I-ON DIGITAL CORP.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2022
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________________ to ______________________
Commission file number:
000-54995
(Exact name of registrant as specified in its charter)
(formerly known as I-ON Communications Corp.)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices, including zip code)
+
82-2
-
3430-1200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $0.0001
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files).
Yes
☒ No ☐
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” and “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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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 ☒
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which
registered
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The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding as of January 10
, 2023
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Common Stock, $0.0001 par value per share
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PART I – FINANCIAL INFORMATION
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Item 1.
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2
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Item 2.
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19
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Item 3.
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24 | |
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Item 4.
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24 | |
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PART II – OTHER INFORMATION
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Item 1.
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25 | |
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Item 2.
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25 | |
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Item 3.
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25 | |
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Item 4.
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25 | |
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Item 5.
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25 | |
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Item 6.
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25 | |
| 26 |
The unaudited interim consolidated financial statements of I-ON Digital Corp. and subsidiaries (“we”, “our”, “us”, the “Company”) follow. All currency references in this report are to US
dollars unless otherwise noted.
I-ON Digital Corp. and Subsidiaries
Table of Contents
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Consolidated Financial Statements (UNAUDITED)
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4
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5
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6
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7
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8
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I-ON Digital Corp. and Subsidiaries
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September 30,
2022
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December 31,
2021
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ASSETS
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||||||||
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Current assets:
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||||||||
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Cash and cash equivalents
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$
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$
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Restricted cash
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||||||
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Short-term financial instruments
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Short-term loan receivable
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Accounts receivables, net of allowance for doubtful accounts $
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Deferred tax assets - current
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Prepaid expenses and other current assets
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Current assets of discontinued operations
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Total current assets
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Non-current assets:
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Investments
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Property and equipment, net
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Intangible assets, net
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Deposits
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Deferred tax assets - non current
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Non-current assets of discontinued operations
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Total non-current assets
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Total Assets
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$
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$
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Liabilities and Stockholders’ Equity
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||||||||
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Current liabilities:
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||||||||
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Accounts payable
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$
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$
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Accrued expenses and other
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||||||
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Value added tax payable
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Income tax payable
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Short-term loan payable
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| Government grants outstanding for usage of future projects |
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Current liabilities of discontinued operations
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Total current liabilities
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Total liabilities
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Commitments and contingencies
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||||||||
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Stockholders’ Equity
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||||||||
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Common stock - $
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||||||
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Treasury stock
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(
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)
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|||||
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Additional paid-in-capital
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||||||
| Accumulated other comprehensive loss |
(
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)
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(
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)
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||||
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Accumulated retained earnings
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(
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)
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|||||
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Total company stockholders’ equity
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||||||
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Preferred stock (I-ON Korea and eformworks) - $
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||||||
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Non-controlling interests
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|
(
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)
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|||||
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Total stockholders’ equity
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||||||
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Total Liabilities and Stockholders’ Equity
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$
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$
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||||
See accompanying notes to unaudited condensed consolidated financial statements.
I-ON Digital Corp. and Subsidiaries
| Three-month Period ended September 30 , |
Nine-month
Period ended September 30,
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|||||||||||||||
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2022
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2021 |
2022
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2021 | |||||||||||||
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Net sales
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$
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$
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$ |
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$ |
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||||||||
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Cost of goods sold
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||||||||||||
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Gross profit
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Operating expense
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||||||||||||
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Income (loss) from operations
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||||||||||||
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Other income (expense)
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||||||||||||
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Income (loss) before provision for income taxes
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||||||||||||
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Provision for (benefit from) income tax
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||||||||||||
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Net income (loss) from continuing operations
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||||||||||||
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Net income (loss) from discontinued operations
|
(
|
)
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|
(
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) |
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||||||||||
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Net income (loss)
|
$
|
(
|
)
|
$
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|
$ |
(
|
) | $ |
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||||||
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Comprehensive income statement:
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||||||||||||||||
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Net income (loss)
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$ |
(
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) | $ |
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$ |
(
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) | $ |
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||||||
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Foreign currency translation loss
|
(
|
) |
(
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) |
(
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) |
(
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) | ||||||||
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Total comprehensive income (loss)
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$ |
(
|
) | $ |
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$ |
(
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) | $ |
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||||||
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Basic earnings per share from continuing operations
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||||||||||||||||
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Net loss before non-controlling interest
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$ |
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$ |
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$ |
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$ |
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||||||||
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Non-controlling interest
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$ |
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$ |
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$ |
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$ |
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||||||||
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Earnings per share to stockholders
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$ |
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$ |
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$ |
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$ |
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||||||||
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Diluted earnings per share from continuing operations
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||||||||||||||||
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Net loss before non-controlling interest
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$ |
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$ |
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$ |
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$ |
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||||||||
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Non-controlling interest
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$ |
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$ |
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$ |
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$ |
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||||||||
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Earnings per share to stockholders
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$ |
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$ |
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$ |
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$ |
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||||||||
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Basic earnings per share from discontinued operations
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||||||||||||||||
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Net loss before non-controlling interest
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$ |
|
$ |
|
$ |
(
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) | $ |
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|||||||
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Non-controlling interest
|
$ |
|
$ |
|
$ |
(
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) | $ |
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|||||||
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Earnings per share to stockholders
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$ |
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$ |
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$ |
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$ |
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||||||||
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Diluted earnings per share from discontinued operations
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||||||||||||||||
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Net loss before non-controlling interest
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$ |
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$ |
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$ |
(
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) | $ |
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|||||||
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Non-controlling interest
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$ |
|
$ |
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$ |
(
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) | $ |
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|||||||
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Earnings per share to stockholders
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$ |
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$ |
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$ |
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$ |
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||||||||
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Weighted average number of common shares outstanding:
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||||||||||||||||
| Basic |
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| Diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
I-ON Digital Corp. and Subsidiaries
|
Accumulated
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Total
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|||||||||||||||||||||||||||||||||||||||
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Additional
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Other
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Company
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Non-
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Total
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||||||||||||||||||||||||||||||||||||
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Common Stock
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Paid-In
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Retained
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Treasury
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Comprehensive
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Stockholders'
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Controlling
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Preferred
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Stockholders'
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||||||||||||||||||||||||||||||||
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Shares
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Amount
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Capital
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Earnings
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Stock
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Income (Loss)
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Equity
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Interest
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Stock
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Equity
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|||||||||||||||||||||||||||||||
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Balance
at December 31, 2021
|
|
$ |
|
$ |
|
$ |
|
$ |
(
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) | $ |
(
|
) | $ |
|
$ |
(
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) | $ |
|
$ |
|
||||||||||||||||||
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Foreign currency translation
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- |
|
|
|
|
(
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) |
(
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) |
|
|
(
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) | |||||||||||||||||||||||||||
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Net income (loss)
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- |
|
|
|
|
|
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||||||||||||||||||||||||||||||
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Balance at March 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
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|
$
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|
||||||||||||||||||
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Foreign currency translation
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||||
|
Net income (loss)
|
- |
|
|
(
|
)
|
|
|
(
|
)
|
(
|
)
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|
(
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)
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||||||||||||||||||||||||||
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Balance at June 30, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
$
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|
||||||||||||||||||
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Cancellation of common stock in connection with equity purchase agreement
|
(
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) |
(
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) |
|
|
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|
(
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) |
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(
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) | ||||||||||||||||||||||||||
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Adjustments from deconsolidation
|
- |
|
(
|
) |
(
|
) |
|
|
(
|
) |
|
(
|
) |
(
|
) | |||||||||||||||||||||||||
|
Foreign currency translation
|
- |
|
|
|
|
(
|
) |
(
|
) |
|
|
(
|
) | |||||||||||||||||||||||||||
|
Net income (loss)
|
- |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
|
(
|
) | ||||||||||||||||||||||||||
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Balance
at September 30, 2022
|
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
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|||||||||||||||||||
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Accumulated
|
Total
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|||||||||||||||||||||||||||||||||||||||
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Additional
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Other
|
Company
|
Non-
|
Total
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||||||||||||||||||||||||||||||||||||
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Common Stock
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Paid-In
|
Retained
|
Treasury
|
Comprehensive
|
Stockholders'
|
Controlling
|
Preferred
|
Stockholders'
|
||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Earnings
|
Stock
|
Income (Loss)
|
Equity
|
Interest
|
Stock
|
Equity
|
|||||||||||||||||||||||||||||||
|
Balance at December 31, 2020
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||||||
|
Foreign
currency translation
|
-
|
|
|
|
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||||
|
Net
income (loss)
|
- |
|
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||||||||||
|
Balance
at March 31, 2021
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
|
|||||||||||||||||||
|
Foreign currency translation
|
- |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Net income (loss)
|
- |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Balance at June 30, 2021
|
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
|
Foreign currency translation
|
-
|
|
|
|
|
(
|
) |
(
|
) |
|
|
(
|
) | |||||||||||||||||||||||||||
|
Net income (loss)
|
- |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
|
Balance at September 30, 2021
|
|
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
|
Nine
Months
ended
September 30
,
|
2022 |
2021
|
||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
|
|||
| Less: Net income (loss) from discontinued operations |
(
|
) |
|
|||||
| Net income (loss) from continuing operations |
|
|
||||||
| Net cash used in operating activities from continuing operations |
|
|
||||||
| Net cash used in operating activities from discontinued operations |
(
|
) |
(
|
) | ||||
| Total net cash used in operating activities |
(
|
)
|
(
|
)
|
||||
|
Cash flows from investing activities:
|
||||||||
| Net cash used in investing activities from continuing operations |
|
|
||||||
| Net cash used in investing activities from discontinued operations |
(
|
) |
(
|
) | ||||
|
Total net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Net cash provided by (used in) financing activities from continuing operations
|
|
|
||||||
| Net cash provided by (used in) financing activities from discontinued operations |
|
(
|
)
|
|||||
|
Total net cash used in financing activities
|
|
(
|
)
|
|||||
|
Effect of foreign currency translation on cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents including restricted cash, beginning of period
|
|
|
||||||
|
Cash and cash equivalents including restricted cash, end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of cash flow information:
|
||||||||
| Continuing operations: | ||||||||
|
Interest paid
|
$
|
|
$
|
|
||||
|
Taxes paid
|
$
|
|
$
|
|
||||
|
|
||||||||
| Discontinued operations: | ||||||||
| Interest paid | $ |
|
$ |
|
||||
| Taxes paid | $ |
|
$ |
|
||||
See accompanying notes to unaudited condensed consolidated financial statements.
| NOTE 1: |
Organization and Operations
|
I-ON
Digital Corp. (“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).
On or
about August 1, 2021, the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) formed a new subsidiary named eformworks Co., Ltd. (“e.Form”) into which Communications moved its electronic signature
operations. Communications contributed approximately $
253,000
on August 1, 2021
and $
77,000
on September 30, 2022
to e.Form to subscribe for its founders shares and owns
59.82
% of the outstanding capital stock of e.Form
.
On June 28, 2022, the board of directors of the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) approved to form a new subsidiary named EIPGRID, which provides the
community energy service platforms. Hence Communications will contribute approximately $
773
,000 to EIPGRID to
subscribe for its founders’ shares, and has considered a subsidiary to consolidate.
On
September 29, 2022, the Company effectuated an Equity Transfer Agreement (the “Spin-Off Agreement”) among the Company, Communications and JFJ Digital Corp., a Delaware corporation (“JFJ”), whereby all of the outstanding equity
of Communications was transferred to JFJ in exchange for the return of
15,306,119
shares of the Company’s Common
Stock held by Jae Cheol Oh and Hong Rae Kim, the Company’s principal executive officer and members of the Board of Directors (the “Spin-Off”) . Pursuant to the Spin-Off Agreement, in addition to acquiring all of the
outstanding capital stock of Communications, JFJ will assume all responsibilities for any debts, obligations and liabilities of Communications and acquire all rights to any assets of Communications, including, but not limited
to, the Subscription Amount.
As a result of the
Spin-Off, Communications ceased being a subsidiary of the Company. Accordingly, the operating results of Communications are reported in net loss from discontinued operations, net of income taxes in the Condensed Consolidated
Statements of Operations for all periods presented. In addition, the related assets and liabilities held prior to the spin-off are reported as Assets and Liabilities of Discontinued Operations on the Condensed Consolidated
Balance Sheets. All amounts and disclosures included in the Notes to Condensed Consolidated Financial Statements reflect only the Company's continuing operations unless otherwise noted. For additional information, see Note 3,
"Discontinued Operations."
| 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 unaudited condensed consolidated financial statements.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts,
transactions, and profits have been eliminated upon consolidation. The accompanying consolidated financial statements and the notes hereto are reported in US Dollars. The consolidated financial statements were prepared and presented in
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
Consolidation
.
8
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year
ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated
financial statements, and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The
interim results presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
Use of Estimates in the Preparation of Financial Statements
The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed
consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could materially differ from these estimates.
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, 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. As of September 30, 2022, and December 31, 2021, the exchange rate was JPY
|
|
|
● |
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. As of September 30, 2022, and December 31, 2021, the exchange rate was KRW
|
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.
9
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those services.
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 a company in Japan for providing rights to sell the Company’s products in Japanese
market. Revenue is recognized over the contract and service period.
|
|
|
● |
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 service for the contract is completed.
|
|
|
● |
Maintenance – the Company recognizes revenue over the contract term based on percentage-of-completion method.
|
Cash and Cash Equivalents
The Company considers all money market funds and highly liquid financial investments with maturities of three months or less when
acquired to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the double declining
balance method, based on the estimated useful lives as follows:
|
Facility equipment
|
|
|
Automobile
|
|
|
Office equipment
|
|
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.
10
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 at the acquisition date according to the accounting
standards for business combinations. 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
|
|
|
Intangible assets excluding development costs
|
|
|
Other Intangible assets
|
|
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.
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 undiscounted 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.
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.
11
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
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.
12
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consists 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.
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 years ended December 31, 2021 and 2020.
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 and Japan. The Company has
never experienced any losses related to these balances.
13
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
A
dvertising
Costs associated with advertising and promotions are expensed as incurred.
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.
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 and is adjusted at each reporting date for the net income (loss) attributable to that non-controlling interest during that period.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this
standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to
contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the
expedients and exceptions provided by the amendments in this standard to determine their impact.
Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.
14
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
| NOTE 3: |
Discontinued
Operations
|
On September
29,
2022,
the Company effectuated an Equity Transfer Agreement (the “Spin-Off Agreement”) among the Company, Communications and JFJ Digital
Corp., a Delaware corporation (“JFJ”), whereby all of the outstanding equity of Communications was transferred to JFJ in exchange for the return of
15,306,119
shares of the Company’s Common Stock held by Jae Cheol Oh and Hong Rae Kim, the Company’s principal executive officer and
members of the Board of Directors (the “Spin-Off”) . Pursuant to the Spin-Off Agreement, in addition to acquiring all of the outstanding capital stock of Communications, JFJ will assume all responsibilities for any debts, obligations and
liabilities of Communications and acquire all rights to any assets of Communications.
As a result of the Spin-Off, Communications ceased being a subsidiary of the Company. Accordingly, the operating results of Communications are
reported in net income (loss) from discontinued operations, net of income taxes in the Condensed Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities held prior to the spin-off are
reported as Assets and Liabilities of Discontinued Operations on the Condensed Consolidated Balance Sheets.
The following table presents the components of discontinued operations in relation to Communications reported in the consolidated
statements of operations:
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Net Sales
|
|
|
|
|
||||||||||||
|
Operating costs and expenses
|
|
|
|
|
||||||||||||
|
Income (loss) from operations before other income and income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
|
Other income (loss)
|
|
|
|
|
||||||||||||
|
Income (loss) from operations before income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
|
Income tax
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Net income from discontinued operations
|
(
|
)
|
|
(
|
)
|
|
||||||||||
15
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the major classes of assets and liabilities of discontinued operations of Communications reported in the
consolidated balance sheets:
|
September
30,
2022
|
December
31,
2021
|
|||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Restricted cash
|
|
|
||||||
|
Short-term financial instruments
|
|
|
||||||
|
Short-term loan receivable
|
|
|
||||||
|
Accounts receivables, net of allowance for doubtful accounts $
|
|
|
||||||
|
Deferred tax assets - current
|
|
|
||||||
|
Prepaid expenses and other current assets
|
|
|
||||||
|
Total current assets of discontinued operations
|
|
|
||||||
|
Investments
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Intangible assets, net
|
|
|
||||||
|
Deposits
|
|
|
||||||
|
Deferred tax assets – non-current
|
|
|
||||||
|
Total non-current assets of discontinued operations
|
|
|
||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued expenses and other
|
|
|
||||||
|
Value added tax payable
|
|
|
||||||
|
Income tax payable
|
|
|
||||||
|
Short-term loan payable
|
|
|
||||||
|
Government grants outstanding for usage of future projects
|
|
|
||||||
|
Total current liabilities of discontinued operations
|
|
|
||||||
16
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
| NOTE 4: |
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).
The following
table sets forth the computation of basic and diluted net income per common share:
|
Three-months Period
Ended September 30,
|
Nine-months Period
Ended September 30,
|
|||||||||||||||
|
Periods Ended
|
2022 |
2021
|
2022 |
2021
|
||||||||||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
|
$ |
(
|
) | $ |
|
||||||
|
Net income (loss) from continuing operations
|
|
|
|
|
||||||||||||
|
Net income (loss) from discontinued operations
|
(
|
)
|
|
(
|
) |
|
||||||||||
|
Weighted-average shares of common stock outstanding:
|
||||||||||||||||
|
Basic
|
|
|
|
|
||||||||||||
|
Dilutive effect of common stock equivalents arising from share option, excluding antidilutive effect from loss
|
|
|
|
|
||||||||||||
|
Dilutive shares
|
|
|
|
|
||||||||||||
| Net income (loss) from continuing operations: | ||||||||||||||||
|
Earnings per share - Basic
|
||||||||||||||||
|
Net income (loss) before non-controlling interest
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Non-controlling interest
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Earnings per share to stockholders
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Earnings per share - Diluted
|
||||||||||||||||
|
Net income (loss) before non-controlling interest
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Non-controlling interest
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Earnings per share to stockholders
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||
|
Net income (loss) from discontinued operations:
|
||||||||||||||||
|
Earnings per share - Basic
|
||||||||||||||||
|
Net income (loss) before non-controlling interest
|
$
|
|
$
|
|
$
|
(
|
) |
$
|
|
|||||||
|
Non-controlling interest
|
$
|
|
$
|
|
$
|
(
|
) |
$
|
|
|||||||
|
Earnings per share to stockholders
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
||||||||||||||||
|
Earnings per share - Diluted
|
||||||||||||||||
|
Net income (loss) before non-controlling interest
|
$
|
|
$
|
|
$
|
(
|
) |
$
|
|
|||||||
|
Non-controlling interest
|
$
|
|
$
|
|
$
|
(
|
) |
$
|
|
|||||||
|
Earnings per share to stockholders
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
17
Table of Contents
I-ON Digital Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
| NOTE 5: |
Deconsolidation of Subsidiaries
|
As of the Spin-off date, which was September 29, 2022, the Company had approximately $
12.6
million of total assets and $
3.6
million of total liabilities on its
consolidated balance sheet. Those assets and liabilities were owned by Communications or Communications’ subsidiaries, such as I-ON, Ltd (Japanese subsidiary), eformworks Co., Ltd. (Korean subsidiary) and EIPGRID (Korean subsidiary). As a result of
the Spin-off Agreement, all assets and liabilities will be transferred to JFJ and the Company will remain as a shell company with no operating assets or liabilities in its financial statements.
Mr. Oh and Kim returned their shares of the Company, total
15,306,119
approximately
43
% of total outstanding shares, to the Company in exchange for the transfer of all of outstanding equity of
Communications to JFJ. Stock price on September 29, 2022 was $
0.067
; therefore, the fair market value the proceeds will be $
1,025,510
which was calculated by multiplying the number of shares transferred to the stock price on September 29, 2022.
In accordance with FASB ASC 805,
Business Combinations
, the transaction was determined as transfers and
exchanges between entities that are under the common control. Accordingly, the difference between the proceeds received by the Company and the book value of the Communications and Communication’s subsidiaries will be recognized as an equity
transaction and no gain or loss would be recorded.
| NOTE 6: |
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 below, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in
the financial statements.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These
statements are only predictions.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable law, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our unaudited interim consolidated financial statements for the nine months ended September 30, 2022 and 2021 and as of September 30, 2022 and December 31, 2021 are expressed in US dollars and are prepared in
accordance with generally accepted accounting principles in the United States of America. They reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of our
interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter. Our unaudited consolidated financial statements and notes included
therein have been prepared on a basis consistent with and should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2021, as filed in our annual report on Form 10-K.
The following discussion should be read in conjunction with our interim financial statements and the related notes that appear elsewhere in this quarterly report.
Business Overview
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.
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 86 employees as of September 30, 2022, approximately 90% of whom are considered full-time. Research and
development typically comprise 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.
On September 29, 2022, the Company effectuated an Equity Transfer Agreement (the “Spin-Off Agreement”) among the Company, Communications and JFJ Digital Corp., a Delaware corporation (“JFJ”), whereby all of the
outstanding equity of Communications was transferred to JFJ in exchange for the return of 15,306,119 shares of the Company’s Common
Stock held by Jae Cheol Oh and Hong Rae Kim, the Company’s principal executive
officer and members of the Board of Directors (the “Spin-Off”) . Pursuant to the Spin-Off Agreement, in addition to acquiring all of the outstanding capital stock of Communications, JFJ will assume all responsibilities for any debts,
obligations and liabilities of Communications and acquire all rights to any assets of Communications, including, but not limited to, the Subscription Amount.
As a result of the Spin-Off, Communications ceased being a subsidiary of the Company. Accordingly, the operating results of Communications are reported in net loss from discontinued operations, net of
income taxes in the Condensed Consolidated Statements of Operations for all periods presented. In addition, the related assets and liabilities held prior to the spin-off are reported as Assets and Liabilities of Discontinued Operations on the
Condensed Consolidated Balance Sheets. All amounts and disclosures included in the Notes to Condensed Consolidated Financial Statements reflect only the Company's continuing operations unless otherwise noted.
Results of Operations
Comparison of results of operations for the three months ended September 30, 2022 as Compared to the three months ended September 30, 2021
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:
|
Three months ended September 30,
|
||||||||||||||||||||||||
|
2022
|
2021
|
Change
|
||||||||||||||||||||||
|
Amount
|
% of
Revenue
|
Amount
|
% of
Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
Net sales
|
$
|
-
|
-
|
%
|
$
|
-
|
-
|
%
|
$
|
-
|
-
|
%
|
||||||||||||
|
Cost of goods sold
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Gross profit
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Operating expense
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Other income (expense)
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Income (loss) before provision for income taxes
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Provision for (benefit from) income tax
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Net income (loss) from continuing operations
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Net income (loss) from discontinued operations
|
(43,079
|
)
|
N/A
|
%
|
982,009
|
N/A
|
%
|
(1,025,088
|
)
|
-104.4
|
%
|
|||||||||||||
|
Net income (loss)
|
$
|
(43,079
|
)
|
N/A
|
%
|
$
|
982,009
|
N/A
|
%
|
$
|
(1,025,088
|
)
|
-104.4
|
%
|
||||||||||
|
Comprehensive income statement:
|
||||||||||||||||||||||||
|
Net income (loss)
|
(43,079
|
)
|
N/A
|
%
|
982,009
|
N/A
|
%
|
(1,025,088
|
)
|
-104.4
|
%
|
|||||||||||||
|
Foreign currency translation loss
|
(977,851
|
)
|
N/A
|
%
|
(468,727
|
)
|
N/A
|
%
|
(509,124
|
)
|
108.6
|
%
|
||||||||||||
|
Total comprehensive income (loss)
|
$
|
(1,020,930
|
)
|
N/A
|
%
|
$
|
513,282
|
N/A
|
%
|
(1,534,212
|
)
|
-298.9
|
%
|
|||||||||||
Comprehensive income - Foreign currency translation
Foreign currency translation loss was $977,851 for the three months ended September 30, 2022 compared to gain of $468,727 for the three months ended September 30, 2021. The change was due to devaluation of Korean
Won compared to US dollar in three months ended September 30, 2022 compared to September 30, 2021. The average exchange rate for the three months ended September 30, 2022 and 2021 was KRW 1,268.9 and KRW 1,131,01, respectively.
Comparison of results of operations for the nine months ended September 30, 2022 as Compared to the nine months ended September 30, 2021
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:
|
Nine months ended September 30,
|
||||||||||||||||||||||||
|
2022
|
2021
|
Change
|
||||||||||||||||||||||
|
Amount
|
% of
Revenue
|
Amount
|
% of
Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
Net sales
|
$
|
-
|
-
|
%
|
$
|
-
|
-
|
%
|
$
|
-
|
-
|
%
|
||||||||||||
|
Cost of goods sold
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Gross profit
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Operating expense
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Other income (expense)
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Income (loss) before provision for income taxes
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Provision for (benefit from) income tax
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Net income (loss) from continuing operations
|
-
|
-
|
%
|
-
|
-
|
%
|
-
|
-
|
%
|
|||||||||||||||
|
Net income (loss) from discontinued operations
|
(217,399
|
)
|
N/A
|
%
|
1,715,936
|
N/A
|
%
|
(1,933,335
|
)
|
-112.7
|
%
|
|||||||||||||
|
Net income (loss)
|
$
|
(217,399
|
)
|
N/A
|
%
|
$
|
1,715,936
|
N/A
|
%
|
$
|
(1,933,335
|
)
|
-112.7
|
%
|
||||||||||
|
Comprehensive income statement:
|
||||||||||||||||||||||||
|
Net income (loss)
|
(217,399
|
)
|
N/A
|
%
|
1,715,936
|
N/A
|
%
|
(1,933,335
|
)
|
-112.7
|
%
|
|||||||||||||
|
Foreign currency translation loss
|
(1,691,420
|
)
|
N/A
|
%
|
(1,015,434
|
)
|
N/A
|
%
|
(675,986
|
)
|
66.6
|
%
|
||||||||||||
|
Total comprehensive income (loss)
|
$
|
(1,908,819
|
)
|
N/A
|
%
|
$
|
700,502
|
N/A
|
%
|
(2,609,321
|
)
|
-372.5
|
%
|
|||||||||||
Comprehensive income - Foreign currency translation
Foreign currency translation loss was $1,691,420 for the nine months ended September 30, 2022 compared to loss of $1,015,434 for the nine months ended September 30, 2021. The change was due to devaluation of Korean
Won compared to US dollar in nine months ended September 30, 2022 compared to September 30, 2021. The average exchange rate for the nine months ended September 30, 2022 and 2021 was KRW 1,268.9 and KRW 1,131.01, respectively.
Liquidity and Capital Resources
As of the Spin-off date, which was September 29, 2022, the Company had approximately $12.6 million of total assets and $3.6 million of total liabilities on its consolidated balance sheet. Those assets and liabilities
were owned by Communications or Communications’ subsidiaries, such as I-ON, Ltd (Japanese subsidiary), eformworks Co., Ltd. (Korean subsidiary) and EIPGRID (Korean subsidiary). As a result of the Spin-off Agreement, all assets and liabilities will
be transferred to JFJ and the Company will remain as a shell company with no operating assets or liabilities in its financial statements.
Critical Accounting Estimates
Our unaudited condensed consolidated interim financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of
these policies is included in Note 2 of the notes to our unaudited interim condensed consolidated financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial
position, results of operations and cash flows, and which require the application of significant judgment by our management. Management has carefully considered the recently issued accounting pronouncements that altered generally accepted
accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
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.
| Item 4. |
Controls and Procedures
|
Disclosure Controls
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) designed to provide reasonable assurance the information required to be
reported in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to Securities and Exchange Commission (“SEC”) rules and forms, including controls and procedures designed to ensure
that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management, with the participation of our Chief Executive and Financial Officer, carried out an evaluation of the effectiveness of our
disclosure controls and procedures. Based upon this evaluation, our Chief Executive and Financial Officer concluded that as of September 30, 2022 our disclosure controls and procedures were effective to ensure that information we are required to
disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive and Financial Officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2022 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of September 30, 2022, we determined that our disclosure controls and
procedures are 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 provided in the SEC rules
and forms.
Management is currently evaluating remediation plans for the above control deficiencies.
Changes in Internal Control
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the nine months ended September 30, 2022
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Company’s recent change of control, we have added several additional employees in accounting
which we hope will improve the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
| Item 1. |
Legal Proceedings
|
None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security
holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.
| Item 2. |
Unregistered Sales of Equity Securities
|
None.
| Item 3. |
Defaults Upon Senior Securities
|
None.
| Item 4. |
Mine Safety Disclosures
|
Not applicable.
| Item 5. |
Other Information
|
None
| Item 6. |
Exhibits
|
|
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.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
Date: January 13, 2023
|
I-ON Digital Corp
I-ON COMMUNICATIONS CORP.
|
|
|
|
|
|
|
|
By:
|
/s/ Jae Cheol Oh
|
|
|
|
Jae Cheol Oh
|
|
|
|
Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)
|
|
|
|
|
|
|
By:
|
/s/ Jae Cheol Oh
|
|
|
|
Jae Cheol Oh
|
|
|
|
Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)
|
26
TABLE OF CONTENTS
Part 1 Financial InformationItem 1. Interim Consolidated Financial StatementsNote 1: Organization and OperationsNote 2: Summary Of Significant Accounting PoliciesNote 3: Discontinued OperationsNote 4: Earnings Per ShareNote 5: Deconsolidation Of SubsidiariesNote 6: Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 2. Unregistered Sales Of Equity SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits