and equipment consist of the following:
|
2018
|
2017
|
|||||||
|
Facilities
|
$
|
192,115
|
$
|
200,489
|
||||
|
Vehicles
|
41,409
|
23,614
|
||||||
|
Equipment
|
1,355,710
|
1,190,899
|
||||||
|
Government grants
|
(109,272
|
)
|
(140,441
|
)
|
||||
|
Total property and equipment
|
1,479,962
|
1,274,561
|
||||||
|
Less: Accumulated depreciation
|
(1,315,967
|
)
|
(1,205,106
|
)
|
||||
|
Property and equipment, net
|
$
|
163,995
|
$
|
69,455
|
||||
Depreciation expense for December 31, 2018 and 2017 were $56,295 and $100,151, respectively.
As noted in Note 2, the government grants received is against the values of assets acquired or the expenses incurred.
| Note 5. |
Intangible Assets
|
Intangible assets consist of the following:
|
2018
|
2017
|
|||||||
|
Patents
|
$
|
174,823
|
$
|
93,631
|
||||
|
Other intangible assets
|
568,276
|
593,046
|
||||||
|
Government grants
|
(13,428
|
)
|
(20,337
|
)
|
||||
|
Total intangible assets
|
729,671
|
666,340
|
||||||
|
Less: Accumulated amortization
|
$
|
(593,239
|
)
|
(591,698
|
)
|
|||
|
Intangible assets, net
|
$
|
136,432
|
$
|
74,642
|
||||
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Amortization expense for December 31, 2018 and 2017 were $20,523 and $15,004, respectively.
Future amortization expense of the Company’s intangible assets at December 31 2018 is expected to be as follows:
|
Years ending December 31,
|
||||
|
2019
|
$
|
-
|
||
|
2020
|
-
|
|||
|
2021
|
-
|
|||
| 2022 |
-
|
|||
| 2023 |
-
|
|||
|
Total
|
$
|
-
|
||
As noted in Note 2, the government grants received is against the values of assets acquired or the expenses incurred.
| Note 6. |
Long-term Debt
|
Total long-term debt consisted of the following:
|
2018
|
2017
|
|||||||
|
A note payable to a financial institution bearing interest at 2.75% and 2.81% at December 31, 2018
and 2017, respectively, and guaranteed by the officer of the Company. The Company was required to make interest-only payments until December 2018, then monthly payments of both principal and interest starting from January 2019.
|
$
|
491,906
|
$
|
280,007
|
||||
|
Long-term debt
|
$
|
491,906
|
$
|
280,007
|
||||
|
Less: current portion
|
(89,509
|
)
|
-
|
|||||
|
Long-term debt, net of current portion
|
$
|
402,397
|
$
|
280,007
|
||||
Future minimum payments on debt consists of the following:
|
Years ending December 31,
|
||||
|
2019
|
$
|
89,509
|
||
|
2020
|
$
|
201,198
|
||
|
2021
|
$
|
201,199
|
||
|
Total
|
$
|
491,906
|
||
The long-term debts contain certain covenants, and the Company was in compliance with the covenants.
| Note 7. |
Line of Credit
|
The Company has lines of credit with financial institutions for total amount of approximately $3,600,000 that expires in various months in
2018, unless extended. There was no outstanding balance under the credit lines at December 31, 2018 and 2017. The lines of credit, bearing various interest rates are guaranteed by the officer of the Company.
The Company has an arrangement with its customers and a financial institution, in which the Company’s customers issue electronic invoices
with the Company as the recipient. The Company can use these receivables as collaterals for loans up to approximately $5,400,000 and $5,300,000 as of December 31, 2018 and 2017, respectively. The Company receives its payments due when the
customer fully pays the invoices to the financial institution. The interest rates vary depending on the Company’s customers’ credit ratings. The Company has no borrowings outstanding as of December 31, 2018 and 2017, respectively. The maturity
date of the arrangement varies on the dates of the original transactions.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
| Note 8. |
Convertible Debt, Beneficial Conversion Feature, and Common Stock Warrant
|
The Company entered into a securities purchase agreement (the “SPA”) with Peak One Opportunity Fund, L.P. (“Peak One”) on August 13, 2018. The
financing arrangement between the Company and Peak One stipulates that Peak One will invest up to $540,000 in the Company through three separate tranches. Each tranche will be funded in exchange for a convertible debt instrument issued at a 10%
discount, with a face value of $200,000. On this same date, the first tranche closed and the Company issued a convertible debt instrument to Peak One for $200,000 at a 10% discount. The convertible debt issued has the following significant
terms:
| · |
Term: The principal amount is repayable on August 13, 2021 (“Maturity Date”). All unpaid principal due and payable on the Maturity Date shall be paid in the form of
common stock of the Company. Any amount of principal or interest that is due under the convertible debt, which is not paid by the Maturity Date, will bear interest at the rate of 18% per annum until it is satisfied.
|
| · |
Conversion Rights: The Holder has the right to convert the amount outstanding plus any accrued interest into common stock of the Company after 180 calendar days from
the issuance date.
|
| · |
Conversion Price: Conversion price is equal to the lesser of (i) $2.75 or (ii) 70% of the lowest traded price of the common stock of the Company for the 20 trading
days immediately preceding the date of the date of conversion of the Debts.
|
| · |
Redemption by Issuer: The Company has the option to redeem the convertible debt prior to the Maturity Date. The convertible debt called for redemption shall be
redeemable by the Company, upon not more than 2 days written notice, for an amount (the “Redemption Price”) equal to:
|
| (i) |
if the date of redemption is 90 days or less from the issuance date, 110% of the sum of the principal amount so redeemed plus accrued interest, if any;
|
| (ii) |
if the date of redemption is greater than or equal to 91 days from the issuance date and less than or equal to 120 days from the issuance date, 120% of the sum of the
amount so redeemed plus accrued interest, if any;
|
| (iii) |
if the date of redemption is greater than or equal to 121 days from the issuance date and less than or equal to 180 days from the issuance date, 130% of the sum of the
amount so redeemed plus accrued interest, if any; and
|
| (iv) |
if either (1) the convertible debts are in default but the Holder consents to the redemption notwithstanding such default or (2) the date of redemption is greater than
or equal to 181 days from the issuance date, 140% of the sum of the amount so redeemed plus accrued interest, if any.
|
| · |
Ratchet Provision: If, at any time while any portion of the convertible debts remains outstanding, the Company effectuates a stock split or reverse stock split of its
common stock or issues a dividend on its common stock consisting of shares of common stock or otherwise recapitalizes its common stock, the conversion price of the convertible debts shall be equitably adjusted to reflect such
action.
|
| · |
Default: In the event of default by the Company on these convertible debts, the Holder will have the option and discretion to accelerate the full indebtedness under
the convertible debts, in an amount equal to 140% of the outstanding principal amount and accrued and unpaid interest.
|
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The embedded conversion feature was determined to be a derivative that does not require bifurcation pursuant to ASC 815, but was determined to be a
beneficial conversion feature that requires recognition within equity on the commitment date. The beneficial conversion feature is recognized at its intrinsic value on the commitment date, limited to the proceeds allocated to the convertible
debt. As such, the Company recorded $89,788 within additional paid-in-capital on the consolidated balance sheet for the beneficial conversion feature identified. The debt discount arising from recognition of the beneficial conversion feature
will be amortized as interest expense over the term of the convertible debt. As of December 31, 2018, amortization expense of debt discount related to the beneficial conversion feature was not significant.
In connection with the convertible debt issuance, the Company also issued a detachable common stock warrant on August 13, 2018 that allows Peak One to
purchase up to 50,000 shares of common stock at an exercise price of $2.75 per share, subject to adjustments as stated in the warrant agreement. The common stock warrant expires 5 years from the issuance date. The common stock warrant was
determined to meet equity classification pursuant to ASC 480 and ASC 815. As such, the fair value of the common stock warrant is recorded as additional paid-in-capital on the consolidated balance sheet, which was determined to be $89,788, net
of issuance costs allocated to the warrant, on the issuance date. The debt discount arising from recognition of the common stock warrant will be amortized as interest expense over the term of the convertible debt. As of December 31, 2018,
amortization expense of debt discount related to the common stock warrant was not significant.
The Company has the following convertible debt instruments outstanding as of December 31, 2018 and 2017:
|
2018
|
2017
|
|||||||
|
A $200,000 convertible note, issued at 10% discount, five year term, no monthly interest due, maturing
August 13, 2021
|
$
|
200,000
|
$
|
-
|
||||
|
Long-term convertible debt
|
$
|
200,000
|
$
|
-
|
||||
|
Less: debt discount
|
(175,000
|
)
|
-
|
|||||
|
Long-term convertible debt, net of debt discount
|
$
|
25,000
|
$
|
-
|
||||
Interest expense related to the convertible debt for the years ended December 31, 2018 and 2017 amounted to approximately $23,000 and $0,
respectively.
| Note 9. |
Investments
|
Equity Method
The Company applies the equity method for investments in affiliate, which a privately-held company where quoted market prices are not available, in
which it has the ability to exercise significant influence over operating and financial policies of the affiliate. Significant influence is generally defined as 20% to 50% ownership in the voting stock of an investee. Under the equity method,
the Company initially records the investment at cost and then adjusts the carrying value of the investment to recognize the proportional share of the equity-accounted affiliate’s net income (loss) including changes in capital of the affiliate.
The Company had the following equity investment accounted under the equity method:
|
As of December 31, 2018 and 2017
|
|||||||||||||
Equity investee
|
Type of
Shares
Owned
|
Number
of Shares
Owned
|
Original
Investment
Amount
|
Equity
Investment
Ownership
|
|||||||||
|
PT IONSOFT
|
Common stock
|
160,000
|
$
|
160,000
|
20
|
%
|
|||||||
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The following is the roll-forward basis of equity investment accounted under the equity method:
|
Year ended December 31, 2018
|
||||||||||||
|
Equity investee
|
Beginning
Equity Investment
Basis |
Proportional
Share of the
Equity Accounted
Affiliate’s
Net Income (loss)
|
Ending
Equity Investment
Basis
|
|||||||||
|
PT IONSOFT
|
$
|
30,926
|
(33,515
|
) |
$
|
(2,589
|
) | |||||
|
Year ended December 31, 2017
|
||||||||||||
|
Equity investee
|
Beginning
Equity Investment
Basis
|
|
Proportional
Share of the
Equity Accounted
Affiliate’s
Net Income (loss)
|
|
|
Ending
Equity Investment
Basis
|
|
|||||
|
PT IONSOFT
|
$
|
85,026
|
(54,100
|
)
|
$
|
30,926
|
||||||
Summarized audited financial information of significant equity investments in affiliate are as follows:
|
December 31,
|
2018
|
2017
|
||||||
|
Total current assets
|
$
|
175,272
|
$
|
48,483
|
||||
|
Total assets
|
344,468
|
222,096
|
||||||
|
Total current liabilities
|
520,198
|
238,017
|
||||||
|
Total liabilities
|
106,482
|
332,453
|
||||||
|
Years ended December 31,
|
2018
|
2017
|
||||||
|
Net sales
|
$
|
151,981
|
$
|
141,096
|
||||
|
Gross profit
|
(166,016
|
)
|
141,096
|
|||||
|
Income (loss) from operations
|
(166,393
|
)
|
(287,963
|
)
|
||||
|
Net income (loss)
|
(167,577
|
)
|
(289,331
|
)
|
Available-for-sale securities
The Company’s investments also include privately-held companies, where quoted market prices are not available, and the cost method, combined with
other intrinsic information, is used to assess the fair value of the investment.
The following table summarize the Company’s investment securities at December 31, 2018 and 2017:
|
Available-for-sale securities
|
Percentage of
Ownership
|
2018
|
2017
|
|||||||||
|
4Grit
|
2.50
|
%
|
$
|
44,723
|
$
|
46,672
|
||||||
|
E-channel
|
0.07
|
%
|
$
|
42,299
|
$
|
44,143
|
||||||
|
KSFC
|
0.00
|
%
|
$
|
11,762
|
$
|
12,275
|
||||||
|
Total investment securities
|
$
|
98,784
|
$
|
103,090
|
||||||||
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
| Note 10. |
Equity Purchase Agreement – Put Option
|
On August 13, 2018 (the “Closing Date”), the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with the convertible
debenture holder (the “Holder”), whereby, upon the terms and subject to the conditions thereof, the Holder is committed to purchase shares of the Company’s common stock, par value $0.001 per share (the “Purchase Shares”), at an aggregate
price of up to $10,000,000 (the “Total Commitment Amount”) over the course of a 24- month term. The significant terms of the Purchase Agreement are given below:
| · |
Put Provision: From time to time over the 24-month term of the Purchase Agreement, commencing on the date on which a registration statement registering the Purchase
Shares (the “Registration Statement”) becomes effective, the Company may, in its sole discretion, provide the Buyer with a put notice (each a “Put Notice”) to purchase a specified number of the Purchase Shares (each a “Put
Amount Requested”) subject to the limitations contained in the Purchase Agreement.
|
The actual amount of proceeds the Company receives pursuant to each Put Notice (each, the “Put Amount”) is to be determined by the
lesser of (i) 88% of the lowest closing bid price of the Company’s Common Stock on the trading day immediately preceding the respective date of the Put Notice and (ii) 88% of the lowest closing bid price during the Valuation Period (the period
of 7 trading days immediately following the clearing date associated with the applicable Put Notice).
The Put Amount Requested pursuant to any single Put Notice must have an aggregate value of at least $20,000, and cannot exceed the
lesser of (i) 250% of the average daily trading value of the common stock in the 10 trading days immediately preceding the Put Notice or (ii) such number of shares of common stock that has an aggregate value of $500,000.
| · |
Term: Unless earlier terminated, the Purchase Agreement will terminate automatically on the earlier to occur of: (i) 24 months after the initial effectiveness of the
Registration Statement, (ii) the date on which the Buyer has purchased or acquired all of the Purchase Shares, or (iii) the date on which certain bankruptcy proceedings are initiated with respect to the Company.
|
Upon execution of the Purchase Agreement, the Company issued 100,000 shares of common stock with a par value of $0.001 to the Holder.
The Company adopted the provisions of FASB ASC Topic 480 and Topic 815, to determine the proper classification of the Purchase Agreement. The Company
determined the put option meets the definition of a derivative under ASC 815 but is outside the scope of ASC 480. Under ASC 816-40, the Company determined the derivate does not meet equity classification and accordingly, is classified as an
asset on the consolidated balance as a Level 3 financial instrument. The Company used an independent third-party valuation firm to determine the fair value of the derivative asset using an Option Pricing Model.
Changes to fair value at the end of each reporting period
is recorded as other income or expense in the consolidated statements of income. The following table summarizes the changes in the Level 3 financial instrument related to the derivate asset for the equity put option:
|
Fair value, at December 31, 2017
|
$
|
-
|
||
|
Issuance of equity purchase put option
|
109,343
|
|||
|
Change in fair value
|
-
|
|||
|
Fair value, at December 31, 2018
|
$
|
109,343
|
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
| Note 11. |
Commitments and Contingencies
|
Royalty
On February 15, 2006, the Company agreed to provide the rights to Ashisuto to sell the products in the Japanese market. Per the agreement, the contract
period is automatically extended by 5 years up to 20 years. Total royalty amounts received for the three-months period were not significant. Total royalty amounts received for the years ended December 31, 2018 and 2017 were approximately
$181,000 and $267,000, respectively.
Operating Leases
The Company leases its office under non-cancelable operating leases that expire on dates through December 2020. The lease is automatically extended
upon agreement of both parties. Future minimum rental payments under the non-cancelable operating leases as of December 31, 2018 are as follows:
|
December 31,
|
Amount
|
|||
|
2019
|
$
|
152,686
|
||
|
2020
|
152,686
|
|||
|
Total
|
$
|
305,372
|
||
Rent expense for all operating leases were $152,686 and $148,562 for the years ended December 31, 2018 and 2017, respectively.
| Note 12. |
Related Party Transactions
|
The following are material related party transactions that have occurred during December 31, 2018 and 2017, but because the consolidated financial
statements are presented on a consolidated basis, the transactions and balances have been eliminated.
|
2018
|
2017
|
|||||||
|
Sales to affiliate
|
$
|
525,881
|
$
|
494,338
|
||||
|
Receivable from affiliate
|
$
|
161,079
|
$
|
139,188
|
||||
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash
provided as collateral to the Company’s chief executive officer’s loans.
| Note 13. |
Earnings Per Share
|
The Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Potentially
dilutive common shares consist of stock options outstanding (using the treasury method).
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The following table sets forth the computation of basic and diluted net income per common share:
|
Years Ended December 31,
|
2018
|
2017
|
||||||
|
Net income before non-controlling interest
|
$
|
82,004
|
$
|
19,018
|
||||
|
Non-controlling interest
|
167
|
91
|
||||||
|
Net income
|
82,171
|
19,109
|
||||||
|
Weighted-average shares of common stock outstanding:
|
||||||||
|
Basic
|
35,030,339
|
26,000,000
|
||||||
|
Dilutive effect of common stock equivalents arising from
|
||||||||
|
share option, excluding antidilutive effect from loss
|
-
|
-
|
||||||
|
Dilutive shares
|
35,030,339
|
26,000,000
|
||||||
|
Earnings per share - Basic
|
||||||||
|
Net income before non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Earnings per share to stockholders
|
$
|
0.00
|
$
|
0.00
|
||||
|
Earnings per share - Diluted
|
||||||||
|
Net income before non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Non-controlling interest
|
$
|
0.00
|
$
|
0.00
|
||||
|
Earnings per share to stockholders
|
$
|
0.00
|
$
|
0.00
|
||||
No non-vested share awards or non-vested share unit awards were antidilutive for the years ended December 31, 2018 and 2017.
| Note 14. |
Income Taxes
|
Income taxes consist of the following:
|
2018
|
2017
|
|||||||
|
Current income tax expense:
|
||||||||
|
Federal
|
$
|
-
|
$
|
-
|
||||
|
Foreign
|
17,988
|
37,240
|
||||||
|
17,988
|
37,240
|
|||||||
|
Deferred income tax expense:
|
||||||||
|
Federal
|
(441,081
|
)
|
109,661
|
|||||
|
(441,081
|
)
|
109,661
|
||||||
|
Total
|
$
|
(423,093
|
)
|
$
|
146,901
|
|||
Current income tax expense is based on taxable income for federal and state tax
reporting purposes. Deferred income tax expense is provided for certain income and expenses which are recognized in different periods for tax and financial reporting purposes.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statements and tax basis of assets
and liabilities that will result in taxable or deductible amount in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred income tax assets to the amount expected to be realized.
The significant components of deferred income tax assets and liabilities are as follows:
|
2018
|
2017
|
|||||||
|
Deferred income tax assets:
|
||||||||
|
Allowance for bad debt
|
$
|
122,715
|
$
|
108,796
|
||||
|
Allowance for short-term loans
|
-
|
16,431
|
||||||
|
Intangible assets
|
-
|
1,923
|
||||||
|
Government grants
|
27,814
|
36,227
|
||||||
|
Available-for-sale securities
|
10,371
|
10,823
|
||||||
|
Development costs
|
235,523
|
181,622
|
||||||
|
Loss on equity investments
|
35,778
|
29,765
|
||||||
|
Tax credits
|
714,449
|
391,008
|
||||||
|
Net operating loss
|
-
|
18,188
|
||||||
|
Retirement benefits
|
72,881
|
91,413
|
||||||
|
Total deferred income tax assets
|
1,219,531
|
886,196
|
||||||
|
Deferred income tax liabilities:
|
||||||||
|
Other
|
(7,910
|
)
|
(6,239
|
)
|
||||
|
Total deferred income tax liabilities
|
(7,910
|
)
|
(6,239
|
)
|
||||
|
Net deferred tax assets
|
1,211,621
|
879,957
|
||||||
|
Net deferred income tax assets at end of year
|
$
|
1,211,621
|
$
|
879,957
|
||||
|
Net deferred income tax assets at beginning of year
|
$
|
879,957
|
$
|
882,743
|
||||
The difference between the change in net deferred tax assets and the deferred income tax expenses is mainly due to remeasurement of deferred tax assets
and liabilities reflecting currency exchange rates at the balance sheet dates. The related tax impact was recorded through other comprehensive income.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
In assessing the realization of gross deferred income tax assets, management considers whether it is more likely than not that some portion or all its
deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The effective tax rates for the reporting periods are as follows:
|
2018
|
2017
|
|||||||
|
Profit (loss) before taxes
|
$
|
(307,574
|
)
|
$
|
220,019
|
|||
|
Statutory tax rate
|
22
|
%
|
22
|
%
|
||||
|
Statutory income tax (benefit) expense
|
$
|
(67,666
|
)
|
$
|
48,404
|
|||
|
Book
to tax reconciliation:
|
||||||||
|
Tax credits to be used:
|
(419,044
|
)
|
95,924
|
|||||
|
Foreign tax
|
17,988
|
37,239
|
||||||
|
Others
|
45,629
|
(34,666
|
)
|
|||||
|
Total book to tax reconciliation
|
(355,427
|
)
|
98,497
|
|||||
|
Provision for income tax expense
|
$
|
(423,093
|
)
|
$
|
146,901
|
|||
|
Effective tax rate
|
137.56
|
%
|
66.77
|
%
|
||||
The Company adopted the guidance in ASC 740 for uncertain tax positions, which requires that realization of an uncertain income tax position
must be more likely than not before it can be recognized in the financial statements. This guidance in ASC 740 further prescribes the benefits or liabilities to be recorded in the financial statements as the amounts are cumulatively more likely
than not to be realized assuming a review by tax authorities having all relevant information and applying current conventions. The guidance also clarifies the financial statement classification of tax-related penalties and interest and sets
forth new disclosure regarding unrecognized tax benefits or liabilities. Differences between the amounts recognized in the consolidated financial statements prior to the adoption of the guidance in ASC 740 for unrecognized tax benefits and the
amounts reported after adoption would be accounted for as a cumulative-effect adjustment to the beginning balance of retained earnings.
As of December 31, 2018 and 2017, the Company identified no material unrecognized tax benefits and does not expect material change within the
next twelve-months. The Company’s policy is to recognize tax penalties and interest in tax expense, if any.
The Company recorded tax deferred assets for its R&D tax credits in the amount of $787,050 and $391,008 as of December 31, 2018 and 2017,
respectively. The tax credits are carried forward for five years.
Tax years 2011 and forward are open to examination by the Korean National Tax Service (NTS). NTS conducted tax examination in 2012 and no
penalties were charged to the Company.
| Note 15. |
Stock Compensation
|
The Company's wholly-owned subsidiary, I-ON Communications, Ltd., has a Stock Option Plan (“Plan”) that allows grants to officers and key employees shares of common stock. The options have vesting
schedules of three years from the date of grant, and are exercisable within seven years from the end of the vesting period. Stock options granted and outstanding as of December 31, 2018 and 2017 may be exercised after one year from the date of
the Company’s public listing. If the Company’s not publicly listed, these options will be cancelled.
The Company recognized approximately $87,000 and $62,000 of stock-based compensation related to options granted to employees for the years ended
December 31, 2018 and 2017, respectively.
I-ON Communications Co., Ltd and Subsidiary
Notes to Consolidated Financial Statements
The fair value of each award to employees in 2017 is estimated on the date of grant using the Binomial option pricing model with the following
weighted-average assumptions: expected life of approximately 6.25 years, risk-free interest rate of approximately 2.85 percent, expected volatility of 16.38% and no dividends during the expected life. Expected volatility is based on historical volatilities of public companies operating in the Company’s industry. The
expected life of the options represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees’ historical exercise and post-vesting employment termination behavior. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.
The Company did not provide any new stock option grants in 2018.
A summary of the status of the Company’s stock option plan is presented as follows:
|
Number of
Shares
|
Weighted-
Average Exercise
Price
|
Weighted-
Average
Remaining
Contractual Live
(In Years)
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding, December 31, 2016
|
82,928
|
$
|
1.49
|
4.22
|
||||||||||||
|
Granted
|
150,000
|
1.88
|
||||||||||||||
|
Excercised
|
-
|
-
|
||||||||||||||
|
Cancelled
|
(72,812
|
)
|
1.63
|
|||||||||||||
|
Outstanding, December 31, 2017
|
160,116
|
1.63
|
9.18
|
|||||||||||||
|
Granted
|
-
|
-
|
||||||||||||||
|
Excercised
|
-
|
-
|
||||||||||||||
|
Cancelled
|
-
|
-
|
||||||||||||||
|
Outstanding, December 31, 2018
|
160,116
|
1.69
|
8.18
|
$
|
64,046 |
|||||||||||
|
Options exercisable at December 31, 2018
|
91,044 |
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||
|
Vested and expected to vest at December 31, 2018
|
91,044 |
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||
As of December 31, 2018 and 2017, there were approximately $177,000 and
$223,000, respectively, of total unrecognized compensation expense related to nonvested share option awards granted. That expense is expected to be recognized over a weighted-average period of 1.25 and 3 years as of December 31, 2018
and 2017, respectively.
| Note 16. |
Subsequent Events
|
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements are available to be
issued. Any material events that occur between the balance sheet date and the date that the financial statements were available for issuance are disclosed as subsequent events, while the financial statements are adjusted to reflect any
conditions that existed at the balance sheet date. Based upon this review, except as disclosed within the footnotes or as discussed below, the Company did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the financial statements.
On February 15, 2019 the Company redeemed the Convertible Debenture Dated
August 13, 2018 (the “Debenture”) from Peak One Opportunity Fund, L.P for the Redemption Price of $255,000. The aggregate principal amount
of the Debenture of $200,000 was redeemed for full and final satisfaction of the Debenture.
On April 2, 2019, I-ON Communications Corp. (the “Registrant”)
amended its Certificate of Incorporation to change the name of the Registrant to “I-ON Digital Corp.”
29