Company Quick10K Filing
Quick10K
I-On Communications
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.90 35 $102
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-19 Officers
8-K 2019-04-02 Amend Bylaw, Exhibits
8-K 2018-08-22 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-08-10 Officers
8-K 2018-06-11 Accountant, Exhibits
8-K 2018-02-01 Enter Agreement, M&A, Earnings, Sale of Shares, Control, Officers, Amend Bylaw, Exhibits
ARII American Railcar Industries 793
NEPH Nephros 431
TURV Two Rivers Water & Farming 26
ROYL Royale Energy 18
VCSY Vertical Computer Systems 12
SCGY Scientific Energy 0
SQNF SQN Asset Income Fund V 0
RGPT Rodin Global Property Trust 0
FDBL Friendable 0
VTNL Vet Online Supply 0
ALES 2019-06-30
Part 1 - Financial Information
Item 1. Interim Consolidated Financial Statements
Note 1: Organization and Operations
Note 2: Summary of Significant Accounting Policies
Note 3: Long-Term Debt
Note 4: Line of Credit
Note 5: Short Term Loan Payable
Note 6: Convertible Debt, Beneficial Conversion Feature, and Common Stock Warrant
Note 7: Investments
Note 8. Equity Purchase Agreement - Put Option
Note 9: Commitments and Contingencies
Note 10: Related Party Transactions
Note 11: Earnings per Share
Note 12: Non-Controlling Interest-Issuance of Preferred Stock By Subsidiary
Note 13: Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-32.1 ex32_1.htm

I-On Communications Earnings 2019-06-30

ALES 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or
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: 333-206745

I-ON DIGITAL CORP.
(Exact name of registrant as specified in its charter)
(formerly known as I-ON Communications Corp.)

Delaware
 
46-3031328
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea 06234
(Address of principal executive offices, including zip code)

+82-2-3430-1200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, Par Value $0.0001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which
registered
Common Stock, $0.0001 par value per share
 
IONI
 
OTC Markets

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
 
Outstanding as of August 13, 2019
Common Stock, $0.0001 par value per share
 
35,030,339 shares


Table of Contents

 
PART I – FINANCIAL INFORMATION
 
     
Item 1.
2
Item 2.
20
Item 3.
27
Item 4.
27
     
 
PART II – OTHER INFORMATION
 
     
Item 1.
28
Item 2.
28
Item 3.
28
Item 4.
28
Item 5.
28
Item 6.
28
     
 
29

PART 1 – FINANCIAL INFORMATION

Item 1.
Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements of I-ON Digital Corp. and subsidiary (“we”, “our”, “us”, the “Company”) follow. All currency references in this report are to US dollars unless otherwise noted.

I-ON Digital Corp. and Subsidiary

Table of Contents

Consolidated Financial Statements (UNAUDITED)
 
   
4
 
 
5
 
 
6
 
 
7
 
 
8

I-ON Digital Corp. and Subsidiary
Condensed Consolidated Balance Sheets (Unaudited)

   
June 30,
2019
   
December 31,
2018
 
             
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
 
$
769,836
   
$
1,709,210
 
Restricted cash
   
1,642,462
     
1,699,331
 
Short-term financial instruments
   
721,819
     
741,417
 
Short-term loan receivable
   
197,054
     
25,000
 
Accounts receivables, net of Allowance for doubtful accounts $700,061 and $719,568 respectively
   
2,052,478
     
2,692,933
 
Deferred tax assets - current
   
63,741
     
65,947
 
Prepaid expenses and other current assets
   
1,130,216
     
856,959
 
Total current assets
   
6,577,606
     
7,790,797
 
           
   
Non-current assets:
               
Investments
   
87,423
     
102,756
 
Property and equipment, net
   
148,662
     
163,995
 
Intangible assets, net
   
152,369
     
136,432
 
Deposits
   
354,609
     
358,028
 
Derivative asset
   
105,685
     
109,343
 
Deferred tax assets - non current
   
1,124,621
     
1,211,621
 
Total non-current assets
   
1,973,369
     
2,082,175
 
                 
Total Assets
 
$
8,550,975
   
$
9,872,972
 
                 
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
  $
403,696
    $
375,318
 
Accrued expenses and other
   
741,517
     
790,676
 
Value added tax payable
   
54,943
     
108,534
 
Income tax payable
   
26,085
     
20,353
 
Short-term loan payable
   
475,450
     
626,062
 
Current portion of long term debt
   
43,205
     
89,509
 
Total current liabilities
   
1,744,896
     
2,010,452
 
                 
Convertible debt
   
-
     
25,000
 
Long term debt, net of current portion
   
388,935
     
402,397
 
                 
Total liabilities
   
2,133,831
     
2,437,849
 
                 
Commitments and contingencies
               
                 
Stockholders’ Equity
               
Common stock -  $0.0001 par value; authorized 100,000,000 shares; 35,030,339 shares issued and outstanding at June 30, 2019 and December 31, 2018
   
3,603
     
3,603
 
Treasury stock
   
(709,478
)
   
(709,478
)
Additional paid-in-capital
   
3,624,497
     
3,582,987
 
Accumulated other comprehensive loss
   
(268,850
)
   
(52,193
)
Accumulated retained earnings
   
3,284,427
     
4,609,785
 
Total company stockholders’ equity
   
5,934,199
     
7,434,704
 
Non-controlling interest - preferred shares issued by subsidiary
   
481,862
     
-
 
Non-controlling interests
   
1,083
     
419
 
Total stockholders’ equity
   
6,417,144
     
7,435,123
 
                 
Total Liabilities and Stockholders’ Equity
 
$
8,550,975
   
$
9,872,972
 

See accompanying notes to unaudited condensed consolidated financial statements.

I-ON Digital Corp. and Subsidiary

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

   
Three-month Period ended
   
Six-month Period ended
 
   
June 30, 2019
   
June 30, 2018
   
June 30, 2019
   
June 30, 2018
 
   
Amount
   
Amount
   
Amount
   
Amount
 
                         
Net sales
 
$
1,825,302
   
$
1,303,479
   
$
3,464,921
   
$
2,601,221
 
Cost of sales
   
1,353,312
     
1,181,413
     
3,168,667
     
3,071,132
 
Gross profit (loss)
   
471,990
     
122,066
     
296,254
     
(469,911
)
                                 
Operating expense:
                               
Research and development
   
160,087
     
269,784
     
378,594
     
578,456
 
General and administrative
   
521,733
     
467,592
     
1,005,795
     
968,343
 
Total operating expense
   
681,820
     
737,376
     
1,384,389
     
1,546,799
 
                                 
Loss from operations
   
(209,830
)
   
(615,310
)
   
(1,088,135
)
   
(2,016,710
)
                                 
Other income (expense):
                               
Loss on extinguishment of debt
   
-
     
-
     
(160,419
)
   
-
 
Miscellaneous income, net
   
55,863
     
123,987
     
39,382
     
289,653
 
Interest expense
   
(30,564
)
   
-
     
(45,147
)
   
-
 
Total other income (expense), net
   
25,299
     
123,987
     
(166,184
)
   
289,653
 
                                 
                                 
Loss before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest
   
(184,531
)
   
(491,323
)
   
(1,254,319
)
   
(1,727,057
)
                                 
Provision for income tax
   
39,434
     
(19,631
)
   
63,977
     
25,327
 
                                 
Net loss before income or loss on equity investments in affiliates and non-controlling interest
   
(223,965
)
   
(471,692
)
   
(1,318,296
)
   
(1,752,384
)
                                 
Loss on equity investments
   
(3,506
)
   
(10,547
)
   
(7,062
)
   
(18,698
)
                                 
Net loss before non-controlling interest
   
(227,471
)
   
(482,239
)
   
(1,325,358
)
   
(1,771,082
)
                                 
Non-controlling interest income (loss)
   
474
     
(406
)
   
664
     
(553
)
                                 
Net loss
 
$
(226,997
)
 
$
(481,833
)
 
$
(1,324,694
)
 
$
(1,770,529
)
                                 
Comprehensive income statement:
                               
Net loss
 
$
(227,471
)
 
$
(482,239
)
 
$
(1,325,358
)
 
$
(1,771,082
)
Foreign currency translation
   
(120,818
)
   
15,451
     
(216,657
)
   
(179,300
)
Total comprehensive loss
 
$
(348,289
)
 
$
(466,788
)
 
$
(1,542,015
)
 
$
(1,950,382
)
                                 
Earnings per share - Basic
                               
Net loss before non-controlling interest
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
Non-controlling interest
   
0.00
     
(0.00
)
   
0.00
     
(0.00
)
Earnings per share to stockholders
   
(0.01
)
   
(0.02
)
   
(0.04
)
   
(0.06
)
                                 
Earnings per share - Diluted
                               
Net loss before non-controlling interest
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
Non-controlling interest
   
0.00
     
(0.00
)
   
0.00
     
(0.00
)
Earnings per share to stockholders
   
(0.01
)
   
(0.02
)
   
(0.04
)
   
(0.06
)
                                 
Weighted average number of common shares outstanding:
                               
Basic
   
35,030,339
     
31,784,293
     
35,030,339
     
31,784,293
 
Diluted
   
35,030,339
     
31,784,293
     
35,030,339
     
31,784,293
 

See accompanying notes to unaudited condensed consolidated financial statements.

I-ON Digital Corp. and Subsidiary

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

   
Common Stock
                                                 
   
Shares
   
Amount
   
Treasury
stock
   
Additional
paid-in-
capital
   
Accumulated
other
comprehensive
loss
   
Retained Earnings
   
Total
Company
Stockholders’
Equity
   
Non-
controlling interests
   
Non-Controlling
Interest -
Preferred
stock
   
Total
stockholders’
equity
 
                                                             
                                                             
Balance at December 31, 2018
   
35,030,339
   
$
3,603
   
$
(709,478
)
 
$
3,582,987
   
$
(52,193
)
 
$
4,609,785
   
$
7,434,704
   
$
419
   
$
-
   
$
7,435,123
 
                                                                                 
Foreign currency translation
   
-
     
-
     
-
     
-
     
(95,839
)
   
-
     
(95,839
)
   
-
     
-
     
(95,839
)
Stock compensation expense
   
-
     
-
     
-
     
18,969
     
-
     
-
     
18,969
     
-
     
-
     
18,969
 
Net loss
                           
-
     
-
     
(1,097,887
)
   
(1,097,887
)
   
190
             
(1,097,697
)
                                                                                 
Balance at March 31, 2019
   
35,030,339
     
3,603
     
(709,478
)
   
3,601,956
     
(148,032
)
   
3,511,898
     
6,259,947
     
609
     
-
     
6,260,556
 
                                                                                 
Issuance of non-controlling interest - Preferred stock
   
-
     
-
     
-
     
-
             
-
     
-
     
-
     
481,862
     
481,862
 
Foreign currency translation
   
-
     
-
     
-
     
-
     
(120,818
)
   
-
     
(120,818
)
   
-
     
-
     
(120,818
)
Stock compensation expense
   
-
     
-
     
-
     
22,541
     
-
     
-
     
22,541
     
-
     
-
     
22,541
 
Net income (loss)
   
-
     
-
     
-
     
-
     
-
     
(227,471
)
   
(227,471
)
   
474
     
-
     
(226,997
)
                                                                                 
Balance at June 30, 2019
   
35,030,339
    $
3,603
    $
(709,478
)
  $
3,624,497
    $
(268,850
)
  $
3,284,427
    $
5,934,199
    $
1,083
    $
481,862
    $
6,417,144
 

See accompanying notes to unaudited condensed consolidated financial statements.

I-ON Digital Corp. and Subsidiary

Condensed Consolidated Statements of Cash Flows (Unaudited)

   
Six months Ended June 30,
 
   
2019
   
2018
 
             
Cash flows from operating activities:
           
Net loss
 
$
(1,324,694
)
 
$
(1,770,529
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Non-controlling interest
   
(664
)
   
(553
)
Loss on equity investments in affiliates
   
7,062
     
18,698
 
Loss from extinguishment of debt
   
160,419
     
-
 
Depreciation - fixed assets
   
50,984
     
27,220
 
Amortization - intangible assets
   
11,881
     
-
 
Amortization - debt discount on convertible debt
   
8,333
     
-
 
Stock options expense
   
41,510
     
48,075
 
Foreign exchange gain (loss)
   
4,748
     
3,602
 
Retirement allowance
   
-
     
223,241
 
                 
Changes in operating assets and liabilities:
               
Account receivable, net
   
464,520
     
1,615,973
 
Prepaid expenses and other current assets
   
(304,772
)
   
(211,252
)
Deposit
   
(8,639
)
   
18,393
 
Deferred taxes
   
46,903
     
6,921
 
Account payable
   
132,348
     
72,763
 
Accrued expenses and other
   
(22,922
)
   
(559,304
)
Value added tax payable
   
(50,431
)
   
(76,204
)
Income tax payable
   
6,473
     
26,213
 
Net cash used in operating activities
   
(776,941
)
   
(556,743
)
                 
Cash flows from investing activities:
               
Purchases of short-term investments
   
(5,236
)
   
-
 
Purchases of property and equipment
   
(41,044
)
   
(32,304
)
Purchases of intangible assets
   
(32,576
)
   
(11,836
)
Payments received from short-term loan receivable
   
15,322
     
39,055
 
Loans provided under short-term loans
   
(189,841
)
   
-
 
Net cash used in investing activities
   
(253,375
)
   
(5,085
)
                 
Cash flows from financing activities:
               
Net receipt of government grants
   
-
     
48,252
 
Principal payments on short-term loan payable
   
(130,889
)
   
-
 
Principal payments on long-term debt
   
(43,717
)
   
-
 
Borrowings from long-term debt
   
-
     
232,472
 
Principal payments on convertible debt
   
(200,000
)
   
-
 
Proceeds from issuance of non-controlling interest preferred shares issued by subsidiary
   
479,923
     
-
 
Net cash provided by financing activities
   
105,317
     
280,724
 
                 
Effect of foreign currency translation on cash and cash equivalents
   
(69,916
)
   
(154,880
)
                 
Net decrease in cash and cash equivalents
   
(994,915
)
   
(435,984
)
                 
Cash and cash equivalents including restricted cash, beginning of period
   
3,408,541
     
3,235,481
 
                 
Cash and cash equivalents including restricted cash, end of period
 
$
2,413,626
   
$
2,799,497
 
                 
Supplemental disclosure of cash flow information:
               
Interest paid
 
$
6,845
   
$
3,743
 
Taxes paid
 
$
6,852
   
$
18,405
 

See accompanying notes to unaudited condensed consolidated financial statements.

I-ON Digital Corp. and Subsidiary

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1:
Organization and Operations

I-ON Digital Corp. (formerly known as I-ON Communications Corp.) (“the Company”) was incorporated under the laws of the State of Delaware on June 18, 2013 and is engaged in developing and supplying computerized system. The corporate headquarter is located at 15 Teheran-ro 10-gil Gangnam-gu Seoul, South Korea.  Through its wholly-owned subsidiary I-ON Communications Co., Ltd., the Company provides enterprise content management services to customers primarily in Korea, Japan and Indonesia, by developing industry-leading products such as ICS (web content management system), iDrive (e-document management system), LAMS (load aggregator’s management system), e.Form (mobile contract system), IDAS (digital asset management system) and ICE (content delivery system).

I-ON, Ltd is the Japanese subsidiary of the Company incorporated in 2002. The total assets of I-ON, Ltd is approximately $144,000. The Company has 99.5% ownership of I-ON, Ltd. PT ION-soft is the Indonesian affiliate of the Company incorporated in October 2011. The Company has 20% of ownership of PT I-ON-soft, which is accounted for under the equity method.

NOTE 2:
Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of I-ON Communication Co., Ltd. and its 99.5% owned subsidiary, I-ON, Ltd. All intercompany accounts, transactions, and profits have been eliminated upon consolidation. The accompanying consolidated financial statements and the notes hereto are reported in US Dollars.

The consolidated financial statements were prepared and presented in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. Non-controlling interests represent the portion of earnings that is not within the parent Company’s control. These amounts are required to be reported as equity instead of as a liability on the consolidated balance sheet. ASC requires net income or loss from non-controlling minority interests to be shown separately on the consolidated statements of operations.

The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations. These consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements, and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, 2019 or any future period.

Use of Estimates in the Preparation of Financial Statements

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from these estimates.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Foreign Currency Transaction and Translation

The Company’s principal country of operations is Korea.  The financial position and results of operations of the Company are determined using the local currency, Korean Won (“KRW”), as the functional currency.


ON, Ltd (Japanese subsidiary) – The financial position and results of operations of I-ON, Ltd, the Japanese subsidiary of the Company, are initially recorded using its local currency, Japanese Yen (“JPY”).  Assets and liabilities denominated in foreign currency are translated to the functional currency at the functional currency rate of exchange at the balance sheet date. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. All differences are reflected in profit or loss.  As of June 30, 2019 and December 31, 2018, the exchange rate was JPY 10.73 and JPY 10.13 per KRW, respectively.  The average exchange rate for the three months ended June 30, 2019 and 2018 was JPY 10.41 and JPY 9.89 per KRW, respectively.  The average exchange rate for the six months ended June 30, 2019 and 2018 was JPY 10.41 and JPY 9.89 per KRW, respectively.


Consolidation – Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at the balance sheet date.  The results of operations are translated from KWR to US Dollar at the weighted average rate of exchange during the reporting period. The registered equity capital denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution.  All translation adjustments resulting from the translation of the financial statements into the reporting currency, US Dollar, are dealt with as a component of accumulated other comprehensive income.   As of June 30, 2019 and December 31, 2018, the exchange rate was KRW 1,156.80 and KRW 1,118.10 per US Dollar, respectively.  The average exchange rate for the three months ended June 30, 2019 and 2018 was KRW 1146.01 and KRW 1.075.40, respectively. The average exchange rate for the six months ended June 30, 2019 and 2018 was KRW 1,146.01 and KRW 1,075.40, respectively.

Translation adjustments net of tax were a net loss of $120,818.00 and net gain of $15,451.00 for the three-months ended June 30, 2019 and 2018, respectively, and a net loss of $216,657.00 and net loss of $179,300.00 for the six-months ended June 30, 2019 and 2018, respectively.

Segment Reporting

FASB ASC 280, Segment Reporting, requires public companies to report financial and descriptive information about their reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available and that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief executive officer has been identified as the chief decision maker.

The Company generates revenues from two geographic areas, consisting of Korea and Japan. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements:

   
June 30, 2019
   
December 31, 2018
 
Korea
           
Current assets
 
$
6,120,398
   
$
7,181,043
 
Non-current assets
   
1,973,084
     
1,479,647
 
Current liabilities
   
1,416,472
     
1,403,043
 
Non-current liabilities
   
388,935
     
281,294
 
                 
Japan
               
Current assets
 
$
457,208
   
$
144,074
 
Non-current assets
   
285
     
291
 
Current liabilities
   
328,424
     
11,354
 
Non-current liabilities
   
-
     
-
 

 
Six-months Period
Ended June 30,
 
Three-months Period
Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
Korea
               
Net Sales
 
$
2,961,691
   
$
2,353,208
   
$
1,503,436
   
$
1,198,893
 
                                 
Japan
                               
Net Sales
 
$
503,230
   
$
248,013
   
$
360,674
   
$
104,586
 

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Revenue RecognitionAdoption of ASC Topic 606, “Revenue from Contracts with Customers”

Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

The Company’s revenue consists of services provided and commissions. These revenue sources are as follows:


Royalty – the Company receives a fixed amount of royalties from company in Japan for providing rights to sell the Company’s products in Japanese market. Revenue is recognized over the contract and service period and when collectability is reasonably assured.


License Solution & Services – the Company recognizes revenue on installation of the web-content management software, services provided for installation, and customization.


Customizing Services – the Company recognizes revenue from processing transactions between businesses and their customers. Revenue is recognized over the contract and service period and when collectability is reasonably assured.


Maintenance – the Company recognizes revenue over the contract term based on percentage-of-completion method.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Restricted cash represents cash deposits which is restricted by the financial institutions for the loans the financial institutions having with the Company’s chief executive officer. The loans with the financial institutions are amounted to approximately $1,642,462 and $1,699,331 at June 30, 2019 and December 31, 2018, respectively, and expires on various days during 2019, unless extended. The loans, bearing various interest rates, are guaranteed by the Company and the restricted cash deposits of the Company are provided to the financial institutions as collateral.

This arrangement could be considered as a violation of Section 402 of the Sarbanes-Oxley Act of 2002 amended the Securities Exchange Act of 1934 to prohibit U.S. and foreign companies with securities traded in the United States from making, or arranging for third parties to make, nearly any type of personal loan to their directors and executive officers. Violations of the Sarbanes-Oxley loan prohibition are subject to the civil and criminal penalties applicable to violations of the Exchange Act.

Accounts Receivable

Accounts receivables are recorded at the invoiced amount and do not bear interest. Amounts collected on accounts receivables are included in net cash provided by operating activities in the consolidated cash flow statements. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the trade accounts receivable. Management primarily determines the allowance based on the aging of accounts receivable balances, historical write-off experience, customer concentrations, customer credit worthiness and current industry and economic trends. The Company’s provision for uncollectible receivables are included in selling, marketing, general and administrative expense in the consolidated statements of operation and comprehensive loss.   The Company does not have any off-balance sheet exposure related to its customers.

Research and Development

Research and development costs are expensed as incurred. Research and development costs include travel, payroll, and other general expenses specific to research and development activities. Research and development cost for three months ended June 30, 2019 and 2018 was $160,087 and $269,784, respectively, and for the six months ended June 30, 2019 and 2018 was $378,594 and $578,456, respectively.

Impairment analysis for long-lived assets and intangible assets

The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB ASC 360, Property, Plant, and Equipment and FASB ASC 205 Presentation of Financial Statements.  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company had not experienced impairment losses on its long-lived assets and intangible assets during any of the periods presented.

Earnings Per Share

FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations. Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Fair Value Measurements

The Company follows FASB ASC Topic 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available.  Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for financial instruments measured at fair value on a recurring basis.

The three levels of inputs are as follows:

  Level 1
Quoted prices in active markets for identical assets or liabilities that the Company has an ability to access as of the measurement date.


Level 2
Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities.


Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments include cash and cash equivalents, restricted cash, short-term financial instruments, short-term loans, accounts receivable, investments, accounts payables and debt. The carrying values of these financial instruments approximate their fair value due to their short maturities.  The carrying amount of our debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us.

The Company also has financial instruments classified within the fair value hierarchy, which consists of the following:

 
Investments in privately-held companies, where quoted market prices are not available, accounted for as available-for-sale securities, classified as Level 3 within the fair value hierarchy, and are recorded as an asset on the consolidated balance sheet
 
Detachable warrants issued in connection with the convertible debt that meets the definition of a derivative, classified as Level 2 within the fair value hierarchy, which is recorded as additional paid-in-capital on the consolidated balance sheet
 
An equity purchase put option that meets the definition of a derivative, classified as Level 3 within the fair value hierarchy, which is recorded as an asset on the consolidated balance sheet

The derivatives are evaluated under the hierarchy of ASC 480-10, ASC Paragraph 815-25-1 and ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of the Level 3 financial instruments was determined with the assistance of an independent third-party valuation specialist using an Option Pricing Model.

The following table summarize the Company’s fair value measurements by level for the assets measured at fair value on a recurring basis:

   
Level 1
   
Level 2
   
Level 3
 
                   
Investments
 
$
-
   
$
-
   
$
87,423
 
Equity purchase put option
   
-
     
-
     
105,685
 
Fair value, at June 30, 2019
 
$
-
   
$
-
   
$
193,108
 

The following table summarize the Company’s fair value measurements by level at December 31, 2018 for the assets measured at fair value on a recurring basis:

   
Level 1
   
Level 2
   
Level 3
 
                   
Investments
 
$
-
   
$
-
   
$
102,756  
Equity purchase put option
   
-
     
-
     
109,343
 
Fair value, at December 31, 2018
 
$
-
   
$
-
   
$
212,099
 

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Recently Issued Accounting Pronouncements

Pronouncements Not Yet Effective


Fair Value Measurements

In August 2018, the FASB amended “Fair Value Measurements” to modify the disclosure requirements related to fair value. The amendment removes requirements to disclose (1) the amount of and reasons for transfers between levels 1 and 2 of the fair value hierarchy, (2) our policy related to the timing of transfers between levels, and (3) the valuation processes used in level 3 measurements. It clarifies that, for investments measured at net asset value, disclosure of liquidation timing is only required if the investee has communicated the timing either to us or publicly. It also clarifies that the narrative disclosure of the effect of changes in level 3 inputs should be based on changes that could occur at the reporting date. The amendment adds a requirement to disclose the range and weighted average of significant unobservable inputs used in level 3 measurements. The guidance is effective for the Company with the Company’s quarterly filing for the period ended March 31, 2020 and the Company will make the required disclosure changes in that filing.  Adoption will not have an impact on the Company’s consolidated results of operations, consolidated financial position, and cash flows.


Retirement Plans

In August 2018, the FASB amended “Retirement Plans” to modify the disclosure requirements for defined benefit plans. For the Company, the amendment requires the disclosure of the weighted average interest crediting rate used for cash balance plans and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. It removes the requirement to disclose the approximate amount of future benefits covered by insurance contracts. The guidance is effective for the Company with the Company’s annual filing for the year ended December 31, 2020 and the Company will make the required disclosure changes in that filing. Adoption will not have an impact on the Company’s consolidated results of operations, consolidated financial position, and cash flows.


Intangibles – Goodwill and other – Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company’s accounting for the service element of a hosting arrangement that is a service contract is not affected by the proposed amendments and will continue to be expensed as incurred in accordance with existing guidance. This standard does not expand on existing disclosure requirements except to require a description of the nature of hosting arrangements that are service contracts. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance prospectively or retrospectively. The Company plans to adopt the updated disclosure requirements of ASU No. 2018-15 prospectively in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.


Improvements to Nonemployee Share-based Payment Accounting

In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”).  ASU 2018-07 aligns the accounting for share-based payment awards to employees and non-employees.  Under ASU 2018-07 the existing employee guidance will apply to nonemployee share-based transactions, except for specific guidance related to the attribution of compensation cost. ASU 2018-07 should be applied to all new awards granted after the date of adoption. ASU 2018-07 is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted.  The Company adopted ASU 2018-07 effective January 1, 2019; such adoption had no material impact on the Company’s consolidated financial statements.


Income Statement – Reporting Comprehensive Income

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) (ASU 2018-02), which amends existing standards for income statement-reporting comprehensive income to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Cuts and Jobs Act and improve the usefulness of information reported to financial statements users. ASU 2018-02 will be effective for beginning after December 15, 2018, and early adoption is permitted. The Company adopted ASU 2018-02 effective January 1, 2019; such adoption had no material impact on the Company’s consolidated financial statements.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)


Goodwill

In January 2017, the FASB amended “Goodwill” to simplify the subsequent measurement of goodwill. The amended guidance eliminates Step 2 from the goodwill impairment test. Instead, impairment is defined as the amount by which the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill of the reporting unit. The new guidance is effective for the Company on January 1, 2020 and is not expected to have an impact on our consolidated results of operations, consolidated financial position, and cash flows.


Financial Instruments

In June 2016, the FASB amended “Financial Instruments” to provide financial statement users with more decision-useful information about the expected credit losses on debt instruments and other commitments to extend credit held by a reporting entity at each reporting date. During November 2018 and April 2019, the FASB made amendments to the new standard that clarified guidance on several matters, including accrued interest, recoveries, and various codification improvements. The new standard, as amended, replaces the incurred loss impairment methodology in the current standard with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to support credit loss estimates.  The new guidance is effective for us on January 1, 2020, and in the first half of 2019, we established an implementation team and began analyzing the impact on our current policies and procedures to identify potential differences that would result from applying the requirements of the new standard. The implementation team reports findings and progress of the project to management on a frequent basis. Through this process, we have identified appropriate changes to our processes, systems, and controls to support recognition and disclosure under the new standard.  The Company is still evaluating the impact of the new standard on the Company’s consolidated results of operations, consolidated financial position, and cash flows.

Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.

Recently Adopted Accounting Pronouncements


Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, the standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-15 effective January 1, 2018; such adoption had no material impact on the Company’s consolidated financial statements.


Leases (ASU 2019-01)

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which removed the requirement for an entity to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial statement line item, and any affected per share amount. For lessors, the new leasing standard requires leases to be classified as a sales-type, direct financing or operating leases. These criteria focus on the transfer of control of the underlying lease asset. This standard and related update was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-02 effective January 1, 2019; such adoption had no material impact on the Company’s financial statements, given that the noncancelable term of the Company’s current lease is less than 12 months.


Leases (ASU 2016-02)

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases currently classified as operating leases under ASC 840 “Leases.” These amendments also require qualitative disclosures along with specific quantitative disclosures. These amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company can elect to record a cumulative-effect adjustment as of the beginning of the year of adoption or apply a modified retrospective transition approach. The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and right-of-use assets upon adoption. The Company adopted ASU 2016-02 effective January 1, 2019; such adoption had no material impact on the Company’s financial statements, given that the noncancelable term of the Company’s current lease is less than 12 months.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3:
Long-term Debt

Long-term debt consisted of the following:

   
June 30, 2019
   
December 31,
2018
 
             
A note payable to a financial institution bearing interest at 2.81% and 2.75% at June 30, 2019 and December 31, 2018, respectively, and guaranteed by the officer of the Company. The Company was required to make interest-only payments until December 2018, then monthly payments of both principal and interest starting from January 2019.
 
$
432,140
   
$
491,906
 
                 
Long-term debt
 
432,140
   
 
491,906
 
Less: current portion
   
(43,205
)
   
(89,509
)
Long-term debt, net of current portion
 
$
388,935
   
$
402,397
 

The long-term debts contain certain covenants, and the Company was in compliance with the covenants.

NOTE 4:
Line of Credit

The Company has lines of credit with financial institutions for total amount of approximately $3,500,000 that expires in various months in 2020, unless extended. There was no outstanding balance under the credit lines at December 31, 2018 but for operating expense the Company used $86,445(100,000,000 KRW) as of 6/30/2019 from Shinhan Bank. The lines of credit, bearing various interest rates are guaranteed by the officer of the Company.

The Company has an arrangement with its customers and a financial institution, in which the Company’s customers issue electronic invoices with the Company as the recipient. The Company can use these receivables as collaterals for loans up to approximately $5,200,000 and $5,400,000 as of June 30, 2019 and December 31, 2018, respectively. The Company receives its payments due when the customer fully pays the invoices to the financial institution. The interest rates vary depending on the Company’s customers’ credit ratings. The Company has no borrowings outstanding as of June 30, 2019 and December 31, 2018, respectively. The maturity date of the arrangement varies on the dates of the original transactions.

NOTE 5:
Short Term Loan Payable

The Company has a short-term loan with a financial institution bearing interest rate of 3.2% expiring July 30, 2019.  All amounts outstanding is due on July 30, 2019, however, the Company may make earlier payments without any penalty.  The total amount outstanding was approximately $475,000 and $626,000 at June 30, 2019 and December 31, 2018, respectively.  The short-term loan is guaranteed by the officer of the Company.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

NOTE 6:
Convertible Debt, Beneficial Conversion Feature, and Common Stock Warrant

The Company entered into a securities purchase agreement (the “SPA”) with Peak One Opportunity Fund, L.P. (“Peak One”) on August 13, 2018. The financing arrangement between the Company and Peak One stipulates that Peak One will invest up to $540,000 in the Company through three separate tranches. Each tranche will be funded in exchange for a convertible debt instrument issued at a 10% discount, with a face value of $200,000. On this same date, the first tranche closed and the Company issued a convertible debt instrument to Peak One for $200,000 at a 10% discount. The convertible debt issued has the following significant terms:


Term: The principal amount is repayable on August 13, 2021 (“Maturity Date”). All unpaid principal due and payable on the Maturity Date shall be paid in the form of common stock of the Company. Any amount of principal or interest that is due under the convertible debt, which is not paid by the Maturity Date, will bear interest at the rate of 18% per annum until it is satisfied.


Conversion Rights: The Holder has the right to convert the amount outstanding plus any accrued interest into common stock of the Company after 180 calendar days from the issuance date.


Conversion Price:  Conversion price is equal to the lesser of (i) $2.75 or (ii) 70% of the lowest traded price of the common stock of the Company for the 20 trading days immediately preceding the date of the date of conversion of the Debts.


Redemption by Issuer:  The Company has the option to redeem the convertible debt prior to the Maturity Date. The convertible debt called for redemption shall be redeemable by the Company, upon not more than 2 days written notice, for an amount (the “Redemption Price”) equal to:


o
if the date of redemption is 90 days or less from the issuance date, 110% of the sum of the principal amount so redeemed plus accrued interest, if any;

o
if the date of redemption is greater than or equal to 91 days from the issuance date and less than or equal to 120 days from the issuance date, 120% of the sum of the amount so redeemed plus accrued interest, if any;

o
if the date of redemption is greater than or equal to 121 days from the issuance date and less than or equal to 180 days from the issuance date, 130% of the sum of the amount so redeemed plus accrued interest, if any; and

o
if either (1) the convertible debts are in default but the Holder consents to the redemption notwithstanding such default or (2) the date of redemption is greater than or equal to 181 days from the issuance date, 140% of the sum of the amount so redeemed plus accrued interest, if any.

The embedded conversion feature was determined to be a derivative that does not require bifurcation pursuant to ASC 815, but was determined to be a beneficial conversion feature that requires recognition within equity on the commitment date. The beneficial conversion feature is recognized at its intrinsic value on the commitment date, limited to the proceeds allocated to the convertible debt. As such, the Company recorded $89,788 within additional paid-in-capital on the consolidated balance sheet for the beneficial conversion feature identified. The debt discount arising from recognition of the beneficial conversion feature will be amortized as interest expense over the term of the convertible debt. As of March 31, 2019 and December 31, 2018, amortization expense of debt discount related to the beneficial conversion feature was not significant.

In connection with the convertible debt issuance, the Company also issued a detachable common stock warrant on August 13, 2018 that allows Peak One to purchase up to 50,000 shares of common stock at an exercise price of $2.75 per share, subject to adjustments as stated in the warrant agreement.  The common stock warrant expires 5 years from the issuance date. The common stock warrant was determined to meet equity classification pursuant to ASC 480 and ASC 815. As such, the fair value of the common stock warrant is recorded as additional paid-in-capital on the consolidated balance sheet, which was determined to be $89,788, net of issuance costs allocated to the warrant, on the issuance date. The debt discount arising from recognition of the common stock warrant will be amortized as interest expense over the term of the convertible debt. As of June 30, 2019 and December 31, 2018, amortization expense of debt discount related to the common stock warrant was not significant.

The Company has the following convertible debt instruments outstanding:

   
June 30,
2019
   
December 31,
2018
 
             
A $200,000 convertible note, issued at 10% discount, five year term, no monthly interest due, maturing August 13, 2021
 
$
-
   
$
200,000
 
                 
Long-term convertible debt
 
$
-
   
$
200,000
 
Less: debt discount
   
-
     
(175,000
)
Long-term convertible debt, net of debt discount
 
$
-
   
$
25,000
 

On February 19, 2019, the Company redeemed all the outstanding convertible debt at a 30% premium for a total redemption price of $255,000. The redemption was accounted for as an extinguishment of debt.  Accordingly, the beneficial conversion feature recognized in conjunction with the convertible debt was de-recognized. The Company recorded approximately $160,419 of loss on extinguishment of convertible debt, which reported in the consolidated statement of income.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7:
Investments

The Company had the following investments:
 
Investments
Type
 
Percentage of
Ownership
   
June 30,
2019
   
December 31,
2018
 
4Grit
Available for sale
   
2.50
%
 
$
43,227
   
$
44,723
 
E-channel
Available for sale
   
0.07
%
   
40,884
     
42,299
 
KSFC
Available for sale
   
0.00
%
   
11,369
     
11,762
 
PT IONSOFT
Equity
   
20
%
   
(8,057
)
   
3,972
 
Total investment securities
         
$
87,423
   
$
102,756
 

Equity Method

The Company applies the equity method for investments in affiliate, which a privately-held company where quoted market prices are not available, in which it has the ability to exercise significant influence over operating and financial policies of the affiliate. Significant influence is generally defined as 20% to 50% ownership in the voting stock of an investee. Under the equity method, the Company initially records the investment at cost and then adjusts the carrying value of the investment to recognize the proportional share of the equity-accounted affiliate’s net income (loss) including changes in capital of the affiliate.

The Company had the following equity investment accounted under the equity method:

   
As of June 30, 2019 and December 31, 2018
 
Equity investee
 
Type of
Shares
Owned

Number
of Shares
Owned
 
Original
Investment
Amount
 
Equity
Investment
Ownership
 
PT IONSOFT
 
Common stock
   
160,000
   
$
160,000
     
20
%

The following is the roll-forward basis of equity investment accounted under the equity method:

 
 
Six Months Ended June 30, 2019
 
Equity investee
 
Balance at
December 31, 2018
   
Proportional
Share of the
Equity Accounted
Affiliate’s
Net Income (loss)
   
Balance at
June 30, 2019
 
PT IONSOFT
 
$
(2,589
)
   
(7,062
)
 
$
(9,651
)


   
Year Ended December 31, 2018
 
Equity investee
 
Balance at
December 31, 2017
 
Proportional
Share of the
Equity Accounted
Affiliate’s
Net Income (loss)
 
Balance at
December 31, 2018
 
PT IONSOFT
 
$
30,926
     
(33,515
)
 
$
(2,589
)

Summarized audited financial information of significant equity investments in affiliate are as follows:

   
June 30,
2019
   
December 31,
2018
 
Total current assets
 
$
3,219
   
$
175,272
 
Total assets
   
127,332
     
344,468
 
Total current liabilities
   
325,457
     
520,198
 
Total liabilities
   
103,295
     
106,482
 


   
Three-months Period
Ended June 30,
   
Six-months Period
Ended June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Net sales
 
$
652
   
$
35,293
   
$
7,299
   
$
88,280
 
Gross profit
   
(17,104
)
   
(52,382
)
   
(34,200
)
   
(92,610
)
Income from operations
   
(17,527
)
   
(52,382
)
   
(35,279
)
   
(92,610
)
Net income
   
(17,527
)
   
(52,733
)
   
(35,308
)
   
(93,491
)

Available-for-sale securities

The Company’s investments also include privately-held companies, where quoted market prices are not available, and the cost method, combined with other intrinsic information, is used to assess the fair value of the investment.

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The following table summarize the Company’s investment securities:

Available-for-sale securities
 
Percentage of
Ownership
   
June 30, 2019
   
December 31,
2018
 
4Grit
   
2.50
%
 
$
43,227
   
$
44,723
 
E-channel
   
0.07
%
 
$
40,884
   
$
42,299
 
KSFC
   
0.00
%
 
$
11,369
   
$
11,762
 
Total investment securities
         
$
95,479
   
$
98,784
 

Note 8.
Equity Purchase Agreement – Put Option

On August 13, 2018 (the “Closing Date”), the Company entered into an Equity Purchase Agreement  (the  “Purchase  Agreement”) with the convertible debenture holder (the “Holder”), whereby, upon the terms and subject to the conditions thereof, the Holder  is committed  to purchase shares of the Company’s common stock, par value $0.001 per share (the “Purchase Shares”), at an aggregate price of up to $10,000,000 (the “Total Commitment Amount”) over the course of a 24- month term. The significant terms of the Purchase Agreement are given below:

Put Provision:  From time to time over the 24-month term of the Purchase Agreement, commencing on the date on which a registration statement registering  the Purchase Shares (the “Registration  Statement”)  becomes effective,  the Company may, in  its sole discretion, provide the Buyer with a put notice (each a “Put Notice”) to purchase a specified number of the Purchase Shares (each a “Put Amount Requested”) subject to the limitations contained in the Purchase Agreement.

The actual amount of proceeds the Company receives pursuant to each Put Notice (each, the “Put Amount”) is to be determined by the lesser of (i) 88% of the lowest closing bid price of the Company’s Common Stock on the trading  day immediately preceding the respective date of the Put Notice and (ii) 88% of the lowest closing bid price during the Valuation Period (the period of 7 trading days immediately following the clearing date associated with the applicable Put Notice).

The Put Amount Requested pursuant to any single Put Notice must have an aggregate value of at least $20,000, and cannot exceed the lesser of (i) 250% of the average daily trading value of the common stock in the 10 trading days immediately preceding the Put Notice or (ii) such number of shares of common stock that has an aggregate value of $500,000.

Term:  Unless earlier terminated, the Purchase Agreement will terminate automatically on the earlier to occur of: (i) 24 months after the initial effectiveness of the Registration Statement, (ii) the date on which the Buyer has purchased or acquired all of the Purchase Shares, or (iii) the date on which certain bankruptcy proceedings are initiated with respect to the Company.

Upon execution of the Purchase Agreement, the Company issued 100,000 shares of common stock with a par value of $0.001 to the Holder.

The Company adopted the provisions of FASB ASC Topic 480 and Topic 815, to determine the proper classification of the Purchase Agreement. The Company determined the put option meets the definition of a derivative under ASC 815 but is outside the scope of ASC 480. Under ASC 816-40, the Company determined the derivative does not meet equity classification and accordingly, is classified as an asset on the consolidated balance as a Level 3 financial instrument. The Company used an independent third-party valuation firm to determine the fair value of the derivative asset using an Option Pricing Model.

Changes to fair value at the end of each reporting period is recorded as other income or expense in the consolidated statements of income. The following table summarizes the changes in the Level 3 financial instrument related to the derivative asset for the equity put option:

Fair value, at December 31, 2018
 
$
109,343
 
Issuance of equity purchase put option
   
-
 
Change in fair value
   
(3,658
)
Fair value, at June 30, 2019
 
$
105,685
 

I-ON Digital Corp. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

NOTE 9:
Commitments and Contingencies

Royalty

On February 15, 2006, the Company agreed to provide the rights to Ashisuto to sell the products in the Japanese market. Per the agreement, the contract period is automatically extended by 5 years up to 20 years.

Operating Leases

The Company leases its office under non-cancelable operating leases that expire on dates through December 2020. The lease is automatically extended upon agreement of both parties. Rent expense for all operating leases for the three-months ended June 30, 2019 and 2018 was $35,967 and $38,941 respectively, and for the six-months ended June 30, 2019 and 2018 was $73,298 and $78,110, respectively.

NOTE 10:
Related Party Transactions

The Company receives loan guarantees from the chief executive officer with regards to its long-term borrowing, and the Company’s restricted cash provided as collateral to the Company’s chief executive officer’s loans.

NOTE 11:
Earnings Per Share

The Company calculates earnings per share in accordance with FASB ASC 260, Earnings Per Share, which requires a dual presentation of basic and diluted earnings per share. Basic earnings per share are computed using the weighted average number of shares outstanding during the fiscal year. Potentially dilutive common shares consist of stock options outstanding (using the treasury method).

The following table sets forth the computation of basic and diluted net income per common share:

   
Three-months Period
Ended June 30,
   
Six-months Period
Ended June 30,
 
Periods Ended
 
2019
   
2018
   
2019
   
2018
 
                         
Net income (loss) before non-controlling interest
 
$
(227,471
)
 
$
(482,239
)
 
$
(1,325,358
)
 
$
(1,771,082
)
Non-controlling interest
   
474
     
(406
)
   
664
     
(553
)
Net income (loss)
   
(226,997
)
   
(481,833
)
   
(1,324,694
)
   
(1,770,529
)
                                 
Weighted-average shares of common stock outstanding:
                               
Basic
   
35,030,339
     
31,784,293
     
35,030,339
     
31,784,293
 
Dilutive effect of common stock equivalents arising from share option, excluding antidilutive effect from loss
   
-
     
-
     
-
     
-
 
Dilutive shares
   
35,030,339
     
31,784,293
     
35,030,339
     
31,784,293
 
                                 
Earnings per share - Basic
                               
Net income (loss) before non-controlling interest
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
Non-controlling interest
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
Earnings per share to stockholders
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
                                 
Earnings per share - Diluted
                               
Net income (loss) before non-controlling interest
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)
Non-controlling interest
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
 
$
(0.00
)
Earnings per share to stockholders
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.06
)

No non-vested share awards or non-vested share unit awards were antidilutive for the six months ended June 30, 2019 and 2018.

NOTE 12:
Non-Controlling Interest-Issuance of Preferred Stock by Subsidiary

On April 9, 2019, The Company’s subsidiary, I-ON Communication Korea issued redeemable convertible preferred stock with proceeds of KRW549,997,000 and issued 157,142 shares of preferred stock or at price of KRW3,500 per share. The convertible preferred stock agreement contain provisions as follows:


Voting rights – The preferred shareholder may have same voting rights as common stock shareholder (1:1)

2% annual dividend

Liquidating rights

Conversion rights to common stock


Call option by preferred shareholder - Preferred stock may be converted to common stock anytime at a fixed conversion price of KRW 3,500

Call option by I-ON Communication – Should I-ON Communication exercise to redeem preferred stock, I-ON Communication is required to re-purchase for KRW 3,500 per share and 7% annual interest compounded.

The Company accounted the issuance of preferred stock under ASC 810-10-45-23, Consolidation, and was accounted for as equity transaction as the parent’s ownership interest retains control of a subsidiary.   The preferred stock issuance by a subsidiary to noncontrolling interest holders should be reflected as a noncontrolling interest in the financial statements of the parent at the amount of the cash proceeds received.

The convertible preferred shares meet definition of equity instrument and contain put option that is not outside the Company’s control and the conversion to common stock is at a fixed determinable share conversion price at KRW 3,500 per share.

NOTE 13:
Subsequent Events

The Company evaluated all events or transactions that occurred after June 30, 2019 up through the date the unaudited consolidated financial statements were available to be filed. During these periods, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the six months ended June 30, 2019.

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.

I-ON Digital

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.

Results of Operations

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

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

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 (Loss)

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

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)

Other income (expense) change was primarily due to decrease in miscellaneous income from Japan.

Provision for Income Tax

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
     
3