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: September 30, 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 November 13, 2024, there were 18,352,613 shares of the registrant’s common stock issued and outstanding.

AERKOMM INC.

Quarterly Report on Form 10-Q

Period Ended September 30, 2024

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Nine Months Periods Ended September 30, 2024 and 2023	2
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Periods Ended September 30, 2024 and 2023	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Periods Ended September 30, 2024 and 2023	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62

AERKOMM INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

	September 30, 2024			December 31, 2023
	(Unaudited)			As restated
Assets
Current Assets
Cash	$	56,952		$	4,202,797
Short-term investment		1,119,677			1,156,875
Account receivable - related parties		-			41,088
Inventories, net		190,392			170,892
Prepaid expenses		291,668			158,171
Other receivable - related parties		3,913,133			2,147,501
Other receivable		398,550			122,024
Other current assets		73,112			65,937
Total Current Assets		6,043,484			8,065,285
Long-term Investment		4,850,648			5,013,814
Property and Equipment
Cost		5,454,172			5,436,657
Accumulated depreciation		(3,292,976	)		(3,085,789	)
		2,161,196			2,350,868
Prepayment for land		39,315,937			40,114,286
Prepayment for equipment		325,668			324,866
Net Property and Equipment		41,802,801			42,790,020
Other Assets
Prepayment for equipment and intangible assets – customer projects – related parties		2,083,650			2,076,138
Prepayment for equipment and intangible assets – customer projects		9,175,532			8,326,017
Restricted cash		20,077			3,225,905
Intangible asset, net		11,709,434			13,024,692
Goodwill		4,573,819			4,573,819
Right-of-use assets, net – operating leases		211,644			221,417
Deposits		404,818			534,515
Total Other Assets		28,178,974			31,982,503
Total Assets	$	80,875,907		$	87,851,622

Liabilities and Stockholders’ Equity
Current Liabilities
Short-term loan	$	5,546,907		$	5,712,244
Convertible long-term bonds payable – current		2,287,349			10,303,775
Convertible long-term note payable - current		23,173,200			23,173,200
Accounts payable		1,900,767			1,900,317
Accrued expenses		7,956,269			5,995,972
Other payable - related parties		830,929			726,802
Other payable		12,353,185			8,057,112
Prepayment from customer - related parties		6,607,717			6,534,908
Contract liability - current		762,000			-
Long-term loan - current		-			5,045
Lease liability - current		211,205			168,433
Total Current Liabilities		61,629,528			62,577,808
Long-term Liabilities
Convertible long-term bonds payable		200,000			200,000
Contract liability - non-current		-			762,000
Lease liability - non-current		89,847			120,932
Restricted stock deposit liability		1,000			1,000
Total Long-Term Liabilities		290,847			1,083,932
Total Liabilities		61,920,375			63,661,740
Stockholders’ Equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023		-			-
Common stock, $0.001 par value, 90,000,000 shares authorized, 18,203,451 shares and 16,720,451 shares (excluding 149,162 unvested restricted shares) issued and outstanding as of September 30, 2024 and December 31, 2023		18,203			16,720
Additional paid in capital		110,561,069			97,015,470
Subscribed capital		3,499,496			5,004,000
Accumulated deficits		(94,166,348	)		(77,479,704	)
Accumulated other comprehensive loss		(956,888	)		(366,604	)
Total Stockholders’ Equity		18,955,532			24,189,882
Total Liabilities and Stockholders’ Equity	$	80,875,907		$	87,851,622

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

	Three-Month Period Ended September 30,						Nine-Month Period Ended September 30,
	2024			Restated 2023			2024			Restated 2023
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net Sales	$	48,843		$	-		$	48,843		$	-
Net Sales – Related Party		47,465			-			65,945			446,367
Service Income – Related Party		-			61,582			34,775			61,582

Total Revenue		96,308			61,582			149,563			507,949

Cost of Sales		285			26,666			61,128			472,115

Gross Profit		96,023			34,916			88,435			35,834

Operating Expenses		3,686,838			4,303,845			15,241,275			11,577,414

Loss from Operations		(3,590,815	)		(4,268,929	)		(15,152,840	)		(11,541,580	)

Non-Operating Income (Loss)

Foreign currency exchange (loss) gain		190,811			(806,619	)		(639,448	)		(1,126,762	)
Interest expenses		(272,197	)		(369,859	)		(864,822	)		(1,096,509	)
Unrealized gain (loss) on investments		(21,150	)		(2,650	)		(20,370	)		(106,165	)
Other income (loss), net		959			341,568			(6,764	)		450,975

Net Non-Operating Income (Loss)		(101,577	)		(837,560	)		(1,531,404	)		(1,878,461	)

Loss before Income Taxes		(3,692,392	)		(5,106,489	)		(16,684,244	)		(13,420,041	)

Income Tax Expense		-			-			2,400			2,400

Net Loss		(3,692,392	)		(5,106,489	)		(16,686,644	)		(13,422,441	)

Other Comprehensive Income (Loss)
Change in foreign currency translation adjustments		260,941			(554,120	)		(590,284	)		(776,054	)

Total Comprehensive Loss	$	(3,431,451	)	$	(5,660,609	)	$	(17,276,928	)	$	(14,198,495	)

Net Loss Per Common Share:

Basic	$	(0.20	)	$	(0.51	)	$	(0.92	)	$	(1.35	)
Diluted	$	(0.20	)	$	(0.51	)	$	(0.92	)	$	(1.35	)

Weighted Average Shares Outstanding - Basic		18,352,613			10,021,349			18,149,372			9,920,450
Weighted Average Shares Outstanding - Diluted		18,352,613			10,021,349			18,149,372			9,920,450

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 nine months ended September 30, 2023

	Common Stock				Additional Paid in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Deficits			Income (Loss)			Equity
Balance as of January 1, 2023		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

Issuance of common stock		-		-		-		-			-			-
Stock compensation expense		-		-		209,995		-			-			209,995
Other comprehensive income		-		-		-		-			(356,188	)		(356,188	)
Net loss for the period		-		-		-		(4,561,516	)		-			(4,561,516	)
Balance as of June 30, 2023 (Restated)		9,720,003	$	9,720	$	79,342,891		(61,961,933	)		(595,908	)		16,794,770

Issuance of common stock		7,000,448		7,000		16,493,000		-			-			16,500,000
Stock compensation expense		-		-		589,852		-			-			589,852
Other comprehensive income		-		-		-		-			(554,120	)		(554,120	)
Net loss for the period		-		-		-		(5,106,489	)		-			(5,106,489	)
Balance as of September 30, 2023 (unaudited)		16,720,451	$	16,720	$	96,425,743	$	(67,068,422	)	$	(1,150,028	)	$	28,224,013

For the nine months ended September 30, 2024

	Common Stock				Additional Paid in		Subscribed			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Capital			Deficits			Income (Loss)			Equity
Balance as of January 1, 2024		16,720,451	$	16,720	$	97,015,470	$	5,004,000		$	(77,479,704	)	$	(366,604	)		24,189,882
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		-		-		-		-			-			(669,236	)		(669,236	)
Net loss for the period		-		-		-		-			(6,082,573	)		-			(6,082,573	)
Balance as of March 31, 2024		17,813,451	$	17,813	$	104,205,425	$	-		$	(83,562,277	)	$	(1,035,840	)	$	19,625,121

Issuance of common stock		390,000		390		2,339,610		-			-			-			2,340,000
Capital Injection		-		-		-		3,499,496			-			-			3,499,496
Stock compensation expense		-		-		3,411,183		-			-			-			3,411,183
Other comprehensive income		-		-		-		-			-			(181,989	)		(181,989	)
Net loss for the period		-		-		-		-			(6,911,679	)		-			(6,911,679	)
Balance as of June 30, 2024		18,203,451	$	18,203	$	109,956,218	$	3,499,496		$	(90,473,956	)	$	(1,217,829	)	$	21,782,132

Issuance of common stock		-		-		-		-			-			-			-
Capital Injection		-		-		-		-			-			-			-
Stock compensation expense		-		-		604,851		-			-			-			604,851
Other comprehensive income		-		-		-		-			-			260,941			260,941
Net loss for the period		-		-		-		-			(3,692,392	)		-			(3,692,392	)
Balance as of September 30, 2024 (unaudited)		18,203,451	$	18,203	$	110,561,069	$	3,499,496		$	(94,166,348	)	$	(956,888	)	$	18,955,532

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 Nine Months Ended September 30,
	2024			Restated 2023
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities
Net loss	$	(16,686,644	)	$	(13,422,441	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,531,453			897,046
Amortization of Right of Use Assets		95,919			75,899
Stock-based compensation		4,649,082			847,738
Unrealized (gain) loss on investments		20,370			106,165
Amortization of discount and bonds issuance costs		-			380,684
Changes in operating assets and liabilities:
Accounts receivable		41,088			-
Inventories		(19,500	)		-
Prepaid expenses		(1,148,502	)		(4,134,587	)
Other current assets		(259,042	)		(1,129,394	)
Deposits		129,697			(223,550	)
Accounts payable		450			(386,312	)
Accrued expenses and other current liabilities		6,799,449			9,622,337
Operating lease liability		29,783			(5,902	)
Net Cash Used for Operating Activities		(4,816,397	)		(7,372,317	)

Cash Flows from Investing Activities
Prepayment for land		(349,131	)		-
Disbursement for other receivable - related parties loans		(1,790,291	)		-
Proceeds from disposal of long-term investment		-			325,578
Purchase of property and equipment		(44,969	)		(379,128	)
Net Cash Used by Investing Activities		(2,184,391	)		(53,550	)

Cash Flows from Financing Activities
Proceeds from subscribed capital		4,421,782			7,000
Proceeds from equity financing		2,585,200			-
Repayment of convertible long-term bond payable		(8,016,426	)		-
Repayment of short-term loan		(940,652	)		(384,189	)
Proceeds from short-term loan		951,657			-
Repayment of long-term loan		(4,823	)		(8,723	)
Payment on finance lease liability		(8,322	)		(8,619	)
Net Cash Used by Financing Activities		(1,011,584	)		(394,531	)

Net Decrease in Cash and Restricted Cash		(8,012,372	)		(7,820,398	)
Cash and Restricted Cash, Beginning of Period		7,428,702			10,101,920
Foreign Currency Translation Effect on Cash		660,699			1,196,111
Cash and Restricted Cash, End of Period	$	77,029		$	3,477,633

Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	2,400		$	2,400
Cash paid during the period for interest		864,822			-

Cash and Restricted Cash:
Cash	$	56,952		$	253,278
Restricted cash		20,077			3,224,355
Total	$	77,029		$	3,477,633

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 stockholders, 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 Japan is to conduct business development and operations located within Japan. Aerkomm Japan is in the process of applying for, and intends to be the holder of, Satellite Communication Blanket License in Japan, which is necessary for Aerkomm to provide services within Japan. Aerkomm Japan intends to also provide local supports to airlines operating within the territory of Japan.

Aircom Telecom LLC (“Aircom Taiwan”), which became a wholly owned subsidiary of Aircom in December 2017, was organized under the laws of Taiwan on June 29, 2016. Aircom Taiwan is responsible for Aircom’s business development efforts and general operations within Taiwan.

On June 13, 2018, Aerkomm established a then wholly owned subsidiary, Aerkomm Taiwan Inc. (“Aerkomm Taiwan”), a corporation formed under the laws of Taiwan. The purpose of Aerkomm Taiwan is to purchase a parcel of land and raise sufficient funds to build and operate a ground station for data processing. As operation of such a ground station would, as a matter of local law, require that Aerkomm Taiwan not be a majority foreign-owned entity, on December 29, 2022, Aerkomm and dMobile System Co., Ltd. (the “Buyer”) entered into an equity sales contract (the “Equity Sales Contract”) pursuant to the terms of which Aerkomm agreed to transferred a majority interest of 25,500,000 shares (the “Shares”) of Aerkomm Taiwan (51% of the issued and outstanding shares of Aerkomm Taiwan) to the Buyer for NT$255,000,000 (approximately $8,300,000). The Buyer has not yet paid for the transferred shares and under the terms of the equity sales contract Aerkomm has the right to demand that the transferred shares be returned.

Despite the sale of 51% of Aerkomm Taiwan to the Buyer, Aerkomm treats Aerkomm Taiwan as a consolidated subsidiary because Aerkomm owns 49% of the shares of Aerkomm Taiwan and controls the other 51% by contract. The Buyer has not yet paid Aerkomm the amount due to Aerkomm for the sale of Aerkomm Taiwan shares to the Buyer. Under the Equity Sales Contract, Aerkomm has the right to declare a breach of contract and demand return of the transferred shares from the Buyer if the purchase price has not been paid within 180 days of date of the Equity Sales Contract, which date has passed because the contract is dated December 29, 2022. Furthermore, the shares held by Buyer in Aerkomm Taiwan and all rights to exercise rights in respect of such shares are pledged to Aerkomm’s designee, Mr. Albert Hsu, who is to execute all rights with respect to the pledged shares as a pledgee under the instruction of Aerkomm and who is a shareholder and director of Aerkomm.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 - Organization - Continued

On November 15, 2018, Aircom Taiwan acquired a wholly owned subsidiary, Beijing Yatai Communication Co., Ltd. (“Beijing Yatai”), a corporation formed under the laws of China. The purpose of Beijing Yatai is to conduct Aircom’s business and operations in China. Presently, its primary function is business development, both with respect to airlines as well as content providers and advertisement partners based in China as most business conducted in China requires a local registered company. Beijing Yatai is also actively seeking strategic partnerships whom Aircom may leverage in order to provide more and better services to its customers. Aircom also plans to provide local supports to China-based airlines via Beijing Yatai and teleports located in China. On November 6, 2020, 100% ownership of Beijing Yatai was transferred from Aircom Taiwan to Aerkomm Taiwan.

On October 31, 2019, Aerkomm SY established a new a wholly owned subsidiary, Aerkomm Pacific Limited (“Aerkomm Malta”), a corporation formed under the laws of Malta. The purpose of Aerkomm Malta is to conduct Aerkomm’s business and operations and to engage with suppliers and potential airlines customers in the European Union.

The Company’s organization structure is as following:

On September 04, 2022, Aerkomm acquired a wholly owned subsidiary, MEPA Labs Inc. (MEPA), a California corporation. The purpose of the acquisition is to extend business development and operations related to the satellite products.

On September 28, 2023, Aerkomm acquired a wholly owned subsidiary, Mixnet Technology Limited (Mixnet) and its wholly owned subsidiary, Mesh Technology Taiwan Limited (Mesh), a Taiwan company. The purpose of the acquisition is to extend business development and operations related to the satellite products. Mixnet’s name changed to Mesh Technology Limited as of September 7, 2023.

On March 29, 2024, the Company entered into a merger agreement (the “Merger Agreement”) with IX Acquisition Corp. (“IXAQ”), a Cayman Islands exempted company (which will re-domicile from being a Cayman Islands company and become a Delaware corporation), and AKOM Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of IQAC (“Merger Sub”). The Merger Agreement provides that, among other things and upon the terms and subject to the conditions thereof, following the domestication to Delaware of IXAQ, Merger Sub will merge with and into the Company (the “Merger”), after which the Company will be the surviving corporation and a wholly-owned subsidiary of IXAQ. In connection with the Merger, IXAQ will be renamed “AKOM Inc.” The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed to by the parties to the Merger Agreement and specified in the articles of merger.

Liquidity

The accompanying financial statements have been prepared on a going concern basis. The Company's ability to remain solvent and settle its obligations when they come due is dependent on its ability to raise additional capital in the form of permanent equity and to successfully gain listing of its common stock on a national exchange such as the NASDAQ capital markets, so that its current investors that have invested in the form of convertible debt and convertible notes are incentivized to convert their debt holdings into common stock that could be traded in an orderly market. As result of the Company’s primary operations being in the area of research and development of communication equipment in the aerospace industry that is still in the testing phases, the Company has not yet been able to legally market and to generate sustainable re-occurring revenue from the sales of its products; however, the Company does believe that it has made significant progress towards gaining approval from the FAA and other regulatory agencies, but success is not guaranteed. As a function of the Company’s continued efforts to develop its products the Company reported a net loss of $16,686,644 and net cash outflows of $8,012,372 for the nine months ended September 30, 2024, and as of September 30, 2024, the Company had a working capital deficit of approximately $56 Million because much of the investment from investors were still in the form of convertible debt instruments that are either at, or near their maturity dates. These conditions give rise to substantial doubt and uncertainty regarding the Company’s ability to continue as a going concern. If the Company is able to carry out its plans as detailed below within one operating period, the Company could alleviate this doubt.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 - Organization - Continued

The Company has taken measures and is experiencing and anticipates developments that management believes will improve its financial position. These include that two of the Company’s current shareholders (the “Lenders”) have each committed to provide to the Company a $10 million bridge loan (together, the “Loan Commitments” and loans made under the Loan Commitments, “Loans”) for an aggregate committed 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%, thus making the full $20 million of the Loan Commitments available to the Company.

In addition to the foregoing, on March 1, 2023 we entered into a letter agreement with Well Thrive Limited, one of the lenders under the Loan Commitment, in which it was agreed that, to support the Company, one-half of the Loan Commitment amount of Well Thrive Limited (thus, $5,000,000) would be funded (by Well Thrive or by lenders arranged by Well Thrive) at no interest and with no fixed maturity date, with the remaining $5,000,000 of Well Thrive Limited’s Loan Commitment to be funded on the basis of the originally agreed terms. As of December 31, 2023 and of September 30, 2024, from one of the Lenders under the Loan Commitment we did not have any loans and we had received Loans totaling NTD (New Taiwan Dollars) 133,110,000, recorded on our books as $4,347,159, from multiple individual lenders arranged by Well Thrive.

In connection with the planned Merger with IXAQ, the Company has obtained $35 million in PIPE investment commitments and expects $7.415 million in SAFE investments to be funded before closing of the Merger. Further, the Company and IXAQ have entered into a letter agreement with Benchmark Company LLC (“Benchmark”) under which Benchmark has agreed to provide capital markets advisory services to the Company (including attaining research coverage, assisting in road-shows and investor meetings and other advisory services) and to act as placement agent for the private placement of securities by the Company. In connection with the arrangement with Benchmark, the Company is targeting the raise of $100 million in connection with the closing of and after the Merger, in addition to the $35 million in already committed PIPE investment and up to approximately $18.7 million of cash (net of transaction costs and depending on the amount of shareholder redemptions) contributed from the IXAQ side as a result of the Merger.

The Company also expects during 2025 to begin generating significant recurring revenues, including in connection with the OneWeb Distribution Partner Agreement entered into between Aerkomm Japan, as Distribution Partner, and OneWeb on October 1, 2024, pursuant to which Aerkomm Japan was appointed as a distributor for OneWeb in Japan and Taiwan and as reflected by the Company having made its first delivery of a certain classified radar system to a governmental defense customer on October 24, 2024.

With our current available cash, a balance of $15,652,841 of the $20 million in aggregate loan commitments from the two Lenders still available, $35 million in PIPE Investment commitments already signed concurrently to entering into the Merger Agreement with IXAQ and additional amounts anticipated to be raised in SAFE financings and in connection with Benchmark relationship, the amount of any cash to be brought into the merged Company by IXAQ in connection with the Merger (and depending on the amount of shareholder redemptions), the expected ramp-up of revenue generating commercial sales, synergies expected to be obtained as a result of the planned merger of Aerkomm Taiwan with its exclusive distributor for Taiwan, EJECTT, Inc., and carefully managing hiring and other investments, the Company believes its working capital will be adequate to sustain the Company’s operations for the next twelve months.

If the Merger does not close and thus the $35 million in PIPE commitments that are contingent on closing of the Merger are no longer committed, the Company expects to be able to fund operations over the next 12 months from June 30, 2024 by short-term borrowings and other loan commitments, the balance of $15,652,841 of the $20 million in above-referenced loan commitments from two shareholders, renegotiating financing arrangements with some or all of the committed PIPE investors (who are existing investors in the Company and have a strong interest in its success), slowing the pace of hiring and other investments that the Company would otherwise undertake if the Merger closes, synergies and efficiencies from the planned merger with EJECTT, and revenues received from the ramp-up of commercial sales.

In conclusion, per the non-binding term sheet agreement aforementioned, the Company will be able to fund the operations and development for the next 12 months.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2024, and the condensed consolidated statements of operations and comprehensive loss and cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of September 30, 2024 and the results of operations and cash flows for the nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these nine months periods are unaudited. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or other future year. The following information should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023.

Principle of Consolidation

Aerkomm consolidates the accounts of its subsidiaries, Aircom, Aircom Seychelles, Aircom HK, Aircom Japan, Aircom Taiwan, Aerkomm Taiwan, Beijing Yatai, Aerkomm Malta, MEPA Labs, and Mesh Technology Taiwan. All significant intercompany accounts and transactions have been eliminated in consolidation.

Restated Unaudited Interim Financial Information

The accompanying restated condensed consolidated statements of operations and comprehensive loss for the three months and nine months ended September 30, 2023 and restated condensed consolidated statements of cash flows for the nine months ended September 30, 2023 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s the results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these nine months periods are unaudited. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other interim period or other future year.

Restatement of Financial Statements

The Company has restated the accompanying consolidated financial statements and related disclosure for the year ended December 31, 2023 and 2022 that were previously included in the Form 10-K filed with the SEC on May 7, 2024. The restatement is related to correction to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt instead. Also, due to the Company’s evidence indicating an intention to hold an investment for more than one year, the Company has reclassified the investment from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments) to cost (used for long-term investments). In addition, a correction has been made to reclassify other receivable-related party loans to short-term loan-others, based on the confirmation letter. In addition, Credit Enhanced Zero Coupon Convertible Bonds are reevaluated and early redemption loss and default interest expenses are accrued. The Company determined that these changes have a material impact on the filed financial statements for the year ended December 31, 2023 and 2022 (the “Relevant Period”), and as a result, the restatement of the Relevant Periods is required.

Impact of the Restatement

The impact of the restatement on the balance sheets, statements of operations and statements of cash flows for the Relevant Period is presented below. The restatement had no impact on the Company’s reported operating revenues or reported operating costs and expenses.

The following table summarized the effect of the financial statement adjustments related to the restatement on each financial statement line items as of and for the years ended December 31, 2023.

Due to the company’s evidence indicating an intention to hold the investment for more than one year, we have reclassified the investment from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments) to cost (used for long-term investments). In addition, a correction to reclassify other receivable-related party to short-term loan-others, based on the confirmation letter.

The restatement is related to correction to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt instead. Also, due to the Company’s evidence indicating an intention to hold an investment for more than one year, the Company has reclassified the investment from short-term to long-term. Consequently, the valuation method has been adjusted from market value (used for short-term investments) to cost (used for long-term investments). In addition, a correction has been made to reclassify other receivable-related party loans to short-term loan-others, based on the confirmation letter, In addition, Credit Enhanced Zero Coupon Convertible Bond has early redemption option, resulting in the accrual of early redemption losses and 5% default interest payable.

Due to the different evaluations of long-term and short-term investments, the reclassification caused changes in 2023 Net Loss and Foreign currency translation adjustments.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Consolidated Balance Sheets (Restated)

	As of December 31, 2023
	As previously Reported			Adjustment			As restated

Assets
Current Assets
Cash	$	4,202,797		$			$	4,202,797
Short-term investment		3,804,850			(2,647,975	)		1,156,875
Account receivable – related parties		41,088						41,088
Inventories, net		170,892						170,892
Prepaid expenses		158,171						158,171
Other receivable – related parties		1,167,749			979,752			2,147,501
Other receivable		122,024						122,024
Other current assets		65,937						65,937
Total Current Assets		9,733,508			(1,668,223	)		8,065,285
Long-term investment		4,261,920			751,894			5,013,814
Property and Equipment, net
Cost		5,436,657						5,436,657
Accumulated depreciation		(3,085,789	)					(3,085,789	)
		2,350,868						2,350,868
Prepayment for land		40,114,286						40,114,286
Prepayment for equipment – internal use		324,866						324,866
Net Property and Equipment		42,790,020						42,790,020
Other Assets
Prepayment for equipment and intangible assets – customer projects – related party		2,076,138			-			2,076,138
Prepayment for equipment and intangible assets – customer projects		8,326,017						8,326,017
Restricted cash		3,225,905						3,225,905
Intangible asset, net		13,024,692						13,024,692
Goodwill		4,573,819						4,573,819
Right-of-use assets, net		221,417						221,417
Deposits		534,515						534,515
Total Other Assets		31,982,503						31,982,503
Total Assets	$	88,767,951		$	(916,329	)	$	87,851,622

Liabilities and Stockholders’ Equity
Current Liabilities
Short-term loan – related parties	$	-		$	-		$	-
Short-term loan		132,257			5,579,987			5,712,244
Convertible long-term bonds payable – current		-			10,303,775			10,303,775
Convertible long-term note payable – current		-			23,173,200			23,173,200
Accounts payable		1,900,317						1,900,317
Accrued expenses		5,995,972						5,995,972
Other payable – related parties		726,802						726,802
Other payable		12,617,277			(4,560,165	)		8,057,112
Prepayment from customer – related parties		6,534,908						6,534,908
Long-term loan – current		5,045						5,045
Lease liability – current		168,433						168,433
Total Current Liabilities		28,081,011			34,496,797			62,577,808
Long-term Liabilities
Convertible long-term bonds payable		9,648,155			(9,448,155	)		200,000
Convertible long-term note payable		23,173,200			(23,173,200	)		-
Long-term loan		-			-			-
Prepayments from customer – non-current		762,000						762,000
Lease liability – non-current		120,932						120,932
Restricted stock deposit liability		1,000						1,000
Total Long-term Liabilities		33,705,287			(32,621,355	)		1,083,932
Total Liabilities		61,786,298			1,875,442			63,661,740
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2023 and 2022		-			-			-
Common stock, $0.001 par value, 90,000,000 shares authorized, 16,720,451 shares (excluding 149,162 unvested restricted shares) issued and outstanding as of December 31, 2023 and 9,720,003 shares (excluding 149,162 unvested restricted shares) issued and outstanding as of December 31, 2022		16,720						16,720
Additional paid in capital		97,015,470						97,015,470
Subscribed capital		5,004,000			-			5,004,000
Accumulated deficits		(74,719,954	)		(2,759,750	)		(77,479,704	)
Accumulated other comprehensive loss		(334,583	)		(32,021	)		(366,604	)
Total Stockholders’ Equity		26,981,653			(2,791,771	)		24,189,882
Total Liabilities and Stockholders’ Equity	$	88,767,951		$	(916,329	)	$	87,851,622

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (Restated)

	For the Three Months Ended
	September 30, 2023
	As previously Reported			Adjustment			As restated
	(Unaudited)						(Unaudited)

Net Sales – Related Party	$	-					$	-
Service Income – Related Party		61,582						61,582

Total Revenue		61,582						61,582

Cost of Sales		26,666						26,666

Gross Profit		34,916						34,916

Operating Expenses		4,303,845						4,303,845

Loss from Operations		(4,268,929	)					(4,268,929	)

Non-Operating Income (Loss)

Foreign currency exchange (loss) gain		(806,619	)					(806,619	)
Bond issuance cost		(128,663	)		128,663			-
Interest expenses		-			(369,859	)		(369,859	)
Unrealized gain (loss) on investments		(1,320,206	)		1,317,556			(2,650	)
Other income (loss), net		100,372			241,196			341,568
Net Non-Operating (Loss) Income		(2,155,116	)		1,317,556			(837,560	)

Loss before Income Taxes		(6,424,045	)		1,317,556			(5,106,489	)

Income Tax Expense		-			-			-

Net Loss		(6,424,045	)		1,317,556			(5,106,489	)

Other Comprehensive Income (Loss)
Change in foreign currency translation adjustments		(569,911	)		15,791			(554,120	)
Total Comprehensive Loss	$	(6,993,956	)		1,333,347		$	(5,660,609	)

Net Loss Per Common Share:

Basic	$	(0.64	)				$	(0.51	)
Diluted	$	(0.64	)				$	(0.51	)

Weighted Average Shares Outstanding - Basic		10,021,349						10,021,349
Weighted Average Shares Outstanding - Diluted		10,021,349						10,021,349

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

	For the Nine Months Ended
	September 30, 2023
	As
	previously
	Reported			Adjustment			As restated
	(Unaudited)						(Unaudited)
Net Sales – Related Party	$	446,367					$	446,367
Service Income – Related Party		61,582						61,582

Total Revenue		507,949						507,949

Cost of Sales		472,115						472,115

Gross Profit		35,834						35,834

Operating Expenses		11,577,414						11,577,414

Loss from Operations		(11,541,580	)					(11,541,580	)

Non-Operating Income (Loss)

Foreign currency exchange (loss) gain		(1,126,762	)					(1,126,762	)
Bond issuance cost		(380,684	)		380,684			-
Interest expenses		-			(1,096,509	)		(1,096,509	)
Unrealized gain (loss) on investments		1,770,888			(1,877,053	)		(106,165	)
Other income (loss), net		(264,850	)		715,825			450,975
Net Non-Operating (Loss) Income		(1,408	)		(1,877,053	)		(1,878,461	)

Loss before Income Taxes		(11,542,988	)		(1,877,053	)		(13,420,041	)

Income Tax Expense		2,400			-			2,400

Net Loss		(11,545,388	)		(1,877,053	)		(13,422,441	)

Other Comprehensive Income (Loss)
Change in foreign currency translation adjustments		(852,301	)		76,247			(776,054	)
Total Comprehensive Loss	$	(12,397,689	)		(1,800,806	)	$	(14,198,495	)

Net Loss Per Common Share:

Basic	$	(1.16	)				$	(1.35	)
Diluted	$	(1.16	)				$	(1.35	)

Weighted Average Shares Outstanding - Basic		9,920,450						9,920,450
Weighted Average Shares Outstanding - Diluted		9,920,450						9,920,450

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Unaudited Condensed Consolidated Statements of Cash Flows (Restated)

	For the Nine Months Ended
	September 30, 2023
	As
	previously
	Reported			Adjustment			As restated
	(Unaudited)						(Unaudited)
Cash Flows from Operating Activities
Net loss	$	(11,545,388	)	$	(1,877,053	)	$	(13,422,441	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		897,046						897,046
Amortization of Right of Use Assets		75,899						75,899
Stock-based compensation		847,738						847,738
Unrealized (gain) loss on investments		(1,770,888	)		1,877,053			106,165
Amortization of bonds issuance costs		380,684						380,684
Changes in operating assets and liabilities:
Prepaid expenses		(4,134,587	)					(4,134,587	)
Other current assets		(1,129,394	)					(1,129,394	)
Deposits		(223,550	)					(223,550	)
Accounts payable		(386,312	)					(386,312	)
Accrued expenses and other current liabilities		9,622,337						9,622,337
Operating lease liability		(5,902	)					(5,902	)
Net Cash Used for Operating Activities		(7,372,317	)		-			(7,372,317	)

Cash Flows from Investing Activities
Proceeds from disposal of short-term investment		-						-
Proceeds from disposal of long-term investment		325,578						325,578
Purchase of property and equipment		(379,128	)					(379,128	)
Net Cash (Used) Provided by Investing Activities		(53,550	)					(53,550	)

Cash Flows from Financing Activities
Proceeds from issuance of common stock		7,000						7,000
Repayment of short-term loan		(384,189	)					(384,189	)
Repayment of long-term loan		(8,723	)					(8,723	)
Payment on finance lease liability		(8,619	)					(8,619	)
Net Cash Provided by Financing Activities		(394,531	)					(394,531	)

Net Decrease in Cash and Restricted Cash		(7,820,398	)					(7,820,398	)
Cash and Restricted Cash, Beginning of Period		10,101,920						10,101,920
Foreign Currency Translation Effect on Cash		1,196,111						1,196,111
Cash and Restricted Cash, End of Period	$	3,477,633					$	3,477,633

Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	2,400					$	2,400

Cash and Restricted Cash:
Cash	$	253,278					$	253,278
Restricted cash		3,224,355						3,224,355
Total	$	3,477,633					$	3,477,633

Reclassifications of Prior Year Presentation

Certain prior year balance sheet, and cash flow statement amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash in banks. As of September 30, 2024 and December 31, 2023, the total balance of cash in bank exceeding the amount insured by the Federal Deposit Insurance Corporation (FDIC) for the Company was approximately $0 and $0, respectively. The balance of cash deposited in foreign financial institutions exceeding the amount insured by local insurance is approximately $35,000 and $7,246,000 as of September 30, 2024 and December 31, 2023, respectively.

The Company performs ongoing credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from management’s estimates.

Investment in Equity Securities

According to FASB issued Accounting Standards Updates 2016-01 (ASU 2016-01), it requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value being recorded in current period earnings, impacting the net income. For the investments in equity securities without readily determinable fair values, the investments may be recorded at cost, subject to impairment, and adjusted through net income for observable price changes.

Holdings of marketable equity securities with no significant influence over the investee are accounted for using cost method. Marketable equity security costs are initially recognized at fair value plus transaction costs which are directly attributable to the acquisition. The cost of the securities sold is based on the weighted average cost method. Stock dividends from the investment are included to recalculate the cost basis of the investment based on the total number of shares.

Accounts receivable

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the Company to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, based on historical experience, current market conditions and supportable forecasts. The Company’s accounts receivable are carried at the amounts invoiced to customer. The risk of credit loss is mitigated by the Company’s credit evaluation process. Receivables are presented as net of an allowance for credit losses. Allowances for expected credit losses are determined based on an assessment of historical experience, the current economic conditions, future expectations of economic conditions, future expectation regarding customer solvency, and other collection factors. The Company will apply adjustments for specific factors and current economic conditions as needed at each reporting date. As of September 30, 2024 and December 31, 2023, the Company had $0 and $41,088 Account Receivable. Therefore, allowances for expected credit losses were $0 as of September 30, 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 nine months ended September 30, 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 unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our unaudited condensed consolidated balance sheets. Lease expense for operating expense payments is recognized on a straight-line basis over the lease term. Interest and amortization expenses are recognized for finance leases on a straight-line basis over the lease term.

For the leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

Goodwill and Purchased Intangible Assets

The Company’s goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition of subsidiaries. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.

As Aerkomm is currently still in the development stage and will not start generating revenue until after late 2024. Management has evaluated that the potential benefits of the acquisitions before the year 2023 are limited and uncertain, and due to this reason, management has decided to impair goodwill that generated from 2022 and prior periods with total of $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 September 30, 2024. The Company’s long-term bonds payable, long-term note payable and lease payable approximated the carrying amount as its interest rate is considered as approximate to the current rate for comparable loans and leases, respectively. Our long-term investment approximated its carrying amount based upon management’s best estimate due to its restricted nature. There were no outstanding derivative financial instruments as of September 30, 2024 and December 31, 2023.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Revenue Recognition

The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. The Company’s revenue for the nine months ended September 30, 2024 composed of the sales of ground antenna unit and test support to a related party. The majority of the Company’s revenue is recognized at a point in time when product is shipped, or service is provided to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable consideration. The Company adopted the provisions of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and the principal versus agent guidance within the new revenue standard. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) the Company satisfies a performance obligation. Customers may make payments to the Company either in advance or in arrears. If payment is made in advance, the Company will recognize a contract liability under prepayments from customers until which point the Company has satisfied the requisite performance obligations to recognize revenue.

Stock-based Compensation

The Company adopted the modified prospective method to measure stock-based compensation expense. Under the modified prospective method, stock-based compensation expense recognized during the period is based on the portion of the share-based payment awards granted after the effective date and ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s statement of income is based on the vesting terms and the estimated fair value of the award at grant date. As stock-based compensation expense recognized in the statement of income is based on awards ultimately expected to vest, it is reduced for estimated forfeiture. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company uses the Black-Scholes option pricing model in its determination of fair value of share-based payment awards on the date of grant. Such option pricing model is affected by assumptions based on a number of highly complex and subjective variables.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s tax provision.

The Company follows FASB guidance on uncertain tax positions and has analyzed Its filing positions in all the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns in the US federal, state and foreign jurisdictions where it conducts business. It is not subject to income tax examinations by US federal, state and local tax authorities for years before 2018. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

The Company’s policy for recording interest and penalties associated with any uncertain tax positions is to record such items as a component of income before taxes. Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the unaudited condensed consolidated statement of operations.

Foreign Currency Transactions

Foreign currency transactions are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in income for the period.

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 6,522,299 and 6,279,400 common stock equivalents, primarily stock options and warrants, for the nine months ended September 30, 2024 and 2023, respectively. For the fiscal nine months ended September 30, 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 unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2024.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of ASU 2016-13 until fiscal year beginning after December 15, 2022. In March 2022, the FASB issued ASU 2022-02 and eliminate the Troubled Debt Restructuring recognition and measurement guidance.

The Company adopted the ASU on January 1, 2023 and the adoption of this standard did not have a material effect on the Company’s operating results.

Segment Reporting

In November 2023, the FASB issued ASU 2023-07, which included Topic 280 “Segment Reporting”. This guidance improves reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of adopting ASU 2023-07 on its unaudited condensed consolidated financial statements.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 3 - Recent Accounting Pronouncements - Continued

Income Taxes

In December 2023, the FASB issued ASU 2023-09, which included Topic 740 “Income Taxes”. This guidance requires business entities to disclose additional information related to the income taxes. The ASU 2023-09 is effective for all entities for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on its unaudited condensed consolidated financial statements

NOTE 4 - Short-term Investment

On September 9, 2019, the Company entered into a liquidity agreement with a security company (“the Liquidity Provider”) in France, which is consistent with customary practice in the French securities market. The liquidity agreement complies with applicable laws and regulations in France and authorizes the Liquidity Provider to carry out market purchases and sales of shares of the Company’s common stock on the Euronext Paris market. To enable the Liquidity Provider to carry out the interventions provided for in the contract, the Company contributed approximately $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 has been renewed automatically until terminated as indicated below. As of September 30, 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 $20,370. In January 2022, the Liquidity Provider terminated the agreement and the Company is determining whether to continue a similar program with a different provider.

On September 30, 2022, the Company entered into a stock purchase agreement to purchase common stock of Shinbao in a total amount of NT$35,000,000 (approximately $1,105,846 and $1,143,044, as of September 30, 2024 and December 31, 2023, respectively). Shinbao is a privately-held company in Taiwan. As of November *, 2024, the stock title transfer is still under process.

As of September 30, 2024 and December 31, 2023, the fair value of the investment was as follows:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Investment - Liquidity	$	13,831	$	13,831
Prepaid investment		1,105,846		1,143,044
Total Investment		1,119,677		1,156,875

NOTE 5 - Inventories, net

As of September 30, 2024 and December 31, 2023, inventories consisted of the following:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Satellite equipment for sale under construction	$	190,392	$	170,892

The write-down of potential obsolete inventories is recorded based on management’s assumptions about future demands and market conditions. For the nine months ended September 30, 2024, the Company did not record any write-down of obsolete inventory. For the year ended December 31, 2023, the Company wrote-down $1,327,788 of obsolete inventory. The inventory write-down is included in “Cost of Goods Sold” in the consolidated statement of operations.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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

As of September 30, 2024 and December 31, 2023, prepaid expenses consisted of the following:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Prepaid professional expense	$	120,143	$	110,043
Others		171,525		48,128
Prepaid expenses total	$	291,668	$	158,171
Prepayment for equipment and intangible assets – customer projects – related parties		2,083,650		2,076,138
Prepayment for equipment and intangible assets – customer projects	$	9,175,533	$	8,326,017

These prepayments for equipment and intangible assets are related to ongoing projects.

NOTE 7 - Property and Equipment, Net

As of September 30, 2024 and December 31, 2023, the balances of property and equipment were as follows:

	September 30, 2024			December 31, 2023
	(Unaudited)			As restated
Ground station equipment	$	1,854,027		$	1,854,027
Computer software and equipment		2,874,474			2,847,119
Satellite equipment		275,410			275,410
Vehicle		327,702			337,637
Leasehold improvement		83,953			83,827
Furniture and fixture		38,606			38,637
		5,454,172			5,436,657
Accumulated depreciation		(3,292,976	)		(3,085,789	)
Net		2,161,196			2,350,868
Prepayments - land		39,315,937			40,114,286
Prepaid equipment		325,668			324,866
Total	$	41,802,801		$	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 $34,709,302 as of September 30, 2024 and $35,876,859 as of December 31, 2023) in total. The estimated commission payable for the land purchase in the amount of NT$42,251,900 (approximately $1,334,973 as of September 30, 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 November 8, 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 September 30, 2024, the Company paid to the Seller 2 installments prepayments of NT$145,800,000 (approximately $4,606,635 as of September 30, 2024) in total.

Depreciation expense was $213,408 and $525,796 for the nine months periods ended September 30, 2024 and 2023, respectively.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 8 - Long-term Investment

On December 3, 2020, the Company entered into three separate stock purchase agreements from three individuals to purchase an aggregate of 6,000,000 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 was then a listed company on the Taiwan Exchange. 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”).

As of September 30, 2024 and December 31, 2023, 6,000,000 shares of Ejectt’s common stock were pledged as collateral for debt obligations of the Company and booked under long-term investment. These shares are pledged to Bank of Panhsin and Hsiao, Chia-Sung. Bank of Panhsin provides collateral for the issuance of convertible bonds by U.S.-based Aerkomm Inc. Since the Company sold 5,000,000 shares of the 6,000,000 pledged shares and then later acquired 5,000,000 Ejectt shares once again, the Company used the average acquisition cost of NT$25.58 per share to determine the value of long-term investments as of September 30, 2024.

On July 20, 2023, the Taipei Exchange (the “Exchange”) announced that the securities of Ejectt Inc. would be suspended from trading on the Exchange as of that date, in accordance with Article 12-1 of the Business Rules of the Exchange due to significant changes in the scope of Ejectt’s business within a certain period before and after a change in control, that Ejectt’s new business accounted for more than 51% of its operations and due to the dismissal of independent director, Lin Yi-Bin, due to issues of independence. The Company’s management believes the suspension will have no impact on the value of its investment in the Ejectt stock. The management understood that the Ejectt’s management intended to modify Ejectt’s business such that its new business activities would constitute no more than 49% of the business of Ejectt, thereby enabling the resumption of trading in Ejectt conducting substantially the same business, as when its trading was suspended. However, Ejectt’s stock did not resume trading on the Exchange.

On July 28, 2023, the Company and Ejectt signed a non-binding letter of intent with respect to a possible merger between Aerkomm Taiwan Inc. and Ejectt. At a January 30, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved pursuing a merger with Ejectt, under which Aerkomm Taiwan would be the surviving company, and an offer of merger was delivered to Ejectt on February 1, 2024. On March 4, 2024, Ejectt was officially delisted.

Aerkomm Taiwan Inc. held a shareholders’ meeting on May 23, 2024 to approve the merger with Ejectt. On the same day, the Ejectt shareholders also approved the merger and the merger agreement became effective as of that date. On May 27, 2024, Aerkomm Taiwan Inc. amended its articles of incorporation to increase its capital. Aerkomm Taiwan and Ejectt agreed in the merger agreement to merge on June 27, 2024. However, for the merger to become legally effective under Taiwanese law, it must be approved by the Department of Investment Review in Taiwan. An application for approval was submitted on July 10, 2024. Aerkomm expects that the review process may require approximately 4-6 months. Aerkomm cannot assure whether the Department of Investment Review will approve the transaction.

As of September 30, 2024 and December 31, 2023, 6,000,000 shares of Ejectt’s common stock were restricted.

As of September 30, 2024, through Aerkomm Taiwan and Aircom Telecom the Company held approximately 9.22% of the issued and outstanding shares of Ejectt.

In connection with the planned merger with Ejectt, Aerkomm Taiwan retained an independent specialist firm that, in a report published to Aerkomm Taiwan dated April 29, 2024, valued Ejectt’s shares at between NT$25.62 to NT$27.17 per share. This valuation supports the value of the Company’s investment in Ejectt as of June 30, 2024 as well as the terms of merger agreed with Ejectt and approved by the board and shareholders of Aerkomm Taiwan. The merger with Ejectt is a structured as a one-for-one stock exchange with Aerkomm Taiwan being the surviving company. As a result of the merger, the shareholders of Aerkomm Taiwan will own approximately 48.65% of the merged entity.

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 had 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 of the AnaNaviTek stock for amount of $325,578.

As of September 30, 2024 and December 31, 2023, the fair value of the long-term investment was as follows:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Investment at cost - Ejectt - long-term	$	4,850,648	$	5,013,814
Net	$	4,850,648	$	5,013,814

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 9 - Intangible Asset, Net

As of September 30, 2024 and December 31, 2023, the cost and accumulated amortization for intangible asset were as follows:

	Satellite System Software			Accumulated Amortization			Net
December 31, 2023	$	17,406,469		$	(4,381,777	)	$	13,024,692
Addition		-			(1,318,045	)		(1,318,045	)
CTA		(11,535	)		14,323			2,788
September 30, 2024 (Unaudited)	$	17,394,934		$	(5,685,499	)	$	11,709,435

Amortization expense was $1,318,045 and $371,250 for each of the nine months periods ended September 30, 2024 and 2023.

Note 10 - Goodwill

As of September 30, 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						4,573,819
Impairment loss		(4,561,037	)		(4,561,037	)
December 31, 2023	$	9,134,856		$	(4,561,037	)	$	4,573,819
Addition		-			-			-
September 30, 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 nine-month period ended September 30, 2024 and the year ended December 31, 2023 for all past merger 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.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 10 - Goodwill - Continued

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

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 - Other Payable and Accrued Expenses

Nature	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Outside service, professional, and consultant fee	$	4,013,996	$	3,553,169
Land commission		1,334,973		1,379,879
Equity Financing		2,585,200		-
Interest payable		1,817,544		1,037,126
Bonus, health insurance, and payroll taxes		1,178,524		716,786
Investment payable		454,592		469,884
R&D supplies		438,834		448,996
Employee reimbursement		315,764		348,308
Office expense		183,593		58,014
Others		30,165		44,950
Total	$	12,353,185	$	8,057,112

The Company also notes that $6,786,462 of our Accrued Expenses of $7,956,269 as of September 30, 2024 was our accrual for unpaid salaries due to substantially all of our employees (including those of our wholly owned subsidiaries) continuing to perform their duties despite salary deferrals that began for substantially all of our employees in 2023. As of September 19, 2024, approximately $2.9 million accrued unpaid salaries have been settled pursuant to a form of letter outlining Aerkomm employee’s stock option exercise forms. Employees signing such agreements have agreed to the accelerated vesting and exercise of options to acquire an aggregate of 1,176,956 shares of the Company’s common stock in return for waiving the right to receive an aggregate of $3,051,000 in unpaid salary.

As of September 30, 2024, the total Equity Financing amounted to $2,585,200, made up of SAFE investments by Hsiao Chia-Sung SAFE, Liu Ya Ting, and Luk Fook Securities (HK) Ltd. Under the terms of the SAFE agreements, their invested amounts automatically convert into shares of the common stock of IXAQ upon the closing of the Merger at $11.50 per share and the SAFE investors are eligible for additional incentive shares that will be issued by the merged company if certain performance metrics are met in the five years following the closing of the Merger. Under each SAFE, if the Merger has not occurred within two years from the issuance date of the SAFE, then upon a vote of a majority (based on the face amounts of the SAFEs) of the holders of SAFEs, the SAFEs will convert into equity at a price of $5.00 per share. If the Company experiences a dissolution event before conversion of the SAFEs, the holders of SAFEs will be treated like holders of standard non-participating preferred stock.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 - 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		1.69 Year			1.97 Years
Finance lease		0.10 Years			0.85 Years
Weighted-average discount rate
Operating lease		6.00	%		6.00	%
Finance lease		3.82	%		3.82	%

The components of lease expense are as follows within the unaudited condensed consolidated statements of operations and comprehensive loss for the nine months periods ended September 30, 2024 and 2023:

Operating Leases

	September 30, 2024			September 30, 2023
	(Unaudited)			(Unaudited)
Lease expense	$	95,919		$	75,899
Sublease rental income		(5,954	)		(6,519	)
Net lease expense	$	89,964		$	69,380

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 - Operating and Finance Leases - Continued

Finance Leases

	September 30, 2024		September 30, 2023
	(Unaudited)		(Unaudited)
Amortization of right-of-use asset	$	7,952	$	8,235
Interest on lease liabilities		245		567
Total finance lease cost	$	8,196	$	8,801

Maturity of lease liabilities:

Operating Leases

	Others			Total
	(Unaudited)			(Unaudited)
October 1, 2024 – September 30, 2025	$	131,183		$	131,183
October 1, 2025 – September 30, 2026		91,986			91,986
Total lease payments	$	223,169		$	223,169
Less: Imputed interest		(11,525	)		(11,525	)
Present value of lease liabilities	$	211,644		$	211,644
Current portion		(121,797	)		(121,797	)
Non-current portion	$	89,847		$	89,847

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 12 - Operating and Finance Leases - Continued

Finance Leases

	Total
	(Unaudited)
October 1, 2024 – September, 2025	$	4,095
October 1, 2025 – September, 2026		-
Total lease payments	$	4,095
Less: Imputed interest		(13	)
Present value of lease liabilities	$	4,082
Current portion		4,082
Non-current portion	$	-

NOTE 13 - Short-term Loan

In June 2021, the Company entered into a loan agreement in the amount of $1,263,823 (NT $40,000,000) with a non-related party. This loan, which carries no interest, was originally set to mature on July 16, 2021. As of September 30, 2024, the outstanding loan balance was $947,867 (NTD 30,000,000) which is an interest free and no fixed maturity date basis loan. This loan is collateralized by 3,500,000 shares of Ejectt stock owned by the Company.

The temporary fundings as of September 30, 2024 and December 31, 2023, were $4,214,275 (NTD 133,381,800) and $4,347,159 (NTD 133,110,000), respectively., These loans were made by multiple individual lenders arranged by Well Thrive Limited, a shareholder of the Company that entered into an agreement with the Company (and another lender) pursuant to which Well Thrive Limited agreed to provide $10 million in lending to the Company (the “Loan Commitment”). The terms of Well Thrive Limited’s commitment under the Loan Commitment were amended on March 1, 2023 to provide that, to support the Company, Well Thrive Limited would fulfill one-half of its Loan Commitment (thus, $5 million) by making itself, or by arranging from others, loans on an interest free, no fixed maturity date basis. All of the above temporary fundings that has been loaned to the Company by induvial lenders arranged by Well Thrive Limited has been on such basis. The Company plans to repay the temporary fundings as promptly as feasible given its overall obligations and in light of its repayment plans made in light of managing its working capital. The Company is also in discussion with Well Thrive about possible debt equity swaps for the Loans following closing of the planned Merger with IXAQ.

NOTE 14 - 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. As of September 30, 2024, the long-term loan has been paid off.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

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

On December 3, 2020, the Company closed a private placement offering consisting of US$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.

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 and Ejectt stock 2,500,000 shares is pledged as collateral as of September 30, 2024, 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 September 30, 2024, the Company had repaid $8,062,247 out of a total of $10,358,024 of principal and interest due on the Bonds as of that date. We expect to repay the remaining balance of the amount of $2,391,092 owed on the bonds, plus any additional accrued interest, within the next few months.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 15 - Convertible Long-term Bonds Payable and Restricted Cash - Continued

As of September 30, 2024 and December 31, 2023, the long-term bonds payable consisted of the following:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Current:
Early redemption convertible bonds payable- default	$	2,287,349	$	10,303,775

Non-current:
Coupon Bond	$	200,000	$	200,000

The Company has been charged with 5% default interest since December 4, 2023. The total default interest payable as of September 30, 2024 and December 31, 2023, were $103,743 and $40,070, respectively.

NOTE 16 - Convertible Long-term Notes Payable

On December 7, 2022, Aerkomm Inc. (the “Company”) entered into an investment conversion and note purchase agreement (the “Agreement”) with World Praise Limited, a Samoa registered company (“WPL”). Pursuant to the terms of this Agreement, (i) a subscription for the common stock of the Company in the amount of $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 Note outstanding as of September 30, 2024 and December 31, 2023. 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 $1,693,759 as of September 30, 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 17 - 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 September 30, 2024 and December 31, 2023, the Company received $762,000 from Klingon in milestone payments towards the equipment purchase price. As of September 30, 2024, Aerkomm is talking about the renewal of this project and has reclassified it as short-term prepayment at this time.

NOTE 18 - Income Taxes

Income tax expense for the nine months periods ended September 30, 2024 and 2023 consisted of the following:

	Three Months Ended September 30,				Nine months Ended September 30,
	2024		2023		2024		2023
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current:
Federal	$	-	$	-	$		$	-
State		-		-		2,400		2,400
Foreign		-		-		-		-
Total	$	-	$	-	$	2,400	$	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 nine months periods ended September 30, 2024 and 2023.

	Three Months Ended September 30,						Nine months Ended September 30,
	2024			2023			2024			2023
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Tax benefit at statutory rate	$	(741,700	)	$	(702,089	)	$	(3,530,085	)	$	(2,409,671	)
Net operating loss carryforwards (NOLs)		466,842			747,003			1,842,994			2,306,417
Foreign investment losses (gains)		30,484			(497,670	)		305,321			(341,500	)
Stock-based compensation expense		127,000			139,800			976,300			179,500
Amortization expense		(48,000	)		65,500			20,400			151,200
Accrued payroll		79,700			99,700			193,400			214,000
Unrealized exchange losses (gains)		(926	)		144,156			97,770			(92,846	)
Others		86,600			3,600			96,300			(4,700	)
Tax expense at effective tax rate	$	-		$	-		$	2,400		$	2,400

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 18 - Income Taxes - Continued

Deferred tax assets (liability) as of September 30, 2024 and December 31, 2023 consist approximately of:

	September 30, 2024			December 31, 2023
	(Unaudited)			As restated
Net operating loss carryforwards (NOLs)	$	18,356,000		$	14,831,000
Stock-based compensation expense		4,804,000			3,502,000
Accrued expenses and unpaid expenses payable		1,273,000			889,000
Tax credit carryforwards		68,000			68,000
Unrealized exchange losses (gain)		62,000			20,000
Excess of tax amortization over book amortization		(146,000	)		(285,000	)
Others		(134,000	)		27,000
Gross		24,283,000			19,052,000
Valuation allowance		(24,283,000	)		(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 $5,231,000 for the nine months ended September 30, 2024.

As of September 30, 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 $36,703,000 and $30,009,000, respectively, were generated and will be carried forward indefinitely to reduce future federal taxable income. As of September 30, 2024 and December 31, 2023, the Company had State NOLs of approximately $35,643,000 and $46,427,000 respectively, available to reduce future state taxable income, expiring in 2042.

As of September 30, 2024 and December 31, 2023, the Company has Japan NOLs of approximately $299,000 and $260,000, respectively, available to reduce future Japan taxable income, expiring in 2031.

As of September 30, 2024 and December 31, 2023, the Company has Taiwan NOLs of approximately 6,185,000 and $6,173,000, respectively, available to reduce future Taiwan taxable income, expiring in 2031.

As of September 30, 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 September 30, 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 19 - 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 September 30, 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 September 30, 2024 and December 31, 2023.

	September 30, 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).

On December 13, 2023, two new subscribers subscribed for 834,000 shares of common stock of the Company, for a capital injection of $5,004,000 and for which the shares were issued to the two new shareholders in March 2024.

On February 2, 2024, the Company issued 175,000 shares of common stock to one new subscriber for a total of $1,050,000 capital injection.

On March 8, 2024, the Company issued 84,000 shares of common stock to one new subscriber for a total of $504,000 capital injection.

On April 24, 2024, the Company issued 390,000 shares of common stock to one new subscriber for a total of $2,340,000 capital injection.

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 year 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 20 - 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 September 30, 2024 and December 31, 2023:

	September 30, 2024		December 31, 2023
	(Unaudited)		As restated
Other receivable from:
- Loan:
EESquare JP ¹	$	173,124	$	154,698
WTL⁴		3,693,935		1,936,587
- Others:
EESquare JP ¹		18,848		19,160
Ejectt³		569		15,983
Kevin Wong⁶		14,518		-
Others⁷		12,140		21,073
Total	$	3,913,134	$	2,147,501

Prepaid expenses to Ejectt³	$	2,083,650	$	2,076,138

Prepayment from Ejectt³	$	6,607,717		6,534,908

Other payable to:
AATWIN⁵	$	19,047	$	19,047
Interest payable to WTL⁴		57,101		59,021
StarJec²		109,884		111,702
Kevin Wong⁶		173,839		75,327
Others⁷		471,058		461,705
Total	$	830,929	$	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 $662 per month as of September 30, 2024. $173,124 represents other receivable loans from EESquare JP as of September 30, 2024. These loans are interest free and have no maturity dates.

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 charge 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 September 30, 2024.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 20 - Significant Related Party Transactions - Continued

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 $1,202,788 as of September 30, 2024. As of June 17, 2023, Aerkomm Taiwan entered into an agreement with Ejectt to appoints Ejectt as its exclusive sales agent in Taiwan with NTD 20,000,000 security deposit (approximately $653,168 as of December 31, 2023 and $631,912 as of September 30, 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 $4,423,852 as of September 30, 2024. Besides, 6 months service ordered in October 2023 for NTD 5,333,333 (approximately $174,178 as of December 31, 2023 and $168,510 as of September 30, 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 $2,083,650 as of September 30, 2024 which represents 3 new agreements signed with AKOM different entities for AirCinema Cube orders in year 2023.

4.	The Company had loans from Well Thrive Limited (“WTL”) and paid off during 2023. The Company has interest payable balance of $59,021 as of December 31, 2023 and $57,101 as of September 30, 2024 (approximately NTD 1,807,000) from the past loans. The Company has other receivable of $3,693,935 and $1,936,587 from WTL due to operational needs as of September 30, 2024 and December 31, 2023. These other receivable loans do not have any stated interest rates or maturity dates.

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 $173,839 (approximately NTD) as of September 30, 2024.

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

For the nine months periods ended September 30, 2024 and 2023:

	Nine Months Ended September 30,
	2024		2023
	(Unaudited)		(Unaudited)
Sales to Ejectt¹	$	53,255	$	446,367
Service income from Ejectt¹		-		98,395
Service income from Star Jec⁴		-		2,805
Rental income from EESqaure JP ²		5,954		6,519
Rental income from WTL³		-		10,865

1.	Represents 2 sets of antennas sold to Ejectt on January 30, 2023 and antenna related equipment and testing support sold to Ejectt in 2024 Q1. Service income charged to Ejectt for consultant service provided in Q3, 2023 per the exclusive agent agreement signed as of June 17, 2023.

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 $662 per month in 2024 Q3.

3.	Aerkomm Japan has other income of $10,865, other product sale to WTL, in August 2023 in associated with selling antenna.

4.	On December 14, 2021, Aerkomm Japan and Star Jet, a Taiwan limited liability company, signed a Housing Service Order. Further on January 22, 2022, Aerkomm Japan and Star Jet signed a Satellite Service Order. Under the two orders, Aerkomm Japan agreed to provide satellite services and housing services to Star Jec.

NOTE 21 - Stock Based Compensation

In March 2014, Aircom’s Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom 2014 Plan provided for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan and agreed to issue options for an aggregate of 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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

On May 5, 2017, the Board of Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan” and together with the Aircom 2014 Plan, the “Plans”) and the reservation of 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.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

On December 11, 2020, the Board of Directors approved the grant of options to purchase an aggregate of 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.

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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

On June 1, 2023, the Board of Directors approved to issue options for 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 3,627,677 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.

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 2017 Plan to one of the Company’s officers. These options shall be vested immediately.

On March 4, 2024, the Board of Directors approved to issue options for 7,064 shares under the Aerkomm 2017 Plan to one of the Company’s consultants. These options shall be vested immediately.

On June 1, 2024, 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 6, 2024, the Board of Directors approved to issue options for 7,064 shares under the Aerkomm 2017 Plan to one of the Company’s consultants. These options shall be vested immediately.

On September 1, 2024, 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 6, 2024, the Board of Directors approved to issue options for 7,064 shares under the Aerkomm 2017 Plan to one of the Company’s consultants. 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 $4,599,472 and $854,739 for the nine months periods ended September 30, 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.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

Expected dividends

The Company does not plan to pay cash dividends before the options are expired. Therefore, the expected dividend yield used in the Black-Scholes option valuation model is zero.

Expected volatility

Since the Company has no historical volatility, it used the calculated value method which substitutes the historical volatility of a public company in the same industry to estimate the expected volatility of the Company’s share price to measure the fair value of options granted under the Plans.

Risk-free interest rate

The Company based the risk-free interest rate used in the Black-Scholes option valuation model on the market yield in effect at the time of option grant provided in the Federal Reserve Board’s Statistical Releases and historical publications on the Treasury constant maturities rates for the equivalent remaining terms for the Plans.

Forfeitures

The Company is required to estimate forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate option forfeitures and records share-based compensation expense only for those awards that are expected to vest.

The Company used the following assumptions to estimate the fair value of options granted in nine months period ended September 30, 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% - 4.41	%
Forfeiture rate	0% - 5	%

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

Aircom 2014 Plan

Activities related to options for the Aircom 2014 Plan for the nine months ended September 30, 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 September 30, 2024 (unaudited)		74,580		3.3521		1.0539

There are no unvested stock awards under Aircom 2014 Plan for the nine months period ended September 30, 2024 and the year ended December 31, 2023.

Of the shares covered by options outstanding as of September 30, 2024, 74,580 are now exercisable. Information related to stock options outstanding and exercisable at September 30, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	3.3521		74,580		1.75		3.3521		74,580		1.75		3.3521

As of September 30, 2024, there was no unrecognized stock-based compensation expense for the Aircom 2014 Plan. No option was exercised during the nine months periods ended September 30, 2024 and 2023.

Aerkomm 2017 Plan

Activities related to options outstanding under Aerkomm 2017 Plan for the nine months ended September 30, 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		77,442		2.5800		1.9377
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at September 30, 2024 (unaudited)		2,162,233		7.4471		5.1530

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

Activities related to unvested stock awards under Aerkomm 2017 Plan for the nine months period ended September 30, 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		77,442			1.9377
Vested		(224,883	)		1.9857
Forfeited/Cancelled		-			-
Options unvested at September 30, 2024 (unaudited)		524,236			2.0110

Of the shares covered by options outstanding under the Aerkomm 2017 Plan as of September 30, 2024, 1,637,997 are now exercisable; 196,593 shares will be exercisable for the twelve-month period ending September 30, 2025. Information related to stock options outstanding and exercisable at September 30, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	2.55 - 4.30		1,387,795		7.64	$	3.0041		863,559		7.06	$	3.3568
	6.00 - 10.00		419,288		6.61		8.3356		419,288		6.61		8.3356
	11.00 - 14.20		126,150		5.50		11.4688		126,150		5.50		11.4688
	20.50 - 27.50		109,000		3.03		25.4982		109,000		3.03		25.4982
	30.00 - 35.00		120,000		2.85		34.5479		120,000		2.85		34.5479
			2,162,233		6.82		7.4163		1,637,997		6.25		9.0145

As of September 30, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $1,003,000, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 2.60 years. No option was exercised during the nine months period ended September 30, 2024 and the year ended December 31, 2023.

Aerkomm 2023 Plan

Activities related to options outstanding under Aerkomm 2023 Plan for the nine months ended September 30, 2024 and the year ended December 31, 2023 are as follows:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Fair Value Per Share
Options outstanding at December 31, 2022	-		-		-
Granted		3,683,929		2.5914		2.0420
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options outstanding at December 31, 2023		3,683,929		2.5914		2.0420
Granted		-		-		-
Exercised		-		-		-
Forfeited/Cancelled		-		-		-
Options unvested at September 30, 2024 (unaudited)		3,683,929		2.5914		2.0420

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 21 - Stock Based Compensation - Continued

Activities related to unvested stock awards under Aerkomm 2023 Plan for the nine months period ended September 30, 2024 is as follows:

	Number of Shares			Weighted Average Fair Value Per Share
Options unvested at January 1, 2023		-			-
Granted		3,683,927			2.0420
Vested		(600,394	)		2.0448
Forfeited/Cancelled		-			-
Options unvested at December 31, 2023		3,083,533			2.0415
Granted		-			-
Vested		(1,896,642	)		2.0414
Forfeited/Cancelled		-			-
Options unvested at September 30, 2024 (unaudited)		1,186,891			2.0416

Of the shares covered by options outstanding as of September 30, 2024, 2,497,036 shares are now exercisable. Information related to stock options outstanding and exercisable at September 30, 2024, is as follows:

		Options Outstanding (Unaudited)						Options Exercisable (Unaudited)
Range of Exercise Prices		Shares Outstanding at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price		Shares Exercisable at 9/30/2024		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	2.58-2.89		3,683,927		8.74		2.5914		2,497,036		8.74		2.5921

As of September 30, 2024, total unrecognized stock-based compensation expense related to stock options was approximately $2,710,000, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.29 years. No option was exercised during the year ended September 30, 2024.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 22 - Commitments

As of September 30, 2024, the Company’s significant commitment is summarized as follows:

		Airbus SAS Agreement: On November 30, 2018, in furtherance of a memorandum of understanding signed in March 2018, the Company entered into an agreement with Airbus SAS (“Airbus”), pursuant to which Airbus will develop and certify a complete retrofit solution allowing the installation of the Company’s “AERKOMM K++” system on Airbus’ single aisle aircraft family including the Airbus A319/320/321, for both Current Engine Option (CEO) and New Engine Option (NEO) models. Airbus will also apply for and obtain on the Company’s behalf a Supplemental Type Certificate (STC) from the European Aviation Safety Agency, or EASA, as well as from the U.S. Federal Aviation Administration or FAA, for the retrofit AERKOMM K++ system. The EU-China Bilateral Aviation Safety Agreement, or BASA, went into effect on September 3, 2020, giving a boost to the regions’ aviation manufacturers by simplifying the process of gaining product approvals from the European Union Aviation Safety Agency, or EASA, and the Civil Aviation Administration of China, or CAAC, while also ensuring high safety and environment standards will continue to be met. Pursuant to the terms of our Airbus agreement, Airbus agreed to provides the Company with the retrofit solution which will include the Service Bulletin and the material kits including the update of technical and operating manuals pertaining to the aircraft and provision of aircraft configuration control. The timeframe for the completion and testing of this retrofit solution, including the certification, is expected to be in the fourth quarter of 2024, although there is no guarantee that the project will be successfully completed in the projected timeframe.

		Airbus Interior Service Agreement: On July 24, 2020, Aerkomm Malta, entered into an agreement with Airbus Interior Services, a wholly-owned subsidiary of Airbus. This new agreement follows the agreement that Aircom signed with Airbus on November 30, 2018 pursuant to which Airbus agreed to develop, install and certify the Aerkomm K++ System on a prototype A320 aircraft to EASA and FAA certification standards.

		Hong Kong Airlines Agreement: On January 30, 2020, Aircom signed an agreement with Hong Kong Airlines Ltd. (HKA) to provide to Hong Kong Airlines both of its Aerkomm AirCinema and AERKOMM K++ IFEC solutions. Under the terms of this new agreement, Aircom will provide HKA its Ka-band AERKOMM K++ IFEC system and its AERKOMM AirCinema system. HKA will become the first commercial airliner launch customer for Aircom.

		*Vietjet Air:* On October 25, 2021, the Company signed an agreement with Vietjet Air (“Vietjet”) to provide them with our Aerkomm AirCinema In-Flight Entertainment and Connectivity (“IFEC”) solutions. Under the terms of the agreement, the Company will provide to Vietjet our Aerkomm AirCinema Cube IFEC system for installation on Vietjet’s fleet of Airbus A320, A321 and Airbus A330-300 aircraft.

		Republic Engineers Complaint: On October 15, 2018, Aircom Telecom entered into a product purchase agreement, or the October 15th PPA, with Republic Engineers Maldives Pte. Ltd., a company affiliated with Republic Engineers Pte. Ltd., or Republic Engineers, a Singapore based, private construction and contracting company. On November 30, 2018, the October 15th PPA was re-executed with Republic Engineers Pte. Ltd. as the signing party. The Company refers to this new agreement as the November 30th PPA and, together with the October 15th PPA, the PPA. Under the terms of the PPA, Republic Engineers committed to the purchase of a minimum of 10 shipsets of the AERKOMM K++ system at an aggregate purchase price of $10 million. Additionally, under the terms of the PPA, the Executive Director of Republic Engineers, C. A. Raja, agreed to sign an agreement, or the Guarantee, to guarantee all of the obligations of Republic Engineers under the PPA. Republic Engineers had submitted a purchase order, or PO, dated October 15, 2018 for the 10 shipsets and was supposed to have made payments to Aircom Telecom against the purchase order shortly thereafter. Republic Engineers made no payments against the purchase order and the Company did not begin any work on the ordered shipsets. On July 7, 2020, Republic Engineers and Mr. Raja filed a complaint against Aerkomm, Aircom and Aircom Telecom (the “Aircom Parties”) in the Superior Court of the State of California for the County of Almeda, or the Court, seeking declaratory relief only and no money damages, alleging that the PPA and the PO were not executed or authorized by Republic Engineers and that the Guarantee was not executed or authorized by Mr. Raja. Republic Engineers and C. A. Raja requested from the Court (i) orders that the PPA, the PO and the Guarantee be declared null and void and (ii) the payment of their reasonable attorney’s fees. On July 29, 2020, Aircom Telecom provided notice to Republic Engineers that the PPA and the PO was terminated according to their terms as a result of the non-performance of Republic Engineers and the Failure of Mr. Raja to provide the Guarantee. The Aircom Parties filed a motion for judgment on the pleadings in August 2021, asking the Court to find the Complaint for Declaratory Relief to be moot, because the contracts that are the subject of the Complaint have been terminated. On September 22, 2021, the Court granted that motion, and dismissed the complaint. At the request of Republic Engineers, the Court granted Republic Engineers leave to amend its complaint to attempt to allege a viable claim. On May 10, 2022, Republic Engineers and Aircom Parties entered into a settlement and mutual release agreement, which included, among other things, a denial of wrongdoing by both parties, a requirement that Republic Engineering file a motion with the Court to dismiss its lawsuit against the Aircom Parties and a mutual release by each party of any and all claims against the other party relating to this dispute. On May 17, 2022, Republic Engineers filed with the Court a motion to dismiss with prejudice, its lawsuit against the Aircom Parties and on that same day the Court officially dismissed the lawsuit.

AERKOMM INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 22 - Commitments - Continued

		Shenzhen Yihe: On June 20, 2018, the Company entered into that certain Cooperation Framework Agreement, as supplemented on July 19, 2019, with Shenzhen Yihe Culture Media Co., Ltd., or Yihe, the authorized agent of Guangdong Tengnan Internet, or Tencent Group, pursuant to which Yihe agreed to assist the Company with public relations, advertising, market and brand promotion, as well as with the development of a working application of the Tencent Group WeChat Pay payment solution and WeChat applets applicable for Chinese users and relating to cell phone and WiFi connectivity on airplanes. As compensation under this Yihe agreement, the Company paid Yihe RMB 8 million (approximately US$1.2 million). On October 16, 2020, in accordance with the provisions of the agreement with Yihe, as supplemented, the Company filed an arbitration action with the Shenzhen International Arbitration Court, or the Arbitration Court, claiming that Yihe failed to perform under the terms of the supplemented agreement and seeking a complete refund of its RMB 8 million payment to Yihe. The Company received notice from the Arbitration Court on October 16, 2020 of receipt of its arbitration filing and the requirement to pay the Arbitration Court RMB 190,000 in fees relating to the arbitration. These fees were paid on October 28, 2020. The Company intends to aggressively pursue this matter. As of September 30, 2021, the prepayment was reclassified to other receivable and full allowance was reserved. On March 25, 2022, the Shenzhen International Arbitration Court issued a judgment in our favor. The Court deemed the Company’s agreement with Yihe terminated as of November 24, 2020, the date of the Company’s filing with the Court, and held that Yihe is required to promptly repay us RMB 7.5 million and reimburse the Company RMB 178,125 in court costs. The Company will make every effort to collect these amounts from Yihe.

		US trademark: On December 1, 2020, the United States Patent and Trademark Office (the “USPTO”) issued a Final Office Action relating to Aerkomm Inc. indicating that the Company’s US trademark application (Serial No. 88464588) for the name “AERKOMM,” which was originally filed with the USPTO on June 7, 2019, was being rejected because of a likelihood of confusion with a similarly sounding name trademarked at, and in use from, an earlier date. The Company successfully appealed this USPTO action and the USPTO issued to the Company a trademark registration for the service mark AERKOMM under Trademark Class 38 (telecommunications) on November 2, 2021 and Trademark Class 41 (entertainment services) on November 23, 2021.

		Equity Contract: On December 29, 2022, Aerkomm Inc. (the “Company” or the “Seller”) and dMobile System Co., Ltd. (the “Buyer”) entered into an equity sales contract (the “Equity Sales Agreement”), pursuant to which the Company agreed to sell 25,500,000 shares (the “Subject Shares”) of Aerkomm Taiwan Inc., representing 51% of the issued and outstanding shares of Aerkomm Taiwan, to the “Buyer for NT$255,000,000 (approximately $8,300,000). Although as a result of the share transfer transaction under the Equity Sales Agreement 51% of the shares of Aerkomm Taiwan are held in the name of the Buyer, Aerkomm treats Aerkomm Taiwan as a consolidated subsidiary because Aerkomm has de facto voting, governance and economic control of Aerkomm Taiwan as: (i) Aerkomm continues to hold 49% of the shares of Aerkomm Taiwan, (ii) the sole director of Aerkomm Taiwan, Albert Hsu, is a member of the board of the Company, (iii) the Buyer has not yet paid the amount due for purchase of the Subject Shares, and, under the Equity Sales Agreement, the Company has the right to demand return of the Subject Shares if payment for them has not been made within 180 days of the date of the Equity Sales Agreement, which such period has elapsed, (iv) concurrently with the Company and the Buyer entering into the Equity Sales Agreement, the Buyer and Mr. Hsu entered into an equity pledge pursuant to which the Buyer pledged the Subject Shares to Mr. Hsu and Mr. Hsu was granted the right to exercise all rights in respect of the Subject Shares pending the Buyer’s payment to the Company for the Subject Shares, and the Company and Mr. Hsu entered into an entrustment agreement pursuant to which the Company entrusted Mr. Hsu and Mr. Hsu agreed to be entrusted as the pledgee of the Subject Shares, and (v) the sole shareholder of the Buyer, is a founder of Aerkomm and a holder of more than 10% of the voting equity of Aerkomm.

NOTE 23 - Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q, and determined that, other than as indicated below, there have been no events that have occurred that would require adjustments to our disclosures in the unaudited condensed consolidated financial statements.

Between October 15, 2024 and October 30, 2024, Well Thrive Limited (the “Borrower”) entered into three loan agreements with the Company (as the Lender), totaling NTD 11,660,800 (USD 368,430). These agreements are set to expire on December 31, 2025. The loans carry an annual interest rate of 5%. However, if the Borrower repays the loan within six months from the borrowing start date, no interest will be charged.

On October 1, 2024, the Company’s subsidiary in Japan, Aerkomm Japan Inc., entered into a Distribution Partnership Agreement with Network Access Associates Ltd., a member of the EUTELSAT group (“OneWeb”) dated as of September 26, 2024 (the “DPA”), pursuant to which OneWeb appointed Aerkomm Japan as a distribution partner for Japan and Taiwan for OneWeb’s satellite communications products and services.

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

The Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been revised to reflect the restatement occurring subsequent to the filing of the Original Form 10-Q, as well as to incorporate certain conforming changes.

The Company has restated, by means of its Annual Report on Form 10-K/A for the year ended December 31, 2023 (the “2023 Form 10-K”), its consolidated balance sheet at December 31, 2023. For information on the impact of the restatement, reference is made to the Company’s 2023 Form 10-K/A, (i) Part I, Item 1A. Risk Factors; (ii) Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and (iii) Part II, Item 9A. Controls and Procedures. In addition, the restatement impacts the first quarter of 2024. The restated amounts for the first quarter of 2024 are presented in the Company’s Quarterly Reports on Form 10-Q/A for the quarterly period ended March 31, 2024.

In the course of preparing its financial statements for quarter ended September 30, 2024, our management and our audit committee concluded that it was appropriate to restate our previously issued audited financial statements as of and for the period ended December 31, 2023. The restatement is to reflect a correction to the Company’s accounting for certain debt previously characterized as long-term debt, as short-term debt; due to the Company’s records indicating an intention to hold a certain investment for more than one year, the Company has reclassified that investment from short-term to long-term and, consequently, the valuation method for this investment has been adjusted from market value (used for short-term investments) to cost (used for long-term investments); a correction has been made to reclassify the account “other receivable-related party loans” to “short-term loan-others; the early redemption by our bond holders of our Credit Enhanced Zero Coupon Convertible Bonds resulted in an early redemption loss and accrued default interest expenses. Although these changes are non-cash items and do not change the Company’s reported operating revenues or reported operating costs and expenses, the Company determined that these changes have a material impact on the as filed financial statements for the year ended December 31, 2023 and for the nine months period ended September 30, 2024 (the “Relevant Period”), and as a result, the restatement of the Relevant Periods is required.

Throughout the following Management’s Discussion and Analysis of Financial Condition and Result of Operations, all referenced amounts for prior periods and prior period comparisons reflect the balances and amounts on a restated basis.

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our,” or “our company” are to the combined business of Aerkomm Inc., a Nevada corporation, and its consolidated subsidiaries, including Aircom Pacific, Inc., a California corporation and wholly-owned subsidiary, or Aircom; Aircom Pacific Ltd., a Republic of Seychelles company and wholly-owned subsidiary of Aircom; Aerkomm Pacific Limited, a Malta company and wholly owned subsidiary of Aircom Pacific Ltd.; Aircom Pacific Inc. Limited, a Hong Kong company and wholly-owned subsidiary of Aircom; Aircom Japan, Inc., a Japanese company and wholly-owned subsidiary of Aircom; and Aircom Telecom LLC, a Taiwanese company and wholly-owned subsidiary of Aircom, Aircom Taiwan, or Aircom Beijing; MEPA Labs Inc., a California corporation and wholly-owned subsidiary; and Mesh Technology Limited, a Taiwan company and wholly-owned subsidiary.

Special Note Regarding Forward Looking Statements

Certain information contained in this report includes forward-looking statements. The statements herein which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. The following factors, among others, may affect our forward-looking statements:

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our future financial and operating results;

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our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;

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the impact and effects of the global outbreak of the coronavirus (COVID-19) pandemic, and other potential pandemics or contagious diseases or fear of such outbreaks, on the global airline and tourist industries, especially in the Asia Pacific region;

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our ability to attract and retain customers;

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our dependence on growth in our customers’ businesses;

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the effects of changing customer needs in our market;

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the effects of market conditions on our stock price and operating results;

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our ability to successfully complete the development, testing and initial implementation of our product offerings;

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our ability to maintain our competitive advantages against competitors in our industry;

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our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;

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our ability to introduce new product offerings and bring them to market in a timely manner;

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our ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations

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our ability to maintain, protect and enhance our intellectual property;

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the effects of increased competition in our market and our ability to compete effectively;

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our expectations concerning relationship with customers and other third parties;

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the attraction and retention of qualified employees and key personnel;

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future acquisitions of our investments in complementary companies or technologies; and

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our ability to comply with evolving legal standards and regulations.

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue our operations. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023, and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur.

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

The specific discussions herein about our company include financial projections and future estimates and expectations about our business. The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on our management’s own assessment of our business, the industry in which we work and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.

Potential investors should not make an investment decision based solely on our company’s projections, estimates or expectations.

Overview

We are a development stage innovative satellite communication technology company providing carrier-neutral and software-defined infrastructure to deliver mission-critical, multi-orbit satellite broadband connectivity for the public and private sectors. For the nine months ended September 30, 2024 and 2023, AERKOMM had $149,563 and $507,949 in revenues and net losses of $16,686,644 and $13,422,441.

We offer a range of next-generation technologies that bring high-throughput performance, interoperability and virtualization to provide high performance and resilient end-to-end broadband connectivity to our customers in collaboration with satellite or constellation partners and mobile network operators.

Because we do not operate, or intend to operate, our own satellites or constellations, our business model remains asset-light and far less capital intensive than most companies operating in the space industry. Instead, we are a value-added reseller of bandwidth where we provide value both to our customers and to our partners be unlocking or otherwise expanding new use-cases for satellite communications, which also means bringing new revenue streams to our satellite operator partners whose bandwidth we resell.

While we design and develop proprietary technologies, due to the complexity of the satellite communications industry, in order to deliver or to architect end-to-end solutions, we also strategically source and integrate partner technologies to create robust and reliable satellite networks that can be tailored to meet the demands of public and private sector clients. In order to enable resiliency and scalability, we aim to be at the forefront of implementing virtualization for satellite communications through our software-defined approach, which enhances flexibility, scalability, and efficiency, allowing for dynamic adaptation to evolving communication needs. By orchestrating a comprehensive system of technologies, we endeavor to revolutionize satellite communication alongside our industry partners, delivering unparalleled capabilities to empower industries and individuals worldwide.

Our key proprietary cutting-edge technology is a universal terminal that we develop, which provides carrier-neutral satellite broadband access. These terminals are designed to meet the diverse needs of users across various sectors, and connecting those users to the right satellite in the sky, independent of which orbit it is located in, ensuring seamless connectivity and unparalleled performance. Our universal terminals consist of both a multi-orbit flat panel antenna (FPA), or electronically steered array (ESA), as well as a carrier-neutral, software-defined modem. Our groundbreaking glass semiconductor ESA antenna technology enhances performance by more than 50% in terms of throughput per square inch, compared to other antenna designs and constructions. Our work on custom beamformer chips, or application specific integrated circuits (ASICs), and on custom radiofrequency (RF) chipsets aims to optimize power and performance, enabling seamless connectivity across multiple orbits. Within our modem, the software-defined radio (SDR) technology provides secure and agile signal transmission with military-grade security features. Our work on a custom high-speed analog-to-digital (ADC) chipset aims to unlock hybrid-orbit links and to enable advanced signal intelligence capabilities.

As of April 27, 2023, the Company has been awarded a regional satellite service spectrum usage permit. With this permit and our proprietary technology, we believe that we will be able to develop and expand our revenue stream from satellite services. This positions us as not only a hardware and system supplier, but also a value-added service and satellite service provider, and expands the markets in which we can participate.

As a satellite service provider in Taiwan, we will be authorized to provide satellite services in the Civilian Telecommunications market, such as for mobile backhaul, and Aerospace & Defense markets, such as for both aviation and maritime applications. We expect these capabilities also to enable us to secure network resiliency contracts.

Moving forward, the Company intends to pursue initiatives in the Aerospace & Defense and Civilian Telecommunications markets to establish a leading position as innovators at the forefront of the booming satellite communications industry. We are primed to capitalize on the opportunities presented by the rapidly evolving satellite communication landscape, driving innovation and delivering value to customers and stakeholders.

U.S. Budget Environment

With the largest defense budget in the world, U.S. Government spending levels, particularly defense spending, and timely funding thereof can affect our business prospects in the long term. While we do not yet have any contracts related to the U.S. Government’s defense spending at this time, to the extent that we can secure potential customers and contracts related to U.S. Government defense spending, the U.S. Government defense budget, spending and timeline funding thereof may affect our business prospects in the medium term, as well.

The President’s Fiscal Year (FY) 2024 budget request was submitted to Congress on March 9, 2023, initiating the FY 2024 defense authorization and appropriations legislative process. The request included $886 billion for National Defense, of which $842 billion is for the Department of Defense (DoD) base budget.

On June 3, 2023, the President signed H.R. 3746 “The Fiscal Responsibility Act” (FRA) into law. The legislation suspended the debt ceiling until January 1, 2025, and, among other provisions, capped national defense spending at $886 billion for FY 2024 (President’s Budget Request level) and $895 billion for FY 2025. Supplemental funding legislation is not subject to the budget caps. If a continuing resolution is enacted and still in effect and Congress does not pass all twelve defense and non-defense discretionary appropriations bills by April 30, 2024, the FRA will result in a decrease in government spending for FY 2024 by one percent from FY 2023 enacted levels.

The House and Senate continue the legislative process on the FY 2024 budget. On December 22, 2023, the President signed the FY 2024 National Defense Authorization Act (NDAA) into law. The NDAA authorizes funding at the FRA cap of $886 billion for National Defense.

On January 19, 2024, the President signed a continuing resolution that extends funding of four appropriations bills to March 1, 2024 and the remaining eight to March 8, 2024. This will provide Congress additional time to enact all twelve FY 2024 appropriations bills based on the overarching U.S. Government spending agreement reached by House and Senate leaders on January 7, 2024 which comports with the FRA cap of $886 billion for National Defense in FY 2024. Overall, congressional sentiment remains strong for supporting the National Defense Strategy and defense spending. However, the logistical and political challenges, especially in the U.S. House of Representatives, are complex and add funding risk.

Under the continuing resolution, funding at amounts consistent with appropriated levels for FY 2023 are available, subject to certain restrictions, but new contract and program starts are not authorized. We expect our technologies and solutions are relevant both to current programs, which may continue to be supported and funded under the continuing resolution, as well as to new programs, which are not yet authorized. Regardless, during periods covered by continuing resolutions, we may experience challenges in securing contracts with prime contractors to incorporate our products and services in their current programs, and those delays may adversely affect our ability to generate revenue from new contracts.

On October 20, 2023, the President submitted a $106 billion supplemental funding request to Congress for assistance to Ukraine, Israel and the IndoPacific; related U.S. restock of capacity transfers to Ukraine and Israel; and U.S. border security. Congress has not yet acted on this request, which is part of the broader debate on FY 2024 U.S. Government funding and border security policy. Supplemental and emergency funding are not subject to the FRA cap. If enacted, this would provide a partial relief valve for DoD funding limits under the FRA or other limiting scenarios such as a prolonged continuing resolution.

If Congress is not able to enact FY 2024 appropriations bills or extend the continuing resolution, the U.S. Government will enter a whole or partial shutdown. The impact of any government shutdown is uncertain. However, if a government shutdown were to occur and were to continue for an extended period, we could be at risk of reduced opportunities to bid for and compete for, as the potential partners we would be working with may experience reduce orders, program cancellations, schedule delays, production halts and other disruptions and nonpayment, which could adversely affect our potential partners’ results of operations. Further, if any one of the 12 appropriations bills is under a continuing resolution as of April 30, 2024, USG funding levels will reset to FY 2023 enacted levels minus 1% for the remainder of FY 2024 or until all 12 appropriations are enacted.

We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our potential partners’ programs.

While we do not yet generate revenue from programs funded by the U.S. Government, we aim to initiate and to continue discussions with our potential partners and our potential customers to participate in contracts and in programs funded, in whole or in part, by the U.S. Government. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts or programs funded, in whole or in part, by the U.S. Government in the future.

Geopolitical and Economic Environment

We operate in a complex and evolving global security environment and our business is affected by geopolitical issues. Russia’s invasion of Ukraine significantly elevated global geopolitical tensions and security concerns resulting in increased interest for certain of our products and services as countries seek to improve their security posture. In addition, security assistance provided by the U.S. Government and its allies to Ukraine has created U.S. Government and allied demand to replenish U.S. stockpiles, resulting in additional and potential future orders for our potential partners’ products, including for the ramp-up in production capacity for certain products. Although many of our potential partners received new orders in 2024 attributable to a response to the conflict and continue to expect to receive them over the next several years, given the long-cycle nature of our business and current industry capacity, the orders did not result in a significant increase in 2024 sales as we do not yet have binding contracts with these potential partners. We aim to continue to work with our potential partners and their supply chains to evaluate increases anticipated potential demand and enable us to position our products and services to deliver critical capabilities to our potential partners and to their customers in the U.S. Government.

Our business and financial performance is also affected by general economic conditions. Supply chain disruptions persist, and although we continue working to minimize the impact of supply chain challenges, many of these challenges are industry wide or caused by geopolitical events that are outside of our control. In addition, heightened levels of inflation and the potential worsening of macro-economic conditions present risks for our potential partners, our suppliers and the stability of the broader defense industrial base. Certain costs, including rising labor rates and supplier costs, may increase as a result of inflation, and may put pressure on achieving our expected margins in the future. If we continue to experience high rates of inflation, and we are unable to successfully mitigate the impact, our future profits, margins and cash flows, may be adversely affected. Inflation and higher interest rates can also constrain the overall purchasing power of our potential partners and their customers for our products and services potentially impacting future orders we aim to secure.

International Business

A key component of our strategic plan is to grow our international sales. To accomplish this growth, we continue to focus on strengthening our relationships internationally through partnerships and joint technology efforts. Our international business is primarily conducted by direct commercial sales (DCS) to international customers, but in the future, we aim to engage it foreign military sales (FMS) contracted through the U.S. Government, as well. In 2023, approximately 100% of our sales were DCS. Additionally, in 2023, substantially all of our sales were in Aerospace & Defense business segment to one international customer. Civilian Telecommunications’ sales from international customers were not material in 2023.

In 2023, international customers accounted for approximately 100% of the sales in the Aerospace & Defense business segment as part of a development contract we have been engaged with since 2021 to develop a first-of-its-kind satellite communications architecture for unmanned aerial vehicles (UAVs) engaged in intelligence, surveillance, and reconnaissance (ISR) missions with our development partner and customer. By late 2023, our technology was tested and achieved positive results in operational environments. We anticipate starting to deliver on our first major contract for this same customer in 2024.

Commercial Aviation Business Environment and Trends

In 2023, global air traffic largely recovered to 2019 levels with domestic travel continuing to be the most robust and the single-aisle market following closely. International travel has mostly recovered and the wide-body market continues to be paced by the international travel recovery. The transition in the international commercial market from recovery to normal market conditions is progressing slowly as China international travel remains below 2019 levels. Our potential aircraft manufacturing partners are experiencing strong demand from their airline customers globally.

Airline financial performance, which influences demand for new capacity, has benefited from the resilient demand for travel. The International Air Transport Association (IATA) is estimating 2023 industry-wide profit of $23.3 billion, up from its forecast of $4.6 billion a year ago, primarily driven by North America, Europe and the Middle East. For 2024, IATA is forecasting $25.7 billion in profits for the industry globally. The overall outlook continues to stabilize as we face uncertainties in the environment in the near- to medium-term as airlines are facing persistently high and volatile cost of fuel and tight labor conditions. The global economy is expecting an easing of inflation and interest rates, with regional economic and geopolitical difficulties adding uncertainty to the outlook and the financial viability of some airlines and regions.

The long-term outlook for the commercial aviation industry remains positive due to the fundamental drivers of air travel demand: economic growth, increasing propensity to travel due to increased trade, globalization and improved airline services driven by liberalization of air traffic rights between countries. The commercial aviation industry remains vulnerable to exogenous developments including fuel price spikes, credit market shocks, acts of terrorism, natural disasters, conflicts, epidemics, pandemics and increased global environmental regulations.

While we do not yet generate revenue from contracts in the commercial aviation industry, we aim to initiate and to continue discussions with our potential partners and our potential customers in the commercial aviation industry to provide our products and our services to such potential partners and potential customers under binding and definitive contracts. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts in the commercial aviation industry in the future.

Civilian Telecommunications Business Environment and Trends

According to GSMA’s report “The Mobile Economy 2023”, mobile connectivity continues to be a lifeline for society, helping the most vulnerable people in areas affected by conflict and natural disasters to stay connected. It is also enabling advanced connectivity capabilities needed by verticals to innovate amid diverse political, social and macroeconomic headwinds.

By the end of 2022, over 5.4 billion people globally subscribed to a mobile service, including 4.4 billion people who also used the mobile internet. The mobile internet usage gap has narrowed markedly in the last five years - from 50% in 2017 to 41% in 2022 on average - but still remains significant and demands urgent attention from all stakeholders.

In 2022, mobile technologies and services generated 5% of global GDP, a contribution that amounted to $5.2 trillion of economic value added and supported 28 million jobs across the wider mobile ecosystem. 5G will underpin future mobile innovation and services, building on ongoing deployments and adoption.

5G adoption was projected to reach 17% in 2023, rising to 54% (equivalent to 5.3 billion connections) by 2030. The technology will add almost $1 trillion to the global economy in 2030, with benefits spread across all industries.

While we do not yet generate revenue from contracts in the civilian telecommunications industry, we aim to initiate and to continue discussions with our potential partners and our potential customers in the civilian telecommunications industry to provide our products and our services to such potential partners and potential customers under binding and definitive contracts. We cannot give any assurances at this time, however, that we will be able to successfully complete any of these discussions, or that we will generate revenue from contracts in the civilian telecommunications industry in the future.

Principal Factors Affecting Financial Performance

We believe that our operating and business performance will be driven by various factors that affect the Aerospace & Defense and Civilian Telecommunications segments including the magnitude of defense spending by the U.S. and its allies, trends in air travel affecting the commercial airline industry, and trends in the evolution of the digital infrastructure and technologies deployed by mobile network operators, which collectively constitute the customer bases that we target, as well as general macroeconomic factors. Key factors that may affect our future performance include:

	●	our ability to enter into and maintain long-term business arrangements with potential partners that are defense contractors and other potential military and government customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;

	●	our ability to enter into and maintain long-term business arrangements with potential partners in the commercial aviation and airline industries and other potential aerospace customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;

	●	our ability to enter into and maintain long-term business arrangements with potential partners in civilian telecommunications industries and other potential telecommunications customers, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;

	●	our ability to enter into and maintain long-term business arrangements with potential partners in satellite communications industries, including satellite and constellation operators with satellites in various orbits such as LEO, MEO, GEO and HEO, which depends on numerous factors including the technical integration of our technology and services with their satellites and core networks;

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our ability to secure and maintain the relevant licenses and regulatory approvals to operate as a distribution partner of satellite bandwidth from our current and potential satellite and constellation partners in our potential target countries and regions, which depends on numerous factors including the navigation of both national and international regulatory regimes and coordination with ministries of communications or their equivalent;

	●	our ability to secure and maintain the relevant type approvals, as necessary, to install our universal terminals on airborne, maritime and land-based vehicles and platforms, such as the DO-160 certification for installation of our systems on aircraft, which depends on numerous factors including the navigation of both governmental and third-party regulatory regimes and coordination with key stakeholders;

	●	the extent of the adoption of our products and services by potential Aerospace & Defense and Civilian Telecommunications partners and customers;

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

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costs associated with and our ability to execute our expansion, including modification to our network to accommodate satellite technology, development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity to which we may have to commit well in advance, and compliance with regulations;

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costs associated with managing a rapidly growing company;

	●	the number of manned and unmanned defense platforms in service in our markets, including changes in fleet size by one or more of our potential military or government customers;

	●	the geopolitical environment and other trends that affect defense spending;

	●	continued demand for connectivity and proliferation of manned and unmanned defense platforms, including UAVs and drones;

	●	the number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners;

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

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the number of cell towers, base stations and antennas deployed by mobile network operators and digital infrastructure developers in our markets, including consolidation of the telecommunications industry or changes in network topology due to transitions from 4G to 5G and, eventually to 6G mobile networks by one or more of our potential civilian telecommunications partners;

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

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

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changes in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes that impact the design of our equipment and our ability to obtain required certifications for our equipment.

Ground-based Satellite System Sales

Since our acquisition of Aircom Taiwan in December 2017, this wholly owned subsidiary has been developing ground-based satellite connectivity components which have an application in remote regions that lack regular affordable ground-based communications. In September 2018, Aircom Taiwan consummated its first sale of such a component, a small cell server terminal, in the amount of $1,730,000. This server terminal will be utilized by the purchaser in the construction of a satellite-based ground communication system which will act as a multicast service extension of existing networks. The system is designed to extend local existing networks, such as ISPs and mobile operators, into rural areas and create better coverage and affordable connectivity in these areas. Aircom Taiwan expects to sell additional satellite connectivity components, systems and services to be used in ground mobile units in the future, although there can be no assurances that it will be successful in these endeavors.

In addition, in September 2018, Aircom Taiwan provided installation and testing services of a satellite-based ground connectivity system to a remote island resort and received service income related to this project in the amount of $15,000. Upon the completion of this system’s testing phase, and assuming that the system operates satisfactorily, Aircom Taiwan expects to begin to sell this system to multiple, remotely located resorts. We can make no assurances at this time however, that this system will operate satisfactorily, that we will be successful in introducing this system as a viable product offering or that we will be able to generate any additional revenue from the sale and deployment of this system.

Recent Events

Merger with IX Acquisition Corp.

On March 29, 2024, we entered into a merger agreement the “Merger Agreement”) with IX Acquisition Corp. (“IXAQ”), a Cayman Islands exempted company (which will re-domicile from being a Cayman Islands company and become a Delaware corporation), and AKOM Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of IQAC (“Merger Sub”).

The Merger Agreement provides that, among other things and upon the terms and subject to the conditions thereof, following the domestication to Delaware of IXAQ, Merger Sub will merge with and into the Company (the “Merger”), after which the Company will be the surviving corporation and a wholly-owned subsidiary of IXAQ. In connection with the Merger, IXAQ will be renamed “AKOM Inc.” The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed to by the parties to the Merger Agreement and specified in the articles of merger. The Merger is expected to close prior to October 12, 2025.

The Amendment provides that any lock-up period applicable to the Sponsor or any officers, directors or affiliates of Parent will terminate at the Closing of the Merger and changes the percentage of the Founder Shares being treated as Escrowed Sponsor Shares from 50% to 25%, adds a provision providing for the Company to pay certain amounts to Parent to cover its working capital and extension expenses, and adds a provision that Parent may terminate the Merger Agreement at any time prior to the Closing Date if the Company or any Subsidiary of the Company enters into voluntary bankruptcy or fails to remove within 60 days any petition in bankruptcy filed against it prior to Closing.

Additional information relating to the Merger along with the Merger Agreement can be found in our Current Report on Form 8-K filed with the SEC on April 4, 2024.

In connection with the transaction described herein, the Company filed relevant materials with the SEC, including the Registration Statement on Form S-4 and a proxy statement/prospectus.

Additional information relating to the S-4 can be found in our Current Report on Form 8-K filed with the SEC on May 16, 2024.

Planned Merger with Ejectt

On July 28, 2023, we and Ejectt, Inc. signed a non-binding letter of intent with respect to a possible merger between Aerkomm Taiwan and Ejectt. At a January 30, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved pursuing a merger with Ejectt, under which Aerkomm Taiwan would be the surviving company, and delivery of a notice and merger contract to Ejectt, which were delivered to Ejectt on February 1, 2024. At a May 23, 2024 meeting of the shareholders of Aerkomm Taiwan, the shareholders approved the terms of the merger plan and agreement and its being signed by the chairperson of Aerkomm Taiwan. On the same day, the shareholders of Ejectt approved the proposed merger and the merger agreement was then signed by the parties on May 23, 2024. Under the merger agreement and contingent only on the merger’s receiving necessary governmental approvals, the merger will be consummated and the surviving company of the merger will be Aerkomm Taiwan.

Because Aerkomm Taiwan has foreign (non-Taiwanese) shareholders (Aerkomm holds 49% of the outstanding shares of Aerkomm Taiwan) for the merger to become legally effective under Taiwanese law, it must be approved by the Taiwan Department of Investment Review. Aerkomm and Ejectt submitted an application to the Department of Investment Review on July 10, 2024. Reviews by the Department of Investment Review often take four to six months and possibly longer, may require extensive inquiries and requests for further information by the Department of Investment Review, and sometimes result in denial of approval. Consequently, Aerkomm cannot assure that the merger will be approved or, if approved, when the approval may be granted.

Principal Factors Affecting Financial Performance

We believe that our operating and business performance will be driven by various factors that affect the commercial airline industry, including trends affecting the travel industry and trends affecting the customer bases that we target, as well as factors that affect wireless Internet service providers and general macroeconomic factors. Key factors that may affect our future performance include:

	●	our ability to enter into and maintain long-term business arrangements with airline partners, which depends on numerous factors including the real or perceived availability, quality and price of our services and product offerings as compared to those offered by our competitors;

	●	the extent of the adoption of our products and services by airline partners and customers;

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

	●	costs associated with and our ability to execute our expansion, including modification to our network to accommodate satellite technology, development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite capacity to which we may have to commit well in advance, and compliance with regulations;

	●	costs associated with managing a rapidly growing company;

	●	the impact and aftereffects of the global coronavirus (COVID-19) pandemic, and other potential pandemics or contagious diseases or fear of such outbreaks, on the global airline and tourist industries, especially in the Asia Pacific region;

	●	the number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners;

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

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

	●	our ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations; and

	●	changes in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes that impact the design of our equipment and our ability to obtain required certifications for our equipment.

Smaller Reporting Company

Although we no longer qualify as an Emerging Growth Company, or EGC, we continue to qualify as a smaller reporting company, which allows us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation that are available to an EGC. In addition, as a smaller reporting company with less than $100 million in annual revenue, we are not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In reliance on these exemptions, we have taken advantage of reduced reporting obligations in this quarterly report on Form 10-Q.

Recent Market Information

The IATA (International Air Transport Association) in August 2023 issued the report entitled Passenger Market Analysis.

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Industry-wide revenue passenger-kilometers (RPKs) increased 28.4% year-on-year (YoY) in August. Compared to 2019 levels, passenger traffic recovered to 95.7%.

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Available seat-kilometers (ASKs) rose at a slower annual pace of 24.9%, lifting passenger load factors (PLFs) close to pre-pandemic levels. The PLF in August was 84.6%, 1.1 ppts lower than the PLF for the same month in 2019.

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Domestic passenger traffic grew 9.2% over pre-pandemic levels. Most monitored markets saw stable growth in domestic traffic, while Japan experienced disruptions due to Typhoon Khanun.

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The recovery of international RPKs remained at 88.5% of 2019 levels. Regions experienced different outcomes while Asia Pacific carriers continued to restore international traffic.

●

Ticket sales data signaled unwinding domestic demand while international bookings remained on the same positive trend.

Passenger traffic expanded further in August 2023, with industry-wide revenue passenger kilometers (RPKs) growing 28.4% year-on0year (YoY) and reaching 95.7% of August 2019 levels. In seasonally-adjusted terms, passenger traffic increased 1.0% month-on-month (MoM), indicating a slowing but still positive trend globally.

Results of Operations

Comparison of Three Months Ended September 30, 2024 and 2023

The following table sets forth key components of our restated results of operations during the three months periods ended September 30, 2024 and 2023.

	Three Months Ended September 30,						Change
	(Unaudited) 2024			Restated 2023			$			%
Revenue	$	96,308		$	61,582		$	34,726			56.4	%
Cost of sales		285			26,666			(26,381	)		(98.9	)%
Operating expenses		3,686,838			4,303,845			(617,007	)		(14.3	)%
Loss from operations		(3,590,815	)		(4,268,929	)		678,114			(15.9	)%
Net non-operating gain(loss)		(101,577	)		(837,560	)		735,983			(87.9	)%
Loss before income taxes		(3,692,392	)		(5,106,489	)		1,414,097			(27.7	)%
Income tax expense		-			-			-			-	%
Net Loss		(3,692,392	)		(5,106,489	)		1,414,097			(27.7	)%
Other comprehensive income		260,941			(554,120	)		815,061			(147.1	)%
Total comprehensive loss	$	(3,431,451	)	$	(5,660,609	)	$	2,229,158			(39.4	)%

Revenue. We have $96,308 of net sales for the three-month period ended September 30, 2024 and $61,582 of net sales for the three-month period ended September 30, 2023, respectively. Our revenue for the three months ended September 30, 2024 was $96,308 as we are still developing our core business in in-flight entertainment and connectivity and there was few non-recurring services provided to one related party and one non-related party during the period.

Operating expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred in connection with general operations. Our operating expenses decreased by $617,007, or 14.3% to $3,686,838 for the three-month period ended September 30, 2024, from $4,303,845 for the three-month period ended September 30, 2023. Such decrease was mainly due to decreases in salary expenses and professional fees of $462,311 and $881,617, respectively, which was offset by the increases in legal fees, amortization expenses, and R & D expenses of $329,171, $312,184, and $295,306.

Net non-operating expense. We had $101,577 in net non-operating loss for the three-month period ended September 30, 2024, as compared to net non-operating expense of $837,560 for the three-month period ended September 30, 2023. Net non-operating expense in the three-month period ended September 30, 2024 represents loss on foreign exchange translation of $190,811, unrealized loss from the transactions of our liquidity contract and prepaid investment of $21,150, interest expense of $272,197 and other income, net of $959. Net non-operating expense in the three-month period ended September 30, 2023 represents loss on foreign exchange translation of $806,619, unrealized loss from the transactions of our liquidity contract and prepaid investment of $2,650, interest expenses of $369,859 and other income, net of $341,568.

Loss before income taxes. Our loss before income taxes decreased by $1,414,097, or 27.7%, to $3,692,392 for the three-month period ended September 30, 2024, from a loss of $5,106,489 for the three-month period ended September 30, 2023, as a result of the factors described above.

Income tax expense. Income tax expense was $0 for the three-month period ended September 30, 2024, as compared to the income tax expense of $0 for the three-month period ended September 30, 2023.

Total comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive loss decreased by $2,229,158, or 39.4%, to $3,431,451 for the three-month period ended September 30, 2024, from $5,660,609 for the three-month period ended September 30, 2023.

Comparison of Nine Months Ended September 30, 2024 and 2023

The following table sets forth key components of our results of operations during the nine-month periods ended September 30, 2024 and 2023.

	Nine Months Ended September 30,						Change
	(Unaudited) 2024			Restated 2023			$			%
Net Sales	$	48,843		$	-		$	48,843			100.0	%
Net Sales– related party		65,945			446,367			(380,422	)		(85.2	)%
Service income – related party		34,775			61,582			(26,807	)		(43.5	)%
Cost of sales		61,128			472,115			(410,987	)		(87.1	)%
Operating expenses		15,241,275			11,577,414			3,663,861			31.6	%
Loss from operations		(15,152,840	)		(11,541,580	)		(3,611,260	)		31.3	%
Net non-operating loss		(1,531,404	)		(1,878,461	)		347,057			(18.5	)%
Loss before income taxes		(16,684,244	)		(13,420,041	)		(3,264,203	)		24.3	%
Income tax expense		2,400			2,400			-			-
Net Loss		(16,686,644	)		(13,422,441	)		(3,264,203	)		24.3	%
Other comprehensive loss		(590,284	)		(776,054	)		185,770			(23.9	)%
Total comprehensive loss	$	(17,276,928	)	$	(14,198,495	)	$	(3,078,433	)		21.7	%

Revenue. Our total revenue was $149,563 and $507,949 for the nine months periods ended September 30, 2024 and 2023, respectively. As we are still developing our core business in in-flight entertainment and connectivity and there were non-recurring sale of equipment and service provided to related parties and service provided to one non-related party during the period. Our total revenue was $507,949 for the nine months periods ended September 30, 2023 represents a non-recurring sale of equipment to one of our related parties.

Cost of Sales. Our cost of sales was $61,128 and $472,115 for the nine-month periods ended September 30, 2024 and 2023, respectively. The cost of sales for the nine months ended September 30, 2024 was $61,128 as the cost directly associated with equipment that we sold to one of our related parties. The cost of sales for the nine months ended September 30, 2023 was $472,115 as the cost directly associated with equipment that we sold to one of our related parties.

Operating expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred in connection with general operations. Our operating expenses increased by $3,663,861, or 31.6%, to $15,241,275 for the nine months ended September 30, 2024, from $11,577,414 for the nine months ended September 30, 2023. This increase was mainly due to the increase in non-cash stock-based compensation expense, amortization expense, and salaries of $3,794,343, $946,795, and $871,849 which was offset by the decrease in R&D expenses and depreciation expense of $1,259,437 and $312,388, respectively.

Net non-operating loss. We had $1,531,404 in net non-operating loss for the nine months ended September 30, 2024, as compared to net non-operating loss of $1,878,461 for the nine months ended September 30, 2023. Net non-operating income in the nine months ended September 30, 2024 represents loss on foreign exchange translation of $639,448, interest expenses of $864,822, unrealized loss on investment of $20,370 and other loss, net of $6,764. Net non-operating income in the nine months ended September 30, 2023 represents loss on foreign exchange translation of $1,126,762, interest expenses of $1,096,509, unrealized loss on investment of $106,165 and net other income of $450,975.

Loss before income taxes. Our loss before income taxes increased by $3,264,203, or 24.3%, to $16,684,244 for the nine months ended September 30, 2024, from a loss of $13,420,041 for the nine months ended September 30, 2023, as a result of the factors described above.

Income tax expense. Income tax expense was $2,400 and $2,400 for the nine-month periods ended September 30, 2024 and 2023, respectively, mainly due to a California franchise tax and foreign subsidiary’s income tax expenses.

Total comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive loss increased by $3,078,433, or 21.7%, to $17,276,928 for the nine months ended September 30, 2024, from $14,198,495 for the nine months ended September 30, 2023.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $56,952 and restricted cash of $20,077. We have financed our operations primarily through cash proceeds from financing activities, including from our 2020 Offering, the issuance of convertible bonds, short-term borrowings and equity contributions by our stockholders.

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

Cash Flow

	Nine Months Ended September 30,
	(Unaudited) 2024			(Unaudited) 2023
Net cash used for operating activities	$	(4,816,397	)	$	(7,372,317	)
Net cash used in investing activity		(2,184,391	)		(53,550	)
Net cash used by financing activity		(1,011,584	)		(394,531	)
Net decrease in cash and cash equivalents		(8,012,372	)		(7,820,398	)
Cash and Restricted Cash, at beginning of year		7,428,702			10,101,920
Foreign currency translation effect on cash		660,699			1,196,111
Cash and Restricted Cash, at end of year	$	77,029		$	3,477,633

Operating Activities

Net cash used for operating activities was $4,816,397 for the nine months ended September 30, 2024, as compared to $7,372,317 for the nine months ended September 30, 2023. In addition to the net loss of $16,686,644, the decrease in net cash used for operating activities during the nine months period ended September 30, 2024 was mainly due to the decrease in accrued expenses and other current liabilities and deposits of $6,799,449 and $129,697, offset by the increase in prepaid expenses and other current assets of $1,148,502 and 259,042. In addition to the net loss of $13,422,441, the increase in net cash used for operating activities during the nine-month period ended September 30, 2023 was mainly due to increase in prepaid expenses, other current assets, deposits, and accounts payable, of $4,134,587, $1,129,394, $223,550, and $386,312, respectively, offset by the increase in accrued expenses and other current liabilities of $9,622,337.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $2,184,391 as compared to net cash used in investing activities of $53,550 for the nine months ended September 30, 2023. The net cash used in investing activities for the nine months ended September 30, 2024 was mainly prepayment for land and disbursement for other receivable - related parties of $349,131 and $1,790,291. The net cash provided by investing activities for the nine months ended September 30, 2023 was mainly for the proceeds from disposal of long-term investment of $325,578, which was offset by the purchase of property and equipment of $379,128.

Financing Activities

Net cash used by financing activities for the nine months ended September 30, 2024 and 2023 was $1,011,584 and $394,531, respectively. Net cash used in financing activities for the nine months ended September 30, 2024 were mainly attributable to repayment of convertible long-term bond payable in the amount of $8,016,426 offset by proceeds from equity financing and capital injection of $2,585,200 and $4,421,782. Net cash used by financing activities for the nine months ended September 30, 2023 were mainly attributable to repayment of short-term loans in the amount of $384,189.

On December 3, 2020, the Company closed a private placement offering (the “Bond Offering”) consisting of US$10,000,000 in aggregate principal amount of its Credit Enhanced Zero Coupon Convertible Bond due 2025 (the “Credit Enhanced Bonds”) and US$200,000 in aggregate principal amount of its 7.5% convertible bonds due 2025 (the “Coupon Bonds,” and together with the Credited Enhanced Bonds, the “Bonds”). On October 27, 2023, Citicorp International Limited, as Trustee with respect to the Bonds, submitted to us a request for redemption of the Bonds in full. As of September 30, 2024, the Company had repaid $8,062,247 out of a total of $10,358,024 of principal and interest due on the Bonds as of that date. We expect to repay the remaining balance of the amount of $2,391,092 owed on the bonds, plus any additional accrued interest, within the next few months.

Capital Expenditures

Our operations continue to require significant capital expenditures primarily for technology development, equipment and capacity expansion. Capital expenditures are associated with the supply of airborne equipment to our prospective airline partners, which correlates directly to the roll out and/or upgrade of service to our prospective airline partners’ fleets. Capital spending is also associated with the expansion of our network, ground stations and data centers and includes design, permitting, network equipment and installation costs.

Capital expenditures for the nine months ended September 30, 2024 and 2023 were $394,100 and $379,128, respectively.

We anticipate an increase in capital spending in fiscal year 2024 and estimate that capital expenditures will range from $3 million to $10 million as we will continue to advance our semiconductor designs, our software-defined platforms and continue to execute our network expansion strategy. We expect to be able to raise these required funds in connection with our planned Merger with IXAQ although we cannot provide assurance that we will be successful in this effort.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to significant seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

Concentrations of Credit Risk. Financial instruments that potentially subject to significant concentrations of credit risk consist primarily of cash in banks. As of September 30, 2024 and December 31, 2023, the total balance of cash in bank exceeding the amount insured by the Federal Deposit Insurance Corporation (FDIC) for the Company was approximately $0 and $0, respectively. The balance of cash deposited in foreign financial institutions exceeding the amount insured by local insurance is approximately $35,000 and $7,246,000 as of September 30, 2024 and December 31, 2023, respectively. We perform ongoing credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review of the collectability of accounts receivable. We determine the amount of allowance for doubtful accounts by examining its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies. Actual credit losses may differ from our estimates.

Inventories. Inventories are recorded at the lower of weighted-average cost or net realizable value. We assess the impact of changing technology on our inventory on hand and writes off inventories that are considered obsolete.

Research and Development Costs. Research and development costs are charged to operating expenses as incurred. For the nine months periods ended September 30, 2024 and 2023, we incurred approximately $12,213 and $1,271,651 of research and development costs, respectively.

Property and Equipment. Property and equipment are stated at cost less accumulated depreciation. When value impairment is determined, the related assets are stated at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed by using the straight-line and double declining method over the following estimated service lives: computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment - 5 years, vehicles – 5 to 6 years and lease improvement - 5 years. Construction costs for on-flight entertainment equipment not yet in service are recorded under construction in progress. Upon sale or disposal of property and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged to income in the period of sale or disposal. We review the carrying amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We determined that there was no impairment loss for the nine-month periods ended September 30, 2024 and 2023.

Right-of-Use Asset and Lease Liability. In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases and finance leases under previous accounting standards and disclosing key information about leasing arrangements. A lessee should recognize the lease liability to make lease payments and the right-of-use asset representing its right to use the underlying asset for the lease term. For operating leases and finance leases, a right-of-use asset and a lease liability are initially measured at the present value of the lease payments by discount rates. The Company’s lease discount rates are generally based on its incremental borrowing rate, as the discount rates implicit in the Company’s leases is readily determinable. Operating leases are included in operating lease right-of-use assets and lease liabilities in the unaudited condensed consolidated balance sheets. Finance leases are included in property and equipment and lease liability in our unaudited condensed consolidated balance sheets. Lease expense for operating expense payments is recognized on a straight-line basis over the lease term. Interest and amortization expenses are recognized for finance leases on a straight-line basis over the lease term. For the leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. We adopted ASU 2016-02 effective January 1, 2019.

Goodwill and Purchased Intangible Assets. Goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition of subsidiaries. We test goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may be impairment.

Fair Value of Financial Instruments. We utilize the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

The carrying amounts of the Company’s cash and restricted cash, accounts payable, short-term loan and other payable approximated their fair value due to the short-term nature of these financial instruments. The Company’s short-term investment and long-term investment are classified within Level 1 of the fair value hierarchy on March 31, 2024. The Company’s long-term bonds payable, long-term loan and lease payable approximated the carrying amount as its interest rate is considered as approximate to the current rate for comparable loans and leases, respectively. There were no outstanding derivative financial instruments as of September 30, 2024.

Revenue Recognition. We recognize revenue when performance obligations identified under the terms of contracts with our customers are satisfied, which generally occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. Our revenue for the nine months ended September 30, 2024 composed of the service income to one of our related parties. The majority of our revenue is recognized at a point in time when product is shipped or service is provided to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods, which includes estimates for variable consideration. We adopted the provisions of ASU 2014-09 Revenue from Contract with Customers (Topic 606) and the principal versus agent guidance within the new revenue standard. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) we satisfy a performance obligation. Customers may make payments to the Company either in advance or in arrears. If payment is made in advance, the Company will recognize a contract liability under prepayments from customers until which point the Company has satisfied the requisite performance obligations to recognize revenue.

Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s tax provision.

The Company follows FASB guidance on uncertain tax positions and has analyzed its filing positions in all the federal, state and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns in the US federal, state and foreign jurisdictions where it conducts business. It is not subject to income tax examinations by US federal, state and local tax authorities for years before 2017. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

Foreign Currency Transactions. Foreign currency transactions are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in income for the period.

Translation Adjustments. If a foreign subsidiary’s functional currency is the local currency, translation adjustments will result from the process of translating the subsidiary’s financial statements into the reporting currency of our company. Such adjustments are accumulated and reported under other comprehensive income (loss) as a separate component of stockholders’ equity.

Earnings (Loss) Per Share. Basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of shares of common outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan.

Subsequent Events. The Company has evaluated events and transactions after the reported period up to November 12, 2024, the date on which these unaudited condensed consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2024, have been included in these unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements

Simplifying the Accounting for Debt with Conversion and Other Options.

In June 2020, the FASB issued ASU 2020-06 to simplify the accounting in ASC 470, Debt with Conversion and Other Options and ASC 815, Contracts in Equity’s Own Entity. The guidance simplifies the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. This ASU became effective beginning in the first quarter of the Company’s fiscal year 2023. The amendments in this update must be applied on either full retrospective basis or modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. Adoption of this standard did not have a material effect on the Company’s operating results.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. In March 2022, the FASB issued ASU 2022-02 and eliminate the Troubled Debt Restructuring recognition and measurement guidance.

The Company adopted the ASU on January 1, 2023 and the adoption of this standard did not have a material effect on the Company’s operating results.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning in the first quarter of the Company’s fiscal year 2021. Early adoption is permitted. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The adoption of ASU 2019-12 did not have a significant impact on our unaudited condensed consolidated financial statements as of and for the nine months period ended September 30, 2024.

Earnings Per Share

In April 2021, the FASB issued ASU 2021-04, which included Topic 260 “Earnings Per Share”. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. The adoption of ASU 2021-04 did not have a significant impact on the Company’s unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2024.

Segment Reporting

Income Taxes

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2024.

Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on September 5, 2024, and further referenced below, which we are still in the process of remediating as of September 30, 2024 , our disclosure controls and procedures were not effective.

The Company restated its consolidated balance sheet as of December 31, 2023 (the “2023 Restatement”). For a discussion of the individual restatement adjustments and the impact of such adjustments on the Company’s previously issued financial statements, see “Item 1. Restated Financial Statements—Note 2. Restatement of Previously Issued Financial Statements,” above.

Financial Statements—Note 2. Restatement of Previously Issued Financial Statements for Year Ended December 31, 2023 and 2022” in the Company’s 2023 Form 10-K/A. Accordingly, the Company is reporting in this Amendment No. 1 to its Form 10-Q/A for the quarterly period ended March 31, 2024, its most recent evaluation of its disclosure controls and procedures which considered matters relating to the 2023 Restatement.

As of March 31, 2024, the Company carried out an evaluation, under the supervision and with the participation of its chief executive officer and chief financial officer, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, of the effectiveness of the design and operation of its disclosure controls and procedures.

In making this evaluation, the Company has considered matters relating to the 2023 Restatement including actions taken by the Company within the past year to identify and enhance the effectiveness of its disclosure controls and procedures and internal controls over financial reporting.

Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that as of the evaluation date, such disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Other than as described above, since the evaluation date by the Company’s management of its internal controls, there have not been any significant changes in the internal controls or in other factors that could significantly affect the internal controls.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2024, our management identified the following material weaknesses:

●

We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. To mitigate the current limited resources and limited employees, we rely heavily on the use of external legal and accounting professionals.

In order to cure the foregoing material weakness, we have taken or plan to take the following remediation measures:

●

As necessary, we will continue to engage consultants or outside accounting firms in order to ensure proper accounting for our consolidated financial statements.

We intend to complete the remediation of the material weakness discussed above as soon as practicable, but we can give no assurance that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There were no material developments during the quarter ended September 30, 2024 to the legal proceedings previously disclosed in Item 3 “Legal Proceedings” of our Annual Report on Form 10-K/A filed on September 5, 2024.

ITEM 1A. RISK FACTORS.

For information regarding additional risk factors, please refer to our Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the SEC on September 5, 2024.

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

We have not sold any equity securities during the quarter ended September 30, 2024 that were not previously disclosed in a current report on Form 8-K that was filed during the quarter.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the quarter ended September 30, 2024 but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated September 26, 2013, between Aerkomm Inc. and Maple Tree Kids LLC (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1 filed on November 5, 2013)
2.2		Form of Share Exchange Agreement, dated February 13, 2017, among Aerkomm Inc., Aircom Pacific, Inc. and the shareholders of Aircom Pacific, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed on February 14, 2017)
3.1		Restated Articles of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on May 4, 2017)
3.2		Certificate of Change Pursuant to NRS 78.209 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on January 16, 2019)
3.3		Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on March 30, 2020)
31.1*		Certifications of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certifications of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 13, 2024	AERKOMM INC.

	/s/ Louis Giordimaina
	Name:	Louis Giordimaina
	Title:	Chief Executive Officer
		(Principal Executive Officer)

	/s/ Louis Giordimaina
	Name:	Louis Giordimaina
	Title:	Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)

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