Notes
to Consolidated Financial Statements
(Unaudited)
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.
On
December 28, 2016, Aircom Pacific Inc. (“Aircom”) purchased 140,000 shares of Aerkomm’s common stock, representing
approximately 86.3% of Aerkomm’s issued and outstanding common stock as of the closing date of purchase. As a result of
the transaction, Aircom became the controlling shareholder of Aerkomm.
On
February 13, 2017, Aerkomm entered into a share exchange agreement (“Exchange Agreement”) with Aircom and its shareholders,
pursuant to which Aerkomm acquired 100% of the issued and outstanding capital stock of Aircom in exchange for approximately 99.7%
of the issued and outstanding capital stock of Aerkomm (or 87.81% on a fully-diluted basis). As a result of the share exchange,
Aircom became a wholly-owned subsidiary of Aerkomm, and the former shareholders of Aircom became the holders of approximately
99.7% of Aerkomm’s issued and outstanding capital stock.
Aircom
was incorporated on September 29, 2014 under the laws of the State of California.
On
December 31, 2014, Aircom acquired a newly incorporated subsidiary, Aircom Pacific Ltd. (“Aircom Seychelles”), a corporation
formed under the laws of the Republic of Seychelles. Aircom Seychelles was formed to facilitate Aircom’s global corporate
structure for both business operations and tax planning. Presently, Aircom Seychelles has no operations. Aircom is working with
corporate and tax advisers in finalizing its global corporate structure and has not yet concluded its final plan.
On October 17, 2016, Aircom acquired
a wholly owned subsidiary, Aircom Pacific Inc. Limited (“Aircom HK”), a corporation formed under the laws of Hong Kong.
The purpose of Aircom HK is to conduct Aircom’s business and operations in Hong Kong. Presently, its primary function is
business development, both with respect to airlines as well as content providers and advertisement partners based in Hong Kong.
Aircom HK is also actively seeking strategic partnerships whom Aircom may leverage in order to provide more and better services
to its customers. Aircom also plans to provide local supports to Hong Kong-based airlines via Aircom HK and teleports located in
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. The purpose of Aircom Japan is to conduct business development and operations located within Japan. Aircom
Japan is in the process of applying for, and will be the holder of, Satellite Communication Blanket License in Japan, which is
necessary for Aircom to provide services within Japan. Aircom Japan will also provide local supports to airlines operating within
the territory of Japan.
Aircom
Telecom LLC (“Aircom Taiwan”), which became a wholly owned subsidiary of Aircom in December 2017, was organized under
the laws of Taiwan on June 29, 2016. During 2017, Aircom advanced a total of $460,000 to Aircom Taiwan, which was not affiliated
with Aircom during that time, for working capital, as part of a planned $1,500,000 aggregate equity investment (the “Equity
Investment”) in Aircom Taiwan. Before Aircom Taiwan was allowed to issue equity to Aircom, a foreign investor, the Equity
Investment must be approved by the Investment Review Committee of the Ministry of Economic affairs of Taiwan (the “Committee”).
Aircom entered into an Equity Pre-Subscription Agreement with Aircom Taiwan on August 13, 2017 to memorialize the terms of the
Equity Investment. On December 19, 2017, the Committee approved Aircom’s initial Equity Investment (valued as of that date
at NT$15,150,000, or approximately US$500,000) and the purchase of the founding owner’s total equity of NT$100,000 (approximately
US$3,350). As a result, Aircom Taiwan became a wholly owned subsidiary of Aircom.
Aircom
Taiwan is responsible for Aircom’s business development efforts and general operations within Taiwan. We are currently
planning to locate the site of our first ground station in Taiwan and we expect that if we raise sufficient funds to move forward
with this project (although that cannot be guaranteed), Aircom Taiwan will play a significant role in building and operating that
ground station.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1 - Organization - Continued
On
June 13, 2018, Aerkomm established a new wholly owned subsidiary, Aerkomm Taiwan Inc. (“Aerkomm Taiwan”), a corporation
formed under the laws of Taiwan. The purpose of Aerkomm Taiwan is to purchase a parcel of land for ground station building and
operate the ground station for data processing.
On November 15, 2018, Aircom
Taiwan acquired a wholly owned subsidiary, Beijing Yatai Communication Co., Ltd. (“Aircom Beijing”), a corporation
formed under the laws of China. The purpose of Aircom Beijing 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. Aircom Beijing 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 Aircom Beijing and teleports located in China.
Aircom
and its subsidiaries (the “Company”) are full service providers of in-flight entertainment and connectivity solutions
with their initial market in the Asian Pacific region.
The Company has not generated
significant revenues, excluding non-recurring revenues from affiliates in the second quarter of fiscal 2018, and will incur additional
expenses as a result of being a public reporting company. If the Company is unable to obtain additional working capital, the Company’s
business may fail. For the nine-month period ended December 31, 2018, the Company incurred a comprehensive loss of $6,568,663 and
had working capital deficiency of $2,541,500 as of December 31, 2018, which raises substantial doubt about its ability to continue
as a going concern. Currently, the Company has taken measures that management believes will improve its financial position by financing
activities, short-term borrowings and equity contributions.
On
January 16, 2019, the Company completed a 1-for-5 reverse split of the Company’s issued and outstanding shares of common
stock, which was completed by the filing of a Certificate of Change Pursuant to NRS 78.209 with the Nevada Secretary of State
on December 26, 2018 (see Note 15). All of the references in these financial statements to authorized common stock and issued
and outstanding common stock have been adjusted to reflect this reverse split.
NOTE
2 - Summary of Significant Accounting Policies
Change
in Fiscal Year
On
March 18, 2018, the Company’s Board of Directors approved a change in the Company’s fiscal year end from December
31 to March 31. Year-over-year quarterly financial data continue to be comparative to prior periods as the three months that comprise
each fiscal quarter in the new fiscal year are the same as those in the Company’s historical financial statements.
Principle
of Consolidation
Aerkomm
consolidates the accounts of its subsidiaries, Aircom, Aircom Seychelles, Aircom HK, Aircom Japan, Aircom Taiwan, Aerkomm
Taiwan and Aircom Beijing. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
of Prior Period Presentation
Certain prior period balance
sheet and income statement amounts have been reclassified for consistency with the current period presentation. These reclassifications
had no effect on the reported results of operations.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results may differ from these estimates.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash in banks.
As of December 31, 2018, there is no balance of cash in bank exceeded the amount insured by the Federal Deposit Insurance Corporation
(FDIC) for the Company and there is no balance of cash deposited in foreign bank exceeded the amount insured by local deposit
insurance.
The Company performs ongoing
credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review
of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining
its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies.
Actual credit losses may differ from management’s estimates.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
2 - Summary of Significant Accounting Policies - Continued
Inventories
Inventories
are recorded at the lower of weighted-average cost or net realizable value. The Company assesses the impact of changing technology
on its inventory on hand and writes off inventories that are considered obsolete. Estimated losses on scrap and slow-moving items
are recognized in the allowance for losses.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation. When value impairment is determined, the related assets are stated
at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs
are expensed as incurred.
Depreciation
is computed by using the straight-line and double declining methods over the following estimated service lives: ground
station equipment – 5 years, computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment
– 5 years, vehicles – 5 years and lease improvement – 5 years.
Construction
costs for on-flight entertainment equipment not yet in service are recorded under construction in progress.
Upon
sale or disposal of property and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts,
with any gain or loss credited or charged to income in the period of sale or disposal.
The
Company reviews the carrying amount of property and equipment for impairment when events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. It determined that there was no impairment loss for the nine-month
periods ended December 31, 2018 and 2017.
Goodwill
and Purchased Intangible Assets
The
Company’s goodwill represents the amount by which the total purchase price paid exceeded the estimated fair value of net
assets acquired from acquisition of subsidiaries. The Company tests goodwill for impairment on an annual basis, or more often
if events or circumstances indicate that there may be impairment.
Purchased
intangible assets with finite life are amortized on the straight-line basis over the estimated useful lives of respective assets.
Purchased intangible assets with indefinite life are evaluated for impairment when events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Purchased intangible asset consists of satellite system software
and is amortized over 10 years.
Fair
Value of Financial Instruments
The
Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization
of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement
of fair value. The three levels of the hierarchy consist of the following:
Level
1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that
the Company has the ability to access at the measurement date.
Level
2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices
in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially
the full term of the instrument.
Level
3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants
could use in pricing the asset or liability at the measurement date, including assumptions.
The carrying amounts of the Company’s
cash, accounts receivable, other receivable, short-term bank loan and other payable approximated their fair value due to the short-term
nature of these financial instruments.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
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
major revenue for the nine-month period ended December 31, 2018 was the development of a small cell server terminal which will
be utilized in the construction of a satellite-based ground communication system networks. The Company also had minor revenue
from providing installation and testing services of a satellite-based ground connectivity system. The majority of the Company’s
revenue is recognized at a point in time when product is shipped or service is provided to the customer. Revenue is measured as
the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable
consideration.
Research
and Development Costs
Research
and development costs are charged to operating expenses as incurred. For the nine-month periods ended December 31, 2018 and 2017,
the Company incurred $1,451,202 and $366,047 of research and development costs, respectively.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets
and liabilities. Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s
tax provision.
The
Company follows FASB guidance on uncertain tax positions and has analyzed its filing positions in all the federal, state and foreign
jurisdictions where it is required to file income tax returns, as well as all open tax years in those jurisdictions. The Company
files income tax returns in the US federal, state and foreign jurisdictions where it conducts business. The Company believes that
its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result
in a material adverse effect on its consolidated financial position, results of operations, or cash flows. Therefore, no reserves
for uncertain tax positions have been recorded. The Company does not expect its unrecognized tax benefits to change significantly
over the next twelve months.
The
Company’s policy for recording interest and penalties associated with any uncertain tax positions is to record such items
as a component of income before taxes. Penalties and interest paid or received, if any, are recorded as part of other operating
expenses in the consolidated statement of operations.
Translation
Adjustments
If
a foreign subsidiary’s functional currency is the local currency, translation adjustments will result from the process of
translating the subsidiary’s financial statements into the reporting currency of the Company. Such adjustments are accumulated
and reported under other comprehensive income (loss) as a separate component of stockholders’ equity.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
2 - Summary of Significant Accounting Policies - Continued
Earnings
(Loss) Per Share
Basic
earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders
by the weighted-average number of shares of common outstanding during the period increased to include the number of additional
shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive
securities include stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s
employee stock purchase plan.
Subsequent
Events
The
Company has evaluated events and transactions after the reported period up to February 12, 2019, the date on which these consolidated
financial statements were available to be issued. All subsequent events requiring recognition as of December 31, 2018 have been
included in these consolidated financial statements.
NOTE
3 - Recent Accounting Pronouncements
Financial
Instruments
In
June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain
financial instruments. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial
statements.
Intangibles
In
January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the Test
for Goodwill Impairment, which goodwill shall be tested at least annually for impairment at a level of reporting referred to as
a reporting unit. ASU 2017-04 will be effective for annual periods beginning after December 15, 2019. The Company is currently
evaluating the impact of adopting ASU 2017-04 on its consolidated financial statements.
Leases
In
February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease
accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities
by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information
about leasing arrangements. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the timing of its adoption
and the impact of adopting ASU 2016-02 on its consolidated financial statements.
Income
Statement
In
February 2018, FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income” (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income, which requires deferred tax liabilities and assets to be adjusted
for the effect of a change in tax laws or rates with effect included in income from continuing operations in the reporting period
that includes the enactment date of Tax Cut and Jobs Act. ASU 2018-02 will be effective for all entities for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the timing of its
adoption and the impact of adopting ASU 2018-02 on its consolidated financial statements.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
3 - Recent Accounting Pronouncements - Continued
Stock
Compensation
In
June 2018, FASB issued ASU 2018-07, “Compensation-Stock Compensation” (Topic 718): Improvement of Nonemployee Share-Based
Payment Accounting, which amends the accounting for nonemployee share-based payment transactions for acquiring goods and services
from nonemployees. ASU 2018-07 will be effective for public business entities for fiscal years beginning after December 15, 2018,
and interim periods within the fiscal year. The Company is currently evaluating the timing of its adoption and the impact of adopting
ASU 2018-07 on its consolidated financial statements.
NOTE
4 - Inventories
As
of December 31, 2018 and March 31, 2018, inventories consisted of the following:
|
|
|
December 31,
2018
|
|
|
March 31, 2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Satellite equipment for sale under construction
|
|
$
|
-
|
|
|
$
|
197,645
|
|
|
Parts
|
|
|
-
|
|
|
|
11,029
|
|
|
Supplies
|
|
|
5,273
|
|
|
|
5,468
|
|
|
|
|
|
5,273
|
|
|
|
214,142
|
|
|
Allowance for inventory loss
|
|
|
(5,273
|
)
|
|
|
(5,468
|
)
|
|
Net
|
|
$
|
-
|
|
|
$
|
208,674
|
|
As of December 31,
2018, the Company transferred inventories in the amount of $11,029 to R&D expenses.
NOTE
5 - Property and Equipment
As
of December 31, 2018 and March 31, 2018, the balances of property and equipment were as follows:
|
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Ground station equipment
|
|
$
|
1,854,027
|
|
|
$
|
-
|
|
|
Satellite equipment
|
|
|
275,410
|
|
|
|
275,410
|
|
|
Computer software and equipment
|
|
|
321,070
|
|
|
|
122,085
|
|
|
Furniture and fixture
|
|
|
33,344
|
|
|
|
10,006
|
|
|
Vehicle
|
|
|
141,971
|
|
|
|
-
|
|
|
Leasehold improvement
|
|
|
89,721
|
|
|
|
-
|
|
|
|
|
|
2,715,543
|
|
|
|
407,501
|
|
|
Accumulated depreciation
|
|
|
(322,049
|
)
|
|
|
(119,782
|
)
|
|
Net
|
|
|
2,393,494
|
|
|
|
287,719
|
|
|
Prepayments - land
|
|
|
35,237,127
|
|
|
|
-
|
|
|
Prepayment for equipment
|
|
|
54,625
|
|
|
|
181,250
|
|
|
Construction in progress
|
|
|
1,311,245
|
|
|
|
3,254,170
|
|
|
Net
|
|
$
|
38,996,491
|
|
|
$
|
3,723,139
|
|
As of December 31, 2018, the Company transferred
construction in progress in the amount of $721,799 to R&D expenses.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
5 - Property and Equipment - Continued
On
May 1, 2018, the Company and Aerkomm Taiwan entered into a binding memorandum of understanding with Tsai Ming-Yin (the
“Seller”) with respect to the acquisition by Aerkomm Taiwan of a parcel of land located in Taiwan. The land is
expected to be used to build a satellite ground station and data center. On July 10, 2018, the Company, Aerkomm Taiwan and
the Seller entered into a certain real estate sales contract regarding this acquisition. Pursuant to the terms of the
contract, and subsequent amendments on July 30, 2018, September 4, 2018, November 2, 2018 and January 3, 2019, the Company paid to the seller in
installments refundable prepayment of $33.85 million as of December 31, 2018. The remaining amount of the purchase price,
$624,462, which may also be paid in installments, must be paid in full by the Company and Aerkomm Taiwan in cash before
January 4, 2019, which was subsequently extended to July 4, 2019. As of December 31, 2018, the estimated commission payable
for the land purchase in the amount of $1,387,127 was recorded to the cost of land.
Construction
in progress was the payment for the construction of ground station equipment relating to satellite communication system and in-flight
system for the Company’s internal use.
NOTE
6 - Intangible Asset, Net
As
of December 31, 2018 and March 31, 2018, the cost and accumulated amortization for intangible asset were as follows:
|
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Satellite system software
|
|
$
|
4,950,000
|
|
|
$
|
4,950,000
|
|
|
Accumulated amortization
|
|
|
(1,567,500
|
)
|
|
|
(1,196,250
|
)
|
|
Net
|
|
$
|
3,382,500
|
|
|
$
|
3,753,750
|
|
NOTE
7 - Short-term Bank Loan
The
Company has an unsecured short-term bank credit line of $10,000, which matured on June 14, 2018, from a local bank with an annual
interest rate of 4.75%. The Company repaid the bank loan in full on May 24, 2018.
NOTE
8 - Income Taxes
Income
tax expense (benefit) for the three-month and nine-month periods ended December 31, 2018 and 2017 consisted of the
following:
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
61
|
|
|
$
|
3,033
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Foreign
|
|
|
-
|
|
|
|
(1,370
|
)
|
|
|
-
|
|
|
|
3,101
|
|
|
Total
|
|
$
|
61
|
|
|
$
|
(1,370
|
)
|
|
$
|
61
|
|
|
$
|
6,134
|
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
8 - Income Taxes - Continued
The
following table presents a reconciliation of the Company’s income tax at statutory tax rate and income tax at effective tax rate for the three-month and nine-month periods ended December 31, 2018 and 2017.
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Tax benefit at statutory rate
|
|
$
|
(432,800
|
)
|
|
$
|
(751,766
|
)
|
|
$
|
(1,404,700
|
)
|
|
$
|
(2,082,820
|
)
|
|
Net operating loss carryforwards (NOLs)
|
|
|
196,400
|
|
|
|
505,100
|
|
|
|
1,311,500
|
|
|
|
1,484,000
|
|
|
Stock-based compensation expense
|
|
|
75,800
|
|
|
|
208,300
|
|
|
|
240,900
|
|
|
|
594,800
|
|
|
Amortization expense
|
|
|
26,000
|
|
|
|
(2,800
|
)
|
|
|
(38,400
|
)
|
|
|
30,700
|
|
|
Accrued R&D expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(168,000
|
)
|
|
|
-
|
|
|
Others
|
|
|
134,661
|
|
|
|
39,796
|
|
|
|
58,761
|
|
|
|
(20,546
|
)
|
|
Tax expense (benefit) at effective tax rate
|
|
$
|
61
|
|
|
$
|
(1,370
|
)
|
|
$
|
61
|
|
|
$
|
6,134
|
|
Deferred
tax assets (liability) as of December 31, 2018 and March 31, 2018 consist of:
|
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
Net operating loss carryforwards (NOLs)
|
|
$
|
5,632,000
|
|
|
$
|
2,339,000
|
|
|
Stock-based compensation expense
|
|
|
893,000
|
|
|
|
566,000
|
|
|
Accrued expenses and unpaid payable
|
|
|
184,000
|
|
|
|
268,000
|
|
|
Tax credit carryforwards
|
|
|
68,000
|
|
|
|
68,000
|
|
|
Excess of tax amortization over book amortization
|
|
|
(818,000
|
)
|
|
|
(635,000
|
)
|
|
Others
|
|
|
131,000
|
|
|
|
235,000
|
|
|
Gross
|
|
|
6,090,000
|
|
|
|
2,841,000
|
|
|
Valuation allowance
|
|
|
(6,090,000
|
)
|
|
|
(2,841,000
|
)
|
|
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 $3,249,000 for the nine months ended December 31, 2018.
As of December 31, 2018 and March
31, 2018, the Company had federal NOLs of approximately $19,201,000 and $7,643,000, respectively, available to reduce future federal
taxable income, expiring in 2038. As of December 31, 2018 and March 31, 2018, the Company had State NOLs of approximately $21,049,000
and $8,985,000, respectively, available to reduce future state taxable income, expiring in 2038.
As
of December 31, 2018 and March 31, 2018, the Company has Japan NOLs of approximately $319,000 and $339,000 available to reduce
future Japan taxable income, expiring in 2028.
As
of December 31, 2018 and March 31, 2018, the Company has Taiwan NOLs of approximately $253,000 and $0 available to reduce future
Taiwan taxable income, expiring in 2028. As of December 31, 2018 and March 31, 2018, 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 December 31, 2018 and March 31, 2018, 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 Consolidated Financial Statements
(Unaudited)
NOTE
9 - Capital Stock
The
Company is authorized to issue 50,000,000 shares of preferred stock, with par value of $0.001. As of December 31, 2018, there
were no preferred stock shares outstanding. The Board of Directors has the authority to issue preferred stock in one or more series,
and in connection with the creation of any such series, by resolutions providing for the issuance of the shares thereof, to determine
dividends, voting rights, conversion rights, redemption privileges and liquidation preferences.
The
Company is authorized to issue 90,000,000 shares of common stock, reflecting a reverse split in the ration of 1 for 5 effective
January 16, 2019, with par value of $0.001.
On
February 13, 2017, all of Aircom’s 5,513,334 restricted shares were converted to 2,055,947 shares of Aerkomm’s restricted
stock at the ratio of 2.681651 to 1, pursuant to the Exchange Agreement (see Note 1). As of December 31, 2018 and March 31, 2018,
the restricted shares consisted of the following:
|
|
|
December 31, 2018
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Restricted stock - vested
|
|
|
1,802,373
|
|
|
|
2,053,875
|
|
|
Restricted stock - unvested
|
|
|
149,162
|
|
|
|
2,072
|
|
|
Total restricted stock
|
|
|
1,951,535
|
|
|
|
2,055,947
|
|
The
unvested shares of restricted stock were recorded under a deposit liability account awaiting future conversion to common stock
when they become vested. For the nine-month period ended December 31, 2018, the reporting for 253,575 shares previously reported
as vested was changed to reflect their actual status as unvested shares, to correct an incorrect presentation in previous periods.
On
May 14, 2018, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities,
LLC (“Boustead”) in connection with the public offering, issuance and sale of up to 1,411,765 shares of the Company’s
common stock on a best efforts basis, with a minimum requirement of 117,647 shares, at the public offering price of $8.50 per
share, less underwriting discounts, for minimum gross proceeds $5,000,000 and up to a maximum of $60,000,000. As of December 31,
2018, pursuant to the Underwriting Agreement, the Company had issued an aggregate of 1,024,963 shares of common stock for gross
proceeds of $43,560,894, or net proceeds of $39,810,204.
On December 21, 2018, the Company repurchased
and cancelled an aggregate of
104,413
unvested shares of restricted common stock
for a purchase price of $0.0067 per share.
The
Company has entered into a service agreement which provides for the issuance of warrants to purchase shares of its common stock
to a service provider as payment for services. The warrants allow the service provider to purchase a number of shares of Aerkomm
common stock equal to the service fee value divided by 85% of the share price paid by investors for Aerkomm’s common stock
in the first subsequent qualifying equity financing event, at an exercise price of $0.01 per share. For the nine-month period ended
December 31, 2018, Aerkomm has issued additional stock warrants exercisable for $30,000 in value of Aerkomm common stock to the
service provider as payment for additional services. As of December 31, 2018, the Company cumulatively recorded $176,667 as additional
paid-in capital in total with respect to these warrants, which is equivalent to 4,891 shares of the Company’s common stock.
In
connection with the Underwriting Agreement with Boustead, the Company agreed to issue to Boustead warrants to purchase a
number of the Company’s shares equal to 6% of the gross proceeds of the public offering, which shall be exercisable, in
whole or in part, commencing on April 13, 2018 and expiring on the five-year anniversary at an initial exercise price of
$53.125 per share, which is equal to 125% of the offering price paid by investors. As of December 31, 2018, the Company
issued warrants to Boustead to purchase 61,498 shares of the Company’s stock.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
10 - Major Customer
The
Company has one major customer, which represents 10% or more of the total sales of the Company for the period. Sales to and account
receivable from the customer for the nine-month period ended and as of December 31, 2018 was $1,745,000.
NOTE
11 - Major Vendor
The
Company has one major vendor, which represents 10% or more of the total purchases of the Company for the period. Purchases from
and account payable to the vendor for the nine-month period ended and as of December 31, 2018 was $1,650,000.
NOTE
12 - Related Party Transactions
|
A.
|
Name
of related parties and relationships with the Company:
|
|
Related
Party
|
|
Relationship
|
|
Daniel
Shih*
|
|
Co-founder
and former stockholder; Aircom’s CEO and Director between February 13, 2017 and April 26, 2017; Aircom’s CFO between
February 13, 2017 and May 5, 2017
|
|
Dmedia
Holding LP (“Dmedia”)
|
|
23.99%
stockholder
|
|
Bummy
Wu
|
|
Shareholder
|
|
Jeffrey
Wun
|
|
Shareholder
and CEO of Aerkomm and Aircom
|
|
Yih
Lieh (Giretsu) Shih
|
|
President
of Aircom Japan
|
|
Hao
Wei Peng
|
|
Employee
of Aircom Taiwan
|
|
Louis
Giordimanina
|
|
Employee
of Aircom
|
|
Klingon
Aerospace, Inc. (“Klingon”)
|
|
Daniel
Shih was the Chairman from February 2015 to February 2016
|
|
Wealth
Wide Int’l Ltd. (“WWI”)
|
|
Bummy
Wu, a shareholder, is the Chairman
|
|
WISD
Intellectual Property Agency, Ltd. (“WISD”)
|
|
Patrick
Li, Director of Aircom, is the Chairman; Chih-Ming (Albert) Hsu, Director of the Company, is a Director
|
*
Daniel Shih has relinquished “beneficial ownership” of substantially all of his equity interests in the Company (whether
held directly or indirectly) in a manner acceptable to the Company. This means that Daniel Shih no longer, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise has or shares (i) voting power, which includes the
power to vote, or to direct the voting of, securities, and/or (ii) investment power, which includes the power to dispose, or to
direct the disposition of, shares of the Company’s common stock, except for a
de minimus
number of shares of the
common stock which will continue to be beneficially owned by him by way of his being a control person in another entity that owns
shares of the common stock. Daniel Shih will, however, retain a pecuniary interest in some of the shares of the common stock over
which he has relinquished voting and investment power. Daniel Shih has also removed himself from any and all activities
relating to the Company’s business, including, but not limited to managerial, directional, advisory, promotional, developmental
and fund-raising activities, effective upon the effectiveness of the registration statement on Form S-1 originally filed with
the SEC on December 20, 2017 and declared effective on April 13, 2018, as amended and supplemented to date. Additionally, Barbie
Shih (Barbie), Daniel Shih’s wife, was not re-elected to the Company’s board of directors on December 29, 2017. As
a result of these events, neither Daniel nor Barbie will maintain any active affiliation with, or material beneficial ownership
interest in, the Company.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
12 - Related Party Transactions - Continued
|
B.
|
Significant
related party transactions:
|
The
Company has extensive transactions with its related parties. It is possible that the terms of these transactions are not the same
as those which would result from transactions among wholly unrelated parties.
|
a.
|
As
of December 31, 2018 and March 31, 2018:
|
|
|
|
December 31,
2018
|
|
|
March 31,
2018
|
|
|
Rental deposit to Daniel Shih
|
|
$
|
2,462
|
|
|
$
|
2,542
|
|
|
Temporary deposit to Bummy Wu
1
|
|
$
|
100,067
|
|
|
$
|
-
|
|
|
Loan from Dmedia
2
|
|
$
|
-
|
|
|
$
|
325,040
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payable to:
|
|
|
|
|
|
|
|
|
|
Klingon
3
|
|
$
|
762,000
|
|
|
$
|
762,000
|
|
|
Jeffrey Wun
5
|
|
|
46,236
|
|
|
|
-
|
|
|
Louis Giordimanina
|
|
|
6,071
|
|
|
|
135,973
|
|
|
Daniel Shih
4
|
|
|
13,444
|
|
|
|
132,305
|
|
|
Yih Lieh (Giretsu) Shih
5
|
|
|
15,497
|
|
|
|
81,752
|
|
|
WWI
6
|
|
|
39,224
|
|
|
|
38,241
|
|
|
Others
5
|
|
|
66,826
|
|
|
|
149,307
|
|
|
Total
|
|
$
|
949,298
|
|
|
$
|
1,299,578
|
|
|
1.
|
In November 2018, Aircom HK’s bank account was temporarily frozen by its local bank in Hong Kong
(the “HK bank”) due to Aircom HK’s failure to timely submit to the HK bank corporate documentation relating to
the corporate organization and goodstanding of Aircom HK’s parent company, Aircom, and Aircom’s parent company, Aerkomm.
To avoid a potential cash flow issue resulting from this temporary account freeze, Aircom HK withdrew $100,067 in cash from the
HK bank and temporarily deposited it in an existing related party’s bank account at a different bank for safe keeping. The
Aircom HK’s bank account with the HK bank was reactivated by the HK bank subsequently and the cash that was transferred to
the related party’s account was redeposited into Aircom HK’s bank account at the HK bank in February 2019.
|
|
2.
|
Represents
short-term loan from Dmedia. This short-term loan has an expiration date of
January 30, 2019 and an annual interest rate of 3%. The Company repaid the short-term
loan in full on June 14, 2018.
|
|
3.
|
On
March 9, 2015, the Company entered into a 10-year purchase agreement with Klingon. In
accordance with the terms of this agreement, Klingon agreed to purchase from the Company
an initial order of onboard equipment comprising an onboard system for a purchase price
of $909,000, with payments to be made in accordance with a specific milestones schedule.
As of December 31, 2018, the Company received $762,000 from Klingon in milestone payments
towards the equipment purchase price. Since the project might not be successful, the
Company reclassified the balance from customer prepayment to other payable due to uncertainty.
|
|
4.
|
The
amount as of March 31, 2018 represents payable to employees as a result of regular operating
activities, while the amount as of December 31, 2018 represents rental payable.
|
|
5.
|
Represents
payable to employees as a result of regular operating activities.
|
|
6.
|
Represents
rent for a warehouse in Hong Kong to store the Company’s hardware.
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
12 - Related Party Transactions - Continued
|
b.
|
For
the three-month and nine-month periods ended December 31, 2018 and 2017:
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Consulting expense paid to Louis Giordimanina
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
87,275
|
|
|
$
|
-
|
|
|
Legal expense paid to WISD
|
|
|
-
|
|
|
|
-
|
|
|
|
10,779
|
|
|
|
-
|
|
|
Rental expense charged by Daniel Shih
|
|
|
3,881
|
|
|
|
3,864
|
|
|
|
11,811
|
|
|
|
20,232
|
|
|
Rental expense charged by WWI
|
|
|
11,446
|
|
|
|
1,350
|
|
|
|
27,486
|
|
|
|
3,150
|
|
|
Interest expense charged by Dmedia
|
|
|
-
|
|
|
|
-
|
|
|
|
1,915
|
|
|
|
-
|
|
On
May 25, 2018, Mr. Louis Giordimanina was converted from a consultant to a full-time employee and was appointed as Chief Operating
Officer – Aviation. The consulting expense paid for the nine-month period ended December 31, 2018 in the amount of $87,275
represents the consulting services provided prior to the conversion.
Aircom
Japan entered into a lease agreement with Daniel Shih, between August 1, 2014 and July 31, 2016, which was renewed on July 31,
2018. Pursuant to the terms of this lease agreement, Aircom Japan pays Daniel Shih a rental fee of approximately $1,200 per month.
Aircom
engaged WISD to handle its filing of patent and trademark applications.
The
Company has a lease agreement with WWI with monthly rental cost of $450. The lease term was from June 1, 2017 to May 31,
2018 and the lease was not renewed.
NOTE
13 - Stock Based Compensation
In
March 2014, Aircom’s Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom
2014 Plan provided for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside
directors of Aircom. On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan
and agreed to issue options for an aggregate of 1,088,882 shares to Aircom’s stock option holders.
One-third
of stock option shares will be vested as of the first anniversary of the time the option shares are granted or the employee’s
acceptance to serve the Company, and 1/36th of the shares will be vested each month thereafter. Option price is determined by
the Board of Directors. The Aircom 2014 Plan became effective upon its adoption by the Board and shall continue in effect for
a term of 10 years unless sooner terminated under the terms of Aircom 2014 Plan.
On
May 5, 2017, the Board of Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan”
and together with the Aircom 2015 Plan, the “Plans”)) and the reservation of 1,000,000 shares of common stock for
issuance under the Aerkomm 2017 Plan. On June 23, 2017, the Board of Directors voted to increase the number of shares of 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).
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
13 - Stock Based Compensation - Continued
On
June 23, 2017, the Board of Directors agreed to issue options for an aggregate of 291,000 shares under the Aerkomm 2017 Plan to
certain officers and directors of the Company. The option agreements are classified into three types of vesting schedule, which
includes, 1) 1/6 of the shares subject to the option shall vest commencing on the vesting start date and the remaining shares
shall vest at the rate of 1/60 for the next 60 months on the same day of the month as the vesting start date; 2) 1/4 of the shares
subject to the option shall vest commencing on the vesting start date and the remaining shares shall vest at the rate of 1/36
for the next 36 months on the same day of the month as the vesting start date; 3) 1/3 of the shares subject to the option shall
vest commencing on the first anniversary of vesting start date and the remaining shares shall vest at the rate of 50% each year
for the next two years on the same day of the month as the vesting start date.
On
July 31, 2017, the Board of Directors approved to issue options for an aggregate of 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
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.
Option
price is determined by the Compensation Committee. The Aerkomm 2017 Plan has been adopted by the Board and shall continue in effect
for a term of 10 years unless sooner terminated under the terms of Aerkomm 2017 Plan. The Aerkomm 2017 Plan was approved by the
Company’s stockholders on March 28, 2018.
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 $360,821 and $612,611 for
the three months ended December 31, 2018 and 2017, respectively, and $1,147,155 and $1,740,447 for the nine months ended
December 31, 2018 and 2017, 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.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
13 - Stock Based Compensation - Continued
Expected
term
The
expected term is the period of time that granted options are expected to be outstanding. The Company uses the SEC’s simplified
method for determining the option expected term based on the Company’s historical data to estimate employee termination
and options exercised.
Expected
dividends
The
Company does not plan to pay cash dividends before the options are expired. Therefore, the expected dividend yield used in the
Black-Scholes option valuation model is zero.
Expected
volatility
Since
the Company has no historical volatility, it used the calculated value method which substitutes the historical volatility of a
public company in the same industry to estimate the expected volatility of the Company’s share price to measure the fair
value of options granted under the Plans.
Risk-free
interest rate
The
Company based the risk-free interest rate used in the Black-Scholes option valuation model on the market yield in effect at the
time of option grant provided in the Federal Reserve Board’s Statistical Releases and historical publications on the Treasury
constant maturities rates for the equivalent remaining terms for the Plans.
Forfeitures
The
Company is required to estimate forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures
differ from those estimates. The Company uses historical data to estimate option forfeitures and records share-based compensation
expense only for those awards that are expected to vest.
The
Company used the following assumptions to estimate the fair value of options granted in 2018 and 2017 under the Plans as follows:
|
Assumptions
|
|
|
|
|
Expected term
|
|
|
3
- 5 years
|
|
|
Expected volatility
|
|
|
40.11%
- 61.78
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
|
Risk-free interest rate
|
|
|
0.71%
- 2.99
|
%
|
|
Forfeiture rate
|
|
|
0%
- 5
|
%
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
13 - Stock Based Compensation - Continued
Aircom
2014 Plan
A
summary of the number of shares, weighted average exercise price and estimated fair value of options for Aircom 2014 Plan as of
December 31, 2018 and March 31, 2018 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Weighted Average Fair Value Per Share
|
|
|
Options outstanding at April 1, 2017
|
|
|
1,088,882
|
|
|
$
|
0.8087
|
|
|
$
|
0.2542
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
(3,936
|
)
|
|
|
0.0067
|
|
|
|
0.0019
|
|
|
Forfeited/Cancelled
|
|
|
(152,684
|
)
|
|
|
3.2749
|
|
|
|
1.0296
|
|
|
Options outstanding at March 31, 2018
|
|
|
932,262
|
|
|
|
0.4081
|
|
|
|
0.1282
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at December 31, 2018
|
|
|
932,262
|
|
|
|
0.4081
|
|
|
|
0.1282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2018
|
|
|
681,587
|
|
|
|
0.2200
|
|
|
|
0.0690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2018
|
|
|
846,287
|
|
|
|
0.3660
|
|
|
|
0.1150
|
|
A
summary of the status of nonvested shares under Aircom 2014 Plan as of December 31, 2018 and March 31, 2018 was as follows:
|
|
|
Number of Shares
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Options nonvested at April 1, 2017
|
|
|
568,629
|
|
|
$
|
1.4349
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(165,270
|
)
|
|
|
0.5215
|
|
|
Forfeited/Cancelled
|
|
|
(152,684
|
)
|
|
|
3.2749
|
|
|
Options nonvested at March 31, 2018
|
|
|
250,675
|
|
|
|
0.9163
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(164,700
|
)
|
|
|
0.5748
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Options nonvested at December 31, 2018
|
|
|
85,975
|
|
|
|
0.7305
|
|
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
13 - Stock Based Compensation - Continued
Aerkomm
2017 Plan
A
summary of the number of shares, weighted average exercise price and estimated fair value of options under Aerkomm 2017 Plan as
of December 31, 2018 and March 31, 2018 were as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price Per Share
|
|
|
Weighted Average Fair Value Per Share
|
|
|
Options outstanding at April 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
412,000
|
|
|
|
29.5771
|
|
|
|
17.7006
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
(207,000
|
)
|
|
|
27.5000
|
|
|
|
16.4610
|
|
|
Options outstanding at March 31, 2018
|
|
|
205,000
|
|
|
|
31.6744
|
|
|
|
18.9522
|
|
|
Granted
|
|
|
78,000
|
|
|
|
19.7462
|
|
|
|
9.2500
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at December 31, 2018
|
|
|
283,000
|
|
|
|
28.3867
|
|
|
|
16.2781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2018
|
|
|
40,875
|
|
|
|
28.2339
|
|
|
|
17.5839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2018
|
|
|
111,589
|
|
|
|
28.7052
|
|
|
|
16.5968
|
|
A
summary of the status of nonvested shares under Aerkomm 2017 Plan as of December 31, 2018 and March 31, 2018 were as follows:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price
Per
Share
|
|
|
Options
nonvested at April 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
412,000
|
|
|
|
29.5771
|
|
|
Vested
|
|
|
(88,875
|
)
|
|
|
27.8376
|
|
|
Forfeited/Cancelled
|
|
|
(159,000
|
)
|
|
|
27.5000
|
|
|
Options
nonvested at March 31, 2018
|
|
|
164,125
|
|
|
|
32.5312
|
|
|
Granted
|
|
|
78,000
|
|
|
|
19.7462
|
|
|
Vested
|
|
|
(70,714
|
)
|
|
|
28.9777
|
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
Options
nonvested at December 31, 2018
|
|
|
171,411
|
|
|
|
28.1794
|
|
As
of December 31, 2018 and March 31, 2018, there were approximately $2,174,000 and $1,756,000, respectively, of total unrecognized
compensation cost related to nonvested share-based compensation arrangements granted under the Plans. Total unrecognized compensation
cost will be adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted
average period of 1 - 5 years.
AERKOMM
INC. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
14 - Commitments
As
of December 31, 2018, the Company’s significant commitments with non-related parties and contingency are summarized as follows:
|
1)
|
The
Company’s lease for its office in Fremont, California expires in May 2020. Rental
expense for the three-month periods ended December 31, 2018 and 2017 were $19,338 and
$19,338, respectively, and were $58,014 and $54,653 for the nine-month periods ended
December 31, 2018 and 2017, respectively. As of December 31, 2018, future minimum lease
payment is $77,352 for the next twelve-month period ending December 31, 2019.
|
|
2)
|
The
Company has another lease for its Japan office expiring June 2020. Rental expense for
the three-month periods ended December 31, 2018 and 2017 were $10,854 and $8,642, respectively,
and were $28,578 and $30,475 for the nine-month periods ended December 31, 2018 and 2017,
respectively. As of December 31, 2018, future minimum lease payment obligation is $35,572,
including the 8% Japan consumption tax, for the next twelve-month period ending December
31, 2019.
|
|
3)
|
The
Company assumed a lease for its Taiwan office expiring October 31, 2018 as a result of
the acquisition of Aircom Taiwan. Rental expense was approximately $21,897 and $0 for
the three-month periods ended December 31, 2018 and 2017, respectively, and were $66,589
and $0 for the nine-month periods ended December 31, 2018 and 2017, respectively. Aircom
Taiwan is currently negotiating a renewal on the contract although there can be no assurance
that a renewal lease will be signed on terms acceptable to the Company if at all. As
of December 31, 2018, future minimum lease payment obligation is estimated to be approximately
$88,206 for the next twelve-month period ending December 31, 2019.
|
|
4)
|
On
June 20, 2018, the Company entered into a Cooperation Framework Agreement with Shenzhen
Yihe Culture Media Co., Ltd. (“Yihe”), the authorized agent of Guangdong
Tengnan Internet, pursuant to which Yihe will promote the development of strategic cooperation
between the Company and Guangdong Tengnan Internet. Specifically, Yihe agreed to assist
the Company with public relations and advertising, such as market and brand promotion,
as well as brand recognition in China (excluding Hong Kong, Macao and Taiwan), including
but not limited to news dissemination, creative planning and support of campaigns, financial
public relations and internet advertising. More specifically, Yihe will help the Company
develop a working application of the WeChat Pay payment solution as well as WeChat applets
applicable for Chinese users and relating to cell phone and WiFi connectivity on airplanes,
and Yihe will assist the Company in integrating other Tencent internet-based original
product offerings. As compensation, the Company agreed to pay Yihe RMB 8 million (approximately
US$1.2 million), with RMB 2,000,000 (approximately US$309,000) paid on June 29, 2018
and the remaining RMB 6,000,000 (approximately US$927,000) to be paid by August 15, 2018.
However, the Company is currently working with Yihe to postpone the project as well as
the remaining payment, although there can be no assurance that a postponement will be
agreed upon on terms acceptable to the Company if at all.
|
NOTE
15 - Subsequent Events
Reverse Split
On
January 16, 2019, the Company completed a 1-for-5 reverse split of the Company’s issued and outstanding shares of common
stock (the “Reverse Split”), which was completed by the filing of a Certificate of Change Pursuant to NRS 78.209 (the
“Certificate of Change”) with the Nevada Secretary of State on December 26, 2018. All of the references in these financial
statements to authorized common stock and issued and outstanding common stock reflect the Reverse Split.
The
Reverse Split was duly approved by the Board of Directors of the Company without stockholder approval, in accordance with the
authority conferred by Section 78.207 of the Nevada Revised Statutes. The Certificate of Change also decreased the authorized
number of shares of the Company’s common stock from 450,000,000 shares to 90,000,000 shares, effective as of December 26,
2018.
Pursuant
to the Reverse Split, holders of the Company’s common stock are deemed to hold one (1) post-split share of the Company’s
common stock for every five (5) shares of the Company’s common stock held. No fractional shares were issued in connection
with the Reverse Split. Stockholders entitled to a fractional post-split share received in lieu thereof one (1) whole post-split
share.
Change in Fiscal Year
On February 12, 2019, the Company’s
Board of Directors approved a change in the Company’s fiscal year end from March 31 to December 31. The Company will file
a transition report on Form 10-KT to cover the transition period from April 1, 2018 to December 31, 2018.