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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  ComSovereign Holding Corp.    COMS

COMSOVEREIGN HOLDING CORP.

(COMS)
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COMSOVEREIGN : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/20/2020 | 03:44pm EST
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" of our fiscal 2019 Annual Report
on Form 10-K filed with the Securities and Exchange Commission (the "SEC")
on
July 6, 2020.


Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2020 and 2019 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 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 and
nine months ended September 30, 2020 compared to three months ended September
30, 2019 and the period January 10, 2019 (Inception) to September 30, 2019
unless otherwise indicated.



Business Overview


We are a provider of technologically-advanced telecom solutions to network
operators, mobile device carriers, governmental units and other enterprises
worldwide. We have assembled a portfolio and partnership of communications,
power, and niche technologies, capabilities, and products that enable upgrading
latent 3G networks to 4G and 4G-LTE networks. Our products facilitate the rapid
rollout of the 5G and "next-Generation" ("nG") networks of the future. We focus
on special 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 compete globally on the basis of our innovative technology, the breadth of
our broad 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 and 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.



                                       38





ComSovereign Acquisition



On November 27, 2019, we completed the acquisition (the "ComSovereign
Acquisition") of ComSovereign Corp, a Delaware corporation ("ComSovereign"), in
a stock-for-stock transaction with a total purchase price of approximately $75
million. The ComSovereign Acquisition was treated as a reverse merger for
accounting purposes under U.S. GAAP with ComSovereign as the accounting acquirer
and our company as the accounting acquiree. As a result, our Condensed
Consolidated Financial Statements included in this Quarterly Report are those of
ComSovereign for the three months ended September 30, 2019 and the period
January 10, 2019 (Inception) to September 30, 2019 and those of our company for
the three- and nine-month period ended September 30, 2020. The operations of our
pre-acquisition business, which consisted primarily of the operations of Drone
Aviation, are included in our consolidated operating results only for the three-
and nine-month periods ended September 30, 2020.



Our Operating Units


Through a series of acquisitions, we and our operating subsidiaries have expanded our service offerings and geographic reach over the past two years. Our company is comprised of the following principal operating units:

? DragonWave-X LLC. DragonWave-X, LLC and its operating subsidiaries,

           DragonWave Corp. and DragonWave-X Canada, Inc. (collectively,
           "DragonWave"), a Dallas-based manufacturer of high-capacity microwave
           and millimeter point-to-point telecom backhaul radio units, was
           acquired by ComSovereign in April 2019. 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.



? Virtual Network Communications Inc.Virtual Network Communications

           Inc., ("VNC") is a Virginia-based edge centric wireless
           telecommunications technology developer and equipment

manufacturer of

           both 4G LTE Advanced and 5G capable radio equipment.  VNC designs,
           develops, manufactures, markets, and supports a line of network
           products for wireless network operators, mobile virtual network
           operators, cable TV system operators, and government and business
           enterprises that enable new sources of revenue, and reduce

capital and

           operating expenses.  VNC is reinventing how wireless networks service
           mission-critical communications for Public Safety, Homeland Security,
           Department of Defense and commercial Private Network users.  We
           envision the future of virtualized micro networks blanketing the globe
           without expensive terrestrial based radio towers and building
           installation. VNC's patented technology virtualizes entire LTE Advanced
           and 5G core and radio solutions.  Our products eliminate much of the
           costly backbone equipment of telecom networks. VNC also has developed
           rapidly deployable, tactical systems that can be combined with the
           tethered aerostats and drones, including from COMSovereign'sDrone
           Aviation subsidiary, enabling operating in nearly any location in the
           world.  We acquired VNC in July 2020.




       ?   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 aircraft systems (UASs),
           including lighter-than-air aerostats and multi-rotor drones that
           support surveillance sensors and communications networks. We acquired
           Drone Aviation in November 2019.




       ?   InduraPower, Inc.InduraPower Inc. ("InduraPower") is a Tucson,
           Arizona-based developer and manufacturer of intelligent

batteries,

           battery management systems, and back-up power supplies for 

network

           systems and telecom nodes. It also provides power designs and 

batteries

           for the aerospace, marine and automotive industries. We acquired
           InduraPower in January 2019.



? Silver Bullet Technology, Inc.Silver Bullet Technology, Inc. ("Silver

           Bullet") is a California-based engineering firm that designs and
           develops next generation self-organized networks and systems, 

including

           large-scale mesh network protocol development, software-defined 

radio

           systems, and wireless communications equipment. We acquired 

Silver

           Bullet in March 2019.



? Lextrum, Inc.Lextrum, Inc. ("Lextrum") is a Tucson, Arizona-based

           developer of in band full-duplex wireless technologies and 

components,

           including multi-reconfigurable radio frequency (RF) antennae and
           software programs. This duplexing technology enables doubling 

the

           capacity of a given spectrum band by allowing simultaneous 

transmission

           and receipt of radio signals on the same frequencies. We acquired
           Lextrum in April 2019.




                                       39





       ?   VEO ("VEO"), based in San Diego, California, is a research and
           development company innovating Silicon Photonics (SiP)

technologies for

           use in copper-to-fiber-to-copper switching, high-speed

computing,

           optical transport networks, autonomous vehicle applications, mobile
           devices, and 5G wireless equipment. ComSovereign acquired VEO in
           January 2019.



? Sovereign Plastics LLC. Sovereign Plastics LLC ("Sovereign Plastics"),

           based in Colorado Springs, Colorado, operates as the material,
           component manufacturing and supply chain source for all of our
           subsidiaries, and also provides plastics and metal components to
           third-party manufacturers. Its ability to rapidly prototype new product
           offerings and machine moldings, metals and plastics castings has
           reduced the production cycle for many of our components from

months to

           days. We acquired Sovereign Plastics in March 2020.




On August 24, 2020, we entered into an Agreement and Plan of Merger and
Reorganization dated as of August 24, 2020 (the "FN Merger Agreement") among our
Company and our wholly-owned subsidiary, CHC Merger Sub 8, LLC, Skyline Partners
Technology LLC, a Colorado limited liability company that does business under
the name Fastback Networks ("Fastback"), and John Helson, solely in his capacity
as the representative of the security holders of Fastback, pursuant to which,
subject to the terms and conditions of the FN Merger Agreement, we have agreed
to acquire Fastback. We believe Fastback has been a leader in the development
and commercialization of innovative intelligent backhaul radio (IBR) systems
that deliver high-performance wireless connectivity to virtually any location
including those challenged by Non-Line of Sight (NLOS) limitations. Fastback's
advanced IBR products allow operators to economically add capacity and density
to their macrocells 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. Fastback has a U.S. patent portfolio comprised of 65 granted and
12 pending patents. Collectively the patent portfolio covers key technologies
including antenna arrays, signal processing, adaptive antennas,
beamforming/steering, self-optimizing networks, spectrum sharing and hybrid
band
operations.


Pursuant to the FN Merger Agreement, the aggregate merger consideration we are
obligated to pay for Fastback will consist of (i) $1,250,000 in cash,
(ii) $1,500,000 aggregate principal amount of our term debentures, and
(iii) $11,150,000 aggregate principal amount of our convertible debentures that
are convertible into our common stock at a conversion price of $1.74 per share,
subject to adjustment. Our proposed acquisition of Fastback is subject to the
condition that we raise at least $12 million of gross proceeds from the sale of
our equity or debt securities and certain other customary closing conditions.



Significant Components of Our Results of Operations



Revenues



Our revenues are generated primarily from the sale of our products, which
consist primarily of wireless telecommunications equipment and unmanned aerial
systems. 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.


We expect our total revenues for the year ending December 31, 2020 to materially exceed those of fiscal 2019 for the following reasons:



       ?   ComSovereign experienced working capital shortages during fiscal 2019
           due in part to preparatory actions, including manufacturing line
           readiness and subsidiary integration actions, which impeded the ability
           of DragonWave to have products manufactured and shipped during the
           period. As of September 30, 2020, we had a backlog of orders for our
           mobile network backhaul products in the amount of $281,879 with the
           majority of the products scheduled to be shipped in the next six
           months.




       ?   Our fiscal 2019 revenues did not include the 2019 revenues of Drone
           Aviation prior to November 27, 2019. In 2020, we will include all of
           the revenues of Drone Aviation in our consolidated results of
           operations.




       ?   During fiscal 2019, we received only nominal revenues from the sale of
           prototype intelligent battery back-up power solutions. In the fourth
           quarter of 2020, we expect to commence commercial production of our
           intelligent batteries for the telecom, aerospace and

transportation

           industries, which we expect will increase our revenues in 2020 from the
           sale of those products.




During fiscal 2019, approximately 34% of our sales were to customers located
outside of the United States, primarily in Saudi Arabia and Canada. We expect
that, over the short term, the percentage of our sales to foreign customers will
increase during the build-up of 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
DragonWave's microwave products to a single third-party manufacturer, Benchmark
Electronics, Inc., which manufactures our products from its facilities. 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.



                                       40




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 expenses 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 into its own
category.



Research and Development



In addition to personnel-related costs, research and development expense
consists of costs associated with the design and development of our products,
product certification, travel and recruiting. 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. We expect general and administrative expense to increase in
absolute dollars as we continue to expand our product offerings and expand into
new markets. During fiscal 2021, we expect to incur increases in supporting
overhead costs, professional fees, transfer agent fees and expenses; development
costs and other expenses related to operating as a public company.



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.



Share-Based Compensation



Share-based compensation consists of expense related to the issuance of common
stock, 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 stock grant
will vary depending upon the number of shares of common stock to be issued, the
fair value of the common stock on the date of grant and the vesting period.


                                       41





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. As many of our
debt instruments are currently past due and, as a result, are accruing interest
at increased interest rates, if we are able to refinance our debt or issue
equity to reduce our outstanding debt, our interest expense would decrease due
to lower interest rates on our debt or lower debt balances.



Provision for Income Taxes



On our Condensed Consolidated Financial Statements, a tax benefit of $3,501,204
was reported for the period January 10, 2019 (Inception) to September 30, 2019,
but no tax benefit has been reported for the three or nine months ended
September 30, 2020, as the potential tax benefit is offset by a valuation
allowance of the same amount. We have recorded a 100% valuation allowance
against net deferred tax assets due to the uncertainty of their ultimate
realization. Management assesses our deferred tax assets in each reporting
period, and if it is determined that it is not more likely than not to be
realized, we will record a change in our valuation allowance in that period.



Results of Operations



                                                                                                   January 10,
                                                                               Nine Months             2019
                                                 Three Months Ended               Ended           (Inception) to
                                                   September 30,              September 30,       September 30,
(Amounts in US$'s, except share data)          2020              2019      
       2020                2019
Revenue                                    $   2,018,363$  2,573,431$    7,513,660$      3,576,342
Cost of Goods Sold                               859,661        1,130,750          3,473,293            2,019,020
Gross Profit                                   1,158,702        1,442,681          4,040,367            1,557,322

Operating Expenses
Research and development (1)                     561,942          118,635          1,263,427              179,599
Sales and marketing (1)                              898              387             30,523                4,202
General and administrative (1)                 4,471,121        4,634,711         13,151,442            9,027,646
Depreciation and amortization                  2,908,572        2,440,581          8,653,635            4,918,800
Total Operating Expenses                       7,942,533        7,194,314         23,099,207           14,130,247
Net Operating Loss                            (6,783,831 )     (5,751,633 )      (19,058,660 )        (12,572,925 )
Other Income (Expense)
Interest expense                              (3,349,964 )     (1,598,732 )       (5,707,840 )         (1,961,334 )
Other income (expense)                          (128,754 )         95,266           (128,778 )             95,266
Loss on extinguishment of debt                   (21,882 )              -            (21,882 )                  -
Foreign currency transaction gain/(loss)         (46,587 )       (133,893 )
          (6,799 )            108,333
Loss on investment                                   (24 )              -                (24 )                  -
Interest income                                      213                7              1,268                    7
Gain on the sale of assets                             -          128,749                663              325,838
Total Other Expenses                          (3,546,998 )     (1,508,603 )       (5,863,392 )         (1,431,890 )
Net Loss Before Income Taxes                 (10,330,829 )     (7,260,236 )
     (24,922,052 )        (14,004,815 )
Deferred Tax Benefit                                   -        1,815,059                  -            3,501,204
Net Loss                                   $ (10,330,829 )$ (5,445,177 )$  (24,922,052 )$    (10,503,611 )
Loss per common share:
Basic                                      $       (0.08 )$      (0.12 )$        (0.19 )   $          (0.27 )
Diluted                                    $       (0.08 )$      (0.12 )$        (0.19 )   $          (0.27 )
Weighted-average shares outstanding:
Basic                                        132,649,621       43,953,888        132,466,532           39,103,721
Diluted                                      132,649,621       43,953,888        132,466,532           39,103,721




                                       42





Three and Nine months Ended September 30, 2020 compared to Three Months Ended
September 30, 2019 and the period January 10, 2019 (Inception) to September
30,
2019


From the date of its incorporation (January 10, 2019) until the date of its
first acquisition, as described above, ComSovereign had no business operations.
ComSovereign's entire activity after its inception date through the date of
consummation of the ComSovereign Acquisition was limited to the evaluation of
and consummation of business acquisition transactions as well as preparatory
actions, including manufacturing line readiness and subsidiary integration
actions, which impeded the ability of DragonWave to have products manufactured
and shipped during the period. For the period January 10, 2019 (Inception) to
September 30, 2019, ComSovereign generated only nominal revenues.



Total Revenues



For the three months ended September 30, 2020, total revenues were $2,018,363
compared to $2,573,431 for the same period in 2019, which were derived primarily
from mobile network backhaul products and to a lesser extent, from the sale of
our aerostat products and accessories after November 27, 2019, the date of the
ComSovereign Acquisition, and from the test-market sale of certain
high-performance after-market models of our intelligent batteries.



 For the nine months ended September 30, 2020, total revenues were $7,513,660
compared to $3,576,342 for the period January 10, 2019 (Inception) to September
30, 2019, which were derived primarily from mobile network backhaul products and
to a lesser extent, from the sale of our aerostat products and accessories after
November 27, 2019, the date of the ComSovereign Acquisition, and from the
test-market sale of certain high-performance after-market models of our
intelligent batteries.



Cost of Goods Sold and Gross Profit




For the three months ended September 30, 2020, cost of goods sold were $859,661
compared to $1,130,750 for the same period in 2019, which primarily consisted of
the payment to our contact manufacturer for the production of our mobile network
backhaul products and the materials, parts and labor associated with the
manufacturing of our aerostat products and accessories, and our intelligent
batteries. Gross profit for the three months ended September 30, 2020 was
$1,158,72 with a gross profit margin of 57% compared to $1,442,681 for the same
period in 2019 with a gross profit margin of 56%.



For the nine months ended September 30, 2020, cost of goods sold were $3,473,293
compared to $2,019,020 for the period January 10, 2019 (Inception) to September
30, 2019, which primarily consisted of the payment to our contact manufacturer
for the production of our mobile network backhaul products and the materials,
parts and labor associated with the manufacturing of our intelligent batteries.
Gross profit for the nine months ended September 30, 2020 was $4,040,367 with a
gross profit margin of 54% for the same period compared to $1,557,322 for the
period January 10, 2019 (Inception) to September 30, 2019 with a gross profit
margin of 44% for the same period.



These changes in gross profit margin resulted primarily from the increased gross
profit margin of DragonWave during the nine months ended September 30, 2020 and
the acquisitions of Drone Aviation and Sovereign Plastics on November 27, 2019
and March 6, 2020, respectively. As described above, for the period January 10,
2019 (Inception) to September 30, 2019, ComSovereign generated only nominal
revenues. DragonWave's sales and gross profit margin increased following the
preparatory actions performed in 2019, including manufacturing line readiness
and subsidiary integration actions.



Research and Development Expense




For the three months ended September 30, 2020, research and development expenses
were $561,942 compared to $118,635 for the same period in 2019, which primarily
consisted of payroll and related costs.



For the nine months ended September 30, 2020, research and development expenses
were $1,263,427 compared to $179,599 for the period January 10, 2019 (Inception)
to September 30, 2019, which primarily consisted of payroll and related costs.



These increases in research and development expenses resulted from multiple new technology integration efforts across our subsidiaries, including expenses related to additional contracted engineering services teams.



Sales and Marketing Expense


For the three months ended September 30, 2020, sales and marketing expenses were
$898 compared to $387 for the same period in 2019, which primarily consisted of
payroll and related costs.


For the nine months ended September 30, 2020, sales and marketing expense was $30,523 compared to $4,202 for the period January 10, 2019 (Inception) to September 30, 2019, which primarily consisted of payroll and related costs.



                                       43




General and Administrative Expenses




For the three months ended September 30, 2020, general and administrative
expenses were $4,471,171 compared to $4,634,711 for the same period in 2019.
Such expenses primarily consisted of payroll and related costs of $2,532,674,
business overhead costs of $174,193, bad debt expense of $975,340, professional
fees of $528,135, rent of $425,644 and travel of $21,099 recorded in the third
quarter of 2020 and payroll and related costs of $3,531,050, professional fees
of $385,481, business overhead costs of $93,000 and rent of $432,556 recorded in
the third quarter of 2019.



For the nine months ended September 30, 2020, general and administrative
expenses were $13,151,442 compared to $9,027,646 for the period January 10, 2019
(Inception) to September 30, 2019. Such expenses primarily consisted of payroll
and related costs of $6,573,104, business overhead costs of $520,674,
professional fees of $3,818,351, rent of $909,226 and travel of $139,347
recorded during the first nine months of 2020 and payroll and related costs of
$3,978,082, shared based compensation of $352,000 and professional fees of
$2,653,223 recorded during the period January 10, 2019 (Inception) to September
30, 2019. The increase is due mostly to higher head-count related expenses due
to acquisitions and higher legal and accounting fees related to public company
expense.



Depreciation and Amortization



For the three months ended September 30, 2020, depreciation and amortization
were $2,908,572 compared to $2,440,581 for the same period in 2019, which
primarily included $2,621,315 and $2,243,135 of amortization on definite-lived
intangible assets, respectively, $5,412 of amortization of finance lease
right-of-use asset in current year and none in the previous, and $281,845 and
$197,446 of depreciation on test equipment, research and development equipment,
computer hardware, production fixtures and leasehold improvements,
respectively.



For the nine months ended September 30, 2020, depreciation and amortization were
$8,653,635 compared to $4,918,800 for the period January 10, 2019 (Inception) to
September 30, 2019, which primarily included $7,847,434 and $4,614,131 of
amortization on definite-lived intangible assets, respectively, $8,400 of
amortization of finance lease right-of-use asset in current year and none in
previous, and $797,801 and $304,669 of depreciation on test equipment, research
and development equipment, computer hardware, production fixtures and leasehold
improvements, respectively. This increase is driven primarily through the
realization of full periods of depreciation and amortization for acquisitions
that occurred during 2019 as well as additional acquisitions in the current
year.



Other Income and Expenses



For the three months ended September 30, 2020, total other expenses were
$3,546,998 compared to total other expenses of $1,508,603 for the same period in
2019. This increase primarily consisted of $3,349,964 of interest expense and
amortized discounts on our outstanding debt and a $46,587 loss on foreign
exchange transactions partially offset by $213 of interest income recorded in
the third quarter of 2020 and $1,598,732 of interest expense and amortized
discounts on our outstanding debt and a $133,893 loss on foreign exchange
transactions and $128,749 of proceeds from the disposal of property and
equipment recorded in the third quarter of 2019.



For the nine months ended September 30, 2020, total other expenses were
$5,863,392 compared to total other expenses of $1,431,890 for the period January
10, 2019 (Inception) to September 30, 2019. This increase primarily consisted of
$5,707,840 of interest expense and amortized discounts on our outstanding debt
and a $24 loss on our investments, which was partially offset by a $6,799 loss
on foreign exchange transactions and $663 of proceeds from the disposal of
property and equipment recorded during the first nine months of 2020 and
$1,961,334 of interest expense and amortized discounts on our outstanding debt,
which was partially offset by a $108,333 gain on foreign exchange transactions
and $325,838 of proceeds from the disposal of property and equipment recorded
during the period January 10, 2019 (Inception) to September 30, 2019.



Provision for Income Taxes



For the three months ended September 30, 2020, there was no provision for income
taxes due to an increase in the valuation allowance of $2,648,200 recorded on
the total tax provision, because we believe that it is more likely than not that
the tax asset will not be utilized during the next year.



                                       44





Net Loss



For the three months ended September 30, 2020, we had a net loss of $5,445,177
compared to a net loss of $7,260,236 for the same period in 2019, related to the
items described above.


For the nine months ended September 30, 2020, we had net loss of $24,922,052 compared to a net loss of $10,503,611 for the period January 10, 2019 (Inception) to September 30, 2019, related to the items described above.



Going Concern


The accompanying unaudited consolidated financial statements and notes have been
prepared assuming we will continue as a going concern. For the three months
ended September 30, 2020, we generated negative cash flows from operations of
$4,462,866 and had an accumulated deficit of $52,467,307 and negative working
capital of $18,978,529.



Management anticipates that we will be dependent, for the near future, on
additional investment capital to fund growth initiatives. We intend to position
ourselves so that we will be able to raise additional funds through the capital
markets and secure lines of credit. We anticipate an approximately $20,000,000
offering of equity securities in the fourth quarter of 2020.



Our fiscal operating results, accumulated deficit, and negative working capital,
among other factors, raise substantial doubt about our ability to continue as a
going concern. However, we believe the fundraising actions outlined above, and
our future operating cash flows, will enable us to meet our liquidity
requirements through September 2021. There can be no assurance that we will be
successful in any capital-raising efforts that we may undertake, and our failure
to raise additional capital could adversely affect our future operations and
viability.


Liquidity and Capital Resources




Liquidity is the ability of an enterprise to generate adequate amounts of cash
to meet its needs for cash requirements. As of September 30, 2020, we had
$505,053 in cash compared to $812,452 at December 31, 2019, a decrease of
$307,399. As of September 30, 2020, we had $893,407 in accounts receivable
compared to $2,168,659 at December 31, 2019, a decrease of $1,275,252 resulting
from increased collections in the first nine months of 2020.



As of September 30, 2020, we had total current assets of $7,403,605 and total
current liabilities of $26,382,134, or negative working capital of $18,978,529,
compared to total current assets of $8,665,369 and total current liabilities of
$15,142,599, or negative working capital of $6,477,230 at December 31, 2019.
This is a decline of more than $12,501,299 over the working capital balance
at
the end of 2019.


On or prior to September 30, 2021, we have undiscounted obligations relating to the payment of indebtedness as follows:



  ? $1,849,518 related to secured notes payable that are past due;




  ? $5,115,676 related to notes payable that are past due;




  ? $84,000 related to senior debentures that are past due;




  ? $374,137 related to convertible notes payable that are past due;

? $8,185,333 related to indebtedness that are due in the fourth quarter of 2020

? $23,043 related to indebtedness that are due in the first quarter of

           2021; and



? $23,348 related to indebtedness that are due in the second quarter of 2021.

? $23,657 related to indebtedness that are due in the third quarter of 2021.





We anticipate meeting our cash obligations on our indebtedness that is payable
on or prior to September 30, 2021, primarily from an offering of our equity
securities in the fourth quarter of 2020 and, to a lesser extent, from earnings
from operations, including, in particular, DragonWave, which was acquired in
April 2019, and VNC, which was acquired in July 2020. If we are not successful
in obtaining additional financing when required, we expect that we will be able
to renegotiate and extend certain of our notes payable as required to enable us
to meet our debt obligations as they become due, although there can be no
assurance that we will be able to do so.



                                       45





Our future capital requirements for our operations will depend on many factors,
including the profitability of our businesses, the number and cash requirements
of other acquisition candidates that we pursue, and the costs of our operations.
We have been investing in research and development in anticipation of increasing
revenue opportunities in our cellular network solutions business, which has
contributed to our losses from operations. Our management has taken several
actions to ensure that we will have sufficient liquidity to meet our obligations
through September 30, 2021, including the reduction of certain general and
administrative expenses such as travel, facilities cost and downsizing.
Additionally, if our actual revenues are less than forecasted, we anticipate
implementing headcount reductions to a level that more appropriately matches the
then-current revenue and expense levels. We also are evaluating other measures
to further improve our liquidity, including, the sale of equity or debt
securities and entering into joint ventures with third parties. Lastly, we may
elect to reduce certain related-party and third-party debt by converting such
debt into common shares. Since April 2020, we have entered into agreements with
certain debt holders to extend the maturity dates on such debt. In the third
quarter of 2020, we converted or exchanged $4,85 million of outstanding
indebtedness for equity, in October 2020, we agreed to exchange an additional
$1.4 million of indebtedness for equity, and we are in discussions with certain
other creditors regarding the conversion or exchange of additional indebtedness
for equity. We are currently in discussions with potential investors regarding
the sale of our equity securities to enhance our liquidity position and
anticipate an approximately $20 million offering of equity securities in the
fourth quarter of 2020. Our management believes that these actions will enable
us to meet our liquidity requirements through September 30, 2021. There is no
assurance that we will be successful in any capital-raising efforts that we may
undertake to fund operations during the next 12 months.



We plan to generate positive cash flow from our recently completed acquisitions
to address some of our liquidity concerns. However, to execute our business
plan, service our existing indebtedness, finance our proposed acquisitions and
implement our business strategy, we anticipate that we will need to obtain
additional financing from time to time and may choose to raise additional funds
through public or private equity or debt financings, a bank line of credit,
borrowings from affiliates or other arrangements. We cannot be sure that any
additional funding, if needed, will be available on terms favorable to us or at
all. Furthermore, any additional capital raised through the sale of equity or
equity-linked securities may dilute our current stockholders' ownership in us
and could also result in a decrease in the market price of our common stock. The
terms of those securities issued by us in future capital transactions may be
more favorable to new investors and may include the issuance of warrants or
other derivative securities, which may have a further dilutive effect. We may
also be required to recognize non-cash expenses in connection with certain
securities we issue, such as convertible notes and warrants, which may adversely
impact our financial condition. Furthermore, any debt financing, if available,
may subject us to restrictive covenants and significant interest costs. There
can be no assurance that we will be able to raise additional capital, when
needed, to continue operations in their current form.



We had capital expenditures of $96,852 during the nine-month period ended September 30, 2020. We expect our capital expenditures for next 12 months will be consistent with our prior spending. These capital expenditures will be primarily utilized for equipment needed to generate revenue and for office equipment. We expect to fund such capital expenditures out of our working capital.

Line of Credit and Debt Agreements

Summary information with respect to our debt agreements or other credit facilities is set forth in Notes 15 and 23 of the Notes to the Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report.

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Financials (USD)
Sales 2019 4,71 M - -
Net income 2019 -27,5 M - -
Net Debt 2019 10,3 M - -
P/E ratio 2019 -1,51x
Yield 2019 -
Capitalization 305 M 305 M -
EV / Sales 2018
EV / Sales 2019 8,27x
Nbr of Employees 80
Free-Float 40,9%
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Managers
NameTitle
Daniel L. Hodges Chairman & Chief Executive Officer
John E. Howell President & Director
Brian T. Mihelich Chief Financial Officer
Dustin McIntire Chief Technology Officer
David V. Aguilar Director
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