Form 10-Q - Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2024

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

For the transition period from ____________ to _____________

Commission File Number: 000-55925

AERKOMM INC.

(Exact name of registrant as specified in its charter)

Nevada		46-3424568
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

44043 Fremont Blvd., Fremont, CA 94538

(Address of principal executive offices, Zip Code)

(877) 742-3094

(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
None		N/A		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 ☒ No ☐

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 ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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 May 22, 2024, there were 17,962,613 shares of the registrant’s common stock issued and outstanding.

AERKOMM INC.

Quarterly Report on Form 10-Q

Period Ended March 31, 2024

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AERKOMM INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Page

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023	2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Periods Ended March 31, 2024 and 2023	3

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Periods Ended March 31, 2024 and 2023	4

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Periods Ended March 31, 2024 and 2023	5

Notes to Unaudited Consolidated Financial Statements	6

AERKOMM INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

	March 31, 2024			December 31, 2023
	(Unaudited)
Assets
Current Assets
Cash	$	103,756		$	4,202,797
Short-term investment		3,649,315			3,804,850
Account receivable - related party		-			41,088
Inventories, net		170,892			170,892
Prepaid expenses		199,050			158,171
Other receivable - related parties		1,520,862			1,167,749
Other receivable - others		293,198			122,024
Other current assets		66,779			65,937
Total Current Assets		6,003,852			9,733,508
Long-term Investment		4,087,065			4,261,920
Property and Equipment
Cost		5,410,830			5,436,657
Accumulated depreciation		(3,145,708	)		(3,085,789	)
		2,265,122			2,350,868
Prepayment for land		38,814,576			40,114,286
Prepayment for equipment		322,812			324,866
Net Property and Equipment		41,402,510			42,790,020
Other Assets
Prepayment for equipment and intangible assets		10,539,370			10,402,155
Restricted cash		15,019			3,225,905
Intangible asset, net		12,576,483			13,024,692
Goodwill		4,573,819			4,573,819
Right-of-use assets, net		191,307			221,417
Deposits		531,097			534,515
Total Other Assets		28,427,095			31,982,503
Total Assets	$	79,920,522		$	88,767,951

Liabilities and Stockholders’ Equity
Current Liabilities
Short-term loans	$	164,671		$	132,257
Accounts payable		1,897,820			1,900,317
Accrued expenses		8,390,567			5,995,972
Other payable - related parties		741,842			726,802
Other payable - others		13,616,753			12,617,277
Prepayment from customer - related party		6,154,989			6,534,908
Long-term loan - current		2,720,296			5,045
Lease liability - current		170,500			168,433
Total Current Liabilities		33,857,438			28,081,011
Long-term Liabilities
Convertible long-term bonds payable		200,000			9,648,155
Convertible long-term note payable		23,173,200			23,173,200
Contract liability - non-current		762,000			762,000
Lease liability - non-current		100,329			120,932
Restricted stock deposit liability		1,000			1,000
Total Long-Term Liabilities		24,236,529			33,705,287
Total Liabilities		58,093,967			61,786,298
Stockholders’ Equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023		-			-
Common stock, $0.001 par value, 90,000,000 shares authorized, 17,813,451 shares (excluding 149,162 unvested restricted shares) issued and outstanding as of March 31, 20243 and December 31, 2023		17,813			16,720
Additional paid in capital		104,205,425			97,015,470
Subscribed capital		-			5,004,000
Accumulated deficits		(81,315,073	)		(74,719,954	)
Accumulated other comprehensive loss		(1,081,610	)		(334,583	)
Total Stockholders’ Equity		21,826,555			26,981,653
Total Liabilities and Stockholders’ Equity	$	79,920,522		$	88,767,951

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AERKOMM INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

	For the Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Net sales	$	18,480		$	454,281

Service income - related party		34,775			-

Total Revenue		53,255			454,281

Cost of sales		38,116			447,781

Gross Profit		15,139			6,500

Operating expenses		5,066,442			3,643,426

Loss from Operations		(5,051,303	)		(3,636,926	)

Non-operating loss
Foreign currency exchange gain (loss)		(688,595	)		179,589
Unrealized investment gain (loss)		672			(7,829	)
Interest expenses		(840,837	)		(361,207	)
Other gain (loss), net		(12,656	)		71,937
Net Non-Operating Loss		(1,541,416	)		(117,510	)
Loss Before Income Taxes		(6,592,719	)		(3,754,436	)
Income Tax Expense		2,400			-
Net Loss		(6,595,119	)		(3,754,436	)

Other Comprehensive Income (loss)
Change in foreign currency translation adjustments		(747,027	)		134,254
Total Comprehensive Loss	$	(7,342,146	)	$	(3,620,182	)

Net Loss Per Common Share:
Basic	$	(0.3697	)	$	(0.3804	)
Diluted	$	(0.3697	)	$	(0.3804	)

Weighted Average Shares Outstanding - Basic		17,839,228			9,869,165
Weighted Average Shares Outstanding - Diluted		17,839,228			9,869,165

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AERKOMM INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three months ended March 31, 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		9,720,003	$	9,720	$	79,078,005	$	(53,645,981	)	$	(373,974	)	$	25,067,770
Stock compensation expense		-		-		54,891		-			-			54,891
Other comprehensive income		-		-		-		-			134,254			134,254
Net loss for the period		-		-		-		(3,754,436	)		-			(3,754,436	)
Balance as of March 31, 2023		9,720,003	$	9,720	$	79,132,896	$	(57,400,417	)	$	(239,720	)	$	21,502,479

For the three months ended March 31, 2024

	Common Stock				Additional Paid in		Capital			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Injection			Deficits			Income (Loss)			Equity
Balance as of January 1, 2024		16,720,451	$	16,720	$	97,015,470	$	5,004,000		$	(74,719,954	)	$	(334,583	)		26,981,653
Issuance of common stock		1,093,000		1,093		6,556,907		(5,004,000	)		-			-			1,554,000
Stock compensation expense		-		-		633,048		-			-			-			633,048
Other comprehensive income		-		-		-		-			-			(747,027	)		(747,027	)
Net loss for the period		-		-		-		-			(6,595,119	)		-			(6,595,119	)
Balance as of March 31, 2024		17,813,451	$	17,813	$	104,205,425	$	-		$	(81,315,073	)	$	(1,081,610	)	$	21,826,555

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AERKOMM INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

	For the Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net loss	$	(6,595,119	)	$	(3,754,436	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		506,980			316,272
Stock-based compensation		633,048			54,891
Unrealized investment (gain) loss		(672	)		7,829
Interest expense of bonds issuance costs		216,942			125,135
Interest expense on repayment of long term loan		383,239			-
Changes in operating assets and liabilities:
Accounts receivable		41,088			-
Inventories		-			-
Prepaid expenses and other current assets		(703,222	)		(2,138,165	)
Deposits		3,418			(6,236	)
Accounts payable		(2,497	)		(353,703	)
Accrued expenses and other current liabilities		3,029,865			655,362
Operating lease liability		14,401			(17,880	)
Net Cash Used for Operating Activities		(2,472,529	)		(5,110,931	)

Cash Flows from Investing Activities
Prepayment for land		(346,070	)		-
Proceeds from disposal of long-term investment		-			325,578
Purchase of property and equipment		(11,275	)		(335,825	)
Net Cash (Used) Provided by Investing Activities		(357,345	)		(10,247	)

Cash Flows from Financing Activities
Proceeds from short-term loan		32,414			758,439
Repayment of long-term loan		(3,086	)		(2,605	)
Prepayment for land		(5,004,000	)		-
Proceeds from issuance of common stock		6,558,000			-
Repayment of long term note payable		(7,330,000	)		-
Payment on finance lease liability		(2,826	)		(2,924	)
Net Cash Provided by Financing Activities		(5,749,498	)		752,910

Net Decrease in Cash and Restricted Cash		(8,579,372	)		(4,368,268	)
Cash and Restricted Cash, Beginning of Period		7,428,702			10,101,920
Foreign Currency Translation Effect on Cash		1,269,445			(210,105	)
Cash and Restricted Cash, End of Period	$	118,775		$	5,523,547

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	-		$	-

Cash and Restricted Cash:
Cash	$	103,756		$	2,299,190
Restricted cash		15,019			3,224,357
Total	$	118,775		$	5,523,547

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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 86.3% of Aerkomm’s issued and outstanding common stock as of the closing date of purchase. As a result of the transaction, Aircom became the controlling shareholder of Aerkomm. Aircom was incorporated on September 29, 2014 under the laws of the State of California.

On February 13, 2017, Aerkomm entered into a share exchange agreement (“Exchange Agreement”) with Aircom and its shareholders, pursuant to which Aerkomm acquired 100% of the issued and outstanding capital stock of Aircom in exchange for approximately 99.7% of the issued and outstanding capital stock of Aerkomm. As a result of the share exchange, Aircom became a wholly-owned subsidiary of Aerkomm, and the former shareholders of Aircom became the holders of approximately 99.7% of Aerkomm’s issued and outstanding capital stock.

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. 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 will be the holder of, Satellite Communication Blanket License in Japan, which is necessary for Aerkomm to provide services within Japan. Aerkomm Japan will 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 fund for ground station building and operate the ground station for data processing (although that cannot be guaranteed). On December 29, 2022, Aerkomm and dMobile System Co., Ltd. (the “Buyer”) entered into an equity sales contract pursuant to the terms of which Aerkomm sold a majority interest of 25,500,000 shares (the “Shares”) of Aerkomm Taiwan to the Buyer for NT$255,000,000 (approximately US $8,300,000 as of December 31, 2022).

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, 100% ownership of Beijing Yatai was transferred from Aircom Taiwan to Aerkomm Taiwan.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 - Organization - Continued

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.

Aerkomm and its subsidiaries (the “Company”) are full-service, development stage providers of in-flight entertainment and connectivity solutions with their initial market in the Asian Pacific region.

The Company has not generated significant revenues, excluding non-recurring revenues, and will incur additional expenses as a result of being a public reporting company. Currently, the Company has taken measures that management believes will improve its financial position by financing activities, including through public offerings, private placements, short-term borrowings and equity contributions. Two of the Company’s current shareholders (the “Lenders”) each committed to provide to the Company a $10 million bridge loan (together, the “Loans”) for an aggregate principal amount of $20 million, to bridge the Company’s cash flow needs prior to its obtaining a mortgage loan to be secured by a parcel of land (the “Land”) the Company purchased in Taiwan. The Lenders also agreed to an earlier closing of up to 25% of the principal amounts of the Loans upon the Company’s request prior to the time that title to the Land is vested in the Company’s subsidiary, Aerkomm Taiwan, to pay the outstanding payable to the Company’s vendors. On April 25, 2022, the Lenders further amended the commitment and agreed to increase the percentage of earlier closing amount from 25% to 100% and the full $20 million is available to the Company.

With the $20 million in Loans committed by the Lenders and our holdings of marketable securities in Ejectt, the Company believes its working capital will be adequate to sustain its operations for the next sixteen months. However, there is no assurance that management will be successful in furthering the Company’s business plan, especially if the Company is not able to raise additional funding from the above sources or from other sources. There are a number of additional factors that could potentially arise that could result in shortfalls in the Company’s business plan, such as general worldwide economic conditions, competitive pricing in the connectivity industry, the continuing impact of the COVID 19 pandemic, the Company’s operating results continuing to deteriorate and the Company’s banks and shareholders not being able to provide continued financial support.

The Company’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 the Company’s common stock to list and trade on the Professional Segment of the regulated market of Euronext Paris (“Euronext Paris”). The Company’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 the Company’s share count, capital structure, or current common stock listing on the OTCQX, the Company’s primary trading market for its common stock.

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 March 31, 2024, and the condensed consolidated statements of operations and comprehensive loss and cash flows for the three months ended March 31, 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 March 31, 2024 and the results of operations and cash flows for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these three months periods are unaudited. The results of operations for the three months ended March 31, 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.

Principle of Consolidation

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 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 consolidated financial statements and accompanying notes. Actual results may differ from these estimates.

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 March 31, 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 $94,000 and $7,246,000 as of March 31, 2024 and December 31, 2023, respectively.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

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 March 31, 2024 and December 31, 2023, the Company had $0 and $41,088 Account Receivable. Therefore, allowances for expected credit losses were $0 as of March 31, 2024 and December 31, 2023.

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 - 5 years, 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 or remaining lease term, whichever is shorter.

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 three months ended March 31, 2024.

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 consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our 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 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

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 December 31, 2023. 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 March 31, 2024 and December 31, 2023.

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 three ended March 31, 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 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 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.

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 6,500,900 and 2,011,867 common stock equivalents, primarily stock options and warrants, for the three months ended March 31, 2024 and 2023, respectively. For the fiscal three months ended March 31, 2024 and 2023, the assumed exercise of the Company’s common stock equivalents were not included in the calculation as the effect would be anti-dilutive.

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 consolidated financial statements as of and for the three months ended March 31, 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.

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 does not have a significant impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 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 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 consolidated financial statements

AERKOMM INC. AND SUBSIDIARIES

Notes to 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 $225,500 (200,000 euros) into the account. The transaction was initiated in the beginning of 2020, and the Company pays annual compensation of 20,000 euros to the Liquidity Provider in advance by semi-annual installments at the beginning of each semi-annual period under the agreement. The liquidity agreement had an initial term of one year and is being renewed automatically unless otherwise terminated by either party. As of March 31, 2024, the Company had purchased 5,361 shares of its common stock with the fair value of $13,831. The securities were recorded as short-term investment with an accumulated unrealized loss of $672. In January 2022, the Liquidity Provider terminated the agreement and the Company is determining whether to continue a similar program.

On December 3, 2020, the Company entered into three separate stock purchase agreements (or “Stock Purchase Agreement”) from three individuals to purchase an aggregate of 6,000,000 restricted shares of one of the Company’s related parties, YuanJiu Inc. (“YuanJiu”) in a total amount of NT$141,175,000 (approximately US$5,027,600 as of December 31, 2020). YuanJiu is a listed company in Taiwan Stock Exchange and the stock title transfer is subject to certain restrictions. Albert Hsu, a member of the Company’s board of directors, is the Chairman of YuanJiu. On July 19, 2021, YuanJiu Inc. changed its name to “EJECTT INC” (“Ejectt”). On March 24, 2021, the Company purchased additional 2,000 shares of Ejectt’s common stock for a total amount of $1,392 from a related party.

As of December 31, 2021, 5,000,000 shares of Ejectt’s common stock were restricted and booked under long-term investment. (See Note 8) As of March 31, 2024 and December 31, 2023, this investment totaled approximately a 8% ownership of Ejectt.

On September 30, 2022, the Company entered into a stock purchase agreement (or “Stock Purchase Agreement”) to purchase common stock of Shinbao in a total amount of NT$35,000,000 (approximately $1,096,148 as of March 31, 2024 and $1,143,044 as of December 31, 2023). Shinbao is a privately-held company in Taiwan. As of May 22, 2024, the stock title transfer is still under process.

As of March 31, 2024 and December 31, 2023, the fair value of the investment was as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Investment - Ejectt - short-term	$	2,539,336		$	2,647,975
Investment - Liquidity		13,831			13,831
Prepaid investment		1,096,148			1,143,044
Total Investment		3,649,315			3,804,850
Appreciation in market value - Ejectt		(1,935,933	)		(2,018,757	)
Investment cost - Ejectt - short-term		603,403			629,218
Investment cost - Liquidity		13,831			13,831
Prepaid investment		1,096,148			1,143,044

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 5 - Inventories

As of March 31, 2024 and December 31, 2023, inventories consisted of the following:

	March 31, 2024		December 31, 2023
	(Unaudited)
Satellite equipment for sale under construction	$	170,892	$	170,892

NOTE 6 - Prepaid Expenses and Prepayments for Equipment and Intangible Assets

As of March 31, 2024 and December 31, 2023, prepaid expenses consisted of the following:

	March 31, 2024		December 31, 2023
	(Unaudited)
Prepaid professional expense	$	118,854	$	110,043
Others		80,196		48,128
Total	$	199,050	$	158,171
Prepayment for equipment and intangible assets - related party		2,073,448		2,076,138
Prepayment for equipment and intangible assets - others		8,465,922		8,326,017
Total	$	10,539,370	$	10,402,155

NOTE 7 - Property and Equipment, Net

As of March 31, 2024 and December 31, 2023, the balances of property and equipment were as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Ground station equipment	$	1,854,027		$	1,854,027
Computer software and equipment		2,837,049			2,847,119
Satellite equipment		275,410			275,410
Vehicle		322,033			337,637
Leasehold improvement		83,782			83,827
Furniture and fixture		38,529			38,637
		5,410,830			5,436,657
Accumulated depreciation		(3,145,708	)		(3,085,789	)
Net		2,265,122			2,350,868
Prepayments - land		38,814,576			40,114,286
Prepaid equipment		322,812			324,866
Total	$	41,402,510		$	42,790,020

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$1,098,549,407 (approximately $34,404,930 as of March 31, 2024 and $35,876,858 as of December 31, 2023) in total. The estimated commission payable for the land purchase in the amount of NT$42,251,900 (approximately $1,323,267 as of March 31, 2024 and 1,379,879 as of December 31, 2023) was recorded to the cost of land. The company is also under the discussion of extending the commission payable to December 31,2023. According to the amended Land Purchase Contract dated on November 10, 2020, the transaction may be terminated at any time by both the buyer and the seller and agreed by all parties if the Company is unable to obtain the qualified satellite license issued by Taiwan authority before July 31, 2021. As of May 22, 2024, the qualified license applications are still in progress.

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 March 31, 2024, the Company paid to the Seller 2 installments prepayments of NT$140,800,000 (approximately $4,409,646 as of March 31, 2024) in total.

Depreciation expense was $72,051 and $181,652 for the three months periods ended March 31, 2024 and 2023, respectively.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8 - Long-term Investment

As of March 31, 2024 and December 31, 2023, 5,000,000 shares of Ejectt’s common stock were restricted.

Also on September 29, 2022, the Company entered into a stock purchase agreement (or “Stock Purchase Agreement”) to purchase 2,670,000 shares of common stock of AnaNaviTek Corp. (AnaNaviTek) in a total amount of NT$40,050,000 (approximately $1,303,287 as of December 31, 2022). AnaNaviTek is a privately-held company in Taiwan. As of November 21, 2022, the Company has paid NT$10,005,000 (approximately $325,578 as of December 31, 2022) for 667,000 shares of AnaNaviTek stock and the stock title transfer for these shares has been completed.

In Q1 2023, the Company disposed AnaNaviTek for amount of $325,578.

As of March 31, 2024 and December 31, 2023, the fair value of the long-term investment was as follows:

	March 31, 2024		December 31, 2023
	(Unaudited)
Investment at cost - Ejectt - long-term	$	4,087,065	$	4,261,920
Investment at cost - AnaNaviTek		-		-
Net	$	4,087,065	$	4,261,920

NOTE 9 - Intangible Asset, Net

As of March 31, 2024 and December 31, 2023, the cost and accumulated amortization for intangible asset were as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Satellite system software	$	17,391,926		$	17,406,469
Accumulated amortization		(4,815,443	)		(4,381,777	)
Net	$	12,576,483		$	13,024,692

Amortization expense was $434,929 and $123,750 for each of the three months periods ended March 31, 2024 and 2023.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 10 - Goodwill

On September 28, 2023, the Company acquired 100% of the ownership of Mixnet Technology Limited (Mixnet) and its subsidiary Mesh Technology Taiwan Limited (Mesh) with total consideration of $16,500,000 by issuing 7,000,448 shares of the Company’s common stock valued at approximately $2.36 per share. The fair value of Mixnet and Mesh at acquisition date was $11,926,181. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was $4,573,819, which is recorded as goodwill.

As of March 31, 2024 and December 31, 2023, the goodwill were as follows

	Gross Goodwill		Accumulated Impairment			Net
January 1, 2023	$	4,561,037		-			4,561,037
Addition		4,573,819		(4,561,037	)		12,782
December 31, 2023		9,134,856	$	(4,561,037	)	$	4,573,819
Addition		-		-			-
March 31, 2024 (unaudited)	$	9,134,856	$	(4,561,037	)	$	4,573,819

There is $0 and $4,561,037 impairment loss on goodwill was recognized for three-month period ended March 31, 2024 and the year ended December 31, 2023 for all past mergers activities.

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 $4,561,037 by performing the two-step goodwill impairment test. After the impairment measurement, the net goodwill is $4,573,819.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of MEPA is calculated as follows;

Goodwill as a result of the acquisition of Mixnet and its subsidiary is calculated as follows;

Total purchase considerations	$	16,500,000
Fair Value of tangible assets acquired:
Cash		66,278
Other receivable		3,513
Prepaid expenses and other current assets		2,872
Intangible assets		12,102,000
Total identifiable assets acquired		12,174,663

Fair value of liabilities assumed:
Loan payable - current		(50,403	)
Prepayment from customer		(94,634	)
Other payable		(24,203	)
Loan from stockholder - non-current		(79,242	)
Total liabilities assumed		(248,482	)
Net identifiable liabilities assumed		11,926,181
Goodwill as a result of the acquisition	$	4,573,819

NOTE 11 - Operating and Finance Leases

Lease term and discount rate:

The weighted-average remaining lease term and discount rate related to the leases were as follows:

	2024			2023
Weighted-average remaining lease term	(Unaudited)
Operating lease		1.75 Year			1.97 Years
Finance lease		0.60 Years			0.85 Years
Weighted-average discount rate
Operating lease		6.00	%		6.00	%
Finance lease		3.82	%		3.82	%

AERKOMM INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11 - Operating and Finance Leases - Continued

The balances for the operating and finance leases are presented as follows within the unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:

Operating Leases

	March 31, 2024		December 31, 2023
	(Unaudited)
Right-of-use assets	$	191,307	$	221,417
Lease liability - current	$	161,026	$	155,763
Lease liability - non-current	$	100,329	$	120,932

Finance Leases

	March 31, 2024			December 31, 2023
	(Unaudited)
Property and equipment, at cost	$	53,179		$	56,770
Accumulated depreciation		(46,975	)		(47,968	)
Property and equipment, net	$	6,204		$	8,802

Lease liability - current	$	9,474		$	12,669
Lease liability - non-current		-			-
Total finance lease liabilities	$	9,474		$	12,669

The components of lease expense are as follows within the unaudited condensed consolidated statements of operations and comprehensive loss for the three months periods ended March 31, 2024 and 2023:

Operating Leases

	March 31, 2024			March 31, 2023
	(Unaudited)			(Unaudited)
Lease expense	$	32,001		$	33,184
Sublease rental income		(2,019	)		(24,580	)
Net lease expense	$	29,982		$	8,604

Finance Leases

	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Amortization of right-of-use asset	$	2,700	$	2,794
Interest on lease liabilities		109		218
Total finance lease cost	$	2,809	$	3,012

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11 - Operating and Finance Leases - Continued

Supplemental cash flow information related to leases for the three months periods ended March 31, 2024 and 2023 is as follows:

	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	15,743	$	9,531
Operating cash outflows from finance lease	$	2,674	$	2,706
Financing cash outflows from finance lease	$	151	$	218
Leased assets obtained in exchange for lease liabilities:
Operating leases	$	-	$	345,204

Maturity of lease liabilities:

Operating Leases

	Others			Total
	(Unaudited)			(Unaudited)
April 1, 2024 - March 31, 2025	$	99,755		$	99,755
April 1, 2025 - March 31, 2026		89,256			89,256
April 1, 2026 - March 31, 2027		14,876			14,876
Total lease payments	$	203,887		$	203,887
Less: Imputed interest		(12,580	)		(12,580	)
Present value of lease liabilities	$	191,307		$	191,307
Current portion		(90,978	)		(90,978	)
Non-current portion	$	100,329		$	100,329

Finance Leases

	Total
	(Unaudited)
April 1, 2024 - March 31, 2025	$	9,625
April 1, 2025 - March 31, 2026		-
Total lease payments	$	9,625
Less: Imputed interest		(151	)
Present value of lease liabilities	$	9,474
Current portion		9,474
Non-current portion	$	-

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 - Short-term Loan

In June 2021, the Company entered into a loan agreement in the amount of $1,433,177 (NT $40,000,000) with a non-related party. This loan, which carries no interest, would originally mature on July 16, 2021. This loan is collateralized with 3,000,000 shares of Ejectt stocks that the Company currently owns. The outstanding loan balance of $930,521 (NTD 30,000,000) was paid off by September 30, 2023.

NOTE 13 - Long-term Loan

The Company has a car loan credit line of NT$1,500,000 (approximately US$46,978 as of March 31, 2024 and US$48,988 as of December 31, 2023), which matures on May 21, 2024, from a Taiwan financing company with annual interest rate of 9.7%. The installment payment plan is 60 months to pay off the balance on the 21^st of each month. Future installment payments as of March 31, 2024 and December 31, 2023 are as follows:

Twelve months ending March 31,	(Unaudited)
2024		1,982
2025		-
Total installment payments		1,982
Less: Imputed interest		(24	)
Present value of long-term loan		1,958
Current portion		(1,958	)
Non-current portion	$	-

Year ending December 31,
2024	$	5,168
2025		-
Total installment payments		5,168
Less: Imputed interest		(123	)
Present value of long-term loan		5,045
Current portion		(5,045	)
Non-current portion	$	-

NOTE 14 - Convertible Long-term Bonds Payable and Restricted Cash

On December 3, 2020, the Company closed a private placement offering consisting of US$10,000,000 in aggregate principal amount of its Credit Enhanced Zero Coupon Convertible Bonds (the “Zero Coupon Bonds”) and US$200,000 in aggregate principal amount of its 7.5% convertible bonds (the “Coupon Bonds”), both due on December 2, 2025 (collectively the “Bonds”). Unless previously redeemed, converted or repurchased and cancelled, the Zero-Coupon Bonds will be redeemed on December 2, 2025 at 105.11% of their principal amount and the Coupon Bonds will be redeemed on December 2, 2025 at 100% of their principal amount plus any accrued and unpaid interest. The Coupon Bonds will bear interest from and including December 2, 2020 at the rate of 7.5% per annum. Interest on the Coupon Bonds is payable semi-annually in arrears on June 1 and December 1 each year, commencing on June 1, 2021.

The Company has the option to redeem the Bonds at a redemption amount equal to the Early Redemption Amount, as defined in the Offering Memorandum, at any time on or after December 2, 2023 and prior to the Maturity Date, if the Closing Price of the Company’s Common Stock listed on the Euronext Paris for 20 trading days in any period of 30 consecutive trading days, the last day of which occurs not more than fifteen trading days prior to the date on which notice of such redemption is given, is greater than 130% of the Conversion Price on each applicable trading day or (ii) in whole or in part of the Bonds on the second anniversary of the issue date or (iii) where 90% or more in principal amount of the Bonds issued have been redeemed, converted or repurchased and cancelled.

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 $0.001 each. The initial conversion price for the Bonds is $13.30 per share and is subject to adjustment in specified circumstances.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 14 - Convertible Long-term Bonds Payable and Restricted Cash - Continued

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 $10,700,000 with BG Bank on December 1, 2020. The line of credit will be expired on December 2, 2025. The annual fee is based on 1% of the line of credit amount and due quarterly. The line of credit is guaranteed by one of the Company’s shareholders with his personal property, and the Company’s time deposit of $3,210,000 (the “Deposit”) at BG Bank is pledged as collateral as of December 31, 2022 and 2021, and the Deposit was recorded as restricted cash.

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 January 16, 2024, the Company has repaid $7,330,000 out of a total of $10,398,385 of principal and interest due on the Bonds. We expect to repay the remaining balance of the amount of $3,068,385 owed on the bonds within the next few months.

As of March 31, 2024 and December 31, 2023, the long-term bonds payable consisted of the following:

	March 31, 2024			December 31, 2023
	(Unaudited)
Credit Enhanced Zero Coupon Convertible Bonds	$	3,053,239		$	10,000,000
Coupon Bonds		200,000			200,000
		3,253,239			10,200,000
Unamortized loan fee		(334,902	)		(551,845	)
Net	$	2,918,337		$	9,648,155

Bond issuance cost was $216,943 and $125,134 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 15 - Convertible Long-term Notes Payable and Restricted Cash

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 $3,175,200 which was entered into between WPL and the Company on June 28, 2022 and funded (the “June Subscription”), (ii) a subscription for the common stock of the Company in the amount of $5,674,000 which was entered into between WPL and the Company on September 15, 2022 and funded (the “September Subscription”), and (iii) a subscription for the capital stock of MEPA Labs, Inc. (“MEPA”), a wholly owned subsidiary of the Company, in the amount of $4,324,000 which was entered into between MEPA and the Company on June 28, 2022 and funded (the “MEPA Subscription,” and together with the June Subscription and the September Subscription, the “WPL Subscriptions”), the WPL Subscriptions in the aggregate totaling $13,173,200, were converted into loans to the Company evidenced by that certain convertible bond of the Company in favor of WPL and dated December 7, 2022 (the “Convertible Bond”)

In addition, and as indicated in the Agreement, WPL agreed to lend an additional $10,000,000 to the Company under the Convertible Note (the “New Loan”) and to cap the aggregate amount of loans to the Company under the Convertible Note, including the New Loan, the WPL Subscriptions and any future advances under the Convertible Note, at $30,000,000.

The Convertible Note allows for loans to the Company up to an aggregate principal amount of $30,000,000 and acknowledges an aggregate principal amount of $23,173,200 in loans under the Convertible Bond outstanding as of December 31, 2022. The Convertible Note carries an annual interest rate of four percent (4%) which is due and payable, along with the then principal amount outstanding, on the Convertible Note maturity date, December 7, 2024. The Convertible Note is pre-payable in whole or in part at any time without penalty, on five days’ prior written notice to WPL. In the event of a change of control of the Company (as that term is defined in the Convertible Note), the Convertible Note shall become immediately payable in full. The Convertible Note along with accrued interest $1,222,571 as of March 31, 2024, is convertible in whole or in part by WPL at any time into shares of common stock of the Company at a conversion price of $6.00 per share.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 16 - Contract Liability

On March 9, 2015, the Company entered into a 10-year purchase agreement with Klingon Aerospace, Inc. (“Klingon”), which was formerly named as Luxe Electronic Co., Ltd. In accordance with the terms of this agreement, Klingon agreed to purchase from the Company an initial order of onboard equipment comprising an onboard system for a purchase price of $909,000, with payments to be made in accordance with a specific milestones schedule. As of March 31, 2024 and December 31, 2023, the Company received $762,000 from Klingon in milestone payments towards the equipment purchase price. As of March 31, 2024, the project is still ongoing.

NOTE 17 - Income Taxes

Income tax expense for the three months periods ended March 31, 2024 and 2023 consisted of the following:

	Three Months Ended March 31,
	2024		2023
Current:	(Unaudited)		(Unaudited)
Federal	$	-	$	-
State		2,400		-
Foreign		-		-
Total	$	2,400	$	-

The following table presents a reconciliation of the Company’s income tax at statutory tax rate and income tax at effective tax rate for the three months periods ended March 31, 2024 and 2023.

	Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Tax benefit at statutory rate	$	(1,856,347	)	$	(642,805	)
Net operating loss carryforwards (NOLs)		1,366,499			1,008,874
Foreign investment gain (losses)		116,696			(140,193	)
Stock-based compensation expense		134,900			11,500
Amortization expense		34,000			18,900
Accrued payroll		109,600			31,600
Unrealized exchange gain (losses)		91,252			(273,276	)
Others		5,800			(14,600	)
Tax expense at effective tax rate	$	2,400		$	-

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 17 - Income Taxes - Continued

Deferred tax assets (liability) as of March 31, 2024 and December 31, 2023 consist approximately of:

	March 31, 2024			December 31, 2023
	(Unaudited)
Net operating loss carryforwards (NOLs)	$	16,496,000		$	14,831,000
Stock-based compensation expense		3,502,000			3,502,000
Accrued expenses and unpaid expense payable		1,041,000			889,000
Tax credit carryforwards		68,000			68,000
Unrealized exchange losses (gain)		109,000			20,000
Excess of tax amortization over book amortization		(216,000	)		(285,000	)
Others		47,000			27,000
Gross		21,047,000			19,052,000
Valuation allowance		(21,047,000	)		(19,052,000	)
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 $1,995,000 for the three months ended March 31, 2024.

As of March 31, 2024 and December 31, 2023, the Company had federal NOLs of approximately $8,243,000 available to reduce future federal taxable income, expiring in 2037, and additional federal NOLs of approximately $31,114,000 and $30,009,000, respectively, were generated and will be carried forward indefinitely to reduce future federal taxable income. As of March 31, 2024 and December 31, 2023, the Company had State NOLs of approximately $50,631,000 and $46,427,000 respectively, available to reduce future state taxable income, expiring in 2042.

As of March 31, 2024 and December 31, 2023, the Company has Japan NOLs of approximately $263,000 and $260,000, respectively, available to reduce future Japan taxable income, expiring in 2031.

As of March 31, 2024 and December 31, 2023, the Company has Taiwan NOLs of approximately 8,372,000 and $6,173,000, respectively, available to reduce future Taiwan taxable income, expiring in 2031.

As of March 31, 2024 and December 31, 2023, the Company had approximately $37,000 and $37,000 of federal research and development tax credit, available to offset future federal income tax. The credit begins to expire in 2034 if not utilized. As of March 31, 2024 and December 31, 2023, the Company had approximately $39,000 and $39,000 of California state research and development tax credit available to offset future California state income tax. The credit can be carried forward indefinitely.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 18 - Capital Stock

Preferred Stock:

The Company is authorized to issue 50,000,000 shares of preferred stock, with par value of $0.001. As of March 31, 2024 and December 31, 2023, there were no preferred stock shares outstanding. The Board of Directors has the authority to issue preferred stock in one or more series, and in connection with the creation of any such series, by resolutions providing for the issuance of the shares thereof, to determine dividends, voting rights, conversion rights, redemption privileges and liquidation preferences.

Common Stock:

The Company is authorized to issue 90,000,000 shares of common stock as of March 31, 2024 and December 31, 2023.

	March 31, 2024		December 31, 2023
	(Unaudited)
Restricted stock - vested		1,802,373		1,802,373
Restricted stock - unvested		149,162		149,162
Total restricted stock		1,951,535		1,951,535

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 4,114 shares of common stock to Bevilaqua PLLC for the legal services rendered.

On September 28, 2023, the Company issued 7,000,448 shares of common stock to Kevin Wong to acquire Mixnet Technology Limited and its subsidiary (Mixnet).

Stock Warrant:

On October 31, 2021, following approval by the Board of Directors, the Company issued a warrant to Mr. Sheng-Chun Chang for the purchase of up to 751,879 shares of the Company’s common stock, exercisable at a price of $2.60 per share, the closing price of the common stock on the OTC Markets, Inc. QX tier on October 21, 2021. The issuance of the warrant is (i) in recognition of Mr. Chang’s support of the Company through his previous personal guarantee of the Company’s $10,000,000 line of credit with the Panhsin Bank (the “Bank”) in relation to the private placement offering of $10,000,000 credit enhanced zero coupon convertible bonds and (ii) in exchange for Mr. Chang’s agreement to renew his guarantee with the Bank for so long as the guarantee would be required by the Bank. The warrant will vest 20% on issuance. On each anniversary of the issue date, beginning with December 3, 2021 and ending with December 3, 2025, the warrant will vest with respect to 20% of the number of shares of the Company’s common stock issuable upon conversion of the principal amount of the credit enhanced bonds still required to be guaranteed by the Panhsin Bank.

For the years ended December 31, 2022, the Company recorded an increase of $1,252,029 in additional paid-in capital as adjustment for the issuance costs of these stock warrants.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 19 - Significant Related Party Transactions

In addition to the information disclosed in other notes, the Company has significant related party transactions as follows:

Name of related parties and relationships with the Company:

Related Party		Relationship
Well Thrive Limited (“WTL”)		Major stockholder
Ejectt Inc. (“Ejectt”)		Stockholder; Albert Hsu, a Director of Aerkomm, is the Chairman
STAR JEC INC. (“StarJec”)		Stockholder; Albert Hsu, a Director of Aerkomm, is the Chairman
AA Twin Associates Ltd. (“AATWIN”)		Georges Caldironi, COO of Aerkomm, is sole owner
EESquare Japan (“EESquare JP”)		Yih Lieh (Giretsu) Shih, President Aircom Japan, is the Director
Kevin Wong		Stockholder of Mixnet

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.

As of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	(Unaudited)
Other receivable from:
EESquare JP ¹	$	241,370	$	173,858
Ejectt³		-		15,983
WTL⁴		1,258,267		956,835
Others⁶		21,225		21,073
Total	$	1,520,862	$	1,167,749

Prepaid expenses to Ejectt³	$	2,073,448		2,076,138

Prepayment from Ejectt ³	$	6,154,989	$	6,534,908

Other payable to:
AATWIN ⁵	$	19,047	$	19,047
Interest payable to WTL⁴		56,600		59,021
StarJec²		104,093		111,702
Kevin Wong⁶		106,374		75,326
Others ⁷		455,728		461,704
Total	$	741,842	$	726,802

1.	Aircom Japan entered into a sublease agreement with EESquare JP for the period between March 5, 2019 and March 4, 2023 and extended another 2 years to March 4, 2025. Pursuant to the terms of this lease agreement, EESquare JP pays Aircom Japan a rental fee of approximately $673 per month as of March 31, 2024. This amount represents outstanding balance receivable from EESquare JP as of March 31, 2024.

2.	Aircom Japan entered into a housing service order on December 14, 2021 and a satellite service order on January 22, 2022 for one year period till January 21, 2023. On June 20, 2022, Aircom Japan also entered a teleport service order with StarJec for a half year period from June 1, 2022 to January 14, 2023. The amount represents receivable from StarJec for monthly service provided due to the service agreements. The monthly service charges is approximately ￥6,820,000 (approximately $51,800 as of December 31,2022). Other payable represents deposits should be returned to Ejectt after service contracts ended as of March 31, 2024.

3.	Represents prepayment paid by Ejectt to order [6] sets of antennas from Aircom Telecom with prepayment of $1,243,247 as of December 31, 2023 and $1,192,240 as of March 31, 2024. As of June 17, 2023, Aerkomm Taiwan entered into MOU with Ejectt to appoints Ejectt as its exclusive represent agency in Taiwan with NTD 20,000,000 security deposit (approximately $653,168 as of December 31, 2023 and $626,370 as of March 31, 2024). In 4^th quarter of 2023, Ejectt also entered into 3 orders with Aerkomm Japan to purchase 5 sets of equipment with approximately $4,330,592 as of December 31, 2023 and $4,035,624 as of March 31, 2024. Besides, 6 months service ordered in October 2023 for NTD 5,333,333 (approximately $174,178 as of December 31, 2023 and $167,032 as of March 31, 2024) with the Company. The number also includes the equipment purchased with Aerkomm for about $133,722 in October, 2023. The prepaid expenses of $2,076,138 as of December 31, 2023 and $2,073,448 as of March 31,2024 which represents 3 new agreements signed with AKOM different entities for AirCinema Cube orders in year 2023.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 19 - Significant Related Party Transactions - Continued

4.	The Company has loans from WTL due to operational needs under the Loans (Note 1). The Company has interest payable balance of $59,021 as of December 31, 2023 and $56,600 as of March 31, 2024 (approximately NTD 1,807,000) for past Loan. The Company borrowed $1,258,267 as of March 31, 2024.

5.	Represents payable to AATWIN due to consulting agreement on January 1, 2019. The monthly consulting fee is €15,120 (approximately $17,000) and was expired on December 31, 2021.

6.	Represents long-term loan that Mixnet borrowed from its stockholder for business operating needs for $75,326 (approximately NTD 2,306,000) as of December 31, 2023 and $106,374 (approximately NTD 3,396,000) as of March 31, 2024.

7.	Represents receivable/payable from/to management levels as a result of regular operating activities.

For the three months periods ended March 31, 2024 and 2023:

	Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Purchase from Ejectt¹	$	53,255		$	454,281
Rental income from EESqaure JP ²		(2,019	)		(2,266	)

1.	Represents 2 orders sold to Ejectt in Q1, 2024.

2.	Aircom Japan entered into a sublease agreement with EESquare JP for the period between March 5, 2021 and March 4, 2023. Pursuant to the terms of this lease agreement, EESquare JP pays Aircom Japan a rental fee of approximately $673 per month in 2024 Q1.

NOTE 20 - 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 1,088,882 shares to Aircom’s stock option holders.

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 10 years unless sooner terminated under the terms of Aircom 2014 Plan.

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 1,000,000 shares of common stock for issuance under the Aerkomm 2017 Plan. The Aerkomm 2017 Plan has been adopted by the Board and shall continue in effect for a term of 10 years unless sooner terminated under the terms. On June 23, 2017, the Board of Directors voted to increase the number of shares of common stock reserved for issuance under the Aerkomm 2017 Plan to 2,000,000 shares. The Aerkomm 2017 Plan provides for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of the Company, as determined by the Compensation Committee of the Board of Directors (or, prior to the establishment of the Compensation Committee on January 23, 2018, the Board of Directors). The Aerkomm 2017 Plan was approved by the Company’s stockholders on March 28, 2018. On October 21, 2021, the Board of Directors voted to increase the number of shares of common stock reserved for issuance under the Aerkomm 2017 Plan to 2,400,000 shares.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

On June 23, 2017, the Board of Directors agreed to issue options for an aggregate of 291,000 shares under the Aerkomm 2017 Plan to certain officers and directors of the Company. The option agreements are classified into three types of vesting schedule, which includes, 1) 1/6 of the shares subject to the option shall be vested commencing on the vesting start date and the remaining shares shall be vested at the rate of 1/60 for the next 60 months on the same day of the month as the vesting start date; 2) 1/4 of the shares subject to the option shall be vested commencing on the vesting start date and the remaining shares shall be vested at the rate of 1/36 for the next 36 months on the same day of the month as the vesting start date; 3) 1/3 of the shares subject to the option shall be vested commencing on the first anniversary of vesting start date and the remaining shares shall vest at the rate of 50% each year for the next two years on the same day of the month as the vesting start date.

On July 31, 2017, the Board of Directors approved to issue options for an aggregate of 109,000 shares under the Aerkomm 2017 Plan to 11 of its employees. 1/3 of these shares subject to the option shall vest commencing on the first anniversary of vesting start date and the remaining shares shall vest at the rate of 50% each year for the next two years on the same day of the month as the vesting start date.

On December 29, 2017, the Board of Directors approved to issue options for an aggregate of 12,000 shares under the Aerkomm 2017 Plan to three of the Company’s independent directors, 4,000 shares each. All of these options were vested immediately upon issuance.

On June 19, 2018, the Compensation Committee approved to issue options for 32,000 and 30,000 shares under the Aerkomm 2017 Plan to two of the Company executives. One-fourth of the 32,000 shares subject to the option shall vest on May 1, 2019, 2020, 2021 and 2022, respectively. One-third of the 30,000 shares subject to the option shall vest on May 29, 2019, 2020 and 2021, respectively.

On September 16, 2018, the Compensation Committee approved to issue options for 4,000 shares under the Aerkomm 2017 Plan to one of the Company’s independent directors. These options shall be vested immediately.

On December 29, 2018, the Compensation Committee approved to issue options for an aggregate of 12,000 shares under the Aerkomm 2017 Plan to three of the Company’s independent directors, 4,000 shares each. All of these options were vested immediately upon issuance.

On July 2, 2019, the Board of Directors approved the grant of options to purchase an aggregate of 339,000 shares under the Aerkomm 2017 Plan to 22 of its directors, officers and employees. 25% of the shares vested on the grant date, 25% of the shares vested on July 17, 2019, 25% of the shares shall be vested on the first anniversary of the grant date, and 25% of the shares will vest upon the second anniversary of the grant date.

On October 4, 2019, the Board of Directors approved the grant of options to purchase an aggregate of 85,400 shares under the Aerkomm 2017 Plan to three (3) of its employees. 25% of the shares are vested on the grant date, and 25% of the shares shall be vested on each of October 4, 2020, October 4, 2021 and October 4, 2022, respectively.

On December 29, 2019, the Board of Directors approved to issue options for an aggregate of 12,000 shares under the Aerkomm 2017 Plan to three of the Company’s independent directors, 4,000 shares each. All of these options shall be vested at the date of 1/12th each month for the next 12 months on the same day of December 2019.

On February 19, 2020, the Board of Directors approved to issue options for 2,000 shares under the Aerkomm 2017 Plan to one of the Company’s consultants for service provided in 2019. These options shall be vested immediately.

On September 17, 2020, the Board of Directors approved to issue options for 4,000 shares under the Aerkomm 2017 Plan to one of the Company’s independent directors. These options shall be vested at the date of 1/12th each month for the next 12 months on the same day of September 2020.

On December 11, 2020, the Board of Directors approved the grant of options to purchase an aggregate of 284,997 shares under the Aerkomm 2017 Plan to 37 of its directors, officers, employees and consultants. Shares shall be vested in full on the earlier of the filing date of the Company’s Form 10-K for the year ended December 31, 2020 or March 31, 2021.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

On January 23, 2021, the Board of Directors approved to issue options for an aggregate of 12,000 shares under the Aerkomm 2017 Plan to three of the Company’s independent directors, 4,000 shares each. All of these options shall vest 1/12th each month for the next 12 months at the end of each month up to December 2021. On January 23, 2021, the Board of Directors approved to issue options for 2,000 shares under the Aerkomm 2017 Plan to one of the Company’s consultants for service provided in 2020. These options vested immediately.

On September 1, 2021, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On September 17, 2021, the Board of Directors approved to issue options for 4,000 shares under the Aerkomm 2017 Plan to one of the Company’s independent directors. These options shall be vested at the rate of 1/12th each month for the next 12 months on the same day of September 2021.

On October 21, 2021, the Board of Directors approved to issue options for 150,000 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On December 1, 2021, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On December 29, 2021, the Board of Directors approved to issue options for an aggregate of 8,000 shares under the Aerkomm 2017 Plan to two of the Company’s independent directors, 4,000 shares each. All of these options shall be vested at the date of 1/12th each month for the next 12 months on the same day of December 2021.

On December 31, 2021, the Board of Directors approved to issue options for 2,000 shares under the Aerkomm 2017 Plan to one of the Company’s consultants for service provided in 2020. These options vested immediately.

On March 1, 2022, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On June 1, 2022, the Board of Directors approved to issue options for 18,750 and 75,000 shares under the Aerkomm 2017 Plan to two of the Company’s officers, respectfully. These options shall be vested immediately.

On September 1, 2022, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On September 17, 2022, the Board of Directors approved to issue options for 4,000 shares under the Aerkomm 2017 Plan to one of the Company’s independent directors. These options shall be vested at the rate of 1/12th each month for the next 12 months on the same day of September 2022.

On December 1, 2022, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On December 29, 2022, the Board of Directors approved to issue options for an aggregate of 8,000 shares under the Aerkomm 2017 Plan to two of the Company’s independent directors, 4,000 shares each. All of these options shall be vested at the date of 1/12th each month for the next 12 months on the same day of December 2022.

On March 1, 2023, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

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 3,683,929 shares of common stock for issuance under the Aerkomm 2023 Plan. The Aerkomm 2023 Plan has been adopted by the Board and shall continue in effect for a term of 10 years unless sooner terminated under the terms.

On June 1, 2023, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2023 Plan to one of the Company’s officers. These options shall be vested immediately.

On June 13, 2023, the Board of Directors agreed to issue options for an aggregate 3,627,679 shares under the Aerkomm 2023 Plan to certain company’s employees. The shares subject to the option shall be vested commencing on the vesting start date and the remaining shares shall be vested at the rate of 1/48 for the next 48 months on the same day of the month as the vesting start date.

On September 1, 2023, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2023 Plan to one of the Company’s officers. These options shall be vested immediately.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

On December 1, 2023, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2023 Plan to one of the Company’s officers. These options shall be vested immediately.

On March 1, 2024, the Board of Directors approved to issue options for 18,750 shares under the Aerkomm 2024 Plan to one of the Company’s officers. These options shall be vested immediately.

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 $642,374 and $54,891 for the three months periods ended March 31, 2024 and 2023, respectively, related to such employee stock options.

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.

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.

The Company used the following assumptions to estimate the fair value of options granted in three months period ended March 31, 2024 and year ended December 31, 2023 under the Plans as follows:

Assumptions
Expected term	5-10 years
Expected volatility	45.79% - 72.81	%
Expected dividends	0	%
Risk-free interest rate	0.69% - 2.99	%
Forfeiture rate	0% - 5	%

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

Aircom 2014 Plan

Activities related to options for the Aircom 2014 Plan for the three months ended March 31, 2024 and the year ended December 31, 2023 are as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Fair Value Per Share
Options outstanding at January 1, 2023		111,871	$	3.3521	$	1.0539
Granted		-		-		-
Exercised		-		-		-
Forfeited/Cancelled		37,291		3.3521		1.0539
Options outstanding at December 31, 2023		74,580		3.3521		1.0539
Granted		-		-		-
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at March 31, 2024 (unaudited)		74,580		3.3521		1.0539

There are no unvested stock awards under Aircom 2014 Plan for the three months period ended March 31, 2024 and the year ended December 31, 2023.

Of the shares covered by options outstanding as of March 31, 2024, 74,580 are now exercisable. Information related to stock options outstanding and exercisable at March 31, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	3.3521		74,580		2.25		3.3521		74,580		2.25		3.3521

As of March 31, 2024, there was no unrecognized stock-based compensation expense for the Aircom 2014 Plan. No option was exercised during the three months periods ended March 31, 2024 and 2023.

Aerkomm 2017 Plan

Activities related to options outstanding under Aerkomm 2017 Plan for the three months ended March 31, 2024 and the year ended December 31, 2023 are as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Fair Value Per Share
Options outstanding at January 1, 2023		1,279,688		10.8161		7.3194
Granted		805,103		2.5605		1.9779
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at December 31, 2023		2,084,791		7.6279		5.2566
Granted		-		-		-
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at March 31, 2024 (unaudited)		2,084,791		7.6279		5.2566

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

Activities related to unvested stock awards under Aerkomm 2017 Plan for the three months period ended March 31, 2024 and the year ended December 31, 2023 are as follows:

	Number of Shares			Weighted Average Fair Value Per Share
Options unvested at January 1, 2023		11,000			3.5070
Granted		805,103			1.9779
Vested		(144,426	)		2.1351
Forfeited/Cancelled		-			-
Options unvested at December 31, 2023		671,677			1.9691
Granted		-			-
Vested		(49,147	)		1.9691
Forfeited/Cancelled		-			-
Options unvested at March 31, 2024 (unaudited)		622,530			1.9691

Of the shares covered by options outstanding under the Aerkomm2017 Plan as of March 31, 2024, 1,462,261 are now exercisable; 196,588 shares will be exercisable for the twelve-month period ending March 31, 2025. Information related to stock options outstanding and exercisable at March 31, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	2.55 - 4.30		1,310,353		8.02	$	3.0799		687,823		7.04	$	3.5596
	6.00 - 10.00		419,288		7.11		8.3356		419,288		7.11		8.3356
	11.00 - 14.20		126,150		6.00		11.4688		126,150		6.00		11.4688
	20.50 - 27.50		109,000		3.53		25.4982		109,000		3.53		25.4982
	30.00 - 35.00		120,000		3.32		34.5479		120,000		3.32		34.5479
			2,084,791		7.21		7.6279		1,462,261		6.41		9.7898

As of March 31, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $1,163,000, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 3.10 year. No option was exercised during the three months period ended March 31, 2024 and the year ended December 31, 2023.

Aerkomm 2023 Plan

Activities related to options outstanding under Aerkomm 2023 Plan for the three months ended March 31, 2024 and the year ended December 31, 2023 are as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Fair Value Per Share
Options outstanding at December 31, 2022		-		-		-
Granted		3,683,929		2.5914		2.0098
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at December 31, 2023		3,683,929		2.5914		2.0098
Granted		-		-		-
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options unvested at March 31, 2024 (unaudited)		3,683,929		2.5914		2.0098

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Stock Based Compensation - Continued

Activities related to unvested stock awards under Aerkomm 2023 Plan for the three months period ended March 31, 2024 is as follows:

	Number of Shares			Weighted Average Fair Value Per Share
Options unvested at January 1, 2023		-			-
Granted		3,683,929			2.0098
Vested		(509,710	)		2.0167
Forfeited/Cancelled		-			-
Options unvested at December 31, 2023		3,174,219			2.0087
Granted		-			-
Vested		(226,730	)		2.0087
Forfeited/Cancelled		-			-
Options unvested at March 31, 2024 (unaudited)		2,947,489			2.0087

Of the shares covered by options outstanding as of March 31, 2024, 736,440 shares are now exercisable. Information related to stock options outstanding and exercisable at March 31, 2024, is as follows:

		Options Outstanding(Unaudited)						Options Exercisable(Unaudited)
Range of Exercise Prices		Shares Outstanding at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	2.58-2.89		3,683,929		9.21		2.5914		736,440		9.22		2.5971

As of March 31, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $5,625,000, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 3.20 years. No option was exercised during the year ended March 31, 2024.

Aerkomm 2024 Plan

Activities related to options outstanding under Aerkomm 2024 Plan for the three months ended March 31, 2024 is as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Fair Value Per Share
Options outstanding at December 31, 2023		-		-		-
Granted		18,750		2.5800		1.9922
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at March 31, 2024 (unaudited)		18,750		2.5800		1.9922

There are no unvested stock awards under Aircom 2024 Plan for the three months period ended March 31, 2024.

Of the shares covered by options outstanding as of March 31, 2024, 18,750 are now exercisable. Information related to stock options outstanding and exercisable at March 31, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 3/31/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	2.58		18,750		9.92		2.5800		18,750		9.92		2.5800

As of March 31, 2024, there was no unrecognized stock-based compensation expense for the Aircom 2024 Plan. No option was exercised during the three months periods ended March 31, 2024.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Commitments

As of March 31, 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 $10 million. Additionally, under the terms of the PPA, the Executive Director of Republic Engineers, C. A. Raja, agreed to sign an agreement, or the Guarantee, to guarantee all of the obligations of Republic Engineers under the PPA. Republic Engineers had submitted a purchase order, or PO, dated October 15, 2018 for the 10 shipsets and was supposed to have made payments to Aircom Telecom against the purchase order shortly thereafter. Republic Engineers made no payments against the purchase order and the Company did not begin any work on the ordered shipsets. On July 7, 2020, Republic Engineers and Mr. Raja filed a complaint against Aerkomm, Aircom and Aircom Telecom (the “Aircom Parties”) in the Superior Court of the State of California for the County of Almeda, or the Court, seeking declaratory relief only and no money damages, alleging that the PPA and the PO were not executed or authorized by Republic Engineers and that the Guarantee was not executed or authorized by Mr. Raja. Republic Engineers and C. A. Raja requested from the Court (i) orders that the PPA, the PO and the Guarantee be declared null and void and (ii) the payment of their reasonable attorney’s fees. On July 29, 2020, Aircom Telecom provided notice to Republic Engineers that the PPA and the PO was terminated according to their terms as a result of the non-performance of Republic Engineers and the Failure of Mr. Raja to provide the Guarantee. The Aircom Parties filed a motion for judgment on the pleadings in August 2021, asking the Court to find the Complaint for Declaratory Relief to be moot, because the contracts that are the subject of the Complaint have been terminated. On September 22, 2021, the Court granted that motion, and dismissed the complaint. At the request of Republic Engineers, the Court granted Republic Engineers leave to amend its complaint to attempt to allege a viable claim. On May 10, 2022, Republic Engineers and Aircom Parties entered into a settlement and mutual release agreement, which included, among other things, a denial of wrongdoing by both parties, a requirement that Republic Engineering file a motion with the Court to dismiss its lawsuit against the Aircom Parties and a mutual release by each party of any and all claims against the other party relating to this dispute. On May 17, 2022, Republic Engineers filed with the Court a motion to dismiss with prejudice, its lawsuit against the Aircom Parties and on that same day the Court officially dismissed the lawsuit.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - 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 8 million (approximately US$1.2 million). On October 16, 2020, in accordance with the provisions of the agreement with Yihe, as supplemented, the Company filed an arbitration action with the Shenzhen International Arbitration Court, or the Arbitration Court, claiming that Yihe failed to perform under the terms of the supplemented agreement and seeking a complete refund of its RMB 8 million payment to Yihe. The Company received notice from the Arbitration Court on October 16, 2020 of receipt of its arbitration filing and the requirement to pay the Arbitration Court RMB 190,000 in fees relating to the arbitration. These fees were paid on October 28, 2020. The Company intends to aggressively pursue this matter. As of September 30, 2021, the prepayment was reclassified to other receivable and full allowance was reserved. On March 25, 2022, the Shenzhen International Arbitration Court issued a judgment in our favor. The Court deemed the Company’s agreement with Yihe terminated as of November 24, 2020, the date of the Company’s filing with the Court, and held that Yihe is required to promptly repay us RMB 7.5 million and reimburse the Company RMB 178,125 in court costs. The Company will make every effort to collect these amounts from Yihe.

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 Contract”). Pursuant to the terms of the Equity Sales Contract, (i) the Company will sell 25,500,000 shares (the “Shares”) of Aerkomm Taiwan Inc., the Company’s wholly-owned subsidiary (the “Aerkomm Taiwan”), to dMobile System Co., Ltd. (the “Buyer”) for NT$255,000,000 (approximately US $8,300,000 as of December 31, 2022), and (ii) the Buyer is required to pay the full amount to the Seller within 180 days of signing the Equity Sales Contract. If the Buyer fails to make the payment, the Seller has the right to claim the compensation from the Buyer due to the Buyer’s breach of the Equity Sales Contract. Furthermore, Mr. Albert Hsu who is designated by the seller as the pledgee of the Shares in the Equity Sales Contract will execute all the rights of the pledgee under the instruction from the Seller. The parties agree to be bound by the laws of the Republic of China and agree that the Taipei District Court in Taiwan is the court of jurisdiction for initial trial.

The Buyer, dMobile System Co., Ltd., is owned by Sheng-Chun Chang, a more than 10% equity owner of the Company.

The purpose of this transaction was to have Aerkomm Taiwan become a qualified company to apply for a telecommunication license in Taiwan.

NOTE 22 - 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 consolidated financial statements.

Pursuant to the terms of Merger Agreement, the Company was obligated to enter into simple agreements for future equity (the “SAFE Agreements”) with certain investors providing for investments in shares of the Company’s common stock in a private placement in an aggregate amount of not less than $15,000,000 (exercising reasonable best efforts to secure $5,000,000 within twenty (20) Business Days of the date of the Merger Agreement, another $5,000,000 within forty (40) Business Days of the date of the Merger Agreement, and another $5,000,000 within sixty (60) Business Days of the date of the Merger Agreement), such Safe Agreements to automatically convert into shares of the common stock of IXAQ upon the closing of the Merger at $11.50 per share (such investments in the aggregate, the “SAFE Investment”).

On May 13, 2024, an aggregate of $2,000,000 of the SAFE Investment was completed. The SAFE Investment will initially be placed in an escrow account and may be released from such escrow account to an account of the Company pursuant to the joint written instructions of the Company and IXAQ.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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.

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;

●

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, 2021, 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 an 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 where and when it is needed. 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.

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.

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 2023 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 2023 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.

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.

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;
	●	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;

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costs associated with implementing, and our ability to implement on a timely basis, our technology, upgrades and installation technologies;

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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;

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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;

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the economic environment and other trends that affect both business and leisure travel;

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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;

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continued demand for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops;

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our ability to obtain required licenses and approvals necessary for our operations; and

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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.

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, 2024.

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.

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 after effects 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.

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.

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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%.

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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.

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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.

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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.

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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 March 31, 2024 and 2023

The following table sets forth key components of our results of operations during the three months periods ended March 31, 2024 and 2023.

	Three Months Ended March 31,						Change
	2024			2023			$			%
Net Sales	$	18,480		$	454,281		$	(435,801	)		(95.9	)%
Service income		34,775			-			34,775			100.0	%
Cost of sales		38,116			447,781			(409,665	)		(91.5	)%
Operating expenses		5,066,442			3,643,426			1,423,016			39.1	%
Loss from operations		(5,051,303	)		(3,636,926	)		(1,414,377	)		38.9	%
Net non-operating expense		(1,541,416	)		(117,510	)		(1,423,906	)		1211.7	%
Loss before income taxes		(6,592,719	)		(3,754,436	)		(2,838,283	)		75.6	%
Income tax expense		2,400			-			2,400			100.0	%
Net Loss		(6,595,119	)		(3,754,436	)		(2,840,683	)		75.7	%
Other comprehensive income		(747,027	)		134,254			(881,281	)		(656.4	)%
Total comprehensive loss	$	(7,342,146	)	$	(3,620,182	)	$	(3,721,964	)		102.8	%

Revenue. We have $18,480 of net sales for the three-month period ended March 31, 2024 and $454,281 of net sales for the three-month period ended March 31, 2023, respectively. Our revenue for the three months ended March 31, 2024 was $53,255 as we are still developing our core business in in-flight entertainment and connectivity and there were few sales of equipment to one of our related parties during the period. The net sales of $454,281 ended March 31, 2023 represents income from sales of antennas 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 $1,423,016, or 39.1% to $5,066,442 for the three-month period ended March 31, 2024, from $3,643,426 for the three-month period ended March 31, 2023. Such increase was mainly due to increases in salary expenses, stock compensation expenses, professional fees, and amortization expenses of $1,280,339, $578,157, 515,504, and $319,364, respectively, which was offset by the decreases in R&D expenses and depreciation expense of $834,271 and $109,601.

Net non-operating expense. We had $1,541,416 in net non-operating expense for the three-month period ended March 31, 2024, as compared to net non-operating expense of $117,510 for the three-month period ended March 31, 2023. The net non-operating expense in the three-month period ended March 31, 2024 includes foreign exchange loss of $688,595, unrealized investment gain of $672, interest expenses of $840,837, and other loss, net of $12,656. Net non-operating expense in the three-month period ended March 31, 2023 represents gain on foreign exchange translation of $179,589, unrealized loss from the transactions of our liquidity contract and prepaid investment of $7,829, other financing cost due to amortization of convertible bonds issuing cost of $125,134 and interest expense of $236,073, which was offset by the interest income and other incomes of $71,937.

Loss before income taxes. Our loss before income taxes increased by $2,838,283, or 75.6%, to $6,592,719 for the three-month period ended March 31, 2024, from a loss of $3,754,436 for the three-month period ended March 31, 2023, as a result of the factors described above.

Income tax expense. Income tax expense was $2,400 for the three-month period ended March 31, 2024, as compared to the income tax expense of $0 for the three-month period ended March 31, 2023.

Total comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive loss increased by $3,721,964, or 102.8%, to $7,342,146 for the three-month period ended March 31, 2024, from $3,620,182 for the three-month period ended March 31, 2023.

Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $103,756 and restricted cash of $15,906. 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.

The following table provides detailed information about our net cash flow:

Cash Flow

	Three Months Ended March 31,
	2024			2023
Net cash used for operating activities	$	(2,472,529	)	$	(5,110,931	)
Net cash provided by investing activity		(357,345	)		(10,247	)
Net cash provided by financing activity		(5,749,498	)		752,910
Net decrease in cash and cash equivalents		(8,579,372	)		(4,368,268	)
Cash at beginning of year		7,428,702			10,101,920
Foreign currency translation effect on cash		1,269,445			(210,105	)
Cash at end of year	$	118,775		$	5,523,547

Operating Activities

Net cash used for operating activities was $2,472,529 for the three months ended March 31, 2024, as compared to $5,110,931 for the three months ended March 31, 2023. In addition to the net loss of $6,595,119, the decrease in net cash used for operating activities during the three-month period ended March 31, 2024 was mainly due to the decrease in accounts receivable and the increase in accrued expenses and other current liabilities of $41,088 and $3,029,865, respectively, offset by the decrease in prepaid expenses and other current assets of $703,222. In addition to the net loss of $3,754,436, the increase in net cash used for operating activities during the three-month period ended March 31, 2023 was mainly due to increase in prepaid expenses, accounts payable, and other payable of $2,068,638, $353,703, and $425,562, respectively, offset by the increase in accrued payroll liability and prepayment from customer, interest payable of $152,518, $352,081, and $235,482.

Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2024 was $357,345 as compared to net cash used by investing activities of $10,247 for the three months ended March 31, 2023. The net cash provided by investing activities for the three months ended March 31, 2024 was mainly prepayment for land of $346,070, which was offset by the cash used for the purchase of property and equipment of $11,275. The net cash provided by investing activities for the three months ended March 31, 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 $335,825.

Financing Activities

Net cash used and provided by financing activities for the three months ended March 31, 2024 and 2023 was $5,749,498 and $752,910, respectively. Net cash provided by financing activities for the three months ended March 31, 2024 were mainly attributable to net proceeds from issuance of common stock in the amount of $6,558,000 offset by repayment of long term note payable of $7,330,000. Net cash provided by financing activities for the three months ended March 31, 2023 were mainly attributable to proceeds from the increase in short-term loans in the amount of $758,439.

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 January 16, 2024, the Company had repaid $7,330,000 out of a total of $10,398,385 of principal and interest due on the Bonds as of that date. We expect to repay the remaining balance of the amount of $3,068,385 owed on the bonds, plus any additional accrued interest, within the next few months.

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 three months ended March 31, 2024 and 2023 were $357,345 and $335,825, 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.

Subsequent Events

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 March 31, 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 $94,000 and $7,246,000 as of March 31, 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 three-month periods ended March 31, 2024 and 2023, we incurred approximately $11,275 and $0 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 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 three-month periods ended March 31, 2024 and 2023.

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 consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our 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. 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.

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 March 31, 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 three months ended March 31, 2023 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.

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 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.

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 May *, 2024, the date on which these consolidated financial statements were available to be issued. All subsequent events requiring recognition as of March 31, 2024 have been included in these consolidated financial statements.

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 three months period ended March 31, 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 consolidated financial statements as of and for the three month ended March 31, 2024.

Segment Reporting

Income Taxes

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 March 31, 2023.

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 for the fiscal year ended December 31, 2023, filed with the SEC on May 7, 2024, and further referenced below, which we are still in the process of remediating as of March 31, 2024, our disclosure controls and procedures were not effective.

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 March 31, 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:

●

On November 5, 2018, we added a staff accountant with a CPA and technical accounting expertise to further support our current accounting personnel. 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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There were no material developments during the quarter ended March 31, 2024 to the legal proceedings previously disclosed in Item 3 “Legal Proceedings” of our Annual Report on Form 10-K filed on May 7, 2024.

ITEM 1A. RISK FACTORS.

For information regarding additional risk factors, please refer to our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on May 7, 2024.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We have not sold any equity securities during the quarter ended March 31, 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 March 31, 2024 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS

Exhibit No.		Description

2.1		Agreement and Plan of Merger, dated September 26, 2013, between Aerkomm Inc. and Maple Tree Kids LLC (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1 filed on November 5, 2013)
2.2		Form of Share Exchange Agreement, dated February 13, 2017, among Aerkomm Inc., Aircom Pacific, Inc. and the shareholders of Aircom Pacific, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed on February 14, 2017)
3.1		Restated Articles of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on May 4, 2017)
3.2		Certificate of Change Pursuant to NRS 78.209 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on January 16, 2019)
3.3		Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on March 30, 2020)
31.1*		Certifications of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certifications of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith

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: May 29, 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)

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Exhibit 31.1

CERTIFICATIONS

I, Louis Giordimaina, certify that:

I have reviewed this quarterly report on Form 10-Q of Aerkomm Inc.;

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;

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;

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our 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

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

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):

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

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: May 29, 2024

/s/ Louis Giordimaina

Louis Giordimaina

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

I, Louis Giordimaina, certify that:

I have reviewed this quarterly report on Form 10-Q of Aerkomm Inc.;

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: May 29, 2024

/s/ Louis Giordimaina

Louis Giordimaina

Interim 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

The undersigned, Jeffrey Wun, the Chief Executive Officer of AERKOMM INC. (the “Company”), DOES HEREBY CERTIFY that:

The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, the undersigned has executed this statement this 29th day of May, 2024.

/s/ Louis Giordimaina

Louis Giordimaina

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Aerkomm Inc. and will be retained by Aerkomm Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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

The undersigned, Louis Giordimaina, the Interim Chief Financial Officer of AERKOMM INC. (the “Company”), DOES HEREBY CERTIFY that:

Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, the undersigned has executed this statement this 29th day of May, 2024.

/s/ Louis Giordimaina

Louis Giordimaina

Interim Chief Financial Officer

(Principal Financial and Accounting Officer)

Cover - shares	3 Months Ended
Cover - shares	Mar. 31, 2024	May 22, 2024
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Entity Interactive Data Current	Yes
Amendment Flag	false
Document Period End Date	Mar. 31, 2024
Document Fiscal Year Focus	2024
Document Fiscal Period Focus	Q1
Entity Information [Line Items]
Entity Registrant Name	AERKOMM INC.
Entity Central Index Key	0001590496
Entity File Number	000-55925
Entity Tax Identification Number	46-3424568
Entity Incorporation, State or Country Code	NV
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Contact Personnel [Line Items]
Entity Address, Address Line One	44043 Fremont Blvd
Entity Address, City or Town	Fremont
Entity Address, Country	CA
Entity Address, Postal Zip Code	94538
Entity Phone Fax Numbers [Line Items]
City Area Code	(877)
Local Phone Number	742-3094
Entity Listings [Line Items]
Title of 12(b) Security	None
No Trading Symbol Flag	true
Security Exchange Name	NONE
Entity Common Stock, Shares Outstanding		17,962,613

Unaudited Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2024	Dec. 31, 2023
Current Assets
Cash	$ 103,756	$ 4,202,797
Short-term investment	3,649,315	3,804,850
Account receivable - related party		41,088
Inventories, net	170,892	170,892
Prepaid expenses	199,050	158,171
Other receivable - related parties	1,520,862	1,167,749
Other receivable - others	293,198	122,024
Other current assets	66,779	65,937
Total Current Assets	6,003,852	9,733,508
Long-term Investment	4,087,065	4,261,920
Property and Equipment
Cost	5,410,830	5,436,657
Accumulated depreciation	(3,145,708)	(3,085,789)
Total Property and Equipment	2,265,122	2,350,868
Prepayment for land	38,814,576	40,114,286
Prepayment for equipment	322,812	324,866
Net Property and Equipment	41,402,510	42,790,020
Other Assets
Prepayment for equipment and intangible assets	10,539,370	10,402,155
Restricted cash	15,019	3,225,905
Intangible asset, net	12,576,483	13,024,692
Goodwill	4,573,819	4,573,819
Right-of-use assets, net	191,307	221,417
Deposits	531,097	534,515
Total Other Assets	28,427,095	31,982,503
Total Assets	79,920,522	88,767,951
Current Liabilities
Short-term loans	164,671	132,257
Accounts payable	1,897,820	1,900,317
Accrued expenses	8,390,567	5,995,972
Other payable - related parties	741,842	726,802
Other payable - others	13,616,753	12,617,277
Prepayment from customer - related party	6,154,989	6,534,908
Long-term loan - current	2,720,296	5,045
Lease liability - current	170,500	168,433
Total Current Liabilities	33,857,438	28,081,011
Long-term Liabilities
Convertible long-term bonds payable	200,000	9,648,155
Convertible long-term note payable	23,173,200	23,173,200
Contract liability - non-current	762,000	762,000
Lease liability - non-current	100,329	120,932
Restricted stock deposit liability	1,000	1,000
Total Long-Term Liabilities	24,236,529	33,705,287
Total Liabilities	58,093,967	61,786,298
Stockholders’ Equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023
Common stock, $0.001 par value, 90,000,000 shares authorized, 17,813,451 shares (excluding 149,162 unvested restricted shares) issued and outstanding as of March 31, 20243 and December 31, 2023	17,813	16,720
Additional paid in capital	104,205,425	97,015,470
Subscribed capital		5,004,000
Accumulated deficits	(81,315,073)	(74,719,954)
Accumulated other comprehensive loss	(1,081,610)	(334,583)
Total Stockholders’ Equity	21,826,555	26,981,653
Total Liabilities and Stockholders’ Equity	$ 79,920,522	$ 88,767,951

Unaudited Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares	Mar. 31, 2024	Dec. 31, 2023
Statement of Financial Position [Abstract]
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	17,813,451	17,813,451
Common stock, shares outstanding	17,813,451	17,813,451
Unvested restricted shares	149,162	149,162

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Total Revenue	$ 53,255	$ 454,281
Cost of sales	38,116	447,781
Gross Profit	15,139	6,500
Operating expenses	5,066,442	3,643,426
Loss from Operations	(5,051,303)	(3,636,926)
Non-operating loss
Foreign currency exchange gain (loss)	(688,595)	179,589
Unrealized investment gain (loss)	672	(7,829)
Interest expenses	(840,837)	(361,207)
Other gain (loss), net	(12,656)	71,937
Net Non-Operating Loss	(1,541,416)	(117,510)
Loss Before Income Taxes	(6,592,719)	(3,754,436)
Income Tax Expense	2,400
Net Loss	(6,595,119)	(3,754,436)
Other Comprehensive Income (loss)
Change in foreign currency translation adjustments	(747,027)	134,254
Total Comprehensive Loss	$ (7,342,146)	$ (3,620,182)
Net Loss Per Common Share:
Basic (in Dollars per share)	$ (0.3697)	$ (0.3804)
Diluted (in Dollars per share)	$ (0.3697)	$ (0.3804)
Weighted Average Shares Outstanding - Basic (in Shares)	17,839,228	9,869,165
Weighted Average Shares Outstanding - Diluted (in Shares)	17,839,228	9,869,165
Net Sales
Total Revenue	$ 18,480	$ 454,281
Service Income - Related Party
Total Revenue	$ 34,775

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity - USD ($)	Common Stock	Additional Paid in Capital	Accumulated Deficits	Accumulated Other Comprehensive Income (Loss)	Capital Injection	Total
Balance at Dec. 31, 2022	$ 9,720	$ 79,078,005	$ (53,645,981)	$ (373,974)		$ 25,067,770
Balance (in Shares) at Dec. 31, 2022	9,720,003
Stock compensation expense		54,891				54,891
Other comprehensive income				134,254		134,254
Net loss for the period			(3,754,436)			(3,754,436)
Balance at Mar. 31, 2023	$ 9,720	79,132,896	(57,400,417)	(239,720)		21,502,479
Balance (in Shares) at Mar. 31, 2023	9,720,003
Balance at Dec. 31, 2023	$ 16,720	97,015,470	(74,719,954)	(334,583)	$ 5,004,000	26,981,653
Balance (in Shares) at Dec. 31, 2023	16,720,451
Issuance of common stock	$ 1,093	6,556,907			(5,004,000)	1,554,000
Issuance of common stock (in Shares)	1,093,000
Stock compensation expense		633,048				633,048
Other comprehensive income				(747,027)		(747,027)
Net loss for the period			(6,595,119)			(6,595,119)
Balance at Mar. 31, 2024	$ 17,813	$ 104,205,425	$ (81,315,073)	$ (1,081,610)		$ 21,826,555
Balance (in Shares) at Mar. 31, 2024	17,813,451

Unaudited Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Cash Flows from Operating Activities
Net loss	$ (6,595,119)	$ (3,754,436)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	506,980	316,272
Stock-based compensation	633,048	54,891
Unrealized investment (gain) loss	(672)	7,829
Interest expense of bonds issuance costs	216,942	125,135
Interest expense on repayment of long term loan	383,239
Changes in operating assets and liabilities:
Accounts receivable	41,088
Inventories
Prepaid expenses and other current assets	(703,222)	(2,138,165)
Deposits	3,418	(6,236)
Accounts payable	(2,497)	(353,703)
Accrued expenses and other current liabilities	3,029,865	655,362
Operating lease liability	14,401	(17,880)
Net Cash Used for Operating Activities	(2,472,529)	(5,110,931)
Cash Flows from Investing Activities
Prepayment for land	(346,070)
Proceeds from disposal of long-term investment		325,578
Purchase of property and equipment	(11,275)	(335,825)
Net Cash (Used) Provided by Investing Activities	(357,345)	(10,247)
Cash Flows from Financing Activities
Proceeds from short-term loan	32,414	758,439
Repayment of long-term loan	(3,086)	(2,605)
Prepayment for land	(5,004,000)
Proceeds from issuance of common stock	6,558,000
Repayment of long term note payable	(7,330,000)
Payment on finance lease liability	(2,826)	(2,924)
Net Cash Provided by Financing Activities	(5,749,498)	752,910
Net Decrease in Cash and Restricted Cash	(8,579,372)	(4,368,268)
Cash and Restricted Cash, Beginning of Period	7,428,702	10,101,920
Foreign Currency Translation Effect on Cash	1,269,445	(210,105)
Cash and Restricted Cash, End of Period	118,775	5,523,547
Supplemental disclosures of cash flow information:
Cash paid during the period for interest
Cash and Restricted Cash:
Cash	103,756	2,299,190
Restricted cash	15,019	3,224,357
Total	$ 118,775	$ 5,523,547

Organization

3 Months Ended

Mar. 31, 2024

Organization [Abstract]

Organization

NOTE 1 - Organization

The Company’s organization structure is as following:

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2024

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 2 - Summary of Significant Accounting Policies

Unaudited Interim Financial Information

Principle of Consolidation

Reclassifications of Prior Year Presentation

Use of Estimates

Concentrations of Credit Risk

Investment in Equity Securities

Accounts receivable

Inventories

Property and Equipment

Right-of-Use Asset and Lease Liability

Goodwill and Purchased Intangible Assets

Fair Value of Financial Instruments

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.

Revenue Recognition

Stock-based Compensation

Income Taxes

Foreign Currency Transactions

Translation Adjustments

Earnings (Loss) Per Share

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2024

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

NOTE 3 - Recent Accounting Pronouncements

Simplifying the Accounting for Debt with Conversion and Other Options.

Financial Instruments

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.

Earnings Per Share

Segment Reporting

Income Taxes

Short-Term Investment

3 Months Ended

Mar. 31, 2024

Short-Term Investment [Abstract]

Short-term Investment

NOTE 4 - Short-term Investment

As of March 31, 2024 and December 31, 2023, the fair value of the investment was as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Investment - Ejectt - short-term	$	2,539,336		$	2,647,975
Investment - Liquidity		13,831			13,831
Prepaid investment		1,096,148			1,143,044
Total Investment		3,649,315			3,804,850
Appreciation in market value - Ejectt		(1,935,933	)		(2,018,757	)
Investment cost - Ejectt - short-term		603,403			629,218
Investment cost - Liquidity		13,831			13,831
Prepaid investment		1,096,148			1,143,044

Inventories

3 Months Ended

Mar. 31, 2024

Inventories [Abstract]

Inventories

NOTE 5 - Inventories

As of March 31, 2024 and December 31, 2023, inventories consisted of the following:

	March 31, 2024		December 31, 2023
	(Unaudited)
Satellite equipment for sale under construction	$	170,892	$	170,892

Prepaid Expenses and Prepayments for Equipment and Intangible Assets

3 Months Ended

Mar. 31, 2024

Prepaid Expenses and Prepayments for Equipment and Intangible Assets [Abstract]

Prepaid Expenses and Prepayments for Equipment and Intangible Assets

NOTE 6 - Prepaid Expenses and Prepayments for Equipment and Intangible Assets

As of March 31, 2024 and December 31, 2023, prepaid expenses consisted of the following:

	March 31, 2024		December 31, 2023
	(Unaudited)
Prepaid professional expense	$	118,854	$	110,043
Others		80,196		48,128
Total	$	199,050	$	158,171
Prepayment for equipment and intangible assets - related party		2,073,448		2,076,138
Prepayment for equipment and intangible assets - others		8,465,922		8,326,017
Total	$	10,539,370	$	10,402,155

Property and Equipment, Net

3 Months Ended

Mar. 31, 2024

Property and Equipment, Net [Abstract]

Property and Equipment, Net

NOTE 7 - Property and Equipment, Net

As of March 31, 2024 and December 31, 2023, the balances of property and equipment were as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Ground station equipment	$	1,854,027		$	1,854,027
Computer software and equipment		2,837,049			2,847,119
Satellite equipment		275,410			275,410
Vehicle		322,033			337,637
Leasehold improvement		83,782			83,827
Furniture and fixture		38,529			38,637
		5,410,830			5,436,657
Accumulated depreciation		(3,145,708	)		(3,085,789	)
Net		2,265,122			2,350,868
Prepayments - land		38,814,576			40,114,286
Prepaid equipment		322,812			324,866
Total	$	41,402,510		$	42,790,020

Depreciation expense was $72,051 and $181,652 for the three months periods ended March 31, 2024 and 2023, respectively.

Long-Term Investment

3 Months Ended

Mar. 31, 2024

Long-Term Investment [Abstract]

Long-term Investment

NOTE 8 - Long-term Investment

As of March 31, 2024 and December 31, 2023, 5,000,000 shares of Ejectt’s common stock were restricted.

In Q1 2023, the Company disposed AnaNaviTek for amount of $325,578.

As of March 31, 2024 and December 31, 2023, the fair value of the long-term investment was as follows:

	March 31, 2024		December 31, 2023
	(Unaudited)
Investment at cost - Ejectt - long-term	$	4,087,065	$	4,261,920
Investment at cost - AnaNaviTek		-		-
Net	$	4,087,065	$	4,261,920

Intangible Asset, Net

3 Months Ended

Mar. 31, 2024

Intangible Asset, Net [Abstract]

Intangible Asset, Net

NOTE 9 - Intangible Asset, Net

As of March 31, 2024 and December 31, 2023, the cost and accumulated amortization for intangible asset were as follows:

	March 31, 2024			December 31, 2023
	(Unaudited)
Satellite system software	$	17,391,926		$	17,406,469
Accumulated amortization		(4,815,443	)		(4,381,777	)
Net	$	12,576,483		$	13,024,692

Amortization expense was $434,929 and $123,750 for each of the three months periods ended March 31, 2024 and 2023.

Goodwill

3 Months Ended

Mar. 31, 2024

Goodwill [Abstract]

Goodwill

Note 10 - Goodwill

As of March 31, 2024 and December 31, 2023, the goodwill were as follows

	Gross Goodwill		Accumulated Impairment			Net
January 1, 2023	$	4,561,037		-			4,561,037
Addition		4,573,819		(4,561,037	)		12,782
December 31, 2023		9,134,856	$	(4,561,037	)	$	4,573,819
Addition		-		-			-
March 31, 2024 (unaudited)	$	9,134,856	$	(4,561,037	)	$	4,573,819

There is $0 and $4,561,037 impairment loss on goodwill was recognized for three-month period ended March 31, 2024 and the year ended December 31, 2023 for all past mergers activities.

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 $4,561,037 by performing the two-step goodwill impairment test. After the impairment measurement, the net goodwill is $4,573,819.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition. Goodwill as a result of the acquisition of MEPA is calculated as follows;

Goodwill as a result of the acquisition of Mixnet and its subsidiary is calculated as follows;

Total purchase considerations	$	16,500,000
Fair Value of tangible assets acquired:
Cash		66,278
Other receivable		3,513
Prepaid expenses and other current assets		2,872
Intangible assets		12,102,000
Total identifiable assets acquired		12,174,663

Fair value of liabilities assumed:
Loan payable - current		(50,403	)
Prepayment from customer		(94,634	)
Other payable		(24,203	)
Loan from stockholder - non-current		(79,242	)
Total liabilities assumed		(248,482	)
Net identifiable liabilities assumed		11,926,181
Goodwill as a result of the acquisition	$	4,573,819

Operating and Finance Leases

3 Months Ended

Mar. 31, 2024

Operating and Finance Leases [Abstract]

Operating and Finance Leases

NOTE 11 - Operating and Finance Leases

Lease term and discount rate:

The weighted-average remaining lease term and discount rate related to the leases were as follows:

	2024			2023
Weighted-average remaining lease term	(Unaudited)
Operating lease		1.75 Year			1.97 Years
Finance lease		0.60 Years			0.85 Years
Weighted-average discount rate
Operating lease		6.00	%		6.00	%
Finance lease		3.82	%		3.82	%

The balances for the operating and finance leases are presented as follows within the unaudited condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023:

Operating Leases

	March 31, 2024		December 31, 2023
	(Unaudited)
Right-of-use assets	$	191,307	$	221,417
Lease liability - current	$	161,026	$	155,763
Lease liability - non-current	$	100,329	$	120,932

Finance Leases

	March 31, 2024			December 31, 2023
	(Unaudited)
Property and equipment, at cost	$	53,179		$	56,770
Accumulated depreciation		(46,975	)		(47,968	)
Property and equipment, net	$	6,204		$	8,802

Lease liability - current	$	9,474		$	12,669
Lease liability - non-current		-			-
Total finance lease liabilities	$	9,474		$	12,669

The components of lease expense are as follows within the unaudited condensed consolidated statements of operations and comprehensive loss for the three months periods ended March 31, 2024 and 2023:

Operating Leases

	March 31, 2024			March 31, 2023
	(Unaudited)			(Unaudited)
Lease expense	$	32,001		$	33,184
Sublease rental income		(2,019	)		(24,580	)
Net lease expense	$	29,982		$	8,604

Finance Leases

	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Amortization of right-of-use asset	$	2,700	$	2,794
Interest on lease liabilities		109		218
Total finance lease cost	$	2,809	$	3,012

Supplemental cash flow information related to leases for the three months periods ended March 31, 2024 and 2023 is as follows:

	March 31, 2024		March 31, 2023
	(Unaudited)		(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	15,743	$	9,531
Operating cash outflows from finance lease	$	2,674	$	2,706
Financing cash outflows from finance lease	$	151	$	218
Leased assets obtained in exchange for lease liabilities:
Operating leases	$	-	$	345,204

Maturity of lease liabilities:

Operating Leases

	Others			Total
	(Unaudited)			(Unaudited)
April 1, 2024 - March 31, 2025	$	99,755		$	99,755
April 1, 2025 - March 31, 2026		89,256			89,256
April 1, 2026 - March 31, 2027		14,876			14,876
Total lease payments	$	203,887		$	203,887
Less: Imputed interest		(12,580	)		(12,580	)
Present value of lease liabilities	$	191,307		$	191,307
Current portion		(90,978	)		(90,978	)
Non-current portion	$	100,329		$	100,329

Finance Leases

	Total
	(Unaudited)
April 1, 2024 - March 31, 2025	$	9,625
April 1, 2025 - March 31, 2026		-
Total lease payments	$	9,625
Less: Imputed interest		(151	)
Present value of lease liabilities	$	9,474
Current portion		9,474
Non-current portion	$	-

Short-Term Loan

3 Months Ended

Mar. 31, 2024

Short-Term Loan [Abstract]

Short-term Loan

NOTE 12 - Short-term Loan

Long-Term Loan

3 Months Ended

Mar. 31, 2024

Long-Term Loan [Abstract]

Long-term Loan

NOTE 13 - Long-term Loan

Twelve months ending March 31,	(Unaudited)
2024		1,982
2025		-
Total installment payments		1,982
Less: Imputed interest		(24	)
Present value of long-term loan		1,958
Current portion		(1,958	)
Non-current portion	$	-

Year ending December 31,
2024	$	5,168
2025		-
Total installment payments		5,168
Less: Imputed interest		(123	)
Present value of long-term loan		5,045
Current portion		(5,045	)
Non-current portion	$	-

Convertible Long-Term Bonds Payable and Restricted Cash

3 Months Ended

Mar. 31, 2024

Convertible Long-Term Bonds Payable and Restricted Cash [Abstract]

Convertible Long-term Bonds Payable and Restricted Cash

NOTE 14 - Convertible Long-term Bonds Payable and Restricted Cash

As of March 31, 2024 and December 31, 2023, the long-term bonds payable consisted of the following:

	March 31, 2024			December 31, 2023
	(Unaudited)
Credit Enhanced Zero Coupon Convertible Bonds	$	3,053,239		$	10,000,000
Coupon Bonds		200,000			200,000
		3,253,239			10,200,000
Unamortized loan fee		(334,902	)		(551,845	)
Net	$	2,918,337		$	9,648,155

Bond issuance cost was $216,943 and $125,134 for the three months ended March 31, 2024 and 2023, respectively.

Convertible Long-Term Notes Payable and Restricted Cash

3 Months Ended

Mar. 31, 2024

Convertible Long-term notes Payable and Restricted Cash [Abstract]

Convertible Long-term Notes Payable and Restricted Cash

NOTE 15 - Convertible Long-term Notes Payable and Restricted Cash

Contract Liability

3 Months Ended

Mar. 31, 2024

Contract Liability [Abstract]

Contract Liability

NOTE 16 - Contract Liability

Income Taxes

3 Months Ended

Mar. 31, 2024

Income Taxes [Abstract]

Income Taxes

NOTE 17 - Income Taxes

Income tax expense for the three months periods ended March 31, 2024 and 2023 consisted of the following:

	Three Months Ended March 31,
	2024		2023
Current:	(Unaudited)		(Unaudited)
Federal	$	-	$	-
State		2,400		-
Foreign		-		-
Total	$	2,400	$	-

The following table presents a reconciliation of the Company’s income tax at statutory tax rate and income tax at effective tax rate for the three months periods ended March 31, 2024 and 2023.

	Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Tax benefit at statutory rate	$	(1,856,347	)	$	(642,805	)
Net operating loss carryforwards (NOLs)		1,366,499			1,008,874
Foreign investment gain (losses)		116,696			(140,193	)
Stock-based compensation expense		134,900			11,500
Amortization expense		34,000			18,900
Accrued payroll		109,600			31,600
Unrealized exchange gain (losses)		91,252			(273,276	)
Others		5,800			(14,600	)
Tax expense at effective tax rate	$	2,400		$	-

Deferred tax assets (liability) as of March 31, 2024 and December 31, 2023 consist approximately of:

	March 31, 2024			December 31, 2023
	(Unaudited)
Net operating loss carryforwards (NOLs)	$	16,496,000		$	14,831,000
Stock-based compensation expense		3,502,000			3,502,000
Accrued expenses and unpaid expense payable		1,041,000			889,000
Tax credit carryforwards		68,000			68,000
Unrealized exchange losses (gain)		109,000			20,000
Excess of tax amortization over book amortization		(216,000	)		(285,000	)
Others		47,000			27,000
Gross		21,047,000			19,052,000
Valuation allowance		(21,047,000	)		(19,052,000	)
Net	$	-		$	-

As of March 31, 2024 and December 31, 2023, the Company has Japan NOLs of approximately $263,000 and $260,000, respectively, available to reduce future Japan taxable income, expiring in 2031.

As of March 31, 2024 and December 31, 2023, the Company has Taiwan NOLs of approximately 8,372,000 and $6,173,000, respectively, available to reduce future Taiwan taxable income, expiring in 2031.

Capital Stock

3 Months Ended

Mar. 31, 2024

Capital Stock [Abstract]

Capital Stock

NOTE 18 - Capital Stock

Preferred Stock:

Common Stock:

The Company is authorized to issue 90,000,000 shares of common stock as of March 31, 2024 and December 31, 2023.

	March 31, 2024		December 31, 2023
	(Unaudited)
Restricted stock - vested		1,802,373		1,802,373
Restricted stock - unvested		149,162		149,162
Total restricted stock		1,951,535		1,951,535

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 4,114 shares of common stock to Bevilaqua PLLC for the legal services rendered.

On September 28, 2023, the Company issued 7,000,448 shares of common stock to Kevin Wong to acquire Mixnet Technology Limited and its subsidiary (Mixnet).

Stock Warrant:

For the years ended December 31, 2022, the Company recorded an increase of $1,252,029 in additional paid-in capital as adjustment for the issuance costs of these stock warrants.

Significant Related Party Transactions

3 Months Ended

Mar. 31, 2024

Significant Related Party Transactions

NOTE 19 - Significant Related Party Transactions

In addition to the information disclosed in other notes, the Company has significant related party transactions as follows:

Name of related parties and relationships with the Company:

Related Party		Relationship
Well Thrive Limited (“WTL”)		Major stockholder
Ejectt Inc. (“Ejectt”)		Stockholder; Albert Hsu, a Director of Aerkomm, is the Chairman
STAR JEC INC. (“StarJec”)		Stockholder; Albert Hsu, a Director of Aerkomm, is the Chairman
AA Twin Associates Ltd. (“AATWIN”)		Georges Caldironi, COO of Aerkomm, is sole owner
EESquare Japan (“EESquare JP”)		Yih Lieh (Giretsu) Shih, President Aircom Japan, is the Director
Kevin Wong		Stockholder of Mixnet

Significant related party transactions:

As of March 31, 2024 and December 31, 2023:

	March 31, 2024		December 31, 2023
	(Unaudited)
Other receivable from:
EESquare JP ¹	$	241,370	$	173,858
Ejectt³		-		15,983
WTL⁴		1,258,267		956,835
Others⁶		21,225		21,073
Total	$	1,520,862	$	1,167,749

Prepaid expenses to Ejectt³	$	2,073,448		2,076,138

Prepayment from Ejectt ³	$	6,154,989	$	6,534,908

Other payable to:
AATWIN ⁵	$	19,047	$	19,047
Interest payable to WTL⁴		56,600		59,021
StarJec²		104,093		111,702
Kevin Wong⁶		106,374		75,326
Others ⁷		455,728		461,704
Total	$	741,842	$	726,802

1.	Aircom Japan entered into a sublease agreement with EESquare JP for the period between March 5, 2019 and March 4, 2023 and extended another 2 years to March 4, 2025. Pursuant to the terms of this lease agreement, EESquare JP pays Aircom Japan a rental fee of approximately $673 per month as of March 31, 2024. This amount represents outstanding balance receivable from EESquare JP as of March 31, 2024.

2.	Aircom Japan entered into a housing service order on December 14, 2021 and a satellite service order on January 22, 2022 for one year period till January 21, 2023. On June 20, 2022, Aircom Japan also entered a teleport service order with StarJec for a half year period from June 1, 2022 to January 14, 2023. The amount represents receivable from StarJec for monthly service provided due to the service agreements. The monthly service charges is approximately ￥6,820,000 (approximately $51,800 as of December 31,2022). Other payable represents deposits should be returned to Ejectt after service contracts ended as of March 31, 2024.

3.	Represents prepayment paid by Ejectt to order [6] sets of antennas from Aircom Telecom with prepayment of $1,243,247 as of December 31, 2023 and $1,192,240 as of March 31, 2024. As of June 17, 2023, Aerkomm Taiwan entered into MOU with Ejectt to appoints Ejectt as its exclusive represent agency in Taiwan with NTD 20,000,000 security deposit (approximately $653,168 as of December 31, 2023 and $626,370 as of March 31, 2024). In 4^th quarter of 2023, Ejectt also entered into 3 orders with Aerkomm Japan to purchase 5 sets of equipment with approximately $4,330,592 as of December 31, 2023 and $4,035,624 as of March 31, 2024. Besides, 6 months service ordered in October 2023 for NTD 5,333,333 (approximately $174,178 as of December 31, 2023 and $167,032 as of March 31, 2024) with the Company. The number also includes the equipment purchased with Aerkomm for about $133,722 in October, 2023. The prepaid expenses of $2,076,138 as of December 31, 2023 and $2,073,448 as of March 31,2024 which represents 3 new agreements signed with AKOM different entities for AirCinema Cube orders in year 2023.

4.	The Company has loans from WTL due to operational needs under the Loans (Note 1). The Company has interest payable balance of $59,021 as of December 31, 2023 and $56,600 as of March 31, 2024 (approximately NTD 1,807,000) for past Loan. The Company borrowed $1,258,267 as of March 31, 2024.

5.	Represents payable to AATWIN due to consulting agreement on January 1, 2019. The monthly consulting fee is €15,120 (approximately $17,000) and was expired on December 31, 2021.

6.	Represents long-term loan that Mixnet borrowed from its stockholder for business operating needs for $75,326 (approximately NTD 2,306,000) as of December 31, 2023 and $106,374 (approximately NTD 3,396,000) as of March 31, 2024.

7.	Represents receivable/payable from/to management levels as a result of regular operating activities.

For the three months periods ended March 31, 2024 and 2023:

	Three Months Ended March 31,
	2024			2023
	(Unaudited)			(Unaudited)
Purchase from Ejectt¹	$	53,255		$	454,281
Rental income from EESqaure JP ²		(2,019	)		(2,266	)

1.	Represents 2 orders sold to Ejectt in Q1, 2024.

2.	Aircom Japan entered into a sublease agreement with EESquare JP for the period between March 5, 2021 and March 4, 2023. Pursuant to the terms of this lease agreement, EESquare JP pays Aircom Japan a rental fee of approximately $673 per month in 2024 Q1.

Stock Based Compensation

3 Months Ended

Mar. 31, 2024

Stock Based Compensation [Abstract]

Stock Based Compensation