UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~ June 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File No. 001-39379

COMSOVEREIGN HOLDING CORP.

(Exact name of registrant as specified in its charter)

Nevada		46-5538504
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6890 E Sunrise Drive, Suite 120-506, Tucson, AZ		85750
(Address of principal executive office)		(Zip Code)

(~~904~~206) ~~834~~ 796-~~4400~~0173

(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
Common Stock, par value $0.0001 per share	COMS	The Nasdaq Stock Market LLC
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 ☐ No ☒

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 ☐ No ☒

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	☐
Non-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 ~~February~~January 238, ~~2023~~2024, there were 2,~~683~~695,~~571~~ 238 shares of registrant’s common stock outstanding.

TABLE OF CONTENTS

			PAGE
PART I	FINANCIAL INFORMATION
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	1
Item 1.	Financial Statements (unaudited)		1
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	1
	Condensed Consolidated Balance Sheets as of September 30 2022 and December 31, 2021		1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022.	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30 2022 and 2021.		2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) for the Three and Six Months Ended June 30, 2023 and 2022.	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30 2022 and 2021.		3 - 4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022.	4 – 5
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30 2022 and 2021.		5 - 6
	Notes to the Condensed Consolidated Financial Statements	6
	Notes to the Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		35
Item 4.	Controls and Procedures	30
Item 4.	Controls and Procedures		35
PART II	OTHER INFORMATION
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors	31
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Default Upon Senior Securities	31
Item 3.	Default Upon Senior Securities		37
Item 4.	Mine Safety Disclosures	33
Item 4.	Mine Safety Disclosures		38
Item 5.	Other Information	33
Item 5.	Other Information		38
Item 6.	Exhibits	33
Item 6.	Exhibits		39
	Signatures	34
	Signatures		40

PART I. FINANCIAL INFORMATION

ITEM 1: Financial Statements

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	June 30,			December 31,
(Amounts in thousands, except share and per share data)	~~2022~~2023			~~2021~~2022
	(unaudited)
Assets
Current assets:
Cash	$	~~571~~2,399		$	1,~~873~~868
Accounts receivable, net		~~2,799~~333			1,~~376~~126
Inventory, net		73,~~017~~807			103,~~249~~966
Prepaid expenses		43,~~834~~445			63,~~936~~571
Other current assets		354			342
Note and obligation receivable - current		1,300			650
Assets of discontinued operations - current		-			809
Other current assets		137			150
Total current assets		15,575			21,585
Assets held for sale - current		-			651
Property and equipment, net		1,299			8,752
Total current assets		11,421			11,982
Operating lease right-of-use assets		1,183			3,000
Property and equipment, net		304			377
Intangible assets, net		6,453			15,460
Operating lease right-of-use assets		90			97
Goodwill		30,033			37,943
Intangible assets, net		1,166			1,428
Note receivable		2,000			-
Goodwill		6,612			7,310
Other assets – long term		47			215
Note and obligation receivable - long-term		1,300			1,350
Assets of discontinued operations - long term		-			1,574
Assets held for sale - long-term		-			2,374
Total assets	$	5620,~~590~~893		$	8824,~~529~~918
Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable	$	54,~~148~~054		$	3,~~610~~656
Accrued interest		~~496~~995			~~288~~477
Accrued liabilities		23,~~034~~794			13,~~048~~006
Accrued liabilities – related party		-			206
Accrued payroll		2,347			1,758
Accrued payroll		1,796			875
Contract liabilities - current		1,469			3,232
Contract liabilities, current		4,066			3,341
Accrued warranty liability - current		494			488
Accrued warranty liability - current		473			473
Operating lease liabilities - current		1,600			1,321
Operating lease liabilities - current		991			908
Note payable - related party		100			100
Notes payable – related party		100			-
Debt - current, net of unamortized discounts and debt issuance costs		11,813			11,536
Current portion of long-term debt; net of unamortized discounts and debt issuance costs		10,991			13,566
Liabilities held for sale - current		-			2,342
Liabilities of discontinued operations - current		-			911
Total current liabilities		26,666			27,916
Total current liabilities		26,095			25,226
Debt - long-term		550			1,895
Debt – long term		5,385			12,273
Contract liabilities - long-term		54			152
Contract liabilities – long term		118			74
Operating lease liabilities - long-term		9,527			9,816
Operating lease liabilities – long term		10,582			2,218
Liabilities held for sale - long-term		-			140
Liabilities of discontinued operations - long-term		-			587
Total liabilities		36,797			39,919
Total liabilities		42,180			40,378
Commitments and contingencies (Note 17)
Stockholders’ Equity
Stockholders’ Deficiency
Preferred stock, $0.0001 par value, 100,000,000 shares authorized; Series A Cumulative Redeemable Perpetual Preferred Stock, 690,000 shares designated, 320,000 shares issued and outstanding as of September 30, 2022 and December 2021		-			-
Preferred stock, $0.0001 par value, 100,000,000 shares authorized; Series A Cumulative Redeemable Perpetual Preferred Stock, 690,000 shares designated, 320,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		-			-
Common stock, $0.0001 par value, 300,000,000 shares authorized; 1,070,891 and 819,851 shares issued and 1,070,558 and 819,518 shares outstanding as of September 30, 2022 and December 2021, respectively		-			-
Common stock, $0.0001 par value, 300,000,000 shares authorized; 2,695,571 and 2,381,136 shares issued and 2,695,238 and 2,380,803 shares outstanding as of June 30, 2023 and December 31, 2022, respectively		-			-
Additional paid-in capital		~~271~~285,~~849~~971			~~266~~282,~~021~~582
Treasury stock, at cost, 333 shares as of September 30, 2022 and December 2021		(50	)		(50	)
Treasury stock, at cost, 333 shares as of June 30, 2023 and December 31, 2022		(50	)		(50	)
Accumulated deficit		(~~257~~301,~~412~~848	)		(~~217~~297,~~843~~556	)
Accumulated other comprehensive income		23			23
Total Stockholders’ Equity		14,410			48,151
Total Stockholders’ Deficiency		(15,904	)		(15,001	)
Total Liabilities and Stockholders’ Equity	$	56,590		$	88,529
Total Liabilities and Stockholders’ Deficiency	$	20,893		$	24,918

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended						For the Nine Months Ended
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	September 30,						September 30,
(Amounts in thousands, except share and per share data)	2023			2022			2023			2022
(Amounts in thousands, except share and per share data)	2022			2021			2022			2021
Revenue	$	3,496		$	2,088		$	3,979		$	4,141
Revenue	$	3,796		$	3,268		$	7,937		$	6,770
Cost of goods sold		809			2,981			1,110			4,464
Cost of goods sold		1,795			1,252			6,259			3,125
Gross profit (loss)		2,687			(893	)		2,869			(323	)
Gross profit		2,001			2,016			1,678			3,645
Operating expenses
Research and development (1)		7449			~~2,058~~536			~~1,782~~106			31,~~805~~708
Sales and marketing (1)		27-			~~292~~12			~~105~~-			~~449~~78
General and administrative (1)		21,~~672~~486			65,~~075~~396			133,~~848~~665			1911,~~486~~176
Depreciation and amortization (2)		702			3,593			1,705			10,548
Depreciation and amortization		68			262			137			1,003
Impairment (2)		(1,090	)		-			14,685			281
Impairment		-			15,775			896			15,775
Loss on sales (ID, DWXC) (3)		-			-			2,564			-
Loss (gain) on sales (ID, DWXC, SKS) (2)		-			2,564			(454	)		2,564
Loss on lease abandonment		~~305~~-			-11,329			~~11,634~~-			-11,329
Gain on the sale of assets		-			-			~~(8,441~~-	)		(838,441	)
Total operating expenses, net		21,~~690~~603			1235,~~018~~873			374,~~882~~350			3435,~~486~~191
Loss from operations		(689	)		(10,002	)		(36,204	)		(30,841	)
Income (loss) from operations		1,084			(36,766	)		(1,481	)		(35,514	)
Other expense
Interest expense		(~~755~~404	)		(~~723~~1,348	)		(~~2,982~~823	)		(12,~~705~~227	)
Other expense		-(42	)		~~(116~~-	)		-(42	)		~~(116~~-	)
Gain (loss) on extinguishment of debt		(512	)		300			(1,130	)		(4,479	)
Loss on extinguishment of debt		-			(445	)		-			(618	)
Foreign currency transaction loss		-			94			-			32
Loss on inducement of debt conversions		-			-			(1,946	)		-
Total other expense		(1,267	)		(445	)		(4,112	)		(6,268	)
Foreign currency transaction loss		-			(1	)		-			(1	)
Loss from continuing operations		(1,956	)		(10,447	)		(40,316	)		(37,109	)
Total other expense		(446	)		(1,794	)		(2,811	)		(2,846	)
Income (loss) from discontinued operations, net of tax		-			(242	)		747			(363	)
Income (loss) from continuing operations		638			(38,560	)		(4,292	)		(38,360	)
Net loss		(1,956	)		(10,689	)		(39,569	)		(37,472	)
Income from discontinued operations, net of tax		-			811			-			747
Dividend on preferred stock		(185	)		-			(493	)		-
Net income (loss)		638			(37,749	)		(4,292	)		(37,613	)
Net loss attributable to common stockholders	$	(2,141	)	$	(10,689	)	$	(40,062	)	$	(37,472	)
Dividend on preferred stock		(185	)		(185	)		(370	)		(308	)
Net loss per share
Net income (loss) attributable to common stockholders	$	453		$	(37,934	)	$	(4,662	)	$	(37,921	)
- Basic and diluted from continuing operations	$	(2.21	)	$	(14.51	)	$	(45.92	)	$	(55.90	)
Net income (loss) per share
- Basic and diluted from discontinued operations	$	-		$	(0.34	)	$	0.84		$	(0.55	)
- Basic and diluted from continuing operations	$	0.17		$	(0.45	)	$	(1.76	)	$	(0.46	)
- Basic and diluted from discontinued operations	$	-		$	0.01		$	-		$	0.01
Weighted average number of common shares outstanding
- Basic and diluted		~~967~~2,~~615~~693,971			~~719~~861,~~945~~264			~~888~~2,~~619~~643,236			~~663~~848,~~884~~467

(1)	These are exclusive of depreciation and amortization
(2)	See Note 12 - Goodwill and Other Intangible Assets for out-of-period adjustment.

⁽¹⁾	These are exclusive of depreciation and amortization

(32) ~~InnovationDigital~~Innovation Digital (“ID”), and DragonWave-X Canada (“DWXC”) were sold in 2022. Sky Sapience (“SKS”) was sold in 2023.

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

(unaudited)

	FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
	FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
												Accumulated
									Additional			Other										Total
(Amounts in thousands,	Preferred Stock				Common Stock				Paid-In			Comprehensive		Treasury Stock					Accumulated			Stockholders’
	Preferred Stock				Common Stock				Paid-In			Comprehensive		Treasury Stock					Accumulated			Stockholders’
except share data)	Shares		Amount		Shares		Amount		Capital			Income		Shares		Amount			Deficit			Equity
(Amounts in thousands, except share data)	Shares		Amount		Shares		Amount		Capital			Income		Shares		Amount			Deficit			Deficiency
Balance - January 1, 2022		320,000	$	-		819,851	$	-	$	266,021		$	23		333	$	(50	)	$	(217,843	)	$	48,151
Balance - January 1, 2023		320,000	$	-		2,381,136	$	-	$	282,582		$	23		333	$	(50	)	$	(297,556	)	$	(15,001	)
Issuance of common stock for conversion of debt		-		-		15280,~~761~~625		-		13,~~150~~547			-		-		-			-			13,~~150~~547
Issuance of common stock for exercise of options		-		-		2,097		-		31			-		-		-			-			31
Round ups pursuant to the reverse split		-		-		21,810		-		-			-		-		-			-			-
Preferred dividend		-		-		-		-		(123	)		-		-		-			-			(123	)
Share-based compensation		-		-		-		-		535			-		-		-			-			535
Net income		-		-		-		-		-			-		-		-			136			136
Balance - March 31, 2022		320,000		-		837,709		-		267,614			23		333		(50	)		(217,707	)		49,880
Issuance of common stock for conversion of debt		-		-		65,424		-		2,156					-		-			-			2,156
Issuance of common stock for the debt placement agent		-		-		2,400		-		81			-		-		-			-			81
Preferred dividend		-		-		-		-		(185	)		-		-		-			-			(185	)
Share-based compensation		-		-		-		-		~~410~~132			-		-		-			-			~~410~~132
Net loss		-		-		-		-		-			-		-		-			(374,~~749~~930	)		(374,~~749~~930	)
Balance - June 30, 2022		320,000		-		905,533		-		270,076			23		333		(50	)		(255,456	)		14,593
Balance - March 31, 2023		320,000		-		2,683,571		-		286,076			23		333		(50	)		(302,486	)		(16,437	)
Issuance of common stock for conversion of debt		-		-		165,358		-		2,057					-		-			-			2,057
Issuance of common stock for the debt placement agent		-		-		12,000		-		28			-		-		-			-			28
Preferred dividend		-		-		-		-		(185	)		-		-		-			-			(185	)
Share-based compensation		-		-		-		-		~~(99~~52	)		-		-		-			-			~~(99~~52	)
Net loss		-		-		-		-		-			-		-		-			(1,956	)		(1,956	)
Net income		-		-		-		-		-			-		-		-			638			638
Balance - September 30, 2022		320,000	$	-		1,070,891	$	-	$	271,849		$	23		333	$	(50	)	$	(257,412	)	$	14,410
Balance - June 30, 2023		320,000	$	-		2,695,571	$	-	$	285,971		$	23		333	$	(50	)	$	(301,848	)	$	(15,904	)

	FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
												Accumulated
									Additional			Other										Total
	Preferred Stock				Common Stock				Paid-In			Comprehensive		Treasury Stock					Accumulated			Stockholders’
(Amounts in thousands, except share data)	Shares		Amount		Shares		Amount		Capital			Income		Shares		Amount			Deficit			Equity
Balance - January 1, 2022		320,000	$	-		819,851	$	-	$	266,021		$	23		333	$	(50	)	$	(217,843	)	$	48,151
Issuance of common stock for conversion of debt		-		-		15,761		-		1,150			-		-		-			-			1,150
Issuance of common stock for exercise of options		-		-		2,098		-		31			-		-		-			-			31
Preferred dividend		-		-		-		-		(123	)		-		-		-			-			(123	)
Share-based compensation		-		-		-		-		535			-		-		-			-			535
Net income		-		-		-		-		-			-		-		-			136			136
Balance - March 31, 2022		320,000		-		837,710		-		267,614			23		333		(50	)		(217,707	)		49,880
Issuance of common stock for conversion of debt		-		-		65,423		-		2,156			-		-		-			-			2,156
Issuance of common stock for the debt placement agent		-		-		2,400		-		81			-		-		-			-			81
Preferred dividend		-		-		-		-		(185	)		-		-		-			-			(185	)
Share-based compensation		-		-		-		-		410			-		-		-			-			410
Net loss		-		-		-		-		-			-		-		-			(37,749	)		(37,749	)
Balance - June 30, 2022		320,000	$	-		905,533	$	-	$	270,076		$	23		333	$	(50	)	$	(255,456	)	$	14,593

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~CASH ~~EQUITY, continued~~FLOWS

(unaudited)

	FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
	For the Six Months Ended
													Accumulated
	June 30,
											Additional		Other										Total
(Amounts in thousands, except share data)	2023			2022
(Amounts in thousands,	Preferred Stock						Common Stock				Paid-In		Comprehensive		Treasury Stock					Accumulated			Stockholders’
Cash Flows From Operating Activities:
except share data)	Shares			Amount			Shares		Amount		Capital		Income		Shares		Amount			Deficit			Equity
Net loss	$	(4,292	)	$	(37,613	)
Balance - January 1, 2021		-		$	-			494,447	$	-	$	158,225	$	-		333	$	(50	)	$	(64,627	)	$	93,548
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for exercise of options		-			-			33		-		1		-		-		-			-			1
Income from discontinued operations, net of tax		-			(747	)
Common stock issued as vendor compensation		-			-			2,272		-		1,171		-		-		-			-			1,171
Depreciation		73			632
Common stock issued for conversion of debt		-			-			5,802		-		1,602		-		-		-			-			1,602
Amortization		64			371
Common stock issued for public offering		-			-			106,794		-		39,656		-		-		-			-			39,656
Impairment		896			15,775
Share-based compensation		-			-			667		-		356		-		-		-			-			356
Non-cash rent expense		900			241
Common stock issuance for extinguishment of debt and interest		-			-			27,516		-		12,383		-		-		-			-			12,383
Bad debt expense		-			51
Warrant issuance for extinguishment of debt and interest		-			-			-		-		4,394		-		-		-			-			4,394
(Gain) loss on sales (ID, DWXC, SKS) (1)		(454	)		2,604
Common stock issued for Sky Sapience Ltd. acquisition		-			-			25,552		-		9,071		-		-		-			-			9,071
Loss on lease abandonment		-			11,329
Net loss		-			-			-		-		-		-		-		-			(16,206	)		(16,206	)
Gain on the sale of assets		-			(8,441	)
Balance - March 31, 2021		-			-			663,083		-		226,859		-		333		(50	)		(80,833	)		145,976
Share-based compensation		184			945
Common stock issued for exercise of options		-			-			600		-		16		-		-		-			-			16
Amortization of debt discounts		7			1,289
Common stock issued as vendor compensation		-			-			76		-		-		-		-		-			-			-
Default interest charge		-			376
Share-based compensation		-			-					-		526		-		-		-			-			526
Loss on extinguishment of debt		-			618
Common stock issuance for Rvision, Inc. acquisition		-			-			20,000		-		5,500		-		-		-			-			5,500
Loss on inducement of debt conversions		1,946			-
Common stock issuance for Innovation Digital, LLC acquisition		-			-			31,653		-		7,343		-		-		-			-			7,343
Changes in operating assets and liabilities:
Warrant issuance for debt issuance costs		-			-			-		-		919		-		-		-			-			919
Accounts receivable, net		793			(702	)
Net loss		-			-			-		-		-		-		-		-			(10,577	)		(10,577	)
Inventory, net		159			3,056
Balance - June 30, 2021		-			-			715,412		-		241,163		-		333		(50	)		(91,410	)		149,703
Prepaid expenses		126			(378	)
Share-based compensation		-			-			-		-		652		-		-		-			-			652
Other assets		156			316
Common stock issuance for RF Engineering, LLC acquisition		-			-			9,928		-		2,204		-		-		-			-			2,204
Note receivable		-			(2,000	)
Warrant issuance for debt issuance costs		-			-			-		-		1,130		-		-		-			-			1,130
Accounts payable		324			94
Net loss		-			-			-		-		-		-		-		-			(10,689	)		(10,689	)
Accrued interest		836			173
Balance - September 30, 2021		-		$	-			725,340	$	-	$	245,149	$	-		333	$	(50	)	$	(102,099	)	$	143,000
Accrued liabilities		382			382
Contract liabilities		(1,861	)		1,281
Operating lease liabilities		(903	)		(1,386	)
Related party notes		-			(206	)
Other current liabilities		589			856
Total Adjustments		4,217			26,529
Net Cash Used In Operating Activities		(75	)		(11,084	)
Cash Flows From Investing Activities:
Proceeds from sale of SKS (1)		436			-
Proceeds from building sale, net of transaction costs		-			15,102
Purchases of property and equipment		-			(167	)
Net Cash Provided By Investing Activities		436			14,935
Cash Flows From Financing Activities:
Proceeds from issuance of related party note		-			100
Proceeds from issuance of debt		170			500
Preferred stock dividend		-			(246	)
Debt issuance costs		-			31
Repayment of debt		-			(7,580	)
Net Cash Provided By (Used In) Financing Activities		170			(7,195	)
Cash Flows Provided by Discontinued Operations		-			1,632
Net Increase (Decrease) In Cash		531			(1,712	)
Cash - Beginning of Period		1,868			1,873
Cash - End of Period	$	2,399		$	161

⁽¹⁾	Innovation Digital (“ID”) and DragonWave-X Canada (“DWXC”) were sold in 2022. Sky Sapience (“SKS”) was sold in 2023 and the proceeds shown are net of cash sold of $35,000.

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(unaudited)

	For the Nine Months Ended
	For the Six Months Ended
	September 30,
	June 30,
(Amounts in thousands, except share data)	~~2022~~2023			~~2021~~2022
Cash Flows From Operating Activities:
Supplemental Disclosures of Cash Flow Information:
Net loss	$	(39,569	)	$	(37,472	)
Cash paid during the period for:
Adjustments to reconcile net loss to net cash used in operating activities:
Interest	$	76		$	107
Income (loss) from discontinued operations, net of tax		(747	)		363
Non-cash investing and financing activities:
Depreciation		763			905
Issuance of common stock for debt placement agent	$	28		$	81
Amortization		942			9,643
Accrual of preferred dividends not paid yet	$	370		$	62
Impairment expense		14,685			5
Reclassification of assets and liabilities held for sale	$	543		$	-
Operating lease expense		461			281
Conversion of interest and penalty fees into debt	$	100		$	-
Inventory reserve		250			-
Issuance of common stock for conversions of debt and interest	$	3,547		$	3,306
Bad debt expense		200			681
Recognition of operating lease right-of-use asset and liability	$	25		$	10,052
Loss on sales (ID, DWXC) (1)		2,564			207
Prepaid deposits transferred to inventory	$	-		$	2,445
Loss on lease abandonment		11,634			-
Gain on the sale of assets		(8,441	)		-
Share-based compensation		846			(83	)
Amortization of debt discounts and debt issuance costs		1,901			1,534
Default interest charge		376			249
Share-based vendor payments		-			1,171
Loss on extinguishment of debt		1,130			4,479
Changes in operating assets and liabilities:
Accounts receivable, net		(1,541	)		(572	)
Inventory, net		2,951			(370	)
Prepaid expenses		(343	)		(5,560	)
Other current assets		(63	)		(224	)
Note receivable		(2,000	)		(6	)
Other non-current assets		(199	)		(6,838	)
Accounts payable		1,865			-
Accrued interest		296			-
Accrued liabilities		739			-
Contract liabilities		769			(1,331	)
Operating lease liabilities		(1,120	)		(183	)
Related party notes		(206	)		-
Other current liabilities		1,151			-
Total Adjustments		28,863			4,351
Net Cash Used In Operating Activities		(10,706	)		(33,121	)
Cash Flows From Investing Activities:
Business acquisitions, net of cash received		-			(4,495	)
Proceeds from building sale, net of transaction costs		15,102			-
Purchases of property and equipment		(167	)		(3,053	)
Acquisition of intangible assets		-			(1,234	)
Proceeds from disposal of property and equipment		-			83
Net Cash Provided By (Used In) Investing Activities		14,935			(8,699	)
Cash Flows From Financing Activities:
Proceeds from issuance of related party notes		100			(850	)
Proceeds from sale of common stock from offering		-			44,971
Proceeds from issuance of debt		526			14,155
Proceeds from exercise of options		31			17
Offering costs		-			(5,315	)
Preferred stock dividend		(246	)		-
Debt issuance costs		-			148
Repayment of debt		(7,574	)		(6,379	)
Net Cash (Used In) Provided By Financing Activities		(7,163	)		46,747
Net Cash Provided By (Used In) Discontinued Operations		1,632			(2,857	)
Net (Decrease) Increase In Cash		(1,302	)		2,070
Cash - Beginning of Period		1,873			690
Cash - End of Period	$	571		$	2,760

(1) InnovationDigital (“ID”), DragonWave-X Canada (“DWXC”)

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(unaudited)

	For the Nine Months Ended
	September 30,
(Amounts in thousands, except share data)	2022		2021
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	107	$	533
Non-cash investing and financing activities:
Issuance of common stock for debt placement agent	$	81	$	-
Accrual of preferred dividends not paid yet	$	247	$	-
Debt incurred to sellers for Skyline Partners Technology LLC	$	-	$	12,650
Issuance of common stock for Sky Sapience Ltd. acquisition	$	-	$	9,071
Issuance of common stock for Innovation Digital, LLC	$	-	$	7,344
Debt incurred to sellers for Innovation Digital, LLC	$	-	$	600
Issuance of common stock for RVision, Inc.	$	-	$	5,500
Issuance of common stock for RF Engineering & Energy Resource, LLC	$	-	$	2,204
Issuance of common stock for extinguishment of debt and interest	$	-	$	12,383
Issuance of warrants for extinguishment of debt and interest	$	-	$	4,394
Issuance of common stock for conversion of debt and interest	$	5,363	$	1,602
Issuance of warrants as debt issuance costs	$	-	$	2,049
Recognition of operating lease right-of-use asset and liability	$	10,052	$	1,217
Acquisition of building with secured note payable	$	-	$	4,480
Prepaid deposits transferred to inventory	$	2,445	$	862
Lease deposits recognized from Sky Sapience Ltd. Acquisition	$	-	$	11

The accompanying notes are an integral part of the condensed consolidated financial statements.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

(unaudited)

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.~~

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 and ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023, 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~~2022.

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 and financial position for the three and ~~nine~~six months ended June ~~September~~ 30, ~~2022~~2023 and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the operating results for the full year ending December 31, ~~2022~~2023 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 ~~September~~June 30, ~~2022~~2023 and for the three ~~months~~ and ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023 and ~~2021~~2022, 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~~2022 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on ~~August~~December 167, ~~2022~~2023.

Effective February ~~January 21~~10, ~~2021~~2023, the Company enacted a 1-for-3100 reverse stock split (the “2023 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.

Effective February 10, 2023, the Company enacted a 1-for-100 reverse stock split (the “2023 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.

Out-of-Period Adjustment (Error Correction)

See Note 12 – Goodwill and Other Intangible Assets for details related to an out-of-period adjustment (error correction).

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. These reclassifications had no effect on the previously reported results of operations or loss per share.

Correction of an Error

See Note 20 - Correction of an Error.

Principles of Consolidation

The unaudited condensed consolidated financial statements as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022, and for the three and ~~nine~~six months ended June ~~September~~ 30, ~~2022~~2023 and ~~2021~~2022, 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.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 June 30, 2022, the Company determined that it was more likely than not that certain reporting unit’s fair value was below their reporting unit’s carrying amount due to a decline in the Company’s market capitalization. Accordingly, it was necessary to perform interim impairment testing as of June 30, 2022. See Note 12 – Goodwill and Other Intangible Assets. As of September 30, 2022, the Company determined that it was not more likely than not that certain reporting units’ fair value was below their reporting units’ carrying amount and, therefore, no interim impairment testing was required as of September 30, 2022.6

~~In determining whether a quantitative assessment~~COMSOVEREIGN isHOLDING ~~required, the Company will evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount~~CORP. If, after performing the qualitative assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would perform the quantitative impairment test described in ASC 350. However, if, after applying the qualitative assessment, the entity concludes that it is not more than likely that the fair value is less than the carrying amount, the quantitative impairment test is not required. The Company bases these assumptions on its historical data and experience, industry projections, micro and macro general economic condition projections, and its expectations. The only reporting unit with a pre-impairment negative carrying value is Virtual NetCom, LLC.

~~The Company calculates the estimated fair value~~NOTES ofTO aCONDENSED ~~reporting~~CONSOLIDATED ~~unit~~FINANCIAL using the income approach. In evaluating the recoverability of goodwill, the Company estimates the fair value of its reporting units, which is determined using the income approach, and compares it to the carrying value. 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. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a point in time. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.STATEMENTS

JUNE 30, 2023

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 June 30, 2023, the Company determined that it was not more likely than not that the reporting unit’s fair value was below its carrying amount due to a decline in the Company’s market capitalization. Accordingly, it was not necessary to perform impairment testing as of June 30, 2023. However, please see Note 20 – Correction of an Error for details related to the recognition of additional 2022 impairment expense.

In determining whether a quantitative assessment is required, the Company will evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after performing the qualitative assessment, an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would perform the quantitative impairment test described in ASC 350. However, if, after applying the qualitative assessment, the entity concludes that it is not more than likely that the fair value is less than the carrying amount, the quantitative impairment test is not required. The Company bases these assumptions on its historical data and experience, industry projections, micro and macro general economic condition projections, and its expectations.

The Company calculates the estimated fair value of a reporting unit using a weighting of the income and market approaches and compares it to the carrying values. 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. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.

Discontinued Operations

On June 21, 2022, the Company completed the sale of its Sovereign Plastics business unit to TheLandersCompanies LLC for total consideration of $2.0 million in a secured note with interest of 5% and a maturity date of May 31, 2025. The results of Sovereign Plastics are reflected in the accompanying statements of operations for the three and six months ended June 30, 2022 as income from discontinued operations, net of tax (see Note 3 – Discontinued Operations and Assets and Liabilities Held for Sale for additional information).

Assets and Liabilities Held for Sale

On March 20, 2023, the Company completed the sale of its Sky Sapience business unit to Titan Innovations Ltd. for total consideration of $1.8 million. Accordingly, assets and liabilities of Sky Sapience are reflected in the accompanying condensed consolidated balance sheet as “Assets held for sale” and “Liabilities held for sale”, respectively, as of December 31, 2022 (see Note 3 –Discontinued Operations and Assets and Liabilities Held for Sale for additional information).

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 September 30, 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

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~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 June 30, 2023 and December 31, 2022 approximated their fair value due to their short-term nature.

~~Discontinued~~Reportable Segments ~~Operations~~and Reporting Units

OnA reporting ~~June~~unit ~~21,~~(“RU”) ~~2022,~~is ~~the~~a ~~Company~~component ~~completed the sale~~ of ~~its~~an ~~Sovereign~~operating ~~Plastics~~segment ~~business~~that ~~unit~~is toa ~~TheLandersCompanies~~business ~~LLC~~activity for ~~total~~which ~~consideration~~discrete offinancial ~~$2.0~~information is ~~million~~available inand asegment ~~secured~~management ~~note~~regularly ~~with~~reviews ~~interest of~~the 5%operating ~~and~~results ~~a maturity date~~ of ~~May~~that ~~31, 2025~~component. The ~~assets~~Company’s ~~and~~legal ~~liabilities~~operating ofsubsidiaries are ~~Sovereign~~not ~~Plastics~~organized ~~are~~to ~~reflected~~qualify inas ~~the~~individual ~~accompanying~~segments, ~~condensed consolidated~~however, ~~balance~~each ~~sheets~~operating asentity ~~“Assets~~had ofseparate ~~discontinued~~financial ~~operations”~~information and ~~“Liabilities~~an ofoperating manager, ~~discontinued~~who ~~operations”, respectively.~~oversees ~~The~~the ~~results~~business ofand ~~operations~~financial ofactivities, ~~Sovereign~~reporting ~~Plastics~~to ~~are~~the ~~included~~Chief inOperating ~~“Income~~Decision Maker (~~loss~~“CODM”). ~~from discontinued operations~~Therefore, ~~net of~~ ~~tax~~during ~~provision”~~2022, in the ~~accompanying~~Company ~~condensed~~operated ~~consolidated~~as ~~statements~~one ofreportable ~~operations~~segment and ~~comprehensive~~each ~~loss.~~legal ~~For~~entity ~~comparative~~was ~~purposes, all~~deemed ~~prior periods presented have been reclassified~~ to ~~reflect~~be ~~the classifications on~~ a ~~consistent~~separate ~~basis.~~reporting ~~See Note 3 – Discontinued Operations for additional information~~unit.

As of January 1, 2023, the Company began operating as a single reporting unit. As part of the Company’s restructuring, the Company integrated its previously separate reporting units, including employing a single integrated sales function, and the Chief Executive Officer is managing the Company and making decisions based on the Company’s consolidated operating results.

Recently Adopted Accounting Standards

In June ~~August 2020~~2016, the FASB issued ASU ~~2020~~2016-0613, ~~“Accounting for~~Financial ~~Convertible~~ Instruments ~~and~~- ~~Contracts~~Credit inLosses an(Topic ~~Entity’s~~326): ~~Own~~Measurement ~~Equity”~~of ~~which~~Credit ~~simplifies~~Losses ~~the~~on ~~accounting~~Financial Instruments. ~~for~~ASU ~~convertible~~2016-13 ~~instruments by~~replaced ~~eliminating~~the ~~certain~~incurred ~~accounting~~loss ~~models~~impairment ~~when~~methodology ~~the~~under ~~conversion~~current ~~features~~GAAP ~~are~~with ~~not~~a ~~required~~methodology tothat bereflects ~~accounted~~expected credit ~~for~~losses asand ~~derivatives~~requires ~~under~~consideration ~~Topic 815,~~of ~~Derivatives~~a broader range of reasonable and ~~Hedging,~~supportable orinformation ~~that~~to doinform ~~not~~credit ~~result~~loss inestimates. ASU ~~substantial~~2016-13 ~~premiums~~requires ~~accounted~~use ~~for~~of asa ~~paid~~forward-~~in-capital.~~looking ~~Under~~expected ~~this~~credit ~~ASU~~loss model for accounts receivables, ~~certain debt~~loans, ~~instruments~~and ~~with~~other ~~embedded~~financial ~~conversion~~instruments. ASU ~~features~~2016-13 ~~will~~was beoriginally ~~accounted~~effective for asfiscal ayears ~~single~~beginning ~~liability~~after ~~measured~~December at15, ~~its~~2019, ~~amortized~~with ~~cost~~early adoption permitted. ~~Additionally~~In October 2019, ~~this~~the ~~ASU~~FASB ~~eliminates~~issued ~~the~~ASU ~~treasury~~No. ~~stock~~2019-10, ~~method~~“Financial toInstruments-Credit ~~calculate~~Losses ~~diluted~~(Topic ~~earnings~~326): ~~per~~Effective ~~share~~Dates”, ~~for~~to ~~convertible~~finalize ~~instruments.~~the ~~The~~effective date ~~new~~delays ~~guidance~~for ~~is effective~~private companies, not-for-profits, and smaller reporting companies ~~during~~applying ~~annual~~the current expected credit losses (“CECL”) standards. The ASU is now effective for reporting periods beginning after December 15, ~~2023,~~2022 ~~including~~and interim periods within those fiscal years. Early adoption is permitted. The Company ~~early~~ adopted this ASU ~~2020-06~~on ~~effective~~ January 1, ~~2022~~2023 ~~which~~and ~~eliminates~~ the ~~need~~adoption ~~on a~~did gonot ~~forward~~have ~~basis to assess whether~~ a ~~beneficial~~material ~~conversion~~impact ~~feature~~on ~~needs to be recognized upon either (a)~~ the ~~issuance of new convertible~~Company’s ~~securities;~~condensed orconsolidated ~~(b)~~financial ~~the resolution of any prior period contingent beneficial conversion features~~statements.

~~In May 2021, the FASB issued ASU 2021-04, Earnings~~NOTE ~~Per~~3 ~~Share~~DISCONTINUED ~~(Topic~~OPERATIONS ~~260),~~AND ~~Debt—Modifications~~ASSETS ~~and~~AND ~~Extinguishments~~LIABILITIES ~~(Subtopic~~HELD ~~470-50),~~FOR 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.SALE

Recently Issued Accounting Standards

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted. The Company is evaluating ASU 2022-03 and the impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems.

NOTE 3 DISCONTINUED OPERATIONS

Sovereign Plastics LLC

Sovereign Plastics ~~LLC (“Sovereign Plastics”)~~ is a manufacturer of plastic and metal components to third-party manufacturers based out of Colorado Springs, Colorado. The Company’s Board of Directors, in consultation with management as well as its financial and legal advisors, considered a number of factors, including the risks and challenges facing Sovereign Plastics in the future as compared to the opportunities available to Sovereign Plastics in the future, and the availability of strategic alternatives. On June 13, 2022, after careful consideration, the Board of Directors unanimously approved the sale of Sovereign Plastics.

On June 21, 2022, the Company completed the sale of its Sovereign Plastics business unit to TheLandersCompanies LLC for total consideration of $2.0 million in a secured note with interest of 5% and a maturity date of May 31, 2025. As a result of the sale, in the second quarter of 2022, the Company recognized a $1.1 million gain on the sale of Sovereign Plastics which was included in “Income from discontinued operations, net of tax” in the accompanying consolidated statements of operations and comprehensive loss for the period ended June 30, 2022. See Note 12 – Note and Obligation Receivable for additional information.

9Sky Sapience Ltd.

Sky Sapience was acquired on February 25, 2021 and is a manufacturer of drones with a patented tethered hovering technology that provides long-duration, mobile and all-weather Intelligence, Surveillance and Reconnaissance (ISR) capabilities to customers worldwide for both land and marine-based applications based out of Israel. The Company’s Board of Directors, in consultation with management as well as its financial and legal advisors, considered a number of factors, including the risks and challenges facing Sky Sapience in the future as compared to the opportunities available to Sky Sapience in the future, and the availability of strategic alternatives. On December 21, 2022, after careful consideration, the Board of Directors unanimously approved the sale of Sky Sapience.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

On March 20, 2023, the Company completed the sale of its Sky Sapience business unit to Titan Innovations Ltd. for total consideration of $1.8 million. The sale of Sky Sapience didn’t qualify for discontinued operations presentation because the sale didn’t represent a strategic shift that had a major effect on the Company’s operations (~~unaudited~~the Company will continue to be in the drone business). Sky Sapience’s assets and liabilities met the criteria to be classified as held for sale as of December 31, 2022 as follows:

Results of Discontinued Operations

	Sky Sapience
	December 31,
(Amounts in thousands, except share and per share data)	2022
Assets
Cash	$	35
Inventory, net		535
Prepaid and deferred expenses		56
Other current assets		25
Assets held for sale - current		651
Property and equipment, net		640
Operating lease right-of-use assets		269
Intangible assets, net		246
Goodwill		1,219
Assets held for sale - long-term		2,374
Total assets held for sale	$	3,025

Liabilities
Accounts payable	$	233
Accrued liabilities		321
Accrued payroll		321
Contract liabilities - current		1,347
Operating lease liabilities - current		120
Liabilities held for sale - current		2,342
Operating lease liabilities - long-term		140
Liabilities held for sale - long-term		140
Total liabilities held for sale	$	2,482

~~The~~Upon the ~~results~~completion of the sale of SKS during the first quarter of 2023, the Company recorded a gain on sale of $0.5 million which consisted of total liabilities assumed of $2.5 million, an obligation receivable of $0.6 million, and ~~net~~cash ~~loss~~proceeds of ~~Sovereign~~$0.5 ~~Plastics’~~million, partially ~~discontinued~~offset ~~operations~~by ~~were~~total asassets ~~follows:~~acquired of $3.0 million and closing costs in connection with the sale to a consultant of $0.1 million. See Note 12 – Note and Obligation Receivable.

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
(Amounts in thousands, except share and per share data)	2022		2021			2022			2021
Revenue	$	-	$	846		$	1,718		$	3,042
Cost of goods sold		-		567			1,065			1,581
Gross profit		-		279			653			1,461
Operating expenses
General and administrative		-		357			691			1,057
Depreciation and amortization		-		163			283			486
Gain on sale of Sovereign Plastics		-		-			(1,074	)		-
Total operating expenses, net		-		520			(100	)		1,543
Income from operations		-		(241	)		753			(82	)
Other expense
Interest expense		-		(1	)		(6	)		(35	)
Other income		-		-			-			-
Loss on extinguishment of debt		-		-			-			(246	)
Total other expense		-		(1	)		(6	)		(281	)
Income (loss) from discontinued operations, net of tax	$	-	$	(242	)	$	747		$	(363	)

Assets and liabilities of discontinued operations as of December 31, 2021 were classified as current because the sale transaction closed during the following twelve months during the period ended September 30, 2022. The details are as follows:

	Sovereign Plastics
	December 31,
(Amounts in thousands, except share and per share data)	2021
Assets
Cash	$	26
Accounts receivable, net		222
Inventory, net		295
Prepaid and deferred expenses		266
Assets of discontinued operations – current		809
Property and equipment, net		736
Operating lease right-of-use assets		717
Goodwill		48
Other assets – long term		73
Assets of discontinued operations – long-term		1,574
Total assets of discontinued operations	$	2,383
Liabilities
Accounts payable	$	129
Accrued liabilities		50
Accrued payroll		52
Contract liabilities, current		475
Operating lease liabilities, current		194
Current portion of long-term debt, net of unamortized discounts and debt issuance costs		11
Liabilities of discontinued operations – current		911
Contract liabilities – long term		34
Operating lease liabilities – long term		553
Liabilities of discontinued operations – long-term		587
Total liabilities of discontinued operations	$	1,498

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(unaudited)

NOTE 4 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 ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023, the Company ~~used~~had cash flows used in ~~operating~~operations ~~activities~~ of $100.71 million, and ~~at September 30, 2022~~ had ~~cash of $0.6 million, had~~ an accumulated deficit of $~~257~~301.48 million, and ~~had~~ a working capital deficit of $1015.52 million. These factors raise substantial doubt about our ability to continue as a going concern.

~~The Company’s fiscal operating results,~~Management ~~accumulated~~anticipates ~~deficit~~that ~~and~~the ~~working~~Company ~~capital,~~will ~~among~~be ~~other factors~~dependent, ~~raise~~for ~~substantial~~the ~~doubt~~near ~~about~~future, ~~the~~on ~~Company’s~~additional ~~ability~~investment capital to ~~continue~~fund ~~as a~~growth ~~going concern~~initiatives. Based on current cash on hand and subsequent activity as described herein (see Note 21 – 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 2119 – ~~Subsequent~~Other ~~Events~~Business Developments – 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 21 – 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 or profit-enhancing efforts that it may undertake, and these planned actions do not alleviate the substantial doubt. If the Company is not able to obtain additional financing on a timely basis, it may have to further 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. Determining the extent to which conditions or events raise substantial doubt about the Company’s ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by the Company. The Company makes assumptions that management’s plans will be effectively implemented but may not alleviate substantial doubt and its ability to continue as a going concern.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

NOTE 5 REVENUE

~~The~~Revenue by ~~following~~type ~~table~~consisted ~~is a summary~~ of the ~~Company’s timing~~following ~~of revenue recognition~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022:

	For the Three Months Ended				For the ~~Nine~~Six Months Ended
	September 30,				September 30,
	June 30,				June 30,
(Amounts in thousands)	~~2022~~2023		~~2021~~2022		~~2022~~2023		~~2021~~2022
Timing of revenue recognition:
Telecom hardware	$	334	$	1,823	$	541	$	3,112
Services and products transferred at a point in time	$	3,756	$	3,079	$	7,748	$	6,306
Drones		3,153		-		3,396		353
Services and products transferred over time		40		189		189		464
Support & maintenance		9		43		40		83
Total revenue	$	3,796	$	3,268	$	7,937	$	6,770
Consulting		-		160		-		217
Optic repairs		-		62		-		376
Software		-		-		2		-
Total revenue	$	3,496	$	2,088	$	3,979	$	4,141

The following table is a summary of the Company’s timing of revenue recognition for the three and six months ended June 30, 2023 and 2022:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(Amounts in thousands)	2023		2022		2023		2022
Timing of revenue recognition:
Services and products transferred at a point in time	$	3,468	$	2,037	$	3,919	$	3,992
Services and products transferred over time		28		51		60		149
Total revenue	$	3,496	$	2,088	$	3,979	$	4,141

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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022:

For the Three Months Ended

For the ~~Nine~~Six Months Ended

September 30,

June 30,

(Amounts in thousands)

~~2022~~2023

~~2021~~2022

~~2022~~2023

~~2021~~2022

Revenue by products and services:

Products

3,~~756~~468

32,~~000~~037

73,~~748~~919

53,~~671~~992

Services

4028

~~268~~51

~~189~~60

~~1,099~~149

Total revenue

3,~~796~~496

32,~~268~~088

73,~~937~~979

64,~~770~~141

11Revenue by geographic destination consisted of the following for the three and six months ended June 30, 2023 and 2022:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(Amounts in thousands)	2023		2022		2023		2022
Revenue by geography:
North America	$	3,496	$	1,944	$	3,978	$	3,493
International		-		144		1		648
Total revenue	$	3,496	$	2,088	$	3,979	$	4,141

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

(unaudited)

Revenue by geographic destination consisted of the following for the three and nine months ended September 30, 2022 and 2021:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Amounts in thousands)	2022		2021		2022		2021
Revenue by geography:
North America	$	3,796	$	2,818	$	7,289	$	4,903
International		-		450		648		1,867
Total revenue	$	3,796	$	3,268	$	7,937	$	6,770

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022, 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	$	3,415
Balance at December 31, 2022	$	3,384
New invoices not yet earned		~~1,880~~9
Old invoices earned		(1,111	)
Revenue earned		(1,870	)
Balance at September 30, 2022	$	4,184
Balance at June 30, 2023	$	1,523

Of the $3.4 million contract balance as of December 31, 2022, $1.9 million was recognized as revenue during the six months ended June 30, 2023, resulting in the remaining contract balance of $1.5 million, which will be recognized as revenue when the Company meets the performance obligation, the timing of which is uncertain at this time.

NOTE 6 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 ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022, respectively:

	September 30,
	June 30,
	2022		2021
	2023		2022
Options		3524,~~594~~954		3363,~~202~~341
Unvested restricted stock		333		3,285
Warrants		115,899		128,149
Warrants		116,416		7,754
Convertible notes(1)		217,530		45,668
Convertible notes		40,518		48,358
		358,383		237,158
		192,861		92,599

12(1) The potentially dilutive shares associated with convertible notes were calculated based on the conditions as of the calculation date.

NOTE 7 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Cash is 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 June 30, 2023 and December 31, 2022, respectively. During the year ended December 31, 2022, $195,000 of restricted cash was released upon the sale of a building (see Note 11 – Property and Equipment, Net for additional information related to the sale of the building). The remaining $47,000 was released upon the abandonment of overseas equipment leases and $35,000 was transferred in the sale of Sky Sapience.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

(unaudited)

NOTE 7 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Cash, cash equivalents and restricted cash consisted of the following as of September 30, 2022, and December 31, 2021:

(Amounts in thousands)	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	536	$	1,596
Restricted cash		35		277
Total	$	571	$	1,873

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 September 30, 2022 and December 31, 2021, respectively. During the nine months ended September 30, 2022, restricted cash decreased by $242,000, including $195,000 of restricted cash which was released upon the sale of a building. The remainder of the restricted cash will be released as overseas leases expire in January and July of 2023. See Note 11 – Property and Equipment, Net for additional information related to the sale of the building.

NOTE 8 ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022:

(Amounts in thousands)	September 30, 2022			December 31, 2021
	June 30,			December 31,
Accounts receivable	$	4,013		$	2,391
(Amounts in thousands)	2023			2022
Less: allowance for doubtful accounts		(1,214	)		(1,015	)
Accounts receivable	$	1,574		$	2,372
Total accounts receivable, net	$	2,799		$	1,376
Less: allowance for doubtful accounts		(1,241	)		(1,246	)
Total accounts receivable, net	$	333		$	1,126

~~Bad~~The ~~debt~~Company ~~expense~~had ~~totaled~~no ~~$0.1~~bad ~~million~~debt ~~and~~expense ~~$0.2~~during ~~million, respectively, for~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to $~~0.0~~2 ~~million~~thousand and $~~0.2~~49 ~~million~~thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, respectively.

NOTE 9 INVENTORY, NET

Inventory consisted of the following as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022:

(Amounts in thousands)	September 30, 2022			December 31, 2021
	June 30,			December 31,
Raw materials	$	6,061		$	6,587
(Amounts in thousands)	2023			2022
Work in progress		821			1,202
Raw materials	$	3,577		$	3,685
Finished goods		990			3,592
Work in progress		729			560
Total inventory		7,872			11,381
Finished goods		260			480
Reserve		(855	)		(1,132	)
Total inventory		4,566			4,725
Total inventory, net	$	7,017		$	10,249
Reserve		(759	)		(759	)
Total inventory, net	$	3,807		$	3,966

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 10 PREPAID EXPENSES

Prepaid expenses consisted of the following as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022:

(Amounts in thousands)	September 30, 2022		December 31, 2021
	June 30,		December 31,
Prepaid products and services	$	4,804	$	6,840
(Amounts in thousands)	2023		2022
Prepaid rent and security deposit		30		96
Prepaid products and services	$	3,431	$	3,557
Total prepaid expenses	$	4,834	$	6,936
Prepaid rent and security deposit		14		14
Total prepaid expenses	$	3,445	$	3,571

13Prepaids and deferred expenses include cash paid in advance for rent and security deposits, inventory and other. As of June 30, 2023 and December 31, 2022, prepaid products and services were comprised of deposits for radio inventory of $2.9 million.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(unaudited)

NOTE 11 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022:

(Amounts in thousands)	September 30, 2022			December 31, 2021
	June 30,			December 31,
Shop machinery and equipment	$	2,125		$	10,103
(Amounts in thousands)	2023			2022
Computers and electronics		993			1,436
Shop machinery and equipment	$	672		$	672
Office furniture and fixtures		317			744
Computers and electronics		766			766
Leasehold improvements		297			543
Office furniture and fixtures		68			68
Building		-			4,801
Leasehold improvements		41			41
Land		-			1,330
Total property and equipment		1,547			1,547
Building improvements		-			755
Less: accumulated depreciation		(1,243	)		(1,170	)
Total property and equipment		3,732			19,712
Total property and equipment, net	$	304		$	377
Less: accumulated depreciation		(2,433	)		(10,960	)
Total property and equipment, net	$	1,299		$	8,752

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 13 – Leases for additional information about the subsequent leaseback of the office building.12

During the nine months ended September 30, 2022, the Company derecognized the property and equipment in connection with the following transactions (see Note 20 – Other Business Developments for additional information):

a) Sale of DragonWave-X Canada, Inc. assets – gross assets of $8.5 million with a net book value of $0.0 million;

b) Abandonment of Tucson Building lease – gross assets of $0.6 million with a net book value of $0.1 million; and

c) Transfer of Innovation Digital, LLC assets – gross assets of $0.1 million with a net book value of $0.1 million.

The Company recognized $0.1 million and $0.8 million of depreciation expense for the three and nine months ended September 30, 2022, respectively, compared to $0.4 million and $0.9 million of depreciation expense for the three and nine months ended September 30, 2021, respectively.

NOTE 12 GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill activity during the nine months ended September 30, 2022 was as follows:

(Amounts in thousands)	Total
Balance at December 31, 2021	$	37,943
Derecognition		(710	)
Impairments		(7,200	)
Balance at September 30, 2022	$	30,033

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~For the six months ended June 30, 2023 and 2022, the Company had $0.0 million and $0.2 million, respectively, in investments in capital expenditures.

~~The~~On January ~~following~~31, ~~table~~2022, ~~sets~~the ~~forth~~Company sold its Tucson, Arizona office building (the ~~net~~“Tucson ~~carrying~~Building”) for $15.8 million in cash. ~~amount~~The ~~activity~~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’s ~~intangible~~recognized an $8.4 million gain on sale of assets, which is net of $0.7 million of related transaction costs. See Note 13 – Leases for additional information about the ~~nine~~subsequent ~~months~~leaseback ~~ended~~of ~~September~~the ~~30,~~office ~~2022~~building.

(Amounts in thousands)	Technology			Intellectual Property			Software			Total
Net balance at December 31, 2021	$	14,196		$	591		$	673		$	15,460
Sale of assets		(580	)		-			-			(580	)
Impairments		(7,485	)		-			-			(7,485	)
Amortization		(846	)		(45	)		(51	)		(942	)
Net balance at September 30, 2022	$	5,285		$	546		$	622		$	6,453

During the year ended December 31, 2022, the Company derecognized the property and equipment associated with the following transactions (see Note 13 – Leases and Note 19 – Other Business Developments for additional information):

Ona) ~~June~~Abandonment ~~23,~~of ~~2022,~~Tucson ~~the~~Building ~~Company~~lease ~~executed~~– angross ~~agreement to~~assets ~~return fifteen patents and five pending or provisional patents to the former owners~~ of ~~Innovation~~$0.6 ~~Digital,~~million ~~LLC~~with ~~(“Innovation~~a ~~Digital”) which~~net ~~resulted~~book invalue ~~the derecognition~~ of ~~goodwill and intangible assets shown in the tables above~~$0.1 ~~See~~million ~~Note~~on 20February –1, ~~Other Business Developments for additional information.~~2022;

Asb) ofSale June 30, 2022, the Company determined that it was more likely than not that certain reporting unit’s fair value was below their reporting unit’s carrying amount due to a decline in the Company’s market capitalization. Accordingly, it was necessary to perform interim impairment testing as of ~~June 30, 2022. During the three and six months ended June 30, 2022, the Company, utilizing a 10% revenue growth rate and a weighted~~DragonWave-~~average cost~~X ~~of capital range of 13-25%~~Canada, ~~recorded an impairment charge for goodwill in the amount of $7~~Inc.2 ~~million~~assets ~~and~~– angross ~~impairment charge for other definite-lived intangible~~ assets of $78.5 million. ~~The~~with ~~Company~~a ~~calculates~~net ~~the~~book ~~estimated fair~~ value of ~~a reporting unit and the definite-lived intangible assets using the income approach and compares it to the carrying value~~$0.0 ~~For~~million ~~the~~on ~~income~~May ~~approach~~23, 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 trends2022; ~~expected future investments to grow new units;~~ and ~~estimated discount rates. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment.~~

~~During~~c) ~~the~~Transfer ~~three~~of ~~and~~Innovation ~~nine months ended September 30~~Digital, ~~2022,~~LLC ~~the~~assets ~~Company~~– ~~recorded~~gross ~~amortization expense of intangible~~ assets of $0.21 million ~~and~~with ~~$0.9~~a ~~million,~~net ~~respectively.~~book ~~During~~value ~~the three and nine months ended September 30, 2021, the Company recorded amortization expense~~ of ~~intangible assets of~~ $30.21 million ~~and~~on ~~$6.5~~June ~~million~~23, ~~respectively.~~ ~~The Company’s amortization is based on no residual value using the straight-line amortization method as it best represents the benefit of the intangible assets~~2022.

The Company ~~following~~recognized ~~table~~$0.0 ~~sets~~million ~~forth~~and $0.1 million, respectively, of depreciation expense for the ~~weighted-average~~three and six months ended June 30, 2023, ~~amortization~~compared ~~period~~to $0.1 million and $0.6 million, inrespectively, ~~total~~for the three and bysix ~~major~~months ~~intangible~~ended ~~asset~~June ~~class:~~30, 2022.

Asset Class			Weighted- Average Amortization Period
Technology			9.51 years
Intellectual property			9.75 years
Software			9.75 years
All intangible assets			9.56 years

NOTE 12 NOTE AND OBLIGATION RECEIVABLE

15On June 21, 2022, the Company completed the sale of its Sovereign Plastics business unit to TheLandersCompanies LLC for total consideration of $2.0 million in a secured note with interest of 5% and a maturity date of May 31, 2025. The payment schedule of the note is as follows: $0.65 million was due on May 31, 2023, $0.65 million is due on May 31, 2024, and $0.70 million is due on May 31, 2025. While management remains confident of collection, the payment due on May 31, 2023 hasn’t been collected to date. As of June 30, 2023, the note receivable of $2.0 million and accrued interest in aggregate of $0.1 million is included on the condensed consolidated balance sheet.

~~COMSOVEREIGN~~On March ~~HOLDING~~20, ~~CORP~~2023, the Company completed the sale of its Sky Sapience business unit to Titan Innovations Ltd. The consideration included a $0.6 million obligation receivable, which is due March 20, 2025.

~~NOTES~~See Note TO3 ~~CONDENSED~~– ~~CONSOLIDATED~~Discontinued ~~FINANCIAL~~Operations ~~STATEMENTS~~and Assets and Liabilities Held for Sale for more information on the sales of Sovereign Plastics and Sky Sapience.

SEPTEMBER 30, 2022

(unaudited)

As of September 30, 2022, assuming no additional amortizable intangible assets, the expected amortization expense for the unamortized acquired intangible assets for the next five years and thereafter was as follows:

(Amounts in thousands)	Estimated
2022	$	172
2023		688
2024		688
2025		688
2026		688
Thereafter		3,529
All intangible assets	$	6,453

As part of the Company’s restructuring, commencing January 1, 2023, the Company is integrating its previously separate reporting units, including employing a single integrated sales function, and the Chief Executive Officer intends to manage the Company and make decisions based on the Company’s consolidated operating results.

Out-of-Period Adjustment (Error Correction)

During the review of the Company’s condensed consolidated financial statements for the three and nine month periods ended September 30, 2022, the Company identified a $1,090,000 overstatement of intangible asset impairment expense and a $406,000 understatement of intangible asset amortization expense (included in depreciation and amortization) during the three and six months ended June 30, 2022, which resulted in a $684,000 understatement of intangible assets, net as of June 30, 2022. Based on management’s evaluation of the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded that the aforementioned error was not material to the Company’s previously filed consolidated financial statements for the three and six months ended June 30, 2022. This is further supported by the fact that the impacted income statement accounts are of a non-cash nature, do not impact Adjusted EBITDA (earnings before income tax, depreciation and amortization, impairment expense and stock-based compensation), and would not likely have materially impacted a reasonable investor’s opinion of the Company’s financial condition and results of operations.

Because the correction of these errors was not deemed to be material to the results for the three and six months ended June 30, 2022, to correct these errors, the Company recorded the corrections as out-of-period adjustments in the three-month period ended September 30, 2022. See the table below for details of the correction:

	For the Three Months Ended									For the Nine Months Ended
	September 30, 2022									September 30, 2022
	Before Adjustment			Adjustment			As Reported			Before Adjustment			Adjustment		As Reported
Depreciation and amortization	$	296		$	406		$	702		$	1,705		$	-	$	1,705
Impairment	$	-		$	(1,090	)	$	(1,090	)	$	14,685		$	-	$	14,685
Loss from continuing operations	$	(1,272	)	$	(684	)	$	(1,956	)	$	(40,316	)	$	-	$	(40,316	)
Basic and diluted net loss per share:
- from continuing operations	$	(1.51	)				$	(2.21	)	$	(45.92	)			$	(45.92	)

NOTE 13 LEASES

Operating Leases

The Company has operating leases for office, manufacturing and warehouse space, along with office equipment. ~~The~~Balances ~~carrying values of operating lease right-of-use (“ROU”) assets and operating lease liabilities~~ as of ~~September~~June 30, ~~2022~~ 2023 and December 31, ~~2021~~2022 for operating leases were as follows:

	September 30,		December 31,
	June 30,		December 31,
(Amounts in thousands)	~~2022~~2023		~~2021~~2022
Operating lease ROU assets	$	~~1,183~~90	$	~~3,000~~97
Operating lease liability	$	11,~~573~~127	$	311,~~126~~137

On February 1, 2022, the Company entered into a lease agreement with the new owners of the Tucson Building (see Note 11 – 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.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(unaudited)

In May 2022, the Company abandoned its lease of the Tucson Building 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. In connection with the lease abandonments for the three and nine months ended September 30, 2022, the Company recognized a $0.3 million and $11.6 million loss due to the write-offs of the ROU-assets and other abandoned assets and applied its security deposit assets against its operating lease liabilities, respectively.

Other information related to the Company’s operating leases are as follows:

	For the Three Months Ended				For the ~~Nine~~Six Months Ended
	September 30,				September 30,
	June 30,				June 30,
(Amounts in thousands)	~~2022~~2023		~~2021~~2022		~~2022~~2023		~~2021~~2022
Operating lease cost	$	64488	$	~~343~~535	$	~~1,152~~976	$	~~595~~1,088
Short-term lease cost	$	1331	$	6319	$	4131	$	~~102~~28
Right-of-use assets obtained in exchange for lease obligations Operating leases	$	25	$	-	$	25	$	10,052
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	~~197~~437	$	~~339~~24	$	~~714~~900	$	~~598~~517

~~The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of September 30, 2022, and December 31, 2021:~~13

	September 30,			December 31
(Amounts in thousands)	2022			2021
Weighted average remaining lease term		8.8 years			5.4 years
Weighted average discount rate		5.55	%		5.97	%

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 September 30, 2022:

	Operating
(Amounts in thousands)	Leases
2022	$	581
2023		2,026
2024		1,768
2025		1,625
2026		1,386
Thereafter		8,286
Total minimum lease payments		15,672
Less: effect of discounting		(4,099	)
Present value of future minimum lease payments		11,573
Less: current obligations under leases		(991	)
Long-term lease obligations	$	10,582

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~The following table presents the weighted-average remaining lease term and weighted average discount rates related to the Company’s operating leases as of June 30, 2023 and December 31, 2022:

	June 30,			December 31,
	2023			2022
Weighted average remaining lease term (years)		7.54			7.90
Weighted average discount rate		5.50	%		5.52	%

	Operating
(Amounts in thousands)	Leases
2023	$	911
2024		1,720
2025		1,625
2026		1,386
2027		1,424
Thereafter		6,862
Total minimum lease payments		13,928
Less: effect of discounting		(2,801	)
Present value of future minimum lease payments		11,127
Less: current obligations under leases		(1,600	)
Long-term lease obligations	$	9,527

NOTE 14 DEBT

Debt consisted of the following as of ~~September~~ June 30, ~~2022~~2023 and December 31, ~~2021~~2022:

			September 30, 2022						December 31, 2021
			June 30, 2023						December 31, 2022
(Amounts in thousands)	Note Reference	~~Original~~ Maturity Date	Amount Outstanding			Interest Rate			Amount Outstanding			Interest Rate
Secured Notes Payable
Secured senior convertible note payable	A	5/27/23	$	~~2,961~~51			6.0	%	$	~~6,417~~51			6.0	%
Secured senior convertible note payable	B	8/25/23		~~2,787~~59			6.0	%		~~4,833~~59			6.0	%
Secured senior convertible note payable	C	7/29/23		26			15.0	%		-			0.0	%
Secured note payable	C	10/25/23		368			6.0	%		368			6.0	%
Secured note payable	D	11/268/2123		~~500~~263			96.0	%		~~1,000~~263			96.0	%
Secured note payable	E	111/2926/2221		-875			015.0	%		~~5,205~~775			~~>8% or Libor +6~~15.~~75%~~0	%
Total secured notes payable				6,274						17,455
Secured note payable	F	7/29/24		550			8.0	%		550			8.0	%
Notes Payable
Secured note payable	G	6/30/23		50			-			50			-
Notes payable	F	3/31/23		100			3.0	%		-			3.0	%
SBA loan	H	5/15/50		150			3.8	%		150			3.8	%
Notes payable	G	7/29/22		550			0.0	%		-			0.0	%
Total secured notes payable				2,366						2,266
PPP loans	H	5/5/22		-			1.0	%		2			1.0	%
Unsecured Notes Payable
SBA loan	I	5/15/50		150			3.8	%		150			3.8	%
Note payable - related party	I	12/31/23		100			5.5	%		100			3.0	%
Total notes payable				800						152
Note payable	J	7/29/23		26			15.0	%		26			15.0	%
Convertible Notes Payable
Note payable	K	7/30/23		90			8.0	%		-			-
Convertible note payable	J	6/3/22		-			5.0	%		600			5.0	%
Note payable	L	8/1/23		80			8.0	%		-			-
Convertible note payable	K	1/29/26		11,150			3.3	%		11,150			1.0	%
Total notes payable				296						126
Total convertible notes payable				11,150						11,750
Unsecured Convertible Notes Payable
Total debt				18,224						29,357
Convertible note payable	M	1/29/26		9,805			15.0	%		11,150			3.3	%
Less: unamortized discounts and debt issuance costs				(1,748	)					(3,518	)
Total convertible notes payable				9,805						11,150
Total long-term debt, less discounts and debt issuance costs				16,476						25,839
Total debt				12,467						13,542
Less: current portion of long-term debt				(11,091	)					(13,566	)
Less: unamortized discounts and debt issuance costs				(4	)					(11	)
Debt classified as long-term debt			$	5,385					$	12,273
Total long-term debt, less discounts and debt issuance costs				12,463						13,531
Less: current portion of debt				(11,913	)					(11,636	)
Long-term portion of debt			$	550					$	1,895

~~Lind Debt~~14

For Notes A and B (the “Original Lind Debt”), 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 Original Lind Debt entered into default, which resulted in a 5% or $0.4 million increase in the principal value, pursuant to the terms of the Original Lind Debt. 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”).

For the Original Lind Debt, during the nine months ended September 30, 2022, the principal amount was reduced by an aggregate of $5.5 million, which was comprised of (a) a reduction of an aggregate of $1.9 million (plus interest) due to pre-default scheduled cash payments; (b) a reduction of an aggregate of $1.9 million (plus interest) due to pre-default scheduled equity payments (at the Company’s discretion, in lieu of cash) comprising 35,300 shares of common stock; (c) an increase of an aggregate of $0.4 million (as discussed above) due to the debt’s contractual default provisions; and (d) a reduction of an aggregate of $2.1 million of principal due to Note Holder Conversions into an aggregate of 211,227 shares of the Company’s common stock.

See Note 21 – Subsequent Events – Debt and Equity Developments for information related to subsequent Note Holder Conversions. The subsequent Note Holder Conversions enabled $5.6 million of the September 30, 2022 outstanding principal of the Original Lind Debt (and the related debt discounts) to be reclassified from current to long term.

For Note C, 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.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~Debt activity during the six months ended June 30, 2023 included the following:

~~Other~~For Note ~~Debt~~E, $100,000 of penalties and interest were capitalized into principal during the six months ended June 30, 2023 as a result of annual compounding.

For Note F, on March 14, 2023, the Company amended Note DF to extend the maturity date to July 29, ~~during~~2024 with an interest rate of 8% and the ~~nine~~ability ~~months~~to ~~ended~~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 30interest 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 agreement pursuant to the original note for an additional two years and issue an additional 12,000 ~~2022~~shares of the Company’s common stock per year while the note is outstanding. On April 13, ~~past~~2023, ~~due~~the ~~principal~~Company issued 12,000 shares of the Company’s common stock with a grant date value of $~~0.5~~28,080 ~~million~~to ~~was~~the ~~repaid~~advisor inpursuant ~~cash~~to the terms of the advisory agreement as consideration for their services.

For Note EK, ~~(the~~on ~~Tucson~~January ~~building~~17, ~~mortgage)~~2023, ~~during~~ the ~~nine~~Company ~~months~~sold ~~ended~~an ~~September~~unsecured promissory note in the principal amount of $90,000, which was due on or before July 30, ~~2022~~2023. Of the $90,000 of proceeds from the ~~principal~~first note, usage of $588,000 is restricted to make interest payments due to certain holders of Note M. The note becomes immediately due and payable if the Company raises at least $2.5 million ~~was~~in an equity or debt offering and will accrue 8% interest per annum, which increases to 15% per annum if the note isn’t repaid inby ~~cash~~the ~~from~~maturity date. The issuance of a second note (Note L) made the ~~proceeds~~principal and accrued interest of both notes convertible if they aren’t repaid by the ~~January~~maturity 31date and the conversion price will equal 81% of the closing market price of the common stock on the day that the holder elects to convert the note(s), ~~2022~~subject ~~building~~to a floor price of $5.00 per share. The Company did not repay the note on maturity and therefore ~~sale~~the note became convertible as of the maturity date and is in default.

For Note FL, on ~~April~~February 1, ~~2022~~2023, the Company ~~entered into~~sold aan unsecured promissory note ~~agreement~~in ~~with~~the aprincipal ~~related~~amount ~~party~~of ~~who~~$80,000, iswhich anwas ~~Executive~~due ~~Officer~~on ofor before August 1, 2023. The note becomes immediately due and payable if the Company ~~for~~raises ~~cash~~at ~~proceeds~~least of $~~100~~2.5 million in an equity or debt offering and accrues 8% interest per annum,~~000~~ ~~with~~which aincreases to 15% per annum if the note isn’t repaid by the maturity date. The issuance of ~~March~~this ~~31,~~note ~~2023~~made the principal and anaccrued interest ~~rate~~ of 3Note K convertible if they aren’t repaid by the maturity date and the conversion price will equal 81%. Asof the closing market price of ~~September~~the ~~30,~~common ~~2022,~~stock on the ~~proceeds~~day ~~were~~that ~~recorded~~the asholder elects to convert the note(s), subject to a ~~related~~floor ~~party~~price of $5.00 per share. The Company did not repay the note inon ~~current~~maturity and therefore the note became ~~liabilities~~convertible as of the maturity date and is in default.

For Note GM, on orMay ~~about April 29~~24, 2022, the Company ~~sold~~ anreceived ~~original~~notice ~~issue~~from ~~discount~~counsel ~~note~~for ~~with~~holders aof ~~face~~$11.2 ~~value~~million of ~~$550,000~~convertible topromissory annotes ~~investor~~issued in ~~for~~connection with the ~~purchase~~acquisition ~~price~~ of ~~$500,000.~~FastBack ~~This~~that ~~note~~the ~~was~~Company ~~due approximately~~had ~~July~~failed ~~29,~~to ~~2022~~file ~~and~~its ~~bears~~Annual Report on Form 10-K in a ~~default~~timely ~~rate~~manner, as required by the terms of ~~12%~~the ~~after~~convertible promissory notes. While the note holders have the right to accelerate the maturity ~~date~~of the principal, the notice simply indicated that the holders were reserving their rights. On ~~July~~January 2620, ~~2022~~2023, the Company ~~received~~paid ~~notice~~cash ~~from~~for interest in the ~~promissory~~amount of $75,985. In addition, during January 2023, pursuant to a limited time offer, certain note ~~holder~~holders ~~that~~agreed ~~the~~to ~~promissory~~amend their note inand ~~the~~convert ~~principal~~an ~~amount~~aggregate of $~~550,000~~1.3 ~~was~~million ~~due~~principal of their notes and $0.3 Asmillion of accrued interest into 280,625 shares of the Company’s ~~date~~common stock pursuant to a limited time offer for conversions at a discounted rate of ~~this~~81% ~~filing,~~of ~~this~~the ~~note~~closing market price ~~remains~~of ~~outstanding~~the Company’s common stock on the day special conversion notices were received. OnAs ~~May~~a 9result of the conversions, ~~2022~~which were recorded using inducement accounting, the Company recognized a $1.9 million loss on inducement of debt conversions, which is included in ~~connection~~income from ~~with~~continuing operations in the ~~note~~income ~~issuance~~statement, which represents the ~~Company~~fair ~~issued~~value 2of the 280,~~400~~625 shares of common stock issued pursuant to anthe ~~advisor~~ limited time offer, less the fair value of the 3,068 shares of common stock that would have been issuable pursuant to anthe ~~advisory~~original terms ~~agreement~~of ~~dated~~the ~~April~~convertible ~~29,~~notes. ~~2022~~Interest is being accrued at the 15.0% default rate during 2023.

~~For~~Certain agreements ~~Note~~governing Hthe secured notes payable, ~~during~~unsecured ~~the~~notes ~~nine~~payable, ~~months~~and ~~ended~~unsecured ~~September~~convertible notes payable contain customary covenants, 30such as limitations on liens, ~~2022~~dispositions, ~~principal~~mergers, entry into other lines of $2business,~~000~~ ~~was~~investments ~~repaid~~and inthe ~~cash~~incurrence of additional indebtedness.

~~For~~All debt ~~Note~~agreements I,are ~~during~~subject to customary events of default. If an event of default occurs with respect to the ~~nine~~debt ~~months~~agreements ~~ended~~and ~~September~~is 30continuing, ~~2022,~~the nolenders ~~principal~~may ~~was~~accelerate ~~repaid~~the ~~(but~~applicable ~~interest~~amounts ofdue. ~~$10,000~~The ~~was~~Company ~~paid~~is in ~~cash)~~default on several debt agreements and has accrued the proper penalties or disclosed any additional contingencies that resulted from the default.

~~For~~Future maturities ~~Note~~contractually J,required onby ~~June 23, 2022,~~ the Company ~~reached an~~under ~~agreement~~long-term todebt ~~cancel~~obligations ~~the~~are ~~note~~as ~~comprised~~follows ofas ~~principal~~ of ~~$600,000~~June ~~and interest of $40~~30,~~000~~ ~~in exchange for the return of certain patents. See Note 20 – Other Business Developments for additional information.~~2023:

For Note K, 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 September 30, 2022, an aggregate of $1.3 million of principal is classified as long-term debt pursuant to post-September 30, 2022 conversions of principal and accrued interest into 280,625 shares of the Company’s common stock, pursuant to a limited time offer. See Note 21 – Subsequent Events – Debt and Equity Developments for additional information.

(Amounts in thousands)	Total
2023	$	11,917
2024		550
2025		-
2026		-
2027		-
Thereafter		-
Total	$	12,467

~~Future maturities contractually required by the Company under debt obligations are as follows as of September 30, 2022:~~15

(Amounts in thousands)	Total
Remaining 2022	$	14,195
2023		100
2024		-
2025		-
2026		-
Thereafter		3,929
Total	$	18,224

During the three and nine months ended September 30, 2022, the Company recognized $0.4 million and $2.6 million of interest expense in connection with the aforementioned indebtedness, which includes the $0.4 million Lind Debt default charge during both periods. During the three and nine months ended September 30, 2021, the Company recognized $0.7 million and $1.7 million of interest expense in connection with the aforementioned indebtedness.

NOTE 15 STOCKHOLDERS’ EQUITY

See Note 14 – Debt and Note 21 – Subsequent Events – Debt and Equity Developments for additional information related to debt conversions.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~NOTE 15 STOCKHOLDERS’ EQUITY

~~Preferred~~ Reverse Stock ~~– Liquidation Preference~~Split

~~Upon any voluntary or involuntary liquidation,~~Effective ~~dissolution~~February ~~or winding up of our affairs~~10, ~~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~~2023, ~~as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, junior to~~ the ~~Series~~Company Aenacted ~~Cumulative~~a ~~Redeemable~~1-for-100 ~~Perpetual~~reverse ~~Preferred~~stock ~~Stock~~split (the “~~Series~~2023 ~~A Preferred Stock~~Split”)~~, 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~~Company’s Acommon ~~Preferred Stock, a liquidation preference of $25~~stock.~~00 per share of the Series A Preferred Stock (approximately $8.0 million), plus an amount equal~~ toThese ~~any~~consolidated ~~accrued~~financial ~~and~~statements 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~~accompanying ~~corresponding~~notes ~~amounts~~give ~~payable~~effect ~~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~~reverse ~~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,~~split as toif ~~rights~~it ~~upon~~occurred ~~any~~at ~~voluntary or involuntary liquidation, dissolution or winding up, on parity with~~ the ~~Series A Preferred~~beginning ~~Stock will share ratably in any distribution~~ of ~~assets in proportion to~~ the ~~full~~first ~~liquidating~~period ~~distributions to which they would otherwise be respectively entitled~~presented.

Dividends

During the three and ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023, the Company recorded $184,992 and $~~493~~369,~~312~~984, respectively, of dividends paid or payable to the holders of the 9.25% Series A Preferred Stock, compared to $184,992 and $308,320 for the three and six months ended June 30, 2022.

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 $~~554~~1,~~976~~171,616.

Common Stock

During the six months ended June 30, 2023, the Company issued an aggregate of 280,625 shares of common stock for conversions of debt and interest (see Note 14 – Debt for additional information), issued 21,810 shares of common stock upon the round-up of common shares pursuant to the 1-for-100 reverse stock split effective February 10, 2023 and issued 12,000 shares of common stock to a debt placement agent with a grant date value of $28,080 as consideration for services.

During the six months ended June 30, 2022, the Company issued an aggregate of 81,184 shares of common stock with a fair value of $3.3 million for conversions of debt and interest, issued 2,098 shares of common stock for gross proceeds of $31,000 upon the exercise of options, and issued 2,400 shares of common stock to a debt placement agent as consideration for services with a grant date value of $81,000.

NOTE 16 SHARE-BASED COMPENSATION

Restricted Stock Awards

A summary of the restricted stock unit (“~~RSU~~RSA”) activity during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 is presented below:

				Weighted-
				Average
	Number of			Grant Date Value
	RSU’s			Per Share
	RSA’s			Per Share
RSU’s non-vested – January 1, 2022		1,333		$	348
RSA’s non-vested - January 1, 2023		333		$	450
Forfeited		(667	)		246
Granted		-			-
Vested		(333	)		450
Forfeited		-			-
RSU’s non-vested – September 30, 2022		333		$	450
Vested		(333	)		450
RSA’s non-vested - June 30, 2023		-		$	-

During the three and ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023, the Company recognized $~~(58,146)~~0 and $9812,~~850,~~502 ~~respectively,~~ of share-based compensation expense associated with restricted ~~RSUs~~stock awards, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, the Company recognized $6078,~~331~~496 and $~~180~~156,~~993~~996, respectively, of share-based compensation expense associated with ~~RSUs~~restricted stock awards. Compensation expense related to ~~RSUs~~restricted stock awards is recorded in general and administrative expense in the condensed consolidated statement of operations. As of ~~September~~June 30, ~~2022~~ 2023, there was ~~$50,002~~no of unrecognized stock-based compensation expense related to ~~RSUs~~restricted ~~that~~stock ~~will be recognized over the weighted average remaining vesting period of 0~~awards.~~32 years.~~

~~Stock Options~~16

There were no stock options issued during the three and nine months ended September 30, 2022. The following table summarizes the assumptions used to estimate the fair value of options granted during the nine months ended September 30, 2021.

	For the Nine Months Ended
	September 30,
	2022		2021
Expected dividend yield		N/A		0.00%
Expected volatility		N/A		46.50 – 53.02%
Risk-free interest rate		N/A		0.48 – 0.89%
Expected life of options		N/A		3.00 – 5.00 years

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~Stock Options

~~The~~There were ~~following~~no ~~table presents~~ stock ~~option~~options ~~activity~~issued ~~for~~during the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022:.

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise Price		Contractual		Intrinsic
	Options			Per Share		Life in Years		Value
Outstanding – December 31, 2021		70,405		$	233
Exercised		(2,098	)		15
Cancelled or Expired		(32,713	)		243
Outstanding – September 30, 2022		35,594		$	237		3.02		-
Exercisable – September 30, 2022		18,096		$	199		2.54		-

The following table presents stock option activity for the six months ended June 30, 2023:

The following table presents information related to stock options as of September 30, 2022:

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise Price		Contractual		Intrinsic
	Options			Per Share		Life in Years		Value
Outstanding - December 31, 2022		26,554		$	223
Exercised		-			-
Cancelled or Expired		(1,600	)		291
Outstanding - June 30, 2023		24,954		$	219		2.29	$	-
Exercisable - June 30, 2023		22,788		$	214		2.24	$	-

Options Outstanding			Options Exercisable
			Weighted
			Average
Exercise Price	Outstanding Number of		Remaining Life		Exercisable Number of
Per Share	Options		In Years		Options
$ 0.01 - $ 50.00		-		-		-
$ 50.01 - $100.00		5,688		2.77		5,688
$ 100.01 - $ 150.00		-		-		-
$ 150.01 - $ 200.00		2,900		0.25		2,900
$ 200.01 - $ 250.00		-		-		-
$ 250.01 - $ 300.00		25,412		3.37		8,575
$ 300.01 - $ 350.00		1,594		3.19		933
		35,594		2.54		18,096

The following table presents information related to stock options as of June 30, 2023:

The Company recognized $(40,983) and $736,869 of share-based compensation expense related to options for the three and nine months ended September 30, 2022, respectively, compared to $470,891 and $822,903 of share-based compensation expense related to options for the three and nine months ended September 30, 2021, respectively. Compensation expense related to stock options is recorded in general and administrative expense in the condensed consolidated statement of operations. At September 30, 2022, the Company had $432,787 of unrecognized compensation expense related to options.

Options Outstanding			Options Exercisable
			Weighted
Exercise	Outstanding		Average		Exercisable
Price	Number of		Remaining Life		Number of
Per Share	Options		In Years		Options
$0.01 - $50.00		-		-		-
$50.01 - $100.00		5,688		2.02		5,688
$100.01 - $150.00		-		-		-
$150.01 - $200.00		2,900		0.50		2,900
$200.01 - $250.00		-		-		-
$250.01 - $300.00		16,033		2.70		13,867
$300.01 - $350.00		333		2.02		333
		24,954		2.24		22,788

~~Warrants~~The Company recognized $52,236 and $172,227 of share-based compensation expense related to options for the three and six months ended June 30, 2023, respectively, compared to $321,248 and $777,852 for the three and six months ended June 30, 2022, respectively. Compensation expense related to stock options is recorded in general and administrative expense in the condensed consolidated statement of operations. At June 30, 2023, the Company had $165,529 of unrecognized compensation expense related to options, which will be recognized over the weighted average remaining vesting period of 0.8 years.

All warrants are valued utilizing the Black-Scholes pricing model using the assumptions listed below. There were no warrants issued during the three and nine months ended September 30, 2022. The weighted average grant date fair value of all warrants issued during the nine months ended September 30, 2021 was $132.76 per share.

The following tables summarize the assumptions used to estimate the fair value of warrants granted during the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
	September 30,
	2022		2021
Expected dividend yield		N/A		0%
Expected volatility		N/A		39.94 – 46.33%
Risk-free interest rate		N/A		0.42- 0.81%
Contractual life of warrants		N/A		5.0 years

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(unaudited)

The following table presents activity for the nine months ended September 30, 2022:

				Weighted-		Weighted-
				Average		Average
	Number of			Exercise Price		Contractual
	Warrants			Per Share		Life in Years
Outstanding – December 31, 2021		128,316		$	372
Forfeited or Expired		(11,900	)		212
Outstanding – September 30, 2022		116,416		$	389		3.38
Exercisable – September 30, 2022		116,416		$	389		3.38

The following table presents information related to warrants as of September 30, 2022:

Warrants Outstanding			Warrants Exercisable
			Weighted
			Average
Exercise Price	Outstanding Number of		Remaining Life		Exercisable Number of
Per Share	Warrants		In Years		Warrants
$ 0.01 - $ 1.00		5,602		2.77		5,602
$ 1.01 - $ 2.00		-		-		-
$ 2.01 - $ 3.00		33,827		0.46		33,827
$ 3.01 - $ 4.00		333		46.49		333
$ 4.01 - $ 5.00		72,853		0.21		72,853
$ 5.01 - $ 6.00		3,801		4.08		3,801
		116,416		3.38		116,416

NOTE 17 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, except as follows.

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~~answer on or about March 18, 2022. ~~No due dates have been set.~~ The Company disputes the plaintiff’s allegations, has not accrued for any contingent losses, and intends to vigorously defend the lawsuit.

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~~shareholders 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 $2.0 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 September 30, 2022 and the other $1.3 million is included in contract liabilities – current in the September 30, 2022 balance sheet.17

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 claims of the former employees, which were fully accrued as of September 30, 2022. The 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 Note 21 – Subsequent Events – Business Developments for additional information.

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~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. The Company had received $1.3 million in cash as a deposit against future product deliveries which is included in contract liabilities – current. In addition, the Company fully accrued the remaining claim of $0.7 million in accrued liabilities in the condensed consolidated balance sheet as of June 30, 2023.

On or about July 2817, 2022, athe former ~~employee filed~~employees ~~suit~~of ~~against~~SKS ~~the~~filed ~~Company,~~an ~~Dustin~~insolvency ~~McIntire,~~request ~~and~~against ~~Daniel~~SKS ~~Hodges~~ in the ~~San~~Nazareth ~~Diego~~District ~~County California Superior~~ Court, ~~Case~~Israel, No. 37 35035-~~2022~~06-~~00028083-CU-BC-CTL (“RVI Claim #1”)~~22. The ~~plaintiff~~action ~~alleged~~represents ~~that his wages were not paid~~$400,000 ~~that~~of heclaims ~~was~~of ~~constructively discharged, that~~ the ~~Company failed~~former ~~to issue him stock options~~employees, ~~and~~which ~~that~~were hefully isaccrued ~~owed~~as ~~future amounts. He claimed damages~~ of ~~no less than $238,000. As of~~ September 30, 2022,. ~~the Company had accrued for the wage~~ The claims ~~for services provided~~ of ~~$119,000 but had not accrued for~~ the ~~claims~~former ~~associated~~employees ~~with~~were ~~future~~resolved ~~services.~~pursuant Onto ~~December 29, 2022,~~ the ~~Company~~SKS ~~resolved~~Sale ~~this~~Agreement ~~lawsuit.~~and ~~See~~the ~~Note~~action 21was ~~– Subsequent~~dismissed ~~Events~~on –or ~~Business~~about ~~Developments~~January ~~for~~9, ~~additional information~~2023.

On or about August 22, 2022, two former ~~Fastback~~ FastBack employees filed suit against the Company, DragonWave and ~~Fastback~~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 claimed 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~~On ~~Company~~April ~~filed~~4, ~~an Answer on or about October 6~~2023, ~~2022 and~~ the Company ~~submitted~~resolved ~~initial~~this ~~responses to the plaintiff’s discovery requests prior to the December 22, 2022 deadline. The Company disputes certain allegations of the plaintiff and intends to vigorously defend the~~ lawsuit.

On or about ~~August~~September 2320, 2022, athe ~~former~~Company ~~employee filed~~was ~~suit~~served ~~against~~with ~~the~~a ~~Company~~suit inthat ~~the~~was ~~Clark~~filed ~~County~~on ~~District~~or ~~Court,~~about ~~Nevada~~May 27, ~~Case~~2022 ~~No.~~by 3the Aholder of a Transform-~~22-857361-C~~X Inc. (“~~RVI Claim #2~~Transform-X”). ~~The plaintiff~~promissory ~~alleged~~note, ~~that~~suing ~~his~~the ~~wages~~Company, ~~were~~Daniel ~~not paid~~Hodges, ~~that~~and heTransform-X ~~was~~in ~~constructively~~the ~~discharged,~~Richland ~~that~~County ~~the~~Court of Common ~~Company~~Pleas, ~~failed~~South toCarolina, ~~issue~~Case ~~him~~No. ~~stock~~2022CP4002806. ~~options,~~The ~~and~~plaintiff alleges that for $125,000 he ispurchased ~~owed~~an ~~future~~8% ~~amounts.~~promissory Henote ~~claimed~~in ~~damages~~2018 offrom Transform-X nowhich ~~less~~has ~~than~~not ~~$184,000~~been paid. AsPlaintiff ofalleges ~~September 30,~~that ~~2022,~~ the Company ~~had~~is ~~accrued~~also ~~for~~liable under the ~~wage~~Transform-X ~~claims~~promissory ~~for~~note. ~~services~~This ~~provided~~lawsuit was ofremoved ~~$8,000~~to ~~but~~the ~~had~~United ~~not~~States ~~accrued~~District ~~for~~of ~~the~~South ~~claims~~Carolina, ~~associated with~~Civil ~~future~~Action ~~services~~No.:3:22-cv-03645-MGL. OnThe ~~December~~Company 29filed an Answer on October 27, 2022, and the ~~Company~~proceedings ~~resolved~~are ~~this~~currently ~~lawsuit~~in the discovery phase. ~~See~~The ~~Note~~Company 21strongly –disputes ~~Subsequent~~the ~~Events~~plaintiff’s –allegations, ~~Business~~has ~~Developments~~not accrued for ~~additional~~any ~~information~~contingent losses, and intends to vigorously defend the lawsuit.

On or about ~~September~~November 2014, 2022, ~~the~~an ~~Company~~intellectual ~~was served~~property ~~with~~law afirm ~~suit that was~~ filed onsuit oragainst ~~about~~the ~~May~~Company ~~27,~~in ~~2022 by~~ the ~~holder~~United ofStates aDistrict ~~Transform-X~~Court ~~Inc. (“Transform-X”) promissory~~for ~~note, suing~~ the ~~Company,~~Southern ~~Daniel~~District ~~Hodges, and Transform-X in the Richland County Court~~ of ~~Common Pleas~~California, ~~South~~San ~~Carolina, Case No~~Diego. ~~2022CP4002806.~~ The plaintiff alleges that ~~for~~they ~~$125,000~~performed hework ~~purchased~~for ~~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 filed an Answer on or about October 27, 2022 and aits ~~proposed~~subsidiaries ~~discovery~~subsequent ~~and~~to ~~scheduling~~September ~~order was submitted on November~~ 30, 2022. ~~Some~~and ~~discovery responses~~ are ~~due~~owed onapproximately ~~or about February 28~~$75, ~~2022. The Company strongly disputes the plaintiff’s allegations~~000, ~~has~~which ~~not~~was fully accrued ~~for~~as ~~any~~of ~~contingent~~June ~~losses~~30, ~~and intends to vigorously defend the lawsuit~~2023.

~~See~~On January ~~Note~~9, 212023, –a ~~Subsequent~~former ~~Events~~employee ~~– Litigation~~of a subsidiary of InduraPower, ~~Claims~~filed suit against the Company and ~~Contingencies~~the ~~Developments~~former CEO, Daniel Hodges, in the Pima County Superior Court, Arizona, Case No. C20230116. The plaintiff has alleged that he is owed for ~~post-September~~unpaid 30minimum wages and overtime wages, ~~2022~~breach ~~developments~~of employment contract, retaliatory termination, and alleges an unspecified amount in damages. The Company strongly disputes plaintiff’s allegations and intends to vigorously defend the lawsuit.

On or about January 10, 2023, a recruiting and staffing company obtained a default judgment against the Company in County Court, Collin County, Texas, Case No. 004-01539-2022, for $145,917 and post-judgment interest at 7%. As of June 30, 2023, the Company accrued for the full amount of the judgment. The judgment holder obtained a garnishment order against the Company’s banking accounts and has received approximately $17,600 in cash through the date of this filing.

On or about May 22, 2023, a landlord filed suit against the Company in the Circuit Court, Fairfax County, Virgina, Case No. 202307755, for breach of a commercial lease. The plaintiff obtained a default judgment in the amount of approximately $130,000 which remains unpaid as of the date of this filing. As of June 30, 2023, the Company accrued for the full amount of the judgment in accrued liabilities on the condensed consolidated balance sheet.

See Note 21 – Subsequent Events – Litigation, Claims and Contingencies Developments for post-June 30, 2023 developments.

NOTE 18 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 ~~September~~June 30, ~~2022~~2023, accounts receivable , net, from three customers comprised an aggregate of approximately 6472% of the Company’s total trade accounts receivable, and none of these balances were characterized as uncollectible.

In addition, for the three months ended ~~September~~ June 30, ~~2022~~2023, revenue from ~~two~~one ~~customers~~customer individually exceeded 10% of revenue and, incomprised approximately 90% of the Company’s total revenue, compared to three customers that comprised approximately 7541% of the Company’s total revenue for the three months ended June 30, 2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, revenue from one ~~customer~~customers individually exceeded 10% of revenue and, ~~in total,~~ comprised approximately 2884% of the Company’s total revenue. ~~For~~compared ~~the~~to ~~three~~one ~~and~~customer ~~nine months ended September 30, 2021, there were no customers~~ that ~~individually~~comprised ~~exceeded 10~~approximately 11% of the Company’s total revenue during the six months ended June 30, 2022. At ~~September~~June 30, 2023 and 2022, ~~accounts~~no ~~payable~~account ~~from~~payables ~~one vendor~~from vendors accounted for 1910% or more of the Company’s total expenses.

~~NOTE 19 BUSINESS ACQUISITIONS~~18

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 September 30, 2021.

	For the Three Months Ended			For the Nine Months Ended
(Amounts in thousands)	September 30, 2021			September 30, 2021
Revenue	$	3,313		$	7,728
Net loss	$	(11,666	)	$	(39,730	)
Basic and diluted loss per common share	$	(14.84	)	$	(51.93	)
Weighted-average common shares outstanding		785,893		$	765,033

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~NOTE 19 OTHER BUSINESS DEVELOPMENTS

~~NOTE~~Nasdaq 20Compliance ~~OTHER~~Developments ~~BUSINESS DEVELOPMENTS~~

~~Executive~~Throughout ~~Officer~~most of 2022, our common stock was not in compliance with the $1.00 minimum closing bid price requirement. We were given grace periods and ~~Board~~regained compliance on or about February 27, 2023, by having the closing bid price of ~~Director~~our ~~Developments~~common stock exceed $1.00 for a minimum of ten (10) consecutive trading days during the grace period by implementing a 1-for-100 reverse stock split of our outstanding common stock on February 10, 2023.

On ~~April~~February 2127, ~~2022~~2023, the Company’s ~~Chief~~regained ~~Financial~~compliance ~~Officer~~with ~~resigned~~Nasdaq ~~from~~Listing Rule 5550(a)(2), the $1.00 minimum closing bid price requirement (“minimum bid price”) price of the Company’s common stock following the successful filing of its Quarterly Reports on Form 10-Q for ~~personal~~the ~~family~~quarters ~~commitments~~ended March 31, 2022, June 30, 2022, and September 30, 2022 pursuant to 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 ~~May~~March 231, ~~2022~~2023, the Company filed a ~~member~~notice of late filing on Form 12b-25 with the ~~Board~~SEC ofto ~~Directors~~report ofthat its Annual Report on Form 10-K for the ~~Company~~year ended December 31, 2022 (the “~~Board~~Form 10-K”) ~~announced~~would ~~their~~not ~~resignation~~be timely filed. On April 18, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the ~~Board~~Company ~~and~~has not yet filed the Form 10-K, the Company is no longer in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all ~~committees~~required ~~thereof~~periodic financial reports with the SEC. On May 17, ~~effective~~2023, ~~immediately~~the Company received a notice from Nasdaq stating that because the Company has not yet filed the Form 10-K or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Form 10-Q”), the Company is not in compliance with Nasdaq Listing Rules. ~~The~~On ~~resignation~~August ~~allowed~~16, 2023, the Company received a notice from Nasdaq stating that ~~former~~because ~~member~~the Company ofhas not yet filed its Quarterly Report on Form 10-Q for the ~~Board~~quarter ended June 30, 2023, the Company is not in compliance with Nasdaq Listing Rules. On October 16, 2023, the Company received notice from the Listing Qualifications Staff (the “Staff”) indicating that the Staff had determined to ~~focus~~delist onthe ~~personal~~Company’s securities unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Staff’s determination was based upon the Company’s continued non-compliance with the filing requirement set forth in Nasdaq Listing Rule 5250(c)(1) because the Company had not filed its Form 10-K for the year ended December 31, 2022, and ~~other~~has not filed the Forms 10-Q for the periods ended March 31, 2023 and June 30, 2023. On November 16, 2023, ~~professional~~the ~~commitments~~Company received a notice from Nasdaq stating that because the Company has not yet filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, the Company is not in compliance with Nasdaq Listing Rules.

OnThe ~~September~~Company 1,requested ~~2022,~~and obtained a hearing before the ~~Company’s~~Panel ~~then~~as ~~Chief~~well ~~Executive~~as ~~Officer~~a ~~and~~further ~~the~~stay ~~Company’s~~of ~~then~~any ~~President~~additional ~~resigned~~action ~~from~~by ~~the~~Nasdaq ~~Company as~~pending ~~part~~the issuance of ~~the~~a ~~Company’s~~decision ~~ongoing~~by ~~transition~~the Panel. ~~David~~There A.can ~~Knight~~be ~~was~~no ~~appointed~~assurance ~~Interim~~that ~~Chief~~a ~~Executive~~favorable ~~Officer~~decision bywill ~~the~~be ~~Board~~obtained.

If the Company fails to timely regain compliance with the Nasdaq Listing Rule within any grace period granted by the Nasdaq Hearings Panel, the Company’s common stock, warrants and 9.25% Series A Cumulative Redeemable Perpetual Preferred Stock will be subject to delisting from Nasdaq. There is no assurance that the Company will regain compliance during any 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 a grace period, Nasdaq will notify us that our common stock, warrants, and 9.25% Series A Cumulative Redeemable Perpetual Preferred Stock will be delisted from The Nasdaq Capital Market.

On June 21, 2023, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the Company’s minimum Market Value of Publicly Held Shares, as defined by Nasdaq (“MVPHS”), of the Company’s 9.25% Series A Cumulative Redeemable Perpetual Preferred Stock (“Preferred Stock”) has been below the minimum $1 million requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5555(a)(4) (the “Minimum Market Value of Publicly Held Shares Requirement”). Under Nasdaq rules, the Company will have the opportunity to appeal the delisting decision to a Nasdaq Hearings Panel. There can be no assurance that, if the Company decides to appeal the delisting determination, such appeal would be successful.

In accordance with Nasdaq Listing Rule 5810(c)(3)(D), the Company has been provided a compliance period of 180 calendar days from receipt of the letter, or until December 18, 2023, to regain compliance with the Minimum Market Value of Publicly Held Shares Requirement. To regain compliance with the Minimum Market Value of Publicly Held Shares Requirement, the Company’s Preferred Stock MVPHS must be $1 million or more for a minimum of 10 consecutive business days during the compliance period ending on December 18, 2023. There can be no assurance that the Company will be able to regain compliance with either listing requirement.

Business Developments

Commencing in May 2022, the Company embarked on a reduction of over 70% of overhead and personnel costs 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 idled the employees.

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 potential employment liabilities and assuming DragonWave Canada’s lease in Kanata, Ontario, Canada, through an Asset Purchase Agreement. The Company recognized a $2.0 million loss on the aforementioned sale.

In June 2022, the Company idled the employees of SAGUNA Networks Ltd. (“SAGUNA”), Sky Sapience Ltd. (“SKS”) and VEO Photonics, Inc. (“VEO”).

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”), resulting in the derecognition of an outstanding promissory note of an aggregate $640,000, comprised of $600,000 of principal and $40,000 of interest, the return of 5,000 shares of common stock, and the waiver of certain severance payments. The Company recognized a $0.6 million loss on the aforementioned sale.

NOTE 21 SUBSEQUENT EVENTS

Executive Officer and Board of Director Developments

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.

2419

COMSOVEREIGN HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~ JUNE 30, ~~2022~~2023

~~(unaudited)~~NOTE 20 CORRECTION OF AN ERROR

During the review of the Company’s condensed consolidated financial statements for the three months ended March 31, 2023, the Company identified errors in the reporting of historical goodwill impairment (included in impairment expense) and intangible asset impairment (included in impairment expense). The errors resulted in an understatement of impairment expense for the year ended December 31, 2022. Based on management’s evaluation of the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations therewith, the Company concluded that the aforementioned errors were not material to the Company’s previously filed 2022 consolidated financial statements. This is further supported by the fact that all errors are of a non-cash nature, do not impact Adjusted EBITDA (earnings before income tax, depreciation and amortization, impairment expense, and stock-based compensation), and would not likely have materially impacted a reasonable investor’s opinion of the Company’s financial condition and results of operations.

Because the correction of these errors was not deemed to be material to the results for the year ended December 31, 2022, and the errors are not expected to be material to the year ended December 31, 2023, to correct these errors, the Company recorded the corrections as out-of-period adjustments in the three-month period ended March 31, 2023. See the table below for the details of the corrections:

	For the Six Months Ended
Condensed Consolidated Statements of Operations:	June 30, 2023
(Amounts in thousands)	Before Adjustment			Adjustment			As Reported
Impairment	$	-		$	896		$	896
Net loss from continuing operations	$	(3,396	)	$	(896	)	$	(4,292	)
Net loss from continuing operations – basic and diluted per share	$	(1.42	)	$	(0.34	)	$	(1.76	)

NOTE 21 SUBSEQUENT EVENTS

Debt and Equity Developments

~~Subsequent to~~On September 301, ~~2022~~2023, ~~and~~Dustin ~~through~~H. McIntire, our CTO, loaned $260,000 to the Company ~~filing~~which ~~date~~was used to secure a software license for the Company. Upon being notified of ~~this~~the ~~Form~~proposed ~~10-Q~~loan, ~~there~~the ~~were~~Audit ~~Note~~Committee ~~Holder~~reviewed the ~~Conversions~~transaction ofunder $5the related party transaction policy and approved the transaction.6 ~~million~~The ofCompany ~~Original~~gave ~~Lind~~Mr. McIntire a secured convertible ~~Debt~~promissory ~~principal~~note ~~and~~for the $~~0.1~~260,000 ~~million~~loan, ofdue ~~related~~December 31, 2024, with eight per cent (8%) interest, ~~into~~secured anby ~~aggregate~~the software license. The holder may convert all or a portion of ~~1,310,911~~the note at any time into shares of the Company’s common stock~~. As of~~ at the ~~filing~~closing ~~date,~~price on which the ~~remaining~~conversion ~~combined~~is ~~principal~~elected ~~and~~or ~~interest~~into ~~balance~~bridge offinancing ~~the~~with ~~Lind~~identical ~~Debt~~terms ~~was~~as ~~approximately~~such ~~$230,000~~bridge financing or offering.

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 667 shares of outstanding common stock due to the non-vesting of certain restricted stock awards.

On January 17, 2023 and February 1, 2023, the Company sold unsecured promissory notes in the principal amounts of $90,000 and $80,000, which are due on or before July 30, 2023 and July 31, 2023, respectively. Of the $90,000 of proceeds from the first note, usage of $88,000 is restricted to make interest payments due to certain holders of outstanding convertible debentures dated January 29, 2021 (Note K – see Note 14 – Debt). Both notes become immediately due and payable if the Company raises at least $2.5 million in an equity or debt offering. Both notes pay 8% interest per annum, which increases to 15% per annum if the notes aren’t repaid by the maturity date. The issuance of the second note made the principal and accrued interest of both notes convertible if they aren’t repaid by the maturity date and the conversion price will equal 81% of the closing market price of the common stock on the day that the holder elects to convert the note(s), subject to a floor price of $5.00 per share.

During January 2023, pursuant to a limited time offer, certain Note K convertible note holders agreed to amend their note and convert an aggregate of $1.3 million principal of their notes and $0.3 million of accrued interest into 280,625 shares of the Company’s common stock.

Litigation, Claims and Contingencies Developments

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 September 30, 2022 and are owed approximately $75,000, which was fully accrued as of September 30, 2022.

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 claims of the former employees, which were fully accrued as of September 30, 2022, 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 a 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, court costs of $425, attorney’s fees of $6,300, and post judgment interest at 7%. The Company had accrued for the claims for services provided, but had not accrued for interest, court costs or attorney’s fees. The judgment holder obtained a garnishment order against Company banking accounts.

On January 9, 2023, a former employee of a subsidiary of InduraPower, filed suit against COMSovereign, Daniel Hodges, and David Knight, 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. COMSovereign strongly disputes plaintiff’s allegations, has not accrued for the claim, and intends to vigorously defend the lawsuit.

Nasdaq Compliance Developments

AsOn ~~previously~~November ~~disclosed in the Company’s Form 10-K filed on August~~ 16, ~~2022~~2023, ~~and in subsequent Form 8-K filings,~~ the Company isreceived ~~not in~~a ~~compliance~~notice ~~with~~from Nasdaq ~~Listing~~stating ~~Rule~~that ~~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~~has ~~late~~not ~~with~~yet ~~filing~~filed its Quarterly ~~Reports on~~Report ~~Form10~~on Form 10-Q for the ~~quarters~~quarter ended ~~March~~September ~~31, 2022, June~~ 30, ~~2022~~2023, ~~and September 30, 2022 (collectively~~ the ~~“Delinquent Reports”), the~~ Company ~~was~~is not in compliance with Nasdaq Listing ~~Rule~~Rules. ~~5250(c)(1),~~As ~~which~~a ~~requires~~result, ~~listed~~the ~~companies~~Company is required to ~~timely~~present ~~file~~its ~~all~~views ~~required~~of ~~periodic financial~~the ~~reports~~deficiency ~~(“filing~~to ~~requirements”)~~the ~~with~~Panel ~~the~~in ~~Securities~~writing ~~and~~no ~~Exchange~~later ~~Commission~~than ~~(“SEC”)~~December 22, 2023.

On ~~November~~December 1712, ~~2022~~2023, ~~a hearing was held before~~ the ~~Nasdaq Hearings Panel (the “Panel”) regarding the~~ Company’s ~~request for~~received ~~continued~~notice ~~listing~~from ~~on The~~ Nasdaq ~~Capital~~indicating ~~Market~~that of the ~~Company’s~~Staff ~~common~~had ~~stock~~determined ~~and~~that an additional ~~time~~basis toexists ~~regain compliance with~~to ~~Nasdaq~~delist ~~Listing Rules. On November 29, 2022,~~ the ~~Panel issued its determination, granting the~~ Company’s ~~request~~securities ~~for~~because the ~~continued listing of the~~ Company’s ~~common~~reported ~~stock, subject to evidencing compliance with Nasdaq~~stockholders’s ~~minimum~~equity ~~bid~~of ~~price~~less ~~requirement~~than ~~by February~~ $2, ~~2023~~500,000 ~~and~~in ~~evidencing~~its ~~compliance~~Annual ~~with Nasdaq’s filing requirement by getting the Company’s remaining Delinquent Reports~~Report ~~filed with the SEC by February 24, 2023, and certain other conditions. Upon the filing~~ on orForm ~~before February 24, 2023, of this Quarterly Report on Form10~~10-QK for the ~~quarter~~fiscal year ended ~~September~~December 3031, 2022, ~~the~~which ~~Company~~is ~~will~~the beminimum ~~compliant~~requirement ~~with~~set ~~the~~forth ~~filing~~in ~~requirements.~~Nasdaq ~~The~~Listing ~~Nasdaq~~Rule ~~Panel~~5550(b)(1), ~~granted~~and ~~the~~did ~~Company’s~~not ~~request~~otherwise ~~for~~satisfy ~~an extension to obtain stockholder approval of~~ the ~~Reverse~~alternative ~~Stock~~minimum ~~Split~~requirements ~~Proposal~~for onmarket ~~February~~value ~~8, 2023,~~of ~~and~~listed tosecurities ~~demonstrate~~or ~~compliance~~net ~~with~~income ~~minimum~~from ~~bid price requirement by February 24, 2023~~continuing operations.

The Company ispreviously ~~working~~requested toand ~~demonstrate~~was ~~compliance~~granted ~~with~~a ~~the~~hearing ~~minimum~~before ~~bid~~the ~~price~~Nasdaq ~~requirement~~Hearings byPanel ~~February~~(the 24“Panel”), ~~2023~~as ~~for~~well ~~continued~~as ~~listing~~a ~~on Nasdaq.~~further ~~The~~stay ~~Company~~of ~~put~~any ~~forth~~suspension aaction ~~reverse~~by ~~split~~Nasdaq ~~proposal~~pending tothe ~~our~~issuance ~~stockholders,~~of ~~which~~a ~~was~~decision ~~approved~~by atthe Panel and the ~~Company’s~~expiration ~~Annual~~of ~~Stockholders~~any ~~meeting on~~extension ~~February~~the 8,Panel may ~~2023.~~grant Onto ~~February~~the 8,Company ~~2023,~~following the ~~Board~~hearing. ofAt ~~Directors~~the ofhearing, the Company ~~set~~intends ~~the~~to ~~reverse~~present ~~stock~~its ~~split~~plan ~~ratio~~to atregain ~~one-for-one~~compliance ~~hundred,~~with all ~~and~~applicable ~~approved~~continued ~~and~~listing ~~adopted~~criteria aand ~~Certificate~~request ofan ~~Amendment~~extension to ~~our~~do ~~Amended~~so. ~~and~~If ~~Restated~~the ~~Articles~~Panel ofdenies ~~Incorporation~~the ~~which~~Company’s ~~became~~request ~~effective~~for ~~at 11:59~~continued ~~p.m.~~listing ~~Eastern~~or ~~Time~~if onthe ~~February~~Company 9,is ~~2023,~~unable to ~~effect~~evidence ~~the~~compliance ~~reverse~~within ~~stock~~any ~~split.~~extension ~~The~~of ~~Company’s~~time ~~common~~that ~~stock~~may ~~commenced~~be ~~trading~~granted onby the ~~post-split basis on February 10~~Panel, ~~2023, on the~~ Nasdaq ~~Capital~~will provide ~~Market~~written ~~under~~notification that the ~~same~~Company’s ~~symbol~~securities ~~“COMS”~~will ~~with~~be adelisted ~~new~~and, ~~CUSIP~~as ~~number~~such, ~~205650401. There~~there can be no ~~assurances,~~assurance ~~however,~~ that wethe Company will be able to ~~gain~~maintain ~~compliance~~the ~~with~~listing ~~the~~of ~~Nasdaq~~its ~~Listing~~securities ~~Rules~~on Nasdaq.

2520

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~~2022 Annual Report on Form 10-K filed with the U. S. Securities and Exchange Commission (the “SEC”) on December ~~August 16~~7, ~~2022~~2023.

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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to the three and ~~nine~~ six months ended ~~September~~June 30, ~~2021~~2022, 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:

●

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~~Edge ~~Full-Duplex~~Compute ~~Technologies.~~Capable We4G ~~have~~LTE ~~developed~~and ~~proprietary~~5G ~~wireless~~Network ~~transmission~~in ~~technologies~~a ~~that~~Box. ~~alleviate~~We ~~the~~offer ~~performance~~both ~~limitations~~4G/LTE ofand ~~the~~5G ~~principal~~New ~~transmission~~Radio ~~technologies used by most networks today. Time Division Duplex~~ (“~~TDD~~NR”) ~~transmission~~based ~~technology~~Network ~~used~~in ~~by many communications systems utilizes~~ a ~~single~~Box ~~channel~~capable ~~for transmission~~ of ~~data~~connecting ~~alternating~~to ~~between~~other ~~downlink~~access radios or ~~uplink,~~directly ~~which~~to ~~limits~~mobile ~~capacity/throughput.~~devices ~~Frequency~~such ~~Division~~as ~~Duplex~~mobile ~~(“FDD”)~~phones ~~technologies in the marketplace today use two independent channels for downlink~~ and ~~uplink~~other ~~but~~Internet-of-things ~~require twice the spectrum~~devices. ~~Neither~~The ~~TDD~~all-in-one ~~nor~~mobile ~~FDD~~networks ~~can~~support ~~simultaneously~~edge-based ~~transmit~~application ~~and~~hosting ~~receive on a single channel — a limitation that network advancements~~ and 5Genable ~~will~~third-party ~~require~~service ~~for optimal performance~~integration.

26● 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.

● 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.21

~~● Tethered Drones and Aerostats.~~ We are ~~design,~~also ~~manufacture,~~developing ~~sell~~processes ~~and~~that ~~provide~~we ~~logistical~~believe ~~services~~will ~~for~~significantly ~~specialized~~advance ~~tethered~~the ~~aerial~~state-of-the-art ~~monitoring~~in ~~and~~silicon ~~communications~~photonic ~~platforms~~(“SiP”) devices ~~serving national defense and security customers~~ for use in ~~applications~~advanced ~~such~~data ~~as intelligence~~interconnects, ~~surveillance,~~communication ~~and~~networks ~~reconnaissance (“ISR”)~~ and ~~tactical~~computing ~~communications~~systems. We ~~focus~~believe ~~primarily~~our onnovel aapproach ~~suite~~will ofallow us ~~tethered~~to ~~aerostats~~overcome ~~known~~the aslimitations ~~the~~of ~~Winch~~current ~~Aerostat~~SiP ~~Small~~optical ~~Platform~~modulators, ~~which~~dramatically ~~are~~increase ~~principally~~computing ~~designed~~bandwidth, ~~for military~~ and ~~security~~reduce ~~applications~~drive ~~and~~power ~~provide~~while offering ~~secure~~lower ~~and~~operating ~~reliable~~costs. ~~aerial~~In ~~monitoring~~addition, ~~for~~we ~~extended~~are ~~durations~~seeking ~~while being tethered~~ to ~~the~~leverage ~~ground~~our ~~via~~AI acapabilities ~~high-strength~~in ~~armored~~our ~~tether. Our recently~~Non-~~acquired~~Line ~~HoverMast line~~ of ~~quadrotor-tethered~~Sight ~~drones~~(NLOS) ~~feature~~unlicensed radio ~~uninterruptible~~enhancing ~~ground-based power, fiber optic communications for cyber immunity,~~ and ~~the~~extending ~~ability~~these capabilities to ~~operate~~further insupport ~~GPS-denied~~our customers’ environments while ~~delivering~~expanding ~~dramatically-improved~~and ~~situational~~extending ~~awareness~~our footprint ~~and~~of ~~communications~~AI capabilities tothrough ~~users~~new partnerships.

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~~Our 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~~following ~~and related~~ products~~. Our Power division employees have been idled.~~:

~~Our CORE~~● ~~business~~Licensed isMicrowave ~~comprised~~(formerly operated as DragonWave-X LLC). DragonWave-X, LLC and its operating subsidiaries, DragonWave Corp. and DragonWave-X Canada, Inc. (collectively, “DragonWave”)), are a 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 ~~following~~U.S. ~~acquisitions:~~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 of DragonWave’s Canadian subsidiary, and transferred the related employees and assigned the Canadian lease of DragonWave’s Canadian subsidiary, to a third party.

● ~~DragonWave-X~~4G ~~LLC.~~and ~~DragonWave-X,~~5G ~~LLC~~Edge ~~and~~Compute ~~its~~(formerly ~~operating~~Virtual ~~subsidiaries~~NetCom, ~~DragonWave Corp~~LLC). ~~and~~Virtual ~~DragonWave-X Canada~~NetCom, ~~Inc.~~LLC (~~collectively,~~ “~~DragonWave~~VNC”),) ~~are~~is aan ~~Dallas-based~~edge ~~manufacturer~~compute offocused ~~high-capacity~~wireless ~~microwave~~telecommunications ~~and~~technology ~~millimeter~~developer ~~wave point-to-point telecom backhaul radio units. DragonWave~~ and ~~its~~equipment ~~predecessor~~manufacturer ~~have~~of ~~been~~both ~~selling~~4G ~~telecom~~LTE ~~backhaul~~Advanced ~~radios since 2012~~ and ~~its~~5G ~~microwave~~NR ~~radios~~capable ~~have~~radio ~~been~~equipment. ~~installed~~VNC indesigns, ~~over~~develops, ~~330~~manufactures,~~000~~ ~~locations~~markets, inand ~~more~~supports ~~than 100 countries worldwide. According to~~ a ~~report~~line of ~~the~~network ~~U.S.~~products ~~Federal~~for ~~Communications~~wireless ~~Commission~~network operators, asmobile ofvirtual ~~December~~network ~~2019~~operators, ~~DragonWave~~cable ~~was~~TV ~~the~~system ~~second~~operators, ~~largest~~and ~~provider~~government ofand ~~licensed~~business ~~point-to-point~~enterprises ~~microwave~~that ~~backhaul~~enable ~~radios~~new insources ~~North America. DragonWave was acquired by ComSovereign in April 2019 prior to the ComSovereign Acquisition. On May 23, 2022, the Company sold the assets~~ of ~~DragonWave’s Canadian subsidiary~~revenue, and ~~transferred~~reduce ~~the~~capital ~~related employees~~ and ~~assigned~~operating ~~the~~expenses. ~~Canadian~~We ~~lease~~acquired ofthe ~~DragonWave’s~~product ~~Canadian~~(formerly ~~subsidiary,~~VNC) toin aJuly ~~third party~~2020.

● ~~Virtual~~Unlicensed ~~NetCom,~~Microwave ~~LLC~~(formerly FastBack). ~~Virtual~~Skyline ~~NetCom,~~Partners Technology LLC, which conducted business under the name Fastback Networks (“~~VNC~~Fastback”)), is ana ~~edge~~manufacturer ~~compute~~of ~~focused~~intelligent ~~wireless~~backhaul ~~telecommunications~~radio ~~technology~~(“IBR”) ~~developer~~systems ~~and~~that ~~equipment~~deliver ~~manufacturer~~high-performance ofwireless ~~both~~connectivity 4Gto ~~LTE~~virtually ~~Advanced~~any ~~and~~location, 5Gincluding NRthose ~~capable~~challenged ~~radio~~by ~~equipment~~Non-Line of Sight limitations. ~~VNC~~Fastback’s ~~designs,~~advanced ~~develops,~~IBR ~~manufactures,~~products ~~markets,~~allow ~~and~~operators ~~supports~~to aeconomically ~~line~~add ofcapacity ~~network~~and ~~products~~density ~~for~~to ~~wireless~~their ~~network~~existing ~~operators,~~cellular ~~mobile~~networks ~~virtual~~and ~~network~~expand ~~operators,~~service ~~cable~~coverage TVdensity ~~system~~with ~~operators,~~small ~~and~~cells. ~~government~~These ~~and~~solutions ~~business~~also ~~enterprises~~allow ~~that~~operators ~~enable~~to ~~new~~both ~~sources~~provide oftemporary ~~revenue,~~cellular and ~~reduce~~data ~~capital~~service utilizing mobile/portable radio systems and ~~operating~~provide ~~expenses~~wireless Ethernet connectivity. We acquired ~~VNC~~Fastback in ~~July~~January ~~2020~~2021.

● ~~Fastback.~~Engineering ~~Skyline~~Services ~~Partners~~(formerly ~~Technology~~Silver ~~LLC~~Bullet Technology, ~~which~~Inc.) ~~conducted~~enables ~~business~~us ~~under~~to ~~the~~provide ~~name~~engineering ~~Fastback~~services ~~Networks~~including ~~(“Fastback”),~~the isdesign aand ~~manufacturer~~develop of ~~intelligent~~next ~~backhaul~~generation ~~radio~~network ~~(“IBR”)~~ systems ~~that~~and ~~deliver high-performance wireless connectivity to virtually any location~~components, including ~~those challenged by Non~~large-~~Line~~scale ofnetwork ~~Sight~~protocol ~~limitations.~~development, ~~Fastback’s~~software-defined ~~advanced~~radio ~~IBR~~systems ~~products allow operators to economically add capacity~~ and ~~density~~wireless tonetwork ~~their~~designs. ~~existing~~ComSovereign ~~cellular~~acquired ~~networks~~Silver ~~and~~Bullet ~~expand~~in ~~service~~March ~~coverage~~2019 ~~density~~prior ~~with small cells. These solutions also allow operators~~ to ~~both~~the ~~provide~~ComSovereign ~~temporary cellular and data service utilizing mobile/portable radio systems and provide wireless Ethernet connectivity~~Acquisition. ~~We acquired Fastback in January 2021.~~

● ~~Silver~~Mobile ~~Bullet~~Edge ~~Technology,~~Compute ~~Inc~~(formerly SAGUNA Networks Ltd.) ~~Silver~~based ~~Bullet~~in ~~Technology~~Yokneam, ~~Inc.~~Israel, ~~(“Silver~~is ~~Bullet”)~~the issoftware adeveloper ~~California~~behind the award-~~based~~winning ~~engineering~~SAGUNA ~~firm~~Edge ~~that~~Cloud, ~~designs~~which ~~and~~transforms ~~develops~~communication ~~next~~networks ~~generation~~into ~~network~~powerful ~~systems~~cloud-computing infrastructures for applications and ~~components~~services, including ~~large-scale~~augmented ~~network~~and ~~protocol~~virtual ~~development~~reality, ~~software~~Internet of Things (“IoT”), edge analytics, high-~~defined~~definition ~~radio~~video, ~~systems~~connected cars, autonomous drones and more. SAGUNA allows these next-generation applications to run closer to the user in a wireless network, ~~designs~~dramatically cutting down on latency, which is a fundamental and critical requirement of 5G networks. ~~ComSovereign~~SAGUNA’s ~~acquired~~Edge ~~Silver~~Cloud ~~Bullet~~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 ~~March~~October ~~2019~~2021. ~~prior~~In order to conserve cash, SAGUNA idled the ~~ComSovereign~~employees ~~Acquisition~~in June 2022.

●Our NONCORE ~~Lextrum,~~business ~~Inc. Lextrum, Inc. (“Lextrum”)~~ is acomprised ~~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~~following ~~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.~~products:

27● Drones (formerly Lighter Than Air Systems Corp., which did business under the name Drone Aviation) based in Jacksonville, Florida 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.

● ~~VEO~~Silicon Photonics, ~~Inc.~~(formerly VEO Photonics, Inc. ~~(“VEO”~~), based in San Diego, California, is a research and development ~~company~~group 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 idled the employees in June 2022.

●As part ~~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~~Company’s ~~lowest~~restructuring, ~~cost~~commencing ofJanuary ~~ownership~~1, ~~RF Engineering has continued to innovate and expand~~2023, ~~and it recently announced~~ the ~~industry’s~~Company ~~first~~integrated ~~Universal~~its ~~Licensed~~previously ~~Microwave~~separate ~~Antenna.~~reporting ~~Supporting frequencies from (6-42 GHz)~~units, including ~~customers~~employing ~~can~~a ~~now~~single ~~reduce~~integrated ~~sparing~~sales ~~costs~~function, and ~~safely~~the ~~future-proof~~Chief ~~their~~Executive ~~networks~~Officer bymanages ~~leveraging~~the ~~this~~Company ~~new Universal plug~~ and ~~play~~makes ~~architecture.~~decisions Webased on ~~acquired RF Engineering in July 2021. In January 2023,~~ the Company’s ~~idled~~consolidated ~~the~~operating ~~employees of RF Engineering & Energy Resource, LLC~~results.

● 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 idled the employees in June 2022.22

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 idled the employees in June 2022. On December 21, 2022, we agreed to sell SKS, subject to closing conditions and there are no assurances that the transaction will close.

● 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. On December 29, 2022, we sold Rvision in order to settle two lawsuits.

Discontinued Operations

On June 21, 2022, the Company sold its Sovereign Plastics business unit for total consideration of $2.0 million to TheLandersCompanies LLC.

The historical operating results of Sovereign Plastics are reported as loss from discontinued operations.

Nasdaq Compliance Developments

As previously disclosed in our Form 10-K filed on ~~August~~December 167, ~~2022~~2023, ~~and in subsequent Form 8-K filings,~~ we are not in compliance with Nasdaq Continued Listing ~~Rule~~Rules. ~~5550(a)(2)~~Throughout most of 2022, our common stock was not in compliance with the $1.00 minimum closing bid price requirement ~~(“minimum bid price”) due to the price of our common stock~~. ~~Additionally,~~We ~~because we~~ were ~~late~~given ~~with~~grace ~~filing~~periods and ~~our~~regained ~~Quarterly~~compliance ~~Reports~~ on ~~Form10-Q~~or ~~for~~about ~~the~~February ~~quarters ended March 31~~27, ~~2022~~2023, ~~June~~by ~~30, 2022,~~having ~~and~~the ~~September~~closing ~~30,~~bid ~~2022~~price ~~(collectively~~of ~~the~~our ~~“Delinquent~~common ~~Reports”),~~stock weexceed ~~are~~$1.00 ~~not~~for ina ~~compliance~~minimum of ~~with~~ten ~~Nasdaq Listing Rule 5250~~(c10)~~(1), which~~ ~~requires~~consecutive ~~listed~~trading ~~companies~~days toduring ~~timely~~the ~~file~~grace ~~all~~period ~~required~~by ~~periodic~~implementing ~~financial~~a ~~reports~~1-for-100 ~~(“filing~~reverse ~~requirements”)~~stock ~~with~~split ~~the~~of ~~Securities~~our outstanding common ~~and~~stock ~~Exchange~~on ~~Commission~~February ~~(“SEC”)~~10, 2023.

On ~~November~~February 1727, ~~2022~~2023, ~~a hearing was held before~~ the ~~Nasdaq~~Company ~~Hearings~~regained ~~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.~~Rule ~~On November 29~~5550(a)(2), ~~2022,~~ the ~~Panel~~$1.00 ~~issued~~minimum ~~its~~closing ~~determination,~~bid ~~granting~~price ~~our~~requirement (“minimum ~~request~~bid ~~for~~price”) ~~the~~price ~~continued listing~~ of ~~our~~the Company’s common stock, ~~subject~~and ~~to evidencing compliance with~~ Nasdaq’s ~~minimum~~Listing ~~bid~~Rule ~~price requirement by February 2~~5250(c)(1), ~~2023,~~which ~~and~~requires ~~evidencing~~listed companies ~~compliance~~to ~~with~~timely ~~Nasdaq’s~~file ~~filing requirement~~all byrequired ~~getting~~periodic ~~our~~financial ~~remaining~~reports ~~Delinquent~~(“filing ~~Reports~~requirements”) ~~filed~~ with the ~~SEC~~Securities ~~by February 24, 2023,~~ and ~~certain~~Exchange Commission ~~other~~(“SEC”) ~~conditions.~~following ~~Upon~~ the ~~filing~~ onsuccessful orfiling ~~before February 24, 2023,~~ of ~~this~~its Quarterly ~~Report~~Reports on ~~Form10~~Form 10-Q for the ~~quarter~~quarters ended ~~September~~March 3031, 2022, ~~the~~June Company will be compliant with the filing requirements. The Nasdaq Panel granted the Company’s request for an extension to obtain stockholder approval of the Reverse Stock Split Proposal on February 830, ~~2023~~2022, and toSeptember ~~demonstrate compliance with minimum bid price requirement by February 24~~30, ~~2023~~2022.

28On March 31, 2023, the Company filed a notice of late filing on Form 12b-25 with the SEC to report that its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”) would not be timely filed. On April 18, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that because the Company has not yet filed the Form 10-K, the Company is no longer in compliance with Nasdaq Listing Rule 5250(c)(1), which requires listed companies to timely file all required periodic financial reports with the SEC. On May 17, 2023, the Company received a notice from Nasdaq stating that because the Company has not yet filed the Form 10-K or its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, the Company is not in compliance with Nasdaq Listing Rules. On August 16, 2023, the Company received a notice from Nasdaq stating that because the Company has not yet filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, the Company is not in compliance with Nasdaq Listing Rules. On October 16, 2023, the Company received notice from the Listing Qualifications Staff (the “Staff”) indicating that the Staff had determined to delist the Company’s securities unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Staff’s determination was based upon the Company’s continued non-compliance with the filing requirement set forth in Nasdaq Listing Rule 5250(c)(1) because the Company has not filed its Form 10-K for the year ended December 31, 2022, and the Forms 10-Q for the periods ended March 31, 2023 and June 30, 2023. On November 16, 2023, the Company received a notice from Nasdaq stating that because the Company has not yet filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, the Company is not in compliance with Nasdaq Listing Rules.

~~The~~On ~~Company~~June is21, ~~working~~2023, tothe ~~demonstrate~~Company ~~compliance~~received ~~with~~a ~~the~~letter ~~minimum~~from ~~bid~~the ~~price~~Listing ~~requirement~~Qualifications byDepartment ~~February~~of ~~24,~~The ~~2023~~Nasdaq ~~for~~Stock ~~continued~~Market ~~listing~~LLC on (“Nasdaq.”) ~~The~~notifying the Company ~~put~~that, ~~forth~~for athe ~~reverse~~last ~~split~~30 ~~proposal~~consecutive tobusiness ~~our stockholders~~days, ~~which was approved at~~ the Company’s ~~Annual~~minimum ~~Stockholders~~Market ~~meeting on~~Value ~~February~~of 8,Publicly ~~2023.~~Held ~~On February 8~~Shares, as ~~2023,~~defined ~~the~~by ~~Board~~Nasdaq of(“MVPHS”), ~~Directors~~ of the Company’s ~~set~~9.25% ~~the~~Series ~~reverse~~A ~~stock~~Cumulative ~~split~~Redeemable ~~ratio~~Perpetual atPreferred ~~one-for-one~~Stock ~~hundred,~~(“Preferred ~~and~~Stock”) ~~approved~~has ~~and~~been ~~adopted~~below athe ~~Certificate~~minimum of$1 ~~Amendment~~million torequirement ~~our~~for ~~Amended~~continued ~~and~~listing ~~Restated~~on ~~Articles~~Nasdaq ofunder ~~Incorporation~~Nasdaq ~~which~~Listing ~~became~~Rule ~~effective at 11:59~~5555(a)(4) ~~p.m.~~(the ~~Eastern~~“Minimum ~~Time~~Market onValue ~~February~~of 9,Publicly ~~2023,~~Held toShares ~~effect~~Requirement”). ~~the~~Under ~~reverse~~Nasdaq ~~stock~~rules, ~~split.~~the ~~The~~ Company’s ~~common~~will ~~stock~~have ~~commenced trading on~~ the ~~post-split~~opportunity ~~basis~~to onappeal ~~February 10, 2023, on~~ the ~~Nasdaq~~delisting ~~Capital~~decision ~~Market~~to ~~under the same symbol “COMS” with~~ a ~~new~~Nasdaq ~~CUSIP~~Hearings ~~number, 205650401~~Panel. There can be no ~~assurances,~~assurance ~~however~~that, ~~that~~if wethe ~~will~~Company bedecides ~~able~~ to ~~gain~~appeal ~~compliance~~the ~~with~~delisting determination, ~~the~~such ~~Nasdaq~~appeal ~~Listing~~would ~~Rules~~be successful.

On December 12, 2023, the Company received notice from Nasdaq indicating that the Staff had determined that an additional basis exists to delist the Company’s securities because the Company reported stockholders’ equity of less than $2,500,000 in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is the minimum requirement set forth in Nasdaq Listing Rule 5550(b)(1), and did not otherwise satisfy the alternative minimum requirements for market value of listed securities or net income from continuing operations.

The Company previously requested and was granted a hearing before the Nasdaq Hearings Panel (the “Panel”), as well as a further stay of any suspension action by Nasdaq pending the issuance of a decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing. At the hearing, the Company intends to present its plan to regain compliance with all applicable continued listing criteria and request an extension to do so. If the Panel denies the Company’s request for continued listing or if the Company is unable to evidence compliance within any extension of time that may be granted by the Panel, Nasdaq will provide written notification that the Company’s securities will be delisted and, as such, there can be no assurance that the Company will be able to maintain the listing of its securities on Nasdaq.

Significant Components of Our Results of Operations

Revenues

Our revenues are generated primarily from the sale of our products, which consist primarily of ~~telcom~~telecom hardware, repairs, support ~~and~~& maintenance, drones, ~~tooling,~~ consulting, warranties and ~~others~~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.

During the three and nine months ended September 30, 2022, approximately 0% and 8%, respectively, of our revenues were derived from sales outside of North America. During the three and nine months ended September 30, 2021, approximately 14% and 28%, 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.23

~~Cost~~During the three and six months ended June 30, 2023, approximately 0% of ~~Goods~~our ~~Sold~~revenues were derived from sales outside of the United States. During the three and ~~Gross~~six ~~Profit~~months ended June 30, 2022, approximately 7% and 16%, respectively, of our revenues were derived from sales outside of the United States. 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.

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~~Goods ~~sold~~Sold ~~does not include any depreciation~~ and ~~amortization~~Gross ~~expenses~~(Loss) ~~as we separate depreciation and amortization expense into its own category within operating expenses.~~Profit

~~Gross~~Our ~~profit~~cost ~~has~~of ~~been~~goods ~~and~~sold ~~will~~is ~~continue~~comprised toprimarily beof ~~affected~~the bycosts ~~various~~of ~~factors~~manufacturing products, ~~including~~procuring ~~changes~~finished ingoods from our ~~supply~~third-party ~~chain~~manufacturers, third-party logistics and ~~evolving~~warehousing ~~product~~provider ~~mix~~costs, shipping and handling costs and warranty costs. ~~The~~ ~~margin~~We ~~profile~~presently outsource the manufacturing of our ~~current~~FastBack ~~products~~ and ~~future~~DragonWave products ~~will~~to ~~vary~~two ~~depending~~outsourced onmanufacturers, ~~operating~~SMC ~~performance,~~for ~~features,~~FastBack ~~materials,~~products ~~manufacturer,~~ and ~~supply~~Benchmark ~~chain.~~for ~~Gross~~DragonWave ~~margin~~products. Cost ~~will~~of ~~vary~~goods assold aalso ~~function~~includes ofcosts ~~changes~~associated inwith ~~pricing~~supply ~~due~~operations, toincluding ~~competitive~~personnel-related ~~pressure~~costs, ~~our~~provision for excess and obsolete inventory, third-party ~~manufacturing, our~~license ~~production~~ costs, and third-party costs ofrelated ~~shipping~~to ~~and~~the ~~logistics,~~services ~~provision~~we ~~for~~provide. ~~excess~~Additionally, ~~and~~cost ~~obsolete~~of ~~inventory~~goods ~~and~~sold does ~~other~~not ~~factors.~~include Weany ~~expect~~depreciation ~~our~~and ~~gross margins~~amortization ~~will~~expenses ~~fluctuate~~as ~~from~~we ~~period~~separate todepreciation ~~period~~and ~~depending~~amortization onexpense ~~the~~into ~~interplay~~its ofown ~~these~~category within ~~various~~operating ~~factors~~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 product mix, 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 and partnerships.

General and Administrative

In addition to personnel costs, general and administrative ~~expense~~expenses ~~consists~~consist 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.

Impairment Expense

We account 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. During the fourth quarter of 2020, we adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Impairment expense is recorded when the carrying value of a reporting unit (including goodwill and intangibles) exceeds the fair value of the reporting unit.

Gain or Loss on Sales

A gain or loss on sales is recognized on sales of legal entities or sales of long-lived assets and included in income from continuing operations in the income statement. The amount of consideration promised in a contract that is included in the calculation of a gain or loss includes both the transaction price and the carrying amount of liabilities assumed.

Loss on Lease Abandonment

A loss on lease abandonment is recognized upon the derecognition of an ROU asset and evaluation that impairment is necessary in accordance with ASC 842. A gain or loss is recognized from the difference between the carrying amount of the ROU asset and the lease liability.

Gain on the Sale of Assets

A gain or loss is recognized on the sale and leaseback of long-lived assets and included in income from continuing operations in the income statement. The amount of consideration promised in a contract that is included in the calculation of a gain or loss includes the transaction price and the carrying amount of assets acquired, liabilities assumed, and closing costs.

Interest Expense

Interest expense is comprised of interest expense associated with our secured notes ~~payable~~payables, unsecured notes ~~payable~~payables and ~~senior~~unsecured convertible notes ~~debentures~~payables. 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						For the ~~Nine~~Six Months Ended
	September 30,						September 30,
	June 30,						June 30,
(Amounts in thousands, except share and per share data)	~~2022~~2023			~~2021~~2022			~~2022~~2023			~~2021~~2022
Revenue	$	3,~~796~~496		$	32,~~268~~088		$	73,~~937~~979		$	64,~~770~~141
Cost of goods sold		~~1,795~~809			12,~~252~~981			61,~~259~~110			34,~~125~~464
Gross profit		2,001			2,016			1,678			3,645
Gross profit (loss)		2,687			(893	)		2,869			(323	)
Operating expenses
Research and development (1)		7449			~~2,058~~536			~~1,782~~106			31,~~805~~708
Sales and marketing (1)		27-			~~292~~12			~~105~~-			~~449~~78
General and administrative (1)		21,~~672~~486			65,~~075~~396			133,~~848~~665			1911,~~486~~176
Depreciation and amortization		~~702~~68			~~3,593~~262			~~1,705~~137			101,~~548~~003
Impairment (2)		(1,090	)		-			14,685			281
Impairment		-			15,775			896			15,775
Loss on sales (ID, DWXC) (3)		-			-			2,564			-
Loss (gain) on sales (ID, DWXC, SKS) (2)		-			2,564			(454	)		2,564
Loss on lease abandonment		~~305~~-			-11,329			~~11,634~~-			-11,329
Gain on the sale of assets		-			-			~~(8,441~~-	)		(838,441	)
Total operating expenses, net		21,~~690~~603			1235,~~018~~873			374,~~882~~350			3435,~~486~~191
Loss from operations		(689	)		(10,002	)		(36,204	)		(30,841	)
Income (loss) from operations		1,084			(36,766	)		(1,481	)		(35,514	)
Other expense
Interest expense		(~~755~~404	)		(~~723~~1,348	)		(~~2,982~~823	)		(12,~~705~~227	)
Other expense		-(42	)		~~(116~~-	)		-(42	)		~~(116~~-	)
Gain (loss) on extinguishment of debt		(512	)		300			(1,130	)		(4,479	)
Loss on extinguishment of debt		-			(445	)		-			(618	)
Foreign currency transaction loss		-			94			-			32
Loss on inducement of debt conversions		-			-			(1,946	)		-
Total other expense		(1,267	)		(445	)		(4,112	)		(6,268	)
Foreign currency transaction loss		-			(1	)		-			(1	)
Loss from continuing operations		(1,956	)		(10,447	)		(40,316	)		(37,109	)
Total other expense		(446	)		(1,794	)		(2,811	)		(2,846	)
Income (loss) from discontinued operations, net of tax		-			(242	)		747			(363	)
Income (loss) from continuing operations		638			(38,560	)		(4,292	)		(38,360	)
Net loss	$	(1,956	)	$	(10,689	)	$	(39,569	)	$	(37,472	)
Income from discontinued operations, net of tax		-			811			-			747
Net income (loss)	$	638		$	(37,749	)	$	(4,292	)	$	(37,613	)

⁽¹⁾	These are exclusive of depreciation and amortization

(23) ~~See~~Innovation ~~Note~~Digital 12(“ID”) –and ~~Goodwill~~DragonWave-X ~~and~~Canada ~~other~~(“DWXC”) ~~Intangible~~were ~~Assets~~sold in ~~the~~2022. ~~accompanying~~Sky ~~financial~~Sapience ~~statements~~("SKS") ~~for~~was ~~out-of-period~~sold ~~adjustment~~in 2023.

~~(3) InnovationDigital (“ID”), DragonWave-X Canada (“DWXC”)~~25

Three and Six Months Ended June 30, 2023 Compared to Three and Six Months Ended June 30, 2022

Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021

Total Revenues

For the three months ended ~~September~~June 30, ~~2022~~2023, total revenues were $3.85 million compared to $32.31 million for the three months ended ~~September~~June 30, ~~2021~~2022. The increase of $01.54 million, or 1567%, is primarily ~~consisted~~attributable ofto increased sales of our aerostat products and accessories, partially offset by ~~decreases~~the inCompany’s ~~our~~liquidity ~~mobile~~challenges ~~network~~and ~~backhaul~~idling and sale of businesses which drove revenues down as compared to the prior ~~products~~period, in addition to a one-time sale of inventory at a loss in the prior period.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, total revenues were $74.90 million compared to $64.81 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022. The ~~increase~~decrease of $10.1 million, or 164%, primarily consisted of increased sales of mobile network backhaul products, ~~the~~and ~~sale of~~ our aerostat products and accessories ~~and~~ in the current period compared to a one-time ~~sales~~sale of inventory at a loss in the prior period.

Cost of Goods Sold and Gross Profit (Loss)

For the three months ended ~~September~~June 30, ~~2022~~2023, cost of goods sold was $10.8 million compared to $1.3.0 million for the three months ended ~~September~~June 30, ~~2021~~ 2022. The ~~increase~~decrease of $02.52 million, or 3873%, was primarily attributable to the Company’s liquidity challenges and idling and/or sale of ~~our~~businesses ~~aerostat~~which ~~products~~drove revenues and ~~accessories~~cost ~~and~~of ~~payment~~goods sold down compared to ~~our~~the ~~contract~~prior ~~manufacturer~~period, ~~for~~in ~~the~~addition ~~production~~to a one-time sale of ~~our~~inventory ~~mobile~~at ~~network~~a ~~backhaul~~loss in the prior period. The Company sells multiple products ~~and~~with varying profit margins. The product mix had higher margins during the ~~materials~~three months ended June 30, ~~parts~~2023 ~~and~~compared ~~labor~~to ~~associated~~the ~~with~~three ~~our~~months ~~other~~ended ~~manufacturing~~June ~~activities~~30, 2022.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, cost of goods sold were $61.21 million compared to $34.15 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2021~~2022. For ~~The~~the ~~increase~~six months ended June 30, 2023, the decrease of $3.14 million, or ~~100~~75%, primarily consisted of the one-time sale of inventory, ~~the~~at a ~~sale~~loss ofin ~~our~~2022 ~~aerostat products~~ and ~~accessories and the payment to our contract manufacturer, including~~ increases in purchase price variances for the production of our mobile network backhaul products and the materials, parts, and labor associated with our other manufacturing activities in the prior period. The Company sells multiple products with varying profit margins. The product mix had higher margins during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Gross profit (loss) for the three months ended ~~September~~ June 30, ~~2022~~2023 was $12.87 million compared to $2.(0.9) million for the three months ended ~~September~~June 30, ~~2021~~ 2022. The ~~decrease~~improved in gross profit ~~margin of $0.2 million, or 10%,~~ was driven primarily by ~~products that were lower margin during~~ the ~~current~~one-time ~~quarter~~sale asof ~~compared~~inventory toat ~~the~~a ~~corresponding period~~loss in ~~fiscal~~the ~~year~~prior ~~2021 and increases in purchase price variances due to increased prices from manufacturing and logistical suppliers, resulting from current macro supply chain constraints~~period.

Gross profit (loss) for the ~~nine~~six months ended ~~September~~ June 30, ~~2022~~2023 was $12.59 million compared to $3(0.63) million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022. The ~~decrease~~improved in gross profit margin ~~of $2.1 million, or 58%,~~ was driven primarily by the one-time sale of ~~DragonWave~~ inventory ~~of approximately $1.8 million~~ at a loss ofin ~~$1.6 million due to~~ the ~~challenges~~prior ~~related to the Company’s liquidity. In addition, it was impacted by products that were lower margin during the nine months as compared to the corresponding~~ period ~~in fiscal year 2021, and increases 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 ~~September~~June 30, ~~2022~~2023, research and development expense was $0.10 million compared to $20.15 million for the three months ended ~~September~~June 30, ~~2021~~2022. The decrease of $2.0.5 million ~~consisted~~was primarily ~~of contract labor and payroll related costs~~ due to ~~the~~reduced ~~suspension~~payroll ~~of research~~ and development ~~activity~~ costs as a result of the Company’s idled businesses and liquidity challenges.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, research and development expense was $10.81 million compared to $31.87 million for the ~~nine~~six months ended June ~~September~~ 30, ~~2021~~2022. The decrease of $2$1.06 million ~~consisted~~was primarily ~~of contract labor and payroll related costs~~ due to ~~the~~reduced ~~suspension~~payroll ~~of research~~ and development ~~activity~~ costs as a result of the Company’s idled businesses and liquidity challenges.

While costs have recently been reduced due to the Company’s liquidity challenges, management expects that these costs will increase modestly as liquidity improves and the Company expands resources somewhat in order to focus on revenue enhancement.

Sales and Marketing Expense

For the three and six months ended ~~September~~June 30, ~~2022~~2023, sales and marketing expense was $0.0 ~~million~~thousand, compared to $~~0.3~~12 ~~million~~thousand and $78 thousand for the three and six months ended ~~September~~June 30, ~~2021~~2022, respectively. The ~~decrease~~decreases ~~of $0.3 million primarily~~ consisted of decreases in payroll and related marketing and sales ~~costs~~efforts and cutbacks due to the Company’s liquidity challenges.

For the nine months ended September 30, 2022, sales and marketing expense was $0.1 million compared to $0.4 million for the nine months ended September 30, 2021. The decrease of $0.3 million primarily consisted of decreases in sales costs and cutbacks due to the Company’s liquidity challenges.26

General and Administrative Expenses

For the three months ended ~~September~~June 30, ~~2022~~2023, general and administrative expense was $21.75 million compared to $65.14 million for the three months ended ~~September~~June 30, ~~2021~~2022. The decrease of $3.49 million primarily consisted of decreases due to the headcount reduction actions taken in 2022 and a decrease in payroll and professional expenses ~~attributable~~related to ~~cost~~certain ~~reductions~~public ~~due~~relations toservices, ~~our~~accounting ~~liquidity~~services, and other professional ~~challenges~~services.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, general and administrative expense was $133.87 million compared to $1911.52 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022. The decrease of $5.7.5 million primarily consisted of decreases due to the headcount reduction actions taken in 2022 and a decrease in payroll and professional expenses ~~attributable~~related to ~~cost~~certain ~~reductions~~public ~~due~~relations toservices, ~~our~~accounting ~~liquidity~~services, and other professional ~~challenges~~services.

Depreciation and Amortization

For the three months ended ~~September~~June 30, ~~2022~~2023, depreciation and amortization was $0.71 million compared to $30.63 million for the three months ended June ~~September~~ 30, ~~2021~~2022. The decrease of $20.92 million was primarily due to the sale of our Tucson Building ~~(see below)~~ and equipment~~, partially~~ ~~offset~~during byearly ~~$0.4~~2022 ~~million of additional amortization that was recorded in order to correct an understatement of intangible asset~~(see ~~amortization~~Note ~~during~~11 ~~the~~– ~~three~~Property ~~months~~and ~~ended June 30~~Equipment, ~~2022~~Net).

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, depreciation and amortization was $10.71 million compared to $101.50 million for the ~~nine~~six months ended June ~~September~~ 30, ~~2021~~2022. The decrease of $80.89 million was primarily due to the sale of our Tucson Building and equipment during early 2022 (see Note 11 – Property and Equipment, Net).

Impairment

For the three and six months ended ~~September~~June 30, ~~2022~~2023, impairment was a$0.0 ~~credit~~and of $10.19 million, respectively, compared to $015.08 million for both the three and six months ended ~~September~~June 30, ~~2021~~2022. The ~~credit of~~ $115.18 million ~~was~~ ~~due~~in to2022 arose in connection with the ~~correction~~results of the ~~second~~Company’s ~~quarter~~June 30, 2022 ~~overstatement~~interim ofimpairment ~~intangible~~testing. ~~asset~~There ~~impairment~~were no triggering events during the six months ended June 30, 2023 (see Note 20 – Correction of an Error).

~~For the nine months ended September 30, 2022,~~Loss ~~impairment~~(Gain) ~~was~~on ~~$14.7~~Sales ~~million~~of ~~compared~~Innovation toDigital ~~$0.3~~and ~~million~~DragonWave-X ~~for~~Canada ~~the~~Assets ~~nine~~and ~~months~~Sky ~~ended September 30, 2021. The increase of $14.4 million primarily arose out arose out of:~~Sapience

●For the three months ended June 30, 2023, the gain on the sale of Sky Sapience was $70.50 million ~~impairment~~compared to $2.6 million for the loss on the sales of ~~intangibles~~Innovation ~~from~~Digital reand DragonWave-~~calendarization~~X Canada assets for the three months ended June 30, 2022. The decrease is due to the transfer of ~~revenue~~$2.0 ~~into~~million ~~later~~of ~~periods;~~finished goods inventory to the purchaser of DragonWave-X Canada and the $0.6 million of intellectual property returned to the original owners of Innovation Digital in 2022.

●For the six months ended June 30, 2023, the gain on the sale of Sky Sapience was $7(0.5) million compared to $2.6 million ~~impairment~~for the loss on the sales of ~~goodwill~~Innovation ~~from~~Digital aand ~~decrease~~DragonWave-X Canada assets for the six months ended June 30, 2022. The improvement is due to the gain on sale of Sky Sapience of $(0.5) million in 2023 as compared to the ~~Company’s~~transfers ~~market~~of ~~capitalization~~$2.0 million of finished goods inventory to the purchaser of DragonWave-X Canada and the $0.6 million of intellectual property returned to the original owners of Innovation Digital in 2022.

Loss on Sales of Innovation Digital and DragonWave-X Canada Assets

For the three months ended September 30, 2022 and 2021, there was no loss on the sales of Innovation Digital and DragonWave-X Canada assets.

For the nine months ended September 30, 2022, the loss on the sales of Innovation Digital and DragonWave-X Canada assets was $2.6 million compared to $0.0 million for the nine months ended September 30, 2021. The increase is primarily due to the transfer of $2.0 million of finished goods inventory to the purchaser of DragonWave-X Canada and the $0.6 million of intellectual property returned to the original owners of Innovation Digital.

Loss on Lease Abandonment

For the three months ended ~~September~~June 30, ~~2022~~2023, the loss on lease abandonment was $0.3 ~~million~~ compared to $011.03 million for the three months ended ~~September~~ June 30, ~~2021~~2022. The decrease of $11.3 million primarily consisted of $10.1 million related to the abandonment of the Tucson lease and related leasehold improvements and inventory, ~~which~~$1.0 ~~was~~million ~~due~~related to the ~~2022~~abandonment of the Dallas office space and related leasehold improvements, and $0.2 million related to the return of various pieces of operating lease equipment and abandonment of ~~our~~small ~~Virginia~~offices ~~location~~or airport hangers used for drone storage during 2022.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, the loss on lease abandonment was $~~11.6~~0 ~~million~~ compared to $011.03 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~ 2022. The ~~increase~~decrease of $11.63 million primarily consisted of $10.01 million related to the abandonment of the Tucson ~~Building~~ lease and related leasehold improvements and inventory, $1.0 million related to the abandonment of the Dallas ~~Texas~~ office space and related leasehold improvements, ~~$0.3 million related to the abandonment of the Chantilly Virginia lease~~ and ~~related leasehold improvements~~ ~~and inventory,~~ $0.2 million related to the ~~abandonment of the San Diego California lease, and $0.2 million related to the~~ return of various pieces of operating lease equipment and abandonment of small offices or airport hangers used for drone storage during 2022.

Gain on the Sale of Assets

For the three months ended ~~September~~June 30, 2023, the gain on the sale of assets was $0 compared to $0 for the three months ended June 30, 2022. For the six months ended June 30, 2023, the gain on the sale of assets was $0.0 million compared to $08.04 million for the ~~three~~six months ended June ~~September~~ 30, ~~2021~~2022. The decrease of $8.4 million is primarily due to the January 31, 2022 sale of 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.

~~For the nine months ended September 30, 2022,~~Other the gain on the sale of assets was $8.4 million compared to $0.1 million for the nine months ended September 30, 2021. The increase of $8.3 million is primarily due to the January 31, 2022 sale of our Tucson Building for $15.8 million of cash. The Tucson Building had a carrying value of $6.7 million. The Company recognized an $8.5 million gain on sale of assets, which is net of $0.7 million of related transaction costs.Expense

32For the three months ended June 30, 2023, other expense was $0.4 million compared to $1.8 million for the three months ended June 30, 2022. The decrease of $1.4 million primarily consisted of decreases in interest expense of $0.9 million and loss on extinguishment of debt of $0.4 million in 2022.

~~Other~~For ~~Expenses~~the six months ended June 30, 2023, other expense was $2.8 million compared to other expense of $2.8 million for the six months ended June 30, 2022. The decrease of $0.0 million primarily consisted of decreases in interest expense of $1.4 million and loss on extinguishment of debt of $0.6 million, partially offset by an increase in loss on inducement of debt conversions of $1.9 million in 2023.

~~For the three months ended September 30, 2022,~~Income ~~other expense was $1.3 million compared to other expense of $0.4 million for the three months ended September 30, 2021. The increase of $0.9 million primarily consisted of increases in the gain~~ (~~loss~~Loss) onfrom ~~extinguishment~~Continuing ~~of debt of $0.8 million, and foreign currency transaction gain (loss) of $0.1 million, partially offset by a decrease in interest expense of $0.3 million.~~Operations

For the ~~nine~~three months ended ~~September~~June 30, ~~2022~~2023, ~~other~~ ~~expense~~we ~~was~~had ~~$4.1~~net ~~million~~income ~~compared~~from tocontinuing ~~other~~operations ~~expense~~ of $60.36 million, ~~for~~compared ~~the~~to ~~nine~~a ~~months~~net ~~ended~~loss ~~September~~from ~~30,~~continuing operations ~~2021. The decrease~~ of $238.26 million ~~primarily~~for ~~consisted of a decrease in~~ the ~~gain~~three ~~(loss)~~months onended ~~extinguishment~~June ~~of debt of $3.3 million~~30, ~~partially~~2022 ~~offset~~related byto ~~increases in~~the ~~interest~~items ~~expense~~described ~~of $1~~above.~~3 million.~~

~~Loss~~For the six months ended June 30, 2023, we had a net loss from ~~Continuing~~continuing ~~Operations~~operations of $4.3 million, compared to a net loss from continuing operations of $38.4 million for the six months ended June 30, 2022 related to the items described above.

~~For the three and nine months ended September~~Income ~~30, 2022, we had a net loss~~ from ~~continuing~~Discontinued operations of $2.0 million and $40.3 million, respectively, compared to a net loss from continuing operations of $10.4 million and $37.1 million for the three and nine months ended September 30, 2021, related to the items described above.Operations

~~Loss~~For the three and six months ended June 30, 2023, we had net income from ~~Discontinued~~discontinued ~~Operations~~operations of $0.0 million, compared to $0.8 million and $0.7 million for the three and six months ended June 30, 2022, respectively, due to the gain on the sale of Sovereign Plastics during the second quarter of 2022.

For the three and nine months ended September 30, 2022, we had net income from discontinued operations of $0.0 million and $0.7 million, respectively, compared to a net loss from discontinued operations of $0.2 million and $0.4 million for the three and nine months ended September 30, 2021. The income in the nine months ended September 30, 2022 included a $1.1 million gain on the sale of Sovereign Plastics.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its cash requirements. As of ~~September~~June 30, ~~2022~~2023, we had $02.6 4 million in cash compared to $1.9 million on December 31, ~~2021~~2022, aan ~~decrease~~increase of $10.35 million resulting primarily from $100.74 million of cash ~~used in operating activities and $7.6~~ ~~million~~provided ~~of debt repayments, partially offset~~ by ~~$15.1 million of cash proceeds from~~ the sale of ~~the~~SKS ~~Tucson~~(see ~~Building on or about January 31, 2022. See~~ Note 113 – ~~Property~~Discontinued Operations and ~~Equipment,~~Assets ~~Net~~and inLiabilities ~~the~~Held ~~notes~~for toSale) ~~the~~and ~~condensed~~$0.2 ~~consolidated~~million of ~~financial~~proceeds ~~statements~~from ~~for~~new ~~more information~~debt, ~~related~~partially tooffset ~~the~~by ~~sale~~$0.1 million of ~~the~~cash ~~Tucson~~used ~~Building~~in operating activities.

As of ~~September~~June 30, ~~2022~~2023, we had a working capital deficit of $1015.52 million compared to a working capital deficit of $315.69 million as of December 31, ~~2021~~2022.

As of ~~September~~June 30, ~~2022~~2023, we had undiscounted obligations relating to the payment of indebtedness as follows:

● $1411.29 million related to indebtedness that is due during the remainder of ~~2022~~2023;

● $0.16 million related to indebtedness that is due during ~~2023~~2024; and

●Subsequent to ~~$3.9~~June ~~million~~30, ~~related~~2023, tothe ~~indebtedness~~following ~~that~~developments isshould ~~due~~be ~~after 2026.~~noted:

~~Subsequent to~~● ~~September~~an ~~30,~~additional ~~2022,~~promissory ~~the~~note ~~following~~with ~~developments~~a ~~should~~face bevalue ~~noted:~~of $0.3 million was issued.

~~● of the $18.2 million of indebtedness that is outstanding, $7.0 million was converted into common stock; and~~28

● additional promissory notes with a face value of $7.0 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~~At ~~the~~June ~~nine months ended September~~ 30, ~~2022,~~2023 we ~~used~~had ~~cash~~an ~~flows~~accumulated indeficit ~~operating activities~~ of $10301.78 million, and ~~at September 30, 2022~~ we had ana ~~accumulated~~working capital deficit of $~~257~~15.4 2 million. ~~and~~These factors weraise ~~had~~substantial ~~working~~doubt ~~capital~~about ~~deficit~~our ofability ~~$10.5~~to ~~million~~continue as a going concern.

Our ~~fiscal~~historical operating results, accumulated deficit and working capital, among other factors, raise substantial doubt about our ability to to continue as a going concern. Based on our current cash on hand and subsequent activity as described herein, we presently only have ~~enough~~ enough cash on hand to operate on a month-to-month basis, without raising additional capital or selling assets. Because of our limited ~~cash~~ cash availability, our operations have been scaled back to the extent possible. We continue to explore opportunities with third parties ~~and~~ 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 until our Nasdaq compliance issues are resolved, as discussed in Nasdaq Compliance Developments herein.

33We 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, and these planned actions do not alleviate the substantial doubt. 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. Determining the extent to which conditions or events raise substantial doubt about the Company’s ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by the Company. The Company makes assumptions that management’s plans will be effectively implemented but may not alleviate substantial doubt and its ability to continue as a going concern.

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.

Lines of Credit and Debt

Summary information with respect to our debt or other credit facilities is set forth in Note 14 – 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 Nine Months Ended
	For the Six Months Ended
	September 30,
	June 30,
(Amounts in thousands)	~~2022~~2023			~~2021~~2022
Cash flows used in operating activities	$	(~~10,706~~75	)	$	(3311,~~121~~084	)
Cash flows provided by (used in) investing activities		14,935			(8,699	)
Cash flows provided by investing activities		436			14,935
Cash flows used in (provided by) financing activities		(7,163	)		46,747
Cash flows provided by (used in) financing activities		170			(7,195	)
Cash flows provided by discontinued operations		~~1,632~~-			(21,~~857~~632	)
Net (decrease) increase in cash and cash equivalents	$	(1,302	)	$	2,070
Net increase (decrease) in cash	$	531		$	(1,712	)

Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, net cash used in operating activities was $100.71 million. Net cash used in operating activities primarily consisted of the net loss from continuing operations of $404.3 million, which was partially offset by adjustments for non-cash expenses of $~~27.~~3.6 million and net cash generated by changes in the levels of operating assets and liabilities of $20.36 million.

For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, net cash used in operating activities was $3311.1 million. Net cash used in operating activities ~~primarily~~ primarily consisted of the net ~~operating~~ loss from continuing operations of $3738.14 million, which was partially offset by adjustments for non-cash expenses of $1925.18 million, and net cash ~~used~~generated toby ~~fund~~ changes in the levels of operating assets and liabilities of $~~15.~~1 .5 million.

Investing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, net cash provided by investing activities was $140.94 million. Investing activities ~~primarily~~ consisted of proceeds from the ~~building~~ sale of ~~$15.1~~SKS ~~million, which was partially offset by the acquisition~~ of ~~property and equipment of~~ $0.24 million.

For the nine months ended September 30, 2021, net cash used in investing activities was $8.7 million. Investing activities primarily consisted of net cash used to fund business acquisitions of $4.5 million, acquire property and equipment of $3.1 million, and acquire intangible assets of $1.2 million, which was partially offset by proceeds from disposal of property and equipment of $0.1 million.29

For the six months ended June 30, 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.

Financing Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, net cash ~~used~~provided inby financing activities was $70.2 million. Financing activities ~~primarily~~ consisted of ~~repayment~~proceeds from ofnew debt of $~~7.6 million and preferred stock dividends paid of $~~0.2 million~~, which was partially offset by $0~~.~~6 million proceeds of debt.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, net cash ~~provided~~used byin financing activities was $~~46.~~7.2 million. Financing activities primarily ~~consisted~~ consisted of ~~net~~repayment ~~proceeds from the sale~~ of ~~common~~debt ~~stock from the public offerings~~ of $457.06 million and ~~net~~preferred ~~proceeds~~stock ofdividends ~~borrowings~~paid of $140.2 million, which was offset by ~~the repayment of debt of~~ $60.46 million, ~~offering costs~~ of ~~$5.3 million, and the repayment of related~~proceeds ~~party notes~~ of $0debt.~~9 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.

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~~2022.

However, it should be noted that business developments commencing in the second quarter of 2022 (see Note 3 – Discontinued Operations and Note 20 – Other Business Developments) in the footnotes to the unaudited consolidated financial statements herein, included discussions of selling or exiting of certain businesses and/or assets and of idling of employees. The Company recognized $11.6 million of impairment expense during the three months ended June 30, 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 was not necessary to perform interim impairment testing as of September 30, 2022, but the Company may need to recognize additional impairment expense in the near future.

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

As of June 30, 2022, due to a sustained decline in the Company’s market capitalization, the Company recognized $11.6 million of impairment expense. As of September 30, 2022, because there were no new significant Company developments, the Company determined that it was not necessary to perform interim impairment testing because it was not more likely than not that any intangible assets’ or reporting unit’s fair value was below its carrying amount. As of December 31, 2022, the Company will perform its annual impairment testing and the Company may need to recognize additional impairment expense at that time, if there are unfavorable events or changes in circumstances (e.g. deterioration in general economic conditions, limitation on accessing capital, deterioration in the environment in which an entity operates, etc.) which lead to quantitative impairment testing and possibly a conclusion that the carrying value of certain intangibles or reporting units exceeds their fair 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~~disclosure ~~Controls~~controls and ~~Procedures~~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~~2022, management ~~has~~concluded ~~identified~~that the following material weaknesses that were first identified in 2021, continued to exist in our disclosure controls and procedures:

● ~~While improvements were made in the segregation of duties and controls over cash and accounts payable,~~ we ~~have~~do not effectively ~~segregated~~segregate certain accounting duties due to the ~~now~~small ~~smaller~~ size of our accounting staff;

● Athere is a lack of timely reconciliations of ~~the~~ account balances ~~affected by the improperly recorded or omitted transactions~~; and

● ~~There~~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 during the three months ended ~~September~~June 30, ~~2022,~~2023 ~~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.

3530

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~There~~From time to time, we may become involved in various ~~have~~lawsuits ~~been~~and nolegal ~~material~~proceedings ~~developments~~that arise in the ordinary course of business. Neither our Company nor any of ~~the~~our subsidiaries currently is a party to any legal ~~proceedings~~proceeding ~~discussed~~that, individually or in the aggregate, is material to our Company as a whole, except as disclosed in Item 3 of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 as filed with the SEC on December 7, ~~except~~2023 and Item 1 of our Quarterly Report on Form 10-Q for the three months ended March 31, 2023 as ~~follows~~filed with the SEC on January 9, 2024. The following item occurred during the second quarter of 2023:

On or about ~~November~~May 1422, ~~2022~~2023, ana ~~intellectual~~landlord ~~property law firm~~ filed suit against the Company in the ~~United~~Circuit ~~States~~Court, ~~District~~Fairfax ~~Court~~County, ~~for the~~Virgina, ~~Southern~~Case ~~District~~No. 202307755, for breach of ~~California,~~a ~~San~~commercial ~~Diego~~lease. The plaintiff ~~alleges~~obtained ~~that~~a ~~they~~default ~~performed~~judgment ~~work~~in ~~for~~ the ~~Company~~amount ~~and~~of ~~its subsidiaries and are owed~~ approximately $75130,000.

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-September 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, court costs of $425, attorney’s fees of $6,300, and post judgment interest at 7%.

On January 9, 2023, a former employee of a subsidiary of InduraPower, 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 in damages. We dispute plaintiff’s allegations, and we intend to vigorously defend the lawsuit.

Item 1A. Risk Factors

Readers should carefully review the risk factors included under “Item 1A. Risk Factors” of our fiscal ~~2021~~2022 Annual Report on Form 10-K filed with the SEC on ~~August~~December 167, ~~2022~~2023. ~~However, due to recent activities of the Company, the following additional risk factor has been identified:~~

~~The~~Our ~~Company~~stockholders’ ~~May~~equity Befails ~~Delisted~~to ~~From~~meet the minimum requirement for continued listing requirements of the Nasdaq Capital Market. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted from the Nasdaq Capital Market.

●On December ~~Minimum~~12, ~~Bid~~2023, ~~Price.~~the ~~The~~ Company isreceived ~~not~~written innotice ~~compliance~~from ~~with~~ Nasdaq ~~Listing~~that ~~Rule~~because ~~5550(a)(2),~~ the ~~$1.00~~Company’s ~~minimum~~stockholders’ ~~closing~~equity ~~bid~~as ~~price~~reported in ~~requirement (“minimum bid price”) due to the price of~~ our ~~common~~Annual ~~stock.~~Report ~~The Company requested continued listing~~ on ~~The~~Form ~~Nasdaq~~10-K ~~Capital~~for ~~Market of its common stock and additional time to regain compliance with~~ the ~~minimum~~fiscal ~~bid~~year ~~price~~ended ~~requirement.~~December ~~After~~31, a2022 ~~hearing~~was ~~before the Nasdaq Hearings Panel~~ (~~the “Panel”~~$15,001,000), ~~the~~we ~~Panel~~do ~~granted~~not meet the ~~Company’s~~minimum ~~request for continued listing subject to evidencing compliance with Nasdaq~~stockholders’s equity ~~minimum bid price~~ requirement byof ~~February~~ $2, ~~2022. The Panel granted the Company’s request for an extension to obtain stockholder approval of the Reverse Stock Split Proposal on February 8~~500,000 ~~2023,~~as ~~and~~set toforth ~~demonstrate~~in ~~compliance~~Nasdaq ~~with~~ Listing Rule 5550(ab)(21) ~~by February 24~~, ~~2023.~~and Indo ~~order~~not tootherwise ~~reach~~satisfy ~~that goal,~~ the ~~Company~~alternative ~~put~~minimum requirements ~~forth~~for amarket ~~reverse~~value ~~split~~of ~~proposal~~listed tosecurities ~~its~~($35 ~~stockholders~~million) ~~that~~or ~~was~~net ~~approved~~income atfrom ~~its~~continuing ~~Annual~~operations ~~Stockholders meeting on February 8~~($500,000 ~~2023.~~in ~~Also~~the onmost ~~February~~recently completed 8,fiscal ~~2023,~~year ~~the~~or ~~Board~~in oftwo ~~Directors~~ of the ~~Company~~last ~~set~~three ~~the~~most ~~reverse~~recently ~~stock~~completed ~~split~~fiscal ~~ratio at one-for-one hundred~~years), and ~~approved~~therefore ~~and adopted a Certificate of Amendment to our Amended and Restated Articles of Incorporation which became effective at 11:59 p.m. Eastern Time on February 9, 2023, to effect~~ the ~~reverse stock split. The~~ Company’s ~~common~~securities are ~~stock~~subject commenced trading on the post-split basis on February 10, 2023, on the Nasdaq Capital Market under the same symbol “COMS” with a new CUSIP number, 205650401. There can be no assurances, however, that we will be able to ~~gain compliance with the Nasdaq Listing Rules~~delisting.

AsThe Company previously requested and was granted a hearing before the Nasdaq Hearings Panel (the “Panel”), as well as a further stay of any suspension action by Nasdaq pending the ~~time~~issuance of ~~this~~a ~~filing~~decision by the Panel and the expiration of any extension the Panel may grant to the Company following the hearing. At the hearing, the ~~prior~~Company ~~day~~intends to present its plan to regain compliance with all applicable continued listing criteria and request an extension to do so. If the Panel denies the Company’s request for continued ~~closing~~listing ~~bid~~or ~~price~~if ~~for~~the ~~our~~Company is unable to evidence compliance within any extension of time that may be granted by the Panel, Nasdaq will provide written notification that the Company’s securities will be delisted and, as such, there can be no assurance that the Company will be able to maintain the listing of its securities on Nasdaq. If we are not able to regain compliance or maintain compliance, our common stock, ~~was~~warrants, ~~approximately~~and $39.1625% ~~per~~Series ~~share~~A Cumulative Redeemable Perpetual Preferred Stock (collectively our “securities”) will be suspended and subject to delisting from Nasdaq.

●If our ~~Filing~~securities ~~Requirement.~~were ~~The~~delisted ~~Company~~from ~~is not in compliance with~~ Nasdaq, ~~Listing~~among ~~Rule~~other ~~5250(c)(1)~~things, ~~which~~it ~~requires~~would ~~listed~~likely ~~companies~~lead to ~~timely~~a ~~file~~number ~~all~~of ~~required~~negative ~~periodic~~implications, ~~financial~~including ~~reports~~an adverse ~~(“filing~~effect ~~requirements”) with the Securities and Exchange Commission (“SEC”). The Company is delinquent with filing its Quarterly Reports~~ on ~~Form10-Q for~~ the ~~quarters~~price ~~ended~~of ~~September~~our 30securities, ~~2022.~~reduced ~~The~~liquidity ~~Company~~in ~~requested~~our ~~continued~~securities, ~~listing~~no onmarket ~~The~~for ~~Nasdaq~~our ~~Capital~~securities ~~Market of its common stock~~ and ~~additional~~no ~~time~~ability ~~to regain compliance with the filing requirement. After the hearing, the Panel granted the Company’s request~~ for ~~continued listing subject~~ you to ~~evidencing~~sell ~~compliance~~our ~~with~~securities, ~~Nasdaq’s~~greater ~~filing~~difficulty ~~requirement~~in byobtaining ~~getting the delinquent Form 10-Qs filed~~financing, ~~including~~potential ~~the~~loss ~~filing~~ of ~~the~~confidence ~~Form10-Q for the quarter ended September 30, 2022~~ by ~~February 24~~employees, ~~2023,~~loss ~~and certain other conditions. Upon the filing on or before February 24, 2023,~~ of ~~this~~institutional ~~Quarterly~~investor interest ~~Report~~and onfewer ~~Form10-Q~~business ~~for~~development ~~the quarter ended September 30, 2022, the Company should be compliant with the filing requirements~~opportunities. There can be no assurances, however, that the Company will meet the deadlines for filing its delinquent Form 10-Q, 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 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.

Between July 22, 2022 and September 23, 2022, we issued to two accredited investors an aggregate of 165,358 shares of our common stock upon the conversion of certain principal of outstanding senior secured convertible promissory notes at a weighted average conversion price of $9.34 per share. Such shares were issued by us in reliance upon the exemption from registration available under Section 3(a)(9) of the Securities Act.

Between October 4, 2022 and December 9, 2022, we issued to two accredited investors an aggregate of 1,310,911 shares of our common stock upon the conversion of certain principal and interest of outstanding senior secured convertible promissory notes at a weighted average conversion price of $4.40 per share. Such shares were issued by us in reliance upon the exemption from registration available under Section 3(a)(9) of the Securities Act.

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 $11.2 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 was 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. Upon the filing of this Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 3031, ~~2022~~2023, the Company will be compliant with the filing requirement. No adverse actions have been taken against the Company and we expect none insofar as filing compliance is regained. During January 2023, pursuant to a limited time offer, certain Fastback convertible promissory note holders agreed to amend their notes and convert an aggregate of $1.3 million principal of their notes and $0.3 million of accrued interest into 280,625 shares of the Company’s common stock.

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 $11.0 million and warrants to purchase up to 18,200 shares of our common stock, par value $0.0001 per share, for a purchase price of $10.0 million (representing an original issue discount of 10.0% on the note), of which we received $5.0 million on May 28, 2021 and $5.0 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 installments 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. 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 September 30, 2022, an aggregate principal amount of approximately $3.0 million was outstanding under this note. As of the date of this filing, this note had a remaining combined principal and interest balance of approximately $50,000.31

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 installments 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. 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 $77,000.

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 13,158 shares of our common stock, par value $0.0001 per share (the “Common Stock”), for a purchase price of $5.0 million (representing an original issue discount of 16.0% on the note), which $5.0 million was 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. We were 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, 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. 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 ~~September 30, 2022, an aggregate principal amount of approximately $2.8 million was outstanding under this note. As of~~ the date of this filing, this note had a remaining combined principal and interest balance of approximately $~~180~~185,000.

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 interest 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 $~~554~~1,~~976~~171,262.

Holders of the Series A Preferred Stock generally have no voting rights, except for limited voting rights, including if the Company fails to pay dividends on the Series A Preferred Stock for 18 or more monthly periods (whether or not consecutive). On November 18, 2023, we reached 18 monthly periods of dividend arrears. Therefore, the holders of shares of the Series A Preferred Stock will be entitled to vote at either (i) a special meeting called upon the written request of the holders of at least 25% of the Series A Preferred Stock or (ii) at our next annual meeting and each subsequent annual or special meeting of stockholders for the election of two additional directors to serve on our board of directors until all unpaid dividends with respect to the Series A Preferred Stock have been paid.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information

None

Item 6. Exhibits

The following documents are filed as a part of this report or incorporated herein by reference:

Exhibit Number		Description
31.1		Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

3933

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: February 24, 2023	/s/ David A. Knight
Date: January 9, 2024	/s/ David A. Knight
	David A. Knight
	Chief Executive Officer
	(Principal Executive Officer)
Date: February 24, 2023	/s/ David A. Knight
Date: January 9, 2024	/s/ David A. Knight
	David A. Knight
	Acting Principal Financial and Accounting Officer

4034

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