On November 30, 2018, Aerkomm Inc. (the
“Company”) posted audited financial statements for the six months ended September 30, 2018 to the OTC Markets website
in connection with the Company’s application for uplisting to the OTCQX market. A copy of such audited financial statements
is filed herewith as Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Stockholders
AERKOMM INC.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
balance sheet of AERKOMM INC. AND SUBSIDIARIES (the “Company”) as of September 30, 2018, the related consolidated statements
of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the six-month period ended September
30, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September
30, 2018, and the results of its operations and its cash flows for the six-month period ended September 30, 2018, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audit provides a reasonable basis for our opinion.
/s/ Chen & Fan
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Chen & Fan
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Accountancy Corporation
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We have served as the Company’s auditor since 2017.
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San Jose, California
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November 27, 2018
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AERKOMM, INC.
AND SUBSIDIARIES
Consolidated Balance
Sheet
September 30, 2018
Assets
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Current Assets
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|
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Cash
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$
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896,773
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Accounts receivable
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1,745,000
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Prepaid expenses
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1,568,302
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Other receivable
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419,194
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Other current assets
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|
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9,736
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|
|
|
|
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Total Current Assets
|
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4,639,005
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Property and Equipment, Net
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|
|
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Cost
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|
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2,624,969
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Accumulated depreciation
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|
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(187,313
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)
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|
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2,437,656
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Prepayment for land
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35,237,127
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Construction in progress
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1,221,802
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Net Property and Equipment
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38,896,585
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Other Assets
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Intangible asset, net
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3,506,250
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Goodwill
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1,450,536
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Deposits
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- related party
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2,379
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- others
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47,083
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Total Other Assets
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5,006,248
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Total Assets
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48,541,838
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The accompanying notes are an integral part of these consolidated financial statements.
AERKOMM,
INC. AND SUBSIDIARIES
Consolidated
Balance Sheet - Continued
September 30, 2018
Liabilities and Stockholders’ Equity
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Current Liabilities
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Accounts payable
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$
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1,650,000
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Accrued expenses
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155,912
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Other payable
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- related parties
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868,079
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- others
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2,215,117
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Total Current Liabilities
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4,889,108
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Long-Term Liability
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Restricted stock deposit liability
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1,700
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Total Liabilities
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4,890,808
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Commitments
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Stockholders’ Equity
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Preferred stock, $0.001 par value Authorized - 50,000,000 shares Issued and outstanding - none
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-
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Common stock, $0.001 par value Authorized - 450,000,000 shares Issued and outstanding - 45,490,363 (excluding unvested restricted stock of 1,267,875 shares) shares
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45,490
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Additional paid in capital
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56,841,387
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Accumulated deficits
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(13,231,175
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)
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Accumulated other comprehensive loss
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(4,672
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)
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Total Stockholders’ Equity
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43,651,030
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Total
Liabilities and Stockholders’ Equity
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$
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48,541,838
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The accompanying notes are an integral
part of these consolidated financial statements.
AERKOMM, INC.
AND SUBSIDIARIES
Consolidated Statement
of Operation and Comprehensive Loss
For the Six-Month Period ended September 30, 2018
Net Sales
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$
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1,730,000
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Service Income
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15,000
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Total Revenue
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1,745,000
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Cost and Expenses
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Cost of sales
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1,650,000
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Operating expenses
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4,730,085
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Total Cost and Expenses
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6,380,085
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Loss from Operations
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(4,635,085
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)
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Net Non-Operating Income
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6,881
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Loss before Income Taxes
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(4,628,204
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)
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Income Tax Expense
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-
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Net Loss
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(4,628,204
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)
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Other Comprehensive Loss
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Change in foreign currency translation adjustments
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(4,142
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)
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Total Comprehensive Loss
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$
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(4,632,346
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)
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Net Loss Per Common Share:
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Basic
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$
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(0.1043
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)
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Diluted
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$
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(0.1043
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)
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Weighted Average Shares Outstanding - Basic
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44,413,205
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Weighted Average Shares Outstanding - Diluted
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44,413,205
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The accompanying
notes are an integral part of these consolidated financial statements.
AERKOMM, INC.
AND SUBSIDIARIES
Consolidated Statement
of Changes in Stockholders’ Equity
For the Six-Month
Period Ended September 30, 2018
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Accumulated
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Additional
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Other
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Total
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Common Stock
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Paid
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Subscriptions
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Subscribed
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Accumulated
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Comprehensive
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Stockholders’
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Shares
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Amount
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in Capital
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Receivable
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Capital
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Deficits
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Loss
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Equity
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Balance as of March 31, 2018
|
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41,449,735
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$
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41,449
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$
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13,787,341
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$
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(559,608
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)
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|
$
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690,648
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|
|
$
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(8,602,971
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)
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$
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(530
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)
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$
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5,356,329
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Issuance of common stock
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5,174,811
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5,176
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40,698,115
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-
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-
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-
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-
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40,703,291
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Subscribed capital
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123,330
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123
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690,525
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559,608
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(690,648
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)
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-
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-
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559,608
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Issuance of stock warrant
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-
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-
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879,500
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-
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-
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-
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-
|
|
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879,500
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Restricted stock unvested and transferred from common stock
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(1,257,513
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)
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(1,258
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)
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|
|
(428
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)
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|
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-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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|
(1,686
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)
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Stock compensation expense
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-
|
|
|
|
-
|
|
|
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786,334
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-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
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786,334
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Net loss for the period
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|
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-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
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-
|
|
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(4,628,204
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)
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-
|
|
|
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(4,628,204
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)
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Other comprehensive loss
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-
|
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|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
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(4,142
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)
|
|
|
(4,142
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)
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Balance as of September 30, 2018
|
|
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45,490,363
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$
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45,490
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|
$
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56,841,387
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(13,231,175
|
)
|
|
$
|
(4,672
|
)
|
|
$
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43,651,030
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The accompanying notes are an
integral part of these consolidated financial statements.
AERKOMM, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Six-Month Period Ended September 30, 2018
Cash Flows From Operating Activities
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Net loss
|
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$
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(4,628,204
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)
|
Adjustments to reconcile net loss to net cash used for operating activities:
|
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|
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Depreciation and amortization
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315,376
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Stock-based compensation
|
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786,334
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R&D expenses transferred from construction in progress
|
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439,296
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|
Changes in operating assets and liabilities:
|
|
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|
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Accounts receivable
|
|
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(1,745,000
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)
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Prepaid expenses
|
|
|
(1,205,700
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)
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Other receivable
|
|
|
8,097
|
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Other current assets
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|
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(8,534
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)
|
Deposits
|
|
|
|
|
- related party
|
|
|
163
|
|
- others
|
|
|
101,756
|
|
Accounts payable
|
|
|
1,650,000
|
|
Accrued expenses
|
|
|
(725,302
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)
|
Other payable
|
|
|
|
|
- related parties
|
|
|
(431,499
|
)
|
- others
|
|
|
(1,436,647
|
)
|
Net Cash Used for Operating Activities
|
|
|
(6,879,864
|
)
|
Cash Flows From Investing Activities
|
|
|
|
|
Prepayment on land and satellite equipment
|
|
|
(33,850,000
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)
|
Purchase of property and equipment
|
|
|
(234,817
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)
|
Net Cash Used for Investing Activities
|
|
|
(34,084,817
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)
|
Cash Flows From Financing Activities
|
|
|
|
|
Repayment of short-term bank loan
|
|
|
(10,000
|
)
|
Repayment of short-term loan - related party
|
|
|
(325,040
|
)
|
Proceeds from issuance of common stock
|
|
|
41,262,899
|
|
Inssuance of stock warrant
|
|
|
879,500
|
|
Net Cash Provided by Financing Activities
|
|
|
41,807,359
|
|
Net Increase in Cash
|
|
|
842,678
|
|
Cash, Beginning of Period
|
|
|
58,237
|
|
Foreign Currency Translation Effect on Cash
|
|
|
(4,142
|
)
|
Cash, End of Period
|
|
$
|
896,773
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
AERKOMM,
INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows - Continued
For
the Six-Month Period Ended September 30, 2018
Supplemental Disclosures of Cash Flow Information:
|
|
|
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Cash paid during the period for:
|
|
|
|
Income taxes
|
|
$
|
4,000
|
|
Interest
|
|
$
|
2,008
|
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Non-cash Operating and Financing Activities:
|
|
|
|
|
Restricted stock deposit liability transferred from common stock
|
|
$
|
1,686
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
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.
On
December 28, 2016, Aircom Pacific Inc. (“Aircom”) purchased 700,000 shares of Aerkomm’s common stock, representing
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.
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 (or 87.81% on a fully-diluted basis). 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.
Aircom
was incorporated on September 29, 2014 under the laws of the State of California.
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. Aircom Seychelles was formed to facilitate Aircom’s global corporate
structure for both business operations and tax planning. Presently, Aircom Seychelles has no operations. Aircom 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. The purpose of Aircom HK is to conduct Aircom’s business and operations in Hong Kong
and China. Presently, its primary function is business development, both with respect to airlines as well as content providers
and advertisement partners based in Hong Kong and China. Aircom HK 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 Hong
Kong-based airlines via Aircom HK and teleports located in the Hong Kong and China regions.
On
December 15, 2016, Aircom acquired a wholly owned subsidiary, Aircom Japan, Inc. (“Aircom Japan”), a corporation formed
under the laws of Japan. The purpose of Aircom Japan is to conduct business development and operations located within Japan. Aircom
Japan is in the process of applying for, and will be the holder of, Satellite Communication Blanket License in Japan, which is
necessary for Aircom to provide services within Japan. Aircom Japan will also provide local supports to airlines operating within
the territory of Japan.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
1 -
|
Organization
– Continued
|
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. During 2017, Aircom advanced a total of $460,000 to Aircom Taiwan, which was not affiliated
with Aircom during that time, for working capital, as part of a planned $1,500,000 aggregate equity investment (the “Equity
Investment”) in Aircom Taiwan. Before Aircom Taiwan was allowed to issue equity to Aircom, a foreign investor, the Equity
Investment must be approved by the Investment Review Committee of the Ministry of Economic affairs of Taiwan (the “Committee”).
Aircom entered into an Equity Pre-Subscription Agreement with Aircom Taiwan on August 13, 2017 to memorialize the terms of the
Equity Investment. On December 19, 2017, the Committee approved Aircom’s initial Equity Investment (valued as of that date
at NT$15,150,000, or approximately US$500,000) and the purchase of the founding owner’s total equity of NT$100,000 (approximately
US$3,350). As a result, Aircom Taiwan became a wholly owned subsidiary of Aircom.
Aircom
Taiwan is responsible for Aircom’s business development efforts and general operations within Taiwan. We are currently planning
to locate the site of our first ground station in Taiwan and we expect that if we raise sufficient funds to move forward with
this project (although that cannot be guaranteed), Aircom Taiwan will play a significant role in building and operating that ground
station.
On
June 13, 2018, Aerkomm established a new 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 for ground station building and
operate the ground station for data processing.
Aircom
and its subsidiaries are full service providers of in-flight entertainment and connectivity solutions with their initial market
in the Asian Pacific region.
|
NOTE
2 -
|
Summary
of Significant Accounting Policies
|
Principle
of Consolidation
Aerkomm
consolidates the accounts of its subsidiaries, Aircom, Aircom Seychelles, Aircom HK, Aircom Japan, Aircom Taiwan and Aerkomm Taiwan.
All significant intercompany accounts and transactions have been eliminated in consolidation.
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.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
2 -
|
Summary
of Significant Accounting Policies
– Continued
|
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash in banks.
As of September 30, 2018, the total balance of cash in bank exceeded the amount insured by the Federal Deposit Insurance Corporation
(FDIC) for the Company by approximately $415,000 and the balance of cash deposited in foreign bank exceeded the amount insured
by local deposit insurance is approximately $76,000.
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. Estimated losses on scrap and slow-moving items
are recognized in the allowance for losses.
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: 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.
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 six-month
periods ended September 30, 2018.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
2 -
|
Summary
of Significant Accounting Policies
– Continued
|
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.
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 the Company’s cash, other receivable, short-term bank loan and other payable approximated their fair
value due to the short-term nature of these financial instruments.
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
major revenue for the six-month period ended September 30, 2018 was the development of a small cell server terminal which will
be utilized in the construction of a satellite-based ground communication system networks. The Company also had minor revenue
from providing installation and testing services of a satellite-based ground connectivity system. 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.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
2 -
|
Summary
of Significant Accounting Policies
– Continued
|
Research
and Development Costs
Research
and development costs are charged to operating expenses as incurred. For the six-month period ended September 30, 2018, the Company
incurred approximately $675,000 of research and development costs.
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. 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.
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 income (loss) as a separate component of stockholders’ equity.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
2 -
|
Summary
of Significant Accounting Policies
– Continued
|
Earnings
(Loss) Per Share
Basic
earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders
by the weighted-average number of shares of common outstanding during the period increased to include the number of additional
shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive
securities include stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s
employee stock purchase plan.
Subsequent
Events
The
Company has evaluated events and transactions after the reported period up to November 27, 2018, the date on which these consolidated
financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2018 have been
included in these consolidated financial statements.
|
NOTE
3 -
|
Recent
Accounting Pronouncements
|
Financial
Instruments
In
June 2016, the FASB issued ASU No. 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. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial
statements.
Intangibles
In
January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the Test
for Goodwill Impairment, which goodwill shall be tested at least annually for impairment at a level of reporting referred to as
a reporting unit. ASU 2017-04 will be effective for annual periods beginning after December 15, 2019. The Company is currently
evaluating the impact of adopting ASU 2017-04 on its consolidated financial statements.
Leases
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 under previous accounting standards and disclosing key information
about leasing arrangements. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the timing of its adoption
and the impact of adopting ASU 2016-02 on its consolidated financial statements.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
3 -
|
Recent
Accounting Pronouncements
– Continued
|
Income
Statement
In
February 2018, FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income” (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income, which required deferred tax liabilities and assets to be adjusted
for the effect of a change in tax laws or rates with effect included in income from continuing operations in the reporting period
that includes the enactment date of Tax Cut and Jobs Act, ASU 2018-02 will be effective for all entities for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the timing of its
adoption and the impact of adopting ASU 2018-02 on its consolidated financial statements.
Stock
Compensation
In
June 2018, FASB issued ASU 2018-07, “Compensation-Stock Compensation” (Topic 718): Improvement of Nonemployee Share-Based
Payment Accounting, which amends the accounting for nonemployee share-based payment transactions for acquiring goods and services
from nonemployees. ASU 2018-07 will be effective for public business entities for fiscal years beginning after December 15, 2018,
and interim periods within the fiscal year. The Company is currently evaluating the timing of its adoption and the impact of adopting
ASU 2018-07 on its consolidated financial statements.
|
NOTE
4 -
|
Property
and Equipment
|
For
the six months ended September 30, 2018, the changes in cost of property and equipment were as follows:
|
|
|
|
|
|
|
|
|
Computer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground
|
|
|
|
|
|
software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
station
|
|
|
Satellite
|
|
|
and
|
|
|
Furniture
|
|
|
|
|
|
Leasehold
|
|
|
|
|
|
|
|
equipment
|
|
|
equipment
|
|
|
equipment
|
|
|
and fixture
|
|
|
Vehicle
|
|
|
improvement
|
|
|
Total
|
|
|
March 31, 2018
|
|
$
|
-
|
|
|
$
|
275,410
|
|
|
$
|
122,085
|
|
|
$
|
10,006
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
407,501
|
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
|
745
|
|
|
|
-
|
|
|
|
141,971
|
|
|
|
23,425
|
|
|
|
166,141
|
|
|
Reclassification
|
|
|
1,854,027
|
|
|
|
-
|
|
|
|
197,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,051,327
|
|
|
September 30, 2018
|
|
$
|
1,854,027
|
|
|
$
|
275,410
|
|
|
$
|
320,130
|
|
|
$
|
10,006
|
|
|
$
|
141,971
|
|
|
$
|
23,425
|
|
|
$
|
2,624,969
|
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
4 -
|
Property
and Equipment
– Continued
|
On
May 1, 2018, the Company and Aerkomm Taiwan entered into a binding memorandum of understanding 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. On July 10, 2018, the Company, Aerkomm Taiwan and the Seller entered into a certain
real estate sales contract regarding this acquisition. Pursuant to the terms of the contract, and subsequent amendments on July
30, 2018, September 4, 2018 and November 2, 2018, the Company paid to the seller in installments refundable prepayment of $33.85
million as of September 30, 2018. The remaining amount of the purchase price, $624,462, which may also be paid in installments,
must be paid in full by the Company and Aerkomm Taiwan in cash before January 4, 2019. As of September 30, 2018, the estimated
commission payable for land purchase in the amount of $1,387,127 was recorded to the cost of land.
As
of March 31, 2018, construction in progress of $3,254,170 was the payment for the construction of ground station equipment relating
to satellite communication system and in-flight system for the Company’s internal use. For the six months ended September
30, 2018, part of the purchase contracts related to onboard equipment became Demo and part of them were delivered to Aircom Japan.
Therefore, the Company reclassified the relevant payment of $428,267 and $1,854,027 recorded under construction in progress to
research and development costs and ground station equipment. The Company also made additional payments of $68,676 for the expenditure
of construction in progress and transfer, and reclassified construction in progress from prepayment for equipment in the amount
of $181,250. As of September 30, 2018, the balance of construction in progress was $1,483,916.
For
the six months ended September 30, 2018, the changes in accumulated depreciation for property and equipment were as follows:
|
|
|
|
|
|
|
|
|
Computer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground
|
|
|
|
|
|
software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
station
|
|
|
Satellite
|
|
|
and
|
|
|
Furniture
|
|
|
|
|
|
Leasehold
|
|
|
|
|
|
|
|
equipment
|
|
|
equipment
|
|
|
equipment
|
|
|
and fixture
|
|
|
Vehicle
|
|
|
improvement
|
|
|
Total
|
|
|
March 31, 2018
|
|
$
|
-
|
|
|
$
|
50,049
|
|
|
$
|
63,038
|
|
|
$
|
6,695
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
119,782
|
|
|
Addition
|
|
|
-
|
|
|
|
27,541
|
|
|
|
21,994
|
|
|
|
1,796
|
|
|
|
16,200
|
|
|
|
-
|
|
|
|
67,531
|
|
|
September 30, 2018
|
|
$
|
-
|
|
|
$
|
77,590
|
|
|
$
|
85,032
|
|
|
$
|
8,491
|
|
|
$
|
16,200
|
|
|
$
|
-
|
|
|
$
|
187,313
|
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
5 -
|
Intangible
Asset, Net
|
As
of September 30, 2018, the cost and accumulated amortization for intangible asset were as follows:
|
|
|
Satellite
System software
|
|
|
Accumulated
amortization
|
|
|
Net Cost
|
|
|
March 31, 2018
|
|
$
|
4,950,000
|
|
|
$
|
1,196,250
|
|
|
$
|
3,753,750
|
|
|
Addition
|
|
|
-
|
|
|
|
247,500
|
|
|
|
(247,500
|
)
|
|
September 30, 2018
|
|
$
|
4,950,000
|
|
|
$
|
1,443,750
|
|
|
$
|
3,506,250
|
|
The
following table presents a reconciliation of the income tax at statutory tax rate and the Company’s income tax at effective
tax rate for the six-month period ended September 30, 2018.
|
Tax benefit at statutory rate
|
|
$
|
(971,900
|
)
|
|
Net operating loss carryforwards (NOLs)
|
|
|
1,115,100
|
|
|
Stock-based compensation expense
|
|
|
165,100
|
|
|
Amortization expense
|
|
|
(64,400
|
)
|
|
Accrued R&D expense
|
|
|
(168,000
|
)
|
|
Others
|
|
|
(75,900
|
)
|
|
Tax at effective tax rate
|
|
$
|
-
|
|
Deferred
tax assets (liability) as of September 30, 2018 consist of:
|
Net operating loss carryforwards (NOLs)
|
|
$
|
5,378,000
|
|
|
Stock-based compensation expense
|
|
|
793,000
|
|
|
Accrued expenses and unpaid payable
|
|
|
149,000
|
|
|
Tax credit carryforwards
|
|
|
68,000
|
|
|
Excess of tax amortization over book amortization
|
|
|
(787,000
|
)
|
|
Others
|
|
|
13,000
|
|
|
|
|
|
5,614,000
|
|
|
Valuation allowance
|
|
|
(5,614,000
|
)
|
|
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 $2,773,000 for the six months ended September 30,
2018.
As
of September 30, 2018, the Company had federal and state NOLs of approximately $18,265,000 and $20,102,000, available to reduce
future federal and state taxable income, respectively, expiring in 2038.
As
of September 30, 2018, the Company has Japan NOLs of approximately $307,000 available to reduce future Japan taxable income, expiring
in 2028.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September
30, 2018
|
NOTE
6 -
|
Income
Taxes
– Continued
|
As
of September 30, 2018, the Company has Taiwan NOLs of approximately $238,000 available to reduce future Taiwan taxable income,
expiring in 2028.
As
of September 30, 2018, the Company had approximately $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 September 30, 2018, the Company had approximately
$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.
The
Company is authorized to issue 50,000,000 shares of preferred stock, with par value of $0.001. As of September 30, 2018, 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.
The
Company is authorized to issue 450,000,000 shares of common stock, with par value of $0.001.
On
February 13, 2017, all of Aircom’s 27,566,670 restricted shares were converted to 10,279,738 shares of Aerkomm’s restricted
stock at the ratio of 2.681651 to 1, pursuant to the Exchange Agreement (see Note 1).
As
of September 30, 2018, the restricted shares consisted of the following:
|
Restricted stock - vested
|
|
|
9,011,863
|
|
|
Restricted stock - unvested
|
|
|
1,267,875
|
|
|
Total restricted stock
|
|
|
10,279,738
|
|
The
unvested shares of restricted stock were recorded under a deposit liability account awaiting future conversion to common stock
when they become vested. For the six-month period ended September 30, 2018, the reporting for 1,267,875 shares previously reported
as vested was changed to reflect their actual status as unvested shares, to correct an incorrect presentation in previous periods.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September 30, 2018
NOTE 7
-
|
Capital Stock
–
Continued
|
|
2)
|
Common Stock – Continued:
|
On May 14, 2018, the Company
entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC (“Boustead”)
in connection with the public offering, issuance and sale of up to 7,058,823 shares of the Company’s common stock on a best
efforts basis, with a minimum requirement of 588,235 shares, at the public offering price of $8.50 per share, less underwriting
discounts, for minimum gross proceeds $5,000,000 and up to a maximum of $60,000,000. As of September 30, 2018, pursuant to the
Underwriting Agreement, the Company had issued an aggregate of 5,124,811 shares of common stock for gross proceeds of $43,560,894,
or net proceeds of $39,810,204.
The Company has entered
into a service agreement which provides for the issuance of warrants to purchase shares of its common stock to a service provider
as payment for services. The warrants allow the service provider to purchase a number of shares of Aerkomm common stock equal to
the service fee value divided by 85% of the share price paid by investors for Aerkomm’s common stock in the first subsequent
qualifying equity financing event, at an exercise price of $0.01 per share. For the six-month period ended September 30, 2018,
Aerkomm has issued additional stock warrants exercisable for $30,000 in value of Aerkomm common stock to the service provider as
payment for additional services. As of September 30, 2018, the Company cumulatively recorded $176,667 as additional paid-in capital
in total with respect to these warrants, which is equivalent to 24,452 shares of the Company’s common stock.
In connection with the Underwriting
Agreement with Boustead, the Company agreed to issue to Boustead warrants to purchase a number of the Company’s shares equal
to 6% of the gross proceeds of the public offering, which shall be exercisable, in whole or in part, commencing on April 13, 2018
and expiring on the five-year anniversary at an initial exercise price of $10.625 per share, which is equal to 125% offering price
paid by investors. As of September 30, 2018, the Company issued warrants to Boustead to purchase 307,489 shares of the Company’s
stock.
The Company has one major
customer, which represents 10% or more of the total sales of the Company for the period. Sales to and account receivable from the
customer for the six-month period ended and as of September 30, 2018 was $1,730,000.
The Company has one major
vendor, which represents 10% or more of the total purchases of the Company for the period. Purchases from and account payable to
the vendor for the six-month period ended and as of September 30, 2018 was $1,650,000.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 10
-
|
Related Party Transactions
|
|
A.
|
Name of related parties and relationships with the Company:
|
|
Related Party
|
|
Relationship
|
|
Daniel Shih *
|
|
Co-founder and ex-shareholder; Aircom’s CEO and Director between February 13, 2017 and April 26, 2017; Aircom’s CFO between February 13, 2017 and May 5, 2017
|
|
Dmedia Holding LP (“Dmedia”)
|
|
23.925% shareholder
|
|
Louis Giordimanina
|
|
Employee of Aircom
|
|
Klingon Aerospace, Inc. (“Klingon”)
|
|
Daniel Shih was the Chairman from February 2015 to February 2016
|
|
Wealth Wide Int’l Ltd. (“WWI”)
|
|
Bummy Wu, a shareholder, is the Chairman
|
|
|
|
|
|
WISD Intellectual Property Agency, Ltd. (“WISD”)
|
|
Patrick Li, Director of Aircom, is the Chairman; Chih-Ming (Albert) Hsu, Director of the Company, is a Director
|
* Daniel Shih has relinquished
“beneficial ownership” of substantially all of his equity interests in the Company (whether held directly or indirectly)
in a manner acceptable to the Company. This means that Daniel Shih no longer, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting
of, securities, and/or (ii) investment power, which includes the power to dispose, or to direct the disposition of, shares of our
common stock, except for a
de minimus
number of shares of the common stock which will continue to be beneficially owned
by him by way of his being a control person in another entity that owns shares of the common stock. Daniel Shih will, however,
retain a pecuniary interest in some of the shares of the common stock over which he has relinquished voting and investment power.
Daniel Shih has also removed himself from any and all activities relating to the Company’s business, including, but not limited
to managerial, directional, advisory, promotional, developmental and fund-raising activities, effective upon the effectiveness
of the registration statement on Form S-1 originally filed with the SEC on December 20, 2017 and declared effective on April 13,
2018, as amended and supplemented to date. Additionally, Barbie Shih (Barbie), Daniel Shih’s wife, was not re-elected to
our board of directors on December 29, 2017. As a result of these events, neither Daniel nor Barbie will maintain any active affiliation
with, or material beneficial ownership interest in, the Company.
|
B.
|
Significant related party transactions:
|
The Company has extensive
transactions with its related parties. It is possible that the terms of these transactions are not the same as those which would
result from transactions among wholly unrelated parties.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 10
-
|
Related Party Transactions
–
Continued
|
|
a.
|
As
of September 30, 2018,
|
|
Rental deposit to Daniel Shih
|
|
$
|
2,379
|
|
|
Other payable to:
|
|
|
|
|
|
|
|
|
|
|
|
Klingon
1
|
|
$
|
762,000
|
|
|
Daniel Shih
2
|
|
|
5,287
|
|
|
WWI
4
|
|
|
39,341
|
|
|
Others
3
|
|
|
61,451
|
|
|
Total
|
|
$
|
868,079
|
|
|
1.
|
On March 9, 2015, the Company entered into a 10-year purchase agreement with
Klingon. 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 September 30, 2018, the Company received $762,000 from Klingon in milestone payments towards the equipment
purchase price. Since the project might not be successful, the Company reclassified the balance from customer prepayment to other
payable due to uncertainty.
|
|
2.
|
The amount as of March 31, 2018 represents payable to employees as a result
of regular operating activities, while the amount as of September 30, 2018 represents rental payable.
|
|
3.
|
Represents payable to employees as a result of regular operating activities.
|
|
4.
|
Represents rent for a warehouse in Hong Kong to store the Company’s hardware.
|
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 10
-
|
Related Party Transactions
–
Continued
|
|
b.
|
For the six-month period ended September 30, 2018
|
|
Consulting expense paid to Louis Giordimanina
|
|
$
|
87,275
|
|
|
Legal expense paid to WISD
|
|
$
|
10,779
|
|
|
Rental expense charged by Daniel Shih
|
|
$
|
7,930
|
|
|
Rental expense charged by WWI
|
|
$
|
16,040
|
|
|
Interest expense charged by Dmedia
|
|
$
|
1,915
|
|
On May 25, 2018, Mr. Louis
Giordimanina was converted from a consultant to a full-time employee and was appointed as Chief Operating Officer – Aviation.
The consulting expense paid for the six-month period ended September 30, 2018 in the amount of $87,250 represents the consulting
services provided prior to the conversion.
Aircom Japan entered into a
lease agreement with Daniel Shih, between August 1, 2014 and July 31, 2016, which was renewed on July 31, 2018. Pursuant to the
terms of this lease agreement, Aircom Japan pays Daniel Shih a rental fee of approximately $1,200 per month.
Aircom engaged WISD to handle its filing of patent and
trademark applications.
The Company has a lease agreement
with WWI with monthly rental cost of $450. The lease term is from June 1, 2017 to May 31, 2018 and the lease was not renewed.
NOTE 11 -
|
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 provides for the
granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator
at the time of grant of an Option. 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 5,444,407 shares to Aircom’s stock option holders.
One-third of Aircom 2014
Plan 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 1/36
th
of the shares will be vested each month thereafter. Option price is determined
by the Board of Directors. The 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.
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 11
-
|
Stock Based Compensation
–
Continued
|
On May 5, 2017, the Board
of Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan”) and the reservation
of 5,000,000 shares of the Company’s common stock for issuance under the Aerkomm 2017 Plan. On June 23, 2017, the Board of
Directors voted to increase the number of shares of the Company’s common stock reserved for issuance under the Aerkomm 2017
Plan to 10,000,000 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. Options granted under the Aerkomm 2017 Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the administrator at the time of grant of an option. On June 23, 2017,
the Board of Directors agreed to issue options for an aggregate of 1,455,000 shares under the Aerkomm 2017 Plan to certain officers
and directors of the Company.
The option agreements granted
on June 23, 2017 are classified into three types of vesting schedule, which includes, 1) 1/6 of the shares subject to the option
shall vest commencing on the vesting start date and the remaining shares shall vest 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 vest commencing on the
vesting start date and the remaining shares shall vest 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 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 July 31, 2017, the Board
of Directors approved to issue options for an aggregate of 545,000 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 60,000 shares under the Aerkomm 2017 Plan to three of the Company’s
independent directors, 20,000 shares each. All of these options were vested immediately upon issuance.
On June 19, 2018, the Board
of Directors approved to issue options for 160,000 and 150,000 shares under the Aerkomm 2017 Plan to two of the Company executives.
One-fourth of the 160,000 shares subject to the option shall vest on May 1, 2019, 2020, 2021 and 2022, respectively. One-third
of the 150,000 shares subject to the option shall vest on May 29, 2019, 2020 and 2021, respectively.
Option price is determined
by the Board of Directors. 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 of Aerkomm 2017 Plan. The Aerkomm 2017 Plan was approved by the Company’s stockholders
on March 28, 2018.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
September 30, 2018
NOTE 11
-
|
Stock Based Compensation
–
Continued
|
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 $786,334 for the six months ended September
30, 2018 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 Aircom 2014 Plan and Aerkomm 2017 Plan.
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 Aircom 2014 Plan and Aerkomm 2017 Plan.
AERKOMM
INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 11
-
|
Stock Based Compensation
–
Continued
|
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 2018 and 2017 under Aircom 2014 Plan and Aerkomm 2017 Plan as follows:
|
Assumptions
|
|
|
|
|
Expected term
|
|
3 - 5 years
|
|
|
Expected volatility
|
|
|
40.11% - 59.94
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
|
Risk-free interest rate
|
|
|
0.71% - 2.99
|
%
|
|
Forfeiture rate
|
|
|
0% - 5
|
%
|
Aircom 2014 Plan
A summary of the number
of shares, weighted average exercise price and estimated fair value of options for Aircom 2014 Plan as of September 30, 2018 was
as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Weighted Average Fair Value Per Share
|
|
|
Options outstanding at March 31, 2018
|
|
|
4,661,307
|
|
|
$
|
0.0816
|
|
|
$
|
0.0256
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at September 30, 2018
|
|
|
4,661,307
|
|
|
$
|
0.0816
|
|
|
$
|
0.0256
|
|
|
Options exercisable at September 30, 2018
|
|
|
3,956,932
|
|
|
$
|
0.0704
|
|
|
$
|
0.0221
|
|
A summary of the status of nonvested shares under
Aircom 2014 Plan as of September 30, 2018 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Options nonvested at March 31, 2018
|
|
|
1,253,374
|
|
|
$
|
0.1838
|
|
|
Vested
|
|
|
(548,999
|
)
|
|
|
0.1150
|
|
|
Options nonvested at September 30, 2018
|
|
|
704,375
|
|
|
$
|
0.1340
|
|
AERKOMM INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
NOTE 11
-
|
Stock Based Compensation
-
Continued
|
Aerkomm 2017 Plan
A summary of the number of shares, weighted average
exercise price and estimated fair value of options under Aerkomm 2017 Plan as of September 30, 2018 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per
Share
|
|
|
Weighted Average Fair Value Per Share
|
|
|
Options outstanding at March 31, 2018
|
|
|
1,025,000
|
|
|
$
|
6.3349
|
|
|
$
|
3.7904
|
|
|
Granted
|
|
|
330,000
|
|
|
|
4.1600
|
|
|
|
2.0416
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at September 30, 2018
|
|
|
1,355,000
|
|
|
$
|
5.8052
|
|
|
$
|
3.3645
|
|
|
Options exercisable at September 30, 2018
|
|
|
549,514
|
|
|
$
|
6.0367
|
|
|
$
|
3.5622
|
|
A summary of the status of nonvested shares under
Aerkomm 2017 Plan as of September 30, 2018 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Options nonvested at March 31, 2018
|
|
|
820,625
|
|
|
$
|
6.5062
|
|
|
Granted
|
|
|
330,000
|
|
|
|
4.1600
|
|
|
Vested
|
|
|
(345,139
|
)
|
|
|
6.2676
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Options nonvested at September 30, 2018
|
|
|
805,486
|
|
|
$
|
5.6473
|
|
As of September 30, 2018,
there was approximately $2,397,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements
granted under Aircom 2014 Plan and Aerkomm 2017 Plan. Total unrecognized compensation cost will be adjusted for future changes
in estimated forfeitures. The Company expects to recognize that cost over a weighted average period of 1 - 5 years.
AERKOMM
INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2018
As of September 30, 2018, the Company’s significant commitments
with non-related parties are summarized as follows:
|
1)
|
The Company’s lease for its office in Fremont, California expires in
May 2020. Rental expense was $37,401 for the six-month period ended September 30, 2018. As of September 30, 2018, future minimum
lease payment is $77,352 for the next twelve-month period ending September 30, 2019.
|
|
2)
|
The Company has another lease for its Japan office expiring in June 2020.
Rental expense was $17,194 for the six-month period ended September 30, 2018. As of September 30, 2018, future minimum lease payment
obligation is $34,387, including the 8% Japan consumption tax, for the next twelve-month period ending September 30, 2019.
|
|
3)
|
The Company assumed a lease for its Taiwan office expiring October 31, 2018
as a result of the acquisition of Aircom Taiwan. Rental expense was $45,160 for the six-month period ended September 30, 2018.
Aircom Taiwan is currently negotiating a renewal on the contract. As of September 30, 2018, future minimum lease payment obligation
is estimated to be approximately $30,000 for the next twelve-month period ending September 30, 2019.
|
|
4)
|
On June 20, 2018, the Company entered into a Cooperation Framework Agreement
(the “Yihe Framework Agreement”) with Shenzhen Yihe Culture Media Co., Ltd. (“Yihe”), the authorized agent
of Guangdong Tengnan Internet, pursuant to which Yihe will promote the development of strategic cooperation between the Company
and Guangdong Tengnan Internet. Specifically, Yihe agreed to assist the Company with public relations and advertising, such as
market and brand promotion, as well as brand recognition in China (excluding Hong Kong, Macao and Taiwan), including but not limited
to news dissemination, creative planning and support of campaigns, financial public relations and internet advertising. More specifically,
Yihe will help the Company develop a working application of the WeChat Pay payment solution as well as WeChat applets applicable
for Chinese users and relating to cell phone and WiFi connectivity on airplanes, and Yihe will assist the Company in integrating
other Tencent internet-based original product offerings. As compensation, the Company agreed to pay Yihe RMB 8 million (approximately
US$1.2 million), with RMB 2,000,000 (approximately US$309,000) paid on June 29, 2018 and the remaining RMB 6,000,000 (approximately
US$927,000) to be paid by August 15, 2018. However, the Company is currently working with Yihe to postpone the project as well
as the remaining payment.
|
SIGNATURES
In accordance with the requirements of the
Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
AERKOMM INC.
|
|
Registrant
|
|
|
Date: December 3, 2018
|
By:
|
/s/ Jeffrey Wun
|
|
Name:
|
Jeffrey Wun
|
|
Title:
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
Date: December 3, 2018
|
By:
|
/s/ Y. Tristan Kuo
|
|
Name:
Title:
|
Y. Tristan Kuo
Chief Financial Officer
|