I-ON Digital Corp 10-Q for FY2021 Q3
I-ON Digital Corp. (IONI)
10-Q
2021-11-15
For: 2021-09-30
View Original
Added on
April 06, 2026
About this 10-Q
I-ON Digital Corp filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.62M
- up 56.8% from $2.31M a year earlier
- Net income
- $981.92K
- up 234.5% from net income of $293.58K a year earlier
- Diluted EPS
- $0.03
- up 200.0% from $0.01 a year earlier
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, 2021
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: 333-206745
(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 November 12, 2021
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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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18
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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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PART II – OTHER INFORMATION
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Item 1.
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26
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Item 2.
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26
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Item 3.
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26
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Item 4.
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26
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Item 5.
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26
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Item 6.
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26
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27
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PART 1 – FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of I-ON Digital Corp. and subsidiary (“we”, “our”, “us”, the “Company”) follow. All currency references in this report are to US
dollars unless otherwise noted.
2
I-ON Digital Corp. and Subsidiary
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 Subsidiary
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September 30,
2021
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December 31,
2020
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ASSETS
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Current assets:
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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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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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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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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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Current liabilities:
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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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Value added tax payable
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Income tax payable
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Short-term loan payable
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Current portion of long term debt
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Government grants outstanding
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Total current liabilities
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Long term debt, net of current portion
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Total liabilities
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Commitments and contingencies
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Stockholders’ Equity
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Common stock - $
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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 income (loss)
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(
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Accumulated retained earnings
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Total company stockholders’ equity
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Preferred stock (I-ON Korea) - $
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Non-controlling interests
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Total stockholders’ equity
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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.
| Three-Month Ended September 30, |
Nine-Month Ended September 30,
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|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
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Net sales
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$
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$
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$ | $ | ||||||||||
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Cost of goods sold
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Gross profit
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Operating expense:
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Research and development
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General and administrative
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Total operating expense
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Income from operations
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Other income (expense):
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Interest income
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Foreign currency transaction gain (loss)
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(
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(
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( |
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Miscellaneous income (expense), net
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(
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Interest expense
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(
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(
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( |
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Total other income (expense), net
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(
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Income before provision for income taxes, and non-controlling interest
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Provision (benefit) for income tax
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(
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( |
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Net income before non-controlling interest
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Non-controlling interest income (loss)
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Net income
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$
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$
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$ | $ | ||||||||||
| Comprehensive income statement: | ||||||||||||||||
| Net income |
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| Foreign currency translation gain (loss) | ( |
) |
( |
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( |
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| Total comprehensive income |
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| Earnings per share – Basic | ||||||||||||||||
| Net income before non-controlling interest | ||||||||||||||||
| Non-controlling interest | ( |
) | ||||||||||||||
| Earnings per share to stockholders | ||||||||||||||||
| Earnings per share – Diluted | ||||||||||||||||
| Net income before non-controlling interest | ||||||||||||||||
| Non-controlling interest | ( |
) | ||||||||||||||
| Earnings per share to stockholders | ||||||||||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
I-ON Digital Corp. and Subsidiary
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Accumulated
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Total
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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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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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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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Balance
at December 31, 2020
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$ | $ | $ | $ | ( |
) | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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Foreign currency translation
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- |
- |
( |
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Net income(loss)
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- |
( |
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Balance at March 31, 2021
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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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$
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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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Foreign currency translation
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- |
- |
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Net income(loss)
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- |
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Balance at June 30, 2021
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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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$
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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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Foreign currency translation
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- |
( |
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Net income(loss)
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- |
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Balance
at September 30, 2021
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( |
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) | ||||||||||||||||||||||||||||||||||||
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Accumulated
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Total
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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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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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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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Balance at December 31, 2019
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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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$
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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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|||||||||||||||||||
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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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Stock compensation expense
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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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Balance
at March 31, 2020
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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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$
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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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Foreign currency translation
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- |
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Stock compensation expense
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- | |||||||||||||||||||||||||||||||||||||||
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Net income(loss)
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- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
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Balance at June 30, 2020
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$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||||||||||
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Reclassification of issuance of common stock in connection with equity purchase agreement
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( |
) | ||||||||||||||||||||||||||||||||||||||
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Foreign currency translation
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- |
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Stock compensation expense
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- | |||||||||||||||||||||||||||||||||||||||
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Net income(loss)
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- | |||||||||||||||||||||||||||||||||||||||
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Balance at September 30, 2020
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$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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Nine Months
ended
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September 30,
2021
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September 30, 2020
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Cash flows from operating activities:
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Net income
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$
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$
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Adjustments to reconcile net income (loss) to net cash used in operating activities:
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Non-controlling interest
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(
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)
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Depreciation - fixed assets
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Amortization of intangible assets
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Stock options expense
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Changes in operating assets and liabilities:
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Account receivable, net
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(
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)
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Prepaid expenses and other current assets
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(
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)
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(
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)
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Deposit
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(
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)
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(
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)
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Deferred taxes
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(
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)
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Account 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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)
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(
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)
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Value added tax payable
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(
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)
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Income tax payable
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(
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)
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(
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)
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Net cash provided by (used in) operating activities
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(
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)
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Cash flows from investing activities:
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| Proceeds from sale (purchases of) investments |
( |
) | ||||||
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Purchases of long-term investments
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-
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-
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Purchases of property and equipment
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(
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(
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)
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Purchases of intangible assets
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(
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)
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(
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)
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| Payments received from short-term loan receivable |
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| Loans provided under short-term loans |
( |
) | ||||||
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Net cash used in investing activities
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(
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)
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(
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)
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Cash flows from financing activities:
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Principal payments on long-term debt
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(
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)
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(
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)
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||||
| Payments on short-term borrowings |
( |
) | ||||||
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Net receipt of government grants
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Net cash provided by (used in) financing activities
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(
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)
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Effect of foreign currency translation on cash and cash equivalents
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(
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)
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Net increase (decrease) in cash and cash equivalents
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(
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)
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Cash and cash equivalents including restricted cash, beginning of period
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Cash and cash equivalents including restricted cash, end of period
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$
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$
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Supplemental disclosure of cash flow information:
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Interest paid
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$
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|
$
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|
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Taxes paid
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$
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|
$
|
|
||||
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, Malaysia and Indonesia, by developing industry-leading products such as ICS (web content management system), iDrive (e-document management
system), LAMS (load aggregator’s management system), e.Form (mobile contract system), IDAS (digital asset management system) and ICE (content delivery system).
I-ON, Ltd is the Japanese subsidiary of the Company incorporated in 2002. The total assets of I-ON, Ltd is approximately $601,147 . The Company has 99.5 %
ownership of I-ON, Ltd.
On or
about August 1, 2021, the Company’s wholly-owned subsidiary I-On Communications, Ltd. (“Communication”) formed a new wholly-owned subsidiary named eformworks Co., Ltd. (“e.Form”) into which Communications moved its electronic
signature operations. Communications contributed KRW 300,000,000 to e.Form to subscribe for its founders shares and own
100% of the outstanding capital stock of e.Form.
| NOTE 2: |
Summary of Significant Accounting Policies
|
Principles of Consolidation and Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of I-ON Communication Co., Ltd. and its 99.5 % owned subsidiary, I-ON, Ltd. All intercompany accounts, transactions, and profits have been eliminated upon consolidation. The accompanying unaudited condensed
consolidated financial statements and the notes hereto are reported in US Dollars.
The unaudited condensed consolidated financial statements were prepared and presented in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. Non-controlling interests represent the portion of earnings that is not within the parent Company’s control. These amounts are
required to be reported as equity instead of as a liability on the unaudited condensed consolidated balance sheet. ASC requires net income or loss from non-controlling minority interests to be shown separately on the unaudited condensed
consolidated statements of operations.
The unaudited condensed 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. 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 of operations that may be expected for the full fiscal year ending December 31, 2021 or any future period.
Use of Estimates in the Preparation of Financial Statements
The
preparation of these unaudited condensed consolidated financial statements in accordance 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 dates of the unaudited condensed consolidated financial statements and the reported amounts of net sales and expenses during the
reported periods. Actual results may differ from those estimates and such differences may be material to the unaudited condensed consolidated financial statements. The more significant estimates and assumptions by management include among
others: common stock valuation, and the recoverability of intangibles. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
8
I-ON Digital Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements (Unaudited)
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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, the exchange rate was KRW
|
Translation adjustments were a net loss of $468,727 and net gain of $162,903 for the three-month ended September 30, 2021 and 2020, respectively, and a net loss of $996,830
and net loss of $84,925 for the nine-month ended September 30, 2021 and 2020, respectively.
Segment Reporting
FASB ASC 280, Segment Reporting, requires public companies to report financial and descriptive
information about their reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer has been identified as the chief decision maker.
The Company generates revenues from two
geographic areas, consisting of Korea and Japan. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements:
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
Korea
|
||||||||
|
Current assets
|
$
|
|
$
|
|
||||
|
Non-current assets
|
|
|
||||||
|
Current liabilities
|
|
|
||||||
|
Non-current liabilities
|
|
|
||||||
|
Japan
|
||||||||
|
Current assets
|
$
|
|
$
|
|
||||
|
Non-current assets
|
|
|
||||||
|
Current liabilities
|
|
|
||||||
|
Non-current liabilities
|
|
|
||||||
|
Nine-month
Ended September 30,
|
Three-month
Ended September 30,
|
|||||||||||||||
|
2021
|
2020
|
2021 |
2020 |
|||||||||||||
|
Korea
|
||||||||||||||||
|
Net Sales
|
$
|
|
$
|
|
$ | $ |
||||||||||
|
Japan
|
||||||||||||||||
|
Net Sales
|
$
|
|
$
|
|
$ |
$ | ||||||||||
9
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Revenue Recognition – Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
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 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 service for the contract is completed.
|
| ● |
Maintenance – the Company recognizes revenue over the contract term based on percentage-of-completion method.
|
Cash, Cash Equivalents, and Restricted Cash
The Company
considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Restricted cash represents cash deposits which is restricted by the financial institutions for the loans the financial institutions having
with the Company’s chief executive officer. The loans with the financial institutions are amounted to approximately $1,603,000 and
$1,572,000 at September 30, 2021 and December 31, 2020, respectively, and expires on various days during 2021, unless extended. The
loans, bearing various interest rates, are guaranteed by the Company and the restricted cash deposits of the Company are provided to the financial institutions as collateral.
This arrangement could be considered as a violation of Section 402 of the Sarbanes-Oxley Act of 2002 amended the Securities Exchange Act of
1934 to prohibit U.S. and foreign companies with securities traded in the United States from making, or arranging for third parties to make, nearly any type of personal loan to their directors and executive officers. Violations of the
Sarbanes-Oxley loan prohibition are subject to the civil and criminal penalties applicable to violations of the Exchange Act.
Research and Development
Research and development costs are expensed as incurred. Research and development costs include travel, payroll, and other general expenses
specific to research and development activities. Research and development cost for three months ended September 30, 2021 and 2020 was $239,108
and $96,932 , respectively, and for the nine months ended September 30, 2021 and 2020 was $835,364 and $501,093 , respectively.
Impairment analysis for long-lived assets and intangible assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for
impairment in accordance with the guidance of the FASB ASC 360, Property, Plant, and Equipment and FASB ASC 205 Presentation of Financial Statements. The Company tests for impairment losses on
long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the
carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a
material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered
necessary. The Company had not experienced impairment losses on its long-lived assets and intangible assets during any of the periods presented.
Government Grants
Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grants’ conditions and that
the grants will be received. Government borrowings, which are lower than the market interest rate, are regarded as government grants. The grant is measured from the difference between the fair values of the government borrowings computed
using the market interest rate and the acquisition cost of the grant. Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of
the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Government grants which are intended to compensate the Company for expenses incurred are recognized as other income in profit or loss over
the periods in which the Company recognizes the related costs as expenses. There are government grants outstanding of $401,153 and
$424,439 as of September 30, 2021 and December 31, 2020, respectively.
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.
10
I-ON Digital Corp. and Subsidiary
Notes to 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.
The Company also has financial instruments classified within the fair value hierarchy, which consists of the following:
| ● |
Investments in privately-held companies, where quoted market prices are not available, accounted for as available-for-sale
securities, classified as Level 3 within the fair value hierarchy, and are recorded as an asset on the consolidated balance sheet
|
|
|
●
|
An equity purchase put option that meets the definition of a derivative, classified as Level 3 within the fair
value hierarchy, which is recorded as an asset on the consolidated balance sheet
|
The derivatives are evaluated under the hierarchy of ASC 480-10, ASC Paragraph 815-25-1 and ASC Subparagraph 815-10-15-74 addressing
embedded derivatives. The fair value of the Level 3 financial instruments was determined with the assistance of an independent third-party valuation specialist using an Option Pricing Model.
The following table summarizes the Company’s fair value measurements by level for the assets measured at fair value on a recurring basis:
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Available-for-sale securities
|
$
|
|
$
|
|
$
|
|
||||||
|
Common stock purchase warrant
|
|
|
|
|||||||||
|
Equity purchase put option
|
|
|
|
|||||||||
|
Fair value, at September 30,
2021
|
$
|
|
$
|
|
$
|
|
||||||
The following table summarizes the Company’s fair value measurements by level at December 31, 2020 for the assets measured at fair value on
a recurring basis:
|
Level 1
|
Level 2
|
Level 3
|
||||||||||
|
Available-for-sale securities
|
$
|
|
$
|
|
$
|
|
||||||
|
Common stock purchase warrant
|
|
|
|
|||||||||
|
Equity purchase put option
|
|
|
|
|||||||||
|
Fair value, at December 31, 2020
|
$
|
|
$
|
|
$
|
|
||||||
11
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Recently Issued Accounting Pronouncements
Pronouncements Not Yet Effective
| ● |
Reference Rate Reform
|
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.
Pronouncements Adopted
| ● |
Fair Value Measurements
|
In August 2018, the FASB amended “Fair Value Measurements” to modify the disclosure requirements related to fair
value. The amendment removes requirements to disclose (1) the amount of and reasons for transfers between levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation
processes used in level 3 measurements. It clarifies that, for investments measured at net asset value, disclosure of liquidation timing is only required if the investee has communicated the timing either to us or publicly. It also
clarifies that the narrative disclosure of the effect of changes in level 3 inputs should be based on changes that could occur at the reporting date. The amendment adds a requirement to disclose the range and weighted average of
significant unobservable inputs used in level 3 measurements. Adoption did not have an impact on the Company’s unaudited condensed consolidated results of operations, consolidated financial position, and cash flows.
| ● |
Retirement Plans
|
In August 2018, the FASB amended “Retirement Plans” to modify the disclosure requirements for defined benefit plans. For the Company, the amendment requires the disclosure of the weighted average interest crediting rate used for
cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. It removes the requirement to disclose the approximate amount of future benefits covered by
insurance contracts. Adoption did not have an impact on the Company’s consolidated results of operations, consolidated financial position, and cash flows.
| ● |
Intangibles – Goodwill and other – Internal-Use Software
|
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the
service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing
disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December
15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company adopted the
updated disclosure requirements of ASU No. 2018-15 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and the impact from this standard to be immaterial.
| ● |
Financial Instruments
|
In March 2016, the FASB amended “Financial Instruments” to provide financial statement users with more decision-useful
information about the expected credit losses on debt instruments and other commitments to extend credit held by a reporting entity at each reporting date. During November 2018 and April 2019, the FASB made amendments to the new standard
that clarified guidance on several matters, including accrued interest, recoveries, and various codification improvements. The new standard, as amended, replaces the incurred loss impairment methodology in the current standard with a
methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to support credit loss estimates. The new guidance is effective for us on January 1, 2020, and in the
first half of 2019 and there is no material impact on the Company’s consolidated results of operations, consolidated financial position, and cash flows.
12
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
|
NOTE 3:
|
Long-term Debt
|
Long-term debt consisted of the following:
|
September 30,
2021
|
December 31,
2020
|
|||||||
|
A note payable to a financial institution bearing interest at
|
$
|
|
$
|
|
||||
|
Long-term debt
|
$
|
|
$
|
|
||||
|
Less: current portion
|
(
|
)
|
(
|
)
|
||||
|
Long-term debt, net of current portion
|
$
|
|
$
|
|
||||
The long-term debt contains certain covenants, and the Company was in compliance with the covenants.
|
NOTE 4:
|
Line of Credit
|
The Company has lines of credit with financial institutions for total amount of approximately $3,400,000 that expires in various months in 2021, unless extended. There was no outstanding balance under the credit lines at September 30, 2021 The lines of credit, bearing various interest rates are guaranteed by the officer of the Company.
The Company has an arrangement with its customers and a financial institution, in which the Company’s customers issue electronic invoices
with the Company as the recipient. The Company can use these receivables as collateral for loans up to approximately $5,000,000
and $5,500,000 as of September 30, 2021 and December 31, 2020, respectively. The Company receives its payments due when the
customer fully pays the invoices to the financial institution. The interest rates vary depending on the Company’s customers’ credit ratings. The Company has no
| NOTE 5: |
Short Term Loan Payable
|
The Company has a short-term loan with a financial institution bearing interest rate of 2.575 % expiring July 16, 2022 . All amounts outstanding
are due on July 16, 2022 , however, the Company may make earlier payments without any penalty. The total amount outstanding was
approximately $338,000 and $506,000
at September 30, 2021 and December 31, 2020, respectively. The short-term loan is guaranteed by the officer of the Company.
13
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
| NOTE 6: |
Investments
|
Available-for-sale securities
The Company’s investments also include privately-held companies, where quoted market prices are not available, and the cost method,
combined with other intrinsic information, is used to assess the fair value of the investment.
The following table summarize the Company’s investment securities:
|
Available-for-sale securities
|
Percentage of
Ownership
|
September 30,
2021
|
December 31, 2020
|
|||||||||
|
4Grit
|
|
%
|
$
|
|
$
|
|
||||||
|
E-channel
|
|
%
|
$
|
|
$
|
|
||||||
|
KSFC
|
|
%
|
$
|
|
$
|
|
||||||
|
Total investment securities
|
$
|
|
$
|
|
||||||||
| NOTE 7: |
Commitments and Contingencies
|
Royalty
On February 15, 2006, the Company agreed to provide the rights to Ashisuto to sell the products in the Japanese market. Per the agreement,
the contract period is automatically extended by 5 years up to 20 years .
Operating Leases
The Company leases its office under non-cancelable operating leases that expire on dates through December 2021. The lease is automatically
extended upon agreement of both parties. Rent expense for all operating leases for the three-month ended September 30, 2021 and 2020 was $37,135
and $34,978 , respectively, and for the nine-month ended September 30, 2021 and 2020 was $111,405 and $94,442 , respectively.
| NOTE 8: |
Related Party Transactions
|
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s
restricted cash is provided as collateral to the Company’s chief executive officer’s loans.
| NOTE 9: |
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).
14
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
The following
table sets forth the computation of basic and diluted net income per common share:
|
Three-Month Period
Ended September 30,
|
Nine-Month Period
Ended September 30,
|
|||||||||||||||
|
Periods Ended
|
2021
|
2020
|
2021 |
2020 |
||||||||||||
|
Net income before non-controlling interest
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Non-controlling interest
|
|
|
( |
) | ||||||||||||
|
Net income
|
|
|
||||||||||||||
|
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
|
|
|
||||||||||||||
|
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
|
$
|
|
$
|
|
$ | $ | ||||||||||
| NOTE 10: |
Non-Controlling Interest-Issuance of Preferred Stock by Subsidiary
|
On April 9, 2019, The Company’s subsidiary, I-ON Communication Korea issued 157,142 shares of redeemable convertible preferred stock at a price of KRW 3,500
per share for proceeds of KRW 549,997,000 . The convertible preferred stock agreement contains provisions as follows:
| ● |
Voting rights – The preferred shareholder may have same voting rights as common stock shareholder (
|
| ● |
|
| ● |
Liquidating rights
|
| ● |
Conversion rights to common stock
|
| ● |
Call option by preferred shareholder - Preferred stock may be converted to common stock anytime at a fixed conversion price of KRW
|
| ● |
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
|
The Company accounted for the issuance of preferred stock under ASC 810-10-45-23, Consolidation, and was treated as equity transaction
as the parent’s ownership interest retains control of a subsidiary. The preferred stock issuance by a subsidiary to noncontrolling interest holders was reflected as a noncontrolling interest in the financial statements of the parent at
the amount of the cash proceeds received.
The convertible preferred shares meet definition of equity instrument and contain a put option that is not outside the Company’s control
and the conversion to common stock is at a fixed, determinable share conversion price at KRW 3,500 per share.
| NOTE 11: |
Subsequent Events
|
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial
statements are available to be issued. Any material events that occur between the balance sheet date and the date that the financial statements were available for issuance are disclosed as subsequent events, while the financial statements
are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this review, except as disclosed within the footnotes or as discussed below, the Company did not identify any recognized or non-recognized subsequent
events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
15
I-ON Digital Corp. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
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 three and nine months ended September 30, 2021 and 2020 and as of September 30, 2021 and December 31, 2020 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, 2020, 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 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 Oh, who currently serves as CEO. The Company’s roots are in
IT consultancy and software development. I-ON services South Korea’s enterprise content management system’s (CMS) market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.
After being awarded its first of numerous international patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of on-premise and
cloud-based enterprise-class unstructured data management, digital experience and digital marketing software and solutions. I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling
clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery, while increasing the return on
their investments in digital communication and marketing spend. As of its founding, the Company has serviced and continues to service over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public
sectors. The Company has meaningfully expanded its reach over the past decade and now currently markets, licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia,
Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.
I-ON currently holds 6 international and over 20 domestic patents for both products and methodologies built into the 10 product offerings the Company currently has at market. These encompass
enterprise CMS, digital experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions as well as sports software and IT convergence services. Beginning in the
fourth quarter of 2018, the Company started endorsing its 7th generation cloud based Digital Experience (DXP) platform as a service offering known as ICE, which encompasses a more feature-rich front and back end CMS. The Company has designed
and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology). I-ON also holds numerous domestic and global industry awards, earning high rankings and
recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.
In addition to South Korea, Japan has particularly helped fuel I-ON’s growth over the past 10 years owing to the success of an exclusive licensing deal with Ashisuto, a large Japan-based
technology services firm that employs approximately 800 technical, engineering and marketing staff across 9 office locations. Ashisuto, which has provided technology services to Japan’s enterprises and government entities since 1973, currently
white labels and sells I-ON’s core CMS offering ICS6 to over 600 clients as NOREN 6.
As a result of global enterprise digital marketing trends and I-ON’s nearly 20 -year track record in South Korea, Japan and now, Southeast Asia, the Company’s objective is to continue to gain
market share in these markets. I-ON will continue to closely engage and consult with existing and prospective clients as their subject matter expert and digital strategist of choice across multiple touchpoints in the digital marketing and
technology ecosystem, helping Chief Marketing Officers (CMO) and Chief Information Officers (CIO) drive critical change and growth for their organizations.
I-ON has invested and continues to spend substantial revenue on research and development. The Company has over 100 employees as of December 31, 2020, approximately 90% of whom are considered
full-time. Research and development typically comprises of approximately 80 junior, mid to senior level engineers and developers, most of whom are based at the Company’ headquarters located at 15 Teheran-ro 10-gil, Gangnam-gu, Seoul, South
Korea, 06234.
Results of Operations
Comparison of results of operations for the three months ended September 30, 2021 as compared to the three months ended
September 30, 2020
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, 2021
|
September 30, 2020
|
Change
|
||||||||||||||||||||||
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
|
|
|||||||||||||||||||||||
|
Net sales
|
$
|
3,616,267
|
100.0
|
%
|
$
|
2,306,668
|
100.0
|
%
|
$
|
1,309,599
|
56.8
|
%
|
||||||||||||
|
Cost of goods sold
|
2,494,644
|
69.0
|
%
|
1,497,499
|
64.9
|
%
|
997,145
|
66.6
|
%
|
|||||||||||||||
|
Gross profit
|
1,121,623
|
31.0
|
%
|
809,169
|
35.1
|
%
|
312,454
|
38.6
|
%
|
|||||||||||||||
|
Operating expense:
|
||||||||||||||||||||||||
|
Research and development
|
239,108
|
6.6
|
%
|
96,932
|
4.2
|
%
|
142,176
|
146.7
|
%
|
|||||||||||||||
|
General and administrative
|
491,738
|
13.6
|
%
|
389,215
|
16.9
|
%
|
102,523
|
26.3
|
%
|
|||||||||||||||
|
Total operating expense
|
730,846
|
20.2
|
%
|
486,147
|
21.1
|
%
|
244,699
|
50.3
|
%
|
|||||||||||||||
|
Income from operations
|
390,777
|
10.8
|
%
|
323,022
|
14.0
|
%
|
67,755
|
21.0
|
%
|
|||||||||||||||
|
Other income (expense):
|
||||||||||||||||||||||||
|
Interest income
|
9,072
|
0.3
|
%
|
10,037
|
0.4
|
%
|
(965
|
)
|
-9.6
|
%
|
||||||||||||||
|
Foreign currency transaction gain(loss)
|
(6,953
|
)
|
-0.2
|
%
|
(535
|
)
|
0.0
|
%
|
(6,418
|
)
|
1,199.6
|
%
|
||||||||||||
|
Miscellaneous income (expense), net
|
12,603
|
0.3
|
%
|
(8,977
|
)
|
-0.4
|
%
|
21,580
|
-240.4
|
%
|
||||||||||||||
|
Interest expense
|
(2,512
|
)
|
-0.1
|
%
|
(5,194
|
)
|
-0.2
|
%
|
2,682
|
-51.6
|
%
|
|||||||||||||
|
Total other income (expense), net
|
12,210
|
0.3
|
%
|
(4,669
|
)
|
-0.2
|
%
|
16,879
|
-361.5
|
%
|
||||||||||||||
|
Income before provision for income taxes, and non-controlling interest
|
402,987
|
11.1
|
%
|
318,353
|
13.8
|
%
|
84,634
|
26.6
|
%
|
|||||||||||||||
|
Provision for income tax
|
(579,022
|
)
|
-16.0
|
%
|
24,748
|
1.1
|
%
|
(603,990
|
)
|
-2,439.7
|
%
|
|||||||||||||
|
Net income before non-controlling interest
|
982,009
|
27.2
|
%
|
293,605
|
12.7
|
%
|
688,404
|
234.54
|
%
|
|||||||||||||||
|
Non-controlling interest income
|
89
|
0.0
|
%
|
25
|
0.0
|
%
|
64
|
256.0
|
%
|
|||||||||||||||
|
Net income
|
$ 981,920
|
27.2
|
%
|
$ 293,580
|
12.7
|
%
|
$688,340
|
234.57
|
%
|
|||||||||||||||
Net Sales
Net sales increased by $5,961,795, or 95.2%, to $12,224,926 for the nine months ended September 30, 2021 from $6,263,131 for the nine months ended
September 30, 2020. The change in net sales reflected the following:
- Solution installation revenue increased by approximately $2,602,130 from approximately $551,238 for the nine months ended September 30, 2020 to
$3,153,367 for the nine months ended September 30, 2021 due to the Company focusing in sales effort in this area and signing up new projects with various customers since September 30, 2020 to September 30, 2021.
- Maintenance revenue increased by approximately $681,601 from approximately $1,186,796 for the nine months ended September 30, 2020 to $1,868,398
for the nine months ended September 30, 2021 due to increase in new contracts.
- License customization revenue increased by approximately $2,647,171 from approximately $3,284,696 for the nine months ended September 30, 2020 to
$5,931,867 for the nine months ended September 30, 2021 due to Company focusing in sales effort in this area and signing up new projects with various customers since September 30, 2020 to September 30, 2021.
Cost of Goods Sold
Cost of goods sold increased by $4,390,730 or 103.6%, to $8,626,293 for the nine months ended September 30, 2021 from $4,235,923 for the nine
months ended September 30, 2020. The increase was primarily due to using outsourcing services.
Gross Profit (Loss)
Gross profit increased by $1,571,425, or 77.5%, to gross profit of $3,598,633,or 29.4% of net sales, for the nine months ended September 30, 2021,
from gross profit of $2,027,208, or 32.4% of net sales, for the nine months ended September 30, 2020.
The increase was due to an increase in sales.
Research and Development
Research and development expenses increased by $334,271 or 66.7%, to $835,364 for the nine months ended September 30, 2021 from $501,093 for the
nine months ended September 30, 2020. The increase was mainly due to increase in headcount computer programmers at the research and development department.
General and Administrative
General and administrative expenses increased by $258,366 or 19.7%, to $1,569,211 for the nine months ended September 30, 2021 from $1,310,845
for the nine months ended September 30, 2020. The increase was due to increase in commission fees, service fees, and training expense.
Other Income (Expense)
Other income (expense) change was primarily due to increase in miscellaneous income from Japan.
Provision for Income Tax
Change in tax provision was not material.
Comparison of results of operations for the nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020
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, 2021
|
September 30, 2020
|
Change
|
||||||||||||||||||||||
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
Amount
|
%
|
|||||||||||||||||||
|
|
|
|||||||||||||||||||||||
|
Net sales
|
$
|
12,224,926
|
100.0
|
%
|
$
|
6,263,131
|
100.0
|
%
|
$
|
5,961,795
|
95.2
|
%
|
||||||||||||
|
Cost of goods sold
|
8,626,293
|
70.6
|
%
|
4,235,923
|
67.6
|
%
|
4,390,370
|
103.6
|
%
|
|||||||||||||||
|
Gross profit
|
3,598,633
|
29.4
|
%
|
2,027,208
|
32.4
|
%
|
1,571,425
|
77.5
|
%
|
|||||||||||||||
|
Operating expense:
|
||||||||||||||||||||||||
|
Research and development
|
835,364
|
6.8
|
%
|
501,093
|
8.0
|
%
|
334,271
|
66.7
|
%
|
|||||||||||||||
|
General and administrative
|
1,569,211
|
12.8
|
%
|
1,310,845
|
20.9
|
%
|
258,366
|
19.7
|
%
|
|||||||||||||||
|
Total operating expense
|
2,404,575
|
19.7
|
%
|
1,811,938
|
28.9
|
%
|
592,637
|
32.7
|
%
|
|||||||||||||||
|
Income from operations
|
1,194,058
|
9.8
|
%
|
215,270
|
3.4
|
%
|
978,788
|
454.7
|
%
|
|||||||||||||||
|
Other income (expense):
|
||||||||||||||||||||||||
|
Interest income
|
32,595
|
0.3
|
%
|
33,007
|
0.5
|
%
|
(412
|
)
|
-1.2
|
%
|
||||||||||||||
|
Foreign currency transaction gain(loss)
|
(29,912
|
)
|
-0.2
|
%
|
10,443
|
0.2
|
%
|
(40,355
|
)
|
-386.4
|
%
|
|||||||||||||
|
Miscellaneous income, net
|
23,622
|
0.2
|
%
|
50,229
|
0.8
|
%
|
(26,607
|
)
|
-53.0
|
%
|
||||||||||||||
|
Interest expense
|
(10,866
|
)
|
-0.1
|
%
|
(18,470
|
)
|
-0.3
|
%
|
7,604
|
-41.2
|
%
|
|||||||||||||
|
Total other income, net
|
15,439
|
0.1
|
%
|
75,209
|
1.2
|
%
|
(59,770
|
)
|
-79.5
|
%
|
||||||||||||||
|
Income before provision for income taxes, and non-controlling interest
|
1,209,497
|
9.9
|
%
|
290,479
|
4.6
|
%
|
919,018
|
316.4
|
%
|
|||||||||||||||
|
Provision for income tax
|
(506,438
|
)
|
-4.1
|
%
|
132,933
|
2.1
|
%
|
(639,392
|
)
|
-481.0
|
%
|
|||||||||||||
|
Net income before non-controlling interest
|
1,715,936
|
14.0
|
%
|
157,546
|
2.5
|
%
|
1,558,390
|
989.2
|
%
|
|||||||||||||||
|
Non-controlling interest income (loss)
|
(409
|
)
|
0.0
|
%
|
422
|
0.0
|
%
|
(831
|
)
|
-196.9
|
%
|
|||||||||||||
|
Net income
|
$ 1,016,345
|
14.0
|
%
|
$ 157,124
|
2.5
|
%
|
$1,559,221
|
992.4
|
%
|
|||||||||||||||
Net Sales
Net sales increased by $5,953,784, or 95.1%, to $12,216,915 for the nine months ended September 30, 2021 from $6,263,131 for the nine months ended September 30, 2020. The change in net sales
reflected the following:
- Solution installation revenue increased by approximately $2,602,130 from approximately $551,238 for the nine months ended September 30, 2020 to $3,153,367 for the nine months ended
September 30, 2021 due to the Company focusing in sales effort in this area and signing up new projects with various customers since September 30, 2020 to September 30, 2021.
- Maintenance revenue increased by approximately $681,601 from approximately $1,186,796 for the nine months ended September 30, 2020 to $1,868,398 for the nine months ended September 30, 2021
due to increase in new contracts.
- License customization revenue increased by approximately $2,647,171 from approximately $3,284,696 for the nine months ended September 30, 2020 to $5,931,867 for the nine months ended
September 30, 2021 due to Company focusing in sales effort in this area and signing up new projects with various customers since September 30, 2020 to September 30, 2021.
Cost of Goods Sold
Cost of goods sold increased by $4,219,290 or 99.6%, to $8,455,923 for the nine months ended September 30, 2021 from $4,235,923 for the nine
months ended September 30, 2020. The increase was primarily due to using outsourcing services.
Gross Profit (Loss)
Gross profit increased by $1,734,494, or 85.6%, to gross profit of $3,761,702,or 30.8% of net sales, for the nine months ended September 30, 2021, from gross profit of $2,027,208, or 32.4% of
net sales, for the nine months ended September 30, 2020.
The increase was due to an increase in sales.
Research and Development
Research and development expenses increased by $334,271 or 66.7%, to $835,364 for the nine months ended September 30, 2021 from $501,093 for
the nine months ended September 30, 2020. The increase was mainly due to increase in headcount computer programmers at the research and development department.
General and Administrative
General and administrative expenses increased by $230,109 or 17.6%, to $1,540,954 for the nine months ended September 30, 2021 from $1,310,845 for the nine months ended September 30, 2020.
The increase was due to increase in commission fees, service fees, and training expense.
Other Income (Expense)
Other income (expense) change was primarily due to increase in foreign currency transaction loss.
Provision for Income Tax
Change in tax provision was not material.
Liquidity and Capital Resources
At September 30, 2021, the Company had cash and cash equivalents of $2,509,229. We estimate that we will require up to $3,000,000 of capital for the next twelve months of operations. We
estimate that our expenses will be comprised primarily of general expenses including particularly marketing, research and development costs, overhead, legal and accounting fees.
|
Nine Months Ended September 30,
|
Changes
|
||||||||||||
|
2021
|
2020
|
Amount
|
%
|
||||||||||
|
Net cash provided by (used in) operating activities
|
(1,053,228
|
)
|
1,790,454
|
(2,843,682)
|
-158.8
|
%
|
|||||||
|
Net cash used in investing activities
|
(48,523
|
)
|
(43,302
|
)
|
(5,221)
|
12.1
|
%
|
||||||
|
Net cash provided by (used in) financing activities
|
(297,463
|
)
|
391,064
|
(688,527)
|
-176.1
|
%
|
|||||||
|
Effect of foreign currency translation on cash and cash equivalents
|
(626,102
|
)
|
14,093
|
(640,195)
|
-4,542,0
|
%
|
|||||||
|
Net increase (decrease) in cash and cash equivalents
|
(2,025,316
|
)
|
2,152,309
|
(4,177,625)
|
-194.1
|
%
|
|||||||
Operating Activities
Cash used in operating activities for the nine months ended September 30, 2021 was $1,053,228 compared to cash provided by $1,790,454 for the nine
months ended September 30, 2020. The cash used in operating activities was due to primarily decrease in account receivable of ($1,461,280) for the nine months ended September 30, 2021 compared to account receivable of $1,644,070 for the nine
months ended September 30, 2020.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2021 was $48,524, compared to $43,302 for the nine months ended September
30, 2020, an increase of $5,222, or approximately 12.1%. The increase in cash used in investing activities was mainly due to net increase in purchase of investments of $4,421 for the nine months ended September 30, 2021 compared to $41,641 for
the nine months ended September 30, 2020.
Financing Activities
Cash used in financing activities for the nine months ended September 30, 2021 was $297,463 compared to cash provided by $391,064 for the nine
months ended September 30, 2020. The cash used in financing activities was due to primarily payment on short-term borrowings of $132,625 for the nine months ended September 30, 2021 compared to $0 for the nine months ended September 30, 2020
and decrease of net receipt of government grants of $11,969 for the nine months ended September 30, 2021 compared to $505,552 for the nine months ended September 30, 2020.
Critical Accounting Policies
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.
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.
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 our disclosure controls and procedures were not 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, 2021 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, 2021, 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, 2021 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 to implement segregation of duty, which we hope will improve the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
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.
None.
None.
Not applicable.
On April 28, 2021, the Company entered into an Agreement and Plan of Merger and Reorganization (the
“Agreement”) with CDI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Acquisition”), Cardio Diagnostics, Inc., a Delaware corporation (“CDI”), and the shareholders of CDI (the “CDI Shareholders”).
Pursuant to the terms of the Agreement, Acquisition will merge with and into CDI (the “Merger”) with CDI becoming the surviving entity and a wholly-owned subsidiary of the Company. In consideration for the Merger, the CDI Shareholders shall
receive 25,000,000 newly issued shares of common stock of the Company, par value $0.0001 (“I-On Common Stock”) to be issued to the CDI Shareholders in accordance with their pro rata ownership of CDI prior to the Merger.
Simultaneously with the Merger, all of the equity interests in I-On Communications, Ltd., a company organized under the laws of the Republic of
South Korea (“Communications”), the Company’s wholly-owned subsidiary, shall be transferred by the Company to certain other shareholders of the Company (collectively, the “Communications Shareholders”) in exchange for the return of Twenty
Million (20,000,000) shares of the I-On Common Stock held by the Communications Shareholders (the “Spinoff”). The Merger is contingent upon the approval by a majority of the Company’s shareholders of the Spinoff and an amendment to the
Company’s Certificate of Incorporation to change the name of the Company to “Cardio Diagnostics Holdings, Inc.” and effectuate the reverse split of the number of outstanding I-On Common Stock on the basis of one share for a range of per every
ten (10) to fifteen (15) shares of I-On Common Stock outstanding.
The Termination Date of the Merger Agreement was amended to September 30, 2021 on August 29, 2021 wherein CDI reimbursed the Company expenses in
the amount of $28,600 for its June 30, 2021 Form 10-Q filing and related expenses. On October 11, 2021, the Company and CDI again agreed to extend the Termination Date to December 31, 2021 wherein CDI agreed to reimburse the Company for any
and all expenses in connection with the Company’s Form 10-Q filing for the period ending September 30, 2021.
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Exhibit
Number
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Exhibit
Description
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Amendment No. 1 to Agreement and Plan of Merger and Reorganization
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Amendment No. 2 to Agreement and Plan of Merger and Reorganization
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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*
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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 **
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* 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.
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Date: November 15, 2021
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I-ON DIGITAL CORP.
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By:
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/s/ Jae Cheol Oh
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Name: Jae Cheol Oh
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Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)
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