Use of Terms





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

Special Note Regarding Forward Looking Statements





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



  ? our future financial and operating results;

? our intentions, expectations and beliefs regarding anticipated growth,


        market penetration and trends in our business;




    ?   the impact and effects of the global outbreak of the coronavirus

(COVID-19) pandemic, and other potential pandemics or contagious diseases

or fear of such outbreaks, on the global airline and tourist industries,


        especially in the Asia Pacific region;




  ? our ability to attract and retain customers;




  ? our dependence on growth in our customers' businesses;




  ? the effects of changing customer needs in our market;

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

? our ability to successfully complete the development, testing and initial


        implementation of our product offerings;

? our ability to maintain our competitive advantages against competitors in


        our industry;

? our ability to timely and effectively adapt our existing technology and


        have our technology solutions gain market acceptance;

? our ability to introduce new product offerings and bring them to market in


        a timely manner;

? our ability to obtain required telecommunications, aviation and other


        licenses and approvals necessary for our operations




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




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




    ?   our expectations concerning relationship with customers and other third
        parties;





  ? the attraction and retention of qualified employees and key personnel;




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




  ? our ability to comply with evolving legal standards and regulations.




                                       27





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, 2019, 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



With advanced technologies and a unique business model, we, as a development
stage service provider of IFEC solutions, intend to provide airline passengers
with a broadband in-flight experience that encompasses a wide range of service
options. Such options include Wi-Fi, cellular, movies, gaming, live TV, and
music. We plan to offer these core services, which we are currently still
developing, through both built-in in-flight entertainment systems, such as
seat-back display, as well as on passengers' own personal devices. We also
expect to provide content management services and e-commerce solutions related
to our IFEC solutions.

We plan to partner with airlines and offer airline passengers free IFEC services. We expect to generate revenue through advertising and in-flight transactions. We believe that this is an innovative approach that differentiates us from existing market players.


To complement and facilitate our planned IFEC service offerings, we intend to
build satellite ground stations and related data centers within the geographic
regions where we expect to be providing IFEC airline services.



Additionally, we have developed and begun to market two internet connectivity
systems, one for hotels primarily located in remote regions and the other for
maritime use. Both systems operate through a Ku/Ku high throughput satellite, or
HTS. We also expect to develop a remote connectivity system that will be
applicable to the highspeed rail industry.

Our total sales were $0 and $0 for the three months ended March 31, 2021 and the year ended December 31, 2020.





Business Development



We are actively working with prospective airline customers to provide services
to their passengers utilizing the Airbus certified AERKOMM K++ system. We have
entered into non-binding memoranda of understanding with a number of airlines,
including Air Malta Airlines of Malta and Onur Air of Turkey. There can be no
assurances, however, that these will lead to actual purchase agreements.



In view of the increasing demand by the airlines for a bigger data throughput,
during the course of discussions between us and Airbus, we have revised our
strategy to focus primarily on Ka-band IFEC solutions for airlines and have
suspended work on our dual band (Ka/Ku) satellite inflight connectivity
solution. The Ku-band system will, however, still be retained for other product
applications such as remote locations and maritime use.



In connection with the Airbus project, we also identified owners of ACJ
aircraft, as potential customers of our AERKOMM K++ system. ACJ customers,
however, would not generate enough internet traffic to make our free-service
business model viable. To capitalize on this additional market, we plan to sell
our AERKOMM K++ system hardware for installation on ACJ corporate jets and
provide connectivity through subscription-based plans. This new corporate jet
market would generate additional revenue and income for our company. We are
currently in advanced discussions with a number of ACJ customers, some of whom
have more than one aircraft in their fleets.



Our AERKOMM K++ System



Following the course of discussions between us and Airbus and in view of the
increasing demand by the airlines for a bigger data throughput, we have revised
our strategy to focus primarily on Ka-band satellite connectivity solutions for
aviation customers and have suspended work on our dual band satellite
connectivity solution. Our AERKOMM K++ system will operate through Ka/Ka High
Throughput Satellites. The Ku-band system will, however, still be retained for
the other applications such as remote locations and maritime use.



                                       28





Our AERKOMM K++ system will contain a low-profile radome (that is, a dome or
similar structure protecting our radio equipment) containing two Ka-band
antennas, one for transmitting and the other for receiving, and will comply with
the ARINC 791 standard of Aeronautical Radio, Incorporated. Our AERKOMM K++
system also meets Airbus Design Organization Approval.

GEO (Geostationary Earth Orbiting) and LEO (Low Earth Orbiting) Ka-band Satellites





Our initial AERKOMM K++ system will work only with geostationary earth orbiting,
or GEO, Ka-band satellites. Performance of GEO satellites diminishes greatly in
the areas near the Earth's poles. Only low earth orbiting, or LEO, satellites
can collect high quality data over the North and South poles. We are developing
technologies to work with LEO satellites and plans to partner with Airbus to
develop aircraft installation solutions. As new GEO and LEO Ka-band satellites
are being regularly launched over the next few years, which, we expect, will
enable the provision of worldwide aircraft coverage, we plan to have the
necessary technology ready to take advantage of this new trend in Ka-band
aviation connectivity, although it cannot assure you that it will be successful
in this new area of endeavor.

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

Preliminary Prospectus Filling with Euronext





On April 1, 2021, we filed a preliminary draft prospectus (the "Prospectus")
with Euronext in Paris, a regulated market of Euronext Paris S.A. ("Euronext
Paris"), in connection with our application for the listing and the admission to
trading of our common stock, $0.001 par value per share (the "Common Stock"), on
the regulated market of Euronext Paris (Compartment C). The Common Stock is
currently listed and traded on the Professional Segment of Euronext Paris and we
now desire to upgrade the listing to the regulated market.



Shares of the Common Stock will be offered in Europe through a final Prospectus
only after the Prospectus is filed with, and approved by, the Authorité des
Marches Financiers (AMF) and Euronext. Shares of the Common Stock to be offered
through the Prospectus will not be registered in the United States under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any
state securities authorities and may not be offered and sold within the United
States or to any U.S. person (as that term is defined in Regulation S under the
Securities Act) except pursuant to an exemption from the registration
requirements of the Securities Act and in compliance with applicable state

securities laws.



Short-term Borrowing



Two of our current shareholders (the "Lenders") each committed to provide to the
Company a $10 million bridge loan (together, the "Loans") for an aggregate
principal amount of $20 million, to bridge our cash flow needs prior to our
obtaining a mortgage loan to be secured by a parcel of land (the "Land") we
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 our subsidiary, Aerkomm Taiwan, to pay
the outstanding payable to our vendors. As of May 20, 2021, the Company borrowed
approximately $1.5 million (NT$41,984,000) under the Loans from one of the

Lenders.



2021 YuanJiu MOU



On April 18, 2021, we entered into a memorandum of understanding with YuanJiu,
which we refer to as the 2021 YuanJiu MOU, pursuant to which Yuanjiu will serve
as the exclusive service provider to us in Asia with respect to the installation
and service of our Aerkomm AirCinema Cube ("AAC") product and the related
software platform ("Rayfin") on which AAC will operate. The AAC is a portable
inflight entertainment, or IFE, box intranet server which will provide to
passengers' personal entertainment devices pre-loaded videos, news, music and
games, on demand. According to the terms of the 2021 YuanJiu MOU, YuanJiu will
purchase and pay for units of AAC, the related software and two and one-haft
years of maintenance from third party manufacturers for installation on aircraft
owned by airlines with which we contract for the sale of the AirCinema Cube.  We
will pay YuanJiu a to-be-determined share of the profits generated through the
future operation of ACC.  YuanJiu will perform it services under the 2021
YuanJiu MOU as an independent contractor until December 31, 2024, unless the
2021 YuanJiu MOU is terminated earlier according to its terms.  Specific terms
of the profit-sharing arrangement with YuanJiu are subjected to future
negotiation. Albert Hsu, a member of our board of directors, is the Chairman of
YuanJiu.



                                       29

Impact of the COVID-19 Pandemic





The COVID-19 pandemic is having a particularly adverse impact on the airline
industry. The outbreak in China and throughout the world since December 2019 has
led to a precipitous decrease in the number of daily departures and arrivals for
domestic and international flights.

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 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;

? 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.




Emerging Growth Company



We qualify as an "emerging growth company" under the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. As a result, we are permitted to, and
intend to, rely on exemptions from certain disclosure requirements. For so long
as we are an emerging growth company, we will not be required to:

? have an auditor report on our internal controls over financial reporting


        pursuant to Section 404(b) of the Sarbanes-Oxley Act;

? comply with any requirement that may be adopted by the Public Company


        Accounting Oversight Board regarding mandatory audit firm rotation or a
        supplement to the auditor's report providing additional information about
        the audit and the financial statements (i.e., an auditor discussion and
        analysis);

? submit certain executive compensation matters to shareholder advisory


        votes, such as "say-on-pay" and "say-on-frequency;" and




    ?   disclose certain executive compensation related items such as the

correlation between executive compensation and performance and comparisons


        of the CEO's compensation to median employee compensation.




                                       30





In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for
complying with new or revised accounting standards.



In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private
companies. We have elected to take advantage of the benefits of this extended
transition period. Our financial statements may therefore not be comparable to
those of companies that comply with such new or revised accounting standards.



We will remain an "emerging growth company" for up to five years, or until the
earliest of (i) the last day of the first fiscal year in which our total annual
gross revenues exceed $1 billion, (ii) the date that we become a "large
accelerated filer" as defined in Rule 12b-2 under the Exchange Act of 1934, as
amended, or the Exchange Act, which would occur if the market value of our
shares of common stock that are held by non-affiliates exceeds $700 million as
of the last business day of our most recently completed second fiscal quarter or
(iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.



Recent Market Information

In the IATA (International Air Transportation Association) Airlines Financial Monitor dated November - December 2020, published on January 21, 2021, the following key points were highlighted:





    ?   The final Q3 2020 financial results show that airlines continued to suffer
        from very weak travel demand and burnt cash, albeit at a slower rate
        compared to Q2 with the help of cost cutting measures and robust cargo
        revenues.

? Initial Q4 2020 earnings announcements indicate that airlines continued to

burn cash as the recovery in demand stalled. However, the vaccine news

makes IATA estimate that airlines could achieve cash break-even towards

the end of 2021.

? The global airline share price index rose in December 2020 but still

lagged wider equity markets as the resurgence of the virus weighed on the

travel demand recovery.

? Looking forward, the widespread availability of vaccines and

implementation of successful testing regimes will be key for the recovery


        in travel demand and airline share prices.

In general, because the future of the COVID-19 pandemic is so unpredictable, the future of airline and air traffic recovery is extremely unpredictable as well.





Results of Operations

Comparison of Three Months Ended March 31, 2021 and 2020

The following table sets forth key components of our results of operations during the three-month periods ended March 31, 2021 and 2020.





                                                Three Months Ended
                                                     March 31,                         Change
                                               2021             2020              $               %
Sales                                      $          -     $          -     $          -             -
Cost of sales                                         -                -                -             -
Operating expenses                            3,170,999        1,956,045        1,214,954          62.1 %
Loss from operations                         (3,170,999 )     (1,956,045 )     (1,214,954 )        62.1 %

Net non-operating expense                    (1,053,832 )       (407,197 )       (646,635 )       158.8 %
Loss before income taxes                     (4,224,831 )     (2,363,242 ) 

   (1,861,589 )        78.8 %
Income tax expense                                3,295            3,252               43           1.3 %
Net Loss                                     (4,228,126 )     (2,366,494 )     (1,861,632 )        78.7 %

Other comprehensive income (loss)               393,767          343,775           49,992          14.5 %
Total comprehensive loss                   $ (3,834,359 )   $ (2,022,719 )
 $ (1,811,640 )        89.6 %




                                       31





Revenue. Our total revenue was $0 for both the three-month periods ended March
31, 2021 and 2020 as we are still developing our core business in in-flight
entertainment and connectivity and there was no non-recurring sale of equipment
to related parties during the periods

Cost of sales. Our cost of sales was $0 for both the three-month periods ended March 31, 2021 and 2020 as we did not have any sales during the periods.





Operating expenses. Our operating expenses consist primarily of compensation and
benefits, professional advisor fees, research and development expenses, cost of
promotion, business development, business travel, transportation costs, and
other expenses incurred in connection with general operations. Our operating
expenses increased by $1,214,954, or 62.1%, to $3,170,999 for the three-month
period ended March 31, 2021, from $1,956,045 for the three-month period ended
March 31, 2020. Such increase was mainly due to an increase in stock-based
compensation expense, accounting and auditing fees, payroll and related expense
and director and officer insurance expense of $1,215,538, $214,570, $149,840 and
$75,820, respectively, which was offset by the decreases in consulting fee and
amortization expense of $325,905 and $34,066.



Net non-operating expense. We had $1,053,832 in net non-operating expense for
the three-month period ended March 31, 2021, as compared to net non-operating
expense of $407,197 for the three-month period ended March 31, 2020. Net
non-operating expense in the three-month period ended Mach 31, 2021 represents
loss on foreign exchange translation of $370,504, unrealized loss from the
transactions of our liquidity contract and prepaid investment of $624,738, other
financing cost due to amortization of convertible bonds issuing cost of $47,566
and net interest expense of $24,019, which was offset by the employment subsidy
from Japanese government of $11,178. The net non-operating expense in the
three-month period ended March 31, 2020 includes a foreign exchange translation
loss of $320,701, unrealized loss from the transactions of our liquidity
contract of $80,684 and interest expense of $5,821.



Loss before income taxes. Our loss before income taxes increased by $1,861,589,
or 78.8%, to $4,224,831 for the three-month period ended March 31, 2021, from a
loss of $2,363,242 for the three-month period ended March 31, 2020, as a result
of the factors described above.



Income tax expense. Income tax expense was $3,295 for the three-month period
ended March 31, 2021, as compared to the income tax expense of $3,252 for the
three-month period ended March 31, 2020.



Total comprehensive loss. As a result of the cumulative effect of the factors
described above, our total comprehensive loss increased by $1,811,640, or 89.6%,
to $3,834,359 for the three-month period ended March 31, 2021, from $2,022,719
for the three-month period ended March 31, 2020.

Liquidity and Capital Resources





As of March 31, 2021, we had cash and cash equivalents of $33,632 and restricted
cash of $3,211,511. To date, we have financed our operations primarily through
cash proceeds from financing activities, including from our completed 2018/2019
public offering and 2020 ongoing public offering, issuance of convertible bonds,
short-term borrowings and equity contributions by our stockholders.



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




                                   Cash Flow



                                                            Three Months Ended
                                                                March 31,
                                                           2021            2020

Net cash provided by (used for) operating activities $ (3,154,757 ) $ (978,009 ) Net cash provided by (used for) investing activity

            2,581        (205,085 )
Net cash provided by financing activity                   2,208,961

2,116,573

Net increase (decrease) in cash and cash equivalents (943,215 ) 933,479 Cash at beginning of year

                                 3,794,591

976,829


Foreign currency translation effect on cash                 393,767        

343,775
Cash at end of year                                    $  3,245,143     $ 2,254,083




                                       32





Operating Activities




Net cash used for operating activities was $3,154,757 for the three months ended
March 31, 2021, as compared to $978,009 for the three months ended March 31,
2020. In addition to the net loss of $4,249,653, the increase in net cash used
for operating activities during the three-month period ended March 31, 2021 was
mainly due to increase in inventory and prepaid expenses and other current
assets of $1,445,680 and $622,495, respectively, offset by the increase in
accrued expense and other current liabilities of $834,818. In addition to the
net loss of $2,366,494, the increase in net cash used for operating activities
during the three-month period ended March 31, 2020 was mainly due to increase in
inventory and prepaid expenses and other current assets of $1,256,423 and
$537,262, respectively, offset by the decrease in accounts receivable and
increase in accounts payable and accrued expense and other current liabilities
of $451,130, $862,932 and $1,041,102, respectively.



Investing Activities




Net cash provided by investing activities for the three months ended March 31,
2021 was $2,581 as compared to net cash used by investing activities of $205,085
for the three months ended March 31, 2020. The net cash provided by investing
activities for the three months ended March 31, 2021 was mainly for the proceeds
from disposal of trading security of $6,102, which was offset by the purchase of
property and equipment of $3,521.  The net cash used for investing activities
for the three months ended March 31, 2020 was mainly for the purchase of trading
securities and the purchase of property and equipment.



Financing Activities




Net cash provided by financing activities for the three months ended March 31,
2021 and 2020 was $2,208,961 and $2,116,573, respectively. Net cash provided by
financing activities for the three months ended March 31, 2021 were mainly
attributable to proceeds from the increase in short-term loans in the amount of
$2,215,105. Net cash provided by financing activities for the three months ended
March 31, 2020 were mainly attributable to net proceeds from the borrowing of
short-term loan from an affiliate in the amount of $2,119,669.



On May 9, 2019, two of our current shareholders, whom we refer to as the
Lenders, each committed to provide us with a $10 million bridge loan, or
together, the Loans, for an aggregate principal amount of $20 million, to bridge
our cash flow needs prior to our obtaining a mortgage loan to be secured by a
parcel of our Taiwan land parcel which we have recently purchased. The Taiwan
land parcel consists of approximately 6.36 acres of undeveloped land located at
the Taishui Grottoes in the Xinyi District of Keelung City, Taiwan. Aerkomm
Taiwan contracted to purchase the Taiwan land parcel for NT$1,056,297,507, or
US$34,474,462, and as of July 3, 2019 we completed payment of the purchase price
for the Taiwan land parcel in full. We are now waiting for title to the Taiwan
land parcel to be transferred to us pending the completion of a local
governmental land office re-titling process. The Loans will be secured by the
Taiwan land parcel with the initial closing date of the Loans to be a date,
designated by us, within 30 days following the date that the title for the
Taiwan land parcel is fully transferred to and vested in our subsidiary, Aerkomm
Taiwan. The Loans will bear interest, non-compounding, at the Bank of America
Prime Rate plus 1%, annually, calculated on the actual number of days the Loans
are outstanding and based on a 365-day year and will be due and payable upon the
earlier of (1) the date of our obtaining a mortgage loan secured by the Taiwan
land parcel with a principal amount of not less than $20 million and (2) one
year following the initial closing date of the Loans. The Lenders also agreed to
an earlier closing of up to 25% of the principal amounts of the Loans upon our
request prior to the time that title to the Taiwan land parcel is transferred to
our subsidiary, Aerkomm Taiwan, provided that we provide adequate evidence to
the Lenders that the proceeds of such an earlier closing would be applied to pay
our vendors. We, of course, cannot provide any assurances that we will be able
to obtain a mortgage on the Taiwan land parcel once the acquisition is
completed. As of the date of this annual report, we have not drawn down any
portion of the Loans.



On July 10, 2018, in conjunction with our agreement to acquire the Taiwan land
parcel, we entered into a binding letter of commitment with Metro Investment
Group Limited, or MIGL, pursuant to which we agreed to pay MIGL an agent
commission of four percent (4%) of the full purchase price of the Taiwan land
parcel, equivalent to approximately US$1,387,127, for MIGL's services provided
with respect to the acquisition. Under the terms of the initial with MIGL, we
agreed to pay this commission no later than 90 days following payment in full of
the Taiwan land parcel purchase price. On May 9, 2019, we amended the binding
letter of commitment with MIGL to extend the payment to be paid after the full
payment of the Land acquisition price until no later than December 31, 2020. If
there is a delay in payment, we shall be responsible for punitive liquidated
damages at the rate of one tenth of one percent (0.1%) of the commission per day
of delay with a maximum cap to these damages of five percent (5%). Under
applicable Taiwanese law, the commission was due and payable upon signing of the
letter of commitment even if the contract is cancelled for any reason and the
acquisition is not completed. We have recorded the estimated commission to the
cost of land and will be paying the amount no later than December 31, 2021.



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").



                                       33





Payments of principal, premium, interest and any payments thereof in respect of
the Credit Enhanced Bonds will have the benefit of a bank guarantee denominated
in U.S. dollars and issued by Bank of Panhsin Co., Ltd., based in Taiwan. Unless
previously redeemed, converted or repurchased and canceled, the Credit Enhanced
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. 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 US$0.001 each (such shares of Common Stock, the
"Conversion Shares"). The initial conversion price for the Bonds is US$13.30 per
Conversion Share and is subject to adjustment in specified circumstances. Please
refer to our Current Report on Form 8-K filed with SEC on December 4, 2020.



On December 31, 2020, we entered into an underwriting agreement (the
"Underwriting Agreement-Invest Securities") with Invest Securities SA
("Invest-Securities") in connection with the public offering ("2020/2021
Offering"), issuance and sale of up to 1,951,219 shares of the Company's common
stock on a best-efforts basis at the public offering price of €20.50
(approximately $25.07) per share, less underwriting discounts, for up to a
maximum of €40 million (approximately $48.9 million). As of May 20, 2021,
pursuant to the Underwriting Agreement-Invest Securities, we had completed our
first closing and issued an aggregate of 96,160 shares of common stock for gross
proceeds of €1.97 million (approximately $2.41 million), or net proceeds of €1.4
million (approximately $1.7 million).



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. For the
three-month period ended March 31, 2021, the Company incurred a comprehensive
loss of $3,855,886 and had a negative working capital of $1,508,978 as of March
31, 2021. Currently, the Company has taken measures, as discussed above, that
management believes will improve its financial position by financing activities,
including through our ongoing public offering, short-term and long-term
borrowings and fund raisings. However, there is no assurance that management
will be successful in their plan. There are a number of factors that could
potentially arise that could result in shortfalls to our plan, such as the
economic conditions, the competitive pricing in the connectivity industry, our
operating results not continuing to deteriorate and our bank and shareholders
being able to provide continued supports.



Capital Expenditures



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

Capital expenditures for the three months ended March 31, 2021 and 2020 were $2,581 and $205,085, respectively.





We anticipate an increase in capital spending in our fiscal year ended December
31, 2021 and estimate that capital expenditures will range from $10 million to
$50 million as we begin airborne equipment installations and continue to execute
our expansion strategy. We expect to raise these funds through our planned
public offering, the registration statement for which is currently under review
by the SEC, and/or through other sources of equity or debt financings. There can
be no assurance, however, that our planned public offering will proceed
successfully, if at all, or that we will be able to raise the required funds
through other means on acceptable terms to us, if at all.



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.





                                       34





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 December 31, 2020 and 2019, 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 $3,108,000 and $3,514,000 as of March 31, 2021 and
December 31, 2020, 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.
Estimated losses on scrap and slow-moving items are recognized in the allowance
for losses.




Research and Development Costs. Research and development costs are charged to
operating expenses as incurred. For the three-month periods ended March 31, 2021
and 2020, we incurred approximately $0 and $0 of research and development costs,
respectively.



Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation. When value impairment is determined, the related
assets are stated at the lower of fair value or book value. Significant
additions, renewals and betterments are capitalized. Maintenance and repairs are
expensed as incurred. Depreciation is computed by using the straight-line and
double declining method over the following estimated service lives: computer
equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment
- 5 years, vehicles - 5 years and lease improvement - 5 years. Construction
costs for on-flight entertainment equipment not yet in service are recorded
under construction in progress. Upon sale or disposal of property and equipment,
the related cost and accumulated depreciation are removed from the corresponding
accounts, with any gain or loss credited or charged to income in the period of
sale or disposal. We review the carrying amount of property and equipment for
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. We determined that there was no
impairment loss for the three-month periods ended March 31, 2021 and 2020.



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



Goodwill and Purchased Intangible Assets. Goodwill represents the amount by
which the total purchase price paid exceeded the estimated fair value of net
assets acquired from acquisition of subsidiaries. We test goodwill for
impairment on an annual basis, or more often if events or circumstances indicate
that there may be impairment. Purchased intangible assets with finite life are
amortized on the straight-line basis over the estimated useful lives of
respective assets. Purchased intangible assets with indefinite life are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Purchased intangible
asset consists of satellite system software and is amortized over 10 years.




                                       35





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.



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, accounts receivable, other receivable, short-term loans, accounts payable, and other payable approximated their fair value due to the short-term nature of these financial instruments.


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 stockholder's equity.

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
will be effective beginning in the first quarter of the Company's fiscal year
2022. Early adoption is permitted. 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 Company is currently evaluating the impact of ASU 2020-06 on its
consolidated financial statements and related disclosures, as well as the timing
of adoption.

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 Company is currently
evaluating the impact this ASU will have on the financial statements and related
disclosures, as well as the timing of adoption.



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. 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. 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 ASU 2017-04 on its consolidated financial statements.



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