☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
46-3031328
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☒
|
Smaller reporting company ☒
|
Emerging growth company ☐
|
Title of each class
|
Trading
Symbol(s)
|
Name of each exchange on which
registered
|
||
Common Stock, $0.0001 par value per share
|
IONI
|
OTC Markets
|
Class
|
Outstanding as of November 12, 2019
|
|
Common Stock, $0.0001 par value per share
|
35,030,339 shares
|
PART I – FINANCIAL INFORMATION
|
||
Item 1.
|
2
|
|
Item 2.
|
20
|
|
Item 3.
|
27
|
|
Item 4.
|
27
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
28
|
|
Item 2.
|
28
|
|
Item 3.
|
28
|
|
Item 4.
|
28
|
|
Item 5.
|
28
|
|
Item 6.
|
28
|
|
|
29
|
Consolidated Financial Statements (UNAUDITED)
|
|
4
|
|
|
|
5
|
|
|
|
6
|
|
|
|
7
|
|
|
|
8
|
September 30,
2019
|
December 31,
2018
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
498,189
|
$
|
1,709,210
|
||||
Restricted cash
|
1,581,620
|
1,699,331
|
||||||
Short-term financial instruments
|
687,588
|
741,417
|
||||||
Short-term loan receivable
|
203,906
|
25,000
|
||||||
Accounts receivables, net of allowance for doubtful accounts $674,129 and $725,389, respectively
|
2,360,962
|
2,692,933
|
||||||
Deferred tax assets - current
|
61,380
|
65,947
|
||||||
Prepaid expenses and other current assets
|
1,458,597
|
856,959
|
||||||
Total current assets
|
6,852,242
|
7,790,797
|
||||||
|
||||||||
Non-current assets:
|
||||||||
Investments
|
91,943
|
102,756
|
||||||
Property and equipment, net
|
200,191
|
163,995
|
||||||
Intangible assets, net
|
141,595
|
136,432
|
||||||
Deposits
|
341,483
|
358,028
|
||||||
Derivative asset
|
101,770
|
109,343
|
||||||
Deferred tax assets - non current
|
1,133,545
|
1,211,621
|
||||||
Total non-current assets
|
2,010,527
|
2,082,175
|
||||||
Total Assets
|
$
|
8,862,769
|
$
|
9,872,972
|
||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
634,309
|
$
|
375,318
|
||||
Accrued expenses and other
|
822,969
|
790,676
|
||||||
Value added tax payable
|
137,741
|
108,534
|
||||||
Income tax payable
|
21,476
|
20,353
|
||||||
Short-term loan payable
|
457,837
|
626,062
|
||||||
Current portion of long term debt
|
20,802
|
89,509
|
||||||
Total current liabilities
|
2,095,134
|
2,010,452
|
||||||
Convertible debt
|
-
|
25,000
|
||||||
Long term debt, net of current portion
|
374,528
|
402,397
|
||||||
Total liabilities
|
2,469,662
|
2,437,849
|
||||||
Commitments and contingencies
|
||||||||
Stockholders’ Equity
|
||||||||
Common stock - $0.0001 par value; authorized 100,000,000 shares; 35,030,339 shares issued and outstanding at September 30, 2019 and December 31, 2018
|
3,603
|
3,603
|
||||||
Treasury stock
|
(709,478
|
)
|
(709,478
|
)
|
||||
Additional paid-in-capital
|
3,646,740
|
3,582,987
|
||||||
Accumulated other comprehensive loss
|
(528,373
|
)
|
(52,193
|
)
|
||||
Accumulated retained earnings
|
3,497,760
|
4,609,785
|
||||||
Total company stockholders’ equity
|
5,910,252
|
7,434,704
|
||||||
Preferred stock - $0.4380 (KRW 500) par value; authorized 2,000.000 shares; 157,142 shares issued and outstanding at September 30, 2019 and none at December 31, 2018.
|
481,862
|
-
|
||||||
Non-controlling interests
|
993
|
419
|
||||||
Total stockholders’ equity
|
6,393,107
|
7,435,123
|
||||||
Total Liabilities and Stockholders’ Equity
|
$
|
8,862,769
|
$
|
9,872,972
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Net sales
|
$
|
1,818,347
|
$
|
1,874,629
|
$
|
5,283,268
|
$
|
4,475,850
|
||||||||
Cost of goods sold
|
1,071,363
|
1,105,515
|
4,240,030
|
4,176,647
|
||||||||||||
Gross profit
|
746,984
|
769,114
|
1,043,238
|
299,203
|
||||||||||||
Operating expense:
|
||||||||||||||||
Research and development
|
63,312
|
216,730
|
441,906
|
795,185
|
||||||||||||
General and administrative
|
534,672
|
440,422
|
1,540,467
|
1,408,766
|
||||||||||||
Total operating expense
|
597,984
|
657,152
|
1,982,373
|
2,203,951
|
||||||||||||
Income (loss) from operations
|
149,000
|
111,962
|
(939,135
|
)
|
(1,904,748
|
)
|
||||||||||
Other income (expense):
|
||||||||||||||||
Loss on extinguishment of debt
|
-
|
-
|
(160,419
|
)
|
-
|
|||||||||||
Miscellaneous income, net
|
4,095
|
114,415
|
43,477
|
257,285
|
||||||||||||
Interest expense
|
-
|
-
|
(45,147
|
)
|
-
|
|||||||||||
Total other income (expense), net
|
4,095
|
114,415
|
(162,089
|
)
|
257,285
|
|||||||||||
Income (loss) before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
|
153,095
|
226,377
|
(1,101,224
|
)
|
(1,647,463
|
)
|
||||||||||
Provision for (benefit from) income tax
|
(53,176
|
)
|
14,243
|
10,801
|
39,570
|
|||||||||||
Net income (loss) before income or loss on equity investments in affiliates and non-controlling interest
|
206,271
|
212,134
|
(1,112,025
|
)
|
(1,687,033
|
)
|
||||||||||
Income (loss) on equity investments
|
7,062
|
(12,349
|
)
|
-
|
(31,047
|
)
|
||||||||||
Net income (loss) before non-controlling interest
|
213,333
|
199,785
|
(1,112,025
|
)
|
(1,718,080
|
)
|
||||||||||
Non-controlling interest income (loss)
|
(90
|
)
|
33
|
574
|
586
|
|||||||||||
Net income (loss)
|
$
|
213,243
|
$
|
199,818
|
$
|
(1,111,451
|
)
|
$
|
(1,717,494
|
)
|
||||||
Comprehensive income statement:
|
||||||||||||||||
Net income (loss)
|
$
|
213,333
|
$
|
199,785
|
$
|
(1,112,025
|
)
|
$
|
(1,718,080
|
)
|
||||||
Foreign currency translation
|
(259,523
|
)
|
21,564
|
(476,180
|
)
|
(157,736
|
)
|
|||||||||
Total comprehensive loss
|
$
|
(46,190
|
)
|
$
|
221,349
|
$
|
(1,588,205
|
)
|
$
|
(1,875,816
|
)
|
|||||
Earnings per share - Basic
|
||||||||||||||||
Net loss before non-controlling interest
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Non-controlling interest
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
|||||||
Earnings per share to stockholders
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Earnings per share - Diluted
|
||||||||||||||||
Net loss before non-controlling interest
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Non-controlling interest
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
0.00
|
$
|
0.00
|
|||||||
Earnings per share to stockholders
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Weighted average number of common shares outstanding:
|
||||||||||||||||
Basic
|
35,030,339
|
31,784,293
|
35,030,339
|
31,784,293
|
||||||||||||
Diluted
|
35,030,339
|
31,784,293
|
35,030,339
|
31,784,293
|
Common Stock
|
Treasury
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprhensive
Loss
|
Retained
Earnings
|
Total
Company
Stockholders'
Equity
|
Non-
Controlling
Interest
|
Preferred
Stock
|
Total
Stockholders'
Equity
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018
|
35,030,339
|
$
|
3,603
|
$
|
(709,478
|
)
|
$
|
3,582,987
|
$
|
(52,193
|
)
|
$
|
4,609,785
|
$
|
7,434,704
|
$
|
419
|
$
|
-
|
$
|
7,435,123
|
|||||||||||||||||||
Foreign currency translation
|
-
|
-
|
-
|
-
|
(476,180
|
)
|
-
|
(476,180
|
)
|
-
|
-
|
(476,180
|
)
|
|||||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
-
|
63,753
|
-
|
-
|
63,753
|
-
|
-
|
63,753
|
||||||||||||||||||||||||||||||
Issuance of non-controlling interest - Preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
481,862
|
481,862
|
||||||||||||||||||||||||||||||
Net income (loss)
|
-
|
-
|
-
|
-
|
-
|
(1,112,025
|
)
|
(1,112,025
|
)
|
574
|
-
|
(1,111,451
|
)
|
|||||||||||||||||||||||||||
Balance at September 30, 2019
|
35,030,339
|
$
|
3,603
|
$
|
(709,478
|
)
|
$
|
3,646,740
|
$
|
(528,373
|
)
|
$
|
3,497,760
|
$
|
5,910,252
|
$
|
993
|
$
|
481,862
|
$
|
6,393,107
|
Common Stock
|
Treasury
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprhensive
Loss
|
Retained
Earnings
|
Total
Company
Stockholders'
Equity
|
Non-
Controlling
Interest
|
Subsidiary
Preferred
Stock
|
Total
Stockholders'
Equity
|
||||||||||||||||||||||||||||||||
Shares |
Amount
|
|||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019
|
35,030,339
|
$
|
3,603
|
$
|
(709,478
|
)
|
$
|
3,624,497
|
$
|
(268,850
|
)
|
$
|
3,284,427
|
$
|
5,934,199
|
$
|
1,083
|
$
|
481,862
|
$
|
6,417,144
|
|||||||||||||||||||
Foreign currency translation
|
-
|
-
|
-
|
-
|
(259,523
|
)
|
-
|
(259,523
|
)
|
-
|
-
|
(259,523
|
)
|
|||||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
-
|
22,243
|
-
|
-
|
22,243
|
-
|
-
|
22,243
|
||||||||||||||||||||||||||||||
Net income (loss)
|
-
|
-
|
-
|
-
|
-
|
213,333
|
213,333
|
(90
|
)
|
-
|
213,243
|
|||||||||||||||||||||||||||||
Balance at Sept 30, 2019
|
35,030,339
|
$
|
3,603
|
$
|
(709,478
|
)
|
$
|
3,646,740
|
$
|
(528,373
|
)
|
$
|
3,497,760
|
$
|
5,910,252
|
$
|
993
|
$
|
481,862
|
$
|
6,393,107
|
Common Stock
|
Treasury
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprhensive
Loss
|
Retained
Earnings
|
Total
Company
Stockholders'
Equity
|
Non-
Controlling
Interest
|
Subsidiary
Preferred
Stock
|
Total
Stockholders'
Equity
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017
|
26,000,000
|
$
|
2,600
|
$
|
-
|
$
|
3,212,037
|
$
|
274,468
|
$
|
4,527,781
|
$
|
8,016,886
|
$
|
252
|
$
|
-
|
$
|
8,017,138
|
|||||||||||||||||||||
Foreign currency translation
|
-
|
-
|
-
|
-
|
(157,736
|
)
|
-
|
(157,736
|
)
|
-
|
-
|
(157,736
|
)
|
|||||||||||||||||||||||||||
Stock compensation expense
|
-
|
-
|
-
|
64,797
|
-
|
-
|
64,797
|
-
|
-
|
64,797
|
||||||||||||||||||||||||||||||
Proceeds from issuance of common stock
|
5,784,293
|
578
|
-
|
-
|
-
|
-
|
578
|
-
|
-
|
578
|
||||||||||||||||||||||||||||||
Repurchase of treasury stock
|
-
|
-
|
-
|
(826,986
|
)
|
-
|
-
|
(826,986
|
)
|
-
|
-
|
(826,986
|
)
|
|||||||||||||||||||||||||||
Net income (loss)
|
-
|
-
|
-
|
-
|
-
|
(1,718,080
|
)
|
(1,718,080
|
)
|
(627
|
)
|
-
|
(1,718,707
|
)
|
||||||||||||||||||||||||||
Balance at September 30, 2018
|
31,784,293
|
$
|
3,178
|
$
|
-
|
$
|
2,449,848
|
$
|
116,732
|
$
|
2,809,701
|
$
|
5,379,459
|
$
|
(375
|
)
|
$
|
-
|
$
|
5,379,084
|
Common Stock
|
Treasury
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprhensive
Loss
|
Retained
Earnings
|
Total
Company
Stockholders'
Equity
|
Non-
Controlling
Interest
|
Subsidiary
Preferred
Stock
|
Total
Stockholders'
Equity
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018
|
31,784,293
|
$
|
3,178
|
$
|
-
|
$
|
3,251,651
|
$
|
95,168
|
$
|
2,609,916
|
$
|
5,959,913
|
$
|
(323
|
)
|
$
|
-
|
$
|
5,959,590
|
||||||||||||||||||||
Foreign currency translation
|
-
|
-
|
-
|
-
|
21,564
|
-
|
21,564
|
-
|
-
|
21,564
|
||||||||||||||||||||||||||||||
Proceeds from issuance of common stock
|
-
|
-
|
-
|
(801,803
|
)
|
-
|
-
|
(801,803
|
)
|
-
|
-
|
(801,803
|
)
|
|||||||||||||||||||||||||||
Net income (loss)
|
-
|
-
|
-
|
-
|
-
|
199,785
|
199,785
|
(52
|
)
|
-
|
199,733
|
|||||||||||||||||||||||||||||
Balance at September 30, 2018
|
31,784,293
|
$
|
3,178
|
$
|
-
|
$
|
2,449,848
|
$
|
116,732
|
$
|
2,809,701
|
$
|
5,379,459
|
$
|
(375
|
)
|
$
|
-
|
$
|
5,379,084
|
Nine Months Ended September 30,
|
2019
|
2018
|
||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(1,111,451
|
)
|
$
|
(1,717,494
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
-
|
|||||||
Non-controlling interest
|
574
|
(586
|
)
|
|||||
Loss on equity investments in affiliates
|
-
|
31,047
|
||||||
Depreciation - fixed assets
|
237,656
|
30,488
|
||||||
Amortization - intangible assets
|
17,018
|
-
|
||||||
Stock options expense
|
63,753
|
64,797
|
||||||
Foreign exchange gain (loss)
|
6,551
|
(755
|
)
|
|||||
Retirement allowance
|
-
|
220,073
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Account receivable, net
|
202,824
|
1,676,320
|
||||||
Prepaid expenses and other current assets
|
(683,243
|
)
|
(594,521
|
)
|
||||
Deposit
|
(8,529
|
)
|
18,141
|
|||||
Deferred taxes
|
(6,036
|
)
|
21,426
|
|||||
Account payable
|
242,113
|
(139,899
|
)
|
|||||
Accrued expenses and other
|
89,983
|
(468,195
|
)
|
|||||
Value added tax payable
|
37,960
|
(114,866
|
)
|
|||||
Income tax payable
|
2,618
|
24,124
|
||||||
Net cash used in operating activities
|
(908,209
|
)
|
(949,900
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Proceeds from (purchases of) short-term investments
|
14,129
|
(1,833
|
)
|
|||||
Purchases of property and equipment
|
(286,811
|
)
|
(31,846
|
)
|
||||
Purchases of intangible assets
|
(32,122
|
)
|
(46,208
|
)
|
||||
Payments received from short-term loan receivable
|
14,582
|
-
|
||||||
Borrowings (loans provided) under short-term loans
|
(201,300
|
)
|
110,003
|
|||||
Net cash provided by (used in) investing activities
|
(491,522
|
)
|
30,116
|
|||||
Cash flows from financing activities:
|
||||||||
Net receipt of government grants
|
-
|
38,589
|
||||||
Borrowings (principal payments) on short-term loan payable
|
(129,068
|
)
|
641,684
|
|||||
Borrowings (principal payments) on long-term debt
|
(64,611
|
)
|
229,173
|
|||||
Principal payments on convertible debt
|
(200,000
|
)
|
-
|
|||||
Purchase of treasury stock
|
-
|
(826,408
|
)
|
|||||
Proceeds from issuance of non-controlling interest preferred shares issued by subsidiary
|
473,246
|
-
|
||||||
Net cash provided by financing activities
|
79,567
|
83,038
|
||||||
Effect of foreign currency translation on cash and cash equivalents
|
(8,606
|
)
|
(121,868
|
)
|
||||
Net decrease in cash and cash equivalents
|
(1,328,770
|
)
|
(958,614
|
)
|
||||
Cash and cash equivalents including restricted cash, beginning of year
|
3,408,541
|
3,235,481
|
||||||
Cash and cash equivalents including restricted cash, end of period
|
$
|
2,079,771
|
$
|
2,276,867
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Interest paid
|
$
|
6,750
|
$
|
11,726
|
||||
Taxes paid
|
$
|
6,757
|
$
|
20,967
|
NOTE 1: |
Organization and Operations
|
NOTE 2: |
Summary of Significant Accounting Policies
|
|
• |
I-ON, Ltd (Japanese 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.
|
December 31,
|
September 30,
|
Average Nine Months Ended
September 30,
|
Average Three Months Ended
September 30,
|
|||||||||||||||||||||
Currency
|
2018
|
2019
|
2019
|
2018
|
2019
|
2018
|
||||||||||||||||||
Japanese Yen to Korean Won
|
JPY 10.13
|
JPY 11.13
|
JPY 10.66
|
JPY 9.95
|
JPY 11.12
|
JPY 10.07
|
||||||||||||||||||
Korean Won to US Dollar ($)
|
KRW 1,118.10
|
KRW 1,201.30
|
KRW 1,162.18
|
KRW 1,090.88
|
KRW 1,193.24
|
KRW 1,121.59
|
|
• |
Consolidation – 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.
|
September 30,
2019
|
December 31,
2018
|
|||||||
Korea
|
||||||||
Current assets
|
$
|
6,588,455
|
$
|
7,181,043
|
||||
Non-current assets
|
2,010,243
|
1,479,647
|
||||||
Current liabilities
|
1,942,111
|
1,403,043
|
||||||
Non-current liabilities
|
374,528
|
281,294
|
||||||
Japan
|
||||||||
Current assets
|
$
|
263,787
|
$
|
144,074
|
||||
Non-current assets
|
284
|
291
|
||||||
Current liabilities
|
153,023
|
11,354
|
||||||
Non-current liabilities
|
-
|
-
|
Nine-months Period
Ended September 30,
|
Three-months Period
Ended September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Korea
|
||||||||||||||||
Net Sales
|
$
|
4,614,262
|
$
|
3,798,399
|
$
|
1,652,572
|
$
|
1,688,967
|
||||||||
Japan
|
||||||||||||||||
Net Sales
|
$
|
669,006
|
$
|
677,451
|
$
|
165,775
|
$
|
185,662
|
|
• |
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. Revenue is recognized over the contract and service
period and when collectability is reasonably assured.
|
|
• |
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. Revenue is recognized over the contract and service period and when collectability is
reasonably assured.
|
|
• |
Maintenance – the Company recognizes revenue over the contract term based on percentage-of-completion method.
|
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.
|
|
• |
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
|
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
Investments
|
$
|
-
|
$
|
-
|
$
|
91,943
|
||||||
Equity purchase put option
|
-
|
-
|
101,770
|
|||||||||
Fair value, at September 30, 2019
|
$ |
-
|
$ |
-
|
$
|
193,713
|
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
Investments
|
$
|
-
|
$
|
-
|
$
|
102,756
|
||||||
Equity purchase put option
|
-
|
-
|
109,343
|
|||||||||
Fair value, at December 31, 2018
|
$
|
-
|
$
|
-
|
$
|
212,099
|
|
• |
Fair Value Measurements
|
|
• |
Retirement Plans
|
|
• |
Intangibles – Goodwill and other – Internal-Use Software
|
|
• |
Improvements to Nonemployee Share-based Payment Accounting
|
|
• |
Income Statement – Reporting Comprehensive Income
|
|
• |
Goodwill
|
|
• |
Financial Instruments
|
|
• |
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
|
|
• |
Leases (ASU 2019-01)
|
|
• |
Leases (ASU 2016-02)
|
NOTE 3: |
Long-term Debt
|
September 30,
2019
|
December 31,
2018
|
|||||||
A note payable to a financial institution bearing interest at 2.81% and 2.75% at September 30, 2019 and December 31, 2018, 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.
|
$
|
395,330
|
$
|
491,906
|
||||
Long-term debt
|
395,330
|
491,906
|
||||||
Less: current portion
|
(20,802
|
)
|
(89,509
|
)
|
||||
Long-term debt, net of current portion
|
$
|
374,528
|
$
|
402,397
|
NOTE 4: |
Line of Credit
|
NOTE 5: |
Short Term Loan Payable
|
NOTE 6: |
Convertible Debt, Beneficial Conversion Feature, and Common Stock Warrant
|
|
• |
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:
|
|
o |
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;
|
|
o |
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;
|
|
o |
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
|
|
o |
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.
|
|
September 30,
2019
|
December 31,
2018
|
||||||
|
||||||||
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
|
NOTE 7: |
Investments
|
Investments
|
Type
|
Percentage of
Ownership
|
September 30,
2019
|
December 31,
2018
|
|||||||||
4Grit
|
Available for sale
|
2.50
|
%
|
$
|
41,625
|
$
|
44,723
|
||||||
E-channel
|
Available for sale
|
0.07
|
%
|
39,370
|
42,299
|
||||||||
KSFC
|
Available for sale
|
0.00
|
%
|
10,948
|
11,762
|
||||||||
PT IONSOFT
|
Equity
|
0.90
|
%
|
- |
3,972
|
||||||||
Total investment securities
|
$
|
91,943
|
$
|
102,756
|
Available-for-sale securities
|
Percentage of
Ownership
|
September 30,
2019
|
December 31,
2018
|
|||||||||
4Grit
|
2.50
|
%
|
$
|
41,625
|
$
|
44,723
|
||||||
E-channel
|
0.07
|
%
|
39,370
|
42,299
|
||||||||
KSFC
|
0.00
|
%
|
10,948
|
11,762
|
||||||||
Total investment securities
|
$
|
91,943
|
$
|
98,784
|
Note 8. |
Equity Purchase Agreement – Put Option Equity Purchase Agreement – Put Option
|
|
• |
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.
|
|
• |
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.
|
Fair value, at December 31, 2018
|
$
|
109,343
|
||
Issuance of equity purchase put option
|
-
|
|||
Change in fair value
|
(7,573
|
)
|
||
Fair value, at September 30, 2019
|
$
|
101,770
|
NOTE 9:
|
Commitments and Contingencies
|
NOTE 10:
|
Related Party Transactions
|
NOTE 11:
|
Earnings Per Share
|
|
Three-months Period
Ended September 30,
|
Nine-months Period
Ended September 30,
|
||||||||||||||
Periods Ended
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Net income (loss) before non-controlling interest
|
$
|
213,333
|
$
|
199,785
|
$
|
(1,112,025
|
)
|
$
|
(1,718,080
|
)
|
||||||
Non-controlling interest
|
(90
|
)
|
33
|
|
574
|
586
|
|
|||||||||
Net income (loss)
|
213,243
|
199,818
|
(1,111,451
|
)
|
(1,717,494
|
)
|
||||||||||
Weighted-average shares of common stock outstanding:
|
||||||||||||||||
Basic
|
35,030,339
|
31,784,293
|
35,030,339
|
31,784,293
|
||||||||||||
Dilutive shares
|
35,030,339
|
31,784,293
|
35,030,339
|
31,784,293
|
||||||||||||
Earnings per share - Basic
|
||||||||||||||||
Net income (loss) before non-controlling interest
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Non-controlling interest
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
(0.00
|
)
|
|||||
Earnings per share to stockholders
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Earnings per share - Diluted
|
||||||||||||||||
Net income (loss) before non-controlling interest
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
||||||
Non-controlling interest
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
0.00
|
$
|
(0.00
|
)
|
|||||
Earnings per share to stockholders
|
$
|
0.01
|
$
|
0.01
|
$
|
(0.03
|
)
|
$
|
(0.05
|
)
|
NOTE 12:
|
Non-Controlling Interest-Issuance of Preferred Stock by Subsidiary
|
|
• |
Voting rights – The preferred shareholder may have same voting rights as common stock shareholder (1:1)
|
|
• |
2% annual dividend
|
|
• |
Liquidating rights
|
|
o |
Call option by preferred shareholder - Preferred stock may be converted to common stock anytime at a fixed conversion price of KRW 3,500
|
|
o |
Call option by I-ON Communication – Should I-ON Communication exercise to redeem preferred stock, I-ON Communication is required to re-purchase for KRW 3,500 per share and 7% annual interest
compounded.
|
NOTE 13:
|
Subsequent Events
|
|
|
Three Months Ended
|
|
|
Change
|
|||||||||||||||||||
September 30, 2019
|
September 30, 2018
|
|||||||||||||||||||||||
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
||||||||||||||||||||||||
Net sales
|
$
|
1,818,347
|
100.0
|
%
|
$
|
1,874,629
|
100.0
|
%
|
$
|
(56,282
|
)
|
-3.0
|
%
|
|||||||||||
Cost of goods sold
|
1,071,363
|
58.9
|
%
|
1,105,515
|
59.9
|
%
|
(34,152
|
)
|
-3.1
|
%
|
||||||||||||||
Gross profit (loss)
|
746,984
|
41.1
|
%
|
769,114
|
41.0
|
%
|
(22,130
|
)
|
-2.9
|
%
|
||||||||||||||
Operating expense:
|
||||||||||||||||||||||||
Research and development
|
63,312
|
3.5
|
%
|
216,730
|
11.6
|
%
|
(153,418
|
)
|
-70.8
|
%
|
||||||||||||||
General and administrative
|
534,672
|
29.4
|
%
|
440,422
|
23.5
|
%
|
94,250
|
21.4
|
%
|
|||||||||||||||
Total operating expense
|
597,984
|
32.9
|
%
|
657,152
|
35.1
|
%
|
(59,168
|
)
|
-9.0
|
%
|
||||||||||||||
Loss from operations
|
149,000
|
8.2
|
%
|
111,962
|
6.0
|
%
|
37,038
|
33.1
|
%
|
|||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||
Loss on extinguishment of debt
|
-
|
0.0
|
%
|
n/a
|
||||||||||||||||||||
Miscellaneous income, net
|
4,095
|
0.2
|
%
|
114,415
|
6.1
|
%
|
(110,320
|
)
|
-96.4
|
%
|
||||||||||||||
Interest expense
|
-
|
0.0
|
%
|
n/a
|
||||||||||||||||||||
Total other income (expense), net
|
4,095
|
0.2
|
%
|
114,415
|
6.1
|
%
|
(110,320
|
)
|
-96.4
|
%
|
||||||||||||||
Loss before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
|
153,095
|
8.4
|
%
|
226,377
|
12.1
|
%
|
(73,282
|
)
|
-32.4
|
%
|
||||||||||||||
Provision for income tax
|
(53,176
|
)
|
-2.9
|
%
|
14,243
|
0.8
|
%
|
(67,419
|
)
|
-473.3
|
%
|
|||||||||||||
Net loss before income or loss on equity investments in affiliates and non-controlling interest
|
206,271
|
11.3
|
%
|
212,134
|
11.3
|
%
|
(5,863
|
)
|
-2.8
|
%
|
||||||||||||||
Income (Loss) on equity investments
|
7,062
|
0.4
|
%
|
(12,349
|
)
|
-0.7
|
%
|
19,411
|
-157.2
|
%
|
||||||||||||||
Net loss before non-controlling interest
|
213,333
|
11.7
|
%
|
199,785
|
10.7
|
%
|
13,548
|
6.8
|
%
|
|||||||||||||||
Non-controlling interest income (loss)
|
(90
|
)
|
0.0
|
%
|
33
|
|
0.0
|
%
|
123 |
|
-372.7
|
%
|
||||||||||||
Net income
|
$ |
213,243
|
11.7
|
%
|
$ |
199,818
|
10.7
|
%
|
$ |
13,425
|
6.7
|
%
|
Nine Months Ended
|
Change
|
|||||||||||||||||||||||
September 30, 2019
|
September 30, 2018
|
|||||||||||||||||||||||
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
||||||||||||||||||||||||
Net sales
|
$
|
5,283,268
|
100.0
|
%
|
$
|
4,475,850
|
100.0
|
%
|
$
|
807,418
|
18.0
|
%
|
||||||||||||
Cost of goods sold
|
4,240,030
|
80.3
|
%
|
4,176,647
|
93.3
|
%
|
63,383
|
1.5
|
%
|
|||||||||||||||
Gross profit (loss)
|
1,043,238
|
19.7
|
%
|
299,203
|
6.6
|
%
|
744,035
|
248.7
|
%
|
|||||||||||||||
Operating expense:
|
||||||||||||||||||||||||
Research and development
|
441,906
|
8.4
|
%
|
795,185
|
17.7
|
%
|
(353,279
|
)
|
-44.4
|
%
|
||||||||||||||
General and administrative
|
1,540,467
|
29.2
|
%
|
1,408,766
|
31.5
|
%
|
131,701
|
9.3
|
%
|
|||||||||||||||
Total operating expense
|
1,982,373
|
37.5
|
%
|
2,203,951
|
49.2
|
%
|
(221,578
|
)
|
-10.1
|
%
|
||||||||||||||
Loss from operations
|
(939,135
|
)
|
-17.8
|
%
|
(1,904,748
|
)
|
-42.6
|
%
|
965,613
|
-50.7
|
%
|
|||||||||||||
Other income (expense):
|
||||||||||||||||||||||||
Loss on extinguishment of debt
|
(160,419
|
)
|
-3.0
|
%
|
-
|
0.0
|
%
|
(160,419
|
)
|
n/a
|
||||||||||||||
Miscellaneous income, net
|
43,477
|
0.8
|
%
|
257,285
|
5.7
|
%
|
(213,808
|
)
|
-83.1
|
%
|
||||||||||||||
Interest expense
|
(45,147
|
)
|
-0.9
|
%
|
0.0%
|
(45,147
|
)
|
n/a
|
||||||||||||||||
Total other income (expense), net
|
(162,089
|
)
|
-3.1
|
%
|
257,285
|
5.7
|
%
|
(419,374
|
)
|
-163.0
|
%
|
|||||||||||||
Loss before provision for income taxes, loss on equity investments in affiliates, and
|
||||||||||||||||||||||||
non-controlling interest
|
(1,101,224
|
)
|
-20.8
|
%
|
(1,647,463
|
)
|
-37.8
|
%
|
546,239
|
-33.2
|
%
|
|||||||||||||
Provision for income tax
|
10,801
|
0.2
|
%
|
39,570
|
0.8
|
%
|
(28,769
|
)
|
-72.7
|
%
|
||||||||||||||
Net loss before income or loss on equity investments in affiliates and non-controlling interest
|
(1,112,025
|
)
|
-21.0
|
%
|
(1,687,033
|
)
|
-37.7
|
%
|
575,008
|
-34.1
|
%
|
|||||||||||||
Income (Loss) on equity investments
|
-
|
0.0
|
%
|
(31,047
|
)
|
-0.6
|
%
|
31,047
|
-100.0
|
%
|
||||||||||||||
Net loss before non-controlling interest
|
(1,112,025
|
)
|
-21.0
|
%
|
(1,718,080
|
)
|
-38.4
|
%
|
606,055
|
-35.3
|
%
|
|||||||||||||
Non-controlling interest income (loss)
|
574
|
0.0
|
%
|
586
|
|
0.0
|
%
|
(12 |
)
|
-2.0
|
%
|
|||||||||||||
Net loss
|
$
|
(1,111,451 | ) |
-21.0
|
%
|
$
|
(1,717,494
|
)
|
-38.4
|
%
|
$
|
606,043 |
-35.3
|
%
|
Nine Months Ended September
30,
|
Changes
|
|||||||||||||||
2019
|
2018
|
Amount
|
%
|
|||||||||||||
Net cash used in operating activities
|
$
|
(908,209
|
)
|
$ |
(949,900
|
)
|
$ |
41,691
|
-4.39
|
%
|
||||||
Net cash used in investing activities
|
(491,522
|
)
|
30,116
|
(521,638
|
)
|
-1,732.1
|
%
|
|||||||||
Net cash used in financing activities
|
79,567
|
83,038
|
(3,471
|
)
|
-4.18
|
%
|
||||||||||
Effect of foreign currency translation on cash and cash equivalents
|
(8,606
|
)
|
(121,868
|
)
|
113,262
|
-92.94
|
%
|
|||||||||
Net decrease in cash and cash equivalents
|
$ |
(1,328,770
|
)
|
$ |
(958,614
|
)
|
$ |
(370,156
|
)
|
38.61
|
%
|
Exhibit
Number
|
|
Exhibit
Description
|
|
||
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
|
||
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
|
*
|
Filed herewith.
|
**
|
Furnished herewith.
|
Date: November 12, 2019
|
I-ON DIGITAL CORP.
|
|
|
|
|
|
By:
|
/s/ Jae Cheol James Oh
|
|
Jae Cheol James Oh
|
|
|
Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of I-ON Digital Corp.
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the interim financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of Interim Financial Statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: November 12, 2019
|
|
|
|
|
|
By:
|
/s/ Jae Cheol James Oh
|
|
|
Jae Cheol James Oh
|
|
|
Chief Executive Officer, Treasurer, Director
(Principal Executive and Financial Officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
|
Dated: November 12, 2019
|
|
|
|
|
|
By:
|
/s/ Jae Cheol James Oh
|
|
|
Jae Cheol James Oh
|
|
|
Chief Executive Officer, Treasurer, Director
(Principal Executive and Financial Officer)
|