Debt

12 Months Ended

Dec. 31, 2022

Debt [Abstract]

DEBT

NOTE 14 DEBT

Debt consisted of the following as of December 31, 2022 and 2021:

			December 31,
			2022				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	5/27/23	$	51		6.0%	$	6,417		6.0%
Secured senior convertible note payable	B	8/25/23		59		6.0%		4,833		6.0%
Secured note payable	C	10/17/23		368		6.0%		-		-
Secured note payable	D	11/8/23		263		6.0%		-		-
Secured note payable	E	11/26/21		775		15.0%		1,000		9.0%
Secured note payable	F	7/29/24		550		8.0%		-		-
Secured note payable	G	1/29/22		-		-		5,205		>8% or Libor +6.75%
Secured note payable	H	6/30/23		50		-		-		-
SBA loan	I	5/15/50		150		3.8%		150		3.8%
Total secured notes payable				2,266				17,605
Unsecured Notes Payable
Note payable - related party	J	3/31/23		100		3.0%		-		-
Note payable	K	7/29/23		26		15.0%		-		-
PPP loans	L	5/5/22		-		1.0%		2		1.0%
Total notes payable				126				2
Unsecured Convertible Notes Payable
Convertible note payable	M	6/3/22		-		5.0%		600		5.0%
Convertible note payable	N	1/29/26		11,150		15.0%		11,150		1.0%
Total convertible notes payable				11,150				11,750
Total debt				13,542				29,357
Less: unamortized discounts and debt issuance costs				(11	)			(3,518	)
Total long-term debt, less discounts and debt issuance costs				13,531				25,839
Less: current portion of debt				(11,636	)			(13,566	)
Non-current portion of debt			$	1,895			$	12,273

For Note A, on May 27, 2021, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company sold to the investor a senior secured convertible promissory note in the original principal amount of $11.0 million and warrants to purchase up to 18,200 shares of the Company’s common stock for a purchase price of $10 million (representing an original issue discount of 10.0% on the note), of which the Company received $5 million on May 28, 2021 and $5 million on June 2, 2021. On August 25, 2021, the Company 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. The Company is required to make monthly interest and principal payments in 18 equal monthly installments of $611,000 each, commencing in November 2021. So long as shares of the Company’s 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, the Company has the right to make interest and principal payments in the form of additional 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. The note is guaranteed by the Company’s subsidiaries and is secured by a Securities Purchase Agreement (“Initial SPA”) securing a first priority lien on substantially all of the Company’s assets and properties and the assets and properties of its subsidiaries, subject only to the liens securing the approximately $1.5 million principal amount of outstanding indebtedness in connection with three of our subsidiaries. The warrants are exercisable to purchase up to 18,200 shares of the Company’s common stock for a purchase price of $300 per share, subject to adjustment, at any time on or prior to May 27, 2026, and may be exercised on a cashless basis if the shares of common stock underlying the Warrants are not then registered under the Securities Act.

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 Note entered into default, which resulted in a 5% or $0.2 million increase in the principal value, pursuant to the terms of the Note. 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 (“Note Holder Conversions”). During the year ended December 31, 2022, the principal amount was reduced by an aggregate of $6.4 million, which was comprised of (a) a reduction of an aggregate of $1.2 million (plus interest) due to pre-default scheduled cash payments; (b) a reduction of an aggregate of $1.2 million (plus interest) due to pre-default scheduled equity payments (at the Company’s discretion, in lieu of cash) comprising 22,834 shares of common stock; (c) an increase of an aggregate of $0.2 million (as discussed above) due to the debt’s contractual default provisions; and (d) a reduction of an aggregate of $4.1 million of principal due to Note Holder Conversions into an aggregate of 802,463 shares of the Company’s common stock. Amounts recorded as debt discounts were fully recognized and recorded in loss on extinguishment of debt as a result of the aforementioned debt conversions.

For Note B, on August 25, 2021, the Company 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 13,158 shares of our common stock for a purchase price of $5 million (representing an original issue discount of 16.0% on the note), which $5 million the Company received on August 26, 2021. The note bears interest at the rate of 6% per annum from the date of funding and matures on August 25, 2023. The Company is required to make monthly interest and principal payments in 18 equal monthly installments 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, the Company has the right to make interest and principal payments in the form of additional 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. The note is convertible by the holder in whole or in part at any time after the six-month anniversary of the issuance date into shares of the Company’s common stock at a conversion price of $300 per share, subject to adjustment and certain limitations. The Company has the right to prepay the amended note at any time with no penalty. However, should the Company exercise its buy-back right, the holder of the amended note will have the option of converting 33 1/3% of the outstanding principal amount of the note into shares of common stock at a conversion price equal to the lower of (A) the repayment price, or (B) the conversion price then in effect. The note is guaranteed by the Company’s subsidiaries and is secured by a Securities Purchase Agreement (“Second SPA” and collectively with the Initial SPA, the “SPAs”) securing a first priority lien on substantially all of the Company’s assets and properties and the assets and properties of its subsidiaries, subject only to the liens securing the approximately $1.5 million principal amount of outstanding indebtedness of three of our subsidiaries. The warrants are exercisable to purchase up to 13,158 shares of the Company’s common stock for a purchase price of $300 per share, subject to adjustment, at any time on or prior to August 25, 2026, and may be exercised on a cashless basis if the shares of common stock underlying the Warrants are not then registered under the Securities Act.

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 Note entered into default, which resulted in a 5% or $0.2 million increase in the principal value, pursuant to the terms of the Note. 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 (“Note Holder Conversions”). During the year ended December 31, 2022, the principal amount was reduced by an aggregate of $4.8 million, which was comprised of (a) a reduction of an aggregate of $0.6 million (plus interest) due to pre-default scheduled cash payments; (b) a reduction of an aggregate of $0.6 million (plus interest) due to pre-default scheduled equity payments (at the Company’s discretion, in lieu of cash) comprising 12,466 shares of common stock; (c) an increase of an aggregate of $0.2 million (as discussed above) due to the debt’s contractual default provisions; and (d) a reduction of an aggregate of $3.7 million of principal due to Note Holder Conversions into an aggregate of 719,675 shares of the Company’s common stock. Amounts recorded as debt discounts were fully recognized and recorded in loss on extinguishment of debt as a result of the aforementioned debt conversions.

For Note C, 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 also secured by the August 25, 2021 SPAs between the Company and its senior secured lenders.

For Note D, on November 8, 2022, the Company sold a promissory note with a face value of $262,500 with an original issue discount of $12,500 to the Company’s senior secured lenders. This note bears interest at 6% per annum, is due November 8, 2023, and also is secured by the August 25, 2021 SPAs between the Company and its senior secured lenders.

For Note E, in November 2019, DragonWave entered into a secured loan agreement with an individual lender pursuant to which DragonWave received a $2.0 million loan bearing interest at the rate of 9.0% per annum that matured on November 26, 2021. Upon an event of default, the interest rate would have automatically increased to 15% per annum on any unpaid principal and interest, compounded monthly, and all unpaid principal and accrued interest would become due on-demand. Accrued interest was calculated on a compound basis and was payable semi-annually in May and November of each year. The note was secured by all of the assets of DragonWave and was guaranteed by ComSovereign pursuant to the November 26, 2019 Secured Loan Agreement. The debt issuance costs were the result of the issuance of 3,500 shares of common stock of the Company and a cash payment of $80,000. The Company defaulted on this loan during 2021, causing the interest rate to increase to a monthly compounded rate of 15% per annum, a late charge of 5% to be incurred, and the loan and accrued interest to become due on-demand. Amounts recorded as debt discounts and issuance costs were fully amortized and recognized in interest expense during 2021 as a result of the loan becoming due on-demand from the default event. On January 26, 2021, $1.0 million of the principal amount of this loan and all accrued interest with a combined total of $1.2 million, was fully extinguished at the rate of $415 per unit, as defined in our public offering, resulting in the issuance of 2,957 shares of issued common stock of the Company, along with warrants to purchase up to 2,957 shares of common stock that are exercisable for a purchase price of $450 per share at any time on or prior to January 26, 2026. This loan has been in default since November 26, 2021. During the year ended December 31, 2022, principal and interest of $0.5 million was paid in cash and the remaining interest and fees of $275,000 were compounded into principal outstanding. As of December 31, 2022, $0.8 million is outstanding under this loan.

For Note F, 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. The note was secured by all of the assets of Lighter Than Air Systems Corp. and was guaranteed by ComSovereign pursuant to the April 29, 2022 Secured Loan Agreement. On July 26, 2022, the Company received notice from the 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 2,400 shares of common stock to an advisor pursuant to an advisory agreement dated April 29, 2022. On March 14, 2023, the note was retro-amended to extend the maturity date to July 29, 2024 with an interest rate of 8% and the ability to convert principal and interest into shares of the Company’s common stock at a 10% discount to the closing price on which the conversion is elected effective September 15, 2023. In addition, the note became secured with a second priority security interest on the assets of its Lighter Than Air Systems Corp. (d/b/a Drone Aviation Corp) business and agreed to extend the term of the advisory for an additional two years pursuant to the original note and issue an additional 12,000 shares of the Company’s restricted stock per year while the note is outstanding. See Note 22 – Subsequent Events – Debt and Equity Developments for additional information.

For Note G, on January 29, 2021, the Company entered into a secured $5.2 million term loan that bore interest at the higher rate of 8% or LIBOR plus 6.75%, that matured in January 2022 in connection with our acquisition of the Tucson Building. That note was secured by a deed of trust on the Tucson Building. On January 31, 2022, we completed the sale of the Tucson Building and the principal of $5.2 million was repaid in cash from the proceeds of the building sale. See Note 11 – Property and Equipment, Net for additional information related to the Tucson Building sale.

For Note H, on December 6, 2022, the Company sold a secured $50,000 promissory note bearing no interest for the purchase of components for which the lender agreed to receive payments with a maturity date of June 30, 2023. The note was secured by the components purchased and was guaranteed by ComSovereign pursuant to the December 6, 2022 Agreement for the Purchase and Sale of Components. As a result of defaulting on the note, the interest rate was increased to the rate of 15% per annum.

For Note I, RF Engineering received an SBA loan in the principal amount of $150,000 bearing interest at 3.75% per annum and with a maturity date of May 15, 2050, and is secured by all the assets of RF Engineering pursuant to the May 15, 2020 Security Agreement between the Company and its secured lenders. In the event of default, all amounts past due under this note are subject to acceleration of principal and due on demand. As of December 31, 2022, interest of $4,000 was paid in cash and an aggregate amount of principal of $150,000 is in default under this loan.

For Note J, 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 December 31, 2022, the proceeds were recorded as a related party note in current liabilities. On March 31, 2023, the note was amended to extend the maturity date to December 31, 2023 with an interest rate of 5.5%.

For Note K, on July 29, 2022, the Company sold a promissory note in the principal amount of $26,250 with an original issue discount of 5.0% to the Company’s senior secured lenders. This note bears interest at 15% per annum and is due July 29, 2023. As of December 31, 2022, the principal amount of $26,250 remains unpaid.

For Note L, between April 30 and May 26, 2020, six of the Company’s subsidiaries received loan proceeds in the aggregate amount of $455,000 under the Paycheck Protection Program (“PPP”). The PPP loan had a maturity of 2 years and an interest rate of 1% per annum. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable pursuant to section 1106 of the CARES Act, after a period of up to 24 weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness shall be calculated in accordance with the requirements of the PPP, including the provisions of Section 1106 of the CARES Act, although no more than 40 percent of the amount forgiven can be attributable to non-payroll costs. Further, the amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period of up to 24 weeks. During the year ended December 31, 2021, an aggregate amount of $0.7 million had been forgiven under these loans. Additional PPP loans were applied for in 2021 and were forgiven in 2021. During the year ended December 31, 2022, the remaining aggregate principal of $2,000 of these notes was fully repaid.

For Note M, on June 3, 2021, in connection with the acquisition of Innovation Digital, the Company issued to the seller a convertible promissory note in the principal amount of $0.6 million. The convertible promissory bears interest at the rate of 5% per annum, matures on June 3, 2022 and is convertible into shares of the Company’s common stock commencing on December 3, 2021 at an initial conversion price of $235 per share; provided, however, that on the maturity date, the holder may (i) demand payment of the entire outstanding principal balance and all unpaid accrued interest under Convertible Note or (ii) continue to hold the Convertible Note, in which case the convertible note shall thereafter accrue interest at the rate of 10% per annum, compounded annually, until such time as (x) the holder makes a demand of payment and the convertible note is repaid in full; or (y) the convertible note is converted in full. If the convertible note is converted into shares of the Company’s common stock after the maturity date of the convertible note, the conversion price will be the closing price of our common stock on the date the conversion notice is provided to the Company. On June 3, 2022, this note went into default. On June 23, 2022, the Company reached an agreement with the former owners of Innovation Digital to return to the former owners of Innovation Digital 15 patents and 5 pending or provisional patents to those former owners in return for the cancellation of the outstanding $600,000 promissory note, the return of 5,000 shares of common stock, and the waiver of certain severance payments. See Note 21 – Other Business Developments for additional information.

For Note N, on January 29, 2021, in connection with its acquisition of FastBack, the Company issued to the sellers $11.2 million aggregate principal amount of convertible promissory notes. The individual principal amounts of the notes ranged from $6,000 to $5,600,000. These notes initially bear interest at the rate of 1.01% per annum, which is to be adjusted to the prime rate as published by the Wall Street Journal on each annual anniversary of the issuance date and mature on January 29, 2026. Interest is payable in cash annually in arrears on each January 1. As of January 29, 2022, the outstanding principal and accrued interest on these notes may be converted in full to shares of the Company’s common stock at a conversion price of $522 per share, subject to adjustment. Upon an event of default, the interest rate will automatically increase to 15% per annum compounded annually, and all unpaid principal and accrued interest may become due on-demand. Principal and any unpaid accrued interest are due on the maturity date. Upon maturity, the interest rate will automatically increase to 15% per annum compounded annually on any unpaid principal. On May 24, 2022, the Company received notice from counsel for holders of $11.2 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. While the note holders have the right to accelerate the maturity of the principal, the notice simply indicated that the holders were reserving their rights. As of December 31, 2022, an aggregate of $1.3 million of principal is classified as long-term debt pursuant to post-December 31, 2022 special conversions of principal and accrued interest into 280,625 shares of the Company’s common stock, pursuant to a limited time offer for conversions at a discounted rate of 81% of the closing market price of the Company’s common stock on the day special conversion notices were received. See Note 22 – Subsequent Events – Debt and Equity Developments for additional information.

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

All debt agreements are subject to customary events of default. If an event of default occurs with respect to the debt agreements and is continuing, the lenders may accelerate the applicable amounts due. The Company is in default on several debt agreements and has accrued the proper penalties or disclosed any additional contingencies that resulted from the default.

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

(Amounts in thousands)	Total
2023		11,647
2024		550
2025		-
2026		-
2027		-
Thereafter		1,345
Total	$	13,542