I-ON Digital Corp. - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

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

For the transition period from ______________________ to ______________________

Commission file number: 333-206745

I-ON COMMUNICATIONS CORP.

(Exact name of registrant as specified in its charter)

(formerly known as Evans Brewing Company Inc.)

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

15, Tehran-ro 10-gil, Gangam-gu, Seoul, Korea 06234

(Address of principal executive offices, including zip code)

+82-2-3430-1200

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, Par Value $0.001

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 Company is a larger accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2018, the Registrant had 31,784,293 shares of common stock outstanding.

Table of Contents

	PART I – FINANCIAL INFORMATION

Item 1.	Interim Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
		25
	SIGNATURES	26

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1.

Interim Consolidated Financial Statements

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

Table of Contents

I-ON Communications Co., Ltd and Subsidiary

Table of Contents

Consolidated Financial Statements

Consolidated Balance Sheets (UNAUDITED)	3

Consolidated Statements of Income and Comprehensive Income (UNAUDITED)	4

Consolidated Statements of Cash Flows (UNAUDITED)	5

Notes to Consolidated Financial Statements	6

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I-ON Communications Co., Ltd and Subsidiary

Consolidated Balance Sheets (Unaudited)

	September 30,			December 31,
	2018			2017

ASSETS

Current assets:
Cash and cash equivalents	$	569,309		$	1,439,700
Restricted cash		1,707,558			1,795,781
Short-term financial instruments		742,339			746,687
Short-term loans		-			112,003
Accounts Receivables, net of allowance for doubtful accounts $725,389 and $667,886, respectively		2,259,393			4,014,388
Deferred tax assets		165,365			-
Prepaid expenses and other current assets		1,100,322			537,402
Total current assets		6,544,286			8,645,961

Non-current assets:
Investments		230,438			136,271
Property and equipment, net		53,644			69,455
Intangible assets, net		103,751			74,642
Deposits		359,756			392,095
Deferred tax assets		632,620			879,957
Total non-current assets		1,380,209			1,552,420

Total Assets	$	7,924,495		$	10,198,381

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	401,043		$	520,045
Accrued expenses and other		909,320			1,197,005
Value added tax payable		64,737			184,186
Income tax payable		23,651			-
Short-term loan		629,100			-
Government grants outstanding		23,267			-
Total current liabilities		2,051,118			1,901,236

Long term debt		494,293			280,007

Total liabilities		2,545,411			2,181,243

Commitments and contingencies

Stockholders’ Equity
Common stock, $0.0001 par value; authorized 100,000,000 shares; 31,784,293 shares issued and outstanding at September 30, 2018 and 26,000,000 shares issued and outstanding at December 31, 2017, respectively		3,178			2,600
Additional paid-in-capital		2,449,848			3,212,037
Accumulated other comprehensive (income) loss		116,732			274,468
Accumulated retained earnings		2,809,701			4,527,781
Total company stockholders’ equity		5,379,459			8,016,886
Non-controlling interests		(375	)		252
Total stockholders’ equity		5,379,084			8,017,138

Total Liabilities and Stockholders’ Equity	$	7,924,495		$	10,198,381

See accompanying notes to consolidated financial statements.

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I-ON Communications Co., Ltd and Subsidiary

Consolidated Statements of Income and Comprehensive Income (Unaudited)

	Three-month Period Ended September 30,						Nine-month Period Ended September 30,
	2018			2017			2018			2017

Net sales	$	1,874,629		$	2,242,876		$	4,475,850		$	6,865,375
Cost of goods sold		1,105,515			1,563,463			4,176,647			4,574,409
Gross profit		769,114			679,413			299,203			2,290,966

Operating expense
Research and development		216,730			240,773			795,185			832,816
General and administrative		440,422			451,647			1,408,766			1,425,747
Total operating expense		657,152			692,420			2,203,951			2,258,563

Income (loss) from operations		111,962			(13,007	)		(1,904,748	)		32,403


Miscellaneous income (expense), net		114,415			(153,935	)		257,285			(235,249	)

Income (loss) before provision for income taxes, loss on equity investments in affiliates, and non-controlling interest		226,377			(166,942	)		(1,647,463	)		(202,846	)

Provision for income tax		14,243			248,232			39,570			309,628

Net income (loss) before income or loss on equity investments in affiliates and non-controlling interest		212,134			(415,174	)		(1,687,033	)		(512,474	)

Loss on equity investments in affiliates		(12,349	)		(18,701	)		(31,047	)		(44,445	)

Net income (loss) before non-controlling interest		199,785			(433,875	)		(1,718,080	)		(556,919	)

Non-controlling interest		(33	)		(87	)		(586	)		(515	)

Net income (loss)	$	199,818		$	(433,788	)	$	(1,717,494	)	$	(556,404	)

Comprehensive income statement:
Net income (loss)	$	199,785		$	(433,875	)	$	(1,718,080	)	$	(556,919	)
Foreign currency translation		21,564			(44,965	)		(157,736	)		-
Total Comprehensive income (loss)	$	221,349		$	(478,840	)	$	(1,875,816	)	$	(556,919	)

Earnings per share - Basic
Net income (loss) before non-controlling interest	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)
Non-controlling interest		(0.00	)		(0.00	)		(0.00	)		(0.00	)
Earnings per share to stockholders		0.01			(0.02	)		(0.05	)		(0.02	)

Earnings per share - Diluted
Net income (loss) before non-controlling interest	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)
Non-controlling interest		(0.00	)		(0.00	)		(0.00	)		(0.00	)
Earnings per share to stockholders		0.01			(0.02	)		(0.05	)		(0.02	)

Weighted average number of common shares outstanding:
Basic		31,784,293			26,000,000			31,784,293			26,000,000
Diluted		31,784,293			26,000,000			31,784,293			26,000,000

See accompanying notes to consolidated financial statements.

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I-ON Communications Co., Ltd and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

Nine-months ended Sept 30,	2018			2017

Cash flows from operating activities:
Net loss	$	(1,717,494	)	$	(556,404	)
Adjustments to reconcile net income to net cash provided by operating activities:
Non-controlling interest		(586	)		(515	)
Bad debt expense		-			8,489
Loss on equity investments in affiliates		31,047			44,445
Depreciation and amortization		30,488			31,551
Stock options expense		64,797			4,234
Foreign exchange gain (loss)		(755	)		194
Disposal gain on property and equipment		-			454
Retirement allowance		220,073			91,079

Changes in operating assets and liabilities:
Account receivable, net		1,676,320			(18,035	)
Prepaid expenses and other current assets		(594,521	)		55,982
Deposit		18,141			17,928
Deferred taxes		21,426			25,249
Account payable		(139,899	)		94,669
Accrued expenses and other		(468,195	)		(85,307	)
Advanced receipts		-			(128,293	)
Value added tax payable		(114,866	)		(7,193	)
Income tax payable		24,124			(10,282	)
Net cash used in operating activities		(949,900	)		(431,755	)

Cash flows from investing activities:
Purchases of short-term investments		(1,833	)		(262,684	)
Purchases of property and equipment		(31,846	)		(77,892	)
Purchases of patent		(46,208	)		(5,374	)
Purchases of other intangible assets		-			(4,693	)
Borrowings from short-term loans		110,003			-
Net cash provided by (used in) investing activities		30,116			(350,643	)

Cash flows from financing activities:
Net receipt of government grants		38,589			26,888
Proceeds from short-term borrowings		641,684			-
Purchase of treasury stock		(826,408	)		-
Borrowings from loans payable		229,173			-
Repayments of loans payable		-			(87,526	)
Net cash provided by (used in) financing activities		83,038			(60,638	)

Effect of foreign currency translation on cash and cash equivalents		(121,868	)		83,563

Net decrease in cash and cash equivalents		(958,614	)		(759,473	)

Cash and cash equivalents including restricted cash, beginning of year	$	3,235,481			3,627,979

Cash and cash equivalents including restricted cash, end of year	$	2,276,867		$	2,868,507

Supplemental disclosure of cash flow information:
Interest paid	$	11,726		$	8,171
Taxes paid	$	20,967		$	21,016

See accompanying notes to consolidated financial statements.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 1 – Organization and Operations

I-ON Communications Co., Ltd (“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 $259,000. The Company has 99.5% ownership of I-ON, Ltd. PT ION-soft is the Indonesian affiliate of the Company incorporated in October 2011. The Company has 20% of ownership of PT I-ON-soft, which is accounted for under the equity method.

Note 2 – Summary of Significant Accounting Policies

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 consolidated financial statements. The accompanying consolidated financial statements and the notes hereto are reported in US Dollars.

Principles of Consolidation and 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 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 Company is also required to consolidate any variable interest entities (VIEs), of which it is the primary beneficiary, as defined. Based on the Company’s analysis pursuant to ASC 810-10-25, Consolidations, the Company does not have any VIEs that need to be consolidated at this time. When the Company does not have a controlling interest in an entity, but exerts a significant influence over the entity, the Company would apply the equity method of accounting.

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.

The financial position and results of operations of I-ON, Ltd, the Japanese subsidiary of the Company, are initially recorded using its local currency, Japanese Yen (“JPY”). Assets and liabilities denominated in foreign currency are translated to the functional currency at the functional currency rate of exchange at the balance sheet date. The results of operations denominated in foreign currency are translated at the average rate of exchange during the reporting period. All differences are reflected in profit or loss. As of September 30, 2018 and December 31, 2017, the exchange rate was JPY 9.81 and JPY 9.49 per KRW, respectively. The average exchange rate for the periods ended September 30, 2018 and 2017 was JPY 9.95 and JPY 10.18 per KRW, respectively.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Foreign Currency Transaction and Translation (continued)

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. Translation adjustments net of tax were a net loss of $157,736 and $0 for the nine-months ended September 30, 2018 and 2017, respectively. Translation adjustments net of tax were a net gain of $21,564 and net loss of $44,965 for the three-months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, and December 31, 2017, the exchange rate was KRW 1,112.70 and KRW 1,071.40 per US Dollar, respectively. The average exchange rate for the nine months ended September 30, 2018 and 2017 was KRW 1,090.88 and KRW 1,138.68, respectively.

Segment Reporting

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

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

	September 30, 2018		December 31, 2017
Korea
Current assets	$	6,285,357	$	8,454,367
Non-current assets		1,379,939		1,552,148
Current liabilities		1,906,465		1,728,657
Non-current liabilities		494,293		280,007

Japan
Current assets	$	258,929	$	191,594
Non-current assets		270		272
Current liabilities		144,653		172,582
Non-current liabilities		-		-

	Nine-months Period Ended Sept 30,				Three-months Period Ended Sept 30,
	2018		2017		2018		2017
Korea
Net Sales	$	3,798,399	$	6,222,764	$	1,688,967	$	2,053,025

Japan
Net Sales	$	677,451	$	642,611	$	185,662	$	189,851

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Restricted Cash

Restricted cash represents cash deposits which is restricted by the financial institutions for the loans the financial institutions having with the Company’s chief executive officer. The loans with the financial institutions are amounted to approximately $1,564,000 and $1,624,000 at September 30, 2018 and December 31, 2017, respectively, and expires on various days during 2018 and 2019, unless extended. The loans, bearing various interest rates, are guaranteed by the Company and the restricted cash deposits of the Company are provided to the financial institutions as collateral. The Company’s chief executive officer pays interest from the loans without any default at September 30, 2018 and 2017. The amount of restricted cash as of September 30, 2018 and December 31, 2017 was $1,707,558 and $1,795,781, 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 Loans

The Company had short-term loans receivables from a third-parties with interest bearing 9% per annum and the balance was paid off. Interest income were $24,163 and 10,091 for the three-months ended September 31, 2018 and 2017, respectively. Interest income were $34,879 and $21,170 for the nine-months ended September 30, 2018 and 2017, respectively.

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 the three months ended September 30, 2018 and 2017 were $216,730 and $240,773, respectively. Research and development cost for nine months ended September 30, 2018 and 2017 were $795,185 and $832,816, respectively.

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 results of the operation of the plan. 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 $226,175 and $224,141 for the three-months ended September 30, 2018 and 2017, respectively, and $350,016 and $339,569 for the nine-months ended September 30, 2018 and 2017, 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 September 30, 2018 and December 31, 2017, the amounts were deemed to be immaterial.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Impairment analysis for long-lived assets and intangible assets

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

Earnings Per Share

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

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.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Fair Value Measurements (continued)

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.

Advertising

Costs associated with advertising and promotions are expensed as incurred. Advertising expense amounted to $31,146 and insignificant for the three-months ended September 30, 2018 and 2017, respectively, and $37,458 and $33,172 for the nine-months ended September 30, 2018 and 2017, respectively.

Non-controlling Interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

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 $64,737 and $33,797 for the three-months ended September 30, 2018 and 2017, respectively, and $291,251 and $256,155 for the nine-months ended September 30, 2018 and 2017, respectively.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncement

Pronouncements adopted in 2018

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation and disclosure of financial instruments. Among other things, ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (v) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating ASU 2016-01 to determine the potential impact to its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”), which includes multiple provisions intended to simplify various aspects of accounting for share-based payments. The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or are settled. It also will allow entities to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect this standard will have a significant impact on our consolidated financial statements and related disclosures.

In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (“ASU 2016-11”) which clarifies guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. ASU 2016-11 is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. Adoption of this ASU is not expected to have a significant impact on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is not expected to have a significant impact on our consolidated statement of cash flows.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncement (continued)

In January 2017, the FASB issued ASU 2017-1, Clarifying the Definition of a Business (Topic 805) (“ASU 2017-1”). The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant impact on our consolidated results of operations, cash flows and financial position.

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting (Topic 718) (“ASU 2017-09”). The guidance clarifies the accounting for when the terms of a share-based award are modified. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years, with early adoption permitted. This new guidance would only impact our consolidated financial statements if, in the future, we modified the terms of any of our share-based awards.

Pronouncements Not Yet Effective

In February 2016, the FASB issued ASU No. 2016-02, Lease (Topic 842) (“ASU 2016-02”) which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. ASU 2016-02 is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-10”) clarify identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. As permitted under the standard for emerging growth companies, the Company plans to adopt this ASU in the first quarter of 2019 using the modified retrospective approach and recognize the cumulative effect to existing contracts in opening retained earnings on the effective date. The Company is currently reviewing and evaluating this guidance and its impact on its consolidated financial statements, therefore, the Company’s results may not be comparable with others in the industry until this ASU is adopted.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-12”). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. As permitted under the standard for emerging growth companies, the Company plans to adopt this ASU in the first quarter of 2019 using the modified retrospective approach and recognize the cumulative effect to existing contracts in opening retained earnings on the effective date. The Company is currently reviewing and evaluating this guidance and its impact on its consolidated financial statements, therefore, the Company’s results may not be comparable with others in the industry until this ASU is adopted.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350) (“ASU 2017-04”). The guidance removes “Step Two” of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The ASU is effective for annual reporting periods beginning after December 15, 2019, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncement (continued)

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815) (“ASU 2017-11”). The guidance eliminates the requirement to consider “down round” features when determining whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Our warrants issued with our convertible notes are treated as derivative instruments, because they include a “down round” feature. The ASU is effective for annual periods beginning after December 15, 2018, and for interim periods within those years, with early adoption permitted. Early adoption of this guidance could have a significant impact on our financial statements, as it would effectively eliminate the warrant derivative liability and the gain or loss from changes in the fair value of the warrant derivative liability. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.

Note 3 – Merger and Plan of Reorganization

On January 25, 2018, The Company entered into an agreement of merger and plan of reorganization (“Merger Agreement”) with Evans Brewing Company, Inc. (“Evans”), current registrant in the Securities and Exchange Commission. Pursuant to the terms of the Merger Agreement, Evans merged into the Company in a statutory reverse merger (“Merger”) and the Company is a surviving entity as a wholly-owned subsidiary of Evans. As a consideration for the Merger, Evans agreed to issue the shareholders of the Company an aggregate of 26,000,000 shares of common stock, par value $0.0001 per share in accordance with the pro rata ownership of the Company’s capital stock. Following the Merger, Evans adopted the business plan of the Company in information technology consultancy and software development.

Immediately prior to the Merger, the Registrant had 4,784,293 shares of common stock issued and outstanding. In connection with the Merger, the shareholders of Evans agreed to convert 1,000,000 shares of preferred stock and forgive $1,000,000 in unpaid advances in exchange for the spin-off of the Evans’ current operations. (“Spin-Off”) Following the consummation of the Merger, and upon the issuance of the shares from the Merger and the shares to be issued in connection with the Spin-Off, Evans will have approximately 32,000,000 shares of common stock issued and outstanding and the shareholders of the Company will beneficially own 26,000,000 shares, or approximately eighty-one percent of such issued and outstanding common stock. The Company’s shares as of December 31, 2017 have been retroactively restated to reflect the share exchange of the merger.

Upon the completion of the Merger, the historical financial statements of the Company are the historical financial statements of the registrants.

Note 4 – Long-term Debt

Total long-term debt consisted of the following:

	September 30, 2018		December 31, 2017
A note payable to a financial institution bearing interest rate at 2.78% ~3.2% as of September 30, 2018 and at 2.81% as of December 31, 2017, and guaranteed by the officer of the Company. The Company was required to make interest-only payments until December 2018, then monthly payments of both principal and interest from January 2019.	$	494,293	$	280,007
Total debt	$	494,293	$	280,007

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 4 – Long-term Debt (continued)

Future minimum payments on debt consists of the following:

Years ending September 30,

2019	$	89,943
2020		202,175
2021		202,175
Total	$	494,293

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

Note 5 – Line of Credit

The Company has lines of credit with financial institutions for total amount of approximately $3,600,000 that expires in various months in 2018, unless extended. There was no outstanding balance under the credit lines at September 30, 2018 and December 31, 2017. The lines of credit, bearing various interest rates are guaranteed by the officer of the Company.

The Company has an arrangement with its customers and a financial institution, in which the Company’s customers issue electronic invoices with the Company as the recipient. The Company can use these receivables as collaterals for loans up to approximately $5,000,000 and $5,300,000 as of September 30, 2018 and December 31, 2017, respectively. The Company receives its payments due when the customer fully pays the invoices to the financial institution. The interest rates vary depending on the Company’s customers’ credit ratings. The Company has no borrowings outstanding as of September 30, 2018 and December 31, 2017, respectively. The maturity date of the arrangement varies on the dates of the original transactions.

Note 6 – Investments

Equity Method

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

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

As of September 30, 2018 and December 31, 2017

Equity investee

Type of

Owned

Number

of Shares

Owned

Original

Investment

Amount

Equity

Investment

Ownership

PT IONSOFT

Common stock

160,000

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 6 – Investments (continued)

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

	Year ended Septembet 30, 2018
Equity investee	Beginning Equity Investment Basis		Proportional Share of the Equity Accounted Affiliate’s Net Income (loss)			Ending Equity Investment Basis
PT IONSOFT	$	30,926		(31,047	)	$	(121	)

	Year ended December 31, 2017
Equity investee	Beginning Equity Investment Basis		Proportional Share of the Equity Accounted Affiliate’s Net Income (loss)			Ending Equity Investment Basis
PT IONSOFT	$	85,026		(54,100	)	$	30,926

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

	September 30, 2018		December 31, 2017
Total current assets	$	39,194	$	48,483
Total assets		205,972		222,096
Total current liabilities		359,714		238,017
Total liabilities		107,934		332,453

	Three-months Period Ended September 30,						Nine-months Period Ended September 30,
	2018			2017			2018			2017
Net sales		33,560			3,792			121,840			5,099
Gross profit		(61,586	)		(93,493	)		(154,196	)		(221,434	)
Income from operations		(61,586	)		(93,503	)		(154,196	)		(222,225	)
Net income		(61,746	)		(93,503	)		(155,237	)		(222,225	)

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 at September 30, 2018:

Company	Balance		Percentage of Ownership
4GRIT	$	44,940		2.50	%
E-channel		42,505		0.07	%
KSFC		11,819		0.00	%
Total investment securities	$	99,264

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 6 – Investments (continued)

The following table summarize the Company’s investment securities at December 31, 2017:

Company	Balance		Percentage of Ownership
4GRIT	$	46,672		2.50	%
E-channel		44,143		0.07	%
KSFC		12,275		0.00	%
Total investment securities	$	103,090

Note 7 – Fair Value Measurements

The Company adopted the provisions of FASB ASC 820, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The following tables summarize the Company’s fair value measurements by level at September 30, 2018 for the assets measured at fair value on a recurring basis:

September 30, 2018	Level 1		Level 2		Level 3
Available-for-sale securities	$	-	$	-	$	99,264
Total assets at fair value	$	-	$	-	$	99,264

The following tables summarize the Company’s fair value measurements by level at December 31, 2017 for the assets measured at fair value on a recurring basis:

December 31, 2017	Level 1		Level 2		Level 3
Available-for-sale securities	$	-	$	-	$	103,090
Total assets at fair value	$	-	$	-	$	103,090

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. Total royalty amounts received for the three-months period were not significant. Total royalty amounts received for the nine-months period ended September 30, 2018 and 2017 were approximately $183,000 and $268,000, respectively.

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

Note 8 – Commitments and Contingencies (continued)

Operating Leases

The Company leases its office under non-cancelable operating leases that expire on dates through December 2020. The lease is automatically extended upon agreement of both parties. Future minimum rental payments under the non-cancelable operating leases for September 30, 2018 are as follows:

December 31,	Amount

2018	$	156,221
2019		156,221
2020		117,166
Total	$	429,608

Rent expense for all operating leases were $76,562 and $73,489 for the three-months ended September 30, 2018 and 2017, respectively, and $115,503 and $110,654 for the nine-months ended September 30, 2018 and 2017, respectively.

Litigation

The Company is pending litigation against Financial News Corporation (“the defendant”), a Korea-based financial newspaper company. The Company and the defendant originally agreed upon an arrangement on February 2014 for the Company to provide services and receive payments upon completion of each stage of the contract. Per management, the defendant arbitrarily requested changes in terms of the agreement and delayed payments. The Company, as a plaintiff, is claiming damages. The management does not believe the case will have material adverse effect on the consolidated financial statements as of September 30, 2018.

Note 9 – Related Party Transactions

The following are material related party transactions that have occurred during September 30, 2018 and December 31, 2017, but because the consolidated financial statements are presented on a consolidated basis, the transactions and balances have been eliminated.

	September 30, 2018		December 31, 2017

Sales to affiliate	$	365,324	$	494,338
Receivable from affiliate	$	96,568	$	139,188

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

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I-ON Communications Co., Ltd and Subsidiary

Notes to Consolidated Financial Statements

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 September 30,						Nine-months Period Ended September 30,
Periods Ended	2018			2017			2018			2017

Net income (loss) before non-controlling interest	$	199,785		$	(433,875	)	$	(1,718,080	)	$	(556,919	)
Non-controlling interest		(33	)		(87	)		(586	)		(515	)
Net income (loss)		199,818			(433,788	)		(1,717,494	)		(556,404	)

Weighted-average shares of common stock outstanding:
Basic		31,784,293			26,000,000			31,784,293			26,000,000
Dilutive effect of common stock equivalents arising from share option, excluding antidilutive effect from loss		-			-			-			-
Dilutive shares		31,784,293			26,000,000			31,784,293			26,000,000

Earnings per share - Basic
Net income (loss) before non-controlling interest	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)
Non-controlling interest	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Earnings per share to stockholders	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)

Earnings per share - Diluted
Net income (loss) before non-controlling interest	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)
Non-controlling interest	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Earnings per share to stockholders	$	0.01		$	(0.02	)	$	(0.05	)	$	(0.02	)

No non-vested share awards or non-vested share unit awards were antidilutive for the three-months and nine-months ended September 30, 2018 and 2017.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited interim consolidated financial statements for the three and nine months ended September 30, 2018 are expressed in US dollars and are prepared in accordance with generally accepted accounting principles in the United States of America. They reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of our interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter. Our unaudited consolidated financial statements and notes included therein have been prepared on a basis consistent with and should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2017, 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 Communications, Corp. (formerly known as Evans Brewing Company, Inc.) 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 by a vote of 251,212 shares for and 1,600 shares against. As such, Bayhawk sold to EBC, and EBC purchased from Bayhawk, assets of Bayhawk, including but not limited to: (A) all assets, including personal property, intellectual property, inventory, contracts, websites, documents, and all other assets however delineated relating to the Bayhawk Ales label (as defined in the Agreement and discussed in more detail below); and (B) all assets, including personal property, intellectual property, inventory, contracts, websites, documents, and all other assets however delineated relating to the Evans Brands (as defined in the Agreement and discussed in more detail below) (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 (where the non-craft brands will be brewed, with the balance of the craft brands being brewed in Irvine, California). 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”). Bayhawk shareholders had until December 2, 2015 to tender their Bayhawk shares in the share exchange. Bayhawk shareholders also had until December 2, 2015 to rescind the exchange of shares. There was no minimum number of shares of Bayhawk common stock that must be tendered for the Exchange Offer to close. At the close of the share exchange on December 2, 2015, Premier Stock Transfer accepted on behalf of EBC 4,033,863 Bayhawk shares and issued 4,033,863 shares of EBC common stock upon the terms and subject to the conditions set forth in the Asset Purchase and Share Exchange Agreement by and between EBC and Bayhawk, dated October 15, 2014, as amended (the “Asset Purchase Agreement”). EBC filed a copy of the Asset Purchase Agreement as an annex to a combination registration statement and proxy statement on Form S-4. The Bayhawk shares were validly tendered pursuant to the Exchange Offer and not withdrawn. The asset purchase and share exchange will be treated as business combination as both companies are controlled by the same management.

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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, par value $0.0001 per share (the “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 Registrant’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.

I-ON Communications

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 market and specializes in advancing market-leading internet software applications to capitalize on rapidly growing market sectors.

After being awarded its first of 6 patents in 2003, I-ON has since evolved into an industry-leading and recognized software developer and provider of enterprise-class unstructured data management and digital marketing software and solutions. I-ON services over 1,000 blue-chip and middle-market clients across virtually all verticals in both private and public sectors. The Company has meaningfully expanded its reach over the past decade and now currently licenses and sells its products and services directly to clients in South Korea and Japan, as well as in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the U.S. through value-added resellers and partnerships.

I-ON’s portfolio of software and solutions serves the digital marketing and technology needs of organizations, enabling clients to create, measure, and optimize digital experiences for their audiences across marketing channels and devices. We believe these solutions help clients reduce the cost of content management and delivery and increase the return on their investments in digital communication.

I-ON currently holds 6 international patents for both products and methodologies (with 3 more pending) built into the 11 product offerings the Company currently has at market. These encompass enterprise web content management systems (CMS), web experience and service delivery software, digital marketing, smart mobility and analytics tools, and, more recently, energy management solutions and sports and IT convergence services. 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.

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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 610 clients as NOREN 6.

As a result of global enterprise digital marketing and I-ON’s 18-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 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 over 15% of total annual revenue on research and development. The Company has grown its total number of employees to approximately 150 as of June 30, 2017, 90% of whom are considered full-time. Research and development is comprised of roughly 100 junior, mid to senior level engineers and developers, most of whom are based at the Company’ headquarters located at 15 Teheran-ro 10-gil, Gangnam-gu, Seoul, South Korea, 06234.

Comparison of results of operations for the three months ended September, 2018 as Compared to the three months ended September 30, 2017

Revenues

During the three month period ended September 30, 2018, total revenues were $[1,874,629] compared to $[2,242,876] for the same period ending September 30, 2017. Customers included [Samsung SDS, POSCO ICT, AXA, and KBS] during the period. [The decline in revenue was attributable to delayed launch of certain project implementations, timing of revenue recognition and the Company’s focus on new product launches and related marketing spend. The Company also believes that seasonality and uncertain geopolitical environment partially contributed to the year over year decline in new project wins.]

Operating Expenses:

Operating expenses for the three month period ended September 30, 2018, were $657,152 compared to $692,420 for the period ended September 30, 2017. Research and development comprised of $216,730 out of the total during the 2018 period compared to $240,773 during the same 2017 period.

Other Income (Loss):

Miscellaneous income during the three month period ended September 30, 2018 was $[114,415] compared to a loss of $[(153,935)] during the prior year period. Pretax income during the 2018 period came in at $[226,377] versus an loss of [(166,942)] in the comparable 2017 period.

Net Income:

Net income from operations for the three month period ended September 30, 2018 was $[199,818] compared to a loss of $[(433,875)] for the period ended September 30, 2017. The net income for the September 30, 2018 period was made up of income from operations of $[111,962], plus losses of over $[12,349] in equity investments. Provision for income taxes was $[14,243] during the 2018 period versus $[248,232] paid during the same period in 2017.

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Liquidity and Capital Resources

At September 30, 2018, the Company had cash and cash equivalents of $[2,276,867]. [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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

Critical Accounting Policies

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

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 our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our Chief Executive and Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2018 using the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of September 30, 2018, 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.

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

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the nine months ended September 30, 2018 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.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is pending litigation against Financial News Corporation (the “Defendant”), a Korea-based financial newspaper company. The Company and the defendant originally agreed upon an arrangement on February 2014 for the Company to provide services and receive payments upon completion of each stage of the contract. Per management, the defendant arbitrarily requested changes in terms of the agreement and delayed payments. The Company, as a plaintiff, is claiming damages. The management does not believe the case will have material adverse effect on the consolidated financial statements as of September 30, 2018.

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

On August 22, 2018 (the “Issuance Date”), the Company entered into a securities purchase agreement (the “SPA”) with Buyer, whereby Buyer agreed to invest up to $540,000.00 (the “Purchase Price”) in our Company in exchange for convertible debentures, upon the terms and subject to the conditions thereof. Pursuant to the SPA, we issued a convertible debenture to the Buyer in the original principal amount of $200,000.00 (the “Signing Debenture”). Each convertible debenture issued pursuant to the SPA, coupled with the accrued and unpaid interest relating to each convertible debenture, is due and payable three years from the issuance date of the respective convertible debenture. Any amount of principal or interest that is due under each convertible debenture, which is not paid by the respective maturity date, will bear interest at the rate of 18% per annum until it is satisfied in full. Additionally, the Buyer has the right at any time to convert amounts owed under each convertible debenture into shares of our common stock. Each debenture shall contain representations, warranties, events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments.

The Buyer is entitled to, at any time or from time to time, after the date that is one hundred eighty (180) days after the Issuance Date, convert each convertible debenture issued under the SPA into shares of our common stock, at a conversion price per share (the “Conversion Price”) equal to the lesser of (a) $2.75 or (b) Seventy percent (70%) of the second lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion (for clarification purposes, if the lowest closing bid price during the applicable period is equal to the second lowest closing bid price during the applicable period, then such lowest closing bid price shall still be utilized for purposes of this calculation) of the Debentures. However, if either the Company is not DWAC operational at the time of conversion or the Common Stock is traded on the OTC Pink Markets at the time of conversion, then seventy percent (70%) shall automatically adjust to sixty five percent (65%), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.

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We may redeem each convertible debenture issued under the SPA, upon not more than two (2) days written notice, for an amount (the “Redemption Price”) equal to: (i) if the Redemption Date (as defined below) is ninety (90) days or less from the date of issuance of the respective convertible debenture, One Hundred Ten percent (110%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (ii) if the Redemption Date is greater than or equal to ninety one (91) days from the date of issuance of the respective convertible debenture and less than or equal to one hundred twenty (120) days from the date of issuance of the respective convertible debenture, One Hundred Twenty percent (120%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; (iii) if the Redemption Date is greater than or equal to one hundred twenty one (121) days from the date of issuance of the respective convertible debenture and less than or equal to one hundred eighty (180) days from the date of issuance of the respective convertible debenture, One Hundred Thirty percent (130%) of the sum of the Principal Amount so redeemed plus accrued interest, if any; and (iv) if either (1) the respective convertible debenture is in default but the Buyer consents to the redemption notwithstanding such default or (2) the Redemption Date is greater than or equal to one hundred eighty one (181) days from the date of issuance of the respective convertible debenture, One Hundred Forty percent (140%) of the sum of the Principal Amount so redeemed plus accrued interest, if any. The date upon which the respective convertible debenture is redeemed and paid shall be referred to as the “Redemption Date” (and, in the case of multiple redemptions of less than the entire outstanding Principal Amount, each such date shall be a Redemption Date with respect to the corresponding redemption).

On August 22, 2018 (the “Closing Date”), I-ON Communications Corp. (“we,” “us,” “our,” or “Company”) entered into an equity purchase agreement (the “Purchase Agreement”) with Peak One Opportunity Fund, L.P. (“Buyer”), whereby, upon the terms and subject to the conditions thereof, the Buyer is committed to purchase shares of our common stock, par value $0.001 per share (the “Purchase Shares”) at an aggregate price of up to $10,000,000 (the “Total Commitment Amount”) over the course of a 24-month term.

From time to time over the 24-month term of the Purchase Agreement, commencing on the date on which a registration statement registering the Purchase Shares (the “Registration Statement”) becomes effective, we may, in our sole discretion, provide the Buyer with a put notice (each a “Put Notice”) to purchase a specified number of the Purchase Shares (each a “Put Amount Requested”) subject to the limitations discussed below and contained in the Purchase Agreement. Upon delivery of a Put Notice, we must deliver the Put Amount Requested as Deposit Withdrawal at Custodian (“DWAC”) shares to Buyer within two (2) trading days.

The actual amount of proceeds we receive pursuant to each Put Notice (each, the “Put Amount”) is to be determined by the lesser of (i) 88% of the lowest closing bid price of the Company’s Common Stock on the trading day immediately preceding the respective date of the Put Notice and (ii) 88% of the lowest closing bid price during the Valuation Period (the period of seven (7) trading days immediately following the clearing date associated with the applicable Put Notice). The Investor shall deliver the aggregate respective purchase price within three (3) business days after the end of the respective Valuation Period.

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

In order to deliver a Put Notice, certain conditions set forth in the Purchase Agreement must be met, as provided therein. In addition, we are prohibited from delivering a Put Notice if: (i) the sale of Purchase Shares pursuant to such Put Notice would cause us to issue and sell to Buyer, or Buyer to acquire or purchase, a number of shares of our common stock that, when aggregated with all shares of common stock purchased by Buyer pursuant to all prior Put Notices issued under the Purchase Agreement, would exceed the Total Commitment Amount; or (ii) the sale of the Commitment Shares pursuant to the Put Notice would cause us to issue and sell to Buyer, or Buyer to acquire or purchase, an aggregate number of shares of common stock that would result in Buyer beneficially owning more than 4.99% of the issued and outstanding shares of our common stock.

Unless earlier terminated, the Purchase Agreement will terminate automatically on the earlier to occur of: (i) 24 months after the initial effectiveness of the Registration Statement, (ii) the date on which the Buyer has purchased or acquired all of the Purchase Shares, or (iii) the date on which certain bankruptcy proceedings are initiated with respect to the Company. In connection with the execution of the Purchase Agreement, we agreed to issue 100,000 shares of our common stock (the “Commitment Shares”).

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The Company relied on the exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. The Purchase Agreements and the Agreement contain representations to support the Company’s reasonable belief that the investors had access to information concerning the Company’s operations and financial condition, the investors acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the investors are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors” (as defined by Rule 501 under the Securities Act). In addition, the sale of securities did not involve a public offering; the Company made no solicitation in connection with the sale other than communications with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the investors either received or had access to adequate information about the Company in order to make an informed investment decision.

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

31.1		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*

32.1		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 **

* Filed herewith.

** Furnished herewith.

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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: November 13, 2018	I-ON COMMUNICATIONS CORP.

	By:	/s/ Jae Cheol James Oh
		Jae Cheol James Oh
		Chief Executive Officer, Treasurer, Director (Principal Executive and Financial Officer)