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

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AKOM Aerkomm Inc (PK)