Unless the context otherwise requires, the terms “the Company,” “we,” “us,” and “our” in this reportAnnual Report refer to Boxlight Corporation and its consolidated subsidiaries.direct and indirect subsidiaries, and the term “Boxlight” refers to Boxlight Inc., a Washington corporation and a wholly owned subsidiary of Boxlight Corporation. The terms “year” and “fiscal year” refer to our fiscal year ending December 31st.
ITEM 1.
DESCRIPTION OF BUSINESS
We are a technology company that develops, sells and services interactive solutions predominantly for the global education market, but also for the corporate and government sectors. We are seeking to become a worldwide leading distributorinnovator and integrator of interactive projectors, high definitionproducts and software solutions and improve collaboration and effective communication in meeting environments. We currently design, produce and distribute interactive technologies including our interactive and non-interactive flat-panel displays, LED flat panels,video walls, media players, classroom audio and campus communication, cameras and other peripherals for the education market and non-interactive solutions including flat-panels, LED video walls and digital signage for the Enterprise market. We also distribute science, technology, engineering and math (or “STEM”) products, including our 3D printing and robotics solutions, and our portable science lab. All products are integrated into our classroom accessory products.software suite that provides tools for whole class learning, assessment and collaboration. In addition, we offer professional training services related to our technology to our U.S. educational customers. To date, we have generated the majority of our revenue in the U.S. and internationally from the sale of interactive displays and related software to the educational market. We have sold our solutions into more than 70 countries and into more than 1.5 million classrooms and meeting spaces. We sell our products and software through more than 1,000 global reseller partners. We believe we offer the most comprehensive and integrated line of interactive display solutions, audio products, peripherals and accessories, software and professional development for schools and enterprises. Ourenterprises on the market today. The majority of our products are backed by nearly 30 years of research and development. We introduced the world’s first interactive projector in 2007Our website address is https://boxlight.com. Information available on our website is not a part of, and received patents in 2010. We focus on developing easy-to-use solutions combining interactive displays with robust software to enhance the educational environment, ease the teacher technology burden, and focus on improving student outcomes.is not incorporated into, this Annual Report.
Advances in technology and new options for
the introduction
of technology into the classroom have forced school districts to look for solutions that allow teachers and students to bring their own devices into the classroom, provide school
districtdistricts with information technology departments with the means to access data with or without internet access, handle
thehigher demand for video,
andas well as control cloud and data storage challenges. Our design teams are able to quickly customize systems and configurations to serve the needs of clients so that existing hardware and software platforms can communicate with one another.
We have created plug-ins for annotative software that make existing and legacy hardware interactive and allows interactivity with or without wires through our MimioTeach product. Our goal is to become a single source solution to satisfy the needs of educators around the globe and provide a
wholisticholistic approach to the modern classroom.
We pride ourselves in providing industry-leading service and support and have received numerous product awards. Our STEM product, Labdisc, wonawards:
•In 2023, Boxlight received multiple awards from various industry events and publications. Boxlight's Clevertouch brands were awarded three best of show awards at the BETT Awards 2018 inISE conference for LYNX Whiteboard, IMPACT Max and UX Pro 2. At the tools for teaching, learningEdTech awards, Attention!® was named winner of the EDTech Cool Tool Award and assessment category. In 2017, our MimioStudio with MimioMobileClevershare was a BETT Awards finalist in the toolsscreen mirroring software. At the 5th annual EdTech Breakthrough Awards, Boxlight received Best Technology Solution for teaching, learningStudent Safety. Boxlight won 9 Tech and assessment area. Our Labdisc product was namedLearning Best for Back to School Awards for its MimioWall, MimioDS, MyBot Recruit, IMPACT Lux and Teacher Action! Mic., while Clevertouch by Boxlight won signage Technology of the Year for the CleverLive products.
•In 2022, Boxlight received awards from various industry publications including Overall EdTech Company of the Year in the EdTech Breakthrough Awards, Tech and Learning Best of BETT 2017Show for theISTELive 22, multiple awards from Tech & Learning award. In 2017 our Labdisc product won Best In Show at TCEA. Our P12 Projector Series won the Tech & Learning best in show award at ISTE in 2017. Our MimioMobile App with Mimio Studio Classroom Software won the 2016 Cool Tool Award. We received the 2016 Award of Excellence for our MimioTeach at the 34th Tech & LearningLearning’s Back to School Awards of Excellence, program honoring4 awards for new products from THE Journal, multiple awards from Tech and upgraded software.Since the Company launched its patented interactive projectors in 2007, we have sold them to public schools in the United StatesLearning for Mimio, Clevertouch and in 49 other countries, as well as to the Department of Defense International Schools, and in approximately 3,000 classrooms in 20 countries, the Job Corp, the Library of Congress, the Center for Disease Control, the Federal Emergency Management Agency, nine foreign governmentsFrontRow solutions and the CityCampus Technology New Product of Moscowthe Year award for CleverLive digital signage.
•In 2021, Boxlight received Tech & Learning’s 2021 Awards of Excellence ‐ Best Tools for Back to School, in both Primary and numerous Fortune 500 companies, including Verizon, GE Healthcare, Pepsico, First Energy, ADT, Motorola, First DataSecondary levels for: MimioConnect® blended learning platform, MimioSTEM solutions, Boxlight‐EOS Professional Development Learning Solutions, and Transoceanour ProColor interactive flat-panel. Clevertouch was awarded for Best Business Growth and custom built 4,000 projectorsCorporate Social Responsibility by Inavation Awards and 4 AV Awards for Product, Manufacturer, Distributor, and Channel Team of the Israeli Defense Forces.Year.
Boxlight Corporation was incorporated in Nevada on September 18, 2014 for the purpose of acquiring technology companies that sell interactive products into the education market. As of the date of this Annual Report, we have
threefour subsidiaries, consisting of Boxlight Inc.,
a Washington State corporation, Sahara Holdings Limited, an England and Wales corporation ("Sahara"), Boxlight Latinoamerica, S.A. DE C.V.
(“BLS”) and Boxlight
LatinamericaLatinoamerica Servicios, S.A. DE C.V.
, (“BLA”), both BLS and BLA are incorporated in Mexico. BLS and BLA are currently inactive. Our Sahara Holding Limited subsidiary has eight directly and indirectly owned subsidiaries located in the United States, the United Kingdom, the Netherlands, Belgium, Sweden, Finland and Germany, and our subsidiary Boxlight Inc., in turn, has six directly and indirectly owned subsidiaries located in the United States, Australia, Northern Ireland, Canada and Denmark.
On December 31, 2021, we acquired FrontRow Calypso LLC, a California company and a leader in classroom and campus communication solutions for the education market.
On March 23, 2021, we acquired Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies and subsequently renamed to Sahara Presentation Systems (Interactive) Europe BV. The company has been our key distributor in Belgium and Luxembourg.
On September 24, 2020, we acquired Sahara., a leader in distributed AV products and a manufacturer of multi-award-winning touchscreens and digital signage products, including the globally renowned Clevertouch brand. Headquartered in the United Kingdom, Sahara and its subsidiaries have a strong presence in the EMEA interactive flat-panel display (IFPD) market selling into education, health, government, military and corporate sectors.
On April 17, 2020, we acquired MyStemKits Inc. (“MyStemKits”). MyStemKits is in the business of developing, selling and distributing 3D printable science, technology, engineering and math curriculums incorporating 3D printed project kits for education, and owns the right to manufacture, market and distribute Robo 3D branded 3D printers and associated hardware for the global education market.
On March 12, 2019, we acquired Modern Robotics Inc. (“MRI”), a company based in Miami, Florida. MRI is engaged in the business of developing, selling and distributing science, technology, engineering and math (STEM), robotics and programming solutions to the global education market.
On August 31, 2018, we purchased EOS, an Arizona limited liability company owned by Daniel and Aleksandra Leis. EOS is in the business of providing technology consulting, training, and professional development services to create sustainable programs that integrate technology with curriculum in K-12 schools and districts.
On June 22, 2018, we acquired Qwizdom, Inc. and its subsidiary Qwizdom UK Limited (together, the “Qwizdom Companies”). The Qwizdom Companies develop software and hardware solutions that are quick to implement and designed to increase participation, provide immediate data feedback, and, most importantly, accelerate and improve comprehension and learning. The Qwizdom Companies have offices outside Seattle, WA and Belfast, Northern Ireland and deliver products in more than 40 languages to customers around the world through a network of partners.
On May 9, 2018, we acquired Cohuborate, Ltd., a United Kingdom corporation based in Lancashire, England. Cohuborate produces, sells and distributes interactive display panels designed to provide new learning and working experiences through high-quality technologies and solutions through in-room and room-to-room multi-device multi-user collaboration.
On December 20, 2018, Cohuborate Ltd. transferred all of its assets and liabilities to Qwizdom UK Limited and changed its name to Qwizdom UK Limited. On December 20, 2018, Qwizdom UK Limited changed its name to Boxlight Group Ltd. On January 24, 2019, we merged Qwizdom, Inc. with and into Boxlight, Inc.
The businesses previously conducted by Cohuborate Ltd. and Qwizdom UK Limited are now operated by the Boxlight Group Ltd., a wholly owned subsidiary of Boxlight, Inc.
On May 9, 2016, we acquired Genesis Collaboration LLC, a Georgia limited liability company (“Genesis”). Genesis, is a value-added reseller of interactive learning technologies, selling into the K-12 education market in Georgia, Alabama, South Carolina, northern Florida, western North Carolina and eastern Tennessee. Genesis also sells our
interactive solutions into the business and government markets in the United States. Effective August 1, 2016, Genesis was merged into our Boxlight Inc. subsidiary.
On April 1, 2016,
Boxlight Corporationwe acquired Mimio LLC,
a Delaware limited liability company (“Mimio”). Mimio designs, produces and distributes a broad range of Interactive Classroom Technology products primarily targeted at the global K-12 education market. Mimio’s core products include interactive projectors, interactive
flat panelflat-panel displays, interactive touch projectors,
touchboardstouch boards and MimioTeach, which can turn any whiteboard interactive within 30 seconds. Mimio’s product line also includes an accessory document camera, teacher pad for remote control and an assessment system.
Mimio was founded on July 11, 2013 and maintained its headquarters in Boston, Massachusetts. Manufacturing is by
ODM’sODMs and
OEM’sOEMs in Taiwan and
Mainland China. Mimio products have been deployed in over 600,000 classrooms in dozens of countries. Mimio’s software is provided in over 30 languages. Effective October 1, 2016, Mimio
LLC was merged into
our Boxlight Inc.
Effective May 9, 2016, Boxlight Corporation acquired Genesis Collaboration LLC (“Genesis”). Genesis is a value added reseller of interactive learning technologies, selling into the K-12 education market in Georgia, Alabama, South Carolina, northern Florida, western North Carolina and eastern Tennessee. Genesis also sells our interactive solutions into the business and government markets in the United States. Effective August 1, 2016, Genesis was merged into Boxlight Inc.
Effective July 18, 2016, Boxlight Corporation acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”). The Boxlight Group sells and distributes a suite of patented, award-winning interactive projectors that offer a wide variety of features and specifications to suit the varying needs of instructors, teachers and presenters. With an interactive projector, any wall, whiteboard or other flat surface becomes interactive. A teacher, moderator or student can use the included pens or their fingers as a mouse to write or draw images displayed on the surface. As with interactive whiteboards, interactive projectors accommodate multiple users simultaneously. Images that have been created through the projected interactive surface can be saved as computer files. The new Company’s new ProjectoWrite 12 series, launched in February 2016, allows the simultaneous use of up to ten simultaneous points of touch.
We are a leading technology company that focuses on the education and learning industry. We produce and distribute products including interactive projectors, 65”-98” ultra hi-resolution interactive LED panels, integrated STEM (Science, Technology, Engineering, & Mathematics) data logging products, and develop new products utilizing a combination of technologies utilizing Boxlight’s intellectual property portfolio. We invest in significant research and development, leverage our international manufacturing capabilities, and utilize an established global reseller network. Our goal is to become a single source, world-leading innovator, manufacturer and integrator of interactive products for schools and universities, as well as for training and instruction for business and governmental agencies.
subsidiary.
The organizational structure of our companies
as of the date of this Annual Report is as follows:
We believe that the United States, whichglobal interactive technology education industry is ourundergoing a significant transition, as primary market, we sell and distribute interactive educational products for K-12secondary school districts, colleges and universities, as well as governments, corporations and individuals around the world are increasingly recognizing the importance of using technology to both publicmore effectively educate,
communicate and private schools,collaborate. Across the globe, state governments along with local communities continue to make sustained investments in education.
The K-12 education sector represents one of the largest industry segments.
In addition to its size, theThe U.S.
K-12 education market is highly decentralized and is characterized by complex content adoption processes. The sector is comprised of approximately 15,600 public school districts across the 50 states and 132,000 public and private elementary and secondary schools.
In addition to its size, the U.S. and certain EMEA K-12 education markets are highly decentralized and are characterized by complex content adoption processes. We believe this market structure underscores the importance of scale and industry relationships and the need for broad, diverse coverage across states, districts and schools. Even while we believe certain initiatives in the education sector, such as the Common Core State Standards, a set of shared math and literacy standards benchmarked to international standards, have increased standardization in K-12 education content, we believe significant state standard specific customization still exists, and we believe the need to address customization provides an ongoing need for companies in the sector to maintain relationships with individual state and district policymakers and expertise in state-varying academic standards.
According to a December 2023 report by FutureSource Consulting Ltd.("Futuresource"), the U.S. display market is expected to reach $44 billion by 2027. While the education sector has historically represented the majority of displays sold, growth in the corporate sector continue to outpace the education sector with sales to the corporate sector expected to reach approximately 44% of the global display market in 2027. We believe the growth in both the education and corporate sectors provides the Company with significant growth opportunities. In addition, the display market is highly fragmented allowing the Company to position itself for increased market share in each of these sectors.
Our Opportunity
Globally it is widely acknowledged that long-term economic growth is closely correlated to investment in education and educational technology, thus sustaining long-term growth in the market, even during periods of economic downturn. Further details of our solution and favorable macro-economic analysis are set forth below:
Growth in U.S. K-12 Market Expenditures
Significant resources are being devoted to primary and secondary education, both in the United States and abroad. As set forth in a December 2023 report by Futuresource, US Schools are budgeting for more IT in their classrooms.
The market for K-12 services and technology has historically grown above the pace of inflation, averaging 7.2% growth annually since 1969. Deviations around this mean occur during periods of economic growth and recession causing peaks and troughs in the K-12 market, albeit below other sectors.
HolonIQ reported in the Global EdTech Venture Capital Report that there has been some $32 billion in venture capital investment in the education/technology sector in the last decade (approximately 33% within the US) and predicts nearly triple that investment through to 2030. Further, the report estimates that the global “expenditure on education and training from governments, parents, individuals and corporates continues to grow to historic levels and is expected to reach USD $10 trillion by 2030.”
Increasing Focus on Accountability and the Quality of Student Education
U.S. K-12 education has come under significant political scrutiny in recent years,
due to the recognition of its importance to U.S. society at large and concern over the perceived decline in U.S. student competitiveness relative to international peers. An independent task force report published in March 2012 by the Council on Foreign Relations, a non-partisan membership organization and think tank, observedwith findings that American students rank far behind
other global leaders in international tests of literacy, math and science,
concludingwith the resulting conclusion that the current state of U.S. education severely impairs the United States’ economic, military and diplomatic security as well as broader components of America’s global leadership.
Also, the Executive Office of the President Council of Economic Advisors, in a report titledUnleashing the Potential of Educational Technology, stated that “many observers are concerned about declines in the relative quality of U.S. primary and secondary education, and improving performance of our schools has become a national priority.” We believe
that the customization of learning programs could enhance innovative and growth strategies geared towards student performance in our nation’s schools.The global education industry is undergoing a significant transition, as primary and secondary school districts, colleges and universities, as well as governments, corporations and individuals around the world are increasingly recognizing the importance of using technologythis scrutiny will cause there to more effectively provide information to educate students and other users.
According to “All Global Market Education & Learning”, an industry publication, the market for hardware products is growing due to increases in the use of interactive whiteboards and simulation-based learning hardware. Educational institutions have become more receptive to the implementation of hi-tech learning tools. The advent of technology in the classroom has enabled multi-modal training and varying curricula. In general, technology based tools help develop student performance when integrated with the curriculum. The constant progression of technology in education has helped educators to create classroom experiences that are interactive, developed and collaborative.
According to market research report “Markets and Markets Interactive Projector Market”2016 research report,the interactive projector market was valued at $670 million in 2015 and is expected to reach $2,602 million by 2022, growing at a CAGR of 21.5% between 2016 and 2022. The increasing adoption of interactive projectors inbe increased investment into the education segment, the low cost of interactive projectors compared to interactive whiteboards, and significant advantages of interactive projectors over conventional projectors are some of the factors that are driving the growth of the interactive market. Low awareness of the consumers regarding interactive projectors in developing countries restrains the growth of the market in those areas. The major players in the interactive projector market include Seiko Epson Corp. (Japan), BenQ Corp. (Taiwan), Boxlight (U.S.), Dell Technologies Inc. (U.S.), Panasonic Corp. (Japan), CASIO COMPUTER Co., Ltd. (Japan), NEC Display Solutions, Ltd. (Japan), Optoma Technology Inc. (U.S.), Touchjet Inc. (Singapore), and Delta Electronics Inc. (Taiwan).
Our Opportunity
We believe that our patented product portfolios and the software and products we intend to develop either alone or in collaboration with other technology companies positions us to be a leading manufacturer and provider of interactive educational products in the global educational and learning market. We believe that increased consumer spending driven by the close connection between levels of educational attainment, evolving standards in curriculum, personal career prospects and economic growth will increase the demand for our interactive educational products. Some of the factors that we believe will impact our opportunity include:
Growth in U.S. K-12 Market Expenditures
Significant resources are being devoted to primary and secondary education, both in the United States and abroad. As set forth in the Executive Office of the President, Council of Economic Advisers report, U.S. education expenditure has been estimated at approximately $1.3 trillion, with K-12 education accounting for close to half ($625 billion) of this spending. Global spending is roughly triple U.S. spending for K-12 education.
While the market has historically grown above the pace of inflation, averaging 7.2% growth annually since 1969, as expenditures by school districts and educational institutions are largely dependent upon state and local funding, the world-wide economic recession caused many states and school districts to defer spending on educational materials, which materially and adversely affected our historical revenues as well as those of many of our competitors. However, expenditures and growth in the U.S. K-12 market for educational content and services now appears to be rebounding in the wake of the U.S. economic recovery. Although, the economic recovery has been slower than anticipated, and there is no assurance that any further improvement will be significant, nonetheless, states such as Florida, California and Texas were all scheduled to adopt interactive educational materials for certain subjects, including reading and math, by 2016.
International Catalysts Driving Adoption of Learning Technology
According toAmbient Insights 2012 Snapshot of the Worldwide and US Academic Digital Learning Market, substantial growth in revenues for e-learning products in the academic market segment are anticipated throughout the world due to several convergent catalysts, including population demographics such as significant growth in numbers of 15-17 year old students and women in education in emerging markets; government-funded education policies mandating country-wide deployment of digital learning infrastructures; large scale digitization efforts in government and academic markets; significant increases in the amount of digital learning content; migration to digital formats by major educational publishers and content providers; mass purchases of personal learning devices and strong demand for learning platforms, content and technology services; and rapid growth of part-time and fulltime online student enrollments.
Rising Global Demand
We expect to profit from the rising global demand for technology based learning products by offering our interactive product hardware and software in the United States and expanding into foreign countries. In recent years, the global education sector has seen movement towards the adoption of interactive learning devices. As examples:
| ● | In 2010, the Peruvian government spent $3.0 billion for an education technology rollout to provide all teachers and students with individual tablet computers and network infrastructure and classroom displays; |
| | |
| ● | In August 2011, the Russian government announced a plan to deploy tablets, “on a massive scale” in the Russian educational system, to replace printed textbooks; |
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| ● | In October 2011, the Indian government launched its heavily subsidized school-designed tablet called Aakash; and |
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| ● | In July 2011, the Thailand government announced that it intends to give every child in grades 1-6 a tablet starting with first grade students in the 2012 school year. The multi-year program is expected to equip over 5.0 million primary students with handheld devices. |
Growth in the E-learning Market
According to the “E-learning Market – Global Outlook and Forecast 2018-2023”
The introduction of technology-enabled learning that helps organizations train human resource is driving the growth of the global e-learning market. These training modules offer continuous and effective learning at an optimal cost and provide customized course content that meets the specific requirements of end-users. The advent of cloud infrastructure, peer-to-peer problem solving, and open content creation will help to expand business opportunities for service providers in the global e-learning market.
Vendors are also focusing on offering choices on the course content at competitive prices to gain the share in the global e-learning market. The exponential growth in the number of smartphone users and internet connectivity across emerging markets is driving the e-learning market in these regions. The introduction of cloud-based learning and AR/VR mobile-based learning is likely to revolutionize the e-learning market during the forecast period.
Major vendors are introducing technology-enabled tools that can facilitate the user engagement, motivate learners, and help in collaborations, thereby increasing the market share and attracting new consumers to the market. The growing popularity of blended learning that enhances the efficiency of learners will drive the growth of the e-learning market. The e-learning market is expected to generate revenue of $65.41 billion by 2023, growing at a CAGR of 7.07% during the forecast period.
sector.
Trends in Tech-Savvy Education
While industries from manufacturing to health care have adopted technology to improve their results, according to Stanford Business School in itsTrends in Tech-Savvy Education, the education field remains heavily reliant on “chalk and talk” instruction conducted in traditional settings; however, that is changing as schools and colleges adopt virtual classrooms, data analysis, online games, highly customized coursework, and other cutting-edge tools to help students learn.Demand for Interactive Projectors is on the Rise
The interactive projector market was valued at $670.3 million in 2015 and is expected to reach $2.602M by 2022, growing at a CAGR
The delivery of digital education content is also driving a substantial shift in the education market. In addition to
whiteboards, interactive
projectors and interactive flat panels,flat-panels, other technologies are being adapted for educational uses on the Internet, mobile devices and through cloud-computing, which permits the sharing of digital files and programs among multiple computers or other devices at the same time through a virtual network. We intend to be a leader in the development and implementation of these additional technologies to create effective digital learning environments.
Handheld Device Adoption
Handheld devices, including smartphones, tablets, e-readers and digital video technologies, are now fundamental
Growth in the E-learning Market
According to the way students communicate. A 2010 FCC survey provides evidence that“E-learning Market – Global Outlook and Forecast 2020-2025,” the rates of handheld use will increase dramatically. It reported that while 50% of respondents currently use handhelds for administrative purposes, 14% of schools and 24% of districts use such devices for academic or educational purposes. Furthermore, 45% of respondents plane-learning market is expected to start using such devices for academic and educational purposes withindisplay significant growth opportunities in the next 2five years. While the growth curve is uniform in terms of the number of users, the same is not the case by revenues; the average cost of content creation and delivery with the same is undergoing a consistent decline. However, the advent of cloud infrastructure, peer-to-peer problem solving, open content creation, and rapid expansion of the target audience has enabled e-learning providers to 3 years. The survey stated that, “The userein in economies of digital video technologieschoice and offer course content at a competitive price. While the growth prospects of the e-learning market remain stable, the rise of efficient sub-segments is changing the learning and training landscape gradually.
Vendors are also focusing on offering choices on the course content at competitive prices to
support curriculum is becoming increasingly popular as a way to improve student engagement.”Natural User Interfaces (NUIs)
Tablets and the new class of “smart TVs” are part of a growing list of other devices built with natural user interfaces that accept inputgain market share in the form of taps, swipes, and other ways of touching; hand and arm motions; body movement; and increasingly, natural language. Natural user interfaces allow users to engage in virtual activities with movements similar to what they would useglobal e-learning space. The exponential growth in the real world, manipulating content intuitively.number of smartphone users and internet connectivity across emerging markets is driving the e-learning market in these regions. The ideaintroduction of being ablecloud-based learning and Augmented/Virtual reality mobile-based learning is likely to have a completely natural interaction with a device is notrevolutionize the e-learning market during the forecast period.
Major vendors are introducing technology-enabled tools that can facilitate user engagement, motivate learners, and help in collaborations, thereby increasing the market share and attracting new
but neither has its full potential been realized. For example, medical students increasingly rely on simulators employing natural user interfacesconsumers to
practice precise manipulations, such as catheter insertions,the market. The growing popularity of blended learning that
would be far less productive if they hadenhances the efficiency of learners will drive the growth of the e-learning market. According to
try to simulate sensitive movements with a mouse and keyboard. NUIs make devices seem easier to use and more accessible, and interactions are far more intuitive, which promotes exploration and engagement. (NMC Horizon ProjectTechnology Outlook STEM+ Education 2012-2017).The Business and Government Market
The business and governmentan article by Futuresource in December 2023, the education market for interactive flat-panel displays represents an attractive growth opportunity for us becauseis expected to comprise of the desire56% by 2027.
Our Portfolio of
organizations to improve the quality of training, development and collaboration.In meeting rooms, our solutions help achieve the following:
| ● | Enhance brainstorming and collaboration by providing a real-time focal point upon which participants can share their ideas with the entire group of attendees, including those in remote locations; |
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| ● | Add a tangible, interactive dimension to conferencing that enables attendees to visualize a situation or concept and make decisions based on that visualization; |
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| ● | Save time and enhance productivity by enabling users to save and distribute their collective work product from a meeting without the inconsistencies and subjectivity that may result from individual note taking; |
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| ● | Realize cost savings not only by reducing travel needs, but also by improving internal communication and team building; and |
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| ● | Enable participants to access digital files and use applications in real time. |
In training centers, we believe that our solutions help to enhance achievement levels with multi-modality (visual, auditory and kinesthetic) learning capabilities, improved interactivity and engagement and real-time assessment and feedback. Our solutions may also help improve an enterprise’s return on investment by providing better trained employees reducing training time and getting employees back to their jobs, reduced travel expenses, improved customers service from well-trained employees and reduced employee turnover.
Federal and State Funding According to “State of the K-12 Market Reports 2016”
New Student Support and Academic Enrichment Grant (SSAEG) dollars will likely begin to expand the market somewhat in the 2017-2018 school year. SSAEG is a new funding mechanism that provides flexible funding focused on efforts to promote a well-rounded education, create safe and healthy learning environments for students, and support the effective use of technology. Congress initially authorized SSAEG at $1.6 billion.
Despite the attention paid to the federal education budget, school funding continues to come primarily from state and local sources. For the 2014-2015 school year, state funding provided nearly half (46%) of total funding for K-12 schools, with local funding providing 44% of K-12 funding. The federal contribution was an average of 10%. Overall funding for all public and private K-12 education in the United States is currently about $665 billion.
States spend a significant amount of their overall budgets to support education. According to the National Association of State Budget Officers, states devote 20% of their overall spending to K-12 education. In FY2016, 41 states enacted spending increases for K-12 education resulting in a net increase of $14.7 billion, up from an $11.1 billion increase in FY2015. Thirty-five states also enacted spending increases for higher education. Only four states—Alaska, Hawaii, West Virginia, and Wisconsin—cut K-12 spending in FY2016.
Governors in 43 states called for higher spending in their FY2017 budget recommendations. As has been true for several years, governors’ proposed budgets direct most additional dollars to K-12 funding and Medicaid, the two largest areas of state general fund expenditures.
The Fiscal Survey of States, Spring 2016 confirms that state budgets continue to show moderate growth and stability. FY2016 (July 1, 2015 to June 30, 2016) marked the first time that aggregate spending levels surpassed the pre-recession peak level of FY2008, adjusted for inflation. For the most part, states have been able to close budget gaps and minimize mid-year budget cuts. Unemployment rates are going down, rainy day funds are growing, and states are focused on resolving issues around unfunded pension programs, ongoing health care and education costs, and pent-up infrastructure demand. Enacted 2016 budgets showed state revenues reaching $798 billion, an increase of 4%, compared with the 3% gain in fiscal 2015, when revenues stood at $748 billion. Revenue growth was widespread: 43 states enacted spending increases in FY2016, compared with 2015 levels. A small number of states face revenue shortfalls brought on by the decline in oil and natural gas prices.
Technology Budget Outlook Per “State of the K-12 Market Reports 2016”
The outlook for district technology budgets in the 2016-2017 school year continues the improvement seen last year, confirming schools’ emergence from the long shadow of the recession. Tech directors generally have quite positive expectations about their 2016-2017 budget. Compared with the prior two years, the 2016-2017 outlook is generally strong. Clearly technology directors are making some trade-offs from year to year, increasing spending in one category and balancing that increase by holding steady or slightly decreasing other categories.
Even in the schools’ worst recession years of 2010-2011 through 2012-2013, hardware and teacher training were most likely to see the largest percentage of districts planning to increase spending. The implementation of Common Core assessments likely drove some of this investment in hardware and teacher training in the past; however, the desire to increase overall student access to technology also plays a role. Districts may not be saying that one-to-one is their goal, but they continue to move in that direction. Their budget plans also reflect a clear awareness that teacher training is an essential element of any expansion of technology use.
District characteristics (size, metropolitan status, and region) are sometimes associated with differences in plans for technology spending. While no significant differences are seen by metropolitan status of region, looking at projected increases by district size reveals a difference in budget plans for hardware purchases. Medium-size districts are significantly more likely than their smaller counterparts to be planning increases in hardware budgets.
Our Current Products
We currently offer
products within the following
products:MimioStudio Interactive Instructionalcategories:
•Front-of-Class Display (Mimio and Clevertouch brands)
•FrontRow Classroom Audio and IP-based school-wide communication systems for bells, paging, intercom, and alerting
•STEM
•Educational SoftwareMimioStudio Interactive Instructional Software enables the creation, editing, & Content (Mimio Connect, LYNK Whiteboard, OKTOPUS, MimioStudio)
•Peripherals and Accessories
•Professional Development
The Boxlight portfolio of solutions is designed to create dynamic teaching, learning, and presentation
of interactive instructional lessons and activities. These lessons and activities can be presented and managed from the front of the classroom using any of Boxlight’s front of classroom display systems including MimioTeach +experiences. When integrated, our
non-interactive projectors, ProColor Interactive LED panels, MimioBoard Touch + our non-interactive projectors, MimioFrame + our non-interactive projectors or ProjectoWrite “P” Series interactive projectors in either pen or touch controlled versions. MimioStudio can also be operated using MimioPad as a full-featured remote control or a mobile device such as an iPad or tablet which includes a display screen that fully replicates the front-of-classroom display generated by MimioStudio. Operation with a mobile device is enabled via the three-user license for MimioMobile, see next, provided with the MimioStudio license that accompanies all front-of-classroom devices from Mimio.MimioMobile Collaboration and Assessment Application
The introduction of MimioMobile, a software accessory for MimioStudio, in 2014 introduced a new era of fully interactive student activities that are able to be directly and immediately displayed on the front-of-classroom interactive displays through MimioStudio.
MimioMobile allows fully interactive activities to be pushed to student classroom devices. The students can manipulate objects within the activities, annotate “on top” of them, and even create completely new content on their own handheld devices. MimioMobile also enables assessment using the mobile devices. The teacher can create multiple choice, true\false, yes\no, and text entry assessment questions. The students can respond at their own speed and their answers are stored within MimioStudio from which the teacher can display graphs showing student results. This “continuous assessment” allows formative assessment that can help guide the teacher as to whether to re-teach the material if understanding is low or move forward in the lesson. We believe that this interactive and student dependent instructional model can dramatically enhance student outcomes.
BoxlightFront-of-Classroom Interactive Displays
Boxlightoffers the broadest line of interactive displays, each of which provides large image size and interactive technology that complements the capabilities of MimioStudio and MimioMobile.
Boxlight InteractiveProjectors
We offer a suite of patented, award-winning interactive projectors with a wide variety of features and specifications to suit the varying needs of instructors, teachers and presenters around the world. With an interactive projector any wall , whiteboard or other flat surface can become an interactive surface and enable computer control. A user can utilize a pen stylus or finger as a mouse or to write or draw images displayed on the screen. As with interactive whiteboards, the interactive projector accommodates multiple users simultaneously. Images that have been created through the projectors can be saved as computer files. Except for the ProjectorWrite 12 series, all the Boxlight Group interactive projectors use LCD or DLP technology.
We offer interactive projectors using lamp and laser illumination technologies. Each ultra-short throw model is available with pen-based interactivity using infra-red emitting pens or touch-based technology using an emitter that generates a laser curtain over the entire surface of an associated whiteboard.
The pen versions of these interactive projectors can display images as large as 130” diagonally in 16:10 aspect ratio. The touch-based versions can display images as large as 100” in the same 16:10 aspect ratio. All models support up to ten simultaneous interactions meaning multiple students can simultaneously work. The projectors come with high quality audio and appropriate wall mounting hardware.
TheProjectoWrite 9 series provides wired interactivity and features 60 frames per second. These projectors have built-in storage of up to 1.5 GB for on-the-go display; a USB or EZ WiFi LAN connection from the PC, Mac or mobile device to the interactive projector is required for interactivity with the projected images. The ProjectoWrite 9 interactive projector series allowsinnovative solutions provide opportunity for a maximumholistic approach to in-person or virtual learning experiences, meetings and professional learning, campus wide communication, or any situation where presentation, interaction, or engagement occurs.
Front-of-Class Display Category
Boxlight offers a choice of
ten interactive pens working simultaneously. Utilizing its patented embedded interactive CMOS camera at 60 frames per second, response time is less than 12 ms.Interactive Flat-Panel Displays (IFPD), Interactive Whiteboards (IWB), and
accuracy is within 3 pixels.TheProjectoWrite 12series is first in the Boxlight Group’s lineNon-Interactive Flat-Panel Displays. Each comes with licensed copies of patented finger-touch interactive projectorsour software, access to offer a driverless installation. With the additionprepared content and Professional Development modules. These present upsell opportunities for our software and Professional Development modules.
Clevertouch, IMPACT Plus
The IMPACT Plus interactive LED panelsflat-panels deliver a truly intuitive experience and are available in fivefour sizes 55,” 65,” 75,” and 86”. With 4K resolution, 20 points of Interactive Flat Panel Displaystouch and built-in collaboration screen sharing with touchback capabilities, IMPACT Plus is built with teacher requirements for a new generation of front of class displays. Running Android 8 with an optional slot in PC, Clevertouch is designed to run and fit into any technology set up. Standard features include built in line array microphones for distance learning, proximity sensors that boot up the screen or shuts down the screen when the room is not in use, built in app store with hundreds of educational apps, enhanced USB-C connectivity and device charging, cloud accounts to log into personal settings and cloud drives; built in digital signage, to display messaging a cloud-based LYNX Whiteboard for lesson planning and deployment and Snowflake software. Every screen runs Over-the-Air (OTA) updates and comes with Mobile Device Management to run diagnostics on each screen.
Clevertouch, IMPACT
The Clevertouch IMPACT is the perfect all-around solution for the modern classroom. Featuring high precision technology, LYNX Whiteboard, Cleverstore, and Snowflake – IMPACT helps save time lesson planning with lots of resources. Available in three sizes 65”, 75” and 86”, each panel is 4K with 20 points of touch, comes with an optional slot in PC and runs on Android 8. All IMACT screens have Cleverstore, which has hundreds of educational apps to keep young minds learning. Also included is the cloud-based LYNX Whiteboard for lesson planning and deployment and Snowflake software as standard. Every screen runs OTA updates and comes with Mobile Device Management to run diagnostics on each screen.
Clevertouch UX Pro
UX Pro interactive LED flat-panels are designed for the modern meeting space and are available in four sizes - 55”, 65”, 70”, 75”, and 86” measured diagonally. Each offers a. With 4K resolution, and an optional PC Module slot for embedded Windows 10 and also include embedded Android computing capability for control, applications, and annotation that produce extraordinarily sharp images suitable for a range of classroom sizes. ProColor Interactive LED panels utilize infrared touch tracking technology, offering 1020 points of touch and built-in collaboration screen sharing with touchback capabilities, the UX Pro is built around meeting requirements with Stage software to enable remote meetings in which participants can annotate on documents, while the launcher will give instant access to favorite unified communication apps at the touch of a button. Running Android 8 with an optional slot in PC, the UX Pro is designed to run and fit into any technology set up. Key features include built-in line array microphone for simultaneous interaction of multiple users. ProColor’smeetings; proximity sensors that boot up the screen or shuts down the screen when the room is not in use; enhanced USB-C connectivity and device charging; cloud accounts to log into personal settings and cloud drives; built-in speakers add room filling sounddigital signage to display messages; every screen runs OTA updates and comes with Mobile Device Management to run diagnostics on each screen; and Clevershare to enable instant screen sharing through the display’s vivid colors.app or dongle to engage and enhance collaboration.
Clevershare
Clevershare allows users to share content with any device from either the dongle and the USB C connection or the Clevershare app. Up to 50 devices can connect with the Clevertouch screen and share content – images, video, and audio with touch-back for two-way control. The
interactive LED panels feature Korean glass with optical coatings that are highly scratch resistantpresenter has full control over what is shared and
improve viewing angles and ambient light interference.
ProColor Display 490 Interactive Touch Table
The ProColor Display 490 Interactive Touch Table enablescan show up to four studentsdevice screens simultaneously, increasing collaboration and participation within every session.
CleverLive Digital Signage
CleverLive is a unique cloud-based cloud management platform (or CMP) for managing all Clevertouch device endpoints, designed to work collaborativelycustomize the user interface based on device functionality, CleverLive combines simplicity of use with feature rich functionality. The platform comes standard with 200+ editable templates enabling a mix of multimedia content. Features include built-in presentation creation tools for designing bespoke layouts, wayfinding screens and touch interfaces, scheduling, grouping, instant emergency messaging, and QR code creation and display for an audience interactive experience. Rounding off the unique features is the built-in Cleverstore from which users can download apps for their touch screens.
Clevertouch CM Series
The CM Series non-touch large format professional display for meeting presentations and digital signage is available in six sizes - 43′′, 49′′, 55′′, 65′′, 75′′, and 86′′. This 4K UHD, non-touch meeting room collaboration screen has wireless display connectivity and RS232 control for professional meeting room integration with control systems. The built-in Android system includes the CleverLive app for managing digital signage content of full screen capacity or individuallycan be
packaged with a Clevertouch Media Player to enhance digital signage playout multimedia functionality. With 16/7 display, the CM Series has a built-in scheduler to manage on/off timing of messages, including instant messaging when needed. The CleverLive digital signage feature sets this display apart from screens in the marketplace.
Clevertouch Live Rooms
Live Rooms is a room booking solution that simplifies the meeting room booking process. Live Rooms features a 10” tablet that is manufactured with integrated room booking and digital signage software to deliver a powerful product to a busy marketplace. The tablet features red and green LED side lighting for instant availability recognition and is capable of at-the-source and calendar (O365 and ME) room booking with instant updates, to prevent booking overlaps. With analytics that identify users, rooms booked, frequencies and more, Live Rooms offers a smart room booking solution that, when not in use, can also serve as digital signage and provide instant messages for emergency alerts.
Clevertouch PRO V4
As the enterprise-level media player, the PRO V4 allows organizations to engage with their audience 24/7 or deploy dedicated messages via power scheduling for startup/shutdown and auto reboots. A slimline design, power boosting WIFI connectivity, and both HDMI and DisplayPort Outputs enables connection to multiple screens, the PRO V4 can be connected to a kiosk or UX Pro for touch interaction or a non-touch screen for feature-rich digital signage. The PRO V4 can connect to Clevertouch physical button technology for managing emergencies and instant messaging away from the CMP. With multimedia-zoned presentation playout, the PRO V4 can livestream web pages and URL KPIs, text, images, videos, posters, RSS Feeds, social media content, audio, and more.
Clevertouch PICO MK5
PICO MK 5 is a mid-range media player with 24/7 playout capability, WIFI connectivity, and is designed for multimedia-zoned presentations with text, images, videos, posters, RSS Feeds, social media content, and audio.
CleverWall
CleverWall is an all-in-one intelligent display solution, for enriched interaction in large spaces, lecture halls, meeting rooms, and more. This videowall solution is available in nine sizes – 120", 138”, 150”, 165”, 180”, 199”, 220”, 249”, and 299”, the latter three being ultra-wide options or larger spaces like lecture halls. The large displays with in-built audio system and 178-degree viewing angle create an immersive user experience that is unmatched. Its plug-and-play design – one button on/off and smart remote control – make this LED solution user-friendly. Standard features include built-in Android technology, real-time wireless screen-sharing from up to four devices simultaneously, synchronized annotating from multiple devices, and syncing with CleverLive accounts for messaging (instant and scheduled) to all displays for campus or location-wide communication.
MimioPro 4
MimioPro Series 4 adds power to any learning ecosystem – a true Connected Classroom. The MimioPro 4 is a touchscreen UHD HDR display with 20 points of touch, digital passive pen and eraser, and comes in three sizes – 65”, 75” and 86”. Its natural user interface and rich features support teachers to effectively and efficiently realize learning objectives. For example, in Windows Ink compliant applications such as Office 365, the passive digital pen draws, the eraser block erases digital ink (while cleaning the glass), and touches provide gestures without having to use the software’s user interface. The MimioPro 4 has a custom inbuilt Android 11 Launcher tailored for an interactive large screen and comes with: LYNX whiteboarding app to create and capture outcomes, share content, collaborate, and distribute ad-hoc content via cloud services through a dynamic QR code; Clevershare mirroring app used on a horizontal surface particularly well-suitedall models of Boxlight Interactive Flat-Panel Displays that allows teachers to younger students or those with motor skill limitations. The heightorchestrate up to six simultaneous displays across Windows, Chrome OS, Android and iOS, and casting of the table can be adjusted electricallyMimioPro 4 to accommodateall the devices in a wide rangeclassroom; NDMS (Network Device Management Systems), a cloud-based device management system to remotely manage displays, troubleshoot, message, and schedule; and CleverStore – app store which houses curated Android applications that are safe for teachers to install onto the display.
Mimio DS Series Non-Interactive Display
The Mimio DS Series displays are high-definition displays that feature enhanced color calibration, precise picture quality adjustment, flicker-free and
even wheelchairs.Boxlight’sMimioBoard Interactive Touch Boards
Boxlight’sInteractive Touch Boardsanti-glare viewing and are available in 78” 4:six sizes – 43", 55”, 65”, 75”, 86”, and 98”. The Mimio DS series runs on Android 11 with seamless OTA upgrading, includes a quad-core CPU, 4 GB of RAM, and an invisible IR receiver. Connectivity is made easy with multi-functional USB Type-C ports that enable 4K audio and video transmission, network connections, charging external devices, and provide access to external microphone and camera. The displays can be orientated vertically or horizontally and tilt up to 15-degree for easy viewing from high places. Multiple displays can daisy chain via HDMI ports, up to 3 aspect ratioby 3, and 87” 16:10 aspect ratio. These boardscreate a larger, unified display through screen splicing. The displays come with CleverLive management and digital signage platform for enhanced control of content on all displays.
MimioWall
MimioWall LED all-in-one display solution is designed to enrich any space, including classrooms, entryways, hallways, shared spaces, and more. Available in nine different sizes (120” - 299”) including three ultra-wide screen options, the 4K UHD Android digital display and built-in speakers provide
sophisticated interactivityusers an exceptional and immersive experience. Key features include integrated design with
any projector because the touch interactivity is built into the board. Unlike many competitive products, Boxlight’s touch boards are suited for useno external devices; 3-in-1 board that integrates power supply, a receiving card, and hub board; smart remote-control access to settings; plug-and-play system with
dry erase markers. Many competitive products advise against using dry erase markers because their boards stain. Boxlight’s touch boards use a porcelain-on-steel surface for durabilityone button on/off; and
dry erase compatibility.Boxlight’sunified hardware. MimioWall enables users to screen-share wirelessly to/from up to four devices (smartphones, tablets, laptops) simultaneously. Also comes with CleverLive digital signage platform to deliver campus- and site-wide communication of information, announcements, and emergency alerts.
MimioTeach Interactive Whiteboard
Boxlight’s
MimioTeach is one of
the company’sour best known and longest-lived products. Hundreds of thousands of MimioTeach
portable digital interactive
whiteboardswhiteboard systems and its predecessor models are used in classrooms around the world. MimioTeach can turn any whiteboard (retrofit) into an interactive whiteboard in as little as 30 seconds. This portable product fits into a tote bag with room for a small desktop projector, which is attractive to teachers who move from classroom to classroom. For schools where “change is our normal,” MimioTeach eliminates the high cost of moving fixed-mount
implementationsBoxlight’s implementations.
MimioFrame
retro-fittable Touch
BoardBoxlight’s Kit
MimioFrame can turn a
conventional whiteboardprojection (dry erase) board into
a touchboardan Interactive Whiteboard in 10-15 minutes. Millions of classrooms already have a conventional whiteboard and a non-interactive projector. MimioFrame
useruses infrared (IR) technology embedded in the four sides of the frame to turn that non-interactive combination into a modern
10-touch-interactive10touch-interactive Digital Classroom. No drilling or cutting is required, MimioFrame easily and quickly attaches with industrial-strength double-sided tape.
Boxlight’s MimioSpace ultra-wide 135” TouchBoard System
MimioSpace combines
Classroom Audio and School-wide Communication Category
Juno
Juno® is the towering standard of sound quality that reinforces a eleven-foot-wide 32-touch interactive whiteboardteacher’s voice so that every student gets a FrontRow seat. Juno sets up in minutes — and yet evenly fills the classroom with the kind of exciting, multi-layered stereo sound typical of larger installed systems. Juno is superior to other products in the classroom audio category, offering premium features such as feedback suppression, digital EQ, Bluetooth, and teacher voice priority. Juno is also uniquely expandable, with the ability to add modules for additional microphones, speakers, analog page override, and Conductor compatibility for networked campus communication.
EzRoom
EzRoom™ is an integrated AV solution designed for larger capital projects such as technology retrofits or new school construction. A highly customizable solution, EzRoom offers wall and ceiling mountable enclosures with pre-installed options customized for a 16:6 aspect ratio ultra-wide projector to produceschool’s needs, simplifying the installation process for AV integrators (resellers). EzRoom is an extraordinary combination“everything but the display” solution, providing sound reinforcement, microphones, speakers, AV control devices, AV wall plates, and networked cameras. The depth and breadth of the solution necessitates a service layer of pre-sale and post-sale support for the channel, supplied by FrontRow architectural/engineering consultant liaisons, providing design support, and the FrontRow Technical Services Group, offering system commissioning and customization. EzRoom
can use FrontRow’s SmartIR transmission technology or take advantage of FrontRow’s latest wireless voice technology – ELEVATE – that boasts the benefits of digital
classroom technologyRF (Radio Frequency) microphone systems, combined with flexible programmability and
the extremely wide working surface of classical blackboard-based classrooms.Peripherals and accessories
We offer a line of peripherals and accessories, including amplified speaker systems, mobile carts, installation accessories and adjustable wall-mount accessories that complement its entire line of interactive projectors, LED flat panels and standard projectors.ease-of-use features found nowhere else. The height and tilt adjustable DeskBoard mobile cart, which won the Best of ISTE in June 2014 for Best Hardware product,ELEVATE teacher microphone can be used as a wearable alert device, notifying administrators of urgent situations in the classroom.
Lyrik
The Lyrik™ amplification solution is a small yet portable system for instruction and audio media to be heard anywhere, from the classroom to the bus line, or even online. The tower has an integrated rechargeable battery and can be connected to a computer or other auxiliary audio source either directly using cables or wirelessly using Bluetooth®. Weighing less than 10 pounds, Lyrik is designed to be taken anywhere voice reinforcement is needed whether on campus or off.
Conductor
The Conductor™ School Communication System is an IP-based, campus-wide communication and control solution that allows administrators to manage their day-to-day operations with Bells, Paging, Intercom, and Alerts. Built on a client-server architecture that utilizes a school’s existing network, Conductor streams digital audio directly to FrontRow EzRoom and Juno Connect equipped classrooms, and interfaces with legacy analog paging systems for common areas to provide comprehensive audio coverage for announcements and alerts. The recently introduced Attention! feature integrates the CleverLive digital signage service with Conductor to synchronize audio with visual alerts to Clevertouch and Mimio interactive screenpanels to maximize the impact of school-wide or interactive desktopzone-specified communications.
STEM Category
Through the acquisitions of Modern Robotics, Robo3D and MyStemKits, Boxlight has added to its portfolio a growing category of STEM (science, technology, engineering, and math) products.
Mimio MyBot
The Mimio MyBot system bridges the gap between learning about robotics in the classroom and the application of robotics in the real world. The intuitive and accessible system helps students develop core skills in programming, engineering, and robotics. We provide a system to facilitate learning and ignite a passion in students with the
ProjectoWrite 8 ultra-short throw interactive projectors.Boxlight’sMimioVote Student Assessment System
freedom and flexibility to build, code, and test new and unique models. Mimio MyBot allows students to explore and learn freely while removing common obstacles such as requiring network infrastructure changes or expensive workstations.
Robo3D
Robo E3, and the Robo E3 Pro are smart, safe, and simple 3D printers that come with access to over 300+ lessons of 3D printable STEM curriculum, replacement materials and accessories.
MyStemKits
MyStemKits offers hundreds of standards-driven lesson plans, activities, assessments, and Design Challenges for grades K-12 math and science teachers. High-quality lessons plans are developed and studied by The Florida Center for Research in Science. Technology, Engineering, and Mathematics (FCR-STEM), which is part of one of the nation’s oldest and most productive university-based education research organizations.
MimioView document camera
Boxlight’s
MimioVoteMimioView 350U is a
handheld “clicker” that enables student assessment with essentially zero training. MimioVote is so simple it genuinely qualifies as intuitive, an elusive and often proclaimed attribute that is actually merited by MimioVote. MimioVote fully integrates into the MimioMobile environment and offers everything from attendance to fully immersive and on-the-fly student assessment. The MimioVote was specifically designed to survive the rigors of even kindergarten and elementary classrooms where being dropped, stepped on, and kicked are all part of a normal day. The handset’s non-slip coating helps keep it from sliding off desktops or out of little hands. Should they take wing, the rugged construction keeps them working.Boxlight’sMimioPad wireless pen tablet
MimioPad is a lightweight, rechargeable, wireless tablet used as a remote control for the MimioStudio running on a teacher’s Windows, Mac, or Linux computer. MimioPad enables the teacher to roam the classroom which significantly aids classroom management. MimioPad is a classroom management tool which can be handed off to enable a student to be part of the interactive experience – all without getting up and going to the front of the room.
Boxlight’sMimioView document camera
Boxlight’sMimioView is a4K document camera that is integrated with MimioStudio to make the combination easy to use with a single cable connection that carries power, video, and control. MimioView 350U is fully integrated into our MimioStudio software solution and is controlled through theMimioStudio’s applications menu of the quick menu. With 2two clicks, the teacher or user can turn on, auto-focus, and illuminate the included LED lights for smooth high-definition images.
Audio Solutions
We offer SoundLite audio solutions
Educational Software Category
The Mimio suite of software and applications is a combination of titles from acquisitions of Mimio, Qwizdom, and Sahara (Clevertouch) - leading brands in the IWB and Formative Assessment Software Categories, and since then capabilities have been built upon that IP. The premise of our software is to provide the “glue” that integrates the hardware to provide a Connected Classroom; help educators inform their decisions in the classroom, through more systematic data about their students’ performance and behaviors; make learning more engaging, interactive, accessible, and innovative; and support teachers in becoming more efficient in planning, preparation, reporting and analysis, and effective in instruction and assessment.
MimioStudio Interactive Instructional Software
MimioStudio Interactive Instructional Software enables the creation, editing, and presentation of interactive instructional lessons and activities. These lessons and activities can be presented and managed from the front of the classroom using any of Boxlight’s front-of-classroom display systems including MimioTeach, ProColor Interactive LED panels, MimioPro 4, and MimioFrame. MimioStudio can also be operated using a mobile device such as an affordableiPad or tablet that fully replicates the front-of-classroom display generated by MimioStudio. Operation with a mobile device is enabled via the three-user license for MimioMobile, provided with the MimioStudio license that accompanies all front-of-classroom devices from Mimio.
MimioMobile Collaboration and easy-to-install amplified speaker systemAssessment Application
The introduction of MimioMobile, a software accessory for MimioStudio, in 2014 introduced a new era of fully interactive student activities that are directly and immediately able to be displayed on the front-of-classroom interactive displays through MimioStudio.
MimioMobile allows fully interactive activities to be pushed to student classroom devices. The students can manipulate objects within the activities, annotate “on top” of them, and even create completely new content on their own handheld devices. MimioMobile also enables assessment using mobile devices. The teacher can create multiple choice, true\false, yes\no, and text entry assessment questions. The students can respond at their own pace and their answers are stored within MimioStudio from which the teacher can display graphs showing student results. This “continuous assessment” provides formative assessment that can help guide the teacher as to whether to re-teach the material if understanding is low or move forward in the lesson. We believe that this interactive and student dependent instructional model can dramatically enhance student outcomes.
OKTOPUS Instructional and Whiteboarding Software
Designed specifically for touch-enabled devices, OKTOPUS Interactive Instructional Software enables the creation, editing, and presentation of interactive instructional lessons and activities. More than 70 interactive widgets, tools, and classroom game modes make it simple and fun to run ad-hoc or pre-planned sessions. Similar to MimioStudio, these lessons and activities can be presented and managed from the front of the classroom using any of Boxlight’s front-of-classroom display systems.
Notes+ Collaboration and Assessment Application
Notes+ is a software accessory for use with OKTOPUS Software or a PPT plugin that allows students to view and interact with the teacher presentation during a live class session. Students can answer questions, annotate, request help, and share content with the main display from nearly any mobile device or laptop. Question types supported include multiple choice, multiple mark, yes/no, true/false, sequencing, numeric and text response.
GameZones Multi-student Interactive Gaming Software
GameZones allows up to four students to work simultaneously on a touch screen or tablet to complete interactive ‘game style’ activities. The solution is extremely simple and easy to use and includes over 150 educational activities.
MimioConnect Student Engagement Platform
MimioConnect is an online student engagement platform that combines innovative lesson building and instructional tools to create an active learning environment. Teachers can create interactive content and assessments from scratch, import existing lessons and content, or draw from 10,000+ premade digital lessons in the lesson library. Built-in tools for collaboration, instant polling, assessment, student monitoring and management, make classroom teaching and discussion more impactful. Other modes extend usage outside of the classroom, allowing students to complete homework or review daily lessons at their own pace. MimioConnect also integrates deeply with all of our projectors. The 30 watt SoundLite productthe major LMS (Learning Management System). Users can sign in and access assignments through their LMS, use existing rosters, and pass data back to the LMS. MimioConnect helps teachers and students connect, collaborate, and learn more effectively from anywhere, making it a perfect solution for inside and outside the classroom. A MimioConnect Classroom license (lifetime) and MimioConnect Pro license (1 year) accompanies all front-of-classroom Boxlight displays.
LYNX
Designed for interactive displays, LYNX Whiteboard is
availablea free-to-use lesson building app, enabling student collaboration and allowing teachers to bring vibrancy to their lessons with a
wireless RF microphone. This device produces quality stereo soundbuilt-in media search. In addition, LYNX Whiteboard provides searchable images, GIFs and videos, allowing users to drag content into whiteboard presentations, all in
any room.Features in future SoundLite models will have a security-enabled systemsafe search enabled environment. With teacher favorites, such as Rainbow Pen and IP addressable audio classroom solution allowing point-to-point addressSpotlight included, as well as interactive learning tools, LYNX Whiteboard is packed with features to make lessons flow seamlessly.
Peripherals and Accessories
We offer a network wide area address. A panic switch online of peripherals and accessories, mobile carts, installation accessories, and adjustable wall-mount accessories that complement our entire line of interactive LED flat-panels and audio solutions.
LessonCam Instructional Camera
The FrontRow LessonCam is a high-definition Pan, Tilt, Zoom (PTZ) instructional camera with 12x optical zoom, enabling dynamic and engaging remote-only, hybrid, or asynchronous learning. LessonCam integrates with the wireless transmitters will enable live broadcastFrontRow EzRoom and Juno classroom audio systems with popular video conferencing solutions such as Microsoft Teams, Microsoft Skype, Zoom, Google Meet, and Cisco Webex. LessonCam is a stand-out educational tool for teachers who want to engage with students wherever they are learning.
Clever Peripherals
Our Ever-growing suite of Clevertouch products includes a variety of Clever Peripherals such as OPS PC modules, which is a windows i5 and i7 modular PC, and our sensor module which plugs into the Clevertouch screens and measures temperature, humidity CO2 and air quality as well as an NFC.RFID sensor for logging into screens. In addition, we also offer our Clever Connect device that allows users to mirror directly to the screen. These and other Clever Peripherals continue to enhance the user experience of our Clevertouch displays.
Boxlight-EOS Professional Development
Mimio strives to provide the best tools to help teachers improve student outcomes. Through our subsidiary, EOS Education, we can extend our commitment to schools and districts by providing a rich portfolio of classroom
audiotraining, professional development, and
simultaneously trigger predetermined alerts. This feature is designededucator certification. EOS Education provides engaging and differentiated professional development for teachers to
work over a school’s existing network infrastructure.Non-Interactive projectors
We distribute a full line of standard, non-interactive projectors. The Cambridge Series features embedded wireless display functions and isensure that every student benefits from the technology tools available in shorttheir classrooms and standard throw options. Offering brightness from 2,700schools. Programs can be customized, building comfort, confidence, and competence using the specific hardware and software platforms available to 4,000 lumens, each teacher.
EOS Education unique professional learning experiences are:
•Teacher-centric - We help teachers use the technology they have access to for their specific instructional purposes—we furnish projectors for small classroomsgo beyond just point and click.
•Hands-on - Teachers have an opportunity to large classrooms with the Cambridge platform. This series is availablepractice new technical skills during sessions.
•Differentiated - Adjusted to current skills, knowledge, and teachers’ in-classroom practices.
•Job-embedded - Grounded in both XGA and WXGA resolutions to replace projectors on existing interactive whiteboards in classrooms operating on limited budgets. The Boxlight Group has designed this platform to provide easy user maintenance with side-changing lamps and filters and developed HEPA filtration systems for harsh environments.Over the past several years, we have together with strategic allies, provided customized products that fit specific needs of customers, such as the Israeli Ministry of Defense. Working with Nextel Systems, the Boxlight Group delivered approximately 4,000 projectors, with special kitting performance, asset tagging, custom start up screens, operating defaults appropriate for harsh environments, and other unique product specifications. the Boxlight Group also met requirements that each projector contain at least 51% U.S. content and be assembled in the United States. A service center was appointed in Israel to provide warranty service and support. The US Army in connection with the Israeli Defense Forces found the Boxlight Groupday-to-day teaching to be the only manufacturer ablerelevant, engaging, and practical to meet the stringent requirements, leading not onlyimplement.
•Student context - Introducing technology tools to the original multi-year contract, butstudents and how to extensions for favorable execution and performance.engage them with purpose.
We have centralized our business management for all acquisitions through an enterprise resource planning
system.(ERP) system which offers streamlined subsidiary integration utilizing a multi-currency platform. We have
streamlinedstrengthened and refined the process to drive front-line sales forecasting to factory production. Through the
enterprise resource planningERP system, we have synchronized five separate accounting and customer relationship management systems through a cloud-based interface to improve inter-company information sharing and allow management
atof the Company to have immediate access to snapshots of the performance of each of our
subsidiaries.subsidiaries in a common currency. As we grow, organically or through acquisition, we plan to
movequickly integrate each subsidiary or division into the Company to
a multi-currency modelallow for clearer and earlier visibility of
our enterprise resource planning system.Logistics; Suppliers
performance to enable timely and effective business decisions.
Logistics (Suppliers)
Logistics is currently provided
in the US by our Lawrenceville, Georgia
facility.facility and internationally by the Sahara team in London. Together these teams manage multiple third-party logistics partners throughout the world (3PL’s). These 3PL partners allow Boxlight to provide affordable freight routes and shorter delivery times to our customers by providing on-hand inventory in localized markets. Contract manufacturing for
Boxlight’sBoxlight products
areis through
ODMoriginal design manufacturer (ODM) and
OEMoriginal equipment manufacturer (OEM) partners according to
Boxlight’s specific engineering specifications and utilizing IP developed and owned by Boxlight. Boxlight’s factories for ODM and OEM are located in
the USA, Taiwan,
Mainland China,
Germany, and
Germany.Turkey.
Technical Support and Service
The Company currently has its
core technical support and service centers located near
Seattle, WAAtlanta, GA, London, England, and
in Atlanta, GA.Belfast, Northern Ireland. Additionally, the Company’s technical support division is responsible for the repair and
closingmanagement of customer service cases, resulting in more than 60% of the Company’s customer service calls ending in immediate closure of the applicable service case. We accomplish this as a result of the familiarity between our products and
thehaving specialized customer service
technician.technicians hired internally and with key partners in certain international markets.
Our sales force consists of
nine56 account managers in EMEA including an EMEA sales director, 41 regional account managers in the
US,U.S. including two Vice Presidents of Sales U.S., four sales heads based in Canada, three sales heads in Northern Ireland, two in
Latin America, three in Europe, two sales support staffAustralia, and one
Vice President of Sales.in Latin America. Our marketing team consists of
one Vice President of Global Marketing, Oneour Vice President of Marketing Communications,
a senior manager of marketing, four marketing specialist, an education specialist, and
Public Relations, one Marketing Coordinator and four contractors.a graphic designer. Our sales force and marketing teams primarily drive sales of
interactive flat panels, interactive whiteboards, interactive projectors, interactive touch table, education software, STEM data loggingall Boxlight products
(including our Mimio, Clevertouch, FrontRow and
related peripherals and accessories to school districts,EOS brands) throughout North, Central and South America, Europe, the Middle East and Asia. In addition, we go to market through an indirect channel distribution model and utilize traditional value-added resellers and support them with training to become knowledgeable about the products we sell. We currently have approximately 800 resellers.
We believe
Boxlight offerswe offer the most comprehensive product portfolio in today’s education technology industry, along with best-in-class service and technical support.
Boxlight’sOur award-winning, interactive classroom technology and easy to use line of classroom hardware and software solutions provide schools and districts with the most complete line of progressive, integrated classroom technologies available worldwide.
Competition
In
We are also developing our Corporate, Higher Education and Government solutions and have separate sales teams in both the U.S. and in other countries focused on these areas. Our expectation is that over time, opportunity in these areas will expand to be as large or potentially larger than our K-12 Education business.
Competition
The interactive education industry, we face substantial competition from developers, manufacturers and distributers of interactive learning products and solutions. The industry is highly competitive and characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of interactive projectorsflat-panels and interactive whiteboards. WeInteractive displays, since the time they were first introduced, have evolved from a high-cost technology that involves multiple components requiring professional installers, to a one-piece technology that is available at increasingly reduced-price points and affords simple installations. With lowered technology entry barriers, we face increasedheated competition from companiesother interactive display developers, manufacturers and distributors. We compete with strong positions in certain markets we serve,other developers, manufacturers and in new markets and regions we may enter. These companies manufacture and/or distribute new, disruptive or substitute products that compete for the pooldistributors of available funds that previously could have been spent on interactive displays and associated products.personal computer technologies, tablets, television screens and smart phones, such as Smart Technologies, Promethean, ViewSonic, Dell Computers, Samsung, Panasonic and ClearTouch.
Even with these competitors, the market presents new opportunities in responding to demands to replace outdated and failing interactive displays with more affordable and simpler solution interactive displays. Our ability to integrate our technologies and remain innovative and develop new technologies desired by our current and potential new contract manufacturing customers will determine our ability to grow our contract manufacturing divisions.
The Company competes with other developers, manufacturers and distributors of interactive projectors and personal computer technologies, tablets, television screens, smart phones. Interactive whiteboards, since first introduced, have evolved from a high-cost technology that involves multiple components, requiring professional installers, to a one-piece technology that is available at increasingly reduced price points and affords simple installations. With lowered technology entry barriers, we face heated competition from other interactive whiteboard developers, manufacturers and distributors. However, the market presents new opportunities in responding to demands to replace outdated and failing interactive whiteboards with more affordable and simpler solution interactive whiteboards. In addition, the Company haswe have begun to see expansion in the market tofor sales of complementary products that work in conjunction with the interactive technology, including software, audio solutions, data capture and tablets.
As of December 31, 2017,2023, we had approximately 43 employees,the following distribution of whom 4 are executives, 5employees:
| | | | | |
| Operations | 90 |
| Sales & Marketing | 117 |
| Administration | 21 |
| Total | 228 |
All of our employees are
engaged in product development, engineering and research and development, 16 employees are engaged in sales and marketing, 9 employees are engaged in administrative and clerical services and 9 employees are engaged in service and production. In addition, a total of approximately 8 individuals provide sales agency services to us as independent contractors.full-time employees. None of our employees are represented by labor organizations. We consider our relationship with our employees to be excellent. A majority of our employees have entered into non-disclosure and non-competition agreements with us or our operating subsidiaries.
Recent Financing
On December 31, 2021, the Company and substantially all of its direct and indirect subsidiaries, including Boxlight, FrontRow, and Sahara as guarantors (together the "Loan Parties"), entered into a maximum four-year $68.5 million term loan credit facility, dated December 31, 2021 (the “Credit Agreement”), with WhiteHawk Finance LLC, as lender (the “Lender”), and WhiteHawk Capital Partners, LP, as collateral agent (“the Collateral Agent”). Under the terms of the Credit Agreement, the Company received an initial term loan of $58.5 million on December 31, 2021 (the “Initial Loan”) and obtained a delayed draw facility of up to $10 million (the “Delayed Draw”). The Initial Loan and the Delayed Draw are collectively referred to as the Term Loans. The “Term Loans” bear interest at the LIBOR rate plus 10.75%; provided that after June 30, 2022, if the Company’s Senior Leverage Ratio (as defined in the Credit Agreement) is less than 2.25, the interest rate would be reduced to LIBOR plus 10.25%. Such terms are subject to the Company maintaining a borrowing base in compliance with the Credit Agreement.
The proceeds of the Initial Loan were used to finance the Company’s acquisition of FrontRow and pay off all indebtedness owed to our then lenders. Of the Initial Loan, $8.5 million, was subject to repayment on February 28, 2022, with quarterly principal payments of $625,000 and interest payments commencing March 31, 2022, and the $40.0 million remaining balance plus any Delayed Draw loans becoming due and payable in full on December 31, 2025.
In conjunction with its receipt of the Initial Loan, the Company issued to the Lender (i) 66,022 shares of Class A common stock (the “Shares”), which Shares were registered pursuant to our existing shelf registration statement and were delivered to the Lender in January 2022, (ii) a warrant to purchase 255,412 shares of Class A common stock (subject to increase to the extent of 3% of any Series B and Series C convertible preferred stock converted into Class A common stock), exercisable at $16.00 per share (the “Warrant”), which Warrant may be subject to repricing on March 31, 2022 based on the arithmetic volume weighted average prices for the 30 trading days prior to March 31, 2022, in the event our stock is then trading below $16.00 per share, (iii) a 3% fee of $1,800,000 and (iv) a $500,000 original issue discount. In
addition, the Company agreed to register for resale the shares issuable upon exercise of the Warrant. The Company also incurred agency fees, legal fees and other costs in connection with the execution of the Credit Agreement. Based on the arithmetic volume weighted average prices of the Company’s Class A common stock for the 30 trading days prior to March 31, 2022, the exercise price of the Warrant was reduced to $9.52 per share and the shares increased to 429,263. On July 22, 2022, the Company entered into a Securities Purchase Agreement with an accredited institutional investor. According to the terms of the Credit Agreement, this purchase agreement triggered a reduction of the exercise price of the Warrants. The Warrants were repriced to $8.80, and shares increased to 464,385.
In February 2022, the Lender and the Company agreed in principle to an extension of the February 2022 Payment. Pursuant to amendment to the Credit Agreement, dated April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023 and waive and/or otherwise extend compliance with certain other terms of the Credit Agreement in order to allow the Loan Parties adequate time to comply with such terms (the “First Amendment”). In July 2022, the Company and the Lender agreed that the notice had inadvertently included the default with respect to the failure to repay $8.5 million of the facility. As a result, notwithstanding the notice, both the Lender and the Company have agreed that the Company was not in default in making the February 2022 Payment to the Lender.
The principal elements of the First Amendment included (a) an extension of time to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3,500,000 in over advances until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement. In such connection, the Loan Parties have obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, their accounts owed to the Loan Parties had been deemed ineligible for inclusion in the borrowing base calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts. In addition, the Lender and Collateral Agent agreed to (i) reduce, through September 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to LIBOR plus 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default (as defined therein) under the Credit Agreement. In conjunction with this First Amendment to the Credit Agreement, the parties entered into an amended and restated fee letter (the “Fee Letter”) pursuant to which the parties agreed to prepayment premiums of (i) 5% for payments made on or before December 31, 2022, (ii) 4% for payments made between January 1, 2023 and December 31, 2023, and (iii) 2% for payments made between January 1, 2024 and December 31, 2025. Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of ECF or casualty events.
On March 29, 2022, the Company received a notice from the Collateral Agent, alleging, among other things, defaults as a result of (i) failure to repay $8.5 million of the facility by February 28, 2022, (ii) non-compliance with the borrowing base resulting in the Company being in an over advance position under the Credit Agreement, and (iii) failure to timely provide certain reports and documents. As a result, all accrued and unpaid interest owed under the Term Loan, became subject to a post-default interest rate equal to the highest interest rate allowed for under the Credit Agreement plus 2.50% until such time as the events of default were either waived or cured.
On April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023. The principal elements of the April amendment included (a) an extension of time to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3.5 million in over advances until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement. In such connection, the Loan Parties obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, the accounts of these key customers had been deemed ineligible for inclusion in the borrowing base calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts. In addition, the Lender and Collateral Agent agreed to (i) reduce, through September 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to Libor plus+ 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default under the Credit Agreement. Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term
Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of excess cash flow or casualty events.
On June 21, 2022, the Company and substantially all of its direct and indirect subsidiaries, entered into a second amendment (the “Second Amendment”) to the Credit Agreement December 31, 2021 and as amended on April 4, 2022, with the Collateral Agent and Lender. The Second Amendment to the Credit Agreement was entered into for purposes of the Lender funding a $2.5 million delayed draw term loan and adjusting certain terms to the Credit Agreement, including adjusting the Applicable Margin (as defined in the Second Amendment) to 13.25% for LIBOR Rate Loans and 12.25% for Reference Rate Loans, increasing the definition of change of control from 33% voting power to 40% voting power, requiring the Company to engage a financial advisor, and allowing additional time, until July 15, 2022, for the Company to come into compliance with certain borrowing base requirements set forth in the Second Amendment to the Credit Agreement, among other adjustments.
On April 24, 2023, the Loan Parties entered into a third amendment (the “Third Amendment”) to the Credit Agreement, with the Collateral Agent and the Lender. The Third Amendment was entered into for purposes of the Lender funding an additional $3.0 million delayed draw term loan (the “Additional Draw”). The Additional Draw was funded on April 24, 2023, must be repaid on or prior to September 29, 2023, and is not subject to any prepayment penalties, and adjusts certain terms to the Credit Agreement, including adjusting the test period end dates and corresponding Senior Leverage Ratios (as defined in the Credit Amendment) and revising the minimum liquidity requirements that the Company must maintain compliance with pertaining to certain Borrowing Base Requirements, among other adjustments. The completion of the Additional Draw eliminates further delayed draws under the Credit Agreement. On July 20, 2023, the Company paid the $3.0 million due under the terms of the Third Amendment. There were no prepayment penalties or premiums included with this payment.
On June 26, 2023, the Loan Parties entered into a fourth amendment (the “Fourth Amendment”) to the Credit Agreement with the Collateral Agent and the Lender for the sole purpose of replacing LIBOR-based rates with a SOFR-based rate. Following the Fourth Amendment, the Company’s interest rate is calculated as the Daily Simple SOFR, subject to a floor of 1%, plus the SOFR Term Adjustment and Applicable Margin, as defined in the Credit Agreement, as amended. The Fourth Amendment made no other changes to the Credit Agreement.
Effective as of March 14, 2024, the Loan Parties entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement with the Collateral Agent and the Lender for the purpose of amending and restating the Senior Leverage Ratio and Minimum Liquidity (as defined in the Fifth Amendment),In addition, the Lender and Collateral Agent agreed to waive any actual or potential event of default that may have arisen as a result of the Loan Parties failure to comply with certain financial covenants required in the fiscal quarter ended December 31, 2023 and in the interim two-month period ended February 29, 2024. The Fifth Amendment also added additional financial reporting obligations and potentially may include certain foreign subsidiaries of Boxlight Inc. as additional guarantors under the Credit Agreement.
Although, as of the date of this report, we have been successful in obtaining a waiver from the Lender regarding the above mentioned financial covenant default, there can be no assurance that the Lender will not declare an event of default and acceleration of all of our obligations under the Credit Agreement in the event we are unable to get into full compliance with these covenants in the future. See “Item 1 Risk Factors - Risks Related to Our Business, Operations and Financial Condition - We have not complied with certain covenants, minimum liquidity and borrowing base requirements under the Credit Agreement and this could cause us to be unable to continue to operate as a going concern.”
An investment in our securities involves a high degree of risk. You should carefully consider all of the risks described below, together with the other information contained in this Annual Report, including our financial statements and related notes, before making a decision to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
Summary Risk Factors
Some of the factors that could materially and adversely affect our business, financial condition, results of operations and cash flows include, but are not limited to, the following:
•Unfavorable global economic or political conditions, including the ongoing conflicts between Russia and Ukraine, and Israel and Hamas, may adversely affect our business, financial condition, results from operations, or the businesses of our suppliers, vendors and logistics partners;
•our inability to predict or anticipate the duration or adapt to the long-term economic and business consequences of a global pandemic linked to the COVID-19 pandemic or any future pandemics;
•our inability to predict or adapt to the unstable market and economic conditions of the global economy;
•our ability to continue to attract and retain customers;
•our ability to sell additional products and services to customers;
•our ability to raise funds in a timely fashion and successfully manage cash flow needs and financing plans;
•our ability to successfully maintain a competitive position in our industry and market;
•our ability to manage our business and sell our products within a changing and evolving industry environment;
•our ability to locate and leverage potential growth opportunities;
•our ability to achieve expected technological advances by us or by third parties and our ability to leverage them;
•our ability to integrate our business acquisitions fully and successfully into Boxlight’s existing business and platform;
•the effects of future regulation; and
•our ability to protect and monetize our intellectual property.
Risks Related to Our Business, Operations and Financial Condition
We have not complied with certain covenants,minimum liquidity and borrowing base requirements under the Credit Agreement and this could cause us to be unable to continue to operate as a going concern.
As mentioned before, we have been unable to comply with certain covenants under our Credit Agreement with the Lender.Although, to date, we have been successful in obtaining forbearance agreements with respect to these matters and avoid defaults under the agreement, there can be no assurance that the lender will not declare an event of default and acceleration all of our obligations under the Credit Agreement in the event we are unable to get into full compliance with these covenants in the future. We are considering various alternatives to potentially refinancing such indebtedness. We believe that our ability to do so will require an improvement of our 2023 financial performance in 2024. In addition, there is no assurance that we will refinance the indebtedness, so if so, the terms will be favorable to us. Additionally, we have disclosed this in our periodic reports filed with the SEC that there is substantial doubt about our ability to continue as a going concern.
We have a substantial amount of indebtedness bearing interest at a variable rate, which may adversely affect our cash flow and our ability to operate our business.
We have a significant amount of indebtedness. As of December 31, 2023, we have approximately $43 million of indebtedness outstanding, all of which is secured. Our substantial amount of indebtedness could have important consequences. For example, it could:
•increase our vulnerability to adverse economic, industry or competitive developments;
•result in an event of default if we fail to satisfy our obligations with respect to our Credit Agreement or which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to foreclose on our assets securing such debt;
•require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use cash flow to fund our operations, capital expenditures and future business opportunities;
•limit our ability to service our indebtedness;
•limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, or general corporate purpose;
The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations or prospects.
In addition, borrowings under the Credit Agreement bear interest at variable rates. If these rates were to increase significantly, the risk related to our substantial indebtedness would intensify. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection for this risk.
Unfavorable global economic or political conditions, including the ongoing conflict between Russia and Ukraine, and Israel and Hamas may adversely affect our business, financial condition, or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Inflation rates, particularly in the United States, have increased recently to levels not seen in years. Increased inflation may result in increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may have the effect of further increasing economic uncertainty and heightening these risks, which may impact our ability to raise additional capital in the future. The March 2023 failure of Silicon Valley Bank and its potential near- and long-term effects on the overall banking industry, may also adversely affect our operations and stock price. In addition, U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflict between Russia and Ukraine.
On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops began. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain disruptions. While neither Ukraine nor Russia is a key supplier of ours, the scope, intensity, duration and outcome of the ongoing war is uncertain and its continuation or escalation could have a material adverse effect on our business due to the general impact on the global supply chain and prices of certain commodities. While we presently have no business or direct trade relationships with entities located in Russia or Ukraine, the ongoing conflict between Russia and Ukraine could potentially cause supply chain disruptions that could disrupt our business should any of our end-suppliers rely on supplies, products or shipments from those regions.
In response to the war, the United States, other North Atlantic Treaty Organization (“NATO”) member states, as well as non-member states, have announced targeted economic sanctions on Russia, certain Russian citizens and enterprises. Any continuation or escalation of the war may trigger a series of additional economic and other sanctions. Certain companies have experienced negative reactions from their investors, employees, customers, or other stakeholders as a result of their action or inaction related to the war between Russia and Ukraine. We continue to monitor the reactions of our investors, employees, customers and other stakeholders and, as of the date of this report, have neither experienced any material adverse financial impacts nor suffered from the loss of key customers or employees.
Further, in October 2023, a military conflict commenced between Israel and Hamas. It is not possible to predict the broader or longer-term consequences of these conflicts, which could include further sanctions, embargoes, regional instability, energy shortages, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions,
currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from these new challenges. We may also be the subject of increased cyber-attacks. While currently the countries involved in these conflicts do not constitute a portion of our business, a significant escalation or expansion of economic disruption or the conflicts' current scope could have a material adverse effect on our results of operations.
In addition, the risk of cybersecurity incidents has increased in connection with the ongoing war, driven by justifications such as retaliation for the sanctions imposed in conjunction with the war, or in response to certain companies’ continued operations in Russia. For example, the war has been accompanied by cyberattacks against the Ukrainian government and other countries in the region. It is possible that these attacks could have collateral effects on additional critical infrastructure and financial institutions globally, which could adversely affect our operations and could increase the frequency and severity of cyber-based attacks against our information technology systems. While we have taken actions to mitigate such potential risks, the proliferation of malware from the war into systems unrelated to the war or cyberattacks against U.S. companies in retaliation for U.S. sanctions against Russia or U.S. support of Ukraine, could also adversely affect our operations.
We insure ourselves against many types of risks; however, while this insurance may mitigate certain of the risks associated with general market disruptions, including the risk related to the banking system and the ongoing war in Ukraine, our level of insurance may not cover all losses we could incur. The potential effects of these conditions could have a material adverse effect on our business, results of operations and financial condition.
War, terrorism, other acts of violence, changing circumstances related to the COVID-19 Pandemic or potential effects of future pandemics, are unpredictable and could adversely affect our business operations and the market for our products.
War, terrorism, other acts of violence or natural or man-made disasters, including a global pandemic, may affect the markets in which the Company operates, the Company’s customers, the Company’s delivery of products and customer service, and could have a material adverse impact on our business, results of operations, or financial conditions.
The Company’s business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine, food, fire, earthquake, storm or pandemic events and spread of disease (including the COVID-19 outbreak which commenced in 2020). Such events may cause customers to suspend their decisions on using the Company’s products and services, make it impossible to attend or sponsor trade shows or other conferences in which our products and services are presented to customers and potential customers, cause restrictions, postponements and cancellations of events that attract large crowds and public gatherings such as trade shows at which we have historically presented our products, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods or services, commitments to develop new products. These events also pose significant risks to the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.
While conditions surrounding the COVID-19 pandemic seem to have stabilized, there is nonetheless a risk related to modification of the traditional classroom setting, similar to what occurred during 2020 to 2021 when many classrooms were all virtual, that may result in reduced demand for our classroom solutions, including reduced demand for our interactive displays due to extended or indefinite distance and digital learning.
There is also a risk of reduced borrowing with our factoring and purchase order financing facilities, as well as the risk of inability to raise additional capital.
We generate a substantial portion of our revenue from the sale of our display products, and any significant reduction in sales of these products would materially harm our business.
For the year ended December 31, 2023, we generated approximately 78% of our revenues from sales of our interactive display products, consisting of interactive flat-panels and whiteboards. A decrease in demand for our interactive displays would significantly reduce our revenue. If any of our competitors introduces attractive alternatives to our interactive displays, we could experience a significant decrease in sales as customers migrate to those alternative products.
Our business is subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely affect our working capital and liquidity throughout the year.
Our revenues and operating results normally fluctuate as a result of seasonal variations in our business, driven largely by the purchasing cycles of the educational market. Traditionally, the bulk of expenditures by school districts occur in the second and third calendar quarters after receipt of budget allocations. We expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our cash flow. As our business grows, these seasonal fluctuations may become more pronounced. As a “smaller reporting company,”result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial position.
Our working capital requirements and cash flows are subject to fluctuation, which could have an adverse effect on our financial condition.
Our working capital requirements and cash flows have historically been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on a number of factors. Factors which could result in cash flow fluctuations include:
•the level of sales and the related margins on those sales;
•the collection of receivables;
•the timing and size of purchases of inventory and related components; and
•the timing of payment on payables and accrued liabilities.
If we are unable to manage fluctuations in cash flow, our business, operating results and financial condition may be materially adversely affected. For example, we may be unable to make required interest payments on our indebtedness.
We operate in a highly competitive industry.
We are engaged in the interactive education industry. We face substantial competition from developers, manufacturers and distributors of interactive learning products and solutions, including interactive flat-panel displays, interactive whiteboards and micro-computer data logging products and any new product we may offer in the future. The industry is highly competitive and characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of interactive flat-panel displays, interactive whiteboards, and micro-computer-based logging technologies and combinations of them. We face increased competition from companies with strong positions in certain markets we serve, and in new markets and regions we may enter. These companies manufacture and/or distribute new, disruptive or substitute products that compete for the pool of available funds that previously could have been spent on interactive displays and associated products.
Many of these competitors have, and our potential competitors may have, significantly greater financial and other resources than we do and have spent, and may continue to spend, significant amounts of resources to try to enter or expand their presence in the market. In addition, low-cost competitors have appeared in China and other countries. We may not be able to compete effectively against these current and future competitors. Increased competition or other competitive pressures have and may continue to result in price reductions, reduced margins or loss of market share, any of which could have a material adverse effect on our business, financial condition or results of operations.
Some of our customers are required to purchase equipment by soliciting proposals from several sources and, in some cases, are required to purchase from the lowest bidder. While we attempt to price our products competitively, based upon the relative features they offer, our competitors’ prices and other factors, we are often not the lowest bidder and, in such cases, may lose sales.
Competitors may be able to respond to new or emerging technologies and changes in customer requirements more effectively and faster than we can or devote greater resources to the development, promotion and sale of products than we can. Current and potential competitors may establish cooperative relationships among themselves or with third parties, including through mergers or acquisitions, to increase the ability of their products to address the needs of customers. If these interactive display competitors or other substitute or alternative technology competitors acquire significantly increased market share, it could have a material adverse effect on our business, financial condition or results of operations.
If we are unable to continually enhance our products and to develop, introduce and sell new technologies and products at competitive prices and in a timely manner, our business will be harmed.
The market for interactive learning and collaboration solutions is still emerging and evolving. It is characterized by rapid technological change and frequent new product introductions, many of which may compete with, be considered as alternatives to or replace our interactive displays. For example, we have recently observed significant sales of tablet computers by competitors to school districts in the U.S. whose technology budgets could otherwise have been used to purchase interactive displays. Accordingly, our future success will depend upon our ability to enhance our products and to develop, introduce and sell new technologies and products offering enhanced performance and functionality at competitive prices and in a timely manner.
The development of new technologies and products involves time, substantial costs and risks. Our ability to successfully develop new technologies will depend in large measure on our ability to maintain a technically skilled research and development staff and to adapt to technological changes and advances in the industry. The success of new product introductions depends on a number of factors, including timely and successful product development, market acceptance, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of components in appropriate quantities and costs to meet anticipated demand, the risk that new products may have quality or other defects and our ability to manage distribution and production issues related to new product introductions. If we are unsuccessful in selling the new products that we develop and introduce, or any future products that we may develop, we may carry obsolete inventory and have reduced available working capital for the development of other new technologies and products.
If we are unable, for any reason, to enhance, develop, introduce and sell new products in a timely manner, or at all, in response to changing market conditions or customer requirements or otherwise, our business will be harmed.
We may not be successful in our strategy to increase sales in the business and government market.
The majority of our revenue has been derived from sales to the education market. Our business strategy contemplates expanding our sales in both the education market, as well as the business and government training sectors. However, to date, there has not been widespread adoption of interactive displays and collaboration solutions in the business and government market, and these solutions may fail to achieve wide acceptance in this itemmarket. Successful expansion into the business and government markets will require us to augment and develop new distribution and reseller relationships, and we may not be successful in developing those relationships. In addition, widespread acceptance of our interactive solutions may not occur due to lack of familiarity with how our products work, the perception that our products are difficult to use and a lack of appreciation of the contribution they can make in the business and government markets. In addition, the Boxlight brands are less recognized in these markets as compared to the education market. A key part of our strategy to grow in the business and government market is to develop strategic alliances with companies in the unified communications and collaboration sector, and there can be no assurance that these alliances will help us to successfully grow our sales in this market.
Furthermore, our ability to successfully grow in the business and government market depends upon revenue and cash flows derived from sales to the education market. As the education market represents a significant portion of our revenue and cash flow, we utilize cash from sales in the education market for our operating expenses. If we cannot continue to augment and develop new distributor and reseller relationships, market our brand, develop strategic alliances and innovate new technologies, we may not be successful in our strategy to grow in the business and government market.
As a result of market saturation, our future sales of interactive displays in developed markets may slow or decrease.
As a result of the high levels of penetration in developed markets, the education market for interactive displays in the U.S., U.K. and Australia may have reached saturation levels. Future sales growth in those markets and other developed markets with similar penetration levels may, as a result, be difficult to achieve, and our sales of interactive displays may decline in those countries. If we are unable to replace the revenue and earnings, we have historically derived from sales of interactive displays to the education market in these developed markets, whether through sales of additional products, sales in other underserved markets, such as Africa, Latin America, and Asia, sales in the business and government market or otherwise, our business, financial condition and results of operations may be materially adversely affected.
We face significant challenges growing our sales in foreign markets.
For our products to gain broad acceptance in all markets, we may need to develop customized solutions specifically designed for each country in which we seek to grow our sales and to sell those solutions at prices that are competitive in that country. For example, while our hardware requires only minimal modification to be usable in other countries, our software and content require significant customization and modification to adapt to the needs of foreign customers. Specifically, our software will need to be adapted to work in a user-friendly way in several languages and alphabets, and content that fits the specific needs of foreign customers (such as, for example, classroom lessons adapted to specific foreign curricula) will need to be developed. If we are not able to develop, or choose not to support, customized products and solutions for use in a particular country, we may be unable to compete successfully in that country and our sales growth in that country will be adversely affected. We cannot assure you that we will be able to successfully develop or choose to support customized solutions for each foreign country in which we seek to grow our sales or that our solutions, if developed, will be competitive in the relevant country.
Growth in many foreign countries will require us to price our products competitively in those countries. In certain developing countries, we have been and may continue to be required to sell our products at prices significantly below those that we are currently charging in developed countries. Such pricing pressures could reduce our gross margins and adversely affect our revenue.
Our customers’ experience with our products will be directly affected by the availability and quality of our customers’ Internet access. We are unable to control broadband penetration rates, and, to the extent that broadband growth in emerging markets slows, our growth in international markets could be hindered.
In addition, we will face lengthy and unpredictable sales cycles in foreign markets, particularly in countries with centralized decision making. In these countries, particularly in connection with significant technology product purchases, we have experienced recurrent requests for proposals, significant delays in the decision-making process and, in some cases, indefinite deferrals of purchases or cancellations of requests for proposals. If we are unable to overcome these challenges, the growth of our sales in these markets would be adversely affected, and we may incur unrecovered marketing costs, impairing our profitability.
Our suppliers may not be able to always supply components or products to us on a timely basis and on favorable terms, and as a result, our dependency on third-party suppliers has adversely affected our revenue and may continue to do so.
We do not manufacture any of the products we sell and distribute and, therefore, rely on our suppliers for all products and components and depend on obtaining adequate supplies of quality components on a timely basis with favorable terms. Some of those components, as well as certain complete products that we sell are provided to us by only one key supplier or contract manufacturer. We are subject to disruptions in our operations if our sole or limited supply contract manufacturers decrease or stop production of components and products, or if such suppliers and contract manufacturers do not produce components and products of sufficient quantity. Alternative sources for our components are not always available. Many of our products and components are manufactured overseas, so they have long lead times, and events such as local disruptions, natural disasters or political conflict may cause unexpected interruptions to the supply of our products or components. In addition, we do not have written supply agreements with our suppliers. Although we are endeavoring to enter into written agreements with certain of our suppliers, we cannot assure that our efforts will be successful. Furthermore, the Company may experience materially adverse impacts on its supply chain in the event of sanctions or shipping embargoes caused by any conflict, war, or pandemics.
We rely on highly skilled personnel, and, if we are unable to attract, retain or motivate qualified personnel, we may not be able to operate our business effectively.
Our success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, as well as our ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development and other employees is intense in the high-technology industry, and we may not be able to attract or retain highly qualified personnel in the future. In making employment decisions, particularly in the high-technology industry, job candidates often consider the value of the equity awards they would receive in connection with their employment. Our long-term incentive programs may not be attractive enough or perform sufficiently to attract or retain qualified personnel.
If any of our employees leaves us, and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial condition and results of operations could be adversely affected.
Our success also depends on our having highly trained financial, technical, recruiting, sales and marketing personnel. We will need to continue to hire additional personnel as our business grows. A shortage in the number of people with these skills or our failure to attract them to our Company could impede our ability to increase revenues from our existing products and services, ensure full compliance with federal and state regulations, or launch new product offerings and would have an adverse effect on our business and financial results.
We may have difficulty in entering into and maintaining strategic alliances with third parties.
We have entered into and we may continue to enter into strategic alliances with third parties to gain access to new and innovative technologies and markets. These parties are often large, established companies. Negotiating and performing under these arrangements involves significant time and expense, and we may not have sufficient resources to devote to our strategic alliances, particularly those with companies that have significantly greater financial and other resources than we do. The anticipated benefits of these arrangements may never materialize and performing under these arrangements may adversely affect our results of operations.
We use resellers and distributors to promote and sell our products.
Substantially all our sales are made through resellers and distributors. Industry and economic conditions have the potential to weaken the financial position of our resellers and distributors. Such resellers and distributors may no longer sell our products, or may reduce efforts to sell our products, which could materially adversely affect our business, financial condition and results of operations. Furthermore, if our resellers and distributors’ abilities to repay their credit obligations were to deteriorate and result in the write-down or write-off of such receivables, it would negatively affect our operating results and, if significant, could materially adversely affect our business, financial condition and results of operations.
In addition, our resellers and most of our distributors are not contractually required to sell our products exclusively and may offer competing interactive display products, and therefore we depend on our ability to establish and develop new relationships and to build on existing relationships with resellers and distributors. We cannot ensure that our resellers and distributors will act in a manner that will promote the success of our products. Factors that are largely within the control of those resellers and distributors but are important to the success of our products include:
•the degree to which our resellers and distributors actively promote our products;
•the extent to which our resellers and distributors offer and promote competitive products; and
•the quality of installation, training and other support services offered by our resellers and distributors.
In addition, if some of our competitors offer their products to resellers and distributors on more favorable terms or have more products available to meet their needs, there may be pressure on us to reduce the price of our products, or those resellers and distributors may stop carrying our products or de-emphasize the sale of our products in favor of the products of these competitors. If we do not maintain and continue to build relationships with resellers and distributors our business will be harmed.
If our electronic data is compromised, our business could be significantly harmed.
We and our business partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business, including current and future products under development, as well as certain customer, consumer, supplier, partner and employee data. We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyber-attacks or tampering that could compromise the integrity and privacy of this data. In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to
this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, consumers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer. We also may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
An information security incident, including a cybersecurity breach, could have a negative impact to the Company’s business or reputation.
To meet business objectives, the Company relies on both internal information technology (IT) systems and networks, and those of third parties and their vendors, to process and store sensitive data, including confidential research, business plans, financial information, intellectual property, and personal data that may be subject to legal protection. The extensive information security and cybersecurity threats, which affect companies globally, pose a risk to the security and availability of these IT systems and networks, and the confidentiality, integrity and availability of the Company’s sensitive data. The Company continually assesses these threats and makes investments to increase internal protection, detection and response capabilities, as well as ensure the Company’s third-party providers have required capabilities and controls to address these risks. To date, the Company has not experienced any material impact to the business or operations resulting from information or cybersecurity attacks; however, because of the frequently changing attack techniques, along with the increased volume and sophistication of the attacks, there is the potential for the Company to be adversely impacted. This impact could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action.
Risks Related to our Industry and Regulations
Decreases in, or stagnation of, spending or changes in the spending policies or budget priorities for government funding of schools, colleges, universities, other education providers or government agencies may have a material adverse effect on our revenue.
Our customers include primary and secondary schools, colleges, universities, other education providers and, to a lesser extent, government agencies, each of which depends heavily on government funding. The COVID-19 pandemic and resulting economic recession could cause a substantial disruption in, decrease or stagnation of, spending and budget priorities for government funding of schools, colleges, universities and other education providers and government agencies. The economy had only recently experienced a similar disruption from the worldwide recession of 2008 and subsequent sovereign debt and global financial crisis, which resulted in substantial declines in the revenues and fiscal capacity of many national, federal, state, provincial and local governments. Like in the 2008 financial crisis, where many of those governments have reacted to the decreases in revenues by cutting funding to educational institutions, we anticipate that governments and governmental entities will react similarly to the economic crisis and resulting decreases in revenue caused by the COVID-19 pandemic by cutting funding to educational institutions. If our products are not a high priority expenditure for such institutions, or if such institutions allocate expenditures to substitute alternative technologies, we could lose revenue.
Any additional decrease in, stagnation of or adverse change in national, federal, state, provincial or local funding for primary and secondary schools, colleges, universities, or other education providers or for government agencies that use our products could cause our current and prospective customers to further reduce their purchases of our products, which could cause us to lose additional revenue. In addition, a specific reduction in governmental funding support for products such as ours could also cause us to lose revenue.
If our products fail to comply with consumer product or environmental laws, it could materially affect our financial performance.
Because we sell products used by children in classrooms and because our products are subject to environmental regulations in some jurisdictions in which we conduct business and sell our products, we are and will be required to comply with a variety of product safety, product testing and environmental regulations, including compliance with applicable laws and standards with respect to lead content and other child safety and environmental issues. If our products do not meet applicable safety or regulatory standards, we could experience lost sales, diverted resources and increased costs, which could have a material adverse effect on our financial condition and results of operations. Events that give rise to actual, potential or perceived product safety or environmental concerns could expose us to government enforcement action or private litigation and result in product recalls and other liabilities. In addition, negative consumer perceptions regarding the safety of our products could cause negative publicity and harm our reputation.
Risks Related to our Foreign Operations
We are subject to risks inherently related to our foreign operations.
Sales outside the US represented 49% of our revenues for the year ended December 31, 2023. We have committed, and may continue to commit, significant resources to our international operations and sales and marketing activities.
Our significant foreign operations subject us to several risks related to these international business activities that may increase costs, lengthen sales cycles and require significant management attention. International operations carry certain risks and associated costs, such as the complexities and expense of administering a business abroad, complications in compliance with, and unexpected changes in regulatory requirements, foreign laws, international import and export legislation, trading and investment policies, exchange controls, tariffs and other trade barriers, difficulties in collecting accounts receivable, potential adverse tax consequences, uncertainties of laws, difficulties in protecting, maintaining or enforcing intellectual property rights, difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs, and other factors, depending upon the country involved. Moreover, local laws and customs in many countries differ significantly and compliance with the laws of multiple jurisdictions can be complex, difficult and costly. We cannot ensure that risks inherent in our foreign operations will not have a material adverse effect on our business.
We must comply with the Foreign Corrupt Practices Act.
We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery of or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires that we maintain adequate financial records and internal controls to prevent such prohibited payments. Our international operations are managed by the Sahara team who are required to comply with the U.K. Bribery Act 2010 which goes further than current U.S. legislation where the Bribery Act is not
required.RISKS RELATED TO OUR BUSINESS
limited to foreign officials but also includes customers and includes all form of inducement and incentives; the same standard is expected of all our Sahara employees of other European countries where similar legislation is in force under EU-Law Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur in countries where we do business. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new business, which would put us at a disadvantage. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties. Our worldwide operations will subject us to income taxation in many jurisdictions, and we must exercise significant judgment to determine our worldwide financial provision for income taxes. That determination ultimately is an estimate, and, accordingly, we cannot assure that our historical income tax provisions and accruals will be adequate.
We are subject to income taxation in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot assure you that the final determination of any tax audits and litigation will not be materially different from that which is reflected in our historical income tax provisions and accruals. Should additional taxes be assessed
against us as a result of an audit or litigation, there could be a material adverse effect on our current and future results and financial condition.
Certain of our subsidiaries provide products to and may from time to time undertake certain significant transactions with us and our other subsidiaries in different jurisdictions. In general, cross-border transactions between related parties and, in particular, related party financing transactions, are subject to close review by tax authorities. Moreover, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules that require all transactions with nonresident related parties to be priced using arm’s-length pricing principles and require the existence of contemporaneous documentation to support such pricing. A tax authority in one or more jurisdictions could challenge the validity of our related party transfer pricing policies. If in the future any taxation authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.
If we are unable to ship and transport components and final products efficiently and economically across long distances and borders, our business would be harmed.
We transport significant volumes of components and finished products across long distances and international borders. Any increases in our transportation costs, as a result of increases in the price of oil or otherwise, would increase our costs and the final prices of our products to our customers. In addition, any increases in customs or tariffs, as a result of changes to existing trade agreements between countries or otherwise, could increase our costs or the final cost of our products to our customers or decrease our margins. Such increases could harm our competitive position and could have a material adverse effect on our business. The laws governing customs and tariffs in many countries are complex and often include substantial penalties for non-compliance. Disputes may arise and could subject us to material liabilities and have a material adverse effect on our business.
If our procedures to ensure compliance with export control laws are ineffective, our business could be harmed.
Our extensive foreign operations and sales are subject to far reaching and complex export control laws and regulations in the United States and elsewhere. Violations of those laws and regulations could have material negative consequences for us including large fines, criminal sanctions, prohibitions on participating in certain transactions and government contracts, sanctions on other companies if they continue to do business with us and adverse publicity.
We will be exposed to fluctuations in foreign currencies that may materially adversely affect our results of operations.
Our reporting currency is the U.S. dollar. Sahara consolidates results using the British pound (with principal functional currencies in British pound, Euro and U.S. dollar) and Boxlight Latin America uses the Mexican Peso as functional currency to report revenue and expenses. As a result, we will be exposed to foreign exchange rate fluctuations when we translate the financial statements of our group companies into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the translation of any of the group companie's financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we may have certain monetary assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. To the extent the U.S. dollar strengthens or weakens against the certain foreign currencies then the translation of foreign currency denominated transactions will result in a change to reported revenue, operating expenses and net income for subsidiary operations. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited, and we may not be able to successfully hedge fully our exchange rate risks.
We monitor our foreign exchange exposures, and these activities mitigate, but do not eliminate, our exposure to exchange rate fluctuations. As a result, exchange rate fluctuations may materially adversely affect our operating results in future periods.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and results of operations.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. Any such volatility and disruptions may have adverse consequences on us or the third parties upon whom we rely.
Risks Related to Our Intellectual Property and Technology
Defects in our products can be difficult to detect before shipment. If defects occur, they could have a material adverse effect on our business.
Our products are highly complex and sophisticated and, from time to time, have contained and may continue to contain design defects or software “bugs” or failures that are difficult to detect and correct in advance of shipping.
The occurrence of errors and defects in our products could result in loss of, or delay in, market acceptance of our products, including harm to our brand. Correcting such errors and failures in our products could require significant expenditure of capital by us. In addition, we are rapidly developing and introducing new products, and new products may have higher rates of errors and defects than our established products. The Boxlight Group has historically provided product warranties between one and five years, and the failure of our products to operate as described could give rise to warranty claims. The consequences of such errors, failures and other defects and claims could have a material adverse effect on our business, financial condition, results of operations and our reputation.
We may not be able to obtain patents or other intellectual property rights necessary to protect our proprietary technology and business.
Our commercial success depends to a significant degree upon our ability to develop new or improved technologies and products, and to obtain patents or other intellectual property rights or statutory protection for these technologies and products in the United States and other countries. We will seek to patent concepts, components, processes, designs and methods, and other inventions and technologies that we consider have commercial value or that will likely give us a technological advantage. Boxlight own rights in patents and patent applications for technologies relating to interactive displays and other complementary products in the United States and other countries such as Germany, Mexico, Israel, Japan, Taiwan and China. Despite devoting resources to the research and development of proprietary technology, we may not be able to develop technology that is patentable or protectable. Patents may not be issued in connection with pending patent applications, and claims allowed may not be sufficient to allow them to use the inventions that they create exclusively. Furthermore, any patents issued could be challenged, re-examined, held invalid or unenforceable or circumvented and may not provide sufficient protection or a competitive advantage. In addition, despite efforts to protect and maintain patents, competitors and other third parties may be able to design around their patents or develop products similar to our products that are not within the scope of their patents. Finally, patents provide certain statutory protection only for a limited period of time that varies depending on the jurisdiction and type of patent. The statutory protection term of certain of our material patents may expire soon and, thereafter, the underlying technology of such patents can be used by any third-party including competitors.
Prosecution and protection of the rights sought in patent applications and patents can be costly and uncertain, often involve complex legal and factual issues and consume significant time and resources. In addition, the breadth of claims allowed in our patents, their enforceability and our ability to protect and maintain them cannot be predicted with any certainty. The laws of certain countries may not protect intellectual property rights to the same extent as the laws of the United States. Even if our patents are held to be valid and enforceable in a certain jurisdiction, any legal proceedings that we may initiate against third parties to enforce such patents will likely be expensive, take significant time and divert management’s attention from other business matters. We cannot assure that any of the issued patents or pending patent applications will provide any protectable, maintainable or enforceable rights or competitive advantages to us.
In addition to patents, we will rely on a combination of copyrights, trademarks, trade secrets and other related laws and confidentiality procedures and contractual provisions to protect, maintain and enforce our proprietary technology and intellectual property rights in the United States, the United Kingdom, Mexico, Australia, Malaysia, Canada, Turkey Sweden, Finland, Germany, Holland, and China. However, our ability to protect our brands by registering certain trademarks may be limited. In addition, while we will generally enter into confidentiality and nondisclosure agreements with our employees, consultants, contract manufacturers, distributors and resellers and with others to attempt to limit access to and distribution of our proprietary and confidential information, it is possible that:
•misappropriation of our proprietary and confidential information, including technology, will nevertheless occur;
•our confidentiality agreements will not be honored or may be rendered unenforceable;
•third parties will independently develop equivalent, superior or competitive technology or products;
•disputes will arise with our current or future strategic licensees, customers or others concerning the ownership, validity, enforceability, use, patentability or registrability of intellectual property; or
•unauthorized disclosure of our know-how, trade secrets or other proprietary or confidential information will occur.
•we cannot assure that we will be successful in protecting, maintaining or enforcing our intellectual property rights. If we are unsuccessful in protecting, maintaining or enforcing our intellectual property rights, then our business, operating results and financial condition could be materially adversely affected, which could:
•adversely affect our relationships with current or future distributors and resellers of our products;
•adversely affect our reputation with customers;
•be time-consuming and expensive to evaluate and defend;
•cause product shipment delays or stoppages;
•divert management’s attention and resources;
•subject us to significant liabilities and damages;
•require us to enter into royalty or licensing agreements; or
•require us to cease certain activities, including the sale of products.
If it is determined that we have infringed, violated or are infringing or violating a patent or other intellectual property right of any other person or if we are found liable in respect of any other related claim, then, in addition to being liable for potentially substantial damages, we may be prohibited from developing, using, distributing, selling or commercializing certain of our technologies and products unless we obtain a license from the holder of the patent or other intellectual property right. We cannot assure that we will be able to obtain any such license on a timely basis or on commercially favorable terms, or that any such licenses will be available, or that workarounds will be feasible and cost-efficient. If we do not obtain such a license or find a cost-efficient workaround, our business, operating results and financial condition could be materially adversely affected, and we could be required to cease related business operations in some markets and restructure our business to focus on our continuing operations in other markets.
Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property of others.
The markets in which we will compete are characterized by the existence of many patents and trade secrets and also by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. Also, third parties may make infringement claims against us that relate to technology developed and owned by one of our suppliers for which our suppliers may or may not indemnify us. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations and determining the extent of such obligations could require additional litigation. Claims of intellectual property infringement against us or our suppliers might require us to redesign our products, enter into costly settlements or license agreements, pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing or selling our products or services. If we cannot or do not license the infringed intellectual property on reasonable terms or at all, or substitute similar intellectual property from another source, our revenue and operating results could be adversely impacted. Additionally, our customers and distributors may not purchase our offerings if they are concerned that they may infringe third-party intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and cause us to incur significant expenses. The occurrence of any of these events may have a material adverse effect on our business, financial condition and operating results.
If we are unable to anticipate consumer preferences and successfully develop attractive products, we might not be able to maintain or increase our revenue or achieve profitability.
Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing demands and preferences of customers in a timely manner. If we are unable to introduce new products or technologies in a timely manner or our new products or technologies are not accepted by our customers, our competitors may introduce more attractive products which would adversely impact our competitive position. Failure to respond in a timely manner to changing consumer preferences could lead to, among other things, lower revenues and excess inventory positions of outdated products.
We may be unable to keep pace with changes in technology as our business and market strategy evolves.
We will need to respond to technological advances and emerging industry standards in a cost-effective and timely manner in order to remain competitive. The need to respond to technological changes may require us to make substantial, unanticipated expenditures. There can be no assurance that we will be able to respond successfully to technological change.
Risks Related to Our Class A Common Stock
We may not be able to maintain a listing of our Class A common stock on Nasdaq Capital Market, or Nasdaq.
Because our Class A common stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. At present, we are in the initial period of 180-day compliance period provided by Nasdaq relating to our failure to maintain the $1.00 minimum bid price requirement. On February 29, 2024, we received a letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq notifying us that based upon the closing bid price for the last 30 consecutive business days, we no longer meet the Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). We have been provided an initial period of 180 calendar days, or until August 26, 2024, to regain compliance with the Bid Price Rule. If we are not in compliance with the Bid Price Rule by August 26, 2024, we may be afforded a second 180 calendar day period to regain compliance.
We will continue to actively monitor the closing bid price of our Class A common stock and will evaluate available options, including, without limitation, seeking to effect a reverse stock split, in order to resolve the deficiency and regain compliance with the Bid Price Rule. If we fail to regain compliance, or otherwise violate or fail to meet any Nasdaq listing requirements, our Class A common stock may be delisted. In addition, our Board may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Class A common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our Class A common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Class A common stock. In the event our stock is delisted from Nasdaq, whether by choice or otherwise, the delisting of our Class A common stock could significantly impair our ability to raise capital and stockholder value.
Future sales of our Class A common stock could adversely affect our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in our securities and may adversely affect the market price of our Class A common stock.
The development and marketing of new products and the expansion of distribution channels require a significant commitment of resources. From time to time, we may seek additional equity or debt financing to finance working capital requirements, continue our expansion, develop new products or make acquisitions or other investments. In addition, if our business plans change, general economic, financial or political conditions in our industry change, or other circumstances arise that have a material effect on our cash flow, the anticipated cash needs of our business, as well as our conclusions as to the adequacy of our available sources of capital, could change significantly. Any of these events or circumstances could result in significant additional funding needs, requiring us to raise additional capital. If additional funds are raised through the issuance of equity shares, preferred shares or debt securities, the terms of such securities could impose restrictions on our operations and would reduce the percentage ownership of our existing stockholders. If financing is not available on satisfactory terms, or at all, we may be unable to expand our business or to develop new business at the rate desired and our results of operations may suffer.
The market price of our Class A common stock may be volatile, which could cause the value of our common stock to fluctuate and possibly decline significantly.
The market price of our Class A common stock may be highly volatile and subject to wide fluctuations. In 2023, the price of our Class A common stock declined from $2.48 on January 3, 2023 to $1.07 per share on December 29, 2023. As of March 8, 2024, our Class A common stock closed at $0.92 per share. In addition, our financial performance, government regulatory action, tax laws and market conditions in general, including the ongoing COVID-19 pandemic and conflicts between Ukraine and Russia, and Israel and Hamas, and their resulting impact on the economy at large, could have a significant impact on the future market price of our Class A common stock. Some of the factors that could negatively affect our share price or result in fluctuations in the price of our common stock include:
•our operating and financial performance and prospects;
•our quarterly or annual earnings or those of other companies in our industry;
•the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
•changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our Class A common stock or the stock of other companies in our industry;
•the failure of analysts to cover our Class A common stock;
•strategic actions by us or our competitors, such as acquisitions or restructurings;
•announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•changes in accounting standards, policies, guidance, interpretations or principles;
•announcements by third parties or governmental entities of significant claims or proceedings against us;
•new laws and governmental regulations, or other regulatory developments, applicable to our industry;
•changes in general conditions in the United States and global economies or financial markets, including both social and economic conditions resulting from the ongoing COVID-19 pandemic and, conflicts between Ukraine and Russia, and Israel and Hamas, war, incidents of terrorism or responses to such events;
•changes in government spending levels on education;
•changes in key personnel;
•sales of common stock by us, members of our management team or our stockholders;
•the granting or exercise of employee stock options or other equity awards;
•the volume of trading in our Class A common stock; and
•the realization of any risks described in this Item 1A under the caption “Risk Factors”.
Furthermore, the stock market has recently experienced extreme volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our actual operating performance.
In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.
Our Articles of Incorporation, Bylaws and Nevada law may have anti-takeover effects.
Our Articles of Incorporation authorize the issuance of common stock and preferred stock. Each share of Class A common stock entitles the holder to one vote on all matters to be voted upon by stockholders, and the Class B common stock has no vote, except as required by law. In addition, the Board has the authority to issue additional shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The ability of our Board to issue additional shares of preferred stock could make it more difficult for a third-party to acquire a majority of our voting stock. Other provisions of our Bylaws also may have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest, which could have an adverse effect on the market price of our Class A common stock.
In addition, certain provisions of Nevada law applicable to our company could also delay or make more difficult a merger, tender offer or proxy contest involving our company, including Sections 78.411 through 78.444 of the Nevada Revised Statutes, which prohibit a Nevada corporation from engaging in any business combination with any “interested stockholder” (as defined in the statute) for a period of two years unless certain conditions are met. In addition, our senior management is entitled to certain payments upon a change in control and certain of the stock options and restricted shares we have granted provide for the acceleration of vesting in the event of a change in control of our Company.
We have no intention of declaring dividends in the foreseeable future.
The decision to pay cash dividends on our Class A common stock rests with our Board and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our Class A common stock should not expect to receive dividend income on their investment, and investors will be dependent on the appreciation of our Class A common stock to earn a return on their investment.
If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our Class A common stock, then our stock price and trading volume could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our Class A common stock could be severely limited and our stock price could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us adversely change their recommendations regarding our Class A common stock, our stock price could decline.
We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.
Pursuant to Sarbanes-Oxley Act of 2002, our management is required to report on the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.
If we fail to develop, implement and maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting in future periods may be adversely affected.
The Sarbanes-Oxley Act and related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly basis. Effective internal controls are necessary for us to provide timely and reliable financial reports and effectively prevent fraud. We have identified control deficiencies that constituted a material weakness in our internal controls and procedures in the past and may experience a material weakness in future years. If we fail to maintain adequate internal controls, our financial statements may not accurately reflect our financial condition. Any material misstatements could require a restatement of our consolidated financial statements, cause us to fail to meet our reporting
obligations or cause investors to lose confidence in our reported financial information, leading to a decline in the market value of our securities.
Unstable market and economic conditions and potential disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial condition.
If internally generated funds are not available from operations, we may be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity needs. Our access to funds under our revolving credit facility or pursuant to arrangements with other financial institutions is dependent on the financial institution’s ability to meet funding commitments. Financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience high volumes of borrowing requests from other borrowers within a short period of time.
In addition, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, inflationary pressure and interest rate changes and uncertainty about economic stability. More recently, the closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation (FDIC) created bank-specific and broader financial institution liquidity risk and concerns. Future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, financial institutions, manufacturers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and on budget.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
As a regular part of our ordinary business operations, we collect and store data, including information necessary for our operations, information from our customers, employees, and our business partners. We recognize these networks and systems may be subject to increasing and continually evolving cybersecurity risks. Our Board is responsible for overseeing risk management and Cybersecurity is an integral part of the Company's overall risk management program. Our risk management process is designed to identify, prioritize, and monitor risks that could affect our ability to execute our corporate strategy and fulfill our business objectives and to appropriately mitigate such risks.
As part of our risk management processes, we are developing risk assessments to identify the probability, immediacy, and potential magnitude of information security risks. Our internal experts regularly conduct audits and tests of our information systems, and our cybersecurity program is periodically assisted by established, independent third-party consultants, who provide assistance through tabletop and other preparedness exercises. Additionally, we review regular publications on cyber awareness and conduct ongoing simulated phishing exercises. We use the findings from these and other processes to improve our information security practices, procedures and technologies.
While we have not yet experienced any material impacts from a cyber-attack, any one or more future cyber-attacks could materially adversely impact the Company, including a loss of trust among our customers, departures of key employees, general diminishment of our global reputation and financial losses from remediation actions, loss of business or potential litigation or regulatory liability. Further, evolving market dynamics are increasingly driving heightened cybersecurity protections and mandating cybersecurity standards for our products, and we may incur additional costs to address these increased risks and to comply with such demands.
Our corporate headquarters is located at
1045 Progress Circle, Lawrenceville, Georgia 30043,2750 Premiere Parkway, Duluth, GA, 30097 in
a buildingan office space of approximately
48,00012,000 square feet, for which we pay approximately
$20,000$23,000 per month as rent
through March 2019.pursuant to a rental agreement expires on August 31, 2027. Our corporate headquarters house our administrative
offices as well as distribution operations and assemblyoffices. The Company leases warehouse space in Lawrenceville, GA, for
the Boxlight brand.approximately $13,000 per month. This warehouse space rental agreement will expire on April 30, 2028.
We also maintain an officeoffices in Poulsbo, Washington,Scottsdale, Arizona and Utica, NY in the U.S., and in Dartford, London, Leeds and Livingston and Belfast in the U.K. for sales, marketing, technical support and service staff. In addition, we also maintain sales, marketing and technical support offices in Apeldoorn, Netherlands, Anzegem, Belgium, Helsinki, Finland, Oskarshamn Kalmar, Sweden, and Düsseldorf, Germany.
On August 9, 2023 the Company signed a lease agreement for 15 years for approximately 32,000 feet of space for its new Sahara headquarters in the U.K.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
From time to time we are party to litigation matters occurring in the ordinary course of our business. As of the date of this Annual Report, however, there are no material pending or threatened legal or governmental proceedings relating to our Company to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our
Class A common stock commenced trading on the
NASDAQ Capital Market, or NASDAQ,Nasdaq under the symbol “BOXL” on November 30, 2017. Prior to that time, our common stock was not traded on any exchange or quoted on any over the counter market.
The prices set forth below reflect the quarterly high and low sales prices per share for our common stock, as reported by the NASDAQ:| | | High | | Low |
| 2018 | | | | | | | | |
| First Quarter (through March 9) | | $ | 6.97 | | | $ | 4.00 | |
| | | | | | | | | |
| 2017 | | | | | | | | |
| First Quarter | | $ | N/A | | | $ | N/A | |
| Second Quarter | | $ | N/A | | | $ | N/A | |
| Third Quarter | | $ | N/A | | | $ | N/A | |
| Fourth Quarter | | $ | 7.98 | | | $ | 5.74 | |
| | | | | | | | | |
| 2016 | | | | | | | | |
| First Quarter | | $ | N/A | | | $ | N/A | |
| Second Quarter | | $ | N/A | | | $ | N/A | |
| Third Quarter | | $ | N/A | | | $ | N/A | |
| Fourth Quarter | | $ | N/A | | | $ | N/A | |
As of March
22, 2018,8, 2024, we
have 407had 378 holders of record of our
class A common
stock.stock and 9,728,465 shares of Class A common stock issued and outstanding.
We have never paid cash dividends on our
Class A common stock. Holders of our
Class A common stock are entitled to receive dividends, if any, declared and paid from time to time by the Board
of Directors out of funds legally available.
WeAt present, we intend to retain any earnings for the operation and expansion of our business and do not anticipate paying cash dividends on our
Class A common stock in the foreseeable future. Any future determination as to the payment of cash dividends will depend upon future earnings, results of operations, capital requirements, our financial condition and other factors that our
Boardboard of
Directorsdirectors may consider.
Securities Authorized for Issuance Under Equity Compensation Plans
Adoption
Equity Incentive Plans
The Company has issued grants under two equity incentive plans, both of
which have been approved by the Company’s shareholders: (i) the 2014
Stock OptionEquity Incentive Plan,
On September 19, 2014, prior as amended (the “2014 Plan”), pursuant to the listingwhich a total of our common stock on NASDAQ, the Board approved the Company’s 2014 Stock Option Plan. The total number of underlying798,805 shares of the Company’s Class A common stock have been approved for issuance, and (ii) the 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which a total of 625,000 shares of the Company’s Class A common stock have been approved for issuance. Upon approval of the 2021 Plan in June 2021, any shares remaining for issuance under the 2014 Plan were cancelled, and all future grants were issued under the 2021 Plan. The 2021 Plan allows for issuance of shares of our Class A common stock, whether through restricted stock, restricted stock units, options, stock appreciation rights or otherwise, to the Company’s officers, directors, employees and consultants. As of December 31, 2023, a total of approximately 650 shares remained available for grant to directors, officers, key employees, and consultants of the Company or a subsidiary of the Companyissuance under the plan is 2,390,438 shares.
2021 Plan.
The following table provides information as of December 31,
20172023 about our equity compensation plans and arrangements.
| Plan category | | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights | | | Weighted-average
exercise price of
outstanding options,
warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans | |
| Equity compensation plans approved by security holders | | | 812,574 | | | $ | 3.01 | | | | 1,577,864 | |
| Equity compensation plans not approved by security holders | | | 870,717 | | | $ | 7.70 | | | | - | |
| Total | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Plan category | | Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights | | Weighted-
average
exercise price of
outstanding
options,
warrants and
rights | | Number of
securities
remaining
available for
future issuance
under equity
compensation plans |
| Equity compensation plans approved by security holders (1) | | 755,745 | | $ | 5.88 | | | 650 |
| Equity compensation plans not approved by security holders (2) | | 1,386,002 | | $ | 6.57 | | | - |
| Total | | 2,141,747 | | $ | 6.34 | | | 650 |
(1)Includes 340,675 equity incentive grants issued to Sahara employees in conjunction with our acquisition of Sahara Presentation Systems. (2)Includes warrants issued to Dynamic Capital, Whitehawk, Ryan Legudi and a third-party investor.
Recent Sales of Unregistered Securities
None
Use of Proceeds
Issuer Purchases of Equity Securities
None.
Use of Proceeds
On January 30, 2017, a Registration Statement on Form S-1 (Reg. No. 333-204811) was declared effective with the Securities and Exchange Commission. A Post-Effective Amendment to the Registration Statement was declared effective on August 29, 2017, for the sale of up to 1,000,000 shares of Class A common stock of the Company at an initial offering price of $7.00 per share. The offering was consummated on November 30, 2017 by the Company with Aegis Capital Corp, as the lead placement agent on a “best efforts” basis, without a firm commitment by Aegis, who had no obligation or commitment to purchase any of the Company’s shares. The Company received gross proceeds in the amount of $7,000,000.
From the effective date of the Registration Statement to December 31, 2017, we incurred actual expenses in the amount of approximately $1,034,000. We had net proceeds from the offering in the amount of $5,678,609 and converted accounts payable into common stock on IPO of $287,119.
We have used approximately $3,500,000 of the net proceeds as of December 31, 2017. The net proceeds were used to pay the Skyview Note, purchase inventory and for general working capital requirements.
ITEM 6. SELECTED FINANCIAL DATANot required for smaller reporting companies.
[Reserved] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis
("MD&A") should be read in conjunction with our financial statements and the related notes thereto included elsewhere
herein. The Management’s Discussion and Analysisherein MD&A contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this
form.Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several
factors including, but not limited to, those noted under “Risk Factors” of the reports filed with the Securities and Exchange Commission.We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this transition report.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain forward-looking statements. factors.
Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in “Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
We are a
visual display technology company that
isdevelops, sells and services interactive solutions predominantly for the global education market, but also for the corporate and government sectors. We are seeking to become a
worldworldwide leading innovator and integrator of interactive products
for schools, as well as for business and
government conferencing.software solutions and improve collaboration and effective communication in meeting environments. We currently design, produce and distribute interactive
projectorstechnologies including our interactive and
distribute interactivenon-interactive flat-panel displays, LED
flat panels invideo walls, media players, classroom audio and campus communication, cameras and other peripherals for the education
market.market and non-interactive solutions including flat-panels, LED video walls and digital signage. We also distribute
STEM products, including our 3D printing and robotics solutions, and our portable science
lab. All products are integrated into our classroom software suite that provides tools for whole class learning, assessment and collaboration. In addition, we offer professional training services related to our technology
engineering and math (or “STEM”) data logging products to
theour U.S. educational
market.customers. To date, we have generated substantially allthe majority of our revenue in the U.S. and internationally from the sale of ourinteractive displays and related software and expanding product line of projectors, LED panels, interactive whiteboards and display devices to the educational market.
In addition, We have sold our solutions into over 70 countries and into over 1.5 million classrooms and meeting spaces. We sell our products and software through more than 1,000 global reseller partners. We believe we offer the most comprehensive and integrated line of interactive display solutions, audio products, peripherals and accessories, software and professional development for schools and enterprises on the market today. The majority of our products are backed by nearly 30 years of research and development.
Advances in technology and new options for the introduction of technology into the classroom have implementedforced school districts to look for solutions that allow teachers and students to bring their own devices into the classroom, provide school districts with information technology departments with the means to access data with or without internet access, handle higher demand for video, as well as control cloud and data storage challenges. Our design teams are able to quickly customize systems and configurations to serve the needs of clients so that existing hardware and software platforms can
communicate with one another. Our goal is to become a
comprehensive plansingle source solution to
reach profitability for our business acquisitions. Highlightssatisfy the needs of
this plan include: | ● | We have integrated products of the acquisition companies and cross trained our sales reps to increase their offerings. The combination of products and cross training has already resulted in increased sales. The synergy we have found between the products of Boxlight and Mimio are adding opportunities to resellers for both companies to increase their sales. |
| | |
| ● | Recently hired new sales representatives with significant education technology sales experience in their respective territories and our current pipeline has reached a record high level.
|
| | |
| ● | We are seeing increased demand in the US market for technology sales and have the products and infrastructure in place to handle our expected growth. |
educators around the globe and provide a holistic approach to the modern classroom.
Our Acquisition Strategy and Challenges
Our growth strategy includes acquiring assets and technologies of companies that have products, technologies, industry specializations or geographic coverage that extend or complement our existing business. The process to undertake a potential acquisition is time-consuming and costly.
WePrior to completing any acquisition, we expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets,
as a result, and there is no guarantee that we will complete any acquisition that we pursue.
We believe we can achieve significant cost-savings by merging the operations of the companies we acquire and after their acquisition leverage the opportunity to reduce costs through the following methods:
| ● | Staff reductions – consolidating resources, such as accounting, marketing and human resources. |
| | |
| ● | Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers. |
| | |
| ● | Improved market reach and industry visibility – increase in customer base and entry into new markets. |
•Staff reductions – consolidating resources, such as accounting, marketing and human resources.
•Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers.
•Improved market reach and industry visibility – increase in customer base and entry into new markets.
As a result, we believe that an analysis of the historical costs and expenses of our Target Sellers (a companythat is the subject of an attempted acquisition) prior to their acquisition will not provide guidance as to the anticipated results after acquisition. We anticipate that we will be able to achieve significant reductions in our costs of revenue and selling and, general and administrative expenses from the levels currently incurred by the Target Sellers operating independently, thereby increasing our EBITDA and cash flows. Components of our Results of Operations and Financial Condition
Revenue
Our revenue is comprised
The Company’s sales of product revenue,interactive devices, including panels, whiteboards and other interactive devices generally include hardware maintenance services, a license to software, revenue,and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services.
The Company’s installation,
revenuetraining and professional development
revenue. | ● | Product revenue.Product revenue is derived from the sale of our interactive projectors, flat panels, peripherals and accessories, along with other third party products, directly to our customers, as well as through our network of domestic and international distributors. |
| | |
| ● | Installation and professional development.We receive revenue from installation and professional development that we outsource to third parties. |
service include third-party products and services and are generally sold separately from the Company’s products.
Our cost of revenue is comprised of the following:
| ● | third-party logistics costs; |
| | |
| ● | costs to purchase components and finished goods directly; |
| | |
| ● | inbound and outbound freight costs and duties; |
| | |
| ● | costs associated with the repair of products under warranty; and |
| | |
| ● | write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts. |
•third-party logistics costs;
•costs to purchase components and finished goods directly;
•inbound and outbound freight costs and duties;
•costs associated with the repair of products under warranty;
•write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts;
•cost of professionals to deliver the professional development training; and
•customs expense.
We outsource some of our warehouse operations and order fulfillment and
we purchase products from related
entities and third parties. Our product costs
will vary directly with volume and based on the costs of underlying product components as well as the prices we
are able to negotiate with our contract manufacturers. Shipping costs fluctuate with volume as well as with the method of shipping chosen in order to meet customer demand. As a global company with suppliers centered in Asia and customers located worldwide, we have used, and may in the future use, air shipping to deliver our products directly to our customers. Air shipping is more costly than sea or ground shipping or other delivery
options. We primarily use airoptions and it is rarely used as a result. The Company did not experience material delays in shipping
to meet the demand ofduring 2023 or 2022 that materially negatively impacted our
products during peak seasons and new product launches.revenues.
Gross profit and gross profit margin
Our gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: product, channel and geographical revenue mix; changes in product costs related to the release of
projectornewer models; component, contract manufacturing and supplier pricing,
and foreign currency
exchange.exchange and most recently, increased shipping costs due to the pandemic and global unrest. As we primarily procure our product components and manufacture our products in Asia, our suppliers incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. Gross profit and gross profit margin may fluctuate over time based on the factors described above.
We classify our operating expenses into two categories: research and development and general and administrative.
Research and development.Research and development expense consists primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.
General and administrative.General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. We expect our general and administrative expense to increase in absolute dollars following the completion of our initial public offering due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company. General and administrative expense may fluctuate as a percentage of revenue, notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue.
Other income (expense), net
Other income (expense), net
primarily consists of interest expense associated with our debt financing arrangements,
gains (losses) on the settlements of debt, and
interest income earned on our cash. We do not utilize derivatives to hedge our foreign exchange risk, as we believe the
risk to be immaterial to our resultseffects of
operations.changes in the fair value of derivative liabilities.
We are subject to income taxes in the United States,
Canada, United Kingdom, Mexico, Sweden, Finland, Holland, Australia, Denmark and
Mexico in whichGermany where we do business.
The United Kingdom, Mexico,
hasSweden, Finland, Holland and Germany, Australia, Canada and Denmark have a statutory tax rate different from
thosethat in the United States. Additionally, certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.
Operating Results – Boxlight Corporation
(Retrospectively adjusted for the acquisitions of Mimio and Genesis)For the years ended December 31,
20172023 and
20162022
Revenues.Total revenues for the year ended December 31, 20172023 were $25,743,612$176.7 million as compared to $20,371,826$221.8 million for the year ended December 31, 2016. Revenues consist of product revenue, software revenue, installation and professional development. For the year ended December 31, 2016, Boxlight Group’s operating results were only included2022, resulting in the balances from their acquisition date on July 18, 2016 through December 31, 2016. Accordingly, the increasea 20.3% decrease. The decrease in revenues was primarily a result of softening world-wide demand for our products and solutions in 2017 is primarily attributable toboth the inclusionU.S. and EMEA markets.
Cost of Revenues. Cost of revenues for the year ended December 31, 20172023 was $19,329,831$113.4 million as compared to $12,959,749$156.9 million for the year ended December 31, 2016. Cost of revenues consists primarily of product cost, freight expenses and inventory write-downs. Cost of revenues increased due to the increase in revenues. Another factor2022, resulting in an increasea 27.7% decrease. The decrease in cost of revenues was the Company sold product in some instances at a lower margin in exchange for improved payment terms. Freight expenses as a component of cost of revenues increased approximately $1.7 million in 2017primarily due to alternative freight arrangements. Prior tomore favorable material and shipping cost and the completion of our IPO, we had restrictive credit terms with existing freight vendors due to cash restrictions. These costs are expected to be significantly reduceddecrease in 2018.revenues.
Gross Profit.Profit. Gross profit for the year ended December 31, 20172023 was $6,413,781$63.3 million as compared to $7,412,077$64.9 million for the year ended December 31, 20162022. Gross profit margin improved to 35.8% for the year ended December 31, 2023 compared to 29.2% for the year ended December 31, 2022 due to the saleaudio products comprising a greater percentage of some products at lowertotal sales, which carry higher margins, to increase cash flow and increased freight costsdecreases in the amount of approximately $1.7 million.manufacturing and shipping cost.
General and Administrative Expense. General and administrative expense for the year ended December 31, 20172023 was $13,086,120$61.3 million and 34.7% of revenue as compared to $7,689,898$59.3 million and 26.8% of revenue for the year ended December 31, 2016.2022. The increase resulted fromprimarily relates to an increase in personnel related expenses to support the inclusiongrowth of a full yearthe business in certain markets.
Research and Development Expense. Research and development expense was $3.2 million or 1.8% of Boxlight Group’s operating expenses includedrevenue for the year ended December 31, 2017, along with $42023 as compared to $2.5 million or 1.1% of non-cash stock compensation expense.Research and Development Expense.Research and development expense was $465,940 and $1,008,433revenue for the yearsyear ended December 31, 2017 and 2016, respectively.
2022. Research and development expense primarily consists of costs associated with Mimio’s development of proprietary technology. The decrease was due to the company’s decision to decreaseincrease in research and development expendituresexpense was primarily driven by an increase in 2017. The R&D investments are cyclicalcontract services related to software development. Impairment of Goodwill. Impairment of goodwill for the year ended December 31, 2023 was $25.2 million and we had limited major enhancementsrelated to our software products or new hardware launches. A significant portionboth the Americas and EMEA reporting segments. There was no impairment of our research and development is now paidgoodwill for by several of our contract manufacturers.the year ended December 31,
2022. Other income (expense),Expense, net.Other expense for the year ended December 31, 20172023 was $158,830$11.0 million as compared to $775,729$6.7 million for the year ended December 31, 2016. During 2017, the Company settled debt and other2022. Other expense increased by $4.2 million, due to a $2.3 million decrease in fair value of derivative liabilities, with a net gain of $276,026. In 2016, the Company amended a note payable agreement that resulted in $350,000 of additional interest expense in August, which resulted in a significant$0.9 million increase in interest expense. Additionally,expense, and $0.9 million decrease from the Company issued additional notes to acquire Mimio and Boxlight Group during 2016 resultingsettlement of liabilities in an increasethe prior year that did not recur in interest expense.the current year.
Net loss.Loss. Net loss attributable to common shareholders was $7,297,109$40.4 million and $2,061,983$5.0 million for the years ended December 31, 20172023 and 2016, respectively. There were some major contributing factors2022, respectively, after deducting fixed dividends to the increase in net loss in 2017, including expense incurred in the amountSeries B preferred shareholders of $4 million for non-cash stock compensation expense and approximately $1.7$1.3 million in additional freight expense.each year.
To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our consolidated financial statements presented on a basis consistent with U.S. generally accepted accounting principles
and(“GAAP”) with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.
EBITDA represents net
incomeloss before income tax expense, interest
income, interest expense,
net, and depreciation and
amortization.amortization expense. Adjusted EBITDA represents EBITDA,
plusadjusted for stock compensation expense and
non-recurring expenses.changes in fair value of derivative liabilities, purchase accounting impact for fair valuing inventory and deferred revenue, net gain on settlement of debt, and impairment of goodwill. Our management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of our business model. We use these non-GAAP financial measures to assess the strength of the underlying operations of our business. These adjustments, and the non-GAAP financial measure that is derived from them, provide supplemental information to analyze our operations between periods and over time. We find this especially useful when reviewing results of operations, which include large non-cash amortizations of intangibles assets from acquisitions. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
The following table contains reconciliations of net losses to EBITDA
and adjusted EBITDA for the periods presented.
Reconciliation of net loss for the
yearyears ended
December 31,
20172023 and
20162022 to EBITDA
| (in thousands) | | 2017 | | | 2016 | |
| Net loss | | $ | (7,297 | ) | | $ | (2,062 | ) |
| Depreciation and amortization | | | 747 | | | | 353 | |
| Interest expense | | | 635 | | | | 818 | |
| EBITDA | | $ | (5,915 | ) | | $ | (891 | ) |
The following table contains reconciliations of net losses to adjusted EBITDA for the periods presented.
Reconciliation of net loss for the year ended
December 31, 2017 and 2016 to Adjusted EBITDA
| (in thousands) | | 2017 | | | 2016 | |
| Net income (loss) | | $ | (7,297 | ) | | $ | (2,062 | ) |
| Depreciation and amortization | | | 747 | | | | 353 | |
| Interest expense | | | 635 | | | | 818 | |
| Stock compensation expense | | | 4,240 | | | | 464 | |
| Non-recurring IPO expenses | | | - | | | | 528 | |
| Adjusted EBITDA | | $ | (1,675 | ) | | $ | 101 | |
| | | | | | | | | | | | | | |
| (in thousands) | | 2023 | | 2022 |
| Net loss | | $ | (39,156) | | | $ | (3,743) | |
| Depreciation and amortization | | 8,859 | | | 9,129 | |
| Interest expense | | 10,840 | | | 9,923 | |
| Income tax expense | | 1,866 | | | 49 | |
| EBITDA | | $ | (17,591) | | | $ | 15,358 | |
| Stock compensation expense | | 3,131 | | | 3,313 | |
| Change in fair value of derivative liabilities | | (267) | | | (2,591) | |
| Purchase accounting impact of fair valuing inventory | | 448 | | | 1,496 | |
| Purchase accounting impact of fair valuing deferred revenue | | 1,649 | | | 2,229 | |
| Net gain on settlement of debt | | — | | | (856) | |
| Impairment of Goodwill | | 25,195 | | | — | |
| Adjusted EBITDA | | $ | 12,565 | | | $ | 18,949 | |
Discussion of Effect of Seasonality on Financial Condition
Certain accounts on our balance sheets are subject to seasonal fluctuations. As our business and revenues grow, we expect these seasonal trends to be reduced. The bulk of our products are shipped to our educational customers prior to the beginning of the school year, usually in July, August, or September. To prepare for the upcoming school year, we generally build up inventories during the second quarter of the year. Therefore, inventories tend to be at the highest levels at that point in time. In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter. Accounts receivable balances tend to be at the highest levels in the third quarter, in which we record the highest level of sales.
We have been very proactive, and will continue to be proactive, in obtaining contracts during the fourth and first quarters
that willof each year in order to help offset the seasonality of our business.
Liquidity and Capital Resources
In 2017, the Company struggled with liquidity issues due to credit limitations and the added expenses necessary to fund the initial public offering. The liquidity issues led to a significant increase in freight costs to enable us to meet shipping demands of our customers. We also sold product, in some instances, at lower margins in exchange for improved payment terms.
Our liquidity and capital resources were significantly improved through funding from our initial public offering in November 2017, along with our ability to close on a lending agreement in August 2017 that allows us to borrow using our accounts receivable as collateral.
The Company made great strides in 2017 improving our balance sheet through debt repayments and debt conversions. Our total short-term and long-term debt was decreased from $7,778,917 at December 31, 2016 to $856,449 at December 31, 2017.
As of December 31, 2017,2023, we had cash and cash equivalents of $17.3 million, a working capital balance of $2,010,325.$54.1 million, and a current ratio of 2.17. At December 31, 2022, we had $14.6 million of cash and cash equivalents, a working capital balance of $62.8 million, and a current ratio of 2.29.
For the years ended December 31, 2023 and 2022, we had net cash provided by operating activities of $11.6 million and $1.2 million, respectively. Cash provided by operating activities increased year over year as a result of a change in working capital management. We
financed our operationshad net cash used in investing activities of $1.3 million and
our capital expenditures during$1.2 million for the years ended December 31, 2023 and 2022, respectively. Cash used in investing activities is primarily related to purchases of property and equipment. For the years ended December 31, 2023 and 2022, we had net cash used in financing activities of $8.0 million and $5.1 million, respectively. Cash used for financing activities for the year ended December 31,
20172023 is primarily
throughrelated to principal payments on debt of $6.8 million, and $1.3 million in payments of fixed dividends to our
initial public offeringSeries B preferred shareholders, and
astock option exercise proceeds of $13 thousand. Cash used by financing
agreement entered into with a lender.The Company’s initial public offeringactivities for the year ended December 31, 2022 was completedprimarily related to principal payments on November 30, 2017. The Company raised the maximum amount offereddebt, and payments of 1,000,000 shares and receivedfixed dividends to our Series B preferred shareholders, partially offset by net proceeds through the offering of $5,678,609.
On August 15, 2017, the Company entered into a $6,000,000 accounts receivable saleissuance of common stock, and purchase agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 85% of the eligible accounts receivable of the Company with the right of recourse.
In addition to ourproceeds from long-term debt and stock option exercises.
Our liquidity needs are funded by operating cash
flow and
banking arrangements, we had accounts receivable of $3,089,932 on December 31, 2017.available cash. Our
accounts receivable and our ability to borrow agains accounts receivable provides an additional source of liquidity as cash payments are collected from customers in the normal course of business. Our accounts receivable balance fluctuates throughout the year based on the seasonality of the business. At December 31, 2017, we had additional borrowings available under the credit agreement of $1.5 million.Our other cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases and other operating leases. We lease all of our office facilities. We expect to make future payments on existing leases from cash generated from operations.
We have limited credit available from our major vendors and are required to prepay a percentage of our inventory purchases, which further constrains our cash liquidity. In addition, our industry is seasonal with many sales to educational customers occurring during the second and third quarters when schools make budget appropriations and classes are not in session
limiting disruptions related to product installation. This seasonality makes our needs for cash vary significantly from quarter to quarter.
In addition to the cash flows generated by our ongoing operating activities we financed our operations during 2023 and 2022 with our Credit Facility with Whitehawk. Prior to April 24, 2023, we maintained a delayed draw term loan of which we had $7.5 million available. On April 24, 2023, we borrowed $3.0 million on our delayed draw term loan that was used for working capital purposes. The completion of the additional draw eliminates further draws under the term loan agreement. The $3.0 million was repaid during the third quarter of 2023.
To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of our Series B preferred stock became redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days’ prior written notice to the Company, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B preferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. We may be required to seek alternative financing arrangements or restructure the terms of the agreement with the Series B preferred shareholders on terms that are not favorable to us if cash and cash equivalents are not sufficient to fully redeem the Series B preferred shares. We are currently evaluating alternatives to refinance or restructure the Series B preferred shares including extending the maturity of the Series B preferred shares beyond the current optional conversion date.
Given the uncertainty surrounding global supply chains, global markets, and general global uncertainty as a result of the ongoing conflict between Russia and Ukraine and Israel and Hamas and the continuing COVID-19 pandemic, the availability of debt and equity capital has been reduced and the cost of capital has increased. Furthermore, recent adverse developments affecting the financial services industry including events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions may lead to market-wide liquidity problems. This in turn could result in a reduction in our ability to access funding sources and credit arrangements in amounts adequate to finance our current and future business operations. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, while there can be no guarantee we will be able to access capital when needed, we are confident that the Company will be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with our customers and vendors.
Cash and cash equivalents, along with anticipated cash flows from operations, may not provide sufficient liquidity for our working capital needs, debt service requirements or to maintain minimum liquidity requirements under our Credit Agreement, and we may need to raise capital to meet current working capital requirements including maintaining sufficient inventory levels to meet future sales demand.
The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
The Company was not in compliance with its Senior Leverage Ratio financial covenant under the Credit Agreement at September 30, 2023. The non-compliance was cured by the Company paying $4.3 million, inclusive of $0.3 million in prepayment penalties and interest in November 2023 in order to bring the Company into compliance with the Senior Leverage Ratio at September 30, 2023.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at December 31, 2023. Although on March 14, 2024, the Loan Parties entered into the Fifth Amendment with the Collateral Agent and the Lender mainly for the purpose of (1) amending and restating the Senior Leverage Ratio and Minimum Liquidity (as defined in the Fifth Amendment), and (2) waiving any Event of Default that may have arisen directly as a result of the Financial Covenant Default (as defined in the Fifth Amendment), there can be no assurance that the Lender will not declare an event of default and acceleration of all of our obligations under the Credit Agreement in the event we are unable to get into full compliance with these covenants in the future. Following the Fifth Amendment to the Credit Agreement, the Senior Leverage ratio increased to 6.00 at March 31, 2024, remained at 2.00 at June 30, 2024 and 1.75 thereafter. Because of the significant decreases in the required Senior Leverage Ratio within the next twelve months, the Company’s current forecast projects the Company may not be able to maintain compliance with this ratio. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
In view of this matter, continuation as a going concern is dependent upon the Company’s ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-
compliance with the Senior Leverage Ratio, or refinance its Credit Agreement with a different lender on a basis with more favorable terms. The Company is actively working to refinance its debt with new lenders on terms more favorable to the Company. While the Company is confident in its ability to refinance its existing debt, it does not have written or executed agreements as of the issuance of this Form 10-K. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. We believe we have a good working capital relationship with our current lender. However, there can be no assurance that the Company will be successful in refinancing its debt, or on terms acceptable to the Company.
Recent Financing
See Note 9 to the consolidated financial statements.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations or liquidity and capital resources.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles accepted in the United States. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in notes ofdetail in Note 1 to the accompanying consolidated financial statements.statements, and briefly summarized below. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain: | 1. | Revenue recognition |
| 2. | Acquisition of Boxlight Group |
| 3. | Common control transactions |
| 4. | Long-lived assets |
| 5. | Intangible assets |
| 6. | Share-based compensation |
Emerging Growth
1.Revenue Recognition
2.Goodwill and Intangible assets
3.Share-based Compensation
4.Derivative Warrant Liabilities
5.Income Taxes
REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers) (“Topic 606”), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of interactive panels, audio and communication equipment and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.
The Company’s sales of interactive devices, including panels, whiteboards, audio and communication equipment and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. Interactive devices are generally sold with hardware maintenance services with terms
ranging from 36-60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms ranging from 36-60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content, access to replacement parts, and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s product sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers, and therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For other software product sales, control is transferred when the customer receives the related access code or interactive hardware since the customer’s access code or connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.
The Company’s installation, training and professional development services are generally sold separately from the Company’s products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is performed.
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”).
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. Goodwill is not amortized and is not deductible for tax purposes. Under ASC Topic 350 “Business Combinations,” we have an option to perform a “qualitative” assessment of the Company to determine whether further impairment testing is necessary. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of the business is less than carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. If we determine that the Company meets these criteria, we perform a qualitative assessment. In this qualitative assessment, we consider the following items: macroeconomic conditions, industry and market conditions, overall financial performance and other entity specific events. In addition, we assess whether the most recent fair value determination results in an amount that exceeds the carrying amount of the Company. Based on these assessments, we determine whether the likelihood that a current fair value determination would be less than the current carrying amount is not more likely than not.
Because the qualitative assessment is an option, we may bypass it for any reporting unit in any period as begin our analysis with the quantitative impairment test. We are an “emerging growth company,” as definedmay elect to perform a quantitative impairment test based on the period of time that has passed since the most recent determination of fair value, even when we do not believe that it is more-likely-than-not that the fair value of the business is less than carrying amount.
In analyzing goodwill for potential impairment in the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies.These provisions include:
(1) | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| |
(2) | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
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(3) | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
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(4) | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantagequantitative impairment test, we use a combination of the exemption fromincome and market approaches to estimate the adoptionfair value. Under the income approach, we calculate the fair value based on estimated future discounted cash flows. The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating fair value. Under the market approach, we estimate the fair value based on market multiples of newrevenue or earnings before interest, income taxes, depreciation and amortization for benchmark companies. If the fair value exceeds carrying value, then no further testing is required. However, if the fair value were to be less than carrying value, we would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the goodwill exceeded its implied value.
Intangible assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist using an undiscounted cash-flow approach.
The Company's annual impairment testing date normally occurs as of October 1, which facilitates the overall coordination and timing of our annual financial accounting standards until they would applystatement close cycle and the preparation of our annual report. During the year ended December 31, 2023, due to private companies.triggering events, the Company performed Goodwill testing as of June 30, September 30, and December 31, 2023.
As of June 30, 2023, we determined that a triggering event had occurred as a result of our market capitalization that suggested one or more of the reporting units may have fallen below the carrying amounts. In addition, changes in our reporting segments resulted in a change in the composition of our reporting units. As a result of this election,these changes, we determined the Company had two reporting units for purposes of testing based upon entities that comprise the Americas and EMEA reporting segments. For purposes of impairment testing, we allocated goodwill to the reporting units based upon a relative fair value allocation approach and assigned approximately $22.4 million and $2.8 million of goodwill to the Americas and EMEA reporting units, respectively.
As of June 30, 2023, we performed an interim goodwill impairment test as a result of the triggering events identified. In analyzing goodwill for potential impairment in the quantitative impairment test, we used a combination of the income and market approaches to estimate the fair value. Under the income approach, we calculated the fair value based on estimated future discounted cash flows. The assumptions used are based on what we believe a hypothetical marketplace participant would use in estimating fair value and include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. Under the market approach, we estimated the fair value based on market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies. Based on the results of our interim test as of June 30, 2023, we concluded that the estimated fair value of each reporting unit exceeded the respective carrying value and, as such, we concluded that the goodwill assigned to each reporting unit, as of June 30, 2023, was not impaired.
As of September 30, 2023, due to further declines in the Company’s market capitalization and a reduction in cash-flows resulting from continued softening in the industry leading to a reduction in sales from interactive flat-panel displays, the Company determined that a triggering event had occurred.
As of September 30, 2023, the Company performed an interim goodwill impairment test as a result of the triggering event identified. The Company’s methodology for estimating fair value was consistent with the income and market approaches used as of June 30, 2023. Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were revised based on current industry and Company trends. For the three and nine months ended September 30, 2023, the Company recorded goodwill impairment charges of $10.4 million and $2.8 million to the Americas and EMEA reporting units, respectively.
As of December 31, 2023, the Company performed goodwill impairment testing as a result of another triggering event identified. The Company’s methodology for estimating fair value was consistent with the income and market approaches used as of June 30, 2023 and September 30, 2023. Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were further revised based on current industry and Company trends. For the year ended December 31, 2023, the Company recorded goodwill impairment charges of $22.4 million and $2.8 million in the Americas and EMEA reporting units, respectively, which also represents total accumulated goodwill impairment charges for each reporting unit.
SHARE-BASED COMPENSATION
The Company estimates the fair value of each stock option compensation award at the grant date by using the Black-Scholes option pricing model; the fair value of each restricted stock unit awarded is the market price of the underlying shares at the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. Accordingly, stock compensation expense is recognized based on the estimated fair value of the awards which is amortized as compensation expense on a straight-line basis over the vesting period. Total expense related to the award is reduced by the fair value of the options that are forfeited by the employees that leave the Company prior to vesting as they occur.
DERIVATIVE WARRANT LIABILITIES
The Company classifies common stock purchase warrants as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses the classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company. Such warrants are measured at fair value at each reporting date, and the changes in fair value are included in determining net income for the period.
INCOME TAXES
The Company follows the asset and liability method of accounting for income taxes pursuant to the pertinent guidance issued by the FASB. Deferred income taxes are recorded to reflect the estimated future tax effects of differences between the financial statements maystatement and tax basis of assets, liabilities, operating losses, and tax credit carry forwards using the tax rates expected to be in effect when the temporary differences reverse. Valuation allowances, if any, are recorded to reduce deferred tax assets to the amount management considers more likely than not to be comparablerealized. Such valuation allowances are recorded for the portion of the deferred tax assets that are not expected to companies that comply with public company effective dates.be realized based on the levels of historical taxable income and projections for future taxable income over the periods in which the temporary differences will be deductible.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” this item is not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors, and Audit Committee of Boxlight Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Boxlight Corporation and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes and financial statement schedule II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has identified certain conditions relating to its outstanding debt and Series B Preferred Stock that are outside the control of the Company. In addition, the Company has generated recent losses. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the accompanying financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Critical Audit Matter – Goodwill Impairment Assessment
As described in Note 1, in analyzing goodwill for potential impairment in the quantitative impairment test, the Company uses a combination of the income and market approaches to estimate the fair value. Under the income approach, the Company calculates the fair value based on discounted estimated future cash flows. Under the market approach, the Company estimates the fair value based on the market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies.
We identified the quantitative impairment test of goodwill as a critical audit matter. The principal considerations for that determination included the judgment involved in assessing management’s impairment test of goodwill due to the measurement uncertainty involved in determining the fair value of equity for the reporting units. In particular, the fair value estimates are sensitive to changes in assumptions such as discount rates, expected future cash flows, long-term growth rates, and comparable company earnings multiples.
The primary procedures we performed to address this critical audit matter included:
•We obtained an understanding of management’s process for assessing goodwill impairment and performing the qualitative goodwill impairment test, including management’s process for developing assumptions used in the income and market approaches to estimate the fair value of reporting units.
•We evaluated management’s revenue growth rates, margins, and cash flows to current industry and economic trends, while also considering the current and future business, customer base, and product mix.
•We assessed management’s process for estimating revenue growth and margins by comparing past projections to actual performance.
•With the assistance of our valuation professionals with specialized skills and knowledge, we evaluated the models, valuation methodology, and significant assumptions used in the income and market approaches to estimate the fair values.
•We tested management’s reconciliation of the fair value of equity of the reporting units to the market capitalization of the Company.
/s/ FORVIS, LLP
We have served as the Company’s auditor since 2018.
Atlanta, Georgia
March 14, 2024
Boxlight Corporation
Consolidated Balance Sheets
As of December 31, 2023 and 2022
(in thousands except share and per share amounts)
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022
(as adjusted)* |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 17,253 | | | $ | 14,591 | |
| Accounts receivable – trade, net of allowances | 29,523 | | | 31,009 | |
| Inventories, net of reserves | 44,131 | | | 58,211 | |
| Prepaid expenses and other current assets | 9,471 | | | 7,433 | |
| Total current assets | 100,378 | | | 111,244 | |
| | | |
| Property and equipment, net of accumulated depreciation | 2,477 | | | 1,733 | |
| Operating lease right of use asset | 8,846 | | | 4,350 | |
| Intangible assets, net of accumulated amortization | 45,964 | | | 52,579 | |
| Goodwill | — | | | 25,092 | |
| Other assets | 906 | | | 397 | |
| Total assets | $ | 158,571 | | | $ | 195,395 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| | | |
| Current liabilities: | | | |
| Accounts payable and accrued expenses | $ | 32,899 | | | $ | 36,566 | |
| Short-term debt | 1,037 | | | 845 | |
| Operating lease liabilities, current | 1,827 | | | 1,898 | |
| Deferred revenues, current | 8,698 | | | 8,308 | |
| Derivative liabilities | 205 | | | 472 | |
| Other short-term liabilities | 1,566 | | | 386 | |
| Total current liabilities | 46,232 | | | 48,475 | |
| | | |
| Deferred revenues, non-current | 16,347 | | | 15,603 | |
| Long-term debt | 39,134 | | | 43,778 | |
| Deferred tax liabilities, net | 4,316 | | | 4,680 | |
| Operating lease liabilities, non-current | 7,282 | | | 2,457 | |
| | | |
| Total liabilities | 113,311 | | | 114,993 | |
| | | |
| Commitments and contingencies (Note 15) | | | |
| Mezzanine equity: | | | |
| Preferred Series B, 1,586,620 shares issued and outstanding | 16,146 | | | 16,146 | |
| Preferred Series C, 1,320,850 shares issued and outstanding | 12,363 | | | 12,363 | |
| Total mezzanine equity | 28,509 | | | 28,509 | |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 and 167,972 shares issued and outstanding, respectively | — | | | — | |
| Common stock, $0.0001 par value, 18,750,000 shares authorized; 9,704,496 and 9,339,587 Class A shares issued and outstanding at December 31, 2023 and 2022, respectively | 1 | | | 1 | |
| Additional paid-in capital | 119,724 | | | 117,849 | |
| Accumulated deficit | (104,275) | | | (65,043) | |
| Accumulated other comprehensive income (loss) | 1,301 | | | (914) | |
| Total stockholders’ equity | 16,751 | | | 51,893 | |
| | | |
| Total liabilities and stockholders’ equity | $ | 158,571 | | | $ | 195,395 | |
See Accompanying Notes to Financial Statements.
Boxlight Corporation
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31, 2023 and 2022
(in thousands, except per share amounts)
| | | | | | | | | | | |
| 2023 | | 2022 |
| Revenues, net | $ | 176,721 | | | $ | 221,781 | |
| Cost of revenues | 113,419 | | | 156,913 | |
| Gross profit | 63,302 | | | 64,868 | |
| | | |
| Operating expense: | | | |
| General and administrative expenses | 61,252 | | | 59,337 | |
| Research and development | 3,155 | | | 2,482 | |
| Impairment of goodwill | 25,195 | | | — | |
| Total operating expense | 89,602 | | | 61,819 | |
| | | |
| (Loss) income from operations | (26,300) | | | 3,049 | |
| | | |
| Other income (expense): | | | |
| Interest expense, net | (10,840) | | | (9,923) | |
| Other expense, net | (417) | | | (267) | |
| Gain on settlement of liabilities, net | — | | | 856 | |
| Change in fair value of derivative liabilities | 267 | | | 2,591 | |
| Total other expense | (10,990) | | | (6,743) | |
| Loss before income taxes | (37,290) | | | (3,694) | |
| Income tax expense | (1,866) | | | (49) | |
| Net loss | (39,156) | | | (3,743) | |
| Fixed dividends - Series B Preferred | (1,269) | | | (1,269) | |
| Net loss attributable to common stockholders | $ | (40,425) | | | $ | (5,012) | |
| | | |
| Comprehensive loss: | | | |
| Net loss | (39,156) | | | (3,743) | |
| Other comprehensive loss: | | | |
| Foreign currency translation adjustment | 2,215 | | | (4,642) | |
| Total comprehensive loss | $ | (36,941) | | | $ | (8,385) | |
| | | |
| | | |
| | | |
| Net loss per common share – basic and diluted - as adjusted | $ | (4.28) | | | $ | (0.58) | |
| | | |
| Weighted average number of common shares outstanding – basic and diluted - as adjusted | 9,455 | | 8,644 |
See Accompanying Notes to Financial Statements.
Boxlight Corporation
Consolidated Statements of Changes in Stockholders’ Equity
For the Year Ended December 31, 2023
(in thousands except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A
Preferred Stock | | Class A
Common Stock | | Additional
Paid-in
Capital | | Accumulated Other
Comprehensive Income (Loss) | | Accumulated
Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2022 | 167,972 | | $ | — | | | 9,339,587 | | $ | 1 | | | $ | 117,849 | | | $ | (914) | | | $ | (65,043) | | | $ | 51,893 | |
| | | | | | | | | | | | | | | |
| Cumulative effect of change in accounting principle, net of tax | — | | — | | | — | | — | | | — | | | — | | | (76) | | | (76) | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2022 - as adjusted | 167,972 | | — | | | 9,339,587 | | 1 | | | 117,849 | | | (914) | | | (65,119) | | | 51,817 | |
| | | | | | | | | | | | | | | |
| Shares issued for: | | | | | | | | | | | | | | | |
| Stock options exercised | — | | — | | | 12,500 | | — | | | 13 | | | — | | | — | | | 13 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Vesting of restricted stock units | — | | — | | | 318,995 | | — | | | — | | | — | | | — | | | — | |
| Reverse stock split fractional adjustment | — | | — | | | 33,414 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Stock compensation | — | | — | | | — | | — | | | 3,131 | | | — | | | — | | | 3,131 | |
| Foreign currency translation | — | | — | | | — | | — | | | — | | | 2,215 | | | — | | | 2,215 | |
| Fixed dividends for preferred shareholders | — | | — | | | — | | — | | | (1,269) | | | — | | | — | | | (1,269) | |
| Net loss | — | | — | | | — | | — | | | — | | | — | | | (39,156) | | | (39,156) | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2023 | 167,972 | | $ | — | | | 9,704,496 | | $ | 1 | | | $ | 119,724 | | | $ | 1,301 | | | $ | (104,275) | | | $ | 16,751 | |
| See Accompanying Notes to Financial Statements. |
Boxlight Corporation
Consolidated Statements of Changes in Stockholders’ Equity
For the Year Ended December 31, 2022
(in thousands except share amounts) - as adjusted
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A
Preferred Stock | | Class A
Common Stock | | Additional
Paid-in
Capital | | Accumulated Other
Comprehensive
Income (Loss) | | Accumulated
Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2021 | 167,972 | | $ | — | | | 7,977,738 | | $ | — | | | $ | 110,873 | | | $ | 3,728 | | | $ | (61,300) | | | $ | 53,301 | |
| Shares issued for: | | | | | | | | | | | | | | | |
| Stock options exercised | — | | — | | | 37,105 | | — | | | 81 | | | — | | | — | | | 81 | |
| Acquisition | — | | — | | | 28,846 | | — | | | 150 | | | — | | | — | | | 150 | |
| Debt issuance costs | — | | — | | | 66,021 | | — | | | — | | | — | | | — | | | — | |
| Vesting of restricted stock units | — | | — | | | 310,759 | | — | | | — | | | — | | | — | | | — | |
| Securities purchase agreement | — | | — | | | 875,000 | | 1 | | | 2,352 | | | — | | | — | | | 2,353 | |
| Warrant redemption, net | — | | — | | | 44,118 | | — | | | — | | | — | | | — | | | — | |
| Issuance of warrants and prefunded warrants | — | | — | | | — | | — | | | 2,349 | | | — | | | — | | | 2,349 | |
| Stock compensation | — | | — | | | — | | — | | | 3,313 | | | — | | | — | | | 3,313 | |
| Foreign currency translation | — | | — | | | — | | — | | | — | | | (4,642) | | | — | | | (4,642) | |
| Fixed dividends for preferred shareholders | — | | — | | | — | | — | | | (1,269) | | | — | | | — | | | (1,269) | |
| Net loss | — | | — | | | — | | — | | | — | | | — | | | (3,743) | | | (3,743) | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2022 | 167,972 | | $ | — | | | 9,339,587 | | $ | 1 | | | $ | 117,849 | | | $ | (914) | | | $ | (65,043) | | | $ | 51,893 | |
| See Accompanying Notes to Financial Statements. |
Boxlight Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023 and 2022
(in thousands)
| | | | | | | | | | | |
| 2023 | | 2022 |
| Cash flows from operating activities: | | | |
| Net loss | $ | (39,156) | | | $ | (3,743) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Amortization of debt discount and issuance cost | 2,303 | | | 2,158 | |
| Bad debt expense | 9 | | | 266 | |
| Gain on settlement of liabilities | — | | | (856) | |
| Changes in deferred tax assets and liabilities | (347) | | | (3,776) | |
| Change in allowance for sales returns and volume rebate | 1,356 | | | 316 | |
| Change in inventory reserve | 2,131 | | | (68) | |
| Change in fair value of derivative liability | (267) | | | (2,591) | |
| | | |
| Stock compensation expense | 3,131 | | | 3,313 | |
| Depreciation and amortization | 8,859 | | | 9,129 | |
| Impairment of goodwill | 25,195 | | | — | |
| Change in right of use assets and lease liabilities | 249 | | | 8 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable – trade | 781 | | | (3,800) | |
| Inventories | 13,105 | | | (10,272) | |
| Prepaid expenses and other current assets | (1,874) | | | 1,602 | |
| Other assets | (498) | | | (161) | |
| Accounts payable and accrued expenses | (4,822) | | | 5,756 | |
| Other short-term liabilities | 1,136 | | | 256 | |
| Deferred revenues | 290 | | | 3,965 | |
| Other liabilities | — | | | (312) | |
| Net cash provided by operating activities | $ | 11,581 | | | $ | 1,190 | |
| | | |
| Cash flows from investing activities: | | | |
| Asset acquisition | — | | | (100) | |
| | | |
| Purchases of furniture and fixtures, net | (1,321) | | | (1,106) | |
| Net cash used in investing activities | $ | (1,321) | | | $ | (1,206) | |
| | | |
| Cash flows from financing activities: | | | |
| Net proceeds from issuance of common stock and warrants, net of issuance costs | — | | | 4,700 | |
| Proceeds from issuances of short-term debt | 3,000 | | | — | |
| Proceeds from exercise of options and warrants | 13 | | | — | |
| Principal payments on long-term debt | (6,755) | | | (11,141) | |
| | | |
| Proceeds from long term debt | — | | | 2,500 | |
| Principal payments on short-term debt | (3,000) | | | — | |
| Payments of fixed dividends to Series B Preferred stockholders | (1,269) | | | (1,269) | |
| Proceeds from issuance of common stock | — | | | 84 | |
| | | |
| Net cash used in financing activities | $ | (8,011) | | | $ | (5,126) | |
| | | |
| Effect of foreign currency exchange rates | 413 | | | 1,795 | |
| | | |
| Net increase (decrease) in cash and cash equivalents | 2,662 | | | (3,347) | |
| | | |
| Cash and cash equivalents, beginning of the period | 14,591 | | | 17,938 | |
| | | |
| Cash and cash equivalents, end of the period | $ | 17,253 | | | $ | 14,591 | |
| | | |
| Supplemental cash flow disclosures: | | | |
| | | |
| Cash paid for income taxes | $ | 2,691 | | | $ | 1,615 | |
| Cash paid for interest | $ | 8,290 | | | $ | 8,342 | |
| | | |
| Non-cash investing and financing transactions: | | | |
| | | |
| | | |
| Addition of operating lease liabilities | $ | 5,865 | | | $ | — | |
| Shares issued for asset acquisition | $ | — | | | $ | 150 | |
| | | |
See Accompanying Notes to Financial Statements.
Notes to Consolidated Financial Statements
Boxlight Corporation
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
COMPANY HISTORY AND RECENT ACQUISITIVE GROWTH
Boxlight Corporation (the “Company”) was incorporated in the State of Nevada on September 18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational products. The Company designs, produces and distributes interactive technology solutions predominantly to the education market.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Boxlight Corporation and its wholly owned subsidiaries. Intercompany transactions and account balances among all of affiliated entities have been eliminated.
In the opinion of management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature and necessary for fair financial statement presentation.
ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Significant estimates include estimates of reserves for inventory obsolescence; the recoverability of deferred tax assets; the fair value of warrants; the fair value and recoverability of intangible assets and goodwill; the fair value of stock compensation; the relative stand-alone selling prices of goods and services; and variable consideration.
REVERSE STOCK SPLIT AND RECLASSIFICATIONS
On June 14, 2023, the Company effected a reverse stock split of the Company’s Class A common stock whereby each eight shares of the Company’s authorized and outstanding Class A common stock was converted into one share of common stock. The par value of the common stock was not adjusted. Following the reverse split, the authorized shares for Class A common stock was adjusted to 18,750,000, the authorized shares for Class B common stock remained at 50,000,000 shares, and the authorized shares of preferred stock remained unchanged at 50,000,000 shares. All Class A common share and per share amounts for all periods presented in the consolidated financial statements and the notes to the consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in aggregate par value of Class A common stock to additional paid-in capital on the consolidated balance sheets of approximately $6 thousand. The quantity of Class A common stock equivalents and the conversion and exercise ratios were adjusted for the effect of the reverse stock split for warrants, stock compensation arrangements, and the conversion features on preferred shares. All of the agreements included existing conversion language in the event of a stock split and thus did not result in modification accounting or additional incremental expense as a result of this transaction. The Company issued 33,414 shares of Class A common stock to adjust fractional shares following the reverse stock split to the nearest whole share. There are presently no shares of Class B common stock outstanding and none were outstanding as of December 31, 2023 and 2022.
GOING CONCERN
The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
At September 30, 2023 the Company was not in compliance with its Senior Leverage Ratio financial covenant under the credit agreement, originally dated December 31, 2021, as amended (the "Credit Agreement"), between the Company, its direct and indirect subsidiaries, and Whitehawk Finance LLC, as lender, and White Hawk Capital Partners, LP, as collateral agent. The Company's non-compliance with the Credit Agreement was cured by the Company paying
$4.3 million, inclusive of $0.3 million in prepayment penalties and accrued interest, in November 2023 which would have resulted in the Company being in compliance with the Senior Leverage Ratio at September 30, 2023.
At December 31, 2023, the Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement. The Senior Leverage Ratio, as stated in the Third Amendment to the Credit Agreement, decreases to 2.50 at December 31, 2023, 2.00 at March 31, 2024 and June 30, 2024 and at 1.75 thereafter.
On March 14, 2024 the Company entered into a fifth agreement (the 'Fifth Amendment') with the Collateral Agent and Lender which waived any Event of Default that may have arisen directly as a result of the financial covenant default at December 31, 2023 and in the interim two-month period ended February 29, 2024. The Fifth Amendment also restated the Senior Leverage Ratio and Minimum Liquidity requirements. Under the Amended agreement, the Senior Leverage Ratio requirement at March 31, 2024 was amended from 2.00 to 6.00, at June 30, 2024 will remain at 2.00 and thereafter will remain at 1.75.
Because of the significant decreases in the required Senior Leverage Ratio that will occur over the next twelve months, the Company’s current forecast projects the Company may not be able to maintain compliance with this ratio. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
In view of this matter, continuation as a going concern is dependent upon the Company’s ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-compliance with the Senior Leverage Ratio, or refinance its Credit Agreement with a different lender on more favorable terms. The Company is actively working to refinance its debt with new lenders. While the Company is confident in its ability to refinance its existing debt, it does not have written or executed agreements as of the issuance of this Form 10-K. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. We believe we have a good working relationship with our current lender. However, there can be no assurance that the Company will be successful in refinancing its debt, or on terms acceptable to the Company.
To the extent not converted into the Company’s Class A common stock, the outstanding shares of our Series B preferred stock became redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days’ prior written notice to the Company, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B preferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. We may be required to seek alternative financing arrangements or restructure the terms of the agreement with the Series B preferred shareholders on terms that are not favorable to us if cash and cash equivalents are not sufficient to fully redeem the Series B preferred shares. We are currently evaluating alternatives to refinance or restructure the Series B preferred shares including extending the maturity of the Series B preferred shares beyond the current optional conversion date.
These financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
COMPREHENSIVE LOSS
Comprehensive income (loss) reflects the change in equity during the year except those resulting from investments by and distributions to stockholders and is comprised of all components of net loss and foreign currency translation adjustments.
FOREIGN CURRENCIES
The Company’s reporting currency is the U.S. dollar.
The U.S. dollar is the currency of the primary economic environment in which it operates and is generally the currency in which the Company’s business generates and expends cash. Subsidiaries with different functional currencies, translate their assets and liabilities into U.S. dollars at the exchange rates in effect as of the balance sheet date. Revenues and expenses are translated into U.S. dollars at the average exchange rates for the year. The resulting translation adjustments are included in accumulated other comprehensive income (loss), a separate component of equity (deficit). Foreign exchange gains and losses arise from transactions denominated in currencies other than the functional currency.
Gains and losses on those foreign currency transactions are included in determining net loss for the period in which the exchange rates change.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits of $250,000 for banks located in the U.S. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR EXPECTED CREDIT LOSS
Accounts receivable are stated at contractual amounts, net of an allowance for expected credit losses. The allowance for credit losses represents management’s estimate of the amounts that ultimately will not be realized in cash. The Company reviews the adequacy of the allowance for credit losses on an ongoing basis, using historical payment trends, the age of receivables and knowledge of the individual customers. Estimated credit losses consider relevant information about past events, current conditions and reasonable and supporting forecasts that affect the collectability of financial assets. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value and include spare parts and finished goods. Inventories are primarily determined using specific identification and the first-in, first-out (“FIFO”) cost methods. Cost includes direct cost from the Current Manufacturer (“CM”) or Original Equipment Manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to several quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer preferences, market and economic conditions.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated life of the asset. Repairs and maintenance are charged to expense as incurred.
LONG–LIVED ASSETS
Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of carrying amount or fair value less cost to sell. There was no impairment recognized for 2023 and 2022.
GOODWILL
Goodwill represents the cost in excess of the fair value of the net tangible and intangible assets of acquired businesses, and represents implied synergies expected of the completed business combinations. Most goodwill is not amortized and is not deductible for tax purposes.
Under Topic 350, Intangibles—Goodwill and Other, the Company has an option to perform a “qualitative” assessment to determine whether quantitative impairment testing is necessary. If, as a result of a qualitative assessment, it is more-likely-than-not that the fair value of the business is less than carrying amount, quantitative impairment testing is required. Otherwise, no further testing is necessary. If the Company performs a qualitative assessment, the Company
considers the following criteria: macroeconomic conditions, industry and market conditions, overall financial performance and other entity specific events. In addition, the Company assesses whether the most recent fair value determination resulted in an amount that significantly exceeded the carrying amount of the Company. Based on these assessments, the Company determines whether the likelihood that a current fair value determination would be less than the current carrying amount is not more likely than not.
Because the qualitative assessment is an option, the Company may bypass it for any reporting unit in any period and begin the analysis using a quantitative impairment test. The Company may also elect to perform a quantitative impairment test based on the period of time that has passed since the most recent determination of fair value, even when the Company does not believe that it is more-likely-than-not that the fair value of the business is less than carrying amount.
In analyzing goodwill for potential impairment in the quantitative impairment test, the Company uses a combination of the income and market approaches to estimate the fair value. Under the income approach, the Company calculates the fair value based on estimated future discounted cash flows. The assumptions used are based on what the Company believes a hypothetical marketplace participant would use in estimating fair value. Under the market approach, the Company estimates the fair value based on market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies. If the fair value exceeds carrying value, then no further testing is required. However, if the fair value were to be less than carrying value, the Company would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the goodwill exceeded its implied value.
As of June 30, 2023, we determined that a triggering event had occurred as a result of our market capitalization that suggested one or more of the reporting units may have fallen below the carrying amounts. In addition, changes in our reporting segments resulted in a change in the composition of our reporting units. As a result of these changes, we determined the Company had two reporting units for purposes of testing based upon entities that comprise the Americas and EMEA reporting segments. For purposes of impairment testing, we allocated goodwill to the reporting units based upon a relative fair value allocation approach and assigned approximately $22.4 million and $2.8 million of goodwill to the Americas and EMEA reporting units, respectively.
As of June 30, 2023, we performed an interim goodwill impairment test as a result of the triggering events identified. Based on the results of our interim test as of June 30, 2023, we concluded that the estimated fair value of each reporting unit exceeded the respective carrying value and, as such, we concluded that the goodwill assigned to each reporting unit, as of June 30, 2023, was not impaired.
As of September 30, 2023, due to further declines in the Company’s market capitalization and a reduction in cash-flows resulting from continued softening in the industry leading to a reduction in sales from interactive flat-panel displays, the Company determined that a triggering event had occurred.
As of September 30, 2023, the Company performed an interim goodwill impairment test as a result of the triggering event identified. Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were revised based on current industry and Company trends. As of September 30, 2023, the Company recorded goodwill impairment charges of $10.4 million and $2.8 million to the Americas and EMEA reporting units, respectively.
As of December 31, 2023, the Company performed goodwill impairment testing as a result of another triggering event identified. Based upon that testing, the Company determined the remaining goodwill was fully impaired and the Company recognized goodwill impairment charges for the year ended December 31, 2023 of $22.4 million and $2.8 million in the Americas and EMEA reporting units, respectively.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over their estimated period of benefit and presented net of accumulated amortization. The Company reviews the carrying amounts of intangible assets for impairment whenever an event or change in circumstances indicates that the carrying amount of the assets may not be recoverable. The Company measures the recoverability of intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows the Company expects the asset to generate. Impairment is measured by the amount in which the carrying value of the asset exceeds its fair value. In addition, the Company periodically evaluates the estimated remaining useful lives of
long-lived intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.
During the year ended December 31, 2023, the Company performed impairment testing for intangibles assets for the quarters ended September 30, 2023 and December 31, 2023 as a result of triggering events identified, including the impairment of goodwill balances. The Company has not recognized impairment on intangible assets as of December 31, 2023.
DERIVATIVE TREATMENT OF STOCK PURCHASE WARRANTS
The Company classifies common stock purchase warrants as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company. Such warrants are measured at fair value at each reporting date, and the changes in fair value are included in determining net loss for the period. See Note 10 “Derivative Liabilities” for more information.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts receivable and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value.
The Company has determined that the estimated fair value of debt is approximately $44.4 million when the carrying value, excluding discounts, premiums and issuance costs, of approximately $43.2 million. The fair value of debt was estimated using market rates the Company believes would be available for similar types of financial instruments and represents a Level 2 measurement.
Derivative liabilities are recorded at fair value on a recurring basis.
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. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include 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 (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
There were no transfers into or out of Level 3 measurements in 2023 and 2022.
The following tables set forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Markets for
Identical
Assets
(Level 1) | | Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Carrying
Value as of
December 31,
2023 |
| Derivative liabilities - warrant instruments | | — | | | — | | | 205 | | | $ | 205 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Markets for
Identical
Assets
(Level 1) | | Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Carrying
Value as of
December 31,
2022 |
| Derivative liabilities - warrant instruments | | $ | — | | | $ | — | | | $ | 472 | | | $ | 472 | |
See Note 10 for discussion of the valuation techniques and inputs and reconciliation of the opening and closing balances of the fair value of warrants.
NET LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during the period. For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting and warrants to purchase common stock were considered to be common stock equivalents. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. The dilutive effect of convertible instruments is determined using the if-converted method, presuming share settlement. Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted calculation for the entire period being presented. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
For the year ended December 31, 2023, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 0.3 million shares from options to purchase common shares, 0.4 million of unvested restricted shares, and 1.4 million shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of 2.2 million shares from the assumed conversion of preferred stock are excluded from the denominator because they would be anti-dilutive. For the year ended December 31, 2022, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 0.5 million shares from options to purchase common shares, unvested restricted shares of 0.3 million and 1.3 million shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of 2.2 million shares from the assumed conversion of preferred stock are excluded from the denominator because they would be anti-dilutive.
REVENUE RECOGNITION
In accordance with Topic 606 Revenue from Contracts with Customers, the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of interactive panels, audio and communication equipment and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.
Nature of Products and Services and Related Contractual Provisions
The Company’s sales of interactive devices, including panels, audio and communication equipment and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. Interactive devices are generally sold with hardware maintenance services with terms of
approximately 36-60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive panels are also sold with hardware maintenance services with terms of approximately 60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content, and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s product sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers, and therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For many of the Company’s software product sales, control is transferred when shipped at the point of origin since the software is installed on the interactive hardware device in advance of shipping. For other software product sales, control is transferred when the customer receives the related access code or interactive hardware since the customer’s access code or connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.
The Company’s installation, training and professional development services are generally sold separately from the Company’s products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is performed.
For the sale of third-party products and services where the Company obtains control of the products and services before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product or service. The Company has not historically entered into transactions where it does not take control of the product or service prior to transfer to the customer.
The Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Significant Judgments
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. Because observable prices are generally not available for the Company’s performance obligations that are sold in bundled arrangements, the Company does not apply the residual approach to determining SSP.
The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that are executed in the same manner, contain the same performance obligations, and are priced in a consistent
manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets. Fees for the Company’s product and most service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional development services are fixed and generally become due as the services are performed. The Company has an established history of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In these contracts where services are expected to be transferred on an ongoing basis for several years after the related payment, the Company has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues to use the related services, so that the customer will receive the optimal benefit from the products over their lives. Additionally, the Company has elected the practical expedient to exclude any financing component from consideration for contracts where, at contract inception, the period between the transfer of services and the timing of the related payment is not expected to exceed one year.
The Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional right to consideration is reflected in accounts receivable in the accompanying consolidated balance sheets in accordance with Topic 606. Contract liabilities are reflected in deferred revenue in the accompanying consolidated balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance, hardware maintenance, and subscription services. The Company has no material contract assets at December 31, 2023 or 2022. During the years ended December 31, 2023 and 2022, the Company recognized $7.9 million and $7.5 million, respectively, of revenue that was included in the deferred revenue balance as of December 31, 2022 and 2021, respectively.
Variable Consideration
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, price protection provisions, or in connection with certain other rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case-by-case basis, will grant exceptions, mostly “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering, or determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. The Company provides rebates to certain customers based on the achievement of certain sales targets. The provision for rebates is estimated based on customers’ contracted rebate programs and our historical experience of rebates paid. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the most likely method based on historical experience and are measured at each reporting date. There was no material revenue recognized in 2023 related to changes in estimated variable consideration that existed at December 31, 2022.
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of December 31, 2023 and 2022, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was $25.0 million and $23.9 million, respectively. The Company expects to recognize revenue on approximately 34% of the
remaining performance obligations in 2024, 28% in 2025, 21% in 2026, 12% in 2027, with the remainder recognized thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contract). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.
Disaggregated Revenue
The Company disaggregates revenue based upon the nature of its products and services and the timing and in the manner which it is transferred to the customer. Although all products are transferred to the customer at a point in time, hardware and some software is pre-installed on the interactive device are transferred at the point of shipment, while some software is transferred to the customer at the time the hardware is received by the customer or when software product access codes are delivered electronically to the customer. All service revenue is transferred over time to the customer; however, professional services are generally transferred to the customer within a year from the contract date as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred 3- 5 years from the contract execution date as measured based upon the passage of time.
| | | | | | | | | | | |
| Year Ended
December 31,
(in thousands) |
| 2023 | | 2022 |
| Product revenues: | | | |
| Hardware | $ | 163,948 | | | $ | 206,770 | |
| Software and embedded firmware | 2,402 | | | 4,306 | |
| Service revenues: | | | |
| Professional services | 1,480 | | | 1,458 | |
| Maintenance and subscription services | 8,891 | | | 9,247 | |
| $ | 176,721 | | | $ | 221,781 | |
Contract Costs
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g., a sales commission). The Company capitalizes the costs incurred to fulfil a contract only if those costs meet all the following criteria:
•The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.
•The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
•The costs are expected to be recovered.
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain where the period of amortization would have been recognized over a period that is one year or less, the Company elected the practical expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets based on the timing of when the Company expects to recognize the expense and are included in prepaid and other assets and other assets, respectively, in the accompanying consolidated balance sheets. Total deferred commissions at December 31, 2023 and 2022 and the related amortization for 2023 and 2022 were less than $550,000.
The Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
SEGMENT REPORTING
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer.
Effective January 1, 2023, the Company changed its segment reporting to align with the geographic markets in which it operates, as further discussed in Note 17 - Segments. The Company previously managed the Company as one operating segment. Following the integration of recent acquisitions which further expanded the Company’s operations into Europe, Middle East and Africa (“EMEA”) and other international markets, the Company’s operations are now organized, managed and classified into three reportable segments – EMEA, North and Central America (the “Americas”) and all other geographic regions (“Rest of World”). Our EMEA segment consists of the operations of Sahara Holding Limited and its subsidiaries (the “Sahara Entities”). Our Americas segment consists primarily of Boxlight, Inc. and its subsidiaries and the Rest of World segment consists primarily of Boxlight Australia, PTY LTD ("Boxlight Australia”).
Each of our operating segments are primarily engaged in the sale of education technology products and services in the education market but which are also sold into the health, government and corporate sectors and derive a majority of their revenues from the sale of flat-panel displays, audio and other hardware accessory products, software solutions and professional services. Generally, our displays produce higher net operating revenues but lower gross profit margins than our accessory solutions and professional services. The Americas operating segment includes salaries and overhead for corporate functions that are not allocated to the Company’s individual reporting segments. Transfers between segments are generally valued at market and are eliminated in consolidation.
WARRANTY RESERVE
For customers that do not purchase hardware maintenance services, the Company generally provides warranty coverage on panels and accessories, batteries and computers. This warranty coverage ranges from 2-5 years, and the Company establishes a liability for estimated product warranty costs, included in other short-term liabilities in the consolidated balance sheets, at the time the related product revenue is recognized. The warranty obligation is affected by historical product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred and consist primarily of personnel related costs, prototype and sample costs, design costs, and global product certifications mostly for wireless certifications.
INCOME TAX
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
STOCK COMPENSATION
The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model; the fair value for each restricted stock unit award is the market price of the underlying shares at the date of grant. The fair value determined represents the cost for the award and is recognized on a straight-line basis over the vesting period during which an employee is required to provide service in exchange for the award. Total expense is reduced by the previously recognized compensation expense for options and restricted stock units that are forfeited prior to vesting when the forfeiture occurs.
LEASES
Operating lease assets and liabilities are reflected within operating lease assets, operating lease liabilities, current, and operating lease liabilities, non-current, on the consolidated balance sheets. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is at our sole discretion. The Company does not consider the exercise of any lease renewal options reasonably certain to occur. Certain of our lease agreements contain early termination options. No renewal options or early termination options have been included in the calculation of the operating right-of-use assets or operating lease liabilities. Certain of our lease agreements provide for periodic adjustments to rental payments for inflation, which is recognized as variable lease cost when they occur. As the majority of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental borrowing rate is based on the terms of the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over the lease term. The Company is not a lessor in any lease agreement.
RECLASSIFICATIONS
The Company reclassified certain 2022 amounts in the footnotes to the consolidated financial statements to conform to the 2023 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”). The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income. Estimated credit losses under CECL consider relevant information about past events, current conditions and reasonable and supporting forecasts that affect the collectability of financial assets. The new guidance was effective January 1, 2023 and was applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of January 1, 2023. Prior period comparative information has not been recast and continues to be reported under the accounting guidance in effect for those periods. The Company recognized a cumulative-effect adjustment to reduce retained earnings by $76 thousand, net of taxes. The change in the allowance for credit losses was not significant during the year ended December 31, 2023.
Recent Accounting Pronouncements not yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280. The enhanced disclosure requirements include: title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances. This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. This change will apply retrospectively to all periods presented. The Company is currently evaluating the impact of this ItemASU on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is attached heretoeffective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements.
NOTE 2 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| Accounts receivable – trade | $ | 33,089 | | | $ | 33,198 | |
| Allowance for credit losses | (421) | | | (414) | |
| Allowance for sales returns and volume rebates | (3,145) | | | (1,775) | |
| Accounts receivable - trade, net of allowances | $ | 29,523 | | | $ | 31,009 | |
Write-offs of accounts receivable were approximately $78,000 and $243,000 for the years ended December 31, 2023 and 2022, respectively.
NOTE 3 – INVENTORIES
Inventories consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| Finished goods | $ | 45,461 | | | $ | 57,967 | |
| Spare parts | 1,221 | | | 775 | |
| Reserve for inventory obsolescence | (2,551) | | | (531) | |
| | | |
| Inventories, net | $ | 44,131 | | | $ | 58,211 | |
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| Prepayments to vendors | $ | 3,176 | | | $ | 4,131 | |
| Prepaid licenses and other | 6,295 | | | 3,302 | |
| Prepaid expenses and other current assets | $ | 9,471 | | | $ | 7,433 | |
Prepaid expenses and other current assets as of December 31, 2023 and 2022 are net of reserves related to vendor receivables of $1.4 million and $0.8 million, respectively.
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| Building | $ | 200 | | | $ | 200 | |
| Building improvements | 14 | | | 14 | |
| Leasehold improvements | 544 | | | 450 | |
| Office equipment | 1,242 | | | 1,057 | |
| Software | 88 | | | 88 | |
| Other equipment | 705 | | | 678 | |
| Construction in progress | 1,029 | | | 14 | |
| | | |
| Property and equipment, at cost | 3,822 | | | 2,501 | |
| Accumulated depreciation | (1,345) | | | (768) | |
| | | |
| Property and equipment, net of accumulated depreciation | $ | 2,477 | | | $ | 1,733 | |
For the years ended December 31, 2023 and 2022, the Company recorded depreciation expense of $631,000 and $484,000, respectively.
NOTE 6 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Useful lives | | 2023 | | 2022 |
| INTANGIBLE ASSETS | | | | | |
| Patents | 4-10 years | | $ | 182 | | | $ | 182 | |
| Customer relationships | 8-15 years | | 52,588 | | | 52,736 | |
| Technology | 3-5 years | | 8,944 | | | 8,943 | |
| Domain | 7 years | | 14 | | | 14 | |
| Non-compete | 3 years | | 391 | | | 391 | |
| Tradenames | 2-10 years | | 12,723 | | | 12,769 | |
| Intangible assets, at cost | | | 74,842 | | | 75,035 | |
| Accumulated amortization | | | (28,878) | | | (22,456) | |
| Intangible assets, net of accumulated amortization | | | $ | 45,964 | | | $ | 52,579 | |
| | | | | |
| GOODWILL | | | | | |
| Beginning Balance | | | $ | 25,092 | | | $ | 26,037 | |
| | | | | |
| Change due to foreign currency translation | | | 103 | | | (945) | |
| Impairment | | | (25,195) | | | — | |
| Ending Balance | | | $ | — | | | $ | 25,092 | |
The Company’s goodwill had an indefinite useful life and was tested for impairment annually. For the years ended December 31, 2023 and 2022, the Company recorded amortization expense of $8.3 million and $8.6 million, respectively. Changes to gross carrying amount of recognized intangible assets due to translation adjustments were approximately ($0.1) million and ($3.1) million as of December 31, 2023 and 2022, respectively.
Expected future amortization expense for intangible assets as of December 31, 2023 is as follows (in thousands):
| | | | | |
| 2024 | $ | 7,570 | |
| 2025 | 7,398 | |
| 2026 | 7,045 | |
| 2027 | 6,630 | |
| 2028 | 6,571 | |
| Thereafter | 10,750 | |
| |
| Total | $ | 45,964 | |
NOTE 7 – LEASES
The Company has entered into various operating leases for certain offices, support locations and vehicles with terms extending through December 2038. Generally, these leases have initial lease terms of five years or less.
Operating lease expense was $2.6 million and $2.1 million for the years ended December 31, 2023 and 2022, respectively. Variable lease costs and short-term lease cost were $1.7 million for the year ended December 31, 2023. For the year ended December 31, 2022, variable lease cost and short-term lease cost were immaterial. Cash paid for amounts included in the measurement of lease liabilities was $2.2 million and $2.4 million for the years ended December 31, 2023 and 2022, respectively.
Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to December 31, 2023 are as follows:
| | | | | | | | |
| Year ending December 31, | | (in thousands) |
| 2024 | | $ | 1,949 | |
| 2025 | | 2,070 | |
| 2026 | | 1,640 | |
| 2027 | | 1,089 | |
| 2028 | | 831 | |
| Thereafter | | 6,700 | |
| Total Lease Liabilities | | 14,279 | |
| Less: Imputed Interest | | (5,170) | |
| Present Value of Lease Liabilities | | $ | 9,109 | |
During the year ended December 31, 2023, the weighted-average remaining lease term was 9.9 years, and the weighted-average discount rate was 10.8%. During the year ended December 31, 2022, the weighted-average remaining lease term was 3.2 years, and the weighted-average discount rate was 15.5%.
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable consisted of the following at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Accounts payable | $ | 27,448 | | | $ | 30,719 | |
| Accrued expense | 5,106 | | | 5,306 | |
| Other | 345 | | | 541 | |
| Accounts payable and other liabilities | $ | 32,899 | | | $ | 36,566 | |
NOTE 9 – DEBT
The following comprises debt at December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Debt – Third Parties | | | |
| Paycheck Protection Program | $ | 72 | | | $ | 127 | |
| Note payable - Whitehawk | 43,206 | | | 49,906 | |
| Total debt | 43,278 | | | 50,033 | |
| Less: Premium, discount and issuance costs | 3,107 | | | 5,410 | |
| Current portion of debt | 1,037 | | | 845 | |
| Long-term debt | $ | 39,134 | | | $ | 43,778 | |
| Total debt (net of premium, discount and issuance costs) | $ | 40,171 | | | $ | 44,623 | |
Debt - Third Parties:
WhiteHawk Finance LLC
In order to finance the acquisition of FrontRow Calypso LLC (“FrontRow”), which closed on December 31, 2021, the Company and substantially all of its direct and indirect subsidiaries, including Boxlight and FrontRow as guarantors, entered into a maximum $68.5 million term loan credit facility, dated December 31, 2021 (the “Credit Agreement”), with Whitehawk Finance LLC, as lender (the “Lender”), and White Hawk Capital Partners, LP, as collateral agent (“Whitehawk” or the “Collateral Agent”). The Company received an initial term loan of $58.5 million on December 31, 2021 (the “Initial Loan”) and was provided with a subsequent delayed draw facility of up to $10.0 million that may be available for additional working capital purposes under certain conditions (the “Delayed Draw”). The Initial Loan and Delayed Draw are collectively referred to as the “Term Loans.” The Term Loans are secured by substantially all of the assets of the Company. The proceeds of the Initial Loan were used to finance the Company’s acquisition of FrontRow, pay off all indebtedness owed to the Company’s then existing lenders, Sallyport Commercial Finance, LLC and Lind Global Asset Management, LLC, pay related fees and transaction costs, and provide working capital. Of the Initial Loan, $8.5 million was subject to repayment on February 28, 2022, with quarterly principal payments of $625,000 and interest payments commencing March 31, 2022 and the $40.0 million remaining balance plus any Delayed Draw loans becoming due and payable in full on December 31, 2025. The Term Loans bear interest at the LIBOR rate plus 10.75%; provided that after March 31, 2022, if the Company’s Senior Leverage Ratio (as defined in the Credit Agreement) is less than 2.25, the interest rate would be reduced to LIBOR plus 10.25%. Such terms are subject to the Company maintaining a borrowing base in compliance with the Credit Agreement. In the event of non-compliance with the borrowing base, the Company would be subject to an increased interest rate as stated in the Credit Agreement.
On April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023. The principal elements of the April amendment included (a) an extension of time to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3.5 million in over advances until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement. In such connection, the Company and substantially all of its direct and indirect subsidiaries (together with the Company, the "Loan Parties") obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, the accounts of these key customers had been deemed ineligible for inclusion in the borrowing base calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts. In addition, the Lender and Collateral Agent agreed to (i) reduce, through September 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to Libor plus+ 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default under the Credit Agreement. Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of excess cash flow or casualty events.
On June 21, 2022, the Loan Parties entered into a second amendment (the “Second Amendment”) to the Credit Agreement with the Collateral Agent and Lender. The Second Amendment to the Credit Agreement was entered into for
purposes of the Lender funding a $2.5 million delayed draw term loan and adjusting certain terms to the Credit Agreement, including adjusting the Applicable Margin (as defined in the Second Amendment) to 13.25% for LIBOR Rate Loans and 12.25% for Reference Rate Loans, increasing the definition of change of control from 33% voting power to 40% voting power, requiring the Company to engage a financial advisor, and allowing additional time, until July 15, 2022, for the Company to come into compliance with certain borrowing base requirements set forth in the Second Amendment to the Credit Agreement, among other adjustments.
On April 24, 2023, the Company entered into a third amendment (the “Third Amendment”) to the Credit Agreement, with the Collateral Agent and the Lender. The Third Amendment was entered into for purposes of the Lender funding an additional $3.0 million delayed draw term loan (the “Additional Draw”). The Additional Draw was funded on April 24, 2023, and must be repaid on or prior to September 29, 2023, is not subject to any prepayment penalties, and adjusts certain terms to the Credit Agreement, including adjusting the test period end dates and corresponding Senior Leverage Ratios (as defined in the Credit Amendment) and revising the minimum liquidity requirements that the Company must maintain compliance with pertaining to certain Borrowing Base Requirements, among other adjustments. The completion of the additional draw eliminates further delayed draws under the term loan agreement. On July 20, 2023, the Company paid the $3.0 million due under the terms of the Third Amendment. There were no prepayment penalties or premiums included with this payment.
On June 26, 2023, the Company entered into a fourth amendment (the “Fourth Amendment”) with the Collateral Agent and the Lender for the sole purpose of replacing LIBOR-based rates with a SOFR-based rate. Following the Fourth Amendment, the Company’s interest rate is calculated as the Daily Simple SOFR, subject to a floor of 1%, plus the SOFR Term Adjustment and Applicable Margin, as defined in the Credit Agreement, as amended. As of December 31, 2023, the rate was 16.4%. The Fourth Amendment made no other changes to the Credit Agreement.
Covenant Compliance and Liquidity Considerations
The Company's Credit Agreement, as amended to date, requires compliance with certain monthly covenants, which include provisions regarding over advance limitations based upon a borrowing base. In the second quarter of 2023, as part of obtaining an appropriate waiver, the Company agreed to engage a financial advisor and to use commercial reasonable efforts to refinance the Credit Agreement with an alternative lender and repay the Credit Facility by September 30, 2023, or as soon thereafter as practical. The waiver did not amend the maturity date of the Credit Agreement. Upon repayment, the Company will be subject to a prepayment premium that is higher than the prepayment premium included in the original Credit Agreement, as defined in the waiver.
The Company has either implemented or initiated appropriate plans regarding refinancing procedures that are within management’s control to comply with the waiver requirements. The financial statements do not include any adjustments that might result from the outcome of the Company’s ability to refinance and repay the credit facility.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at September 30, 2023. The Company cured the non-compliance by paying $4.3 million inclusive of $0.3 million in prepayment penalties and accrued interest in November 2023 which would have resulted in the Company being in compliance with the Senior Leverage Ratio at September 30, 2023.
In February 2024, the Company paid $1.7 million, inclusive of a $0.1 million pre-payment penalty to Whitehawk to maintain compliance with the borrowing base covenant calculation as of January 31, 2024. After the payment the Company was in compliance with the borrowing base covenant.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at December 31, 2023. The non-compliance was cured by a waiver applied in accordance with the Fifth Amendment to the Credit Agreement dated March 14, 2024 which waived any Event of Default that may have arisen directly as a result of the financial covenant default at December 31, 2023 and in the interim two-month period ended February 29, 2024. The Fifth Amendment also amended and restated the Senior Leverage Ratio and Minimum Liquidity requirements. Under the Fifth Amendment, the Senior Leverage Ratio requirement at March 31, 2024 was amended from 2.00 to 6.00, at June 30, 2024 will remain at 2.00 and thereafter will remain at 1.75.
Issuance Cost and Warrants
In conjunction with its receipt of the Initial Loan, the Company issued to the Lender (i) 66,022 shares of Class A common stock (the “Shares”), which Shares were registered pursuant to its existing shelf registration statement and were delivered to the Lender in January 2022, (ii) a warrant to purchase 255,411 shares of Class A common stock (subject to increase to the extent that 3% of any Series B and Series C convertible preferred stock converted into Class A common stock), exercisable at $16.00 per share (the “Warrant”), which Warrant was subject to repricing on March 31, 2022 based on the arithmetic volume weighted average prices for the 30 trading days prior to September 30, 2022, in the event the Company’s stock is then trading below $16.00 per share, (iii) a 3% fee of $1,800,000, and (iv) a $500,000 original issue discount. In addition, the Company agreed to register for resale the shares issuable upon exercise of the Warrant. The Company also incurred agency fees, legal fees, and other costs in connection with the execution of the Credit Agreement totaling approximately $1.7 million. Under the terms of the warrant issued to Whitehawk on December 31, 2021, the exercise price of the warrants would reprice if the stock price on March 31, 2022 was less than the original exercise price, at which time the number of warrants would also be increased proportionately, so that after such adjustment the aggregate exercise price payable for the increased number of warrant shares would be the same as the aggregate exercise price previously in effect. The warrants repriced on March 31, 2022 to $9.52 per share and the shares increased to 429,263.
On July 22, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited institutional investor. According to the terms of the Credit Agreement, as amended, the Purchase Agreement triggered a reduction of the exercise price of the warrants and a revaluation of the derivative liability. The Whitehawk warrants were repriced to $8.80, and shares increased to 464,385.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of $1.1 million under the Paycheck Protection Program. During 2021, the Company applied for forgiveness in the amount of $836 thousand. On March 2, 2022, the Company received a decision letter from the lender that the forgiveness application had been approved, leaving a remaining balance of $173 thousand to be paid. The Company received a payment schedule from the lender on May 5, 2022, extending the payoff date until May 2025 and bears 1% interest.
Debt Maturity
Principal repayments to be made during the next five years on the Company’s outstanding debt facilities at December 31, 2023 are as follows (in thousands):
| | | | | |
| 2024 | $ | 2,831 | |
| 2025 | 40,447 | |
| 2026 | — | |
| 2027 | — | |
| 2028 | — | |
| Total | $ | 43,278 | |
NOTE 10 – DERIVATIVE LIABILITIES
The Company engaged a third-party specialist to determine the fair value of the derivative liabilities using a Monte Carlo Simulation model. There were no changes to the valuation techniques and the key assumptions used are as follows:
| | | | | |
| December 31, 2023 |
| Common stock issuable upon exercise of warrants | 464,385 |
| Market value of common stock on measurement date | $ | 1.07 | |
| Exercise price | $ | 8.80 | |
| Risk free interest rate (1) | 3.93 | % |
| Expected life in years | 3 |
| Expected volatility (2) | 114.0 | % |
| Expected dividend yields (3) | — | % |
| | | | | |
| December 31, 2022 |
| Common stock issuable upon exercise of warrants | 464,385 |
| Market value of common stock on measurement date | $ | 2.48 | |
| Exercise price | $ | 8.80 | |
| Risk free interest rate (1) | 4.02 | % |
| Expected life in years | 4 years |
| Expected volatility (2) | 83.6 | % |
| Expected dividend yields (3) | — | % |
(1)The risk-free interest rate was determined using the applicable Treasury Bill as of the measurement date.
(2)The historical trading volatility for 2023 and 2022 was based on historical fluctuations in stock price for Boxlight and certain peer companies.
(3)The Company does not expect to pay a dividend in the foreseeable future.
The following table shows the change in the Company’s derivative liabilities for the years ended December 31, 2023 and 2022:
| | | | | |
| Amount
(in thousands) |
| Balance, December 31, 2022 | $ | 472 | |
| Exercise of warrants | — | |
| Issuance of warrants | — | |
| Change in fair value of derivative liabilities | (267) | |
| Balance, December 31, 2023 | $ | 205 | |
| | | | | |
| Amount
(in thousands) |
| Balance, December 31, 2021 | $ | 3,064 | |
| Exercise of warrants | (1) | |
| Issuance of warrants | — | |
| Change in fair value of derivative liabilities | (2,591) | |
| Balance, December 31, 2022 | $ | 472 | |
The change in fair value of derivative liabilities includes losses from exercise price modifications.
NOTE 11 – INCOME TAX
Pretax income (loss) resulting from domestic and foreign operations is as follows (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| United States | $ | (30,393) | | | $ | (2,569) | |
| Foreign | (11,779) | | | (2,707) | |
| Other Foreign Jurisdictions | 4,882 | | | 1,582 | |
| Total pretax book loss | $ | (37,290) | | | $ | (3,694) | |
The components of income tax expense at December 31, 2023 and December 31, 2022, are as follows (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Current: | | | |
| Federal | $ | 855 | | | $ | 1,491 | |
| State | 93 | | | 138 | |
| Foreign | 1,589 | | | 1,399 | |
| Total Current | $ | 2,537 | | | $ | 3,028 | |
| | | |
| Deferred: | | | |
| Federal | $ | 81 | | | $ | (85) | |
| State | — | | | — | |
| Foreign | (752) | | | (2,894) | |
| Total Deferred | $ | (671) | | | $ | (2,979) | |
| | | |
| Total | $ | 1,866 | | | $ | 49 | |
The reconciliation of the provision for income taxes at the United States Federal statutory rate compared to the Company’s income tax expense (benefit) as reported is as follows (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Loss before income taxes | $ | (37,290) | | | $ | (3,694) | |
| | | |
| Income tax benefit computed at the statutory rate | (7,831) | | | (776) | |
| State income taxes-net of federal tax benefit | 74 | | | 73 | |
| Foreign tax rate differential | (273) | | | (19) | |
| | | |
| Section 162(m) compensation | 61 | | | 61 | |
| Foreign currency adjustment | (90) | | | — | |
| GILTI inclusion | 693 | | | 160 | |
| Meals | 75 | | | 39 | |
| Stock compensation | 141 | | | 83 | |
| Amortization | 4,845 | | | 11 | |
| Tax credits and government assistance | (623) | | | (179) | |
| Non-deductible expenses | 28 | | | 186 | |
| Other permanent differences | (270) | | | — | |
| Adjustments to prior periods – temporary differences | 1,000 | | | 197 | |
| Rate changes and differentials | (53) | | | (651) | |
| Change in valuation allowance | 4,089 | | | 864 | |
| | | |
| Income tax expense | $ | 1,866 | | | $ | 49 | |
Tax effects of temporary differences at December 31, 2023 and December 31, 2022 are as follows (in thousands):
| | | | | | | | | | | |
| Deferred tax assets: | 2023 | | 2022 |
| Fixed assets | $ | 15 | | | $ | — | |
| Allowance for bad debts | 926 | | | 507 | |
| Inventory | 432 | | | 294 | |
| R&D amortization | 1,172 | | | 413 | |
| | | |
| Deferred revenue | 6,143 | | | 5,600 | |
| Stock compensation | 291 | | | 1,209 | |
| Right of use liability | 501 | | | 1 | |
| Other | — | | | 203 | |
| Interest expense limitation | 6,051 | | | 3,751 | |
| Net operating loss carry-forwards | 6,635 | | | 7,282 | |
| | | |
| Deferred tax assets | $ | 22,166 | | | $ | 19,260 | |
| Valuation allowance | (18,173) | | | (14,084) | |
| Deferred tax assets, net | $ | 3,993 | | | $ | 5,176 | |
| | | |
| Deferred tax liabilities: | 2023 | | 2022 |
| Fixed assets | $ | — | | | $ | (24) | |
| Intangible assets | (6,671) | | | (8,603) | |
| Accrued expenses | (982) | | | (752) | |
| Prepaid expenses | (48) | | | (169) | |
| Right of use asset | (492) | | | — | |
| Other | (116) | | | (308) | |
| Deferred tax liabilities | $ | (8,309) | | | $ | (9,856) | |
| | | |
| Deferred tax liabilities, net | $ | (4,316) | | | $ | (4,680) | |
The Company operates in the United States, United Kingdom and other jurisdictions. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned. The cumulative U.S. Federal net operating losses carryforward on tax basis income was approximately $20.4 million and $23.5 million at December 31, 2023 and 2022, respectively, of which $10.6 million will expire between December 31, 2029 and December 31, 2037 and $9.8 million will carryforward indefinitely. The cumulative U.S. state net operating losses carryforward was approximately $41.7 million and $45.8 million at December 31, 2023 and 2022, respectively. The cumulative foreign net operating losses carryforward was $2.1 million and $1.8 million at December 31, 2023 and 2022, respectively.
The legacy Boxlight entities are in a net deferred tax asset position in the United States, the United Kingdom, and other jurisdictions are primarily driven by the aforementioned net operating losses. The recoverability of these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction to which the carryforward applies. It also depends on specific tax provisions in each jurisdiction that could impact utilization. For example, in the United States, a change in ownership, under section 382 as defined by federal income tax regulations, could significantly limit the Company's ability to utilize our U.S. net operating loss carryforwards. The Company has evaluated both positive and negative evidence as to the ability of its legacy entities in each jurisdiction to generate future taxable income. Based on its long history of cumulative losses in those jurisdictions, it believes it is appropriate to maintain a full valuation allowance on the net deferred tax asset of its legacy Boxlight entities at December 31, 2023 and 2022. The change in its valuation allowance during 2023 is approximately $4.1 million.
The Company has determined that it likely underwent IRC Sec 382 ownership changes in prior years. The Company is in the process of evaluating the Section 382 impact to determine what portion of its NOLs will be utilizable in the future. It is expected that the ownership change caused a limitation on the net operating losses generated before 2020.
Additionally, because U.S. tax laws limit the time during which the net operating losses generated prior to 2018 may be applied against future taxes, if the Company fails to generate U.S. taxable income prior to the expiration dates the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes.
The Sahara entities have recorded a net deferred tax liability, which is primarily driven by the net deferred tax liability on the intangibles for which it does not have tax basis. The Company does not qualify for any consolidated filing positions in any of these countries, so there is no ability to net the deferred tax liabilities of the Sahara companies against the deferred tax assets of the legacy Boxlight companies. Therefore, the net deferred tax liability of $4.3 million at December 31, 2023 is primarily based on the Sahara acquired entities.
The tax years from 2009 to 2023 remain open to examination in the U.S. federal jurisdictions. The tax years from 2022 to 2023 remain open to examination in the U.K. Statues of limitations vary in other immaterial jurisdictions. The company has not identified any material uncertain tax positions at this time.
Effective January 1, 2022, for U.S. tax purposes research and development costs, including software development costs, are required to be capitalized and will be deductible over five years for costs incurred domestically and over fifteen years for costs incurred in a foreign country. Additionally, the first year of amortization requires that amortization begin with the midpoint of the taxable year. As of December 31, 2023, the Company has recorded a deferred tax asset of $1.2 million related to capitalized research and development costs.
NOTE 12 – EQUITY
Preferred Shares
The Company’s articles of incorporation, as amended provide that the Company is authorized to issue 50,000,000 shares of preferred stock consisting of: 1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,586,620 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 1,320,850 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) Remaining shares of “blank check” preferred stock as may be designated from time to by the Company’s board of directors. Each authorized series of preferred stock is described below.
Issuance of preferred shares
Series A Preferred Stock
At the time of the Company’s initial public offering, 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital for the acquisition of Genesis. As of December 31, 2023, a total of 167,972 shares of Series A preferred stock remained outstanding which can be converted into 33,461 shares of Class A common stock, at the discretion of the Series A stockholder.
Series B Preferred Stock and Series C Preferred Stock
On September 25, 2020, in connection with the acquisition of Sahara, the Company issued 1,586,620 shares of Series B Preferred Stock and 1,320,850 shares of Series C Preferred Stock. The Series B Preferred Stock has a stated and liquidation value of $10.00 per share and pays a dividend out of the earnings and profits of the Company at the rate of 8% per annum, payable quarterly. The Series B Preferred Stock is convertible into the Company’s Class A common stock at a conversion price of $13.28 which was the closing price of BOXL’s Class A common stock on the Nasdaq stock market on September 25, 2020 (the “Conversion Price”) either (i) at the option of the holder at any time after January 1, 2024 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price). The Series C Preferred Stock has a stated and liquidation value of $10.00 per share and is convertible into the Company’s Class A common stock at the Conversion Price either (i) at the option of the holder at any time after January 1, 2026 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price).
To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of Series B Preferred Stock shall be redeemable at the option of the Holders at any time or from time to time commencing on January 1, 2024, upon thirty (30) days prior written notice to the Holders, for a redemption price, payable in cash, equal to sum of (a) Ten ($10.00) multiplied by the number of shares of Series B Preferred Stock being redeemed (the “Redeemed
Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C Preferred Stock is also subject to redemption on the same terms commencing January 1, 2026. The aggregate estimated fair value of the Series B and C Preferred Stock of $28.5 million was included as part of the total consideration paid for the purchase of Sahara.
The Series B Preferred Stock has been recorded at its estimated fair value on the date of issuance of approximately $16.1 million, which includes the conversion and redemption features as they have not been bifurcated from the host instruments.
The Series C Preferred Stock has been recorded at its estimated fair value on the date of issuance of approximately $12.4 million, which includes the redemption features as they have not been bifurcated from the host instrument.
As the redemption features in the Series B Preferred Stock and Series C Preferred Stock are not solely with the control of the Company, the Company has classified the Series B Preferred Stock and Series C Preferred Stock in temporary equity on the Company’s consolidated balance sheet.
Common Stock
The Company’s common stock consists of 18,750,000 shares of Class A voting common stock and 50,000,000 shares of Class B non-voting common stock. Class A and Class B common stock have the same rights except that Class A common stock is entitled to one vote per share while Class B common stock has no voting rights. Upon any public or private sale or disposition by any holder of Class B common stock, such shares of Class B common stock shall automatically convert into shares of Class A common stock. As of December 31, 2023 and December 31, 2022, the Company had 9,704,496 and 9,339,587 shares of Class A common stock issued and outstanding, respectively. No Class B shares were outstanding at December 31, 2023 and December 31, 2022.
Issuance of common stock
Securities Purchase Agreement
On July 22, 2022, the Company, entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company agreed to issue and sell, in a registered direct offering directly to the Investor, 875,000 shares of the Company’s Class A common stock, par value $0.0001 per share (“Common Stock”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase 44,118 shares of Common Stock at an exercise price of $0.0008 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and warrants to purchase an aggregate of 919,118 shares of Common Stock at an exercise price of $5.44 per share (the “Warrants”, and collectively with the Pre-Funded Warrants and the Shares, the “Securities”). The Securities were sold at a price of $5.44 per share for total gross proceeds to the Company of $5.0 million, before deducting estimated offering expenses, and excluding the exercise of any Warrants or Pre-Funded Warrants. The Pre-Funded Warrants were exercisable immediately and the Warrants will be exercisable six months after the date of issuance and will expire five and a half years from the date of issuance. As such, the net proceeds to the Company from the offering, after deducting placement agent’s fees and estimated expenses payable by the Company and excluding the exercise of any Warrants or Pre-Funded Warrants was $4.6 million of which the proceeds net of issuance costs were allocated based on the relative fair values of the instruments, warrants and prefunded warrants; $2.4 million was allocated to common stock, $2.2 million was allocated to warrants and $118 thousand was allocated to the pre-funded warrants. On August 9, 2022, the Investor exercised the prefunded warrants.
The Company evaluated whether the Warrants, Pre-Funded Warrants and/or Shares were in the scope of ASC Topic 480 “Distinguishing Liabilities from Equity,” which discusses the accounting for instruments with characteristics of both liabilities and equity. The guidance in Topic 480, and the resulting liability classification, is applicable to such instruments when certain criteria are met. Based on its analysis, the Company concluded that the Warrants, Pre-Funded Warrants and Shares did not meet any of the criteria to be subject to liability classification under Topic 480 and are therefore classified as equity.
Credit Facility
In conjunction with its receipt of the WhiteHawk loan, the Company issued to WhiteHawk 66,022 shares of Class A common stock, which were registered pursuant to the Company’s existing shelf registration statement and were delivered to the WhiteHawk in January 2022.
Repurchase Plan
On February 14, 2023, the Board of Directors of Boxlight Corporation approved the Company’s establishment of a share repurchase program (the “Repurchase Program”) authorizing the Company to purchase up to $15.0 million of the Company’s Class A common stock. Pursuant to the Repurchase Program, the Company may, from time to time, repurchase its Class A common stock in the open market, in privately negotiated transactions or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in accordance with applicable securities laws and other restrictions. The timing and total amount of any repurchases made under the Repurchase Program will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on January 26, 2027, may be suspended or discontinued at any time, and does not obligate the Company to acquire any amount of Class A common stock. As of December 31, 2023, the Company has not utilized the Repurchase Program.
NOTE 13 – STOCK COMPENSATION
The Company has issued grants under two equity incentive plans, both of which have been approved by the Company’s shareholders: (i) the 2014 Equity Incentive Plan, as amended (the “2014 Plan”), pursuant to which a total of 798,805 shares of the Company’s Class A common stock have been approved for issuance, and (ii) the 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which a total of 625,000 shares of the Company’s Class A common stock have been approved for issuance. Upon approval of the 2021 Plan in September 2021, any shares remaining available for issuance under the 2014 Plan were cancelled, and all future grants were issued under the 2021 Plan. The 2021 Plan allows for issuance of shares of our Class A common stock, whether through restricted stock, restricted stock units, options, stock appreciation rights or otherwise, to the Company’s officers, directors, employees and consultants. Prior to the second quarter of 2023, the Company had issued 774,904 shares under the 2021 Plan such that the Company was over the authorized share number. The fair value of shares previously issued in excess of the approved shares under the 2021 Plan of approximately $13 thousand was reclassed from liability to equity during the year ended December 31, 2023.
Stock Options
Under our Equity Incentive Plans, an employee may receive an award of stock grants that provides the opportunity in the future to purchase the Company’s shares at the market price of our stock on the date the award is granted (strike price). The options become exercisable over a range of immediately vested to four-year vesting periods and expire five years from the grant date, unless stated differently in the option agreements, if they are not exercised. We record compensation expense based on the estimated fair value of the awards which is amortized as compensation expense on a straight-line basis over the vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are forfeited by employees that leave the Company prior to vesting as they occur.
Following is a summary of the option activities during the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Number of
Units | | Weighted
Average
Exercise Price | | Weighted
Average
Remaining
Contractual
Term (in years) |
| Outstanding, December 31, 2021 | 506,765 | | $ | 15.36 | | | 2.29 |
| Granted | 152,718 | | $ | 8.96 | | | |
| Exercised | (37,105) | | $ | 2.00 | | | |
| Cancelled | (132,893) | | $ | 20.72 | | | |
| Outstanding, December 31, 2022 | 489,485 | | $ | 12.88 | | | 2.17 |
| Granted | 364,299 | | $ | 2.71 | | | |
| Exercised | (12,500) | | $ | 1.04 | | | |
| Cancelled | (493,025) | | $ | 10.05 | | | |
| Outstanding, December 31, 2023 | 348,259 | | $ | 6.65 | | | 2.09 |
| Exercisable, December 31, 2023 | 295,296 | | $ | 6.59 | | | 1.99 |
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. The Company used the following inputs to value options issued and remeasurements, as applicable during the year ending December 31, 2023 using the Black Scholes option valuation method: market value on measurement date of $1.68 to $2.24; exercise price of $2.48 to $3.20; risk free interest rate of 4.19% to 4.22%; expected term, 3 to 4 years; expected volatility, ranging from 111.45% to 111.74% and expected dividend yield of 0%.
As of December 31, 2023 and December 31, 2022, the stock options had an intrinsic value of approximately $0 and $18 thousand, respectively.
During the year ended December 31, 2023, the Company granted 364,299 options of which 322,040 were subsequently cancelled and 42,259 vested during the year. Also, during the year ended December 31, 2023, 59,117 out of the money options were cancelled, with such shares being returned to the 2021 Plan and becoming available for re-issuance in new grants. During the year ended December 31, 2023, approximately 84,179 options expired during the period.
On May 3, 2022, the Boxlight board of directors adopted a resolution, in exchange for a three-year non-compete agreement, to grant Mark Elliott, a member of the board and former CEO of the Company, an extension for one-year, of previously granted stock options to purchase a total of 72,210 shares of Class A common stock, par value $0.001 per share, which had expired on January 12, 2022. The stock price on the remeasurement date was $8.32 and the incremental compensation recognized was approximately $314 thousand.
On June 13, 2022, the Boxlight board of directors granted Greg Wiggins, Chief Financial Officer, stock options for 18,750 shares of the Company’s Class A common stock will vest in equal quarterly installments over a four-year term commencing on July 5, 2022.
On February 14, 2022, with an effective date of January 1, 2022, the Company entered into a letter agreement with Michael Pope, our now former Chairman and Chief Executive Officer, extending Mr. Pope’s term of employment with the Company. Under the terms of the agreement, Mr. Pope received a grant 61,759 options to purchase Class A Common Stock, which are valued at approximately $420 thousand.
Restricted Stock Units
Under our Equity Incentive Plans, the Company may grant restricted stock units (“RSUs”) to certain employees, contractors and non-employee directors. Upon granting the RSUs, the Company records a fixed compensation expense equal to the fair market value of the underlying shares of RSUs granted on a straight-line basis over the requisite services period for the RSUs. Compensation expense related to the RSUs is reduced by the fair value of units that are forfeited by employees that leave the Company prior to vesting as they occur. The restricted stock units vest over a range of immediately vested to four-year vesting periods in accordance with the terms of the applicable RSU grant agreement.
The following is a summary of the restricted stock activities during the years ended December 31, 2023 and 2022.
| | | | | | | | | | | |
| Number of Units | | Weighted
Average
Grant Date Fair
Value |
| Outstanding, December 31, 2021 | 246,744 | | $ | 14.48 | |
| Granted | 309,710 | | $ | 9.52 | |
| Vested | (197,941) | | $ | 13.04 | |
| Forfeited | (54,634) | | $ | 10.72 | |
| Outstanding, December 31, 2022 | 303,879 | | $ | 11.04 | |
| Granted | 498,398 | | $ | 2.05 | |
| Vested | (318,995) | | $ | 5.84 | |
| Forfeited | (74,831) | | $ | 3.56 | |
| Outstanding, December 31, 2023 | 408,451 | | $ | 5.37 | |
2023 Grants
During fiscal year 2023, the Company granted 498,398 RSUs of which 62,300 were subsequently cancelled. On August 25, 2023, the Company granted 211,056 RSUs to its board of directors and 214,994 RSUs to certain members of senior management.
2022 Grants
On January 25, 2022, the Company granted an aggregate of 5,000 RSUs to new employees. The RSUs vest over four years and the aggregate fair value of the shares was approximately $44 thousand.
On February 14, 2022, with an effective date of January 1, 2022, the Company entered into a letter agreement with Michael Pope, our now former Chairman and Chief Executive Officer, extending Mr. Pope’s term of employment with the Company. Under the terms of the agreement, Mr. Pope received a grant of 20,455 RSU’s, valued at approximately $180 thousand, and vesting over three years.
On February 24, 2022, following approval by the Company’s board of directors, the Company’s senior management issued a total of 221,494 RSUs under the terms of Amendment No. 2 to the Boxlight Corporation 2014 Stock Incentive Plan, vesting over four years, as long-term incentive awards to its employees in the U.S. and Europe. The aggregate fair value of the shares was $2.1 million.
On March 21, 2022, the Company granted an aggregate of 43,605 RSUs to its board members. These RSUs vest ratably over one year and had an aggregated fair value of approximately $450 thousand on the grant date.
On May 26, 2022, the Company granted 9,196 RSUs to a company owned and controlled by Karel Callens named OLORI. Mr. Callens performs certain sales and marketing functions in our EMEA markets. These RSUs vested and were issued directly to OLORI, and such common stock issuable upon vesting of the RSUs will be reserved for issuance directly out of the authorized shares of Class A common stock and not out of the Company’s equity incentive plan.
Warrants
The following is a summary of the warrant activities during the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Number of
Units | | Weighted
Average
Exercise Price | | Weighted
Average
Remaining
Contractual
Term (in years) |
| Outstanding, December 31, 2021 | 264,161 | | $ | 16.00 | | | 0.94 |
| Granted | 1,165,959 | | $ | 5.75 | | | — |
| Exercised | (44,118) | | $ | 0.08 | | | — |
| | | | | |
| Outstanding, December 31, 2022 | 1,386,002 | | $ | 6.57 | | | 5.25 |
| Granted | — | | | $ | — | | | |
| Exercised | — | | | $ | — | | | |
| Outstanding, December 31, 2023 | 1,386,002 | | $ | 6.57 | | | 3.72 |
| Exercisable, December 31, 2023 | 1,385,690 | | $ | 6.57 | | | 3.72 |
Stock compensation expense
For the years ended December 31, 2023 and 2022, the Company recorded the following stock compensation expense which is included in general and administrative expense in the Company’s consolidated statement of operations and comprehensive loss (in thousands):
| | | | | | | | | | | |
| 2023 | | 2022 |
| Stock options | $ | 1,105 | | | $ | 805 | |
| Restricted stock units | 2,023 | | | 2,505 | |
| Equity-based Warrants | 3 | | | 3 | |
| Total stock compensation expense | $ | 3,131 | | | $ | 3,313 | |
During the year ended December 31, 2023, certain members of senior management voluntarily forfeited certain unvested restricted stock units and stock option awards to increase share availability under the Company’s Equity Incentive Plan. The Company recorded stock compensation expense for the fair value of these cancelled awards of $624 thousand during the year ended December 31, 2023. As of December 31, 2023, there was approximately $2.4 million of unrecognized compensation expense related to unvested options, RSU’s, and warrants, which will be amortized over the remaining vesting period. Of that total, approximately $1.5 million is estimated to be recorded as stock compensation expense in 2024.
NOTE 14 – OTHER RELATED PARTY TRANSACTIONS
Management Agreements
On November 1, 2022, the Company entered into a consulting agreement with Mark Elliott, former CEO of Boxlight and a current member of the board of directors. The agreement is for Mr. Elliott to provide sales, marketing, management and related consulting services to assist the Company in sourcing and entering into agreements with one or more customers to provide products and services for specified school districts. The Company will pay Mr. Elliott a fixed payment of $4,000 per month and commissions equal to 15% of gross profit derived by the Company based on total purchase order revenue. The agreement, unless cancelled, will renew every year on December 31st. For the year ended December 31, 2023, the Company paid $106 thousand under the agreement.
On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by our now former CEO and Chairman, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment agreement. The Management Agreement is effective as of the first day of the same month that Mr. Pope’s employment with the Company terminates, and for a term of 13 months, Mr. Pope will provide consulting services to the Company including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration for the services provided, the Company will pay a management fee equal to 0.375% of the consolidated net revenues of the Company, payable in monthly installments, not to exceed $250,000 in any calendar year. At his option, Mr. Pope may defer payment until the end of this report beginningeach year and receive payment in the form of shares of Class A common stock of the Company.
On January 4, 2024, Mr. Pope’s employment with the Company terminated. In accordance with the Management Agreement, Mr. Pope is expected to continue providing consulting services to the Company for the subsequent 13 months.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company is legally obligated to fulfill certain purchase commitments made to vendors that supply materials used in the Company’s products. At December 31, 2023 the total amount of such open inventory purchase orders was $49.9 million.
Legal Proceedings
From time to time, the Company is involved in routine litigation and legal proceedings in the ordinary course of its business, such as employment matters and contractual disputes. Currently, there is no pending litigation or proceedings
that the Company’s management believes will have a material effect, either individually or in the aggregate, on page F-1its business or financial condition.
NOTE 16 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
For the year ended December 31, 2023, the Company's revenues were concentrated with one customer. The Company’s revenues were concentrated with two customers for the year ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | Total revenues
from the customer
as a percentage of
total revenues
for the year ended
December 31,
2023 | | Accounts
receivable from
the customer as of
December 31,
2023
(in thousands) | | Total revenues
from the customers
as a percentage of
total revenues
for the year ended
December 31,
2022 | | Accounts
receivable from
the customers as of
December 31,
2022
(in thousands) |
| 1 | | 10 | % | | $ | 1,762 | | | 18 | % | | $ | 8,468 | |
| 2 | | — | % | | $ | — | | | 5 | % | | $ | 469 | |
The loss of a significant customer or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
For the year ended December 31, 2023, the Company's purchases were concentrated among one vendor. The Company’s purchases were concentrated among two vendors for the year ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vendor | | Total purchases
from the vendor
as a percentage of
total cost of
revenues for
the year ended
December 31,
2023 | | Accounts payable
(prepayment) to
the vendor as of
December 31,
2023
(in thousands) | | Total purchases
from the vendors
as a percentage
of total cost of
revenues for
the year ended
December 31,
2022 | | Accounts payable
(prepayment) to
the vendors as of
December 31,
2022
(in thousands) |
| 1 | | 48 | % | | $ | 20,472 | | | 56 | % | | $ | 24,029 | |
| 2 | | — | % | | $ | — | | | 4 | % | | $ | 705 | |
The Company believes there are numerous other suppliers that could be substituted should the above supplier become unavailable or non-competitive.
NOTE 17 - SEGMENTS
Information about our Company’s operations by operating segment is
hereby incorporated by reference.shown in the following tables (in thousands):
| | | | | | | | | | | |
| Year Ended
December 31, |
| 2023 | | 2022 |
| Revenue, net | | | |
| Americas | $ | 95,995 | | | $ | 100,393 | |
| EMEA | 88,256 | | | 127,664 | |
| Rest of World | 2,943 | | | 791 | |
Eliminations and Adjustments (1) | (10,473) | | | (7,067) | |
| Total Revenue, net | $ | 176,721 | | | $ | 221,781 | |
| (Loss) Income from Operations | | | |
| Americas | (18,695) | | | (591) | |
| EMEA | (9,077) | | | 3,534 | |
| Rest of World | 977 | | | 144 | |
Eliminations and Adjustments (1) | 495 | | | (38) | |
| Total (Loss) Income from Operations | $ | (26,300) | | | $ | 3,049 | |
(1)Eliminations and adjustments represent net sales between the Americas, EMEA and Rest of World segments. Sales between these segments are generally valued at market.
| | | | | | | | | | | |
| December 31,
2023 | | December 31,
2022 |
| Identifiable Assets | | | |
| Americas | $ | 69,749 | | | $ | 88,451 | |
| EMEA | 85,732 | | | 104,978 | |
| Rest of World | 3,090 | | | 1,966 | |
| Total Identifiable Assets | $ | 158,571 | | | $ | 195,395 | |
NOTE 18 – SUBSEQUENT EVENTS
On January 4, 2024, the board of directors appointed Dale Strang, a current member of the Board, to serve as the Company’s interim Chief Executive Officer and principal executive officer. Mr. Strang replaced Michael Pope, whose last day as an employee of the Company was on January 12, 2024. Mr. Pope no longer serves as Chairman of the Board but will remain as a member of the Board.
On March 14, 2024, the Company entered into a fifth amendment (the "Fifth Amendment') with the Collateral Agent and Lender for the purpose of (1) amending and restating the Senior Leverage Ratio and Minimum Liquidity (as defined in the Fifth Amendment), and (2) waiving any Event of Default that may have arisen directly as a result of the Financial Covenant Default (as defined in the Fifth Amendment). The Fifth Amendment also added additional financial reporting obligations and potentially may include certain foreign subsidiaries of Boxlight Inc. as additional guarantors under the Credit Agreement.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
None
ITEM 9A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures and internal control over financial reporting as of the end of the period covered by this Annual Report.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Annual Report (“Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective due to
insufficient personnel resources within the accounting function to segregate the duties and insufficient written policies proceduresmaterial weaknesses described in our report on internal control over
accounting transaction processing and period end financial
disclosure, resulting in ineffective oversight in the establishment and proper monitoring controls over accounting and financial reporting.reporting below.
Notwithstanding the existence of the
internal control deficiencies, management believesmaterial weaknesses, we believe that the consolidated financial statements
included in this
annual report on Form 10-KAnnual Report fairly present
in accordance with U.S. GAAP, in all material respects,
the Company’sour financial condition,
as of the Evaluation Date, and results of
its operations and cash flows for the
Evaluation Date,periods presented in
conformity with United States Generally Accepted Accounting Principles (“GAAP”).this Annual Report.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.
Management’s Report on Internal Control Over Financial Reporting
Our
management isprincipal executive officer and our principal accounting and financial officer are responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in
Exchange Act Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability. Management conducted an assessment of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The internal controls for the Company are provided by executive management’s review and approval of all transactions. Our internal control over financial reporting also includes those policies and procedures that:1. pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management; and
3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’sour internal control over financial reporting as of December 31, 2017.2023. In making this assessment, management used the criteria set forthdescribed in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management’s(the "COSO"). Based upon such assessment included an evaluationand due to the existence of the design ofmaterial weaknesses in our internal control over financial reporting described below, our principal executive officer and testing of the operational effectiveness of these controls.
Based on this assessment, management hasour principal accounting and financial officer have concluded that, as of December 31, 2017,2023, our internal control over financial reporting was not effective, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, due to insufficient personnel resources within the accounting function to segregate the duties and insufficientincluding:
•Our written policies and procedures over accounting transaction processing and period end financial disclosure.This Annual Report doesclose and reporting are limited which has resulted in ineffective oversight in the establishment of proper monitoring controls over accounting and financial reporting; and
•We lacked sufficient review of certain financial transactions, and critical financial spreadsheets, such that a proper review had not include an attestation reportbeen performed by someone other than preparer, and that process documentation is lacking for review and monitoring controls over accounting and financial reporting.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the Company’s registered public accounting firm regarding internalsystem are met. In addition, the design of any control over financial reporting. Management’s report was not subject to attestation bysystem is based
in part upon certain assumptions about the Company’s registered public accounting firm pursuant to ruleslikelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
In light of the
Securitiesmaterial weakness described above, we performed additional analysis and
Exchange Commissionother post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that
permit the
Company to provide only management’s reportconsolidated financial statements included in this Annual
Report fairly present in accordance with U.S. GAAP, in all material respects, our financial condition, results of operations and cash flows for the periods presented in this Annual Report.
Changes in Internal Control
overOver Financial Reporting
There
werehas been no
changeschange in
ourthe Company’s internal control over financial reporting
forduring the
fiscal year ended December 31,
2017,2023 that
havehas materially affected, or
areis reasonably likely to materially affect,
ourthe Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The
following table sets forth information
concerningrequired by this item will be included in our
directors, executive officers and other key members of our management team as of March 29, 2018:Name | | Age | | Position(s) |
James Mark Elliott | | 66 | | Chief Executive Officer and Director |
Henry (“Hank”) Nance | | 45 | | Chief Operating Officer |
Takesha Brown | | 45 | | Chief Financial Officer |
Michael Pope | | 37 | | President and Director |
Tiffany Kuo | | 28 | | Non-Executive Director |
Rudolph F. Crew | | 67 | | Independent Director (1) (2) (3) |
Steve Hix | | 79 | | Independent Director (1) (3) |
Dale Strang | | 58 | | Independent Director (1) (2) (3) |
Robin D. Richards* | | 61 | | Independent Director |
Harold Bevis | | 58 | | Independent Director (2) (3) |
* Mr. Richards resigned for personal reasons on February 23, 2018.
(1) | Member of the Audit Committee. |
(2) | Member of the Compensation Committee. |
(3) | Member of the Nominating and Corporate Governance Committee. |
Set forth below is biographical information about each of the individuals named in the tables above:
James Mark Elliott. Mr. Elliott has served as our Chief Executive Officer and a director since September 18, 2014. From 2012 to date, he has also served as the President of Genesis. From 2005 through 2012, he was the President of Promethean, Inc., a manufacturer and distributor of whiteboards and interactive learning devices and led the team that grew Promethean in the Americas from $5 million in revenue to $250 million, with over 1,300,000 interactive whiteboards installed around the world. Throughout his career, Mr. Elliott has held senior executive roles, including president, senior vice president or director roles with Apple Computer, Lawson Software, E3 Corporation, PowerCerv Technologies, Tandem Computers, and Unisys/Burroughs. Mr. Elliott received a BBA in Economics from the University of North Georgia and a Master of Science degree in Industrial Management from Georgia Institute of Technology. Based on Mr. Elliott’s position as the chief executive officer of both the Company and Genesis, and his executive level experience in interactive learning devices and computer technology industries, our board of directors believes that Mr. Elliott has the appropriate set of skills to serve as a member of the board.
Henry (“Hank”) NanceMr. Nance has been our Chief Operating Officer since September 18, 2014 and served as our President from September 18, 2014 until July 15, 2015. Mr. Nance began his career with the Boxlight Group in 1999 and has served as the Boxlight Group’s President since 2009. At the Boxlight Group, he developed the company’s first business-to-consumer division, generating over $12 million in sales within the first 24 months of inception. Shortly thereafter he took over product development, corporate relations, and negotiations for business-to-consumer and business-to-business products. Prior to Mr. Nance’s tenure at the Boxlight Group, he managed commercial and residential construction working in the San Juan Islands, Washington State and Northern California.
Takesha Brown. Ms. Brown was appointed by our Board on March 15, 2018 as our Chief Financial Officer. Since April 2017, Ms. Brown has served as the Company’s Controller. Prior to that, from 2010 through 2017, Ms. Brown first served in the role as Controller and then as Financial Reporting Manager at General Electric in Atlanta, Georgia. Ms. Brown started her career in public accounting, first with PricewaterhouseCoopers, then moving to Ernst & Young and staying there until 2010. At the time of her departure from Ernst & Young, Ms. Brown was an Audit Senior Manager. Ms. Brown is a licensed CPA with a Bachelor of Science in Commerce and Business Administration and a Masters of Accounting from The University of Alabama.
Michael Pope.Mr. Pope has served as our President since July 15, 2015 and has been a director of our Company since September 18, 2014. Mr. Pope served as Managing Director of Vert Capital Corp., a Los Angeles based merchant bank, and its affiliates from October 2011 to October 2016, managing portfolio holdings in education, consumer products and digital media. Prior to joining Vert Capital, from May 2008 to October 2011, Mr. Pope was Chief Financial Officer and Chief Operating Officerdefinitive proxy statement for the Taylor Family, managing family investment holdings2024 Annual Meeting of Stockholders.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item will be included in
consumer products, professional services, real estate and education. Mr. Pope also held positions including senior SEC reporting at Omniture and Assurance Associate at Grant Thornton. Mr. Pope holds an active CPA license and serves onour definitive proxy statement for the
boards2024 Annual Meeting of
various organizations. Mr. Pope earned his undergraduate and graduate degrees in accounting from Brigham Young University with academic honors.Tiffany Kuo.Ms. Kuo has been a director of our Company since September 18, 2014. Ms. Kuo has been a General Management Consultant in Strategy and Operations for Deloitte Consulting, LLP in Houston, TX since August 2011. Ms. Kuo graduated from Rice University with a Bachelor of Science and Masters of Science in Electrical Engineering in 2011Stockholders and is currently in the Sloan Masters of Business Administration Program at The Massachusetts Institute of Technology. We believe that Ms. Kuo should serve as a member of our board of directors due to her experience in business strategy and operations at Deloitte Consulting, LLP.
Rudolph F. Crew. Dr. Crew has been a director of our Company since April 1, 2015. Since August 2013, Dr. Crew has served as the president of Medgar Evers College. From July 2012 to July 2013, he was the chief education officer at Oregon Education Investment Board, overseeing the PK-16 system. From September 2011 to July 2012, Dr. Crew served as the president of K12 Division at Revolution Prep, a company that offers preparation courses for the SAT and ACT standardized achievement tests. Prior to that, from January 2009 to July 2013, he was a professor at USC Rossier School of Education, teaching graduate school courses. From January 2009 to September 2011, Dr. Crew also served as the president of Global Partnership Schools, an organization offers planning support services and collaborative programs to public schools and school districts. Dr. Crew received his bachelor’s degree in management from Babson College in 1972. He earned his master’s degree in urban education in 1973 and his degree of doctor of education in educational administration in 1978, both from University of Massachusetts. We believe that Dr. Crew’s in-depth knowledge and extensive experience in education field make him a valuable member of our board of directors.
Steve Hix.Mr. Hix has been a director of our company since June 30, 2017. He is a business executive and founder of numerous public and private companies spanning his 40-year business career. Since 2012, Mr. Hix has served as the President of Circle Technology, a wireless presentation company. Previously, he was the Founder & CEO of InFocus Systems from 1987-1993 (projector company) which grew to nearly $1 billion in sales and had a market value of more than $2 billion as a public company. He was also the Founder, CEO & President of Phix Focus (R&D in Display Technology and Touch Screen Technology) 2005-2012, CEO of i3 Identification International (finger printing technology company) 2005-2010, Founder of Advan Media (Advertising Trucks with Digital Display Screens) 2003-2005, Founder & CEO of SARIF (High Temperature Poly-silicon LCD) 1993-2002, founder of Motif, Inc. (High Speed LCD Technology) 1990-1993, and co-Founder of Planar Systems (Electroluminescence Technology) 1983-1987. Mr. Hix has nearly a dozen patents in the display technology and wireless transmission space and continues to be a pioneer in the industry. He began his career serving the US Navy as Naval Intelligence and sits on the board of several companies including Melexis, Community Foundation of Southwest Washington and Puget Sound Blood Center.
Dale Strang.Mr. Strang has been a director of our company since August 10, 2017. He has served as a Senior Vice President of Media Strategy & Operations at Healthline Networks since 2015. Mr. Strang was President and Chief Excutive officer of SpinMedia from 2013 to 2015. Mr. Strang was the Chief Executive Officer and President at Viximo from 2010 to 2012. Mr. Strang has over 25 years of media experience with successful businesses including IDG, Ziff-Davis and IGN/Fox Interactive. Mr. Strang has more than 18 years of experience in consumer technology and video game publishing, including 14 years at the senior management level. He served as Executive Vice President and General Manager, Media Division, of IGN Entertainment. In this position, he oversaw advertising sales, marketing and the production of editorial content for all IGN entertainment media properties.
Harold Bevis.Mr. Bevis has served as a Director since March 2018. He has 25 years of business leadership experience, including 15 years as a Chief Executive Officer. He was a business leader at both GE and Emerson Electric. He has led or directed 8 businesses in 6 industries, 148 plants in 22 countries, 12 new business/new plant startups, 11 acquisitions, 24 business/plant expansions, and over 10,000 employees. Mr. Bevis is currently President of OmniMax International, a portfolio of building products businesses, since October 2017. Mr. Bevis earned a BS degree in industrial engineering from Iowa State University and an MBA degree from Columbia Business School. He is a member of the National Association of Corporate Directors and has served on 5 Boards of Directors. Since June 2014, he has served at Commercial Vehicle Group, a NASDAQ listed company, where he serves as a member of the audit and compensation committees.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Involvement in Certain Legal Proceedings
No executive officer or director is a party in a legal proceeding adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. No executive officer or director has been involved in the last ten years in any of the following:
| ● | Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
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| ● | Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| ● | Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
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| ● | Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
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| ● | Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or |
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| ● | Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Board of Directors
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Directors are elected at the annual meetings to serve for one-year terms. Officers are electedincorporated by and serve at the discretion of, the board of directors. Our board of directors shall hold meetings on at least a quarterly basis.
Director Independence
As of the date of this Annual Report, Dr. Rudy Crew, Steve Hix and Dale Strang are our current independent directors. As a Nasdaq listed company, we believe that the foregoing directors satisfy the definition of “Independent Director” under Nasdaq Rule 5605(a)(2). In making this determination, our board of directors considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.
On February 23, 2018, Mr. Robin D. Richards resigned from the Board of Directors for personal reasons and not as a result of any disagreements between Mr. Richards and the Company on any matter relating to the Company’s operations, policies or practices. On March 15, 2018 the Board elected Harold Bevis to join the Board of Directors. Mr. Bevis accepted the position on March 29, 2018.
Board Committees
Our board of directors has established standing committees in connection with the discharge of its responsibilities. These committees include an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Our board of directors has adopted written charters for each of these committees. Copies of the charters are available on our website at www.boxlightcorp.com. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Board Leadership Structure and Role in Risk Oversight
Mr. Elliott holds the positions of chief executive officer and chairman of the board of the Company. The board believes that Mr. Elliott’s services as both chief executive officer and chairman of the board is in the best interest of the Company and its shareholders. Mr. Elliott possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing us in our business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters relating to the business. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to our shareholders, employees and customers.
The Board has not designated a lead director. The independent directors can call and plan their executive sessions collaboratively and, between meetings of the Board, communicate with management and one another directly. Under these circumstances, the directors believe designating a lead director to take on responsibility for functions in which they all currently participate might detract from rather than enhance performance of their responsibilities as directors.
Corporate Governance
Audit Committee
According to its charter, the Audit Committee consists of at least three members, each of whom shall be a non-employee director who has been determined by the Board to meet the independence requirements of NASDAQ, and also Rule 10A-3(b)(1) of the SEC, subject to the exemptions provided in Rule 10A-3(c). A copy of our Audit Committee Charter is located under the “Corporate Governance” tab on our website at www.boxlight.com. The Audit Committee members shall consist of Mr. Hix, serving as our Audit Chair, Mr. Strang and Dr. Crew. All members of the Audit Committee are independent directors. The Audit Committee will assist the Board by overseeing the performance of the independent auditors and the quality and integrity of our internal accounting, auditing and financial reporting practices. The Audit Committee is responsible for retaining (subject to stockholder ratification) and, as necessary, terminating the engagement of, the independent auditors, annually reviews the qualifications, performance and independence of the independent auditors and the audit plan, fees and audit results, and pre-approves audit and non-audit services to be performed by the auditors and related fees. Our board has determined that we have at least one “audit committee financial expert,” as defined by the rules and regulations of the SEC and that is Mr. Hix.
Compensation Committee
The Compensation Committee members are Mr. Strang, Dr. Crew and Mr. Bevis. The Compensation Committee shall make recommendations to the Board concerning salaries and incentive compensation for our officers, including our principal executive officer, and employees and administers our stock option plans. A copy of our Compensation Committee Charter is located under the “Corporate Governance” tab on our website at www.boxlight.com.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee members are Dr. Crew, Mr. Hix, Mr. Bevis Steve Hix and Mr. Strang. All members of the Corporate Governance and Nominating Committee are independent directors. The Corporate Governance and Nominating Committee assists the Board in identifying qualified individuals to become board members, in determining the composition of the Board and in monitoring the process to assess Board effectiveness. A copy of our Corporate Governance and Nominating Committee Charter is located under the “Corporate Governance” tab on our website at www.boxlight.com.
Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board
We do not currently have a procedure by which security holders may recommend nominees to the Board. Prior to the listing of our common stock on NASDAQ, as a private company with a limited shareholder base, we did not believe that it was important to provide such a procedure. However, in connection with our listing on NASDAQ and the requirement to hold annual shareholder meetings, we will consider implementing such a policy in the future.
Director Qualifications
The Board of Directors is responsible for overseeing the Company’s business consistent with their fiduciary duty to the stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes and professional experience. There are general requirements for service on the Board that are applicable to directors and there are other skills and experience that should be represented on the Board as a whole but not necessarily by each director. The Corporate Governance and Nominating Committee considers the qualifications of director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.
In its assessment of each potential candidate, including those recommended by the stockholders, the Corporate Governance and Nominating Committee will consider the nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors it determines are pertinent in light of the current needs of the Board. The Corporate Governance and Nominating Committee also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company. evaluate the business experience, specialized skills and experience of director candidates. Diversity of background including diversity of race, ethnicity, international background, gender and age, may be considered by the Nominating and Corporate Governance Committee when evaluating candidates for Board membership.
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code will be made available on the Corporate Governance section of our website, which is located at www.boxlight.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms furnished to us and written representations by our officers and directors regarding their compliance with applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that all Section 16(a) filing requirements for our executive officers, directors and 10% stockholders were met during the year ended December 31, 2017; except for the following:
| | | | Transactions | | Number of | |
Name | | Late Reports | | Covered | | Shares | |
Michael Pope | | Form 3 | | Common stock | | | 637,453 | |
| | | | Warrants | | | 199,203 | |
| | Form 5 | | Common stock | | | 659,987 | |
Steven Hix | | Form 3 | | Common stock | | | - | |
| | Form 5 | | Stock options | | | 50,000 | |
Dale Strang | | Form 3 | | Common stock | | | - | |
| | Form 5 | | Stock options | | | 50,000 | |
John Patrick Henry | | Form 3 | | Common stock | | | - | |
| | Form 5 | | Stock options | | | 8,990 | |
Everest Display Inc. | | Form 3 | | Common stock | | | 565,122 | |
| | Form 4 | | Common stock | | | 1,903,586 | |
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the total compensation received by, or earned by, our Chief Executive Officer, our President and Chief Operating Officer and our Chief Financial Officer (collectively, the “named executive officers”) during the years ended December 31, 2017 and 2016.
| Name and Principal Position | | Year | | | Salary ($) | | | Option
Awards ($) | | | Total ($) | |
| James Mark Elliott, Chief Executive Officer | | | 2016 | | | | 125,000 | | | | - | (2) | | | 125,000 | |
| James Mark Elliott, Chief Executive Officer | | | 2017 | | | | 129,884 | | | | - | (2) | | | 129,884 | |
| | | | | | | | | | | | | | | | | |
| Michael Pope, President | | | 2016 | | | | 23,885 | | | | - | | | | 23,885 | |
| Michael Pope, President | | | 2017 | | | | 163,419 | | | | - | | | | 163,419 | |
| | | | | | | | | | | | | | | | | |
| Henry (“Hank”) Nance, Chief Operating Officer | | | 2016 | | | | 130,545 | | | | - | | | | 130,545 | |
| Henry (“Hank”) Nance, Chief Operating Officer | | | 2017 | | | | 147,606 | | | | 126,452 | (5) | | | 274,058 | |
| | | | | | | | | | | | | | | | | |
| Sheri Lofgren, former Chief Financial Officer (1) | | | 2016 | | | | 170,000 | | | | 484,235 | (3) | | | 654,235 | |
| Sheri Lofgren, former Chief Financial Officer (1) | | | 2017 | | | | 227,500 | | | | 204,397 | (3) | | | 431,897 | |
| | | | | | | | | | | | | | | | | |
| Takesha Brown, Chief Financial Officer (1) | | | 2016 | | | | - | | | | - | | | | - | |
| Takesha Brown, Chief Financial Officer (1) | | | 2017 | | | | 98,116 | | | | 6,617 | (4) | | | 104,733 | |
| (1) | On March 15, 2018, Sheri Lofgren, the Chief Financial Officer of the Company tendered her resignation from such position. On the same date, the Board appointed Ms. Takesha Brown to serve as the new Chief Financial Officer of the Company. |
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| (2) | On September 18, 2014, the Company granted 331,841 options to Mark Elliott Chief Executive Officer, with an exercise price of $0.13 per share, a term of 5 years and vesting over a 3-year period. The options have a fair value of $1 at grant date using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 2.09% (2) expected life of 5.75 years, (3) expected volatility of 69%, and (4) zero expected dividends. During the years ended December 31, 2017 and 2016, the Company recorded $0 stock compensation expense. |
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| (3) | On September 18, 2014, the Company granted 291,402 options to Sheri Lofgren, former Chief Financial Officer, with an exercise price of $0.13 per share, a term of 5 years and vesting over a 3-year period. The options have a fair value of $1 at grant date using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model include: (1) discount rate of 2.09% (2) expected life of 5.75 years, (3) expected volatility of 69%, and (4) zero expected dividends. |
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| | On November 1, 2016, the Company entered into an amended employment agreement with its Chief Financial Officer, which amended the exercise price of the 291,402 options granted from $0.13 to $0.0001 per share. The options vesting term was changed to (i) 50% of the remaining unvested options shall vest immediately following the agreement, (ii) all remaining unvested options shall vest on March 31, 2017. Pursuant to the amendment of employment agreement, the fair value of options granted was changed to approximately $484,000 using the Black-Scholes option-pricing model. |
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| | In November 2017, the Company granted options to purchase 29,200 options at $0.0001 per share to its former Chief Financial Officer for services. These options vested immediately and expire 5 years from the date of grant. The options had a fair value of approximately $204,000 on the grant date that was calculated using the Black-Scholes option-pricing model. |
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| (4) | On April 4, 2017, the Company granted options to purchase 18,000 shares of Series A common stock at $5.60 per share to the Chief Financial Officer for services. These options vest in four years and commenced in the quarter ended June 30, 2017 and expire 5 years from the date of grant. The options have a fair value of approximately $7,000 that was calculated using the Black-Scholes option-pricing model. |
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| (5) | In November 2017, the Company granted options to purchase 37,829 options at $7.00 per share to its Chief Operating Officer for service. These options vest in 3 years and expire 5 years from the date of grant. The options had a fair value of approximately $126,000 on grant date that was calculated using the Black-Scholes option-pricing model. |
Employment Agreements
We entered into employment agreements with Mr. Elliott, Mr. Nance, Ms. Lofgren, Mr. Pope and Ms. Brown, the terms of which are set forth below.
James Mark Elliott
The Company entered into an employment agreement with Mr. Elliott dated as of November 30, 2017, pursuant to which Mr. Elliott shall receive a base salary of $195,000 per year and shall, upon evaluation of his performance and at the discretion of the Company’s board of directors, be awarded a cash bonus in the amount of $25,000 on a quarterly basis commencing on the quarter ending December 31, 2017. In addition to (and not in lieu of) the base salary, the Company shall grant Mr. Elliott employee stock options to purchase up to 100,000 shares of common stock (vesting in equal monthly installments over a one-year period, commencing on January 31, 2018), pursuant to the Corporation’s 2014 Stock Incentive Plan.
Mr. Elliott’s agreement contains confidentiality and non-competition and non-solicitation covenants that continue during and for two years following the expiration or termination of his employment agreement; provided, that such restrictive covenants expire immediately if Mr. Elliott terminates his employment agreement for “good reasons” or, in nine months if we elect to terminate his employment prior to the expiration of the term of the agreement without “cause”.
Henry “Hank” Nance
The Company entered into an employment agreement with Mr. Nance, dated as of November 30, 2017, pursuant to which Mr. Nance shall receive a base salary of $195,000 per year and shall, upon evaluation of his performance and at the discretion of the Company’s chief executive officer, be awarded a cash bonus in the amount of $25,000 on a quarterly basis commencing on the quarter ending December 31, 2017. In addition to (and not in lieu of) the base salary, the Company shall grant Mr. Nance employee stock options to purchase up to 200,000 shares of common stock (vesting in equal monthly installments over a one-year period, commencing on January 31, 2018), pursuant to the Corporation’s 2014 Stock Incentive Plan.
Mr. Nance’s agreement contains confidentiality and non-competition and non-solicitation covenants that continue during and for two years following the expiration of his employment agreement; provided that such restrictive covenants expire immediately if we breach his employment agreement or, in nine months, if we elect to terminate his employment prior to the expiration of the term of the agreement for reasons other than cause (as defined in the employment agreement).
Sheri Lofgren
The Company entered into an employment agreement with Ms. Lofgren dated as of November 30, 2017, pursuant to which Ms. Lofgren shall receive a base salary of $195,000 per year and shall, upon evaluation of her performance and at the discretion of the Company’s Chief Executive Officer, be awarded a cash bonus in the amount of $25,000 on a quarterly basis commencing on the quarter ending December 31, 2017. In addition to (and not in lieu of) the base salary, the Company shall grant Ms. Lofgren employee stock options to purchase up to 100,000 shares of common stock (vesting in equal monthly installments over a one-year period, commencing on January 31, 2018), pursuant to the Corporation’s 2014 Stock Incentive Plan.
Ms. Lofgren’s agreement contains confidentiality and non-competition and non-solicitation covenants that continue during and for two years following the expiration of her employment agreement; provided, that such restrictive covenants expire immediately if we breach her employment agreement or, in nine months, if we elect to terminate her employment prior to the expiration of the term of the agreement for reasons other than for cause (as defined in the employment agreement).
On March 15, 2018, Sheri Lofgren, the Chief Financial Officer of the Company tendered her resignation. Ms. Lofgren’s resignation was for personal reasons and not as the result of disagreements between Ms. Lofgren and the Company on any matter relating to the Company’s operations, policies or practices.
Michael Pope
The Company entered into an employment agreement with Mr. Pope dated as of November 30, 2017, pursuant to which Mr. Pope shall receive a base salary of $195,000 per year and shall, upon evaluation of his performance and at the discretion of the Company’s Chief Executive Officer, be awarded a cash bonus in the amount of $25,000 on a quarterly basis commencing on the quarter ending December 31, 2017. In addition to (and not in lieu of) the base salary, the Company shall grant Mr. Pope employee stock options to purchase up to 100,000 shares of common stock (vesting in equal monthly installments over a one-year period, commencing on January 31, 2018), pursuant to the Corporation’s 2014 Stock Incentive Plan.
Mr. Pope’s agreement contains confidentiality and non-competition and non-solicitation covenants that continue during and for two years following the expiration of his employment agreement; provided, that such restrictive covenants expire immediately if we breach his employment agreement or, in nine months, if we elect to terminate his employment prior to the expiration of the term of the agreement for reasons other than for cause (as defined in the employment agreement).
Takesha Brown
The Company entered into an employment agreement with Ms. Brown, dated as of March 19, 2018, pursuant to which Ms. Brown shall receive a base salary of $165,000 per year and shall, upon evaluation of her performance and at the discretion of the Company’s chief executive officer, be awarded a cash bonus in the amount of $12,500 on a quarterly basis commencing on the quarter ending June 30, 2018. In addition to (and not in lieu of) the base salary, the Company shall grant Ms. Brown employee stock options to purchase up to 35,000 shares of common stock (vesting in equal monthly installments over a one-year period, commencing on March 19, 2018), pursuant to the Corporation’s 2014 Stock Incentive Plan.
Ms. Brown’s agreement contains confidentiality and non-competition and non-solicitation covenants that continue during and for two years following the expiration of her employment agreement; provided, that such restrictive covenants expire immediately if we breach her employment agreement or, in nine months, if we elect to terminate her employment prior to the expiration of the term of the agreement for reasons other than for cause (as defined in the employment agreement).
Outstanding Equity Awards at December 31, 2017
The following table provides information regarding outstanding equity awards held by our named executive officers as of December 31, 2017. All share amounts and exercise prices in the following table reflects stock splits after grant date.
| | | Option Awards |
| Name | | Grant Date | | Number of
Securities
Underlying
Options
(#)
Exercisable | | | Number of
Securities
Underlying
Options
(#)
Unexercisable | | | Option
Exercise
Price
($) | | | Option
Expiration Date |
| James Mark Elliott | | September 18, 2014 | | | 331,841 | | | | - | | | $ | 0.13 | | | September 18, 2024 |
| Sheri Lofgren | | September 18, 2014 and amended at November 1, 2016 | | | 29,200 | | | | - | | | $ | 0.0001 | | | November 30, 2022 |
| Henry Nance | | December 31, 2014 | | | 12,001 | | | | 132,091 | | | $ | 0.13-7.00 | | | November 30, 2022 |
| Takesha Brown | | April 4, 2017 | | | 3,375 | | | | 14,625 | | | $ | 5.60 | | | April 4, 2022 |
Director Compensation
We reimburse all members of our board of directors for their direct out of pocket expenses incurred in attending meetings of our board. This table summarizes the compensation paid to each of our independent directors who served in such capacity during the fiscal year ended December 31, 2017.
| Name | | Fees Earned or Paid in
Cash ($) | | Stock Awards
($) | | Total($) |
| | | | | | | |
| Rudolph F. Crew | | 50,000 | | 370,995 | | 420,995 |
| | | | | | | |
| Steve Hix | | 5,000 | | 159,466 | | 164,466 |
| | | | | | | |
| Dale Strang | | - | | 159,466 | | 159,466 |
| | | | | | | |
| Robin D. Richards | | - | | 930,987 | | 930,987 |
| | | | | | | |
| Tiffany Kuo | | - | | - | | - |
Director Compensation Arrangements
Rudolph F. Crew
Dr. Crew receives an annual fee of $50,000, payable monthly, which commenced on March 26, 2016. In addition, in connection with the listing on NASDAQ, Dr. Crew was entitled to a one-time purchase, at par value, of 53,000 shares of our Class A common stock.
Dr. Crew will not be permitted to sell any of his shares for the six months immediately following the consummation of this public offering and thereafter, not more than 50% of his shares between the seventh month and 12th month after the consummation of this public offering, and not more than 50% of the remaining shares between the 12th month and 18th months after the consummation of this public offering.
Steve Hix
Mr. Hix receives an annual fee of $10,000 for serving as the Chair of our Audit Committee. The fee is payable quarterly, with the first payment to be made on September 30, 2017. On November 30, 2017, Mr. Hix was granted stock options to purchase 50,000 shares of our Class A common stock exercisable at $7.00 per share with vesting over one year.
Dale Strang
On November 30, 2017, Mr. Strang was granted stock options to purchase 50,000 shares of our Class A common stock exercisable at $7.00 per share with vesting over one year.
Robin D. Richards
On November 30, 2017, Mr. Richards purchased, at the par value, 133,000 shares of our common stock, representing 1.25% of the number of fully diluted shares of common stock after giving effect to the acquisitions of the Boxlight Group and Genesis.
Mr. Richards is not permitted to sell any of his shares until May 30, 2018, which is six months following the consummation of our public offering and thereafter, not more than 50% of his shares between the seventh month and 12th month after the consummation of our public offering, and not more than 50% of the remaining shares between the 12th month and 18th months after the consummation of our public offering.
On February 23, 2018, Mr. Robin D. Richards resigned from the Board of Directors for personal reasons and not as a result of any disagreements between Mr. Richards and the Company on any matter relating to the Company’s operations, policies or practices.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth, as of March 28, 2018, certain information
with respect to the beneficial ownership ofrequired by this item will be included in our
Class A common stock, by each beneficial owner of more than 5% of the Company’s Class A common stock, each director and each named executive officer and all directors and executive officers of the Company as a group, except as qualified by the information set forth in the notes to this table. As of December 31, 2017, 9,558,997 shares of our Class A common stock were issued and outstanding.Unless otherwise noted, the address for each director and executive officer is c/o Boxlight Corporation, 1045 Progress Circle, Lawrenceville, Georgia 30043.
| Name of Beneficial Owner | | Number | | | Percentage | |
| Named Executive Officers | | | | | | | | |
| James Mark Elliott | | | 497,618 | (1) | | | 4.43 | % |
| Henry(“Hank”) Nance | | | 97,715 | (2) | | | .87 | % |
| Sheri Lofgren | | | 320,602 | (3) | | | 2.85 | % |
| Michael Pope | | | 199,203 | (4) | | | 1.77 | % |
| Directors | | | | | | | | |
| Tiffany Kuo | | | -0- | | | | - | |
| Rudolph F. Crew | | | 53,000 | (6) | | | .47 | % |
| Robin D. Richards | | | 133,000 | (7) | | | 1.18 | % |
| Steve Hix | | | 12,500 | | | | .11 | % |
| Dale Strang | | | 12,500 | | | | .11 | % |
| All Directors and Executive Officers as a Group(7 persons) | | | 1,326,138 | | | | 11.80 | % |
| | | | | | | | | |
| Beneficial Owners of 5% or More of Our Outstanding Common Stock | | | | | | | | |
| Everest Display, Inc. | | | 2,468,708 | (5) | | | 21.97 | % |
| Sugar House Trust | | | 577,450 | (8) | | | 5.14 | % |
| AEL Irrevocable Trust | | | 1,912,350 | (9) | | | 17.02 | % |
| Dynamic Capital, LLC | | | 597,610 | (10) | | | 5.32 | % |
(1) Represents 100% of 331,841 shares subject to a stock option granted to Mr. Elliott which have vested as of December 31, 2016. Upon completion of our initial public offering, Mr. Elliott will receive an additional 92,510 shares of our Class A common stock representing 25% of the shares to be issued to the former members of Genesis upon automatic conversion of BOXL’s Series B convertible preferred stock. In addition, Mr. Elliott converted accounts payable due from Genesis into 73,267 shares of common stock.
(2) Upon completion of our initial public offering, Mr. Nance will receive 85,714 shares of our Class A common stock representing his pro-rata portion of the 2,055,873 shares to be issued to the former stockholders of Boxlight upon automatic conversion of BOXL’s Series C convertible preferred stock. In addition, stock options to purchase 144,020 shares were granted to Mr. Nance under our 2014 Stock Incentive Plan. These options commenced vesting on December 31, 2017.
(3) Represents 100% of 320,602 shares subject to a stock option grant to Ms. Lofgren which have vested as of March 31, 2017.
(4) Consists of 199,203 shares issuable upon exercise of a warrant issued to an entity associated with Mr. Pope in October 2016. Does not include 82,534 shares, Mr. Pope’s portion of 330,135 shares held by Mim Holdings, LLC, or 577,450 shares held by Sugar House Trust. Mim Holdings is a limited liability company owned by the Marlborough Brothers Family Trust, a trust establisheddefinitive proxy statement for the benefit2024 Annual Meeting of members of the families of Michael Pope and Adam Levin. Sugar House Trust is a trust established for the benefit of the family of Michael Pope. Mr. Pope does not have voting or dispositive power and authority of the shares beneficially owned by Mim Holdings or Sugar House Trust and disclaims any voting or dispositive power with respect to those shares.
(5) Represents 1,903,586 shares of Class A common stock that were issued upon the automatic conversion of our Series C preferred stock issued to Everest Display, Inc., or its wholly owned subsidiary, in connection with our July 2016 acquisition of the Boxlight Group. In June, 2017, Everest Display, Inc. agreed to convert $1,500,000 of accounts payable into 238,095 shares of Class A common stock at a conversion price of $6.30 per share. In August, 2017, Everest Display, Inc. converted a long-term convertible note payable and accrued interest into 327,027 shares of common stock at $6.30 per share. K Laser is the majority stockholder of Everest Display, Inc.. Mr. Alex Kuo is the majority stockholder of K Laser and holds the power to vote and dispose of our shares issued and issuable to EDI. Such 1,903,586 shares do not include (a) 178,572 shares of Class A common stock that K Laser purchased at $5.60 per share in the September 2016 private placement, and (b) an additional 142,857 shares of Class A common stock that Alex Kuo, K Laser or other affiliates or business associates of Mr. Kuo may elect to purchase at a price of $7.00 per share in our initial public offering.
(6) Includes 53,000 shares of common stock that Dr. Crew purchased at par value on November 30, 2017.
(7) Includes 133,000 shares of common stock that Mr. Richards purchased at par value on November 30, 2017.
(8) Mr. Lane, 26716 Via Colina, Stevanson Ranch, CA 91381 is trustee of Sugar House Trust, established for the benefit of the family of Michael Pope, our President and a Director. Mr. Lane has sole investment and voting power with respect to the shares.
(9) Mr. Edwin Hur, 11441 Beach St., Cerritos, CA 90703 is trustee of AEL Irrevocable Trust, established for the benefit of the family of Adam Levin. Mr. Hur has sole investment and voting power with respect to the shares.
(10) Consists of 597,610 shares issuable upon exercise of a warrant issued to Dynamic Capital, LLC in October, 2016. Dynamic Capital is owned by the AEL Irrevocable Trust.
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
On September 30, 2014, the Company entered into a line of credit agreement with Vert Capital.
The
line of credit allowed the Company to borrow up to $500,000 for public offering expenses. On March 31, 2016, we amended the line of credit to increase it to $900,000. The funds accrued interest at 10% per annum. The interest rate decreased to 5.75% pursuant to the amendment to purchase agreement with EDI enteredinformation required by this item will be included in
September 2016. Interest on any advanced funds was accrued monthly and all outstanding principal and accrued interest was due in full from the proceeds of our
initial public offering. On December 1, 2017, the outstanding principal and accrued interest in the amount of $775,259 was paid in full.On July 15, 2015, the Company entered into a management agreement with VC2 Advisors LLC, a Delaware limited liability company, in which Michael Pope, our President and Director, was a manager. VC2 Advisors is owned by Sugar House Trust and AEL Irrevocable Trust, trusts establisheddefinitive proxy statement for the benefit2024 Annual Meeting of the families of Michael Pope and Adam Levin. Pursuant to the agreement, VC2 shall perform consulting services for the Company relating to, among other things, sourcing and analyzing strategic acquisitions and introductions to various financing sources. VC2 shall receive an annual management fee payable in cash equal to 1.5% of total consolidated revenues at the end of each fiscal year ended December 31, 2016, 2017 and 2018, payable in monthly installments, commencing as of the date of the Company’s IPO. The annual fee is subject to a cap of $1,000,000 in each of 2016, 2017 and 2018. At its option, VC2 may also defer payment until the end of each year, payable as an option to purchase shares of Class A common stock of the Company, at a price per share equal to 100% of the closing price of the Company’s Class A common stock as traded on Nasdaq or any other national securities exchange as of December 31 of such year in question. Effective October 12, 2016, as a result of Adam Levin and Michael Pope no longer being employed at VC2, the consulting agreement with VC2 was terminated. Subsequently, the Company entered into new consulting agreements on identical terms with other entities which now employ Michael Pope and Adam Levin. As of December 31, 2017, the Company had a payable of $35,632 pursuant to these agreements.
In 2018, as a result of Adam Levin and Michael Pope no longer working at VC2 Advisors, the Company canceled the VC2 Advisors agreement and entered into a new management agreement, with substantially the same terms, with Canaan Parish, LLC, an entity affiliated with Michael Pope.
On July 18, 2016, Boxlight Holdings, Inc., a newly formed Delaware subsidiary of Boxlight Parent, consummated the acquisition of the Boxlight Group under a share purchase agreement, dated May 10, 2016, with Everest Display, Inc., a Taiwan corporation (“EDI”) and its subsidiary, Guang Feng International Ltd. (“Guang Feng”) subsidiary, the former shareholder of the Boxlight Group. K Laser Technology, Ltd., a Taiwan corporation (“K Laser”) is the majority shareholder of EDI and one of our major shareholders. Under the terms of the share purchase agreement, we issued EDI 270,000 shares of our Series C Preferred Stock, that has a stated or liquidation value of $20.00 per share. Upon completion of our initial public offering on November 30, 2017, the Series C Preferred Stock automatically converted into shares of our Class A common stock. Such newly converted shares of Class A common stock, (including certain bonus shares of Class A common stock represented 8% of the shares issuable upon conversion of the Series C Preferred Stock) to be issued to EDI or its subsidiaries, and totaled 2,055,872 shares of our Class A common stock, representing approximately 22.22% of our fully-diluted common stock as defined in the purchase agreement. Hank Nance, our Chief Operating Officer and the President of the Boxlight Group, will received 85,714 of these shares.
Under the terms of the EDI share purchase agreement, as amended on September 28, 2016, the parties agreed that the Boxlight Group and Boxlight Parent will settle and pay approximately $5.75 million of accrued accounts payable currently owed to EDI, in the manner set forth below.
| (1) | $1,000,000 was paid at the closing of the acquisition out of the net proceeds of a note issued to Hitachi Capital America Corp. (See Note 10); |
| | |
| (2) | An additional $1,500,000 of the $5.75 million owed to EDI was to be paid by Boxlight Corporation and its subsidiaries in six monthly installments of $250,000 each, commencing 30 days after the initial $1,000,000 payment paid at closing. However, in view of the fact that such installment payments could than not be made by the Company, EDI agreed to convert $1,500,000 accounts payable into 238,095 shares of Boxlight’s Class A common stock in June 2017. |
| | |
| (3) | $2,000,000 of the unpaid balance of the account payable was settled with a 4% non-negotiable convertible promissory note of Boxlight Corporation payable to EDI, together with accrued interest, on March 31, 2019 (the “EDI Note”). In August 2017, the EDI Note was converted into 327,027 shares of Boxlight Corporation’s Class A common stock at a conversion price of $6.30 pursuant to an agreement. The Company recorded no gain or loss from the conversion. |
On May 5, 2016, pursuant to a membership interest purchase agreement, dated as of April 1, 2016, Boxlight Parent acquired 100% of the membership interest in Mimio, from Mim Holdings, LLC., a Delaware limited liability company wholly-owned by the Marlborough Brothers Trust, a trust established for the benefit of members of the families of Adam Levin and Michael Pope, our President and Director, in exchange for a 4% $2,000,000 unsecured convertible promissory note due March 31, 2019, and the assumption of a 6% $3,425,000 senior secured note of Mim Holdings that was due July 3, 2016 and was payable to Skyview Capital, LLC, (“Skyview”), the former equity owner of Mimio (the “Skyview Note”). For purposes of the purchase agreement, the sale to Boxlight Parent, was deemed to have been consummated as of April 1, 2016.
The Skyview Note was issued by Mim Holdings to Skyview on November 4, 2015 as payment for the acquisition of 100% of the membership equity of Mimio. Skyview Note was guaranteed and secured by a lien and security interest on all of the assets of Mimio. Prior to the sale of Mimio to Boxlight Parent, VC2 Partners LLC (the former owner of Mim Holdings) assigned its equity in Mim Holdings to the Marlborough Brothers Family Trust (the “Marlborough Trust”). Adam Levin and Michael Pope, our President and Director, and members of their families, are beneficiaries of the Marlborough Trust and other trusts who are principal stockholders of Boxlight Parent. See “Principal Stockholders”.
In connection with the acquisition of Mimio by Boxlight Parent, in May 2016 we issued a $2,000,000 note payable to Mim Holdings, Inc., the former stockholder of Mimio. In June, 2017 this convertible promissory note was converted into 330,135 shares of our Class A common stock at $6.30 per share.
Mim Holdings is wholly-owned by the Marlborough Brothers Family Trust, a trust established for the benefit of members of the families of Adam Levin and Michael Pope. Mr. Pope is the President and a member of our board of directors.
On September 28, 2016, we sold to K Laser, the principal stockholder of EDI, an aggregate of 178,572 shares of our Class A common stock at a purchase price of $5.60 per share and received net proceeds of $1,000,003. The per share sales price is intended to be 80% of the initial price per share of Class A common stock offered to the public. Accordingly, the 178,572 shares of Class A common stock are subject to increase in the event that the initial offering price of the shares offered is less than $7.00. The private placement was conducted through the efforts of our management and with the assistance of K Laser and its affiliates. No commissions or other compensation was paid in connection with such private placement. The $1,000,003 of net proceeds of such private placement was used together with advances from Crestmark under the above line of credit to retire outstanding indebtedness to Hitachi and pay the $2,500,000 installment due under Skyview Note.
In October 2016, the Company issued 73,266 shares to Mark Elliott, the Company’s CEO, at $1.055 per share to settle accounts payable of $77,268.
On November 30, 2017, in connection with the listing on NASDAQ, Dr. Crew purchased, at the par value, 53,000 shares of our Class A common stock representing 0.5% of the number of fully diluted shares of Class A common stock after giving effect to the acquisitions of the Boxlight Group and Genesis and our initial public offering. If we file a registration statement registering for resale shares held by its officers or directors, Dr. Crew may request that we include his shares in such registration statement. Dr. Crew will not be permitted to sell any of his shares until May 30, 2018 (six months following the consummation of our public offering) and thereafter, not more than 50% of his shares between the seventh month and 12th month after the consummation our public offering, and not more than 50% of the remaining shares between the 12th month and 18th months after the consummation of our public offering.
On November 30, 2017, in connection with the listing on NASDAQ, Mr. Richards purchased, at the par value, 133,000 shares of our Class A common stock representing 1.25% of the number of fully diluted shares of Class A common stock after giving effect to the acquisitions of the Boxlight Group and Genesis and our initial public offering.
Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following table represents fees for professional audit servicesinformation required by this item will be included in our definitive proxy statement for the
audit2024 Annual Meeting of
the Company’s annual financial statements for the fiscal years ended December 31, 2017 and 2016, respectively, rendered by GBH, CPA’s.| | | Fiscal year ended December 31, | |
| | | 2016 | | | 2017 | |
| Audit fees1 | | $ | 277,987 | | | $ | 293,075 | |
| Audit-related fees2 | | | - | | | | 43,910 | |
| Tax fees3 | | | - | | | | - | |
| Total fees | | $ | 277,987 | | | $ | 336,985 | |
1. | Audit fees consist of fees for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of the financial statements included in the Company’s Form 10-Q and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. |
| |
2. | Audit-related fees consist primarily of fees for assurance and related services by the accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements. |
| |
3. | Tax fees include the preparation of federal tax returns as well as tax planning and consultation on new tax legislation, regulations, rulings, and developments. |
Audit Committee Pre-Approval Policies
Stockholders.
The
Audit Committee shall pre-approve any non-audit services proposed to be provided to the Company by the independent
auditors.registered public accounting firm is FORVIS, LLP (PCAOB Firm ID No. 686) located in Atlanta, Georgia.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation and Qualifying Accounts
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Additions | | | | |
| Balance at
beginning of
period | | Charge
(Credit) to
Cost and
Expense | | Charged to
Other
Accounts(a) | | Deductions (b) | | Balance at
end of
period |
| Year Ended December 31, 2022 | | | | | | | | | |
| Allowance for doubtful accounts | $ | 405 | | | $ | 239 | | | $ | | | | $ | 230 | | | $ | 414 | |
| Total allowance deducted from assets | $ | 405 | | | $ | 239 | | | $ | - | | | $ | 230 | | | $ | 414 | |
| | | | | | | | | |
| Year Ended December 31, 2023 | | | | | | | | | |
| Allowance for credit losses | $ | 414 | | | $ | 9 | | | $ | 76 | | | $ | 78 | | | $ | 421 | |
| Total allowance deducted from assets | $ | 414 | | | $ | 9 | | | $ | 76 | | | $ | 78 | | | $ | 421 | |
(a)The Company adopted the new standard using a modified retrospective transition approach, with the cumulative impact being charged to Retained Earnings.
(b)Write-offs, net of recoveries
(a) Financial Statements
We have filed the financial statements in Item 8. Financial Statements and Supplementary Data as a part of this Annual Report.
(b) Exhibits
The following is a list of all exhibits filed or incorporated by reference as part of this Annual Report
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| 4.3 | | | | |
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4.24.4 | | | | |
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| 4.5 | | | | |
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| 4.6 | | | | |
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| 4.7 | | | | |
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| 4.8 | | | | |
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| 4.9 | | | | |
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| 4.10 | | | | |
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| 4.11 | | | | |
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| 10.1 | | | | |
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4.310.2 | | Amended and Restated Certificate of Designations of Series C Convertible Preferred Stock (Incorporated by reference to Exhibit 4.6 in the Draft Registration Statement on Form S-1(Reg. No. 377-00845) filed on November 12, 2014) |
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4.4 | | Form of Warrant Held by Vert Capital Corp. (Incorporated by reference to Exhibit 4.6 in the Draft Registration Statement on Form S-1(Reg. No. 377-00845) filed on February 12, 2015) |
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4.5 | | Form of Warrant Held by Lackamoola, LLC (Incorporated by reference to Exhibit 4.7 in the Draft Registration Statement on Form S-1 (Reg. No. 377-00845) filed on November 12, 2014) |
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4.6 | | Form of Subscription Agreement for $1.00 per share (Incorporated by reference to Exhibit 4.6 in the Registration Statement on Form S-1(Reg. No. 333-204811) filed on October 28, 2016) |
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4.7 | | Share Purchase Agreement, dated as of May 10, 201610,2016 by and among Everest Display, Inc., Guang Feng International Ltd., Boxlight Holdings, Inc., the registrant,Boxlight Corporation, Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. and Boxlight Latinoamerica, Servicios S.A. DE C.V. (IncorporatedEverest Display Inc. and Guang Feng International Ltd. (incorporated by reference to Exhibit 10.1 in the Registration Statement on Form S-1(Reg.S-1 (Reg. No. 333-204811) filed on May 13, 2016)2016. | | |
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10.110.3 | | |
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10.2 | | Membership Interest Purchase Agreement, dated as of April 1, 2016, by and among the registrant, Mim Holdings, Inc., Mimio LLC and the Marlborough Partners Family Trust (Incorporated by reference to Exhibit 10.13 in the Registration Statement on Form S-1(Reg. No. 333-204811) filed on May 13, 2016) |
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10.3 | | Trademark Assignment between Herbert Myers, the registrant and Boxlight Inc. (Incorporated by reference to Exhibit 10.6 in the Registration Statement on Form S-1(Reg. No. 333-204811) filed on May 13, 2016) |
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10.4 | | Employment Agreement by and between Boxlight Corporation and James Mark Elliott, dated November 30, 2017* |
10.5 | | Employment Agreement by and between Boxlight Corporation and Michael Pope, dated November 30, 2017* |
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10.6 | | Employment Agreement by and between Boxlight Corporation and Sheri Lofgren, dated November 30, 2017* |
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10.7 | | Employment Agreement by and between Boxlight Corporation and Henry Nance, dated November 30, 2017* |
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10.8 | | $2,000,000 convertible promissory note of the registrant to Mimio Holdings, dated as of April 1, 2016 (Incorporated by reference to Exhibit 10.14 in the Registration Statement on Form S-1(Reg.S-1 (Reg. No. 333-204811) filed on May 13, 2016). | | |
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10.910.4 | | Agreement by and between Loeb & Loeb LLP and the registrant |
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10.10 | | | | |
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10.1110.5 | | | | |
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10.1210.6 | | | | |
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10.1310.7 | | | | |
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10.1410.8 | | | | |
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10.1510.9 | | Amendment 1 to Share Purchase Agreement and Option Agreement, dated May 10, 2016 by and Among Everest Display, Inc., Guang FengGuangFeng International, Ltd., Boxlight Holdings, the Registrant,Boxlight Corporation, Boxlight Inc., Boxlight Latinoamerica S.A. and Boxlight Latinoamerica Servicios, S.A. DE C.V. (Incorporated(incorporated by reference to Exhibit 10.36 in the Registration Statement on Form S-1(Reg.S-1 (Reg. No. 333-204811) filed on October 28, 2016). | | |
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10.1610.10 | | | | |
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10.1710.11 | | | | |
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10.1810.12 | | | | |
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10.1910.13 | | | | |
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2110.14 | | | | |
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| 10.15 | | | | |
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| 10.16 | | | | |
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| 10.17 | | | | |
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| 10.18 | | | | |
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| 10.19 | | | | |
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| 10.20 | | | | |
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| 10.21 | | | | |
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| 10.22 | | | | |
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| 10.23 | | | | |
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| 10.24 | | | | |
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| 10.25 | | | | |
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| 10.26 | | | | |
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| 10.27 | | | | |
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| 10.28 | | | | |
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| 10.29 | | | | |
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| 10.30 | | | | |
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| 10.31 | | | | |
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| 10.32 | | | | |
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| 10.33 | | | | |
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| 10.34 | | | | |
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| 10.35 | | | | |
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| 10.36 | | | | |
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| 10.37 | | | | |
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| 10.38 | | | | |
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| 10.39 | | | | |
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| 10.40 | | | | |
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| 10.41 | | | | |
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| 10.42 | | | | |
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| 10.43 | | | | |
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| 10.44 | | | | |
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| 10.45 | | | | |
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| 10.46 | | | | |
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| 10.47 | | | | |
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| 10.48 | | | | |
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| 10.49 | | | | |
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| 10.50 | | | | |
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| 10.51 | | | | |
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| 10.52 | | | | |
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| 10.53 | | | | |
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| 10.54 | | | | |
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| 10.55 | | | | |
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| 10.56 | | | | |
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| 10.57 | | | | |
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| 10.58 | | | | |
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| 10.59 | | | | |
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| 10.60 | | | | |
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| 10.61 | | | | |
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| 10.62 | | | | |
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| 10.63 | | | | |
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| 10.64 | | | | |
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| 10.65 | | | | |
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| 10.66 | | | | |
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| 10.67 | | | | |
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| 10.68 | | | | |
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| 10.69 | | | | |
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| 10.71 | | | | |
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| 10.80 | | | | |
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| 10.81 | | | | |
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| 10.82 | | | | |
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| 10.83 | | | | |
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| 14.1 | | | | |
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| 16.1 | | | | |
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| 19.1 | | | | |
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| 21.1 | | | | |
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31.123.1 | | | | |
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| 31.1 | | | | |
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| 31.2 | | | | |
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| 32.1 | | | | |
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| 32.2 | | | | |
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| 101.INS | | Inline XBRL Instance DocumentDocument.* | | |
| | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema DocumentDocument.* | | |
| 101.CAL | | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | | |
| | | | |
| 101.DEF | | Inline XBRL Taxonomy Definition Linkbase DocumentDocument.* | | |
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| 101.LAB | | Inline XBRL Taxonomy Label Linkbase DocumentDocument.* | | |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase DocumentDocument.* | | |
| | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | | |
*filed herewith.
**Furnished herewith
ITEM 16. FORM 10-K SUMMARY
None.
Pursuant to the requirements of
Section 13 or 15(d) of the Securities
Exchange Act of
19331934, the
registrantRegistrant has duly caused this
registration statementamendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Lawrenceville, of the State of Georgia, on this 2ndday of April, 2018.authorized. | | | | | | | | |
| BOXLIGHT, CORPORATION |
| | (Registrant) |
| | |
| By: | By: | /s/ JAMES MARK ELLIOTTDALE W. STRANG |
| | James Mark ElliottDale W. Strang |
| | Chief Executive Officer |
| | Principal Executive Officer |
Date: March 14, 2024
Pursuant to the requirements of the Securities
Exchange Act of
1933,1934, this
registration statementreport has been signed
below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Title | Date |
| | | | |
/s/ JAMES MARK ELLIOTTDale W. Strang | | Chief Executive Officer | | March 14, 2024 |
| Dale W. Strang | | (principal executive officer) | | |
| | | | |
| | | | |
| /s/ Gregory S. Wiggins | | Chief Financial Officer | | March 14, 2024 |
| Gregory S. Wiggins | | (principal financial and Chairmanaccounting officer) | | |
| | | | |
| /s/ Rudolph F. Crew | | Director | | March 14, 2024 |
| Rudolph F. Crew | | | | |
| | | | |
| /s/ Roger W. Jackson | | Director (Chairman of the BoardBoard) | | April 2, 2018March 14, 2024 |
JamesRoger W. Jackson | | | | |
| | | | |
| /s/ Tiffany Kuo | | Director | | March 14, 2024 |
| Tiffany Kuo | | | | |
| | | | |
| /s/ Charles P. Amos | | Director | | March 14, 2024 |
| Charles P. Amos | | | | |
| | | | |
| /s/ Michael R. Pope | | Director | | March 14, 2024 |
| Michael R. Pope | | (former Chairman and Chief Executive Officer) | | |
| | | | |
| /s/ Mark Elliott | | Director | | (Principal Executive Officer) | March 14, 2024 |
| Mark Elliott | | | | |
/S/ Henry (“Hank”) Nance | | Chief Operating Officer | | April 2, 2018 |
Henry (“Hank”) Nance | | | | |
| | | | |
/s/ TAKESHA BROWN | | Chief Financial Officer | | April 2, 2018 |
Takesha Brown | | (Principal Financial and Accounting Officer) | | |
| | | | |
/s/ MICHAEL POPE | | President and Director | | April 2, 2018 |
Michael Pope | | | | |
| | | | |
/s/Tiffany Kuo | | Director | | April 2, 2018 |
Tiffany Kuo | | | | |
| | | | |
/s/Steve Hix | | Director | | April 2, 2018 |
Steve Hix | | | | |
| | | | |
/s/Dale Strang | | Director | | April 2, 2018 |
Dale Strang | | | | |
| | | | |
| | Director | | April 2, 2018 |
Dr. Rudolph Crew | | | | |
| | | | |
| | Director | | April 2, 2018 |
Harold Bevis | | | | |
Index to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of
Boxlight Corporation
Lawrenceville, Georgia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Boxlight Corporation (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Other matters
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net cash used in operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
We have served as the Company’s auditor since 2014.
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
April 2, 2018
Boxlight Corporation
Consolidated Balance Sheets
As of December 31, 2017 and December 31, 2016
| | | December 31, 2017 | | | December 31, 2016* | |
| ASSETS | | | | | | | | |
| Current asset: | | | | | | | | |
| Cash and cash equivalents | | $ | 2,010,325 | | | $ | 456,502 | |
| Accounts receivable – trade, net of allowances | | | 3,089,932 | | | | 2,943,954 | |
| Inventories, net of reserve | | | 4,626,569 | | | | 4,164,116 | |
| Prepaid expenses and other current assets | | | 388,006 | | | | 447,036 | |
| Total current assets | | | 10,114,832 | | | | 8,011,608 | |
| | | | | | | | | |
| Property and equipment, net of accumulated depreciation | | | 29,752 | | | | 60,040 | |
| Intangible assets, net of accumulated amortization | | | 6,126,558 | | | | 6,833,477 | |
| Goodwill | | | 4,181,991 | | | | 4,181,991 | |
| Other assets | | | 292 | | | | 33,262 | |
| Total assets | | $ | 20,453,425 | | | $ | 19,120,378 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 2,994,918 | | | $ | 4,453,893 | |
| Accounts payable and accrued expenses – related parties | | | 4,391,713 | | | | 3,754,050 | |
| Short-term debt | | | 752,449 | | | | 2,791,582 | |
| Short-term debt – related parties | | | 54,000 | | | | 876,550 | |
| Convertible notes payable – related party | | | 50,000 | | | | 50,000 | |
| Deferred revenues – short-term | | | 1,127,423 | | | | 495,603 | |
| Other short-term liabilities | | | - | | | | 251,537 | |
| Total current liabilities | | | 9,370,503 | | | | 12,673,215 | |
| | | | | | | | | |
| Long-term convertible note payable – related parties | | | - | | | | 4,060,785 | |
| Deferred revenues – long-term | | | 175,294 | | | | 272,123 | |
| | | | | | | | | |
| Total liabilities | | | 9,545,797 | | | | 17,006,123 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 250,000 and 1,270,000 shares issued and outstanding, respectively | | | 25 | | | | 127 | |
| Common stock, $0.0001 par value, 200,000,000 shares authorized; 9,558,997 and 4,621,687 Class A shares issued and outstanding, respectively | | | 956 | | | | 461 | |
| Additional paid-in capital | | | 23,740,751 | | | | 7,615,732 | |
| Subscriptions receivable | | | (325 | ) | | | (325 | ) |
| Accumulated deficit | | | (12,785,931 | ) | | | (5,488,822 | ) |
| Other comprehensive loss | | | (47,848 | ) | | | (12,918 | ) |
| Total stockholders’ equity | | | 10,907,628 | | | | 2,114,255 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 20,453,425 | | | $ | 19,120,378 | |
* Financial information has been retrospectively adjusted for the acquisitions of Mimio and Genesis.
See accompanying notes to the financial statements.
Boxlight Corporation
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31, 2017 and 2016
| | | | 2017 | | | | 2016 | * |
| | | | | | | | | |
| Revenues | | $ | 25,743,612 | | | $ | 20,371,826 | |
| Cost of revenues | | | 19,329,831 | | | | 12,959,749 | |
| Gross profit | | | 6,413,781 | | | | 7,412,077 | |
| | | | | | | | | |
| Operating expense: | | | | | | | | |
| General and administrative expenses | | | 13,086,120 | | | | 7,689,898 | |
| Research and development | | | 465,940 | | | | 1,008,433 | |
| Total operating expense | | | 13,552,060 | | | | 8,698,331 | |
| | | | | | | | | |
| Loss from operations | | | (7,138,279 | ) | | | (1,286,254 | ) |
| | | | | | | | | |
| Other income (expense): | | | | | | | | |
| Interest expense, net | | | (635,445 | ) | | | (818,234 | ) |
| Other income, net | | | 200,589 | | | | 42,505 | |
| Gain on settlement of liabilities, net | | | 276,026 | | | | - | |
| Total other income (expense) | | | (158,830 | ) | | | (775,729 | ) |
| | | | | | | | | |
| Net loss | | $ | (7,297,109 | ) | | $ | (2,061,983 | ) |
| | | | | | | | | |
| Comprehensive loss: | | | | | | | | |
| Net loss | | $ | (7,297,109 | ) | | $ | (2,061,983 | ) |
| Other comprehensive loss: | | | | | | | | |
| Foreign currency translation loss | | | (34,930 | ) | | | (12,918 | ) |
| Total comprehensive loss | | $ | (7,332,039 | ) | | $ | (2,074,901 | ) |
| | | | | | | | | |
| Net loss per common share – basic and diluted | | $ | (1.34 | ) | | $ | (0.48 | ) |
| Weighted average number of common shares outstanding – basic and diluted | | | 5,455,161 | | | | 4,299,315 | |
* Financial information has been retrospectively adjusted for the acquisitions of Mimio and Genesis.
See accompanying notes to the financial statements
Boxlight Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2017 and 2016
| | | Series A | | | Series B | | | Series C | | | Class A | | | Additional | | | | | | Other | | | | | | | |
| | | Preferred Stock | | | Preferred Stock | | | Preferred Stock | | | Common Stock | | | Paid-in | | | Subscriptions | | | Comprehensive | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Capital* | | | Receivable* | | | Loss | | | Deficit* | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2015 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 4,183,030 | | | $ | 418 | | | $ | 3,469,703 | | | $ | (1,975) | | | $ | - | | | $ | (3,426,839 | ) | | $ | 41,307 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity transactions in connection with the acquisitions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Additional consideration given to Mim Holdings for Mimio acquisition | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,000,000 | ) | | | - | | | | - | | | | - | | | | (2,000,000 | ) |
| Acquisition of Genesis | | | - | | | | - | | | | 1,000,000 | | | | 100 | | | | - | | | | - | | | | - | | | | - | | | | (100 | ) | | | - | | | | - | | | | - | | | | - | |
| Assumption of debt for Mimio acquisition | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,425,000 | ) | | | - | | | | - | | | | - | | | | (3,425,000 | ) |
| Acquisition of Boxlight Group | | | - | | | | - | | | | - | | | | - | | | | 270,000 | | | | 27 | | | | - | | | | - | | | | 8,243,270 | | | | - | | | | - | | | | - | | | | 8,243,297 | |
| Shares issued for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock for cash to K-Laser | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 178,572 | | | | 18 | | | | 999,985 | | | | - | | | | - | | | | - | | | | 1,000,003 | |
| Issuance of common stock for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 51,879 | | | | 5 | | | | 218,999 | | | | (100) | | | | - | | | | - | | | | 218,904 | |
| Settlement of accounts payable and debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 208,206 | | | | 20 | | | | 236,809 | | | | - | | | | - | | | | - | | | | 236,829 | |
| Collection of subscriptions receivable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | 1,750 | | | | - | | | | - | | | | 1,750 | |
| Forgiveness of related party debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 222,370 | | | | - | | | | - | | | | - | | | | 222,370 | |
| Distribution to Vert Capital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (814,625 | ) | | | - | | | | - | | | | - | | | | (814,625 | ) |
| Stock compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 464,321 | | | | - | | | | - | | | | - | | | | 464,321 | |
| Foreign currency translation loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (12,918 | ) | | | - | | | | (12,918 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,061,983 | ) | | | (2,061,983 | ) |
| | | | - | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | | | - | | | | - | | | | 1,000,000 | | | $ | 100 | | | | 270,000 | | | $ | 27 | | | | 4,621,687 | | | $ | 461 | | | | 7,615,732 | | | | (325) | | | | (12,918 | ) | | | (5,488,822 | ) | | | 2,114,255 | |
| Equity transactions in connection with IPO: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common shares for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 958,983 | | | | 96 | | | | 5,678,513 | | | | | | | | - | | | | - | | | | 5,678,609 | |
| Issuance of common shares for settlement of accounts payable | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 41,017 | | | | 4 | | | | 287,115 | | | | - | | | | - | | | | - | | | | 287,119 | |
| Conversion of preferred stock to common stock for Genesis | | | - | | | | - | | | | (1,000,000 | ) | | | (100 | ) | | | | | | | | | | | 370,040 | | | | 37 | | | | 63 | | | | - | | | | - | | | | - | | | | - | |
| Conversion of preferred stock to common stock for Boxlight Group acquisition | | | - | | | | - | | | | - | | | | - | | | | (270,000 | ) | | | (27 | ) | | | 2,055,873 | | | | 206 | | | | (179 | ) | | | - | | | | - | | | | - | | | | - | |
| Issuance of Series A preferred stock for Genesis acquisition | | | 250,000 | | | | 25 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (25 | ) | | | - | | | | - | | | | - | | | | - | |
| Issuance of common shares to directors | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 186,000 | | | | 19 | | | | 1,301,981 | | | | - | | | | - | | | | - | | | | 1,302,000 | |
| Settlement of trademark liability | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 278,887 | | | | - | | | | - | | | | - | | | | 278,887 | |
| Issuance of common shares for legal services | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 138,692 | | | | 14 | | | | (14 | ) | | | - | | | | - | | | | - | | | | - | |
| Shares issued for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Settlement of accounts payable – related parties for common shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 238,095 | | | | 24 | | | | 1,499,976 | | | | - | | | | - | | | | - | | | | 1,500,000 | |
| Conversion of EDI note for common shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 327,027 | | | | 33 | | | | 2,060,241 | | | | - | | | | - | | | | - | | | | 2,060,274 | |
| Conversion of Marlborough note for common shares | | | | | | | | | | | | | | | | | | | | | | | | | | | 330,135 | | | | 33 | | | | 2,079,820 | | | | - | | | | - | | | | - | | | | 2,079,853 | |
| Exercise of stock options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 291,448 | | | | 29 | | | | (29 | ) | | | - | | | | - | | | | - | | | | - | |
| Stock compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,938,670 | | | | - | | | | - | | | | - | | | | 2,938,670 | |
| Foreign currency translation loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (34,930 | ) | | | - | | | | (34,930 | ) |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,297,109 | ) | | | (7,297,109 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2017 | | | 250,000 | | | $ | 25 | | | | - | | | $ | - | | | | - | | | $ | - | | | | 9,558,997 | | | $ | 956 | | | $ | 23,740,751 | | | $ | (325) | | | $ | (47,848 | ) | | $ | (12,785,931 | ) | | $ | 10,907,628 | |
* Financial information has been retrospectively adjusted for the acquisitions of Mimio and Genesis.
See accompanying notes to the financial statements
Boxlight Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2017 and 2016
| | | 2017 | | | 2016* | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (7,297,109 | ) | | $ | (2,061,983 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | | | |
| Bad debt expense | | | (88,783 | ) | | | 425,155 | |
| Change in allowance for sales returns and volume rebate | | | 407,655 | | | | 53,031 | |
| Change in inventory reserve | | | 134,200 | | | | 13,610 | |
| Stock compensation expense | | | 4,240,670 | | | | 464,321 | |
| Depreciation and amortization | | | 747,208 | | | | 353,386 | |
| Loss on disposal of other assets | | | 7,108 | | | | - | |
| Amortization of debt discount | | | - | | | | 17,607 | |
| Debt extension fees through increased principal for Skyview Note | | | - | | | | 350,000 | |
| Gain on settlement of debt | | | (276,026 | ) | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable – trade | | | (464,657 | ) | | | (909,466 | ) |
| Inventories | | | (596,653 | ) | | | 2,654,058 | |
| Prepaid expenses and other current assets | | | 78,679 | | | | 324,807 | |
| Accounts payable and accrued expenses | | | (985,986 | ) | | | (8,621 | ) |
| Accounts payable and accrued expenses – related parties | | | 2,137,661 | | | | 637,681 | |
| Deferred revenues | | | 614,337 | | | | 4,358 | |
| Other short-term liabilities | | | (1,686 | ) | | | (8,346 | ) |
| Accrued interest on long-term debt – related parties | | | - | | | | 60,785 | |
| Net cash (used in) provided by operating activities | | | (1,343,382 | ) | | | 2,370,383 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Cash acquired through the acquisition of Boxlight Group and Mimio | | | - | | | | 357,573 | |
| Payment made for purchase of intangible assets | | | (10,001 | ) | | | - | |
| Proceeds from sale of property and equipment and other assets | | | - | | | | 9,033 | |
| Net cash (used in) provided by investing activities | | | (10,001 | ) | | | 366,606 | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from short-term debt | | | 10,214,673 | | | | 6,701,590 | |
| Proceeds from short-term debt – related parties | | | - | | | | 239,000 | |
| Principal payments on short-term debt | | | (12,143,023 | ) | | | (10,580,414 | ) |
| Principal payments on short-term debt-related party | | | (822,550 | ) | | | - | |
| Principal payments on convertible debt – related party | | | - | | | | (60,000 | ) |
| Proceeds from subscriptions receivable | | | - | | | | 1,750 | |
| Distributions to the member of Mimio | | | - | | | | (814,625 | ) |
| Proceeds from issuance of common stock at IPO | | | 5,678,609 | | | | 1,218,907 | |
| Proceeds from issuance of common stock upon exercise of options | | | 29 | | | | - | |
| Net cash (used in) provided by financing activities | | | 2,927,738 | | | | (3,293,792 | ) |
| | | | | | | | | |
| Effect of currency exchange rates | | | (20,532 | ) | | | 19,202 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 1,553,823 | | | | (537,601 | ) |
| | | | | | | | | |
| Cash and cash equivalents, beginning of the year | | | 456,502 | | | | 994,103 | |
| | | | | | | | | |
| Cash and cash equivalents, end of the year | | $ | 2,010,325 | | | $ | 456,502 | |
| | | | | | | | | |
| Supplemental cash flows disclosures: | | | | | | | | |
| Cash paid for interest | | $ | 518,106 | | | $ | 748,261 | |
| Cash paid for income taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
| Non-cash investing and financing activities: | | | | | | | | |
| Decrease in additional paid-in capital due to the acquisitions of Mimio and Genesis under common control | | $ | - | | | $ | 5,425,100 | |
| Intangibles and goodwill acquired through acquisitions of Mimio and Boxlight Group | | $ | - | | | $ | 10,887,060 | |
| Issuance of note payable and long-term convertible note payable to acquire Mimio | | $ | - | | | $ | 5,425,000 | |
| Issuance of Series A Preferred stock for the acquisition of Genesis | | $ | 25 | | | $ | - | |
| Issuance of Series B Preferred Stock for the acquisition of Genesis | | $ | - | | | $ | 100 | |
| Issuance of Series C Preferred Stock for the acquisition of Boxlight Group | | $ | - | | | $ | 8,243,297 | |
| Issuance of note payable to settle accounts payable | | $ | - | | | $ | 2,547,538 | |
| Forgiveness of short-term debt – related parties | | $ | - | | | $ | 222,370 | |
| Conversion of Series B and C Preferred Stock to common stock upon IPO | | $ | 127 | | | $ | - | |
| Conversion of convertible note payable – related parties to common stock | | $ | 4,140,127 | | | $ | - | |
| Settlement of short-term debt through issuance of common stock | | $ | - | | | $ | 115,919 | |
| Settlement of accounts payable through issuance of common stock | | $ | 1,787,119 | | | $ | 120,910 | |
| Settlement of trademark liability at IPO date | | $ | 250,000 | | | $ | - | |
* Financial information has been retrospectively adjusted for the acquisition of Genesis.
See accompanying notes to the financial statements.
Boxlight Corporation
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Boxlight Corporation (the “Company” or “Boxlight Parent”) was incorporated in the State of Nevada on September 18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational products.
Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”) were incorporated on July 11, 2009, October 17, 2002 and October 17, 2002, respectively. The Boxlight Group is involved principally in the distribution of interactive projectors and integrated solutions that enhance learning and enable people to collaborate with each other in innovative and effective ways. On July 18, 2016, the Company acquired Boxlight Group. Boxlight Group was previously wholly owned by Everest Display Inc., a manufacturing company in Taiwan. In May 2016, Everest Display Inc. agreed to sell all of its ownership in Boxlight Group to the Company.
Mimio LLC (“Mimio”) was formed in Delaware on July 1, 2013. Mimio designs, develops and sells interactive classroom technology products, of which Mimio owns most of the design and performance patents, and which are manufactured by contract manufacturers in Hong Kong and China. Mimio also purchases and sells other non-proprietary products such as classroom projectors and flat panel displays as an original equipment manufacturer (“OEM”) from manufacturers in China and Taiwan. The primary market for Mimio’s products is classrooms K-12. All of the products are integrated in the classroom through Mimio’s award winning operating software “Mimio Studio.” Mimio’s products are distributed globally through a network of value added resellers (“VARs”) in the U.S. and Canada, and through master distributors in the rest of the world. On November 4, 2015, Mimio was acquired by Mim Holdings, Inc. (“Mim Holdings”), a Delaware corporation wholly-owned by Marlborough Trust. Marlborough Trust was established for the benefit of members of the families of Adam Levin and Michael Pope, our President and Director. On April 1, 2016, Boxlight Parent acquired 100% of the membership interests in Mimio from Mim Holdings.
Genesis Collaboration, LLC (“Genesis”) was formed as a limited liability company in September 2011 in Atlanta, Georgia, to provide solutions that enhance interactive learning in the business, government, and education markets. Genesis is a technology provider that facilitates effective communication in schools, training facilities and workplaces around the world. Genesis offers a wide range of integrated products that change the way individuals collaborate and learn. In the classroom, Genesis offers a wide range of integrated interactive solutions that transform the way teachers deliver lessons and assess progress. Genesis’ products include interactive whiteboard systems, interactive tables, interactive and standard projectors, audio systems, data loggers, software, assessment and student response systems. On October 31, 2013, Vert Capital’s subsidiary acquired all of the outstanding membership interests of Genesis. On May 12, 2016, the Company acquired Genesis from Vert Capital.Effective August 1, 2016, Genesis was merged into Boxlight Inc.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Acquisitions from Vert Capital and Mim Holdings are considered common control transactions. When businesses acquired from Vert Capital and Mim Holdings were consolidated by us, they were accounted for as if the transfer had occurred at the beginning of the period of transfer, with prior periods retrospectively adjusted to furnish comparative information. The acquisitions of Mimio and Genesis were transfers of businesses between entities under common control. Accordingly, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of the acquired entities prior to the effective dates of such acquisitions. The information prior to the Company’s incorporation on September 18, 2014 represents the historical results of Genesis as Genesis was first controlled by Vert Capital and determined to be our predecessor entity for accounting purposes. The financial information for Mimio has been included in the Company’s consolidated financial statements beginning on November 4, 2015 when Mimio was acquired by Mim Holdings Boxlight Group was acquired by the Company on July 18, 2016. The acquisition of Boxlight Group was accounted for under the acquisition method of accounting. See Note 3— Acquisitions, for additional information.
The accompanying consolidated financial statements include the accounts of Boxlight Corporation, Boxlight Group, Mimio and Genesis. Transactions and balances among Boxlight Corporation, Boxlight Group, Mimio and Genesis have been eliminated. The assets and liabilities of Mimio and Genesis in these financial statements have been reflected on a historical cost basis because the transfers of Mimio and Genesis to the Company are considered common control transactions. When the Company acquired Mimio and Genesis, the Company, Mimio and Genesis were under direct or indirect control of Vert Capital. The accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. Significant estimates include estimates of allowances for bad debts, inventory obsolescence, initial valuations and recoverability of intangible assets including goodwill, stock compensation, fair values of assets acquired and estimates for contingent liabilities related to debt obligations and litigation matters.
FOREIGN CURRENCIES
The Company’s functional currency is the U.S. dollar. BLA and BLS’s functional currency is the Mexican Peso. The Company translates their financial statements from their functional currencies into the U.S. dollar.
An entity’s functional currency is the currency of the primary economic environment in which it operates and is generally the currency in which the business generates and expends cash. BLA and BLS, whose functional currency is the Mexican Peso, translate their assets and liabilities into U.S. dollars at the exchange rates in effect as of the balance sheet date. Revenues and expenses are translated into U.S. dollars at the average exchange rates for the year. Translation adjustments are included in accumulated other comprehensive income (loss), a separate component of equity (deficit). Foreign exchange gains and losses included in net income result from foreign exchange fluctuations on transactions denominated in a currency other than an entity’s functional currency.
Acquisition OF BOXLIGHT GROUP
The financial statements include the operations of Boxlight Group after the completion of the acquisition on July 18, 2016. We accounted for the acquisition of Boxlight Group using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill. The estimated fair values of assets acquired and liabilities assumed were determined based on management’s best estimates. Preliminary estimated fair values are subject to measurement period adjustments which represent updates made to the preliminary purchase price allocation based on revisions to valuation estimates in the interim period subsequent to the acquisition and initial accounting date up until the purchase price allocation is finalized which cannot be any later than one year from the acquisition date.
Common control transactions
Businesses acquired from Vert Capital are accounted for as common control transactions whereby the net assets (liabilities) acquired (assumed) are combined with the Company’s at their historical carrying value. Any difference between carrying value and recognized consideration is treated as a capital transaction. Cash received from the acquired entities is presented as an investing activity in our consolidated statement of cash flows.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value. The Company maintains cash balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits of $250,000 for banks located in the U.S. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any rick of loss on its cash bank accounts.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at historical carrying amounts, net of write-offs and allowance for doubtful accounts. Allowance for doubtful accounts represents management’s estimate of the amount that ultimately will be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of receivables and knowledge of the individual customers. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value and included spare parts and finished goods. Inventories are primarily determined using specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes direct cost from the CM or OEM, plus material overhead related to the purchase, inbound freight and import duty costs.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer preferences, market and economic conditions.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated life of the asset. Repairs and maintenance are charged to expense as incurred.
LONG–LIVED ASSETS
Long-lived assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported at the lower of its carrying amount or fair value less cost to sell.
Intangible assets
Intangible assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Intangible assets and goodwill are tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. Goodwill is not amortized and is not deductible for tax purposes.
DEBT DISCOUNT AND DEBT ISSUANCE COSTS
Debt discount is amortized over the term of the debt using the effective interest rate method. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
DEFERRED REVENUE
Deferred revenue represents amounts collected for any extended warranty that is separately priced. The Company recognizes revenue from extended warranty contracts using the straight-line method over the estimated life of the product which is three years.
REVENUE RECOGNITION
Revenue is comprised of product sales and service revenue, net of sales returns, co-operative advertising credits, early payment discounts, and special incentive payments (“SPIFF”) paid to the VARs. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue from product sales is derived from the sale of projectors, interactive panels and related accessories. Evidence of an arrangement consists of an order from its distributors, resellers or end users. The Company considers delivery to have occurred once title and risk of loss has been transferred.
Service revenue is comprised of product installation services and training services. These service revenues are normally entered into at the time products are sold. Service prices are established depending on product equipment sold and include a cost value for the estimated services to be performed based on historical experience. The Company outsources installation and training services to third parties and recognizes revenue upon completion of the services.
The Company evaluates the criteria outlined in FASB ASC Subtopic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as revenue. Generally, when the Company is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers, or has several but not all of these indicators, revenue is recorded at the gross amount. If the Company is not primarily obligated and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, the Company generally records the net amounts as revenue earned.
The Company’s standard terms and conditions of sale do not allow for product returns and it generally does not allow product returns other than under warranty. However, the Company, on a case by case basis, will grant exceptions, mostly “buyer’s remorse” where the VAR’s end user customer either did not understand what they were ordering, or determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends.
While the Company uses resellers and distributors to sell its products, the Company’s sale agreements do not contain any special pricing incentives, right of return or other post shipment obligations.
Before Mimio was acquired by the Company, it generally provided 24 to 60 months of warranty coverage on all of its products. Mimio product’s standard warranty period is 24 months, which can be extended to 60 months upon the end user “registering” their device on-line. The Company’s warranty provides for repair or replacement of the associated products during the warranty period. The Company does not record warranty cost upon sale, and instead conducts a quarterly review of the warranty liability reserve, and based on historical cost-to-trailing revenue history, will adjust up or down the warranty liability, with the offset to this adjustment posted to cost of revenue.
After the acquisitions of Mimio, Genesis and Boxlight Group, the Company determined a new warranty policy to provide 12 to 36 months warranty coverage on projectors, displays, accessories, batteries and computers except when sold through a “Premier Education Partner” or sold to schools where the Company provides a 60 month warranty. The Company establishes a liability for estimated product warranty costs at the time product revenue is recognized, if the liability is expected to be material. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.
The Company offers sales incentives where the Company offers discounted products delivered by the Company to its resellers and distributors that are redeemable only if the resellers and distributors complete specified cumulative levels of revenue agreed to and written into their reseller and distributor agreements through an executed addendum. The resellers and distributors have to submit a request for the discounted products and cannot redeem additional discounts within 180 days from the date of the discount given on like products. The value of the award products as compared to the value of the transactions necessary to earn the award is generally insignificant in relation to the value of the transactions necessary to earn the award. The Company estimates and records the cost of the products related to the incentive as marketing expense based on analyses of historical data.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred and consists primarily of personnel related costs, prototype and sample costs, design costs, and global product certifications mostly for wireless certifications.
INCOME TAXES
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
SHARE-BASED COMPENSATION
The Company estimates the fair value of each share-based compensation award at the grant date by using the Black-Scholes option pricing model. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
SUBSEQUENT EVENTS
The Company has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new guidance provides new criteria for recognizing revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance requires expanded disclosures to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. Quantitative and qualitative information will be provided about the significant judgments and changes in those judgments that management made to determine the revenue that is recorded. This accounting standard update, as amended, will be effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. Early adoption is permitted, but no earlier than fiscal 2017. The Company is currently assessing the provisions of the guidance and has not determined the impact of the adoption of this guidance on its consolidated financial statements.
In August 2014, the FASB issued ACU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to assess the company’s ability to continue as a going concern. Disclosures are required if there is substantial doubt as to the company’s continuation as a going concern within one year after the issue date of financial statements. The standard provides guidance for making the assessment, including consideration of management’s plans which may alleviate doubt regarding the Company’s ability to continue as a going concern. ASU 2014-15 is effective for years ending after December 15, 2016. The Company adopted this standard for the year ending December 31, 2016. There was no significant impact in the financial results.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU was effective for annual periods beginning after December 15, 2015. The Company adopted this guidance 2016. There was no significant impact in the financial results.
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In April 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (topic 718). The FASB issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company adopted this guidance for the year ending December 31, 2017. There was no significant impact in the financial results.
There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.
NOTE 2 – GOING CONCERN
These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligation currently in default or negotiate alternative repayment arrangements, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of December 31, 2017, the Company had an accumulated deficit of $12,785,931 and net working capital of $744,329. During the year ended December 31, 2017, the Company incurred a net loss of $7,297,109 and net cash used in operations was $1,343,382. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is seeking to obtain funds for operations from its initial public offering and support from its majority shareholder.
NOTE 3 – ACQUISITIONS
Acquisition of Mimio
Effective April 1, 2016, pursuant to a membership interest purchase agreement, the Company acquired 100% of the membership interest in Mimio from Mim Holdings. As consideration, the Company issued a $2,000,000 unsecured convertible promissory note (the “Marlborough Note”) to Marlborough Trust. See Note 13.
Additionally, the Company assumed from Mim Holdings a $3,425,000 senior secured note (the “Skyview Note”) that is payable to Skyview Capital, LLC, (“Skyview”), the former equity owner of Mimio and interest accrued on the note. The Skyview Note was issued by Mim Holdings to Skyview on November 4, 2015 as payment for the acquisition of 100% of the membership equity of Mimio. See Note 10.
The Company’s financial statements include Mimio’s assets and liabilities at the historical cost of Mim Holdings. Mimio was acquired by Mim Holdings on November 4, 2015. Mim Holdings accounts for acquired businesses using the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired is recorded as goodwill.
The following table shows the purchase price, acquisition-date fair values of the assets acquired and liabilities assumed and calculation of goodwill utilizing the information at November 4, 2015, when Mim Holdings acquired Mimio. Subsequently on April 1, 2016, the Company acquired Mimio from Mim Holdings in a transaction between entities under common control. Accordingly, the purchase price allocation reflects the fair value as of the date acquired by Mim Holdings. Upon acquisition by the Company, these amounts were recorded on the historical cost basis of Mim Holdings.
| Assets acquired: | | | | |
| Current assets | | $ | 6,677,842 | |
| Intangible assets | | | 179,722 | |
| Goodwill | | | 44,931 | |
| Total assets | | | 6,902,495 | |
| Total liabilities | | | (3,477,495 | ) |
| | | | | |
| Net assets acquired | | $ | 3,425,000 | |
Acquisition of Genesis
On May 12, 2016, Vert Capital contributed 100% of the membership interests in Genesis to the Company. In connection with the Company’s acquisition of Genesis, the former members of Genesis received 1,000,000 shares of the Company’s Series B Preferred Stock which automatically converted into 370,040 shares that represent 4.0% of the Company’s fully diluted common stock as defined in the agreement at the IPO date. Upon completion of the Company’s initial public offering, an aggregate of 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital. Such 250,000 shares of the Company’s non-voting convertible Series A preferred stock will automatically convert into 398,406 shares of our Class A common stock on November 30, 2018, which is one year from the date of the Company’s initial public offering.
Common Control Transactions
The acquisitions of Mimio and Genesis were considered as transfers of businesses between entities under common control; and therefore, the assets acquired and liabilities assumed were transferred at historical cost of Vert Capital. Because the acquisitions were common control transactions in which the Company acquired businesses, the Company’s historical financial statements have been retrospectively adjusted to reflect the results of operations, financial position, and cash flows of Mimio and Genesis as if the Company owned Mimio and Genesis for all periods presented from the date Mimio, Genesis and the Company were under common control, which was November 4, 2015 and October 31, 2013, respectively.
Acquisition of Boxlight Group
On July 18, 2016, the Company acquired 100% of the equity interest of Boxlight Group, under the terms of a Share Purchase Agreement entered into on May 10, 2016 with Everest Display, Inc. (“EDI”). Under the terms of the share purchase agreement, Boxlight Holdings, Inc., a newly formed Delaware subsidiary of Boxlight Corporation acquired the equity of Boxlight Group. The Company issued to EDI 270,000 shares of Series C Preferred Stock, that has a stated or liquidation value of $20.00 per share. Upon completion of Boxlight Corporation’s IPO and the listing of its Class A common stock on the Nasdaq Capital Market, the Series C Preferred Stock was automatically converted into 2,055,873 shares of Class A common stock. Such converted shares of Class A common stock issued to EDI or its subsidiaries represented approximately 22.22% of Boxlight Corporation’s fully-diluted common stock upon the Company’s IPO, excluding shares issued for private placements and debt conversions.
Under the terms of the share purchase agreement, as amended on September 28, 2016, Boxlight Corporation agreed to pay EDI approximately $5.75 million of accrued accounts payable owed by Boxlight Group to EDI at September 28, 2016, in the manner set forth below.
| (1) | $1,000,000 was paid at the closing of the acquisition out of the net proceeds of a note issued to Hitachi Capital America Corp. (See Note 10); |
| | |
| (2) | An additional $1,500,000 of the $5.75 million owed to EDI was to be paid by Boxlight Corporation and its subsidiaries in six monthly installments of $250,000 each, commencing 30 days after the initial $1,000,000 payment paid at closing. However, in view of the fact that such installment payments could not then be made by the Company, EDI agreed to convert $1,500,000 accounts payable into 238,095 shares of Boxlight’s Class A common stock in June 2017. |
| | |
| (3) | $2,000,000 of the unpaid balance of the account payable was settled with a 4% non-negotiable convertible promissory note of Boxlight Corporation payable to EDI, together with accrued interest, on March 31, 2019 (the “EDI Note”). In August 2017, the EDI Note was converted into 327,027 shares of Boxlight Corporation’s Class A common stock at a conversion price of $6.30 pursuant to an agreement. The Company recorded no gain or loss from the conversion. |
On the acquisition date, the Company recognized the assets acquired and liabilities assumed from Boxlight Group at their fair value and the excess in purchase price over these values was allocated to goodwill. The estimated fair values of consideration paid, assets acquired and liabilities assumed were determined based on third-party valuation reports provided by specialists.
The following table shows the purchase price, estimated acquisition-date fair values of the assets acquired and liabilities assumed and calculation of goodwill for Boxlight Group utilizing the information at acquisition date.
| Assets acquired: | | | |
| Current assets | | $ | 5,737,836 | |
| Property and equipment | | | 65,866 | |
| Intangible assets | | | 7,000,000 | |
| Other assets | | | 514,696 | |
| Goodwill | | | 4,137,060 | |
| Total assets acquired | | | 17,455,458 | |
| Total liabilities assumed | | | (9,212,161 | ) |
| | | | | |
| Net assets acquired | | $ | 8,243,297 | |
| | | | | |
| Consideration paid: | | | | |
| Issuance of 270,000 shares of Series C preferred stock | | $ | 8,828,353 | |
| Preexisting net payable to Boxlight Group | | | (585,056 | ) |
| | | | | |
| Total | | $ | 8,243,297 | |
The Company valued the Series C Preferred shares issued to EDI based on an entity value of the Company of approximately $39,700,000 and 270,000 shares of the Series C Preferred Stock represents approximately 22.22% of ownership of the Company.
Unaudited Pro Forma Results Of Operation
The following table presents the unaudited condensed pro forma results of operations that reflect the acquisition of Boxlight Group as if the acquisition had occurred as of the first day of the period presented, adjusted for items that are directly attributable to the acquisition. This information has been compiled from historical financial statements and is not necessarily indicative of the results that actually would have been achieved had the transaction already occurred or that may be achieved in the future.
| (in thousands) | | For the year ended
December 31, 2016 | |
| | | | |
| Revenues | | $ | 25,391 | |
| Cost of revenues | | | (16,809 | ) |
| Operating expenses | | | (11,240 | ) |
| Other incomes (expenses) | | | (1,036 | ) |
| Income tax expense | | | - | |
| Net loss | | $ | (3,694 | ) |
| | | | | |
| Net loss per common share | | $ | (0.86 | ) |
| Weighted average outstanding common shares – basic and diluted | | | 4,299,315 | |
The pro forma combined results of operations were adjusted to include Boxlight Group’s operating results for the period from January 1, 2016 to July 18, 2016 since Boxlight Group was acquired by the Company on July 18, 2016. In addition, the pro forma results of operations were adjusted for the following expenses:
| (in thousands) | | For the year ended
December 31, 2016 | |
| | | | |
| Record amortization expense of intangible assets acquired from Boxlight Group | | $ | 385 | |
The Company issued 270,000 shares of Series C preferred stock to the previous owners of Boxlight Group. These shares were automatically converted into Class A common stock upon completion of the Company’s IPO and listing on NASDAQ in November 2017.
NOTE 4 – CASH AND CASH EQUIVALENTS
Cash and cash equivalents held by the Company at December 31, 2017 and December 31, 2016 are summarized as follows:
| | | December 31,
2017 | | | December 31,
2016 | |
| | | | | | | |
| U.S. Dollars | | $ | 2,007,423 | | | $ | 450,549 | |
| Mexican Pesos | | | 2,902 | | | | 5,953 | |
| Total | | $ | 2,010,325 | | | $ | 456,502 | |
NOTE 5 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at December 31, 2017 and 2016:
| | | 2017 | | | 2016 | |
| | | | | | | |
| Accounts receivable - trade | | $ | 3,846,724 | | | $ | 3,562,832 | |
| Allowance for doubtful accounts | | | (200,874 | ) | | | (453,059 | ) |
| Allowance for sales returns and volume rebates | | | (555,918 | ) | | | (165,819 | ) |
| | | | | | | | | |
| Accounts receivable - trade, net of allowances | | $ | 3,089,932 | | | $ | 2,943,954 | |
The Company wrote off accounts receivable of $163,402 and $55,929 for the years ended December 31, 2017 and 2016, respectively.
NOTE 6 – INVENTORIES
Inventories consisted of the following at December 31, 2017 and 2016:
| | | 2017 | | | 2016 | |
| | | | | | | |
| Finished goods | | $ | 4,611,973 | | | $ | 4,102,621 | |
| Spare parts | | | 187,158 | | | | 183,357 | |
| Reserves for inventory obsolescence | | | (172,562 | ) | | | (121,862 | ) |
| | | | | | | | | |
| Inventories, net | | $ | 4,626,569 | | | $ | 4,164,116 | |
The Company wrote off inventories of $83,500 and $326,984 for the years ended December 31, 2017 and 2016, respectively.
NOTE 7 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at December 31, 2017 and 2016:
| | | 2017 | | | 2016 | |
| | | | | | | |
| Prepayments to vendors | | $ | 295,448 | | | $ | 351,408 | |
| Employee receivables | | | 6,203 | | | | 3,571 | |
| Prepaid local taxes | | | 1,015 | | | | 16,385 | |
| Prepaid and refundable income taxes | | | 33,435 | | | | 30,879 | |
| Prepaid licenses and other | | | 51,905 | | | | 44,793 | |
| | | | | | | | | |
| Prepaid expenses and other current assets | | $ | 388,006 | | | $ | 447,036 | |
59
NOTE 8 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2017 and 2016:
| | | Useful lives | | 2017 | | | 2016 | |
| | | | | | | | | |
| Leasehold improvements | | 9-10 years | | $ | 3,355 | | | $ | 3,355 | |
| Office equipment | | 3-5 years | | | 21,341 | | | | 21,341 | |
| Other equipment | | 5 years | | | 42,485 | | | | 42,485 | |
| | | | | | | | | | | |
| Property and equipment, at cost | | | | | 67,181 | | | | 67,181 | |
| Accumulated depreciation | | | | | (37,429 | ) | | | (7,141 | ) |
| | | | | | | | | | | |
| Property and equipment, net of accumulated depreciation | | | | $ | 29,752 | | | $ | 60,040 | |
For the year ended December 31, 2017 and 2016, the Company recorded depreciation expense of $30,288 and $7,141, respectively.
NOTE 9 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consisted of the following at December 31, 2017 and 2016:
| | | Useful lives | | 2017 | | | 2016 | |
| | | | | | | | | |
| Patents | | 10 years | | $ | 67,395 | | | $ | 67,395 | |
| Customer relationships | | 10 years | | | 3,567,396 | | | | 3,567,396 | |
| Trademarks | | 10 years | | | 3,554,932 | | | | 3,544,931 | |
| | | | | | | | | | | |
| Intangible assets, at cost | | | | | 7,189,723 | | | | 7,179,722 | |
| Accumulated amortization | | | | | (1,063,165 | ) | | | (346,245 | ) |
| | | | | | | | | | | |
| Intangible assets, net of accumulated amortization | | | | $ | 6,126,558 | | | $ | 6,833,477 | |
| | | | | | | | | | | |
| Goodwill from acquisition of Mimio | | N/A | | $ | 44,931 | | | $ | 44,931 | |
| Goodwill from acquisition of Boxlight | | N/A | | | 4,137,060 | | | | 4,137,060 | |
| | | | | $ | 4,181,991 | | | $ | 4,181,991 | |
For the year ended December 31, 2017 and 2016, the Company recorded amortization expense of $716,920 and $346,245, respectively.
NOTE 10 – DEBT
The following is debt at December 31, 2017 and 2016:
| | | December 31, 2017 | | | December 31, 2016 | |
| Short-term debt – third parties | | | | | | | | |
| Note payable – Skyview | | $ | - | | | $ | 1,460,508 | |
| Note payable – AHA | | | 250,000 | | | | 610,783 | |
| Line of credit – Crestmark Bank | | | - | | | | 720,291 | |
| Accounts receivable financing – Sallyport Commercial | | | 502,449 | | | | - | |
| Total short-term debt –third parties | | | 752,449 | | | | 2,791,582 | |
| | | | | | | | | |
| Short-term debt – related parties | | | | | | | | |
| Line of credit – Vert Capital | | | - | | | | 822,550 | |
| Note payable – Logical Choice Corporation - Delaware | | | 54,000 | | | | 54,000 | |
| Total short-term debt –related parties | | | 54,000 | | | | 876,550 | |
| | | | | | | | | |
| Convertible debt – related party | | | | | | | | |
| Convertible note payable – Mark Elliott | | | 50,000 | | | | 50,000 | |
| | | | | | | | | |
| Long-term debt – related parties | | | | | | | | |
| Note payable – Marlborough Trust | | | - | | | | 2,040,183 | |
| Note payable - EDI | | | - | | | | 2,020,602 | |
| Total notes payable – related parties | | | - | | | | 4,060,785 | |
| Less: current portion | | | - | | | | - | |
| Total long-term notes payable | | | - | | | | 4,060,785 | |
| | | | | | | | | |
| Total debt | | $ | 856,449 | | | $ | 7,778,917 | |
Short-Term Debt - Third Parties:
Line of Credit – Sy Silverstein
On April 3, 2015, the Company entered into a line of credit agreement with Sy Silverstein, an individual. Pursuant to the agreement, the Company obtained the line of credit for up to a maximum of $300,000 to complete its initial public offering (“IPO”) process. The Company borrowed $100,000 under the agreement. The advances from this agreement accrue interest at 12% per annum, along with a $10,000 documentation fee, and was due on the effective date of the Company’s IPO. The $10,000 documentation fee was recorded as debt discount.
On October 4, 2016, Mr. Silverstein agreed to settle the outstanding principal of $100,000 and accrued interest of $15,919 with 109,915 shares of the Company’s Class A common stock. These shares were valued at $115,919 based on the Company’s most recent trading price of the Class A common stock on the settlement date.
Skyview Note
On April 1, 2016, the Company assumed from Mim Holdings a $3,425,000 senior secured note that was payable to Skyview Capital, the former equity owner of Mimio for the acquisition of Mimio. The Skyview Note accrued interest at 6% per annum and was due on July 3, 2016. The Skyview Note is secured by a lien and security interest on all of the assets of Mimio, subordinating to the Crestmark line of credit, and guaranteed by Vert Capital and VC2 Partners.
On July 5, 2016 and August 3, 2016, the Skyview Note was amended. On July 5, 2016, principal was increased to $3,660,508 to settle $235,508 of accounts payable owed by Mimio to Skyview’s affiliate. On August 3, 2016, the principal of the note was increased to $4,010,508 to include an additional fee of $350,000 to extend the maturity date to December 15, 2016. The Company recorded the $350,000 extension fee to interest expense. Additionally, the Company agreed to pay $2,500,000 of the note on the earlier of (1) September 30, 2016 or (2) the date the Company obtained a new debt facility. The Company made the $2,500,000 payment on September 29, 2016 with the proceeds from a line of credit with Crestmark Bank. The remaining outstanding balance together with any unpaid accrued interest was due and unpaid on December 15, 2016. On December 28, 2016, the Company received a Notice of Default from Skyview because the Company failed to make a $1,460,508 payment on December 15, 2016. On June 1, 2017, we were served with a lawsuit from Skyview seeking judgment on the $1,460,508 outstanding balance due under the defaulted Skyview Note, plus accrued interest thereon, and also seeking to foreclose on the assets of Mimio that is now owned and operated by our Boxlight, Inc.
On September 11, 2017, the outstanding principal and accrued interest were settled in full with funds from the Sallyport Commercial Finance, LLC line of credit. As of December 31, 2016, outstanding principal and accrued interest for the Skyview Note were $1,460,508 and $1,905, respectively.
AHA Note
On June 3, 2016, prior to the Company’s acquisition, Boxlight Group issued a promissory note to AHA Inc. Co Ltd. (“AHA”), a Korean corporation, in the amount of $1,895,413 to settle unpaid accounts payable of $1,866,418 for purchases of inventory. Interest shall be payable in the amount of 6.5% per annum. The principal was due and payable in eight equal monthly principal payments in the amount of $236,926 beginning on June 30, 2016. Interest was to be paid in consecutive monthly installments for eight months.
On November 29, 2017, the outstanding principal and interest were reduced to $500,000 related to a settlement agreement reached with AHA, resulting in a gain on settlement of $304,913. Pursuant to the settlement agreement, the Company was required to pay $250,000 in or before December 2017 and the remaining principal is due in six equal monthly payment of $41,667 commencing January 2018. The balance on the note payable to AHA was $250,000 and $610,783 at December 31, 2017 and 2016, respectively.The Company have made monthly payments in 2018 pursuant to the schedule.
Loan and Security Agreement – Hitachi Capital America Corp.
Effective July 6, 2016, the Company entered into a loan and security agreement with Hitachi Capital America Corp. (“Hitachi”). The agreement allowed the Company to borrow up to $2,500,000 based on the balance of eligible accounts receivable and inventory at an interest rate equal to 1.75% in excess of the prime rate. The loan was due and payable on demand. Under the terms of the Hitachi loan agreement, the Company applied $1,000,000 of the initial funding to pay EDI $1,000,000 in reduction of Boxlight Group’s outstanding accounts payable. The Hitachi loan was secured by all assets of Boxlight Inc. and guaranteed by Boxlight Parent. The outstanding amount payable to Hitachi was paid in full on September 29, 2016, out of the proceeds of the line of credit financing received from Crestmark Bank. In connection with the agreement with Hitachi, the Company paid $18,000 of loan fees which was included in interest expense.
Line of Credit – Crestmark Bank
On September 21, 2016, the Company entered into a $5,000,000 line of credit agreement with Crestmark Bank. Advances against this agreement accrued interest at 2.25% in excess of prime rate, with a minimum rate of 5.75% per annum. The outstanding balance under this agreement was secured by all assets of the Company and its subsidiaries and was due and payable upon demand.
As of December 31, 2016, outstanding principal and accrued interest were $720,291 and $0, respectively. $61,000 of loan fees related to the agreement with Crestmark Bank was included in interest expense.
On January 12, 2017, the Company received a default notice from Crestmark Bank due to the Notice of Default received from Skyview Capital and not meeting the tangible net worth covenant requirement. On February 2, 2017, the Company satisfied in full all obligations due to Crestmark and received a general release from all indebtedness.
Accounts Receivable Financing – Sallyport Commercial Finance
On August 15, 2017, Boxlight Inc, and Genesis entered into a 12-month term account sale and purchase agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 85% of the eligible accounts receivable of the Company with right of recourse back to the Company if the receivables are not collectible. This agreement requires a minimum monthly draw of $1,250,000 with a maximum facility limit of $6,000,000. Advances against this agreement accrue interest at 4% in excess of highest prime rate publicly announced from time to time with a floor of 4.25%. In addition, the Company is required to pay a $950 audit fee per day. The Company granted Sallyport a security interest to all of Boxlight Inc. and Genesis’s assets.
As of December 31, 2017, outstanding principal and accrued interest were $502,449 and $0, respectively. For the year ended December 31, 2017, the Company incurred interest expense and loan fees of $220,607.
Short-Term Debt - Related Parties:
Line of Credit - Vert Capital
On September 30, 2014, the Company entered into a line of credit agreement with Vert Capital. Pursuant to the agreement as amended, the Company obtained a line of credit from Vert Capital up to a maximum of $900,000 to complete its IPO process. The funds originally accrued interest at 10% per annum. Pursuant to an amendment to the purchase agreement with EDI entered in September 2016, the funds began to accrue interest at 5.75% per annum. The advance was due on the effective date of the Company’s IPO. In connection with this agreement, the Company granted Vert Capital a security interest to all of its assets and properties, subordinated to Sallyport’s accounts receivable financing. The outstanding principle and accrued interest payable to Vert Capital of $775,259 was paid in full on December 1, 2017 out of the proceeds of the initial public offering. As of December 31, 2016, outstanding principal and accrued interest under this agreement were $822,550 and $115,319 respectively.
Line of Credit - Logical Choice Corporation-Delaware
On May 21, 2014, the Company entered into a line of credit agreement with Logical Choice Corporation-Delaware (“LCC-Delaware”), former sole member of Genesis. The line of credit allowed the Company to borrow up to $500,000 for working capital and business expansion. The funds when borrowed accrued interest at 10% per annum. Interest accrued on any advanced funds was due monthly and the outstanding principal and any accrued interest were due in full on May 21, 2015. In May 2016, the maturity date was extended to May 21, 2018. The assets of Genesis have been pledged as a security interest against any advances on the line of credit. As of December 31, 2017, outstanding principal and accrued interest under this agreement was $54,000 and $15,916, respectively. As of December 31, 2016, outstanding principal and accrued interest under this agreement was $54,000 and $10,516, respectively.
On September 30, 2014, the Company entered into a line of credit agreement with LCC-Delaware. Pursuant to the agreement, the Company obtained an additional line of credit from LCC-Delaware up to a maximum of $500,000 for a term of 3 years. The advances from this agreement accrue interest at 10% per annum and was due on demand. In connection with this agreement, the Company granted LCC-Delaware a second lien and security interest to all of its assets and properties, subordinated to the line of credit from Vert Capital. Pursuant to an amendment to the purchase agreement with EDI entered in September 2016, LCC - Delaware forgave the entire payable balance of $185,129 and interest of $37,241 owed by the Company. The forgiveness of the debt total of $222,370 was recorded as additional paid in capital.
Convertible Notes Payable - Third Parties:
Convertible Note Payable – Mark Elliott
On January 16, 2015, the Company issued a note to Mark Elliott, the Company’s Chief Executive Officer, in the amount of $50,000. The note is due on December 31, 2018 as amended and bears interest at an annual rate of 10%, compounded monthly. The noted is currently in default and bears a 15% default rate. The note is convertible to the Company’s common stock at the lesser of (i) $6.28 per share, (ii) a discount of 20% to the stock price if the Company’s common stock is publicly traded, or (iii) if applicable, such other amount negotiated by the Company. The note holder may convert all, but not less than all, of the outstanding principal and interest due under this note upon the conversion date. As of December 31, 2017, outstanding principal and accrued interest under this agreement were $50,000 and $14,808, respectively. As of December 31, 2016, outstanding principal and accrued interest under this agreement were $50,000 and $9,809, respectively.
Convertible Note Payable – James Lofgren
On August 19, 2015, the Company issued a convertible promissory note to James Lofgren, spouse of Sheri Lofgren, the Company’s Chief Financial Officer, in the amount of $45,000. The note was due on April 30, 2016 and bears interest at an annual rate of 13%, compounded monthly. Mr. Lofgren may convert all, but not less than all, of the outstanding principal and interest due under this note into the Company’s Class A common stock, at the lesser of (i) $6.28 per share or (ii) a discount of 20% to the trading price if the Company’s common stock is then publicly traded. The outstanding balance under this note was fully repaid on March 31, 2016.
Long-Term Debt - Related Parties:
Marlborough Note Payable
On April 1, 2016, the Company issued a $2,000,000 unsecured convertible promissory note to Marlborough Trust for the acquisition of Mimio. The Marlborough Note is convertible by the holder into the Company’s Class A common stock at a per share conversion price equal to 55% of the initial offering price. The Marlborough note bears a one-time simple interest charge of 8% and was due on March 31, 2019.
On June 27, 2017, the Marlborough Trust entered into a note conversion agreement with Boxlight Parent under which the Marlborough Trust agreed, upon the effective date of the Company’s post-effective amendment to the Company’s registration statement on Form S-1, to convert 100% of the $2,000,000 Marlborough Note and $79,853 of accrued interest into shares of our Class A common stock at a conversion price of $6.30 per share, a total of 330,135 shares upon conversion. The effective date was August 29, 2017 at which time the outstanding note and accrued interest were converted into 330,135 shares.
As of December 31, 2016, outstanding principal and long-term accrued interest for the Marlborough Note were $2,000,000 and $40,183, respectively.
EDI Note Payable
On September 28, 2016, the Company entered into an amendment with EDI for the acquisition of Boxlight Group. The Company agreed to issue a $2,000,000 non-negotiable convertible promissory note (the “EDI Note”) to settle the unpaid balance of the accounts payable owed by Boxlight Group to EDI. The note bears a one-time simple interest charge of 4% and all principal and accrued interest was due on March 31, 2019.
On May 11, 2017, the Company issued a $2,000,000 unsecured convertible promissory note to EDI replacing the 4% non-negotiable convertible promissory note of $2,000,000 issued at September 28, 2016. The new EDI Note was convertible into the Company’s Class A common stock at a per share conversion price equal to 55% of the initial offering price. The new note bears a one-time simple interest charge of 4% and was due on March 31, 2019.
On June 27, 2017, EDI entered into a note conversion agreement with the Company under which EDI agreed, upon the effective date of the Company’s post-effective amendment to the Company’s registration statement on Form S-1, to convert 100% of the $2,000,000 convertible promissory note and $60,274 of accrued interest into shares of our Class A common stock at a conversion price of $6.30 per share, a total of 327,027 shares upon conversion. The effective date was August 29, 2017, at which time the outstanding note and accrued interest were converted into 327,027 shares.
As of December 31, 2016, outstanding principal and long-term accrued interest for EDI Note were $2,000,000 and $20,602, respectively.
NOTE 11 – DEFERRED REVENUE
On July 18, 2016, upon the acquisition of Boxlight Group, the Company assumed a $761,622 future performance obligation for separately priced extended warranties sold by Boxlight Group based on preliminary measurement of the assets acquired and liabilities assumed.
Deferred revenue consisted of the following as of December 31, 2017 and 2016:
| | | December 31, 2017 | | | December 31, 2016 | |
| | | | | | | |
| Balance, beginning of year | | $ | 767,726 | | | $ | - | |
| Assumed from Boxlight Group | | | - | | | | 761,622 | |
| Additions | | | 1,070,528 | | | | 259,744 | |
| Amortization | | | (535,537 | ) | | | (253,640 | ) |
| Balance, ending of year | | | 1,302,717 | | | | 767,726 | |
| | | | | | | | | |
| Deferred revenue – short-term | | | 1,127,423 | | | | 495,603 | |
| Deferred revenue – long-term | | $ | 175,294 | | | $ | 272,123 | |
NOTE 12 – INCOME TAXES
The Company operates in the United States and Mexico. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned. The Company idled its office in Mexico in 2016. For the years ended December 31, 2017 and 2016, the Company has incurred net losses and, therefore, has no tax liability. The cumulative net operating loss carry-forward on tax basis was approximately $7.6 and $4.7 million at December 31, 2017 and 2016, respectively. The value of these carryforwards depends on the Company’s ability to generate taxable income. A change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize our net operating loss carryforwards. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2017 and 2016.
The Company is subject to United States federal income taxes. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows (rounded to nearest $000):
| | | 2017 | | | 2016 | |
| Income tax benefit computed at the statutory rate | | $ | 2,554,000 | | | $ | 722,000 | |
| Stock compensation | | | (1,484,000 | ) | | | (163,000 | ) |
| Non-deductible expenses | | | (21,000 | ) | | | (25,000 | ) |
| Depreciation and amortization expenses | | | (9,000 | ) | | | (4,000 | ) |
| Bad debt expense | | | (31,000 | ) | | | (146,000 | ) |
| Others | | | 12,000 | | | | 144,000 | |
| Effect of U.S. tax law change | | | (1,108,000 | ) | | | - | |
| Change in valuation allowance | | | 87,000 | | | | (528,000 | ) |
| | | | | | | | | |
| Provision for income taxes | | $ | - | | | $ | - | |
On December 22, 2017, new federal tax reform legislation was enacted in the United States (the “2017 Tax Act”), resulting in significant changes from previous tax law. The 2017 Tax Act reduces the federal corporate income tax rate to 21% from 35% effective January 1, 2018. The rate change, along with certain immaterial changes in tax basis resulting from the 2017 Tax Act, resulted in a reduction of the Company’s deferred tax assets of approximately $1.1 million and a corresponding reduction in the valuation allowance.
Significant components of the Company’s deferred tax assets after applying enacted corporate income tax rates are as follows (rounded to nearest $000):
| | | December 31, 2017 | | | December 31, 2016 | |
| Depreciation and amortization expenses | | $ | 8,000 | | | $ | 4,000 | |
| Bad debt expense | | | 106,000 | | | | 146,000 | |
| Others | | | - | | | | 12,000 | |
| Net loss carrying forward | | | 1,589,000 | | | | 1,628,000 | |
| Valuation allowance | | | (1,703,000 | ) | | | (1,790,000 | ) |
| | | | | | | | | |
| Net deferred income tax assets | | $ | - | | | $ | - | |
The tax years from 2014 to 2017 remain open to examination by the major taxing jurisdictions to which the Company is subject.
NOTE 13 – EQUITY
Preferred Shares
The Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 preferred shares consisting of: 1) 250,000 shares of voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,200,000 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 270,000 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) 48,280,000 shares to be designated by the Company’s Board of Directors.
As of December 31, 2016, the Company had issued 1,000,000 shares of Series B Preferred Stock for the acquisition of Genesis and 270,000 shares of Series C Preferred Stock for the acquisition of Boxlight Group. Upon the completion of IPO in November 2017, all of the shares of Series B and C Preferred stock related to the acquisitions of Genesis and Boxlight Group were converted to Class A common stock.
Upon completion of the Company’s initial public offering, an aggregate of 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital for the acquisition of Genesis. All of the Series A Preferred Stock shall be automatically converted into Class A common stock not later than November 30, 2018.
Common Shares
In January 2015, the Company amended its articles of incorporation to state that the Company’s common shares consist of: 1) 150,000,000 shares of Class A voting common stock and 2) 50,000,000 shares of Class B non-voting common stock. Class A and Class B common stock have the same rights except that Class A common stock is entitled to one vote per share while Class B common stock has no voting rights. Upon any public or private sale or disposition by any holder of Class B common stock, such shares of Class B common stock shall automatically convert into shares of Class A common stock. As of December 31, 2017 and 2016, the Company had 9,558,997 and 4,621,687 shares of Class A common stock issued and outstanding, respectively. No class B shares were outstanding at December 31, 2017 and 2016.
Issuances in 2017:
Issuance of common stock in connection with IPO
InNovember 2017, the Company completed its initial public offering and issued 958,983 and 41,017 shares of Class A common stock at $7.00 per share for net proceeds of $5,678,609 and conversion of accounts payable to a third party of $287,119, respectively.
In November 2017, the Company issued 370,040 shares of Class A common stock for the conversion of 1,000,000 shares of Series B preferred stock in relation to the Genesis acquisition.
In November 2017, the Company issued 2,055,873 shares of Class A common stock for the conversion of 270,000 shares of Series C preferred stock in relation to the Boxlight Group acquisition.
Issuance of common stock for directors compensation
In March 2015, and as amended on February 26, 2016, the Company entered into agreements with two new Board members. In consideration of their agreement to serve on the Company’s Board, the Company agreed to sell a number of common shares equal to 0.5% and 1.25%, respectively, of the Company’s fully-diluted common shares to these members on IPO. Upon completion of the IPO, the two members were issued 186,000 shares in total at a purchase price of $0.0001 per share. The Company recognized stock compensation expense of $1,302,000 on the grant date. Additionally, one of the directors receives a fee payable in cash of $50,000 per annum, which commenced on February 26, 2016.
Settlement of trademark liability
On April 16, 2009, Boxlight Inc. entered into a trademark license agreement with Herbert H. Myers whereby Boxlight Inc. agreed to pay Mr. Myers 15% of the quarterly net income of Boxlight Inc. This payment shall continue until $1,250,000 is paid, upon which, the license fee shall drop to 10%. Upon reaching the aggregate sum of $2,500,000 or 10 years of licensing, whichever comes first, the trademark will be sold to Boxlight Inc. for $1. Through the period ended December 31, 2014, Boxlight Inc. paid $32,580 related to this agreement.
In October 2014, Boxlight Inc. entered into an amendment to the trademark license agreement with Mr. Myers, whereby Mr. Myers agreed to sell the trademark for $250,000. Payment would be made through the issuance of shares of Boxlight Corporation by dividing $250,000 by the initial price per share of shares of Boxlight Corporation’s common stock sold in the initial public offering of Boxlight Corporation. In 2014, the Company issued 39,841 shares to Mr. Myers as security deposit. The Company completed its IPO in November 2017 at $7.00 per share. Total shares issued to Mr. Myers had a value of $278,887 on the IPO date. Mr. Myers confirmed the trademark liability was settled but would not return the additional 4,127 shares issued to him. The Company therefore recorded a loss from settlement of $28,887.
Issuance of common stock in connection with Loeb & Loeb agreement
On December 16, 2015, and as amended in April and November 2017, the Company agreed to pay Loeb & Loeb (“Loeb”) for legal services rendered in connection with the Company’s IPO for $900,000. Pursuant to the amendment agreement, upon closing the IPO, the Company made a cash payment to Loeb of $400,000 and issued 138,692 restricted shares of Class A common stock. Commencing with the first month after the closing of the IPO, the Company shall make six monthly cash payments to Loeb each in the amount of $47,500 no later than the fifth day of each month for a total amount of $285,000. Upon receipt of the total payment of $285,000, Loeb will return 82,059 shares to the Company. No later than 12 months after the closing of IPO, the Company shall pay the remaining balance of $215,000. Upon receipt of the final payment of $215,000, Loeb will return 33,517 shares to the Company. Loeb will continue to beneficially own 23,116 shares of our Class A common stock. At December 31, 2017, the Company had paid $400,000 and had a remaining payable of $500,000.
Issuances of common stock for settlement of accounts payable and debt
In June 2017, EDI agreed to convert $1,500,000 of accounts payable into 238,095 shares of Class A common stock at a conversion price of $6.30 per share. No gain or loss was recorded on the conversion.
In August 2017, EDI and Marlborough converted long-term convertible notes payable and accrued interest of $4,140,127 in total into 657,162 shares of Class A common stock at a conversion price of $6.30 per share. See Note 10. No gain or loss was recorded on the conversion.
Exercise of stock options
In 2017, the Company issued 291,402 shares of Class A common stock upon exercise of employee’s options for net cash proceeds of $29.
Issuances in 2016:
Issuances of common stock to K-Laser for cash
On September 28, 2016, pursuant to an amended agreement with EDI, K Laser, the principal stockholder of EDI, purchased 178,572 shares of Class A common stock at $5.60 per share for cash of $1,000,003. The Company agreed to use $650,000 of the proceeds to retire a separate obligation owed by Boxlight Inc. to EDI.
Issuances of common stock for cash
In September 2016, the Company issued 18,014 shares of Class A common stock at $1.055 per share for cash of $19,000. As of December 31, 2016, the Company had received cash of $18,900 and had subscriptions receivable of $100.
In November 2016, the Company issued 33,865 shares of Class A common stock at $5.906 per share for cash of $200,004.
Issuances of common stock for settlement of accounts payable and debt
In October and September 2016, the Company issued an aggregate of 94,735 shares at $1.055 per share to settle accounts payable of $99,910 (including $77,268 of accrued commission payable to Mark Elliott, the Company’s CEO).
In October 2016, the Company issued 3,556 shares of Class A common stock to a third party at $5.906 per share to settle accounts payable of $21,000.
In October 2016, the Company issued 109,915 shares of Class A common stock at $1.055 per share to settle $100,000 of the outstanding principal short-term debt and $15,919 of accrued interest.
Distribution to Vert Capital
During the first quarter of 2016, Mimio was under the control of Vert Capital. It distributed cash of $814,625 to Vert Capital for payments of the Skyview Note prior to the acquisition by the Company.
Stock Splits
In December 2016, the Company completed a stock split of 0.948207171 for 1 of its Class A common stock increasing its outstanding Class A common stock to 4,621,687 shares. All share numbers or per share information presented give effect to the stock splits.
NOTE 14 – SHARE-BASED COMPENSATION
On September 19, 2014, the Board approved the Company’s 2014 Stock Option Plan. The total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key employees, and consultants of the Company or a subsidiary of the Company under the plan is 2,390,438 shares. Grants made under this plan must be approved by the Company’s Board of Directors. As of December 31, 2017, the Company had 1,577,864 shares reserved for issuance under the plan. In 2018, the Board of Director approved to increase shares available for grant by 300,000 shares to 2,690,438 shares. The increase is not finalized and subject to shareholders’ approvals.
Stock Options
Under our stock option program, an employee receives an award that provides the opportunity in the future to purchase the Company’s shares at the market price of our stock on the date the award is granted (strike price). The options become exercisable over a range of immediate to 4 year vesting period and expire 5 years from the grant date, unless stated differently in the option agreements, if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through recording compensation expense and increasing shareholder’s equity. We record compensation expense based on the estimated fair value of the awards that vest and that amount is amortized as compensation expense on a straight- line basis over the vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are forfeited by employees that leave the Company prior to vesting.
Following is a summary of the option activities during the years ended December 31, 2017 and 2016:
| | | Number of Units | | | Weighted
Average
Exercise Price | | | Weighted Average
Remaining Contractual
Term (in years) | |
| Outstanding, December 31, 2015 | | | 729,434 | | | $ | 0.12 | | | | | |
| Granted | | | 120,971 | | | $ | 0.13 | | | | | |
| Outstanding, December 31, 2016 | | | 850,405 | | | $ | 0.08 | * | | | 7.58 | |
| Granted | | | 374,542 | | | $ | 6.39 | | | | | |
| Exercised | | | (291,402 | ) | | $ | 0.0001 | | | | | |
| Cancelled | | | (120,971 | ) | | $ | 0.12 | | | | | |
| Outstanding, December 31, 2017 | | | 812,574 | | | $ | 3.01 | | | | 5.64 | |
| Exercisable, December 31, 2017 | | | 396,596 | | | $ | 0.57 | | | | 6.42 | |
* Adjusted due to the change of exercise price of options issued to its Chief Financial Officer effective November 1, 2016.
The Company estimates the fair value of each stock option award on the date of grant using a Black- Scholes option pricing model. Outstanding stock option awards may be dilutive to earnings per share when they are in the money (i.e the market price of the Company’s stock is greater than the strike price of the option). When an option is dilutive, it increases the number of shares used in the diluted earnings per share calculation which will decrease earnings per share. However, the effect stock options have on the number of shares added to the diluted earnings in not one-for-one. The average amount of unrecognized compensation expense (the portion of the fair value of these option awards not yet amortized) and the market price of the Company’s stock during the reporting period affect how many of these potential shares are included in the calculation. The calculation assumes that proceeds received from the exercise and the unrecognized compensation expense are used to buy back shares, which reduces the dilutive impact. As of December 31, 2017, the options had an intrinsic value of $2,097,415.
Issuances in 2017:
On April 4, 2017, the Company granted options to purchase 18,000 shares of Series A common stock at $5.60 per share to its then controller, currently Chief Financial Officer, for services. These options vest in 4 years and commenced in the quarter ended June 30, 2017 and expire 5 years from the date of grant. The options had a fair value of approximately $7,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
In November 2017, the Company granted options to purchase 29,200 options at $0.0001 per share to its former Chief Financial Officer for services. These options vested immediately and expire 5 years from the date of grant. The options had a fair value of approximately $204,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
In November 2017, the Company granted options to purchase 37,829 options at $7.00 per share to its former Chief Operating Officer for services. These options vest in 3 years and expire 5 years from the date of grant. The options had a fair value of approximately $126,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
In November 2017 and pursuant to Boxlight Group’s acquisition agreement with EDI, the Company granted options to purchase 185,018 options at $7.00 per share to its Boxlight Group’s employees. These options vest in 4 years and expire 5 years from the date of grant. The options had fair value of approximately $634,000 on grant date that was calculated using the Black-Scholes option-pricing model.
In November 2017, the Company granted options to purchase 4,495 options at $7.00 per share to one of its employees for services. These options vest in 4 years and expire 5 years from the date of grant. The options had a fair value of approximately $15,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
In November 2017, the Company granted options to purchase 100,000 options at $7.00 per share to two directors for services. These options vest in 1 year and expire 5 years from the date of grant. The options had a fair value of approximately $319,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
Variables used in the Black-Scholes option-pricing model for options granted during the year ended December 31, 2017 include: (1) discount rate of 1.47% – 1.90% (2) expected life of 2.5 – 3.75 years, (3) expected volatility of 65% – 69%, and (4) zero expected dividends.
Issuances in 2016:
On May 13, 2016, the Company granted options to purchase 120,971 shares of Class A common stock at $0.12 per share to an employee for services. These options vest in four years and commenced in the quarter ended June 30, 2016 and expire 5 years from the date of grant. The options have a fair value of $109,000 that was calculated using the Black-Scholes option-pricing model. These options were canceled in 2017 pursuant to the termination of employment agreement.
On November 1, 2016, the Company entered into an amended employment agreement with its prior Chief Financial Officer, which amended the exercise price of the 291,402 options granted from $0.13 to $0.0001 per share. The options vesting term was changed to (i) 50% of the remaining unvested options shall vest immediately following the agreement, (ii) all remaining unvested options shall vest on March 31, 2017. Pursuant to the amendment of employment agreement, the fair value of options granted was changed to approximately $484,000 using the Black-Scholes option-pricing model. In 2017, the officer exercised the options and the Company issued 291,402 shares to the officer and received $29 cash.
Variables used in the Black-Scholes option-pricing model for options granted during the year ended December 31, 2016 include: (1) discount rate of 0.97 - 0.99% (2) expected life of 3.75 to 3.96 years, (3) expected volatility range of 66 to 69%, and (4) zero expected dividends.
Warrants
Following is a summary of the warrants activities during the years ended December 31, 2017 and 2016:
| | | Number of Units | | | Weighted
Average
Exercise Price | | | Weighted Average
Remaining Contractual
Term (in years) | |
| Outstanding, December 31, 2015 | | | 820,717 | | | $ | 7.7 | | | | 4.00 | |
| Granted | | | - | | | $ | - | | | | | |
| Outstanding, December 31, 2016 | | | 820,717 | | | $ | 7.7 | | | | 3.00 | |
| Granted | | | 50,000 | | | $ | 7.7 | | | | | |
| Outstanding, December 31, 2017 | | | 870,717 | | | $ | 7.7 | | | | 2.15 | |
| Exercisable, December 31, 2017 | | | 820,717 | | | $ | 7.7 | | | | 2.00 | |
On November 7, 2014, the Company issued to Vert Capital and a consultant five year warrants to purchase 796,813 and 23,904, shares of our Class A common stock respectively, at an exercise price, equal to 110% of the initial per share offering price ($7.70). Effective as of October 12, 2016, and as a result of Adam Levin and Michael Pope no longer no longer being employed at Vert Capital, Boxlight Parent cancelled the Vert Capital warrants and reissued 597,610 and 199,203 warrants under the same terms to entities associated with Adam Levin and to Michael Pope, respectively. These warrants expire on December 31, 2019. Among other provisions, such warrants contain “cashless” exercise rights and prohibit the holder from selling any of the shares issuable upon exercise of such warrants for a period of not less than nine months from the date of issuance. These warrants had a fair value of $2,087,840 on measurement date using the Black-Scholes option-pricing Model and were immediately exercisable upon the closing of IPO.
On November 7, 2014, the Company granted warrants to Lackamoola, LLC for services to purchase an aggregate of 23,904 shares of common stock with an exercise price equal to 110% of the price per share of the Company’s IPO ($7.70). These warrants expire on December 31, 2019. These warrants had a fair value of $62,634 on measurement date using Black-Scholes option-pricing Model and was immediately exercisable upon the closing of IPO.
In November 2017, the Company granted warrants to its placement agents for the IPO to purchase an aggregate of 50,000 shares of common stock with an exercise price at $7.70 price per share of the Company’s IPO. These warrants expire on August 29, 2022. These warrants had a fair value of $192,591 on grant date using Black-Scholes option-pricing Model and will be exercisable on August 29, 2018.
Variables used in the Black-Scholes option-pricing model for warrants granted during the year ended December 31, 2017 include: (1) discount rate of 1.78% – 2.14% (2) expected life of 2.08 – 4.75 years, (3) expected volatility of 69% – 71%, and (4) zero expected dividends. As of December 31, 2017, the warrants had an intrinsic value of $0.
Stock compensation expense
For the years ended December 31, 2017 and 2016, the Company recorded the following stock compensation expense:
| | | 2017 | | | 2016 | |
| Stock options | | $ | 788,196 | | | $ | 464,321 | |
| Warrants | | | 2,150,474 | | | | - | |
| Class A common stock grants | | | 1,302,000 | | | | - | |
| | | | | | | | | |
| | | | | | | | | |
| Total stock compensation expense | | $ | 4,240,670 | | | $ | 464,321 | |
As of December 31, 2017, there was $1,025,157 of unrecognized compensation expense related to unvested options, which will be amortized over the remaining vesting period. Of that total, approximately $499,000 is estimated to be recorded as compensation expense in 2018.
NOTE 15 – OTHER RELATED PARTY TRANSACTIONS
Management Agreement – VC2 Advisors, LLC
On July 15, 2015, the Company entered into a management agreement with VC2 Advisors LLC, a Delaware limited liability company, in which Michael Pope, our President and Director, was a manager. VC2 Advisors is owned by Sugar House Trust and AEL Irrevocable Trust, trusts established for the benefit of the families of Michael Pope and Adam Levin. Pursuant to the agreement, VC2 shall perform consulting services for the Company relating to, among other things, sourcing and analyzing strategic acquisitions and introductions to various financing sources. VC2 shall receive an annual management fee payable in cash equal to 1.5% of total consolidated revenues at the end of each fiscal year ended December 31, 2016, 2017 and 2018, payable in monthly installments, commencing as of the date of the Company’s IPO. The annual fee is subject to a cap of $1,000,000 in each of 2016, 2017 and 2018. At its option, VC2 may also defer payment until the end of each year, payable as an option to purchase shares of Class A common stock of the Company, at a price per share equal to 100% of the closing price of the Company’s Class A common stock as traded on Nasdaq or any other national securities exchange as of December 31 of such year in question. Effective October 12, 2016, as a result of Adam Levin and Michael Pope no longer being employed at VC2, the consulting agreement with VC2 was terminated. Subsequently, the Company entered into new consulting agreements on identical terms with other entities which now employ Michael Pope and Adam Levin. As of December 31, 2017, the Company had a payable of $35,632 pursuant to these agreements.
In 2018, as a result of Adam Levin and Michael Pope no longer working at VC2 Advisors, the Company canceled the VC2 Advisors agreement and entered into a new management agreement, with substantially the same terms, with Canaan Parish, LLC, an entity affiliated with Michael Pope.
Sales and Purchases - EDI
EDI, an affiliate of the Company’s major shareholder K-Laser, is a major supplier of products to the Company. For the years ended December 31, 2017 and 2016, the Company had purchases of approximately $5.3 and $2.8 million, respectively, from Everest Display Inc. For the years ended December 31, 2017 and 2016, the Company had sales of approximately $66,000 and $160,000, respectively, to Everest Display Inc. As of December 31, 2017 and 2016, the Company had accounts payable of approximately of $4,325,000 and $3,618,000, respectively, to Everest Display Inc.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Litigation
In July 2015, a supplier filed a lawsuit against the Company for outstanding payables owed by the Company of approximately $72,000. In February 2016, the supplier and the Company agreed to settle the indebted balance for $43,000 provided that the Company pays on or before March 16, 2016. The Company failed to make the payment and the judgement amount was therefore increased to approximately $70,000 and with interest and court costs of approximately $2,300. The Company is currently negotiating new terms with the supplier. On January 29, 2018, the Company entered into a Compromise Settlement and Release agreement with the supplier, where the Company agreed to settle the indebted balance for $39,000. On January 30, 2018 the Company paid the settlement in full and is currently waiting for a release from the Court.
On April 2017, a Garnishment Action was filed by Asahi Net, Inc. (“Asahi”) against Vert. Asahi is seeking to garnish funds in the amount of $2,180,881. The Company is listed as a garnishee in the Action because Vert had loaned money to the Company. The Company has already paid Vert in full satisfaction of the loan. The Garnishment Action is currently in the discovery phase where the Company disputes Asahi’s allegations. The outcome is unknown but likely to be favorable to the Company. On March 1, 2018, the Company was served a claim under the Georgia Uniform Voidable Transactions Act by Asahi, which is seeking to void transactions between the Company and Vert. The Company disputes these allegations. The outcome is unknown, but likely to be favorable to the Company.
On June 1, 2017, the Company was served with a lawsuit from Skyview seeking judgment on the $1,460,508 outstanding balance due under the currently defaulted Skyview Note, plus accrued interest thereon, and also seeking to foreclose on the assets of Mimio that is now owned and operated by our Boxlight, Inc. The Company paid off the $1,460,508 outstanding balance in November 2017. Skyview filed a request for additional attorney fees in the amount of $67,826. On March 14, 2018, the Company satisfied the claim and is currently waiting for the release in full from the Court.
Operating Lease Commitments
The Company leases two office spaces under non-cancelable lease agreements. The leases provide that the Company pays only a monthly rental and is not responsible for taxes, insurance or maintenance expenses related to the property. Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to December 31, 2017 are as follows:
| Year ending December 31, | | Amount | |
| 2018 | | $ | 265,050 | |
| 2019 | | | 60,600 | |
| 2020 | | | - | |
| Net Minimum Lease Payments | | $ | 325,650 | |
The Company also has another office lease on a month-to-month basis. For the twelve months ended December 31, 2017 and 2016, aggregate rent expense was approximately $274,950 and $286,999, respectively.
NOTE 17 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
The Company’s revenues were concentrated among few customers for the years ended December 31, 2017 and 2016:
| Customer | | Total revenues from the customer to total revenues for the year ended December 31, 2017 | | | Accounts receivable from the customer as of December 31, 2017 (rounded to 000) | | | Total revenues from the customer to total revenues for the year ended December 31, 2016 | | | Accounts receivable from the customer as of December 31, 2016 (rounded to 000) | |
| 1 | | | 12 | % | | $ | 372,000 | | | | 13 | % | | $ | 11,917 | |
| 2 | | | 11 | % | | $ | 634,000 | | | | 1 | % | | $ | 162,300 | |
The loss of the significant customer or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
The Company’s purchases were concentrated among few vendors for the years ended December 31, 2017 and 2016:
| Vendor | | Total purchases from the vendor to total purchases for the year ended December 31, 2017 | | | Accounts payable (prepayment) to the vendor as of December 31, 2017 (rounded to 000) | | | Total purchases from the vendor to total purchases for the year ended December 31, 2016 | | | Accounts payable (prepayment) to the vendor as of December 31, 2016 (rounded to 000) | |
| 1 | | | 37 | % | | $ | (61,000 | ) | | | 2 | % | | $ | (229,000 | ) |
| 2* | | | 34 | % | | $ | 4,325,000 | | | | 32 | % | | $ | 3,618,000 | |
* EDI, a related party. See note 15.
The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE 18 – SUBSEQUENT EVENTS
On January 2, 2018, the Company granted 100,000 stock options each to its President, Chief Executive Officer and former Chief Financial Officer with an exercise price of $5.01 per share vesting monthly over one year. The expiration date is five years from the grant date.
On January 2, 2018, the Company granted 200,000 stock options each to Hank Nance, Chief Operating Officer, with an exercise price of $5.01 per share vesting monthly over one year. The expiration date is five years from the grant date.
On January 8, 2018, K Laser purchased 60,000 shares of common stock at $7.00 per share.
On February 14, 2018, the Company granted 367,500 employee stock options with an exercise price of $5.40 per share vesting quarterly over four years. The expiration date is five years from the grant date.
On March 19, 2018, the Company granted 35,000 stock options to Takesha Brown, Chief Financial Officer, with an exercise price of $4.00 per share vesting monthly over one year in accordance with the terms of her employment agreement. The expiration date is five years from the grant date.
On March 20, 2018, Sheri Lofgren, the former Chief Financial Officer, exercised 29,200 stock options at par value and issued payment of $3.
