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Subsequent Events
6 Months Ended
Jun. 30, 2022
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 21 SUBSEQUENT EVENTS

 

Executive Officer and Board of Director Developments

 

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

 

On December 21, 2022, the Company entered into a Share Purchase Agreement (the “SKS Sale Agreement”) with Titan Innovations Ltd., an Israeli corporation (“Titan”), pursuant to which we agreed to sell our Israel-based tethered drone unit Sky Sapience Ltd. (“SKS”) to Titan. The total consideration for the sale is $1.8 million. From that consideration, the first two tranches totaling $750,000 would be utilized to eliminate outstanding liabilities and debt of SKS. Post-closing, the next tranche of $450,000 would be paid to the Company, less any remaining SKS outstanding liabilities and debt. The final $600,000 is due to be paid within two years of closing, subject to potential reductions for further claims of SKS debt, which are capped at $300,000. The SKS Sale Agreement contains closing conditions and there are no assurances that the transaction will close.

 

On December 29, 2022, the Company entered into a Settlement Agreement (“Settlement Agreement”) to resolve RVI Claim #1 and RVI Claim #2 (see the Litigation, Claims and Contingencies Developments section in the Note for additional information). As required by the terms of the Settlement Agreement, we entered into a Stock Purchase Agreement (the “RVI Sale Agreement”) with the plaintiffs in the two lawsuits (“Buyers”), pursuant to which, and subject to the terms and conditions of the RVI Sale Agreement, we agreed to sell Rvision, Inc. (“RVI”) to Buyers. The consideration for the sale was the dismissal of the two lawsuits and $100.

 

In January 2023, the Company idled the employees of RF Engineering & Energy Resource, LLC.

 

Debt and Equity Developments

 

Subsequent to June 30, 2022 and through the filing date of this Form 10-Q, there were Note Holder Conversions of $7.5 million of Lind Debt principal and $0.1 million of related interest into an aggregate of 150,007,860 shares of the Company’s common stock. As of the filing date, the remaining combined principal and interest balance of the Lind Debt was approximately $228,000.

 

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.

 

On January 17, 2023, the Company sold an unsecured promissory note in the principal amount of $90,000, which pays 8% interest per annum and is due on or before July 30, 2023.

 

During January 2023, pursuant to a limited time offer, certain Note J convertible note holders agreed to amend their note and convert an aggregate of $0.9 million principal of their notes and $0.2 million of accrued interest into 20,469,861 shares of the Company’s common stock.

 

Lease Developments

 

In July 2022, the Company abandoned its Chantilly, VA office lease.

 

Litigation, Claims and Contingencies Developments

 

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 $2.0 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 June 30, 2022 and the other $1.3 million is included in contract liabilities – current in the June 30, 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- June 30, 2022 claims of the former employees. The approximately $400,000 of post-June 30, 2022 claims of the former employees were resolved pursuant to the SKS Sale Agreement and the action was dismissed on or about January 9, 2023. See the Business Development section in this Note for additional information.

 

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 (“RVI Claim #1”). 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. As of June 30, 2022, the Company had accrued for the wage claims for services provided, but had not accrued for the claims associated with future services. On December 29, 2022, the Company resolved this lawsuit. See the Business Development section in this Note for additional information. 

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 (“RVI Claim #2”). 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. As of June 30, 2022, the Company had accrued for the wage claims for services provided, but had not accrued for the claims associated with future services. On December 29, 2022, the Company resolved this lawsuit. See the Business Development section in this Note for additional information.

 

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 June 30, 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- June 30, 2022 claims of the former employees were resolved and the action was dismissed on or about November 17, 2022.

 

On or about January 10, 2023, a recruiting and staffing company obtained default judgment against the Company in County Court, Collin County, Texas, Case No. 004-01539-2022, for principal of $134,650, prejudgment interest of $4,542.24, court costs of $425, attorney’s fees of $6,300, and post judgment interest at 7%.

 

On January 9, 2023, a former employee of Elitise, LLC, filed suit against our Company in the Pima County Superior Court, Arizona, Case No. C20230116. The plaintiff has alleged that he is owed for unpaid minimum wages and overtime wages, breach of employment contract, retaliatory termination, and alleges an unspecified amount of damages. The Company disputes plaintiff’s allegations and intends to vigorously defend the lawsuit.

 

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 had 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.

 

Because the Company did not reach a quorum, the Annual Meeting could not conduct business on January 18, 2023, and the vote of the Reverse Stock Split Proposal (referred to as “Proposal 1”) could not proceed in time for compliance with Nasdaq’s minimum bid price requirement in Nasdaq Listing Rule 5550(a)(1) on or before February 2, 2023. The Nasdaq Panel granted the Company’s request for an extension to obtain stockholder approval of the Reverse Stock Split Proposal on February 8, 2023, and to demonstrate compliance with Listing Rule 5550(a)(2) by February 24, 2023.