Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
Enter Agreement, M&A, Earnings, Sale of Shares, Control, Officers, Amend Bylaw, Exhibits
Computer Task Group
Item 1A. Risk Factors
Item 1B: Unresolved Comments.
Item 2: Properties.
Item 3: Legal Proceedings.
Item 4: Mine Safety Disclosures.
Item 5: Market for Registrant's Common Equity Related Shareholder Matters and Issuer Purchases of Equity Securities.
Item 6: Selected Financial Data
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits
Note 1. Organization and Operations
Note 2. Summary of Significant Accounting Policies
Note 3. Merger and Plan of Reorganization
Note 4. Property and Equipment
Note 5. Intangible Assets
Note 6. Long-Term Debt
Note 7. Line of Credit
Note 8. Convertible Debt, Beneficial Conversion Feature, and Common Stock Warrant
Note 9. Investments
Note 10. Equity Purchase Agreement - Put Option
Note 11. Commitments and Contingencies
Note 12. Related Party Transactions
Note 13. Earnings per Share
Note 14. Income Taxes
Note 15. Stock Compensation
Note 16. Subsequent Events
I-On Communications Earnings 2018-12-31
ALES 10K Annual Report
10-K 1 form10k.htm 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission File Number 000-549995
I-ON DIGITAL CORP.
(Exact name of registrant as specified in its charter)
(formerly known as I-ON Communications Corp.)
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea
(Address of Principal Executive Offices)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.001 per share
OTC Markets LLC
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of June 29, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $45.8 million based on the closing sales price of $2.55 on the OTC Markets. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of April 15, 2019, there were approximately 35,030,339 shares of the registrant’s common stock outstanding.
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Organization and Corporate History
I-ON Digital Corp. (formerly known as I-ON Communications Corp.) was incorporated under the laws of the State of Delaware on June 18, 2013 as ALPINE 3 Inc. Alpine 3 Inc. was set up to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business. ALPINE 3 did not undertake any effort to cause a market to develop in its securities, either debt or equity, before it successfully concluded a business combination. On April 4, 2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of common stock which was all of the outstanding shares of Alpine 3, Inc., and subsequently changed the name to Evans Brewing Company Inc. (“EBC”) on May 29, 2014. On October 9, 2014 the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of common stock.
On October 15, 2014, Bayhawk and EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), subject to receiving approval of the independent Bayhawk shareholders who voted on the transaction. On September 17, 2015, the independent Bayhawk shareholders approved the agreement and Bayhawk sold to EBC and EBC purchased from Bayhawk assets of Bayhawk, including but not limited to the assets relating to the Bayhawk Ales label and the Evans Brands (collectively, the “Transferred Assets”). Bayhawk retained ownership of 100% of the stock in Evans Brewing Co. (CA) (“Evans Brewing California”) which has the brewers license at City Brewery in Lacrosse, WI. Based on the affirmative vote by the independent Bayhawk shareholders to approve the Asset Purchase transaction, EBC proceeded with the share exchange and tender offer to the Bayhawk shareholders, pursuant to which EBC offered to exchange shares of EBC common stock for shares of Bayhawk common stock, on a one-for-one basis (the “Exchange Offer”). At the close of the share exchange on December 2, 2015, 4,033,863 Bayhawk shares were accepted and exchanged for 4,033,863 shares of EBC common stock.
On January 25, 2018, Evans Brewing Company, Inc. consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with I-ON Communications Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) and I-ON Acquisition Corp., a wholly-owned subsidiary of the Company (“Acquisition”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into I-ON in a statutory reverse triangular merger (the “Merger”) with I-ON surviving as a wholly-owned subsidiary of the Registrant. As consideration for the Merger, the Registrant agreed to issue the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock, in accordance with their pro rata ownership of I-ON capital stock. Following the Merger, the Registrant adopted the business plan of I-ON in information technology consultancy and software development. On December 14, 2017, in connection with the Merger, the Company’s Board of Directors approved an amendment to its Certificate of Incorporation (the “Amendment”) to change its name to I-ON Communications Corp.
At the effective time of the Merger, our board of directors and officers were reconstituted by the appointment of Jae Cheol James Oh as Chairman, Chief Executive Officer, and Chief Financial Officer, Hong Rae Kim as Executive Director and Jae Ho Cho as Director. Michael Rapport resigned as President, Chief Executive Officer, and Chairman in connection with the Transaction and Evan Rapport resigned as Vice President and Director, Kenneth Wiedrich resigned as Chief Financial Officer and Director and Kyle Leingang resigned as Secretary. Roy Robertson, Mark Lamb, Joe Ryan, and Kevin Hammons resigned as members of the Board of Directors and their respective committees.
On March 21, 2019, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to change the name of the Company to I-ON Digital Corp.
ITEM I: BUSINESS
Evans Brewing Company
Until the date of the Merger, I-ON Digital Corp., formerly known as I-ON Communications Corp. and Evans Brewing Company Inc. (“EBC”) was a craft brewery based on Orange County, California that produces and sells premium craft beers, including a variety of ales and lagers. EBC’s beers are currently produced in its 17-barrel brewery in Irvine, California, the oldest continuously operating brewing facility in Orange County and one of the oldest in all of Southern California. This facility has been producing craft beers since January 1995. The brewery is located in a leased building in the McCormick & Schmick’s Seafood Restaurant.
In addition to manufacturing and selling the products above, EBC also produces and packages beers for other craft breweries in Southern California on a contract-basis. Further, in addition to beer production and sales generally, EBC also produces and offers for sale certain “Evans Brewing Company” branded merchandise including apparel, glassware and other beer accessories.
On September 29, 2016, Evans Brewing Company, Inc., closed the acquisition of a restaurant business located in the downtown SOCO District of Fullerton, California, through the acquisition of all the outstanding stock of EBC Public House, Inc., which the Company now operates as its first branded restaurant and taproom under the trade name “The Public House by Evans Brewing Company”. The Public House features the Company’s beers – as well as beers from other selected local Orange County, California breweries, -- food and, potentially, occasional entertainment.
In connection with such closing, the Company acquired 100% of the outstanding shares of EBC Public House from Mr. Rapport and issued 1,000,000 shares of the Company’s Series A Preferred Stock to Mr. Rapport. The asset purchase and share exchange have been treated as business combination as both companies are controlled by the same management.
EBC and Bayhawk filed a registration statement on Form S-4 with the U.S. Securities and Exchange Commission (the “Registration Statement”), which went effective on August 10, 2015. The Registration Statement included a proxy statement seeking the votes of the Bayhawk shareholders on the Asset Purchase Transaction by written consent. On September 17, 2015, the voting period closed, and EBC announced that approximately 99% of the shares that were voted had voted in favor of the Asset Purchase Transaction.
In connection with the Asset Purchase Transaction, EBC and Bayhawk entered into a General Assignment and Bill of Sale agreement (the “Bill of Sale”) which outlined the specific assets purchased, as well as an Assignment and Assumption of Liabilities agreement (the “Assumption Agreement) which outlined the specific liabilities of Bayhawk assumed by EBC.
In connection with the closing of the Asset Purchase Transaction and the entry into the Bill of Sale and the Assumption Agreement, EBC acquired the assets (other than the ownership of Evans Brewing California), the liabilities, and the operations of Bayhawk. As such, on December 10, 2015, in connection with this acquisition, EBC ceased to be a shell company as defined in Rule 12b-2, in that it had assets consisting of more than cash and cash equivalents, and has a business plan and operations.
Bayhawk Ales, Inc. (formerly Orange County Brewing Company) (“Bayhawk”) was formed in February 1994 for the purpose of developing and operating one or more breweries in California for the production of high quality, hand-crafted ales for sale in bottle and draft. The Company built a 17-barrel showcase brewery (the “Southern California Brewery”) in a leased building in the McCormick & Schmick’s Seafood Restaurant in Irvine, California.
Following the Merger, as described more fully herein, the Company adopted the business plan of I-ON. I-ON was founded by Jae Cheol James Oh, who currently serves as CEO. The Company’s roots are in IT consultancy and software development. I-ON services South Korea’s enterprise content management system’s (CMS) market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.
After being awarded its first of numerous international patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of on-premise and cloud-based enterprise-class unstructured data management, digital experience and digital marketing software and solutions. I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery, while increasing the return on their investments in digital communication and marketing spend. As of its founding, the Company has serviced and continues to service over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public sectors. The Company has meaningfully expanded its reach over the past decade and now currently markets, licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.
I-ON currently holds 6 international and over 20 domestic patents for both products and methodologies built into the 10 product offerings the Company currently has at market. These encompass enterprise CMS, digital experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions as well as sports software and IT convergence services. Beginning in the fourth quarter of 2018, the Company started endorsing its 7th generation cloud based Digital Experience (DXP) platform as a service offering known as ICE, which encompasses a more feature-rich front and back end CMS. The Company has designed and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology). I-ON also holds numerous domestic and global industry awards, earning high rankings and recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.
In addition to South Korea, Japan has particularly helped fuel I-ON’s growth over the past 10 years owing to the success of an exclusive licensing deal with Ashisuto, a large Japan-based technology services firm that employs approximately 800 technical, engineering and marketing staff across 9 office locations. Ashisuto, which has provided technology services to Japan’s enterprises and government entities since 1973, currently white labels and sells I-ON’s core CMS offering ICS6 to over 600 clients as NOREN 6.
As a result of global enterprise digital marketing trends and I-ON’s nearly 20 -year track record in South Korea, Japan and now, Southeast Asia, the Company’s objective is to continue to gain market share in these markets. I-ON will continue to closely engage and consult with existing and prospective clients as their subject matter expert and digital strategist of choice across multiple touchpoints in the digital marketing and technology ecosystem, helping Chief Marketing Officers (CMO) and Chief Information Officers (CIO) drive critical change and growth for their organizations.
I-ON has invested and continues to spend substantial revenue on research and development. The Company has over 100 employees as of December 31, 2018, approximately 90% of whom are considered full-time. Research and development typically comprises of approximately 80 junior, mid to senior level engineers and developers, most of whom are based at the Company’ headquarters located at 15 Teheran-ro 10-gil, Gangnam-gu, Seoul, South Korea, 06234.
The following is a brief description of I-ON’s key products:
ICS6 (I-ON Content Server) – ICS6 is I-ON’s generation 6 web content management system that helps reduce burdens of complex website management by organizing vast amounts of ever-increasing digital content and big data into physical directory and logical site structure. ICS6 is one of South Korea’s first-to-market cloud-based CMS platforms and a market share leader in both Korea & Japan.
ICE (I-ON Content Ecosystem) - ICE is I-ON’s 7th generation DXP offering that manages the digital content management lifecycle commencing from creation, registration, distribution, deletion, billing to analytics. ICE is geared for SOs seeking ways to enhance business to business to consumer (B2B2C) value.
IDS (I-ON Deploy Server) – IDS, in conjunction with ICS6, securely, conveniently and automatically deploys files and content between servers when distribution inefficiencies and services issues arise.
IDAS (I-ON Digital Asset Management System) – IDAS, in conjunction with ICS6, ensures a virtuous cycle of an organization’s digital assets through an integrated framework that collects, manages, deploys and distributes content. It also provides ample storage and categorization functionalities necessary to address high multi-media content demand including high-resolution video. The software supports digital archiving, scalability and changes in physical environment.
iCAFE (I-ON Content Application Framework Engine) – iCAFE is a content delivery platform optimized for N-Screen environments, offering a robust wire-wireless service delivery platform for broadcasting, imaging & mobile content
e.Form – e.Form is a one-stop mobile contract solution for smartphones and tablets that digitizes and expedites document creation and execution processes for organizations. The platform supports over 200 application programming interfaces (APIs).
iDrive – iDrive is a SaaS-based EDMS (e-document management system) which centralizes all categories of e-documents within an organization, iDrive is geared for streamlining and managing the e-document lifecycle from creation, approval, archiving to destruction.
GAIA – GAIA is a back-end unstructured data repository platform that manages a cloud-based ecosystem that enterprises or individuals can use to build and share mobile applications.
LAMS (Load Aggregator’s Management System) - LAMS is one of South Korea’s first Open ADR 2.0-based demand response management solutions designed to manage and reduce electricity consumption and peak demand through demand response program participation.
TAMM (Ticket Admission Marketing Management) - TAMM is a mobile B2B2C platform that integrates and manages the professional sports event experience from marketing and promotion and ticket purchases and reservations to the delivery of a mobile analytics dashboard for followers. Event organizers/sponsors have included, among others, the LPGA Hana Bank Championship and SK Telecom Open. I-ON acquired the core TAMM developers and intellectual property from South Korea-based MoceanPeople in March 2016.
Assist9 – Assist9 is a mobile all-in-one work flow process and data management dashboard geared towards small and medium-sized businesses and startups. Core functions revolve around ERP, PMS, SFA, HR, and e-approval – with up to fifteen others- and are designed to improve operational efficiencies and provide CEOs with greater analytical insight into their businesses.
South Korea, Japan and Southeast Asia
Econsultancy and Adobe reported in recent studies that less than 15% of CMO respondents identified as working for digital-first organizations, despite a study by Forrester Research that indicated 51% of B2B enterprises were ratcheting up digital marketing initiatives in 2018 and into 2019. A key driver of I-ON’s ability to tap further into existing and future addressable markets, the Company believes, will depend on how quickly mid to large enterprises can adopt a digital-first mindset through continued client engagement.
According to many industry researchers, such as Forrester and Gartner, the combined enterprise digital marketing and CMS sector in South Korea and Japan is expected to generate a high single digit compounded annual growth rate to over $800 million by 2020.
Given its market share-leading in both South Korea and Japan, I-ON remains uniquely positioned to serve as a localized partner and to address the evolving marketing needs of mid to large enterprises. CMOs continue to seek new and innovative ways to analyze, improve return on investment (ROI) and justify the value of increased digital marketing spending.
According to numerous industry sources, including Forbes, South Korea has emerged as one of Asia’s fastest growing technology startup hubs, attracting increasing investment from domestic funds and foreign investment.
Today, South Korea remains the eleventh largest economy in the world and, with 51 million people, the twenty-eighth largest population in the world, while boasting the world’s highest broadband penetration at 97%. South Korea was recently highlighted in Bloomberg’s list of most innovative countries, owing to the country’s research and development intensity, as well as productivity and educational standards. Home to Samsung, Hyundai and over 10 other Fortune 500 companies, South Korea, for the past several decades, has also been on a path pivoting from big industry and manufacturing to transformative technology, thanks to government and private/public partnership initiatives. Favorable policy initiatives have recently led to larger budget allocation towards science and technology, matching funds with international investors, establishing international entrepreneurship programs at universities, opening up many of the country’s research institutes, and providing safety nets for technologists and scientists that take capital risk.
Similarly, Japan remains the third largest economy and second largest developed economy in the world, the third largest automobile manufacturing, and the largest electronics goods industry in the world. Despite being home to over 50 Fortune 500 companies, and facing growing competition from China and South Korea, manufacturing and investment in Japan have also pivoted toward software development, high-technology, and precision goods sectors, such as robotics and optical instruments.
Asia-Pacific and Global
Across not only South Korea and Japan, but the entire Asia-Pacific region, businesses and consumers today increasingly demand personalized content and experiences in their online interactions, across multiple digital channels and devices. This is accelerating growth in the CMS and digital marketing arenas as well demand from marketers seeking solutions that optimize customers’ experiences, demonstrate the success of their programs with objective metrics, and deliver the greatest return on their marketing spend.
According to Gartner, the enterprise CMS market across the Asia-Pacific region, which includes China, South Korea, Hong Kong, Japan, Indonesia, Malaysia, Singapore and Vietnam – exceeded $700 million in 2016, up significantly from $500 million in 2014 and is projected to exceed $900 million by 2019, reflecting a compounded annual growth rate of at least 12%. Malaysia, Indonesia and Singapore collectively generated $180 million in enterprise CMS revenue last year and Gartner projects a 16% annual growth rate into 2020.
In North America, aggregate digital marketing spend, which includes CMS for both products and professional services by both mid and large-sized enterprises, exceeded $135 billion in 2016 from approximately $95 billion in 2014, and according to forecasts from both IDC and Statista, is projected to grow 18% annually to over $225 billion by 2019.
Globally, sources such as the CMO Council and Gartner estimate the current web and mobile digital marketing industry size at $450 billion, while forecasting a high single digit 5 year compounded annual growth rate to over $600 billion by 2019.
Between North America, Western Europe and developed economies within the Asia-Pac, the CMO Council currently foresees enterprise CMS implementation, content creation and optimization as representing over 50% of digital marketing spend, while mobile advertising, search engine and social media advertising contribute about 20%, 15% and 15%, respectively.
MARKETING AND GROWTH STRATEGY
Growth in omni-channel DXP, digital marketing and big data
CMS and digital marketing budgets at global brands continue to increase relative to traditional marketing dollars, according to Gartner and many CMO surveys, which describe a general atmosphere keen on shifting marketing dollars towards ROI enhancing tools such as audience analytics and curation, consumer engagement, smart mobility and artificial intelligence. In South Korea, existing and prospective clients across many sectors are often consulting with I-ON on how best to integrate disparate and increasingly complex needs, which may for example apply digital asset management, e-commerce, sports software and SaaS capabilities. As competition has been intensifying, the pace of overall M&A activity has also been accelerating as small and mid-size players such as I-ON, seek to diversify and address the trends and demands. Accordingly, enterprise CMS globally is being viewed less as tools for building web pages and standard analytics, but more so as vital software and value-added solutions that can help drive the effectiveness of often complex, data driven and expensive digital strategies and marketing campaigns. Interoperability remains a key differentiator across the dynamic South Korean and East Asian markets. Companies small and large, particularly those with intricate distribution and supply chain responsibilities, not only require a portal for their intranet for external needs, but demand that their CMS software facilitate a real-time connection between the business, people and things that allow all to communicate, transact and even negotiate with each other across all touch points. As a result, I-ON also intends to play further into the unstructured and big data, analytics, e-commerce and smart mobility arenas as part of its DXP offering.
Defining Value Proposition
I-ON believes it remains uniquely positioned to address the evolving digital experience and marketing needs of medium to large enterprises. Given the growth across the global enterprise digital marketing spectrum and I-ON’s 19-year track record serving a marquee clientele in South Korea, Japan, and parts of Southeast Asia, I-ON’s objective is to continue to aggressively gain market share by closely engaging with existing and prospective clients, while driving sales for both its core CMS offering and complementary solutions that enable organizations to transform traditional marketing initiatives into analytics and data-driven strategies vital to delivering measurable results.
I-ON believes that its software products and solutions will continue to be a primary revenue source for the Company over time and that its growing portfolio of products may generate profitable demand for associated maintenance, support, implementation, consulting, and training services that the Company, and a channel of licensees and value-added resellers (VARs), can provide.
Near-term, I-ON intends to do the following to drive organic growth:
Continue to leverage knowledge and experience into new or enhanced solutions and products
Continue to deploy secure pilot environments for prospective customers to evaluate and envision additional uses for customized application development
Continue to procure contracts directly, via strategic partnerships and increasing sales personnel
Recruit seasoned executives as well as younger talent to utilize unique training model that addresses resource shortages
Incubate and build-out focused profitable technology practices
Continue to participate in multi-lateral joint R&D projects in concert with its partners across many different countries
South East Asia
According to Gartner, Malaysia, Indonesia and Singapore generated $180 million in enterprise CMS revenue last year and project a 16% annual growth rate by 2020. As a result, I-ON intends to continue to build off of its initial successes in the Southeast Asia region, which include, among other projects, the following: implementation of a fully integrated mobile/online trading solution for Malaysia’s MNC Securities; a CMS implementation for a leading USA cable manufacturer, Commscope- supporting 13 languages to meet global standards; the implementation of a CMS solution based on CSDP (Convergence Service Delivery Platform) for Indonesia’s BOLEH Mobile; and an integration of CMS platforms for the Malaysia Ministry of Works.
Announced on October 1, 2018, I-ON and Singapore-based Hyper Resources Interactive Pte Ltd. executed an MoU whereby Hyper Resources will assist with marketing and utilize I-ON’s core CMS suite of ICS6, IDAS, IDS, ICS and eForm solutions to address the needs of Singaporean enterprises. I-ON will assist with operational and technical support as well as solutions training.
I-ON absorbed the TAMM team and technology in 2016. Currently the exclusive and secure web and mobile payment gateway provider for the KLGPA and technology partners with most of the major sponsors of the events, TAMM and its next generation omni-channel sports data management solution are well-positioned to address the $5 billion global sports software market, which is projected to increase at a 13% CAGR through 2024. Significant global investment in sports infrastructure including stadiums, complexes and leagues has been the leading driver of sports software development and implementation, which helps organizers automate various administrative functions, ticket sales, promotions, as well as player and game management utilizing both cloud-based and on-premise technology. North America currently holds a market share of close to 60% and is expected to continue its dominant trend through 2024, according to Hexa Research.
As announced in 2018, I-ON formed a partnership with the Ministry of Culture, Sports and Tourism and the Korea Institute of Sports Science to develop a domestic multi-sport marketing and analytics platform addressing amateur and pro golf and baseball participants and engagement. The initiative also integrates reputable University research and high-tech private sector resources. More recently in January 2019, I-ON announced a letter of intent, subject to a multi-year framework, with California-based Pacific Pro Football league, a new amateur-pro D-league targeting future NFL recruits, which is led by a distinguished team of former NFL executives, players and coaches. The engagement represents I-ON’s initial foray into the US market with respect to TAMM and sports software initiatives. I-ON’s scope of service is broad, but entails building out the league’s CMS infrastructure while serving as their digital strategist of choice leading up to the 2020 league launch and well beyond. This could be in association with Pacific Pro’s exclusive sponsor Adidas.
In early 2018, I-ON and its various partners including Japan-based TIS INTEC Group – a leading systems integrator- began a deeper dive on how to best address the fast-growing need for distributed energy management and virtual power plant (VPP) solutions for grid connected renewable energy sources in hopes of delivering an enhanced, reliable energy and cost-efficient product offering to East Asia markets. By employing key components of I-ON’s energy management system to address the demand response needs of power grid companies, I-ON intends to introduce its own proprietary next generation VPP solution that operate within cloud-based service environments to address the energy management needs of enterprises.
Popular in the U.S. and Europe, but a rapidly emerging sector in Japan and across East Asia, VPP is a cloud-based distributed power plant that aggregates the capacities of energy resources at the requests of power transmission and distribution service providers for the purposes of enhancing power generation more reliably. VPP typically integrates small-scale power plants or energy storage facilities for residential settings, buildings, factories and incorporates them into a remotely controlled virtual power station using a sophisticated set of software and IT systems. These systems tap into existing grid networks to tailor electricity supply and demand services under changing load conditions both quickly and in real time, thus maximizing value for both the power generator and end user. Most industry observers currently peg the global VPP industry at $8-$12 billion -- double from just a few years ago -- and forecast the industry will grow annually at a mid to high double-digit rate through 2025, driven by investment in the U.S., Europe and Australia with South Korea and Japan leading the way in East Asia.
Announced on November 21, 2018, Sweden-based Telenor Connexion and I-ON formed a collaboration agreement in order to provide South Korean customers in the energy sector with high-value and quality IoT solutions and services by utilizing I-ON’s capabilities in data management, smart mobility, and advanced analytics.
I-ON intends to continue to leverage its international partnerships and ongoing success in enterprise CMS to move upstream, cross-sell, and serve clients more directly as either their digital strategist of choice and/or by acquiring businesses with (i) a revenue producing platform with existing enterprise clients, (ii) subject matter expertise and or (iii) rights to intellectual property in at least one of the following digital marketing-related disciplines: predictive analytics, smart mobility, marketing automation, search engine optimization (SEO), enterprise resource planning (ERP), workflow automation, and eCommerce. I-ON has already identified multiple compelling acquisition opportunities within these domains, particularly in South Korea and Japan. However, there can be no assurance that I-ON will be able to acquire one or more of these businesses or that it will be able to do so on terms that are favorable to I-ON.
Notably, I-ON believes that overall macro conditions that drive consolidation and acquisitions also remain ideal including the historical low interest rate environment, a large, evolving and fragmented technology services and solutions market across South Korea and East Asia, and the relatively low organic growth opportunities that ordinarily may not exist for smaller businesses. These existential conditions could enable I-ON to identify and purchase compelling assets inexpensively.
Expand Product Offering and Geographic Coverage over the long-term
Over the next 5 years, I-ON’s growth strategy is to significantly expand its client base in South Korea, Japan, and Southeast Asia, while also expanding into new geographic areas, such as the U.S. and Europe to provide clients with global coverage and around the clock services that CMS and digital marketing requires. I-ON’s continued business model is to allow its work and unique technical skills to attract new clients as well as win repeat projects with past and current clients. At the same time, ION intends to expand its core offerings and increase brand awareness with new service capabilities and software products that produce significant value for clients.
Best prize at SoftBank Mobile Solution Contest in Japan (2011)
Citation of Prime Minister awarded on the SW Industrial Day (2011)
Tower of million USD exports award (2007)
Grand prize in Internet Service Section (oneul.com) (2012)
Winner of Brand Service Section (Lotte Duty Free) (2012)
Grand prize in Business Improvement section (e.Form) (2012)
Grand Prize in Information Management (Real-time Power demand resources Operation System) (2012)
Grand Prize in Location Based System (LBS) (Lucky Bird) (2012)
Grand Prize in Product brand (Catch Chevrolet) (2011)
Grand Prize eBook (Kyowon Aesop) (2011)
Because organizations in virtually every sector of the economy perform or need the functions I-ON supports, the Company has successfully deployed its software solutions to over 1,000 blue-chip and middle-market enterprises across virtually all industries and verticals in both the private and public sectors. Such industries include but are not limited to financial services, banking, informational technology services, telecommunications, internet, automotive, healthcare, publishing, media, education, energy, logistics, retail, consumer and business services, as well as government institutions. Over 400 enterprise clients in South Korea, 500 in Japan, and 100 across Southeast Asia and globally currently utilize I-ON products, solutions and professional services capabilities.
Given its current foothold, I-ON believes it remains uniquely positioned to address the evolving marketing needs of medium to large enterprises as CMOs continue to lack the wherewithal to analyze, improve ROI, and justify the value of increased digital marketing spend. I-ON’s diversified product suite, introduction of new products, tools and data sources, combined with media consumption devices such as mobile and tablets have created an environment that’s been uncharted by numerous enterprise marketers and their CMOs, particularly in South Korea, Japan, Southeast Asia and China.
Below is a sample of I-ON’s clientele based on region.
Entry into new markets combined with relevant new product introductions has also enabled I-ON to diversify its client mix, thereby minimizing client concentration risk as reflected by the decline in top 10 client contribution since 2013.
Below highlights I-ON’s top 10 clients as percentage of total revenue (Fiscal Years 2016-2018):
CJ Digital Music
MARKETING, SALES AND DISTRIBUTION
I-ON relies both on inside and outside sales efforts as well as value-added resellers based in specific geographies to drive a bulk of their business development efforts. The Company has over 100 partners, formal and informal, across 28 countries that provides client leads The Company also relies on client references and its track record and regularly attends reputable industry and technology conferences internationally.
The market for I-ON’s products and solutions, primarily in South Korea, Japan and Southeast Asia is competitive but not considerably fragmented. We compete primarily with digital marketing agencies, systems consulting firms and boutique consulting firms, that maintain specialized skills or products or are geographically focused, and clients’ own IT firms. Many of the firms we compete with have longer operating histories and are more developed than we are. The principal competitive factors in these addressable markets include the ability to solve problems; the ability to deliver creative concepts and solutions; expertise and talent with advanced technologies; availability of resources; the quality and speed of solutions; a deep understanding of user experiences; and the price of solutions. I-ON competes favorably when considering these factors and believes that its ability to deliver business innovation and outstanding value to its clients on time and on budget, along with its successful track record, distinguishes them from competitors.
Interoperability has emerged as a key differentiator in I-ON’s addressable markets, as CMS is now seldom viewed as a stand-alone system for an enterprise’s online presence. Large enterprises and to a growing extent small and middle market companies, particularly those with complex distribution and supply chain issues, not only require a portal for their intranet for external needs, but expect CMS platforms to allow for a real-time connection between the business, people, behavior and things that allow all to communicate, transact and even negotiate with each other. Thus, in order to be better served and remain competitive in their own circles, clients are increasingly looking to I-ON to consult with and integrate disparate and increasingly complex systems.
In addition to holding a first mover advantage, I-ON has been able to compete by offering flexible and often less expensive pricing, offering time-tested & proven licensing joint venture partnerships such as with Ashisuto in Japan and focusing on R&D to drive product upgrade cycles such as ICE and introduce new products built off existing technology related to sports, energy and mobile. From a domestic DXP front, I-ON competes with companies such as deCos Interactive and contentWise. Much larger competitors such as Adobe, Stellent, and IBM which service at significantly higher prices and complexity, lack mid-market cachet, are not built locally for scale, or are merely focused on other disciplines. Opensource models tend to have a truer SME focus, are vague & lack vendor responsibilities, and do not address the needs of complex large to blue-chip enterprises.
RESEARCH AND DEVELOPMENT
Because the verticals in which I-ON competes are characterized by rapid technological change, the Company’s ability to compete successfully depends upon maintaining and enhancing expertise in its core business segments and product lines. As a result, I-ON has reinvested and continues to spend substantial revenue on research and development. The Company currently employs over 100 junior, mid to senior level engineers and developers, most of whom are based at the Company’s headquarters in Seoul. In order enable its employees to provide expert, timely, competitive services to the marketplace, I-ON also provides ongoing training and sponsors advanced university education to enhance employee skills and knowledge of all current and future product offerings.
MANAGEMENT AND EMPLOYEES
As of the date of this Report, I-ON has 150 full time and 10 part time employees. We believe we enjoy good employee relations. None of our employees are members of any labor union, and we are not a party to any collective bargaining agreement.
The Company does not own any physical location. I-ON currently leases its corporate headquarters and other offices in Seoul, South Korea which expires on December 31, 2020. I-ON’s lease for its Tokyo, Japan office expires on September 30, 2019. We believe that our current offices are sufficient in size for current and future operations.
POTENTIAL FUTURE PROJECTS AND CONFLICTS OF INTEREST
Members of the Company’s management may serve in the future as an officer, director or investor in other entities. Neither the Company nor any of its shareholders would have any interest in these other companies’ projects. Management believes that it has sufficient resources to fully discharge its responsibilities for all current and future projects.
We believe we are in compliance with applicable federal, state and other regulations and that we have compliance programs in place to ensure compliance going forward. There are no regulatory notifications or actions pending.
RELATED PARTY TRANSACTIONS
The following are material related party transactions that have occurred during December 31, 2018 and 2017, but because the consolidated financial statements are presented on a consolidated basis, the transactions and balances have been eliminated.
Sales to affiliate
Receivables from affiliate
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash provided as collateral to the Company’s chief executive officer’s loans.
We will make available free of charge any of our filings as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission (“SEC”). We are not including the information contained in our website as part of, or incorporating it by reference into, this report on Form 10-K.
The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
Within our website’s “Investor” section, “SEC Filings” tab, all of our filings with the Commission and all amendments to these reports are available as soon as reasonably practicable after filing.
Our website address is www.i-on.net.
Our principal executive offices are located at 15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea 06234 and our telephone number is 82-2-3430-1200 . We can be contacted by email at firstname.lastname@example.org.
ITEM 1A. RISK FACTORS
Our business, financial condition, operating results and prospects are subject to the following risks. Additional risks and uncertainties not presently foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders may lose all or part of their investment in the shares of our common stock.
This Form 10-K contains forward-looking statements that involve risks and uncertainties. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Form 10-K.
Risks Specific to Our Business
Our proprietary software or service delivery may not operate properly, which could damage our reputation, give rise to claims against us, or divert application of our resources from other purposes, any of which could harm our business and operating results.
We may encounter human or technical obstacles that prevent our proprietary applications from operating properly. If our applications do not function reliably or fail to achieve customer expectations in terms of performance, customers could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain customers. We provide a limited warranty, have not paid warranty claims in the past, and do not have a reserve for warranty claims.
Moreover, information services as complex as those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors. We cannot assure you that material performance problems or defects in our products or services will not arise in the future. Errors may result from receipt, entry, or interpretation of customer information or from interface of our services with legacy systems and data that we did not develop and the function of which is outside of our control. Despite testing, defects or errors may arise in our existing or new software or service processes. These defects and errors and any failure by us to identify and address them could result in loss of revenue or market share, liability to customers or others, failure to achieve market acceptance or expansion, diversion of development resources, injury to our reputation, and increased service and maintenance costs. Defects or errors in our software might discourage existing or potential customers from purchasing our products and services. Correction of defects or errors could prove to be impossible or impracticable. The costs incurred in correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely affect our operating results.
If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may be perceived as insecure, the attractiveness of our services to current or potential customers may be reduced, and we may incur significant liabilities.
Our services involve the web-based storage and transmission of customers’ proprietary information. We rely on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage of such information. Because of the sensitivity of this information and due to requirements under applicable laws and regulations, the effectiveness of our security efforts is very important. If our security measures are breached or fail as a result of third-party action, acts of terror, social unrest, employee error, malfeasance or for any other reasons, someone may be able to obtain unauthorized access to customer data. Improper activities by third-parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our security systems. Our security measures may not be effective in preventing unauthorized access to the customer data stored on our servers. If a breach of our security occurs, we could face damages for contract breach, penalties for violation of applicable laws or regulations, possible lawsuits by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In addition, whether there is an actual or a perceived breach of our security, the market perception of the effectiveness of our security measures could be harmed and we could lose current or potential customers.
Disruptions in Internet or telecommunication service or damage to our data centers could adversely affect our business by reducing our customers’ confidence in the reliability of our services and products.
Our information technologies and systems are vulnerable to damage or interruption from various causes, including acts of God and other natural disasters, war and acts of terrorism and power losses, computer systems failures, internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events. Data regarding our business and our customers’ insurance claims and encounters resides on computer hardware located domestically and abroad. Although we conduct business continuity planning to protect against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at our data centers, the situations we plan for and the amount of insurance coverage we maintain may not be adequate in any particular case. In addition, the occurrence of any of these events could result in interruptions, delays or cessations in service to our customers. Any of these events could impair or prohibit our ability to provide our services, reduce the attractiveness of our services to current or potential customers and adversely impact our financial condition and results of operations.
In addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we interface with or utilize, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.
We depend on key information systems and third party service providers.
We depend on key information systems to accurately and efficiently transact our business. These systems and services are vulnerable to interruptions or other failures resulting from, among other things, natural disasters, terrorist attacks, software, equipment or telecommunications failures, processing errors, computer viruses, other security issues or supplier defaults. Security, backup and disaster recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and financial performance.
As cybersecurity attacks continue to evolve and increase, our information systems could also be penetrated or compromised by internal and external parties’ intent on extracting confidential information, disrupting business processes or corrupting information. These risks could arise from external parties or from acts or omissions of internal or service provider personnel. Such unauthorized access could disrupt our business and could result in the loss of assets, litigation, remediation costs, damage to our reputation and failure to retain or attract customers following such an event, which could adversely affect our business.
We may be unable to adequately establish, protect or enforce our intellectual property rights.
Our success depends in part upon our ability to establish, protect and enforce our intellectual property and other proprietary rights. If we fail to establish, protect or enforce our intellectual property rights, we may lose an important advantage in the market in which we compete. We rely on a combination of trademark, copyright and trade secret law and contractual obligations to protect our key intellectual property rights, all of which provide only limited protection. Our intellectual property rights may not be sufficient to help us maintain our position in the market and our competitive advantages.
We hold several patents and also rely on trade secrets to protect certain of our proprietary technology. However, trade secrets may not be protectable if not properly kept confidential. We strive to enter into non-disclosure agreements with our employees, customers, contractors and business partners to limit access to and disclosure of our proprietary information. However, the steps we have taken may not be sufficient to prevent unauthorized use of our technology, and adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and proprietary technology. Moreover, others may reverse engineer or independently develop technologies that are competitive to ours or infringe our intellectual property.
Accordingly, despite our efforts, we may be unable to prevent third-parties from using our intellectual property for their competitive advantage. Any such use could have a material adverse effect on our business, results of operations and financial condition. Monitoring unauthorized uses of and enforcing our intellectual property rights can be difficult and costly. Legal intellectual property actions are inherently uncertain and may not be successful, and may require a substantial amount of resources and divert our management’s attention.
Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.
Our competitors protect their proprietary rights by means of patents, trade secrets, copyrights, trademarks and other intellectual property. We have not conducted an independent review of patents and other intellectual property issued to third-parties, who may have patents or patent applications relating to our proprietary technology. We may receive letters from third parties alleging, or inquiring about, possible infringement, misappropriation or violation of their intellectual property rights. Any party asserting that we infringe, misappropriate or violate proprietary rights may force us to defend ourselves, and potentially our customers, against the alleged claim. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and/or invalidation of our proprietary rights or interruption or cessation of our operations. Any such claims or lawsuit could:
be time-consuming and expensive to defend, whether meritorious or not;
require us to stop providing products or services that use the technology that allegedly infringes the other party’s intellectual property;
divert the attention of our technical and managerial resources;
require us to enter into royalty or licensing agreements with third-parties, which may not be available on terms that we deem acceptable;
prevent us from operating all or a portion of our business or force us to redesign our products, services or technology platforms, which could be difficult and expensive and may make the performance or value of our product or service offerings less attractive;
subject us to significant liability for damages or result in significant settlement payments; or
require us to indemnify our customers.
Furthermore, during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual property litigation could materially adversely affect our business. Some of our competitors may be able to sustain the costs of intellectual property litigation more effectively than we can because they have substantially greater resources. In addition, any litigation could significantly harm our relationships with current and prospective customers. Any of the foregoing could disrupt our business and have a material adverse effect on our business, operating results and financial condition.
The continued success of our business model is heavily dependent upon our offshore operations, and any disruption to those operations will adversely affect us.
The majority of our operations, including the development and maintenance of our Web-based platform and our customer support services, are performed by our highly educated workforce of approximately 120 employees in South Korea which may experience unrest due to the threats posed by North Korea. The performance of our operations in South Korea, and our ability to maintain our offshore offices, is an essential element of our business model, as South Korea is a tech hub for Enterprise CMS/Digital marketing as well as all of our senior leadership are located in South Korea. Our competitive advantage will be greatly diminished and may disappear altogether if our operations in South Korea are negatively impacted.
Our offshore operations expose us to additional business and financial risks which could adversely affect us and subject us to civil and criminal liability.
The risks and challenges associated with our operations outside the United States include laws and business practices favoring local competitors; compliance with multiple, conflicting and changing governmental laws and regulations, including employment and tax laws and regulations; and fluctuations in foreign currency exchange rates. Foreign operations subject us to numerous stringent U.S. and foreign laws, including the Foreign Corrupt Practices Act, or FCPA, and comparable foreign laws and regulations that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business. Safeguards we implement to discourage these practices may prove to be less than effective and violations of the FCPA and other laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against us, including class action lawsuits and enforcement actions from the SEC, Department of Justice and overseas regulators.
Future product development is dependent upon access to and reliability of third party software products and open source software.
Certain of our software products contain components developed and maintained by third party software vendors. We expect that we may have to incorporate software from third party vendors in our future products. We also incorporate open source software in certain of our software products. We may not be able to replace the functionality provided by the third party or open source software currently offered with our products if that software becomes obsolete, defective, non-compliant with third party patent restrictions or incompatible with future versions of our products or is not adequately maintained or updated, or if our relationship with the third party vendor terminates. In addition, we must carefully monitor and manage our use of, and compliance with the licensing requirements of, open source software. Any significant interruption in the availability of these third party software products on commercially acceptable terms, defects in these products, non-compliance with third party patent restrictions or our inability to comply with the licensing terms of either third party commercial software or open source software could delay development of future products or enhancement of future products and could have a material adverse effect on our business, financial condition, operating results and cash flows.
Future product development is dependent on adequate research and development resources.
In order to remain competitive, we must continue to develop new products and enhancements to our existing products. This is particularly true as we further expand our cloud and SaaS offerings and capabilities. Maintaining adequate research and development resources to meet the demands of the market is essential, and failure to do so could present an advantage to our competitors. If we are unable to develop products due to certain constraints, such as high employee turnover, lack of management ability or a lack of other development resources, including through third party outsourcing firms, our competitiveness could be harmed.
Discovery of errors in our software could adversely affect our earnings.
The software products we offer are inherently complex. Despite testing and quality control, we cannot be certain that errors will not be found in current versions, new versions or enhancements of our products after commencement of commercial delivery. If new or existing customers have difficulty deploying our products or require significant amounts of customer support, our operating margins could be harmed. Moreover, we could face possible claims and higher development costs if our software contains undetected errors or if we fail to meet our customers’ expectations. With our BSM strategy, these risks increase because we are combining already complex products to create solutions that are even more complicated than the aggregation of their product components. Significant technical challenges could also arise with our products because our customers purchase and deploy our products across a variety of computer platforms and integrate them with a number of third party software applications and databases. These combinations increase our risk further because in the event of a system-wide failure, it may be difficult to determine which product is at fault; thus, we may be harmed by the failure of another supplier’s products.
As a result of the foregoing, we could experience loss of or delay in revenue and loss of market share; loss of customers; damage to our reputation; failure to achieve market acceptance; diversion of development resources; increased service and warranty costs; legal actions by customers against us which could, whether or not successful, increase costs and distract our management; and increased insurance costs.
Risks Related to Securities Markets and Investments in Our Securities
Our executive officers and certain stockholders possess the majority of our voting power, and through this ownership, control our Company and our corporate actions.
Our current executive officers, directors and largest stockholders of the Company, hold approximately 37% of the voting power of the outstanding shares as of December 31, 2018. These officers, directors and certain stockholders have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. The interests of our executive officers and certain shareholders may give rise to a conflict of interest with the Company and the Company’s stockholders. For additional details concerning voting power please refer to the section below entitled “Description of Securities.”
Liquidity of our common stock has been limited.
Our common stock is quoted on OTC Markets under the symbol “IONI”. The liquidity of our common stock is very limited and is affected by our limited trading market. The OTC Markets is an inter-dealer market much less regulated than the major exchanges, and is subject to abuses, volatilities and shorting. There is currently no broadly followed and established trading market for our common stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded.
The trading volume of our common stock may be limited and sporadic. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they may tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock while on the OTC Markets may not necessarily be a reliable indicator of its fair market value.
Because we became public by means of a “reverse business combination,” we may not be able to attract the attention of major brokerage firms.
There may be risks associated with us becoming public through a “reverse business combination.” Securities analysts of major brokerage firms and securities institutions may not provide coverage of us because there were no broker-dealers who sold our stock in a public offering that would be incentivized to follow or recommend the purchase of our common stock. The absence of such research coverage could limit investor interest in our common stock, resulting in decreased liquidity. No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings on our behalf.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;
limited “public float” with a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock;
additions or departures of key personnel;
loss of a strategic relationship;
variations in operating results from the expectations of securities analysts or investors;
announcements of new products or services by us or our competitors;
reductions in the market share of our products;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
investor perception of our industry or prospects;
insider selling or buying;
investors entering into short sale contracts;
regulatory developments affecting our industry; and
changes in our industry;
competitive pricing pressures;
our ability to obtain working capital financing;
sales of our common stock;
our ability to execute our business plan;
operating results that fall below expectations;
revisions in securities analysts’ estimates or reductions in security analysts’ coverage; and
economic and other external factors.
Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Our common stock is subject to price volatility unrelated to our operations.
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors or the Company itself.
A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations and strategic plans. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations. If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.
Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.
The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our common stock.
Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.
A substantial majority of the outstanding shares of Common Stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”). As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock. Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.
We do not plan to declare or pay any dividends to our stockholders in the near future.
We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
The requirements of being a public company may strain our resources and distract management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the Securities Act. These rules, regulations and requirements are extensive. We may incur significant costs associated with our public company corporate governance and reporting requirements. This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.
Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.
“Penny Stock” rules may make buying or selling our common stock difficult.
Trading in our common stock has previously been subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED
ITEM 1B: UNRESOLVED COMMENTS.
ITEM 2: PROPERTIES.
We do not own any physical location. I-ON currently leases its corporate headquarters and other offices in Seoul, South Korea which expires on December 31, 2020. I-ON’s lease for its Tokyo, Japan office expires on September 30, 2019. We believe that our current offices are sufficient in size for current and future operations.
ITEM 3: LEGAL PROCEEDINGS.
From time to time, we are a party to, or otherwise involved in, legal proceedings arising in the normal and ordinary course of business. As of the date of this report, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock first became quoted on the OTC Markets under the trading symbol “EVBW” on March 27, 2014. On February 24, 2016, our common stock began trading under the name Evans Brewing Company, Inc. and under the trading symbol “ALES”. On April 21, 2016, the common stock was uplisted to the OTCQB Venture Marketplace and on August 2, 2018 our trading symbol was changed to IONI. Over the counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. The following table lists the high and low sale information for our common stock as quoted on the OTC Markets for the fiscal years ended 2018 and 2017:
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
The above quotations from the OTC Markets reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
The number of record holders of our common stock as of December 31, 2018, was approximately 70 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name with a brokerage firm or other fiduciary.
We have not paid or declared any cash dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable future.
(d) Securities authorized for issuance under equity compensation plans
As of December 31, 2018, the Company did not have any equity compensation plans.
DESCRIPTION OF SECURITIES
The Company’s authorized capital stock consists of 110,000,000 shares of capital stock, par value $0.0001 per share, of which 100,000,000 shares are common stock, par value $0.0001 per share and 10,000,000 shares are “blank check” preferred stock, par value $0.0001 per share.
Holders of Company’s common stock are entitled to one vote per share on each matter submitted to vote at a meeting of Company’s stockholders. Holders of common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares of Company’s common stock or other securities. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock entitles its holder to participate ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each class of stock, if any, having preference over the common stock.
Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued.
The Company’s Certificate of Incorporation authorizes the issuance of 10,000,000 shares of “Blank Check” Preferred Stock, par value $0.0001 per share, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Company’s board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights. There are no shares of Preferred Stock outstanding.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company’s Certificate of Incorporation and By-laws provide, to the fullest extent permitted by Delaware law, that the officers and directors of the Company who was or is a party to or is threatened to be made a party to, any threatened, or pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of fact that he/she is or was acting as the incorporator, officer, director or nominee officer/director or was serving in any capacity at any time. Furthermore, it is the responsibility of the Company to pay for all legal expenses that may occur on behalf of the party who may come under any such type of action.
Delaware General Corporation Law (“GCL”) Section 145 provides the Company with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe his/her conduct was unlawful.
Under GCL Section 145, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.
Pursuant to the Company’s Certificate of Incorporation and By-laws, we may indemnify an officer or director who is made a party to any proceeding, because of his position as such, to the fullest extent authorized by GCL, as the same exists or may hereafter be amended. In certain cases, we may advance expenses incurred in defending any such proceeding.
To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.
Anti-Takeover Effects of Provisions of Delaware State Law
We may be or in the future we may become subject to Delaware’s control share law. We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder, unless:
· prior to such date, the Board of Directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
· upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
· on or subsequent to such date, the business combination is approved by the Board of Directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
· any merger or consolidation involving the corporation and the interested stockholder;
· any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
· subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
· any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
· the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by such entity or person.
Anti-Takeover Charter Provisions
Our Certificate of Incorporation and Bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change in control of our company, including changes a stockholder might consider favorable. In particular, our Certificate of Incorporation and Bylaws, as applicable, among other things, will:
· provide our Board of Directors with the ability to alter our Bylaws without stockholder approval;
· provide for an advance notice procedure with regard to the nomination of candidates for election as directors and with regard to business to be brought before a meeting of stockholders; and
· provide that vacancies on our Board of Directors may be filled by a majority of directors in office, although less than a quorum.
Such provisions may have the effect of discouraging a third-party from acquiring our company, even if doing so would be beneficial to its stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.
A corporation is subject to Delaware’s control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Delaware, and if the corporation does business in Delaware or through an affiliated corporation.
The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares is sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.
The effect of the control share law is that the acquiring person, and those acting in association with that person, obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder’s shares.
Delaware’s control share law may have the effect of discouraging corporate takeovers.
In addition to the control share law, Delaware has a business combination law, which prohibits certain business combinations between Delaware corporations and “interested stockholders” for three years after the “interested stockholder” first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination in advance. For purposes of Delaware law, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Delaware’s business combination law is to potentially discourage parties interested in taking control of the Company from doing so if it cannot obtain the approval of our Board of Directors.
On August 22, 2018, we entered into an equity purchase agreement (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P. (“Buyer”), whereby Buyer agreed to invest up to $540,000.00 (the “Purchase Price”) in our Company in exchange for convertible debentures, upon the terms and subject to the conditions thereof. Pursuant to the SPA, we issued a convertible debenture to the Buyer in the original principal amount of $200,000.00 (the “Signing Debenture”). Each convertible debenture issued pursuant to the SPA, coupled with the accrued and unpaid interest relating to each convertible debenture, is due and payable three years from the issuance date of the respective convertible debenture. Any amount of principal or interest that is due under each convertible debenture, which is not paid by the respective maturity date, will bear interest at the rate of 18% per annum until it is satisfied in full. Additionally, the Buyer has the right at any time to convert amounts owed under each convertible debenture into shares of our common stock. Each debenture shall contain representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments. As consideration for the Purchase Agreement we issued the Buyer warrants to purchase 50,000 shares of Common Stock at the exercise price of $2.75 expiring five years after issuance (the “Warrants”).
Pursuant to the Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with I-ON Acquisition Corp., a wholly-owned subsidiary of the Registrant, and I-ON Communications, Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) the Company issued the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock (the “Merger Shares”) in accordance with the pro rata ownership of the I-ON Holders immediately prior to the Merger.
All of the securities referred to above were offered and sold without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D and/or Regulations promulgated thereunder. The securities have not been registered under the Securities Act or any other applicable securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act
ITEM 6: SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by 17 C.F.R. 229(10)(f)(i) and are not required to provide the information under this heading.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Readers should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”, “we”, “our”, and “us” refer to I-ON Digital Corp., a Delaware corporation.
This Annual Report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “intends”, “plans”, “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” “designed to,” “designed for,” or other variations or similar words or language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them
I-ON Digital Corp. (the “Company”) was incorporated under the laws of the State of Delaware on June 18, 2013. On April 4, 2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of the Company’s common stock which was all of the outstanding shares of Alpine 3, Inc., and subsequently changed the name to Evans Brewing Company Inc. (“EBC”) on May 29, 2014. On October 9, 2014, the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of common stock. From April 2014 through December 2015, EBC has been in the process of acquiring the Bayhawk brands and related assets, as discussed in more detail below.
On October 15, 2014, EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), with Bayhawk Ales, Inc. (“Bayhawk”) whereby Bayhawk sold to EBC, and EBC purchased from Bayhawk, assets of Bayhawk, in exchange for 4,033,863 shares of EBC common stock upon the terms and subject to the conditions set forth in the Asset Purchase and Share Exchange Agreement.
On September 29, 2016, Evans Brewing Company, Inc., closed the acquisition of a restaurant business located in the downtown SOCO District of Fullerton, California, through the acquisition of all the outstanding stock of EBC Public House, Inc., which the Company now operates as its first branded restaurant and taproom under the trade name “The Public House by Evans Brewing Company”. The Public House features the Company’s beers – as well as beers from other selected local Orange County, California breweries, -- food and, occasional entertainment. In connection with such closing, the Company acquired 100% of the outstanding shares of EBC Public House from Mr. Rapport and issued 1,000,000 shares of the Company’s Series A Preferred Stock to Mr. Rapport. The asset purchase and share exchange have been treated as business combination as both companies are controlled by the same management.
On January 25, 2018, the Company consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with I-ON Communications Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) and I-ON Acquisition Corp., a wholly-owned subsidiary of the Registrant (“Acquisition”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into I-ON in a statutory reverse triangular merger (the “Merger”) with I-ON surviving as a wholly-owned subsidiary of the Registrant. As consideration for the Merger, the Registrant agreed to issue the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock. Following the Merger, the Registrant adopted the business plan of I-ON in information technology consultancy and software development. On December 14, 2017, in connection with the Merger, the Registrant’s Board of Directors approved an amendment to its Certificate of Incorporation (the “Amendment”) to change its name to I-ON Communications Corp. On April 2, 2019, the Company amended its Certificate of Incorporation to change the name of the Company to “I-ON Digital Corp.”
Prior to the Merger, the Company operated a craft brewery based on Orange County, California that produces and sells premium craft beers, including a variety of ales and lagers. EBC’s beers are currently produced in its 17-barrel brewery in Irvine, California, the oldest continuously operating brewing facility in Orange County and one of the oldest in all of Southern California. This facility has been producing craft beers since January 1995.
Following the Merger, the Company adopted the business plan of I-ON. I-ON was founded by Jae Cheol James Oh, who currently serves as CEO, the Company’s roots of which are in IT consultancy and software development. I-ON services South Korea’s Enterprise Content Management system’s market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.
After being awarded its first of 6 patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of enterprise-class unstructured data management and digital marketing software and solutions. I-ON services over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public sectors. The Company has meaningfully expanded its reach over the past decade and now currently licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.
I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery and increase the return on their investments in digital communication.
I-ON currently holds 6 international patents for both products and methodologies (with 3 more pending) built into the 11 product offerings the Company currently has at market. These encompass enterprise web content management (CMS), web experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions. The Company has designed and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology). I-ON also holds numerous domestic and global industry awards, earning high rankings and recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.
Results of Operations for the year ended December 31, 2018 as Compared to the year ended December 31, 2017
During the year ended December 31, 2018, total sales of the Company were $7,091,647 compared to $9,206,355 for the same period ending December 31, 2017. Customers included Samsung SDS, POSCO ICT, AXA, and KBS during the period. The decline in revenue was attributable to delayed launch of certain project implementations, timing of revenue recognition and the Company’s focus on new product launches and related marketing spend. The Company also believes that seasonality and uncertain geopolitical environment partially contributed to the year over year decline in new project wins.
Operating expenses for the year ended December 31, 2018, were $2,264,265 compared to $2,420,290 for the year ended December 31, 2017. The decrease in expenses was primarily a result of the Company’s reduction in staff and therefore its payroll expense. Research and development comprised $329,366 of the expense compared to $670,714 for the comparable period in 2017; however, our general and administrative expenses increased to $1,934,899 for the year ended December 31, 2018, as compared to 1,749,576 for the year ended December 31, 2017.
Other income (expense) for the year ended December 31, 2018, was $124,443 compared to ($366,660) for the year ended December 31, 2017. The change was primarily a result of our reduction in staff. Income (loss) before provision for income taxes, loss on equity investments in affiliates and non-controlling interest for the year ended December 31, 2018 was ($307,574) compared to $220,019 for the same period in 2017.
Net income from operations for the year ended December 31, 2018, was $82,171 compared to $19,109, for the year ended December 31, 2017. Our increase in net income from operations can primarily be attributed to an increase in our benefit from income tax, which was $423,093 for the year ended December 31, 2018, as compared to a provision for income tax of $146,901 for the year ended December 31, 2017, and an increase in our total other income, which was $124,443 for the year ended December 31, 2018, as compared to total other expenses of $366,660 for the year ended December 31, 2017.
Liquidity and Capital Resources
At December 31, 2018, the Company had cash and cash equivalents of $3,235,481. We estimate we will require up to $3,000,000 of capital for the next twelve months of operations. We estimate that our expenses will be comprised of general operating expenses including particularly marketing, research and development costs, overhead, legal and accounting fees.
The Company may require substantial additional financing in order to execute our business expansion and development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.
Off Balance Sheet Arrangements
As of December 31, 2018, there were no off balance sheet arrangements.
Basis of Presentation
The financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.
Summary of Significant Accounting Policies
Our significant accounting policies are more fully described in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 appears after the signature page to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company had no audit committee. Such officer also confirmed that there was no change in our internal control over financial reporting during the fiscal year period ended December 21, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 10. Directors, Executive Officers and Corporate Governance
The table below lists all current officers and directors of the Company as of the date of this report. All officers serve at the discretion of the Board of Directors. The term of office of each of our directors expire at our next Annual Meeting of Shareholders or until their successors are duly elected and qualified.
James Jae Cheol Oh has served as founder and CEO of I-ON since 1999 and Chairman, CEO and CFO of the Company since the Merger. He is also an affiliated professor of Management Engineering at Sangmyung University. Mr. Oh holds a B.A. in Economics from Kyung Hee University and a M.S. in Management Engineering from Sangmyung University. We believe Mr. Oh’s experience founding and running I-ON qualifies him to serve on our board of directors.
Jae Ho Cho, Director
Jae Ho Cho joined I-ON Communications in February 2003 and serves as head of the Service Delivery Platform Business department. He has been a director of the Company since the Merger. During his time with I-ON he has participated in the development of many of I-ONs core products. He holds a M.S. from Cheng Ju Graduate School. We believe Mr. Cho’s depth of experience in information technology consultancy and software development qualifies him to serve on our board of directors.
Hong Rae Kim, Executive Director
Hong Rae Kim is a co-founder of I-ON and has served as CEO of PT.IONSoft, a company located in Indonesia, since 2012. He has been an executive director of the Company since the Merger. Mr. Kim has also previously served as a PMO and COO of I-ON. Mr. Kim graduated from Gang Nam University with a bachelor’s degree in Economics. We believe Mr. Kim’s experience founding and working with I-ON qualifies him to serve on our board of directors.
Mr. Eugene Hong, Independent Director
Mr. Hong’s career at Samsung, most recently as Executive Vice President of Samsung Venture Investment Co, Ltd., spans over 25 years. Between 1992 and 1998, he served as a Director in the production, planning and strategy divisions for both Samsung Motors Co., Ltd. and Samsung Techwin Co., Ltd. In 1999, Mr. Hong transitioned to the Samsung Venture team initially as a Director, rising to Vice President, Senior Vice President and eventually to his current role as Executive Vice President, focusing primarily on managing technology and industrial related investments. Since 2013, Mr. Hong has originated, spearheaded and overseen over twenty investments across multiple high growth sectors including, among others, enterprise software, network security solutions, AI, optical equipment/OLED laser, autonomous driving, block chain, mobile and battery technologies. Mr. Hong received his B.S. from Korea University in 1984, M.S. from Texas Tech University in 1986 and PhD from Arizona State University in 1991. Mr Hong has served as a director since August 10 2018.
Mr. Pastine has served as a director since August 10, 2018 and serves as the CEO of CG Capital Markets, LLC, a New York and Florida -based investment banking boutique specializing in Middle Market Sales and Trading, Institutional Structured Credit Products, and Capital Markets Placements of debt and equity investments to Qualified Institutional Buyers. Mr. Pastine began his career in the Financial Strategies Group at Prudential Securities, with a primary focus on Mortgage and Asset-Backed related securities. He previously worked as a Vice President in Goldman Sachs’ Principal Finance Group and held various positions at a number of leading middle-market investment banks specializing in Structured Products and Esoteric Securities including more recently at Maxim Group, LLC, where he served as Executive Managing Director and the Head of Fixed Income. Mr. Pastine received his B.A. in Political Communications from the University of Rhode Island and his J.D. with an emphasis on Public Policy Analysis, from CUNY School of Law. He is admitted to the Bar in New Jersey.
Dr. Jean Koh, Independent Director
Dr. Jean Koh has served as a director since August 10, 2018 and has over 25 years of technology and senior executive experience with publicly and privately held companies within the multimedia and mobile content technology verticals. Dr. Koh is currently serving as the Chairman of the Korea Mobile Internet Business Association (MOIBA), an association with well over 500 mobile internet companies and industry executives. In 1994, Dr. Koh founded Baro Vision - now KOSDAQ-listed Galaxia Communications - a leading domestic developer of proprietary video compression technology, which has since transformed itself into one of South Korea´s leading providers of comprehensive e-payment solutions. Dr. Koh received his PhD. in Computer Science from Syracuse University and currently serves as a key member on the ‘Presidential Committee of the Fourth Industrial Revolution’ under the Moon Jae-In Administration.
Mr. Charlie Baik, Independent Director
Mr. Charlie Seung Taik Baik has served as a director since August 10, 2018 and currently serves as the Chief Operating Officer and Chief Compliance Officer of EZER, Inc., a leading multi-purpose engineering firm that addresses the needs of the utility, sustainable energy and industrial sectors. Since August 2006, Mr. Baik has also served as EZER, Inc.´s Chief Marketing Officer. Previously, Mr. Baik held the positions of Senior Executive Vice President and Chief Marketing Officer of NASDAQ-listed Gravity Co., Ltd, a leading PC and mobile game publisher with numerous titles under its belt and the maker of the world famous ‘Ragnarok Online’, a massive multiplayer online role-playing game. Mr. Baik also served as the Chief Operating Officer of Gravity Co., Ltd. from August 2006 to June 2008 and as the Chief Executive Officer of NEOCYON, Inc. since 2000.
Code of Ethics
As part of our system of corporate governance, the Company adopted a Code of Business Conduct and Ethics (the “Code”) for directors and executive officers of the Company. This Code is intended to focus each director and executive officer on areas of ethical risk, provide guidance to directors and executive officer to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability. Each director and executive officer must comply with the letter and spirit of this Code. We intend to disclose any changes in or waivers from our Code of Business Conduct and Ethics and our Code of Ethics for Financial Executives by filing a Form 8-K or by posting such information on our website.
Item 11. Executive Compensation
The following tables lists the compensation of the Company’s principal executive officers and board members for the years ended December 31, 2018 and 2017. The following information includes the dollar value of base salaries, bonus awards, the number of non-qualified Company Options granted and certain other compensation, if any, whether paid or deferred.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
There were no stock options exercised during periods ending December 31, 2018 and December 31, 2017 by the executive officer named in the Summary Compensation Table.
Long-Term Incentive Plan (‘LTIP’) Awards Table
There were no awards made to a named executive officer in the last completed fiscal year under any LTIP.
Compensation Arrangements with Executive Management
There were no compensation contracts for any of the executives of the Company at the end of December 31, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following tables set forth, as of the date of this Annual Report, the beneficial ownership of Common Stock for: (1) each director currently serving on our Board of Directors; (2) each of our named executive officers; (3) our directors and executive officers as a group; and (3) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock. As of April 16, 2019, there were 35,030,339 shares of Common Stock outstanding. Except as otherwise noted, each stockholder has sole voting and investment power with respect to the shares beneficially owned. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
Jae Cheol Oh
Hong Rae Kim
Jae Ho Cho
Hong Rae Kim
Officers and Directors as a Group (3 persons)
(1) The address for all officers, directors and beneficial owners is 15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following are material related party transactions that have occurred during December 31, 2018 and 2017, but because the consolidated financial statements are presented on a consolidated basis, the transactions and balances have been eliminated.
Sales to affiliate
Receivable from affiliate
The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash provided as collateral to the Company’s chief executive officer’s loans.
Item 14. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees for professional audit services and the fees billed for other services rendered by our auditors, in connection with the audit of our financial statements for the years ended December 31, 2018 and 2017, and any other fees billed for services rendered by our auditors during these periods.
Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended December 31, 2018.
Audit Related Fees
The Company has paid Lucas, Horsfall, Accountants $5,000 for preparation of taxes for the year ended December 31, 2017.
Agreement of Merger and Plan of Reorganization among Evans Brewing Company, Inc., I-ON Communications Co., Ltd., I-ON Acquisition Corp. and I-on Communications, Ltd. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 26, 2017, and incorporated herein by reference)
Spin-Off Agreement among Evans Brewing Company, Inc., Michael J. Rapport Trust, Evans Brewing Company, Inc. and EBC Public House, Inc. (previously filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K, filed on February 1, 2018, and incorporated herein by reference)
Certificate of Designation of Rights and Preferences for Series A Convertible Preferred Stock (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on December 15, 2015, and incorporated herein by reference)
Convertible Note Debenture in favor of Peak One Opportunity Fund, L.P., due August 13, 2021 (previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
Common Stock Purchase Warrant of Peak One Opportunity Fund, L.P. (previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
Securities Purchase Agreement between the Company and Peak One Opportunity Fund, L.P. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
Equity Purchase Agreement between the Company and Peak One Opportunity Fund, L.P. (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
Registration Rights Agreement between the Company and Peak One Opportunity Fund, L.P. (previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on August 28, 2018, and incorporated herein by reference)
Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 16, 2019
I-ON DIGITAL CORP.
/s/ Jae Cheol Oh
Name: Jae Cheol Oh
Chairman, Chief Executive Officer and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
April 16, 2019
/s/ Jae Cheol Oh
Name: Jae Cheol Oh
Title: Chairman, Chief Executive Officer and Chief Financial officer
(Principal Executive, Financial and Accounting Officer)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Of I-On Digital Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of I-On Digital Corp. and subsidiaries (the “Company”) as of December 31, 2018 and 2017 and the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.