UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
(Amendment No. 1)

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

For the quarterly period ended June 30, 2022
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: 000-54995
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, Teheran-ro 10-gil, Gangnam-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 December 6, 2022
Common Stock, $0.0001 par value per share
  
19,724,220 shares

EXPLANATORY NOTE

I-ON Digital Corp. and subsidiaries (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, originally filed with the SEC on August 22, 2022 (the “Original Form 10-Q”) to correct and restate the financial statements for an error in connection with our deconsolidation of a subsidiary, Metaflyer Co. Ltd.(“Metaflyer”) due to the fact that we incorrectly recognized the gain/loss on deconsolidation.

This Form 10-Q/A should be read in conjunction with the Company’s periodic filings made with the SEC subsequent to the filing date of the Original Form 10-Q, including any amendments to those filings, as well as any Current Reports, filed on Form 8-K subsequent to the date of the Original Form 10-Q. In addition, in accordance with applicable rules and regulations promulgated by the SEC, the Company’s Chief Executive and Financial Officer are providing currently dated certifications in connection with this Form 10-Q/A. The certifications are filed as Exhibits 31.2 and 32.2. Because this Form 10-Q/A sets forth the Original Form 10-Q in its entirety, it includes both items that have been changed as a result of the amended disclosures and items that are unchanged from the Original Form 10-Q. Other than the revision of the disclosures as discussed above, this Form 10-Q/A speaks as of the original filing date of the Original Form 10-Q and has not been updated to reflect other events occurring subsequent to the original filing date except for Note 13. Deconsolidation of Metaflyer, and  Note 15. Subsequent Events contained in the financial statements. This includes forward-looking statements and all other sections of this Form 10-Q/A that were not directly impacted by this amendment, which should be read in their historical context.

Table of Contents
 
PART I – FINANCIAL INFORMATION
  
     
Item 1.
2
Item 2.
 22
Item 3.
 28
Item 4.
 28
     
 
PART II – OTHER INFORMATION
  
     
Item 1.
 29
Item 2.
 29
Item 3.
 29
Item 4.
 29
Item 5.
 29
Item 6.
 29
     
  30

PART 1 – FINANCIAL INFORMATION
Item 1.
Interim Consolidated Financial Statements

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

2
3
I-ON Digital Corp. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
                                     
   
June 30,
2022
(RESTATED)
   
December 31,
2021
  
             
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
  
$
1,887,518
    
$
3,705,945
  
Restricted cash
    
1,469,565
      
1,602,699
  
Short-term financial instruments
    
679,867
      
716,154
  
Short-term loan receivable
    
259,638
      
126,529
  
Accounts receivables, net of allowance for doubtful accounts $873,624 and $645,335, respectively
    
5,625,375
      
5,299,951
  
Deferred tax assets - current
    
376,179
      
410,259
  
Prepaid expenses and other current assets
    
726,034
      
579,173
  
Total current assets
    
11,024,176
      
12,440,710
  
                 
Non-current assets:
                
Investments
    
236,568
      
93,168
  
Property and equipment, net
    
109,690
      
105,445
  
Intangible assets, net
    
378,481
      
438,781
  
Deposits
    
738,468
      
737,909
  
Deferred tax assets - non current
    
541,386
      
590,433
  
Total non-current assets
    
2,004,593
      
1,965,736
  
                 
Total Assets
  
$
13,028,769
    
$
14,406,446
  
                 
Liabilities and Stockholders’ Equity
                
                 
Current liabilities:
                
Accounts payable
  
$
536,653
    
$
320,251
  
Accrued expenses and other
    
1,974,158
      
2,546,062
  
Value added tax payable
    
15,391
      
202,857
  
Income tax payable
    
27,575
      
79,106
  
Short-term loan payable
    
309,382
      
337,410
  
Government grants outstanding for usage of future projects    
263,942
      
30,431
  
Total current liabilities
    
3,127,101
      
3,516,117
  
                 
Total liabilities
    
3,127,101
      
3,516,117
  
                 
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, 2022 and December 31, 2021
    
3,503
      
3,503
  
Treasury stock
    
(709,478
)
    
(709,478
)
Additional paid-in-capital
    
3,713,370
      
3,713,370
  
Accumulated other comprehensive loss    
(1,440,069
)
    
(726,500
)
Accumulated retained earnings
    
7,642,736
      
7,681,661
  
Total company stockholders’ equity
    
9,210,062
      
9,962,556
  
Preferred stock (I-ON Korea and eformworks) - $0.4380 par value; authorized 2,000,000 shares; 600,742 shares issued and outstanding at June 30, 2022 and December 31, 2021
    
1,093,569
      
1,093,569
  
Non-controlling interests
    
(401,963
)
    
(165,796
)
Total stockholders’ equity
    
9,901,668
      
10,890,329
  
                 
Total Liabilities and Stockholders’ Equity
  
$
13,028,769
    
$
14,406,446
  

See accompanying notes to unaudited condensed consolidated financial statements.
4
I-ON Digital Corp. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

  Three-month Period ended June 30,    
Six-month Period ended June 30,
  
   
2022
(RESTATED)
     2021    
2022
(RESTATED)
     2021  
                         
Net sales
  
$
2,854,670
    
$
4,559,135
     $ 5,320,298     $ 8,608,659  
Cost of goods sold
    
2,469,356
      
2,657,096
       4,761,882       6,131,649  
Gross profit
    
385,314
      
1,902,039
       558,416       2,477,010  
                                 
Operating expense:
                                
Research and development
    
227,571
      
333,631
       427,879       596,256  
General and administrative
    
604,959
      
518,016
       1,279,945       1,077,473  
Total operating expense
    
832,530
      
851,647
       1,707,824       1,673,729  
                                 
Income (loss) from operations
    
(447,216
)
    
1,050,392
       (1,149,408 )     803,281  
                                 
Other income (expense):
                                
Loss on deconsolidation     (100,772 )     -       (100,772 )     -  
Interest income
    
18,715
      
12,126
       34,117       23,523  
Foreign currency transaction gain (loss)
    
342
      
(9,224
)
     1,937       (22,959 )
Miscellaneous income, net
    
14,564
      
(8,721
)
     973,880       11,019  
Interest expense
    
(1,804
)
    
(3,939
)
     (3,966 )     (8,354 )
Total other income (expense), net
    
(68,955
)
    
(9,758
)
     905,196       3,229  
                                 
Income (loss) before provision for income taxes, and non-controlling interest
    
(516,171
)
    
1,040,634
       (244,212 )     806,510  
Provision for (benefit from) income tax
    
30,880
      
31,826
       30,880       72,583  
                                 
Net income (loss) before non-controlling interest
    
(547,051
)
    
1,008,808
       (275,092 )     733,927  
Non-controlling interest loss
    
(95,652
)
    
391
       (236,167 )     (498 )
                                 
Net income (loss)
  
$
(451,399
)
  
$
1,008,417
     $ (38,925 )   $ 734,425  
                                 
Comprehensive income statement:
                                
Net income (loss)
   $ (547,051 )   $ 1,008,808     $ (275,092 )   $ 733,927  
Foreign currency translation loss
     (485,578 )     11,433
       (713,569 )     (546,707 )
Total comprehensive income (loss)
   $ (1,032,629 )   $ 1,020,241     $ (988,661 )   $ 187,220  
                                 
Earnings per share – Basic
                                
Net loss before non-controlling interest
   $ (0.02 )   $ 0.03     $ (0.01 )   $ 0.02  
Non-controlling interest
   $ (0.00 )   $ 0.00     $ (0.01 )   $ (0.00 )
Earnings per share to stockholders
   $ (0.02 )   $ 0.03     $ (0.00 )   $ 0.02  
                                 
Earnings per share – Diluted
                                
Net loss before non-controlling interest
   $ (0.02 )   $ 0.03     $ (0.01 )   $ 0.02  
Non-controlling interest
   $ (0.00 )   $ 0.00     $ (0.01 )   $ (0.00 )
Earnings per share to stockholders
   $ (0.02 )   $ 0.03     $ (0.00 )   $ 0.02  
                                 
Weighted average number of common shares outstanding:
                                
Basic     35,030,339       35,030,339       35,030,339       35,030,339  
Diluted     35,030,339       35,030,339       35,030,339       35,030,339  

See accompanying notes to unaudited condensed consolidated financial statements.
5
I-ON Digital Corp. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

                                 
Accumulated
    
Total
                    
               
Additional
                
Other
    
Company
    
Non-
          
Total
  
   
Common Stock
    
Paid-In
    
Retained
    
Treasury
    
Comprehensive
    
Stockholders'
    
Controlling
   
Preferred
    
Stockholders'
 
   
Shares
   
Amount
   
Capital
    
Earnings
   
Stock
   
Income (Loss)
   
Equity
    
Interest
   
Stock
   
Equity
  
                                                             
Balance at December 31, 2021
    35,030,339     $ 3,503     $ 3,713,370     $ 7,681,661     $ (709,478 )   $ (726,500 )   $ 9,962,556     $ (165,796 )   $ 1,093,569     $ 10,890,329  
                                                                                 
Foreign currency translation
    -
       -       -
       -       -       (227,991 )     (227,991 )     -       -       (227,991 )
Net income(loss)
    -
       -       -       412,474       -       -       412,474       25,281       -       437,755  
                                                                                 
Balance at March 31, 2022
    
35,030,339
    
$
3,503
    
$
3,713,370
    
$
8,094,135
    
$
(709,478
)
  
$
(954,491
)
  
$
10,147,039
    
$
(140,515
)
  
$
1,093,569
    
$
11,100,093
  
                                                                                 
Foreign currency translation (RESTATED)
     -
       -       -
       -       -      
(485,578
)
    
(485,578
)
     -       -      
(485,578
)
Net income(loss) (RESTATED)
     -       -       -      
(451,399
)
     -       -      
(451,399
)
    
(261,448
)
     -      
(712,847
)
                                                                                 
Balance at June 30, 2022 (RESTATED)
    
35,030,339
    
$
3,503
    
$
3,713,370
    
$
7,642,736
    
$
(709,478
)
  
$
(1,440,069
)
  
$
9,210,062
    
$
(401,963
)
  
$
1,093,569
    
$
9,901,668
  

                                 
Accumulated
    
Total
                    
               
Additional
                
Other
    
Company
    
Non-
          
Total
  
   
Common Stock
    
Paid-In
    
Retained
    
Treasury
    
Comprehensive
    
Stockholders'
    
Controlling
   
Preferred
    
Stockholders'
 
   
Shares
   
Amount
   
Capital
    
Earnings
   
Stock
   
Income (Loss)
   
Equity
    
Interest
   
Stock
   
Equity
  
                                                             
Balance at December 31, 2020
    
35,030,339
    
$
3,503
    
$
3,713,370
    
$
5,517,785
    
$
(709,478
)
  
$
289,933
    
$
8,815,113
    
$
5,832
    
$
475,036
    
$
9,295,981
  
                                                                                 
Foreign currency translation
     -
       -       -       -       -      
(558,140
)
    
(558,140
)
     -       -      
(558,140
)
Net income(loss)
     -       -       -      
(273,992
)
     -       -      
(273,992
)
    
(889
)
     -      
(274,881
)
                                                                                 
Balance at March 31, 2021
    
35,030,339
    
$
3,503
    
$
3,713,370
    
$
5,243,793
    
$
(709,478
)
  
$
(268,207
)
  
$
7,982,981
    
$
4,943
    
$
475,036
    
$
8,462,960
  
                                                                                 
Foreign currency translation
    -
       -       -       -       -       11,433       11,433       -       -       11,433  
Net income(loss)
    -       -       -       1,008,417       -       -       1,008,417       391       -       1,008,808  
                                                                                 
Balance at June 30, 2021
    35,030,339     $ 3,503     $ 3,713,370     $ 6,252,210     $ (709,478 )   $ (256,774 )   $ 9,002,831     $ 5,334     $ 475,036     $ 9,483,201  

See accompanying notes to unaudited condensed consolidated financial statements.

6
I-ON Digital Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months ended June 30,
  
2022
(RESTATED)
    
2021
  
             
Cash flows from operating activities:
            
Net income (loss)  
$
(38,925
)
  
$
734,425
  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                
Non-controlling interest
    
(236,167
)
    
(498
)
Depreciation - fixed assets
    
26,122
      
35,923
  
Amortization of intangible assets
    
36,886
      
15,752
  
Foreign currency transaction gain (loss)     1,937       (22,959 )
Loss on deconsolidation
     100,772       -  
                 
Changes in operating assets and liabilities:
                
Account receivable, net
    
(712,964
)
    
(692,439
)
Prepaid expenses and other current assets
    
(210,119
)
    
(591,635
)
Deposit
    
(64,865
)
    
(251,966
)
Deferred taxes
    
-
      
349,108
  
Account payable
    
164,864
      
(95,727
)
Accrued expenses and other
    
(372,266
)
    
(172,896
)
Value added tax payable
    
(178,912
)
    
(46,053
)
Income tax payable
    
(47,146
)
    
(30,826
)
Net cash used in operating activities    
(1,530,783
)
    
(769,791
)
                 
Cash flows from investing activities:
                
Purchase of short-term investments
     (24,332 )     (16,104 )
Purchase of investments
     (148,002 )     -  
Purchases of property and equipment
    
(39,759
)
    
(27,010
)
Purchases of intangible assets
    
(11,875
)
    
(3,607
)
Loan provided under short-term loan receivables
     (150,605 )     -  
Net cash used in investing activities
    
(374,573
)
    
(46,721
)
                 
Cash flows from financing activities:
                
Principal payments on long-term debt
    
-
      
(156,549
)
Net proceeds of government grants
    
247,517
      
232,039
  
Net cash provided by financing activities
    
247,517
      
75,490
  
                 
Effect of foreign currency translation on cash and cash equivalents
    
(293,722
)
    
(395,426
)
                 
Net decrease in cash and cash equivalents
    
(1,951,561
)
    
(1,136,448
)
                 
Cash and cash equivalents including restricted cash, beginning of period
    
5,308,644
      
6,272,652
  
                 
Cash and cash equivalents including restricted cash, end of period
  
$
3,357,083
    
$
5,131,204
  
                 
Supplemental disclosure of cash flow information:
                
Interest paid
  
$
3,966
    
$
8,354
  
Taxes paid
  
$
14,006
    
$
15,947
  

See accompanying notes to unaudited condensed consolidated financial statements.

7
I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1:
Organization and Operations

I-ON Digital Corp. (“the Company”) was incorporated on July 5, 1999 and is engaged in developing and supplying computerized system. The corporate headquarter is located at 15 Teheran-ro 10-gil Gangnam-gu Seoul, South Korea.  The Company provides enterprise content management services to customers primarily in Korea, Japan and Indonesia, by developing industry-leading products such as ICS (web content management system), iDrive (e-document management system), LAMS (load aggregator’s management system), e.Form (mobile contract system), IDAS (digital asset management system) and ICE (content delivery system).
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.

On or about August 1, 2021, the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) formed a new subsidiary named eformworks Co., Ltd. (“e.Form”) into which Communications moved its electronic signature operations. Communications contributed approximately $253,000 on August 1, 2021 and $77,000 on June 30, 2022 to e.Form to subscribe for its founders shares and owns 59.82% of the outstanding capital stock of e.Form.

On June 28, 2022, the board of directors of the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) approved to form a new subsidiary named EIPGRID, which provides the community energy service platforms. Hence Communications will contribute approximately $773,000 to EIPGRID to subscribe for its founders’ shares, and has considered a subsidiary to consolidate.
 
NOTE 2:
Summary of Significant Accounting Policies

The summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, who is responsible for integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the unaudited condensed consolidated financial statements.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of 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, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The unaudited information contained herein has been prepared on the same basis as the Company’s audited consolidated financial statements, and, in the opinion of the Company’s management, includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information for the periods presented. The interim results presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
Use of Estimates in the Preparation of Financial Statements
The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could materially differ from these estimates.
8

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Foreign Currency Transaction and Translation
The Company’s principal country of operations is Korea.  The financial position and results of operations of the Company are determined using the local currency, Korean Won (“KRW”), as the functional currency.

●
I-ON, Ltd (Japanese subsidiary) – The financial position and results of operations of I-ON, Ltd, the Japanese subsidiary of the Company, are initially recorded using its local currency, Japanese Yen (“JPY”). Assets and liabilities denominated in foreign currency are translated to the functional currency at the functional currency rate of exchange at the balance sheet date. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. All differences are reflected in profit or loss.  As of June 30, 2022, and December 31, 2021, the exchange rate was JPY 9.46 and JPY 10.02 per KRW, respectively.  The average exchange rate for the six months ended June 30, 2022 and 2021 was JPY 10.37 and JPY 10.51 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, 2022, and December 31, 2021, the exchange rate was KRW 1,292.90 and KRW 1,185.50 per US Dollar, respectively.  The average exchange rate for the six months ended June 30, 2022 and 2021 was KRW 1,232.94 and KRW 1,117.73, 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, 2022
(RESTATED)
   
December 31, 2021
  
Korea
            
Current assets
  
$
10,551,277
    
$
11,837,539
  
Non-current assets
    
2,004,368
      
1,965,469
  
Current liabilities
    
3,127,101
      
3,130,606
  
                 
Japan
                
Current assets
  
$
472,899
    
$
603,171
  
Non-current assets
    
225
      
267
  
Current liabilities
    
320,046
      
385,511
  

   
Six-months Period
Ended June 30,
    
Three-months Period
Ended June 30,
  
   
2022
   
2021
    2022     2021  
Korea
                          
Net Sales
  
$
4,744,892
    
$
7,901,637
     $ 2,527,454     $ 4,211,656  
                                 
Japan
                                
Net Sales
  
$
575,406
    
$
707,022
     $
327,216     $
347,479  

9

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Revenue Recognition
Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
The Company’s revenue consists of services provided and commissions. These revenue sources are as follows:

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


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

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


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

Cash, Cash Equivalents
The Company considers all money market funds and highly liquid financial investments with maturities of three months or less when acquired to be cash equivalents.

Restricted Cash

Restricted cash represents cash deposits which are restricted by the financial institutions for the loans the financial institutions have with the Company’s chief executive officer. The loans with the financial institutions amounted to approximately $1,469,565 and $1,602,699 at June 30, 2022 and December 31, 2021, respectively, and expires on various days during 2022, 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. The Company’s chief executive officer pays interest from the loans without any default at June 30, 2022 and December 31, 2021. The amount of restricted cash as of June 30, 2022 and December 31, 2021 was $1,469,565 and $1,602,699, respectively.
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.

Short-Term Financial Instruments

Short-term financial instruments represent interest-bearing certificates of deposits with original maturities between three months to year.

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 is included in selling, marketing, general and administrative expense in the consolidated statements of income and comprehensive income. At June 30, 2022 and December 31, 2021, allowance for doubtful accounts was approximately $873,000 and $645,000, respectively. The Company does not have any off-balance sheet exposure related to its customers.

10

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Property and Equipment

Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the double declining balance method, based on the estimated useful lives as follows:

Facility equipment
4 years
Automobile
4 years
Office equipment
4 years

Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized. When property and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts, and any gain or loss is included in operations.

The Company is working on a government research project and many other technical innovation projects. The Company receives government grants that it uses to offset the amount of assets acquired or expenses incurred.
Research and Development
Research and development costs are expensed as incurred. Research and development costs include travel, payroll, and other general expenses specific to research and development activities. Research and development cost for three months ended June 30, 2022 and 2021 was $227,571 and $333,631, respectively and for the six months ended June 30, 2022 and 2021 was $427,879 and $596,256, respectively,

Intangible Assets

When the Company acquires an intangible asset, it is recorded at acquisition cost (the purchase price of the intangible asset and the costs directly related to the preparation of the asset for its intended purpose). The cost of an intangible asset acquired in a business combination is measured at the fair value at the acquisition date according to the accounting standards for business combinations. Intangible assets with a finite life are amortized using the straight-line method over their estimated useful lives.

The estimated useful lives of the respective asset categories are as follows:

Development costs
3 years
Intangible assets excluding development costs
10 years
Other Intangible assets
3 to 5 years

Severance and Retirement Benefits

In accordance with the Korean Labor Standard Law, employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent an amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the balance sheet date. The annual severance benefits expense charged to operations is calculated based upon the net change in the accrued severance benefits payable at the balance sheet date based on the guidance of FASB ASC 960, Accounting – Defined Benefit Pension Plans.

The Company’s retirement pension plan is a defined contribution plan, and the Company pays the defined contribution regardless of the result of the operations of the Company. The Company recognizes the contributions to be paid in the current accounting period as retirement benefits expense. The amounts recognized as costs related to defined contribution plans were $106,087 and $129,333 for the three months ended June 30, 2022 and 2021, respectively, and $191,605 and $250,455 for the six months ended June 30, 2022 and 2021, respectively.

Compensated Absences

Employees of the Company are entitled to be compensated for absences depending on job classification, length of service, and other factors.  At June 30, 2022 and December 31, 2021, the amounts were deemed to be immaterial.
11

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Impairment analysis for long-lived assets and intangible assets
The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB ASC 360, Property, Plant, and Equipment and FASB ASC 205 Presentation of Financial Statements.  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including undiscounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company had not experienced impairment losses on its long-lived assets and intangible assets during any of the periods presented.
Government Grants
Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grants’ conditions and that the grants will be received. Government borrowings, which are lower than the market interest rate, are regarded as government grants. The grant is measured from the difference between the fair values of the government borrowings computed using the market interest rate and the acquisition cost of the grant. Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Government grants which are intended to compensate the Company for expenses incurred are recognized as other income in profit or loss over the periods in which the Company recognizes the related costs as expenses. There are government grants outstanding of $263,942 and $30,431 as of June 30, 2022 and December 31, 2021, respectively.
Earnings Per Share
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations. Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
12

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Fair Value Measurements

The Company follows FASB ASC Topic 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available.

Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for financial instruments measured at fair value on a recurring basis.
The three levels of inputs are as follows:

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


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


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

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

The following table summarize the Company’s fair value measurements by level at June 30, 2022 for the assets measured at fair value on a recurring basis:
   
Level 1
    
Level 2
    
Level 3
(RESTATED)
  
                   
Available-for-sale securities
  
$
-
    
$
-
    
$
236,568
  
Common stock purchase warrant
    
-
      
-
      
-
  
Equity purchase put option
    
-
      
-
      
-
  
Fair value, at June 30, 2022
  
$
-
    
$
-
    
$
236,568
  

The following table summarize the Company’s fair value measurements by level at December 31, 2021 for the assets measured at fair value on a recurring basis:

   
Level 1
    
Level 2
    
Level 3
  
                   
Available-for-sale securities
  
$
-
    
$
-
    
$
93,168
  
Common stock purchase warrant
    
-
      
-
      
-
  
Equity purchase put option
    
-
      
-
      
-
  
Fair value, at December 31, 2021
  
$
-
    
$
-
    
$
93,168
 

13

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due and deferred taxes. Deferred taxes are recognized for the differences between the basis of assets and liabilities for financial statement and income tax purposes.

The Company follows FASB ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC 740-10-25 provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company did not recognize additional liabilities for uncertain tax positions pursuant to FASB ASC 740-10-25 for the years ended December 31, 2021 and 2020.

Contingencies

Accounting guidance requires that the Company record an estimated loss from a loss contingency when information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal matters requires significant judgment. Many of these legal matters can take years to resolve. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash and trade receivable arising from its normal business activities. The Company deposits its cash in high credit quality institutions. The Company performs ongoing credit evaluations to its customers and establishes allowances when appropriate.

Cash and cash equivalents are maintained at various financial institutions located in Korea and Japan. The Company has never experienced any losses related to these balances.

Advertising

Costs associated with advertising and promotions are expensed as incurred. Advertising expense amounted to $6,974 and $31,215 for the three months ended June 30, 2022 and 2021, respectively, and $11,764 and $65,909 for the six months ended June 30, 2022 and 2021, respectively.

Employee Stock Based Compensation

The Company accounts for its share-based compensation plan in accordance with FASB ASC 718, Stock Compensation, which establishes a fair value method of accounting for stock-based compensation plans. The Company records stock compensation expense based on the value of the number of shares vesting specified periods over three years.

Stock-based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis.

For purposes of determining the variables used in the calculation of stock-based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our consolidated financial statements.

Non-controlling Interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date and is adjusted at each reporting date for the net income (loss) attributable to that non-controlling interest during that period.

Value Added Tax

National Tax Service in Korea administered Value Added Tax under the Tax Reform Act of 1976 promulgated by the National Assembly. Value added tax is imposed on goods sold in or imported into Korea and on services provided within Korea. Value added tax in Korea is charged on an aggregated basis at a rate of 10% on the full price collected for the goods sold or for the taxable services provided. Value added tax paid were $6,040 and $119,646 for the three months ended June 30, 2022 and 2021, respectively, and $79,612 and $343,751 for the six months ended June 30, 2022 and 2021, respectively.

Recently Issued Accounting Pronouncements

  ●
Reference Rate Reform


14

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this standard apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in this standard are elective and are effective upon issuance for all entities. The Company is evaluating the expedients and exceptions provided by the amendments in this standard to determine their impact.
Other recently issued accounting updates are not expected to have a material impact on the Company’s Interim Financial Statements.

●
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 June 30, 2021 and the Company made the required disclosure changes in that filing and going forward.  Adoption did not have an impact on the Company’s consolidated results of operations, consolidated financial position, and cash flows.
 
15

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 3:
Investments

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

Available-for-sale securities
  
Percentage of
Ownership
    
June 30, 2022
(RESTATED)
    
December 31, 2021
  
4Grit
    
2.50
%
  
$
38,676
    
$
42,180
  
E-channel
    
0.07
%
  
$
36,581
    
$
39,895
  
KSFC
    
0.00
%
  
$
10,172
    
$
11,093
  
MetaFlyer
     40.00 %   $ 151,139    
-  
Total investment securities
          
$
236,568
    
$
93,168
  

On March 1, 2022, the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) contributed approximately $165,000 to Metaflyer Co. Ltd.(“Metaflyer”), and owned 66.67% of the outstanding capital stock of Metaflyer. Having more investors to Metaflyer, Communications’ ownership to Metaflyer has decreased to 40% as of May 19, 2022, and Communications deconsolidated Metaflyer. After the deconsolidation, Communications uses equity method on the investment to Metaflyer by ASC 323-10-15 Equity Method and Joint Venture.

NOTE 4:
Property and Equipment

Property and equipment consist of the following:

   
June 30, 2022
    
December 31, 2021
  
             
Facilities
  
$
166,141
    
$
181,193
  
Vehicles
    
29,017
      
39,055
  
Equipment
    
1,598,878
      
1,694,969
  
Government grants
    
(26,826
)
    
(39,752
)
Total property and equipment
    
1,767,211
      
1,875,465
  
Less: accumulated depreciation
    
(1,657,521
)
    
(1,770,020
)
Property and equipment, net
  
$
109,690
    
$
105,445
  

Depreciation expense for three months ended June 30, 2022 and 2021 was $27,077 and $9,460, respectively, and for six months ended June 30, 2022 and 2021 was $26,122 and $35,923, respectively.
As noted in Note 2, the government grants received is against the values of assets acquired or the expenses incurred.

NOTE 5:
Intangible Assets

Intangible assets consist of the following:

   
June 30, 2022
    
December 31, 2021
  
             
Patents
  
$
321,578
    
$
338,361
  
Trademark
    
24,349
      
26,555
  
Start-Up Cost
    
1,183
      
1,291
  
Software
    
673,910
      
734,961
  
Government grants
    
-
      
(168
)
Total intangible assets
    
1,021,020
      
1,101,000
  
Less: Accumulated amortization
  

(642,539
)
    
(662,219
)
Intangible assets, net
  
$
378,481
    
$
438,781
  

Amortization expense for three months ended June 30, 2022 and 2021 was $18,079 and $7,817, respectively, and for the six months ended June 30, 2022 and 2021, was $36,886 and $15,752, respectively.
Future amortization expense of the Company’s intangible assets at June 30, 2022 is expected to be as follows:

Years ending December 31,
      
       
2022 (remaining six months)
  
$
53,944
  
2023
    
79,158
  
2024
    
78,392
  
2025
    
77,238
  
2026
    
68,038
  
Thereafter
    
21,711
  
Total
  
$
378,481
  

As noted in Note 2, the government grants received is against the values of assets acquired or the expenses incurred.

16

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 6:
Short Term Loan Payable

The Company has a short-term loan with a financial institution bearing interest rate of 2.58% expiring July 15, 2023.  All amounts outstanding are due on July 15, 2023, however, the Company may make earlier payments without any penalty.  The total amount outstanding was approximately $309,000 and $337,000 at June 30, 2022 and December 31, 2021, respectively. The short-term loan is guaranteed by the officer of the Company.
NOTE 7:
Miscellaneous Income

There is the Collaborative R&D Program (“CRP") in Korea that big firms support for small businesses’ research & development projects. One of the big firms in Korea, SK E&S Co., Ltd. decided to support for ION through CRP. ION received approximately $941,118 of fund from SK E&S on February 9, 2022.

NOTE 8:
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 2022. The lease is automatically extended upon agreement of both parties. The Company’s lease is a short term lease, which has initial term of 12 months or less and does not include a purchase option, it is not capitalized, and exempted from Leases (Topic 842). Rent expense for all operating leases for the three months ended June 30, 2022 and 2021 was $33,274 and $37,452, respectively, and for the six months ended June 30, 2022 and 2021 was $68,130 and $75,152, respectively.
NOTE 9:
Related Party Transactions

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

The Company signed the contract with its investee, Metaflyer, to provide SaaS version. The project term is from March 2, 2022 to June 30, 2022, and the contract fee is approximately $154,000. The Company received prepaid expense of $77,000 from Metaflyer on March 25, 2022, and the remaining balance will be received after the project is completed.
17

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 10:
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
  
2022
(RESTATED)
    
2021
    
2022
(RESTATED)
     2021
  
                         
Net income (loss) before non-controlling interest
  
$
(547,051
)
  
$
1,008,808
     $ (275,092 )   $ 733,927  
Non-controlling interest
    
(95,652
)
    
391
       (236,167 )     (498 )
Net income (loss)
    
(451,399
)
    
1,008,417
       (38,925 )     734,425  
                                 
Weighted-average shares of common stock outstanding:
                                
Basic
    
35,030,339
      
35,030,339
       35,030,339       35,030,339  
Dilutive effect of common stock equivalents arising from share option, excluding antidilutive effect from loss
    
-
      
-
       -       -  
Dilutive shares
    
35,030,339
      
35,030,339
       35,030,339       35,030,339  
                                 
Earnings per share - Basic
                                
Net income (loss) before non-controlling interest
  
$
(0.02
)
  
$
0.03
     $ (0.01 )   $ 0.02  
Non-controlling interest
  
$
(0.00
 )  
$
0.00
     $ (0.01 )   $ (0.00 )
Earnings per share to stockholders
  
$
(0.02
)
  
$
0.03
     $ (0.00 )   $ 0.02  
                                 
Earnings per share - Diluted
                                
Net income (loss) before non-controlling interest
  
$
(0.02
)
  
$
0.03
     $ (0.01 )   $ 0.02  
Non-controlling interest
  
$
(0.00
 )  
$
0.00
     $ (0.01 )   $ (0.00 )
Earnings per share to stockholders
  
$
(0.02
)
  
$
0.03
     $ (0.00 )   $ 0.02  

No non-vested share awards or non-vested share unit awards were antidilutive for the six months ended June 30, 2022 and 2021.
NOTE 11:
 Non-Controlling Interest-Issuance of Preferred Stock by Subsidiaries

On April 9, 2019, The Company’s subsidiary, I-ON Communication Korea issued 157,142 shares of redeemable convertible preferred stock at a price of KRW3,500 per share for proceeds of KRW549,997,000. 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 convertible preferred shares meet definition of equity instrument and contain a put option that is not outside the Company’s control and the conversion to common stock is at a fixed, determinable share conversion price of KRW 3,500 per share.
On November 22, 2021, the Company’s subsidiary, e.FormWorks Co., Ltd. (Korea) issued redeemable convertible preferred stock with proceeds of KRW 733,270,800 and issued 443,600 shares of preferred stock at a price of KRW 1,653 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)

●
1% 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 1,653

●
Call option by I-ON Digital – Should I-ON Digital exercise to redeem preferred stock, I-ON Digital is required to repurchase for KRW 1,653 per share and 6% annual interest compounded.

18

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
The convertible preferred shares meet definition of equity instrument and contain a put option that is not outside the Company’s control and the conversion to common stock is at a fixed determinable share conversion price at KRW 1,653 per share.
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.

NOTE 12:
Termination of Merger Agreement

On April 28, 2021, I-ON Digital Corp. a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger and Reorganization (the “Agreement”) with CDI Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Acquisition”), Cardio Diagnostics, Inc., a Delaware corporation (“CDI”), and the shareholders of CDI (the “CDI Shareholders”).  Pursuant to the terms of the Agreement, Acquisition will merge with and into CDI (the “Merger”) with CDI becoming the surviving entity and a wholly-owned subsidiary of the Company.  In consideration for the Merger, the CDI Shareholders shall receive 25,000,000 newly issued shares of common stock of the Company, par value $0.0001 (“I-On Common Stock”) to be issued to the CDI Shareholders in accordance with their pro rata ownership of CDI prior to the Merger.  Simultaneously with the Merger, all of the equity interests in I-On Communications, Ltd., a company organized under the laws of the Republic of South Korea (“Communications”), the Company’s wholly-owned subsidiary, shall be transferred by the Company to certain other shareholders of the Company (collectively, the “Communications Shareholders”) in exchange for the return of Twenty Million (20,000,000) shares of the I-On Common Stock held by the Communications Shareholders (the “Spinoff”).  The Merger is contingent upon the approval by a majority of the Company’s shareholders of the Spinoff and an amendment to the Company’s Certificate of Incorporation to change the name of the Company to “Cardio Diagnostics Holdings, Inc.” and effectuate the reverse split of the number of outstanding I-On Common Stock on the basis of one share for a range of per every ten (10) to fifteen (15) shares of I-On Common Stock outstanding.

The Termination Date of the Merger Agreement was amended to September 30, 2021 on August 29, 2021 wherein CDI reimbursed the Company expenses in the amount of $28,600 for its June 30, 2021 Form 10-Q filing and related expenses.  On October 11, 2021, the Company and CDI again agreed to extend the Termination Date to December 31, 2021 wherein CDI agreed to reimburse the Company for any and all expenses in connection with the Company’s Form 10-Q filing for the period ending September 30, 2021.  On December 28, 2021, the Company and CDI agreed to extend the Termination Date of the Agreement to February 28, 2022 wherein CDI agreed to reimburse the Company for any and all expenses in connection with the Company’s Form 10-K filing for the year ending December 31, 2021. CDI has advised the Company that it will not grant another extension to the Agreement and considers the Agreement expired.
NOTE 13:
Deconsolidation of Metaflyer

On March 1, 2022, the Company’s wholly-owned subsidiary I-ON Communications, Ltd. (“Communications”) contributed approximately $165,000 to Metaflyer, and owned 66.7% of the outstanding capital stock of Metaflyer. Subsequently, Metaflyer added more investors and Communications’ ownership percentage of Metaflyer decreased from 66.7% to 40.0% as of May 19, 2022. The amounts of assets, liabilities and non-controlling interest attributable to Metaflyer were deconsolidated on May 19, 2022 in accordance with FASB ASC 810, Consolidation. As a result of the deconsolidation, the Company recognized a loss on deconsolidation of $100,772 and the amount is separately presented on the condensed consolidated statements of operations. The loss on deconsolidation represents the difference between the fair value of retained equity method investment of $151,140 and $251,912 of the Communications’ investment percentage of carrying amount of Metaflyer’s net assets as of May 19, 2022. The Company follows FASB ASC Topic 820, Fair Value Measurements, to measure the fair value of retained equity method investment to Metaflyer. Under FASB ASC 820, 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. Financial instruments on Metaflyer include cash and cash equivalents and prepaid expenses as of the fair value measurement date and the carrying values of these financial instruments approximate their fair value due to their short maturities.

Upon the deconsolidation, the Company elected to apply the equity method on the investment to Metaflyer by retaining significant influence over Metaflyer in accordance with FASB ASC 323-10-15, Equity Method and Joint Venture. The Company will not participate in Metaflyer’s operations or management upon the deconsolidation; however, we concluded that Metaflyer is still a related party to the Company considering the CEO of Metaflyer is a board member of the Company.

19

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 14:
Restatement

On May 19, 2022, the Company deconsolidated one of its subsidiaries, Metaflyer, but has not recognized gain/loss on deconsolidation. The Company has re-evaluated the gain/loss on deconsolidation and determined that the Company incorrectly described as being issued.

The following tables present the effects of the restatement on the accompanying consolidated financial statements at June 30, 2022:

Condensed Consolidated Balance Sheet
            
 
            
As of June 30, 2022
  
As Previously Reported
    
Restated
  
 
            
Non-Current Assets:
            
Investment
  
$
240,120
    
$
236,568
  
Total non current assets
    
2,008,145
      
2,004,593
  
Total Assets
  
$
13,032,321
    
$
13,028,769
  
 
                
Stockholders' Equity:
                
Accumulated other comprehensive loss
    
(1,712,396
)
    
(1,440,069
)
Accumulated retained earnings
    
7,752,819
      
7,642,736
  
Total company stockholders' equity
    
9,047,818
      
9,210,062
  
Non-controlling interests
    
(236,167
)
    
(401,963
)
Total stockholders' equity
    
9,905,220
      
9,901,668
  

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
              
 
                        
 
  
Three-month Period ended June 30, 2022
    
Six-month Period ended June 30, 2022
  
 
  
As Previously Reported
    
Restated
    
As Previously Reported
    
Restated
  
 
                        
Other income (expense)
                        
Loss on deconsolidation
  
$
-
    
$
(100,772
)
  
$
-
    
$
(100,772
)
Total other income (expense), net
    
31,814
      
(68,955
)
    
1,005,965
      
905,196
  
Income (loss) before provision for income taxes, and non-controlling interest
    
(406,088
)
    
(516,171
)
    
(134,129
)
    
(244,212
)
Net income (loss) before non-controlling interest
    
(436,968
)
    
(547,051
)
    
(165,009
)
    
(275,092
)
Net income (loss)
  
$
(341,316
)
  
$
(451,399
)
  
$
71,158
    
$
(38,925
)
 
                                
Comprehensive income statement:
                                
Net income (loss)
  
$
(436,968
)
  
$
(547,051
)
  
$
(165,009
)
  
$
(275,092
)
Foreign currency translation loss
    
(757,905
)
    
(485,578
)
    
(985,896
)
    
(713,569
)
Total comprehensive income (loss)
  
$
(1,194,873
)
  
$
(1,032,629
)
  
$
(1,150,905
)
  
$
(988,661
)
 
                                
Earnings per share - Basic
                                
Net income (loss) before non-controlling interest
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.01
)
  
$
(0.01
)
Non-controlling interest
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.01
)
Earnings per share to stockholders
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.01
)
  
$
(0.00
 )
 
                                
Earnings per share - Diluted
                                
Net income (loss) before non-controlling interest
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.01
)
  
$
(0.01
)
Non-controlling interest
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.00
)
  
$
(0.01
)
Earnings per share to stockholders
  
$
(0.01
)
  
$
(0.02
)
  
$
(0.01
)
  
$
(0.00
)

Condensed Consolidated Statement of Cash Flows
            
 
            
Six Months ended June 30, 2022
  
As Previously Reported
    
Restated
  
 
            
Cash flows from operating activities:
            
Net income (loss)
  
$
71,158
    
$
(38,925
)
Adjustments to reconcile net loss to net cash provided by operating activities:
  
Loss on deconsolidation
    
-
      
100,772
  
Net cash used in operating activities
    
(1,521,472
)
    
(1,530,783
)
 
                
Cash flows from investing activities:
                
Purchase of investments
    
(162,214
)
    
(148,002
)
Net cash used in operating activities
    
(388,785
)
    
(374,573
)
 
                
Effect of foreign currency translation on cash and cash equivalents
    
(288,821
)
    
(293,722
)

20

I-ON Digital Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 15:
Subsequent Events

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements are available to be issued. Any material events that occur between the balance sheet date and the date that the financial statements were available for issuance are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet date. Based upon this review, except as disclosed below, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.

1.          Securities Purchase Agreement

On September 28, 2022, I-On Digital Corp. (the “Company,” “we,” “us” or “our”) entered into a Series A Preferred Stock Purchase Agreement (the “Purchase Agreement”) with I-ON Acquisition Corp., a Florida corporation (“IAC”). Pursuant to the terms of the Purchase Agreement, IAC acquired 3,000 shares of a newly created Series A Convertible Preferred Stock, par value $0.0001 per share  (the “Series A Preferred”) for proceeds in the amount of $250,000 (the “Subscription Amount”) in the form of a promissory note (the “Note”) which is secured by the pledge of the Series A Shares, the Series B Shares (as defined herein) and other assets of IAC in a Stock Pledge and Escrow Agreement (the “Pledge Agreement”).  Each Series A Preferred Share is convertible into Ten Thousand (10,000) shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock” and is entitled to vote on matters as to which holders of the Common Stock shall be entitled to vote at a rate of One Hundred (100) votes per share of Series A Preferred.

Also on September 28, 2022, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with certain Purchasers (the “Purchasers”) pursuant to which the Purchasers agreed to purchase 6,000 shares of a newly created Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred”), in exchange for the Purchasers’ rights and title to certain assets of the Purchasers described in the Contribution Agreement. Each Series B Preferred Share is convertible into One Thousand (1,000) shares of Common Stock and entitled to vote on matters as to which holders of the Common stock shall be entitled to vote at a rate of One Thousand (1,000) votes per Series B Preferred Share.

Following the consummation of the transactions set forth in the Purchase Agreement and the Contribution Agreement, and the spin-off of the Company’s operating subsidiary, I-On Communications Co., Ltd. (“Communications”), as descried further herein, the Company adopted the operations of IAC of providing funding and complimentary services, including hashing power, to mine bitcoin.

The Company’s officers and directors will not resign, and IAC’s management will not be appointed until the Note is paid in full.

2.          Spin-Off of I-On Communications Co., Ltd.

On September 29, 2022, the Company effectuated an Equity Transfer Agreement (the “Spin-Off Agreement”) among the Company, Communications and JFJ Digital Corp., a Delaware corporation (“JFJ”), whereby all of the outstanding equity of Communications was transferred to JFJ in exchange for the return of 15,306,119 shares of the Company’s Common Stock held by Jae Cheol Oh and HongRae Kim, the Company’s principal executive officer and members of the Board of Directors (the “Spin-Off”).  Pursuant to the Spin-Off Agreement, in addition to acquiring all of the outstanding capital stock of Communications, JFJ will assume all responsibilities for any debts, obligations and liabilities of Communications and acquire all rights to any assets of Communications, including, but not limited to, the Subscription Amount.

As a result of the Spin-Off, Communications ceased being a subsidiary of the Company.

21
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 six months ended June 30, 2022 and 2021 and as of June 30, 2022 and December 31, 2021 are expressed in US dollars and are prepared in accordance with generally accepted accounting principles in the United States of America. They reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of our interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter. Our unaudited consolidated financial statements and notes included therein have been prepared on a basis consistent with and should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2021, as filed in our annual report on Form 10-K.

The following discussion should be read in conjunction with our interim financial statements and the related notes that appear elsewhere in this quarterly report.

Business Overview

Organization and Corporate History

I-ON Digital Corp. (formerly known as I-ON Communications Corp.) was incorporated under the laws of the State of Delaware on June 18, 2013 as ALPINE 3 Inc. Alpine 3 Inc. was set up to serve as a vehicle to effect an asset acquisition, merger, exchange of capital stock or other business combination with a domestic or foreign business. ALPINE 3 did not undertake any effort to cause a market to develop in its securities, either debt or equity, before it successfully concluded a business combination. On April 4, 2014, The Michael J. Rapport Trust (the “Trust”) purchased 10,000,000 shares of common stock which was all of the outstanding shares of Alpine 3, Inc., and subsequently changed the name to Evans Brewing Company Inc. (“EBC”) on May 29, 2014. On October 9, 2014 the Trust agreed to the cancellation of 9,600,000 of the shares of common stock that it had acquired and retained 400,000 shares of common stock.

On October 15, 2014, Bayhawk and EBC entered into an Asset Purchase and Share Exchange Agreement (the “Agreement”), subject to receiving approval of the independent Bayhawk shareholders who voted on the transaction. On September 17, 2015, the independent Bayhawk shareholders approved the agreement and Bayhawk sold to EBC and EBC purchased from Bayhawk assets of Bayhawk, including but not limited to the assets relating to the Bayhawk Ales label and the Evans Brands (collectively, the “Transferred Assets”). Bayhawk retained ownership of 100% of the stock in Evans Brewing Co. (CA) (“Evans Brewing California”) which has the brewers license at City Brewery in Lacrosse, WI. Based on the affirmative vote by the independent Bayhawk shareholders to approve the Asset Purchase transaction, EBC proceeded with the share exchange and tender offer to the Bayhawk shareholders, pursuant to which EBC offered to exchange shares of EBC common stock for shares of Bayhawk common stock, on a one-for-one basis (the “Exchange Offer”). At the close of the share exchange on December 2, 2015, 4,033,863 Bayhawk shares were accepted and exchanged for 4,033,863 shares of EBC common stock.
On January 25, 2018, Evans Brewing Company, Inc. consummated an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”), with I-ON Communications Co., Ltd., a company organized under the laws of the Republic of Korea (South Korea) (“I-ON”) and I-ON Acquisition Corp., a wholly-owned subsidiary of the Company (“Acquisition”). Pursuant to the terms of the Merger Agreement, Acquisition merged with and into I-ON in a statutory reverse triangular merger (the “Merger”) with I-ON surviving as a wholly-owned subsidiary of the Registrant.  As consideration for the Merger, the Registrant agreed to issue the shareholders of I-ON (the “I-ON Holders”) an aggregate of 26,000,000 shares of our Common Stock, in accordance with their pro rata ownership of I-ON capital stock.  Following the Merger, the Registrant adopted the business plan of I-ON in information technology consultancy and software development.  On December 14, 2017, in connection with the Merger, the Company’s Board of Directors approved an amendment to its Certificate of Incorporation (the “Amendment”) to change its name to I-ON Communications Corp.

At the effective time of the Merger, our board of directors and officers were reconstituted by the appointment of Jae Cheol James Oh as Chairman, Chief Executive Officer, and Chief Financial Officer, Hong Rae Kim as Executive Director and Jae Ho Cho as Director.  Michael Rapport resigned as President, Chief Executive Officer, and Chairman in connection with the Transaction and Evan Rapport resigned as Vice President and Director, Kenneth Wiedrich resigned as Chief Financial Officer and Director and Kyle Leingang resigned as Secretary. Roy Robertson, Mark Lamb, Joe Ryan, and Kevin Hammons resigned as members of the Board of Directors and their respective committees.

On March 21, 2019, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to change the name of the Company to I-ON Digital Corp.

I-ON Digital

Following the Merger, as described more fully herein, the Company adopted the business plan of I-ON. I-ON was founded by Jae Cheol James Oh, who currently serves as CEO. The Company’s roots are in IT consultancy and software development. I-ON services South Korea’s enterprise content management system’s (CMS) market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.

After being awarded its first of numerous international patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of on-premise and cloud-based enterprise-class unstructured data management, digital experience and digital marketing software and solutions.  I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling clients to create, measure, and optimizes digital experiences for their audiences across marketing channels and devices.  We believe these solutions help clients reduce the cost of content management and delivery, while increasing the return on their investments in digital communication and marketing spend.   As of its founding, the Company has serviced and continues to service over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public sectors.  The Company has meaningfully expanded its reach over the past decade and now currently markets, licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.

I-ON currently holds 6 international and over 20 domestic patents for both products and methodologies built into the 10 product offerings the Company currently has at market.  These encompass enterprise CMS, digital experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions as well as sports software and IT convergence services.  Beginning in the fourth quarter of 2018, the Company started endorsing its 7th generation cloud based Digital Experience (DXP) platform as a service offering known as ICE, which encompasses a more feature-rich front and back end CMS.  The Company has designed and developed industry-leading technologies that are compliant with global standards including GS (Good Software) and NET (New Excellent Technology).  I-ON also holds numerous domestic and global industry awards, earning high rankings and recognition from the likes of Gartner (Magic Quadrant 2014) and Red Herring (2014 Asia Top 100 Winner), among many others.

In addition to South Korea, Japan has particularly helped fuel I-ON’s growth over the past 10 years owing to the success of an exclusive licensing deal with Ashisuto, a large Japan-based technology services firm that employs approximately 800 technical, engineering and marketing staff across 9 office locations.  Ashisuto, which has provided technology services to Japan’s enterprises and government entities since 1973, currently white labels and sells I-ON’s core CMS offering ICS6 to over 600 clients as NOREN 6.
As a result of global enterprise digital marketing trends and I-ON’s nearly 20 -year track record in South Korea, Japan and now, Southeast Asia, the Company’s objective is to continue to gain market share in these markets. I-ON will continue to closely engage and consult with existing and prospective clients as their subject matter expert and digital strategist of choice across multiple touchpoints in the digital marketing and technology ecosystem, helping Chief Marketing Officers (CMO) and Chief Information Officers (CIO) drive critical change and growth for their organizations.

I-ON has invested and continues to spend substantial revenue on research and development.  The Company has over 120 employees as of June 30, 2022, 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, 2022 as Compared to the three months ended June 30, 2021

The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:

     
Three months ended June 30,
             
Change
    
 
2022 (RESTATED)
    
2021
 
Amount
    
% of Revenue
    
Amount
    
% of Revenue
Amount
    
%
 
                                    
Net sales
  
$
2,854,670
      
100.0
%
  
$
4,559,135
      
100.0
%
  
$
(1,704,465
)
    
-37.4
%
Cost of goods sold
    
2,469,356
      
86.5
%
    
2,657,096
      
58.3
%
    
(187,740
)
    
-7.1
%
Gross profit
    
385,314
      
13.5
%
    
1,902,039
      
41.7
%
    
(1,516,725
)
    
-79.7
%
                                                 
Operating expense:
                                                
Research and development
    
227,571
      
8.0
%
    
333,631
      
7.3
%
    
(106,060
)
    
-31.8
%
General and administrative
    
604,959
      
21.2
%
    
518,016
      
11.4
%
    
86,943
      
6.8
%
Total operating expense
    
823,530
      
29.2
%
    
851,647
      
18.7
%
    
(19,117
)
    
-2.2
%
                                                 
Gain (loss) from operations
    
(447,216
)
    
-15.7
%
    
1,050,392
      
23.0
%
    
(1,497,608
)
    
-142.6
%
                                                 
Other income (expense):
                                                
Loss on deconsolidation
    
(100,772
)
    
-3.5
%
    
-
      
0.0
%
    
(100,772
)
    
n/a
  
Interest income
    
18,712
      
0.7
%
    
12,126
      
0.3
%
    
6,586
      
54.3
%
Foreign currency transaction gain (loss)
    
342
      
0.0
%
    
(9,224
)
    
-0.2
%
    
9,566
      
-103.7
%
Miscellaneous income, net
    
14,564
      
0.5
%
    
(8,721
)
    
-0.2
%
    
23,285
      
-267.0
%
Interest expense
    
(1,804
)
    
-0.1
%
    
(3,939
)
    
-0.1
%
    
2,135
      
-54.2
%
Total other income (expense), net
    
(68,955
 )    
-2.4
%
    
(9,758
)
    
-0.2
%
    
59,197
      
606.7
%
                                                 
Income (loss) before provision for income taxes, and non-controlling interest
    
(516,171
)
    
-18.1
%
    
1,040,634
      
22.8
%
    
(1,556,805
)
    
-149.6
%
Provision for (benefit from) income tax
    
30,880
      
1.1
%
    
31,826
      
0.7
%
    
(946
)
    
-3.0
%
                                                 
Net income (loss) before non-controlling interest
    
(547,051
)
    
-19.2
%
    
1,008,808
      
22.1
%
    
(1,555,859
)
    
-154.2
%
Non-controlling interest income (loss)
    
(95,652
)
    
-3.4
%
    
391
      
0.0
%
    
(96,043
)
    
-24,563.4
%
                                                 
Net income (loss)
  
$
(451,399
)
    
-15.8
%
  
$
1,008,417
      
22.1
%
  
$
(1,459,816
)
    
-144.8
%
                                                 
Comprehensive income statement:
                                                
Net income
    
(547,051
 )    
-19.2
 %    
1,008,808
      
22.1
 %    
(1,555,859
 )    
-154.2
 %
Foreign currency translation gain (loss)
    
(485,578
 )    
-17.0
 %    
11,433
      
0.3
 %    
(497,011
 )    
-4,347.2
 %
Total comprehensive income (loss)
   $
(1,032,629
 )    
-36.2
 %   $
1,020,241
      
22.4
 %    
(2,052,870
 )    
-201.2
 %

24
Net Sales

Net sales decreased by $1,704,465 or 37.4%, to $2,854,670 for the three months ended June 30, 2022 from $4,559,135 for the three months ended June 30, 2021. The change in net sales reflected the following:

- Maintenance  revenue decreased by approximately $337,000 from approximately $732,000 for the three months ended June 30, 2021 to $395,000 for the three months ended June 30, 2022 due to decrease in new contracts.
- Installation revenue decreased by approximately $1,487,000 from approximately $1,911,000 for the three months ended June 30, 2021 to $424,000 for the three months ended June 30, 2022 due to decrease in new contracts.

Cost of Goods Sold

Cost of goods sold decreased by $187,740 or 7.1%, to $2,469,356 for the three months ended June 30, 2022 from $2,657,096 for the three months ended June 30, 2021.  The decrease was primarily due to outsourced consulting fees.  The outsourced consulting fees decreased by $644,231 or 47.00%, to $726,444 for the three months ended June 30, 2022 from $1,370,675 for the three months ended June 30, 2021.

Gross Profit

Gross profit decreased by $1,516,725, to $385,314, or 13.5% of net sales, for the three months ended June 30, 2022, from $1,902,039 or 41.7% of net sales, for the three months ended June 30, 2021.

The decrease in gross profit was mainly due to decreased Net Sales above.

Research and Development

Research and development expenses decreased by $106,060 or 31.8%, to $227,571 for the three months ended June 30, 2022 from $333,631 for the three months ended June 30, 2021.  The decrease was due to decrease in head count computer programmers at the research and development department.

General and Administrative

General and administrative expenses increased by $86,943 or 16.8%, to $604,959 for the three months ended June 30, 2022 from $518,016 for the three months ended June 30, 2021.  The expenses have been continuously increased mainly due to an increase in salary.

Other Income (Expense)

The increase in other income was primarily due to the $941,118 received from SK E&S for small businesses’ research & development projects. The increase in loss on deconsolidation was primarily due to deconsolidation of Metaflyer

Provision for Income Tax

Change in tax provision was not material.

Comprehensive income - Foreign currency translation

Foreign currency translation loss was $485,578 for the three months ended June 30, 2022 compared to gain of $11,433 for the three months ended June 30, 2021.  The change of $497,011 was due to devaluation of Korean Won compared to US dollar in three months ended June 30, 2022 compared to June 30, 2021.  The average exchange rate for the three months ended June 30, 2022 and 2021 was KRW 1,259.76 and KRW 1,121.16, respectively.

Comparison of results of operations for the six months ended June 30, 2022 as Compared to the six months ended June 30, 2021

The following table sets forth selected items from our interim unaudited condensed consolidated statements of operations by dollar and as a percentage of our net sales for the periods indicated:


  
Six Months ended June 30,
    
 

 
2022 (RESTATED)
    
2021
    
Change
  
 
  
Amount
    
% of Revenue
    
Amount
    
% of Revenue
    
Amount
    
%
  
 
                                    
Net sales
  
$
5,320,298
      
100.0
%
  
$
8,608,659
      
100.0
%
  
$
(3,288,361
)
    
-38.2
%
Cost of goods sold
    
4,761,882
      
89.5
%
    
6,131,649
      
71.2
%
    
(1,369,767
)
    
-22.3
%
Gross profit
    
558,416
      
10.5
%
    
2,477,010
      
28.8
%
    
(1,918,594
)
    
-77.5
%
 
                                                
Operating expense:
                                                
Research and development
    
427,879
      
8.0
%
    
596,256
      
6.9
%
    
(168,377
)
    
-28.2
%
General and administrative
    
1,279,945
      
24.1
%
    
1,077,473
      
12.5
%
    
202,472
      
18.8
%
Total operating expense
    
1,707,824
      
32.1
%
    
1,673,729
      
19.4
%
    
34,095
      
2.0
%
 
                                                
Gain (loss) from operations
    
(1,149,408
)
    
-21.6
%
    
803,281
      
9.3
%
    
(1,952,689
)
    
-243.1
%
 
                                                
Other income (expense):
                                                
Loss on deconsolidation
    
(100,772
)
    
-1.9
%
    
-
      
0.0
%
    
(100,772
)
    
n/a
  
Interest income
    
34,117
      
0.6
%
    
23,523
      
0.3
%
    
10,594
      
45.0
%
Foreign currency transaction gain (loss)
    
1,937
      
0.0
%
    
(22,959
)
    
-0.3
%
    
24,896
      
-108.4
%
Miscellaneous income, net
    
973,880
      
18.3
%
    
11,019
      
0.1
%
    
962,861
      
8,738.2
%
Interest expense
    
(3,966
)
    
-0.1
%
    
(8,354
)
    
-0.1
%
    
4,388
      
-52.5
%
Total other income (expense), net
    
905,196
      
17.0
%
    
3,229
      
0.0
%
    
901,967
      
27,933.3
%
 
                                                
Income (loss) before provision for income taxes, and non-controlling interest
    
(244,212
)
    
-4.6
%
    
806,510
      
9.4
%
    
(1,050,722
)
    
-130.3
%
Provision for (benefit from) income tax
    
30,880
      
0.6
%
    
72,583
      
0.8
%
    
(41,703
)
    
-57.5
%
 
                                                
Net income (loss) before non-controlling interest
    
(275,092
)
    
-5.2
%
    
733,927
      
8.5
%
    
(1,009,019
)
    
-137.5
%
Non-controlling interest income (loss)
    
(236,167
)
    
-4.4
%
    
(498
)
    
0.0
%
    
(235,669
)
    
47,323.1
%
 
                                                
Net income (loss)
  
$
(38,925
)
    
-0.7
%
  
$
734,425
      
8.5
%
  
$
(773,350
)
    
-105.3
%
                                                 
Comprehensive income statement:
                                                
Net income
    
(275,092
 )    
-5.2
 %    
733,927
      
8.5
 %    
(1,009,019
 )    
-137.5
 %
Foreign currency translation gain (loss)
    
(713,569
 )    
-13.4
 %    
(546,707
 )    
-6.4
 %    
(166,862
 )    
30.5
 %
Total comprehensive income (loss)
   $
(988,661
 )    
-18.6
 %   $
187,220
      
2.2
 %   $
(1,175,881
 )    
-628.1
 %

25
Net Sale

Net sales decreased by $3,288,361 or 38.2%, to $5,320,298 for the six months ended June 30, 2022 from $8,608,659 for the six months ended June 30, 2021. The change in net sales reflected the following:

- Customization revenue decreased by approximately $609,000 from approximately $3,987,000 for the six months ended June 30, 2021 to $3,378,000 for the six months ended June 30, 2022 due to decrease in new contracts.
- Installation revenue decreased by approximately $2,139,000 from approximately $2,679,000 for the six months ended June 30, 2021 to $540,000 for the six months ended June 30, 2022 due to decrease in new contracts.

Cost of Goods Sold

Cost of goods sold decreased by $1,369,767 or 22.3%, to $4,761,882 for the six months ended June 30, 2022 from $6,131,649 for the six months ended June 30, 2021.  The decrease was primarily due to outsourced consulting fees.  The outsourced consulting fees decreased by $2,146,986 or 60.47%, to $1,403,304 for the six months ended June 30, 2022 from $3,550,290 for the six months ended June 30, 2021.

Gross Profit

Gross profit decreased by $1,918,594, to $558,416, or 10.5% of net sales, for the six months ended June 30, 2022, from $2,477,010 or 28.8% of net sales, for the six months ended June 30, 2021.

The decrease in gross profit was mainly due to decreased Net Sales above.

Research and Development

Research and development expenses decreased by $168,377 or 28.2%, to $427,879 for the six months ended June 30, 2022 from $596,256 for the six months ended June 30, 2021.  The decrease was due to decrease in head count computer programmers at the research and development department.

General and Administrative

General and administrative expenses increased by $202,472 or 18.8%, to $1,279,945 for the six months ended June 30, 2022 from $1,077,473 for the six months ended June 30, 2021.  The expenses have been continuously increased mainly due to an increase in salary.

Other Income (Expense)

The increase in other income was primarily due to the $941,118 received from SK E&S for small businesses’ research & development projects.  The increase in loss on deconsolidation was primarily due to deconsolidation of Metaflyer.

Provision for Income Tax

Change in tax provision was not material.

Comprehensive income - Foreign currency translation

Foreign currency translation loss was $713,569 for the six months ended June 30, 2022 compared to loss of $546,707 for the six months ended June 30, 2021.  The change of $166,862 was due to devaluation of Korean Won compared to US dollar in six months ended June 30, 2022 compared to June 30, 2021.  The average exchange rate for the six months ended June 30, 2022 and 2021 was KRW 1,232.94 and KRW 1,117.73, respectively.

26
Liquidity and Capital Resources

At June 30, 2022, the Company had cash and cash equivalents of $3,357,083. 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
   
2022
(RESTATED)
    
2021
Amount
    
%
Net cash used in operating activities
    
(1,530,783
)
    
(769,791
)
    
(760,992
)
    
98.9
%
Net cash used in investing activities
    
(374,573
)
    
(46,721
)
    
(327,852
)
    
701.7
%
Net cash provided by financing activities
    
247,517
      
75,490
      
172,027
      
227.9
%
Effect of foreign currency translation on cash and cash equivalents
    
(293,722
)
    
(395,426
)
    
101,704
      
-25.7
%
Net decrease in cash and cash equivalents
    
(1,951,561
)
    
(1,136,448
)
    
(815,113
)
    
71.7
%

Operating Activities

Cash used in operating activities for the six months ended June 30, 2022 was $1,530,783, compared to $769,791 for the six months ended June 30, 2021, an increase of $760,992, or approximately 98.9%. The increase in cash used in operating activities was primarily due to decrease in deferred taxes and increase in non-controlling interest loss.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2022 was $374,573, compared to $46,721 for the six months ended June 30, 2021, an increase of $327,0852 or approximately 701.7%.  The increase in cash used in investing activities was mainly due to purchase of investments and loan provided under short-term loan receivables.

Financing Activities

Cash provided by financing activities for the six months ended June 30, 2022 was $247,517, compared to $75,490 for the six months ended June 30, 2021, an increase of $172,027.  The increase was primarily due to decrease in principal payment on long-term debt.

Critical Accounting Estimates

Our unaudited condensed consolidated interim financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our unaudited interim condensed consolidated financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by our management.  Management has carefully considered the recently issued accounting pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.

27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by 17 C.F.R. 229 (10)(f)(i) and are not required to provide information under this item.

Item 4.
Controls and Procedures

Disclosure Controls

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) designed to provide reasonable assurance the information required to be reported in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to Securities and Exchange Commission (“SEC”) rules and forms, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, our management, with the participation of our Chief Executive and Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive and Financial Officer concluded that as of June 30, 2022 our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive and Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2022 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of June 30, 2022, we determined that our disclosure controls and procedures are not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time provided in the SEC rules and forms.

Management is currently evaluating remediation plans for the above control deficiencies.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, as a result of the Company’s recent change of control, we have added several additional employees in accounting which we hope will improve the Company’s internal control over financial reporting.

28
PART II – OTHER INFORMATION

Item 1.
Legal Proceedings

None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.

Item 2.
Unregistered Sales of Equity Securities

None.

Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

None

Item 6.
Exhibits

Exhibit
Number
Exhibit
Description

 
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
     
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Previously filed or furnished, as applicable, with the Original Form 10-Q on August 22, 2022.

** Filed herewith.

*** Furnished herewith.

29
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 6, 2022
 
I-ON Digital Corp
I-ON COMMUNICATIONS CORP.

 

By:
/s/ Jae Cheol Oh
    Jae Cheol Oh


Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)

   

By:
/s/ Jae Cheol  Oh


Jae Cheol Oh


Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)



30
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