UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission File No. 333-150332

 

COMSOVEREIGN HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   46-5538504

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

5000 Quorum Drive, Suite 400

Dallas, TX

  75254
(Address of principal executive office)   (Zip Code)

 

(904) 834-4400

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

As of November 10, 2021, there were 79,934,456 shares of registrant’s common stock outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    PAGE 
PART I   FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited) 1
  Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 1
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020. 2
  Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020. 3
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020. 4
  Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020. 6
  Notes to the Interim Unaudited Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures about Market Risk 48
Item 4 Controls and Procedures 49
     
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 50
Item 1A. Risk Factors 50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
Item 3. Default Upon Senior Securities 50
Item 4. Mine Safety Disclosures 50
Item 5. Other Information 50
Item 6. Exhibits 51
  Signatures 52

 

i

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1: Financial Statements

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEET

 

(Amounts in thousands, except share data)   September 30,
2021
    December 31,
2020
 
ASSETS   (Unaudited)        
Current Assets            
Cash and cash equivalents   $ 2,869     $ 731  
Accounts receivable, net     1,943       787  
Inventory, net     10,819       4,538  
Prepaid expenses     6,734       1,473  
Other current assets     417       152  
Total Current Assets     22,782       7,681  
Property and equipment, net     9,796       2,286  
Operating lease right-of-use assets     3,867       2,725  
Finance lease right-of-use-assets     216       68  
Intangible assets, net     48,035       53,188  
Goodwill     103,604       64,898  
Other assets – long term     95       31  
Total Assets   $ 188,395     $ 130,877  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable   $ 4,114     $ 5,583  
Accrued interest     424       2,029  
Accrued liabilities     1,210       1,649  
Accrued liabilities – related party     86       30  
Accrued payroll     1,222       3,992  
Contract liabilities, current     2,932       721  
Accrued warranty liability    
      185  
Operating lease liabilities, current     1,021       676  
Finance lease liabilities, current     66       46  
Notes payable – related party     160       1,010  
Current portion of long-term debt, net of unamortized discounts and debt issuance costs     12,354       18,340  
Total Current Liabilities     23,589       34,262  
Debt – long term, net of unamortized discounts and debt issuance costs    

18,077

      706  
Contract liabilities – long term     122       143  
Accrued warranty liability – long term     457      
 
Operating lease liabilities – long term     3,012       2,209  
Finance lease liabilities – long term     138       9  
Total Liabilities    

45,395

      37,329  
COMMITMENTS AND CONTINGENCIES (Note 17)    
 
     
 
 
STOCKHOLDERS’ EQUITY                
Preferred stock, $0.0001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively    
     
 
Common stock, $0.0001 par value, 300,000,000 shares authorized, 72,533,850 and 49,444,689 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively     17       15  
Additional paid-in capital     245,132       158,210  
Accumulated deficit     (102,099 )     (64,627 )
Treasury stock, at cost, 100,000 shares as of September 30, 2021 and December 31, 2020, respectively     (50 )     (50 )
Total Stockholders’ Equity    

143,000

      93,548  
Total Liabilities and Stockholders’ Equity   $ 188,395     $ 130,877  

 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

 

1

 

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(Amounts in thousands, except share and per share data)   2021     2020     2021     2020  
Revenue   $ 4,115     $ 2,018     $ 9,812     $ 7,513  
Cost of Goods Sold     1,819       859       4,706       3,473  
Gross Profit     2,296       1,159       5,106       4,040  
                                 
Operating Expenses                                
Research and development     2,061       562       3,805       1,263  
Sales and marketing     247       1       449       31  
General and administrative     6,464       4,471       20,543       13,152  
Depreciation and amortization     3,834       2,909       11,034       8,654  
Impairment expense    
     
      281      
 
Gain on the sale of assets     48      
      (83 )     (1 )
Total Operating Expenses     12,654       7,943       36,029       23,099  
Net Operating Loss     (10,358 )     (6,784 )     (30,923 )     (19,059 )
Other Income (Expense)                                
Interest expense     (724 )     (3,350 )     (1,740 )     (5,707 )
Other income (expense)     1       (129 )     (116 )     (129 )
Gain/(Loss) on extinguishment of debt     298       (22 )     (4,725 )     (22 )
Foreign currency transaction gain/(loss)     94       (46 )     32       (6 )
Interest income    
     
     
      1  
Total Other Expenses     (331 )     (3,547 )     (6,549 )     (5,863 )
Net Loss   $ (10,689 )   $ (10,331 )   $ (37,472 )   $ (24,922 )
Loss per common share:                                
Basic and Diluted   $ (0.15 )   $ (0.23 )   $ (0.56 )   $ (0.56 )
Weighted-average shares outstanding:                                
Basic and Diluted     71,994,529       44,216,540       66,388,447       44,155,510  

 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

 

2

 

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

(Unaudited)

 

    Three Months Ended
September 30,
    Nine months ended
September 30,
 
(Amounts in thousands)   2021     2020     2021     2020  
Net Loss   $ (10,689 )   $ (10,331 )   $ (37,472 )   $ (24,922 )
Other Comprehensive Loss:                                
Foreign currency translation adjustment    
      22      
      23  
Total Comprehensive Loss   $ (10,689 )   $ (10,309 )   $ (37,472 )   $ (24,899 )

 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

 

3

 

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three and Nine months ended September 30, 2021 and 2020

 

(Amounts in thousands, except   Preferred Stock     Common Stock     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Treasury     Accumulated     Total
Stockholders’
 
share data)   Shares     Amount     Shares     Amount     Capital     Loss     Shares     Deficit     Equity  
December 31, 2020    
    $
      49,444,689     $ 15     $ 158,210     $
    $ (50 )   $ (64,627 )   $ 93,548  
Issuance of common stock for exercise of options    
     
      3,334      
      1      
     
     
      1  
Issuance of common stock as vendor compensation    
     
      227,169      
      1,171      
     
     
      1,171  
Issuance of common stock for conversion of debt    
     
      580,199      
      1,602      
     
     
      1,602  
Issuance of common stock for public offering    
     
      10,679,354       1       39,655      
     
     
      39,656  
Share-based compensation    
     
      66,667      
      356      
     
     
      356  
Issuance of common stock for extinguishment of debt and interest    
     
      2,751,556       1       12,382      
     
     
      12,383  
Issuance of warrants for extinguishment of debt and interest          
           
      4,394      
     
     
      4,394  
Issuance of common stock for Sky Sapience Ltd. acquisition    
     
      2,555,209      
      9,071      
     
     
      9,071  
Net loss          
           
     
     
     
      (16,206 )     (16,206 )
March 31, 2021    
    $
      66,308,177     $ 17     $ 226,842     $
    $ (50 )   $ (80,833 )   $ 145,976  
Issuance of common stock for exercise of options    
     
      60,000      
      16      
     
     
      16  
Issuance of common stock as vendor compensation    
     
      7,571      
     
     
     
     
     
 
Share-based compensation          
           
      526      
     
     
      526  
Issuance of common stock for RVision, Inc. acquisition    
     
      2,000,000      
      5,500      
     
     
      5,500  
Issuance of common stock for Innovation Digital, LLC acquisition    
     
      3,165,322      
      7,343      
     
     
      7,343  
Issuance of Warrants for debt issuance costs          
           
      919      
     
     
      919  
Net loss          
           
     
     
     
      (10,577 )     (10,577 )
June 30, 2021    
    $
      71,541,070     $ 17     $ 241,146     $
    $ (50 )   $ (91,410 )   $ 149,703  
                                                                         
Share-based compensation          
           
      652      
     
     
      652  
Issuance of common stock for RF Engineering & Energy Resource, LLC acquisition    
     
      992,780      
      2,204      
     
     
      2,204  
Issuance of Warrants for debt issuance costs          
           
      1,130      
     
     
      1,130  
Net loss          
           
     
     
     
      (10,689 )     (10,689 )
September 30, 2021    
    $
      72,533,850     $ 17     $ 245,132     $
    $ (50 )   $ (102,099 )   $

143,000

 

 

4

 

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(Unaudited)

For the Three and Nine months ended September 30, 2021 and 2020

 

(Amounts in thousands, except   Preferred Stock     Common Stock     Additional
Paid-In
    Accumulated
Other
Comprehensive
     Treasury     Accumulated     Total
Stockholders’
 
share data)   Shares     Amount     Shares     Amount     Capital     Loss     Shares     Deficit     Equity  
December 31, 2019    
    $
      42,775,415     $ 13     $ 130,553     $ (23 )   $ (50 )   $ (27,545 )   $ 102,948  
Issuance of common stock for settlement of accounts payable    
     
      55,032      
      193      
     
     
      193  
Issuance of common stock for debt issue costs    
     
      16,667      
      57      
     
     
      57  
Foreign currency translation adjustment          
           
     
      1      
     
      1  
Net loss          
           
     
     
     
      (7,026 )     (7,026 )
March 31, 2020    
    $
      42,847,114     $ 13     $ 130,803,318     $ (22 )   $ (50 )   $ (34,571 )   $ 96,173  
Issuance of common stock for exercise of warrants    
     
      94,510      
      3      
     
     
      3  
Issuance of common stock for payment of accrued interest    
     
      7,066      
      38      
     
     
      38  
Warrants issued in conjunction with debt agreements          
           
      44      
     
     
      44  
Beneficial conversion feature          
           
      69      
     
     
      69  
Net loss          
           
     
     
     
      (7,565 )     (7,565 )
June 30, 2020    
    $
      42,948,690     $ 13     $ 130,957     $ (22 )   $ (50 )   $ (42,136 )   $ 88,762  
Issuance of common stock for Virtual Network Communications Inc. acquisition    
     
      3,912,737       1       12,676      
     
     
      12,677  
Issuance of options for Virtual Network Communications Inc. acquisition          
           
      2,261      
     
     
      2,261  
Issuance of warrants for Virtual Network Communications Inc. acquisition          
           
      1,646      
     
     
      1,646  
Issuance of common stock for debt issue costs    
     
      133,333      
      1,340      
     
     
      1,340  
Issuance of warrants for debt issue costs          
           
      104      
     
     
      104  
Beneficial conversion feature          
           
      567      
     
     
      567  
Issuance of warrants in conjunction with debt agreements          
           
      150      
     
     
      150  
Issuance of common stock for extinguishment of debt and interest    
     
      204,135      
      2,540      
     
     
      2,540  
Issuance of common stock for conversion of debt    
     
      640,360      
      2,320      
     
     
      2,320  
Share-based compensation          
           
      531      
     
     
      531  
Issuance of common stock as vendor compensation    
     
      69,337      
      268      
     
     
      268  
Issuance of warrants as vendor compensation          
           
      25      
     
     
      25  
Common stock issued for cash    
     
      30,613      
      332      
     
     
      332  
Non-cash contribution from Chief Executive Officer          
           
      479      
     
     
      479  
Foreign currency translation adjustment          
           
     
      22      
     
      22  
Net loss          
           
     
     
     
      (10,331 )     (10,331 )
September 30, 2020    
    $
      47,939,205     $ 14     $ 156,196     $
    $ (50 )   $ (52,467 )   $ 103,693  

 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

 

5

 

 

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

(Amounts in thousands)   For the Nine
Months Ended
September 30,
2021
    For the Nine
Months Ended
September 30,
2020
 
Cash flows from operating activities:            
Net loss   $ (37,472 )   $ (24,922 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     1,362       798  
Amortization     9,672       7,847  
Amortization of financing right-of-use asset     17       8  
Impairment Expense     281      
 
Operating lease expense     748       444  
Bad debt expense     207       648  
Gain on the sale of assets     (83 )     (1 )
Share-based compensation     1,534       531  
Amortization of debt discounts and debt issuance costs     249       4,288  
Share-based vendor payments     1,171      
 
Other, net    
      293  
Loss on extinguishment of debt     4,725       22  
Changes in assets and liabilities:                
Accounts receivable     (539 )     628  
Inventory     (466 )     (322 )
Prepaids     (5,709 )     355  
Other current assets     (194 )     (248 )
Other non-current assets     (6 )     (168 )
Accounts payable     (3,800 )     2,719  
Accrued liabilities     (796 )     420  
Accrued payroll     (3,129 )    
 
Accrued interest     106       1,079  
Contract liabilities     (1,145 )     8  
Operating lease liabilities     (503 )     (274 )
(Repayments)/advances from related party     56       (95 )
Other current liabilities    
      1,479  
Accrued warranty     36      
 
Net cash (used in) operating activities     (33,736 )     (4,463 )
Cash flows from investing activities:                
Business acquisitions, net of cash received     (4,495 )     (3,146 )
Purchases of property and equipment     (3,086 )     (97 )
Acquisition of intangible assets     (1,234 )    
 
Proceeds from disposal of property and equipment     83       1  
Net cash (used in) investing activities     (8,732 )     (3,242 )
Cash flows from financing activities:                
Principal payment on finance lease     (40 )     (12 )
Proceeds/(payments) on related party notes     (850 )     1,950  
Payment on line of credit    
      (2,000 )
Proceeds from sale of common stock from offering     44,971       332  
Offering costs     (5,315 )    
 
Proceeds from issuance of debt     14,155       8,008  
Proceeds from exercise of options     17      
 
Debt issuance costs     148      
 
Repayment of debt     (8,480 )     (903 )
Net cash provided by financing activities     44,606       7,375  
Effect of exchange rates on cash    
      23  
Net increase /(decrease) in cash, cash equivalents and restricted cash     2,138       (307 )
Cash, cash equivalents and restricted cash, beginning of period     731       812  
Cash, cash equivalents and restricted cash, end of period   $ 2,869     $ 505  
                 
Supplemental disclosures of cash flow information:                
Cash paid during the period:                
Taxes   $
    $
 
Interest     533       367  
Non-cash investing and financing activities:                
Debt incurred to sellers for Skyline Partners Technology LLC     12,650          
Issuance of common stock for extinguishment of debt and interest     12,382       2,343  
Issuance of common stock for Sky Sapience Ltd. Acquisition     9,071      
 
Issuance of common stock for Innovation Digital, LLC     7,344      
 
Issuance of common stock for RVision, Inc.     5,500      
 
Issuance of common stock for RF Engineering & Energy Resource, LLC     2,204      
 
Acquisition of building with secured note payable     4,480      
 
Issuance of warrants for extinguishment of debt and interest     4,394      
 
Issuance of common stock for conversion of debt and interest     1,602       286  
Recognition of operating lease right-of-use asset and liability     1,217      
 
Issuance of Warrants as debt issuance costs     2,049       104  
Capital asset additions transferred from inventory and prepaid     862      
 
Debt incurred to sellers for Innovation Digital, LLC     600      
 
Lease deposits recognized from Sky Sapience Ltd. Acquisition     11      
 
Recognition of operating right-of-use asset and liability rent abatement    
      152  
Recognition of finance lease right-of-use asset and liability                
Debt incurred to sellers for Fast Plastics Parts LLC and Spring Creek Manufacturing, Inc. acquisition    
      576  
Issuance of common stock to settle interest    
      262  
Beneficial conversion feature    
      636  
Common stock issued for payment of accounts payable    
      193  
Common stock issued as debt issuance costs    
      104  

  

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

 

6

 

 

COMSOVEREIGN HOLDING CORP.

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

 

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

 

COMSovereign Holding Corp. (“the “Company”), formerly known as Drone Aviation Holding Corp., is a provider of technologically-advanced telecom solutions to network operators, mobile device carriers, governmental units and other enterprises worldwide. The Company has assembled a portfolio of communications, power and portable infrastructure technologies, capabilities and products that enable the upgrading of latent 3G networks to 4G and 4G-LTE networks and will facilitate the rapid rollout of the 5G and “next-Generation” (“nG”) networks of the future. The Company focuses on novel capabilities, including signal modulations, antennae, software, hardware and firmware technologies that enable increasingly efficient data transmission across the radio-frequency spectrum. The Company’s product solutions are complemented by a broad array of services including technical support, systems design and integration, and sophisticated research and development programs. The Company competes globally on the basis of its innovative technology, broad product offerings, high-quality and cost-effective customer solutions, as well as the scale of its global customer base and distribution. In addition, the Company believes it is in a unique position to rapidly increase its near-term domestic sales as it is among the few U.S.-based providers of telecommunications equipment and services.

  

Corporate History of the Company

  

The Company was incorporated under the laws of the State of Nevada on April 17, 2014. In November 2019, the Company entered into an Agreement and Plan of Merger with ComSovereign Corp., a Delaware corporation (“ComSovereign”). As a result, ComSovereign merged into a subsidiary of the Company and became a directly wholly-owned subsidiary of the Company.

 

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On January 29, 2021, the Company completed the acquisition of Skyline Partners Technology LLC, a Colorado limited liability company that does business under the name Fastback Networks (“Fastback”). Fastback, is a manufacturer of intelligent backhaul radio (IBR) systems that deliver high-performance wireless connectivity to virtually any location, including those challenged by Non-Line of Sight (NLOS) limitations. See Note 11 – Business Acquisitions for further discussion.

 

On January 29, 2021, the Company, through its wholly-owned subsidiary, AZCOMS LLC (“AZCOMS”), completed the acquisition of a 140,000-square-foot building in Tucson, Arizona, and will hold and service the related debt as described in Note 13 – Debt Agreements. See Note 11 – Business Acquisitions for further discussion.

 

On February 25, 2021, the Company completed the acquisition of Sky Sapience Ltd., a company organized under the laws of the State of Israel (“SKS”). SKS is an Israeli-based manufacturer of drones with a patented tethered hovering technology that provides long-duration, mobile and all-weather Intelligence, Surveillance and Reconnaissance (ISR) capabilities to customers worldwide for both land and marine-based applications. See Note 11 – Business Acquisitions for further discussion.

 

On April 1, 2021, the Company completed the acquisition of RVision, Inc., a Nevada corporation (“RVision”). RVision is a developer of technologically-advanced video and communications products and physical security solutions designed for government and private sector commercial industries. See Note 11 – Business Acquisitions for further discussion.

 

On June 3, 2021, the Company completed the acquisition of Innovation Digital, LLC, a California limited liability company (“Innovation Digital”). Innovation Digital is a premier developer of “beyond state-of-the-art” mixed analog/digital signal processing solutions, intellectual property (IP) licensing, design and consulting services. See Note 11 – Business Acquisitions for further discussion.

 

On July 16, 2021, the Company completed the acquisition of RF Engineering & Energy Resource, LLC, a Michigan limited liability company (“RF Engineering”). RF Engineering is a specialist in the design, outsourced manufacturing and distribution of ultra-high performance microwave antennas and other branded solutions for the wireless and wireline industries in the United States and Latin America. See Note 11 – Business Acquisitions for further discussion.

 

On October 4, 2021, a Company completed the acquisition of SAGUNA Networks LTD, an Israeli-based software development company (“SAGUNA”). SAGUNA is a premier Multi-Access Edge Computing (“MEC”) cloud software developer. The acquisition significantly expanded the Company’s software technology offerings powering 5G wireless networks. See Note 19 – Business Acquisitions for further discussion.

 

Each of the Company’s subsidiaries was acquired to address a different opportunity or segment within the North American and international telecom infrastructure and service market.

 

Basis of Presentation

 

The accompanying financial statements of the Company were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Historical information is not necessarily indicative of the Company’s future results of operations, financial position or cash flows.

 

As described in Note 15 – Stockholders’ Equity, effective January 21, 2021, the Company enacted a 1-for-3 reverse stock split (the “Split”) of the Company’s common stock. The Condensed Consolidated Financial Statements and accompanying notes give effect to the Split as if it occurred at the beginning of the first period presented. 

 

Principles of Consolidation

 

The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the Company’s results of operations, financial position or cash flows that may be expected for the full fiscal year or future operating periods. The unaudited Condensed Consolidated Financial Statements included herein should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

The unaudited Condensed Consolidated Financial Statements as of, and for the three and nine months ended, September 30, 2021 and 2020 include the accounts of the Company and its subsidiaries: Drone AFS Corp., Lighter Than Air Systems Corp., DragonWave, Lextrum, Silver Bullet, VEO, InduraPower, Sovereign Plastics, VNC, Fastback, SKS, AZCOMS, RVision, Innovation Digital and RF Engineering. All intercompany transactions and accounts have been eliminated.

 

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Reclassifications

 

Certain immaterial September 30, 2020 amounts have been reclassified to be consistent with the current period presentation. 

 

Use of Estimates

 

The preparation of unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, interest borrowing rates, valuation of equity securities in share-based payments, valuation of equity securities in debt issuances, valuation of acquired intangible assets, useful lives for depreciation and amortization of long-lived assets, valuation of future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets, uncertain income tax positions and contingencies. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year.

  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

There have been no material changes in the Company’s significant accounting policies as of and for the nine months ended September 30, 2021, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

Acquisitions

 

The Company accounts for business combinations under the acquisition method of accounting, in accordance with ASC Topic 805, Business Combinations, which requires assets acquired and liabilities assumed to be recognized at their fair values on the acquisition date. Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The fair values of the assets acquired and liabilities assumed are determined based upon the valuation of the acquired business and involves management making significant estimates and assumptions.

 

Accounting Standards Not Yet Adopted

 

The Company applies the guidance of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The Company recognizes the fair value of assets acquired and liabilities assumed in transactions; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; expenses transaction and restructuring costs; and discloses the information needed to evaluate and understand the nature and financial effect of the business combination.

 

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the potential impact ASU 2021-08 will have on our Condensed Consolidated Financial Statements.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2021-04). This guidance clarifies an issuer’s accounting for certain modifications of freestanding equity-classified written call options and provides a “principles-based” framework to determine whether an issuer should recognize the modification or exchange and an adjustment to equity or an expense. The Company is currently evaluating the potential impact ASU 2021-04 will have on our Condensed Consolidated Financial Statements.

 

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for certain convertible instruments and contracts in an entity’s own equity. As a smaller reporting entity, this standard will become effective for fiscal years beginning after December 15, 2023, including interim periods within those years. The Company is currently evaluating the potential impact ASU 2020-06 will have on the Condensed Consolidated Financial Statements.

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for borrowing instruments that use LIBOR as a reference rate and is effective upon issuance through December 31, 2022. The Company has performed an evaluation of and will continue to evaluate, through December 31, 2022, the impact of this ASU. This ASU does not currently and is not expected to have in the future, a material effect on the Condensed Consolidated Financial Statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This standard will become effective for interim and annual periods beginning after December 15, 2022 and earlier adoption is permitted. The Company is currently evaluating the potential impact the adoption of this ASU will have on the Condensed Consolidated Financial Statements.

 

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Earnings Per Share

 

Potential common shares issuable to employees, non-employees and directors upon exercise or conversion of shares are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common shareholders. Stock options and warrants are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company’s common stock for the period (out-of-the-money), regardless of whether the Company is in a period of net loss available to common shareholders. The following weighted-average potential common shares were excluded from the diluted loss per common share as their effect was anti-dilutive as of September 30, 2021 and 2020, respectively: stock options of 2,513,513 and 2,548,345, unvested restricted stock units of 330,046 and 314,938, warrants of 8,815,210 and 94,465, and convertible notes that, if converted, would result in an estimated 2,391,336 and 229,348 shares of common stock. 

 

3. GOING CONCERN

 

U.S. GAAP requires management to assess a company’s ability to continue as a going concern within one year from the financial statement issuance and to provide related note disclosures in certain circumstances.

 

The accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended September 30, 2021, the Company generated negative cash flows from operations of $33.4 million and had an accumulated deficit of $102.1 million.

 

Management anticipates that the Company will be dependent, for the near future, on additional debt facilities or investment capital to fund growth initiatives. The Company intends to position itself so that it will be able to raise additional funds through the capital markets, including but not limited to, securing a line or lines of credit, the issuance of debt, and/or accessing the equity markets.

 

The Company’s fiscal operating results, negative working capital and accumulated deficit, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern. The Company will continue to pursue the actions outlined above, as well as work towards increasing revenue and operating cash flows to meet its future liquidity requirements. However, there can be no assurance that the Company will be successful in any capital-raising efforts that it may undertake, and the failure of the Company to raise additional capital could adversely affect its future operations and viability. 

  

4. REVENUE

 

The following table is a summary of the Company’s timing of revenue recognition for the three and nine months ended September 30, 2021 and 2020:  

 

    Three Months Ended
September 30,
    Nine months ended
September 30,
 
(Amounts in thousands)   2021     2020     2021     2020  
Timing of revenue recognition:                        
Services and products transferred at a point in time   $ 3,979     $ 1,941     $ 9,348     $ 7,056  
Services and products transferred over time     136       77       464       457  
Total revenue   $ 4,115     $ 2,018     $ 9,812     $ 7,513  

 

The Company disaggregates revenue by source and geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

  

Revenue by source consisted of the following for the three and nine months ended September 30, 2021 and 2020:

 

    Three Months Ended
September 30,
    Nine months ended
September 30,
 
(Amounts in thousands)   2021     2020     2021     2020  
Revenue by products and services:                        
Products   $ 3,847     $ 1,726     $ 8,713     $ 6,298  
Services     268       292       1,099       1,215  
Total revenue   $ 4,115     $ 2,018     $ 9,812     $ 7,513  

 

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Revenue by geographic destination consisted of the following for the for the three and nine months ended September 30, 2021 and 2020:

  

    Three Months Ended
September 30,
    Nine months ended
September 30,
 
(Amounts in thousands)    2021     2020     2021     2020  
Revenue by geography:                        
North America   $ 3,665     $ 1,831     $ 7,945     $ 6,755  
International     450       187       1,867       758  
Total revenue   $ 4,115     $ 2,018     $ 9,812     $ 7,513  

 

Contract Balances

 

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations. As of September 30, 2021, the Company did not have a contract assets balance.

 

The following table is a summary of the Company’s opening and closing balances of contract liabilities related to contracts with customers.

 

(Amounts in thousands)   Total  
Balance at December 31, 2020   $ 864  
Increase     2,190  
Balance at September 30, 2021   $ 3,054  

 

The amount of revenue recognized in the nine months ended September 30, 2021 that was included in the prior period contract liability balance was $2.2 million. This revenue consisted of services provided to customers who had been invoiced prior to the current year.

 

5. CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consisted of the following as of September 30, 2021 and December 31, 2020:

 

(Amounts in US$’s)   September 30,
2021
    December 31,
2020
 
Cash and cash equivalents   $ 2,449     $ 731  
Restricted cash     420      
 
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows   $ 2,869     $ 731  

 

6. ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020:

 

(Amounts in US$’s)   September 30,
2021
    December 31,
2020
 
Account receivables   $ 2,957     $ 2,474  
Less: Allowance for doubtful accounts     (1,014 )     (1,687 )
Total account receivables, net   $ 1,943     $ 787  

 

The Company recognized $0.0 million and $0.65 million of bad debt expense for the three months ended September 30, 2021 and 2020, respectively, and $0.2 million and $0.65 million for the nine months ended September 30, 2021 and 2020, respectively.

 

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7. INVENTORY

 

Inventory consisted of the following as of September 30, 2021 and December 31, 2020:

 

(Amounts in thousands)   September 30,
2021
    December 31,
2020
 
Raw materials   $ 5,827     $ 1,765  
Work in progress     1,682       461  
Finished goods     4,598       3,305  
Total inventory     12,107       5,531  
Reserve     (1,288 )     (993 )
Total inventory, net   $ 10,819     $ 4,538  

 

8. PREPAID

 

Prepaid expenses consisted of the following as of September 30, 2021 and December 31, 2020:

 

(Amounts in thousands)   September 30,
2021
    December 31,
2020
 
Prepaid products and services   $ 6,475     $ 172  
Deferred offering expenses    
      569  
Prepaid rent and security deposit     259       732  
    $ 6,734     $ 1,473  

  

9. PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following as of September 30, 2021 and December 31, 2020:

 

(Amounts in thousands)   September 30,
2021
    December 31,
2020
 
Shop machinery and equipment   $ 11,556     $ 9,961  
Computers and electronics     1,454       575  
Office furniture and fixtures     710       348  
Building     4,801      
 
Land     1,330      
 
Leasehold improvements     1,269       274  
      21,120       11,158  
Less - accumulated depreciation     (11,324 )     (8,872 )
    $ 9,796     $ 2,286  

 

The Company recognized $0.51 million and $0.28 million of depreciation expense for the three months ended September 30, 2021 and 2020, respectively, and $1.34 million and $0.8 million for the nine months ended September 30, 2021 and 2020, respectively.

 

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10. LEASES

 

Operating Leases

 

The Company has operating leases for office, manufacturing and warehouse space, office equipment, and vehicles.

 

As part of the SKS business acquisition on February 25, 2021, the Company assumed a lease of flexible office space with a remaining term of approximately 22 months that will expire on July 1, 2023. Monthly payments are approximately $16 thousand during the remaining life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

 

As part of the SKS business acquisition on February 25, 2021, the Company assumed vehicle leases with a remaining weighted average term of approximately 11 months. Monthly average payments are approximately $2 thousand during the remaining life of the leases. The leases included an implicit rates of return from 5.41% to 6% and no renewal options.

 

In April 2021, the Company entered into 60-month office equipment lease with monthly payments and no renewal options. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

 

In April 2021, SKS entered into several vehicle leases with approximately 36-month terms. Monthly payments range from approximately $1 thousand to approximately $2 thousand. Each lease had an implicit rate of 6.0% and no renewal options.

 

In May 2021, DragonWave entered into an amendment to its existing facility lease to extend the expiration date through June 20, 2022 and to increase the annual base to $12 thousand per month. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms. The modification resulted in additional right-of-use asset and lease liability of $0.12 million

 

As part of the RVision business acquisition on April 1, 2021, the Company assumed a lease of office space with a remaining term of approximately 33 months that will expire on March 31, 2024. Monthly payments are $7 thousand during the remaining life of the lease. The lease did not include an implicit rate of return; therefore, the Company used an incremental borrowing rate based on other leases with similar terms.

 

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Other information related to the Company’s operating leases are as follows:

 

(Amounts in thousands)   For the
nine months
ended
September 30,
2021
 
Operating lease ROU Asset – December 31, 2020   $ 2,725  
Increase     1,890  
Decrease    
 
Amortization     (748 )
Operating lease ROU Asset – September 30, 2021   $ 3,867  
         
Operating lease liability – December 31, 2020   $ 2,885  
Increase     1,883  
Decrease     (30 )
Amortization     (705 )
Operating lease liability – September 30, 2021   $ 4,033  
         
Operating lease liability – short term   $ 1,021  
Operating lease liability – long term     3,012  
Operating lease liability – total   $ 4,033  
         
Operating lease cost   $ 911  
Variable lease cost   $
 
Short-term lease cost   $ 129  
         
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases   $ 890  

 

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of September 30, 2021 and December 31, 2020, respectively:

 

    September 30,
2021
    December 31,
2020
 
Weighted average remaining lease term     6.13 years       4.19 years  
Weighted average discount rate     4.4 %     5.95 %

 

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the lease liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2021:

 

(Amounts in thousands)   Operating
Leases
 
Remainder of 2021   $ 358  
2022     1,240  
2023     1,104  
2024     767  
2025     444  
Thereafter     983  
Total minimum lease payments     4,896  
Less: effect of discounting     (863 )
Present value of future minimum lease payments     4,033  
Less: current obligations under leases     (1,021 )
Long-term lease obligations   $ 3,012  

 

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Finance Leases

 

The Company has finance leases for certain manufacturing and office equipment.

 

Information related to the Company’s finance leases are as follows:

 

(Amounts in thousands)   For the
nine months
ended
September 30,
2021
 
Finance lease ROU Asset – December 31, 2020   $ 68  
Increase     187  
Decrease     (22 )
Amortization     (17 )
Finance lease ROU Asset – September 30, 2021   $ 216  
         
Finance lease liability – December 31, 2020   $ 55  
Increase     188  
Interest accretion     1  
Payment     (40 )
Operating lease liability – September 30, 2021   $ 204  
         
Finance lease liability – short term   $ 66  
Finance lease liability – long term     138  
Finance lease liability – total   $        204  

 

The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s finance leases as of September 30, 2021 and December 31, 2020, respectively:

 

    September 30,
2021
    December 31,
2020
 
Weighted average remaining lease term     3.18 years       1.10 years  
Weighted average discount rate     0.54 %     3.91 %

 

The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the finance lease liabilities recorded on the Condensed Consolidated Balance Sheet as of September 30, 2021:

 

(Amounts in thousands)   Finance
Leases
 
Remainder of 2021   $ 23  
2022     72  
2023     63  
2024     49  
2025     11  
Thereafter     6  
Total minimum lease payments     224  
Less: effect of discounting     (20 )
Present value of future minimum lease payments     204  
Less: current obligations under leases     (66 )
Long-term lease obligations   $ 138  

 

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11. BUSINESS ACQUISITIONS

  

Skyline Partners Technology LLC

 

On January 29, 2021, the Company completed the acquisition of Skyline Partners Technology LLC, a Colorado limited liability company that does business under the name Fastback Networks (“Fastback”), for cash consideration paid of $1.32 million and the issuance of $1.50 million aggregate principal amount of term notes and $11.15 million aggregate principal amount of convertible notes that are convertible into common stock at a conversion price of $5.22 per share, subject to adjustment. See Note 13 – Debt Agreements for further discussion of the notes. Fastback’s products complement and enhance the Company’s 5g connectivity offerings. All resulting goodwill is expected to be tax deductible. The Company incurred acquisition-related costs of $79 thousand, of which $18 thousand was expensed in the nine months ended September 30, 2021 and $61 thousand was expensed in fiscal year 2020, which are included in general and administrative expenses on the Company’s Condensed Consolidated Statement of Operations.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021:

 

(Amounts in thousands)   Fair Value  
Cash   $ 9  
Accounts receivable     245  
Inventory     358  
Prepaid expenses     1,914  
Property & equipment     202  
Intangible assets:        
Intellectual Property     3,502  
Software     96  
Goodwill     9,527  
Total assets     15,853  
Accounts payable     1,055  
Accrued liabilities     174  
Notes payable     210  
Contract liabilities, current     213  
Accrued warranty liability – long term     236  
Total purchase consideration   $ 13,965  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

Sky Sapience Ltd.

 

On February 25, 2021, the Company completed the acquisition of Sky Sapience Ltd., a company organized under the laws of the State of Israel (“SKS”). The total preliminary purchase price consideration amounted to $11.78 million, subject to working capital and other post-closing adjustments, representing (i) cash paid on the closing date of $2.71 million (ii) 2,555,209 shares of the Company’s common stock with a fair value of $9.07 million or $3.55 per share, of which an aggregate of 1,151,461 shares is being held in an escrow fund for purposes of satisfying any post-closing indemnification claims of the sellers under the Share Purchase Agreement. SKS’s products complement and enhance the Company’s tethered drone product portfolio for commercial communications, defense and national security markets. All resulting goodwill is expected to be tax deductible.

 

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The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021:

 

(Amounts in thousands)   Fair Value  
Cash   $ 320  
Accounts receivable     60  
Inventory     1,229  
Prepaid expenses     15  
Other current assets     334  
Property & equipment     148  
Operating lease right-of-use assets     472  
Intangible assets:        
Goodwill     13,115  
Total assets     15,693  
Accounts payable     710  
Accrued liabilities     431  
Contract liabilities, current     2,309  
Operating lease liabilities, current     194  
Operating lease liabilities - long term     267  
Total purchase consideration   $ 11,782  

 

RVision, Inc.

 

On April 1, 2021, the Company completed the acquisition of RVision, Inc., a Nevada corporation. The Company acquired 100% of the outstanding capital stock of RVision in exchange for 2,000,000 shares of its common stock with a fair value of $2.75 per share. The company has agreed to file a registration statement under the Securities Act of 1933, as amended, to register the resale of 1,000,000 of such shares of common stock within 30 days of the closing date and to include the remaining shares in any registration statement the Company files under the Securities Act for a primary offering within one year of the closing date, subject to certain exceptions. RVision’s products complement and enhance the Company’s communication offerings and provides additional access to governmental and private sector commercial industries. All resulting goodwill is expected to be tax deductible.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021:

 

(Amounts in thousands)   Fair Value  
Cash   $ 449  
Accounts receivable     47  
Prepaid expenses     53  
Inventory     825  
Property & equipment     16  
Operating lease right-of-use asset     270  
Intangible assets:        
Goodwill     5,629  
Total assets     7,289  
Accounts payable     54  
Accrued liabilities     219  
Operating lease liabilities, current     74  
Contract liabilities, current     793  
Notes payable     453  
Operating lease liabilities – long term     196  
Total purchase consideration   $ 5,500  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

17

 

 

Innovation Digital, LLC

 

On June 3, 2021, the Company completed the acquisition of Innovation Digital, LLC, a California limited liability company, for cash consideration paid of $1.0 million, 3,165,322 shares of common stock with a fair value of $7.34 million or $2.32 per share, and a promissory note in the principal amount of $0.60 million that is convertible into common stock at a conversion price of $2.35. Pursuant to the terms of the acquisition, the Company has agreed to filed a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), to register the resale of the 3,165,322 shares of common stock. See Note 13 – Debt Agreements for further discussion of the notes. Innovation Digital enhances the Company’s portfolio of intellectual property and licensing capabilities. All resulting goodwill is expected to be tax deductible.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021:

 

(Amounts in thousands)   Fair Value  
Property & equipment     6  
Operating lease right-of-use asset     105  
Other Non-Current Assets     2  
Intangible assets:        
Goodwill     9,046  
Total assets     9,159  
Accounts payable     78  
Operating lease liabilities, current     32  
Notes payable     31  
Operating lease liabilities – long term     74  
Total purchase consideration   $ 8,944  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

RF Engineering & Energy Resource, LLC

 

On July 16, 2021, the Company completed the acquisition of RF Engineering& Energy Resource, LLC, a Michigan limited liability company, for cash consideration paid of $0.55 million and 992,780 shares of common stock with a fair value of $2.2 million or approximately $2.22 per share. RF Engineering’s position as a world-leading specialist in high performance antenna design and distribution enhances the Company’s wireless product development capabilities and sales and distribution channels. All resulting goodwill is expected to be tax deductible. See Note 13 – Debt Agreements for further discussion of the notes.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021: 

 

(Amounts in thousands)   Fair Value  
Cash   $ 4  
Accounts receivable     472  
Prepaid expenses     42  
Inventory     1,587  
Other Current Assets     36  
Property & equipment, net     72  
Intangible assets:        
Goodwill     1,389  
Total assets     3,602  
Accounts payable     375  
Accrued liabilities     4  
Contract liabilities, current     20  
Notes payable     453  
Total purchase consideration   $ 2,750  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

18

 

 

12. GOODWILL

 

The following table sets forth the changes in the carrying amount of goodwill for the nine months ended September 30, 2021:

 

(Amounts in thousands)   Total  
Balance at December 31, 2020   $ 64,898  
2021 Acquisitions     38,706  
Balance at September 30, 2021   $ 103,604  

 

The following table sets forth the gross carrying amounts and accumulated amortization of the Company’s intangible assets as of September 30, 2021 and December 31, 2020:

 

(Amounts in thousands)   Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Carrying
Amount
 
Definite-lived intangible assets:                  
Trade names   $ 5,974     $ (1,350 )   $ 4,624  
Licenses     350       (34 )     316  
Technology     39,350       (10,304 )     29,046  
Customer relationships     21,201       (5,485 )     15,716  
Intellectual property     3,730       (673 )     3,057  
Noncompete     937       (508 )     429  
Total definite-lived intangible assets at December 31, 2020   $ 71,542     $ (18,354 )   $ 53,188  
Trade names   $ 5,974     $ (2,037 )   $ 3,936  
Licenses     69       (69 )    
 
Technology     39,350       (15,222 )     24,128  
Customer relationships     21,201       (8,365 )     12,836  
Intellectual property     7,232       (1,457 )     5,775  
Noncompete     937       (859 )     78  
Capitalized software     1,329       (48 )     1,282  
Total definite-lived intangible assets at September 30, 2021   $ 76,092     $ (28,057 )   $ 48,035  

 

Amortization expense of intangible assets was $3.22 million and $2.62 million for the three months ended September 30, 2021 and 2020, respectively, and $9.67 million and $7.85 million for the nine months ended September 30, 2021 and 2020, respectively. During the nine months ended September 30, 2021, the Company impaired obsolete software that was replaced during the year. Impairment expense for the three and nine months ended September 30, 2021 was $0.28 million. There was no impairment expense for the three and nine months ended September 30, 2020. The Company’s amortization is generally based on no residual value using the straight-line amortization method as it best represents the benefit of the intangible assets. However, capitalized software is amortized using greater of the (1) the net realizable value test, which is based on the proportion of current gross revenues to the total of current and estimated future gross revenues for the project or (2) straight-line amortization. The following table sets forth the weighted-average amortization period, in total and by major intangible asset class:

 

Asset Class   Weighted-
Average
Amortization
period
 
Trade names     6.8 years  
Licenses     5.0 years  
Technology     6.0 years  
Customer relationships     5.7 years  
Intellectual property     6.5 years  
Noncompete     2.0 years  
Capitalized software     4.7 years  
All Intangible assets     6.0 years  

 

19

 

 

As of September, 30 2021, assuming no additional amortizable intangible assets, the expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter was as follows:

 

(Amounts in thousands)   Estimated  
Remainder of 2021   $ 4,234  
2022     12,689  
2023     12,576  
2024     10,494  
2025     4,688  
2026     2,057  
Thereafter     1,297  
Total   $ 48,035  

 

13. DEBT AGREEMENTS

 

Secured Notes Payable

 

In August 2016, InduraPower entered into a promissory note not to exceed the principal amount of $0.55 million that bore interest at 8.5% per annum with a maturity date of August 31, 2018. On September 11, 2019, the note was amended with both parties agreeing that the outstanding balance of $0.81 million would be due on February 28, 2020. This promissory note was secured by substantially all of the assets of InduraPower. As of December 31, 2020, an aggregate principal amount of $0.79 million was outstanding under this note. The aggregate principal amount of this note was fully repaid during fiscal 2021.

 

In August 2016, InduraPower entered into a promissory note in the principal amount of $0.45 million that bore interest at 9.0% per annum and was scheduled to mature on March 1, 2022. As of December 31, 2020, an aggregate principal amount of and $0.15 million, was outstanding under this note. This promissory note was secured by all assets, certain real estate and cash accounts of InduraPower, and was guaranteed by certain officers of InduraPower. The aggregate principal amount of this note was fully repaid during fiscal 2021.

 

In August 2016, InduraPower entered into a promissory note in the principal amount of $50 thousand that bore interest at 7.9% per annum and was scheduled to mature on September 1, 2021. This promissory note was secured by business equipment, certain real estate and cash accounts of InduraPower and was guaranteed by certain officers of InduraPower. As of December 31, 2020, an aggregate principal amount of $11 thousand was outstanding under this note. The aggregate principal amount of this note was fully repaid during fiscal 2021.

 

In November 2019, DragonWave entered into a loan agreement under which it received $2.0 million bearing interest at the rate of 9.0% per annum and is scheduled to mature on November 26, 2021. Upon an event of default, the interest rate would automatically increase to 15% per annum on any unpaid principal and interest, compounded monthly, and all unpaid principal and accrued interest would become due on-demand. Accrued interest is calculated on a compound basis and is payable semi-annually in May and November of each year. Principal is scheduled to be due in full at maturity but can be prepaid in full or in part without penalty. The loan is secured by all of the assets of DragonWave and is guaranteed by ComSovereign. The debt issuance costs were the result of the issuance of 350,000 shares of common stock and a cash payment of $80 thousand. The Company defaulted on this loan during fiscal 2020, which caused the interest rate to increase to a monthly compounded rate of 15% per annum, a late charge of 5% was incurred, and the loan and accrued interest became due on-demand. Amounts recorded as debt discounts and issuance costs were fully amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations during the 2020 fiscal year, as a result of the loan becoming due on-demand from the default event. As of December 31, 2020, an aggregate principal amount of $2.0 million was outstanding under this loan. On January 26, 2021, $1.0 million of the principal amount of this loan and all accrued interest with a combined total of $1.23 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 295,674 shares of common stock, along with warrants to purchase up to 295,674 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The extinguishment on January 26, 2021 cured all events of default. As of September 30, 2021, an aggregate principal amount of $1.0 million was outstanding under this loan. 

 

20

 

 

On February 26, 2020, the Company entered into a $0.6 million secured business loan that bore interest at 78.99% per annum which matured on December 26, 2020. The loan was secured by the assets of the Company. As of December 31, 2020, an aggregate principal amount of $75 thousand was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during 2021.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company assumed a secured loan with FirstBank in the principal amount of $0.98 million that bore interest at 5% per annum, with a maturity date of June 1, 2020. This loan was subsequently extended to September 15, 2020 and the interest rate was increased to 36% per annum for any principal balance remaining unpaid past the extended maturity date. The loan was secured by certain assets of Sovereign Plastics. This loan was subjected to covenants, whereby Sovereign Plastics was required to meet certain financial and non-financial covenants at the end of each fiscal year. As of December 31, 2020, an aggregate principal amount of $0.86 million was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during fiscal 2021.

 

On March 19, 2020, the Company entered into a secured loan agreement in the amount of $2.01 million that bore interest at 5% per annum with a maturity date of August 31, 2020, which was subsequently extended to October 15, 2020. Upon maturity, the interest rate automatically increased to 18% per annum, and a late charge of 5% was charged for any balance overdue by more than 10 days. The loan was secured by certain intellectual property assets of the Company. As of December 31, 2020, an aggregate principal amount of $2.01 million was outstanding and past due under this loan. On January 26, 2021, the aggregate principal amount of this loan and accrued interest with a combined total of $2.25 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, plus a 10,000 unit conversion bonus, resulting in the issuance of 552,231 shares of common stock, along with warrants to purchase up to 552,231 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company assumed various equipment financing loans with aggregate principal balances of approximately $0.2 million, which were secured by the related equipment, that bore interest ranging from 6.7% to 8.5% per annum. Monthly principal and interest payments were due over the term. As of December 31, 2020, aggregate principal balances of approximately $0.18 million were outstanding and past due under these loans. The aggregate principal amounts of these loans were fully repaid during fiscal 2021.

 

21

 

 

On December 8, 2020, the Company entered into a secured loan agreement in the aggregate principal amount of $1.1 million with an original issue discount of $0.1 million, that bore interest at the rate of 10% per annum and matured on January 6, 2021. Upon an event of default, the interest rate would automatically increase to 36% per annum on any unpaid principal, or the maximum amount permitted by applicable law, compounded monthly, and all unpaid principal and accrued interest would become due on-demand. The loan was guaranteed by VNC and was secured by the Company’s equity interest in VNC, all of the assets of VNC and certain intellectual property assets of the Company. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 23,334 shares of his personally owned, issued and outstanding common stock to the lender and brokers, as part of this transaction. The shares had a total fair value of $0.14 million. The Company accounted for this as a contribution from Mr. Hodges, as debt issuance costs. The Company incurred debt issuance costs to the placement agent of this transaction in the amount of $50 thousand. As of December 31, 2020, an aggregate principal amount of $1.1 million was outstanding under this loan. On January 26, 2021, $0.4 million of the principal amount of this loan and accrued interest with a combined total of $0.5 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 119,418 shares of common stock, along with warrants to purchase up to 119,418 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $0.7 million principal amount of this loan was fully repaid during fiscal 2021.

 

On January 15, 2021, in connection with its acquisition of the new manufacturing facility in Tucson, Arizona, AZCOMS entered into a secured loan agreement pursuant to which it received a loan in the amount of up to $5.36 million that bears interest on the outstanding loan balance at the greater of (i) 8% per annum or (ii) 6.75% per annum in excess of the 1-month LIBOR rate, and matures on January 15, 2022. At the closing of the loan, the lender withheld $0.51 million of the loan amount as an interest reserve. In addition, $0.88 million of the loan amount was withheld and may be disbursed at later dates to pay for lender-approved improvements to the property secured by the loan. Interest is payable monthly. The loan is due in full at maturity. Upon an event of default, the interest rate on the loan will increase by an additional 5.00% per annum, and the outstanding principal amount of the loan, accrued interest thereon and fees may become due on-demand. Upon the maturity date or earlier date upon which the unpaid balance of the loan may become immediately payable due to acceleration, and on any prepayments of the loan, AZCOMS will owe an exit fee equal to the greater of (a) $54 thousand, or (b) 1.00% of the unpaid loan balance and all unpaid accrued interest and fees. Subject to certain terms and conditions and upon payment of a fee, AZCOMS may request a six-month extension of the maturity date. The loan is secured by the land, building and certain other assets of AZCOMS and is guaranteed by the Company and Daniel L. Hodges, the Company’s Chief Executive Officer. In addition, all rights to leases and rent related to the land and building assets have been assigned to the lender for potential non-performance by AZCOMS of its obligations under the loan. This loan is subject to certain financial and non-financial covenants on the part of AZCOMS at the end of each fiscal quarter and fiscal year. The Company incurred debt issuance costs for transaction in the amount of $0.16 million. As of September 30, 2021, an aggregate principal amount of $5.00 million was outstanding under this loan.

 

In connection with its acquisition of Fastback on January 29, 2021, the Company assumed the obligations of the sellers on a secured loan in the principal amount of $0.21 million that bears interest on the outstanding loan balance at the greater of (i) 5.75% per annum in excess of the Prime Rate or (ii) $4 thousand per month, with a maturity date of April 30, 2021. Interest is payable monthly. Upon an event of default, the interest rate on the loan will increase by an additional 5.00% per annum, and the outstanding principal amount of the loan, accrued interest thereon and fees may become due on-demand. The loan was secured by the assets of Fastback. The principal amount of this loan was fully repaid during fiscal 2021.

 

22

 


 

Notes Payable

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller on a promissory note in the principal amount of $0.5 million that bore interest at 12.0% per annum with a maturity date of October 17, 2017, which was subsequently extended to September 30, 2020 and the interest rate was reduced to 10% per annum. Accrued interest and the full principal balance were due at maturity. Upon maturity, the interest rate increased to 15% per annum for any balance overdue by more than 5 days. During 2020, all unpaid accrued interest from October 1, 2019 through December 31, 2019 was converted into 4,832 shares of common stock. As of December 31, 2020, an aggregate principal amount of $0.5 million was outstanding and past due under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $0.56 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 135,324 shares of common stock, along with warrants to purchase up to 135,324 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller of a promissory note in the principal amount of $0.18 million that bore interest at the rate of 15% per annum and was due on November 30, 2017, which was subsequently extend to September 30, 2020 and the interest rate was reduced to 10% per annum. Accrued interest and principal were due and payable at maturity. Upon maturity, the interest rate increased to 15% per annum for any balance overdue by more than 5 days. As of December 31, 2020, an aggregate principal amount of $0.18 million was outstanding and past due. The aggregate principal amount of this note was fully repaid during fiscal 2021.

 

In October 2017, DragonWave entered into a 90-day promissory note in the principal amount of $4.4 million with an original issue discount of $0.4 million. Subsequently, this note was amended to accrue interest at the rate of 8% per annum and to extend the maturity date with new payment terms. In September 2019, the promissory note was increased to $5.0 million as all unpaid accrued interest was added to the principal balance and to extend the maturity date to March 20, 2020 and increase the interest rate to 10% per annum. In April 2020, the maturity date of this note was extended to August 31, 2020, the interest rate was increased to 12% per annum, and the Company provided to the lender 33,334 fully paid and non-assessable shares of its common stock that have been treated as debt issuance costs. As of December 31, 2020, an aggregate principal amount of $3.5 million was outstanding under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $4.21 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 1,014,716 shares of common stock, along with warrants to purchase up to 1,014,716 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

On November 7, 2019, ComSovereign entered into several promissory notes in the aggregate principal amount of $0.45 million that bore an effective interest rate at 133% per annum due to a single payment incentive, which matured on December 6, 2019. Of these promissory notes, an aggregate principal amount of $0.2 million was owed to three employees. Accrued interest and principal were due and payable at maturity. These notes had been past due and were accruing interest at a rate of 18% per annum. As of December 31, 2020, the aggregate principal amount of $67 thousand was outstanding and past due under these notes. The aggregate principal amount of these notes was fully repaid during fiscal 2021.

  

23

 


 

On March 5, 2020, the Company sold a promissory note in the principal amount of $0.5 million with an original issue discount of $54 thousand, that matured on November 30, 2020. Additionally, in lieu of interest, the Company issued to the lender 16,667 shares of its common stock with a fair value of $57 thousand, which was recognized as a debt discount and amortized to interest expense over the term of the note. Any principal balance remaining unpaid past the maturity date accrued interest at a rate of 15% per annum. As of December 31, 2020, an aggregate principal amount of $0.5 million was outstanding and past due under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $0.51 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 123,305 shares of common stock, along with warrants to purchase up to 123,305 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

In connection with the acquisition of the business by Sovereign Plastics on March 6, 2020, the Company, entered into promissory notes or agreed to pay the sellers an aggregate principal amount of $0.58 million that did not bear interest and required monthly principal payments. As of December 31, 2021, an aggregate amount of $0.55 million was outstanding and past due. However, there were no penalties associated with this default. The aggregate principal amount of these notes was fully repaid during fiscal 2021.

 

In addition, the Company assumed a note payable in the amount of $87 thousand bearing interest at 3% per annum and with a maturity date of February 16, 2023. Monthly payments of principal and interest are due over the term. As of September 30, 2021 and December 31, 2020, an aggregate principal amount of $22 thousand and $83 thousand, respectively, was outstanding under this note.

 

On May 29, 2020, the Company entered into a promissory note in the principal amount of $0.29 with an original issue discount of $40 thousand and a maturity date of September 30, 2020. The balance was due at maturity, with interest accruing at a rate of 12% per annum for any principal balance remaining unpaid past the maturity date. As of December 31, 2020, an aggregate principal amount of $0.29 million was outstanding and past due under this note. On January 26, 2021, the aggregate principal amount of this note, a 10% principal bonus, and accrued interest with a combined total of $0.33 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 79,579 shares of common stock, along with warrants to purchase up to 79,579 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

Between July 2, 2020 and August 21, 2020, the Company borrowed an aggregate of $1.2 million from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50 thousand and $200 thousand. The notes had maturity dates between October 13, 2020 and November 30, 2020 that bore interest at a rate of 15% per annum, with interest accrued at an annually compounded rate of 18% per annum for any principal balance remaining unpaid past the maturity date. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 96,634 shares of his personally owned, issued and outstanding common stock, with a fair value of $0.48 million, to the accredited investors and brokers, as part of this transaction. The Company accounted for this as a contribution from Mr. Hodges and as debt discounts and issuance costs. The amounts recorded as debt discounts and issuance costs were fully amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations during the 2020 fiscal year. As of December 31, 2020, an aggregate principal amount of $1.2 million was outstanding and past due under these notes. On January 26, 2021, $0.75 million of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $0.89 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 213,496 shares of common stock, along with warrants to purchase up to 213,496 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $0.45 million aggregate principal amount of these notes was fully repaid during fiscal 2021.

 

24

 

 

Between November 4, 2020 and November 24, 2020, the Company borrowed an aggregate of $0.55 million from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50 thousand and $100 thousand. The notes had maturity dates between January 31, 2021 and February 23, 2021 that bore interest at a rate of 15% per annum, with interest accrued at an annually compounded rate of 18% per annum for any principal balance remaining unpaid past the maturity date. Daniel L. Hodges, the Company’s Chief Executive Officer, transferred a total of 38,334 shares of his personally owned, issued and outstanding common stock, with a fair value of $0.26 million, to the accredited investors, as part of this transaction. The Company accounted for this as a contribution from Mr. Hodges and as debt discounts and issuance costs. The Company defaulted on these notes during the 2020 fiscal year, causing the interest rate to increase to an annually compounded rate of 18% per annum, and the note and accrued interest to become due on-demand. The amounts recorded as debt discounts were fully amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations during the 2020 fiscal year. As of December 31, 2020, an aggregate principal amount of $0.55 million was outstanding under these notes. On January 26, 2021, $0.5 million of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $0.57 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Shareholders’ Equity, resulting in the issuance of 136,324 shares of common stock, along with warrants to purchase up to 136,324 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. The remaining $50 thousand aggregate principal amount of these notes was fully repaid during fiscal 2021.

 

In connection with its acquisition of Fastback on January 29, 2021, the Company issued to the sellers $1.5 million aggregate principal amount of term promissory notes. The individual principal amounts of the notes ranged from $1 thousand to $393 thousand. These notes bore interest at the rate of 10% per annum and matured on the earlier of (i) January 1, 2022, (ii) the date on which an aggregate of $6.0 million worth of products and services are sold following the acquisition date by (A) Fastback or (B) the Company and its subsidiaries (other than Fastback) to certain specified Fastback customers, or (iii) the date on which the Company issues and sells shares of its common stock or debt securities to investors in a bona-fide arms-length financing transaction for aggregate consideration of at least $12.0 million. Interest was payable in cash semi-annually in arrears on each June 1 and December 1, commencing on June 1, 2021, and on the maturity date. Principal and any unpaid accrued interest was due on the maturity date. These notes matured on February 10, 2021 upon the Company’s closing of a public offering, as disclosed in Note 15- Shareholders’ Equity. However, the representative of the Fastback sellers requested that the Company withhold payment of principal and interest on these notes until a dispute among such sellers was resolved. As payment was withheld at the request of the sellers’ representative, no event of default had occurred and interest was accrued only through the maturity date. These notes were fully repaid during fiscal 2021.

 

Various subsidiaries of the Company received loan proceeds or the Company assumed in conjunction with various acquisitions an aggregate amount of $0.77 million under the Paycheck Protection Program (“PPP”). The PPP loans have maturity dates ranging from 2 to 5 years and an interest rate of 1% per annum. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable pursuant to section 1106 of the CARES Act, after a period of up to 24 weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness shall be calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, although no more than 40 percent of the amount forgiven can be attributable to non-payroll costs. Further, the amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period of up to 24 weeks. During the nine months ended September 30, 2021, an aggregate of $0.73 million of these notes has been forgiven. This forgiveness was recorded as a gain on extinguishment of debt in the Condensed Consolidated Statement of Operations. As of September 30, 2021 and December 31, 2020 September 30, 2021 and, an aggregate principal amount of $0.04 million and $0.58 million, respectively, was outstanding under these loans.

 

In connection with the acquisition of RVision by the Company, the Company assumed two notes payable with aggregate principal balances of $0.3 million. These notes bore interest at 6% and were paid in full immediately following the completion of the acquisition by the Company. 

 

25

 

 

Senior Debentures

 

In connection with its acquisition of DragonWave and Lextrum in April 2019, ComSovereign assumed the obligations of the seller of $0.1 million aggregate principal amount of 8% Senior Convertible Debentures of the seller that bore interest at the rate of 8% per annum and matured on December 31, 2019. Interest was payable semi-annually in cash or, at the seller’s option, in shares of the seller’s common stock at the conversion price that was equal to the lesser of (1) $24.00 or (2) 80% of the common stock price offered under the next equity offering. On April 30, 2020, these debentures were modified to remove the conversion feature and only have settlement through cash. During fiscal 2020, these debentures became past due and interest accrued at a rate of 15% per annum. As of December 31, 2020, an aggregate principal amount of $84 thousand was outstanding under these debentures. The aggregate principal amount of this debenture was fully repaid during fiscal 2021.

 

Convertible Notes Payable

 

On July 7, 2020, the Company sold a convertible promissory note in the principal amount of $0.29 million with an original issue discount of $36 thousand that bore interest at a rate of 12.5% per annum, and warrants to purchase an additional 52,910 shares of common stock. Warrants to purchase up to 9,260 shares of common stock, were also issued to an unrelated third-party as a placement fee for the transaction. Terms and maturities are similar to the April 29, 2020 note, as disclosed in the Company’s annual 10-K. In connection with this note, the Company recognized debt discounts of $0.22 million. On July 28, 2020, the Company defaulted on this note under the related Registration Rights Agreement by not filing a registration statement by July 28, 2020. As a result, the aggregate principal balance increased by penalties and interest of $88 thousand. In addition, the interest rate was increased to 24% per annum, and the note and accrued interest became due on-demand. As of December 31, 2020, there was an aggregate principal amount of $0.37 million outstanding and past due under this note. On January 22, 2021, the note holder converted the full principal of $0.37 million and all accrued interest with a combined total of $0.42 million into 155,013 shares of common stock.

 

On August 21, 2020, the Company sold a convertible promissory note in the principal amount of $1.7 million with an original issue discount of $0.2 million that bore interest at a rate of 5.0% per annum and matured on November 20, 2020. Accrued interest and principal were due on the maturity date. Upon maturity, the interest rate automatically increased to the lesser of 18% per annum or the maximum amount permitted by applicable law on any unpaid principal and accrued interest. Following the maturity date, the note was convertible into shares of common stock at a conversion price equal to 65% of the lowest volume weighted average price of the common stock during the 20 consecutive trading days immediately preceding the conversion date. As additional consideration for the loan, the Company issued to the lender 133,334 shares of common stock at a fair value of $10.05 per share. Warrants to purchase up to 17,857 shares of common stock that are exercisable for a purchase price of $8.40 per share at any time on or prior to August 20, 2025, were also issued to an unrelated third-party as a placement fee for the transaction. These transactions resulted in the Company recognized aggregate debt discounts of $1.73 million. On November 21, 2020, the Company defaulted on this note by not repaying the principal and accrued interest by the maturity date, which resulted in the aggregate principal balance increasing by penalties and interest of $0.54 million. In addition, the interest rate was increased to 24% per annum. As of December 31, 2020, an aggregate principal amount of $2.24 million was outstanding and past due under this note. The aggregate principal amount of this note was fully repaid during fiscal 2021.

 

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In connection with its acquisition of Fastback on January 29, 2021, the Company issued to the sellers $11.15 million aggregate principal amount of convertible promissory notes. The individual principal amounts of the notes ranged from $6 thousand to $5.58 million. These notes initially bear interest at the rate of 1.01% per annum, which is to be adjusted to the prime rate as published by the Wall Street Journal on each annual anniversary of the issuance date, and mature on January 29, 2026. Interest is payable in cash annually in arrears on each January 1. Commencing on January 29, 2022, the outstanding principal and accrued interest on these notes may be converted in full to shares of the Company’s common stock at a conversion price of $5.22 per share, subject to adjustment. Upon an event of default, the interest rate will automatically increase to 15% per annum compounded annually, and all unpaid principal and accrued interest may become due on-demand. Principal and any unpaid accrued interest are due on the maturity date. Upon maturity, the interest rate will automatically increase to 15% per annum compounded annually on any unpaid principal. As of September 30, 2021, an aggregate principal amount of $11.15 million was outstanding.

 

In connection with its acquisition of Innovation Digital on June 3, 2021, the Company issued to the seller, who became an employee of the Company, a convertible promissory note in the principal amount of $0.6 million that bears interest at the rate of 5% per annum, maturing on June 3, 2022. Accrued interest and principal is due at maturity. Commencing December 3, 2021, the outstanding principal and accrued interest on this note may be converted into shares of the Company’s common stock at an initial conversion price of $2.35 per share subject to certain terms, conditions and adjustment. As of September 30, 2021, the full principal amount of $0.6 million was outstanding.

 

Senior Convertible Promissory Note

 

On May 27, 2021, the Company sold a senior secured convertible promissory note in the principal amount of $11.0 million with an original issue discount of $1.0 million bearing an interest rate of 6% per annum that matures on May 27, 2023. The Company issued to the buyer warrants to purchase up to 1,820,000 shares of common stock with an exercise price of $4.50 per share, subject to adjustment, any time prior to May 27, 2026, and a grant date fair value of $0.505 per share. The Company also paid aggregate cash debt issuance costs of $0.69 million. The resulting aggregate debt discount recorded by the Company of $2.6 million. Principal payments of $0.61 million plus interest are required to be paid monthly commencing six months after the date of issuance. This note is guaranteed by each of the Company’s subsidiaries and is secured by a first priority lien on all of the assets and properties of the Company and the assets and properties of its subsidiaries, subject only to the liens securing approximately $1.0 million principal amount of outstanding indebtedness of one of its subsidiaries. On August 25, 2021, we amended and restated the senior secured convertible note we issued to reduce the initial conversion price of such note to $3.00 per share, and to adjust the exercise price of the warrants to $3.00 per share. As of September 30, 2021, he full principal amount of $11.0 million was outstanding.

 

On August 25, 2021, the Company sold a senior secured convertible promissory note in the principal amount of $5.8 million with an original issue discount of $0.8 million bearing an interest rate of 6% per annum that matures on August 25, 2025. The Company issued to the buyer warrants to purchase up to 1,315,789 shares of common stock with an exercise price of $3.00 per share, subject to adjustment, any time prior to August 25, 2026, and a grant date fair value of $0.859 per share. The Company also paid aggregate cash debt issuance costs of $0.35 million. The resulting aggregate debt discount recorded by the Company of $2.28 million. Principal payments of $0.322 million plus interest are required to be paid monthly commencing five business days after a registration statement is declared effective, but in no event later than November 30, 2021. This note is guaranteed by each of the Company’s subsidiaries and is secured by a first priority lien on all of the assets and properties of the Company and the assets and properties of its subsidiaries, subject only to the liens securing approximately $1.0 million principal amount of outstanding indebtedness of one of its subsidiaries. As of September 30, 2021, an aggregate principal amount of $5.8 million was outstanding.

 

Senior Convertible Debentures

 

On September 24, 2019, ComSovereign sold $0.25 million aggregate principal amount of 10% Senior Convertible Debentures that bore interest at a rate of 10% per annum and were scheduled to mature on December 31, 2021. Interest was paid semi-annually in arrears in June and December of each year in cash or, at ComSovereign’s option, in shares of common stock at the conversion price that is equal to the lesser of (1) $7.50 or (2) a future effective price per share of any common stock sold by ComSovereign. Upon an event of default, the interest rate shall automatically increase to 15% per annum. In connection with these debentures, ComSovereign recognized aggregate debt discounts of $0.25 million. On April 21, 2020, all unpaid accrued interest through December 31, 2019 was converted into 2,234 shares of common stock. Also on April 21, 2020, all the outstanding warrants were exercised at $0.03 per share into 94,510 issued shares of the Company’s common stock, resulting in full recognition in interest expense of the remaining debt discount. On April 30, 2020, these debentures were amended to provide for the conversion of the debentures into shares of the Company’s common stock instead of ComSovereign’s common stock and the conversion price was changed from $7.50 per share to $2.268 per share. The Company defaulted on these debentures during the 2020 fiscal year, causing the interest rate to increase to 15% per annum, and the debentures and accrued interest to become due on-demand. Any remaining amounts recorded as debt discounts were fully amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations during the 2020 fiscal year. As of December 31, 2020, an aggregate principal amount of $0.25 million was outstanding and past due under these debentures. On January 26, 2021, the holder of these debentures converted the aggregate principal and interest of $0.28 million into 125,186 shares of common stock.

 

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On July 2, 2020, the Company sold $1.0 million aggregate principal amount of 9% Senior Convertible Debentures to an accredited investor that bore interest at a rate of 9% per annum and a maturity date of September 30, 2020, subsequently extended to November 30, 2020. Accrued interest and principal were due at maturity, with interest paid in cash or, at the Company’s option, in shares of common stock at the conversion price of $3.00 per share. Upon an event of default, the interest rate would automatically increase to 15% per annum. The debentures were convertible into shares of the Company’s common stock at a conversion price of $3.00 per share. The Company also issued warrants to purchase 33,334 shares of common stock that are exercisable for a purchase price of $3.00 per share, at any time on or prior to the earlier of December 31, 2022 or the second anniversary of the Company’s consummation of a public offering of its common stock in connection with an up-listing of the common stock to a national securities exchange. In connection with these debentures, the Company recorded total debt discounts of $0.16 million. Amounts recorded as debt discounts were fully amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations during the 2020 fiscal year, as a result of the debentures becoming due on-demand from the default event. As of December 31, 2020, an aggregate principal amount of $1.0 million was outstanding and past due under these debentures. On January 26, 2021, the holder of these debentures converted the principal amount of $0.9 million into 300,000 shares of common stock. The remaining principal amount of $0.1 million and accrued interest with a combined total of $0.16 million, was fully extinguished on January 26, 2021 at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of, along with warrants to purchase up to 38,713 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026. 

 

Certain agreements governing the secured notes payable, notes payable and senior convertible debentures contain customary covenants, such as debt service coverage ratios, limitations on liens, dispositions, mergers, entry into other lines of business, investments and the incurrence of additional indebtedness.

 

All debt agreements are subject to customary events of default. If an event of default occurs with respect to the debt agreements and is continuing, the lenders may accelerate the applicable amounts due.

  

Future maturities contractually required by the Company under long-term debt obligations are as follows for the years ending December 31:

 

(Amounts in thousands)      
Remainder of 2021   $ 2,879  
2022     16,815  
2023     3,742  
2024     9  
2025     9  
Thereafter     11,348  
Total   $ 34,802  
Less unamortized discounts and debt issuance costs     (4,371 )
Total net debt     30,431  
Less current portion of long-term debt, net of unamortized discounts and debt issuance costs     (12,354 )
Total long-term debt, net of unamortized discounts and debt issuance costs     18,077  

 

14. RELATED PARTY TRANSACTIONS 

 

Accrued Liabilities – Related Party

 

As of September 30, 2021 and December 31, 2020, the accrued liabilities – related party balance was $86 thousand and $30 thousand, respectively, which represented amounts owed to various contractors, officers and employees of the Company as described below.

 

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On November 10, 2017, the Company and Global Security Innovative Strategies, LLC (“GSIS”), a company in which David Aguilar, a member of the Company’s Board of Directors, is a principal, entered in an agreement (the “GSIS Agreement”) pursuant to which GSIS agreed to provide business development support and general consulting services for sales opportunities with U.S. government agencies and other identified prospects and consulting support services for the Company. The GSIS Agreement had an initial term of six months beginning on November 1, 2017. On September 26, 2018, the parties amended the GSIS Agreement to extend the period of service through September 2019 with monthly automatic renewals thereafter. The Company also agreed to issue an option to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.00. This option immediately vested and terminates on September 26, 2022. Pursuant to the GSIS Agreement, GSIS is paid a fee of $10 thousand per month. In addition, GSIS is paid for the expenses incurred in connection with the performance of its duties under the GSIS Agreement. Either party may terminate or renew the GSIS Agreement at any time, for any reason or no reason, upon at least 30 days’ notice to the other party. As of September 30, 2021 and December 31, 2020, GSIS was owed $31 thousand and $30 thousand, respectively, for normal monthly retainers and expenses incurred and these amounts were recorded in accrued liabilities – related party.

 

Notes Payable – Related Party

 

On August 5, 2019, Daniel L. Hodges, the Company’s Chairman and Chief Executive Officer, and his wife, loaned DragonWave $0.2 million at an interest rate of 5.0% per annum and an 18.0% default interest rate with a maturity date of December 31, 2020. Interest was payable monthly while the full principal balance was due at maturity. During fiscal 2020, this loan became past due and was accruing interest at an increased default rate of 18.0% per annum. As of December 31, 2020, $0.2 million was outstanding and past due under the loan. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal year 2021.

  

On July 1, 2020, Brent Davies, a member of the Company’s Board of Directors and Audit Committee, loaned the Company $50 thousand at an interest rate of 4.80% per annum with an original maturity date of August 31, 2020. This note was amended to extend the maturity date to November 30, 2020. Interest and the full principal balance was due at maturity. During fiscal 2020, this loan became past due and was accruing interest at an increased default rate of 18.0% per annum. As of December 31, 2020, $50 thousand was outstanding and past due under the loan. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal year 2021.

 

Between October 15, 2020 and December 28, 2020, the Company borrowed an aggregate of $0.6 million from Dr. Dustin McIntire, the Company’s Chief Technology Officer, and issued promissory notes evidencing such loans. The principal amounts of the notes were between $0.1 million and $0.4 million, and such notes bore interest at 10% per annum and were due between January 14, 2021 and March 28, 2021. As of December 31, 2020, $0.6 million was outstanding under these notes. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal year 2021.

 

Between November 13, 2020 and December 24, 2020, the Company borrowed an aggregate of $0.16 million from Richard J. Berman, a member of the Company’s Board of Directors, and issued promissory notes evidencing such loans. The principal amounts of the notes were between $40 thousand and $120 thousand, and such notes bore interest at 8% per annum and were due between February 12, 2021 and March 23, 2021. As of December 31, 2020, $0.16 million was outstanding under these notes. On January 26, 2021, the aggregate principal amount of this note, a 10% principal bonus, and all accrued interest with a combined total of $0.18 million, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 15- Stockholders’ Equity, resulting in the issuance of 42,776 shares of common stock, along with warrants to purchase up to 42,776 shares of common stock that are exercisable for a purchase price of $4.50 per share at any time on or prior to January 26, 2026.

 

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15. SHAREHOLDERS’ EQUITY

 

For the nine months ended September 30, 2021

 

As of September 30, 2021, the Company had 100,000,000 shares of preferred stock authorized for issuance, none of which were issued and outstanding and 300,000,000 shares of common stock authorized for issuance and 72,533,850 shares of common stock issued and outstanding.

 

On May 26, 2020, the board of directors of the Company and stockholders holding a majority of the outstanding shares of the Company’s common stock approved resolutions authorizing the board of directors to effect the Split of the Company’s common stock at an exchange ratio of up to 1-for-3, with the board of directors retaining the discretion as to whether to implement the Split. On December 16, 2020, the Company’s board of directors approved a ratio for the Split of 1-for-3, which was effected on January 21, 2021. The Condensed Consolidated Financial Statements and accompanying notes give effect to this Split as if it occurred at the beginning of the first period presented. 

 

Public Offerings

 

On January 26, 2021 (the “First Offering Closing Date”), the Company sold an aggregate of 3,855,422 units at a price to the public of $4.15 per unit (the “First Offering”), each unit consisting of one share of the Company’s common stock, and a warrant to purchase one share of common stock at an exercise price of $4.50 per share (the “First Offering Warrants”), pursuant to an Underwriting Agreement, dated as of January 21, 2021 (the “First Offering Underwriting Agreement”), between the Company and the representative (the “Representative”) of the several underwriters named in the First Offering Underwriting Agreement. In addition, pursuant to the First Offering Underwriting Agreement, the Company granted the Representative a 45-day option to purchase up to 578,312 additional shares of common stock, and/or 578,312 additional First Offering Warrants, to cover over-allotments in connection with the First Offering, which the Representative partially exercised to purchase 578,312 Warrants on the First Offering Closing Date. For additional information on these First Offering Warrants, see Note 16 – Share-Based Compensation.

 

The common stock and the warrants of the First Offering were offered and sold to the public pursuant to the Company’s registration statement on Form S-1 (File No. 333-248490), filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Act, on August 28, 2020, as amended, and which became effective on January 21, 2021.

 

On the First Offering Closing Date, the Company received gross proceeds of approximately $16.0 million, before deducting underwriting discounts and commissions of eight percent (8%) of the gross proceeds and estimated offering expenses.

 

On January 27, 2021, the Representative exercised its over-allotment option for the First Offering to purchase 329,815 additional shares of common stock, which closed on January 29, 2021. The Company received gross proceeds of approximately $1.37 million before deducting underwriting discounts and commissions of eight percent (8%) of the gross proceeds.

 

Pursuant to the First Offering Underwriting Agreement, the Company also agreed to issue to the Representative warrants (the “Representative’s First Offering Warrants”) to purchase up to a total of 154,216 shares of common stock (4% of the shares of common stock sold in the First Offering). See Note 16 – Share-Based Compensation.

 

The total expenses of the First Offering were approximately $2.7 million, which included the underwriting discounts and commissions and the Representative’s reimbursable expenses relating to the First Offering. As part of this offering, the Company also issued 100,000 warrants to purchase the Company’s common stock at $4.15 per share to compensate a vendor for certain offering costs. See Note 16 – Share-Based Compensation.

 

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On February 10, 2021 (the “Second Offering Closing Date”), the Company sold an aggregate of 5,647,059 shares of the Company’s common stock, at a price to the public of $4.25 per share (the “Second Offering”), pursuant to an Underwriting Agreement, dated as of February 10, 2021 (the “Second Offering Underwriting Agreement”), between the Company the Representative of the several underwriters named in the Second Offering Underwriting Agreement. In addition, pursuant to the Second Offering Underwriting Agreement, the Company granted the Representative a 45-day option to purchase up to 847,058 additional shares of common stock to cover over-allotments in connection with the Second Offering, which the Representative exercised in full on February 11, 2021.

 

The common stock was offered and sold to the public pursuant to the Company’s registration statement on Form S-1 (File No. 333-252780), filed by the Company with the SEC under the Securities Act, on February 5, 2021, and the Company’s registration statement on Form S-1 (File No. 333-252974), filed by the Company with the SEC under Rule 462(b) of the Securities Act on February 10, 2021, each of which became effective on February 10, 2021.

 

The Company received gross proceeds of approximately $27.6 million, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated offering expenses.

 

Pursuant to the Second Offering Underwriting Agreement, the Company also issued to the Representative warrants (the “Representative’s Second Offering Warrants”) to purchase up to a total of 225,882 shares of common stock (4% of the shares of common stock sold in the Second Offering), of which warrants to purchase 198,776 shares of common stock were registered under the Securities Act and warrants to purchase 27,106 shares of common stock were issued in a private placement to the Representative. See Note 16 – Share-Based Compensation.

 

The total expenses of the Second Offering were approximately $2.6 million, which included the underwriting discounts and commissions and the Representative’s reimbursable expenses relating to the Second Offering.

 

Consulting Agreements and Settlements with Vendors

 

On January 31, 2020, the Company entered into an agreement with a consultant to replace an existing consulting agreement between the consultant and the Company to allow the consultant to elect to take from 50% to 100% of its compensation in the form of common stock based on an agreed upon conversion calculation. Any difference between the amount due and the actual fair value of the shares issued in payment is recorded as general and administrative expense in the Company’s Condensed Consolidated Financial Statements. Common stock to be issued to the consultant will be paid on a quarterly basis. During the nine months ended September 30, 2021 and 2020, respectively, the Company issued 15,740 shares of its common stock with a fair value of $69 thousand and 55,032 shares of its common stock, with a fair value of $193 thousand to the consultant for services previously rendered.

 

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On December 9, 2020, the Company entered into an agreement with a consultant that required the payment of 5,000 shares of its common stock with a fair value of $31 thousand at the inception of the contract with the obligation to perform services in the future. These shares of common stock were issued on December 14, 2020. As of December 31, 2020, 2,125 of these shares of common stock had vested and expense of $13 thousand has been recognized, through satisfaction of the performance obligation. During the first quarter of the fiscal 2021 year, the remaining shares of 2,875 vested and $18 thousand of additional expense was recognized.

 

Dividends

 

The Company did not pay dividends to holders of its common stock during the nine months ended September 30, 2021. The determination to pay dividends on common stock will be at the discretion of the Board of Directors and will depend on applicable laws and the Company’s financial condition, results of operations, cash requirements, prospects and such other factors as the Board of Directors may deem relevant. In addition, current or future loan agreements may restrict the Company’s ability to pay dividends. The Company does not anticipate declaring or paying any cash dividends on common stock in the foreseeable future.

 

16. SHARE-BASED COMPENSATION

 

As described in Note 15 – Stockholders’ Equity, effective January 21, 2021, the Company enacted the Split of the Company’s common stock. As a result, the Company has given effect to the Split as if it occurred at the beginning of the first period presented for all share-based compensation. 

 

2020 Long-Term Incentive Plan

 

On April 22, 2020, the Company’s Board of Directors adopted the 2020 Long-Term Incentive Plan (the “2020 Plan”), which was approved by the stockholders on or about May 6, 2020. Employees, officers, directors and consultants that provide services to the Company or one of its subsidiaries may be selected to receive awards under the 2020 Plan. Awards under the 2020 Plan may be in the form of incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards and performance-based awards.

 

As originally approved, a total of 3,333,334 shares of the Company’s common stock were authorized for issuance with respect to awards granted under the 2020 Plan. As approved by the stockholders on or about June 25, 2021, the amount authorized to be issued under the 2020 Plan has been increased to 8,333,334 shares of the Company’s common stock. Any shares subject to awards that are not paid, delivered or exercised before they expire or are cancelled or terminated, or fail to vest, as well as shares used to pay the purchase or exercise price of awards or related tax withholding obligations, will become available for other award grants under the 2020 Plan. As of September 30, 2021, 5,430,505 options had been issued under the 2020 Plan, of which 33,334 were forfeited and 63,333 have been exercised, and 2,936,163 shares authorized under the 2020 Plan remained available for award purposes.

 

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The 2020 Plan will terminate on May 1, 2030. The maximum term of options, stock appreciation rights and other rights to acquire common stock under the 2020 Plan is ten years after the initial date of the award.

 

Restricted Stock Awards

 

On December 2, 2019, the Company’s Board of Directors granted an aggregate of 633,336 RSAs to nine officers and directors (“Participant”) at a grant date fair value of $2.46 per share. The original vesting period for these RSAs is as follows: 283,339 were to vest on the one-year anniversary of the grant date; 283,331 were to vest on the two-year anniversary of the original grant date; and 66,666 were scheduled to vest on the three-year anniversary of the original grant date. As of December 31, 2020, 283,339 RSAs had vested. In the first quarter of fiscal 2021, the Company modified the RSA awards for two individuals to accelerate the final vesting of their awards in consideration of the individuals’ separation and/or retirement. This modification resulted in the vesting of an additional 50,000 RSAs. An incremental compensation expense was recognized for the modification totaling $0.17 million during the nine months ended September 30, 2021. As of September 30, 2021, the remaining unvested RSAs from these awards, totaling 299,997, are scheduled to vest as follows: 233,331 are scheduled to vest on the two-year anniversary of the original grant date; and 66,666 were scheduled to vest on the three-year anniversary of the original grant date.

 

On January 26, 2021, the Company’s Board of Directors granted an aggregate of 66,667 RSAs to one director at a grant date fair value of $4.50 per share. The vesting period for these RSAs is as follows: 33,334 vest on the one-year anniversary of the grant date and 33,333 vest on the two-year anniversary of the original grant date.

 

For all RSAs that are currently outstanding, if the Participant’s employment with, engagement by, or service to the Company terminates for any reason (other than due to disability, retirement or death, or termination by employee for “Good Cause” as defined pursuant to a written employment contract) prior to the vesting of all or any portion of the RSAs granted, such RSAs shall immediately be cancelled. If the Participant’s employment with, engagement by, or service to the Company terminates due to the Participant’s death, disability or retirement, or by termination by such employee for “Good Cause” as defined pursuant to a written employment contract, the Participant shall become 100% vested in the RSAs granted as of the date of any such termination. There were no RSAs that were forfeited in the nine months ended September 30, 2021. For the three and nine months ended September 30, 2021, respectively, the Company recognized $0.18 million and $0.71 million of compensation expense related to RSAs and had unrecognized compensation cost as of September 30, 2021 for RSAs of $0.46 million.

 

Stock Options

 

On April 1, 2021, from shares available to be issued under the 2020 Plan, the Board of Directors of the Company granted options to purchase an aggregate 2,458,163 shares of common stock with exercise prices ranging from $2.75 to $3.025 per share and a grant date fair value ranging from $0.961 to $1.042 per share. These options have a three year service period and vest ratably on the first, second and third anniversary of their grant date.

 

Also, on April 1, 2021, the Board of Directors of the Company authorized the issuance of options to purchase an aggregate of 2,680,048 shares of common stock with an exercise price of $2.75 per share. These shares were in excess of the number of shares available under the 2020 Plan at that time and were subject to the approval by the Company’s stockholders of an increase to the shares available in the 2020 Plan as noted above. Effective with the approval of the shareholders on June 25, 2021, these shares were considered granted and have a grant date fair value ranging from $0.759 to 0.768 per share. Of these, options to purchase 753,837 shares have a three year service period and vest ratably on the first, second and third anniversary of their authorization for issuance and options to purchase 1,025,000 shares have a two-year service period and vest ratably on the first and second anniversary of their authorization for issuance.

 

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On May 5, 2021, the Board of Directors of the Company authorized the issuance of options to purchase an aggregate of 295,000 shares of common stock with an exercise price of $2.75 per share. These shares were in excess of the amount of shares available under the 2020 Plan at that time and were subject to the approval by the Company’s stockholders of an increase to the shares available in the 2020 Plan as noted above. Effective with the approval of the shareholders on June 25, 2021, these shares are considered granted and have a grant date fair value of $0.873 per share. Of these, options to purchase 2,700,000 shares have a one year service period and vest ratably on the six month and twelve month anniversary of their authorization for issuance and options to purchase 25,000 shares vested immediately upon grant.

 

On June 29, 2021, the Board of Directors approved the modification of 655,002 options previously issued outside of the corporate plan. These options were scheduled to expire 90 days after the March 31, 2021 retirement of a long-time employee. This modification extended the expiration date of these options through December 15, 2021. The Company has recognized incremental compensation expense of $0.13 million related to this modification.

 

No options were granted during the three months ended September 30, 2020.

 

The following table summarizes the assumptions used to estimate the fair value of options granted during the nine months ended September 30, 2021:

 

    2021  
Expected dividend yield     0 %
Expected volatility     46.5 - 53.02 %
Risk-free interest rate     0.48 - 0.89 %
Expected life of options     3.00 - 5.00 years  

 

The following tables represent stock option activity for the nine months ended September 30, 2021 and 2020:

 

(Amounts in thousands except per share data)   Number of
Options
    Weighted-
Average
Exercise
Price per
Share
    Weighted-
Average
Contractual
Life in
Years
    Aggregate
Intrinsic
Value
 
Outstanding – December 31, 2020     3,433,515     $ 1.59       2.01     $ 15,221  
Exercisable – December 31, 2020     3,400,181       1.58       1.99       15,129  
Granted     4,532,000       2.76       4.51      
 
Exercised     (63,333 )     0.26       3.77       85  
Cancelled or Expired     (856,669 )     1.78       0.18       91  
Outstanding – September 30, 2021     7,045,513     $ 2.33       3.51     $ 830  
Exercisable – September 30, 2021     2,513,513     $ 1.56       1.70     $ 830  

  

(Amounts in thousands except per share data)   Number of
Options
    Weighted-
Average
Exercise
Price per
Share
    Weighted-
Average
Contractual
Life in
Years
    Aggregate
Intrinsic
Value
 
Outstanding – December 31, 2019     2,898,347     $ 1.90       1.92     $ 2,265  
Exercisable – December 31, 2019     2,898,347       1.90       1.92       2,265  
Granted     908,505       0.77       4.59       5,838  
Exercised    
     
     
     
 
Cancelled or Expired     (333,335 )     2.01       0.59       1,903  
Outstanding – September 30, 2020     3,440,183     $ 1.59       2.26     $ 19,339  
Exercisable – September 30, 2020     3,406,849     $ 1.58       2.24     $ 19,207  

  

The Company recognized $0.47 million and $0.82 million of share-based compensation expense related to options for the three and nine months ended September 30, 2021, respectively. The Company recognized $5 thousand of share-based compensation expense related to options for the nine months ended September 30, 2020. Compensation expense related to stock options is recorded in general and administrative in the Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2021, the Company has $3.48 million of unrecognized compensation expense related to options. For the nine months ended September 30, 2020, the Company had $25 thousand of unrecognized compensation expense related to options.

 

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Warrants

 

On January 26, 2021, the Company issued warrants to purchase an aggregate of 2,751,556 shares of the Company’s common stock as partial consideration for the debt extinguishments disclosed in Note 15 – Debt Agreements and Note 16 – Related Party Transactions. The warrants have an exercise price of $4.50 per share and an expiration date of January 26, 2026. The issuance date fair value of these warrants was estimated to be $1.597 per share. None of these warrants were exercised during the nine months ended September 30, 2021.

 

On January 26, 2021, the Company issued warrants to purchase an aggregate of 100,000 shares of the Company’s common stock as consideration for certain costs related to the First Offering as disclosed in Note 15 – Stockholders’ Equity. The warrants have an exercise price of $4.15 per share and an expiration date of January 21, 2026. The issuance date fair value of these warrants was estimated to be $1.703 per share. None of these warrants were exercised during the nine months ended September 30, 2021.

 

On January 26, 2021, the Company issued warrants to purchase an aggregate of 154,216 shares of the Company’s common stock as the Representative’s First Offering Warrants as discussed in Note 15 – Stockholders’ Equity. The Representative’s First Offering Warrants were subject to a lock-up for 180 days from the commencement of sales in the First Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and were non-exercisable for six (6) months after January 21, 2021. The warrants have an exercise price of $5.1875 per share and an expiration date of January 21, 2026. The issuance date fair value of these warrants was estimated to be $1.376 per share. As of September 30, 2021, all warrants were exercisable but none of these warrants were exercised during the nine months ended September 30, 2021.

 

On January 26, 2021, the Company issued warrants to purchase an aggregate of 4,433,734 shares of the Company’s common stock as portion of the Units offered in the Company’s First Offering as disclosed in Note 15 – Stockholders’ Equity. The warrants have an exercise price of $4.50 per share and an expiration date of January 26, 2026. The issuance date fair value of these warrants was estimated to be $1.597 per share. None of these warrants were exercised during the nine months ended September 30, 2021.

 

On February 12, 2021, the Company issued warrants to purchase an aggregate of 225,882 shares of the Company’s common stock as the Representative’s Second Offering Warrants as discussed in Note 15 – Stockholders’ Equity. The Representative’s Second Offering Warrants were subject to a lock-up for 180 days from the commencement of sales in the Second Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and were non-exercisable for six (6) months after February 10, 2021. The warrants have an exercise price of $5.3125 per share and an expiration date of February 10, 2026. The issuance date fair value of these warrants was estimated to be $1.918 per share. None of these warrants were exercised during the nine months ended September 30, 2021.

 

On May 27, 2021, the Company issued warrants to purchase an aggregate of 1,820,000 shares of the Company’s common stock in conjunction with a debt agreement as discussed in Note 15 – Debt Agreements. These warrants have an exercise price of $4.50, subject to adjustment, a grant date fair value of $0.505 per share, and expire on May 27, 2026.

 

On August 25, 2021, the Company issued warrants to purchase an aggregate of 1,315,789 shares of the Company’s common stock in conjunction with a debt agreement as discussed in Note 15 – Debt Agreements. These warrants have an exercise price of $3.00, subject to adjustment, a grant date fair value of $0.859 per share, and expire on August 25, 2026. 

 

All warrants are valued utilizing the Black-Scholes pricing model using the assumptions listed below. The weighted average grant date fair value of all warrants issued during the nine months ended September 30, 2021, was $1.328 per share.

 

The following table summarizes the assumptions used to estimate the fair value of warrants granted during the nine months ended September 30, 2021:

 

    2021  
Expected dividend yield     0 %
Expected volatility     39.94 -  46.22 %
Risk-free interest rate     0.42 - 0.84 %
Contractual life of warrants     5.00 years  

 

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The following tables represents warrant activity for the nine months ended September 30, 2021 and 2020:

 

(Amounts in thousands except per share data)   Number of
Warrants
    Weighted-
Average
Exercise
Price
    Weighted-
Average
Remaining
Contractual
Life in
Years
    Aggregate
Intrinsic
Value
 
Outstanding – December 31, 2020     890,416     $ 1.46       4.02     $ 4,083  
Exercisable – December 31, 2020     890,416     $ 1.46       4.02     $ 4,083  
Granted/Issued     10,804,881       4.09       4.45      
 
Exercised    
     
     
     
 
Forfeited or Expired     (13,706 )     1.90       0.85       1  
Outstanding – September 30, 2021     11,681,591     $ 3.89       4.37     $ 679  
Exercisable – September 30, 2021     11,681,591     $ 3.89       4.37     $ 679  

 

(Amounts in thousands except per share data)   Number of
Warrants
    Weighted-
Average
Exercise
Price
    Weighted-
Average
Remaining
Contractual
Life in
Years
    Aggregate
Intrinsic
Value
 
Outstanding – December 31, 2019     167,846     $ 2.85       1.96     $ 258  
Exercisable – December 31, 2019     167,846     $ 2.85       1.96     $ 258  
Granted     858,985       1.39       4.43       5,016  
Exercised     (94,510 )     0.03       1.25       678  
Forfeited or Expired    
     
     
     
 
Outstanding – September 30, 2020     932,321     $ 1.79       4.17     $ 5,251  
Exercisable – September 30, 2020     932,321     $ 1.79       4.17     $ 5,251  

 

17. COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Management does not believe that after the final disposition any of these matters is likely to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.

 

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18. CONCENTRATION

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral related to its trade accounts receivable. At September 30, 2021, accounts receivable from customers comprised approximately 97% of the Company’s total trade accounts receivable, and none of this balance had been characterized as uncollectible. In addition, for the nine months ended September 30, 2021, there were no customers that individually exceeded 10% of revenue.

 

19. SUBSEQUENT EVENTS

 

Corporate Acquisition

 

On October 4, 2021, the Company completed the acquisition of SAGUNA Networks LTD (“SAGUNA”), a Israeli company for total consideration of approximately $13.6 million worth of shares of restricted common stock.

 

Public Offering of Preferred Series A

 

On October 29, 2021 (the “Preferred Series A Offering Closing Date”), the Company sold an aggregate of 320,000 shares of the Company’s newly-designated 9.25% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), at a public offering price of $25.00 per share, which is the initial liquidation preference of the Series A Preferred Stock. Pursuant to the terms of the Underwriting Agreement dated October 26, 2021, the Company granted the Underwriters a 30-day option to purchase up to an additional 48,000 shares of Series A Preferred Stock. The Series A Preferred Stock was offered and sold pursuant to a prospectus supplement, dated October 26, 2021 (the “Prospectus Supplement”), and a base prospectus, dated September 14, 2021, relating to the Company’s effective shelf registration statement (the “Registration Statement”) on Form S-3 (File No. 333-259307).

 

The Series A Preferred Stock has been listed on The Nasdaq Capital Market under the symbol “COMSP”.

 

On the Preferred Series A Offering Closing Date, the Company received gross proceeds of approximately $7.2 million, before deducting underwriting discounts and commissions of eight percent (8%) of the gross proceeds and estimated offering expenses.

 

The total expenses of the Preferred Series A Offering were approximately $0.9 million, which included the underwriting discounts and commissions and the Representative’s reimbursable expenses relating to the Preferred Series A Offering.

 

The Company intends to use $2.75 million of the net proceeds from the Offering for the repayment of certain indebtedness and the balance for general corporate and working capital purposes.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Unless the context requires otherwise, references in this Quarterly Report to “Company, “we”, “us” and “our” refer to the COMSovereign Holding Corp. and its subsidiaries.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations,” contains “forward-looking statements” that represent our beliefs, projections and predictions about future events. From time to time in the future, we may make additional forward-looking statements in presentations, at conferences, in press releases, in other reports and filings and otherwise. Forward-looking statements are all statements other than statements of historical fact, including statements that refer to plans, intentions, objectives, goals, targets, strategies, hopes, beliefs, projections, prospects, expectations or other characterizations of future events or performance, and assumptions underlying the foregoing. The words “may,” “could,” “should,” “would,” “will,” “project,” “intend,” “continue,” “believe,” “anticipate,” “estimate,” “forecast,” “expect,” “plan,” “potential,” “opportunity,” “scheduled,” “goal,” “target,” and “future,” variations of such words, and other comparable terminology and similar expressions and references to future periods are often, but not always, used to identify forward-looking statements.

 

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Readers should carefully review the risk factors included under “Item 1A. Risk Factors” of our fiscal 2020 Annual Report on Form 10-K filed with the U. S. Securities and Exchange Commission (the “SEC”) on March 30, 2021 and Item 1A., Part II Risk Factors” of our quarterly report on Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 16, 2021.

 

Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2021 and 2020 Results 

 

The following MD&A is intended to help readers understand the results of our operations and financial condition and is provided as a supplement to, and should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and the related notes (“Notes”) in Part 1 of this Quarterly Report on Form 10-Q.

 

Growth and percentage comparisons made herein generally refer to the nine months ended September 30, 2021, compared to nine months ended September 30, 2020 unless otherwise indicated.

 

Business Overview

 

We are a provider of technologically-advanced telecom solutions to network operators, mobile device carriers, governmental units and other enterprises worldwide. We have assembled a portfolio of communications, power and niche technologies, capabilities and products that enable the upgrading of latent 3G networks to 4G and 4G-LTE networks and will facilitate the rapid roll out of the 5G and “next-Generation” (“nG”) networks of the future. We focus on special capabilities, including signal modulations, antennae, software, hardware and firmware technologies that enable increasingly efficient data transmission across the electromagnetic spectrum. Our product solutions are complemented by a broad array of services, including technical support, systems design and integration, and sophisticated research and development programs. While we compete globally on the basis of our innovative technology, the breadth of our product offerings, our high-quality cost-effective customer solutions, and the scale of our global customer base and distribution, our primary focus is on the North American telecom infrastructure and service market. We believe we are in a unique position to rapidly increase our near-term domestic sales as we are among the few U.S.-based providers of telecommunications equipment and services.

 

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Our Operating Units

 

Through a series of acquisitions, we and our operating subsidiaries have expanded our service offerings and geographic reach over the past two years. Our company is comprised of the following principal operating units:

 

  DragonWave-X LLC. DragonWave-X, LLC and its operating subsidiaries, DragonWave Corp. and DragonWave-X Canada, Inc. (collectively, “DragonWave”), are a Dallas-based manufacturer of high-capacity microwave and millimeter wave point-to-point telecom backhaul radio units. DragonWave and its predecessor have been selling telecom backhaul radios since 2012 and its microwave radios have been installed in over 330,000 locations in more than 100 countries worldwide. According to a report of the U.S. Federal Communications Commission, as of December 2019, DragonWave was the second largest provider of licensed point-to-point microwave backhaul radios in North America. DragonWave was acquired by ComSovereign in April 2019 prior to the ComSovereign Acquisition.

 

  Virtual Network Communications Inc. Virtual Network Communications Inc. (“VNC”) is an edge compute focused wireless telecommunications technology developer and equipment manufacturer of both 4G LTE Advanced and 5G capable radio equipment. VNC designs, develops, manufactures, markets, and supports a line of network products for wireless network operators, mobile virtual network operators, cable TV system operators, and government and business enterprises that enable new sources of revenue, and reduce capital and operating expenses. VNC also has developed rapidly deployable, tactical systems that can be combined with the tethered aerostats and drones offered by our Drone Aviation subsidiary and enabled and operated in nearly any location in the world. We acquired VNC in July 2020.

 

  Fastback. Skyline Partners Technology LLC, which does business under the name Fastback Networks (“Fastback”), is a manufacturer of intelligent backhaul radio (IBR) systems that deliver high-performance wireless connectivity to virtually any location, including those challenged by Non-Line of Sight (NLOS) limitations. Fastback’s advanced IBR products allow operators to economically add capacity and density to their macrocells and expand service coverage density with small cells. These solutions also allow operators to both provide temporary cellular and data service utilizing mobile/portable radio systems and provide wireless Ethernet connectivity. We acquired Fastback in January 2021.

 

  Drone Aviation. Lighter Than Air Systems Corp., which does business under the name Drone Aviation (“Drone Aviation”), is based in Jacksonville, Florida and develops and manufactures cost-effective, compact and enhanced tethered unmanned aerial vehicles (UAVs), including lighter-than-air aerostats and drones that support surveillance sensors and communications networks. We acquired Drone Aviation in June 2014.

 

  Sky Sapience Ltd. Sky Sapience Ltd. (“SKS”) is an Israeli-based manufacturer of drones with a patented tethered hovering technology that provides long-duration, mobile and all-weather Intelligence, Surveillance and Reconnaissance (ISR) capabilities to customers worldwide for both land and marine-based applications. Its innovative technologies include fiber optic tethers that enable secure, high-capacity communications, including support for commercial 4G and 5G wireless networks. SKS’s flagship HoverMast line of quadrotor-tethered drones feature uninterruptible ground-based power, fiber optic communications for cyber immunity, and the ability to operate in GPS-denied environments while delivering dramatically-improved situational awareness and communications capabilities to users. We acquired SKS in March 2021.

 

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  InduraPower, Inc. InduraPower Inc. (“InduraPower”) is a Tucson, Arizona-based developer and manufacturer of intelligent batteries and back-up power supplies for network systems and telecom nodes. It also provides power designs and batteries for the aerospace, marine and automotive industries. ComSovereign acquired InduraPower in January 2019 prior to the ComSovereign Acquisition.

 

  Silver Bullet Technology, Inc. Silver Bullet Technology, Inc. (“Silver Bullet”) is a California-based engineering firm that designs and develops next generation network systems and components, including large-scale network protocol development, software-defined radio systems and wireless network designs. ComSovereign acquired Silver Bullet in March 2019 prior to the ComSovereign Acquisition.

 

  Lextrum, Inc. Lextrum, Inc. (“Lextrum”) is a Tucson, Arizona-based developer of full-duplex wireless technologies and components, including multi-reconfigurable radio frequency (RF) antennae and software programs. This technology enables the doubling of a given spectrum band by allowing simultaneous transmission and receipt of radio signals on the same frequencies. ComSovereign acquired Lextrum in April 2019 prior to the ComSovereign Acquisition.

 

  VEO Photonics, Inc. VEO Photonics, Inc. (“VEO”), based in San Diego, California, is a research and development company innovating SiP technologies for use in copper-to-fiber-to-copper switching, high-speed computing, high-speed ethernet, autonomous vehicle applications, mobile devices and 5G wireless equipment. ComSovereign acquired VEO in January 2019 prior to the ComSovereign Acquisition.

 

  Sovereign Plastics LLC. Sovereign Plastics LLC (“Sovereign Plastics”), based in Colorado Springs, Colorado, operates as the material, component manufacturing and supply chain source for all of our subsidiaries, and also provides plastic and metal components to third-party manufacturers. Its ability to rapidly prototype new product offerings and machine moldings, metals and plastic castings has reduced the production cycle for many of our components from months to days. We acquired the business currently conducted by Sovereign Plastics in March 2020.

 

 

RVision, Inc. RVision Inc. (“RVision”) is a California-based developer of technologically-advanced video and communications products and physical security solutions designed for government and private sector commercial industries. It has been serving governments and the military for nearly two decades with sophisticated, environmentally-rugged optical and infrared cameras, hardened processors, custom tactical video hardware, software solutions, and related communications technologies. It also has developed nano-defractive optics with integrated, artificial intelligence-driven electro-optical sensors and communication network connectivity products for smart city/smart campus applications. We acquired RVision in April 2021.

 

 

Innovation Digital, LLC. Innovation Digital, LLC (“Innovation Digital”) is a California-based developer of “beyond state-of-the-art” mixed analog/digital signal processing solutions, intellectual property (IP) licensing, design and consulting services. Its signal processing techniques and intellectual property have significantly enhanced the bandwidth and accuracy of RF transceiver systems and have provided enabling technologies in the fields of communications and RADAR systems, signals intelligence (SIGINT) and electronic warfare (EW), test and measurement systems, and semiconductor devices. We acquired Innovation Digital in June 2021.

 

 

RF Engineering & Energy Resources, LLC. RF Engineering & Energy Resources, LLC (“RFEQ”) is a Michigan-based provider of high-quality microwave antennas and accessories. Providing the industry’s lowest cost of ownership, RFEQ has continued to innovate and expand recently announcing the industry’s first Universal Licensed Microwave Antenna. Supporting frequencies from (6-42 GHz), customers can now reduce sparing costs and safely future proof their networks by leveraging this new Universal plug and play architecture. We acquired RFEQ in July 2021.

 

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Significant Components of Our Results of Operations

 

Revenues

 

Our revenues are generated primarily from the sale of our products, which consist primarily of backhaul telecom radios and tethered aerostats and drones. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

 

We expect our revenues for the year ending December 31, 2021 (“fiscal 2021”) to materially exceed those of fiscal 2020, primarily due to our availability of working capital, including from a portion of the net proceeds of the equity offerings we completed in 2021, for the purchase of parts and components and the manufacturing of products, primarily those of DragonWave, in quantities that greatly exceed the quantities that we were able to manufacture in 2020. Additionally, we expect to commence commercial production of new products in 2021 that we have previously produced in only limited quantities or as prototypes, including, among others, intelligent battery back-up power solutions for the telecom, aerospace and transportation industries and airborne high-bandwidth, LTE-Advanced and 5G aerostats.

 

During fiscal 2020, approximately 18% of our sales were to customers located outside of the United States. While our near-term focus is on the North American telecom and infrastructure and service market, a key element of our growth strategy is to expand our worldwide customer base and our international operations, initially through agreements with third-party resellers, distributors and other partners that can market and sell our products in foreign jurisdictions. We expect that over the short term our percentage of sales outside the United States may increase as we build up our domestic sales and service teams. Notwithstanding such percentage increase, we expect the sales of tethered aerostats and drones will primarily be to the domestic market customers, primarily to the U.S. government and its agencies, even if such systems are for integration into foreign locations.

 

Cost of Goods Sold and Gross Profit 

 

Our cost of goods sold is comprised primarily of the costs of manufacturing products, procuring finished goods from our third-party manufacturers, third-party logistics and warehousing provider costs, shipping and handling costs and warranty costs. We presently outsource the manufacturing of DragonWave’s microwave products to a single third-party manufacturer, Benchmark, which manufactures our products from its facilities. Cost of goods sold also includes costs associated with supply operations, including personnel-related costs, provision for excess and obsolete inventory, third-party license costs and third-party costs related to the services we provide. Additionally, cost of goods sold does not include any depreciation and amortization expenses as we separate depreciation and amortization expense into its own category within operating expenses.

 

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Gross profit has been and will continue to be affected by various factors, including changes in our supply chain and evolving product mix. The margin profile of our current products and future products will vary depending on operating performance, features, materials, manufacturer and supply chain. Gross margin will vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing, our production costs, costs of shipping and logistics, provision for excess and obsolete inventory and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors.

 

Operating Expenses

 

We classify our operating expense as research and development, sales and marketing, and general and administrative. Personnel costs are the primary component of each of these operating expense categories, which consist of cash-based personnel costs, such as salaries, sales commissions, benefits and bonuses, as well as share-based compensation expenses. Additionally, we separate depreciation and amortization expense into its own category.

 

Research and Development

 

In addition to personnel-related costs, research and development expense consists of costs associated with the design, development and certification of our products. We generally recognize research and development expense as incurred. Development costs incurred prior to establishment of technological feasibility are expensed as incurred. We expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within the telecom landscape.

 

Sales and Marketing

 

In addition to personnel costs for sales, marketing, service and product management personnel, sales and marketing expense consists of the expenses associated with our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, national and local regulatory approvals of our products, travel, entertainment and recruiting. We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales, marketing, service and product management organization in support of our investment in our growth opportunities, whether through the development and rollout of new or modified products or through acquisitions. We expect our sales and marketing expense to increase materially in the year ending December 31, 2022 as we ramp up our sales and marketing efforts to correspond to our increased production efforts relating to certain of our telecom products.

 

General and Administrative

 

In addition to personnel costs, general and administrative expense consists of professional fees, such as legal, audit, accounting, information technology and consulting fees; share-based compensation; and facilities and other supporting overhead costs. We expect general and administrative expense to increase in absolute dollars as we continue to expand our product offerings and expand into new markets.

 

Depreciation and Amortization

 

Depreciation and amortization expense consists of depreciation related to fixed assets such as test equipment, research and development equipment, computer hardware, production fixtures and leasehold improvements, as well as amortization related to definite-lived intangibles.

 

Share-Based Compensation

 

Share-based compensation consists of expense related to the issuance of equity instruments, which can be in many forms, such as incentive or nonqualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including performance-based awards under our long-term incentive plans or outside of such plans. The expense related to any share-based compensation grant is allocated to specific groupings in the Condensed Consolidated Statement of Operations in the same manner as the grantee’s normal compensation expense and will vary depending upon the number of underlying shares of common stock, the fair value of the common stock on the date of grant and the vesting period. 

 

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Interest Expense

 

Interest expense is comprised of interest expense associated with our secured notes payable, notes payable and senior convertible debentures. The amortization of debt discounts is also recorded as part of interest expense. As many of our debt instruments, were past due at various times during fiscal 2020 and, as a result, were accruing interest at increased interest rates, and as we have been able to refinance our debt or issue equity to reduce our outstanding debt in the first quarter of fiscal 2021, our interest expense is expected to decrease in fiscal 2021 due to lower interest rates on our debt or lower debt balances.

 

Provision for Income Taxes

 

Current and deferred income tax expense or benefit in any given period will depend upon a number of events and circumstances, one of which is the income tax net income or loss from operations for the period which is usually different from the U.S. GAAP net income from operations for the period due to differences in tax laws and timing differences. See Note 16 — Income Taxes in the Notes to our financial statements included elsewhere in this report for a reconciliation on U.S. GAAP income or loss and tax income or loss. Management assesses our deferred tax assets in each reporting period, and if it is determined that it is not more likely than not to be realized, we will record a change in our valuation allowance in that period.

 

Results of Operations

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(Amounts in thousands, except share and per share data)   2021     2020     2021     2020  
Revenue   $ 4,115     $ 2,018     $ 9,812     $ 7,513  
Cost of Goods Sold     1,819       859       4,706       3,473  
Gross Profit     2,296       1,159       5,106       4,040  
                                 
Operating Expenses                                
Research and development     2,061       562       3,805       1,263  
Sales and marketing     247       1       449       31  
General and administrative     6,464       4,471       20,543       13,152  
Depreciation and amortization     3,834       2,909       11,034       8,654  
Impairment expense     -         -         281       -    
Gain on the sale of assets     48       -         (83 )     (1 )
Total Operating Expenses     12,654       7,943       36,029       23,099  
Net Operating Loss     (10,358 )     (6,784 )     (30,923 )     (19,059 )
Other Income (Expense)                                
Interest expense     (724 )     (3,350 )     (1,740 )     (5,707 )
Other income (expense)     1       (129 )     (116 )     (129 )
Gain/(Loss) on extinguishment of debt     298       (22 )     (4,725 )     (22 )
Foreign currency transaction gain/(loss)     94       (46 )     32       (6 )
Interest income     -         -         -         1  
Total Other Expenses     (331 )     (3,547 )     (6,549 )     (5,863 )
Net Loss   $ (10,689 )   $ (10,331 )   $ (37,472 )   $ (24,922 )
Loss per common share:                                
Basic and Diluted   $ (0.15 )   $ (0.23 )   $ (0.56 )   $ (0.56 )
Weighted-average shares outstanding:                                
Basic and Diluted     71,994,529       44,216,540       66,388,447       44,155,510  

 

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Three and Nine months ended September 30, 2021 compared to Three and Nine months ended September 30, 2020

 

Total Revenues

 

For the three months ended September 30, 2021, total revenues were $4.1 million compared to $2.0 million for the same period in 2020, an increase of $2.1 million. This increase primarily consisted of our January 2021 acquisition of Fastback and their Tier 1, telecom sales of $2.2 million.

 

For the nine months ended September 30, 2021, total revenues were $9.8 million compared to $7.5 million for the same period in 2020, an increase of $2.3 million. This increase primarily consisted of our January 2021 acquisition of Fastback and their Tier 1, telecom sales of $2.2 million.

 

Cost of Goods Sold and Gross Profit

 

For the three months ended September 30, 2021, cost of goods sold were $1.8 million compared to $0.9 million for the same period in 2020, an increase of $0.9 million. This increase primarily consisted of our January 2021 acquisition of Fastback and their Tier 1, telecom sales of $0.9 million.

 

Gross profit for the three months ended September 30, 2021 was $2.3 million with a gross profit margin of 55% compared to $1.2 million for the same period in 2020 with a gross profit margin of 57%.

 

For the Nine months ended September 30, 2021, cost of goods sold were $4.7 million compared to $3.5 million for the same period in 2020, an increase of $1.2 million. This increase primarily consisted of our January 2021 acquisition of Fastback and their Tier 1, telecom sales of $0.9 million.

 

Gross profit for the nine months ended September 30, 2021 was $5.1 million with a gross profit margin of 52% compared to $4.0 million for the same period in 2020 with a gross profit margin of 54%.

 

These changes in gross profit margin resulted primarily from our January 2021 acquisition of Fastback and their Tier 1, telecom sales of $1.3 million, which was offset decrease in DragonWave of $0.4 million.

 

Research and Development Expense

 

For the three months ended September 30, 2021, research and development expenses were $2.1 million compared to $0.6 million for the same period in 2020, an increase of $1.5 million. This increase primarily consisted of new Acquisition in 2021 of Sky Sapience of $0.6 million and increased DragonWave of $0.7 million.

 

For the nine months ended September 30, 2021, research and development expenses were $3.8 million compared to $1.3 million for the same period in 2020, an increase of $2.5 million. This increase primarily consisted of a new acquisition in 2021 of Sky Sapience of $1.3 million. Increased R & D for DragonWave of $0.8 million, and VNC of $0.5 million.

 

Sales and Marketing Expense

 

For the three months ended September 30, 2021, sales and marketing expenses were $0.2 million compared to $0.0 million for the same period in 2020, an increase of $0.2 million. This increase primarily consisted of a new Acquisition in 2021 Sky Sapience of $0.1 million.

 

For the nine months ended September 30, 2021, sales and marketing expense was $0.4 million compared to $0.0 million for the same period in 2020, an increase of $0.4 million. This increase primarily consisted of a new Acquisitions in 2021 Sky Sapience of $0.2 million and RVision $0.1 million.

 

44

 

 

General and Administrative Expenses

 

For the three months ended September 30, 2021, general and administrative expenses were $6.5 million compared to $4.5 million for the same period in 2020, an increase of $2.0 million. This increase primarily consisted of 5 acquisitions of $0.9 million.

 

For the nine months ended September 30, 2021, general and administrative expenses were $20.5 million compared to $13.2 million for the same period in 2020, an increase of $7.3 million. This increase primarily consisted of 5 acquisitions of $2.6 million, as well as the expense with 2 offerings in Q1 2021 of $5.3 million.

 

Depreciation and Amortization

 

For the three months ended September 30, 2021, depreciation and amortization were $3.8 million compared to $2.9 million for the same period in 2020, an increase of $0.9 million. This increase primarily consisted of increased amortization of 5 acquisitions in 2021.

 

For the nine months ended September 30, 2021, depreciation and amortization were $11.0 million compared to $8.7 million for the same period in 2020, an increase of $2.3 million. This increase primarily consisted of increased amortization of 5 acquisitions in 2021.

 

Other Income and Expenses

 

For the three months ended September 30, 2021, other income and expenses were $0.3 million compared to $3.5 million for the same period in 2020, a decrease of $3.2 million. This decrease primarily consisted of lower interest expense of $2.7 million.

 

For the nine months ended September 30, 2021, other income and expenses were $6.5 million compared to $5.9 million for the same period in 2020 an increase of $0.6 million. 

 

Provision for Income Taxes 

 

For the three and nine months ended September 30, 2021 and 2020, there was no provision for income taxes due to an increase in the valuation allowance recorded on the total tax provision, because we believe that it is more likely than not that the tax asset will not be utilized during the next year.

 

45

 

 

Net Loss 

 

For the three months ended September 30, 2021, we had a net loss of $10.7 million compared to a net loss of $10.3 million for the same period in 2020, related to the items described above.

 

For the nine months ended September 30, 2021, we had net loss of $37.5 million compared to a net loss of $24.9 million for the period same period in 2020, related to the items described above.

 

Going Concern

 

The accompanying Unaudited Condensed Consolidated Financial Statements and notes have been prepared assuming the Company will continue as a going concern. For the nine months ended September 30, 2021, the Company generated negative cash flows from operations of $33.4 million and had an accumulated deficit of $102.1 million.

 

Management anticipates that the Company will be dependent, for the near future, on additional debt facilities or investment capital to fund growth initiatives. The Company intends to position itself so that it will be able to raise additional funds through the capital markets, including but not limited to, securing a line or lines of credit, the issuance of debt, and/or accessing the equity markets.

 

The Company’s fiscal operating results and accumulated deficit, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern. The Company will continue to pursue the actions outlined above, as well as work towards increasing revenue and operating cash flows to meet its future liquidity requirements. However, there can be no assurance that the Company will be successful in any capital-raising efforts that it may undertake, and the failure of the Company to raise additional capital could adversely affect its future operations and viability. 

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2021, we had $2.87 million in cash compared to $0.73 million at December 31, 2020, an increase of $2.14 million resulting primarily from net proceeds of two public offerings and debt financings. As of September 30, 2021, we had $1.94 million in accounts receivable compared to $0.79 million at December 31, 2020, an increase of $1.15 resulting primarily from receivables gained through business acquisitions during the quarter.

 

As of September 30, 2021, we had total current assets of $22.8 million and total current liabilities of $23.6 million, or negative working capital of $0.8 million, compared to total current assets of $7.68 million and total current liabilities of $34.26 million, or negative working capital of $26.6 million at December 31, 2020. This is an increase in working capital of $26.0 million over the working capital balance at the end of 2020 driven primarily by the two public offerings completed during the year.

 

As of September 30, 2021, we had undiscounted obligations relating to the payment of indebtedness as follows: 

 

  $2.5 million related to accrued liabilities and accounts payable that were past due;
     
  $0.0 million related to notes payable that were past due;

 

  $2.9 million related to indebtedness that is due in the fourth quarter of 2021;
     
  $5.7 million related to indebtedness that is due in the first quarter of 2022;

 

  $1.4 million related to indebtedness that is due in the second quarter of 2022;

 

  $5.8 million related to indebtedness that is due from the third quarter through the end of 2022;

 

  $3.7 million related to indebtedness that is due in 2023; and
     
  $9 million related to indebtedness that is due in 2024; and
     
  $9 million related to indebtedness that is due in 2025; and
     
  $11.4 million related to indebtedness that is due after 2025.

 

We anticipate meeting our cash obligations on our indebtedness that is payable on or prior to September 30, 2022, primarily from liquidity management tools such as a line of credit, from earnings from operations, including, in particular, the operations of DragonWave, Fastback, VNC and Drone Aviation, and possibly from the proceeds of additional indebtedness or equity raises.

 

46

 

 

Our future capital requirements for our operations will depend on many factors, including the profitability of our businesses, the number and cash requirements of other acquisition candidates that we pursue, and the costs of our operations. We have been investing in research and development in anticipation of increasing revenue opportunities in our cellular network solutions business, which has contributed to our losses from operations.

 

We plan to generate positive cash flow from our recently-completed acquisitions to address some of our liquidity needs. However, to execute our business plan, service our existing indebtedness, finance our proposed acquisitions and implement our business strategy, we anticipate that we may need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, a bank line of credit, borrowings from affiliates or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership in us and could also result in a decrease in the market price of our common stock. The terms of those securities issued by us in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. Furthermore, any debt financing, if available, may subject us to restrictive covenants and significant interest costs. There can be no assurance that we will be able to raise additional capital, when needed, to continue operations in their current form.

 

We had capital expenditures of $3.09 million and $96.85 million during the nine months ended September 30, 2021 and 2020. We expect our capital expenditures for next 12 months will be consistent with our prior spending. These capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment. We expect to fund such capital expenditures out of our working capital.

 

Line of Credit and Debt Agreements

 

Summary information with respect to our debt agreements or other credit facilities is set forth in Notes 15 and 23 of the Notes to the Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report.

 

Sources and Uses of Cash 

 

    For the Nine
Months Ended
September 30,
 
(Amounts in thousands)   2021     2020  
Cash flows (used in) operating activities   $ (33,736 )   $ (4,463 )
Cash flows (used in) investing activities     (8,732 )     (3,242 )
Cash flows provided by financing activities     44,606       7,375  
Effect of exchange rate     -       23  
Net increase/(decrease) in cash and cash equivalents   $ 2,138     $ (307 )

   

47

 

 

Operating Activities

 

For the nine months ended September 30, 2021, net cash used in operating activities was $33.7 million. Net cash used in operating activities primarily consisted of the net operating loss of $37.47 million, which was partially offset by depreciation and amortization of $11.03 million, loss on extinguishment of debt of $4.73 million, and share-based compensation to employees and vendors of $2.71 million. Additionally, working capital changes used $115.78 million in cash during the period.

 

For the nine months ended September 30, 2020, net cash used in operating activities was $4.46 million. Net cash used in operating activities primarily consisted of the net operating loss of $24.92 million, which was partially offset by depreciation and amortization of $8.65 million, and amortized discounts and debt issuance costs on our outstanding debt of $4.29 million. Additionally, working capital changes provided $4.63 million in cash during the period.

 

Investing Activities

 

For nine months ended September 30, 2021, net cash used in investing activities was $8.73 million. Investing activities primarily consisted of business acquisitions with direct cashflow impact of $4.5 million and the acquisition of property and equipment and intangible assets of $4.32 million.

 

For the nine months ended September 30, 2020, net cash used in investing activities was $3.24 million. Investing activities primarily consisted of business acquisitions with direct cashflow impact of $3.15 million.

 

Financing Activities

 

For the nine months ended September 30, 2021, financing activities provided cash of $44.61 million. Financing activities primarily consisted of net proceeds from the sale of common stock from the public offerings of $39.66 million and net proceeds of borrowings of $114.3 million, which was offset by the repayment of debt of $8.48 million and the repayment of related party notes of $0.85 million.

 

For the nine months ended September 30, 2020, financing activities provided cash of $7.37 million. Financing activities primarily consisted of proceeds from the issuance of debt of $8.01 million, which was offset by the payment on the line of credit of $2.0 and the repayment of debt of $0.9 million.

 

Off-Balance Sheet Arrangements

 

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

  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required under Regulation S-K for smaller reporting companies.

 

48

 

 

Item 4. Controls and Procedures.

 

(a) Evaluation of disclosure controls and procedures.

 

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. This term refers to the controls and procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, management has identified the following material weaknesses in our disclosure controls and procedures:

 

  While improvements were made in the segregation of duties and controls over cash and accounts payable, we did not effectively segregate certain accounting duties due to the small size of our accounting staff;

 

  a lack of timely reconciliations of the account balances affected by the improperly recorded or omitted transactions; and

 

  there is a lack of documented and tested internal controls to meet the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002.

 

Our remediation of the material weaknesses in our internal control over financial reporting is ongoing.

 

(b) Changes in Internal Control Over Financial Reporting.

 

There have been no changes in our internal control over financial reporting as of and for the nine months ended September 30, 2021, as compared to the internal control over financial reporting weaknesses described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

49

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There have been no material developments in any of the legal proceedings discussed in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2020.

 

Item 1A. Risk Factors

 

There have been no material changes to the risk factors included under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021 and under “Part II Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 16, 2021. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our filed reports, together with all of the other information in this Quarterly Report on Form 10-Q. The risks and uncertainties described in our filed reports are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives.

 

Item 2. Unregistered Securities Sales of Equity Securities and Use of Proceeds

 

There have been no sales of unregistered securities within the period covered by this report that would be required to be disclosed pursuant to Item 701 of Regulation S-K, with the exception of the following:

 

On January 22, 2021 and April 24, 2021, respectively, we issued to a consulting firm for services rendered, 8,169 shares of our common stock that were valued at $2.00 per share and 7,571 shares of our common stock that were valued at $2.67 per share. Such shares were issued by us in reliance upon the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder, and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.

 

On April 24, 2021, we issued 50,000 shares of our common stock in the exercise of previously issued options. Such shares were issued by us in reliance upon the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder, and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.

 

On June 17, 2021, we issued 10,000 shares of our common stock in the exercise of previously issued options. Such shares were issued by us in reliance upon the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder, and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.

 

Item 3. Default Upon Senior Securities Sales of Equity Securities and Use of Proceeds

 

None

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information

 

None

 

50

 

 

Item 6. Exhibits

 

The following documents are filed as a part of this report or incorporated herein by reference:

 

Exhibit
Number
  Description
     
31.1   Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   Inline XBRL Instance Document.
     
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
     
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

51

 

 

SIGNATURES

 

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

 

  COMSovereign Holding Corp.
   
Date: November 15, 2021 /s/ Daniel L. Hodges
  Daniel L. Hodges
  Chief Executive Officer
  (Principal Executive Officer)
   
Date: November 15, 2021 /s/ Fran Jandjel
  Fran Jandjel
  Chief Financial Officer
  (Principal Financial and
Accounting Officer)

 

 

52

 

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