Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Forward Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable
terminology. These statements are only predictions.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable law, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Our unaudited interim consolidated financial statements for the three and six months ended June 30, 2019 and 2018 and as of June 30, 2019 and December 31, 2018 are expressed in US dollars and
are prepared in accordance with generally accepted accounting principles in the United States of America. They reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair
presentation of our interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter. Our unaudited consolidated financial
statements and notes included therein have been prepared on a basis consistent with and should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2018, as filed in our annual report on Form
10-K.
The following discussion should be read in conjunction with our interim financial statements and the related notes that appear elsewhere in this quarterly report.
Business Overview
Organization and Corporate History
I-ON Digital Corp. (formerly known as I-ON Communications Corp.) was incorporated under the laws of the State of Delaware on June 18, 2013 as ALPINE 3 Inc. Alpine 3 Inc. was set up to serve as
a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business. ALPINE 3 did not undertake any effort to cause a market to develop in its securities, either debt or
equity, before it successfully concluded a business combination. On April 4, 2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of common stock which was all of the outstanding shares of Alpine 3, Inc., and subsequently
changed the name to Evans Brewing Company Inc. (“EBC”) on May 29, 2014. On October 9, 2014 the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of common stock.
On December 2, 2015, EBC and Bayhawk consummated an Asset Purchase and Share Exchange Agreement (the “Agreement”) whereby 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”).
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 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.
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 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.
Comparison of results of operations for the three months ended June 30, 2019 as Compared to the three months ended June 30, 2018
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods
indicated:
|
|
Three Month Ended
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Change
|
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,825,302
|
|
|
|
100.0
|
%
|
|
$
|
1,303,479
|
|
|
|
100.0
|
%
|
|
$
|
521,823
|
|
|
|
40.0
|
%
|
Cost of sales
|
|
|
1,353,312
|
|
|
|
74.1
|
%
|
|
|
1,181,413
|
|
|
|
90.6
|
%
|
|
|
171,899
|
|
|
|
14.6
|
%
|
Gross profit (loss)
|
|
|
471,990
|
|
|
|
25.9
|
%
|
|
|
122,066
|
|
|
|
9.4
|
%
|
|
|
349,924
|
|
|
|
286.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
160,087
|
|
|
|
8.8
|
%
|
|
|
269,784
|
|
|
|
20.7
|
%
|
|
|
(109,697
|
)
|
|
|
-40.7
|
%
|
General and administrative
|
|
|
521,733
|
|
|
|
28.6
|
%
|
|
|
467,592
|
|
|
|
35.9
|
%
|
|
|
54,141
|
|
|
|
11.6
|
%
|
Total operating expense
|
|
|
681,820
|
|
|
|
37.4
|
%
|
|
|
737,376
|
|
|
|
56.6
|
%
|
|
|
(55,556
|
)
|
|
|
-7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(209,830
|
)
|
|
|
-11.5
|
%
|
|
|
(615,310
|
)
|
|
|
-47.2
|
%
|
|
|
405,480
|
|
|
|
-65.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
n/a
|
|
Miscellaneous income, net
|
|
|
55,863
|
|
|
|
3.1
|
%
|
|
|
123,987
|
|
|
|
9.5
|
%
|
|
|
(68,124
|
)
|
|
|
-54.9
|
%
|
Interest expense
|
|
|
(30,564
|
)
|
|
|
-1.7
|
%
|
|
|
-
|
|
|
0.0
|
%
|
|
|
(30,564
|
)
|
|
|
n/a
|
|
Total other income (expense), net
|
|
|
25,299
|
|
|
|
1.4
|
%
|
|
|
123,987
|
|
|
|
9.5
|
%
|
|
|
(98,688
|
)
|
|
|
-79.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
|
|
|
(184,531
|
)
|
|
|
-10.1
|
%
|
|
|
(491,323
|
)
|
|
|
-37.7
|
%
|
|
|
306,792
|
|
|
|
-62.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
39,434
|
|
|
|
2.2
|
%
|
|
|
(19,631
|
)
|
|
|
-1.5
|
%
|
|
|
59,065
|
|
|
|
-300.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income or loss on equity investments in affiliates and non-controlling interest
|
|
|
(223,965
|
)
|
|
|
-12.3
|
%
|
|
|
(471,692
|
)
|
|
|
-36.2
|
%
|
|
|
247,727
|
|
|
|
-52.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) on equity investments
|
|
|
(3,506
|
)
|
|
|
-0.2
|
%
|
|
|
(10,547
|
)
|
|
|
-0.8
|
%
|
|
|
7,041
|
|
|
|
-66.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before non-controlling interest
|
|
|
(227,471
|
)
|
|
|
-12.3
|
%
|
|
|
(482,239
|
)
|
|
|
-37.0
|
%
|
|
|
254,768
|
|
|
|
-52.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest income (loss)
|
|
|
474
|
|
|
|
0.0
|
%
|
|
|
(406
|
)
|
|
|
0.0
|
%
|
|
|
880
|
|
|
|
-216.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(226,997
|
)
|
|
|
-12.4
|
%
|
|
$
|
(481,833)
|
|
|
|
-37.0
|
%
|
|
$
|
254,836
|
|
|
|
-52.9
|
%
|
Net sales increased by $521,823, or 40%, to $1,825,302 for the three months ended June 30, 2019 from $1,303,479 for the three months ended June 30, 2018. The change in net sales reflected the
following:
- License customization revenue increased by approximately $943,000 from approximately $32,000 for the three months ended June 30, 2018 to $975,000 for the three months ended June 30, 2019 due to the Company was
focusing in sales effort in this area and signing up approximately 31 new projects with various customers since June 30, 2018 to June 30, 2019.
- Development revenue decreased by approximately $266,000 from approximately $404,000 for the three months ended June 30, 2018 to $138,000 for the three months ended June 30, 2019 due to the Company was not
focusing in this revenue area as the profit margin is not favorable compared to other revenue projects. The Company plans to exit this project going forward.
Cost of sales increased by $171,899 or 14.6%, to $1,353,312 for the three months ended June 30, 2019 from $1,181,413 for the three months ended June 30, 2018. The increase was primarily due to using Amazon server
in entire department and increase in consultant fee.
Gross profit increased by $349,924, or 286.7%, to gross profit of $471,990, or 25.9% of net sales, for the three months ended June 30, 2019, from gross profit of $122,066, or 9.4% of net sales, for the three months
ended June 30, 2018.
The increase was due to higher profit margin on license customization revenue increase and decrease in less profitable margin revenue of customization.
Research and development expenses decreased by $109,697 or 40.7%, to $160,087 for the three months ended June 30, 2019 from $269,784 for the three months ended June 30, 2018. The decrease was due to decrease in
head count.
General and Administrative
General and administrative expenses increased by $54,141 or 11.6%, to $521,733 for the three months ended June 30, 2019 from $467,592 for the three months ended June 30, 2018. The change was consistent with
previous period.
Other income (expense) change was primarily due to decrease in miscellaneous income from Japan.
Change in tax provision was not material.
Comprehensive income - Foreign currency translation
Foreign currency translation loss was $120,818 for the three months ended June 30, 2019 compared to income of $15,451 for the three months ended June 30, 2018. The change of $136,269 was due
to devaluation of Korean Won compared to US dollar in three months ended June 30, 2019 compared to June 30, 2018. The average exchange rate for the three months ended June 30, 2019 and 2018 was KRW 1,146.01 and KRW 1,078.96, respectively.
Comparison of results of operations for the six months ended June 30, 2019 as Compared to the six months ended June 30, 2018
The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:
|
|
Six Month Ended
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
Change
|
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
% of Revenue
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,464,921
|
|
|
|
100.0
|
%
|
|
$
|
2,601,221
|
|
|
|
100.0
|
%
|
|
$
|
863,700
|
|
|
|
33.2
|
%
|
Cost of sales
|
|
|
3,168,667
|
|
|
|
91.4
|
%
|
|
|
3,071,132
|
|
|
|
118.1
|
%
|
|
|
97,535
|
|
|
|
3.2
|
%
|
Gross profit (loss)
|
|
|
296,254
|
|
|
|
8.6
|
%
|
|
|
(469,911
|
)
|
|
|
-18.1
|
%
|
|
|
766,165
|
|
|
|
-163.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
378,594
|
|
|
|
10.9
|
%
|
|
|
578,456
|
|
|
|
22.2
|
%
|
|
|
(199,862
|
)
|
|
|
-34.6
|
%
|
General and administrative
|
|
|
1,005,795
|
|
|
|
29.0
|
%
|
|
|
968,343
|
|
|
|
37.2
|
%
|
|
|
37,452
|
|
|
|
3.87
|
%
|
Total operating expense
|
|
|
1,384,389
|
|
|
|
40.0
|
%
|
|
|
1,546,799
|
|
|
|
59.5
|
%
|
|
|
(162,410
|
)
|
|
|
-10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,088,135
|
)
|
|
|
-31.4
|
%
|
|
|
(2,016,710
|
)
|
|
|
-77.5
|
%
|
|
|
928,575
|
|
|
|
-46.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
(160,419
|
)
|
|
|
-4.6
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(160,419
|
)
|
|
|
n/a
|
|
Miscellaneous income, net
|
|
|
39,382
|
|
|
|
1.1
|
%
|
|
|
289,653
|
|
|
|
11.1
|
%
|
|
|
(250,271
|
)
|
|
|
-86.4
|
%
|
Interest expense
|
|
|
(45,147
|
)
|
|
|
-1.3
|
%
|
|
|
-
|
|
|
0.0
|
%
|
|
|
(45,147
|
)
|
|
|
n/a
|
|
Total other income (expense), net
|
|
|
(166,184
|
)
|
|
|
-4.84
|
%
|
|
|
289,653
|
|
|
|
11.1
|
%
|
|
|
(455,837
|
)
|
|
|
-157.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
|
|
|
(1,254,319
|
)
|
|
|
-36.2
|
%
|
|
|
(1,727,057
|
)
|
|
|
-67.4
|
%
|
|
|
472,738
|
|
|
|
-27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
63,977
|
|
|
|
1.8
|
%
|
|
|
25,327
|
|
|
|
1.0
|
%
|
|
|
38,650
|
|
|
|
152.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income or loss on equity investments in affiliates and non-controlling interest
|
|
|
(1,318,296
|
)
|
|
|
-38.0
|
%
|
|
|
(1,752,384
|
)
|
|
|
-67.4
|
%
|
|
|
434,088
|
|
|
|
-24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) on equity investments
|
|
|
(7,062
|
)
|
|
|
-0.2
|
%
|
|
|
(18,698
|
)
|
|
|
-0.7
|
%
|
|
|
11,636
|
|
|
|
-62.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before non-controlling interest
|
|
|
(1,325,358
|
)
|
|
|
-38.3
|
%
|
|
|
(1,771,082
|
)
|
|
|
-68.1
|
%
|
|
|
445,724
|
|
|
|
-25.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest income (loss)
|
|
|
664
|
|
|
|
0.0
|
%
|
|
|
(553
|
)
|
|
|
0.0
|
%
|
|
|
1,217
|
|
|
|
-220.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,324,694
|
)
|
|
|
-38.2
|
%
|
|
$
|
(1,770,529
|
)
|
|
|
-68.1
|
%
|
|
$
|
445,835
|
|
|
|
-25.2
|
%
|
Net sales increased by $863,700, or 33.2%, to $3,464,921 for the six months ended June 30, 2019 from $2,601,221 for the six months ended June 30, 2018. The change in net sales reflected the
following:
- License customization revenue increased by approximately $1,803,000 from approximately $161,000 for the six months ended June 30, 2018 to $1,964,000 for the six months ended June 30, 2019 due
to the Company focusing in sales effort in this area and signing up approximately 31 new projects with various customers since June 30, 2018 to June 30, 2019.
- Development revenue decreased by approximately $865,000 from approximately $1,106,000 for the six months ended June 30, 2018 to $241,000 for the six months ended June 30, 2019 due to the
Company not focusing in this revenue area as the profit margin is not favorable compared to other revenue projects. The Company plans to exit this project going forward.
Cost of sales increased by $97,535 or 3.2%, to $3,168,667 for the six months ended June 30, 2019 from $3,071,132 for the six months ended June 30, 2018.
. The increase
was primarily due to using Amazon server in entire department and increase in consultant fee.
Gross profit increased by $766,165, or 163%, to gross profit of $296,254, or 8.6% of net sales, for the six months ended June 30, 2019, from gross loss of $469,911, or 18.1% of net sales, for
the three six months ended June 30, 2018.
The increase was due to higher profit margin on license customization revenue increase and decrease in less profitable margin revenue of customization.
Research and development expenses decreased by $199,862 or 34.6%, to $378,594 for the six months ended June 30, 2019 from $578,456 for the six months ended June 30, 2018. The decrease was due
to decrease in head count.
General and Administrative
General and administrative expenses increased by $37,452 or 3.9%, to $1,005,795 for the six months ended June 30, 2019 from $968,343 for the six months ended June 30, 2018. The change was
consistent with previous period.
Other income (expense) change was primarily due to loss on extinguishment of debt in the amount of $162,410 due to pay-off of convertible debt and
decrease in
miscellaneous income from Japan.
Change in tax provision was not material.
Comprehensive income - Foreign currency translation
Foreign currency translation loss was $216,657 for the six months ended June 30, 2019 compared to income of $179,300 for the six months ended June 30, 2018. The change of $395,977 or 220.8%
was due to devaluation of Korean Won compared to US dollar in six months ended June 30, 2019 compared to June 30, 2018. The average exchange rate for the six months ended June 30, 2019 and 2018 was KRW 1,146.01 and KRW 1,075.51, respectively.
Liquidity and Capital Resources
At June 30, 2019, the Company had cash and cash equivalents of $769,836. We estimate that we will require up to $3,000,000 of capital for the next twelve months of operations. We estimate that
our expenses will be comprised primarily of general expenses including particularly marketing, research and development costs, overhead, legal and accounting fees.
|
|
Six Months Ended June 30,
|
|
|
Changes
|
|
|
|
2019
|
|
|
2018
|
|
|
Amount
|
|
|
%
|
|
Net cash used in operating activities
|
|
|
(776,941
|
)
|
|
|
(556,743
|
)
|
|
|
(220,198
|
)
|
|
|
39.55
|
%
|
Net cash used in investing activities
|
|
|
(253,375
|
)
|
|
|
(5,085
|
)
|
|
|
(
248,290
|
)
|
|
|
4,882.79
|
%
|
Net cash provided by financing activities
|
|
|
105,317
|
|
|
|
280,724
|
|
|
|
(175,407
|
)
|
|
|
-62.48
|
%
|
Effect of foreign currency translation on cash and cash equivalents
|
|
|
(69,916
|
)
|
|
|
(154,880
|
)
|
|
|
84,964
|
)
|
|
|
-54.86
|
%
|
Net decrease in cash and cash equivalents
|
|
|
(994,915
|
)
|
|
|
(435,984
|
)
|
|
|
(558,931
|
)
|
|
|
128.20
|
%
|
Cash used in operating activities for the six months ended June 30, 2019 was $776,941, compared to $556,743 for the six months ended June 30, 2018, an increase of $220,198, or approximately
39.55%. The increase in cash used in operating activities was due to primarily decrease in accrued expenses of $22,922, for the six months ended June 30, 2019 compared to decrease in accrued expenses of $559,304 for the six months ended June 30,
2018.
Cash used in investing activities for the the six months ended June 30, 2019 was $253,375, compared to $5,085 for the six months ended June 30, 2018, an increase of $248,290, or approximately
4882.79%. The increase in cash used in investing activities was due to increase in borrowing short-term loans of $15,322 for the six months ended June 30, 2019 compared to $39,055 for the six months ended June 30, 2018.
Cash provided by financing activities for the the six months ended June 30, 2019 was $105,317, compared to $280,724 for the six months ended June 30, 2018, a decrease of $175,407. The decrease
was primarily due to principal payments on debt and no borrowings.
Critical Accounting Policies
Our unaudited condensed consolidated interim financial statements are affected by the accounting policies used and the estimates and assumptions
made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our unaudited interim condensed consolidated financial statements. We have identified below the accounting policies that are
of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.
Management has carefully considered the recently
issued accounting pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the
near term.