Aerkomm Inc 10-Q for FY2024 Q3
Aerkomm Inc. (AKOM)
About this 10-Q
Aerkomm Inc filed this 10-Q on November 13, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $96.31K
- up 56.4% from $61.58K a year earlier
- Net loss
- $3.69M
- compared with a net loss of $5.11M a year earlier
- Diluted EPS
- -$0.20
- compared with -$0.51 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended:
or
For the transition period from ____________ to _____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A |
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 ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ | ||
| 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 comply 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 13, 2024, there were
AERKOMM INC.
Quarterly Report on Form 10-Q
Period Ended September 30, 2024
TABLE OF CONTENTS
i
AERKOMM INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Short-term investment | ||||||||
| Account receivable - related parties | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses | ||||||||
| Other receivable - related parties | ||||||||
| Other receivable | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Long-term Investment | ||||||||
| Property and Equipment | ||||||||
| Cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Prepayment for land | ||||||||
| Prepayment for equipment | ||||||||
| Net Property and Equipment | ||||||||
| Other Assets | ||||||||
| Prepayment for equipment and intangible assets – customer projects – related parties | ||||||||
| Prepayment for equipment and intangible assets – customer projects | ||||||||
| Restricted cash | ||||||||
| Intangible asset, net | ||||||||
| Goodwill | ||||||||
| Right-of-use assets, net – operating leases | ||||||||
| Deposits | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Short-term loan | $ | $ | ||||||
| Convertible long-term bonds payable – current | ||||||||
| Convertible long-term note payable - current | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Other payable - related parties | ||||||||
| Other payable | ||||||||
| Prepayment from customer - related parties | ||||||||
| Contract liability - current | - | |||||||
| Long-term loan - current | ||||||||
| Lease liability - current | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities | ||||||||
| Convertible long-term bonds payable | ||||||||
| Contract liability - non-current | ||||||||
| Lease liability - non-current | ||||||||
| Restricted stock deposit liability | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Subscribed capital | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
AERKOMM INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
| Three-Month Period Ended September 30, | Nine-Month Period Ended September 30, | |||||||||||||||
| 2024 | Restated 2023 | 2024 | Restated 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Net Sales – Related Party | ||||||||||||||||
| Service Income – Related Party | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-Operating Income (Loss) | ||||||||||||||||
| Foreign currency exchange (loss) gain | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (loss), net | ( | ) | ||||||||||||||
| Net Non-Operating Income (Loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Tax Expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Change in foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Comprehensive Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Common Share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Shares Outstanding - Basic | ||||||||||||||||
| Weighted Average Shares Outstanding - Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
AERKOMM INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the nine months ended September 30, 2023
| Common Stock | Additional Paid in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficits | Income (Loss) | Equity | |||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||
| Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of June 30, 2023 (Restated) | $ | $ | ( | ) | ( | ) | ||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||
| Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
For the nine months ended September 30, 2024
| Common Stock | Additional Paid in | Subscribed | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Capital | Deficits | Income (Loss) | Equity | ||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock | ( | ) | ||||||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||
| Capital Injection | - | |||||||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Other comprehensive income | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Capital Injection | - | |||||||||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of September 30, 2024 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
AERKOMM INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
| For the Nine Months Ended September 30, | ||||||||
| 2024 | Restated 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of Right of Use Assets | ||||||||
| Stock-based compensation | ||||||||
| Unrealized (gain) loss on investments | ||||||||
| Amortization of discount and bonds issuance costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net Cash Used for Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Prepayment for land | ( | ) | ||||||
| Disbursement for other receivable - related parties loans | ( | ) | ||||||
| Proceeds from disposal of long-term investment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net Cash Used by Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from subscribed capital | ||||||||
| Proceeds from equity financing | ||||||||
| Repayment of convertible long-term bond payable | ( | ) | ||||||
| Repayment of short-term loan | ( | ) | ( | ) | ||||
| Proceeds from short-term loan | ||||||||
| Repayment of long-term loan | ( | ) | ( | ) | ||||
| Payment on finance lease liability | ( | ) | ( | ) | ||||
| Net Cash Used by Financing Activities | ( | ) | ( | ) | ||||
| Net Decrease in Cash and Restricted Cash | ( | ) | ( | ) | ||||
| Cash and Restricted Cash, Beginning of Period | ||||||||
| Foreign Currency Translation Effect on Cash | ||||||||
| Cash and Restricted Cash, End of Period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
| Cash paid during the period for interest | ||||||||
| Cash and Restricted Cash: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - Organization
Aerkomm Inc. (formerly Maple Tree Kids Inc.) (“Aerkomm”) was incorporated on August 14, 2013 in the State of Nevada. Aerkomm was a retail distribution company selling all of its products over the internet in the United States, operating in the infant and toddler products business market. Aerkomm’s common stock is quoted for trading on the OTC Markets Group Inc. OTCQX Market under the symbol “AKOM.” On July 17, 2019, the French Autorité des Marchés Financiers (the “AMF”) granted visa number 19-372 on the prospectus relating to the admission of Aerkomm’s common stock to list and trade on the Professional Segment of the regulated market of Euronext Paris (“Euronext Paris”). Aerkomm’s common stock began trading on Euronext Paris on July 23, 2019 under the symbol “AKOM” and is denominated in Euros on Euronext Paris. This listing did not alter Aerkomm’s share count, capital structure, or current common stock listing on the OTCQX, where it is also traded (in US dollars) under the symbol “AKOM.”
On December 28, 2016, Aircom Pacific
Inc. (“Aircom”) purchased approximately
On February 13, 2017, Aerkomm entered
into a share exchange agreement (“Exchange Agreement”) with Aircom and its stockholders, pursuant to which Aerkomm acquired
On December 31, 2014, Aircom acquired a newly incorporated subsidiary, Aircom Pacific Ltd. (“Aircom Seychelles”), a corporation formed under the laws of the Republic of Seychelles. On November 8, 2021, Aircom Seychelles changed its name to Aerkomm SY Ltd. (“Aerkomm SY”) and the ownership was transferred from Aircom to Aerkomm. Aerkomm SY was formed to facilitate Aircom’s global corporate structure for both business operations and tax planning. Presently, Aerkomm SY has no operations. Aerkomm is working with corporate and tax advisers in finalizing its global corporate structure and has not yet concluded its final plan.
On October 17, 2016, Aircom acquired a wholly owned subsidiary, Aircom Pacific Inc. Limited (“Aircom HK”), a corporation formed under the laws of Hong Kong. On November 8, 2021, Aircom HK changed its name to Aerkomm Hong Kong Limited (“Aerkomm HK”) and its ownership was transferred from Aircom to Aerkomm. The purpose of Aerkomm HK is to conduct Aircom’s business and operations in Hong Kong. Presently, its primary function is business development, both with respect to airlines as well as content providers and advertisement partners based in Hong Kong. Aerkomm HK is also actively seeking strategic partnerships whom Aerkomm may leverage in order to provide more and better services to its customers. Aerkomm also plans to provide local supports to Hong Kong-based airlines via Aerkomm HK and teleports located in Hong Kong.
On December 15, 2016, Aircom acquired a wholly owned subsidiary, Aircom Japan, Inc. (“Aircom Japan”), a corporation formed under the laws of Japan. On November 9, 2021, Aircom Japan changed its name to Aerkomm Japan, Inc. (“Aerkomm Japan”) and its ownership was transferred from Aircom to Aerkomm. The purpose of Aerkomm Japan is to conduct business development and operations located within Japan. Aerkomm Japan is in the process of applying for, and intends to be the holder of, Satellite Communication Blanket License in Japan, which is necessary for Aerkomm to provide services within Japan. Aerkomm Japan intends to also provide local supports to airlines operating within the territory of Japan.
Aircom Telecom LLC (“Aircom Taiwan”), which became a wholly owned subsidiary of Aircom in December 2017, was organized under the laws of Taiwan on June 29, 2016. Aircom Taiwan is responsible for Aircom’s business development efforts and general operations within Taiwan.
On June 13, 2018, Aerkomm established
a then wholly owned subsidiary, Aerkomm Taiwan Inc. (“Aerkomm Taiwan”), a corporation formed under the laws of Taiwan. The
purpose of Aerkomm Taiwan is to purchase a parcel of land and raise sufficient funds to build and operate a ground station for data processing.
As operation of such a ground station would, as a matter of local law, require that Aerkomm Taiwan not be a majority foreign-owned entity,
on December 29, 2022, Aerkomm and dMobile System Co., Ltd. (the “Buyer”) entered into an equity sales contract (the “Equity
Sales Contract”) pursuant to the terms of which Aerkomm agreed to transferred a majority interest of
Despite the sale of
5
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - Organization - Continued
On November 15, 2018, Aircom Taiwan
acquired a wholly owned subsidiary, Beijing Yatai Communication Co., Ltd. (“Beijing Yatai”), a corporation formed under the
laws of China. The purpose of Beijing Yatai is to conduct Aircom’s business and operations in China. Presently, its primary function
is business development, both with respect to airlines as well as content providers and advertisement partners based in China as most
business conducted in China requires a local registered company. Beijing Yatai is also actively seeking strategic partnerships whom Aircom
may leverage in order to provide more and better services to its customers. Aircom also plans to provide local supports to China-based
airlines via Beijing Yatai and teleports located in China. On November 6, 2020,
On October 31, 2019, Aerkomm SY established a new a wholly owned subsidiary, Aerkomm Pacific Limited (“Aerkomm Malta”), a corporation formed under the laws of Malta. The purpose of Aerkomm Malta is to conduct Aerkomm’s business and operations and to engage with suppliers and potential airlines customers in the European Union.
The Company’s organization structure is as following:
On September 04, 2022, Aerkomm acquired a wholly owned subsidiary, MEPA Labs Inc. (MEPA), a California corporation. The purpose of the acquisition is to extend business development and operations related to the satellite products.
On September 28, 2023, Aerkomm acquired a wholly owned subsidiary, Mixnet Technology Limited (Mixnet) and its wholly owned subsidiary, Mesh Technology Taiwan Limited (Mesh), a Taiwan company. The purpose of the acquisition is to extend business development and operations related to the satellite products. Mixnet’s name changed to Mesh Technology Limited as of September 7, 2023.
On March 29, 2024, the Company entered into a merger agreement (the “Merger Agreement”) with IX Acquisition Corp. (“IXAQ”), a Cayman Islands exempted company (which will re-domicile from being a Cayman Islands company and become a Delaware corporation), and AKOM Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of IQAC (“Merger Sub”). The Merger Agreement provides that, among other things and upon the terms and subject to the conditions thereof, following the domestication to Delaware of IXAQ, Merger Sub will merge with and into the Company (the “Merger”), after which the Company will be the surviving corporation and a wholly-owned subsidiary of IXAQ. In connection with the Merger, IXAQ will be renamed “AKOM Inc.” The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed to by the parties to the Merger Agreement and specified in the articles of merger.
Liquidity
The accompanying financial statements
have been prepared on a going concern basis. The Company's ability to remain solvent and settle its obligations when they come due is
dependent on its ability to raise additional capital in the form of permanent equity and to successfully gain listing of its common stock
on a national exchange such as the NASDAQ capital markets, so that its current investors that have invested in the form of convertible
debt and convertible notes are incentivized to convert their debt holdings into common stock that could be traded in an orderly market.
As result of the Company’s primary operations being in the area of research and development of communication equipment in the aerospace
industry that is still in the testing phases, the Company has not yet been able to legally market and to generate sustainable re-occurring
revenue from the sales of its products; however, the Company does believe that it has made significant progress towards gaining approval
from the FAA and other regulatory agencies, but success is not guaranteed. As a function of the Company’s continued efforts to develop
its products the Company reported a net loss of $
6
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - Organization - Continued
The Company has taken measures and is
experiencing and anticipates developments that management believes will improve its financial position. These include that two of the
Company’s current shareholders (the “Lenders”) have each committed to provide to the Company a $
In addition to the foregoing, on March
1, 2023 we entered into a letter agreement with Well Thrive Limited, one of the lenders under the Loan Commitment, in which it was agreed
that, to support the Company, one-half of the Loan Commitment amount of Well Thrive Limited (thus, $
In connection with the planned Merger
with IXAQ, the Company has obtained $
The Company also expects during 2025 to begin generating significant recurring revenues, including in connection with the OneWeb Distribution Partner Agreement entered into between Aerkomm Japan, as Distribution Partner, and OneWeb on October 1, 2024, pursuant to which Aerkomm Japan was appointed as a distributor for OneWeb in Japan and Taiwan and as reflected by the Company having made its first delivery of a certain classified radar system to a governmental defense customer on October 24, 2024.
With
our current available cash, a balance of $
If the Merger does not close and thus
the $
In conclusion, per the non-binding term sheet agreement aforementioned, the Company will be able to fund the operations and development for the next 12 months.
7
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying condensed consolidated balance sheet as of September 30, 2024, and the condensed consolidated statements of operations and comprehensive loss and cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2024 and the results of operations and cash flows for the nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these nine months periods are unaudited. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or other future year. The following information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023.
Principle of Consolidation
Aerkomm consolidates the accounts of its subsidiaries, Aircom, Aircom Seychelles, Aircom HK, Aircom Japan, Aircom Taiwan, Aerkomm Taiwan, Beijing Yatai, Aerkomm Malta, MEPA Labs, and Mesh Technology Taiwan. All significant intercompany accounts and transactions have been eliminated in consolidation.
Restated Unaudited Interim Financial Information
The accompanying restated condensed consolidated statements of operations and comprehensive loss for the three months and nine months ended September 30, 2023 and restated condensed consolidated statements of cash flows for the nine months ended September 30, 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s the results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these nine months periods are unaudited. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or other future year.
Restatement of Financial Statements
The Company has restated the accompanying consolidated financial statements and related disclosure for the year ended December 31, 2023 and 2022 that were previously included in the Form 10-K filed with the SEC on May 7, 2024. The restatement is related to correction to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt instead. Also, due to the Company’s evidence indicating an intention to hold an investment for more than one year, the Company has reclassified the investment from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments) to cost (used for long-term investments). In addition, a correction has been made to reclassify other receivable-related party loans to short-term loan-others, based on the confirmation letter. In addition, Credit Enhanced Zero Coupon Convertible Bonds are reevaluated and early redemption loss and default interest expenses are accrued. The Company determined that these changes have a material impact on the filed financial statements for the year ended December 31, 2023 and 2022 (the “Relevant Period”), and as a result, the restatement of the Relevant Periods is required.
Impact of the Restatement
The impact of the restatement on the balance sheets, statements of operations and statements of cash flows for the Relevant Period is presented below. The restatement had no impact on the Company’s reported operating revenues or reported operating costs and expenses.
The following table summarized the effect of the financial statement adjustments related to the restatement on each financial statement line items as of and for the years ended December 31, 2023.
Due to the company’s evidence indicating an intention to hold the investment for more than one year, we have reclassified the investment from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments) to cost (used for long-term investments). In addition, a correction to reclassify other receivable-related party to short-term loan-others, based on the confirmation letter.
The restatement is related to correction
to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt instead. Also, due to
the Company’s evidence indicating an intention to hold an investment for more than one year, the Company has reclassified the investment
from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments)
to cost (used for long-term investments). In addition, a correction has been made to reclassify other receivable-related party loans to
short-term loan-others, based on the confirmation letter, In addition, Credit Enhanced Zero Coupon Convertible Bond has early redemption
option, resulting in the accrual of early redemption losses and
Due to the different evaluations of long-term and short-term investments, the reclassification caused changes in 2023 Net Loss and Foreign currency translation adjustments.
8
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Consolidated Balance Sheets (Restated)
| As of December 31, 2023 | ||||||||||||
| As previously Reported | Adjustment | As restated | ||||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Short-term investment | ( | ) | ||||||||||
| Account receivable – related parties | ||||||||||||
| Inventories, net | ||||||||||||
| Prepaid expenses | ||||||||||||
| Other receivable – related parties | ||||||||||||
| Other receivable | ||||||||||||
| Other current assets | ||||||||||||
| Total Current Assets | ( | ) | ||||||||||
| Long-term investment | ||||||||||||
| Property and Equipment, net | ||||||||||||
| Cost | ||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||||||
| Prepayment for land | ||||||||||||
| Prepayment for equipment – internal use | ||||||||||||
| Net Property and Equipment | ||||||||||||
| Other Assets | ||||||||||||
| Prepayment for equipment and intangible assets – customer projects – related party | ||||||||||||
| Prepayment for equipment and intangible assets – customer projects | ||||||||||||
| Restricted cash | ||||||||||||
| Intangible asset, net | ||||||||||||
| Goodwill | ||||||||||||
| Right-of-use assets, net | ||||||||||||
| Deposits | ||||||||||||
| Total Other Assets | ||||||||||||
| Total Assets | $ | $ | ( | ) | $ | |||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
| Current Liabilities | ||||||||||||
| Short-term loan – related parties | $ | $ | $ | |||||||||
| Short-term loan | ||||||||||||
| Convertible long-term bonds payable – current | ||||||||||||
| Convertible long-term note payable – current | ||||||||||||
| Accounts payable | ||||||||||||
| Accrued expenses | ||||||||||||
| Other payable – related parties | ||||||||||||
| Other payable | ( | ) | ||||||||||
| Prepayment from customer – related parties | ||||||||||||
| Long-term loan – current | ||||||||||||
| Lease liability – current | ||||||||||||
| Total Current Liabilities | ||||||||||||
| Long-term Liabilities | ||||||||||||
| Convertible long-term bonds payable | ( | ) | ||||||||||
| Convertible long-term note payable | ( | ) | ||||||||||
| Long-term loan | ||||||||||||
| Prepayments from customer – non-current | ||||||||||||
| Lease liability – non-current | ||||||||||||
| Restricted stock deposit liability | ||||||||||||
| Total Long-term Liabilities | ( | ) | ||||||||||
| Total Liabilities | ||||||||||||
| Commitments and Contingencies | ||||||||||||
| Stockholders’ Equity | ||||||||||||
| Preferred stock, $ | ||||||||||||
| Common stock, $ | ||||||||||||
| Additional paid in capital | ||||||||||||
| Subscribed capital | ||||||||||||
| Accumulated deficits | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ Equity | ( | ) | ||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ( | ) | $ | |||||||
9
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Restated)
| For the Three Months Ended | ||||||||||||
| September 30, 2023 | ||||||||||||
| As previously Reported | Adjustment | As restated | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Net Sales – Related Party | $ | $ | ||||||||||
| Service Income – Related Party | ||||||||||||
| Total Revenue | ||||||||||||
| Cost of Sales | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Loss from Operations | ( | ) | ( | ) | ||||||||
| Non-Operating Income (Loss) | ||||||||||||
| Foreign currency exchange (loss) gain | ( | ) | ( | ) | ||||||||
| Bond issuance cost | ( | ) | ||||||||||
| Interest expenses | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on investments | ( | ) | ( | ) | ||||||||
| Other income (loss), net | ||||||||||||
| Net Non-Operating (Loss) Income | ( | ) | ( | ) | ||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||||||
| Income Tax Expense | ||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||
| Other Comprehensive Income (Loss) | ||||||||||||
| Change in foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Total Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||||||
| Net Loss Per Common Share: | ||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | ||||||
| Weighted Average Shares Outstanding - Basic | ||||||||||||
| Weighted Average Shares Outstanding - Diluted | ||||||||||||
10
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
| For the Nine Months Ended | ||||||||||||
| September 30, 2023 | ||||||||||||
| As | ||||||||||||
| previously | ||||||||||||
| Reported | Adjustment | As restated | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Net Sales – Related Party | $ | $ | ||||||||||
| Service Income – Related Party | ||||||||||||
| Total Revenue | ||||||||||||
| Cost of Sales | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Loss from Operations | ( | ) | ( | ) | ||||||||
| Non-Operating Income (Loss) | ||||||||||||
| Foreign currency exchange (loss) gain | ( | ) | ( | ) | ||||||||
| Bond issuance cost | ( | ) | ||||||||||
| Interest expenses | ( | ) | ( | ) | ||||||||
| Unrealized gain (loss) on investments | ( | ) | ( | ) | ||||||||
| Other income (loss), net | ( | ) | ||||||||||
| Net Non-Operating (Loss) Income | ( | ) | ( | ) | ( | ) | ||||||
| Loss before Income Taxes | ( | ) | ( | ) | ( | ) | ||||||
| Income Tax Expense | ||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||
| Other Comprehensive Income (Loss) | ||||||||||||
| Change in foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Total Comprehensive Loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Net Loss Per Common Share: | ||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | ||||||
| Weighted Average Shares Outstanding - Basic | ||||||||||||
| Weighted Average Shares Outstanding - Diluted | ||||||||||||
11
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Unaudited Condensed Consolidated Statements of Cash Flows (Restated)
| For the Nine Months Ended | ||||||||||||
| September 30, 2023 | ||||||||||||
| As | ||||||||||||
| previously | ||||||||||||
| Reported | Adjustment | As restated | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Amortization of Right of Use Assets | ||||||||||||
| Stock-based compensation | ||||||||||||
| Unrealized (gain) loss on investments | ( | ) | ||||||||||
| Amortization of bonds issuance costs | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||||||
| Other current assets | ( | ) | ( | ) | ||||||||
| Deposits | ( | ) | ( | ) | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Accrued expenses and other current liabilities | ||||||||||||
| Operating lease liability | ( | ) | ( | ) | ||||||||
| Net Cash Used for Operating Activities | ( | ) | ( | ) | ||||||||
| Cash Flows from Investing Activities | ||||||||||||
| Proceeds from disposal of short-term investment | ||||||||||||
| Proceeds from disposal of long-term investment | ||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||||||
| Net Cash (Used) Provided by Investing Activities | ( | ) | ( | ) | ||||||||
| Cash Flows from Financing Activities | ||||||||||||
| Proceeds from issuance of common stock | ||||||||||||
| Repayment of short-term loan | ( | ) | ( | ) | ||||||||
| Repayment of long-term loan | ( | ) | ( | ) | ||||||||
| Payment on finance lease liability | ( | ) | ( | ) | ||||||||
| Net Cash Provided by Financing Activities | ( | ) | ( | ) | ||||||||
| Net Decrease in Cash and Restricted Cash | ( | ) | ( | ) | ||||||||
| Cash and Restricted Cash, Beginning of Period | ||||||||||||
| Foreign Currency Translation Effect on Cash | ||||||||||||
| Cash and Restricted Cash, End of Period | $ | $ | ||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||
| Cash paid during the period for income taxes | $ | $ | ||||||||||
| Cash and Restricted Cash: | ||||||||||||
| Cash | $ | $ | ||||||||||
| Restricted cash | ||||||||||||
| Total | $ | $ | ||||||||||
Reclassifications of Prior Year Presentation
Certain prior year balance sheet, and cash flow statement amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of 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 amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates.
12
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Concentrations of Credit Risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash in banks. As of September 30, 2024 and December
31, 2023, the total balance of cash in bank exceeding the amount insured by the Federal Deposit Insurance Corporation (FDIC) for the Company
was approximately $
The Company performs ongoing credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from management’s estimates.
Investment in Equity Securities
According to FASB issued Accounting Standards Updates 2016-01 (ASU 2016-01), it 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 being recorded in current period earnings, impacting the net income. For the investments in equity securities without readily determinable fair values, the investments may be recorded at cost, subject to impairment, and adjusted through net income for observable price changes.
Holdings of marketable equity securities with no significant influence over the investee are accounted for using cost method. Marketable equity security costs are initially recognized at fair value plus transaction costs which are directly attributable to the acquisition. The cost of the securities sold is based on the weighted average cost method. Stock dividends from the investment are included to recalculate the cost basis of the investment based on the total number of shares.
Accounts receivable
The Company adopted ASU 2016-13, Financial
Instruments - Credit Losses (Topic 326), which requires the Company to estimate all expected credit losses for financial assets measured
at amortized cost basis, including trade receivables, based on historical experience, current market conditions and supportable forecasts.
The Company’s accounts receivable are carried at the amounts invoiced to customer. The risk of credit loss is mitigated by the Company’s
credit evaluation process. Receivables are presented as net of an allowance for credit losses. Allowances for expected credit losses are
determined based on an assessment of historical experience, the current economic conditions, future expectations of economic conditions,
future expectation regarding customer solvency, and other collection factors. The Company will apply adjustments for specific factors
and current economic conditions as needed at each reporting date. As of September 30, 2024 and December 31, 2023, the Company had and
$
Inventories
Inventories are recorded at the lower of weighted-average cost or net realizable value. The Company assesses the impact of changing technology on its inventory on hand and writes off inventories that are considered obsolete.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. When value impairment is determined, the related assets are stated at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation is computed by using the
straight-line and double declining methods over the following estimated service lives: ground station equipment -
Upon sale or disposal of property and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to income in the period of sale or disposal.
The Company reviews the carrying amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. It determined that there was no impairment loss for the nine months ended September 30, 2024.
13
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Right-of-Use Asset and Lease Liability
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases and finance leases under previous accounting standards and disclosing key information about leasing arrangements.
A lessee should recognize the lease liability to make lease payments and the right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases and finance leases, a right-of-use asset and a lease liability are initially measured at the present value of the lease payments by discount rates. The Company’s lease discount rates are generally based on its incremental borrowing rate, as the discount rates implicit in the Company’s leases is readily determinable. Operating leases are included in operating lease right-of-use assets and lease liabilities in the unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our unaudited condensed consolidated balance sheets. Lease expense for operating expense payments is recognized on a straight-line basis over the lease term. Interest and amortization expenses are recognized for finance leases on a straight-line basis over the lease term.
For the leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
Goodwill and Purchased Intangible Assets
The Company’s goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition of subsidiaries. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.
As Aerkomm is currently still in the
development stage and will not start generating revenue until after late 2024. Management has evaluated that the potential benefits of
the acquisitions before the year 2023 are limited and uncertain, and due to this reason, management has decided to impair goodwill that
generated from 2022 and prior periods with total of $
Purchased intangible assets with finite
life are amortized on the straight-line basis over the estimated useful lives of respective assets. Purchased intangible assets with indefinite
life are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Purchased intangible asset consists of satellite system software and is amortized over
Fair Value of Financial Instruments
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions.
The carrying amounts of our cash and restricted cash, accounts receivable, other receivable, prepaid expenses, accounts payable, short-term loan, accrued expense, accrued unpaid salaries, prepayment from customer, and other payable approximated their fair value due to the short-term nature of these financial instruments. The Company’s short-term investment is classified within Level 1 of the fair value hierarchy on September 30, 2024. The Company’s long-term bonds payable, long-term note payable and lease payable approximated the carrying amount as its interest rate is considered as approximate to the current rate for comparable loans and leases, respectively. Our long-term investment approximated its carrying amount based upon management’s best estimate due to its restricted nature. There were no outstanding derivative financial instruments as of September 30, 2024 and December 31, 2023.
14
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Revenue Recognition
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. The Company’s revenue for the nine months ended September 30, 2024 composed of the sales of ground antenna unit and test support to a related party. The majority of the Company’s revenue is recognized at a point in time when product is shipped, or service is provided to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. The Company adopted the provisions of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and the principal versus agent guidance within the new revenue standard. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) the Company satisfies a performance obligation. Customers may make payments to the Company either in advance or in arrears. If payment is made in advance, the Company will recognize a contract liability under prepayments from customers until which point the Company has satisfied the requisite performance obligations to recognize revenue.
Stock-based Compensation
The Company adopted the modified prospective method to measure stock-based compensation expense. Under the modified prospective method, stock-based compensation expense recognized during the period is based on the portion of the share-based payment awards granted after the effective date and ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s statement of income is based on the vesting terms and the estimated fair value of the award at grant date. As stock-based compensation expense recognized in the statement of income is based on awards ultimately expected to vest, it is reduced for estimated forfeiture. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company uses the Black-Scholes option pricing model in its determination of fair value of share-based payment awards on the date of grant. Such option pricing model is affected by assumptions based on a number of highly complex and subjective variables.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and 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. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s tax provision.
The Company follows FASB guidance on uncertain tax positions and has analyzed Its filing positions in all the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns in the US federal, state and foreign jurisdictions where it conducts business. It is not subject to income tax examinations by US federal, state and local tax authorities for years before 2018. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.
The Company’s policy for recording interest and penalties associated with any uncertain tax positions is to record such items as a component of income before taxes. Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the unaudited condensed consolidated statement of operations.
Foreign Currency Transactions
Foreign currency transactions are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in income for the period.
15
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - Summary of Significant Accounting Policies - Continued
Translation Adjustments
If a foreign subsidiary’s functional currency is the local currency, translation adjustments will result from the process of translating the subsidiary’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported under other comprehensive loss as a separate component of stockholders’ equity.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed
by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of
common outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding
if the potentially dilutive securities had been issued. Potentially dilutive securities include stock warrants and outstanding stock options,
shares to be purchased by employees under the Company’s employee stock purchase plan. The Company had
NOTE 3 - Recent Accounting Pronouncements
Simplifying the Accounting for Debt with Conversion and Other Options.
In June 2020, the FASB issued ASU 2020-06 to simplify the accounting in ASC 470, Debt with Conversion and Other Options and ASC 815, Contracts in Equity’s Own Entity. The guidance simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU became effective beginning in the first quarter of the Company’s fiscal year 2023. The amendments in this update must be applied on either full retrospective basis or modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The adoption of ASU 2020-06 does not have a significant impact on the Company’s unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2024.
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of ASU 2016-13 until fiscal year beginning after December 15, 2022. In March 2022, the FASB issued ASU 2022-02 and eliminate the Troubled Debt Restructuring recognition and measurement guidance.
The Company adopted the ASU on January 1, 2023 and the adoption of this standard did not have a material effect on the Company’s operating results.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, which included Topic 280 “Segment Reporting”. This guidance improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of adopting ASU 2023-07 on its unaudited condensed consolidated financial statements.
16
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 3 - Recent Accounting Pronouncements - Continued
Income Taxes
In December 2023, the FASB issued ASU 2023-09, which included Topic 740 “Income Taxes”. This guidance requires business entities to disclose additional information related to the income taxes. The ASU 2023-09 is effective for all entities for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on its unaudited condensed consolidated financial statements
NOTE 4 - Short-term Investment
On September 9, 2019, the Company entered
into a liquidity agreement with a security company (“the Liquidity Provider”) in France, which is consistent with customary
practice in the French securities market. The liquidity agreement complies with applicable laws and regulations in France and authorizes
the Liquidity Provider to carry out market purchases and sales of shares of the Company’s common stock on the Euronext Paris market.
To enable the Liquidity Provider to carry out the interventions provided for in the contract, the Company contributed approximately $
On September 30, 2022, the Company entered
into a stock purchase agreement to purchase common stock of Shinbao in a total amount of NT$
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Investment - Liquidity | $ | $ | ||||||
| Prepaid investment | ||||||||
| Total Investment | ||||||||
NOTE 5 - Inventories, net
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Satellite equipment for sale under construction | $ | $ | ||||||
The write-down of potential obsolete inventories
is recorded based on management’s assumptions about future demands and market conditions. For the nine months ended September 30,
2024, the Company did not record any write-down of obsolete inventory. For the year ended December 31, 2023, the Company wrote-down $
17
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 6 - Prepaid Expenses and Prepayments for Equipment and Intangible Assets
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Prepaid professional expense | $ | $ | ||||||
| Others | ||||||||
| Prepaid expenses total | $ | $ | ||||||
| Prepayment for equipment and intangible assets – customer projects – related parties | ||||||||
| Prepayment for equipment and intangible assets – customer projects | $ | $ | ||||||
These prepayments for equipment and intangible assets are related to ongoing projects.
NOTE 7 - Property and Equipment, Net
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Ground station equipment | $ | $ | ||||||
| Computer software and equipment | ||||||||
| Satellite equipment | | |||||||
| Vehicle | ||||||||
| Leasehold improvement | ||||||||
| Furniture and fixture | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net | ||||||||
| Prepayments - land | ||||||||
| Prepaid equipment | ||||||||
| Total | $ | $ | ||||||
On July 10, 2018, the Company and Aerkomm
Taiwan entered into a real estate sale contract (the “Land Purchase Contract”) with Tsai Ming-Yin (the “Seller”)
with respect to the acquisition by Aerkomm Taiwan of a parcel of land located in Taiwan. The land is expected to be used to build a satellite
ground station and data center. Pursuant to the terms of the Land Purchase Contract, and subsequent amendments on July 30, 2018, September
4, 2018, November 2, 2018 and January 3, 2019, the Company paid to the seller in installments refundable prepayments of NT$
On November 15, 2022, the Company entered
into another real estate sale contract (the “Land Purchase Contract 2”) with Hsu Rong-Tang (the “Seller 2”) with
respect to the acquisition by Aircom Telecom of a parcel of land located in Taiwan. The land is expected to be used for Aerkomm’s
future projects. As of September 30, 2024, the Company paid to the Seller 2 installments prepayments of NT$
Depreciation expense was $
18
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8 - Long-term Investment
On December 3, 2020, the Company entered
into three separate stock purchase agreements from three individuals to purchase an aggregate of
As of September 30, 2024 and December
31, 2023,
On July 20, 2023, the Taipei Exchange
(the “Exchange”) announced that the securities of Ejectt Inc. would be suspended from trading on the Exchange as of that date,
in accordance with Article 12-1 of the Business Rules of the Exchange due to significant changes in the scope of Ejectt’s business
within a certain period before and after a change in control, that Ejectt’s new business accounted for more than
On July 28, 2023, the Company and Ejectt signed a non-binding letter of intent with respect to a possible merger between Aerkomm Taiwan Inc. and Ejectt. At a January 30, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved pursuing a merger with Ejectt, under which Aerkomm Taiwan would be the surviving company, and an offer of merger was delivered to Ejectt on February 1, 2024. On March 4, 2024, Ejectt was officially delisted.
Aerkomm Taiwan Inc. held a shareholders’ meeting on May 23, 2024 to approve the merger with Ejectt. On the same day, the Ejectt shareholders also approved the merger and the merger agreement became effective as of that date. On May 27, 2024, Aerkomm Taiwan Inc. amended its articles of incorporation to increase its capital. Aerkomm Taiwan and Ejectt agreed in the merger agreement to merge on June 27, 2024. However, for the merger to become legally effective under Taiwanese law, it must be approved by the Department of Investment Review in Taiwan. An application for approval was submitted on July 10, 2024. Aerkomm expects that the review process may require approximately 4-6 months. Aerkomm cannot assure whether the Department of Investment Review will approve the transaction.
As of September 30, 2024 and December
31, 2023,
As
of September 30, 2024, through Aerkomm Taiwan and Aircom Telecom the Company held approximately
In
connection with the planned merger with Ejectt, Aerkomm Taiwan retained an independent specialist firm that, in a report published
to Aerkomm Taiwan dated April 29, 2024, valued Ejectt’s shares at between NT$
Also on September 29, 2022, the Company
entered into a stock purchase agreement (or “Stock Purchase Agreement”) to purchase
In Q1 2023, the Company disposed of
the AnaNaviTek stock for amount of $
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Investment at cost - Ejectt - long-term | $ | $ | ||||||
| Net | $ | $ | ||||||
19
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 9 - Intangible Asset, Net
| Satellite System Software | Accumulated Amortization | Net | ||||||||||
| December 31, 2023 | $ | $ | ( | ) | $ | |||||||
| Addition | ( | ) | ( | ) | ||||||||
| CTA | ( | ) | ||||||||||
| September 30, 2024 (Unaudited) | $ | $ | ( | ) | $ | |||||||
Amortization expense was $
Note 10 - Goodwill
| Gross Goodwill | Accumulated Impairment | Net | ||||||||||
| January 1, 2023 | $ | $ | $ | |||||||||
| Addition | ||||||||||||
| Impairment loss | ( | ) | ( | ) | ||||||||
| December 31, 2023 | $ | $ | ( | ) | $ | |||||||
| Addition | ||||||||||||
| September 30, 2024 (Unaudited) | $ | $ | ( | ) | $ | |||||||
There is $
As Aerkomm is currently still in the
development stage and will not start generating revenue until after late 2024. Management has evaluated that the potential benefits of
the acquisitions before year 2023 is limited and uncertain. Due to this reason, management has decided to impair goodwill that generated
from 2022 and prior periods with total of $
On September 28, 2023, the Company acquired
20
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 10 - Goodwill - Continued
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.
| Total purchase considerations | $ | |||
| Fair Value of tangible assets acquired: | ||||
| Cash | ||||
| Other receivable | ||||
| Prepaid expenses and other current assets | ||||
| Intangible assets | ||||
| Total identifiable assets acquired | ||||
| Fair value of liabilities assumed: | ||||
| Loan payable - current | ( | ) | ||
| Prepayment from customer | ( | ) | ||
| Other payable | ( | ) | ||
| Loan from stockholder - non-current | ( | ) | ||
| Total liabilities assumed | ( | ) | ||
| Net identifiable liabilities assumed | ||||
| Goodwill as a result of the acquisition | $ |
NOTE 11 - Other Payable and Accrued Expenses
| Nature | September 30, 2024 | December 31, 2023 | ||||||
| (Unaudited) | As restated | |||||||
| Outside service, professional, and consultant fee | $ | $ | ||||||
| Land commission | ||||||||
| Equity Financing | ||||||||
| Interest payable | ||||||||
| Bonus, health insurance, and payroll taxes | ||||||||
| Investment payable | ||||||||
| R&D supplies | ||||||||
| Employee reimbursement | ||||||||
| Office expense | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
The Company also notes that $
As of September 30, 2024, the total
Equity Financing amounted to $
21
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 12 - Operating and Finance Leases
Lease term and discount rate:
| 2024 | 2023 | |||||||
| Weighted-average remaining lease term | (Unaudited) | |||||||
| Operating lease | ||||||||
| Finance lease | ||||||||
| Weighted-average discount rate | ||||||||
| Operating lease | % | % | ||||||
| Finance lease | % | % | ||||||
The components of lease expense are as follows within the unaudited condensed consolidated statements of operations and comprehensive loss for the nine months periods ended September 30, 2024 and 2023:
| September
30, 2024 | September
30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Lease expense | $ | $ | ||||||
| Sublease rental income | ( | ) | ( | ) | ||||
| Net lease expense | $ | $ | ||||||
22
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 12 - Operating and Finance Leases - Continued
| September
30, 2024 | September
30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Amortization of right-of-use asset | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease cost | $ | $ | ||||||
Maturity of lease liabilities:
| Others | Total | |||||||
| (Unaudited) | (Unaudited) | |||||||
| October 1, 2024 – September 30, 2025 | $ | $ | ||||||
| October 1, 2025 – September 30, 2026 | ||||||||
| Total lease payments | $ | $ | ||||||
| Less: Imputed interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | $ | $ | ||||||
| Current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
23
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 12 - Operating and Finance Leases - Continued
| Total | ||||
| (Unaudited) | ||||
| October 1, 2024 – September, 2025 | $ | |||
| October 1, 2025 – September, 2026 | ||||
| Total lease payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Current portion | ||||
| Non-current portion | $ | |||
NOTE 13 - Short-term Loan
In June 2021, the Company entered into
a loan agreement in the amount of $
The
temporary fundings as of September 30, 2024 and December 31, 2023, were $
NOTE 14 - Long-term Loan
The
Company has a car loan credit line of NT$
24
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 15 - Convertible Long-term Bonds Payable and Restricted Cash
On
December 3, 2020, the Company closed a private placement offering consisting of US$
Unless
previously redeemed, converted or repurchased and cancelled, the Bonds may be converted at any time on or after December 3, 2020 up to
November 20, 2025 into shares of Common Stock of the Company with a par value of $
Holders of the Bonds may also require the Company to repurchase all or part of the Bonds on the third anniversary of the Issue Date, at the Early Redemption Amount. Unless the Bonds have been previously redeemed, converted or repurchased and cancelled, Holders of the Bonds will also have the right to require the Company to repurchase the Bonds for cash at the Early Redemption Amount if an event of delisting or a change of control occurs.
Pursuant
to the agreements of Bonds, Bank of Panhsin Co., Ltd. (the “BG Bank”) committed to issue a bank guarantee for the benefit
of the holders of the Bonds. The Bank Guarantee is intended to provide a source of funds for the principal, premium, interest (if any)
and any other payment obligations of the Company which shall include the default interest under the Bonds upon the Company’s failure
to pay amounts pursuant to the Indenture or upon the Bonds being declared due and payable on the occurrence of an Event of Default pursuant
to this Indenture. In order to obtain the guarantee from BG Bank, the Company entered into a line of credit in the amount of $
Management has accounted for the convertible bonds by assuming that they will be repaid and redeemed at maturity; accordingly, the Company has included the redemption premium as part of the accretion tables and calculation of interest and issuance cost to be amortized over the life of the bond. Any value borne from the conversion feature of the bond and or issuance costs related to the origination and distribution of these bonds have been accounted for as debt discounts to be amortized using the effective interest method over the life of the bond.
On
October 27, 2023, Citicorp International Limited, as Trustee with respect to the Bonds, submitted to the Company a request for redemption
of the Bonds in full. As of September 30, 2024, the Company had repaid $
25
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 15 - Convertible Long-term Bonds Payable and Restricted Cash - Continued
| September
30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | As restated | |||||||
| Current: | ||||||||
| Early redemption convertible bonds payable- default | $ | $ | ||||||
| Non-current: | ||||||||
| Coupon Bond | $ | $ | ||||||
The
Company has been charged with
NOTE 16 - Convertible Long-term Notes Payable
On
December 7, 2022, Aerkomm Inc. (the “Company”) entered into an investment conversion and note purchase agreement (the “Agreement”)
with World Praise Limited, a Samoa registered company (“WPL”). Pursuant to the terms of this Agreement, (i) a subscription
for the common stock of the Company in the amount of $
In
addition, and as indicated in the Agreement, WPL agreed to lend an additional $
The Convertible Note allows for loans
to the Company up to an aggregate principal amount of $
26
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 17 - Contract Liability
On
March 9, 2015, the Company entered into a
NOTE 18 - Income Taxes
| Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Current: | ||||||||||||||||
| Federal | $ | $ | $ | $ | ||||||||||||
| State | ||||||||||||||||
| Foreign | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, | Nine months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Tax benefit at statutory rate | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net operating loss carryforwards (NOLs) | ||||||||||||||||
| Foreign investment losses (gains) | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation expense | ||||||||||||||||
| Amortization expense | ( | ) | ||||||||||||||
| Accrued payroll | ||||||||||||||||
| Unrealized exchange losses (gains) | ( | ) | ( | ) | ||||||||||||
| Others | ( | ) | ||||||||||||||
| Tax expense at effective tax rate | $ | $ | $ | $ | ||||||||||||
27
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 18 - Income Taxes - Continued
| September 30, 2024 |
December 31, 2023 |
|||||||
| (Unaudited) | As restated | |||||||
| Net operating loss carryforwards (NOLs) | $ | |
$ | |
||||
| Stock-based compensation expense | ||||||||
| Accrued expenses and unpaid expenses payable | ||||||||
| Tax credit carryforwards | ||||||||
| Unrealized exchange losses (gain) | ||||||||
| Excess of tax amortization over book amortization | ( |
) | ( |
) | ||||
| Others | ( |
) | ||||||
| Gross | ||||||||
| Valuation allowance | ( |
) | ( |
) | ||||
| Net | $ | $ | ||||||
Management
does not believe the deferred tax assets will be utilized in the near future; therefore, a full valuation allowance is provided. The
net change in deferred tax assets valuation allowance was an increase of approximately $
As of September 30, 2024 and December
31, 2023, the Company had federal NOLs of approximately $
As of September 30, 2024 and December
31, 2023, the Company has Japan NOLs of approximately $
As of September 30, 2024 and December
31, 2023, the Company has Taiwan NOLs of approximately
As of September 30, 2024 and December
31, 2023, the Company had approximately $
The Company’s ability to utilize its federal and state NOLs to offset future income taxes is subject to restrictions resulting from its prior change in ownership as defined by Internal Revenue Code Section 382. The Company does not expect to incur the limitation on NOLs utilization in future annual usage.
28
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 19 - Capital Stock
| 1) | Preferred Stock: |
The
Company is authorized to issue
| 2) | Common Stock: |
| September
30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Restricted stock - vested | ||||||||
| Restricted stock - unvested | ||||||||
| Total restricted stock | ||||||||
The unvested shares of restricted stock were recorded under a deposit liability account awaiting future conversion to common stock when they become vested.
On
June 16, 2022, the Company issued
On
September 28, 2023, the Company issued
On December 13, 2023, two new
subscribers subscribed for
On
February 2, 2024, the Company issued
On
March 8, 2024, the Company issued
On
April 24, 2024, the Company issued
| 3) | Stock Warrant: |
For
the year ended December 31, 2022, the Company recorded an increase of $
29
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 20 - Significant Related Party Transactions
In addition to the information disclosed in other notes, the Company has significant related party transactions as follows:
| A. |
| Related Party | Relationship | |
| Well Thrive Limited (“WTL”) | ||
| Ejectt Inc. (“Ejectt”) | ||
| STAR JEC INC. (“StarJec”) | ||
| AA Twin Associates Ltd. (“AATWIN”) | ||
| EESquare Japan (“EESquare JP”) | ||
| Kevin Wong |
| B. | Significant related party transactions: |
The Company has extensive transactions with its related parties. It is possible that the terms of these transactions are not the same as those which would result from transactions among wholly unrelated parties.
| a. |
| September 30, 2024 |
December 31, 2023 |
|||||||
| (Unaudited) | As restated | |||||||
| Other receivable from: | ||||||||
| - Loan: | ||||||||
| EESquare JP 1 | $ | $ | ||||||
| WTL4 | ||||||||
| - Others: | ||||||||
| EESquare JP 1 | ||||||||
| Ejectt3 | |
|||||||
| Kevin Wong6 | ||||||||
| Others7 | ||||||||
| Total | $ | $ | ||||||
| Prepaid expenses to Ejectt3 | $ | $ | ||||||
| Prepayment from Ejectt3 | $ | |||||||
| Other payable to: | ||||||||
| AATWIN5 | $ | $ | ||||||
| Interest payable to WTL4 | ||||||||
| StarJec2 | ||||||||
| Kevin Wong6 | ||||||||
| Others7 | ||||||||
| Total | $ | $ | ||||||
| 1. | |
| 2. |
30
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 20 - Significant Related Party Transactions - Continued
| 3. |
| 4. | |
| 5. | |
| 6. | |
| 7. |
| b. |
| Nine
Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Sales to Ejectt1 | $ | $ | ||||||
| Service income from Ejectt1 | ||||||||
| Service income from Star Jec4 | ||||||||
| Rental income from EESqaure JP 2 | ||||||||
| Rental income from WTL3 | ||||||||
| 1. |
| 2. | |
| 3. | |
| 4. |
NOTE 21 - Stock Based Compensation
In
March 2014, Aircom’s Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom 2014
Plan provided for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors
of Aircom. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan and agreed to issue
options for an aggregate of
One-third
of stock option shares will be vested as of the first anniversary of the time the option shares are granted or the employee’s acceptance
to serve the Company, and 1/36th of the shares will be vested each month thereafter. Option price is determined by the Board of Directors.
The Aircom 2014 Plan became effective upon its adoption by the Board and shall continue in effect for a term of
31
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
On
May 5, 2017, the Board of Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan”
and together with the Aircom 2014 Plan, the “Plans”) and the reservation of
On
June 23, 2017, the Board of Directors agreed to issue options for an aggregate of
On
July 31, 2017, the Board of Directors approved to issue options for an aggregate of
On
December 29, 2017, the Board of Directors approved to issue options for an aggregate of
On
June 19, 2018, the Compensation Committee approved to issue options for
On
September 16, 2018, the Compensation Committee approved to issue options for
On
December 29, 2018, the Compensation Committee approved to issue options for an aggregate of
On
July 2, 2019, the Board of Directors approved the grant of options to purchase an aggregate of
On
October 4, 2019, the Board of Directors approved the grant of options to purchase an aggregate of
On
December 29, 2019, the Board of Directors approved to issue options for an aggregate of
On
February 19, 2020, the Board of Directors approved to issue options for
On
September 17, 2020, the Board of Directors approved to issue options for
32
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
On
December 11, 2020, the Board of Directors approved the grant of options to purchase an aggregate of
On
January 23, 2021, the Board of Directors approved to issue options for an aggregate of
On
September 1, 2021, the Board of Directors approved to issue options for
On
September 17, 2021, the Board of Directors approved to issue options for
On
October 21, 2021, the Board of Directors approved to issue options for
On
December 1, 2021, the Board of Directors approved to issue options for
On
December 29, 2021, the Board of Directors approved to issue options for an aggregate of
On
December 31, 2021, the Board of Directors approved to issue options for
On
March 1, 2022, the Board of Directors approved to issue options for
On
June 1, 2022, the Board of Directors approved to issue options for
On
September 1, 2022, the Board of Directors approved to issue options for
On
September 17, 2022, the Board of Directors approved to issue options for
On
December 1, 2022, the Board of Directors approved to issue options for
On
December 29, 2022, the Board of Directors approved to issue options for an aggregate of
On
March 1, 2023, the Board of Directors approved to issue options for
On
May 5, 2023, the Board of Directors of Aerkomm adopted the Aerkomm Inc. 2023 Equity Incentive Plan (the “Aerkomm 2023 Plan”
and together with the Aerkomm 2017 Plan, and Aircom 2014 Plan, the “Plans”) and the reservation of
33
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
On
June 1, 2023, the Board of Directors approved to issue options for
On
June 13, 2023, the Board of Directors agreed to issue options for an aggregate
On
September 1, 2023, the Board of Directors approved to issue options for
On
December 1, 2023, the Board of Directors approved to issue options for
On
March 1, 2024, the Board of Directors approved to issue options for
On
March 4, 2024, the Board of Directors approved to issue options for
On
June 1, 2024, the Board of Directors approved to issue options for
On
June 6, 2024, the Board of Directors approved to issue options for
On
September 1, 2024, the Board of Directors approved to issue options for
On
September 6, 2024, the Board of Directors approved to issue options for
Valuation and Expense Information
Measurement
and recognition of compensation expense based on estimated fair values is required for all share-based payment awards made to its employees
and directors including employee stock options. The Company recognized compensation expense of $
Determining Fair Value
Valuation and amortization method
The Company uses the Black-Scholes option-pricing-model to estimate the fair value of stock options granted on the date of grant or modification and amortizes the fair value of stock-based compensation at the date of grant on a straight-line basis for recognizing stock compensation expense over the vesting period of the option.
Expected term
The expected term is the period of time that granted options are expected to be outstanding. The Company uses the SEC’s simplified method for determining the option expected term based on the Company’s historical data to estimate employee termination and options exercised.
34
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
Expected dividends
The Company does not plan to pay cash dividends before the options are expired. Therefore, the expected dividend yield used in the Black-Scholes option valuation model is zero.
Expected volatility
Since the Company has no historical volatility, it used the calculated value method which substitutes the historical volatility of a public company in the same industry to estimate the expected volatility of the Company’s share price to measure the fair value of options granted under the Plans.
Risk-free interest rate
The Company based the risk-free interest rate used in the Black-Scholes option valuation model on the market yield in effect at the time of option grant provided in the Federal Reserve Board’s Statistical Releases and historical publications on the Treasury constant maturities rates for the equivalent remaining terms for the Plans.
Forfeitures
The Company is required to estimate forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate option forfeitures and records share-based compensation expense only for those awards that are expected to vest.
| Assumptions | ||||
| Expected term | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
| Risk-free interest rate | % | |||
| Forfeiture rate | % | |||
35
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
Aircom 2014 Plan
| Number
of Shares | Weighted Average Exercise Price Per Share | Weighted Average Fair Value Per Share | ||||||||||
| Options outstanding at January 1, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options outstanding at December 31, 2023 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options outstanding at September 30, 2024 (unaudited) | ||||||||||||
There are no unvested stock awards under Aircom 2014 Plan for the nine months period ended September 30, 2024 and the year ended December 31, 2023.
Of
the shares covered by options outstanding as of September 30, 2024,
| Options Outstanding (Unaudited) | Options Exercisable (Unaudited) | |||||||||||||||||||||||||
| Range of Exercise Prices | Shares Outstanding at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Shares Exercisable at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | ||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
As of September 30, 2024, there was no unrecognized stock-based compensation expense for the Aircom 2014 Plan. No option was exercised during the nine months periods ended September 30, 2024 and 2023.
Aerkomm 2017 Plan
| Number
of Shares | Weighted Average Exercise Price Per Share | Weighted Average Fair Value Per Share | ||||||||||
| Options outstanding at January 1, 2023 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options outstanding at December 31, 2023 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options outstanding at September 30, 2024 (unaudited) | ||||||||||||
36
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
| Number
of Shares | Weighted Average Fair Value Per Share | |||||||
| Options unvested at January 1, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited/Cancelled | ||||||||
| Options unvested at December 31, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited/Cancelled | ||||||||
| Options unvested at September 30, 2024 (unaudited) | ||||||||
Of
the shares covered by options outstanding under the Aerkomm 2017 Plan as of September 30, 2024,
| Options Outstanding (Unaudited) | Options Exercisable (Unaudited) | |||||||||||||||||||||||||
| Range of Exercise Prices | Shares Outstanding at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Shares Exercisable at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | ||||||||||||||||||||
| $ | 2.55 - 4.30 | $ | $ | |||||||||||||||||||||||
| 6.00 - 10.00 | ||||||||||||||||||||||||||
| 11.00 - 14.20 | ||||||||||||||||||||||||||
| 20.50 - 27.50 | ||||||||||||||||||||||||||
| 30.00 - 35.00 | ||||||||||||||||||||||||||
As
of September 30, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $
Aerkomm 2023 Plan
| Number
of Shares | Weighted Average Exercise Price Per Share | Weighted Average Fair Value Per Share | ||||||||||
| Options outstanding at December 31, 2022 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options outstanding at December 31, 2023 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Options unvested at September 30, 2024 (unaudited) | ||||||||||||
37
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 21 - Stock Based Compensation - Continued
| Number
of Shares | Weighted Average Fair Value Per Share | |||||||
| Options unvested at January 1, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited/Cancelled | ||||||||
| Options unvested at December 31, 2023 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited/Cancelled | ||||||||
| Options unvested at September 30, 2024 (unaudited) | ||||||||
Of
the shares covered by options outstanding as of September 30, 2024,
| Options Outstanding (Unaudited) | Options Exercisable (Unaudited) | |||||||||||||||||||||||||
| Range of Exercise Prices | Shares Outstanding at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Shares Exercisable at 9/30/2024 | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | ||||||||||||||||||||
| $ | | |||||||||||||||||||||||||
As
of September 30, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $
38
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 22 - Commitments
As of September 30, 2024, the Company’s significant commitment is summarized as follows:
| Airbus SAS Agreement: On November 30, 2018, in furtherance of a memorandum of understanding signed in March 2018, the Company entered into an agreement with Airbus SAS (“Airbus”), pursuant to which Airbus will develop and certify a complete retrofit solution allowing the installation of the Company’s “AERKOMM K++” system on Airbus’ single aisle aircraft family including the Airbus A319/320/321, for both Current Engine Option (CEO) and New Engine Option (NEO) models. Airbus will also apply for and obtain on the Company’s behalf a Supplemental Type Certificate (STC) from the European Aviation Safety Agency, or EASA, as well as from the U.S. Federal Aviation Administration or FAA, for the retrofit AERKOMM K++ system. The EU-China Bilateral Aviation Safety Agreement, or BASA, went into effect on September 3, 2020, giving a boost to the regions’ aviation manufacturers by simplifying the process of gaining product approvals from the European Union Aviation Safety Agency, or EASA, and the Civil Aviation Administration of China, or CAAC, while also ensuring high safety and environment standards will continue to be met. Pursuant to the terms of our Airbus agreement, Airbus agreed to provides the Company with the retrofit solution which will include the Service Bulletin and the material kits including the update of technical and operating manuals pertaining to the aircraft and provision of aircraft configuration control. The timeframe for the completion and testing of this retrofit solution, including the certification, is expected to be in the fourth quarter of 2024, although there is no guarantee that the project will be successfully completed in the projected timeframe. | ||
| Airbus Interior Service Agreement: On July 24, 2020, Aerkomm Malta, entered into an agreement with Airbus Interior Services, a wholly-owned subsidiary of Airbus. This new agreement follows the agreement that Aircom signed with Airbus on November 30, 2018 pursuant to which Airbus agreed to develop, install and certify the Aerkomm K++ System on a prototype A320 aircraft to EASA and FAA certification standards. | ||
| Hong Kong Airlines Agreement: On January 30, 2020, Aircom signed an agreement with Hong Kong Airlines Ltd. (HKA) to provide to Hong Kong Airlines both of its Aerkomm AirCinema and AERKOMM K++ IFEC solutions. Under the terms of this new agreement, Aircom will provide HKA its Ka-band AERKOMM K++ IFEC system and its AERKOMM AirCinema system. HKA will become the first commercial airliner launch customer for Aircom. | ||
| Vietjet Air: On October 25, 2021, the Company signed an agreement with Vietjet Air (“Vietjet”) to provide them with our Aerkomm AirCinema In-Flight Entertainment and Connectivity (“IFEC”) solutions. Under the terms of the agreement, the Company will provide to Vietjet our Aerkomm AirCinema Cube IFEC system for installation on Vietjet’s fleet of Airbus A320, A321 and Airbus A330-300 aircraft. | ||
| Republic Engineers Complaint: On October 15, 2018, Aircom Telecom entered into a product purchase agreement, or the October 15th PPA, with Republic Engineers Maldives Pte. Ltd., a company affiliated with Republic Engineers Pte. Ltd., or Republic Engineers, a Singapore based, private construction and contracting company. On November 30, 2018, the October 15th PPA was re-executed with Republic Engineers Pte. Ltd. as the signing party. The Company refers to this new agreement as the November 30th PPA and, together with the October 15th PPA, the PPA. Under the terms of the PPA, Republic Engineers committed to the purchase of a minimum of 10 shipsets of the AERKOMM K++ system at an aggregate purchase price of $ |
39
AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 22 - Commitments - Continued
| Shenzhen Yihe: On June 20, 2018, the Company entered into that certain Cooperation Framework Agreement, as supplemented on July 19, 2019, with Shenzhen Yihe Culture Media Co., Ltd., or Yihe, the authorized agent of Guangdong Tengnan Internet, or Tencent Group, pursuant to which Yihe agreed to assist the Company with public relations, advertising, market and brand promotion, as well as with the development of a working application of the Tencent Group WeChat Pay payment solution and WeChat applets applicable for Chinese users and relating to cell phone and WiFi connectivity on airplanes. As compensation under this Yihe agreement, the Company paid Yihe RMB | ||
US trademark: On December 1, 2020, the United States Patent and Trademark Office (the “USPTO”) issued a Final Office Action relating to Aerkomm Inc. indicating that the Company’s US trademark application (Serial No. 88464588) for the name “AERKOMM,” which was originally filed with the USPTO on June 7, 2019, was being rejected because of a likelihood of confusion with a similarly sounding name trademarked at, and in use from, an earlier date. The Company successfully appealed this USPTO action and the USPTO issued to the Company a trademark registration for the service mark AERKOMM under Trademark Class 38 (telecommunications) on November 2, 2021 and Trademark Class 41 (entertainment services) on November 23, 2021. | ||
| Equity Contract: On December 29, 2022, Aerkomm Inc. (the “Company” or the “Seller”) and dMobile System Co., Ltd. (the “Buyer”) entered into an equity sales contract (the “Equity Sales Agreement”), pursuant to which the Company agreed to sell |
NOTE 23 - Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that, other than as indicated below, there have been no events that have occurred that would require adjustments to our disclosures in the unaudited condensed consolidated financial statements.
Between October 15, 2024 and October
30, 2024, Well Thrive Limited (the “Borrower”) entered into three loan agreements with the Company (as the Lender), totaling
NTD
On October 1, 2024, the Company’s subsidiary in Japan, Aerkomm Japan Inc., entered into a Distribution Partnership Agreement with Network Access Associates Ltd., a member of the EUTELSAT group (“OneWeb”) dated as of September 26, 2024 (the “DPA”), pursuant to which OneWeb appointed Aerkomm Japan as a distribution partner for Japan and Taiwan for OneWeb’s satellite communications products and services.
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been revised to reflect the restatement occurring subsequent to the filing of the Original Form 10-Q, as well as to incorporate certain conforming changes.
The Company has restated, by means of its Annual Report on Form 10-K/A for the year ended December 31, 2023 (the “2023 Form 10-K”), its consolidated balance sheet at December 31, 2023. For information on the impact of the restatement, reference is made to the Company’s 2023 Form 10-K/A, (i) Part I, Item 1A. Risk Factors; (ii) Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and (iii) Part II, Item 9A. Controls and Procedures. In addition, the restatement impacts the first quarter of 2024. The restated amounts for the first quarter of 2024 are presented in the Company’s Quarterly Reports on Form 10-Q/A for the quarterly period ended March 31, 2024.
In the course of preparing its financial statements for quarter ended September 30, 2024, our management and our audit committee concluded that it was appropriate to restate our previously issued audited financial statements as of and for the period ended December 31, 2023. The restatement is to reflect a correction to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt; due to the Company’s records indicating an intention to hold a certain investment for more than one year, the Company has reclassified that investment from short-term to long-term and, consequently, the valuation method for this investment has been adjusted from market value (used for short-term investments) to cost (used for long-term investments); a correction has been made to reclassify the account “other receivable-related party loans” to “short-term loan-others; the early redemption by our bond holders of our Credit Enhanced Zero Coupon Convertible Bonds resulted in an early redemption loss and accrued default interest expenses. Although these changes are non-cash items and do not change the Company’s reported operating revenues or reported operating costs and expenses, the Company determined that these changes have a material impact on the as filed financial statements for the year ended December 31, 2023 and for the nine months period ended September 30, 2024 (the “Relevant Period”), and as a result, the restatement of the Relevant Periods is required.
Throughout the following Management’s Discussion and Analysis of Financial Condition and Result of Operations, all referenced amounts for prior periods and prior period comparisons reflect the balances and amounts on a restated basis.
Use of Terms
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our,” or “our company” are to the combined business of Aerkomm Inc., a Nevada corporation, and its consolidated subsidiaries, including Aircom Pacific, Inc., a California corporation and wholly-owned subsidiary, or Aircom; Aircom Pacific Ltd., a Republic of Seychelles company and wholly-owned subsidiary of Aircom; Aerkomm Pacific Limited, a Malta company and wholly owned subsidiary of Aircom Pacific Ltd.; Aircom Pacific Inc. Limited, a Hong Kong company and wholly-owned subsidiary of Aircom; Aircom Japan, Inc., a Japanese company and wholly-owned subsidiary of Aircom; and Aircom Telecom LLC, a Taiwanese company and wholly-owned subsidiary of Aircom, Aircom Taiwan, or Aircom Beijing; MEPA Labs Inc., a California corporation and wholly-owned subsidiary; and Mesh Technology Limited, a Taiwan company and wholly-owned subsidiary.
Special Note Regarding Forward Looking Statements
Certain information contained in this report includes forward-looking statements. The statements herein which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. The following factors, among others, may affect our forward-looking statements:
| ● | our future financial and operating results; |
| ● | our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business; |
| ● | the impact and effects of the global outbreak of the coronavirus (COVID-19) pandemic, and other potential pandemics or contagious diseases or fear of such outbreaks, on the global airline and tourist industries, especially in the Asia Pacific region; |
| ● | our ability to attract and retain customers; |
| ● | our dependence on growth in our customers’ businesses; |
| ● | the effects of changing customer needs in our market; |
| ● | the effects of market conditions on our stock price and operating results; |
| ● | our ability to successfully complete the development, testing and initial implementation of our product offerings; |
| ● | our ability to maintain our competitive advantages against competitors in our industry; |
| ● | our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance; |
| ● | our ability to introduce new product offerings and bring them to market in a timely manner; |
41
| ● | our ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations |
| ● | our ability to maintain, protect and enhance our intellectual property; |
| ● | the effects of increased competition in our market and our ability to compete effectively; |
| ● | our expectations concerning relationship with customers and other third parties; |
| ● | the attraction and retention of qualified employees and key personnel; |
| ● | future acquisitions of our investments in complementary companies or technologies; and |
| ● | our ability to comply with evolving legal standards and regulations. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue our operations. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
The specific discussions herein about our company include financial projections and future estimates and expectations about our business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our management’s own assessment of our business, the industry in which we work and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.
Potential investors should not make an investment decision based solely on our company’s projections, estimates or expectations.
Overview
We are a development stage innovative satellite communication technology company providing carrier-neutral and software-defined infrastructure to deliver mission-critical, multi-orbit satellite broadband connectivity for the public and private sectors. For the nine months ended September 30, 2024 and 2023, AERKOMM had $149,563 and $507,949 in revenues and net losses of $16,686,644 and $13,422,441.
We offer a range of next-generation technologies that bring high-throughput performance, interoperability and virtualization to provide high performance and resilient end-to-end broadband connectivity to our customers in collaboration with satellite or constellation partners and mobile network operators.
Because we do not operate, or intend to operate, our own satellites or constellations, our business model remains asset-light and far less capital intensive than most companies operating in the space industry. Instead, we are a value-added reseller of bandwidth where we provide value both to our customers and to our partners be unlocking or otherwise expanding new use-cases for satellite communications, which also means bringing new revenue streams to our satellite operator partners whose bandwidth we resell.
While we design and develop proprietary technologies, due to the complexity of the satellite communications industry, in order to deliver or to architect end-to-end solutions, we also strategically source and integrate partner technologies to create robust and reliable satellite networks that can be tailored to meet the demands of public and private sector clients. In order to enable resiliency and scalability, we aim to be at the forefront of implementing virtualization for satellite communications through our software-defined approach, which enhances flexibility, scalability, and efficiency, allowing for dynamic adaptation to evolving communication needs. By orchestrating a comprehensive system of technologies, we endeavor to revolutionize satellite communication alongside our industry partners, delivering unparalleled capabilities to empower industries and individuals worldwide.
42
Our key proprietary cutting-edge technology is a universal terminal that we develop, which provides carrier-neutral satellite broadband access. These terminals are designed to meet the diverse needs of users across various sectors, and connecting those users to the right satellite in the sky, independent of which orbit it is located in, ensuring seamless connectivity and unparalleled performance. Our universal terminals consist of both a multi-orbit flat panel antenna (FPA), or electronically steered array (ESA), as well as a carrier-neutral, software-defined modem. Our groundbreaking glass semiconductor ESA antenna technology enhances performance by more than 50% in terms of throughput per square inch, compared to other antenna designs and constructions. Our work on custom beamformer chips, or application specific integrated circuits (ASICs), and on custom radiofrequency (RF) chipsets aims to optimize power and performance, enabling seamless connectivity across multiple orbits. Within our modem, the software-defined radio (SDR) technology provides secure and agile signal transmission with military-grade security features. Our work on a custom high-speed analog-to-digital (ADC) chipset aims to unlock hybrid-orbit links and to enable advanced signal intelligence capabilities.
As of April 27, 2023, the Company has been awarded a regional satellite service spectrum usage permit. With this permit and our proprietary technology, we believe that we will be able to develop and expand our revenue stream from satellite services. This positions us as not only a hardware and system supplier, but also a value-added service and satellite service provider, and expands the markets in which we can participate.
As a satellite service provider in Taiwan, we will be authorized to provide satellite services in the Civilian Telecommunications market, such as for mobile backhaul, and Aerospace & Defense markets, such as for both aviation and maritime applications. We expect these capabilities also to enable us to secure network resiliency contracts.
Moving forward, the Company intends to pursue initiatives in the Aerospace & Defense and Civilian Telecommunications markets to establish a leading position as innovators at the forefront of the booming satellite communications industry. We are primed to capitalize on the opportunities presented by the rapidly evolving satellite communication landscape, driving innovation and delivering value to customers and stakeholders.
U.S. Budget Environment
With the largest defense budget in the world, U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our business prospects in the long term. While we do not yet have any contracts related to the U.S. Government’s defense spending at this time, to the extent that we can secure potential customers and contracts related to U.S. Government defense spending, the U.S. Government defense budget, spending and timeline funding thereof may affect our business prospects in the medium term, as well.
The President’s Fiscal Year (FY) 2024 budget request was submitted to Congress on March 9, 2023, initiating the FY 2024 defense authorization and appropriations legislative process. The request included $886 billion for National Defense, of which $842 billion is for the Department of Defense (DoD) base budget.
On June 3, 2023, the President signed H.R. 3746 “The Fiscal Responsibility Act” (FRA) into law. The legislation suspended the debt ceiling until January 1, 2025, and, among other provisions, capped national defense spending at $886 billion for FY 2024 (President’s Budget Request level) and $895 billion for FY 2025. Supplemental funding legislation is not subject to the budget caps. If a continuing resolution is enacted and still in effect and Congress does not pass all twelve defense and non-defense discretionary appropriations bills by April 30, 2024, the FRA will result in a decrease in government spending for FY 2024 by one percent from FY 2023 enacted levels.
The House and Senate continue the legislative process on the FY 2024 budget. On December 22, 2023, the President signed the FY 2024 National Defense Authorization Act (NDAA) into law. The NDAA authorizes funding at the FRA cap of $886 billion for National Defense.
On January 19, 2024, the President signed a continuing resolution that extends funding of four appropriations bills to March 1, 2024 and the remaining eight to March 8, 2024. This will provide Congress additional time to enact all twelve FY 2024 appropriations bills based on the overarching U.S. Government spending agreement reached by House and Senate leaders on January 7, 2024 which comports with the FRA cap of $886 billion for National Defense in FY 2024. Overall, congressional sentiment remains strong for supporting the National Defense Strategy and defense spending. However, the logistical and political challenges, especially in the U.S. House of Representatives, are complex and add funding risk.
43
Under the continuing resolution, funding at amounts consistent with appropriated levels for FY 2023 are available, subject to certain restrictions, but new contract and program starts are not authorized. We expect our technologies and solutions are relevant both to current programs, which may continue to be supported and funded under the continuing resolution, as well as to new programs, which are not yet authorized. Regardless, during periods covered by continuing resolutions, we may experience challenges in securing contracts with prime contractors to incorporate our products and services in their current programs, and those delays may adversely affect our ability to generate revenue from new contracts.
On October 20, 2023, the President submitted a $106 billion supplemental funding request to Congress for assistance to Ukraine, Israel and the IndoPacific; related U.S. restock of capacity transfers to Ukraine and Israel; and U.S. border security. Congress has not yet acted on this request, which is part of the broader debate on FY 2024 U.S. Government funding and border security policy. Supplemental and emergency funding are not subject to the FRA cap. If enacted, this would provide a partial relief valve for DoD funding limits under the FRA or other limiting scenarios such as a prolonged continuing resolution.
If Congress is not able to enact FY 2024 appropriations bills or extend the continuing resolution, the U.S. Government will enter a whole or partial shutdown. The impact of any government shutdown is uncertain. However, if a government shutdown were to occur and were to continue for an extended period, we could be at risk of reduced opportunities to bid for and compete for, as the potential partners we would be working with may experience reduce orders, program cancellations, schedule delays, production halts and other disruptions and nonpayment, which could adversely affect our potential partners’ results of operations. Further, if any one of the 12 appropriations bills is under a continuing resolution as of April 30, 2024, USG funding levels will reset to FY 2023 enacted levels minus 1% for the remainder of FY 2024 or until all 12 appropriations are enacted.
We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our potential partners’ programs.
While we do not yet generate revenue from programs funded by the U.S. Government, we aim to initiate and to continue discussions with our potential partners and our potential customers to participate in contracts and in programs funded, in whole or in part, by the U.S. Government. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts or programs funded, in whole or in part, by the U.S. Government in the future.
Geopolitical and Economic Environment
We operate in a complex and evolving global security environment and our business is affected by geopolitical issues. Russia’s invasion of Ukraine significantly elevated global geopolitical tensions and security concerns resulting in increased interest for certain of our products and services as countries seek to improve their security posture. In addition, security assistance provided by the U.S. Government and its allies to Ukraine has created U.S. Government and allied demand to replenish U.S. stockpiles, resulting in additional and potential future orders for our potential partners’ products, including for the ramp-up in production capacity for certain products. Although many of our potential partners received new orders in 2024 attributable to a response to the conflict and continue to expect to receive them over the next several years, given the long-cycle nature of our business and current industry capacity, the orders did not result in a significant increase in 2024 sales as we do not yet have binding contracts with these potential partners. We aim to continue to work with our potential partners and their supply chains to evaluate increases anticipated potential demand and enable us to position our products and services to deliver critical capabilities to our potential partners and to their customers in the U.S. Government.
Our business and financial performance is also affected by general economic conditions. Supply chain disruptions persist, and although we continue working to minimize the impact of supply chain challenges, many of these challenges are industry wide or caused by geopolitical events that are outside of our control. In addition, heightened levels of inflation and the potential worsening of macro-economic conditions present risks for our potential partners, our suppliers and the stability of the broader defense industrial base. Certain costs, including rising labor rates and supplier costs, may increase as a result of inflation, and may put pressure on achieving our expected margins in the future. If we continue to experience high rates of inflation, and we are unable to successfully mitigate the impact, our future profits, margins and cash flows, may be adversely affected. Inflation and higher interest rates can also constrain the overall purchasing power of our potential partners and their customers for our products and services potentially impacting future orders we aim to secure.
44
International Business
A key component of our strategic plan is to grow our international sales. To accomplish this growth, we continue to focus on strengthening our relationships internationally through partnerships and joint technology efforts. Our international business is primarily conducted by direct commercial sales (DCS) to international customers, but in the future, we aim to engage it foreign military sales (FMS) contracted through the U.S. Government, as well. In 2023, approximately 100% of our sales were DCS. Additionally, in 2023, substantially all of our sales were in Aerospace & Defense business segment to one international customer. Civilian Telecommunications’ sales from international customers were not material in 2023.
In 2023, international customers accounted for approximately 100% of the sales in the Aerospace & Defense business segment as part of a development contract we have been engaged with since 2021 to develop a first-of-its-kind satellite communications architecture for unmanned aerial vehicles (UAVs) engaged in intelligence, surveillance, and reconnaissance (ISR) missions with our development partner and customer. By late 2023, our technology was tested and achieved positive results in operational environments. We anticipate starting to deliver on our first major contract for this same customer in 2024.
Commercial Aviation Business Environment and Trends
In 2023, global air traffic largely recovered to 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely. International travel has mostly recovered and the wide-body market continues to be paced by the international travel recovery. The transition in the international commercial market from recovery to normal market conditions is progressing slowly as China international travel remains below 2019 levels. Our potential aircraft manufacturing partners are experiencing strong demand from their airline customers globally.
Airline financial performance, which influences demand for new capacity, has benefited from the resilient demand for travel. The International Air Transport Association (IATA) is estimating 2023 industry-wide profit of $23.3 billion, up from its forecast of $4.6 billion a year ago, primarily driven by North America, Europe and the Middle East. For 2024, IATA is forecasting $25.7 billion in profits for the industry globally. The overall outlook continues to stabilize as we face uncertainties in the environment in the near- to medium-term as airlines are facing persistently high and volatile cost of fuel and tight labor conditions. The global economy is expecting an easing of inflation and interest rates, with regional economic and geopolitical difficulties adding uncertainty to the outlook and the financial viability of some airlines and regions.
The long-term outlook for the commercial aviation industry remains positive due to the fundamental drivers of air travel demand: economic growth, increasing propensity to travel due to increased trade, globalization and improved airline services driven by liberalization of air traffic rights between countries. The commercial aviation industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics and increased global environmental regulations.
While we do not yet generate revenue from contracts in the commercial aviation industry, we aim to initiate and to continue discussions with our potential partners and our potential customers in the commercial aviation industry to provide our products and our services to such potential partners and potential customers under binding and definitive contracts. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts in the commercial aviation industry in the future.
45
Civilian Telecommunications Business Environment and Trends
According to GSMA’s report “The Mobile Economy 2023”, mobile connectivity continues to be a lifeline for society, helping the most vulnerable people in areas affected by conflict and natural disasters to stay connected. It is also enabling advanced connectivity capabilities needed by verticals to innovate amid diverse political, social and macroeconomic headwinds.
By the end of 2022, over 5.4 billion people globally subscribed to a mobile service, including 4.4 billion people who also used the mobile internet. The mobile internet usage gap has narrowed markedly in the last five years - from 50% in 2017 to 41% in 2022 on average - but still remains significant and demands urgent attention from all stakeholders.
In 2022, mobile technologies and services generated 5% of global GDP, a contribution that amounted to $5.2 trillion of economic value added and supported 28 million jobs across the wider mobile ecosystem. 5G will underpin future mobile innovation and services, building on ongoing deployments and adoption.
5G adoption was projected to reach 17% in 2023, rising to 54% (equivalent to 5.3 billion connections) by 2030. The technology will add almost $1 trillion to the global economy in 2030, with benefits spread across all industries.
While we do not yet generate revenue from contracts in the civilian telecommunications industry, we aim to initiate and to continue discussions with our potential partners and our potential customers in the civilian telecommunications industry to provide our products and our services to such potential partners and potential customers under binding and definitive contracts. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts in the civilian telecommunications industry in the future.
Principal Factors Affecting Financial Performance
We believe that our operating and business performance will be driven by various factors that affect the Aerospace & Defense and Civilian Telecommunications segments including the magnitude of defense spending by the U.S. and its allies, trends in air travel affecting the commercial airline industry, and trends in the evolution of the digital infrastructure and technologies deployed by mobile network operators, which collectively constitute the customer bases that we target, as well as general macroeconomic factors. Key factors that may affect our future performance include:
| ● | our ability to enter into and maintain long-term business arrangements with potential partners that are defense contractors and other potential military and government customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors; | |
| ● | our ability to enter into and maintain long-term business arrangements with potential partners in the commercial aviation and airline industries and other potential aerospace customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors; |
| ● | our ability to enter into and maintain long-term business arrangements with potential partners in civilian telecommunications industries and other potential telecommunications customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors; | |
| ● | our ability to enter into and maintain long-term business arrangements with potential partners in satellite communications industries, including satellite and constellation operators with satellites in various orbits such as LEO, MEO, GEO and HEO, which depends on numerous factors including the technical integration of our technology and services with their satellites and core networks; |
| ● | our ability to secure and maintain the relevant licenses and regulatory approvals to operate as a distribution partner of satellite bandwidth from our current and potential satellite and constellation partners in our potential target countries and regions, which depends on numerous factors including the navigation of both national and international regulatory regimes and coordination with ministries of communications or their equivalent; |
46
| ● | our ability to secure and maintain the relevant type approvals, as necessary, to install our universal terminals on airborne, maritime and land-based vehicles and platforms, such as the DO-160 certification for installation of our systems on aircraft, which depends on numerous factors including the navigation of both governmental and third-party regulatory regimes and coordination with key stakeholders; | |
| ● | the extent of the adoption of our products and services by potential Aerospace & Defense and Civilian Telecommunications partners and customers; |
| ● | costs associated with implementing, and our ability to implement on a timely basis, our technology, upgrades and installation technologies; |
| ● | costs associated with and our ability to execute our expansion, including modification to our network to accommodate satellite technology, development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity to which we may have to commit well in advance, and compliance with regulations; |
| ● | costs associated with managing a rapidly growing company; |
| ● | the number of manned and unmanned defense platforms in service in our markets, including changes in fleet size by one or more of our potential military or government customers; | |
| ● | the geopolitical environment and other trends that affect defense spending; | |
| ● | continued demand for connectivity and proliferation of manned and unmanned defense platforms, including UAVs and drones; | |
| ● | the number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners; |
| ● | the economic environment and other trends that affect both business and leisure travel; |
| ● | the number of cell towers, base stations and antennas deployed by mobile network operators and digital infrastructure developers in our markets, including consolidation of the telecommunications industry or changes in network topology due to transitions from 4G to 5G and, eventually to 6G mobile networks by one or more of our potential civilian telecommunications partners;
| |
| ● | continued demand for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops; |
| ● | our ability to obtain required licenses and approvals necessary for our operations; and |
| ● | changes in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes that impact the design of our equipment and our ability to obtain required certifications for our equipment. |
47
Ground-based Satellite System Sales
Since our acquisition of Aircom Taiwan in December 2017, this wholly owned subsidiary has been developing ground-based satellite connectivity components which have an application in remote regions that lack regular affordable ground-based communications. In September 2018, Aircom Taiwan consummated its first sale of such a component, a small cell server terminal, in the amount of $1,730,000. This server terminal will be utilized by the purchaser in the construction of a satellite-based ground communication system which will act as a multicast service extension of existing networks. The system is designed to extend local existing networks, such as ISPs and mobile operators, into rural areas and create better coverage and affordable connectivity in these areas. Aircom Taiwan expects to sell additional satellite connectivity components, systems and services to be used in ground mobile units in the future, although there can be no assurances that it will be successful in these endeavors.
In addition, in September 2018, Aircom Taiwan provided installation and testing services of a satellite-based ground connectivity system to a remote island resort and received service income related to this project in the amount of $15,000. Upon the completion of this system’s testing phase, and assuming that the system operates satisfactorily, Aircom Taiwan expects to begin to sell this system to multiple, remotely located resorts. We can make no assurances at this time however, that this system will operate satisfactorily, that we will be successful in introducing this system as a viable product offering or that we will be able to generate any additional revenue from the sale and deployment of this system.
Recent Events
Merger with IX Acquisition Corp.
On March 29, 2024, we entered into a merger agreement the “Merger Agreement”) with IX Acquisition Corp. (“IXAQ”), a Cayman Islands exempted company (which will re-domicile from being a Cayman Islands company and become a Delaware corporation), and AKOM Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of IQAC (“Merger Sub”).
The Merger Agreement provides that, among other things and upon the terms and subject to the conditions thereof, following the domestication to Delaware of IXAQ, Merger Sub will merge with and into the Company (the “Merger”), after which the Company will be the surviving corporation and a wholly-owned subsidiary of IXAQ. In connection with the Merger, IXAQ will be renamed “AKOM Inc.” The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed to by the parties to the Merger Agreement and specified in the articles of merger. The Merger is expected to close prior to October 12, 2025.
The Amendment provides that any lock-up period applicable to the Sponsor or any officers, directors or affiliates of Parent will terminate at the Closing of the Merger and changes the percentage of the Founder Shares being treated as Escrowed Sponsor Shares from 50% to 25%, adds a provision providing for the Company to pay certain amounts to Parent to cover its working capital and extension expenses, and adds a provision that Parent may terminate the Merger Agreement at any time prior to the Closing Date if the Company or any Subsidiary of the Company enters into voluntary bankruptcy or fails to remove within 60 days any petition in bankruptcy filed against it prior to Closing.
Additional information relating to the Merger along with the Merger Agreement can be found in our Current Report on Form 8-K filed with the SEC on April 4, 2024.
In connection with the transaction described herein, the Company filed relevant materials with the SEC, including the Registration Statement on Form S-4 and a proxy statement/prospectus.
Additional information relating to the S-4 can be found in our Current Report on Form 8-K filed with the SEC on May 16, 2024.
Planned Merger with Ejectt
On July 28, 2023, we and Ejectt, Inc. signed a non-binding letter of intent with respect to a possible merger between Aerkomm Taiwan and Ejectt. At a January 30, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved pursuing a merger with Ejectt, under which Aerkomm Taiwan would be the surviving company, and delivery of a notice and merger contract to Ejectt, which were delivered to Ejectt on February 1, 2024. At a May 23, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved the terms of the merger plan and agreement and its being signed by the chairperson of Aerkomm Taiwan. On the same day, the shareholders of Ejectt approved the proposed merger and the merger agreement was then signed by the parties on May 23, 2024. Under the merger agreement and contingent only on the merger’s receiving necessary governmental approvals, the merger will be consummated and the surviving company of the merger will be Aerkomm Taiwan.
Because Aerkomm Taiwan has foreign (non-Taiwanese) shareholders (Aerkomm holds 49% of the outstanding shares of Aerkomm Taiwan) for the merger to become legally effective under Taiwanese law, it must be approved by the Taiwan Department of Investment Review. Aerkomm and Ejectt submitted an application to the Department of Investment Review on July 10, 2024. Reviews by the Department of Investment Review often take four to six months and possibly longer, may require extensive inquiries and requests for further information by the Department of Investment Review, and sometimes result in denial of approval. Consequently, Aerkomm cannot assure that the merger will be approved or, if approved, when the approval may be granted.
48
Principal Factors Affecting Financial Performance
We believe that our operating and business performance will be driven by various factors that affect the commercial airline industry, including trends affecting the travel industry and trends affecting the customer bases that we target, as well as factors that affect wireless Internet service providers and general macroeconomic factors. Key factors that may affect our future performance include:
| ● | our ability to enter into and maintain long-term business arrangements with airline partners, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors; | |
| ● | the extent of the adoption of our products and services by airline partners and customers; | |
| ● | costs associated with implementing, and our ability to implement on a timely basis, our technology, upgrades and installation technologies; | |
| ● | costs associated with and our ability to execute our expansion, including modification to our network to accommodate satellite technology, development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity to which we may have to commit well in advance, and compliance with regulations; | |
| ● | costs associated with managing a rapidly growing company; | |
| ● | the impact and aftereffects of the global coronavirus (COVID-19) pandemic, and other potential pandemics or contagious diseases or fear of such outbreaks, on the global airline and tourist industries, especially in the Asia Pacific region; | |
| ● | the number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners; | |
| ● | the economic environment and other trends that affect both business and leisure travel; | |
| ● | continued demand for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops; | |
| ● | our ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations; and | |
| ● | changes in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes that impact the design of our equipment and our ability to obtain required certifications for our equipment. |
49
Smaller Reporting Company
Although we no longer qualify as an Emerging Growth Company, or EGC, we continue to qualify as a smaller reporting company, which allows us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation that are available to an EGC. In addition, as a smaller reporting company with less than $100 million in annual revenue, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In reliance on these exemptions, we have taken advantage of reduced reporting obligations in this quarterly report on Form 10-Q.
Recent Market Information
The IATA (International Air Transport Association) in August 2023 issued the report entitled Passenger Market Analysis.
| ● | Industry-wide revenue passenger-kilometers (RPKs) increased 28.4% year-on-year (YoY) in August. Compared to 2019 levels, passenger traffic recovered to 95.7%. |
| ● | Available seat-kilometers (ASKs) rose at a slower annual pace of 24.9%, lifting passenger load factors (PLFs) close to pre-pandemic levels. The PLF in August was 84.6%, 1.1 ppts lower than the PLF for the same month in 2019. |
| ● | Domestic passenger traffic grew 9.2% over pre-pandemic levels. Most monitored markets saw stable growth in domestic traffic, while Japan experienced disruptions due to Typhoon Khanun. |
| ● | The recovery of international RPKs remained at 88.5% of 2019 levels. Regions experienced different outcomes while Asia Pacific carriers continued to restore international traffic. |
| ● | Ticket sales data signaled unwinding domestic demand while international bookings remained on the same positive trend. |
Passenger traffic expanded further in August 2023, with industry-wide revenue passenger kilometers (RPKs) growing 28.4% year-on0year (YoY) and reaching 95.7% of August 2019 levels. In seasonally-adjusted terms, passenger traffic increased 1.0% month-on-month (MoM), indicating a slowing but still positive trend globally.
Results of Operations
Comparison of Three Months Ended September 30, 2024 and 2023
The following table sets forth key components of our restated results of operations during the three months periods ended September 30, 2024 and 2023.
| Three Months Ended September 30, | Change | |||||||||||||||
(Unaudited) 2024 | Restated 2023 | $ | % | |||||||||||||
| Revenue | $ | 96,308 | $ | 61,582 | $ | 34,726 | 56.4 | % | ||||||||
| Cost of sales | 285 | 26,666 | (26,381 | ) | (98.9 | )% | ||||||||||
| Operating expenses | 3,686,838 | 4,303,845 | (617,007 | ) | (14.3 | )% | ||||||||||
| Loss from operations | (3,590,815 | ) | (4,268,929 | ) | 678,114 | (15.9 | )% | |||||||||
| Net non-operating gain(loss) | (101,577 | ) | (837,560 | ) | 735,983 | (87.9 | )% | |||||||||
| Loss before income taxes | (3,692,392 | ) | (5,106,489 | ) | 1,414,097 | (27.7 | )% | |||||||||
| Income tax expense | - | - | - | - | % | |||||||||||
| Net Loss | (3,692,392 | ) | (5,106,489 | ) | 1,414,097 | (27.7 | )% | |||||||||
| Other comprehensive income | 260,941 | (554,120 | ) | 815,061 | (147.1 | )% | ||||||||||
| Total comprehensive loss | $ | (3,431,451 | ) | $ | (5,660,609 | ) | $ | 2,229,158 | (39.4 | )% | ||||||
50
Revenue. We have $96,308 of net sales for the three-month period ended September 30, 2024 and $61,582 of net sales for the three-month period ended September 30, 2023, respectively. Our revenue for the three months ended September 30, 2024 was $96,308 as we are still developing our core business in in-flight entertainment and connectivity and there was few non-recurring services provided to one related party and one non-related party during the period.
Operating expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred in connection with general operations. Our operating expenses decreased by $617,007, or 14.3% to $3,686,838 for the three-month period ended September 30, 2024, from $4,303,845 for the three-month period ended September 30, 2023. Such decrease was mainly due to decreases in salary expenses and professional fees of $462,311 and $881,617, respectively, which was offset by the increases in legal fees, amortization expenses, and R & D expenses of $329,171, $312,184, and $295,306.
Net non-operating expense. We had $101,577 in net non-operating loss for the three-month period ended September 30, 2024, as compared to net non-operating expense of $837,560 for the three-month period ended September 30, 2023. Net non-operating expense in the three-month period ended September 30, 2024 represents loss on foreign exchange translation of $190,811, unrealized loss from the transactions of our liquidity contract and prepaid investment of $21,150, interest expense of $272,197 and other income, net of $959. Net non-operating expense in the three-month period ended September 30, 2023 represents loss on foreign exchange translation of $806,619, unrealized loss from the transactions of our liquidity contract and prepaid investment of $2,650, interest expenses of $369,859 and other income, net of $341,568.
Loss before income taxes. Our loss before income taxes decreased by $1,414,097, or 27.7%, to $3,692,392 for the three-month period ended September 30, 2024, from a loss of $5,106,489 for the three-month period ended September 30, 2023, as a result of the factors described above.
Income tax expense. Income tax expense was $0 for the three-month period ended September 30, 2024, as compared to the income tax expense of $0 for the three-month period ended September 30, 2023.
Total comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive loss decreased by $2,229,158, or 39.4%, to $3,431,451 for the three-month period ended September 30, 2024, from $5,660,609 for the three-month period ended September 30, 2023.
Comparison of Nine Months Ended September 30, 2024 and 2023
The following table sets forth key components of our results of operations during the nine-month periods ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | Change | |||||||||||||||
(Unaudited) 2024 | Restated 2023 | $ | % | |||||||||||||
| Net Sales | $ | 48,843 | $ | - | $ | 48,843 | 100.0 | % | ||||||||
| Net Sales– related party | 65,945 | 446,367 | (380,422 | ) | (85.2 | )% | ||||||||||
| Service income – related party | 34,775 | 61,582 | (26,807 | ) | (43.5 | )% | ||||||||||
| Cost of sales | 61,128 | 472,115 | (410,987 | ) | (87.1 | )% | ||||||||||
| Operating expenses | 15,241,275 | 11,577,414 | 3,663,861 | 31.6 | % | |||||||||||
| Loss from operations | (15,152,840 | ) | (11,541,580 | ) | (3,611,260 | ) | 31.3 | % | ||||||||
| Net non-operating loss | (1,531,404 | ) | (1,878,461 | ) | 347,057 | (18.5 | )% | |||||||||
| Loss before income taxes | (16,684,244 | ) | (13,420,041 | ) | (3,264,203 | ) | 24.3 | % | ||||||||
| Income tax expense | 2,400 | 2,400 | - | - | ||||||||||||
| Net Loss | (16,686,644 | ) | (13,422,441 | ) | (3,264,203 | ) | 24.3 | % | ||||||||
| Other comprehensive loss | (590,284 | ) | (776,054 | ) | 185,770 | (23.9 | )% | |||||||||
| Total comprehensive loss | $ | (17,276,928 | ) | $ | (14,198,495 | ) | $ | (3,078,433 | ) | 21.7 | % | |||||
51
Revenue. Our total revenue was $149,563 and $507,949 for the nine months periods ended September 30, 2024 and 2023, respectively. As we are still developing our core business in in-flight entertainment and connectivity and there were non-recurring sale of equipment and service provided to related parties and service provided to one non-related party during the period. Our total revenue was $507,949 for the nine months periods ended September 30, 2023 represents a non-recurring sale of equipment to one of our related parties.
Cost of Sales. Our cost of sales was $61,128 and $472,115 for the nine-month periods ended September 30, 2024 and 2023, respectively. The cost of sales for the nine months ended September 30, 2024 was $61,128 as the cost directly associated with equipment that we sold to one of our related parties. The cost of sales for the nine months ended September 30, 2023 was $472,115 as the cost directly associated with equipment that we sold to one of our related parties.
Operating expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred in connection with general operations. Our operating expenses increased by $3,663,861, or 31.6%, to $15,241,275 for the nine months ended September 30, 2024, from $11,577,414 for the nine months ended September 30, 2023. This increase was mainly due to the increase in non-cash stock-based compensation expense, amortization expense, and salaries of $3,794,343, $946,795, and $871,849 which was offset by the decrease in R&D expenses and depreciation expense of $1,259,437 and $312,388, respectively.
Net non-operating loss. We had $1,531,404 in net non-operating loss for the nine months ended September 30, 2024, as compared to net non-operating loss of $1,878,461 for the nine months ended September 30, 2023. Net non-operating income in the nine months ended September 30, 2024 represents loss on foreign exchange translation of $639,448, interest expenses of $864,822, unrealized loss on investment of $20,370 and other loss, net of $6,764. Net non-operating income in the nine months ended September 30, 2023 represents loss on foreign exchange translation of $1,126,762, interest expenses of $1,096,509, unrealized loss on investment of $106,165 and net other income of $450,975.
Loss before income taxes. Our loss before income taxes increased by $3,264,203, or 24.3%, to $16,684,244 for the nine months ended September 30, 2024, from a loss of $13,420,041 for the nine months ended September 30, 2023, as a result of the factors described above.
Income tax expense. Income tax expense was $2,400 and $2,400 for the nine-month periods ended September 30, 2024 and 2023, respectively, mainly due to a California franchise tax and foreign subsidiary’s income tax expenses.
Total comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive loss increased by $3,078,433, or 21.7%, to $17,276,928 for the nine months ended September 30, 2024, from $14,198,495 for the nine months ended September 30, 2023.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of $56,952 and restricted cash of $20,077. We have financed our operations primarily through cash proceeds from financing activities, including from our 2020 Offering, the issuance of convertible bonds, short-term borrowings and equity contributions by our stockholders.
52
The following table provides detailed information about our net cash flow:
Cash Flow
Nine Months Ended September 30, | ||||||||
| (Unaudited) 2024 | (Unaudited) 2023 | |||||||
| Net cash used for operating activities | $ | (4,816,397 | ) | $ | (7,372,317 | ) | ||
| Net cash used in investing activity | (2,184,391 | ) | (53,550 | ) | ||||
| Net cash used by financing activity | (1,011,584 | ) | (394,531 | ) | ||||
| Net decrease in cash and cash equivalents | (8,012,372 | ) | (7,820,398 | ) | ||||
| Cash and Restricted Cash, at beginning of year | 7,428,702 | 10,101,920 | ||||||
| Foreign currency translation effect on cash | 660,699 | 1,196,111 | ||||||
| Cash and Restricted Cash, at end of year | $ | 77,029 | $ | 3,477,633 | ||||
Operating Activities
Net cash used for operating activities was $4,816,397 for the nine months ended September 30, 2024, as compared to $7,372,317 for the nine months ended September 30, 2023. In addition to the net loss of $16,686,644, the decrease in net cash used for operating activities during the nine months period ended September 30, 2024 was mainly due to the decrease in accrued expenses and other current liabilities and deposits of $6,799,449 and $129,697, offset by the increase in prepaid expenses and other current assets of $1,148,502 and 259,042. In addition to the net loss of $13,422,441, the increase in net cash used for operating activities during the nine-month period ended September 30, 2023 was mainly due to increase in prepaid expenses, other current assets, deposits, and accounts payable, of $4,134,587, $1,129,394, $223,550, and $386,312, respectively, offset by the increase in accrued expenses and other current liabilities of $9,622,337.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024 was $2,184,391 as compared to net cash used in investing activities of $53,550 for the nine months ended September 30, 2023. The net cash used in investing activities for the nine months ended September 30, 2024 was mainly prepayment for land and disbursement for other receivable - related parties of $349,131 and $1,790,291. The net cash provided by investing activities for the nine months ended September 30, 2023 was mainly for the proceeds from disposal of long-term investment of $325,578, which was offset by the purchase of property and equipment of $379,128.
Financing Activities
Net cash used by financing activities for the nine months ended September 30, 2024 and 2023 was $1,011,584 and $394,531, respectively. Net cash used in financing activities for the nine months ended September 30, 2024 were mainly attributable to repayment of convertible long-term bond payable in the amount of $8,016,426 offset by proceeds from equity financing and capital injection of $2,585,200 and $4,421,782. Net cash used by financing activities for the nine months ended September 30, 2023 were mainly attributable to repayment of short-term loans in the amount of $384,189.
On December 3, 2020, the Company closed a private placement offering (the “Bond Offering”) consisting of US$10,000,000 in aggregate principal amount of its Credit Enhanced Zero Coupon Convertible Bond due 2025 (the “Credit Enhanced Bonds”) and US$200,000 in aggregate principal amount of its 7.5% convertible bonds due 2025 (the “Coupon Bonds,” and together with the Credited Enhanced Bonds, the “Bonds”). On October 27, 2023, Citicorp International Limited, as Trustee with respect to the Bonds, submitted to us a request for redemption of the Bonds in full. As of September 30, 2024, the Company had repaid $8,062,247 out of a total of $10,358,024 of principal and interest due on the Bonds as of that date. We expect to repay the remaining balance of the amount of $2,391,092 owed on the bonds, plus any additional accrued interest, within the next few months.
53
Capital Expenditures
Our operations continue to require significant capital expenditures primarily for technology development, equipment and capacity expansion. Capital expenditures are associated with the supply of airborne equipment to our prospective airline partners, which correlates directly to the roll out and/or upgrade of service to our prospective airline partners’ fleets. Capital spending is also associated with the expansion of our network, ground stations and data centers and includes design, permitting, network equipment and installation costs.
Capital expenditures for the nine months ended September 30, 2024 and 2023 were $394,100 and $379,128, respectively.
We anticipate an increase in capital spending in fiscal year 2024 and estimate that capital expenditures will range from $3 million to $10 million as we will continue to advance our semiconductor designs, our software-defined platforms and continue to execute our network expansion strategy. We expect to be able to raise these required funds in connection with our planned Merger with IXAQ although we cannot provide assurance that we will be successful in this effort.
Inflation
Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.
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, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results and operating cash flows historically have not been subject to significant seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.
54
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
Concentrations of Credit Risk. Financial instruments that potentially subject to significant concentrations of credit risk consist primarily of cash in banks. As of September 30, 2024 and December 31, 2023, the total balance of cash in bank exceeding the amount insured by the Federal Deposit Insurance Corporation (FDIC) for the Company was approximately $0 and $0, respectively. The balance of cash deposited in foreign financial institutions exceeding the amount insured by local insurance is approximately $35,000 and $7,246,000 as of September 30, 2024 and December 31, 2023, respectively. We perform ongoing credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable. We determine the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from our estimates.
Inventories. Inventories are recorded at the lower of weighted-average cost or net realizable value. We assess the impact of changing technology on our inventory on hand and writes off inventories that are considered obsolete.
Research and Development Costs. Research and development costs are charged to operating expenses as incurred. For the nine months periods ended September 30, 2024 and 2023, we incurred approximately $12,213 and $1,271,651 of research and development costs, respectively.
Property and Equipment. Property and equipment are stated at cost less accumulated depreciation. When value impairment is determined, the related assets are stated at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed by using the straight-line and double declining method over the following estimated service lives: computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment - 5 years, vehicles – 5 to 6 years and lease improvement - 5 years. Construction costs for on-flight entertainment equipment not yet in service are recorded under construction in progress. Upon sale or disposal of property and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to income in the period of sale or disposal. We review the carrying amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We determined that there was no impairment loss for the nine-month periods ended September 30, 2024 and 2023.
55
Right-of-Use Asset and Lease Liability. In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases and finance leases under previous accounting standards and disclosing key information about leasing arrangements. A lessee should recognize the lease liability to make lease payments and the right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases and finance leases, a right-of-use asset and a lease liability are initially measured at the present value of the lease payments by discount rates. The Company’s lease discount rates are generally based on its incremental borrowing rate, as the discount rates implicit in the Company’s leases is readily determinable. Operating leases are included in operating lease right-of-use assets and lease liabilities in the unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our unaudited condensed consolidated balance sheets. Lease expense for operating expense payments is recognized on a straight-line basis over the lease term. Interest and amortization expenses are recognized for finance leases on a straight-line basis over the lease term. For the leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. We adopted ASU 2016-02 effective January 1, 2019.
Goodwill and Purchased Intangible Assets. Goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition of subsidiaries. We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.
As Aerkomm is currently still in the development stage and will not start generating revenue until after late 2024. Management has evaluated that the potential benefits of the acquisitions before the year 2023 are limited and uncertain, and due to this reason, management has decided to impair goodwill that generated from 2022 and prior periods with total of $4,561,037 in 2023. After the impair measurement, the net goodwill is $4,573,819.
Purchased intangible assets with finite life are amortized on the straight-line basis over the estimated useful lives of respective assets. Purchased intangible assets with indefinite life are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Purchased intangible asset consists of satellite system software and is amortized over 10 years.
Fair Value of Financial Instruments. We utilize the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
Level 2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions.
The carrying amounts of the Company’s cash and restricted cash, accounts payable, short-term loan and other payable approximated their fair value due to the short-term nature of these financial instruments. The Company’s short-term investment and long-term investment are classified within Level 1 of the fair value hierarchy on March 31, 2024. The Company’s long-term bonds payable, long-term loan and lease payable approximated the carrying amount as its interest rate is considered as approximate to the current rate for comparable loans and leases, respectively. There were no outstanding derivative financial instruments as of September 30, 2024.
Revenue Recognition. We recognize revenue when performance obligations identified under the terms of contracts with our customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. Our revenue for the nine months ended September 30, 2024 composed of the service income to one of our related parties. The majority of our revenue is recognized at a point in time when product is shipped or service is provided to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods, which includes estimates for variable consideration. We adopted the provisions of ASU 2014-09 Revenue from Contract with Customers (Topic 606) and the principal versus agent guidance within the new revenue standard. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) we satisfy a performance obligation. Customers may make payments to the Company either in advance or in arrears. If payment is made in advance, the Company will recognize a contract liability under prepayments from customers until which point the Company has satisfied the requisite performance obligations to recognize revenue.
56
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and 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. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s tax provision.
The Company follows FASB guidance on uncertain tax positions and has analyzed its filing positions in all the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns in the US federal, state and foreign jurisdictions where it conducts business. It is not subject to income tax examinations by US federal, state and local tax authorities for years before 2017. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.
The Company’s policy for recording interest and penalties associated with any uncertain tax positions is to record such items as a component of income before taxes. Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the unaudited condensed consolidated statement of operations.
Foreign Currency Transactions. Foreign currency transactions are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in income for the period.
Translation Adjustments. If a foreign subsidiary’s functional currency is the local currency, translation adjustments will result from the process of translating the subsidiary’s financial statements into the reporting currency of our company. Such adjustments are accumulated and reported under other comprehensive income (loss) as a separate component of stockholders’ equity.
Earnings (Loss) Per Share. Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan.
Subsequent Events. The Company has evaluated events and transactions after the reported period up to November 12, 2024, the date on which these unaudited condensed consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2024, have been included in these unaudited condensed consolidated financial statements.
57
Recent Accounting Pronouncements
Simplifying the Accounting for Debt with Conversion and Other Options.
In June 2020, the FASB issued ASU 2020-06 to simplify the accounting in ASC 470, Debt with Conversion and Other Options and ASC 815, Contracts in Equity’s Own Entity. The guidance simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU became effective beginning in the first quarter of the Company’s fiscal year 2023. The amendments in this update must be applied on either full retrospective basis or modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. Adoption of this standard did not have a material effect on the Company’s operating results.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. In March 2022, the FASB issued ASU 2022-02 and eliminate the Troubled Debt Restructuring recognition and measurement guidance.
The Company adopted the ASU on January 1, 2023 and the adoption of this standard did not have a material effect on the Company’s operating results.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning in the first quarter of the Company’s fiscal year 2021. Early adoption is permitted. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The adoption of ASU 2019-12 did not have a significant impact on our unaudited condensed consolidated financial statements as of and for the nine months period ended September 30, 2024.
Earnings Per Share
In April 2021, the FASB issued ASU 2021-04, which included Topic 260 “Earnings Per Share”. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. The adoption of ASU 2021-04 did not have a significant impact on the Company’s unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2024.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, which included Topic 280 “Segment Reporting”. This guidance improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of adopting ASU 2023-07 on its unaudited condensed consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, which included Topic 740 “Income Taxes”. This guidance requires business entities to disclose additional information related to the income taxes. The ASU 2023-09 is effective for all entities for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on its unaudited condensed consolidated financial statements
58
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such 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 required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2024.
Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on September 5, 2024, and further referenced below, which we are still in the process of remediating as of September 30, 2024 , our disclosure controls and procedures were not effective.
The Company restated its consolidated balance sheet as of December 31, 2023 (the “2023 Restatement”). For a discussion of the individual restatement adjustments and the impact of such adjustments on the Company’s previously issued financial statements, see “Item 1. Restated Financial Statements—Note 2. Restatement of Previously Issued Financial Statements,” above.
Financial Statements—Note 2. Restatement of Previously Issued Financial Statements for Year Ended December 31, 2023 and 2022” in the Company’s 2023 Form 10-K/A. Accordingly, the Company is reporting in this Amendment No. 1 to its Form 10-Q/A for the quarterly period ended March 31, 2024, its most recent evaluation of its disclosure controls and procedures which considered matters relating to the 2023 Restatement.
As of March 31, 2024, the Company carried out an evaluation, under the supervision and with the participation of its chief executive officer and chief financial officer, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, of the effectiveness of the design and operation of its disclosure controls and procedures.
In making this evaluation, the Company has considered matters relating to the 2023 Restatement including actions taken by the Company within the past year to identify and enhance the effectiveness of its disclosure controls and procedures and internal controls over financial reporting.
Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that as of the evaluation date, such disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Other than as described above, since the evaluation date by the Company’s management of its internal controls, there have not been any significant changes in the internal controls or in other factors that could significantly affect the internal controls.
59
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2024, our management identified the following material weaknesses:
| ● | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. To mitigate the current limited resources and limited employees, we rely heavily on the use of external legal and accounting professionals. |
In order to cure the foregoing material weakness, we have taken or plan to take the following remediation measures:
| ● | As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our consolidated financial statements. |
We intend to complete the remediation of the material weakness discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
60
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There were no material developments during the quarter ended September 30, 2024 to the legal proceedings previously disclosed in Item 3 “Legal Proceedings” of our Annual Report on Form 10-K/A filed on September 5, 2024.
ITEM 1A. RISK FACTORS.
For information regarding additional risk factors, please refer to our Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the SEC on September 5, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We have not sold any equity securities during the quarter ended September 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
We have no information to disclose that was required
to be in a report on Form 8-K during the quarter ended September 30, 2024 but was not reported. There have been
61
ITEM 6. EXHIBITS
| * | Filed herewith |
62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 13, 2024 | AERKOMM INC. | |
| /s/ Louis Giordimaina | ||
| Name: | Louis Giordimaina | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| /s/ Louis Giordimaina | ||
| Name: | Louis Giordimaina | |
| Title: | Interim Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
63
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Louis Giordimaina, certify that:
| 1 | I have reviewed this quarterly report on Form 10-Q of AERKOMM INC.; |
| 2 | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3 | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4 | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
| b) | (Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)); |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5 | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 13, 2024 | |
| /s/ Louis Giordimaina | |
| Louis Giordimaina | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Louis Giordimaina, certify that:
| 1 | I have reviewed this quarterly report on Form 10-Q of AERKOMM INC.; |
| 2 | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3 | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4 | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
| b) | (Paragraph omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)); |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5 | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 13, 2024 | |
| /s/ Louis Giordimaina | |
| Louis Giordimaina | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AERKOMM INC. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Louis Giordimaina, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1 | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2 | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 13, 2024
| /s/ Louis Giordimaina | |
| Louis Giordimaina | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AERKOMM INC. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), I, Louis Giordimaina, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| 1 | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2 | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 13, 2024
| /s/ Louis Giordimaina | |
| Louis Giordimaina | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |