UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ______________ to ______________
Commission File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive office) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| Warrants to purchase Common Stock | COMSW | The Nasdaq Stock Market LLC | ||
| 9.25% Series A Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share | COMSP | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) 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 ☐
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
☐
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 | ☐ |
| ☒ | 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 December 14, 2022, there were
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1: Financial Statements
COMSOVEREIGN HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| (Amounts in thousands, except share and per share data) | 2022 | 2021 | ||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Finance lease right-of-use-assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets – long term | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued liabilities | ||||||||
| Accrued liabilities – related party | ||||||||
| Accrued payroll | ||||||||
| Contract liabilities, current | ||||||||
| Accrued warranty liability - current | ||||||||
| Operating lease liabilities - current | ||||||||
| Finance lease liabilities - current | ||||||||
| Related party note deposit | - | |||||||
| Current portion of long-term debt; net of unamortized discounts and debt issuance costs | ||||||||
| Total current liabilities | ||||||||
| Debt – long term | ||||||||
| Contract liabilities – long term | ||||||||
| Operating lease liabilities – long term | ||||||||
| Finance lease liabilities – long term | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
COMSOVEREIGN HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands, except share and per share data) | 2022 | 2021 | ||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Research and development (1) | ||||||||
| Sales and marketing (1) | ||||||||
| General and administrative (1) | ||||||||
| Depreciation and amortization | ||||||||
| Gain on the sale of assets | ( | ) | ( | ) | ||||
| Total operating expenses, net | ||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other expense | ( | ) | ||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||
| Foreign currency transaction loss | ( | ) | ||||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Dividend on preferred stock | ( | ) | ||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average number of common shares outstanding | ||||||||
| (1) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
COMSOVEREIGN HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands, | Preferred Stock | Common Stock | Paid-In | Comprehensive | Treasury Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||
| except share data) | Shares | Amount | Shares | Amount | Capital | Income | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||
| Balance - January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Issuance of common stock for conversion of debt | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exercise of options | ||||||||||||||||||||||||||||||||||||||||
| Preferred dividend | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands, | Preferred Stock | Common Stock | Paid-In | Comprehensive | Treasury Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||||
| except share data) | Shares | Amount | Shares | Amount | Capital | Income | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||
| Balance - January 1, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued as vendor compensation | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for conversion of debt | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for public offering | - | |||||||||||||||||||||||||||||||||||||||
| Shares based compensation | ||||||||||||||||||||||||||||||||||||||||
| Common stock issuance for extinguishment of debt and interest | ||||||||||||||||||||||||||||||||||||||||
| Warrant issuance for extinguishment of debt and interest | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for Sky Sapience Ltd. acquisition | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
COMSOVEREIGN HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands, except share data) | 2022 | 2021 | ||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Amortization of financing lease right-of-use asset | ||||||||
| Operating lease expense | ||||||||
| Bad debt (recovery) expense | ( | ) | ||||||
| Gain on the sale of assets | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Amortization of debt discounts and debt issuance costs | ||||||||
| Share-based vendor payments | ||||||||
| Loss on extinguishment of debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventory, net | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Other non-current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Accrued payroll | ( | ) | ||||||
| Accrued interest | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| (Repayments) advances from related party | ( | ) | ||||||
| Other current liabilities | ||||||||
| Total Adjustments | ( | ) | ||||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Business acquisitions, net of cash received | ( | ) | ||||||
| Proceeds from building sale, net of transaction costs | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of intangible assets | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| Net Cash Provided By (Used In) Investing Activities | ( | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Principal payment on finance lease | ( | ) | ( | ) | ||||
| Proceeds from related party note deposit | ||||||||
| Proceeds from sale of common stock from offering | ||||||||
| Offering costs | ( | ) | ||||||
| Preferred stock dividend | ( | ) | ||||||
| Proceeds from exercise of options | ||||||||
| Debt issuance costs | ( | ) | ||||||
| Repayment of debt | ( | ) | ( | ) | ||||
| Net Cash (Used In) Provided By Financing Activities | ( | ) | ||||||
| Net (Decrease) Increase In Cash | ( | ) | ||||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
COMSOVEREIGN HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands, except share data) | 2022 | 2021 | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Bad debt (recovery) expense | ||||||||
| Issuance of common stock for extinguishment of debt and interest | $ | $ | ||||||
| Issuance of warrants for extinguishment of debt and interest | $ | $ | ||||||
| Debt incurred to sellers for Sky Sapience Ltd. acquisition | $ | $ | ||||||
| Issuance of common stock for Sky Sapience Ltd. acquisition | $ | $ | ||||||
| Acquisition of building with secured note payable | $ | $ | ||||||
| Issuance of common stock for conversion of debt and interest | $ | $ | ||||||
| Recognition of operating lease right-of-use asset and liability | $ | $ | ||||||
| Transfer of inventory to property and equipment | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 1 DESCRIPTION OF BUSINESS
COMSovereign Holding Corp.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes in the Company’s significant accounting policies as of and for the three months ended March 31, 2022, 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, 2021.
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. The results of operations, financial position and cash flows for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. The amounts reported in the unaudited condensed consolidated financial statements, and the tables in the notes hereto, of the Quarterly Report on Form 10-Q as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, are presented in United States dollars and are rounded in thousands with the exception of share and per share data. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2021 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on August 16, 2022.
Effective January 21, 2021, the Company enacted a 1-for-3 reverse stock split (the “Split”) of the Company’s common stock. These condensed consolidated financial statements and accompanying notes give effect to the reverse stock split as if it occurred at the beginning of the first period presented.
Principles of Consolidation
The unaudited condensed consolidated financial statements as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021, include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of 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. Actual results could differ from those estimates. The Company’s significant estimates consist of the valuation of stock-based compensation; the valuation of the assets and liabilities acquired; the valuation of the Company’s equity securities issued in transactions; the valuation of inventory; the allowance for credit losses; the valuation of equity securities; the valuation allowance for deferred tax assets; and impairment of long-lived assets and goodwill.
6
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Long-Lived Assets and Goodwill
The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. As of March 31, 2022, the Company determined that it was not more likely than not that any reporting unit’s fair value was below that reporting unit’s carrying amount. Accordingly, it wasn’t necessary to perform interim impairment testing as of March 31, 2022.
The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows:
Level 1 – Observable inputs that reflect quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.
Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs may be used with standard pricing models or other valuation or internally-developed methodologies that result in management’s best estimate of fair value.
The Company utilizes fair value measurements primarily in conjunction with the valuation of assets acquired and liabilities assumed in a business combination. In addition, certain nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable U.S. GAAP. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when an impairment is recognized.
As allowed by applicable FASB guidance, the Company has elected not to apply the fair value option for financial assets and liabilities to any of its currently eligible financial assets or liabilities. The Company’s financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The Company has determined that the book value of its outstanding financial instruments as of March 31, 2022 and December 31, 2021 approximated their fair value due to their short-term nature.
7
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for smaller reporting companies during annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 effective January 1, 2022 which eliminates the need on a go forward basis to assess whether a beneficial conversion feature needs to be recognized upon either (a) the issuance of new convertible securities; or (b) the resolution of any prior period contingent beneficial conversion features.
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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Companies should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. This standard was adopted on January 1, 2022 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
NOTE 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
three months ended March 31, 2022, the Company used cash flows in operating activities of $
The Company’s fiscal operating results, accumulated deficit and working capital, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern. Based on current cash on hand and subsequent activity as described herein (see Note 18 – Subsequent Events - Business Developments and Debt and Equity Developments), the Company presently only has enough cash on hand to operate on a month-to-month basis, without raising additional capital or selling assets. Because of the Company’s limited cash availability, its operations have been scaled back to the extent possible (see Note 18 – Subsequent Events - Business Developments). Management continues to explore opportunities with third parties and related parties to provide additional capital and/or sell assets; however, it has not entered into any agreement to provide the necessary additional capital, except as disclosed herein. In the near term, there may be limited opportunities to raise capital of significance due to the Company’s Nasdaq compliance issues, as discussed in Note 18 – Subsequent Events - Nasdaq Compliance Developments.
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. If the Company is not able to obtain additional financing on a timely basis, it may have to delay vendor payments and/or initiate cost reductions, which would have a material adverse effect on its business, financial condition and results of operations, and ultimately, it could be forced to discontinue operations, liquidate assets and/or seek reorganization under the U.S. bankruptcy code.
8
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 4 REVENUE
The following table is a summary of the Company’s timing of revenue recognition for the three months ended March 31, 2022 and 2021:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Timing of revenue recognition: | ||||||||
| Services and products transferred at a point in time | $ | $ | ||||||
| Services and products transferred over time | ||||||||
| Total revenue | $ | $ | ||||||
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 months ended March 31, 2022 and 2021:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Revenue by products and services: | ||||||||
| Products | $ | $ | ||||||
| Services | ||||||||
| Total revenue | $ | $ | ||||||
Revenue by geographic destination consisted of the following for the three months ended March 31, 2022 and 2021:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Revenue by geography: | ||||||||
| North America | $ | $ | ||||||
| International | ||||||||
| Total revenue | $ | $ | ||||||
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 March 31, 2022 and December 31, 2021, the Company did not have a material 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, 2021 | $ | |||
| New invoices not yet earned | ||||
| Old invoices earned | ( | ) | ||
| Balance at March 31, 2022 | $ | |||
9
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 5 EARNINGS (LOSS) PER SHARE
The Company accounts for earnings or loss per share pursuant to Accounting Standards Codification (“ASC”) 260, Earnings Per Share, which requires disclosure on the financial statements of “basic” and “diluted” earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options, restricted stock awards and warrants for each period.
There were no adjustments to net loss, the numerator, or the denominator for purposes of computing basic 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 attributable 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 attributable 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 March 31, 2022 and 2021, respectively:
| As of March 31, | ||||||||
| 2022 | 2021 | |||||||
| Options | ||||||||
| Unvested restricted stock | ||||||||
| Warrants | ||||||||
| Convertible notes | ||||||||
NOTE 6 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents consisted of the following as of March 31, 2022, and December 31, 2021:
| (Amounts in thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
Cash, cash equivalents, and
restricted cash are represented by operating accounts or money market accounts maintained with insured financial institutions, including
cash equivalents, defined as all short-term, highly-liquid investments with maturities of three months or less when purchased. The Company
had no cash equivalents as of March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, $
10
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 7 ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of March 31, 2022 and December 31, 2021:
| (Amounts in thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Account receivables | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total account receivables, net | $ | $ | ||||||
Bad debt (recovery) expense
totaled $(
NOTE 8 INVENTORY, NET
Inventory consisted of the following as of March 31, 2022 and December 31, 2021:
| (Amounts in thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Total inventory | ||||||||
| Reserve | ( | ) | ( | ) | ||||
| Total inventory, net | $ | $ | ||||||
The Company maintains a perpetual inventory system which is supplemented by periodic reviews of inventory quantities on hand. The Company records an impairment for excess and obsolete inventory, when necessary, based on factors including its estimated forecast of product demand, the stage of the product life cycle and production requirements for the units in question.
NOTE 9 PREPAID EXPENSES
Prepaid expenses consisted of the following as of March 31, 2022 and December 31, 2021:
| (Amounts in thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Prepaid products and services | $ | $ | ||||||
| Prepaid rent and security deposit | ||||||||
| Total prepaid expenses | $ | $ | ||||||
11
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
NOTE 10 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:
| (Amounts in thousands) | March 31, 2022 | December 31, 2021 | ||||||
| Shop machinery and equipment | $ | $ | ||||||
| Computers and electronics | ||||||||
| Office furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Building | ||||||||
| Land | ||||||||
| Building improvements | ||||||||
| Total property and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
On January 31, 2022, the Company
sold its Tucson, Arizona office building (the “Tucson Building”) for $
The Company recognized $
NOTE 11 LEASES
Operating Leases
The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. The carrying values of operating lease right-of-use (“ROU”) assets and operating lease liabilities as of March 31, 2022 and December 31, 2021 were as follows:
| March 31, | December 31, | |||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Operating lease ROU assets | $ | $ | ||||||
| Operating lease liability | $ | $ | ||||||
On February 1, 2022, the Company
entered into a lease agreement with the new owners of the Tucson Building (see Note 10 - Property and Equipment, Net), for a term
of
12
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Other information related to the Company’s operating leases are as follows:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of March 31, 2022, and December 31, 2021:
| March 31, | December 31, | |||
| (Amounts in thousands) | 2022 | 2021 | ||
| Weighted average remaining lease term | ||||
| Weighted average discount rate |
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 consolidated balance sheet as of March 31, 2022:
| Operating | ||||
| (Amounts in thousands) | Leases | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligations under leases | ( | ) | ||
| Long-term lease obligations | $ | |||
Finance Leases
The Company has finance leases for certain manufacturing and office equipment.
The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s finance leases as of March 31, 2022:
| March 31, | ||||
| (Amounts in thousands) | 2022 | |||
| Weighted average remaining lease term | ||||
| Weighted average discount rate | % | |||
13
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
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 March 31, 2022:
| Finance | ||||
| (Amounts in thousands) | Leases | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total minimum lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligations under leases | ( | ) | ||
| Long-term lease obligations | $ | |||
NOTE 12 DEBT
Debt consisted of the following as of March 31, 2022 and December 31, 2021:
| Original | March 31, 2022 | December 31, 2021 | ||||||||||||||||||
| (Amounts in thousands) | Note Reference | Maturity Date | Amount Outstanding | Interest Rate | Amount Outstanding | Interest Rate | ||||||||||||||
| Secured Notes Payable | ||||||||||||||||||||
| Secured senior convertible note payable | A | $ | % | $ | % | |||||||||||||||
| Secured senior convertible note payable | B | % | % | |||||||||||||||||
| Secured note payable | C | % | % | |||||||||||||||||
| Secured note payable | D | % | > | % | ||||||||||||||||
| Total secured notes payable | ||||||||||||||||||||
| Notes Payable | ||||||||||||||||||||
| Notes payable | E | % | % | |||||||||||||||||
| PPP loans | F | % | % | |||||||||||||||||
| SBA loan | G | % | % | |||||||||||||||||
| Total notes payable | ||||||||||||||||||||
| Convertible Notes Payable | ||||||||||||||||||||
| Convertible note payable | H | % | % | |||||||||||||||||
| Convertible note payable | I | % | % | |||||||||||||||||
| Total convertible notes payable | ||||||||||||||||||||
| Total long-term debt | ||||||||||||||||||||
| Less unamortized discounts and debt issuance costs | ( | ) | ( | ) | ||||||||||||||||
| Total long-term debt, less discounts and debt issuance costs | ||||||||||||||||||||
| Less current portion of long-term debt | ( | ) | ( | ) | ||||||||||||||||
| Debt classified as long-term debt | $ | $ | ||||||||||||||||||
During the three months ended March 31, 2022 (a) $2.8 million of Notes A and B principal was satisfied by $1.9 million (plus interest) of aggregate payments in cash, plus aggregate conversions of principal and interest of $0.9 million and $44,000, respectively, into an aggregate of 1,576,058 shares of the Company’s common stock; (b) $0.5 million of Note C past due principal was repaid in cash; (c) $5.2 million of Note D (the Tucson Building mortgage) was repaid in cash from the proceeds of the January 31, 2022 building sale; and (d) an aggregate of $16,000 of Notes E, F, and G principal were repaid in cash. The conversions of Notes A and B were pursuant to a share-settled redemption feature wherein the conversions are required to be accounted for under extinguishment accounting, which resulted in the recognition of a $173,000 loss on extinguishment.
14
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Future maturities contractually required by the Company under debt obligations are as follows as of March 31, 2022:
| (Amounts in thousands) | Total | ||||
| Remaining 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total | $ | ||||
During
the three months ended March 31, 2022 and 2021, the Company recognized $
For additional information related to debt, including subsequent conversions of Notes A and B principal into common stock, see Note 18 – Subsequent Events – Debt and Equity Developments. Because of such subsequent conversions, the March 31, 2022 outstanding principal of Notes A and B (and the related debt discounts) were fully reclassified from current to long term.
NOTE 13 STOCKHOLDERS’ EQUITY
See Note 12 – Debt and Note 18 – Subsequent Events – Debt and Equity Developments for additional information related to debt conversions.
Preferred Stock - Liquidation Preference
Upon any voluntary or involuntary
liquidation, dissolution or winding up of our affairs, before any distribution or payment shall be made to holders of shares of our common
stock or any other class or series of our capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution
or winding up of our affairs, junior to the Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”),
holders of shares of Series A Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our
stockholders, after payment of or provision for our debts and other liabilities and any class or series of our capital stock ranking,
as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, senior to the Series A Preferred
Stock, a liquidation preference of $
Dividends
During the three months ended
March 31, 2022, the Company recorded $
NOTE 14 SHARE-BASED COMPENSATION
Restricted Stock Awards
A summary of the restricted stock unit (“RSU”) activity during the three months ended March 31, 2022 is presented below:
| Weighted- | ||||||||
| Average | ||||||||
| Number of | Grant Date Value | |||||||
| RSU’s | Per Share | |||||||
| RSU’s non-vested - January 1, 2022 | $ | |||||||
| Vested | ( | ) | ||||||
| RSU’s non-vested - March 31, 2022 | $ | |||||||
During the three months ended
March 31, 2022 and 2021, the Company recognized $
15
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Stock Options
There were no stock options issued during the three months ended March 31, 2022 and 2021.
The following table presents stock option activity for the three months ended March 31, 2022:
| Number of Options | Weighted Average Exercise Price Per Share | Weighted Average Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Outstanding - December 31, 2021 | $ | |||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Cancelled or Expired | ( | ) | ||||||||||||||
| Outstanding - March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable - March 31, 2022 | $ | $ | ||||||||||||||
The following table presents information related to stock options as of March 31, 2022:
| Options Outstanding | Options Exercisable | |||||||||||
| Weighted | ||||||||||||
| Outstanding | Average | Exercisable | ||||||||||
| Number of | Remaining Life | Number of | ||||||||||
| Exercise Price Per Share | Options | In Years | Options | |||||||||
| $ 0.01 - $ 0.50 | ||||||||||||
| $ 0.51 - $ 1.00 | ||||||||||||
| $ 1.01 - $ 1.50 | ||||||||||||
| $ 1.51 - $ 2.00 | ||||||||||||
| $ 2.01 - $ 2.50 | ||||||||||||
| $ 2.51 - $ 3.00 | ||||||||||||
| $ 3.01 - $ 3.50 | ||||||||||||
The Company recognized $
16
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
Warrants
All warrants are valued utilizing
the Black-Scholes pricing model using the assumptions listed below. There were no warrants issued during the three months ended March
31, 2022. The weighted average grant date fair value of all warrants issued during the three months ended March 31, 2021 was $
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Expected dividend yield | ||||||||
| Expected volatility | ||||||||
| Risk-free interest rate | ||||||||
| Contractual life of warrants | ||||||||
The following table represents warrant activity for the three months ended March 31, 2022:
| Number of | Weighted- Average Exercise Price | Weighted- Average Contractual | Aggregate Intrinsic | |||||||||||||
| Warrants | Per Share | Life in Years | Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Outstanding - December 31, 2021 | $ | |||||||||||||||
| Forfeited or Expired | ( | ) | ||||||||||||||
| Outstanding - March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable - March 31, 2022 | $ | $ | ||||||||||||||
The following table presents information related to warrants as of March 31, 2022:
| Warrants Outstanding | Warrants Exercisable | |||||||||||
| Weighted | ||||||||||||
| Outstanding Number of | Average Remaining Life | Exercisable Number of | ||||||||||
| Exercise Price Per Share | Warrants | In Years | Warrants | |||||||||
| $ 0.01 - $ 1.00 | ||||||||||||
| $ 1.01 - $ 2.00 | ||||||||||||
| $ 2.01 - $ 3.00 | ||||||||||||
| $ 3.01 - $ 4.00 | ||||||||||||
| $ 4.01 - $ 5.00 | ||||||||||||
| $ 5.01 - $ 6.00 | ||||||||||||
NOTE 15 COMMITMENTS AND CONTINGENCIES
17
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
See Note 18 – Subsequent Events – Litigation, Claims and Contingencies Developments for post-March 31, 2022 developments.
NOTE 16 CONCENTRATIONS
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 March
31, 2022, accounts receivable from two customers comprised an aggregate of approximately
NOTE 17 BUSINESS ACQUISITIONS
During 2021, the Company completed the acquisitions of Fastback Networks, a telecommunications provider, Sky Sapience Ltd., a tethered drone provider, RVision, Inc., a video and communications developer, Innovation Digital, a developer of signal processing solutions, RF Engineering and Energy Resource, an antenna and accessories provider, and SAGUNA Networks, a software developer to expand the Company’s product offerings and developments.
The following information represents the unaudited pro forma combined results of operations, giving effect to the acquisitions as if they occurred at the beginning of the period ended March 31, 2021.
| (Amounts in thousands, except share and per share amounts) | For the Three Months Ended March 31, 2021 | |||
| Revenue | $ | |||
| Net loss | $ | ( | ) | |
| Basic and diluted loss per common share | $ | ( | ) | |
| Weighted-average common shares outstanding | ||||
NOTE 18 SUBSEQUENT EVENTS
Executive Officer and Board of Director Developments
On April 21, 2022, the Company’s Chief Financial Officer resigned from the Company for personal family commitments.
On May 2, 2022, a member of the Board of Directors of the Company (the “Board”) announced their resignation from the Board and all committees thereof, effective immediately. The resignation allowed that former member of the Board to focus on personal and other professional commitments.
On September 1, 2022, the Company’s then Chief Executive Officer and the Company’s then President resigned from the Company as part of the Company’s ongoing transition. David A. Knight was appointed Interim Chief Executive Officer by the Board.
18
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
On October 10, 2022, a member of the Board announced their resignation from the Board and all committees thereof. The resignation allowed that former member of the Board to focus on personal and other professional commitments.
On November 23, 2022, the
Board appointed David A. Knight as the Company’s Chief Executive Officer, President, Acting Principal Financial and Accounting
Officer, and a Director of the Board. Mr. Knight is entitled to receive (i) an annual base salary of $
Business Developments
Commencing in May 2022, the
Company embarked on a restructuring, including a reduction of over
In May 2022, InduraPower suspended operations.
On May 23, 2022, a third party acquired certain assets and employees from the Canadian subsidiary of DragonWave-X, LLC (“DragonWave Canada”), in return for assuming DragonWave Canada’s employment liabilities and assuming DragonWave Canada’s lease in Kanata, Ontario, Canada, through an Asset Purchase Agreement.
In June 2022, the Company idled SAGUNA Networks Ltd. (“SAGUNA”), Sky Sapience Ltd. (“SKS”) and VEO Photonics, Inc. (“VEO”).
On June 21, 2022, the Company
sold its Sovereign Plastics LLC (“Sovereign Plastics”) business unit for total consideration of $
On June 23, 2022, the Company reached an agreement
to return fifteen patents and five pending or provisional patents to the former owners of Innovation Digital, LLC (“Innovation Digital”)
in return for the cancelation of an outstanding $
Debt and Equity Developments
On April 1, 2022, the Company
entered into a note agreement with a related party who is an Executive Officer of the Company for cash proceeds of $
On or about April 15, 2022, as a result of the
Company not filing its Annual Report on Form 10-K for the year ended December 31, 2021 on a timely basis, the Company’s secured
senior convertible notes payable (see Note 12 – Debt) entered into default, which resulted in a
On or about April 29, 2022,
the Company sold an original issue discount note with a face value of $
On May 24, 2022, the Company
received notice from counsel for holders of $
On or about May 25, 2022,
the Company announced that it had suspended the payment of dividends on the Series A Preferred Stock to preserve cash. Since June 20,
2022, dividends on the Series A Preferred Stock are accruing at the rate of approximately $
19
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
On June 23, 2022, the Company
reached an agreement to cancel a $
On
July 29, 2022, the Company sold a promissory note in the principal amount of $
On
October 17, 2022, the Company sold a promissory note in the principal amount of $
On
November 8, 2022, the Company sold a promissory note in the principal amount of $
On or about December
8, 2022, the Company canceled
Lease Developments
In May 2022, the Company abandoned its lease of the Tucson Building (see Note 11 – Leases) after previously defaulting on the lease.
In June 2022, ComSovereign Corp. abandoned its Dallas, TX office lease and VEO Photonics, Inc. abandoned its San Diego, CA office lease.
In July 2022, the Company abandoned its Chantilly, VA office lease.
Litigation, Claims and Contingencies Developments
On June
16, 2022, the Company received notice from certain former shareholders of SAGUNA claiming breaches of the SAGUNA stock purchase agreement
and claiming that all of the former shareholders of SAGUNA have suffered damages totaling approximately $
By notice dated July 14, 2022, the Company received
notice from a distributor that has a distribution agreement with InduraPower claiming that InduraPower, and the Company as guarantor,
has breached the distribution agreement, and are claiming approximately $
On or about July 17, 2022, the former employees
of SKS filed an insolvency request against SKS in the Nazareth District Court, Israel, No. 35035-06-22. The action represents $
On or about July 28, 2022,
a former employee filed suit against the Company, Dustin McIntire, and Daniel Hodges in the San Diego County California Superior Court,
Case No. 37-2022-00028083-CU-BC-CTL. The plaintiff alleged that his wages were not paid, that he was constructively discharged, that
the Company failed to issue him stock options, and that he is owed future amounts. He is claiming damages of no less than $
On or about August 22, 2022,
two former Fastback employees filed suit against the Company, DragonWave and Fastback in the Alameda County Superior Court, California,
Case No. 22CV016666. The plaintiffs allege that their payroll was late and that the Company failed to make one payroll, failed to timely
pay wages three times, failed to pay accrued vacation time, and owes penalties under California law. Each plaintiff is claiming damages
of no less than $
On or about August 23, 2022,
a former employee filed suit against the Company in the Clark County District Court, Nevada, Case No. 3 A-22-857361-C. The plaintiff
alleged that his wages were not paid, that he was constructively discharged, that the Company failed to issue him stock options, and
that he is owed future amounts. He is claiming damages of no less than $
20
COMSOVEREIGN HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(unaudited)
On or about September 20, 2022, the Company was
served with a suit that was filed on or about May 27, 2022 by the holder of a Transform-X Inc. (“Transform-X”) promissory
note, suing the Company, Daniel Hodges, and Transform-X in the Richland County Court of Common Pleas, South Carolina, Case No. 2022CP4002806.
The plaintiff alleges that for $
On or about November 14, 2022, an intellectual
property law firm filed suit against the Company in the United States District Court for the Southern District of California, San Diego.
The plaintiff alleges that they performed work for the Company and its subsidiaries subsequent to March 31, 2022 and are owed approximately
$
On or about November 15,
2022, the Company resolved the claims of former employees of SAGUNA who had, on or about July 17, 2022, filed an insolvency request against
SAGUNA in the Nazareth District Court, Israel, No. 27624-07-22. The approximately $
Nasdaq Compliance Developments
As previously disclosed in
the Company’s Form 10-K filed on August 16, 2022, and in subsequent Form 8-K filings, the Company is not in compliance with Nasdaq
Listing Rule 5550(a)(2), the $
On November 17, 2022, a hearing was held before the Nasdaq Hearings Panel (the “Panel”) regarding the Company’s request for continued listing on The Nasdaq Capital Market of the Company’s common stock and additional time to regain compliance with Nasdaq Listing Rules. On November 29, 2022, the Panel issued its determination, granting the Company’s request for the continued listing of the Company’s common stock, subject to evidencing compliance with Nasdaq’s minimum bid price requirement by February 2, 2023, and evidencing compliance with Nasdaq’s filing requirement by getting the Company’s remaining Delinquent Reports filed with the SEC by February 24, 2023, and certain other conditions.
The Company is working to file its Delinquent Reports with the SEC as soon as practicable and is otherwise taking definitive steps to evidence compliance with all other applicable criteria for continued listing on Nasdaq. The Company has put forth a reverse split proposal to our stockholders to be voted on at the Company’s Annual Stockholders meeting on January 18, 2023, as part of the Company’s efforts to gain compliance with the minimum bid price requirement. There can be no assurances, however, that we will be able to gain compliance with the Nasdaq Listing Rules.
21
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” that are included in Part II of this Quarterly Report as well as our fiscal 2021 Annual Report on Form 10-K filed with the U. S. Securities and Exchange Commission (the “SEC”) on August 16, 2022.
Overview of Business; Operating Environment and Key Factors Impacting Our Operating 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 three months ended March 31, 2022, compared to the three months ended March 31, 2021, unless otherwise indicated.
Business Overview
We are a provider of solutions to network operators, mobile device carriers, governmental units and other enterprises worldwide. We have assembled a portfolio of communications 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 roll out of the 5G and 6G networks of the future. We focus on novel 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.
We provide the following categories of product offerings and solutions to our customers:
| ● | Telecom and Network Products and Solutions. We design, develop, market and sell products for telecom network operators, mobile device carriers and other enterprises, including the following: |
22
|
● | Wireless Transport Solutions. We offer a line of high-capacity packet microwave solutions that drive next-generation intellectual property (“IP”) networks. Our carrier-grade point-to-point packet microwave systems transmit broadband voice, video and data. Our solutions enable service providers, government agencies, enterprises and other organizations to meet their increasing bandwidth requirements rapidly and affordably. The principal application of our product portfolio is wireless network transport, including a range of products ideally suited to support the emergence of underlying small cell networks. Additional solutions include leased-line replacement, last mile fiber extension and enterprise networks. |
| ● | In-Band Full-Duplex Technologies. We have developed proprietary wireless transmission technologies that alleviate the performance limitations of the principal transmission technologies used by most networks today. Time Division Duplex (“TDD”) transmission technology used by many communications systems utilizes a single channel for transmission of data alternating between downlink or uplink, which limits capacity/throughput. Frequency Division Duplex (“FDD”) technologies in the marketplace today use two independent channels for downlink and uplink but require twice the spectrum. Neither TDD nor FDD can simultaneously transmit and receive on a single channel — a limitation that network advancements and 5G will require for optimal performance. |
| ● | Edge Compute Capable Small Cell 4G LTE and 5G Access Radios. We offer both 4G/LTE and 5G New Radio (“NR”) based small cell radios that are designed to connect to other access radios or to connect directly to mobile devices such as mobile phones and other Internet-of-things devices. Recently, we developed we believe the world’s first fully-virtualized 5G core network on a microcomputer the size of a credit card, enabling, for the first time, the ability to have the 5G network collocated on the network edge with the small cell communicating with the devices themselves. The small cells support edge-based application hosting and enable third-party service integration. |
| ● | Tethered Drones and Aerostats. We design, manufacture, sell and provide logistical services for specialized tethered aerial monitoring and communications platforms serving national defense and security customers for use in applications such as intelligence, surveillance, and reconnaissance (“ISR”) and tactical communications. We focus primarily on a suite of tethered aerostats known as the Winch Aerostat Small Platform, which are principally designed for military and security applications and provide secure and reliable aerial monitoring for extended durations while being tethered to the ground via a high-strength armored tether. Our recently-acquired 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 are also developing processes that we believe will significantly advance the state-of-the-art in silicon photonic (“SiP”) devices for use in advanced data interconnects, communication networks and computing systems. We believe our novel approach will allow us to overcome the limitations of current SiP optical modulators, dramatically increase computing bandwidth, and reduce drive power while offering lower operating costs.
Our engineering and management teams have extensive experience in optical systems and networking, digital signal processing, large-scale application-specific integrated circuit design and verification, SiP design and integration, system software development, hardware design, high-speed electronics design and network planning, installation, maintenance, and servicing. We believe this broad expertise in a wide range of advanced technologies, methodologies, and processes enhances our innovation, design and development capabilities, and has enabled us, and we believe will continue to enable us, to develop and introduce future-generation communications and computing technologies. In the course of our product development cycles, we engage with our customers as they design their current and next-generation network equipment in order to gauge current and future market needs.
Our Business
Through a series of acquisitions, we have expanded our service offerings and geographic reach over the past three years. On November 27, 2019, we completed the acquisition of ComSovereign Corp. (“ComSovereign”) in a stock-for-stock transaction with a total purchase price of approximately $80 million (the “ComSovereign Acquisition”). ComSovereign had been formed in January 2019 and, prior to its acquisition by our company, had completed five acquisitions of companies with unique products in development for, or then being marketed to, the telecommunications market. As a result of our acquisitions, our company is comprised of the following principal businesses, each of which was acquired to address a different opportunity or sector of the telecom infrastructure and service market. These acquired entities are designated as CORE and Noncore businesses. Our CORE business is comprised of our network hardware and software products and services solutions, and our Noncore business is comprised the Drone and related products. Our Power division has been idled.
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Our CORE business is comprised of the following acquisitions:
| ● | 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. On May 23, 2022, the Company sold the assets, transferred the employees and assigned the Canadian lease of DragonWave’s Canadian subsidiary, to a third party. |
| ● | Virtual NetCom, LLC. Virtual NetCom, LLC (“VNC”) is an edge compute focused wireless telecommunications technology developer and equipment manufacturer of both 4G LTE Advanced and 5G NR 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. We acquired VNC in July 2020. |
| ● | Fastback. Skyline Partners Technology LLC, which conducted 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 limitations. Fastback’s advanced IBR products allow operators to economically add capacity and density to their existing cellular networks 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. |
| ● | 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. In order to conserve cash, VEO was idled in June 2022. |
| ● | RF Engineering & Energy Resource, LLC. RF Engineering & Energy Resource, LLC (“RF Engineering”) is a Michigan-based provider of high-quality microwave antennas and accessories. By providing one of the industry’s lowest cost of ownership, RF Engineering has continued to innovate and expand, and it recently announced 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 RF Engineering in July 2021. |
| ● | SAGUNA Networks Ltd. SAGUNA Networks Ltd. (“SAGUNA”) based in Yokneam, Israel, is the software developer behind the award-winning SAGUNA Edge Cloud, which transforms communication networks into powerful cloud-computing infrastructures for applications and services, including augmented and virtual reality, Internet of Things (“IoT”), edge analytics, high-definition video, connected cars, autonomous drones and more. SAGUNA allows these next-generation applications to run closer to the user in a wireless network, dramatically cutting down on latency, which is a fundamental and critical requirement of 5G networks. SAGUNA’s Edge Cloud operates on general purpose computing hardware but can be optimized to support the latest artificial intelligence and machine learning features through dedicated accelerators. We acquired SAGUNA in October 2021. In order to conserve cash, SAGUNA was idled in June 2022. |
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Our NONCORE business is comprised of the following:
| ● | 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, 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 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. In order to conserve cash, SKS was idled in June 2022. |
| ● | 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. |
Nasdaq Compliance Developments
As previously disclosed in our Form 10-K filed on August 16, 2022, and in subsequent Form 8-K filings, we are not in compliance with Nasdaq Listing Rule 5550(a)(2), the $1.00 minimum closing bid price requirement (“minimum bid price”) due to the price of our common stock. Additionally, because we were late with filing our Quarterly Reports on Form10-Q for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022 (collectively the “Delinquent Reports”), we are not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports (“filing requirements”) with the Securities and Exchange Commission (“SEC”).
On November 17, 2022, a hearing was held before the Nasdaq Hearings Panel (the “Panel”) regarding our request for continued listing on The Nasdaq Capital Market of our common stock and additional time to regain compliance with Nasdaq Listing Rules. On November 29, 2022, the Panel issued its determination, granting our request for the continued listing of our common stock, subject to evidencing compliance with Nasdaq’s minimum bid price requirement by February 2, 2023, and evidencing compliance with Nasdaq’s filing requirement by getting our remaining Delinquent Reports filed with the SEC by February 24, 2023, and certain other conditions.
We are working to file our Delinquent Reports with the SEC as soon as practicable and are otherwise taking definitive steps to evidence compliance with all other applicable criteria for continued listing on Nasdaq. We have put forth a reverse split proposal to our stockholders to be voted on at our Annual Stockholders meeting on January 18, 2023, as part of our efforts to gain compliance with the minimum bid price requirement. There can be no assurances, however, that we will be able to gain compliance with the Nasdaq Listing Rules.
Significant Components of Our Results of Operations
Revenues
Our revenues are generated primarily from the sale of our products, which consist primarily of telcom hardware, repairs, support & maintenance, drones, injection moulding, tooling, consulting, warranties and other. 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.
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During the three months ended March 31, 2022 and 2021, approximately 16% and 17%, respectively, of our revenues were derived from sales outside of North America. 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 our Fastback and DragonWave products to SMC for Fastback products and Benchmark for DragonWave products. 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.
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. 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.
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.
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.
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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.
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.
Results of Operations
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| (Amounts in thousands, except share and per share data) | 2022 | 2021 | ||||||
| Revenue | $ | 3,229 | $ | 2,086 | ||||
| Cost of goods sold | 2,196 | 1,074 | ||||||
| Gross profit | 1,033 | 1,012 | ||||||
| Operating expenses | ||||||||
| Research and development (1) | 1,172 | 547 | ||||||
| Sales and marketing (1) | 66 | 48 | ||||||
| General and administrative (1) | 6,157 | 7,135 | ||||||
| Depreciation and amortization | 2,217 | 3,661 | ||||||
| Gain on the sale of assets | (8,441 | ) | (83 | ) | ||||
| Total operating expenses, net | 1,171 | 11,308 | ||||||
| Income (loss) from operations | (138 | ) | (10,296 | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | (880 | ) | (469 | ) | ||||
| Other expense | - | (13 | ) | |||||
| Loss on extinguishment of debt | (173 | ) | (5,348 | ) | ||||
| Gain on sale of building | - | - | ||||||
| Foreign currency transaction loss | - | (80 | ) | |||||
| Total other expense | (1,053 | ) | (5,910 | ) | ||||
| Net loss | $ | (1,191 | ) | $ | (16,206 | ) | ||
| (1) | These are exclusive of depreciation and amortization |
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Total Revenues
For the three months ended March 31, 2022, total revenues were $3.2 million compared to $2.1 million for the three months ended March 31, 2021, an increase of $1.1 million, or 55%. These sales derived primarily from mobile network backhaul products, outside sales from Sovereign Plastics, and the sale of our aerostat products and accessories. The increase was driven primarily from revenue from companies acquired in 2021 and from large orders fulfilled by Sovereign Plastics.
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Cost of Goods Sold and Gross Profit
For the three months ended March 31, 2022, cost of goods sold were $2.2 million compared to $1.1 million for the three months ended March 31, 2021, an increase of $1.1 million, or 104%. Cost of goods sold primarily consisted of the payment to our contract manufacturer for the production of our mobile network backhaul products and the materials, parts and labor associated with our other manufacturing activities.
Gross profit for the three months ended March 31, 2022 was $1.0 million compared to $1.0 million for the three months ended March 31, 2021, with a gross profit margin for the three months ended March 31, 2022, of 32% compared to 49% for the three months ended March 31, 2021. This decrease in gross profit margin was driven primarily by the sale of older DragonWave products that were lower margin during the current quarter as compared to the corresponding period in the fiscal year 2021 and an increase in purchase price variances due to increased prices from manufacturing and logistical suppliers, resulting from current macro supply chain constraints.
Research and Development Expense
For the three months ended March 31, 2022, research and development expense was $1.2 million compared to $0.5 million for the three months ended March 31, 2021, an increase of $0.7 million. Research and development expense consisted primarily of contract labor and payroll related costs. This increase was primarily for development of DragonWave radio software features, VNC 5G ORAN system product development, VEO photonics chip development. The expenses are mostly contractor labor and our own engineering teams.
Sales and Marketing Expense
For the three months ended March 31, 2022, sales and marketing expense was $66,000 compared to $48,000 for the three months ended March 31, 2021, an increase of $18,000, which primarily consisted of increases in payroll and related costs performed primarily by our newly acquired subsidiary.
General and Administrative Expenses
For the three months ended March 31, 2022, general and administrative expense was $6.2 million compared $7.1 million for the three months ended March 31, 2021. This $0.9 million decrease primarily consisted of decreases in professional expenses of $2.2 million, which were primarily driven by decreases in certain public relations services, accounting services, and other professional services. This was partially offset by increased payroll and related costs of $1.2 million due to additional employees and salary increases, plus rent increased by $0.2 million, resulting from the sale and leaseback of our Tucson (Arizona) office building (the “Tucson Building”; see below) on or about January 31, 2022.
Depreciation and Amortization
For the three months ended March 31, 2022, depreciation and amortization was $2.2 million compared $3.7 million for the three months ended March 31, 2021, a decrease of $1.5 million, primarily due to the sale of our Tucson Building (see below).
Gain on the Sale of Assets
For the three months ended March 31, 2022, gain on the sale of assets was $8.4 million compared to $0.1 million for the three months ended March 31, 2021, an increase of $8.3 million. On January 31, 2022, we sold our Tucson Building for $15.8 million of cash. The Tucson Building had a carrying value of $6.7 million. The Company recognized an $8.4 million gain on sale of assets, which is net of $0.7 million of related transaction costs.
Other Income and Expenses
For the three months ended March 31, 2022, other expense was $1.0 million compared to other expense of $5.9 million for the three months ended March 31, 2021, a decrease of $4.9 million. This change primarily consisted of a decrease in the loss on extinguishment of debt of $5.1 million during the three months ended March 31, 2021, partially offset by a $0.4 million increase in interest expense.
Net Loss
For the three months ended March 31, 2022, we had a net loss of $1.2 million compared to a net loss of $16.2 million for the three months ended March 31, 2021, related to the items described above.
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Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its cash requirements. As of March 31, 2022, we had $0.5 million in cash compared to $1.9 million on December 31, 2021, a decrease of $1.4 million resulting primarily from $8.7 million of cash used in operating activities and $7.6 million of debt repayments, partially offset by $15.1 million of cash proceeds from the sale of the Tucson Building on or about January 31, 2022. See Note 10 – Property and Equipment, Net in the notes to the condensed consolidated financial statements for more information related to the sale of the Tucson Building.
As of March 31, 2022, we had working capital of $8.5 million compared to negative working capital of $3.5 million as of December 31, 2021. This increase in working capital of $12.0 million was primarily related to the $15.1 million of proceeds from the sale of the Tucson Building and the reclassification of $5.5 million of debt from a current liability to a long term liability due to the subsequent conversion of such debt into equity, partially offset by the $7.6 million of repayments to debt holders.
As of March 31, 2022, we had undiscounted obligations relating to the payment of indebtedness as follows:
| ● | $8.6 million related to indebtedness that is due during the remainder of 2022; |
| ● | $1.0 million related to indebtedness that is due during 2023; |
| ● | $0.1 million related to indebtedness that is due in the first quarter of 2023; and |
| ● | $11.3 million related to indebtedness that is due in 2026 or thereafter. |
Subsequent to March 31, 2022, the following developments should be noted:
| ● | of the $9.6 million of indebtedness that is due during 2023/2022, $8.45 million was converted into common stock and $0.6 million was canceled; |
| ● | of the $11.3 million of indebtedness that is due in 2026 or thereafter, $11.2 million entered technical default and the holders sent us a letter indicating that they were reserving their rights, but to date that haven’t declared a default; |
| ● | additional promissory notes with a face value of $1.3 million were issued. |
Our future capital requirements for our operations will depend on many factors, including the profitability of our businesses, and the costs of our operations. We cannot be sure that any additional funding, if needed, will be available. Any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership and could also result in a decrease in the market price of our common stock. Debt financing, if available, may subject us to restrictive covenants and significant interest costs.
Going Concern
The accompanying unaudited condensed consolidated financial statements and notes have been prepared assuming that we will continue as a going concern. For the three months ended March 31, 2022, we used cash flows in operating activities of $8.7 million, we had an accumulated deficit of $219.0 million and we had working capital of $8.5 million.
Our fiscal operating results, accumulated deficit and working capital, among other factors, raise substantial doubt about our ability to continue as a going concern. Based on our current cash on hand and subsequent activity as described herein, we presently only have enough cash on hand to operate on a month-to-month basis, without raising additional capital or selling assets. Because of our limited cash availability, our operations have been scaled back to the extent possible. We continue to explore opportunities with third parties and related parties to provide additional capital; however, we have not entered into any agreement to provide the necessary capital. In the near term, there will be limited opportunities to raise capital of significance due to our Nasdaq compliance issues, as discussed in Nasdaq Compliance Developments herein.
We will continue to pursue the actions outlined above, as well as work towards increasing revenue and operating cash flows to meet our future liquidity requirements. However, there can be no assurance that we will be successful in any capital-raising efforts that we may undertake. If we are not able to obtain additional financing on a timely basis, we may have to delay vendor payments and/or initiate cost reductions, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately, we could be forced to discontinue operations, liquidate assets and/or seek reorganization under the U.S. bankruptcy code.
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Lines of Credit and Debt
Summary information with respect to our debt or other credit facilities is set forth in Note 12 – Debt of the notes to the unaudited condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report.
Sources and Uses of Cash
| For the Three Months Ended March 31, | ||||||||
| (Amounts in thousands) | 2022 | 2021 | ||||||
| Cash flows provided by (used in) operating activities | $ | (8,719 | ) | $ | (14,207 | ) | ||
| Cash flows provided by (used in) investing activities | 14,909 | (7,837 | ) | |||||
| Cash flows provided by (used in) financing activities | (7,587 | ) | 32,285 | |||||
| Net (decrease) increase in cash and cash equivalents | $ | (1,397 | ) | $ | 10,241 | |||
Operating Activities
For the three months ended March 31, 2022, net cash used in operating activities was $8.7 million. Net cash used in operating activities primarily consisted of the net loss of $1.2 million, deductions for net non-cash gains of $4.6 million, and net cash used to fund changes in the levels of operating assets and liabilities of $2.9 million.
For the three months ended March 31, 2021, net cash used in operating activities was $14.2 million. Net cash used in operating activities primarily consisted of the net operating loss of $16.2 million, which was partially offset by adjustments for non-cash expenses of $10.7 million, and net cash used to fund changes in the levels of operating assets and liabilities of $8.7 million.
Investing Activities
For the three months ended March 31, 2022, net cash provided by investing activities was $14.9 million. Investing activities primarily consisted of proceeds from the building sale of $15.1 million, which was partially offset by the acquisition of property and equipment of $0.2 million.
For the three months ended March 31, 2021, net cash used in investing activities was $7.8 million. Investing activities primarily consisted of net cash used to (a) fund business acquisitions of $4.2 million, (b) acquire property and equipment of $1.9 million, and acquire intangible assets of $1.7 million.
Financing Activities
For the three months ended March 31, 2022, net cash used in financing activities was $7.6 million. Financing activities primarily consisted of repayment of debt of $7.6 million.
For the three months ended March 31, 2021, financing activities provided cash of $32.3 million. Financing activities primarily consisted of net proceeds from the sale of common stock from the public offerings of $39.7 million, which was offset by the repayment of debt of $6.4 million, the repayment of related party notes of $0.8 million and issuance costs of $0.2 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.
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Critical Accounting Policies and Estimates
There have been no material changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021.
However, it should be noted that business developments commencing in the second quarter of 2022 (see Note 18 – Subsequent Events – Business Developments) in the footnotes to the unaudited consolidated financial statements herein, included discussions of exiting or idling of certain businesses and/or assets, in periods subsequent to March 31, 2022. During the current quarter, the Company determined that it was not more likely than not that any reporting unit’s fair value was below that reporting unit’s carrying amount. Accordingly, it wasn’t necessary to perform interim impairment testing as of March 31, 2022. However, given the constraints of capital resources that manifested themselves subsequent to March 31, 2022, the resulting weakness in the business and challenges with the economy, we may need to record future impairments of our long-lived assets and or goodwill, based on our assessment in future periods.
Consequently, for the purpose of emphasis, we are again disclosing below our accounting policy related to long-lived assets and goodwill.
Long-Lived Assets and Goodwill
The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for smaller reporting companies.
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 Chief Executive Officer and Acting Principal Financial and Accounting 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 Acting Principal Financial and Accounting Officer has concluded that our disclosure controls and procedures were not effective 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, 2021, 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 have not effectively segregated certain accounting duties due to the now smaller 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 three months ended March 31, 2022, 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, 2021, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
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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, 2021, except as follows.
On or about July 17, 2022, the former employees of SKS filed an insolvency request against SKS in the Nazareth District Court, Israel, No. 35035-06-22. The action represents $400,000 of post-March 31, 2022 claims of the former employees.
On or about July 28, 2022, a former employee filed suit against the Company, Dustin McIntire, and Daniel Hodges in the San Diego County California Superior Court, Case No. 37-2022-00028083-CU-BC-CTL. The plaintiff alleged that his wages were not paid, that he was constructively discharged, that the Company failed to issue him stock options, and that he is owed future amounts. He is claiming damages of no less than $238,000. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about August 22, 2022, two former Fastback employees filed suit against the Company, DragonWave and Fastback in the Alameda County Superior Court, California, Case No. 22CV016666. The plaintiffs allege that their payroll was late and that the Company failed to make one payroll, failed to timely pay wages three times, failed to pay accrued vacation time, and owes penalties under California law. Each plaintiff is claiming damages of no less than $66,500. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about August 23, 2022, a former employee filed suit against the Company in the Clark County District Court, Nevada, Case No. 3 A-22-857361-C. The plaintiff alleged that his wages were not paid, that he was constructively discharged, that the Company failed to issue him stock options, and that he is owed future amounts. He is claiming damages of no less than $184,000. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about September 20, 2022, the Company was served with a suit that was filed on or about May 27, 2022 by the holder of a Transform-X Inc. (“Transform-X”) promissory note, suing the Company, Daniel Hodges, and Transform-X in the Richland County Court of Common Pleas, South Carolina, Case No. 2022CP4002806. The plaintiff alleges that for $125,000 he purchased an 8% promissory note in 2018 from Transform-X which has not been paid. Plaintiff alleges that the Company is also liable under the Transform-X promissory note. This lawsuit was removed to the United States District of South Carolina, Civil Action No.:3:22-cv-03645-MGL. The Company strongly disputes the plaintiff’s allegations and intends to vigorously defend the lawsuit.
On or about November 14, 2022, an intellectual property law firm filed suit against the Company in the United States District Court for the Southern District of California, San Diego. The plaintiff alleges that they performed work for the Company and its subsidiaries and are owed approximately $75,000.
On or about November 15, 2022, the Company resolved the claims of former employees of SAGUNA who had, on or about July 17, 2022, filed an insolvency request against SAGUNA in the Nazareth District Court, Israel, No. 27624-07-22. The approximately $200,000 of post-March 31, 2022 claims of the former employees were resolved and the action was dismissed on or about November 17, 2022.
Item 1A. Risk Factors
Readers should carefully review the risk factors included under “Item 1A. Risk Factors” of our fiscal 2021 Annual Report on Form 10-K filed with the SEC on August 16, 2022. However, due to recent activities of the Company, the following additional risk factor has been identified:
The Company May Be Delisted From Nasdaq
| ● | Minimum Bid Price. The Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), the $1.00 minimum closing bid price requirement (“minimum bid price”) due to the price of our common stock. The Company requested continued listing on The Nasdaq Capital Market of its common stock and additional time to regain compliance with the minimum bid price requirement. After a hearing before the Nasdaq Hearings Panel (the “Panel”) the Panel granted the Company’s request for continued listing subject to evidencing compliance with Nasdaq’s minimum bid price requirement by February 2, 2022. In order to reach that goal, the Company put forth a reverse split proposal to its stockholders to be voted on at its Annual Stockholders meeting on January 18, 2023. There can be no assurances, however, that the Stockholders will approve the proposal, or that if the proposal is approved, the Company’s common stock price will meet the minimum bid price, or that the Company will be able to gain or maintain compliance with the Nasdaq Listing Rules. |
As of the time of this filing, the prior day’s closing bid price for our common stock was approximately $0.0922 per share.
32
| ● | Filing Requirement. The Company is not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports (“filing requirements”) with the Securities and Exchange Commission (“SEC”). The Company is delinquent with filing its Quarterly Reports on Form10-Q for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022. The Company requested continued listing on The Nasdaq Capital Market of its common stock and additional time to regain compliance with the filing requirement. After the hearing, the Panel granted the Company’s request for continued listing subject to evidencing compliance with Nasdaq’s filing requirement by getting the delinquent Form 10-Qs filed, including the filing of the Form10-Q for the quarter ended September 30, 2022 by February 24, 2023, and certain other conditions. There can be no assurances, however, that the Company will meet the deadlines for filing its delinquent Form 10-Qs, or that the Company will be able to gain or maintain compliance with the Nasdaq Listing Rules |
There is no assurance that the Company will regain compliance during the grace periods or be able to maintain compliance with Nasdaq’s listing requirements in the future. If we are not able to regain compliance during the grace period, Nasdaq will notify us that our common stock, our Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”), and our warrants will be delisted from The Nasdaq Capital Market.
If our securities were delisted from Nasdaq, among other things, it would likely lead to a number of negative implications, including an adverse effect on the price of our common stock, reduced liquidity in our common and preferred stock, greater difficulty in obtaining financing, potential loss of confidence by employees, loss of institutional investor interest and fewer business development opportunities.
Item 2. Unregistered Securities Sales of Equity Securities and Use of Proceeds
There have been no sales of unregistered securities within the within the reporting period that would be required to be disclosed pursuant to Item 701 of Regulation S-K, with the exception of the following:
None.
Item 3. Default Upon Senior Securities
(a) Defaults Upon Senior Securities
In connection with our acquisition of Fastback on January 29, 2021, we issued to the sellers $11.15 million aggregate principal amount of convertible promissory notes that mature on January 29, 2026. There is a provision in the convertible promissory notes that an event of default could be declared if the Company fails to file its requisite its securities filings timely. The Company is delinquent with its Form 10-Q filings. To date, while the convertible promissory note holders have reserved their rights, the convertible promissory notes have not been declared in default, and the Company has a plan to regain compliance with such filings. No adverse actions have been taken against the Company and we expect none insofar as filing compliance is regained.
On May 27, 2021, we entered into a securities purchase agreement with an investor, pursuant to which we sold to the investor a senior secured convertible promissory note in the original principal amount of $11 million and warrants to purchase up to 1,820,000 shares of our common stock, par value $0.0001 per share, for a purchase price of $10 million (representing an original issue discount of 10.0% on the note), of which we received $5,000,000 on May 28, 2021 and $5 million on June 2, 2021. On August 25, 2021, we entered into a first amendment and limited waiver to the securities purchase agreement dated as of May 27, 2021 and amended and restated the convertible note.
The amended note bears interest at the rate of 6% per annum from the date of funding and matures on May 27, 2023. We were required to make monthly interest and principal payments in 18 equal monthly instalments of $611,000 each, commencing in November 2021. We had the right to make interest and principal payments in the form of shares of common stock, which shares will be valued at 90% of the average of the five lowest daily volume weighted average price per share of the common stock during the ten trading days immediately preceding the date of issuance of such shares of common stock. As of March 31, 2022, an aggregate principal amount of approximately $4.58 million was outstanding under this note. On or about April 15, 2022, this note went into default because the Company failed to timely file its Annual Report on Form 10-K. Pursuant to the terms of that note, a mandatory default amount of five percent (5%) of the outstanding principal amount was added to the principal amount. Additionally, the holder was able to demand, from time to time, repayment in the form of shares of common stock, which shares will be valued at 80% of the average of the three lowest daily volume weighted average price per share of the common stock during the twenty trading days immediately preceding the date of issuance of a notice of conversion. As of the date of this filing, this note had a remaining combined principal and interest balance of approximately $49,000.
On August 25, 2021, we entered into a securities purchase agreement with an investor, pursuant to which we sold to the investor a senior secured convertible promissory note in the original principal amount of $5.8 million and warrants to purchase up to 1,315,789 shares of our common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price of $5 million (representing an original issue discount of 16.0% on the note), which $5 million was received on August 26, 2021.
33
The note bears interest at the rate of 6% per annum from the date of funding and matures on August 25, 2023. We were required to make monthly interest and principal payments in 18 equal monthly instalments of $322,000 each, commencing in November 2021. So long as shares of our common stock are registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction on the number of shares or manner of sale, we had the right to make interest and principal payments in the form of additional shares of common stock, which shares would be valued at 90% of the average of the five lowest daily volume weighted average price per share of the common stock during the ten trading days immediately preceding the date of issuance of such shares of common stock. As of March 31, 2022, an aggregate principal amount of approximately $3.87 million was outstanding under this note. On or about April 15, 2022, this note went into default because the Company failed to timely file its Annual Report on Form 10-K. Pursuant to the terms of that note, a mandatory default amount of five percent (5%) of the outstanding principal amount was added to the principal amount. Additionally, the holder was able to demand, from time to time, repayment in the form of shares of common stock, which shares will be valued at 80% of the average of the three lowest daily volume weighted average price per share of the common stock during the twenty trading days immediately preceding the date of issuance of a notice of conversion. As of the date of this filing, this note had a remaining combined principal and interest balance of approximately $179,000.
In November 2019, DragonWave entered into a secured loan agreement with an individual lender pursuant to which DragonWave received a $2.0 million loan that bears interest at the rate of 9% per annum and originally matured on November 26, 2021. Accrued interest is calculated on a compound basis and is payable semi-annually in May and November of each year. Principal was 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 Corp.. In January 2021, a total of $1.0 million of principal of this note, plus all related accrued interest and charges, was extinguished in exchange for shares of common stock and warrants to purchase shares of common stock. In January 2022, a total of $500,000 was paid to the note holder. As of the date of this filing, this note had a remaining principal balance of $500,000.
On or about April 29, 2022, the company sold an original issue discount note in the amount of $550,000 to an investor for the purchase price of $500,000. This note was due approximately July 29, 2022 and bears a default rate of 12% after the maturity date. As of the date of this filing, this note had a remaining principal balance of $550,000.
(b) Material Arrearage in the Payment of Dividends.
On October 29, 2021, the Company sold in a public offering 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.
The Series A Preferred Stock has been listed on The Nasdaq Capital Market under the symbol “COMSP”.
Dividends at the rate of 9.25% per annum of the $25.00 liquidation preference per share (equivalent to an annual rate of $2.3125) on the Series A Preferred Stock are payable monthly in arrears on or about the twentieth (20th) day of each month. Dividends on the Series A Preferred Stock are cumulative. The Company paid dividends commencing on or about November 20, 2021, and paid the monthly dividend through May 20, 2022.
On or about May 25, 2022, the Company announced that it had suspended the payment on the Series A Preferred Stock to preserve cash. Since June 20, 2022, dividends on the Series A Preferred Stock are accruing at the rate of approximately $61,664 per month. The total arrearage on the date of filing for the accrued dividends is approximately $370,000.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None
34
Item 6. Exhibits
The following documents are filed as a part of this report or incorporated herein by reference:
35
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: December 15, 2022 | /s/ David A. Knight |
| David A. Knight | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Date: December 15, 2022 | /s/ David A. Knight |
| David A. Knight | |
| Acting Principal Financial and Accounting Officer |
36
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Knight, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 of COMSovereign Holding Corp. (the “Registrant”); |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| (4) | The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in the report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| (5) | The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Dated: December 15, 2022 | By: | /s/ David A. Knight |
| David A. Knight | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David A. Knight, certify that:
| (1) | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022 of COMSovereign Holding Corp. (the “Registrant”); |
| (2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| (3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| (4) | The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in the report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| (5) | The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Dated: December 15, 2022 | By: | /s/ David A. Knight |
| David A. Knight | ||
Acting Principal Financial and |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of COMSovereign Holding Corp. (the “Company”) for the fiscal quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Knight, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report. |
| Dated: December 15, 2022 | By: | /s/ David A. Knight |
| David A. Knight | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of COMSovereign Holding Corp. (the “Company”) for the fiscal quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Knight, Acting Principal Financial and Accounting Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report. |
| Dated: December 15, 2022 | By: | /s/ David A. Knight |
| David A. Knight | ||
Acting Principal Financial and |
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 300,000,000 | 300,000,000 |
| Common stock, shares issued | 83,770,939 | 81,985,140 |
| Common stock, shares outstanding | 83,737,605 | 81,951,806 |
| Treasury stock, at cost | 33,334 | 33,334 |
| Series A Cumulative Redeemable Preferred Stock | ||
| Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
| Preferred stock, shares issued | 320,000 | 320,000 |
| Preferred stock, shares outstanding | 320,000 | 320,000 |
| Redeemable preferred stock, shares (in Dollars) | $ 690,000 | $ 690,000 |
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Income Statement [Abstract] | ||
| Net loss per share diluted | $ (0.02) | $ (0.25) |
| Weighted average number of common shares outstanding diluted | 83,552,719 | 65,941,513 |
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) - USD ($) $ in Thousands |
Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Treasury Stock |
Accumulated Deficit |
Total |
|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 5 | $ 158,219 | $ (50) | $ (64,627) | $ 93,547 | ||
| Balance (in Shares) at Dec. 31, 2020 | 49,444,689 | 33,334 | |||||
| Issuance of common stock for conversion of debt | 1,602 | 1,602 | |||||
| Issuance of common stock for conversion of debt (in Shares) | 580,199 | ||||||
| Common stock issued for public offering | $ 1 | 39,655 | 39,656 | ||||
| Common stock issued for public offering (in Shares) | 10,679,354 | ||||||
| Issuance of common stock for exercise of options | 1 | 1 | |||||
| Issuance of common stock for exercise of options (in Shares) | 3,334 | ||||||
| Common stock issued as vendor compensation | 1,171 | 1,171 | |||||
| Common stock issued as vendor compensation (in Shares) | 227,169 | ||||||
| Share-based compensation | 356 | 356 | |||||
| Share-based compensation (in Shares) | 66,667 | ||||||
| Common stock issuance for extinguishment of debt and interest | $ 1 | 12,382 | 12,383 | ||||
| Common stock issuance for extinguishment of debt and interest (in Shares) | 2,751,556 | ||||||
| Warrant issuance for extinguishment of debt and interest | 4,394 | 4,394 | |||||
| Warrant issuance for extinguishment of debt and interest (in Shares) | |||||||
| Common stock issued for Sky Sapience Ltd. acquisition | 9,071 | 9,071 | |||||
| Common stock issued for Sky Sapience Ltd. acquisition (in Shares) | 2,555,209 | ||||||
| Net loss | (16,206) | (16,206) | |||||
| Balance at Mar. 31, 2021 | $ 7 | 226,851 | $ (50) | (80,833) | 145,975 | ||
| Balance (in Shares) at Mar. 31, 2021 | 66,308,177 | 33,334 | |||||
| Balance at Dec. 31, 2021 | $ 8 | 266,013 | 23 | $ (50) | (217,843) | 48,151 | |
| Balance (in Shares) at Dec. 31, 2021 | 320,000 | 81,985,140 | 33,334 | ||||
| Issuance of common stock for conversion of debt | 1,150 | 1,150 | |||||
| Issuance of common stock for conversion of debt (in Shares) | 1,576,058 | ||||||
| Issuance of common stock for exercise of options | 31 | 31 | |||||
| Issuance of common stock for exercise of options (in Shares) | 209,741 | ||||||
| Preferred dividend | (123) | (123) | |||||
| Share-based compensation | 535 | 535 | |||||
| Share-based compensation (in Shares) | |||||||
| Net loss | (1,191) | (1,191) | |||||
| Balance at Mar. 31, 2022 | $ 8 | $ 267,606 | $ 23 | $ (50) | $ (219,034) | $ 48,553 | |
| Balance (in Shares) at Mar. 31, 2022 | 320,000 | 83,770,939 | 33,334 |
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Cash Flows From Operating Activities: | ||
| Net loss | $ (1,191) | $ (16,206) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||
| Depreciation | 505 | 362 |
| Amortization | 1,712 | 3,299 |
| Amortization of financing lease right-of-use asset | 6 | 6 |
| Operating lease expense | 319 | 208 |
| Bad debt (recovery) expense | 49 | (2) |
| Gain on the sale of assets | (8,441) | (83) |
| Share-based compensation | 535 | 356 |
| Amortization of debt discounts and debt issuance costs | 574 | 88 |
| Share-based vendor payments | 1,171 | |
| Loss on extinguishment of debt | 173 | 5,348 |
| Changes in operating assets and liabilities: | ||
| Accounts receivable, net | (1,040) | (53) |
| Inventory, net | 130 | (343) |
| Prepaid expenses | (414) | (1,614) |
| Other current assets | (46) | 376 |
| Other non-current assets | (1,010) | |
| Accounts payable | (949) | (3,351) |
| Accrued liabilities | (56) | (7) |
| Accrued payroll | (3,125) | |
| Accrued interest | (41) | (223) |
| Contract liabilities | 696 | (267) |
| Operating lease liabilities | (916) | (178) |
| (Repayments) advances from related party | (86) | 30 |
| Other current liabilities | 772 | 1 |
| Total Adjustments | (7,528) | 1,999 |
| Net Cash Used In Operating Activities | (8,719) | (14,207) |
| Cash Flows From Investing Activities: | ||
| Business acquisitions, net of cash received | (4,248) | |
| Proceeds from building sale, net of transaction costs | 15,102 | |
| Purchases of property and equipment | (193) | (1,997) |
| Acquisition of intangible assets | (1,675) | |
| Proceeds from disposal of property and equipment | 83 | |
| Net cash (used in) provided by investing activities | 14,909 | (7,837) |
| Cash Flows From Financing Activities: | ||
| Principal payment on finance lease | (7) | (14) |
| Proceeds from related party note deposit | 100 | |
| Proceeds from sale of common stock from offering | 44,971 | |
| Offering costs | (5,315) | |
| Preferred stock dividend | (123) | |
| Proceeds from exercise of options | 31 | |
| Debt issuance costs | (155) | |
| Repayment of debt | (7,588) | (7,202) |
| Net Cash (Used In) Provided By Financing Activities | (7,587) | 32,285 |
| Net (Decrease) Increase In Cash | (1,397) | 10,241 |
| Cash - Beginning of Period | 1,899 | 730 |
| Cash - End of Period | 502 | 10,971 |
| Cash paid during the period for: | ||
| Interest | 105 | 574 |
| Non-cash investing and financing activities: | ||
| Bad debt (recovery) expense | ||
| Issuance of common stock for extinguishment of debt and interest | 12,382 | |
| Issuance of warrants for extinguishment of debt and interest | 4,394 | |
| Debt incurred to sellers for Sky Sapience Ltd. acquisition | 12,650 | |
| Issuance of common stock for Sky Sapience Ltd. acquisition | 9,071 | |
| Acquisition of building with secured note payable | 4,480 | |
| Issuance of common stock for conversion of debt and interest | 1,150 | 1,602 |
| Recognition of operating lease right-of-use asset and liability | 10,052 | 457 |
| Transfer of inventory to property and equipment | $ 322 | |
Description of Business |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Description of Business [Abstract] | |
| DESCRIPTION OF BUSINESS | NOTE 1 DESCRIPTION OF BUSINESS
COMSovereign Holding Corp. (“COMSovereign”) and subsidiaries (collectively the “Company”) a provider of solutions to network operators, mobile device carriers, governmental units and other enterprises worldwide. We have assembled a portfolio of communications 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 roll out of the 5G and 6G networks of the future. We focus on novel 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. |
Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Description of Business [Abstract] | |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes in the Company’s significant accounting policies as of and for the three months ended March 31, 2022, 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, 2021.
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. The results of operations, financial position and cash flows for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. The amounts reported in the unaudited condensed consolidated financial statements, and the tables in the notes hereto, of the Quarterly Report on Form 10-Q as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, are presented in United States dollars and are rounded in thousands with the exception of share and per share data. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2021 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on August 16, 2022.
Effective January 21, 2021, the Company enacted a 1-for-3 reverse stock split (the “Split”) of the Company’s common stock. These condensed consolidated financial statements and accompanying notes give effect to the reverse stock split as if it occurred at the beginning of the first period presented.
Principles of Consolidation
The unaudited condensed consolidated financial statements as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021, include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of 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. Actual results could differ from those estimates. The Company’s significant estimates consist of the valuation of stock-based compensation; the valuation of the assets and liabilities acquired; the valuation of the Company’s equity securities issued in transactions; the valuation of inventory; the allowance for credit losses; the valuation of equity securities; the valuation allowance for deferred tax assets; and impairment of long-lived assets and goodwill.
Long-Lived Assets and Goodwill
The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. As of March 31, 2022, the Company determined that it was not more likely than not that any reporting unit’s fair value was below that reporting unit’s carrying amount. Accordingly, it wasn’t necessary to perform interim impairment testing as of March 31, 2022.
The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows:
Level 1 – Observable inputs that reflect quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.
Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs may be used with standard pricing models or other valuation or internally-developed methodologies that result in management’s best estimate of fair value.
The Company utilizes fair value measurements primarily in conjunction with the valuation of assets acquired and liabilities assumed in a business combination. In addition, certain nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable U.S. GAAP. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when an impairment is recognized.
As allowed by applicable FASB guidance, the Company has elected not to apply the fair value option for financial assets and liabilities to any of its currently eligible financial assets or liabilities. The Company’s financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The Company has determined that the book value of its outstanding financial instruments as of March 31, 2022 and December 31, 2021 approximated their fair value due to their short-term nature.
Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for smaller reporting companies during annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 effective January 1, 2022 which eliminates the need on a go forward basis to assess whether a beneficial conversion feature needs to be recognized upon either (a) the issuance of new convertible securities; or (b) the resolution of any prior period contingent beneficial conversion features.
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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Companies should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. This standard was adopted on January 1, 2022 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements. |
Going Concern |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| GOING CONCERN | NOTE 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 three months ended March 31, 2022, the Company used cash flows in operating activities of $8.7 million, it had an accumulated deficit of $219.0 million and had working capital of $8.5 million.
The Company’s fiscal operating results, accumulated deficit and working capital, among other factors, raise substantial doubt about the Company’s ability to continue as a going concern. Based on current cash on hand and subsequent activity as described herein (see Note 18 – Subsequent Events - Business Developments and Debt and Equity Developments), the Company presently only has enough cash on hand to operate on a month-to-month basis, without raising additional capital or selling assets. Because of the Company’s limited cash availability, its operations have been scaled back to the extent possible (see Note 18 – Subsequent Events - Business Developments). Management continues to explore opportunities with third parties and related parties to provide additional capital and/or sell assets; however, it has not entered into any agreement to provide the necessary additional capital, except as disclosed herein. In the near term, there may be limited opportunities to raise capital of significance due to the Company’s Nasdaq compliance issues, as discussed in Note 18 – Subsequent Events - Nasdaq Compliance Developments.
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. If the Company is not able to obtain additional financing on a timely basis, it may have to delay vendor payments and/or initiate cost reductions, which would have a material adverse effect on its business, financial condition and results of operations, and ultimately, it could be forced to discontinue operations, liquidate assets and/or seek reorganization under the U.S. bankruptcy code. |
Revenue |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE | NOTE 4 REVENUE
The following table is a summary of the Company’s timing of revenue recognition for the three months ended March 31, 2022 and 2021:
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 months ended March 31, 2022 and 2021:
Revenue by geographic destination consisted of the following for the three months ended March 31, 2022 and 2021:
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 March 31, 2022 and December 31, 2021, the Company did not have a material 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.
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Earnings (Loss) Per Share |
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| Earnings (Loss) Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS (LOSS) PER SHARE | NOTE 5 EARNINGS (LOSS) PER SHARE
The Company accounts for earnings or loss per share pursuant to Accounting Standards Codification (“ASC”) 260, Earnings Per Share, which requires disclosure on the financial statements of “basic” and “diluted” earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options, restricted stock awards and warrants for each period.
There were no adjustments to net loss, the numerator, or the denominator for purposes of computing basic 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 attributable 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 attributable 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 March 31, 2022 and 2021, respectively:
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Cash, Cash Equivalents, and Restricted Cash |
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Cash, Cash Equivalents, and Restricted Cash [Abstract] | |||||||||||||||||||||||||||||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | NOTE 6 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents consisted of the following as of March 31, 2022, and December 31, 2021:
Cash, cash equivalents, and restricted cash are represented by operating accounts or money market accounts maintained with insured financial institutions, including cash equivalents, defined as all short-term, highly-liquid investments with maturities of three months or less when purchased. The Company had no cash equivalents as of March 31, 2022 and December 31, 2021, respectively. During the three months ended March 31, 2022, $195,000 of restricted cash was released upon the sale of a building and the remainder of the restricted cash will be released as overseas leases expire in January and July of 2023. See Note 10 – Property and Equipment, Net for additional information related to the sale of the building. |
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Accounts Receivable, Net |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||
| ACCOUNTS RECEIVABLE, NET | NOTE 7 ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following as of March 31, 2022 and December 31, 2021:
Bad debt (recovery) expense totaled $(48,968) and $(2,142) for the three months ended March 31, 2022 and 2021, respectively. |
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Inventory, Net |
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| INVENTORY, NET | NOTE 8 INVENTORY, NET
Inventory consisted of the following as of March 31, 2022 and December 31, 2021:
The Company maintains a perpetual inventory system which is supplemented by periodic reviews of inventory quantities on hand. The Company records an impairment for excess and obsolete inventory, when necessary, based on factors including its estimated forecast of product demand, the stage of the product life cycle and production requirements for the units in question. |
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Prepaid Expenses |
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| Prepaid Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES | NOTE 9 PREPAID EXPENSES
Prepaid expenses consisted of the following as of March 31, 2022 and December 31, 2021:
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Property and Equipment, Net |
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| PROPERTY AND EQUIPMENT, NET | NOTE 10 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31, 2022 and December 31, 2021:
On January 31, 2022, the Company sold its Tucson, Arizona office building (the “Tucson Building”) for $15.8 million of cash. The Tucson Building had a carrying value of $6.7 million, including the $4.8 million cost basis of the building, the $1.3 million cost basis of the land, and the $0.8 million related to building improvements, partially offset by $0.2 million of accumulated depreciation. The Company recognized an $8.4 million gain on sale of assets, which is net of $0.7 million of related transaction costs. See Note 11 – Leases for additional information about the subsequent leaseback of the office building.
The Company recognized $505,000 and $362,000 of depreciation expense for the three months ended March 31, 2022 and 2021, respectively. |
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Leases |
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| LEASES | NOTE 11 LEASES
Operating Leases
The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. The carrying values of operating lease right-of-use (“ROU”) assets and operating lease liabilities as of March 31, 2022 and December 31, 2021 were as follows:
On February 1, 2022, the Company entered into a lease agreement with the new owners of the Tucson Building (see Note 10 - Property and Equipment, Net), for a term of 10 years with no option to renew. Monthly rent increases annually from $98,300 per month in year one to $128,200 a month in the final year of the lease. The Company posted a $1.0 million security deposit in connection with the commencement of the lease, which is classified within other assets – long term on the balance sheet. The Company determined that the transactions represented a sale and leaseback and, accordingly, established a new operating lease ROU asset and operating lease liability of $10.1 million. 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. See Note 18 – Subsequent Events - Lease Developments for information related to the subsequent lease default and lease abandonment.
Other information related to the Company’s operating leases are as follows:
The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of March 31, 2022, and December 31, 2021:
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 consolidated balance sheet as of March 31, 2022:
Finance Leases
The Company has finance leases for certain manufacturing and office equipment.
The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s finance leases as of March 31, 2022:
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 March 31, 2022:
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DEBT | NOTE 12 DEBT
Debt consisted of the following as of March 31, 2022 and December 31, 2021:
During the three months ended March 31, 2022 (a) $2.8 million of Notes A and B principal was satisfied by $1.9 million (plus interest) of aggregate payments in cash, plus aggregate conversions of principal and interest of $0.9 million and $44,000, respectively, into an aggregate of 1,576,058 shares of the Company’s common stock; (b) $0.5 million of Note C past due principal was repaid in cash; (c) $5.2 million of Note D (the Tucson Building mortgage) was repaid in cash from the proceeds of the January 31, 2022 building sale; and (d) an aggregate of $16,000 of Notes E, F, and G principal were repaid in cash. The conversions of Notes A and B were pursuant to a share-settled redemption feature wherein the conversions are required to be accounted for under extinguishment accounting, which resulted in the recognition of a $173,000 loss on extinguishment.
Future maturities contractually required by the Company under debt obligations are as follows as of March 31, 2022:
During the three months ended March 31, 2022 and 2021, the Company recognized $880,000 and $469,000 of interest expense in connection with the aforementioned indebtedness.
For additional information related to debt, including subsequent conversions of Notes A and B principal into common stock, see Note 18 – Subsequent Events – Debt and Equity Developments. Because of such subsequent conversions, the March 31, 2022 outstanding principal of Notes A and B (and the related debt discounts) were fully reclassified from current to long term. |
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Stockholders’ Equity |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Stockholders' Equity Note [Abstract] | |
| STOCKHOLDERS’ EQUITY | NOTE 13 STOCKHOLDERS’ EQUITY
See Note 12 – Debt and Note 18 – Subsequent Events – Debt and Equity Developments for additional information related to debt conversions.
Preferred Stock - Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, before any distribution or payment shall be made to holders of shares of our common stock or any other class or series of our capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, junior to the Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”), holders of shares of Series A Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities and any class or series of our capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, senior to the Series A Preferred Stock, a liquidation preference of $25.00 per share of the Series A Preferred Stock (approximately $8.0 million), plus an amount equal to any accrued and unpaid dividends (whether or not authorized or declared) up to, but excluding, the date of payment. If, upon our voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the full amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of each other class or series of capital stock ranking, as to rights upon liquidation, dissolution or winding up, on parity with the Series A Preferred Stock in the distribution of assets, then holders of shares of Series A Preferred Stock and each such other class or series of capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up, on parity with the Series A Preferred Stock will share ratably in any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
Dividends
During the three months ended March 31, 2022, the Company recorded $123,328 of dividends paid or payable to the holders of the 9.25% Series A Preferred Stock. |
Share-Based Compensation |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SHARE-BASED COMPENSATION | NOTE 14 SHARE-BASED COMPENSATION
Restricted Stock Awards
A summary of the restricted stock unit (“RSU”) activity during the three months ended March 31, 2022 is presented below:
During the three months ended March 31, 2022 and 2021, the Company recognized $78,496 and $349,080, respectively, of share-based compensation expense associated with RSUs. Compensation expense related to RSUs is recorded in general and administrative expense in the condensed consolidated statement of operations. As of March 31, 2022, there was $234,354 of unrecognized stock-based compensation expense related to RSUs that will be recognized over the weighted average remaining vesting period of 0.73 years.
Stock Options
There were no stock options issued during the three months ended March 31, 2022 and 2021.
The following table presents stock option activity for the three months ended March 31, 2022:
The following table presents information related to stock options as of March 31, 2022:
The Company recognized $456,604 and $7,374 of share-based compensation expense related to options for the three months ended March 31, 2022 and 2021, respectively. Compensation expense related to stock options is recorded in general and administrative expense in the condensed consolidated statement of operations. At March 31, 2022, the Company had $2.6 million of unrecognized compensation expense related to options.
Warrants
All warrants are valued utilizing the Black-Scholes pricing model using the assumptions listed below. There were no warrants issued during the three months ended March 31, 2022. The weighted average grant date fair value of all warrants issued during the three months ended March 31, 2021 was $1.60 per share. The following table summarizes the assumptions used to estimate the fair value of warrants granted during the three months ended March 31, 2022 and 2021:
The following table represents warrant activity for the three months ended March 31, 2022:
The following table presents information related to warrants as of March 31, 2022:
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Commitments and Contingencies |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Commitments and Contingencies [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 15 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.
On January 27, 2022, a former employee filed suit against the Company in the Tulsa County Oklahoma District Court, Case No. CJ-2022-00221. The plaintiff has alleged that she was entitled to six months of severance pay after her employment contract was not renewed, and that her option agreements did not expire thirty days after cessation of her employment, and claims she is owed approximately $75,000 in severance and $250,000 in damages for her options. The Company filed an Answer on or about March 18, 2022. The Company disputes the plaintiff’s allegations, has not accrued for any contingent losses, and intends to vigorously defend the lawsuit.
See Note 18 – Subsequent Events – Litigation, Claims and Contingencies Developments for post-March 31, 2022 developments. |
Concentrations |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Risks and Uncertainties [Abstract] | |
| CONCENTRATIONS | NOTE 16 CONCENTRATIONS
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 March 31, 2022, accounts receivable from two customers comprised an aggregate of approximately 32% of the Company’s total trade accounts receivable, and none of these balances were characterized as uncollectible. In addition, for the three months ended March 31, 2022, revenue from three customers individually exceeded 10% of revenue and, in total, comprised approximately 37% of the Company’s total revenue. No vendors accounted for greater than 10% of expenses for the three months ended March 31, 2022. |
Business Acquisitions |
3 Months Ended | |||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||
| BUSINESS ACQUISITIONS | NOTE 17 BUSINESS ACQUISITIONS
During 2021, the Company completed the acquisitions of Fastback Networks, a telecommunications provider, Sky Sapience Ltd., a tethered drone provider, RVision, Inc., a video and communications developer, Innovation Digital, a developer of signal processing solutions, RF Engineering and Energy Resource, an antenna and accessories provider, and SAGUNA Networks, a software developer to expand the Company’s product offerings and developments.
The following information represents the unaudited pro forma combined results of operations, giving effect to the acquisitions as if they occurred at the beginning of the period ended March 31, 2021.
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Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 18 SUBSEQUENT EVENTS
Executive Officer and Board of Director Developments
On April 21, 2022, the Company’s Chief Financial Officer resigned from the Company for personal family commitments.
On May 2, 2022, a member of the Board of Directors of the Company (the “Board”) announced their resignation from the Board and all committees thereof, effective immediately. The resignation allowed that former member of the Board to focus on personal and other professional commitments.
On September 1, 2022, the Company’s then Chief Executive Officer and the Company’s then President resigned from the Company as part of the Company’s ongoing transition. David A. Knight was appointed Interim Chief Executive Officer by the Board.
On October 10, 2022, a member of the Board announced their resignation from the Board and all committees thereof. The resignation allowed that former member of the Board to focus on personal and other professional commitments.
On November 23, 2022, the Board appointed David A. Knight as the Company’s Chief Executive Officer, President, Acting Principal Financial and Accounting Officer, and a Director of the Board. Mr. Knight is entitled to receive (i) an annual base salary of $180,000 which will be increased to $250,000 upon the Board’s Compensation Committee’s determination of adequate funding; (ii) eligibility to participate in a cash bonus program for meeting quarterly and annual goals, milestones, and metrics, as established by the Compensation Committee; (iii) eligibility to receive grants under the terms of the Company’s 2020 Long-Term Incentive Plan; (iv) the right to participate in all benefit plans offered to the Company’s senior executive officers; and (v) severance payments of three months of salary, benefits, and prorated bonus (the “Severance”) if terminated without cause before completion of one year of service, and six months of Severance if terminated without cause after reaching one year of service.
Business Developments
Commencing in May 2022, the Company embarked on a restructuring, including a reduction of over 70% of overhead and personnel through the divestment of non-core assets in favor of a refocus on our true core competencies in 5G and beyond technology.
In May 2022, InduraPower suspended operations.
On May 23, 2022, a third party acquired certain assets and employees from the Canadian subsidiary of DragonWave-X, LLC (“DragonWave Canada”), in return for assuming DragonWave Canada’s employment liabilities and assuming DragonWave Canada’s lease in Kanata, Ontario, Canada, through an Asset Purchase Agreement.
In June 2022, the Company idled SAGUNA Networks Ltd. (“SAGUNA”), Sky Sapience Ltd. (“SKS”) and VEO Photonics, Inc. (“VEO”).
On June 21, 2022, the Company sold its Sovereign Plastics LLC (“Sovereign Plastics”) business unit for total consideration of $2 million to TheLandersCompanies LLC.
On June 23, 2022, the Company reached an agreement to return fifteen patents and five pending or provisional patents to the former owners of Innovation Digital, LLC (“Innovation Digital”) in return for the cancelation of an outstanding $600,000 promissory note, the return of 500,000 shares of common stock, and the waiver of certain severance payments. Debt and Equity Developments
On April 1, 2022, the Company entered into a note agreement with a related party who is an Executive Officer of the Company for cash proceeds of $100,000 with a maturity date of March 31, 2023 and an interest rate of 3%. As of March 31, 2022, the proceeds were recorded as a related party note deposit in current liabilities.
On or about April 15, 2022, as a result of the Company not filing its Annual Report on Form 10-K for the year ended December 31, 2021 on a timely basis, the Company’s secured senior convertible notes payable (see Note 12 – Debt) entered into default, which resulted in a 5% or $375,833 increase in the principal value, pursuant to the terms of the notes. The default also enabled the note holders, upon notice to the Company, to periodically convert a portion of the associated principal and accrued interest into common stock at a 20% discount to the three lowest daily volume-weighted-average-prices during the prior twenty trading days. Subsequent to March 31, 2022 and through the filing date of this Form 10-Q, the note holders converted $8,715,583 of principal and $171,599 of interest into an aggregate of 154,167,727 shares of the Company's common stock. As of the filing date, the remaining combined principal and interest balance of the secured senior convertible notes was approximately $228,000.
On or about April 29, 2022, the Company sold an original issue discount note with a face value of $550,000 to an investor for the purchase price of $500,000. This note was due approximately July 29, 2022 and bears a default rate of 12% after the maturity date. On July 26, 2022, the Company received notice from a promissory note holder that the promissory note in the principal amount of $550,000 was due. As of the date of this filing, this note remains outstanding. On May 9, 2022, in connection with the note issuance, the Company issued 240,000 shares of common stock to an advisor pursuant to an advisory agreement dated April 29, 2022.
On May 24, 2022, the Company received notice from counsel for holders of $11.15 million of convertible promissory notes issued in connection with the acquisition of Fastback that the Company had failed to file its Annual Report on Form 10-K in a timely manner, as required by the terms of the convertible promissory notes. The notice indicated that the holders were reserving their rights.
On or about May 25, 2022, the Company announced that it had suspended the payment of dividends on the Series A Preferred Stock to preserve cash. Since June 20, 2022, dividends on the Series A Preferred Stock are accruing at the rate of approximately $61,664 per month. The total arrearage on the date of filing for the accrued dividends is approximately $370,000.
On June 23, 2022, the Company reached an agreement to cancel a $600,000 promissory note (see Business Developments above).
On July 29, 2022, the Company sold a promissory note in the principal amount of $26,250 to the Company’s senior secured lenders. This note bears interest at 15% per annum and is due July 29, 2023.
On October 17, 2022, the Company sold a promissory note in the principal amount of $367,500 to the Company’s senior secured lenders. This note bears interest at 6% per annum, is due October 17, 2023, and is secured by the August 25, 2021 Amended and Restated Security Agreement between the Company and its senior secured lenders.
On November 8, 2022, the Company sold a promissory note in the principal amount of $262,500 to the Company’s senior secured lenders for proceeds of $250,000. That note bears interest at 6% per annum, is due November 8, 2023, and also is secured by the August 25, 2021 Amended and Restated Security Agreement between the Company and its senior secured lenders.
On or about December 8, 2022, the Company canceled 66,666 shares of outstanding common stock due to the non-vesting of certain restricted stock awards.
Lease Developments
In May 2022, the Company abandoned its lease of the Tucson Building (see Note 11 – Leases) after previously defaulting on the lease.
In June 2022, ComSovereign Corp. abandoned its Dallas, TX office lease and VEO Photonics, Inc. abandoned its San Diego, CA office lease.
In July 2022, the Company abandoned its Chantilly, VA office lease.
Litigation, Claims and Contingencies Developments
On June 16, 2022, the Company received notice from certain former shareholders of SAGUNA claiming breaches of the SAGUNA stock purchase agreement and claiming that all of the former shareholders of SAGUNA have suffered damages totaling approximately $13.9 million, which they calculated as the value related to the consideration issued to those former shareholder for the acquisition of SAGUNA. The Company denies those claims and has not accrued for any contingent loss. However, the Company may face legal claims or proceedings regarding those claims. By notice dated July 14, 2022, the Company received notice from a distributor that has a distribution agreement with InduraPower claiming that InduraPower, and the Company as guarantor, has breached the distribution agreement, and are claiming approximately $2 million in damages, which includes a claim for $0.5 million of foregone profit, which is not accrued because the Company denies that claim. The Company had received $1.5 million in cash as a deposit against future product deliveries, of which $0.2 million has been recognized as revenue (resulting from product deliveries) through March 31, 2022 and the other $1.3 million is included in contract liabilities – current in the March 31, 2022 balance sheet.
On or about July 17, 2022, the former employees of SKS filed an insolvency request against SKS in the Nazareth District Court, Israel, No. 35035-06-22. The action represents $400,000 of post-March 31, 2022 claims of the former employees.
On or about July 28, 2022, a former employee filed suit against the Company, Dustin McIntire, and Daniel Hodges in the San Diego County California Superior Court, Case No. 37-2022-00028083-CU-BC-CTL. The plaintiff alleged that his wages were not paid, that he was constructively discharged, that the Company failed to issue him stock options, and that he is owed future amounts. He is claiming damages of no less than $238,000. The Company has accrued for the wage claims for services provided, but has not accrued for the claims associated with future services. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about August 22, 2022, two former Fastback employees filed suit against the Company, DragonWave and Fastback in the Alameda County Superior Court, California, Case No. 22CV016666. The plaintiffs allege that their payroll was late and that the Company failed to make one payroll, failed to timely pay wages three times, failed to pay accrued vacation time, and owes penalties under California law. Each plaintiff is claiming damages of no less than $66,500. The Company has accrued for the wage claims for services provided, but has not accrued for penalties. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about August 23, 2022, a former employee filed suit against the Company in the Clark County District Court, Nevada, Case No. 3 A-22-857361-C. The plaintiff alleged that his wages were not paid, that he was constructively discharged, that the Company failed to issue him stock options, and that he is owed future amounts. He is claiming damages of no less than $184,000. The Company has accrued for the wage claims for services provided, but has not accrued for the claims associated with future services. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the lawsuit.
On or about September 20, 2022, the Company was served with a suit that was filed on or about May 27, 2022 by the holder of a Transform-X Inc. (“Transform-X”) promissory note, suing the Company, Daniel Hodges, and Transform-X in the Richland County Court of Common Pleas, South Carolina, Case No. 2022CP4002806. The plaintiff alleges that for $125,000 he purchased an 8% promissory note in 2018 from Transform-X which has not been paid. Plaintiff alleges that the Company is also liable under the Transform-X promissory note. This lawsuit was removed to the United States District of South Carolina, Civil Action No.:3:22-cv-03645-MGL. The Company strongly disputes the plaintiff’s allegations, has not accrued for any contingent losses, and intends to vigorously defend the lawsuit.
On or about November 14, 2022, an intellectual property law firm filed suit against the Company in the United States District Court for the Southern District of California, San Diego. The plaintiff alleges that they performed work for the Company and its subsidiaries subsequent to March 31, 2022 and are owed approximately $75,000.
On or about November 15, 2022, the Company resolved the claims of former employees of SAGUNA who had, on or about July 17, 2022, filed an insolvency request against SAGUNA in the Nazareth District Court, Israel, No. 27624-07-22. The approximately $200,000 of post-March 31, 2022 claims of the former employees were resolved and the action was dismissed on or about November 17, 2022.
Nasdaq Compliance Developments
As previously disclosed in the Company’s Form 10-K filed on August 16, 2022, and in subsequent Form 8-K filings, the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), the $1.00 minimum closing bid price requirement (“minimum bid price”) due to the price of the Company’s common stock. Additionally, because the Company was late with filing its Quarterly Reports on Form10-Q for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022 (collectively the “Delinquent Reports”), the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports (“filing requirements”) with the Securities and Exchange Commission (“SEC”).
On November 17, 2022, a hearing was held before the Nasdaq Hearings Panel (the “Panel”) regarding the Company’s request for continued listing on The Nasdaq Capital Market of the Company’s common stock and additional time to regain compliance with Nasdaq Listing Rules. On November 29, 2022, the Panel issued its determination, granting the Company’s request for the continued listing of the Company’s common stock, subject to evidencing compliance with Nasdaq’s minimum bid price requirement by February 2, 2023, and evidencing compliance with Nasdaq’s filing requirement by getting the Company’s remaining Delinquent Reports filed with the SEC by February 24, 2023, and certain other conditions.
The Company is working to file its Delinquent Reports with the SEC as soon as practicable and is otherwise taking definitive steps to evidence compliance with all other applicable criteria for continued listing on Nasdaq. The Company has put forth a reverse split proposal to our stockholders to be voted on at the Company’s Annual Stockholders meeting on January 18, 2023, as part of the Company’s efforts to gain compliance with the minimum bid price requirement. There can be no assurances, however, that we will be able to gain compliance with the Nasdaq Listing Rules. |
Accounting Policies, by Policy (Policies) |
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Mar. 31, 2022 | |
| Description of Business [Abstract] | |
| Basis of Presentation | 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. The results of operations, financial position and cash flows for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the operating results for the full year ending December 31, 2022 or any other period. The amounts reported in the unaudited condensed consolidated financial statements, and the tables in the notes hereto, of the Quarterly Report on Form 10-Q as of March 31, 2022 and for the three months ended March 31, 2022 and 2021, are presented in United States dollars and are rounded in thousands with the exception of share and per share data. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related disclosures as of December 31, 2021 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on August 16, 2022.
Effective January 21, 2021, the Company enacted a 1-for-3 reverse stock split (the “Split”) of the Company’s common stock. These condensed consolidated financial statements and accompanying notes give effect to the reverse stock split as if it occurred at the beginning of the first period presented.
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| Principles of Consolidation | Principles of Consolidation
The unaudited condensed consolidated financial statements as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021, include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts have been eliminated.
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| Use of Estimates | Use of Estimates
The preparation of 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. Actual results could differ from those estimates. The Company’s significant estimates consist of the valuation of stock-based compensation; the valuation of the assets and liabilities acquired; the valuation of the Company’s equity securities issued in transactions; the valuation of inventory; the allowance for credit losses; the valuation of equity securities; the valuation allowance for deferred tax assets; and impairment of long-lived assets and goodwill.
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| Long-Lived Assets and Goodwill | Long-Lived Assets and Goodwill
The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. As of March 31, 2022, the Company determined that it was not more likely than not that any reporting unit’s fair value was below that reporting unit’s carrying amount. Accordingly, it wasn’t necessary to perform interim impairment testing as of March 31, 2022.
The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches. For the income approach, the Company uses internally developed discounted cash flow models that include the following assumptions, among others: projections of revenues, expenses, and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. For the market approach, the Company uses internal analyses based primarily on market comparables. The Company bases these assumptions on its historical data and experience, third party appraisals, industry projections, micro and macro general economic condition projections, and its expectations.
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| Fair Value Measurements | Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows:
Level 1 – Observable inputs that reflect quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.
Level 3 – Unobservable inputs for which there is little, if any, market activity for the asset or liability being measured. These inputs may be used with standard pricing models or other valuation or internally-developed methodologies that result in management’s best estimate of fair value.
The Company utilizes fair value measurements primarily in conjunction with the valuation of assets acquired and liabilities assumed in a business combination. In addition, certain nonfinancial assets and liabilities are to be measured at fair value on a nonrecurring basis in accordance with applicable U.S. GAAP. In general, nonfinancial assets including goodwill, other intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when an impairment is recognized.
As allowed by applicable FASB guidance, the Company has elected not to apply the fair value option for financial assets and liabilities to any of its currently eligible financial assets or liabilities. The Company’s financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The Company has determined that the book value of its outstanding financial instruments as of March 31, 2022 and December 31, 2021 approximated their fair value due to their short-term nature.
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| Recently Adopted Accounting Standards | Recently Adopted Accounting Standards
In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for smaller reporting companies during annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2020-06 effective January 1, 2022 which eliminates the need on a go forward basis to assess whether a beneficial conversion feature needs to be recognized upon either (a) the issuance of new convertible securities; or (b) the resolution of any prior period contingent beneficial conversion features.
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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Companies should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. This standard was adopted on January 1, 2022 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements. |
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Earnings (Loss) Per Share (Tables) |
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Accounts Receivable, Net (Tables) |
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Property and Equipment, Net (Tables) |
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Leases (Tables) |
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Debt (Tables) |
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| Share-Based Compensation (Tables) [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of restricted stock unit (“RSU”) |
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| Schedule of stock option activity |
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| Schedule of presents information related to stock options |
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| Schedule of assumptions used to estimate fair value of warrants granted |
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| Schedule of warrant activity |
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| Schedule of presents information related to warrants |
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Business Acquisitions (Tables) |
3 Months Ended | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||
| Business Combinations [Abstract] | ||||||||||||||||||||||||||
| Schedule of represents the unaudited pro forma combined results of operations |
|
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Description of Business (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Description of Business [Abstract] | |
| Description of agreement | (“COMSovereign”) and subsidiaries (collectively the “Company”) a provider of solutions to network operators, mobile device carriers, governmental units and other enterprises worldwide. |
Going Concern (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Cash flows from operations | $ 8,700 | |
| Working capital | 8,500 | |
| Accumulated deficit | $ (219,034) | $ (217,843) |
Revenue (Details) - Schedule of timing of revenue recognition - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Timing of revenue recognition: | ||
| Services and products transferred at a point in time | $ 3,131 | $ 1,896 |
| Services and products transferred over time | 98 | 190 |
| Total revenue | $ 3,229 | $ 2,086 |
Revenue (Details) - Schedule of revenue by products and services - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue from External Customer [Line Items] | ||
| Total revenue | $ 3,229 | $ 2,086 |
| Products [Member] | ||
| Revenue from External Customer [Line Items] | ||
| Total revenue | 3,131 | 1,619 |
| Services [Member] | ||
| Revenue from External Customer [Line Items] | ||
| Total revenue | $ 98 | $ 467 |
Revenue (Details) - Schedule of revenue by geography - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Revenue (Details) - Schedule of revenue by geography [Line Items] | ||
| Total revenue | $ 3,229 | $ 2,086 |
| North America [Member] | ||
| Revenue (Details) - Schedule of revenue by geography [Line Items] | ||
| Total revenue | 2,725 | 1,736 |
| International [Member] | ||
| Revenue (Details) - Schedule of revenue by geography [Line Items] | ||
| Total revenue | $ 504 | $ 350 |
Revenue (Details) - Schedule of opening and closing balances of contract liabilities $ / shares in Units, $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
$ / shares
| |
| Schedule of Opening and Closing Balances of Contract Liabilities [Abstract] | |
| Balance beginning | $ 3,924 |
| New invoices not yet earned (in Dollars per share) | $ / shares | $ 1,327 |
| Old invoices earned | $ (631) |
| Balance ending | $ 4,620 |
Earnings (Loss) Per Share (Details) - Schedule of weighted-average potential common shares - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Schedule Of Weighted Average Potential Common Shares Abstract | ||
| Options | 6,680,770 | 3,380,181 |
| Unvested restricted stock | 99,998 | 323,701 |
| Warrants | 12,814,823 | 6,298,692 |
| Convertible notes | 5,208,002 | 2,136,015 |
| Total | 24,803,593 | 12,138,589 |
Cash, Cash Equivalents, and Restricted Cash (Details) |
Mar. 31, 2022
USD ($)
|
|---|---|
| Cash and Cash Equivalents [Abstract] | |
| Restricted cash | $ 195,000 |
Cash, Cash Equivalents, and Restricted Cash (Details) - Schedule of cash and cash equivalents - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Cash And Cash Equivalents Abstract | ||
| Cash and cash equivalents | $ 466 | $ 1,622 |
| Restricted cash | 36 | 277 |
| Total | $ 502 | $ 1,899 |
Accounts Receivable, Net (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Receivables [Abstract] | ||
| Bad debt expense | $ (48,968) | $ (2,142) |
Accounts Receivable, Net (Details) - Schedule of accounts receivable - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Accounts Receivable Abstract | ||
| Account receivables | $ 4,300 | $ 3,260 |
| Less: allowance for doubtful accounts | (1,711) | (1,662) |
| Total account receivables, net | $ 2,589 | $ 1,598 |
Inventory, Net (Details) - Schedule of inventory - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Inventory Abstract | ||
| Raw materials | $ 8,317 | $ 6,810 |
| Work in progress | 1,280 | 1,255 |
| Finished goods | 3,633 | 3,645 |
| Total inventory | 13,230 | 11,710 |
| Reserve | (1,157) | (1,166) |
| Total inventory, net | $ 12,073 | $ 10,544 |
Prepaid Expenses (Details) - Schedule of prepaid expenses - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Prepaid Expenses [Abstract] | ||
| Prepaid products and services | $ 5,926 | $ 7,106 |
| Prepaid rent and security deposit | 31 | 96 |
| Total prepaid expenses | $ 5,957 | $ 7,202 |
Property and Equipment, Net (Details) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
Jan. 31, 2022 |
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| Property and Equipment, Net (Details) [Line Items] | ||||
| Cash | $ 502,000 | $ 1,899,000 | ||
| carrying value | $ 6,700,000 | |||
| Cost basis of building | 4,800,000 | |||
| Cost basis | 1,300,000 | |||
| Building improvements | 800,000 | |||
| Accumulated depreciation | 200,000 | |||
| Gain on sale of assets | 8,400,000 | |||
| Transaction cost | 700,000 | |||
| Depreciation expense | $ 505,000 | $ 362,000 | ||
| Tucson Building [Member] | ||||
| Property and Equipment, Net (Details) [Line Items] | ||||
| Cash | $ 15,800,000 | |||
Property and Equipment, Net (Details) - Schedule of property and equipment, net - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total property and equipment | $ 14,811 | $ 21,521 |
| Less: accumulated depreciation | (12,288) | (12,033) |
| Total property and equipment, net | 2,523 | 9,488 |
| Shop machinery and equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 12,063 | 11,912 |
| Computers and electronics [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 1,475 | 1,436 |
| Office furniture and fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 730 | 744 |
| Leasehold improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 543 | 543 |
| Building [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 4,801 | |
| Land [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 1,330 | |
| Building improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 755 |
Leases (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Feb. 01, 2022 |
Mar. 31, 2022 |
|
| Leases [Abstract] | ||
| Lease agreement | 10 years | |
| Monthly rent | $ 98,300 | |
| Annual rent | 128,200 | |
| Security deposit | 1,000 | |
| Operating lease liability | $ 10,100 |
Leases (Details) - Schedule of operating leases - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Operating Leases [Abstract] | ||
| Operating lease ROU assets | $ 13,398 | $ 3,717 |
| Operating lease liability | $ 13,584 | $ 3,873 |
Leases (Details) - Schedule of other information related to our operating leases - Other information related [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Leases (Details) - Schedule of other information related to our operating leases [Line Items] | ||
| Operating lease cost | $ 611 | $ 252 |
| Short-term lease cost | 9 | 39 |
| Cash paid for amounts included in the measurement of lease liabilities: | ||
| Operating cash flows from operating leases | $ 549 | $ 259 |
Leases (Details) - Schedule of weighted-average remaining lease term and weighted average discount rates |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Operating Leases [Member] | ||
| Leases (Details) - Schedule of weighted-average remaining lease term and weighted average discount rates [Line Items] | ||
| Weighted average remaining lease term | 8 years 9 months | 6 years 1 month 13 days |
| Weighted average discount rate | 5.58% | 6.18% |
| Finance Leases [Member] | ||
| Leases (Details) - Schedule of weighted-average remaining lease term and weighted average discount rates [Line Items] | ||
| Weighted average remaining lease term | 2 years 10 months 9 days | |
| Weighted average discount rate | 6.44% |
Leases (Details) - Schedule of total remaining years to lease liabilities operating leases - Operating Leases [Member] $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| Leases (Details) - Schedule of total remaining years to lease liabilities operating leases [Line Items] | |
| 2022 | $ 1,880 |
| 2023 | 2,397 |
| 2024 | 2,065 |
| 2025 | 1,730 |
| 2026 | 1,386 |
| Thereafter | 8,286 |
| Total minimum lease payments | 17,744 |
| Less: effect of discounting | (4,160) |
| Present value of future minimum lease payments | 13,584 |
| Less: current obligations under leases | (1,729) |
| Long-term lease obligations | $ 11,855 |
Leases (Details) - Schedule of total remaining years to lease liabilities finance leases - Finance Leases [Member] $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| Leases (Details) - Schedule of total remaining years to lease liabilities finance leases [Line Items] | |
| 2022 | $ 56 |
| 2023 | 63 |
| 2024 | 49 |
| 2025 | 11 |
| 2026 | 6 |
| Total minimum lease payments | 185 |
| Less: effect of discounting | (8) |
| Present value of future minimum lease payments | 177 |
| Less: current obligations under leases | (65) |
| Long-term lease obligations | $ 112 |
Debt (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Debt Disclosure [Abstract] | ||
| Secured loan agreement, description | During the three months ended March 31, 2022 (a) $2.8 million of Notes A and B principal was satisfied by $1.9 million (plus interest) of aggregate payments in cash, plus aggregate conversions of principal and interest of $0.9 million and $44,000, respectively, into an aggregate of 1,576,058 shares of the Company’s common stock; (b) $0.5 million of Note C past due principal was repaid in cash; (c) $5.2 million of Note D (the Tucson Building mortgage) was repaid in cash from the proceeds of the January 31, 2022 building sale; and (d) an aggregate of $16,000 of Notes E, F, and G principal were repaid in cash. The conversions of Notes A and B were pursuant to a share-settled redemption feature wherein the conversions are required to be accounted for under extinguishment accounting, which resulted in the recognition of a $173,000 loss on extinguishment. | |
| Interest expense | $ 880,000 | $ 469,000 |
Debt (Details) - Schedule of debt consisted - Long-Term Debt [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Secured Notes Payable | ||
| Amount Outstanding | $ 11,750 | $ 11,750 |
| Total long-term debt | 20,847 | 29,368 |
| Less unamortized discounts and debt issuance costs | (2,935) | (3,518) |
| Total long-term debt, less discounts and debt issuance costs | 17,912 | 25,850 |
| Less current portion of long-term debt | (1,101) | (13,577) |
| Debt classified as long-term debt | $ 16,811 | 12,273 |
| Secured Convertible Note Payable [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | May 27, 2023 | |
| Amount Outstanding | $ 4,583 | $ 6,417 |
| Interest Rate | 6.00% | 6.00% |
| Secured Convertible Note Payable One [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Aug. 25, 2023 | |
| Amount Outstanding | $ 3,867 | $ 4,833 |
| Interest Rate | 6.00% | 6.00% |
| Secured Notes Payable [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Nov. 26, 2021 | |
| Amount Outstanding | $ 500 | $ 1,000 |
| Interest Rate | 9.00% | 9.00% |
| Secured Note Payable One [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Jan. 29, 2022 | |
| Amount Outstanding | $ 5,205 | |
| Interest Rate | 0.00% | |
| Secured Note Payable Two [Member] | ||
| Secured Notes Payable | ||
| Amount Outstanding | $ 8,950 | 17,455 |
| Notes Payable [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Feb. 16, 2023 | |
| Amount Outstanding | $ 1 | $ 11 |
| Interest Rate | 3.00% | 3.00% |
| PPP Loans [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | May 05, 2022 | |
| Amount Outstanding | $ 2 | |
| Interest Rate | 1.00% | 1.00% |
| SBA loan [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | May 15, 2050 | |
| Amount Outstanding | $ 146 | $ 150 |
| Interest Rate | 3.80% | 3.80% |
| Notes payable one [Member] | ||
| Secured Notes Payable | ||
| Amount Outstanding | $ 147 | $ 163 |
| Convertible note payable [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Jun. 03, 2022 | |
| Amount Outstanding | $ 600 | $ 600 |
| Interest Rate | 5.00% | 5.00% |
| Convertible Note Payable One [Member] | ||
| Secured Notes Payable | ||
| Original Maturity Date | Jan. 29, 2026 | |
| Amount Outstanding | $ 11,150 | $ 11,150 |
| Interest Rate | 3.30% | 1.00% |
| Maximum [Member] | Secured Note Payable One [Member] | ||
| Secured Notes Payable | ||
| Interest Rate | 8.00% | |
| Minimum [Member] | Secured Note Payable One [Member] | ||
| Secured Notes Payable | ||
| Interest Rate | 6.75% |
Debt (Details) - Schedule of future maturities of long-term debt $ in Thousands |
Mar. 31, 2022
USD ($)
|
|---|---|
| Schedule Of Future Maturities Of Long Term Debt Abstract | |
| Remaining 2022 | $ 8,583 |
| 2023 | 968 |
| 2024 | |
| 2025 | |
| 2026 | 11,150 |
| Thereafter | 146 |
| Total | $ 20,847 |
Stockholders’ Equity (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
$ / shares
| |
| Stockholders’ Equity (Details) [Line Items] | |
| Preferred stock amount | $ 8,000,000 |
| Dividends paid | $ 123,328 |
| Series A Preferred Stock [Member] | |
| Stockholders’ Equity (Details) [Line Items] | |
| Preferred stock price (in Dollars per share) | $ / shares | $ 25 |
| Percentage of payable to holders | 9.25% |
Share-Based Compensation (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Share-Based Compensation (Details) [Line Items] | ||
| Share-based compensation expense | $ 78,496 | $ 349,080 |
| Weighted average remaining vesting period. | 8 months 23 days | |
| Grant date fair value per share (in Dollars per share) | $ 1.6 | |
| One-Year Anniversary [Member] | ||
| Share-Based Compensation (Details) [Line Items] | ||
| Restricted stock vested (in Shares) | 234,354 | |
| Stock Options [Member] | ||
| Share-Based Compensation (Details) [Line Items] | ||
| Share-based compensation expense | $ 456,604 | $ 7,374 |
| Restricted Stock Awards [Member] | ||
| Share-Based Compensation (Details) [Line Items] | ||
| Weighted average grant date fair value per share (in Dollars per share) | $ 2,600,000 | |
Share-Based Compensation (Details) - Schedule of restricted stock unit (“RSU”) |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
$ / shares
shares
| |
| Schedule of Restricted Stock Unit Rsu [Abstract] | |
| Number of RSU’s beginning balance | shares | 133,331 |
| Weighted-Average Grant Date Value Per Share beginning balance | $ / shares | $ 2.67 |
| Number of RSU’s, Vested | shares | (33,334) |
| Weighted-Average Grant Date Value Per Share, Vested | $ / shares | $ 1.03 |
| Number of RSU’s, ending balance | shares | 99,998 |
| Weighted-Average Grant Date Value Per Share, ending balance | $ / shares | $ 2.05 |
Share-Based Compensation (Details) - Schedule of stock option activity - Stock Option [Member] $ / shares in Units, $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
$ / shares
shares
| |
| Share-Based Compensation (Details) - Schedule of stock option activity [Line Items] | |
| Number of Options,Outstanding Beginning balance | shares | 7,040,511 |
| Weighted- Average Exercise Price per Share, Outstanding Beginning balance | $ / shares | $ 2.33 |
| Number of Options, Exercised | shares | (209,741) |
| Weighted- Average Exercise Price per Share, Exercised | $ / shares | $ 0.15 |
| Number of Options, Cancelled or Expired | shares | (150,000) |
| Weighted- Average Exercise Price per Share, Cancelled or Expired | $ / shares | $ 2.75 |
| Aggregate Intrinsic Value, Cancelled or Expired | $ | |
| Number of Options, Outstanding Ending balance | shares | 6,680,770 |
| Weighted- Average Exercise Price per Share, Outstanding Ending balance | $ / shares | $ 2.39 |
| Weighted- Average Contractual Life in Years, Outstanding Ending balance | 3 years 1 month 20 days |
| Aggregate Intrinsic Value, Outstanding Ending balance | $ | $ 44 |
| Number of Options, Outstanding Ending balance | shares | 2,313,770 |
| Weighted- Average Exercise Price per Share, Exercisable Ending balance | $ / shares | $ 1.8 |
| Weighted- Average Contractual Life in Years, Exercisable Ending balance | 1 year 5 months 19 days |
| Aggregate Intrinsic Value, Exercisable Ending balance | $ | $ 44 |
Share-Based Compensation (Details) - Schedule of presents information related to stock options |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
shares
| |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | 6,680,770 |
| Weighted Average Remaining Life In Years | 1 year 5 months 19 days |
| Exercisable Number of Options | 2,313,770 |
| $ 0.01 - $ 0.50 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | |
| Weighted Average Remaining Life In Years | |
| Exercisable Number of Options | |
| $ 0.51 - $ 1.00 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | 718,763 |
| Weighted Average Remaining Life In Years | 3 years 6 months 29 days |
| Exercisable Number of Options | 568,763 |
| $ 1.01 - $ 1.50 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | |
| Weighted Average Remaining Life In Years | |
| Exercisable Number of Options | |
| $ 1.51 - $ 2.00 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | 1,356,671 |
| Weighted Average Remaining Life In Years | 6 months 14 days |
| Exercisable Number of Options | 1,356,671 |
| $ 2.01 - $ 2.50 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | |
| Weighted Average Remaining Life In Years | |
| Exercisable Number of Options | |
| $ 2.51 - $ 3.00 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | 4,313,659 |
| Weighted Average Remaining Life In Years | 3 years 10 months 20 days |
| Exercisable Number of Options | 295,001 |
| $ 3.01 - $ 3.50 [Member] | |
| Share-Based Payment Arrangement, Option, Exercise Price Range [Line Items] | |
| Outstanding Number of Options | 291,677 |
| Weighted Average Remaining Life In Years | 3 years 1 month 9 days |
| Exercisable Number of Options | 93,335 |
Share-Based Compensation (Details) - Schedule of assumptions used to estimate fair value of warrants granted |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Minimum [Member] | ||
| Share-Based Compensation (Details) - Schedule of assumptions used to estimate fair value of warrants granted [Line Items] | ||
| Expected dividend yield | 0.00% | |
| Expected volatility | ||
| Risk-free interest rate | ||
| Contractual life of warrants | ||
| Maximum [Member] | ||
| Share-Based Compensation (Details) - Schedule of assumptions used to estimate fair value of warrants granted [Line Items] | ||
| Expected volatility | 36.96% | 41.55% |
| Risk-free interest rate | 0.19% | 0.44% |
| Contractual life of warrants | 2 years 6 months | 5 years |
Share-Based Compensation (Details) - Schedule of warrant activity $ / shares in Units, $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
$ / shares
shares
| |
| Schedule of Stock Option Activity [Abstract] | |
| Number of Warrants Outstanding Beginning balance | shares | 12,831,593 |
| Weighted- Average Exercise Price Per Share Outstanding Beginning balance | $ / shares | $ 3.73 |
| Number of Warrants Forfeited or Expired | shares | (16,670) |
| Weighted- Average Exercise Price Per Share Forfeited or Expired | $ / shares | $ 1.5 |
| Number of Warrants Outstanding Ending balance | shares | 12,814,923 |
| Weighted- Average Exercise Price Per Share Outstanding Ending balance | $ / shares | $ 3.72 |
| Weighted- Average Contractual Life in Years Outstanding Ending balance | 3 years 11 months 4 days |
| Aggregate Intrinsic Value Outstanding Ending balance | $ | $ 246,967 |
| Number of Warrants Outstanding Exercisable | shares | 11,674,923 |
| Weighted- Average Exercise Price Per Share Exercisable | $ / shares | $ 3.88 |
| Weighted- Average Contractual Life in Years Exercisable | 3 years 10 months 13 days |
| Aggregate Intrinsic Value Outstanding Exercisable | $ | $ 246,967 |
Share-Based Compensation (Details) - Schedule of presents information related to warrants |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
shares
| |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 12,814,923 |
| Weighted Average Remaining Life In Years | 3 years 10 months 13 days |
| Exercisable Number of Warrants | 11,674,923 |
| $ 0.01 - $ 1.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 560,192 |
| Weighted Average Remaining Life In Years | 3 years 3 months 7 days |
| Exercisable Number of Warrants | 560,192 |
| $ 1.01 - $ 2.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | |
| Weighted Average Remaining Life In Years | |
| Exercisable Number of Warrants | |
| $ 2.01 - $ 3.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 4,556,001 |
| Weighted Average Remaining Life In Years | 4 years 2 months 4 days |
| Exercisable Number of Warrants | 3,416,001 |
| $ 3.01 - $ 4.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 33,342 |
| Weighted Average Remaining Life In Years | 3 years 14 days |
| Exercisable Number of Warrants | 33,342 |
| $ 4.01 - $ 5.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 7,285,290 |
| Weighted Average Remaining Life In Years | 3 years 9 months 29 days |
| Exercisable Number of Warrants | 7,285,290 |
| $ 5.01 - $ 6.00 [Member] | |
| Share-Based Compensation (Details) - Schedule of presents information related to warrants [Line Items] | |
| Outstanding Number of Warrants | 380,098 |
| Weighted Average Remaining Life In Years | 3 years 10 months 6 days |
| Exercisable Number of Warrants | 380,098 |
Commitments and Contingencies (Details) |
1 Months Ended | 3 Months Ended |
|---|---|---|
Jan. 27, 2022 |
Mar. 31, 2022 |
|
| Commitments and Contingencies [Abstract] | ||
| Inventory, description | On January 27, 2022, a former employee filed suit against the Company in the Tulsa County Oklahoma District Court, Case No. CJ-2022-00221. The plaintiff has alleged that she was entitled to six months of severance pay after her employment contract was not renewed, and that her option agreements did not expire thirty days after cessation of her employment, and claims she is owed approximately $75,000 in severance and $250,000 in damages for her options. | From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. |
Concentrations (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Concentrations (Details) [Line Items] | |
| Concentration risk, percentage | 10.00% |
| Trade Accounts Receivable [Member] | Minimum [Member] | |
| Concentrations (Details) [Line Items] | |
| Concentration risk, percentage | 32.00% |
| Trade Accounts Receivable [Member] | Maximum [Member] | |
| Concentrations (Details) [Line Items] | |
| Concentration risk, percentage | 37.00% |
| Revenue [Member] | |
| Concentrations (Details) [Line Items] | |
| Concentration risk, percentage | 10.00% |
Business Acquisitions (Details) - Schedule of represents the unaudited pro forma combined results of operations $ / shares in Units, $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2021
USD ($)
$ / shares
shares
| |
| Schedule Of Represents The Unaudited Pro Forma Combined Results Of Operations Abstract | |
| Revenue | $ 2,816 |
| Net loss | $ (17,662) |
| Basic and diluted loss per common share (in Dollars per share) | $ / shares | $ (0.22) |
| Weighted-average common shares outstanding (in Shares) | shares | 80,111,622 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 23, 2022 |
Nov. 14, 2022 |
Nov. 08, 2022 |
Jul. 14, 2022 |
Apr. 01, 2022 |
Aug. 23, 2022 |
Aug. 22, 2022 |
Jul. 28, 2022 |
Jun. 23, 2022 |
Jun. 16, 2022 |
May 31, 2022 |
May 25, 2022 |
May 24, 2022 |
Apr. 15, 2022 |
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 08, 2022 |
Oct. 17, 2022 |
Aug. 16, 2022 |
Jul. 29, 2022 |
Jul. 26, 2022 |
Jun. 21, 2022 |
May 09, 2022 |
Apr. 29, 2022 |
Dec. 31, 2021 |
|
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Total consideration | $ 502,000 | $ 1,899,000 | |||||||||||||||||||||||
| Promissory note | $ 600,000,000 | ||||||||||||||||||||||||
| Common stock shares (in Shares) | 83,770,939 | 81,985,140 | |||||||||||||||||||||||
| Interest rate | 6.00% | 6.00% | |||||||||||||||||||||||
| Shares of common stock (in Shares) | 240,000 | ||||||||||||||||||||||||
| Dividends on the preferred stock | $ 123,000 | ||||||||||||||||||||||||
| Canceled shares of outstanding common stock due (in Shares) | 66,666 | ||||||||||||||||||||||||
| Company received cash | 1,500,000 | ||||||||||||||||||||||||
| Future product deliveries | 200,000 | ||||||||||||||||||||||||
| Contract liabilities | 1,300,000 | ||||||||||||||||||||||||
| Claims of former employees | 400,000 | ||||||||||||||||||||||||
| Plaintiff alleges | $ 125,000,000 | ||||||||||||||||||||||||
| Purchased percentage | 8 years | ||||||||||||||||||||||||
| Subsequent Event [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Cash proceeds | $ 100,000,000 | ||||||||||||||||||||||||
| Interest rate | 3.00% | ||||||||||||||||||||||||
| Accrued interest | 5.00% | ||||||||||||||||||||||||
| Common stock discount rate | 20.00% | ||||||||||||||||||||||||
| Converted of principal amount | $ 8,715,583 | ||||||||||||||||||||||||
| Interest amount | 171,599 | ||||||||||||||||||||||||
| Aggregate of common shares | 154,167,727 | ||||||||||||||||||||||||
| Face value | $ 550,000,000 | ||||||||||||||||||||||||
| Purchase price | $ 500,000,000 | ||||||||||||||||||||||||
| Bearing default rate | 12.00% | ||||||||||||||||||||||||
| Claiming former shareholder damages totaling amount | $ 13,900,000 | ||||||||||||||||||||||||
| Price per share (in Dollars per share) | $ 1 | ||||||||||||||||||||||||
| Forecast [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Restructuring percentage | 70.00% | ||||||||||||||||||||||||
| Total consideration | $ 2,000,000 | ||||||||||||||||||||||||
| Promissory note | $ 600,000,000 | $ 11,150 | |||||||||||||||||||||||
| Common stock shares (in Shares) | 500,000 | ||||||||||||||||||||||||
| Interest rate | 15.00% | ||||||||||||||||||||||||
| Principal amount | $ 262,500,000 | $ 367,500,000 | $ 550,000,000 | ||||||||||||||||||||||
| Dividends on the preferred stock | $ 61,664,000 | ||||||||||||||||||||||||
| Accrued dividends | $ 370,000,000 | ||||||||||||||||||||||||
| Senior secured lenders | $ 250,000,000 | ||||||||||||||||||||||||
| Distribution agreement | $ 2,000,000 | ||||||||||||||||||||||||
| Foregone profit | $ 500,000 | ||||||||||||||||||||||||
| Claiming damages | $ 184,000,000 | $ 66,500,000 | $ 238,000,000 | ||||||||||||||||||||||
| Claiming wages and other amounts | $ 75,000,000 | ||||||||||||||||||||||||
| Forecast [Member] | Minimum [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Board compensation | $ 180,000,000 | ||||||||||||||||||||||||
| Forecast [Member] | Maximum [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Board compensation | $ 250,000,000 | ||||||||||||||||||||||||
| Forecast [Member] | Subsequent Event [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Principal amount | $ 26,250,000 | ||||||||||||||||||||||||
| SAGUNA [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Distribution agreement and claiming damages | $ 200,000,000 | ||||||||||||||||||||||||
| Secured Senior Convertible Note [Member] | Subsequent Event [Member] | |||||||||||||||||||||||||
| Subsequent Events (Details) [Line Items] | |||||||||||||||||||||||||
| Combined principal and interest balance | $ 228,000 | ||||||||||||||||||||||||