Business Acquisitions

12 Months Ended

Dec. 31, 2021

Business Combinations [Abstract]

BUSINESS ACQUISITIONS

3. BUSINESS ACQUISITIONS

The Company’s acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill.

Fast Plastic Parts, LLC and Spring Creek Manufacturing, Inc. Acquisition

On March 6, 2020, Sovereign Plastics completed the acquisition of the net assets of Fast Plastic Parts, LLC and 100% of the shares of common stock of Spring Creek Manufacturing, Inc. The consideration paid was the purchase price of $829 thousand, representing cash paid on the closing date of $254 thousand and short-term debt incurred to the sellers of $576 thousand. Based in Colorado Springs, Colorado, the acquired business occupies a 23,300-square-foot manufacturing facility that houses a full-production machine shop, a comprehensive line of state-of-the-art plastic injection molding machinery, as well as light-assembly fulfilment and packaging lines serving customers 24x7. To finance the cash paid on the closing date and a portion of the short-term debt incurred, the Company entered into a new promissory note with an unaffiliated lender in the principal amount of $0.5 million for proceeds of $446 thousand that matured on November 30, 2020 and issued 16,667 shares of common stock. See Note 9 for further discussion of the promissory note. The Company expensed acquisition-related costs of $35 thousand in the year ended December 31, 2020, which is included in general and administrative expenses on the Company’s Consolidated Statement of Operations. The purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(Amounts in thousands)	Fair Value
Inventory	$	92
Prepaid expenses		15
Property & equipment		1,759
Operating lease right-of-use-assets		1,048
Finance lease right-of-use assets		18
Intangible assets:
Customer relationships		210
Trade name		10
Goodwill		48
Total assets		3,200
Current portion of long-term debt		1,271
Operating lease liabilities, current		167
Finance lease liabilities, current		7
Operating lease liabilities, net of current portion		881
Finance lease liabilities, net of current portion		11
Deferred tax liability - noncurrent		34
Total purchase consideration	$	829

Virtual Network Communications, Inc.

On July 6, 2020, the Company completed its acquisition (the “VNC Acquisition”) of Virtual Network Communications Inc., a Virginia corporation (“VNC”), pursuant to an Agreement and Plan of Merger and Reorganization dated as of May 21, 2020 (the “Merger Agreement”), by and among the Company and its wholly-owned subsidiaries, CHC Merger Sub 7, Inc. and VNC Acquisition LLC, VNC and Mohan Tammisetti, solely in his capacity as the representative of the security holders of VNC. VNC is an edge centric 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. 

In connection with the VNC Acquisition, the final adjusted total purchase price consideration amounted to $18.8 million, representing (i) cash paid on the closing date of $2.9 million, (ii) 3,912,737 shares of the Company’s common stock with a fair value of $11.9 million or $3.03 per share, of which an aggregate of 1,333,334 shares was held in an escrow fund for purposes of satisfying any post-closing indemnification claims of the former VNC security holders under the Merger Agreement, (iii) options to purchase an aggregate 841,837 shares of the Company’s common stock with a fair value of $2.4 million, (iv) warrants to purchase an aggregate 578,763 shares of the Company’s common stock with a fair value of $1.6 million, and (v) settlement of a note receivable and related interest receivable pre-existing relationship in the amount of $251 thousand. The Company expensed acquisition-related costs of $157 thousand in the year ended December 31, 2020, which is included in general and administrative expenses on the Company’s Consolidated Statement of Operations. The purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(Amounts in thousands)	Fair Value
Inventory	$	158
Prepaid expenses		13
Intangible assets:
Technology		6,550
Customer relationships		5,880
Trade name		320
Licenses		350
Goodwill		8,463
Total assets		21,734
Accounts payable		5
Long-term debt		24
Deferred tax liability - noncurrent		2,873
Total purchase consideration	$	18,832

Fastback / Skyline Partners Technology LLC

On January 29, 2021, the Company completed the acquisition of Fastback for cash consideration paid of $1.3 million and the issuance of $1.5 million aggregate principal amount of term notes and $11.2 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 9 – 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 fiscal year 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 purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(Amounts in thousands)	Fair Value
Cash	$	9
Accounts receivable		245
Inventory		358
Prepaid expenses		1,914
Property & equipment		202
Intangible assets:
Trade Name		409
Technology		1,770
Customer Relationships		5,000
Software		97
Goodwill		5,849
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

Sky Sapience Ltd.

On February 25, 2021, the Company completed the acquisition of SKS. The total preliminary purchase price consideration amounted to $11.8 million, subject to working capital and other post-closing adjustments, representing (i) cash paid on the closing date of $2.7 million (ii) 2,555,209 shares of the Company’s common stock with a fair value of $9.1 million or $3.55 per share, of which an aggregate of 1,151,461 shares was held in an escrow fund for purposes of satisfying any post-closing indemnification claims of the sellers under the Stock 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. The purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(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		457
Intangible assets:
Trade names		440
Technology		2,480
Customer relationships		3,460
Goodwill		6,185
Total assets		15,128
Accounts payable		710
Accrued liabilities		431
Contract liabilities, current		1,759
Operating lease liabilities, current		194
Operating lease liabilities - long term		252
Total purchase consideration	$	11,782

RVision, Inc.

On April 1, 2021, the Company completed the acquisition of RVision. 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. 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 purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(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:
Trade names		220
Technology		630
Customer relationships		400
Goodwill		3,599
Total assets		6,509
Accounts payable		54
Accrued liabilities		219
Operating lease liabilities, current		74
Contract liabilities, current		13
Notes payable		453
Operating lease liabilities – long term		196
Total purchase consideration	$	5,500

Innovation Digital, LLC

On June 3, 2021, the Company completed the acquisition of Innovation Digital for cash consideration paid of $1.0 million, 3,165,322 shares of common stock with a fair value of $7.3 million or $2.35 per share, and a promissory note in the principal amount of $0.6 million that is convertible into common stock at a conversion price of $2.35. See Note 9 – 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 purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(Amounts in thousands)	Fair Value
Property & equipment		6
Operating lease right-of-use asset		105
Other Non-Current Assets		2
Intangible assets:
Trade names		59
Technology		610
Customer relationships		500
Goodwill		7,953
Total assets		9,235
Accounts payable		59
Operating lease liabilities, current		32
Notes payable		31
Operating lease liabilities – long term		74
Total purchase consideration	$	9,039

RF Engineering & Energy Resource, LLC

On July 15, 2021, the Company completed the acquisition of RF Engineering for cash consideration paid of $0.6 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 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 9 – Debt Agreements for further discussion of the notes. The purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed as of the acquisition date, as set forth below.

(Amounts in thousands)	Fair Value
Cash	$	41
Accounts receivable		323
Inventory		662
Other Current Assets		6
Property & equipment, net		72
Intangible assets:
Trade names		80
Customer relationships		470
Goodwill		1,920
Total assets		3,574
Accounts payable		375
Accrued liabilities		4
Contract liabilities, current		20
Notes payable		425
Total purchase consideration	$	2,750

SAGUNA Networks LTD

On October 4, 2021, the Company completed the acquisition of SAGUNA for cash consideration paid of $0.2 million and 6,422,099 shares of common stock with a fair value of $9.8 million, or approximately $1.53 per share. SAGUNA is a premier Multi-Access Edge Computing cloud software developer. The acquisition significantly expanded the Company’s software technology offerings powering 5G wireless networks. The purpose of the acquisition was to expand our line of products and technology. The goodwill represents the excess fair value after the allocation to the intangibles. The calculated goodwill is deductible for tax purposes.

(Amounts in thousands)	Fair Value
Cash	$	64
Accounts receivable		61
Property & equipment, net		19
Intangible assets:
Goodwill		10,137
Total assets		10,281
Accounts payable		33
Accrued liabilities		79
Other current liabilities		180
Total purchase consideration	$	9,989

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 Report.

Pro Forma Information (unaudited)

The following information represents the unaudited pro forma combined results of operations, including acquisitions, giving effect to the acquisitions as if they occurred at the beginning of the years ended December 31, 2021 and 2020:

	Year Ended December 31,			Year Ended December 31,
(Amounts in thousands)	2021 (unaudited)			2020 (unaudited)
Revenue	$	13,599		$	15,814
Net Loss	$	(135,016	)	$	(43,492	)
Weighted average common shares outstanding		80,138			57,874
Basic and diluted loss per common share	$	(1.68	)	$	(0.75	)