AERCOMM INC. DISCUSSION AND ANALYSIS OF MANAGEMENT’S FINANCIAL POSITION AND RESULTS. (Form 10-K)

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The following discussion and analysis was prepared to supplement information
contained in the accompanying financial statements and is intended to explain
certain items regarding the Company's financial condition as of December 31,
2021, and its results of operations for the years ended December 31, 2021 and
2020.


The following discussion and analysis of our financial condition and result of
operations should be read in conjunction with our financial statements and the
notes thereto and the other financial information appearing elsewhere in this
annual report. In addition to historical information, the following discussion
contains certain forward-looking information. See "Special Note Regarding
Forward Looking Statements" above for certain information concerning those
forward-looking statements. Our financial statements are prepared in U.S.
dollars and in accordance with United States generally accepted accounting
principles.



Overview



We are a full-service development stage provider of IFEC solutions. With
advanced technologies and a unique business model, we, as a 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 in seat-back displays, as well
as on passengers' personal devices. We also expect to provide content management
services and e-commerce solutions related to our IFEC solutions.



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

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. We have purchased
a 6.36 acre parcel of land in Taiwan where we expect to build our first ground
station. We are currently waiting for the title to this Taiwan land parcel to be
transferred to us and once that process is completed, we intend to mortgage the
property to finance the cost of the first ground station construction.



Our total sales were $3,250,000 and $0 for the years ended December 31, 2021 and
2020. Our total sales of $3,250,000 for the year ended December 31, 2021
consisted of a non-recurring sale of ground antenna units to a related party and
sales of network hardware to a non-related party.



The COVID-19 pandemic is expected to have an impact on Come on business



Although we cannot predict with any degree of certainty the long-term impact on
our business of the COVID-19 pandemic, we do not expect that the COVID-19
pandemic will have a material adverse effect on our business in 2020, in view of
the fact that Aerkomm is a development stage company. Consequently, we do not
have any contractual agreements with airlines that would result in a decrease or
complete halt in revenue generation due to the grounding of aircraft and
reduction in aircraft fleets and new aircraft purchases. Additionally, because
we do not currently have any operational IFEC systems, we are not generating any
recurrent operational expenses with satellite companies that provide bandwidth
connectivity for operational IFEC systems. We expect that we will acquire
certification of our Aerkomm K++ System by the first quarter of 2023, and we are
currently targeting the commencement of the initial installations of our Aerkomm
K++ System by the end of the first quarter of 2023, although these target dates
could get pushed back due to various factors, including the ongoing impact of
the COVID-19 pandemic. While according to the current IATA data, the recovery in
2021 is expected to be slow, this could work to our advantage as it will provide
the opportunity to have more aircraft on the ground available for the retrofit
installation of our Aerkomm K++ System equipment. That is, we will not have to
wait for a prospective airline customer to cycle through its scheduled grounding
of aircraft for major maintenance checks to be able to install our K++ System
retrofit solution. Of course, there can be no assurance that a grounded airline
fleet would make it more probable that an airline company would contract for our
Aerkomm K++ System installation.



Because under our innovative business model we will be providing the AERKOMM K++
System free of charge to commercial airlines, we believe that the COVID-19
economic environment may provide us with a competitive advantage in relation to
airlines that need to upgrade IFEC solutions to better serve their passengers,
but because of drastically reduced revenues, will not be able to afford to
purchase IFEC equipment in the foreseeable future. Additionally, as the impact
of the COVID-19 pandemic begins to become more manageable and air travel begins
to increase once again, airlines will need to attract passengers. Our revenue
sharing model may incentivize airlines to install our AERKOMM K++ System in
expectation that they may be able to generate additional revenues from
passengers who will not be required to pay for connectivity.



With respect to our AirCinema Cube, which we are developing for installation on
Hong Kong Airlines and Vietjet aircraft and which is expected to be ready for
installation by the third quarter of 2022, we believe we will still be able to
begin installations on schedule. However, due to the COVID-19 pandemic, even if
we can install the AirCinema Cube on schedule, revenue from the AirCinema Cube
will, most likely, be delayed until the fleet of Vietjet and Hong Kong Airlines
re-commences its full schedule which, we expect, will be third quarter of 2022
and late in the fourth quarter of 2022, respectively.



Due to the unpredictability of future developments of the COVID-19 pandemic, we cannot be assured that our expectations regarding development, certification, installation or revenue generation will be met, as of timing or otherwise.


                                       49


Main factors affecting financial performance



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



? our ability to enter into and maintain long-term business agreements

        with airline partners, which depends on numerous factors including the
        real or perceived availability, quality and price of our services and
        product offerings as compared to those offered by our competitors;




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




    ?   costs associated with implementing, and our ability to implement on a

timely, our technology, upgrades and installation technologies;

? Costs related to and our ability to conduct our expansion, including

        modification to our network to accommodate satellite technology,
        development and implementation of new satellite-based technologies, the
        availability of satellite capacity, costs of satellite capacity to which

we may need to commit and comply with regulations well in advance;



  ? costs associated with managing a rapidly growing company;




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

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

or fear of such outbreaks on the global aviation and tourism industries,

        especially in the Asia Pacific region;



? the number of aircraft in service in our markets, including consolidation

        of the airline industry or changes in fleet size by one or more of our
        commercial airline partners;




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



? continued demand for connectivity and proliferation of Wi-Fi

        devices, including smartphones, tablets and laptops;



? our ability to obtain the required telecommunications, aviation and others

        licenses and approvals necessary for our operations; and




    ?   changes in laws, regulations and interpretations affecting
        telecommunications services and aviation, including, in particular,

Changes affecting the design of our equipment and our ability to procure it

        required certifications for our equipment.




Emerging Growth Company



We are an "emerging growth company," as defined in the JOBS Act, and therefore
we intend to take advantage of certain exemptions from various public company
reporting requirements, including not being required to have our internal
controls over financial reporting audited by our independent registered public
accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports
and proxy statements and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and any golden parachute
payments. We may take advantage of these exemptions until we are no longer an
"emerging growth company." In addition, the JOBS Act provides that an "emerging
growth company" can delay adopting new or revised accounting standards until
such time as those standards apply to private companies. We have elected to use
the extended transition period for complying with new or revised accounting
standards under the JOBS Act. This election allows us to delay the adoption of
new or revised accounting standards that have different effective dates for
public and private companies until those standards apply to private companies.
As a result of this election, our financial statements may not be comparable to
companies that comply with public company effective dates. We will remain an
"emerging growth company" until the earlier of (1) the last day of the fiscal
year: (a) following the fifth anniversary of the completion of our initial
public offering; (b) in which we have total annual gross revenue of at least
$1.07 billion; or (c) in which we are deemed to be a large accelerated filer,
which means the market value of our common stock that is held by non-affiliates
exceeded $700 million as of the prior June 30th, and (2) the date on which we
have issued more than $1.0 billion in non-convertible debt during the prior
three-year period. References herein to "emerging growth company" have the
meaning associated with that term in the JOBS Act.



                                       50



Results of Operations


The discussion below relates to our two fiscal years ended on December 31, 2021
and 2020.

Comparison of past years December 31, 2021 and 2020

The following table shows the key components of our operating results over the past several years December 31, 2021 and 2020.


                                                    Years Ended
                                                    December 31,                        Change
                                               2021             2020               $               %
Sales                                      $  3,250,000     $           -     $  3,250,000         100.0 %
Cost of sales                                 3,050,978                 -        3,050,978         100.0 %
Operating expenses                           10,103,543         8,335,598        1,767,945          21.2 %
Loss from operations                         (9,904,521 )      (8,335,598 )     (1,568,923 )        18.8 %
Net non-operating income (expense)              524,335          (773,262 )      1,297,598        (167.8 )%
Loss before income taxes                     (9,380,186 )      (9,108,860 )
      (271,325 )         3.0 %
Income tax expense                                3,239             3,286              (47 )        (1.4 )%
Net Loss                                     (9,383,425 )      (9,112,146 )       (271,278 )         3.0 %
Other comprehensive loss                       (141,930 )      (1,271,589 )      1,129,659         (88.8 )%
Total comprehensive loss                   $ (9,525,354 )   $ (10,383,735 )
  $    858,381          (8.3 )%



Revenue. Our sales were $3,250,000 for the year ended December 31, 2021, as
compared to the $0 for the year ended December 31, 2020. Our total revenue of
$3,250,000 for the year ended December 31, 2021 consisted of the sales of ground
antenna units of $1,440,000 to a related party and sales of network hardware of
$1,810,000 to a non-related party. Our total revenue for the year ended December
31, 2020 was $0 as we are still developing our core business in in-flight
entertainment and connectivity and there was no non-recurring sale.



Cost of sales. Our cost of sales includes the direct costs of our raw materials
and component parts, as well as the cost of labor and overhead. Our cost of
sales was $3,050,978 and $0 for the years ended December 31, 2021 and 2020,
respectively. The cost of sales for the year ended December 31, 2021 was
$3,050,978 as we sold ground antenna units to a related party in the amount of
$1,243,878 and network hardware to a non-related party in the amount of
$1,807,100, while the cost of sales for the year ended December 31, 2020 was $0
as we did not have any sales during the periods.



Operating expenses. Our operating expenses consist primarily of compensation and
benefits, professional advisor fees, cost of promotion, business development,
business travel, transportation costs, and other expenses incurred in connection
with general operations. Our operating expenses increased by $1,767,945 to
$10,103,543 for the year ended December 31, 2021, from $8,335,598 for the year
ended December 31, 2020. Such increase was mainly due to the increase in
stock-based compensation expense, payroll and related expenses, equipment
leasing, accounting and auditing expenses, insurance expense and legal expense
in the amount of $921,628, $419,932, $300,000, $253,148, $139,054 and $132,615,
respectively, which was offset by the decrease in travel expense and
amortization expense in the amount of $236,037 and $187,915, respectively.



Net non-operating income (expense). We had $524,335 in net non-operating income
for the year ended December 31, 2021 as compared to $773,262 in net
non-operating expense for the year ended December 31, 2020. Net non-operating
income for the year ended December 31, 2021 primarily consisted of unrealized
gain from long-term investment of $972,722, gain on disposal of investment of
$306,848, gain on foreign exchange of $188,020, which was offset by the
financing cost from bonds issuance of $942,375 and net interest expense of
$79,297. Net non-operating expense for the year ended December 31, 2020
primarily consisted of net interest expense of $39,494, other loss of $1,155,623
due to a loss from allowance for other receivable (as explained under the Legal
Proceedings section below), unrealized loss from investments of $868,064 and
gain on foreign exchange of $1,088,672, Covid-19 government subsidy of $38,763
received by Aircom Japan and $15,085 received by Aircom HK and forgiveness of
PPP Loan of $163,200 received by Aircom.



Loss before income taxes. Our loss before income taxes is $9,380,186 for the
year ended December 31, 2021 as compared to the loss before income taxes for the
year ended December 31, 2020 of $9,108,860, an increase of $271,326, or 3.0%, as
a result of the factors described above.



Income tax expense (benefit). Income tax expense decreased by $47 to $3,239 for
the year ended December 31, 2021, from an income tax expense of $3,286 for the
year ended December 31, 2020. The income tax expenses were mainly due to
California franchise tax and foreign subsidiary's income tax expenses.



Total comprehensive loss. As a result of the cumulative effect of the factors
described above, our total comprehensive loss increased by $858,380, or 8.3%, to
$9,525,355 for the year ended December 31, 2021, from $10,383,735 for the year
ended December 31, 2020.


liquidity and capital resources

away December 31, 2021we had cash from $38,695 and restricted cash from
$3,250,118. We have funded our operations primarily with cash proceeds from financing activities, including our 2020 offering, convertible debenture issuance, short-term borrowings and equity contributions from our shareholders.


                                       51


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

                                   Cash Flow



                                                                           Years Ended
                                                                          December 31,
                                                                      2021             2020
Net cash used in operating activities                             $ (1,963,824 )   $ (1,912,091 )
Net cash used in investing activities                                  (76,950 )     (5,376,667 )
Net cash provided by financing activities                            1,676,926       11,378,109
Net increase (decrease) in cash and restricted cash                   (363,848 )      4,089,351
Cash and restricted cash at beginning of year                        3,794,591          976,829
Foreign currency translation effect on cash and restricted cash       (141,930 )     (1,271,589 )
Cash and restricted cash at end of year                           $  3,288,813     $  3,794,591




Operating Activities



Net cash used in operating activities was $1,963,824 for the year ended December
31, 2021, as compared to $1,912,091 for the year ended December 31, 2020. In
addition to the net loss of $9,383,425, the increase in net cash used in
operating activities during the year ended December 31, 2021 was mainly due to
increase in accounts receivable and prepaid expense and decrease in accounts
payable and other payable - others of $136,800, $388,828, $309,712 and $281,535,
respectively, offset by the decrease in inventories, increase in accrued
expenses and other payable - related parties of $1,824,273, $1,322,637 and
$243,214, respectively. In addition to the net loss of $9,112,146, the increase
in net cash used in operating activities during the year ended December 31, 2020
was mainly due to the increase in inventory of $2,172,863, offset by the
decrease in accounts receivable, decrease in prepaid expenses, increase in
accounts payable, accrued expenses, other payable - related parties and other
payable - others of $451,130, $1,345,956, $961,610, $886,319, $420,215 and
$1,311,246, respectively.



Investing Activities


Net cash used in investing activities for the year ended December 31, 2021
was $76,950 as compared to $5,376,667 for the year ended December 31, 2020. The
net cash used in investing activities for the year ended December 31, 2021 was
mainly due to purchase of property and equipment of $163,862, which was offset
by proceeds from disposal of trading security of $101,547. The net cash used in
investing activities for the year ended December 31, 2020 was mainly due to the
prepayment on long-term investment of $5,027,600, purchase of trading securities
of $233,174, prepayment for equipment of $86,617 and purchase of property and
equipment of $29,276.



Our $5,027,600 purchase of long-term investment in 2020 was made to purchase
6,000,000 shares of Ejectt, one of our business partners and a related party.
This purchase was made for business purposes in Taiwan relating to local
operations.



Financing Activities


Net cash provided by financing activities for the years ended December 31, 2021
and 2020 was $1,676,926 and $11,378,109, respectively. Net cash provided by
financing activities for the year ended December 31, 2021 was mainly
attributable to proceeds from short-term loan of $1,106,666 and issuing of
common stock for warrants exercise of $592,800. Net cash provided by financing
activities for the year ended December 31, 2020 was mainly attributable to the
net proceeds from issuance of common stock of $1,667,080, net proceeds from
issuance of convertible bonds of $9,218,094 and proceeds from short-term loan -
related party of $527,066.



On May 9, 2019, two of our current shareholders, whom we refer to as the
Lenders, each committed to provide us with a $10 million bridge loan, or
together, the Loans, for an aggregate principal amount of $20 million, to bridge
our cash flow needs prior to our obtaining a mortgage loan to be secured by our
Taiwan land parcel which we recently purchased. The Taiwan land parcel consists
of approximately 6.36 acres of undeveloped land located at the Taishui Grottoes
in the Xinyi District of Keelung City, Taiwan. Aerkomm Taiwan contracted to
purchase the Taiwan land parcel for NT$1,056,297,507, or US$34,474,462, and as
of July 3, 2019 we completed payment of the purchase price for the Taiwan land
parcel in full. We are now waiting for title to the Taiwan land parcel to be
transferred to us pending the completion of our satellite ground station
licensing process. The Loans will be secured by the Taiwan land parcel with the
initial closing date of the Loans to be a date, designated by us, within 30 days
following the date that the title for the Taiwan land parcel is fully
transferred to and vested in our subsidiary, Aerkomm Taiwan. The Loans will bear
interest, non-compounding, at the Bank of America Prime Rate plus 1%, annually,
calculated on the actual number of days the Loans are outstanding and based on a
365-day year and will be due and payable upon the earlier of (1) the date of our
obtaining a mortgage loan secured by the Taiwan land parcel with a principal
amount of not less than $20 million and (2) one year following the initial
closing date of the Loans. The Lenders also agreed to an earlier closing of up
to 25% of the principal amounts of the Loans upon our request prior to the time
that title to the Taiwan land parcel is transferred to our subsidiary, Aerkomm
Taiwan, provided that we provide adequate evidence to the Lenders that the
proceeds of such an earlier closing would be applied to pay our vendors. We, of
course, cannot provide any assurances that we will be able to obtain a mortgage
on the Taiwan land parcel once the acquisition is completed. On April 25, 2022,
the Lenders amended the commitment and agreed to increase the percentage of
earlier closing amount from 25% to 100%. As of the date of this annual report,
drawn down approximately $60,000 (approximately NTD 2,620,000) under the Loans
from one of the Lenders.



                                       52



On July 10, 2018, in conjunction with our agreement to acquire the Taiwan land
parcel, we entered into a binding letter of commitment with Metro Investment
Group Limited, or MIGL, pursuant to which we agreed to pay MIGL an agent
commission of four percent (4%) of the full purchase price of the Taiwan land
parcel, equivalent to approximately US$1,387,127, for MIGL's services provided
with respect to the acquisition. Under the terms of the initial agreement with
MIGL, we agreed to pay this commission no later than 90 days following payment
in full of the Taiwan land parcel purchase price. In May 2019 and December 2021,
we amended the binding letter of commitment with MIGL to extend the payment to
be paid after the full payment of the Land acquisition price until no later than
June 30, 2022. If there is a delay in payment, we shall be responsible for
punitive liquidated damages at the rate of one tenth of one percent (0.1%) of
the commission per day of delay with a maximum cap to these damages of five
percent (5%). Under applicable Taiwanese law, the commission was due and payable
upon signing of the letter of commitment even if the contract is cancelled for
any reason and the acquisition is not completed. We have recorded the estimated
commission to the cost of land and will be paying the amount no later than
June
30, 2022.



On December 3, 2020, the Company closed a private placement offering (the "Bond
Offering") consisting of US$10,000,000 in aggregate principal amount of its
Credit Enhanced Zero Coupon Convertible Bond due 2025 (the "Credit Enhanced
Bonds") and US$200,000 in aggregate principal amount of its 7.5% convertible
bonds due 2025 (the "Coupon Bonds," and together with the Credited Enhanced
Bonds, the "Bonds").



Payments of principal, premium, interest and any payments thereof in respect of
the Credit Enhanced Bonds will have the benefit of a bank guarantee denominated
in U.S. dollars and issued by Bank of Panhsin Co., Ltd., based in Taiwan. Unless
previously redeemed, converted or repurchased and canceled, the Credit Enhanced
Bonds will be redeemed on December 2, 2025 at 105.11% of their principal amount
and the Coupon Bonds will be redeemed on December 2, 2025 at 100% of their
principal amount plus any accrued and unpaid interest. The Coupon Bonds will
bear interest from and including December 2, 2020 at the rate of 7.5% per annum.
Interest on the Coupon Bonds is payable semi-annually in arrears on June 1 and
December 1 each year, commencing on June 1, 2021. Unless previously redeemed,
converted or repurchased and cancelled, the Bonds may be converted at any time
on or after December 3, 2020 up to November 20, 2025 into shares of Common Stock
of the Company with a par value US$0.001 each (such shares of Common Stock, the
"Conversion Shares"). The initial conversion price for the Bonds is US$13.30 per
Conversion Share and is subject to adjustment in specified circumstances. Please
refer to our Current Report on Form 8-K filed with SEC on December 4, 2020.



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



The Company has not generated significant revenues, excluding non-recurring
revenues in 2021 and 2019, and will incur additional expenses as a result of
being a public reporting company. Currently, we have taken measures that
management believes will improve our financial position by financing activities,
including having successfully completed our Bond Offering, 2020 Offering,
short-term borrowings and other private loan commitments, including the Loans
from our investors, discussed above. With our current available cash, the $20
million in loan commitments from the Lenders and our expectations for our
ability to raise funds in the near term, we believe our working capital will be
adequate to sustain our operations for the next twelve months.



However, even if we successfully raise sufficient capital to satisfy our needs
over the next twelve months, following that period we will require additional
cash resources for the implementation of our strategy to expand our business or
for other investments or acquisitions we may decide to pursue. If our internal
financial resources are insufficient to satisfy our capital requirements, we
will need seek to sell additional equity or debt securities or obtain additional
credit facilities, although there can be no assurances that we will be
successful in these efforts. The sale of additional equity securities could
result in dilution to our stockholders. The incurrence of indebtedness would
result in increased debt service obligations and could require us to agree to
operating and financial covenants that would restrict our operations. Financing
may not be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.


On June 28, 2022, we entered into a subscription agreement with an investor who
agreed to purchase 550,000 shares of our common stock for 6.00 Euros per share
for an aggregate purchase price of 3,300,000 Euros (the "Purchase Price"). This
transaction closed on June 29, 2022 and we received the Purchase Price
equivalent to U.S. $3,175,200.77 from this investor. Despite the fact that we
have received the investor's funds, the subscription agreement is subject to a
cooling off period pursuant to which it may be terminated prior to July 29, 2022
by either party at any time and for any reason. If the subscription agreement is
terminated by the investor, we will be required to return the Purchase Price
funds to the investor, without interest. Because of the wording of the
subscription agreement, we cannot assure you at this time that we will not be
required to return the Purchase Price funds to the investor.



Capital Expenditures



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


investments for the past few years December 31, 2021 and 2020 were
$148,921 and $349,067respectively.


                                       53



We anticipate an increase in capital spending in fiscal year 2022 and estimate
that capital expenditures will range from $10 million to $40 million as we will
begin airborne equipment installations and continue to execute our expansion
strategy.



Inflation



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


Off-Balance Sheet Arrangements



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



Seasonality


Our operating results and operating cash flows have not been subject to significant seasonal fluctuations in the past. However, this pattern may change due to new market opportunities or new product launches.


Critical Accounting Policies



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



Concentrations of Credit Risk



Financial instruments that potentially subject to significant concentrations of
credit risk consist primarily of cash in banks. As of December 31, 2021 and
2020, the total balance of cash in bank exceeding the amount insured by the
Federal Deposit Insurance Corporation (FDIC) for the Company was approximately
$0 and $233,000, respectively. The balance of cash deposited in foreign
financial institutions exceeding the amount insured by local insurance is
approximately $3,106,000 and $3,514,000 as of December 31, 2021 and December 31,
2020, respectively.



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



Inventories



Inventories are recorded at the lower of weighted-average cost or net realizable
value. We assess the impact of changing technology on its inventory on hand and
writes off inventories that are considered obsolete. Estimated losses on scrap
and slow-moving items are recognized in the allowance for losses.



Property and Equipment



Property and equipment are stated at cost less accumulated depreciation. When
value impairment is determined, the related assets are stated at the lower of
fair value or book value. Significant additions, renewals and betterments are
capitalized. Maintenance and repairs are expensed as incurred.



Depreciation is computed by using the straight-line and double declining methods
over the following estimated service lives: ground station equipment - 5 years,
computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite
equipment - 5 years, vehicles - 5 to 6 years and lease improvement - 5 years or
remaining lease term, whichever is shorter.



On sale or disposal of property, plant and equipment, the associated costs and accumulated depreciation are removed from the relevant accounts, with any gain or loss over the period of sale or disposal being credited or charged to income.


                                       54


We review the carrying amount of property and equipment for impairment when
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. It determined that there was no impairment loss
for the years ended December 31, 2021 and 2020.



Right of Use and Lease Liability



In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842) ("ASU
2016-02"), which modifies lease accounting for both lessees and lessors to
increase transparency and comparability by recognizing lease assets and lease
liabilities by lessees for those leases classified as operating leases and
finance leases under previous accounting standards and disclosing key
information about leasing arrangements.



A lessee should recognize the lease liability to make lease payments and the
right-of-use asset representing its right to use the underlying asset for the
lease term. For operating leases and finance leases, a right-of-use asset and a
lease liability are initially measured at the present value of the lease
payments by discount rates. The Company's lease discount rates are generally
based on its incremental borrowing rate, as the discount rates implicit in the
Company's leases is readily determinable. Operating leases are included in
operating lease right-of-use assets and lease liabilities in the consolidated
balance sheets. Finance leases are included in property and equipment and lease
liability in our consolidated balance sheets. Lease expense for operating
expense payments is recognized on a straight-line basis over the lease term.
Interest and amortization expenses are recognized for finance leases on a
straight-line basis over the lease term.



For the leases with a term of twelve months or less, a lessee is permitted to
make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. If a lessee makes this election, it should
recognize lease expense for such leases generally on a straight-line basis over
the lease term. We adopted ASU 2016-02 effective January 1, 2019.



benevolence and acquired intangible assets



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



Purchased intangible assets with finite life are amortized on the straight-line
basis over the estimated useful lives of respective assets. Purchased intangible
assets with indefinite life are evaluated for impairment when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. Purchased intangible asset consists of satellite system software
and is amortized over 10 years.



Fair Value of Financial Instruments

We use the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based on the lowest level of input that is significant to the fair value determination. The three levels of the hierarchy are composed as follows:

Level 1 – Inputs to the valuation technique are unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the valuation date.

Level 2 - Inputs to the valuation methodology are quoted prices for similar
assets and liabilities in active markets, quoted prices in markets that are not
active or inputs that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the instrument.



Level 3 - Inputs to the valuation methodology are unobservable inputs based upon
management's best estimate of inputs market participants could use in pricing
the asset or liability at the measurement date, including assumptions.



The carrying amounts of our cash and restricted cash, accounts receivable, other
receivable, accounts payable, short-term loan and other payable approximated
their fair value due to the short-term nature of these financial
instruments. Our long-term bonds payable, long-term loan and lease payable
approximated the carrying amount as its interest rate is considered as
approximate to the current rate for comparable loans and leases, respectively.
There were no outstanding derivative financial instruments as of December 31,
2021 and 2020.



Revenue Recognition


During 2019, we adopted the provisions of ASU 2014-09 Revenue from Contract with
Customers (Topic 606) and the principal versus agent guidance within the new
revenue standard. As such, we identify a contract with a customer, identifies
the performance obligations in the contract, determines the transaction price,
allocates the transaction price to each performance obligation in the contract
and recognizes revenue when (or as) the Company satisfies a performance
obligation. Our revenue for the year ended December 31, 2021 was the sales of
ground antenna units to a related party and sales of network hardware to a
non-related party.



research and development costs



Research and development costs are charged to operating expenses as incurred.
For the years ended December 31, 2021 and 2020, the Company incurred $0 and $0
of research and development costs, respectively.



                                       55



Income Taxes



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



We follow FASB guidance on uncertain tax positions and has analyzed its filing
positions in all the federal, state and foreign jurisdictions where it is
required to file income tax returns, as well as all open tax years in those
jurisdictions. We file income tax returns in the US federal, state and foreign
jurisdictions where it conducts business. It is not subject to income tax
examinations by US federal, state and local tax authorities for years before
2016. We believe that its income tax filing positions and deductions will be
sustained on audit and does not anticipate any adjustments that will result in a
material adverse effect on its consolidated financial position, results of
operations, or cash flows. Therefore, no reserves for uncertain tax positions
have been recorded. We do not expect unrecognized tax benefits to change
significantly over the next twelve months.



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



Foreign Currency Transactions

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



Translation Adjustments



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



Earnings (Loss) Per Share


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



Current accounting pronouncements

Simplifying debt accounting through conversion and other options.

In June 2020, the FASB issued ASU 2020-06 to simplify the accounting in ASC 470,
Debt with Conversion and Other Options and ASC 815, Contracts in Equity's Own
Entity. The guidance simplifies the current guidance for convertible instruments
and the derivatives scope exception for contracts in an entity's own equity.
Additionally, the amendments affect the diluted EPS calculation for instruments
that may be settled in cash or shares and for convertible instruments. This ASU
will be effective beginning in the first quarter of the Company's fiscal year
2022. Early adoption is permitted. The amendments in this update must be applied
on either full retrospective basis or modified retrospective basis through a
cumulative-effect adjustment to retained earnings/(deficit) in the period of
adoption. We are currently evaluating the impact of ASU 2020-06 on our
consolidated financial statements and related disclosures, as well as the timing
of adoption.


Simplification of income tax accounting

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC
740, Income Taxes. This guidance removes certain exceptions related to the
approach for intra-period tax allocation, the methodology for calculating income
taxes in an interim period, and the recognition of deferred tax liabilities for
outside basis differences. This guidance also clarifies and simplifies other
areas of ASC 740. This ASU will be effective beginning in the first quarter of
the Company's fiscal year 2021. Early adoption is permitted. Certain amendments
in this update must be applied on a prospective basis, certain amendments must
be applied on a retrospective basis, and certain amendments must be applied on a
modified retrospective basis through a cumulative-effect adjustment to retained
earnings/(deficit) in the period of adoption. We are currently evaluating the
impact this ASU will have on our consolidated financial statements and related
disclosures, as well as the timing of adoption.



                                       56



Financial Instruments



In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU
2016-13"), which modifies the measurement of expected credit losses of certain
financial instruments. In February 2020, the FASB issued ASU 2020-02 and delayed
the effective date of Topic 326 until fiscal year beginning after December 15,
2022. We are currently evaluating the impact of adopting ASU 2016-13 on our
consolidated financial statements.



Intangibles



In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and
Other" (Topic 350): Simplifying the Test for Goodwill Impairment, under which
goodwill shall be tested at least annually for impairment at a level of
reporting referred to as a reporting unit. ASU 2017-04 will be effective for
annual periods beginning after December 15, 2019. The Company adopted ASU
2017-04 as of December 31, 2020 and the adoption does not have significant
impact on our consolidated financial statements as of and for the year ended
December 31, 2021 and 2020.

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