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Debt Agreements
 3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
DEBT AGREEMENTS

15. DEBT AGREEMENTS


Beneficial Conversion Features and Warrants


The Company evaluates the conversion feature of convertible debt instruments to determine whether the conversion feature was beneficial as described in ASC 470-30, Debt with Conversion and Other Options. The Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that has conversion features at fixed or adjustable rates that are in-the-money when issued and records the relative fair value of any warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to the warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to additional paid-in capital. The Company calculates the fair value of warrants with the convertible instruments using the Black-Scholes valuation model.


Under these guidelines, the Company first allocates the value of the proceeds received from a convertible debt transaction between the convertible debt instrument and any other detachable instruments included in the transaction (such as warrants) on a relative fair value basis. A BCF is then measured as the intrinsic value of the conversion option at the commitment date, representing the difference between the effective conversion price and the Company’s stock price on the commitment date multiplied by the number of shares into which the debt instrument is convertible. The allocated value of the BCF and warrants are recorded as a debt discount and accreted over the expected term of the convertible debt as interest expense. If the intrinsic value of the BCF is greater than the proceeds allocated to the convertible debt instrument, the amount of the discount assigned to the BCF is limited to the amount of the proceeds allocated to the convertible debt instrument. 


Debt Discounts


The Company records debt discounts as a deduction from the carrying amount of the related indebtedness on its Condensed Consolidated Balance Sheet with the respective debt discount amortized in interest expense on its Condensed Consolidated Statement of Operations. In connection with the issuance of certain notes payable and senior convertible debentures, the Company, or its subsidiaries, issued warrants to purchase shares of its common stock and has BCFs. The warrants are exercisable at various exercise prices per share. The Company evaluated the terms of these warrants at issuance and concluded that they should be treated as equity. The fair value of the warrants was determined by using the Black-Scholes model and was recorded as a debt discount offsetting the carrying value of the debt obligation in the Condensed Consolidated Balance Sheet.


Debt Issuance Costs


The Company presents debt issuance costs as a direct deduction from the carrying amount of the related indebtedness on its Condensed Consolidated Balance Sheet and amortizes these costs over the term of the related debt liability using the straight-line method, which approximates the effective interest method. Amortization is recorded in interest expense on the Condensed Consolidated Statement of Operations. 


Long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:


      March 31, 2021   December 31, 2020 
(Amounts in US$’s)  Maturity
Date		  Amount
Outstanding		   Interest
Rate		   Amount
Outstanding		   Interest
Rate		 
Secured Notes Payable                   
Secured note payable  February 28, 2020  $—    —   $788,709    12.5%
Secured note payable*  March 1, 2022   125,516    9.0%   150,710    9.0%
Secured note payable*  September 1, 2021   7,987    7.9%   10,790    7.9%
Secured note payable  November 26, 2021   1,000,000    15.0%   2,000,000    15.0%
Secured note payable  December 26, 2020   —    —    75,219    78.99%
Secured note payable  September 15, 2020   —    —    855,120    36.0%
Secured note payable  October 15, 2020   —    —    2,007,971    18.0%
Equipment financing loan  November 9, 2023   —    —    57,146    8.5%
Equipment financing loan  December 19, 2023   —    —    83,851    6.7%
Equipment financing loan  January 17, 2024   —    —    38,732    6.7%
Secured note payable  January 6, 2021   —    —    1,100,000    10.0%
Secured note payable  January 15, 2022   4,480,000    Variable    —    — 
Secured loan  April 30, 2021   177,597    Variable    —    — 
Total secured notes payable      5,791,100         7,168,248      
                        
Notes Payable                       
Note payable  September 30, 2020   —    —    500,000    15.0%
Note payable  September 30, 2020   —    —    175,000    15.0%
Note payable  August 31, 2020   —    —    3,500,000    18.0%
Note payable  July 9, 2019   —    —    —    — 
Notes payable  December 6, 2019   —    —    66,700    18.0%
Note payable  November 30, 2020   —    —    500,000    15.0%
Notes payable  June 30, 2020   —    —    379,588    0.0%
Notes payable  June 30, 2020   —    —    165,986    0.0%
Note payable*  February 16, 2023   47,693    3.0%   83,309    3.0%
Note payable  September 30, 2020   —    —    290,000    12.0%
Notes Payable  October 13, 2020 through November 30, 2020   —    —    1,200,000    18.0%
Notes Payable  January 31, 2021 through February 23, 2021   —    —    550,000    18.0%
Notes Payable  February 10, 2021   1,500,000    10.0%   —    — 
PPP loans  April 30, 2022 through
May 26, 2022		   455,184    1.0%   455,184    1.0%
PPP loan  May 14, 2022   24,028    1.0%   24,028    1.0%
PPP loan  August 11, 2025   103,659    1.0%   103,659    1.0%
Total notes payable      2,130,564         7,993,454      
                        
Senior Debentures                       
Senior debenture  December 31, 2019   —    —    84,000    15.0%
Total senior debentures      —         84,000      
                        
Convertible Notes Payable                       
Convertible note payable  January 29, 2021   —    —    374,137    24.0%
Convertible note payable  November 20, 2020   —    —    2,238,239    24.0%
Convertible notes payable  January 29, 2026   11,150,000    1.01%   —    — 
Total convertible notes payable      11,150,000         2,612,376      
                        
Senior Convertible Debentures                       
Senior convertible debenture  December 31, 2021   —    —    250,000    15.0%
Senior convertible debenture  November 30, 2020   —    —    1,000,000    15.0%
Total senior convertible debentures      —         1,250,000      
Total long-term debt      19,071,664         19,108,078      
Less unamortized discounts and debt issuance costs      (128,354)        (61,079)     
Total long-term debt, less discounts and debt issuance costs      18,943,310         19,046,999      
Less current portion of long-term debt      (7,210,439)        (18,340,706)     
Debt classified as long-term debt     $11,732,871        $706,293      

* Note is in default. Refer to further discussion below.

Secured Notes Payable


In August 2016, InduraPower entered into a promissory note not to exceed the principal amount of $550,000 that bore interest at 8.5% per annum with a maturity date of August 31, 2018. InduraPower could draw funds under the note through February 28, 2017. Interest on this note was payable monthly and the full principal balance was due at maturity. On September 11, 2019, the note was amended with both parties agreeing that the outstanding balance of $813,709 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 $788,709 was outstanding under this note. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.


In August 2016, InduraPower entered into a promissory note in the principal amount of $450,000 that bears interest at 9.0% per annum and matures on March 1, 2022. Interest-only payments were due monthly beginning October 1, 2016 through March 1, 2017. Monthly payments of $9,341 for interest and principal were due on this note for the following 60 consecutive months. As of March 31, 2021 and December 31, 2020, an aggregate principal amount of $125,516 and $150,710, respectively, was outstanding under this note. This promissory note is secured by all assets, certain real estate and cash accounts of InduraPower, and is guaranteed by certain officers of InduraPower. This promissory note is subjected to clauses, whereby InduraPower is required to meet certain financial and non-financial terms. InduraPower did not fulfill the requirements to maintain a balance of at least $155,159 at J.P. Morgan while the promissory note is outstanding and maintain a debt service coverage ratio of at least 1.25. Due to this breach of clauses for those covenants, the promissory note holder is contractually entitled to request immediate repayment of the outstanding promissory note, and/or increase the interest rate up to an additional 18% per annum. The outstanding balance is presented as a current liability as of March 31, 2021. The promissory note holder had not requested early repayment of the loan as of the date when these financial statements were approved by the Board of Directors.


In August 2016, InduraPower entered into a promissory note in the principal amount of $50,000 with an interest rate of 7.9% per annum and a maturity date of September 1, 2021. Beginning April 1, 2017, equal monthly payments of $1,011 for interest and principal are due on the note for 60 consecutive months. As of March 31, 2021 and December 31, 2020, an aggregate principal amount of $7,987 and $10,790, respectively, was outstanding under this note. This promissory note is secured by business equipment, certain real estate and cash accounts of InduraPower and is guaranteed by certain officers of InduraPower. This promissory note is subjected to clauses, whereby InduraPower is required to meet certain financial and non-financial terms. InduraPower did not fulfil the requirements to maintain a balance of at least $155,159 at J.P. Morgan while the promissory note is outstanding and maintain a debt service coverage ratio of at least 1.25. Due to this breach of clauses for those covenants, the promissory note holder is contractually entitled to request immediate repayment of the outstanding promissory note, and/or increase the interest rate up to an additional 18% per annum. The promissory note holder had not requested early repayment of the loan as of the date when these financial statements were approved by the Board of Directors.


In November 2019, DragonWave entered into a secured loan agreement with an individual lender pursuant to which DragonWave received a $2,000,000 loan that bore interest at the rate of 9.0% per annum and was 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. A late charge of 5% was to be charged for any balance overdue by more than 10 days. Accrued interest was calculated on a compound basis and is payable semi-annually in May and November of each year. Principal was scheduled to be due in full at maturity but can be prepaid in full or in part without penalty. The loan was secured by all of the assets of DragonWave and was 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 $80,000. 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 $2,000,000 was outstanding under this loan. On January 26, 2021, $1,000,000 of the principal amount of this loan and all accrued interest with a combined total of $1,227,043, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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. As of March 31, 2021, there were no debt discounts and issuance costs remaining and an aggregate principal amount of $1,000,000 was outstanding under this loan. 


On February 26, 2020, the Company entered into a $600,000 secured business loan that bore interest at 78.99% per annum which matured on December 26, 2020. Principal and interest payments of $19,429 were due weekly. The loan was secured by the assets of the Company. As of December 31, 2020, an aggregate principal amount of $75,219 was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 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 $979,381 that bore interest at 5% per annum, with a maturity date of June 1, 2020. On August 5, 2020, the maturity date of this loan was extended to September 15, 2020, with a single payment of all unpaid principal and accrued interest then due, 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 $855,120 was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.


On March 19, 2020, the Company entered into a secured loan agreement in the amount of $2,007,971 that bore interest at 5% per annum with a maturity date of August 31, 2020. On August 5, 2020, the maturity date of this loan was 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. Interest payments of $8,428 were due monthly, with the full principal amount due at maturity. The loan was secured by certain intellectual property assets of the Company. As of December 31, 2020, an aggregate principal amount of $2,007,971 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 $2,250,255, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 an equipment financing loan with an aggregate principal balance of $64,865, which was secured by the related equipment, that bore interest at 8.5% per annum. Monthly principal and interest payments of approximately $1,680 were due over the term. As of December 31, 2020, an aggregate amount of principal of $57,146 was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

  ● assumed an equipment financing loan with an aggregate principal balance of $95,810, which was secured by the related equipment, that bore interest at 6.7% per annum. Monthly principal and interest payments of approximately $2,361 were due over the term. As of December 31, 2020, an aggregate amount of principal of $83,851 was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

  ● assumed an equipment financing loan with an aggregate principal balance of $43,957, which was secured by the related equipment, that bore interest at 6.7% per annum. Monthly principal and interest payments of approximately $1,063 were due over the term. As of December 31, 2020, an aggregate amount of principal of $38,732 was outstanding and past due under this loan. The aggregate principal amount of this loan was fully repaid during the first quarter of fiscal 2021.

On December 8, 2020, the Company entered into a secured loan agreement in the aggregate principal amount of $1,100,000 with an original issue discount of $100,000, 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. Accrued interest and principal were due in full on the maturity date. A late charge of 10% would have been charged for any balance not paid when due. 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 $142,800. The Company accounted for this as a contribution from Mr. Hodges, with $102,000 assigned as debt discounts for additional consideration to the lender, and $40,800 assigned as debt issuance costs to the brokers. The Company incurred debt issuance costs to the placement agent of this transaction in the amount of $50,000. For the three months ended March 31, 2021, $60,579 of the debt discounts and issuance costs were amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations. As of December 31, 2020, an aggregate principal amount of $1,100,000 was outstanding under this loan. On January 26, 2021, $350,000 of the principal amount of this loan and accrued interest with a combined total of $495,584, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $750,000 principal amount of this loan was fully repaid during the first quarter of 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 $5,355,000 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 $513,000 of the loan amount as an interest reserve. In addition, $875,000 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) $53,850, 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 $89,787 and paid a cash discount totaling $65,567. For the three months ended March 31, 2021, $26,999 of the debt discounts and issuance costs were amortized and recognized in interest expense in the Condensed Consolidated Statement of Operations. As of March 31, 2021, an aggregate principal amount of $4,480,000 was outstanding under this loan.


In connection with its acquisition of Fastback on January 29, 2021, COMSovereign assumed the obligations of the sellers on a secured loan in the principal amount of $210,000 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) $4,000 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 is secured by the assets of Fastback. The balance of this loan is preliminary and based on the Company’s best estimate using information obtained as of the filing date of this Form 10-Q. See Note 13 – Business Acquisitions for further discussion of the Fastback business acquisition. As of March 31, 2021, an aggregate principal amount of $177,597 was outstanding under this loan and is currently past due as of the filing date of this Form 10-Q.


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 $500,000 that bore interest at 12.0% per annum with a maturity date of October 17, 2017. On October 1, 2019, the maturity date was extended until September 30, 2020 and the interest rate was reduced to 10% per annum. All unpaid accrued interest from October 2017 through September 30, 2019 was converted into 50,000 shares of common stock of COMSovereign. On April 21, 2020, all unpaid accrued interest from October 1, 2019 through December 31, 2019 was converted into 4,832 shares of common stock. 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. As of December 31, 2020, an aggregate principal amount of $500,000 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 $561,592, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $175,000 that bore interest at the rate of 15% per annum and was due on November 30, 2017. The interest rate increased to 18% per annum when the note became past due. On October 1, 2019, COMSovereign amended the promissory note to extend the maturity date to September 30, 2020 and changed the interest rate to 10% per annum. Both parties to the note also agreed to convert all unpaid accrued interest into 3,334 shares of common stock of COMSovereign, valued at $44,000. 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 $175,000 was outstanding and past due. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.


In October 2017, DragonWave entered into a 90-day promissory note in the principal amount of $4,400,000 and received proceeds of $4,000,000. In January 2018, the promissory note was amended to accrue interest at the rate of 8% per annum and to extend the maturity date another 90 days. In August 2018, the maturity date was extended to December 31, 2018 with new payment terms. In September 2018, the maturity date was extended to February 28, 2019 with new payment terms. In October 2018, DragonWave amended the promissory note to clarify the payment of interest. On September 3, 2019, the promissory note was increased to $5,000,000 as all unpaid accrued interest was added to the principal balance. Additionally, the maturity date was extended to March 30, 2020 and the interest rate was changed to 10% per annum. Under this new amendment, interest payments were due and payable monthly. On April 21, 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. On August 5, 2020, $1,500,000 principal amount of this note was extinguished in exchange for 333,334 shares of common stock with a fair value of $4.53 per share. As of December 31, 2020, an aggregate principal amount of $3,500,000 was outstanding under this note. On January 26, 2021, the aggregate principal amount of this note and accrued interest with a combined total of $4,211,069, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $450,100 that bore an effective interest rate at 133% per annum due to a single payment incentive, which matured on December 6, 2019. An aggregate principal amount of $200,100 was owed to three related parties out of the $450,100 promissory notes. Accrued interest and principal were due and payable at maturity. These notes had been past due and the Company was using an interest rate of 18% per annum to accrue interest on these notes. The Company repaid $250,000 of the aggregate principal amount of this promissory note during the first quarter of the 2020. An additional $133,400 of the aggregate principal amount of this promissory note, along with accrued interest and associated late fee penalties of $51,516, was fully extinguished on August 5, 2020 in exchange for 41,093 shares of common stock with a fair value of $4.53 per share. As of December 31, 2020, the aggregate principal amount of $66,700 was outstanding and past due under these notes. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.


On March 5, 2020, the Company sold a promissory note in the principal amount of $500,000 that matured on November 30, 2020 for a purchase price of $446,000. Additionally, in lieu of interest, the Company issued to the lender 16,667 shares of its common stock with a fair value of $57,000, 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 $500,000 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 $511,712, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 several promissory notes with the sellers in the aggregate principal amount of $409,586 that do not bear interest and with a maturity date of June 30, 2020 and monthly principal payments. As of December 31, 2020, the aggregate amount of $379,588 was outstanding and past due under these notes. However, there were no penalties associated with this default. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

  ● agreed to pay an aggregate of $165,987 to the sellers on or before June 30, 2020. The agreement was not interest bearing. As of December 31, 2020, an aggregate amount of $165,986 was outstanding and past due under these notes. However, there were no penalties associated with this default. The aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.

  ● assumed a note payable in the amount of $86,866 bearing interest at 3% per annum and with a maturity date of February 16, 2023. Monthly payments in the amount of $3,773 for principal and interest are due over the term. As of March 31, 2021 and December 31, 2020, an aggregate principal amount of $47,693 and $83,309 was outstanding and past due under this note, respectively. However, there are no penalties associated with this default.

On May 29, 2020, the Company entered into a promissory note in the principal amount of $290,000 with an original issue discount of $40,000 and a maturity date of September 30, 2020. The full $290,000 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 $290,000 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 $330,250, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $1,200,000 from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50,000 and $200,000. 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 to the accredited investors and brokers, as part of this transaction. The shares had a total fair value of $478,726. The Company accounted for this as a contribution from Mr. Hodges, with $398,540 assigned as debt discounts for additional consideration to the accredited investors, and $80,186 assigned as debt issuance costs to the brokers. The Company incurred additional debt issuance costs to the brokers of this transaction in the amount of $21,000. 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 $1,200,000 was outstanding and past due under these notes. On January 26, 2021, $750,000 of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $885,995, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $450,000 aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.


Between November 4, 2020 and November 24, 2020, the Company borrowed an aggregate of $550,000 from accredited investors and issued to such investors promissory notes evidencing such loans. The principal amounts of the notes were between $50,000 and $100,000. 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 to the accredited investors, as part of this transaction. The Company accounted for this as a contribution from Mr. Hodges, with the total fair value of the shares of $259,600 assigned as debt discounts for additional consideration to the accredited investors. 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 a result of the notes becoming due on-demand from the default event. As of December 31, 2020, an aggregate principal amount of $550,000 was outstanding under these notes. On January 26, 2021, $500,000 of the aggregate principal amount of these notes, a 10% principal bonus, and accrued interest with a combined total of $565,740, was fully extinguished at the rate of $4.15 per unit, as defined in our public offering and disclosed in Note 17- 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 $50,000 aggregate principal amount of these notes was fully repaid during the first quarter of fiscal 2021.


In connection with its acquisition of Fastback on January 29, 2021, the Company issued to the sellers $1,500,000 aggregate principal amount of term promissory notes. The individual principal amounts of the notes ranged from $1,500 to $393,484. These notes bear interest at the rate of 10% per annum and mature on the earlier of (i) January 1, 2022, (ii) the date on which an aggregate of $6,000,000 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 $12,000,000. Interest is payable in cash semi-annually in arrears on each June 1 and December 1, commencing on June 1, 2021, and on the maturity date. Upon an event of default, the interest rate will automatically increase to 15% per annum compounded semi-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 semi-annually on any unpaid principal. These notes matured on February 10, 2021 upon the Company’s closing of a public offering, as disclosed in Note 17- Shareholders’ Equity. However, the representative of the Fastback sellers has requested that the Company withhold payment of principal and interest on these notes until a dispute among such sellers can be resolved. As payment was withheld at the request of the sellers’ representative, no event of default has occurred and interest has been accrued only through the maturity date.


Between April 30 and May 26, 2020, six of the Company’s subsidiaries received loan proceeds in the aggregate amount of $455,184 under the Paycheck Protection Program (“PPP”). The PPP loan has a maturity of 2 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. As of March 31, 2021 and December 31, 2020, an aggregate amount of principal of $455,184 was outstanding under these loans. In May 2021, the two of the Company’s subsidiaries were notified that the entire principal amount of their outstanding loans in the aggregate amount of $74,591, along with all accrued interest, was forgiven under the terms of the PPP.


In connection with the VNC acquisition on July 6, 2020, the Company assumed a PPP loan in the principal amount of $24,028 bearing interest at 1% per annum and with a maturity date of May 14, 2022. Terms are consistent with the Company’s other PPP loans. As of March 31, 2021 and December 31, 2020, an aggregate amount of principal amount of $24,028 was outstanding under this loan. On May 7, 2021, the Company was notified that the entire principal amount of its outstanding loan in the amount of $24,028, along with all accrued interest, was forgiven under the terms of the PPP.


On August 11, 2020, one of the Company’s subsidiaries received loan proceeds in the aggregate amount of $103,659 under the PPP. The PPP loan has a maturity of 5 years and an interest rate of 1% per annum. Terms are consistent with the Company’s other PPP loans. As of March 31, 2021 and December 31, 2020, an aggregate principal amount of $103,659 was outstanding under this loan.


Senior Debentures


In connection with its acquisition of DragonWave and Lextrum in April 2019, COMSovereign assumed the obligations of the seller of $100,000 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 $84,000 was outstanding under these debentures. The aggregate principal amount of this debenture was fully repaid during the first quarter of fiscal 2021.


Convertible Notes Payable


On July 7, 2020, the Company sold a convertible promissory note in the principal amount of $285,714 with an original issue discount of $35,714 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, and warrants. In connection with this note, the Company recognized a BCF of $139,810, a debt discount of $50,128 associated with the issuance of warrants to the note holder, and debt issuance costs of $35,539, which were all recorded as debt discounts. 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 $88,423, which was composed of an $86,339 penalty payment-in-kind and a $2,084 interest payment-in-kind, representing 130% of the outstanding principal and accrued interest balance on the default date. In addition, the interest rate was increased to 24% per annum, and the note and accrued interest is due on-demand. As of December 31, 2020, there was an aggregate principal amount of $374,137 was outstanding and past due under this note. On January 22, 2021, the note holder converted the full principal of $374,137 and all accrued interest of $44,398 into 155,013 shares of common stock.


On August 21, 2020, the Company sold a convertible promissory note in the principal amount of $1,700,000 with an original issue discount of $200,000 that bore interest at a rate of 5.0% per annum and matured on November 20, 2020. Accrued interest and principal are 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. Upon a default event, a penalty would be incurred of 130% of the outstanding principal and accrued interest balance on the default date, the interest rate would increase to 24% per annum, and the note and accrued interest would become due on-demand. 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, which the Company recognized as a BCF of $160,000. 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. In connection with this note, the Company recognized a debt discount of $1,340,000 associated with the issuance of shares to the note holder, and debt issuance costs of $231,149, which were all recorded as debt discounts. As of December 31, 2020, an aggregate principal amount of $2,238,239 was outstanding and past due under this note. 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 $538,239, which was composed of an $516,517 penalty payment-in-kind and a $21,722 interest payment-in-kind, representing 130% of the outstanding principal and accrued interest balance on the default date. In addition, the interest rate was increased to 24% per annum. The aggregate principal amount of this note was fully repaid during the first quarter of fiscal 2021.


In connection with its acquisition of Fastback on January 29, 2021, the Company issued to the sellers $11,150,000 aggregate principal amount of convertible promissory notes. The individual principal amounts of the notes ranged from $5,575 to $5,575,000. 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 March 31, 2021, an aggregate principal amount of $11,150,000 was outstanding.


Senior Convertible Debentures


On September 24, 2019, COMSovereign sold $250,000 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 is 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 a BCF of $69,000 and a debt discount of $181,000 associated with the issuance of warrants, both of which were recorded as debt discounts. 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 of approximately $139,000 associated with the issuance of warrants. 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. Additionally, the conversion price was changed from $7.50 per share to $2.268 per share. The Company defaulted on these debentures during the current fiscal year, causing the interest rate to increase to 15% per annum, and the debentures and accrued interest to become due on-demand. 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 $250,000 was outstanding and past due under these debentures. On January 26, 2021, the holder of these debentures converted the full principal of $250,000 and all accrued interest of $33,921 into 125,186 shares of common stock.


On July 2, 2020, the Company sold $1,000,000 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. During the third quarter of the 2020 fiscal year, the maturity date of these debentures was extended to November 30, 2020. Accrued interest and principal were due on the maturity date, 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 recognized a BCF of $131,477 and a debt discount of $31,477 associated with the issuance of warrants, both of which were recorded as debt discounts. 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 $1,000,000 was outstanding and past due under these debentures. On January 26, 2021, the holder of these debentures converted the principal amount of $900,000 into 300,000 shares of common stock. The remaining principal amount $100,000 and accrued interest with a combined total of $160,568, 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 17- 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. The Company is in default on several debt agreements, and has accrued the proper penalties or disclosed any additional contingencies that resulted from the default.


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


(Amounts in US$’s)   
Remainder of 2021  $1,347,919 
2022   6,470,086 
2023   — 
2024   — 
2025   103,659 
Thereafter   11,150,000 
Total  $19,071,664 

See Note 22 – Subsequent Events for details regarding additional debt incurred after March 31, 2021.