Filed Pursuant to Rule 424(b)(3)
Registration No. 333-222208

 

Prospectus Supplement No. 2 to Prospectus dated May 23, 2019

 

 

AERKOMM INC.

 

Up to $16,439,106 of Shares of Common Stock

 

This Prospectus Supplement No. 2 relates to the Prospectus of Aerkomm Inc., dated May 23, 2019 (the “Prospectus”), relating to the offering of up to a remaining $16,439,106 of shares of our common stock out of an aggregate offering of up to $60,000,000, on a best efforts basis as described in the Prospectus. The price to the public in this offering is $42.50 per share.  This price to the public has been proportionately adjusted to directly reflect the one-for-five reverse stock split which became effective on January 16, 2019. Boustead Securities, LLC is the underwriter for this offering.  This Prospectus Supplement No. 2 should be read in conjunction with the Prospectus and Prospectus Supplement No. 1 filed with the Securities and Exchange Commission (the “SEC”) on July 1, 2019 (“Prospectus Supplement No. 1”) and is qualified by reference to the Prospectus and Prospectus Supplement No. 1, except to the extent that the information in this Prospectus Supplement No. 2 supersedes the information contained in the Prospectus, and may not be delivered without the Prospectus and Prospectus Supplement No. 1.

 

This Prospectus Supplement No. 2 is being filed to include the information set forth in our Current Report on Form 8-K which was filed with the SEC on July 18, 2019.

 

Our common stock is traded in the OTCQX marketplace and, as of July 23, 2019, on Euronext Paris under the symbol “AKOM.”

 

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 8 OF THE PROSPECTUS.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus Supplement No. 2 is July 18, 2019.

 

 

  

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 18, 2019 (July 16, 2019)

  

AERKOMM INC.
(Exact name of registrant as specified in its charter)

 

Nevada   000-55929   46-3424568
(State or other jurisdiction
of incorporation)
  (Commission File Number)   (IRS Employer
Identification No.)

 

923 Incline Way #39, Incline Village, NV 89451
(Address of principal executive offices)

 

(877) 742-3094
(Registrant’s telephone number, including area code)

 

 
(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). 

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

 

 

 

 

 

ITEM 8.01 OTHER EVENTS

 

Completion of Payments for the Purchase of Taishui Grottos Land Parcel and Related Seller Undertaking

 

As previously reported, Aerkomm Inc., a Nevada corporation (“Aerkomm”), and its wholly-owned subsidiary, Aerkomm Taiwan Inc. (the “Aerkomm Taiwan”), entered into a certain Real Estate Sales Contract on July 10, 2018 (the “Definitive Agreement”) with Tsai Ming-Yin (the “Seller”) and Sunty Development Co., Ltd., as trustee, pursuant to which Aerkomm, Aerkomm Taiwan and the Seller agreed to definitive terms and conditions relating to the acquisition by Aerkomm Taiwan of a parcel of land (the “Parcel”) located at the Taishui Grottoes in the Xinyi District of Keelung City, Taiwan. The Parcel consists of approximately 6.36 acres of undeveloped land and is expected to be used by Aerkomm and Aerkomm Taiwan to build Aerkomm’s first satellite ground station and data center. The purchase price for the Parcel (the “Purchase Price”), which is expressed in New Taiwan Dollars in the Definitive Agreement, is NT$1,056,297,507.

 

As previously reported, on July 30, 2018, on September 4, 2018, and on November 2, 2018, the parties entered into amendments to the Definitive Agreement primarily to extend the deadline for the payment in full of the Purchase Price for the Parcel. On January 3, 2019, the parties entered into a fourth amendment to the Definitive Agreement which included, among other things, (i) an extension of the Purchase Price payment deadline from January 4, 2019 to July 4, 2019, and (ii) an extension of the Seller’s right to cancel and terminate the Definitive Agreement from February 4, 2019 to August 4, 2019.

 

On July 3, 2019, the Company paid the Seller a final installment on the Purchase Price in the amount of US$624,462 and, as a result of that payment, the Purchase Price for the Parcel was paid in full. On July 16, 2019, the Seller provided Aerkomm with a letter of undertaking not to exercise his right to cancel and terminate the Definitive Agreement and to proceed with the transfer of ownership of the Parcel to Aerkomm Taiwan. A copy if this letter of undertaking is attached hereto as Exhibit 99.1

 

Issuance of AMF Visa and Approval of Euronext Paris Listing

 

On July 18, 2019, Aerkomm announced that the French Autorité des Marchés Financiers (the “AMF”) granted on July 17, 2019 visa number 19-372 on the prospectus relating to the admission of Aerkomm’s common stock to listing and trading on the Professional Segment of the regulated market of Euronext Paris (“Euronext Paris”).

 

Aerkomm’s common stock is scheduled to begin trading on Euronext Paris on July 23, 2019 under the symbol “AKOM” and will be denominated in Euros on Euronext Paris. This listing will not alter Aerkomm’s share count, capital structure, or current common stock listing on the OTCQX, where it also trades (in US dollars) under the symbol “AKOM.”

 

On July 18, 2019, the Company issued a press release (the “Press Release”) announcing the granting of the AMF visa and the Euronext Paris listing. A copy of the Press Release is attached hereto as Exhibit 99.2. A copy of the Aerkomm prospectus dated July 17, 2019, published by the AMF in connection with the Euronext Paris listing (the “Euronext Paris Prospectus”) is attached hereto as Exhibit 99.3.

 

Related Party Transactions

 

As reported in Aerkomm’s quarterly report on Form 10-Q for the period ended March 31, 2019, filed with the Securities and Exchange Commission on May 14, 2019, on May 9, 2019, two of Aerkomm’s current shareholders (the “Lenders”) each committed to provide to Aerkomm a $10 million bridge loan for an aggregate principal amount of $20 million, to bridge Aerkomm’s cash flow needs prior to its obtaining a mortgage loan to be secured by the Parcel Aerkomm and Aerkomm Taiwan are in the process of purchasing in Taiwan (discussed above). One of the Lenders is a beneficial owner of more than ten percent (10%) of Aerkomm’s outstanding common stock and, thus, is a related party to Aerkomm.

 

1

 

 

ITEM 9.01. FINANCIAL STATEMENT AND EXHIBITS

 

(d) Exhibits

 

The following exhibits are filed herewith:

 

Exhibit No.   Description
99.1   Letter of Undertaking dated July 16, 2019
99.2   Press Release dated and issued July 18, 2019
99.3   Euronext Paris Prospectus dated July 17, 2019

 

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SIGNATURES

 

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

 

Date: July 18, 2019 AERKOMM INC.
   
  /s/ Jeffrey Wun
  Name: Jeffrey Wun
  Title:   Chief Executive Officer

 

 

 

 

Exhibit 99.1

 

LETTER OF UNDERTAKING

 

Person undertaking hereby: MING-YIN TSAI

 

I, MING-YIN TSAI, hereby undertake that I will not exercise the special right of termination of the first item of Article 9 of the original real estate sale and purchase contract, and will handle the subsequent transfer of ownership of the land in accordance with the original sale and purchase contract.

 

Name: TSAI, MING-YJN
Date: July 16, 2019
 

 

 

 

 

Exhibit 99.2

 

Aerkomm Prospectus Approved for Secondary Listing on Euronext Paris

 

Fremont, California, July 18, 2019 (PRNewswire) -- Aerkomm Inc. (OTCQX: AKOM; Euronext Paris: AKOM), a development stage service provider of in-flight entertainment and connectivity solutions for the airline industry, announced today that the French Autorité des Marchés Financiers (AMF) has granted on July 17, 2019 visa number 19-372 on the prospectus relating to the admission of Aerkomm’s common stock to listing and trading on the Professional Segment of the regulated market of Euronext Paris (“Euronext Paris”). The attention of investors is drawn to the risk factors described in the prospectus.

 

Aerkomm’s common stock is scheduled to begin trading on Euronext Paris on July 23, 2019 under the symbol “AKOM” and will be denominated in Euros on Euronext Paris. This listing will not alter Aerkomm’s share count, capital structure, or current stock-listings on the OTCQX, where it also trades under the symbol “AKOM.”

 

Jeffrey Wun, CEO of Aerkomm said, “We are pleased to be listing our shares on Euronext Paris. This listing will bring us closer to prospective customers of our in-flight entertainment and connectivity services in the European region and may allow us to broaden our base of shareholders. We are excited to reach this important milestone and look forward to raising awareness of Aerkomm’s business among potential customers and investors in the weeks and months ahead.”

 

Information available for consultation by the public

 

Copies of the prospectus, which received the AMF visa n° 19-372 on July 17, 2019 are available free of charge at Aerkomm’s registered office, as well as on the AMF website (www.amf-france.org) and on Aerkomm’s website at www.aerkomm.com.

 

About Aerkomm Inc.

 

Aerkomm Inc. (OTCQX: AKOM; Euronext Paris: AKOM), operating through its wholly owned subsidiary, Aircom Pacific, Inc., is a development stage service provider of in-flight entertainment and connectivity solutions for the airline industry. The Company strives to become a leading provider of a wide range of in-flight broadband entertainment and connectivity services, including Wi-Fi connectivity, cellular networks, movies, gaming, live television, and music. Aerkomm aims to reshape the market for in-flight entertainment and connectivity services by offering on-board connectivity to its airline partners and passengers for free, generating revenue through advertising and on-board transactions.

 

More information about Aerkomm is available at www.aerkomm.com.

 

Safe Harbor Statement

 

This release does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. This release contains certain forward-looking statements based on our current expectations, forecasts and assumptions that involve risks and uncertainties. Forward-looking statements in this release are based on information available to us as of the date hereof. Our actual results may differ materially from those stated or implied in such forward-looking statements, due to risks and uncertainties associated with our business, which include the risk factors disclosed in our Registration Statement on Form S-1 Post-Effective Amendment No. 3 filed with the Securities and Exchange Commission (SEC File No. 333-222208) on May 17, 2019, as declared effective on May 23, 2019 and the prospectus, which received the Autorité des Marchés Financiers visa n°19-372 on July 17, 2019. Forward-looking statements include statements regarding our expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” and “would” or similar words. We assume no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.

 

Investor Relations Contacts:

 

Rose Zu

ICR Inc.

Rose.Zu@icrinc.com

+1 (646) 277-1287

 

 

 

  

Exhibit 99.3

 

 

AERKOMM INC.

923 Incline Way #39

Incline Village, NV 89451 USA

(877) 742-3094

 

PROSPECTUS

 

Published in Connection with the Admission of Aerkomm Inc.’s Common Stock to Listing and Trading on the Professional Segment of Euronext Paris

 

 

Pursuant to Articles L. 412-1 and L. 621-8 of the Code Monétaire et Financier and Articles 211-1 to 216-1 of its General Regulation, the Autorité des marchés financiers (“AMF”) granted visa number 19-372 dated July 17, 2019 on this prospectus (the “Prospectus”). This Prospectus has been prepared by the issuer and its signatory accepts the responsibility for its contents. In accordance with the provisions of Article L. 621-8-1-I of the Code Monétaire et Financier, the visa was granted after the AMF verified that the document was complete and comprehensible and that the information it contains was internally consistent. It does not imply that the AMF endorses the proposed transaction nor that it has validated the accounting and financial information presented herein.

 

Copies of this Prospectus may be obtained free of charge from Aerkomm Inc. at the address indicated above, and from its paying agent, BNP Paris Securities Services (Postal address: Les Grands Moulins de Pantin, 9 rue du Débarcadère, 93500 Pantin, France), and on the website of Aerkomm Inc. (www.aerkomm.com) and the AMF (www.amf-france.org).

 

 

 

 

NOTE TO THE PROSPECTUS

 

This Prospectus is published solely in connection with the admission of Aerkomm Inc.’s Common Stock to listing and trading on the Professional Segment of Euronext Paris (“Euronext Paris”). This Prospectus is not published in connection with and does not constitute an offer of securities by or on behalf of Aerkomm Inc. (“Aerkomm”).

 

Pursuant to Article 516-6 of the AMF General Regulation, an investor other than a qualified investor, within the meaning of Point 2 of II of Article L. 411-2 of the French Monetary and Financial Code, may not purchase Aerkomm’s Common Stock on the Professional Segment of Euronext Paris unless such investor takes the initiative to do so and has been duly informed by the investment services provider about the characteristics of the segment.

 

The distribution of this Prospectus in certain jurisdictions may be restricted by law, and therefore persons into whose possession this Prospectus comes should inform themselves of and observe any such restrictions.

 

This Prospectus contains forward-looking statements concerning, among other things, the prospects for Aerkomm’s operations, which are subject to certain risks, uncertainties and assumptions. The various assumptions Aerkomm uses in its forward−looking statements, as well as risks and uncertainties relating to those statements, are set out in the Section “Risk Factors” on pages 24 – 44 of Aerkomm’s S-1 (as defined below). Factors exist that could cause Aerkomm’s actual results to differ materially from these forward-looking statements.

 

This Prospectus, which contains material information concerning Aerkomm, was established pursuant to Articles 211-1 to 216-1 of the AMF General Regulation. Pursuant to Article 25 of Commission Regulation (EC) No 809/2004 of 29 April 2004 as amended (the “Prospectus Regulation”), this Prospectus is composed of the following parts in the following order:

 

(1)a table of contents;

 

(2)the summary provided for in Article 5(2) of Directive 2003/71/EC (the Prospectus Directive);

 

(3)the risk factors linked to the issuer and the type of security covered by the issue; and

 

(4)the cross-reference lists stipulated in Article 25.4 of the Prospectus Regulation presenting the information in the order stipulated in Annexes XXV and III of the Prospectus Regulation which, by application of Articles 3, 4, and 6 thereof, are required for this transaction.

 

This Prospectus also contains in Chapter C supplemental information concerning Aerkomm and its business, provided at the AMF’s request. For a better understanding of the summary of the Prospectus in Chapter A, the reader should read the entire Prospectus, including Chapter C: g Aerkomm, contained on pages 45 – 60.

 

Further, the Prospectus contains the following documents:

 

-Post-Effective Amendment No. 3 to Form S-1 Registration Statement, filed by Aerkomm with the Securities and Exchange Commission (the SEC) on May 23, 2019 (Aerkomms S-1);

 

-Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2019, filed by Aerkomm with the SEC on May 14, 2019 (Aerkomms 10-Q);

 

-Transition Report on Form 10-KT for the transition period from March 31, 2018 through December 31, 2018, filed by Aerkomm with the SEC on April 1, 2019 (Aerkomms 10-KT);

 

-Current Report on Form 8-K filed by Aerkomm with the SEC on June 28, 2019 relating to the $6.46 million issuance of new shares as part of the on-going $16.44 million public offering.

 

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TABLE OF CONTENTS

 

    Page
     
CHAPTER A: PROSPECTUS SUMMARY 5
A. Section A Introduction and warnings 5
B. Section B Company 6
C. Section C Securities 16
D. Section D Risks 20
E. Section E Offer 23
CHAPTER B: RISK FACTORS 24
I. BUSINESS RISK FACTORS 24
II. MARKET RISK FACTORS 44
CHAPTER C: SUPPLEMENTAL INFORMATION CONCERNING AERKOMM INC. 45
I. RIGHTS RELATED TO THE REGISTERED SHARES 45
II. STATEMENT OF CAPITALIZATION AND INDEBTEDNESS AS OF MAY 31, 2019 52
III. DIRECTORS AND EXECUTIVE OFFICERS 53
IV. EMPLOYEES 54
V. ORGANIZATIONAL STRUCTURE 55
VI. WORKING CAPITAL STATEMENT 55
VII. TAX CONSEQUENCES 55
VIII. REQUIRED FILERSTATUS 60
IX. DOCUMENTS ON DISPLAY 60
CROSS-REFERENCE LISTS 61
ANNEX XXV MINIMUM DISCLOSURE REQUIREMENTS FOR THE SHARE REGISTRATION DOCUMENT FOR SMEs AND COMPANIES WITH REDUCED MARKET CAPITALISATION (SCHEDULE) 61
ANNEX III MINIMUM DISCLOSURE REQUIREMENTS FOR THE SHARE SECURITIES NOTE (SCHEDULE) 78
EXHIBITS 84
EXHIBIT I POST-EFFECTIVE AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT, FILED BY AERKOMM WITH THE SEC ON MAY 17, 2019 84
EXHIBIT II QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019, FILED BY AERKOMM WITH THE SEC ON MAY 14, 2019 204
EXHIBIT III TRANSITION REPORT ON FORM 10-KT FOR THE TRANSITION PERIOD FROM MARCH 31, 2018 THROUGH DECEMBER 31, 2018, FILED BY AERKOMM WITH THE SEC ON APRIL 1, 2019 249
EXHIBIT IV CURRENT REPORT ON FORM 8-K FILED BY AERKOMM WITH THE SEC ON JUNE 28, 2019 RELATING TO THE $6.46 MILLION ISSUANCE OF NEW SHARES AS PART OF THE ON-GOING $16.44 MILLION PUBLIC OFFERING 347

 

3

 

 

COMPANY REPRESENTATIVE FOR PROSPECTUS

 

1.1Jeffrey Wun, Chief Executive Officer of Aerkomm Inc., acting for and on behalf of Aerkomm Inc.

 

1.2I hereby declare, after taking every reasonable measure for such purpose, that the information contained in this prospectus, to my knowledge, conforms to reality, and that there are no omissions that might alter the meaning thereof.

 

  /s/ Jeffrey Wun
  Name:  Jeffrey Wun
  Title: Chief Executive Officer of Aerkomm Inc.
   
  Fremont, California, July 17, 2019

 

4

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

CHAPTER A: PROSPECTUS SUMMARY

 

NOTE TO THE PROSPECTUS SUMMARY

 

VISA NUMBER 19-372 DATED JULY 17, 2019 OF THE AMF

 

Note to the reader

 

Summaries are made up of disclosure requirements, each known as an “Element”. These Elements are numbered as Sections A-E (A.1 – E.7).

 

This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

 

Even though an Element may be required to be included in a summary for this type of security and issuer, it is possible that no relevant information can be given regarding such Element. Where this is the case, a short description of the Element is included in this summary, with the words “not applicable”.

 

Section A—Introduction and warnings

 

A.1   General disclaimer regarding the summary  

This summary should be read as an introduction to the prospectus (the “Prospectus”) relating to the admission of 9,399,272 shares of common stock of Aerkomm Inc. (the “Common Stock”) to listing and trading on the Professional Segment of Euronext Paris (the “Euronext Listing”). Any decision to invest in the Shares should be based on a consideration of the Prospectus as a whole and not just the summary.

 

Where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the member states of the European Union, have to bear the costs of translating the Prospectus before the legal proceedings are initiated.

 

Civil liability in relation to the summary attaches to the Company, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus (including information incorporated by reference herein) or if it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in the Shares.

         
A.2   Resale or Final Placement of the Shares   Not applicable.

 

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CHAPTER A – PROSPECTUS SUMMARY

 

Section B—Company

 

B.1   Legal and commercial name of the Company  

Aerkomm Inc. (the “Company”).

 

In this summary, unless the context requires otherwise, references to the “Company”, “we”, “us”, “our”, “our company”, “Aerkomm Inc.” and “Aerkomm” are to the combined business of Aerkomm Inc., and its consolidated subsidiaries. The Company, together with its consolidated subsidiaries, are referred to herein as the “Group.”

         
B.2   Domicile / legal form / legislation / country of incorporation of the Company  

Aerkomm Inc. is a Nevada corporation, with its principal executive offices at 923 Incline Way #39, Incline Village, NV 89451, U.S.A.

 

Legal form: Corporation

 

Legislation: Nevada

 

Country of incorporation: United States

         
B.3   Business 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 a 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.

 

6

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

       

Products and Services

 

IFEC – In-flight Entertainment and Connectivity Systems

 

Demand for high-speed internet connectivity on board passenger aircraft is increasing worldwide. With our advanced technologies and a creative business model, we plan 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 through both built-in in-flight entertainment systems, such as a seat-back display, as well as on passengers’ personal devices including laptops, mobile telephones and tablets. We will also provide content management services and e-commerce solutions related to our in-flight entertainment and connectivity, or IFEC, solutions. This system will operate through Ka/Ka HTS (High Throughput Satellites).

 

We also plan to provide related content management services and on-board e-commerce solutions for commercial airlines.

 

The diagram below shows our services options and e-commerce options:

 

 

We have two business models in place for our IFEC aviation solutions, one for commercial airlines and one for corporate business jets.

 

Remote and Maritime Connectivity

 

Additionally, we have developed 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 high speed rail industry.

 

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CHAPTER A – PROSPECTUS SUMMARY

 

       

IFEC Ground Support Systems

 

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. To this end, we have already entered into an agreement to purchase an approximate 6.36 acre parcel of land in Taiwan where our first ground station and data center will be located.

 

Markets

 

IFEC – In-flight Entertainment and Connectivity Systems

 

To market our IFEC solutions, we plan to:

 

●      Sell our IFEC equipment to corporate jet aircraft owners and operators such as Airbus ACJ (Airbus Corporate Jets) and Boeing BBJ (Boeing Business Jets) for installation on aircraft either at the production stage or in post-delivery modification. We will also sell to these aircraft owner/operators the bandwidth that will be required to operate our IFEC systems and for their passengers to be able to access the internet through our systems, priced according to individual customer requirements; and

 

●      Partner with commercial airlines to offer airline passengers free IFEC services. In this model, we expect to generate revenue through advertising and in-flight passenger transactions. We believe that this is an innovative approach that differentiates us from existing market players.

 

Remote and Maritime Connectivity

 

To market these systems, we plan to:

 

●      Sell our connectivity equipment to hotels and resorts located in remote ocean areas and mountain regions. As with our IFEC solutions, we will also sell these customers the bandwidth on which their remote connectivity systems will operate; and

 

●      Sell our connectivity equipment to owners of maritime vessels such as cruise liners, fishing vessels, ferry boats and yachts, as well the required bandwidth.

 

 

8

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

       

Our Competitive Strengths

 

Proven Business plus Creative Business Model

 

Traditionally, providers of in-flight connectivity focus primarily on the profit margin derived from the sale of hardware to airlines and of internet access bandwidth to passengers. Both airlines and passengers must “pay to play,” which results in low participation and usage rates. We break away from this model and set a new trend with our creative business model which expect will set us apart from our competitors. Airline companies will recover their costs through participating in our revenue sharing model while passengers will not be required to pay for connectivity. Taken together, this novel approach creates an incentive for airlines to work with us and should drive up passenger usage rates.

 

Demand for high-speed internet connectivity on board passenger aircraft is increasing worldwide. There is also a big demand from corporate jet fleet owners to have high-speed internet connectivity installed on their aircraft. We believe that there is an untapped demand for maritime, remote hotels and resorts satellite services around the globe are profitable.

 

Ku-band and GEO/LEO Hybrid Satellite Technology

 

Most in-flight connectivity systems currently in the market rely on the Ku-band satellite signals for communication. Ka-band satellites have much greater data throughput than Ku-band satellites. Many players in the market are working to provide higher bandwidth and faster transmitting rates using the Ka-band. Currently, there are few Ka-enabled satellites, which limits the coverage in regions such as the Asia-Pacific region. However, new GEO (Geostationary Earth Orbiting) and LEO (Low Earth Orbiting) Ka-band satellites are being regularly launched which will provide worldwide coverage over the next few years.

 

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CHAPTER A – PROSPECTUS SUMMARY

 

B.4a   Main recent trends having an impact on the Company and its industry  

Main Recent Trends

 

Growth Strategies

 

We will strive to be a leading provider of IFEC solutions by pursuing the following growth strategies:

 

Launch and Increase number of connected aircraft

 

As of the date of this Prospectus, we have not provided our services on any corporate jets or commercial aircraft. However, on March 6, 2019, we signed a General Terms Agreement with MJet GMBH, a corporate jet owner operating an Airbus ACJ A319 based in Austria. On June 11, 2019 this General Terms Agreement has been converted into a definitive agreement with MJet, and on June 12, 2019 MJet placed a Purchase Order with Aircom. MJet will be our launch customer for the first planned installation of our AERKOMM K++ system equipment by the end of 2019. That installation will enable us to commence a rollout of sales and installation of our IFEC equipment and services to other aircraft.

 

To further this growth strategy, we plan to:

 

●     leverage our creative business model and IFEC system to cost-effectively equip corporate jets and commercial aircraft;

 

●     increase the number of equipped aircraft, targeting full-fleet availability of our services for our current and future airline partners;

 

●     pursue global growth opportunities by leveraging our broad and innovative technology platform and technical expertise; and

 

●     offer attractive business models to our prospective corporate jets and airline partners, giving them the flexibility to determine the connectivity solution that meets the unique demands of their businesses.

 

Increase passenger use of connectivity

 

We believe that Internet connectivity has become a necessary utility rather than a novelty because most passengers are trying to remain “connected” while travelling. We believe that our business model, under which neither airlines nor passengers need to pay for products or services, will create an incentive for the airlines to work with us while driving passenger usage rates.

 

Expand satellite network

 

We will continue to expand our global satellite network coverage through the purchase of additional Ka-band capacity, and seek to install aircraft with our satellite solutions, while continuing to invest in research and development of satellite antenna and modem technologies.

 

Expand satellite-based services to other markets

 

We anticipate broadening our satellite-based services to high-speed railways, maritime and cruise lines, 4G/5G backhauling, and converged triple-play services in remote communities, with the potential to expand internationally into new markets.

 

10

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

B.5   Group  

As of the date of this Prospectus, the Company is the holding company of the Group, which includes 7 consolidated subsidiaries.

 

         
B.6   Shareholders of the Company   As of the date of this Prospectus, the following table shows information for each person known by Aerkomm to beneficially own more than 5% of the outstanding Common Stock.

 

     Non-diluted(1)   Fully-diluted including $9.98 million to be
raised (2)
   Fully-diluted including $9.98 million balance and $9 million over- subscription to be raised(3) 
  Name of Beneficial Owner  Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class 
  Jeffrey Wun, CEO, President and Director   447,486(4)   4.76%   456,486(5)   4.05%   456,486(5)   3.97%
  Dmedia Holding LP(6)   2,237,428    23.80%   2,237,428    19.85%   2,237,428    19.46%
  Jeffrey Wun, including Dmedia Holding LP(4)(5)(6)   2,684,914    28.57%   2,693,914    23.90%   2,693,914    23.43%
  Sheng-Chun Chang(7)   65,281    0.69%   65,281    0.58%   65,281    0.57%
  Well Thrive Limited(7)   1,340,696    14.26%   1,340,696    11.89%   1,340,696    11.66%
  Sheng-Chun Chang, including Well Trhive Limited(7)   1,405,977    14.96%   1,405,977    12.47%   1,405,977    12.23%
  Total beneficially owned more than 5%   4,090,891    43.52%   4,099,891    36.37%   4,099,891    35.66%

 

       

(1)           The basis of non-diluted calculation is based on 9,399,272 shares of outstanding Common Stock as of the date of this prospectus, including the 152,000 shares issued for the $6.46 million raised June 27, 2019 from the offering, which is not including issued and outstanding options and warrants or common shares and warrants to be issued from the remaining balance of $9.98 million from the ongoing offering.

 

(2)           The basis of fully-diluted calculation is based on 9,399,272 shares of outstanding Common Stock, 1,554,262 shares of stock option and 70,618 shares of warrants issued and outstanding as of the date of this prospectus and additional 234,802 shares of our Common Stock and 14,088 shares of warrants issuable from the remaining balance of $9.98 million of our ongoing offering. The basis of fully-diluted calculation is 10,934,042 shares if all of all options and warrants are exercised and issuable common shares and warrants are issued from the offering.

 

(3)           The basis of fully-diluted calculation is based on 9,399,272 shares of outstanding Common Stock, 1,554,262 shares of stock option and 70,618 shares of warrants issued and outstanding as of the date of this prospectus and additional 234,802 shares of our Common Stock and 14,088 shares of warrants issuable from the remaining balance of $9.98 million of our ongoing offering and additional 211,764 shares of our Common Stock and 12,705 shares of warrants issuable from the $9.00 million over-subscription of our ongoing offering. The basis of fully-diluted calculation is 11,497,511 shares if all of all options and warrants are exercised and issuable common shares and warrants are issued from the offering.

 

(4)           Includes 447,486 shares of our Common Stock held directly.

 

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CHAPTER A – PROSPECTUS SUMMARY

 

       

(5)           Includes (i) 447,486 shares of our Common Stock held directly; (ii) 3,500 shares of our Common Stock which Mr. Wun has the right to acquire within 60 days through the exercise of vested options and 5,500 shares of our Common Stock issuable upon the exercise of options not exercisable within 60 days.

 

(6)           On December 20, 2017, Mr. Jeffrey Wun, purchased an 85.7% interest in, and was appointed Manager of, Dmedia LLC, the General Partner of Dmedia Holding LP. As such, Mr. Wun is deemed to be the beneficial owner of the 2,237,428 shares of our Common Stock held by Dmedia Holding LP by virtue of his voting and dispositive power of those shares. Through his ownership interest in Dmedia LLC, which owns an approximately 6% direct interest in Dmedia Holding LP, Mr. Wun indirectly beneficially owns 117,601 shares of our Common Stock held by Dmedia Holding LP.  Mr. Wun disclaims beneficial ownership of the remaining 2,119,827 shares of our Common Stock held by Dmedia Holding LP. Mr. Jan-Yung Lin Secretary of the Board of Directors and Directory, owns a pecuniary interest in 959,230 of these shares, through his approximately 7% ownership interest in Dmedia LLC and his approximately 42.4% interest Dmedia Holding LP, although he does not exercise voting or dispositive control over them. Mr. Wun’s address is care of the Company. Other than as officers and directors of the Company, Mr. Wun and Mr. Lin are not related.

 

(7)           Consists of 1,340,696 shares of Common Stock held by Well Thrive Limited and 65,281 shares of our Common Stock owned directly by Mr. Sheng-Chun Chang. Mr. Chang is the Chief Executive Officer and owner of Well Thrive Limited and has voting and dispositive power of the securities held by it. Mr. Chang disclaims beneficial ownership of the shares held by Well Thrive Limited. The address of Well Thrive Limited is No 79, Heng Yang Road, Taipei City, Taiwan.

 

        The following table shows information for the total of shareholders beneficially own more than 5% of the outstanding Common Stock as disclosed above and each categories of shareholders known by Aerkomm to beneficially own less than 5% of the outstanding Common Stock as of the date of this Prospectus.

 

     Non-diluted (1)   Fully-diluted including $9.98 million to be raised(2)   Fully-diluted including $9.98 million balance and $9 million over- subscription to be raised(3) 
  Name of Beneficial Owner  Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class 
  Beneficially owned more than 5% of common stock   4,090,891    43.52%   4,099,891(4)   36.37%   4,099,891(4)   35.66%
  Institutions   239,136    2.54%   239,136    2.12%   239,136    2.08%
  Employee & directors(1)   724,738    7.71%   2,270,000(5)   20.14%   2,270,000(5)   19.74%
  Public   4,344,507    46.22%   4,415,125(6)   39.17%   4,415,125(6)   38.40%
  To be raised from the public offering   -    0.00%   248,890(7)   2.21%   473,359(8)   4.12%
  Total   9,399,272    100.00%   11,273,042    100.00%   11,497,511    100.00%

 

       

(1-3)   Please refer to notes (1) through (3) in the above table.

 

(5)      Includes 9,000 shares of our Common Stock which Mr. Wun has the right to acquire through the exercise of options, both vested and to be vested.

 

(6)      Includes 1,554,262 shares of our Common Stock which employees and directors have the rights to acquire through the exercise of options, both vested and to be vested.

 

(7)      Includes 70,618 shares of our Common Stock which our underwriter has the right to acquire through the exercise of warrants.

 

(8)      Includes 234,802 of our Common Stock and 14,088 of warrants to be issued from the $9.98 million of offering to be raised.

 

(9)      Includes 211,764 of our Common Stock and 12,705 of warrants to be issued from the $9 million over-subscription of offering to be raised.

 

12

 

 

        The following table shows information for the basis of non-diluted and fully diluted calculation.

 

     Stocks   Options   Warrants   Total diluted 
  Outstanding as of July 16, 2019   9,399,272(1)   1,554,262    70,618    11,024,152 
  Issuable for $9.98 million   234,802         14,088    248,890 
  Total diluted basis with $9.98 million to be raised   9,634,074    1,554,262    84,706    11,273,042(2)
  Issuable for $9 million over-subscription to be raised   211,764    -    12,705    224,469 
  Total diluted basis with $9.98 and $9 million to be raised   9,845,838    1,554,262    97,411    11,497,511(3)

 

       

(1)   Basis for non-diluted calculation.

 

(2)   Basis for fully-diluted calculation with Common Stock and warrants to be issued from the $9.98 million to be raised from the offering.

 

(3)   Basis for fully-diluted calculation with Common Stock and warrants to be issued from the $9.98 million from the offering and the $9 million over-subscription from the offering to be raised.

 

Each share of Common Stock of the Company is entitled to one vote and to the best of Aerkomm’s knowledge, there are no shareholders’ agreements. The beneficial owners listed above are entitled to the same voting rights as any other stockholder of the Company.

 

To the best of Aerkomm’s knowledge, the Company is not directly or indirectly owned or controlled by any person, including the stockholders listed above.

 

13

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

B.7   Selected historical key financial information  

Selected Two Year Financial Data

 

Note on Change in Fiscal Year End: On March 18, 2018, we changed our fiscal year from December 31 to March 31, to be able to comply with the Nasdaq Stock Market so called “seasoning rules” which required that we have audited financial statements for a full year following the date of the closing of our reverse acquisition before we could file a listing application with Nasdaq. Since we were able to meet that seasoning requirement by changing our fiscal year to March 31 thus enabling us to generate audited financial statements for the full year beginning on April 1, 2017 and ending on March 31, 2018, our board of directors determined that for practical business reasons, it would be in the Company’s best interest to revert to a December 31 fiscal year end. Our board of directors voted to change our fiscal year back to December 31 on February 12, 2019.

 

The following tables summarize our consolidated financial data.

 

The summary consolidated financial data as of March 31, 2019 (unaudited) and December 31, 2018 and 2017 and Statement of Operations and Cash Flow for the three months ended March 31, 2019 and 2018 (unaudited) and the years ended December 31, 2018 and 2017 are derived from our audited consolidated financial statements that are included in the Prospectus, which include all adjustments, consisting of normal recurring adjustments, that our management considers necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.

 

Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.

 

     March 31,
2019
   December 31,
2018
   December 31,
2017
 
               
  Consolidated Balance Sheet Data:            
  Current assets  $4,262,505   $3,426,451   $1,239,544 
  Total assets  $47,181,170   $47,386,685   $10,265,976 
  Total liabilities  $7,555,990   $5,966,951   $3,811,913 
  Total stockholders’ equity  $39,625,180   $41,419,734   $6,454,063 

 

     Three Months Ended
March 31,
   Years Ended 
December 31,
 
     2019   2018   2018   2017 
                   
  Consolidated Statement of Operations Data:                
  Revenue  $-   $-   $1,745,000   $- 
  Cost of revenue   -    -    1,661,849    - 
  Gross profit   -    -    83,151    - 
  Operating expenses   2,048,289    1,450,899    8,096,033    7,147,597 
  Loss from operations   (2,048,289)   (1,450,899)   (8,012,882)   (7,147,597)
  Net loss  $(2,382,992)  $(1,459,183)  $(8,148,340)  $(7,132,464)
  Net loss per share:                    
  Basic  $(0.2577)  $(0.1760)  $(0.9205)  $(0.8736)
  Diluted  $(0.2577)  $(0.1760)  $(0.9205)  $(0.8736)
  Weighted average shares outstanding:                    
  Basic   9,247,272    8,292,034    8,852,094    8,164,313 
  Diluted   9,247,272    8,292,034    8,852,094    8,164,313 

 

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CHAPTER A – PROSPECTUS SUMMARY

 

     Three Months Ended
March 31,
   Years Ended
December 31,
 
     2019   2018   2018   2017 
  Net cash provided by (used for) operating activities  $(534,882)  $(367,556)  $(6,971,369)  $(6,001,485)
  Net cash used for investing activity   (1,275)   (6,352)   (34,643,820)   (273,015)
  Net cash provided by financing activity   182,500    407,707    41,558,566    5,984,941 
  Net increase (decrease) in cash and cash equivalents   (353,657)   33,799    (56,623)   (289,559)
  Cash from acquired subsidiaries   -    -    -    2,354 
  Foreign currency translation effect on cash   343,596    2,934    123,428    (3,464)
  Cash at beginning of year   88,309    21,504    21,504    312,173 
  Cash at end of period/year  $78,248   $58,237   $88,309   $21,504 

 

        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, 2019, the Company incurred a comprehensive loss of $2,039,396 and had working capital deficiency of $3,117,186 as of March 31, 2019. Currently, the Company has taken measures that management believes will improve its financial position by financing activities, including through our ongoing public offering, short-term borrowings and equity contributions.

 

B.8   Pro forma financial information   Not applicable, no pro forma financial information is included in the Prospectus.
         
B.9   Profit forecast   Not applicable, no profit forecast is included in the Prospectus.
         
B.10   Reservations in the auditor’s report   Not applicable. There are no qualifications in the auditor’s report on the consolidated financial statements.
         
B.11   Working capital  

With the $6.46 million raised in relation to the issuance of new shares on June 27, 2019 and the $20 million in loans committed to us to bridge the Company’s cash flow needs prior to its obtaining a mortgage loan to be secured by a parcel of land, the “Loans”, by two of our existing shareholders, the “Lenders”, we believe our available working capital is sufficient to sustain our current financial obligations which, we believe, range between USD 16 to 20 million depending on the progress of our projects (excluding any payment for the acquisition of the land in Taiwan the final payment of which has been made on July 3rd, 2019), for the next twelve months following the date of the Prospectus.

 

Alternatively, if we succeed in raising, as part of our on-going $16.44 million public offering of new shares (of which $6.46 million have already been raised on June 27, 2019 as indicated above) an additional amount of approximately $10 million (which we expect to occur within 15 days following the date of the Prospectus), together with $5 million which may be drawn down from the Loans at any time to pay vendors, we also believe that our available working capital is sufficient to sustain our current financial obligations for the next twelve months following the date of the Prospectus.

 

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CHAPTER A – PROSPECTUS SUMMARY

 

Section C—Securities

 

C.1   Type of securities and securities code  

Our common stock began trading on the OTCQB Venture Market on May 30, 2017 under the symbol “AKOM.” On July 31, 2017, our common stock began trading on the OTCQX Best tier (“OTCQX”) of OTC Markets Group, Inc., CUSIP number 00774B208.

 

Our authorized capital stock consists of 90,000,000 shares of common stock, par value $0.001 per share (“Common Stock”), and 50,000,000 shares of “blank check” preferred stock, par value $0.001 per share (“Preferred Stock”). As of the date of this Prospectus, there were 9,399,272 shares of Common Stock and no shares of Preferred Stock issued and outstanding.

 

We have filed an application to have the shares of our common stock listed on the Nasdaq Capital Market tier of Nasdaq, or “Nasdaq”. Although this application is pending, we cannot assure you that we can meet Nasdaq’s listing requirements which include subjective considerations. If our Nasdaq application is approved, we would withdraw our listing from the OTCQX. If our Nasdaq application is not approved, our common stock will not be able to trade on the Nasdaq, although it will continue to be quoted for trading on the OTCQX. In this case, we would continue to maintain our OTCQX listing.

 

We have applied for admission to listing and trading on the Professional Segment of Euronext Paris of 9,399,272 shares of Common Stock issued as of July 16, 2019. On July 17, 2019, Euronext Paris approved our application for listing and trading of our Common Stock on the Professional Segment of Euronext Paris. Our Common Stock will be listed and traded under the symbol “AKOM” and ISIN Code US00774B2088.

 

The shares representing the share capital of the Company will be shares of Common Stock and will entitle their holders to the payment of all dividends, interim dividends or reserves or similar amounts decided after their distribution.

 

On April 19, 2018, we filed a Form 8-A with the Securities and Exchange Commission to register our class of common stock pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”). As such, we have become a “required filer” of periodic and current reports as required under the rules of the Exchange Act. We undertake to maintain our Exchange Act registration of our common stock and to remain a “required filer” for so long as our common stock is listed for trading on Euronext in Paris.

         
C.2   Currency of the Shares   Euro.
         
C.3   Company Shares issued and par value of the Shares  

As of the date of this Prospectus, the Company’s outstanding and issued share capital consists of 9,399,272 shares of Common Stock, each representing an identical fraction of the Company’s share capital. All of the issued and outstanding shares are fully paid.

 

The par value per share is $0.001.

 

On June 27, 2019, Aerkomm Inc. entered into that certain Amendment No. 3 (the “Amendment”) to the underwriting agreement dated May 14, 2018 and amended on August 30, 2018 and November 5, 2018 (the “Underwriting Agreement”) with Boustead Securities, LLC (the “Underwriter”) in connection with the public offering, issuance and sale (the “U.S. Offering”) by the Company of the common stock, par value $0.001 per share (the “Common Stock”), of the Company.

 

16

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

       

The material terms of the U.S. Offering are described in the U.S. prospectus, dated May 23, 2019 (the “U.S. Prospectus”), filed by the Company with the Securities and Exchange Commission (the “Commission”) on May 23, 2019, pursuant to Rule 424(b) under the Securities Act of 1933, as amended. The Offering is registered with the Commission pursuant to a Registration Statement on Form S-1, as amended to date (File No. 333-222208), initially filed by the Company on December 20, 2017. As indicated in the U.S. Prospectus, the Company is offering up to a maximum of 1,411,782 shares of Common Stock, at an offering price of $42.50 per share, or a maximum of $60,000,000, plus up to an additional 211,764 shares if over-subscription option is exercised in full. This $42.50 price to the public has been proportionately adjusted to directly reflect the one-for-five reverse stock split which became effective on January 16, 2019.

 

As a “best efforts” offering, there can be no assurance that the U.S. Offering contemplated hereabove will ultimately be consummated.

 

Prior to the date hereof, the Company has conducted multiple closings of the U.S. Offering selling 1,176,980 shares of Common Stock for gross proceeds to the Company of $50,020,894.

 

This U.S. Offering will terminate on August 31, 2019, which date may be extended to a date up to and including September 30, 2019 (the “U.S. Offering Termination Date”), unless we sell the maximum amount of shares set forth above before that date or we decide to terminate this U.S. Offering prior to that date. In addition, in the event that the maximum amount has been met on or prior to the U.S. Offering Termination Date, the Underwriter may exercise the over-subscription option on or prior to the U.S. Offering Termination Date to extend the U.S. Offering for an additional 45 days.

 

Authorized Capital

 

Our authorized capital stock consists of 90,000,000 shares of Common Stock, par value $0.001 per share, and 50,000,000 shares of Preferred Stock, par value $0.001 per share. At the effective time of the reverse stock split, every 5 shares of issued and outstanding common stock were converted into one share of issued and outstanding common stock, and the authorized shares of common stock were reduced from 450,000,000 to 90,000,000 shares. All shares and related financial information in the financial statements have been retroactively adjusted to reflect this 1-for-5 reverse stock split. Since the par value of $0.001 was not changed as part of the reverse stock split transaction, the balances of Common Stock and Additional Paid-In Capital presented on the financial statements as of March 31, 2019, December 31, 2018 and December 31, 2017, attached hereto as Exhibit II, need to be reclassified accordingly. According to the US GAAP and SEC rules, this reclassification is not material enough for the Company to restate its financial statements and file a restatement of such financial statements with the Securities and Exchange Commission (the “SEC”). The Company undertakes to reflect this reclassification in its future financial statement filings with the SEC both under the Securities Act of 1933 and the Securities Exchange Act of 1934.

 

No shares of Preferred Stock are currently issued and outstanding.

 

Authorized but Unissued Capital Stock

 

Nevada law does not require stockholder approval for any issuance of authorized shares other than in connection with certain mergers to which we may be a party.

 

17

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

       

Accordingly, subject to the above limitations, Aerkomm’s board of directors (the “Board”) may issue up to a maximum of 78,534,047 shares of Common Stock at a price equal to or higher than the par value of $0.001 per share without authorization from the stockholders. Any issue of Common Stock would give rise to a registration requirement under the SEC rules, absent any available exemption, such as an issue of Common Stock to qualified institutional buyers.

 

The Company has an equity incentive plan under which Common Stock may be provided to directors and employees of the Company. The Company’s obligations in this respect may be satisfied either by Common Stock held in treasury or by newly issued Common Stock. As of May 29, 2019, there were approximately 78,534,047 shares of Common Stock available for issuance under the Aerkomm’s equity incentive plan.

 

Options, Warrants and Ongoing Public Offering

 

On May 5, 2017, our board of directors adopted the Aerkomm Inc. 2017 Equity Incentive Plan. This plan was approved by our stockholders by a written consent in lieu of a meeting dated March 28, 2018. As of July 16, 2019, there are 1,554,262 shares of our common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $6.2772 per share.

 

As of June 27, 2019, in connection with our ongoing public offering, the Company issued warrants to the underwriter to purchase 70,618 shares of the Company’s stock at an initial exercise price of $53.125 per share for the gross proceeds of $44,045,394 that we have completed. A total of 84,706 shares and 97,411 shares of common stock, including the 70,618 shares relating to the underwriter warrants already issued, underlying the warrants to be issued to the underwriter in connection with the offering if maximum without over-subscription option and over-subscription is exercised in full, respectively.

 

On July 2, 2019, the Board of Directors approved to issue options for an aggregate of 339,000 shares under the Aerkomm 2017 Plan to 22 of its directors, officers and employees. 25% upon the date of issuance of the grant, 25% upon the date the Company obtains from the AMF a visa on the Company’s European listing prospectus, 25% upon the first anniversary of the date of issuance of the grant, and 25% upon the second anniversary of the date of issuance of the grant; except that, if the Company does not obtain from the AMF a visa on the Company’s European listing prospectus, the stock options shall vest according to the following schedule: 25% upon the date of issuance of the grant, 50% upon the first anniversary of the date of issuance of the grant, and 25% upon the second anniversary of the date of issuance of the grant.

 

As of July 16, 2019, including the outstanding 1,554,262 shares underlying our outstanding stock options, 70,618 shares underlying the outstanding underwriter warrants issued and common stock and warrants to be issued from the remaining offering to be raised, the total number of shares of our common stock outstanding after the ongoing public offering is 11,273,042 if maximum raised without over-subscription and 11,497,511 if over-subscription is exercised in full.

 

18

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

C.4   Rights attached to the Shares  

Dividend Rights

 

The Company’s Certificate of Incorporation, which was amended and restated on April 28, 2017, authorizes the payment of dividends. Holders of Common Stock are entitled to receive such dividends as the Company’s Board may from time to time declare out of funds legally available therefore under the laws of the State of Nevada, in amounts that the Board may determine in its sole discretion. Covenants and other restrictions in loan agreements entered into by the Company from time to time may restrict our ability to pay dividends without lender consent.

 

Voting Rights

 

The holders of our common stock are entitled to one vote per share on each matter submitted to a vote at a meeting of our stockholders, except to the extent that the voting rights of our shares of any class or series of stock are determined and specified as greater or lesser than one vote per share in the manner provided by our restated articles of incorporation.

 

Supermajority Voting Provisions

 

Nevada Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s articles of incorporation or bylaws, unless a corporation’s articles of incorporation or bylaws, as the case may be, require a greater percentage. Although our articles of incorporation and bylaws do not currently provide for such a supermajority vote on any matters, our board of directors can amend our amended and restated bylaws and we can, with the approval of our stockholders, amend our articles of incorporation to provide for such a super-majority voting provision.

 

Right to Receive Liquidation Distributions

 

Holders of Common Stock are entitled to share pro rata, upon any liquidation, dissolution or winding up of Aerkomm in all remaining assets available for distribution to shareowners after payment or providing for Aerkomm’s liabilities.

 

Preemptive, Redemptive or Conversion Provisions

 

Our stockholders have no pre-emptive rights to acquire additional shares of our common stock or other securities. Our common stock is not subject to redemption rights and carries no subscription or conversion rights.

         
C.5   Restrictions on the free transferability of the Shares   The Common Stock is registered under the Exchange Act and the currently outstanding shares are freely transferable. The Company undertakes to promptly register with the SEC any and all shares of Common Stock that may be issued as restricted stock or otherwise become restricted in the future.

 

19

 

 

CHAPTER A – PROSPECTUS SUMMARY

 

C.6   Listing and Request for admission for Trading  

The Common Stock is listed on the OTCQX under the symbol “AKOM”, CUSIP number 00774B208.

 

This Prospectus is published in connection with the admission to listing and trading on the Professional Segment of Euronext Paris of 9,399,272 shares of Common Stock of Aerkomm Inc. issued as of July 16, 2019. On July 17, 2019, Euronext approved our application for listing and trading of our Common Stock on the Professional Segment of Euronext Paris. Trading in the Common Stock on the Professional Segment of Euronext Paris is expected to start on July 23, 2019. Our Common Stock will be listed under the symbol “AKOM”.

         
C.7   Dividend Policy   The Company paid no cash dividends on any class of its stock to date and it does not anticipate paying cash dividends in the near term. The payment of dividends is determined by Aerkomm’s Board at its discretion based on various factors, and no assurance can be provided as to future dividends.

 

Section D—Risks

 

D.1   Risks related to the Company’s business and industry  

Set forth below are summaries of certain of the risks, uncertainties and other factors that may affect our future results. Before investing in the Company, investors should carefully consider the following risk factors.

 

     There is substantial uncertainty that we will continue operations as a going concern in which case you could lose your entire investment.

 

     Our company is in the development stage and has a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

 

     Excluding non-recurring revenues in 2018 from affiliates, we have incurred operating losses in every quarter since we launched our business and may continue to incur quarterly operating losses, which could negatively affect the value of our company.

 

     We expect to rely on a few key customers for all of our initial revenue.

 

     We may lose some or all of the entire amount that we deposited towards the purchase of land in Taiwan for our first grounding station.

 

     If the real estate sales contract is terminated and the seller is only able to refund the purchase price in securities rather than cash and we do not raise any additional capital, we may be left without any working capital and may not be able to continue operations.

 

     Our receipt of securities in a refund of the purchase price could result in our company being defined as an investment company under the Investment Company Act of 1940.

 

     If the transactions contemplated by several MOUs do not proceed, our results of operations and financial condition could be materially adversely affected.

 

     We will likely need additional financing to execute our business plan or new initiatives, which we may not be able to secure on acceptable terms, or at all.

 

     We are dependent on airline partners to be able to access our customers. We expect that future payments by these customers for our services to be provided to them will account for most, if not all, of our initial revenues.

 

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     Competition from a number of companies, as well as other market forces, could result in price reduction, reduced revenue and loss of market share and could harm our results of operations.

 

     The demand for in-flight broadband internet access service may decrease or develop more slowly than we expect. We cannot predict with certainty the development of the U.S. or international in-flight broadband internet access market or the market acceptance for our products and services.

 

     Our possession and use of personal information and the use of credit cards by our customers present risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.

 

     We depend upon third parties to manufacture equipment components and to provide services for our network.

 

     We may fail to recruit, train and retain the highly skilled employees that are necessary to remain competitive and execute our growth strategy. The loss of one or more of our key personnel could harm our business.

 

     We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our common stock.

 

     Previous actions of our co-founder, Daniel Shih, could give rise to reputational issues that could negatively affect our business and, thus, your investment in our company.

 

Risks Relating to our Industry

 

     Our business is highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control. The airline industry is highly competitive and sensitive to changing economic conditions.

 

Risks Relating to our Technology and Intellectual Property

 

     We could be adversely affected if we suffer service interruptions or delays, technology failures or damage to our equipment.

 

     We rely on service providers for certain critical components of and services relating to our satellite connectivity network.

 

     A failure to raise sufficient capital will delay or prohibit our building of a satellite ground station and related data center, which will inhibit our business development.

 

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D.3   Risks relating to the Shares  

     Risks Related to Ownership of our Common Stock

 

     Our common stock is quoted on the OTCQX Best Market, which may have an unfavorable impact on our stock price and liquidity.

 

     We cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If an active public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our common stock.

 

     Our common stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in our common stock.

 

     We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

 

     We have never paid cash dividends on our stock and do not intend to pay dividends for the foreseeable future.

 

     Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

 

     Our articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

 

●     Limited trading for our Common Stock.

 

●     Potential volatility in the market price of the Company’s shares.

 

●     No cash dividends in the near term.

 

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Section E—Offer

 

E.1   Total net proceeds and estimate of the total expenses   Not applicable. Aerkomm will not receive any proceeds from the admission to listing and trading of its Common Stock on the Professional Segment of Euronext Paris.
         
E.2a   Reasons for the Admission to Trading and Listing   The Euronext Listing is intended to promote additional liquidity for all investors and provide greater access to Aerkomm’s Common Stock among European fund managers who may be required to invest in Euro-zone markets or currencies only.
         
E.3   Terms and conditions of the offer   Not applicable, since no Shares will be offered.
         
E.4   Interests material to the Offering   Not applicable, since no Shares will be offered.
         
E.5   Lock-up arrangements   Not applicable, since no Shares will be offered.
         
E.6   Dilution resulting from the Offering   Not applicable, since no Shares will be offered.
         
E.7   Estimated expenses charged to the investor   Not applicable, since no Shares will be offered.

 

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CHAPTER B:

RISK FACTORS

 

I.BUSINESS RISK FACTORS

 

Set forth below are summaries of the risks, uncertainties and other factors that may affect our future business and results. The full description of these and other risk factors is included on pages 24 - 44 of Aerkomm’s 10-KT (Item 1A. Risk Factors).

 

If we cannot continue operations as a going concern you could lose your entire investment.

 

We have 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 nine-month period ended December 31, 2018, we incurred a comprehensive loss of $6,568,663 and had working capital deficiency of $3,117,186 as of March 31, 2019. With the $6.46 million we raised on June 27, 2019 in relation to the issuance of new shares and the $20 million in loans committed to us, the “Loans”, by two of our existing shareholders, the “Lenders”, we believe our available working capital is sufficient to sustain our current financial obligations for the next twelve months following the date of the Prospectus. Alternatively, if we succeed in raising, as part of our on-going $16.44 million public offering (of which $6.46 million have already been raised on June 27, 2019 as indicated above) an additional amount of approximately $10 million (which we expect to occur within 15 days following the date of the Prospectus), together with $5 million which may be drawn down from the Loans at any time to pay vendors, we also believe that our available working capital is sufficient to sustain our current financial obligations which, we believe, range between USD 16 to 20 million depending on the progress of our projects, for the next twelve months following the date of the Prospectus. Although we expect to raise capital from the sale of equity or debt securities in the future, there is no assurance that we will be able to do so. If we cannot continue operations as a going concern you could lose your entire investment.

 

Our company is in the development stage and has a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

 

Our company and our core business are in the development stage and faces all of the risks and uncertainties associated with a new and unproven business. We plan to launch our services in late 2019 or early 2020, initially in Europe with our launch customer MJet. The limited operating history of our business may make it difficult to accurately evaluate the business and predict its future performance. Any assessments of our current business and predictions that we or you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, and the size and nature of our market opportunity will change as we scale our business and increase deployment of our service. If we do not address any of the foregoing risks successfully, our business will be harmed.

 

Excluding non-recurring revenues in 2018 from affiliates, we have incurred operating losses in every quarter since we launched our business and may continue to incur quarterly operating losses, which could negatively affect the value of our company.

 

Excluding non-recurring revenues we earned from affiliates in the second quarter of fiscal 2018, we have incurred operating losses since our inception in 2014, and we may not be able to generate sufficient revenue in the future to generate operating income. We also expect our costs to increase materially in future periods, which could negatively affect our future operating results. We expect to continue to expend substantial financial and other resources on the continued launch and future expansion of our business. The amount and timing of these costs are subject to numerous variables and such initiatives may require additional funding. In addition, we may incur significant costs in connection with our pursuit of next generation air to ground technology or other new technologies. With respect to our expansion, such variables may include costs related to sales and marketing activities and administrative support functions, equipment subsidies to airlines and additional legal and regulatory expenses associated with operating in the international commercial aviation market. In addition, we expect to incur additional general and administrative expenses, including legal and accounting expenses, related to being a public company. These investments may not result in revenue or growth in our business. If we fail to grow our overall business and generate revenue, our financial condition and results of operations would be adversely affected.

 

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We expect to rely on a few key customers for all of our initial revenue.

 

Our initial business will be substantially dependent on our relationship with a few key airline customers. There can be no assurance that we will be able to maintain our relationship with these airlines. If we are unable to maintain and renew our relationship with these airlines, or if our arrangement is modified so that the economic terms become less favorable to us, then our business would be materially adversely affected.

 

We may lose some or all of the entire amount that we deposited towards the purchase of land in Taiwan for our first grounding station.

 

On July 10, 2018, we entered into a real estate sales contract with Tsai Ming-Yin, as seller, and Sunty Development Co., Ltd., as trustee, pursuant to which the parties agreed to definitive terms and conditions relating to the acquisition by Aerkomm Taiwan of a parcel of land located at the Taishui Grottoes in the Xinyi District of Keelung City, Taiwan. The parcel consists of approximately 6.36 acres of undeveloped land and is expected to be used by us to build our first satellite ground station and data center. The parties amended the contract on July 30, 2018, September 4, 2018, November 2, 2018, January 3, 2019. The purchase price for the parcel is NT$1,056,297,507, or US$34,474,462. Pursuant to the terms of the contract and an earlier binding memorandum of understanding that was entered into on May 1, 2018, we have made deposits totaling US$35,237,127 for this acquisition and the remaining balance is approximately US$642,462. On July 3, 2019, we paid the final payment in the amount of US$642,462 for this land purchase and are waiting for the land owner to fulfill its obligations to transfer title according to the terms of the contract.

 

Even if we have paid the full purchase price, the seller may cancel the contract for any reason upon written notice to us prior to August 4, 2019. In such case, the full amount paid by us will be returned to us, without interest, in cash or in an equivalent amount of securities if the seller does not have sufficient cash on hand to return the payments in full. Such securities will be of the kind that are traded or quoted on a US national securities exchange or the over-the-counter market or a foreign equivalent. However, on July 16, 2019, the seller has undertaken not to exercize his right to terminate the Land purchase contract which was granted to him until August 4, 2019.

 

There is no restriction on the seller utilizing the cash deposited by us and such cash is not being held in escrow. Accordingly, upon cancellation of the contract, the seller may not have any cash to return to us. As noted above, the seller may deliver securities to us instead of cash. However, the seller may not have any securities to deliver to us either. In this case, we would have to resort to litigation in Taiwan to seek a recovery of the deposited amount. Any such litigation would be costly and the results thereof uncertain. Accordingly, we could lose all or a significant portion of the cash deposited with the seller.

 

The seller has deposited the deed to the parcel with its legal counsel and has instructed such counsel to enter into an agreement with our counsel that provides for a release of the deed to us if the seller terminates the contract and does not have the cash or securities to refund the purchase price. Notwithstanding this escrow arrangement, there can be no assurance that we will be able to recover the full amount of funds deposited with the seller.

 

Furthermore, if the seller does not have sufficient cash to refund the entire deposit, the value of the securities it may deliver to us in lieu of cash is to be determined by Caijie Asset Management Co., Ltd., which is an independent third-party appraiser selected mutually by the parties. If we do not agree with the value of the securities ascribed by the appraiser, we will have limited recourse as the parties have mutually agreed upon such appraiser.

 

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If securities are delivered to us instead of cash, we may become the owner of securities of one or more companies that we did not perform any due diligence investigation upon and which we may know nothing about. Furthermore, any securities that we receive may be illiquid and we may have to hold them for an indeterminate amount of time. While holding these securities, the market value thereof may decline and we may suffer the loss of some or all of the cash deposits we have made so far.

 

If securities are delivered, such securities may ultimately become worthless and we may lose the entire amount deposited.

 

If the real estate sales contract is terminated and the seller is only able to refund the purchase price in securities rather than cash and we do not raise any additional capital, we may be left without any working capital and may not be able to continue operations.

 

The majority of our cash has been deposited with the seller towards the purchase price under the real estate sales contract described above. If the contract is terminated and we do not receive the deposit back at all, we may not have sufficient working capital to execute our business plan. We may not be able to raise additional capital in our public offering or otherwise to resolve any such working capital deficit. In such circumstance, we may not be able to operate as a going concern.

 

Our receipt of securities in a refund of the purchase price could result in our company being defined as an investment company under the Investment Company Act of 1940.

 

To date, we have made deposits under the real estate sales contract totaling US$35,237,127 and the remaining balance is US$642,462. If the seller is required to refund these deposits and does so in securities valued at the amount of our total deposits, the value of such securities would exceed forty percent (40%) of the value of our total assets, and as such, our company would be deemed to be an “investment company” as that term is defined under the Investment Company Act of 1940, as amended, or Investment Company Act. The Investment Company Act and the rules thereunder contain detailed requirements for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options, impose certain governance requirements and would require us to register separately with the SEC as an investment company. Although we are conducting our operations so that we will not be deemed to be an investment company under the Investment Company Act, if we are required to accept securities in lieu of cash for a refund of our deposits, this would cause our company to be deemed to be an investment company under the Investment Company Act and impose on us various burdensome requirements specified by the Investment Company Act. Such restrictions could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among us, our subsidiaries and our senior personnel, or any combination thereof, and materially adversely affect our business, financial condition and results of operations.

 

If the transactions contemplated by several MOUs do not proceed, our results of operations and financial condition could be materially adversely affected.

 

On January 19, 2016, January 29, 2016, June 16, 2016, September 26, 2017 and March 7, 2018, we entered into the Yahoo MOU, the LeTV MOU, the India MOU, the Malta MOU and the Airbus MOU, respectively. These MOUs are nonbinding and as a result, they only express the desires and understandings between the parties and do not create any legally binding rights, obligations or contracts except for certain customary provisions such as exclusivity, costs and expenses, confidentiality and governing law. For more information related to these MOUs, please refer to the section “MOUs and LOI with Our Business Partners.” Any binding obligation to proceed with the transactions contemplated by the MOUs would need to be included in a definitive agreement that is subject to negotiations of the parties, approvals by the board of directors of respective parties and in certain instances, approvals from regulatory authorities. The Yahoo MOU and LeTV MOU expired in January 2018, and the Global Eagle LOI expired in December 2017. We are in the process of negotiating to extend the Yahoo MOU. We do not intend to extend the LeTV MOU and the Global Eagle LOI. There can be no assurance that we will be able to extend any expired MOUs, enter into any definitive agreements or receive any required governmental approvals. If for whatever reason the transactions contemplated by the MOUs do not proceed, our results of operations and financial condition could be materially adversely affected.

 

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Also, on May 1, 2018 we entered into the binding Land Acquisition MOU and the binding Land Lease MOU. For a detailed discussion of these two binding MOUs, see “Business—Binding MOUs to Acquire and Lease Land in Taiwan for a Data Processing Center and Satellite Uplink Ground Station,” below. Although these two MOUs are binding, because they depend on certain contingencies which may never come to fruition, we can provide no assurance that we will be able to complete the transactions contemplated by these MOUs. More specifically, we may not raise sufficient funds in the offering to complete the purchase of the Taiwan ground station property or our board of directors may not approve the to-be-negotiated purchase agreement assuming we do raise the required funds. Further, assuming we do complete the Taiwan land acquisition, there can be no assurance that we will be able to successfully negotiate and sign a lease contract with the Samoan telecom company, that we will be able to generate any revenue from our ownership and lease of the land or that we will have or be able to raise sufficient funds to build our own satellite ground station and data center on the land.

 

If we cannot timely deliver our first order of onboard equipment to Klingon Aerospace Inc., our reseller and development partner, we may lose our agreement with Klingon.

 

Because of the delay in our receiving approval of the VSTC from the HKCAD, we have not been able to deliver to Klingon a ready for sale, certified onboard system equipment package. While we currently do not have a date for the approval decision of the VSTC by the HKCAD, such approval may no longer be required. Pursuant to our definitive agreement with Airbus, we expect that Airbus will provide us with an Airbus Service Bulletin for our Aerkomm K++ System in early 2020 and will apply for and obtain EASA certification for the system on our behalf. It is anticipated that the Bilateral Aviation Safety Agreement between EASA and the Civil Aviation Administration of China (CAAC) will be finalized and go into effect sometime in 2020. Once the Bilateral Agreement is finalized, it is expected that the STC approved by EASA would automatically be accepted by the CAAC as well as the HKCAD. Because we cannot be sure when and if our system will receive EASA certification, and when and if the Bilateral Agreement is finalized, we cannot be sure when, if at all, we will be able to deliver the order of onboard equipment to Klingon.

 

Klingon has the right to terminate our agreement with them upon 60 days’ prior notice, subject to a 60-day cure period, if we fail to timely deliver the certified product. If Klingon terminates its agreement with us, we may be responsible for refunding to Klingon the milestone payments that we have received.

 

We may not be able to grow our business with our current potential airline partner or successfully negotiate agreements with airlines to which we do not currently provide our service.

 

Currently, our only potential airline partner is Hong Kong Airlines, although we have not yet begun to sell our products and services to Hong Kong Airlines under our agreement with them. We are currently in negotiations or discussions with certain other airline partners to provide our IFEC services on additional aircraft in their fleets. We have no assurance that these efforts will be successful. Negotiations with prospective airline partners require substantial time, effort and resources. The time required to reach a final agreement with an airline is unpredictable and may lead to variances in our operating results from quarter to quarter. We may ultimately fail in our negotiations and any such failure could harm our results of operations due to, among other things, a diversion of our focus and resources, actual costs and opportunity costs of pursuing these opportunities. In addition, the terms of any future agreements could be materially different and less favorable to us than the terms included in our existing agreement with Hong Kong Airlines. To the extent that any negotiations with current or future potential airline partners are unsuccessful, or any new agreements contain terms that are less favorable to us, our growth prospects could be materially and adversely affected.

 

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We will likely need additional financing to execute our business plan or new initiatives, which we may not be able to secure on acceptable terms, or at all.

 

We will require additional financing in the near and long term to fully execute our business plan. Our success may depend on our ability to raise such additional financing on reasonable terms and on a timely basis. Conditions in the economy and the financial markets may make it more difficult for us to obtain necessary additional capital or financing on acceptable terms, or at all. If we cannot secure sufficient additional financing, we may be forced to forego strategic opportunities or delay, scale back or eliminate additional service deployment, operations and investments or employ internal cost savings measures. Furthermore, we will be forced to take some or all of these measures if we do not raise sufficient funds in our public offering, the successful completion of which we cannot guarantee.

 

We are dependent on airline partners to be able to access our customers. We expect that future payments by these customers for our services to be provided to them will account for most, if not all, of our initial revenues.

 

Under our existing contract with Hong Kong Airlines, once our VSTC is approved by the HKCAD, we will provide our equipment for installation on, and provide our services to passengers on, a portion of the aircraft operated by this airline. We expect to enter into similar contracts with other airlines in the future but there is no assurance that we will be successful in signing up additional airline partners. We expect that revenue from passengers using our service while flying on aircraft operated by our airline partners will account for the majority of our projected initial revenue once we begin our services. As of the date of this report, we do not yet have any revenue from equipment sales and installation. Our growth will be dependent on our ability to have our equipment installed on the aircraft of airline partners and increased use of our service on installed aircraft. Any delays in installations under these contracts may negatively affect our ability to grow our user base and revenue.

 

A failure to maintain airline satisfaction with our equipment or our service could have a material adverse effect on our revenue and results of operations.

 

Our relationships with our current and future potential airline partners are critical to the growth and ongoing success of our business. If airline partners are not satisfied with our equipment or our service for any reason, including passenger dissatisfaction with the service as a result of capacity constraints, they may reduce efforts to co-market our service to their passengers, which could result in lower passenger usage and reduced revenue, which could in turn give airline partners the right to terminate their contracts with us. In addition, airline dissatisfaction with us for any reason, including delays in obtaining certification for or installing our equipment, could negatively affect our ability to expand our service to additional airline partners or aircraft or lead to claims for damages, which may be material, or termination rights under our existing or potential contracts with airline partners.

 

We are experiencing network capacity constraints in our operation region and expect capacity demands to increase, and we may in the future experience capacity constraints internationally. If we are unable to successfully implement planned or future technology enhancements to increase our network capacity, or our airline partners do not agree to such enhancements, our ability to maintain sufficient network capacity and our business could be materially and adversely affected.

 

All providers of wireless connectivity services, including all providers of in-flight connectivity services, face certain limits on their ability to provide connectivity service, including escalating capacity constraints due to expanding consumption of wireless services and the increasing prevalence of higher bandwidth uses such as file downloads and streaming media content. The success of our business depends on our ability to provide adequate bandwidth to meet customer demands while in-flight.

 

Competition from a number of companies, as well as other market forces, could result in price reduction, reduced revenue and loss of market share and could harm our results of operations.

 

We face strong competition from satellite-based providers of broadband services that include in-flight internet and live television services. Competition from such providers has had in the past and could have in the future an adverse effect on our ability to maintain or gain market share. Most of our competitors are larger, more diversified corporations and have greater financial, marketing, production, and research and development resources. As a result, they may be better able to withstand the effects of periodic economic downturns or may offer a broader product line to customers. In addition, to the extent that competing in-flight connectivity services offered by commercial airlines that are not our airline partners are available on more aircraft or offer improved quality or reliability as compared to our service, our business and results of operations could be adversely affected. Competition could increase our sales and marketing expenses and related customer acquisition costs. We may not have the financial resources, technical expertise or marketing and support capabilities to continue to compete successfully. A failure to effectively respond to established and new competitors could have a material adverse impact on our business and results of operations.

 

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We may be unsuccessful in generating revenue from live television and other in-flight entertainment services.

 

We are currently developing a host of service offerings to deliver to our future commercial airline customers. We plan to offer live television and other service to our customers and no assurance can be given that we will ultimately be able to launch any channels or provide any service. Additionally, we plan to generate a revenue stream from our video on demand and other in-flight entertainment services. If we are unable to generate revenue from live television or if other entertainment services do not ultimately develop, our growth and financial prospects would be materially adversely impacted.

 

We are working to acquire a sufficient number of on-demand movies and television shows and a variety of other content on our system. The future growth prospects for our business depend, in part, on revenue from advertising fees and e-commerce revenue share arrangements on passenger purchases of goods and services, including video and media services. Our ability to generate revenue from these service offerings depends on:

 

growth of commercial airline customer base;

 

the attractiveness of our customer base to media partners;

 

rolling out live television and media on demand on more aircraft and with additional airline customers and increasing passenger adoption both in the U.S. and abroad;

 

establishing and maintaining beneficial contractual relationships with media partners whose content, products and services are attractive to airline passengers; and

 

our ability to customize and improve our service offerings in response to trends and customer interests.

 

If we are unsuccessful in generating revenue from our service offerings, that failure could have a material adverse effect on our growth prospects.

 

We face limitations on our ability to grow our operations which could harm our operating results and financial condition.

 

We have not yet begun selling our products or services to our future customers.  Our addressable market and our ability to expand in our operating region is inherently limited by various factors, including limitations on the number of commercial airlines with which we could partner, the number of planes in which our equipment can be installed, the passenger capacity within each plane and the ability of our network infrastructure or bandwidth to accommodate increasing capacity demands. Future expansion is also limited by our ability to develop new technologies on a timely and cost-effective basis, as well as our ability to mitigate network capacity constraints through, among other things, the expansion of our satellite coverage area. Our future growth may slow, or once we begin selling products and services to our customers, we may stop growing altogether, to the extent that we have exhausted all potential airline partners and as we approach installation on full fleets and maximum penetration rates on all flights. In order to grow our future revenue, we will have to rely on customer and airline partner adoption of currently available and new or developing services and additional offerings. We cannot assure you that we will be able to obtain a market presence or establish new markets and, if we fail to do so, our business and results of operations could be materially adversely affected.

 

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We may be unsuccessful in expanding our operations internationally.

 

Our business will initially be international business. Our ability to grow our international business involves various risks, including the need to invest significant resources in unfamiliar markets and the possibility that we may not realize a return on our investments in the near future or at all. In addition, we have incurred and expect to continue to incur significant expenses before we generate any material revenue in these new markets. Under our agreements with providers of satellite capacity, we are obligated to purchase bandwidth for specified periods in advance. If we are unable to generate sufficient passenger demand or airline partners to which we provide satellite service to their aircraft terminate their agreements with us for any reason during these periods, we may be forced to incur satellite costs in excess of connectivity revenue generated through such satellites.

 

Any future international operations may fail to succeed due to risks inherent in foreign operations, including:

 

legal and regulatory restrictions, including different communications, privacy, censorship, aerospace and liability standards, intellectual property laws and enforcement practices;

 

changes in international regulatory requirements and tariffs;

 

restrictions on the ability of U.S. companies to do business in foreign countries, including restrictions on foreign ownership of telecommunications providers imposed by the U.S. Office of Foreign Assets Control, which we refer to as OFAC;

 

inability to find content or service providers to partner with on commercially reasonable terms, or at all;

 

compliance with the Foreign Corrupt Practices Act, the (U.K.) Bribery Act 2010 and other similar corruption laws and regulations in the jurisdictions in which we operate and related risks;

 

difficulties in staffing and managing foreign operations;

 

currency fluctuations; and

 

potential adverse tax consequences.

 

As a result of these obstacles, we may find it difficult or prohibitively expensive to grow our business internationally or we may be unsuccessful in our attempt to do so, which could harm our future operating results and financial condition.

 

We may not be successful in our efforts to develop and monetize new products and services that are currently in development, including our operations-oriented communications services.

 

In order to continue to meet the evolving needs of our future airline partners and customers, we must continue to develop new products and services that are responsive to those needs. Our ability to realize the benefits of enabling airlines, other aircraft operators and to use these applications, including monetizing our services at a profitable price point, depends, in part, on the adoption and utilization of such applications by airlines, other aircraft operators and other companies in the aviation industry such as aircraft equipment suppliers, and we cannot be certain that airlines, other aircraft operators and others in the aviation industry will adopt such offerings in the near term or at all. We also expect to continue to rely on third parties to develop and offer the operational applications to be used to gather and process data transmitted on our network between the aircraft and the ground, and we cannot be certain that such applications will be compatible with our network or onboard equipment or otherwise meet the needs of airlines or other aircraft operators. If we are not successful in our efforts to develop and monetize new products and services, including our operations-oriented communications services, our future business prospects, financial condition and results of operations would be materially adversely affected.

 

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A future act or threat of terrorism or other events could result in a prohibition on the use of Wi-Fi enabled devices on aircraft.

 

A future act of terrorism, the threat of such acts or other airline accidents could have an adverse effect on the airline industry. In the event of a terrorist attack, terrorist threats or unrelated airline accidents, the industry would likely experience significantly reduced passenger demand. The U.S. federal government or foreign governments could respond to such events by prohibiting the use of Wi-Fi enabled devices on aircraft, which would eliminate demand for our equipment and service. In addition, any association or perceived association between our equipment or service and accidents involving aircraft on which our equipment or service operates would likely have an adverse effect on demand for our equipment and service. Reduced demand for our products and services would adversely affect our business prospects, financial condition and results of operations.

 

If our efforts to retain and attract customers are not successful, our revenue will be adversely affected.

 

We expect to generate substantially all of our revenue from sales of services, some of which will be on a subscription basis. We must be able to retain subscribers and attract new and repeat customers. If we are unable to effectively retain subscribers and attract new and repeat customers, our business, financial condition and results of operations would be adversely affected.

 

Unreliable service levels, lack of sufficient capacity, uncompetitive pricing, lack of availability, security risk and lack of related features of our equipment and services are some of the factors that may adversely impact our ability to retain customers and partners and attract new and repeat customers. If our customers are able to satisfy their in-flight entertainment needs through activities other than broadband internet access, at no or lower cost, they may not perceive value in our products and services. If our efforts to satisfy and retain customers and subscribers are not successful, we may not be able to attract new customers through word-of-mouth referrals. Any of these factors could cause our customer growth rate to fall, which would adversely impact our business, financial condition and results of operations.

 

The demand for in-flight broadband internet access service may decrease or develop more slowly than we expect. We cannot predict with certainty the development of the U.S. or international in-flight broadband internet access market or the market acceptance for our products and services.

 

Our future success depends upon growing demand for in-flight broadband internet access services, which is inherently uncertain. We have invested significant resources towards the roll-out of new service offerings, which represent a substantial part of our growth strategy. We face the risk that the U.S. and international markets for in-flight broadband internet access services may decrease or develop more slowly or differently than we currently expect, or that our services, including our new offerings, may not achieve widespread market acceptance. We may be unable to market and sell our services successfully and cost-effectively to a sufficiently large number of customers.

 

Our business depends on the continued proliferation of Wi-Fi as a standard feature in mobile devices. The growth in demand for in-flight broadband internet access services also depends in part on the continued and increased use of laptops, smartphones, tablet computers, and other Wi-Fi enabled devices and the rate of evolution of data-intensive applications on the mobile internet. If Wi-Fi ceases to be a standard feature in mobile devices, if the rate of integration of Wi-Fi on mobile devices decreases or is slower than expected, or if the use of Wi-Fi enabled devices or development of related applications decreases or grows more slowly than anticipated, the market for our services may be substantially diminished.

 

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Increased costs and other demands associated with our growth could impact our ability to achieve profitability over the long term and could strain our personnel, technology and infrastructure resources.

 

We expect our costs to increase in future periods, which could negatively affect our future operating results. We expect to experience growth in our headcount and operations, which will place significant demands on our management, administrative, technological, operational and financial infrastructure. Anticipated future growth will require the outlay of significant operating and capital expenditures and will continue to place strains on our personnel, technology and infrastructure. Our success will depend in part upon our ability to contain costs with respect to growth opportunities. To successfully manage the expected growth of our operations, on a timely and cost-effective basis we will need to continue to improve our operational, financial, technological and management controls and our reporting systems and procedures. In addition, as we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, and we must maintain the beneficial aspects of our corporate culture. If we fail to successfully manage our growth, it could adversely affect our business, financial condition and results of operations.

 

Adverse economic conditions may have a material adverse effect on our business.

 

Macro-economic challenges are capable of creating volatile and unpredictable environments for doing business. We cannot predict the nature, extent, timing or likelihood of any economic slowdown or the strength or sustainability of any economic recovery, worldwide, in the United States or in the airline industry. For many travelers, air travel and spending on in-flight internet access are discretionary purchases that they can eliminate in difficult economic times. Additionally, a weaker business environment may lead to a decrease in overall business travel, which is an important contributor to our service revenue. These conditions may make it more difficult or less likely for customers to purchase our equipment and services. If economic conditions in the United States or globally deteriorate further or do not show improvement, we may experience material adverse effects to our business, cash flow and results of operations.

 

Our operating results may fluctuate unpredictably and may cause us to fail to meet the expectations of investors, adversely affecting our stock price.

 

We operate in a highly dynamic industry and our future quarterly operating results may fluctuate significantly. Our future revenue and operating results may vary from quarter to quarter due to many factors, many of which are not within our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Further, it is difficult to accurately forecast our revenue, margin and operating results, and if we fail to match our expected results or the results expected by financial analysts or investors, the future trading price of our common stock may be adversely affected.

 

In addition, due to generally lower demand for business travel during the summer months and holiday periods, and leisure and other travel at other times during the year, our quarterly results may not be indicative of results for the full year. Due to these and other factors, quarter-to-quarter comparisons of our historical operating results should not be relied upon as accurate indicators of our future performance.

 

If our marketing and advertising efforts fail to generate revenue on a cost-effective basis, or if we are unable to manage our marketing and advertising expenses, it could harm our results of operations and growth.

 

Our future growth and profitability, as well as the maintenance and enhancement of our brands, will depend in large part on the effectiveness and efficiency of our future marketing and advertising expenditures. We plan to use a diverse mix of television, print, trade show and online marketing and advertising programs to promote our business. Significant increases in the pricing of one or more of our marketing and advertising channels could increase our expenses or cause us to choose less expensive, but potentially less effective, marketing and advertising channels. In addition, to the extent we implement new marketing and advertising strategies, we may in the future have significantly higher expenses. We may in the future incur, marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses, and our marketing and advertising expenditures may not result in increased revenue or generate sufficient levels of brand awareness. If we are unable to maintain our marketing and advertising channels on cost-effective terms, our marketing and advertising expenses could increase substantially, our customer levels could be affected adversely, and our business, financial condition and results of operations may suffer.

 

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Regulation by United States and foreign government agencies, including the FAA and the FCC, may increase our costs of providing service or require us to change our services.

 

We are subject to various regulations, including those regulations promulgated by various federal, state and local regulatory agencies and legislative bodies and comparable agencies outside the United States where we may do business. The two U.S. government agencies that have primary regulatory authority over our operations are the FAA and the FCC.

 

The commercial and private aviation industries, including civil aviation manufacturing and repair industries, are highly regulated in the United States by the FAA. FAA certification is required for all equipment we install on commercial aircraft and type certificated business aircraft, and certain of our operating activities require that we obtain FAA certification as a parts manufacturer. As discussed in more detail in “Item 1. Business—Regulation—Federal Aviation Administration,” FAA approvals required to operate our business include STCs and PMAs. Obtaining STCs and PMAs is an expensive and time-consuming process that requires significant focus and resources. Any inability to obtain, delay in obtaining, or change in, needed FAA certifications, authorizations, or approvals, could have an adverse effect on our ability to meet our installation commitments, manufacture and sell parts for installation on aircraft, or expand our business and could, therefore, materially adversely affect our growth prospects, business and operating results. The FAA closely regulates many of our operations. If we fail to comply with the FAA’s many regulations and standards that apply to our activities, we could lose the FAA certifications, authorizations, or other approvals on which our manufacturing, installation, maintenance, preventive maintenance, and alteration capabilities are based. In addition, from time to time, the FAA or comparable foreign agencies adopt new regulations or amend existing regulations. The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our business. To the extent that any such new regulations or amendments to existing regulations or policies apply to our activities, those new regulations or amendments to existing regulations generally increase our costs of compliance.

 

As a broadband Internet provider, we must comply with the CALEA, which requires communications carriers to ensure that their equipment, facilities and services can accommodate certain technical capabilities in executing authorized wiretapping and other electronic surveillance. Currently, our CALEA solution is being deployed in our network. However, we could be subject to an enforcement action by the FCC or law enforcement agencies for any delays related to meeting, or if we fail to comply with, any current or future CALEA, or similarly mandated law enforcement related, obligations. Such enforcement actions could subject us to fines, cease and desist orders, or other penalties, all of which could adversely affect our business. Further, to the extent the FCC adopts additional capability requirements applicable to broadband Internet providers, its decision may increase the costs we incur to comply with such regulations.

 

In addition to these U.S. agencies, we are also subject to regulation by foreign government agencies that choose to assert jurisdiction over us as a result of the service we provide on aircraft that fly international routes. Adverse decisions or regulations of these U.S. and foreign regulatory bodies could negatively impact our operations and costs of doing business and could delay the roll-out of our services and have other adverse consequences for us. Our ability to obtain certain regulatory approvals to offer our services internationally may also be the responsibility of a third- party, and, therefore, may be out of our control. We are unable to predict the scope, pace or financial impact of regulations and other policy changes that could be adopted by the various governmental entities that oversee portions of our business.

 

If government regulation of the Internet, including e-commerce or online video distribution changes, we may need to change the way we conduct our business to a manner that incurs greater operating expenses, which could harm our results of operations.

 

The current legal environment for Internet communications, products and services is uncertain and subject to statutory, regulatory or interpretive change. We cannot be certain that we, our vendors and media partners or our customers are currently in compliance with applicable regulatory or other legal requirements in the countries in which our service is used. Our failure, or the failure of our vendors and media partners, customers and others with whom we transact business to comply with existing or future legal or regulatory requirements could materially adversely affect our business, financial condition and results of operations. Regulators may disagree with our interpretations of existing laws or regulations or the applicability of existing laws or regulations to our business, and existing laws, regulations and interpretations may change in unexpected ways.

 

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For example, our mobile wireless broadband Internet access services were previously classified as information services, and not as telecommunications services. Therefore, these services were not subject to FCC common carrier regulation. However, effective June 12, 2015, the FCC reclassified mobile (and fixed) broadband Internet access services as Title II telecommunications services pursuant to the Open Internet Order. The Open Internet Order also adopted broad new net neutrality rules. For example, broadband providers may not block access to lawful content, applications, services, or non-harmful devices. Broadband providers also may not impair or degrade lawful Internet traffic on the basis of content, applications, services, or non-harmful devices. In addition, broadband providers may not favor some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind, and they may not prioritize the content and services of their affiliates. Other than for paid prioritization, the rules contain an exception for “reasonable network management.” The Open Internet Order recognizes that whether a network management practice is reasonable varies according to the broadband technology involved and may provide more flexibility to implement network management practices in the context of our capacity-constrained air-to-ground and satellite broadband networks.

 

Other jurisdictions may adopt similar or different regulations that could affect our ability to use “network management” techniques. Likewise, the United States and the European Union, among other jurisdictions, are considering proposals regarding data protection that, if adopted, could impose heightened restrictions on certain of our activities relating to the collection and use of data of end users. Further, as we promote exclusive content and services and increase targeted advertising with our media partners to customers of our services, we may attract increased regulatory scrutiny.

 

We cannot be certain what positions regulators may take regarding our compliance with, or lack of compliance with, current and future legal and regulatory requirements or what positions regulators may take regarding any past or future actions we have taken or may take in any jurisdiction. Regulators may determine that we are not in compliance with legal and regulatory requirements, and impose penalties, or we may need to make changes to our services, which could be costly and difficult. Any of these events would adversely affect our operating results and business.

 

Our possession and use of personal information and the use of credit cards by our customers present risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.

 

Maintaining our network security is of critical importance because our online systems will store confidential registered user, employee and other sensitive data, such as names, email addresses, addresses and other personal information. We will depend on the security of our networks and the security of the network infrastructures of our third-party telecommunications service providers, our customer support providers and our other vendors. Unauthorized use of our, or our third-party service providers’, networks, computer systems and services could potentially jeopardize the security of confidential information, including credit card information, of our future customers. There can be no assurance that any security measures we, or third parties, take will be effective in preventing these activities. As a result of any such breaches, customers may assert claims of liability against us as a result of any failure by us to prevent these activities. Further, our in-cabin network operates as an open, unsecured Wi-Fi hotspot, and non-encrypted transmissions users send over this network may be vulnerable to access by users on the same plane. These activities may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our services, all of which could have a material adverse effect on our business prospects, financial condition and results of operations.

 

Failure to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject us to liabilities imposed by United States federal and state regulatory agencies or courts. For example, the CPNI rules applicable to our satellite-based offerings, require us to comply with a range of marketing and privacy safeguards. The FTC could assert jurisdiction to impose penalties related our service if it found our privacy policies or security measures to be inadequate under existing federal law. We could also be subject to certain state laws that impose data breach notification requirements, specific data security obligations, or other consumer privacy-related requirements. Our failure to comply with any of these rules or regulations could have an adverse effect on our business, financial condition and results of operations.

 

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Other countries in which we may operate or from which our services may be offered, including those in the European Union, also have certain privacy and data security requirements that may apply to our business, either now or in the future. These countries’ laws may in some cases be more stringent than the requirements in the United States. For example, European Union member countries have specific requirements relating to cross border transfers of personal information to certain jurisdictions, including to the United States. In addition, some countries have stricter consumer notice and/or consent requirements relating to personal information collection, use or sharing. Moreover, international privacy and data security regulations may become more complex. For example, the European Parliament and the Council have adopted Regulation (EU) 2016/679 dated 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data. Our failure to comply with other countries’ privacy or data security-related laws, rules or regulations could also have an adverse effect on our business, financial condition and results of operations.

 

In addition, our customers will use credit cards to purchase our products and services. Problems with our or our vendors billing software could adversely affect our customer satisfaction and could cause one or more of the major credit card companies to disallow our continued use of their payment services. In addition, if our billing software fails to work properly and, as a result, we do not automatically charge our subscribers’ credit cards on a timely basis or at all, our business, financial condition and results of operations could be adversely affected.

 

We depend upon third parties to manufacture equipment components and to provide services for our network.

 

We rely on third-party suppliers for equipment components that we use to provide our services. The supply of third- party components could be interrupted or halted by a termination of our relationships, a failure of quality control or other operational problems at such suppliers or a significant decline in their financial condition. If we are not able to continue to engage suppliers with the capabilities or capacities required by our business, or if such suppliers fail to deliver quality products, parts, equipment and services on a timely basis consistent with our schedule, our business prospects, financial condition and results of operations could be adversely affected.

 

We may fail to recruit, train and retain the highly skilled employees that are necessary to remain competitive and execute our growth strategy. The loss of one or more of our key personnel could harm our business.

 

Competition for key technical personnel in high-technology industries such as ours is intense. We believe that our future success depends in large part on our continued ability to hire, train, retain and leverage the skills of qualified engineers and other highly skilled personnel needed to maintain and grow our business and technology. We may not be as successful as our competitors at recruiting, training, retaining and utilizing these highly skilled personnel. In particular, we may have more difficulty attracting or retaining highly skilled personnel during periods of poor operating performance. Any failure to recruit, train and retain highly skilled employees could negatively impact our business and results of operations.

 

We depend on the continued service and performance of our key personnel, including Jeffrey Wun, our Chairman, Chief Executive Officer and President. Mr. Wun became our Chief Executive Officer and President effective December 31, 2017 and was appointed Chairman on January 22, 2018. Mr. Wun replaced Peter Chiou who was replaced from these positions and who we expect will become a consultant to the Company for a short period of time. Such individuals have acquired specialized knowledge and skills with respect to our operations. As a result, if any of these individuals were to leave us, we could face substantial difficulty in hiring qualified successors and could experience a loss of productivity while any such successor obtains the necessary training and expertise. We do not maintain key man insurance on any of our officers or key employees. In addition, much of our key technology and systems are custom-made for our business by our personnel. The loss of key personnel, including key members of our management team, as well as certain of our key marketing or technology personnel, could disrupt our operations and have an adverse effect on our ability to grow our business.

 

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We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our common stock.

 

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

 

A report of our management is included under “Item 9A. Controls and Procedures.” We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual transition report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.

 

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2018, management identified a material weakness. The material weakness was associated with our lack of sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements and our need to rely heavily on the use of external legal and accounting professionals to mitigate these deficiencies. We are undertaking remedial measures, which measures will take time to implement and test, to address this material weakness. There can be no assurance that such measures will be sufficient to remedy the material weakness identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.

 

Previous actions of our co-founder, Daniel Shih, could give rise to reputational issues that could negatively affect our business and, thus, your investment in our company.

 

One of our co-founders, Daniel Shih, who no longer has any equity interests in our company (whether held directly or indirectly) nor any position with our company, was given a suspended sentence and a fine in Taiwan for attempting to influence stock prices in Taiwan in an unrelated company. Under Taiwanese law, this means that he has no imprisonment to be executed in Taiwan today, and does not and will not have any criminal record unless he violates the conditions of his suspended sentence. Although this person no longer has any equity interest in our company, nor any position with our company, there may be reputational issues due to his past involvement which could have a material adverse effect on our business, financial condition, operations, results of operations and prospects. Any of these outcomes could negatively affect your investment in our company.

 

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We believe our business depends on strong brands, and if we do not develop, maintain and enhance our brand, our ability to gain new customers and retain customers may be impaired.

 

We believe that our brands will be a critical part of our business. We expect to collaborate extensively with our future airline partners on the look and feel of the in-flight homepage that their passengers encounter when logging into our service in flight. In order to maintain strong relationships with our airline partners, we may have to reduce the visibility of our brand or make other decisions that do not promote and maintain our brand. In addition, many of our trademarks contain words or terms having a somewhat common usage and, as a result, we may have trouble registering or protecting them in certain jurisdictions. If we fail to promote and maintain our brand, or if we incur significant expenses to promote the brands and are still unsuccessful in maintaining strong brands, our business prospects, financial condition and results of operations may be adversely affected.

 

Businesses or technologies we acquire could prove difficult to integrate, disrupt our ongoing business, dilute stockholder value or have an adverse effect on our results of operations.

 

As part of our business strategy, we may engage in acquisitions of businesses or technologies to augment our organic or internal growth. We do not have any relevant experience with integrating and managing acquired businesses or assets. Acquisitions involve challenges and risks in negotiation, execution, valuation and integration. Moreover, we may not be able to find suitable acquisition opportunities on terms that are acceptable to us. Even if successfully negotiated, closed and integrated, certain acquisitions may not advance our business strategy, may fall short of expected return-on-investment targets or may fail. Any future acquisition could involve numerous risks, including:

 

potential disruption of our ongoing business and distraction of management;

 

difficulty integrating the operations and products of the acquired business;

 

use of cash to fund the acquisition or for unanticipated expenses;

 

limited market experiences in new businesses;

 

exposure to unknown liabilities, including litigation against the companies we acquire;

 

additional costs due to differences in culture, geographical locations and duplication of key talent;

 

delays associated with or resources being devoted to regulatory review and approval;

 

acquisition-related accounting charges affecting our balance sheet and operations;

 

difficulty integrating the financial results of the acquired business in our consolidated financial statements;

 

controls in the acquired business;

 

potential impairment of goodwill;

 

dilution to our current stockholders from the issuance of equity securities; or

 

potential loss of key employees or customers of the acquired company.

 

In the event that we enter into any acquisition agreements, closing of the transactions could be delayed or prevented by regulatory approval requirements, including antitrust review, or other conditions. We may not be successful in addressing these risks or any other problems encountered in connection with any attempted acquisitions, and we could assume the economic risks of such failed or unsuccessful acquisitions.

 

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Expenses or liabilities resulting from litigation could adversely affect our results of operations and financial condition.

 

From time to time, we may be subject to claims or litigation in the ordinary course of our business, including for example, claims related to employment matters and class action lawsuits. Our operations are characterized by the use of new technologies and services across multiple jurisdictions that implicate a number of statutory schemes and a range of rules and regulations that may be subject to broad or creative interpretation, which may subject to us to litigation, including class action lawsuits, the outcome of which may be difficult to assess or quantify due to the potential ambiguity inherent in these regulatory schemes and/or the nascence of our technologies and services. Plaintiffs in these types of litigation may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. Any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our products and services, or have other adverse effects on our business. Any of the foregoing could have a material adverse effect on our results of operations and could require us to pay significant monetary damages. In addition, costly and time-consuming litigation could be necessary to enforce our existing contracts and, even if successful, could have an adverse effect on us. In addition, prolonged litigation against any airline partner, customer or supplier could have the effect of negatively impacting our reputation and goodwill with existing and potential airline partners, customers and suppliers.

 

Technological advances may harm our business.

 

Due to the widening use of state-of-the-art, personal electronic devices such as Apple’s iPad, ever-increasing numbers of passengers have their own mobile devices, which they might use to bring their own content such as movies, music or games with them on a flight. This could decrease demand for our in-flight offerings. Carriers now also have greater technical means at their disposal to offer passengers in-flight access to the Internet, including through our offerings and those of our competitors. At present, these offerings do not allow passengers to fully stream content on their mobile devices. If, however, in-flight Internet access in the future allows passengers to fully stream content on their mobile devices, this could decrease demand for our in-flight offerings. While both trends will give rise to risks as well as opportunities for us, it is impossible to foresee at present whether and, if so, to what extent these trends will have lasting effects. Note, too, that the in-flight entertainment systems currently in place are unable to support these developments. Given average useful lives of 15 to 20 years, the conventional systems will continue to dominate the in-flight entertainment industry for the foreseeable future. As a result, possible changes will happen slowly, giving all market players sufficient time to adapt.

 

We may have exposure to foreign currency risks in the future and our future hedging activities could create losses.

 

Currency risks essentially arise from the fact that sales to customers and purchasing are effected in one currency while fixed costs are incurred in other currencies. If necessary, we will engage in hedging transactions to counteract direct currency risks. However, we cannot always guarantee that all currency risks will have been hedged in full. Severe currency fluctuations could also cause the hedging transactions to fail if agreed thresholds (triggers) are not met or exceeded. We therefore cannot fully preclude negative foreign currency effects in the future - some of which might be substantial - due to unforeseen exchange rate fluctuations and/or inaccurate assessments of market developments.

 

We will source our content from studios, distributors and other content providers, and any reduction in the volume of content produced by such content providers could hurt our business by providing us with less quality content to choose from and resulting in potentially less attractive offerings for passengers.

 

We will receive content from studios, distributors and other content providers, and in some circumstances, we will depend on the volume and quality of the content that these content providers produce. If studios, distributors or other content providers were to reduce the volume or quality of content they make available to us over any given time period, whether because of their own financial limitations or other factors influencing their businesses, we would have less quality content to choose from and our programmers would have more difficulty finding relevant and appropriate content to provide to our customers. This could negatively impact the passenger experience, which could in turn reduce the demand for our offerings, which would have a negative impact on our revenue and results of operations.

 

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We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.

 

Currently, we are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The ability of our subsidiaries to generate sufficient cash flow from future operations to allow us and them to make scheduled payments on our obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. We cannot assure you that the cash flow and future earnings of our operating subsidiaries will be adequate for our subsidiaries to service their debt obligations. If our subsidiaries do not generate sufficient cash flow from future operations to satisfy corporate obligations, we may have to: undertake alternative financing plans (such as refinancing), restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. We cannot assure you that any such alternative refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy our obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations. Furthermore, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries from making distributions, paying dividends or making loans to us.

 

Risks Relating to our Industry

 

Our business is highly dependent on the airline industry, which is itself affected by factors beyond the airlines’ control. The airline industry is highly competitive and sensitive to changing economic conditions.

 

Our business is directly affected by the number of passengers flying on commercial aircraft, the financial condition of the airlines and other economic factors. If consumer demand for air travel declines, including due to increased use of technology such as videoconferencing for business travelers, or the number of aircraft and flights shrinks due to, among other reasons, reductions in capacity by airlines, the number of passengers available to use our service will be reduced, which would have a material adverse effect on our business and results of operations. Unfavorable general economic conditions and other events that are beyond the airlines’ control, including higher unemployment rates, higher interest rates, reduced stock prices, reduced consumer and business spending, terrorist attacks or threats and pandemics could have a material adverse effect on the airline industry. A general reduction or shift in discretionary spending can result in decreased demand for leisure and business travel and lead to a reduction in airline flights offered and the number of passengers flying. Further, unfavorable economic conditions could also limit airlines’ ability to counteract increased fuel, labor or other costs though raised prices. Our airline partners operate in a highly competitive business market and, as a result, continue to face pressure on offerings and pricing. These unfavorable conditions and the competitiveness of the air travel industry could cause one or more of our airline partners to reduce expenditures on passenger services including deployment of our service or file for bankruptcy. Any of these events would have a material adverse effect on our business prospects, financial condition and results of operations.

 

Air traffic congestion at airports, air traffic control inefficiencies, weather conditions, such as hurricanes or blizzards, increased security measures, new travel-related taxes, the outbreak of disease or any other similar event could harm the airline industry.

 

Airlines are subject to cancellations or delays caused by factors beyond their control. Cancellations or delays due to weather conditions or natural disasters, air traffic control problems, breaches in security or other factors could reduce the number of passengers on commercial flights and thereby reduce demand for the services provided by us and our products and services and harm our businesses, results of operations and financial condition.

 

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Risks Relating to our Technology and Intellectual Property

 

We could be adversely affected if we suffer service interruptions or delays, technology failures or damage to our equipment.

 

Our reputation and ability to attract, retain and serve our future commercial airline customers will depend upon the reliable performance of our satellite transponder capacity, network infrastructure and connectivity system. We have experienced interruptions in these systems in the past, including component and service failures that temporarily disrupted users’ access to the Internet, and we may experience service interruptions, service delays or technology or systems failures in the future, which may be due to factors beyond our control. If we experience frequent system or network failures, our reputation could be harmed and our future airline customers may have the right to terminate their contracts with us or pursue other remedies.

 

Our operations and services will depend upon the extent to which our equipment and the equipment of our third-party network providers is protected against damage from fire, flood, earthquakes, power loss, solar flares, telecommunication failures, computer viruses, break-ins, acts of war or terrorism and similar events. Damage to our networks could cause interruptions in the services that we will provide, which could have a material adverse effect on service revenue, our reputation and our ability to attract or retain customers.

 

We rely on service providers for certain critical components of and services relating to our satellite connectivity network.

 

We currently source key components of our hardware, including the aircraft installed satellite antenna, from third parties and key aspects of our connectivity services, including all of our satellite transponder services from SKY Perfect JSAT Corporation. While we have written contracts with these key component and service providers, if we experience a disruption in the delivery of products and services from either of these providers, it may be difficult for us to continue providing our own products and services to our customers. We have experienced component delivery issues in the past and there can be no assurance that it will avoid similar issues in the future. Additionally, the loss of the exclusive source protections that we have with our hardware provider could eliminate our competitive advantage in the use of satellites for in-flight connectivity, which could have a material adverse effect on our business and operations.

 

Assertions by third parties of infringement, misappropriation or other violation by us of their intellectual property rights could result in significant costs and substantially harm our business and operating results.

 

In recent years, there has been significant litigation involving intellectual property rights in many technology-based industries, including the wireless communications industry. Any infringement, misappropriation or related claims, whether or not meritorious, is time-consuming, diverts technical and management personnel and is costly to resolve. As a result of any such dispute, we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing certain products or services or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us. Certain of our suppliers do not provide indemnity to us for the use of the products and services that these providers supply to us. At the same time, we generally offer third-party intellectual property infringement indemnity to our customers which, in some cases, does not cap our indemnity obligations and thus could render us liable for both defense costs and judgments. Any of these events could result in increases in operating expenses, limit our service offerings or result in a loss of business if we are unable to meet our indemnification obligations and our airline customers terminate or fail to renew their contracts.

 

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We may not be able to protect our intellectual property rights.

 

We regard our trademarks, service marks, copyrights, patents, trade secrets, proprietary technologies, domain names and similar intellectual property as important to our success. We rely on trademark, copyright and patent law, trade secret protection and confidentiality agreements with our employees, vendors, airline customers, customers and others to protect our proprietary rights. We have sought and obtained patent protection for certain of our technologies in the United States and certain other countries. Many of the trademarks that we use contain words or terms having a somewhat common usage and, as a result, we may have difficulty registering them in certain jurisdictions. We have not yet obtained registrations for our most important marks in all markets in which we may do business in the future, including countries in Asia, Africa and the Middle East. If other companies have registered or have been using in commerce similar trademarks for services similar to ours in foreign jurisdictions, we may have difficulty in registering, or enforcing an exclusive right to use, our marks in those foreign jurisdictions.

 

There can be no assurance that our efforts to protect our proprietary rights will be sufficient or effective, that any pending or future patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated, misappropriated or infringed by others. Additionally, the intellectual property laws and enforcement practices of other countries in which our service is or may in the future be offered may not protect our products and intellectual property rights to the same extent as the laws of the United States. If we are unable to protect our intellectual property from unauthorized use, our brand image may be harmed and our business and results of operations may suffer.

 

Our use of open source software could limit our ability to commercialize our technology.

 

Open source software is software made widely and freely available to the public in human-readable source code form, usually with liberal rights to modify and improve such software. Some open source licenses require as a condition of use that proprietary software that is combined with licensed open source software and distributed must be released to the public in source code form and under the terms of the open source license. Accordingly, depending on the manner in which such licenses were interpreted and applied, we could face restrictions on our ability to commercialize certain of our products and we could be required to (i) release the source code of certain of our proprietary software to the public, including competitors; (ii) seek licenses from third parties for replacement software; and/or (iii) re-engineer our software in order to continue offering our products. Such consequences could materially adversely affect our business.

 

The satellites that we currently rely on or may rely on in the future have minimum design lives, but could fail or suffer reduced capacity before then.

 

The usefulness of the satellites upon which we currently rely and may rely on in the future is limited by each satellite’s minimum design life. For example, the satellites through which we provide our service have minimum design lives ranging from 10 to 15 years. Our ability to offer in-flight connectivity and alleviate capacity constraints throughout our network depends on the continued operation of the satellites or any replacement satellites, each of which has a limited useful life. We can provide no assurance, however, as to the actual operational lives of those or future satellites, which may be shorter than their design lives, nor can we provide assurance that replacement satellites will be developed, authorized or successfully deployed.

 

In the event of a failure or loss of any of these satellites, our satellite service providers may relocate another satellite and use it as a replacement for the failed or lost satellite, which could have an adverse effect on our business, financial condition and results of operations. Such a relocation may require regulatory approval, including through, among other things, a showing that the replacement satellite would not cause additional interference compared to the failed or lost satellite. We cannot be certain that our satellite service provider could obtain such regulatory approval. In addition, we cannot guarantee that another satellite will be available for use as a replacement for a failed or lost satellite, or that such relocation can be accomplished without disrupting or otherwise adversely impacting our business.

 

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CHAPTER B – RISK FACTORS

 

Satellites that are not yet in service are subject to construction and launch related risks.

 

Satellite construction and launch are subject to significant risks, including delays, launch failure and incorrect orbital placement. Launch failures result in significant delays in the deployment of satellites because of the need both to construct replacement satellites and to obtain other launch opportunities. Construction and launch delays could materially and adversely affect our ability to generate revenues.

 

A failure to raise sufficient capital will delay or prohibit our building of a satellite ground station and related data center, which will inhibit our business development.

 

Because our IFEC services will require the transmission and processing of large amounts of data, we will need to build satellite ground stations and related data centers in our regions of operation, to facilitate the effectiveness and efficiency of our IFEC services. If we are not able to raise an amount of capital sufficient to purchase land for and build a satellite ground station and data center near our area of operations, initially in the Asia region, we may not be able to provide our IFEC services in an efficient and operationally effective way and, as a result, our business prospects and results of operations could suffer.

 

Risks Related to Ownership of our Common Stock

 

Our common stock is quoted on the OTCQX Best Market, which may have an unfavorable impact on our stock price and liquidity.

 

Our common stock is quoted on the OTCQX Best Market. The OTCQX Best Market is a significantly more limited market than the New York Stock Exchange or The Nasdaq Stock Market. The quotation of our shares on the OTCQX may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future. We plan to list our common stock as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing.

 

We cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If an active public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our common stock.

 

At present, there is minimal public trading in our common stock. We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of common stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our common stock.

 

Our common stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in our common stock.

 

The market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of factors. First, our shares of common stock may be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our shares of common stock are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price. Secondly, an investment in us is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

 

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CHAPTER B – RISK FACTORS

 

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

 

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

 

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

 

We have never paid cash dividends on our stock and do not intend to pay dividends for the foreseeable future.

 

We have paid no cash dividends on any class of our stock to date and we do not anticipate paying cash dividends in the near term. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.

 

Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

 

As a public company, the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require us to implement various corporate governance practices and adhere to a variety of reporting requirements and complex accounting rules. Compliance with these public company obligations requires us to devote significant time and resources and places significant additional demands on our finance and accounting staff and on our financial accounting and information systems. We plan to hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

 

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CHAPTER B – RISK FACTORS

 

We are required under the Sarbanes-Oxley Act of 2002 to document and test the effectiveness of our internal control over financial reporting. In addition, we are required under the Exchange Act to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to maintain effective controls or implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common stock. Failure to comply with the Sarbanes-Oxley Act of 2002 could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.

 

Our articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

 

Our articles of incorporation, bylaws and Nevada law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are currently authorized to issue up to 50,000,000 shares of “blank check” preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No shares of our preferred stock are currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by current management.

 

Provisions of our articles of incorporation, bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our articles of incorporation, our bylaws and Nevada law, as applicable, among other things, provide our board of directors with the ability to alter our bylaws without stockholder approval, and provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.

 

II.MARKET RISK FACTORS

 

We are subject to a variety of risks, including those caused by changes in the market value of equity investments, in interest rates and in foreign currency exchange rates. We have established policies and procedures to manage such risks; however, certain risks are beyond our control.

 

Interest rate risk

 

Interest rate risk reflects the Company’s exposure to fluctuations in interest rates in the market. Changes in interest rate could affect returns achieved on cash and fixed-term deposits but this risk is not considered material given the current low returns on deposits held by the Company.

 

Foreign exchange risk

 

The major risks linked to foreign exchange rate are considered not significant due to the low level of activity of its foreign subsidiaries. The Company currently does not use hedging instruments to protect its activity from exchange rate fluctuations. However, any major development in its activity may result in an increase of its exposure to exchange rate risk. Should such increase materialize, the Company may consider adopting an appropriate policy to hedge such risks.

 

Equity risk

 

The Company does not hold long or short-term tradable securities on any regulated market.

 

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CHAPTER C – SUPPLEMENTAL INFORMATION

CONCERNING AERKOMM INC.

 

CHAPTER C:

SUPPLEMENTAL INFORMATION CONCERNING AERKOMM INC.

 

I.RIGHTS RELATED TO THE REGISTERED SHARES

 

1.1Type and the Class of the Securities Being Offered, Including the Security Identification Code

 

Our authorized capital stock consists of 90,000,000 shares of Common Stock (the “Common Stock”), and 50,000,000 shares of Preferred Stock.

 

As of the date of this Prospectus, 9,399,272 shares of Common Stock were issued and outstanding. No shares of Preferred Stock are currently issued and outstanding.

 

On June 27, 2019, Aerkomm Inc. entered into that certain Amendment No. 3 (the “Amendment”) to the underwriting agreement dated May 14, 2018 and amended on August 30, 2018 and November 5, 2018 (the “Underwriting Agreement”) with Boustead Securities, LLC (the “Underwriter”) in connection with the public offering, issuance and sale (the “U.S. Offering”) by the Company of the common stock, par value $0.001 per share (the “Common Stock”), of the Company.

 

The material terms of the U.S. Offering are described in the U.S. prospectus, dated May 23, 2019 (the “U.S. Prospectus”), filed by the Company with the Securities and Exchange Commission (the “Commission”) on May 23, 2019, pursuant to Rule 424(b) under the Securities Act of 1933, as amended. The Offering is registered with the Commission pursuant to a Registration Statement on Form S-1, as amended to date (File No. 333-222208), initially filed by the Company on December 20, 2017. As indicated in the U.S. Prospectus, the Company is offering up to a maximum of 1,411,782 shares of Common Stock, at an offering price of $42.50 per share, or a maximum of $60,000,000, plus up to an additional 211,764 shares if over-subscription option is exercised in full. This $42.50 price to the public has been proportionately adjusted to directly reflect the one-for-five reverse stock split which became effective on January 16, 2019.

 

As a “best efforts” offering, there can be no assurance that the U.S. Offering contemplated hereabove will ultimately be consummated.

 

Prior to the date hereof, the Company has conducted multiple closings of the U.S. Offering selling 1,176,980 shares of Common Stock for gross proceeds to the Company of $50,020,894.

 

This U.S. Offering will terminate on August 31, 2019, which date may be extended to a date up to and including September 30, 2019 (the “U.S. Offering Termination Date”), unless we sell the maximum amount of shares set forth above before that date or we decide to terminate this U.S. Offering prior to that date. In addition, in the event that the maximum amount has been met on or prior to the U.S. Offering Termination Date, the Underwriter may exercise the over-subscription option on or prior to the U.S. Offering Termination Date to extend the U.S. Offering for an additional 45 days.

 

Our common stock began trading on the OTCQB Venture Market on May 30, 2017 under the symbol “AKOM.” On July 31, 2017, our common stock began trading on the OTCQX Best tier (“OTCQX”) of OTC Markets Group, Inc., CUSIP number 00774B208.

 

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CHAPTER C – SUPPLEMENTAL INFORMATION

CONCERNING AERKOMM INC.

 

We have applied for admission to listing and trading on the Professional Segment of Euronext Paris of 9,399,272 shares of Common Stock issued as the date of this Prospectus. On July 17, 2019, Euronext Paris approved our application for listing and trading of our Common Stock on the Professional Segment of Euronext Paris. Our Common Stock will be listed and traded under the symbol “AKOM” and ISIN Code US00774B2088.

 

We have filed an application to have the shares of common stock listed on the Nasdaq Capital Market tier of Nasdaq. Although this application is pending, we cannot assure you that we can meet Nasdaq’s listing requirements which include subjective considerations. If our Nasdaq application is approved, we would withdraw our listing from the OTCQX. If our Nasdaq application is not approved, our common stock will not be able to trade on the Nasdaq, although it will continue to be quoted for trading on the OTCQX. In this case, we would continue to maintain our OTCQX listing.

 

On May 5, 2017, we established our 2017 Equity Incentive Plan (“the Plan”). The Plan was approved by our board of directors on May 5, 2017, and an amendment to increase the number of shares of our common stock available for grant under the Plan was approved by the board of directors on June 26, 2017. The Plan was approved by our stockholders at our annual meeting in 2018. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. The maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan, as amended, is 2,000,000 shares. Cancelled and forfeited stock options and stock awards may again become available for grant under the Plan. There were 441,800 shares available for grant under the Plan as of July 16, 2019; 1,554,262 shares of our common stock are issuable upon the exercise of options to be issued under the Plan to holders of Aircom options assumed by us as a result of the closing of the reverse acquisition with Aircom; and options exercisable for 200,458 shares of our common stock have been approved by our board of directors for grants to certain of our officers, directors, employees and service providers.

 

Shareholders of the Company

 

As of the date of this Prospectus, the following table shows information for each person known by Aerkomm to beneficially own more than 5% of the outstanding Common Stock.

 

   Non-diluted(1)   Fully-diluted including $9.98 million to be raised(2)   Fully-diluted including $9.98 million balance and $9 million over- subscription to be
raised(3)
 
Name of Beneficial Owner  Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class 
Jeffrey Won, CEO, President and Director   447,486(4)   4.76%   456,486(5)   4.05%   456,486 (5)   3.97%
Dmedia Holding LP(6)   2,237,428    23.80%   2,237,428    19.85%   2,237,428    19.46%
Jeffrey Wun, including Dmeclia Holding LP(4)(5)(6)   2,684,914    28.57%   2,693,914    23.90%   2,693,914    23.43%
Sheng-Chun Chang(7)   65,281    0.69%   65,281    0.58%   65,281    0.57%
Well Thrive Limited(7)   1,340,696    14.26%   1,340,696    11.89%   1,340,696    11.66%
Sheng-Chun Chang, including Well Trhive Limited(7)   1,405,977    14.96%   1,405,977    12.47%   1,405,977    12.23%
Total beneficially owned more than 5%  4,090,891   43.52%  4,099,891   36.37%  4,099,891   35.66%

 

(1)The basis of non-diluted calculation is based on 9,399,272 shares of outstanding Common Stock as of the date of this prospectus, including the 152,000 shares issued for the $6.46 million raised June 27, 2019 from the offering, which is not including issued and outstanding options and warrants or common shares and warrants to be issued from the remaining balance of $9.98 million from the ongoing offering.
(2)The basis of fully-diluted calculation is based on 9,399,272 shares of outstanding Common Stock, 1,554,262 shares of stock option and 70,618 shares of warrants issued and outstanding as of the date of this prospectus and additional 234,802 shares of our Common Stock and 14,088 shares of warrants issuable from the remaining balance of $9.98 million of our ongoing offering. The basis of fully-diluted calculation is 10,934,042 shares if all of all options and warrants are exercised and issuable common shares and warrants are issued from the offering.
(3)The basis of this fully-diluted calculation is based on 9,399,272 shares of outstanding Common Stock, 1,554,262 shares of stock option and 70,618 shares of warrants issued and outstanding as of the date of this prospectus and additional 234,802 shares of our Common Stock and 14,088 shares of warrants issuable from the remaining balance of $9.98 million of our ongoing offering and additional 211,764 shares of our Common Stock and 12,705 shares of warrants issuable from the $9.00 million over-subscription of our ongoing offering. The basis of fully-diluted calculation is 11,497,511 shares if all of all options and warrants are exercised and issuable common shares and warrants are issued from the offering.
(4)Includes 447,486 shares of our Common Stock held directly.
(5)Includes (i) 447,486 shares of our Common Stock held directly; (ii) 3,500 shares of our Common Stock which Mr. Wun has the right to acquire within 60 days through the exercise of vested options and 5,500 shares of our Common Stock issuable upon the exercise of options not exercisable within 60 days.

 

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CHAPTER C – SUPPLEMENTAL INFORMATION

CONCERNING AERKOMM INC.

 

(6)On December 20, 2017, Mr. Jeffrey Wun, purchased an 85.7% interest in, and was appointed Manager of, Dmedia LLC, the General Partner of Dmedia Holding LP. As such, Mr. Wun is deemed to be the beneficial owner of the 2,237,428 shares of our Common Stock held by Dmedia Holding LP by virtue of his voting and dispositive power of those shares. Through his ownership interest in Dmedia LLC, which owns an approximately 6% direct interest in Dmedia Holding LP, Mr. Wun indirectly beneficially owns 117,601 shares of our Common Stock held by Dmedia Holding LP.  Mr. Wun disclaims beneficial ownership of the remaining 2,119,827 shares of our Common Stock held by Dmedia Holding LP. Mr. Jan-Yung Lin Secretary of the Board of Directors and Directory, owns a pecuniary interest in 959,230 of these shares, through his approximately 7% ownership interest in Dmedia LLC and his approximately 42.4% interest Dmedia Holding LP, although he does not exercise voting or dispositive control over them. Mr. Wun’s address is care of the Company. Other than as officers and directors of the Company, Mr. Wun and Mr. Lin are not related.
(7)Consists of 1,340,696 shares of Common Stock held by Well Thrive Limited and 65,281 shares of our Common Stock owned directly by Mr. Sheng-Chun Chang. Mr. Chang is the Chief Executive Officer and owner of Well Thrive Limited and has voting and dispositive power of the securities held by it. Mr. Chang disclaims beneficial ownership of the shares held by Well Thrive Limited. The address of Well Thrive Limited is No 79, Heng Yang Road, Taipei City, Taiwan.

 

The following table shows information for the total of shareholders beneficially own more than 5% of the outstanding Common Stock as disclosed above and each categories of shareholders known by Aerkomm to beneficially own less than 5% of the outstanding Common Stock as of the date of this Prospectus.

 

   Non-diluted(1)   Fully-diluted including $9.98 million to be raised(2)   Fully-diluted including $9.98 million balance and $9 million over-subscription to be
raised(3)
 
Name of Beneficial Owner  Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class   Amount of Beneficial Ownership   Percent of Class 
Beneficially owned more than 5% of common stock   4,090,891    43.52%   4,099,891(4)   36.37%   4,099,891(4)   35.66%
Institutions   239,136    2.54%   239,136    2.12%   239,136    2.08%
Employee & directori(1)   724,738    7.71%   2,270,000(5)   20.14%   2,270,000(5)   19.74%
Public   4,344,507    46.22%   4,415,125(6)   39.17%   4,415,125(6)   38.40%
To be raised from the public offering   -    0.00%   248,890(7)   2.21%   473,359(8)   4.12%
Total  9,399,272   100.00%  11,273,042   100.00%  11,497,511   100.00%

 

(1-3) Please refer to notes (1) through (3) in the above table.
(5)Includes 3,000 shares of our Common Stock which Mr. Wun has the right to acquire through the exercise of options, both vested and to be vested.
(6)Includes 1,554,262 shares of our Common Stock which employees and directors have the rights to acquire through the exercise of options, both vested and to be vested.
(7)Includes 70,618 shares of our Common Stock which our underwriter has the right to acquire through the exercise of warrants.
(8)Includes 234,802 of our Common Stock and 14,088 of warrants to be issued from the $9.98 million of offering to be raised.
(9)Includes 211,764 of our Common Stock and 12,705 of warrants to be issued from the $9 million over-subscription of offering to be raised.

 

The following table shows information for the basis of non-diluted and fully diluted calculation.

 

   Stocks   Options   Warrants   Total diluted 
Outstanding as of July 16, 2019   9,399,272(1)   1,554,262    70,618    11,024,152 
Issuable for $9.98 million   234,802         14,088    248,890 
Total diluted basis with $9.98 million to be raised   9,634,074    1,554,262    84,706    11,273,042(2)
Issuable for $9 million over-subscription to be raised   211,764    -    12,705    224,469 
Total diluted basis with $9.98 and $9 million to be raised  9,845,838   1,554,262   97,411   11,497,511(3)

 

(1)Basis for non-diluted calculation.
(2)Basis for fully-diluted calculation with Common Stock and warrants to be issued from the $9.98 million to be raised from the offering.
(3)Basis for fully-diluted calculation with Common Stock and warrants to be issued from the $9.98 million from the offering and the $9 million over-subscription from the offering to be raised.

 

Each share of Common Stock of the Company is entitled to one vote and to the best of Aerkomm’s knowledge, there are no shareholders’ agreements. The beneficial owners listed above are entitled to the same voting rights as any other stockholder of the Company.

 

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CHAPTER C – SUPPLEMENTAL INFORMATION

CONCERNING AERKOMM INC.

 

To the best of Aerkomm’s knowledge, the Company is not directly or indirectly owned or controlled by any person, including the stockholders listed above.

 

1.2Legislation Under Which the Securities Have Been Created

 

Our Common Stock was created under the Nevada Revised Statutes (“NRS”) of the State of Nevada, in the United States of America, as codified in NRS Chapter 78.

 

1.3Form of Securities, Name and Address of the Entity in Charge of Keeping the Records

 

In general, shareholders may hold Common Stock either in direct registered or street name form. The transfer agent and registrar for the Common Stock is VStock Transfer, LLC (“VStock”).

 

VStock can be contacted through the web at www.bnymellon.com, by telephone at + 1-212-828- 8436, or via https://www.vstocktransfer.com/, or by mail at: 18 Lafayette Place, Woodmere, NY 11598, U.S.A.

 

Aerkomm’s paying agent is BNP Paribas Securities Services, Les Grands Moulins de Pantin, 9 rue du Débarcadère, 93500 Pantin, France.

 

1.4Currency of the Securities Issue

 

Trading of our Common Stock on the Professional Segment of Euronext Paris will be in Euros.

 

1.5Rights Attached to the Securities

 

Dividend Rights. The Company’s Certificate of Incorporation, which was amended and restated on April 28, 2017, authorizes the payment of dividends. Holders of Common Stock are entitled to receive such dividends as the Company’s Board may from time to time declare out of funds legally available therefore under the laws of the State of Nevada, in amounts that the Board may determine in its sole discretion. Covenants and other restrictions in loan agreements entered into by the Company from time to time may restrict our ability to pay dividends without lender consent.

 

Voting Rights. Each holder of a share of Aerkomm Common Stock is entitled to one vote for each share held of record on the applicable record date on all matters submitted to a vote of shareowners.

 

The Certificate of Incorporation provides that the Aerkomm by-laws may be amended by the Board. The Aerkomm by-laws provide that the Board shall have the power to make, amend or repeal the by-laws of Aerkomm subject to the power of the shareowners to make, amend and repeal the by-laws.

 

The Certificate of Incorporation provides for a single class of directors. Unless otherwise required by law or the certificate of incorporation, and subject to the terms of any one or more classes or series of preferred stock of Aerkomm, any vacancy on the board of directors that results from an increase in the number of directors may be filled by a majority of the board of directors then in office, provided that a quorum is present, and any other vacancy occurring on the board of directors, other than a vacancy resulting from the removal of a director which may be filled in the first instance by the shareowners, may be filled by a majority of the board of directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy resulting from an increase in the number of directors shall hold office until the next succeeding annual meeting of shareowners and thereafter until his or her successor shall have been elected and qualified. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.

 

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Pursuant to Section 78.390 of the NRS, after a corporation has received payment for any of its capital stock, it may amend its certificate of incorporation, from time to time, in any and as many respects as may be desired, so long as its certificate of incorporation as amended would contain only such provisions as it would be lawful and proper to insert in an original certificate of incorporation filed at the time of the filing of the amendment; and, if a change in stock or the rights of stockholders, or an exchange, reclassification, subdivision, combination or cancellation of stock or rights of stockholders is to be made, such provisions as may be necessary to effect such change, exchange, reclassification, subdivision, combination or cancellation. In particular, and without limitation upon such general power of amendment, a corporation may amend its certificate of incorporation, from time to time, so as:

 

(1)To change its corporate name; or

 

(2)To change, substitute, enlarge or diminish the nature of its business or its corporate powers and purposes; or

 

(3)To increase or decrease its authorized capital stock or to reclassify the same, by changing the number, par value, designations, preferences, or relative, participating, optional, or other special rights of the shares, or the qualifications, limitations or restrictions of such rights, or by changing shares with par value into shares without par value, or shares without par value into shares with par value either with or without increasing or decreasing the number of shares, or by subdividing or combining the outstanding shares of any class or series of a class of shares into a greater or lesser number of outstanding shares; or

 

(4)To cancel or otherwise affect the right of the holders of the shares of any class to receive dividends which have accrued but have not been declared; or

 

(5)To create new classes of stock having rights and preferences either prior and superior or subordinate and inferior to the stock of any class then authorized, whether issued or unissued; or

 

(6)To change any other or alteration to its articles of incorporation that may be desired.

 

Any or all such changes or alterations may be effected by one certificate of amendment.

 

The Board shall adopt a resolution setting forth the amendment proposed, declaring its advisability, and either calling a special meeting of the stockholders entitled to vote in respect thereof for the consideration of such amendment or directing that the amendment proposed be considered at the next annual meeting of the stockholders. Such special or annual meeting shall be called and held upon notice. The notice shall set forth such amendment in full or a brief summary of the changes to be effected thereby, as the directors shall deem advisable. At the meeting, a vote of the stockholders entitled to vote thereon shall be taken for and against the proposed amendment. If a majority of the outstanding stock entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote thereon as a class, has been voted in favor of the amendment, a certificate setting forth the amendment and certifying that such amendment has been duly adopted in accordance with Section 78.390 of the NRS shall be executed, acknowledged and filed and shall become effective.

 

Right to Receive Liquidation Distributions. Holders of Common Stock are entitled to share pro rata, upon any liquidation, dissolution or winding up of Aerkomm in all remaining assets available for distribution to shareowners after payment or providing for Aerkomm’s liabilities.

 

Preemptive, Redemptive or Conversion Provisions. Holders of Common Stock do not have the right to subscribe for, purchase or receive new or additional capital stock or other securities.

 

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1.6Transferability

 

The Common Stock is registered under the Exchange Act and the currently outstanding shares are freely transferable. The Company undertakes to promptly register with the SEC any and all shares of Common Stock that may be issued as restricted stock or otherwise become restricted in the future. EACH HOLDER OF SHARES OF COMMON STOCK ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES OF COMMON STOCK.

 

1.7Registration Number

 

Aerkomm’s United States Internal Revenue Service Employer Identification Number is 46-3424568. Aerkomm’s registration number with the Secretary of the State of Nevada is E0398632013-3.

 

1.8General Provisions Applying to Business Combinations

 

Business combinations statutes are designed to encourage potential acquirers of corporations to negotiate with the board of directors before attempting a takeover. In Nevada, NRS 78.411 through 78.444 (the “Business Combination Statute”) provides that specified persons who, together with their affiliates and associates, own, or within four years did own, 10% or more of the outstanding voting stock (an “Interested Stockholder”) of a Nevada corporation with at least 200 stockholders of record (a “Resident Domestic Corporation”) cannot engage in specified business combinations with the Resident Domestic Corporation for a period of four years after the date on which the person became an Interested Stockholder, unless (a) the combination or the transaction by which the person first became an Interested Stockholder was approved by the Resident Domestic Corporation’s board of directors before the person first became an Interested Stockholder, or, as provided under a recently-effective statutory amendment, (b) the combination is approved by the board and, at or after that time, the combination is approved at an annual or special meeting of the stockholders, or by written consent, by the affirmative vote of 60% or more of voting power of the disinterested stockholders

 

Corporations that are Resident Domestic Corporations may opt out of the Business Combinations Statute through their articles of incorporation. Aerkomm has elected not to be governed by the terms and provisions of Nevada’s Business Combination Statute.

 

Aerkomm has also elected not to be governed by the terms and provisions of Nevada’s control share acquisition laws (NRS 78.378 - 78.3793), which prohibit an acquirer, under certain circumstances, from voting shares of a corporation’s stock after crossing specific threshold ownership percentages, unless the acquirer obtains the approval of the issuing corporation’s stockholders. The first such threshold is the acquisition of at least one-fifth but less than one-third of the outstanding voting power.

 

Aerkomm is subject to Section 14(d) of the Exchange Act.

 

In addition, pursuant to Article 231-1 of the AMF General Regulation, the AMF may apply its takeover rules, excepting those governing standing market offers, buyout offers with squeeze-outs, and squeeze-outs, to public offers for securities issued by companies such as Aerkomm whose registered offices are not in the European Economic Area, where these securities are listed on Euronext regulated markets.

 

1.9Mandatory Squeeze-Out Rules in Relation to the Securities

 

Section 92A.180 of the NRS authorizes the board of directors of a Nevada corporation that owns 90% or more of each of the outstanding classes of stock of a subsidiary that are entitled to vote on a merger to merge the subsidiary into itself without any requirement for action to be taken by the board of directors or the stockholders of the subsidiary.

 

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1.10Purpose of the Listing and Liquidity

 

The Euronext Paris listing is intended to attract investors based outside of the United States, particularly in Europe, and to promote additional liquidity for all investors and provide greater access to Aerkomm’s Common Stock among European fund managers who may be required to invest in Euro-zone markets or currencies only.

 

At this time, Aerkomm does not intend to enter into any agreement with a liquidity provider in connection with the listing of its Common Stock on the Professional Segment of Euronext Paris. However, Aerkomm reserves the right to enter into such agreement in the future, subject to compliance with applicable legislation in France and the United States.

 

Until such time that an agreement is entered into with a liquidity provider (if ever), liquidity in the Common Stock on the Professional Segment of Euronext Paris will result initially from execution on Euronext Paris of sell and purchase orders on Euronext Paris in respect of Common Stock (including, sales of Common Stock initially acquired on OTCQX Best Market) and future trading in the Common Stock on the Professional Segment of Euronext Paris with settlement through Euroclear France.

 

1.11Market Capitalization for the US and French Markets

 

Based on 9,399,272 shares of Common Stock issued and outstanding as of July 16, 2019, and the closing price of the Common Stock on the OTCQX on July 16, 2019 ($3.96), Aerkomm had a market capitalization of approximately $37.2 million, which, based on the exchange rate of the European Central Bank on July 16, 2019 (1 EUR = $1.1223), corresponds to approximately EUR 33.2 million.

 

The 9,399,272 number of shares of Common Stock outstanding reflects the closing, on June 27, 2019, of the sale of 152,000 shares of Common Stock in our ongoing, underwritten public offering, at a price of $42.50 per share for an aggregate gross amount of $6,460,000.

 

The market capitalization on the Professional Segment of Euronext Paris is calculated on the total issued Common Stock. Based on the above figures, the market capitalization on July 16, 2019 was approximately $37.2 million / EUR 33.2 million.

 

Please find below information concerning the Common Stock price performance on the OTCQX.

 

   Closing Prices 
   High   Low 
Fiscal Year Ended December 31, 2017        
1st Quarter   $-   $- 
2nd Quarter (May 30, 2017 – June 30, 2017)   27.50    17.50 
3rd Quarter   40.00    26.00 
4th Quarter   40.00    17.50 
           
Fiscal Year Ended December 31, 2018          
1st Quarter  $37.50   $30.00 
2nd Quarter   42.50    19.75 
3rd Quarter   32.50    14.25 
4th Quarter   23.75    9.50 
           
Fiscal Year Ending December 31, 2019          
1st Quarter  $20.00   $2.00 
2nd Quarter   9.95    3.72 

 

All historical pricing has been adjusted for the one-for-five reverse stock split that took effect on January 16, 2019.

 

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II.STATEMENT OF CAPITALIZATION AND INDEBTEDNESS AS OF MAY 31, 2019

 

The below tables are derived from Aerkomm’s unaudited condensed consolidated financial statements.

 

2.1Capitalization and Indebtedness (in millions of US Dollars) at May 31, 2019

 

 

Total current debt  $0.742 
- Guaranteed   - 
- Secured   0.540 
- Unguaranteed and Unsecured  $0.202 
      
Total non-current debt (excluding current portion of long-term debt)  $0.148 
- Guaranteed   - 
- Secured (capital lease obligations)   0.108 
- Unguaranteed / Unsecured  $0.040 
      
Shareowners’ equity     
a. Share capital and paid-in capital  $56.956*
b. Legal reserve   - 

 

c. Total other reserves           - 
- Reinvested earnings   (19.267)
- Accumulated other comprehensive loss   1.083 
- Common Stock in treasury, at cost – 15,740,934 shares   - 
Total shareowners’ equity  $38.772 

 

2.2Net Indebtedness (in millions of US Dollars) at May 31, 2019

 

A.+B. Cash and cash equivalents  $0.060 
C. Short-term investments   - 
D. Liquidity (A) + (B) + (C)  $0.060 
      
E. Current financial receivable   - 
F. Current bank debt  $- 
G. Current portion of non-current debt   (0.008)
H. Other current financial debt   (0.734)
I. Other financial debt (F) + (G) + (H)  $(0.742)
      
J. Net current financial indebtedness (I) – (E) – (D)  $(0.802)
      
K. Non-current bank loans   - 
L. Bonds issued   - 
M. Other non-current loans (capital lease obligations)   - 
      
N. Non-current financial indebtedness (K) + (L) + (M)   - 
      
O. Net financial indebtedness (J) + (N)   (0.802)

 

*of which, USD 9,098 share capital and USD 56,947,231 paid in capital (i.e. taking into account the accounting effect of the 1-for-5 reverse stock split effective as of January 16, 2019).

 

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On June 27, 2019, in connection with the U.S. Offering described in section 1.1 above, the Company completed one closing in the gross amount of $6,460,000 and issued 152,000 shares of our common stock.

 

On May 9, 2019, two of the Company’s current shareholders (the “Lenders”) each committed to provide to the Company a $10 million bridge loan (together, the “Loans”) for an aggregate principal amount of $20 million, to bridge the Company’s cash flow needs prior to its obtaining a mortgage loan to be secured by a parcel of land (the “Land”) the Company intends to purchase in Taiwan. On July 3, 2019, the Company paid the final payment in the amount of US$642,462 for this land purchase and are waiting for the land owner to close the transaction in accordance with the contract.The Lenders also agreed to an earlier closing of up to 25% of the principal amounts of the Loans upon the Company’s request prior to the time that title to the Land is vested in the Company’s subsidiary, Aerkomm Taiwan, to pay the outstanding obligations to the Company’s vendors. With the $16.44 million to be raised in the remainder of the Company’s ongoing public offering (of which $6.46 million has already been raised effective June 27, 2019 as indicated above) and the $20 million in loan commitment (with the draw down up to 25% in advance of the closing of the Land purchase), the Company believes its working capital is sufficient to sustain its operations for the next twelve months.

 

III.DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth the name, age and position of each of our directors and executive officers as of June 27, 2019.

 

Name   Age   Position
Jeffrey Wun   54   Chairman, Chief Executive Officer and President
Y. Tristan Kuo   64   Chief Financial Officer
Richmond Akumiah   65   Director
James J. Busuttil   60   Director
Raymond Choy   38   Director
Chih-Ming (Albert) Hsu   44   Director
Colin Lim   56   Director
Jan-Yung Lin   58   Director

 

For at least the previous five years, none of the directors or executive officers of Aerkomm has:

 

(a)been convicted in relation to fraudulent offenses;

 

(b)been associated with any bankruptcies, receiverships or liquidations when acting in their capacity of directors or executive officers of Aerkomm; or

 

(c)been subject to any official public incrimination and/or sanctions by statutory or regulatory authorities (including designated professional bodies) or ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer.

 

There are no family relationships among any of the executive officers and directors listed above.

 

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Corporate Governance

 

Board Composition and Committees

 

Our board of directors is comprised of seven members: Jeffrey Wun, James J. Busuttil, Raymond Choy, Chih-Ming (Albert) Hsu, Richmond Akumiah, Colin Lim and Jan-Yung Lin. Our board of directors has determined that Messrs. Busuttil, Choy, Akumiah and Lim are independent directors as that term is defined in the rules of the Nasdaq Stock Market. Though we are not subjected to the rules of Nasdaq Stock Market, the company adapted these rules voluntarily. Messrs. Choy, Lim and Busuttil are each members of the Audit Committee, Compensation Committee and Nominating and Governance Committee and Messrs. Akumiah, Busuttil and Choy are each member of the Regulatory, Compliance & Government Affairs Committee. Mr. Akumiah is also a member of the Audit Committee.

 

Our board of directors currently has four standing committees which perform various duties on behalf of and report to the board of directors: (i) Audit Committee, (ii) Compensation Committee, (iii) Nominating and Governance Committee and (iv) Regulatory, Compliance & Government Affairs Committee. Each of the four standing committees is comprised entirely of independent directors. From time to time, the board of directors may establish other committees.

 

Board Role in Risk Oversight

 

Our board of directors plays an active role, as a whole and also at the committee level, in overseeing management of our risks and strategic direction. Our board of directors regularly reviews information regarding our liquidity and operations, as well as the risks associated with each. Our Audit Committee oversees the process by which our senior management and relevant employees assess and manage our exposure to, and management of, financial risks. Our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. Our Nominating and Governance Committee also manages risks associated with the independence of members of our board of directors and potential conflicts of interest. Our Regulatory, Compliance & Government Affairs Committee oversees regulatory, compliance and governmental matters that may impact the Company. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed about such risks.

 

Code of Ethics

 

Aerkomm has adopted a code of ethics that applies to all of its directors, officers and employees, including its principal executive officer, principal financial officer and principal accounting officer. Aerkomm has also adopted a code of professional conduct that applies specifically to its chief executive officer and its senior financial officers. These codes address, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the codes.

 

Aerkomm is required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. Aerkomm intends to use its website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to Aerkomm’s website https://ir.aerkomm.com/governance-docs within four business days following the date of any such amendment to, or waiver from, a provision of its code of ethics.

 

IV.EMPLOYEES

 

As of the date of this Prospectus, we had a total of 19 employees, 15 of whom are full-time employees. The following table sets forth the number of our full-time employees by function.

 

 

Function

  Number of Employees
Operations   4
Sales and Marketing   4
Research and Development   8
General and Administrative   3
Total   19

 

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None of our employees belongs to a union or is a party to any collective bargaining or similar agreement. We consider our relationships with our employees to be good.

 

The below chart sets forth historical information regarding the average number of Aerkomm’s employees for each of the fiscal years ended December 31, 2018 and 2017.

 

   Number of Employees 
   As of December 31, 
Function  2018   2017 
Operations   4    4 
Sales and Marketing   4    4 
Research and Development   8    8 
General and Administrative  3   3 
Total   19    19 

 

V.ORGANIZATIONAL STRUCTURE

 

Aerkomm is the parent company of the Aerkomm group of companies. Aerkomm holds, directly or indirectly, the capital and voting rights of each of the subsidiaries listed on page 11 (B.5 Group) in Chapter A above and in Exhibit 21.1 to Aerkomm’s 10-KT.

 

VI.WORKING CAPITAL STATEMENT

 

With the $6.46 million raised in relation to the issuance of new shares on June 27, 2019 and the $20 million in loans committed to us to bridge the Company’s cash flow needs prior to its obtaining a mortgage loan to be secured by a parcel of land, the “Loans”, by two of our existing shareholders, the “Lenders”, we believe our available working capital is sufficient to sustain our current financial obligations, which, we believe, range between USD 16 to 20 million depending on the progress of our projects (excluding any payment for the acquisition of the land in Taiwan the final payment of which has been made on July 3rd, 2019), for the next twelve months following the date of the Prospectus.

 

Alternatively, if we succeed in raising, as part of our on-going $16.44 million public offering (of which $6.46 million has already been raised effective June 27, 2019 as indicated above) an additional amount of approximately $10 million (which we expect to occur within 15 days following the date of the Prospectus), together with $5 million which may be drawn down from the Loans at any time to pay vendors, we also believe that our available working capital is sufficient to sustain our current financial obligations for the next twelve months following the date of the Prospectus.

 

VII.TAX CONSEQUENCES

 

Set out below are the main French tax consequences and certain U.S. federal income tax consequences likely to apply to French investors who will hold Shares under French domestic law in force on January 1, 2019, and the U.S.- France income tax treaty signed August 31, 1994, as modified by the protocols signed December 8, 2004 and January 13, 2009 (the “U.S.-French Tax Treaty”). Unless otherwise indicated, the discussion of the U.S. tax consequences herein assumes that each French investor is eligible for the benefits of the U.S.–French Tax Treaty and is also not a U.S. tax resident (a “French tax resident”). The tax regime described below may be modified by subsequent laws or regulations, which should be followed by the investors with the help of their usual advisor.

 

Please note that the information set out below is only a summary of the applicable tax regime. Each particular situation should be carefully analyzed by a tax advisor, especially regarding tax residence, the possible impact of citizenship and the application of the U.S.-French Tax Treaty to their particular circumstances.

 

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The discussion of U.S. federal tax issues (1) is not intended or written to be used, and it cannot be used, by any investor for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code of 1986, as amended, and (2) is written to support the listing of Aerkomm’s Common Stock on Euronext Paris. Each investor should seek U.S. federal tax advice based on the investor’s particular circumstances from an independent tax advisor.

 

7.1Capital gains realized upon the sale of Shares by Individual Investors who are French Tax Residents Holding Shares as a Private Investment

 

US Tax considerations

 

Article 13 of the U.S.-French Tax Treaty generally exempts certain gains (including stock gains) of French tax resident individual investors from U.S. tax unless the gain is attributable to a permanent establishment of the investor in the United States. Any individual French investor, who is not eligible for the benefits of the U.S.-French Tax Treaty and is in the United States for at least 183 days in the year in which the investor disposes of the Shares, should consult his or her own tax advisor for the U.S. tax consequences of the disposition.

 

French tax considerations

 

In accordance with Articles 150-0 A et seq. and 200 A of the French General Tax Code (the “GTC”), capital gains realized upon the disposal of Shares will be subject as from the first Euro to tax on income at a flat rate of 12,8%.Such capital gains may also be subject to the 3% or 4% contribution on high-income taxpayers which is applicable as follows: (i) single, widowed, separated or divorced taxpayers are subject to the 3% contribution rate for their income (revenu fiscal de référence) above € 250.000 and under € 500.000 and to the 4% contribution rate for their income (revenu fiscal de référence) above € 500.000, and (ii) taxpayers subject to joint taxation are subject to the 3% contribution rate for their income (revenu fiscal de référence) above € 500.000 and to the 4% contribution rate for their income (revenu fiscal de référence) above € 1.000.000.

 

In addition, such capital gains will also be subject to the following social taxes, which are non-deductible from the income taxable basis:

 

-the contribution sociale généralisée of 9.2% (Articles 1600-0C and 1600-0E of the GTC), collected according to the same procedures as income tax;

 

-the contribution au remboursement de la dette sociale of 0.5% (Article 1600-0J of the GTC), collected according to the same procedures as income tax;

 

-the prélèvement de solidarité of 7.5% (Article 136-7 of the French Social Security Code).

 

In accordance with Article 150-0D 11 of the GTC, capital losses (if any) incurred upon the disposal of Shares may be deducted only from capital gains on sales of the same nature in the same year or in the ten years following such disposal.

 

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7.2Capital gains realized upon the sale of Shares by French Tax Resident Stockholders that are Legal Entities and Subject to Corporate Dividends arising from the Shares received by French Tax Resident Stockholders Tax

 

US Tax considerations

 

Article 13 of the U.S.-French Tax Treaty generally exempts certain gains (including stock gains) of French tax resident investors, from U.S. tax, unless the gain is attributable to a permanent establishment of the investor in the United States.

 

French Tax considerations

 

The capital gain realized upon the sale of Shares is included in the taxable income of holders subject to corporate income tax at the standard rate of 31%, increased by the social contribution of 3.3% (Article 235 ter ZC of the GTC), which is based on the amount of corporate tax reduced by a discount that cannot exceed € 763,000 per twelve-month period.

 

The ordinary corporate tax rate is set to be gradually reduced by 2022. The ordinary corporate tax rate should therefore be 28% in 2020, 26.5% in 2021 and 25% in 2022.

 

A specific tax treatment would apply in the case where the Shares would qualify as a controlling interest (titres de participation), held for at least two years from the date of the acquisition of the Shares.

 

Pursuant to Article 219-1 a quinquies of the GTC, the following shares constitute titres de participation: (i) shares qualifying as such under the accounting rules, (ii) shares acquired pursuant to a public offer of sale or exchange by the company that initiates it, or (iii) shares of a company that qualifies for the parent- subsidiary regime (the main criteria being the holding of at least 5% of the company’s capital) and which are accounted as such, other than shares of predominantly real estate entities.

 

According to the provisions of Article 219-1 a quinquies of the GTC, net gains realized upon the disposal of such controlling interest (titres de participation) held for more than two years would qualify for the long- term capital gain regime under which capital gains are exempt from corporate income tax; nevertheless a 12% service charge (quote part de frais et charges) of the net capital gains will be taxed at the ordinary corporate tax rate of the 31%, as well as an additional contribution provided for under Article 235 ter ZC of the GTC amounting to 3.3% of the corporate income tax after a basis allowance which cannot exceed € 763,000 per twelve-month period, if applicable.

 

7.3Capital Gains realized upon the sale of Shares by other Stockholders who are French Tax Residents

 

Stockholders subject to a specific tax regime must determine which tax rules apply in their particular case in the event of capital gains or losses realized upon the disposal of Shares.

 

7.4Dividends arising from the Shares received by Individual Investors who are French Tax Residents Holding Shares as a Private Investment

 

US Tax considerations

 

A dividend paid by Aerkomm to a French tax resident investor will be subject to U.S. withholding tax unless the dividend income is considered attributable to a permanent establishment of the investor in the United States. In accordance with Article 10(2) of the U.S.-French Tax Treaty, dividend payments, if any, made on Shares to an Individual French tax resident stockholder, will be subject to a U.S. withholding tax at the rate of 15%.

 

The French taxpayer will be entitled to claim a credit for such U.S. withholding tax on the taxpayer’s French tax return.

 

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French Tax considerations

 

Under Article 117 quater of the GTC, a 12,8% withholding tax must be paid on the gross amount of dividends within the first fifteen days of the month following the month in which the dividends are received, such withholding tax being an advance personal income tax payment which can be set off against the personal income tax arising on such dividends payable the year following the one during which such dividends are received, the surplus, if any, being refunded to the taxpayer. This withholding tax is paid by the taxpayer himself or herself when the paying agent is not established in a European Union member State or in a State that is a party to the European Economic Area Agreement that has signed a tax agreement with France that contains an administrative assistance clause with a view to combating tax fraud or tax evasion.

 

However, individuals belonging to a tax household whose taxable income for the year before last, as defined in 1° of IV of Article 1417 of the FTC, is less than EUR50,000 for taxpayers who are single, divorced or widowed, or EUR75,000 for couples filing jointly, may request exemption from this withholding tax under the terms and conditions of Article 242 quater of the GTC, i.e. by providing to the paying agent no later than November 30 of the year preceding the year of the payment of the dividends a signed statement that the reference fiscal income shown on the taxation notice (avis d’imposition) issued in respect of the second year preceding the year of payment was below the above-mentioned taxable income thresholds. However, taxpayers who acquire Shares after the deadline for providing the aforementioned exemption request can, subject to certain conditions, provide such exemption request to the paying agent upon acquisition of such Shares pursuant to paragraph 320 of the administrative guidelines BOI-RPPM-RCM-30-20-10-20140211.

 

When the paying agent is established outside France, only individuals belonging to a tax household whose taxable income of the year before last, as defined in 1° of IV of Article 1417 is equal or superior to the amounts mentioned in the previous paragraph are subject to this withholding tax.

 

In addition, the amount of dividends received by French tax resident individuals will also be subject to the following social taxes which are non-deductible from the income taxable basis, and which must be paid by the holder of the Shares within the first fifteen days of the month following the month in which the dividends are received:

 

-the contribution sociale généralisée of 9.2% (Articles 1600-0C and 1600-0E of the GTC), collected according to the same procedures as income tax;

 

-the contribution au remboursement de la dette sociale of 0.5% (Article 1600-0J of the GTC), collected according to the same procedures as income tax;

 

-the prélèvement de solidarité of 7.5% (Article 136-7 of the French Social Security Code).

 

Whether received in France or abroad, dividends received by French tax resident individuals will be subject to tax on income at a flat rate of 12.8% on the gross amount of dividends received in the year following their perception. In practice, as the 12,8% withholding tax paid within the first fifteen days of the month following the month in which the dividends are received can be set off against the personal income tax, no additional taxation should be incurred, unless the taxpayer is subject to the 3% or 4% contribution on high-income taxpayers which is applicable as follows: (i) single, widowed, separated or divorced taxpayers are subject to the 3% contribution rate for their income (revenu fiscal de référence) above € 250.000 and under € 500.000 and to the 4% contribution rate for their income (revenu fiscal de référence) above € 500.000, and (ii) taxpayers subject to joint taxation are subject to the 3% contribution rate for their income (revenu fiscal de référence) above € 500.000 and to the 4% contribution rate for their income (revenu fiscal de référence) above € 1.000.000.

 

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CHAPTER C – SUPPLEMENTAL INFORMATION
CONCERNING AERKOMM INC.

 

7.5Dividends arising from the Shares received by French Tax Resident Stockholders that are Legal Entities and Subject to Corporate Tax

 

US Tax considerations

 

A dividend paid by Aerkomm to a French tax resident investor will be subject to U.S. withholding tax unless the dividend income is considered attributable to a permanent establishment of the investor in the United States. In accordance with Article 10(2) of the U.S.-French Tax Treaty, (1) dividend payments, if any, made on Shares to a French tax resident stockholder, will generally be subject to a U.S. withholding tax at the rate of 15%, and (2) dividend payments, if any, made on Shares to a French tax resident company holding at least 10% of Aerkomm’s voting rights will generally be subject to a U.S. withholding tax at the rate of 5%. These lower withholding tax rates under the U.S.-French Tax Treaty for dividends paid by Aerkomm would generally be available only if the investor has provided a properly completed and executed IRS Form W- 8BEN to the Paying Agent prior to the dividend payment. If this IRS Form W-8BEN is not provided to the Paying Agent prior to the dividend payment, the dividend will be subject to US withholding at the U.S. statutory rate of 30%; and in that case, a French tax resident investor eligible for benefits under the U.S.- French Tax Treaty may claim a refund from the United States of the withholding tax to the extent the amount withheld exceeds the amount that would have been withheld if the investor had timely provided the IRS Form W-8BEN. In general, the IRS Form W-8BEN l remains valid for three years. At the end of this three-year period, a new properly completed and executed IRS Form W-8BEN must be provided to the Paying Agent.

 

The French taxpayer will be entitled to claim a credit for such U.S. withholding tax on the taxpayer’s French tax return.

 

Under the Foreign Account Tax Compliance Act of 2009 or "FATCA" enacted in the United States, foreign financial institutions (which include hedge funds, private equity funds, mutual funds, securitization vehicles and any other investment vehicles regardless of their size) and certain other foreign entities (but not individuals) must comply with new U.S. information reporting rules with respect to their U.S. account holders and investors or confront a new U.S. withholding tax on U.S. source payments made to them. A foreign entity to which FATCA applies that does not comply with the FATCA reporting requirements will be subject to a new 30% withholding tax with respect to any "withholdable payments" made after December 31, 2012. For this purpose, a withholdable payment would include a dividend paid by Aerkomm and also include the entire gross proceeds from the sale of Shares. The withholding tax under FATCA will apply regardless of whether the payment would otherwise be exempt from U.S. nonresident withholding tax (e.g., under the portfolio interest exemption or as capital gain). French tax resident investors are urged to consult their tax advisors regarding the effect, if any, of the FATCA provisions to them based on their particular circumstances.

 

French Tax considerations

 

Dividends paid by Aerkomm to holders of Shares who are legal entities subject to corporate income tax in France are subject to corporate income tax in France under the conditions described below.

 

The gross amount of the dividends received is included in the taxable income of such holders subject to corporate income tax at the standard rate of 31%, increased by the social contribution of 3.3% (Article 235 ter ZC of the GTC), which is based on the amount of corporate tax reduced by a discount that cannot exceed € 763,000 per twelve-month period.

 

The ordinary corporate tax rate is set to be gradually reduced by 2022. The ordinary corporate tax rate should therefore be 28% in 2020, 26.5% in 2021 and 25% in 2022.

 

However, in accordance with the provisions of articles 145 and 216 of the GTC, legal entities which hold at least 5% of the share capital of Aerkomm, may benefit, under certain conditions and upon election, from the parent-subsidiary regime. According to such regime, dividends received by a parent company are not subject to corporate income tax, save for an amount representing 5% of the net dividends received, including the tax credit, if any, which remains taxable. Holders of Shares who could be concerned by these rules should contact their usual tax advisor to get informed about the tax regime applicable to their own situation.

 

59

 

 

CHAPTER C – SUPPLEMENTAL INFORMATION
CONCERNING AERKOMM INC.

 

7.6Other Taxes and Duties

 

No French taxes of a documentary nature, such as capital, stamp or registration tax or duty, are payable by or on behalf of a holder Shares by reason only of the purchase, ownership or disposal of such Common Stock, provided that no written agreement formalizing the transfer of Common Stock is executed in France.

 

VIII.“Required Filer” Status

 

On April 19, 2018, we filed a Form 8-A with the Securities and Exchange Commission to register our class of common stock pursuant to Section 12(g) of the Securities Exchnge Act of 1934 (the “Exchange Act”). As such, we have become a “required filer” of periodic and current reports as required under the rules of the Exchange Act. We undertake to maintain our Exchange Act registration of our common stock and to remain a “required filer” for so long as our common stock is listed for trading on Euronext in Paris.

 

IX.DOCUMENTS ON DISPLAY

 

As a public company, Aerkomm regularly files reports and proxy statements with the SEC. These reports are required by the Exchange Act and include:

 

Annual reports on Form 10-K;

 

Quarterly reports on Form 10-Q;

 

Current reports on Form 8-K;

 

Proxy statements on Schedule 14A; and

 

Registration statements on Form S-1.

 

The SEC maintains an internet site that contains Aerkomm’s reports, proxy and information statements, and its other SEC filings; the address of that site is http://www.sec.gov.

 

Aerkomm makes its SEC filings (including any amendments) available on its own internet site as soon as reasonably practicable after it has filed them with or furnished them to the SEC. Aerkomm’s internet address is https://www.aerkomm.com/ All of these filings are available on its website free of charge.

 

The information on Aerkomm’s website is not incorporated by reference into Aerkomm’s SEC filings unless specifically so incorporated.

 

Aerkomm’s website contains, under “Corporate Governance,” information about its corporate governance policies, such as:

 

Code of Business Conduct;

 

Board of Directors Guidelines on Significant Corporate Governance Issues; and

 

Board Committee Charters.

 

Any of these items, as well as the Company’s Articles of Incorporation and Bylaws, are available in print to any shareowner who requests them. Requests should be sent to the corporate secretary at Aerkomm Inc., 923 Incline Way #39, Incline Village, NV 89451 U.S.A.

 

As of the AMF visa date of the prospectus, copies of this prospectus are available, free of charge, from the Company (923 Incline Way #39, Incline Village, NV 89451 U.S.A).

 

This prospectus is also available on the websites of the Company (https://www.aerkomm.com/) and of the AMF (www.amf-france.org).

 

All legal and financial documents relating to the Company and required to be made available to shareholders in accordance with applicable law and regulations may also be consulted at the Company’s principal and registered office.

 

The regulated information under the meaning of the AMF’s General Rules and Regulations is also available on the Company’s website.

 

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CROSS-REFERENCE LISTS

 

ANNEX XXV

 

MINIMUM DISCLOSURE REQUIREMENTS FOR THE SHARE
REGISTRATION DOCUMENT FOR SMEs AND COMPANIES WITH
REDUCED MARKET CAPITALISATION (SCHEDULE)

 

(Page numbering refers to the page contained in the relevant document)

 

Item #   Item contents   Chapter/Exhibit   Page/Section
1.   PERSONS RESPONSIBLE        
1.1.   All persons responsible for the information given in the prospectus   Wrapper   4 (Company Representative for Prospectus)
    Exhibit II   Exhibits 31.1, 31.2, 32.1 and 32.2
    Exhibit III   Exhibits 31.1, 31.2, 32.1 and 32.2
1.2.   A declaration by those responsible for the prospectus   Wrapper   4 (Company Representative for Prospectus)
2.   STATUTORY AUDITORS        
2.1.   Names and addresses of the issuer’s auditors   Exhibit I   F-3 (Report of Independent Registered Public Accounting Firm)
    Exhibit III   F-3 (Report of Independent Registered Public Accounting Firm)
2.2.   If auditors have resigned, been removed or not been re-appointed during the period covered by the historical financial information, indicate details if material.   Not Applicable   Not Applicable
3.   SELECTED FINANCIAL INFORMATION        
3.1.   Selected historical financial information   Chapter A   12 (Selected Two-Year Financial Data)
    Exhibit 1   7 (Selected Two-Year Financial Data)

 

61

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
3.2.   Interim periods   Chapter A   12 (Summary Consolidated Financial Data)
    Exhibit II   2-4 (Quarterly Financial Data (Unaudited))
    Financial statements for the nine months ended December 31, 2018   Exhibit III   337-382
    Financial statements for the three months ended March 31, 2018  

Exhibit I

Exhibit II

 

197-201

238-240

4.   RISK FACTORS        
        Chapter A   18 (Risk Factors)
    Chapter B   21-42 (Risk Factors)
    Exhibit I   8-25 (Risk Factors)
    Exhibit III   21-36 (Item 1A. Risk Factors)
5.   INFORMATION ABOUT THE ISSUER        
5.1.   History and Development of the Issuer        
5.1.1.   The legal and commercial name of the issuer   Exhibit I   Cover Page
5.1.2.   The place of registration of the issuer and its registration number   Chapter C   45 (Registration Number)
    Exhibit I   Cover Page
5.1.3.   The date of incorporation and the length of life of the issuer, except where indefinite   Exhibit I   F-8 (Note 1- Organization)
    Exhibit II   5 (Note 1 - Organization)
5.1.4.   The domicile and legal form of the issuer, the legislation under which the issuer operates, its country of incorporation, as well as the address and telephone number   Chapter A   6 (B.2 Domicile)
    Exhibit I   3 (Organization)
    Exhibit I   F-8 (Note 1- Organization)
    Exhibit II   5 (Note 1 - Organization)

 

62

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
5.1.5.   Important events in the development of the issuer’s business   Exhibit I   2 (IFEC Ground Support Systems), 2 (Launch and Increase number of connected aircraft; MJet)
    Exhibit I   5 (Stock Splits)
    Exhibit I   32 (Principal Factors Affecting Financial Performance)
    Exhibit I   33 (Results of Operations
    Exhibit I   47 (Our Aerkomm K++ system)
    Exhibit I   48 (Our Content Solutions)
    Exhibit I   51 (Satellite Ground Stations and Data Centers); 52-53 (Our Contracts with Airline Partners); 53-54 (Agreements, GTAs, MOUs and LOI with our Business Partners); 55 (Product Development, Manufacturing, Installation and Maintenance)
    Exhibit I   F-1 (Financial Statements); F-9 (Changes in Fiscal Year); F-24 (Note 16 – Commitments and Note-17 – Subsequent Events)
    Exhibit III   F-8-9 (Note 1 -Organization)
5.2.   Investments        
5.2.1.   A description (including the amount) of the issuer’s principal investments for each financial year for the period covered by the historical financial information up to the date of the prospectus   Exhibit I   34 (Investing Activities)
    Exhibit I   37 (Investing Activities)
    Exhibit I   38 (Research and Development Costs)
    Exhibit I   F-7 (Consolidated Statements of Cash Flows)
    Exhibit I   F-10 (Property and Equipment)
    Exhibit I   F-14 (Intangible Asset, Net)
    Exhibit II   25 (Investing Activities)
    Exhibit II   27 (Research and Development)
    Exhibit III   41 (Investing Activities)
    Exhibit III   43 (Investing Activities)
    Exhibit III   44 (Research and Development)

 

63

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
5.2.2.   A description of the issuer’s principal investments that are in progress   Exhibit I   2 (IFEC – In-flight Entertainment and Connectivity Systems, Remote and Maritime Connectivity, IFEC Ground Support Systems)
    Exhibit I  

34 (Investing Activities)

37 (Investing Activities)

    Exhibit I   F-7 (Consolidated Statements of Cash Flows)
    Exhibit I   F-14 (Intangible Asset, Net)
    Exhibit III   41 (Investing Activities)
    Exhibit III   43 (Investing Activities)
    Exhibit III   44 (Research and Development)
5.2.3.   Information concerning the issuer’s principal future investments on which its management bodies have already made firm commitments   Exhibit I   2 (Growth Strategies, General Terms Agreement with MJet GMBH signed March 6, 2019); 26 (Use of Proceeds; 34 (Investing Activities); 37 (Investing Activities);
    Exhibit I   37 (Capital Expenditures)
    Exhibit I   53 (MOUs and LOI with Our Business Partners)
    Exhibit II   10 (Note 5 – Property and Equipment); (Note 6 – Intangible Asset, Net)
    Exhibit III   F-13 (Note 5 – Property and Equipment)

 

64

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
6.   BUSINESS OVERVIEW        
6.1.   Principal Activities        
6.1.1.   A description of, and key factors relating to, the nature of the issuer’s operations and its principal activities   Chapter A   6 (B.3, Business Overview)
    Exhibit I   1-3 (Business Overview);
    Exhibit I   32 (Principal Factors Affecting Financial Performance)
    Exhibit II   22 (Overview)
    Exhibit II   23 (Principal Factors Affecting Financial Performance)
    Exhibit III   1 (Overview)
    Exhibit III   39 (Principal Factors Affecting Financial Performance)
6.1.2.   An indication of any significant new products and/or services that have been introduced   Exhibit I    1-3 (Business Overview)
    Exhibit I   50 (Black Box Live)
        Exhibit III   6-15 (Our IFEC Solutions)
6.2.   Principal markets   Exhibit I   50 (Other Markets (Remote Locations and Maritime)
    Exhibit I   56-57 (Our Growth Strategy)
    Exhibit III   F-9 (Note 1 – Organization – Continued)
6.3.   Where the information given pursuant to items 6.1. and 6.2. has been influenced by exceptional factors, mention that fact   Exhibit I   32 (Principal Factors Affecting Financial Performance)
    Exhibit I   44 (Our IFEC Solutions)
    Exhibit I   50 (Black Box Live)

 

65

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
6.4.   The extent to which the issuer is dependent, on patents or licenses, industrial, commercial or financial contracts or new manufacturing processes   Chapter B   38 (Risk Factors)
    Exhibit I   53 (Agreements, GTAs, MOUs and LOI with Our Business Partners)
    Exhibit III   13-15 (Other Airline Partners and Business Jet Customers)
6.5.   Issuer’s competitive position   Chapter A   9 (Our Competitive Strengths)
    Chapter B   26 (Risk Factors)
    Exhibit I   2 (Our Competitive Strengths)
    Exhibit I   56 (Our Competition)
7.   ORGANIZATIONAL STRUCTURE        
7.1.   Description of the group   Chapter A   11 (B.5. Group)
    Exhibit I   F-8 (Note 1- Organization)
    Exhibit I   F-8 (Note 1- Organization)
    Exhibit II   5 (Note 1 - Organization)
7.2.   A list of the issuer’s significant subsidiaries   Chapter A   11 (B.5. Group)
    Exhibit III   Exhibit 21.1 (List of Subsidiaries)
8.   PROPERTY, PLANTS AND EQUIPMENT        
8.1.   Information regarding any existing or planned material tangible fixed assets   Exhibit I   F-10 (Property and Equipment)
    Exhibit II   10 (Note 5 – Property and Equipment); (Note 6 – Intangible Asset, Net)
    Exhibit III   F-13 (Note 5 – Property and Equipment)

 

66

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
8.2.   Environmental issues that may affect the issuer’s utilization of the tangible fixed assets   Not Applicable   Not Applicable
9.   OPERATING AND FINANCIAL REVIEW        
9.1.   Financial condition   Chapter B   21 (Risk Factors)
    Exhibit I   32 (Management’s Discussion and Analysis of Financial Condition and Results of Operations)
    Exhibit II   21 (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
    Exhibit III   38 (Management’s Discussion and Analysis of Financial Condition and Results of Operations)
9.2.   Operating Results        
9.2.1.   Significant factors materially affecting the issuer’s income from operations   Exhibit I   7 (Summary Consolidated Financial Data)
    Exhibit I   32 (Results of Operations)
    Exhibit I   38 (Critical Accounting Policies)
    Exhibit II   24 (Results of Operations)
    Exhibit III   40 (Results of Operations)
    Exhibit III   43 (Critical Accounting Policies)
9.2.2.   Material changes in net sales or revenues   Exhibit I   7 (Summary Consolidated Financial Data)
    Exhibit I   32 (Results of Operations)
    Exhibit I   38 (Critical Accounting Policies)
    Exhibit II   24 (Results of Operations)
    Exhibit III   40 (Results of Operations)
    Exhibit III   43 (Critical Accounting Policies)

 

67

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
9.2.3.   Governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the issuer’s operations   Exhibit I   32 (Principal Factors Affecting Financial Performance)
    Exhibit I   37 (Inflation)
    Exhibit I   57-59 (Regulation)
    Exhibit II   27 (Inflation)
    Exhibit III   18-20 (Regulation)
10.   CAPITAL RESOURCES        
10.1.   Issuer’s resources and a narrative description of the issuer’s cash flows   Exhibit I   F-24 (Note 16 – Commitments)
    Exhibit I   35 (Financing Activities)
    Exhibit I   36 (Liquidity and Capital Resources)
    Exhibit I   29 (Capitalization)
    Exhibit II   25 (Liquidity and Capital Resources)
    Exhibit III   40 (Liquidity and Capital Resources)
    Exhibit III   F-24 (Note 14 – Commitments)
    Exhibit I   32 (Results of Operations)
    Exhibit II   24 (Results of Operations)
    Exhibit III   40 (Results of Operations)
        Exhibit IV   $6.46 Million pubic offering closing
10.2.   Information regarding any restrictions on the use of capital resources   Exhibit I   34 (Liquidity and Capital Resources)
    Exhibit I   F-24 (Note 16 – Commitments)

 

68

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
11.   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES   Exhibit I   38 (Research and Development Costs)
    Exhibit I   F-11 (Research and Development Costs)
    Exhibit II   27 (Research and Development)
    Exhibit III   44 (Research and Development)
12.   TREND INFORMATION        
12.1.   Significant trends that affected production, sales and inventory, and costs and selling prices since the end of the last financial year to the date of the prospectus   Exhibit I   1 (Business Overview)
    Exhibit I   41 (Our Industry)
    Exhibit III   38 (Principal Factors Affecting Financial Performance)
12.2.   Trends, uncertainties or events that are likely to affect the issuer for at least the current financial year   Exhibit I   1 (Business Overview)
    Exhibit I   41 (Our Industry)
    Exhibit III   38 (Principal Factors Affecting Financial Performance)
13.   PROFIT FORECASTS OR ESTIMATES   Not Applicable   Not Applicable
14.   ADMINISTRATIVE, MANAGEMENT, SUPERVISORY BODIES AND SENIOR MANAGEMENT        
14.1.  

Names, business addresses and functions in the issuer of the following persons and an indication of the principal activities performed by them outside the issuer where these are significant with respect to that issuer:

a) members of the administrative, management or supervisory bodies;

  Chapter C   48 (Directors and Executive Officers)
      Exhibit I   61 (Management)
    b) partners with unlimited liability, in the case of a limited partnership with a share capital;   Not Applicable   Not Applicable
  c) founders, if the issuer has been established for fewer than five years; and   Exhibit I   61 (Management)
  d) any senior manager who is relevant to establishing that the issuer has the appropriate expertise and experience for the management of the issuer’s business.   Exhibit I   61 (Management)
  The nature of any family relationship between any of those persons   Exhibit I   62 (Family Relationships)
    Exhibit I   61 (Management)

 

69

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
    In the case of each member of the administrative, management or supervisory bodies of the issuer and of each person mentioned in points (b) and (d) of the first subparagraph, details of that person’s relevant management expertise and experience and the following information:        
    (a) the names of all companies and partnerships of which such person has been a member of the administrative, management or supervisory bodies or partner at any time in the previous five years, indicating whether or not the individual is still a member of the administrative, management or supervisory bodies or partner. It is not necessary to list all the subsidiaries of an issuer of which the person is also a member of the administrative, management or supervisory bodies;   Exhibit I   61 (Management)
   

(b) any convictions in relation to fraudulent offences for at least the previous five years;

 

(c) details of any bankruptcies, receiverships or liquidations with which a person described in (a) and (d) of the first subparagraph who was acting in the capacity of any of the positions set out in (a) and (d) of the first subparagraph was associated for at least the previous five years;

 

(d) details of any official public incrimination and/or sanctions of such person by statutory or regulatory authorities (including designated professional bodies) and whether such person has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer for at least the previous five years.

 

If there is no such information to be disclosed, a statement to that effect is to be made.

  Exhibit I   63 (Involvement in Certain Legal Proceedings)

 

70

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
14.2.   Administrative, management, and supervisory bodies and senior management conflicts of interests   Exhibit I   71 (Certain Relationships and Related Party Transactions)
    Exhibit I   F-18 (Note 14 – Related Party Transactions)
15.   REMUNERATION AND BENEFITS        
15.1.   The amount of remuneration paid to the members of the administrative, management, supervisory and senior management bodies or to the general managers of the issuer   Exhibit I   66 (Executive Compensation)
15.2.   The total amounts set aside or accrued by the issuer or its subsidiaries to provide pension, retirement or similar benefits to the above persons   Exhibit I   66 (Executive Compensation)
    Exhibit I   67 (Equity Compensation Plan Information)
16.   Board Practices        
16.1.   Date of expiration of the current term of office, if applicable, and the period during which the person has served in that office.   Exhibit I   61 (Management)
    Exhibit I   64 (Nominating and Governance Committee)
16.2.   Information about members of the administrative, management or supervisory bodies’ service contracts with the issuer of any of its subsidiaries providing for benefits upon termination of employment   Exhibit I   61 (Management)
    Exhibit I   68 (Termination of Service)
    Exhibit III   Exhibit 10.38 (Employment Agreement)
16.3.   Information about the issuer’s audit committee and remuneration committee, including the names of committee members and a summary of the terms of reference under which the committee operates   Exhibit I   63-65 (Board Composition and Committees)
    Exhibit I   72 (Director Independence)
    Exhibit II   Exhibits 31.1, 31.2, 32.1 and 32.2
    Exhibit III   Exhibits 31.1, 31.2, 32.1 and 32.2

 

71

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
16.4.   A statement as to whether or not the issuer complies with its country’s of incorporation corporate governance regime(s).   Exhibit III    Exhibits 31.1, 31.2, 32.1 and 32.2
        Exhibit I   65 (Code of Ethics)
17.   EMPLOYEES        
17.1.   Number of employees   Exhibit I   57 (Employees)
17.2.   Shareholdings and stock options with respect to each person referred to in points (a) and (d) of the first subparagraph of item 14.1.   Exhibit I   69 (Security Ownership of Certain Beneficial Owners and Management)
17.3.   Description of any arrangements for involving the employees in the capital of the issuer   Exhibit I   66 (Executive Compensation)
    Exhibit I   31 (Securities Authorized for Issuance Under Equity Compensation Plans)
    Exhibit I   67 (Outstanding Equity Awards)
18.   Major Stockholders        
18.1.   Name of any stockholders who are not members of administrative and/or management bodies   Exhibit I   69 (Security Ownership of Certain Beneficial Owners and Management)
18.2.   Whether the issuer’s major stockholders have different voting rights   Chapter C   44 (1.5 Rights Attached to the Securities)
        Exhibit I   73 (Description of Securities)
18.3.   Information on the persons directly or indirectly controlling the issuer   Not Applicable   Not Applicable
18.4.   Agreement known to the issuer that may result in a change in control of the issuer   Not Applicable   Not Applicable

 

72

 

 

Item #   Item contents   Chapter/Exhibit   Page/Section
19.   RELATED PARTY TRANSACTIONS        
        Exhibit I   71 (Certain Relationships and Related Party Transactions)
        Exhibit I   F-18 (Note 14 – Related Party Transactions)
        Exhibit II   F-24 (Note 17 – Subsequent Events – Bridge Loan)
20.   FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES        
20.1.  

Historical Financial Information

Audited historical financial information covering the latest 2 financial years and audit report for each year

  Exhibit I   F4-F8 (Financial Statements and Notes to Financial Statements)
    Exhibit I   F-3 (Report of Independent Registered Public Accounting Firm)
    Financial statements for the nine months ended December 31, 2018   Exhibit III   337-382
    Financial statements for the three months ended March 31, 2018  

Exhibit I

Exhibit II

 

197-201

238-240

20.2.   Pro forma financial information   Not Applicable   Not Applicable
20.3.   Auditing of historical annual financial information        
20.3.1.   Statement that the historical financial information has been audited   Exhibit I   F-3 (Report of Independent Registered Public Accounting Firm)
    Exhibit III   F-3 (Report of Independent Registered Public Accounting Firm)
20.3.2.   Indication of other information in the prospectus which has been audited by the auditors   Exhibit I   F-3 (Report of Independent Registered Public Accounting Firm)
    Exhibit III   46 (Management’s Annual Report on Internal Control over Financial Reporting)
20.3.3.   Unaudited financial data in prospectus   Chapter C   47 (Capitalization and Indebtedness)
    Exhibit I   7 (Summary Consolidated Financial Data)
    Exhibit I   F4-F8 (Financial Statements and Notes to Financial Statements)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
20.4.   Age of latest financial information        
20.4.1.   The last year of audited financial information   Exhibit I   F4-F8 (Financial Statements and Notes to Financial Statements)
20.5.   Interim and other financial information        
20.5.1.   Quarterly or half yearly financial information since the date of the last audited financial statements   Exhibit I   7 (Summary Consolidated Financial Data)
    Exhibit II   1-20 (Financial Statements and Notes to Financial Statements; Three Months Ended March 31, 2019 are unaudited)
20.5.2.   Interim financial information   Not Applicable   Not Applicable
20.6.   Dividend policy        
20.6.1.   The amount of the dividend per share for each financial year for the period covered by the historical financial information.   Chapter A   17 (C.7, Dividend Policy)
    Exhibit I   28 (Dividend Policy)
20.7.   Legal and arbitration proceedings   Exhibit I   60 (Legal Proceedings)
20.8.   Significant change in the issuer’s financial or trading position since the end of the last financial period   Not Applicable   Not Applicable
21.   ADDITIONAL INFORMATION        
21.1.   Share Capital        
21.1.1.   The amount of issued capital   Chapter C   43 (Type and the Class of the Securities Being Offered)
    Exhibit I   F-6 (Consolidated Statements of Changes in Stockholders’ Equity)
    Exhibit I   73 (Description of Securities)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
21.1.2.   Shares not representing capital   Not Applicable   Not Applicable
21.1.3.   Shares in the issuer held by the issuer or subsidiaries   Not Applicable   Not Applicable
21.1.4.   The amount of any convertible securities, exchangeable securities or securities with warrants, with an indication of the conditions governing and the procedures for conversion, exchange or subscription   Exhibit I   6 (The Offering); 30 (Dilution); 31 (Market for Common Equity and Related Stockholder Matters; and 76 (Warrants)
21.1.5.   Information about and terms of any acquisition rights and or obligations over authorized but unissued capital or an undertaking to increase the capital   Chapter C   43 (Type and the Class of the Securities Being Offered)
21.1.6.   Information about any capital of any member of the group which is under option or agreed conditionally or unconditionally to be put under option   Exhibit I   F-17 (Note 9 – Capital Stock)
    Exhibit I   31 ( Securities Authorized for Issuance Under Equity Compensation Plans)
    Exhibit I   66 (Executive Compensation)
    Exhibit I   67 (Equity Compensation Plan Information)
    Exhibit I   69 (Security Ownership of Certain Beneficial Owners and Management)
21.1.7.   A history of share capital for the period covered by the historical financial information   Exhibit I   F4-F8 (Financial Statements and Notes to Financial Statements)
21.2.   Memorandum and Articles of Association        
21.2.1.   Issuer’s objects and purposes   Chapter C   43 (1.2, Legislation Under Which the Securities Have Been Created)
    Exhibit I   1 (Business Overview)
21.2.2.   A summary of any provisions of the issuer’s articles of association, statutes, charter or bylaws with respect to the members of the administrative, management and supervisory bodies   Exhibit I   24 (Risk Factors)
    Exhibit I   63 (Board Composition and Committees)
    Exhibit I   73 (Description of Securities)
    Exhibit II   Exhibit 3.2 (Restated Bylaws)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
21.2.3.   A description of the rights, preferences and restrictions attaching to each class of the existing shares   Chapter C   44 (1.5, Rights Attached to the Securities)
    Exhibit I   73 (Description of Securities)
21.2.4.   What action is necessary to change the rights of holders of the shares   Chapter C   44 (1.5, Rights Attached to the Securities)
    Exhibit I   73 (Description of Securities)
21.2.5.   Conditions governing the manner in which annual general meetings and extraordinary general meetings of stockholders are called   Chapter C   44 (1.5, Rights Attached to the Securities)
    Exhibit II   Exhibit 3.2 (Restated Bylaws)
21.2.6.   Provisions of the issuer’s articles of association, statutes, charter or bylaws that would have an effect of delaying, deferring or preventing a change in control of the issuer   Chapter C   45 (1.8, General Provisions Applying to Business Combinations)
    Exhibit II   Exhibit 3.2 (Restated Bylaws)
21.2.7.   An indication of the articles of association, statutes, charter or bylaw provisions, if any, governing the ownership threshold above which stockholder ownership must be disclosed   Exhibit I   73 (Description of Securities)
    Exhibit II   Exhibit 3.2 (Restated Bylaws)
21.2.8.   A description of the conditions imposed by the memorandum and articles of association statutes, charter or bylaw governing changes in the capital, where such conditions are more stringent than is required by law   Exhibit I   24 (Risk Factors)
    Exhibit II   Exhibit 3.2 (Restated Bylaws)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
22.   MATERIAL CONTRACTS        
    Summary of material contracts   Exhibit I   51 (Satellite Ground Stations and Data Centers)
    Exhibit I   52 (Airbus SAS); 52 (Hong Kong Airlines); 53 (Airbus SAS Agreement); 52 (MJet GTA); 54 (Malta MOU); 54 (Onurair MOU); 54 (Yahoo MOU); 54 (LeTV MOU); 54 (India MOU); 54 (Global Eagle LOI)
    Exhibit I   59 (Digital Transmission Service Agreement)
    Exhibit I   75 (Underwriting Agreement)
    Exhibit I   71 (Development Agreement)
    Exhibit I   71 (Purchase Agreement for Ground Station Equipment)
    Exhibit I   76 (Lock-Up Agreements)
    Exhibit I   F-8 (Note 1 - Organization)
23.   THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATIONS OF ANY INTEREST        
23.1.   Where a statement or report attributed to a person as an expert is included in the Registration Document, provide such person’s name, business address, qualifications and material interest if any in the issuer   Not Applicable   Not Applicable
23.2.   Where information has been sourced from a third party, provide a confirmation that this information has been accurately reproduced   Not Applicable   Not Applicable
24.   DOCUMENTS ON DISPLAY   Chapter C   56 (Documents on Display)
        Exhibit I   82 (Where You Can Find More Information)
25.   INFORMATION ON HOLDINGS   Chapter C   50 (Organizational Structure)
    Exhibit III   Exhibit 21.1 (List of Subsidiaries)

 

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ANNEX III

 

MINIMUM DISCLOSURE REQUIREMENTS FOR THE SHARE SECURITIES NOTE
(SCHEDULE)

 

(Page numbering refers to the page contained in the relevant documents)

 

Item #   Item contents   Chapter/Exhibit   Page/Section
1.   PERSONS RESPONSIBLE        
1.1.   All persons responsible for the information given in the prospectus.   Wrapper   4 (Company Representative for Prospectus)
    Exhibit II   Exhibits 31.1, 31.2, 32.1 and 32.2
    Exhibit III   Exhibits 31.1, 31.2, 32.1 and 32.2
1.2.   A declaration by those responsible for the prospectus.   Wrapper   4 (Company Representative for Prospectus)
2.   RISK FACTORS   Chapter A   14 (Risk Factors)
    Chapter B   17-39 (Risk Factors)
    Exhibit I   8-25 (Risk Factors)
    Exhibit III   21-36 (Item 1A. Risk Factors)
3.   KEY INFORMATION        
3.1.   Working capital statement   Chapter C   47 (Working Capital Statement)
3.2.   Capitalization and indebtedness   Chapter C   44 (Statement of Capitalization and Indebtedness As of May 31, 2019)
3.3.   Interest of natural and legal persons involved in the issue/offer   Not Applicable   Not Applicable
3.4.   Reasons for the offer and use of proceeds   Chapter C   43 (Purpose of the Listing and Liquidity)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
4.   INFORMATION CONCERNING THE SECURITIES TO BE OFFERED/ ADMITTED TO TRADING        
4.1.   Type and the class of the securities being offered, including the security identification code.   Chapter C   40 (Type and the Class of the Securities Being Offered, Including the Security Identification Code)
4.2.   Legislation under which the securities have been created.   Chapter C   40 (Legislation Under Which the Securities Have Been Created)
4.3.   Form of securities, name and address of the entity in charge of keeping the records.   Chapter C   40 (Form of Securities, Name and Address of the Entity in Charge of Keeping the Records)
4.4.   Currency of the securities issue.   Chapter C   40 (Currency of the Securities Issue)
4.5.   Rights attached to the securities   Chapter C   41 (Rights Attached to the Securities)
4.6.   Statement of the resolutions, authorizations and approvals by virtue of which the securities have been or will be created and/or issued.   Not Applicable   Not Applicable
4.7.   Expected issue date of the securities.   Not Applicable   Not Applicable
4.8.   Description of any restrictions on the free transferability of the securities.   Chapter C   42 (Transferability)
4.9.   Mandatory takeover bids and/or squeeze-out and sell-out rules in relation to the securities.   Not Applicable   Not Applicable
4.10.   An indication of public takeover bids by third parties in respect of the issuer’s equity, which have occurred during the last financial year and the current financial year.   Not Applicable   Not Applicable
4.11.   Information on taxes on the income from the securities withheld at source and indication as to whether the issuer assumes responsibility for the withholding of such taxes   Chapter C   47 (Tax Consequences)

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
5.   TERMS AND CONDITIONS OF THE OFFER        
5.1.   Conditions, offer statistics, expected timetable and action required to apply for the offer        
5.1.1.   Conditions to which the offer is subject.   Not Applicable   Not Applicable
5.1.2.   Total amount of the issue/offer.   Not Applicable   Not Applicable
5.1.3.   Time period during which the offer will be open and description of the application process.   Not Applicable   Not Applicable
5.1.4.   Circumstances under which the offer may be revoked or suspended and whether revocation can occur after dealing has begun.   Not Applicable   Not Applicable
5.1.5.   Possibility to reduce subscriptions and the manner for refunding excess amount paid by applicants.   Not Applicable   Not Applicable
5.1.6.   Minimum and/or maximum amount of application.   Not Applicable   Not Applicable
5.1.7.   Period during which an application may be withdrawn.   Not Applicable   Not Applicable
5.1.8.   Method and time limits for paying up the securities and for delivery of the securities.   Not Applicable   Not Applicable
5.1.9.   Manner and date in which results of the offer are to be made public.   Not Applicable   Not Applicable
5.1.10.   Procedure for the exercise of any right of pre-emption.   Not Applicable   Not Applicable
5.2.   Plan of distribution and allotment        
5.2.1.   The various categories of potential investors to which the securities are offered.   Not Applicable   Not Applicable
5.2.2.   Indication of whether major shareholders or members of the issuer’s management, supervisory or administrative bodies intended to subscribe in the offer, or whether any person intends to subscribe for more than five per cent of the offer.   Not Applicable   Not Applicable

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
5.2.3.   Pre-allotment Disclosure:   Not Applicable   Not Applicable
a)   The division into tranches of the offer;   Not Applicable   Not Applicable
b)   The conditions under which the claw-back may be used;   Not Applicable   Not Applicable
c)   The allotment method or methods to be used for the retail and issuer’s employee tranche;   Not Applicable   Not Applicable
d)   Pre-determined preferential treatment to be accorded to certain classes of investors or certain affinity groups.   Not Applicable   Not Applicable
e)   Whether the treatment of subscriptions or bids to subscribe in the allotment may be determined on the basis of which firm they are made through or by;   Not Applicable   Not Applicable
f)   A target minimum individual allotment if any within the retail tranche;   Not Applicable   Not Applicable
g)   The conditions for the closing of the offer as well as the date on which the offer may be closed at the earliest;   Not Applicable   Not Applicable
h)   Whether or not multiple subscriptions are admitted.   Not Applicable   Not Applicable
5.2.4.   Process for notification to applicants of the amount allotted.   Not Applicable   Not Applicable
5.2.5.   Over-allotment and ‘green shoe’:   Not Applicable   Not Applicable
a)   The existence and size of any over-allotment facility and/or ‘green shoe’.   Not Applicable   Not Applicable
b)   The existence period of the over-allotment facility and/or ‘green shoe’.   Not Applicable   Not Applicable
c)   Any conditions for the use of the over-allotment facility or exercise of the ‘green shoe’.   Not Applicable   Not Applicable
5.3.   Pricing        
5.3.1.   An indication of the price at which the securities will be offered.   Not Applicable   Not Applicable
5.3.2.   Process for the disclosure of the offer price.   Not Applicable   Not Applicable

 

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Item #   Item contents   Chapter/Exhibit   Page/Section
5.3.3.   If the issuer’s equity holders have pre-emptive purchase rights and this right is restricted or withdrawn.   Not Applicable   Not Applicable
5.3.4.   Where there is or could be a material disparity between the public offer price and the effective cash cost to members of the administrative, management or supervisory bodies or senior management, or affiliated persons, of securities acquired by them in transactions during the past year.   Not Applicable   Not Applicable
5.4.   Placing and Underwriting        
5.4.1.   Name and address of the co-coordinator(s) of the global offer.   Not Applicable   Not Applicable
5.4.2.   Name and address of any paying agents and depository agents in each country.   Chapter C   40 (Form of Securities, Name and Address of the Entity in Charge of Keeping Records)
5.4.3.   Name and address of the entities agreeing to underwrite the issue on a firm commitment basis.   Not Applicable   Not Applicable
5.4.4.   When the underwriting agreement has been or will be reached.   Not Applicable   Not Applicable
6.   ADMISSION TO TRADING AND DEALING ARRANGEMENTS        
6.1.   Whether the securities offered are or will be the object of an application for admission to trading.   Chapter C   43 (Purpose of Listing and Liquidity)
6.2.   Regulated markets or equivalent markets on which securities of the same class of the securities to be offered or admitted to trading are already admitted to trading.