As filed with the Securities and Exchange Commission on November 14, 2017
Registration No. 333-204811
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | Quarterly Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
OR
| [ ] | Transition Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ______________ to ______________
Commission file number 1-9330001-37564
BOXLIGHT CORPORATION
(Exact name of registrant as specified in its charter)
| Nevada | 8211 | 46-4116523 | ||
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
| incorporation or organization) | Classification Code Number) | Identification Number) |
1045 Progress Circle
Lawrenceville, Georgia 30043
Phone: (678) 367-0809
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | BOXL | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |||
| Non-accelerated filer | [ | Smaller reporting company | [ | |||
| Emerging growth company | [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares outstanding of the registrant’s common stock on November 10, 2017May 13, 2021 was 5,808,346.56,786,557.
BOXLIGHT CORPORATION
TABLE OF CONTENTS
| 2 |
Condensed Consolidated Balance SheetsStatements of Operations and Comprehensive Loss
As of September 30, 2017For the Three Months Ended March 31, 2021 and December 31, 20162020
(Unaudited)
(in thousands, except share amounts)
| September 30, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 783,181 | $ | 456,502 | ||||
| Accounts receivable – trade, net of allowances | 5,168,641 | 2,943,954 | ||||||
| Inventories, net of reserve | 2,371,105 | 4,164,116 | ||||||
| Prepaid expenses and other current assets | 1,435,559 | 447,036 | ||||||
| Total current assets | 9,758,486 | 8,011,608 | ||||||
| Property and equipment, net of accumulated depreciation | 34,396 | 60,040 | ||||||
| Intangible assets, net of accumulated amortization | 6,299,748 | 6,833,477 | ||||||
| Goodwill | 4,181,991 | 4,181,991 | ||||||
| Other assets | 316 | 33,262 | ||||||
| Total assets | $ | 20,274,937 | $ | 19,120,378 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 4,429,767 | $ | 4,453,893 | ||||
| Accounts payable and accrued expenses – related parties | 4,423,157 | 3,754,050 | ||||||
| Short-term debt | 2,935,001 | 2,791,582 | ||||||
| Short-term debt – related parties | 681,550 | 876,550 | ||||||
| Convertible notes payable – related parties | 1,050,000 | 50,000 | ||||||
| Deferred revenues – short-term | 403,870 | 495,603 | ||||||
| Other short-term liabilities | 250,000 | 251,537 | ||||||
| Total current liabilities | 14,173,345 | 12,673,215 | ||||||
| Long-term convertible notes payable – related parties | - | 4,060,785 | ||||||
| Deferred revenues – long-term | 238,374 | 272,123 | ||||||
| Total liabilities | 14,411,719 | 17,006,123 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized, 1,270,000 shares issued and outstanding | 127 | 127 | ||||||
| Common stock, $0.0001 par value, 200,000,000 shares authorized; 5,808,346 and 4,621,687 Class A shares issued and outstanding, respectively | 581 | 461 | ||||||
| Additional paid-in capital | 13,304,292 | 7,615,732 | ||||||
| Subscriptionsreceivable | (325 | ) | (325 | ) | ||||
| Accumulated deficit | (7,394,001 | ) | (5,488,822 | ) | ||||
| Other comprehensive loss | (47,456 | ) | (12,918 | ) | ||||
| Total stockholders’ equity | 5,863,218 | 2,114,255 | ||||||
| Total liabilities and stockholders’ equity | $ | 20,274,937 | $ | 19,120,378 | ||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues, net | $ | 33,424 | $ | 5,723 | ||||
| Cost of revenues | 24,872 | 4,132 | ||||||
| Gross profit | 8,552 | 1,591 | ||||||
| Operating expense: | ||||||||
| General and administrative expenses | 10,112 | 3,938 | ||||||
| Research and development | 474 | 317 | ||||||
| Total operating expense | 10,586 | 4,255 | ||||||
| Loss from operations | (2,034 | ) | (2,664 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense, net | (1,018 | ) | (459 | ) | ||||
| Other income, net | 15 | 58 | ||||||
| (Loss) gain on settlement of liabilities, net | (1,846 | ) | 28 | |||||
| Change in fair value of derivative liabilities | (265 | ) | 1,087 | |||||
| Total other income (expense) | (3,114 | ) | 714 | |||||
| Net loss before income taxes | (5,148 | ) | $ | (1,950 | ) | |||
| Income tax expense | (21 | ) | - | |||||
| Net loss | (5,169 | ) | (1,950 | ) | ||||
| Fixed dividends to Series B preferred shareholders | 317 | - | ||||||
Net loss attributable to common stockholders | $ | (5,486 | ) | $ | (1,950 | ) | ||
| Comprehensive loss: | ||||||||
| Net loss | $ | (5,169 | ) | $ | (1,950 | ) | ||
| Foreign currency translation adjustment | (261 | ) | (103 | ) | ||||
| Total comprehensive loss | $ | (5,430 | ) | $ | (2,053 | ) | ||
| Net loss per common share – basic and diluted | $ | (0.09 | ) | $ | (0.16 | ) | ||
| Weighted average number of common shares outstanding – basic and diluted | 55,150 | 12,493 | ||||||
See accompanying notes to theunaudited condensed consolidated financial statements.
| F-1 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)Balance Sheets
For the ThreeAs of March 31, 2021 and Nine Months Ended September 30, 2017 and 2016December 31, 2020
(Unaudited)
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016* | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016* | |||||||||||||
| Revenues | $ | 10,228,389 | $ | 7,877,595 | $ | 20,407,258 | $ | 15,371,130 | ||||||||
| Cost of revenues | 7,327,701 | 5,084,340 | 14,595,780 | 9,485,596 | ||||||||||||
| Gross profit | 2,900,688 | 2,793,255 | 5,811,478 | 5,885,534 | ||||||||||||
| Operating expense: | ||||||||||||||||
| General and administrative expenses | 2,295,101 | 2,049,917 | 7,049,288 | 4,701,275 | ||||||||||||
| Research and development | 60,403 | 244,515 | 357,955 | 846,621 | ||||||||||||
| Total operating expense | 2,355,504 | 2,294,432 | 7,407,243 | 5,547,896 | ||||||||||||
| Income (loss) from operations | 545,184 | 498,823 | (1,595,765 | ) | 337,638 | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (186,883 | ) | (549,684 | ) | (462,581 | ) | (689,660 | ) | ||||||||
| Other income (expense), net | 111,993 | (51,574 | ) | 153,157 | 9,262 | |||||||||||
| Total other income (expense) | (74,890 | ) | (601,258 | ) | (309,424 | ) | (680,398 | ) | ||||||||
| Net income (loss) | $ | 470,294 | $ | (102,435 | ) | $ | (1,905,189 | ) | $ | (342,760 | ) | |||||
| Comprehensive income (loss): | ||||||||||||||||
| Net income (loss) | $ | 470,294 | $ | (102,435 | ) | (1,905,189 | ) | (342,760 | ) | |||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation gain (loss) | (18,012 | ) | (12,918 | ) | (34,538 | ) | (12,918 | ) | ||||||||
| Total comprehensive income (loss) | $ | 452,282 | $ | (115,353 | ) | $ | (1,939,727 | ) | $ | (355,678 | ) | |||||
| Net income (loss) per common share – basic | $ | 0.09 | $ | (0.02 | ) | $ | (0.39 | ) | $ | (0.08 | ) | |||||
| Net income (loss) per common share – diluted | $ | 0.08 | $ | (0.02 | ) | $ | (0.39 | ) | $ | (0.08 | ) | |||||
| Weighted average number of common shares outstanding – basic | 5,379,762 | 4,185,637 | 4,910,245 | 4,185,637 | ||||||||||||
| Weighted average number of common shares outstanding – diluted | 5,810,755 | 4,185,637 | 4,910,245 | 4,185,637 | ||||||||||||
(in thousands, except share amounts)
* Financial information has been retrospectively adjusted for the acquisitions of Mimio and Genesis.
| March 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 10,002 | $ | 13,460 | ||||
| Accounts receivable – trade, net of allowances | 22,924 | 20,869 | ||||||
| Inventories, net of reserves | 22,561 | 20,913 | ||||||
| Prepaid expenses and other current assets | 5,390 | 6,161 | ||||||
| Total current assets | 60,877 | 61,403 | ||||||
| Property and equipment, net of accumulated depreciation | 612 | 562 | ||||||
| Intangible assets, net of accumulated amortization | 54,870 | 55,157 | ||||||
| Goodwill | 23,262 | 22,742 | ||||||
| Other assets | 119 | 91 | ||||||
| Total assets | $ | 139,740 | $ | 139,953 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 14,367 | $ | 14,245 | ||||
| Accounts payable and accrued expenses – related parties | - | 1,967 | ||||||
| Short-term debt | 15,668 | 16,817 | ||||||
| Earn-out payable – related party | 119 | 119 | ||||||
| Deferred revenues – short-term | 6,033 | 5,671 | ||||||
| Derivative liabilities | 577 | 363 | ||||||
| Other short-term liabilities | 2,337 | 1,209 | ||||||
| Total current liabilities | 39,101 | 40,392 | ||||||
| Deferred revenues – long-term | 11,433 | 10,482 | ||||||
| Long-term debt | 4,932 | 7,831 | ||||||
| Deferred tax liability | 7,680 | 7,902 | ||||||
| Other long-term liabilities | 364 | 2 | ||||||
| Total liabilities | 63,510 | 66,609 | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Mezzanine equity: | ||||||||
| Preferred Series B | 16,513 | 16,513 | ||||||
| Preferred Series C | 12,363 | 12,363 | ||||||
| Total mezzanine equity | 28,876 | 28,876 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred Series A, $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, 200,000,000 shares authorized; 56,786,557 and 53,343,518 Class A shares issued and outstanding, respectively | 6 | 5 | ||||||
| Additional paid-in capital | 95,084 | 86,768 | ||||||
| Accumulated deficit | (52,667 | ) | (47,498 | ) | ||||
| Accumulated other comprehensive income | 4,931 | 5,192 | ||||||
| Total stockholders’ equity | 47,354 | 44,467 | ||||||
| Total liabilities and stockholders’ equity | $ | 139,740 | $ | 139,953 | ||||
See accompanying notes to theunaudited condensed consolidated financial statements.
| F-2 |
Consolidated Condensed Statements of Cash FlowsChanges in Stockholders’ Equity (Deficit)
For the SixThree Months Ended September 30, 2017March 31, 2021 and 2016March 31, 2020
(Unaudited)
($ in thousands, except shares)
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016* | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,905,189 | ) | $ | (342,760 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Change in inventory reserve | (15,083 | ) | 19,033 | |||||
| Change in allowance for doubtful accounts | 24,194 | 59,164 | ||||||
| Change in allowance for sales returns | 283,145 | - | ||||||
| Depreciation and amortization | 559,267 | 163,101 | ||||||
| Stock compensation expense | 50,046 | 13,531 | ||||||
| Debt extension fees | - | 350,000 | ||||||
| Amortization of debt discount | - | 16,830 | ||||||
| Write-off of fixed asset | 7,225 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – trade | (2,531,830 | ) | (1,197,040 | ) | ||||
| Accounts receivable – related party | - | (594,454 | ) | |||||
| Inventories | 1,808,094 | 2,111,542 | ||||||
| Prepaid expenses and other current assets | (991,595 | ) | 166,753 | |||||
| Other assets | 23,291 | (626 | ) | |||||
| Accounts payable and accrued expenses | (29,574 | ) | (830,311 | ) | ||||
| Accounts payable and accrued expenses – related parties | 2,169,107 | 226,385 | ||||||
| Deferred revenues | (125,478 | ) | (22,501 | ) | ||||
| Other short-term liabilities | (1,689 | ) | 18,529 | |||||
| Accrued interest on long-term debt – related parties | 79,342 | 27,178 | ||||||
| Net cash provided by (used in) operating activities | (596,727 | ) | 184,354 | |||||
| Cash flows from investing activities: | ||||||||
| Cash acquired through acquisition of Boxlight Group | - | 357,573 | ||||||
| Payments for purchase of property, equipment and other assets | - | (11,706 | ) | |||||
| Net cash provided by investing activities | - | 345,867 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short-term debt | 4,301,268 | 3,408,080 | ||||||
| Principal payments on short-term debt | (4,157,849 | ) | (4,520,542 | ) | ||||
| Proceeds from short-term debt – related parties | - | 245,000 | ||||||
| Principal payments on short-term debt – related parties | (195,000 | ) | - | |||||
| Proceeds from convertible note payable – related parties | 1,000,000 | - | ||||||
| Principal payments on convertible note payable – related parties | - | (60,000 | ) | |||||
| Proceeds from issuance of common stock | - | 1,000,003 | ||||||
| Proceeds from issuance of common stock upon exercise of options | 29 | - | ||||||
| Proceeds from subscription receivable | - | 1,750 | ||||||
| Distributions to the member | - | (780,375 | ) | |||||
| Net cash provided by (used in) financing activities | 948,448 | (706,084 | ) | |||||
| Effect of currency exchange rates | (25,042 | ) | 9,418 | |||||
| Net increase (decrease) in cash and cash equivalents | 326,679 | (166,445 | ) | |||||
| Cash and cash equivalents, beginning of the period | 456,502 | 994,103 | ||||||
| Cash and cash equivalents, end of the period | $ | 783,181 | $ | 827,658 | ||||
| Supplemental cash flows disclosures: | ||||||||
| Cash paid for interest | $ | 300,916 | $ | 278,931 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Forgiveness of short-term debt-related parties by LLC-Delaware | $ | - | $ | 222,370 | ||||
| Issuance of note payable to settle accounts payable | $ | - | $ | 2,235,507 | ||||
| Issuance of note payable and long-term convertible note payable to acquire Mimio | $ | - | $ | 5,425,000 | ||||
| Issuance of Series B Preferred Stock for the acquisition of Genesis | $ | - | $ | 100 | ||||
| Issuance of Series C Preferred Stick for the acquisition of Boxlight Group | $ | - | $ | 14,391,104 | ||||
| Issuance of Class A common shares to settle accounts payable – related parties | $ | 1,500,000 | $ | - | ||||
| Issuance of Class A common shares to settle long-term convertible notes payable –related parties | $ | 4,140,127 | $ | - | ||||
| Series A | Class A | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Subscriptions | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Loss | Deficit | Total | ||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 167,972 | $ | - | 53,343,518 | $ | 5 | $ | 86,768 | $ | - | $ | 5,192 | $ | (47,498 | ) | $ | 44,467 | |||||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||||||
| Stock options exercised | - | - | 319,434 | - | 246 | - | - | - | 246 | |||||||||||||||||||||||||||
| Conversion of liabilities | - | - | 3,044,038 | 1 | 7,659 | - | - | - | 7,660 | |||||||||||||||||||||||||||
| Conversion of Restricted Shares | - | - | 58,818 | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Warrants exercised | - | - | 20,749 | - | 51 | - | - | - | 51 | |||||||||||||||||||||||||||
| Stock compensation | - | - | - | - | 677 | - | - | - | 677 | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (261 | ) | - | (261 | ) | |||||||||||||||||||||||||
| Fixed dividends for preferred shareholders | - | - | - | - | (317 | ) | - | - | (317 | ) | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (5,169 | ) | (5,169 | ) | |||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 167,972 | - | $ | 56,786,557 | $ | 6 | $ | 95,084 | - | $ | 4,931 | $ | (52,667 | ) | $ | 47,354 | ||||||||||||||||||||
* Financial information has been retrospectively adjusted for the acquisition of Mimio and Genesis.
| Series A | Class A | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Subscriptions | Comprehensive | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Loss | Deficit | Total | ||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 167,972 | $ | - | 11,698,697 | $ | 1 | $ | 30,736 | $ | - | $ | (38 | ) | $ | (31,346 | ) | $ | (648 | ) | |||||||||||||||||
| Shares issued for: | ||||||||||||||||||||||||||||||||||||
| Conversion of liabilities | - | - | 2,165,379 | - | 1,749 | - | - | - | 1,749 | |||||||||||||||||||||||||||
| Stock compensation | - | - | - | - | 271 | - | - | - | 271 | |||||||||||||||||||||||||||
| Other shared based payments | - | - | 7,111 | - | 8 | - | - | - | 8 | |||||||||||||||||||||||||||
| Foreign currency translation income | - | - | - | - | - | - | (103 | ) | - | (103 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (1,950 | ) | (1,950 | ) | |||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | 167,972 | $ | - | $ | 13,871,187 | $ | 1 | $ | 32,763 | $ | - | $ | (141 | ) | $ | (33,296 | ) | $ | (673 | ) | ||||||||||||||||
See accompanying notes to theunaudited condensed consolidated financial statements.
| F-3 |
Notes toCondensed Consolidated Financial Statements of Cash Flows
For the Three Months Ended March 31, 2021 and 2020
(Unaudited)
(in thousands)
| Three Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (5,169 | ) | $ | (1,950 | ) | ||
| Adjustments to reconcile net loss to net cash (used) provided in operating activities: | ||||||||
| Amortization of debt discount and issuance cost | 544 | 170 | ||||||
| Bad debt expense | (66 | ) | (9 | ) | ||||
| Loss (gain) on settlement of liabilities | 1,846 | (1,087 | ) | |||||
| Change in allowance for sales returns and volume rebate | 150 | 1,661 | ||||||
| Change in inventory reserve | (74 | ) | (44 | ) | ||||
| Change in deferred tax assets and liabilities, net | (497 | ) | ||||||
| Change in fair value of derivative liabilities | 265 | (28 | ) | |||||
| Change in fair value of earn-out payable | - | (36 | ) | |||||
| Shares issued for interest payment on notes payable | 204 | 42 | ||||||
| Stock compensation expense | 677 | 271 | ||||||
| Other share-based payments | - | 8 | ||||||
| Depreciation and amortization | 1,754 | 219 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – trade | (1,255 | ) | (588 | ) | ||||
| Inventories | (1,527 | ) | 478 | |||||
| Prepaid expenses and other current assets | 800 | 586 | ||||||
| Other assets | (30 | ) | (3 | ) | ||||
| Accounts payable and accrued expenses | (533 | ) | 830 | |||||
| Warranty | (80 | ) | 19 | |||||
| Accounts payable and accrued expenses - related parties | 16 | 270 | ||||||
| Other short-term liabilities | 3 | 23 | ||||||
| Deferred revenues | 1,411 | (61 | ) | |||||
| Other liabilities | 4 | (4 | ) | |||||
| Net cash used in operating activities | (1,557 | ) | (890 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of Interactive Concepts (net of cash acquired) | (148 | ) | - | |||||
| Purchases of furniture and fixtures | (46 | ) | - | |||||
| Net used in investing activities | (194 | ) | - | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short-term debt | 8,343 | 2,817 | ||||||
| Principal payments on short-term debt | (9,374 | ) | (3,092 | ) | ||||
| Proceeds from convertible debt | - | 750 | ||||||
| Proceeds from the exercise of stock options and warrants | 297 | - | ||||||
| Debt issuance costs | - | (41 | ) | |||||
| Payments of fixed dividends to Series B Preferred stockholders | (13 | ) | - | |||||
| Net cash (used in) provided by financing activities | (747 | ) | 434 | |||||
| Effect of foreign currency exchange rates | (960 | ) | (103 | ) | ||||
| Net decrease in cash and cash equivalents | (3,458 | ) | (560 | ) | ||||
| Cash and cash equivalents, beginning of the period | 13,460 | 1,173 | ||||||
| Cash and cash equivalents, end of the period | $ | 10,002 | $ | 613 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for income taxes | $ | 179 | $ | - | ||||
| Cash paid for interest | $ | 769 | $ | 340 | ||||
| Non-cash investment and financing transactions: | ||||||||
| Shares issued to settle accounts payable | $ | 1,627 | $ | 567 | ||||
| Shares issued for conversion of notes payable and accrued interest | $ | 6,033 | $ | 1,134 | ||||
| Declared but unpaid fixed dividends on Series B Preferred Stock | $ | 317 | $ | 49 | ||||
| Deferred consideration for Interactive acquisition | $ | 1,493 | $ | - | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| F-4 |
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND RECENT ACQUISITIVE GROWTH
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.Corporation (“BLA”Boxlight”) designs, produces 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 ofdistributes interactive projectors and integratedtechnology solutions that enhance learning and enable people to collaborate with each other in innovative and effective ways. In June 2016, Boxlight Group engaged legal counsel in Mexico to start the process of closing the operations of BLA and BLS. BLA and BLS have been merged into Boxlight, Inc. in July 2016. Boxlight Group was 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. education, corporate and government markets under its Clevertouch and Mimio brands. The Company’s solutions include interactive displays, collaboration software, supporting accessories and professional services.
On July 18, 2016,March 23, 2021 the Company acquired Interactive Concepts BV, a Belgium company (“Interactive”) and a distributor of interactive technologies. On September 24, 2020, Boxlight Group.
Mimio LLCacquired Sahara Presentation Systems PLC (“Mimio”Sahara”) was formed, a leader in Delaware on July 1, 2013. Mimio designs, developsdistributed and sells interactive classroom technology products, of which Mimio owns most of the design and performance patents, and which are manufactured by a contract manufacturer (“CM”) in Shenzhen, 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 integratedAV solutions, headquartered 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 affiliates of VC2 Partners, LLC (“VC2 Partners”). VC2 Partners and Mim Holdings are affiliates of Vert Capital. On April 1, 2016, Boxlight Parent acquired 100% of the membership interests in Mimio from Mim Holdings.United Kingdom.
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.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Acquisitions from Vert Capital and Mim Holdings are considered common control transactions. When businesses were acquired from Vert Capital and Mim Holdings that will be 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 unaudited condensed consolidated financial statements include the accounts of Boxlight Corporation, Boxlight Group, Mimio and Genesis. Transactionsits wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and balances among Boxlight Corporation, Boxlight Group, Mimio and Genesistransactions have been eliminated. The assets and liabilities of Mimio and Genesiseliminated 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.
As of October 2016, Boxlight Parent transferred all of the assets and the associated liabilities of Mimio LLC to Boxlight, Inc. and voluntarily liquidated the Mimio LLC entity in April 2017. On June 14, 2017, Boxlight Parent merged Genesis into the Boxlight, Inc. subsidiary which now owns and operates substantially all of the assets and business of the consolidated group.consolidation.
The accompanying unaudited condensed consolidated financial statements and accompanyingrelated notes arehave been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited condensed consolidated financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omittedomitted. The December 31, 2020 balance sheet included herein was derived from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for the year ended December 31, 2016.complete financial statements.
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. Note _ in the Notes to the Consolidated Financial Statements for 2020 contained in the Annual Report describes the significant accounting policies that the Company used in preparing our consolidated financial statements. On an ongoing basis, The Company evaluates our estimates, including, but not limited to, those related to revenue/reserves and allowances. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amountsresults could differ materially from those estimates.these estimates under different assumptions or conditions.
FOREIGN CURRENCIESFAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s functional currency isfinancial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the U.S. Dollar. BLAshort-term nature of cash, accounts receivables and BLS’s functional currency isaccounts payable, 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 currencycarrying amounts 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 theirthese assets and liabilities into U.S. dollars atapproximate their fair value. Debt approximates fair value due to either the exchange rates in effect asshort-term nature or recent execution of the balance sheet date. Revenuesdebt agreement. The amount of consideration received is deemed to approximate the fair value of long-term debt net of any debt discount 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. 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.issuance cost.
| F-5 |
Common control transactionsFair 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). |
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
Financial assets and liabilities at their historical carrying value. Any difference between carryingare classified based on the lowest level of input that is significant to the fair 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 statements of cash flows.
CASH AND CASH EQUIVALENTS
measurement. 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 DOUBTFUL ACCOUNTS
Accounts receivable are stated at historical carrying amounts, net of write-offs, allowance for doubtful accounts, sales returns and volume rebates. Allowance for doubtful accounts represents management’s estimateCompany’s assessment of the amount that ultimately will be realized in cash. The Company reviews the adequacysignificance 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 relateda particular input to the purchase, inbound freightfair value measurement requires judgment 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 reducesmay affect the costvaluation 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 atand liabilities and their placement within the lower of its carrying amount or fair value less cost to sell.hierarchy levels.
Intangible assetsThe following table sets 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 March 31, 2021 and December 31, 2020 (in thousands):
| Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | Carrying Value as of March 31, | |||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | 2021 | ||||||||||||
| Derivative liabilities - warrant instruments | $ | - | $ | - | $ | 577 | $ | 577 | ||||||||
| Earn-out payable – related party | - | - | 119 | 119 | ||||||||||||
| $ | 696 | $ | 696 | |||||||||||||
Intangible assets are amortized using
| Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | Carrying Value as of December 31, | |||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | 2020 | ||||||||||||
| Derivative liabilities - warrant instruments | $ | - | $ | - | $ | 363 | $ | 363 | ||||||||
| Earn-out payable – related party | - | - | 119 | 119 | ||||||||||||
| $ | 482 | $ | 482 | |||||||||||||
The following table shows the straight-line method over their estimated period of benefit. We evaluatechange in the recoverability of intangible assets periodically and take into account events or circumstances thatCompany’s warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any ofinstruments rollforward for the periods presented. Intangible assets and goodwill are testedthree months ended March 31, 2021:
| Amount | ||||
| Balance, December 31, 2020 | $ | 363 | ||
| Exercise of warrants | (51 | ) | ||
| Change in fair value of derivative liabilities | 265 | |||
| Balance, March 31, 2021 | $ | 577 | ||
The following table shows the change in the Company’s earn-out payable rollforward 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.the three months ended March 31, 2021:
| Amount | ||||
| Balance, December 31, 2020 | $ | 119 | ||
| Change in fair value of earn-out payable | - | |||
| Balance, March 31, 2021 | $ | 119 | ||
| F-6 |
DEBT DISCOUNT
Debt discount is amortized over the term of the debt using the effective interest rate method.
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 products which is three years.
REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue is comprised of product sales and service revenue, net of sales returns, co-operative advertising credits, early payment discounts and volume discounts paid to VARs. Thefrom Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when persuasive evidencecontrol of an arrangement exists, deliverythe products or services is transferred to its customers. Control is generally transferred when the Company has occurred,a present right to payment and the sales price is fixedtitle, and the significant risks and rewards of ownership of products or determinable and collectability is reasonably assured.
Revenue from product salesservices are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels and related accessories. Evidence of an arrangement consists of an order from itssoftware and accessories to distributors, resellers, orand end users. The Company considers delivery to have occurred once title and risk of loss has been transferred.
Service revenue is comprised ofderived from hardware maintenance services, product installation, servicestraining, software maintenance, and trainingsubscription services. These service revenues are normally entered into at the time products are sold. Service prices are established depending on product equipment sold
Nature of Products and include a cost value for the estimated services to be performed based on historical experience. The Company outsources installationServices and training services to third parties and recognizes revenue upon completion of the services.Related Contractual Provisions
The Company’s standardsales of interactive devices, including panels, projectors, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms of approximately 60 months. Software maintenance includes technical support, product updates on a when and conditionsif available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms of saleapproximately 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 allowprovide 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 productthe 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 software product sales, control is transferred when the customer receives the related interactive hardware since the customer’s 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.
| F-7 |
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. However, the Company does have certain performance obligations for which pricing is highly variable or uncertain, and contracts with those performance obligations generally contain multiple performance obligations with highly variable or uncertain pricing. For these contracts the Company allocates the transaction price to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, residual values based on the estimated SSP for certain goods, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never sold separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.
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 on March 31, 2021 or December 31, 2020. During the three months ended March 31, 2021 and March 31, 2020, the Company recognized $1.6 million and $0.9 million, respectively of revenue that was included in the deferred revenue balance as of December 31, 2020 and December 31, 2019, respectively.
| F-8 |
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 warranty.assurance warranties or hardware maintenance contracts. However, the Company, on a case by casecase-by-case basis, will grant exceptions, mostly “buyer’s remorse” where the VAR’sdistributor or reseller’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.
Before Mimio was acquired by 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 includes variable consideration in its transaction price when there is a basis to reasonably estimate the Company, it generally provided 24 to 60 months of warranty coverage on all of its products. Mimio products’ 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 replacementamount of the associated products duringfee and it is probable there will not be a significant reversal. These estimates are generally made using the warranty period. The Company does not record warranty cost upon sale, and instead conducts a periodic review of the warranty liability reserve, and based on historical cost-to-trailing- revenue history, will adjust the warranty liability, with the offset to this adjustment recorded 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 of 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 does not record warranty costs upon sale, and instead conducts a periodic review of the warranty liability reserve, andexpected value method based on historical experience will adjustand are measured at each reporting date. There was no material revenue recognized in Q1 of 2021 related to changes in estimated variable consideration that existed at December 31, 2020.
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the warranty liability,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 March 31, 2021 and December 31, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was $17.2 million and $16.1 million, respectively. The Company expects to recognize revenue on 27% of the remaining performance obligations during the 2nd thru 4th quarters of 2021, 28% in 2022, 37% in 2023 and 2024, with the offset to this adjustment recorded to cost of revenue. 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.remaining 8% recognized thereafter.
The Company offers sales incentives whereIn accordance with Topic 606, the Company offers discounted products delivered by the Companyhas elected not 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 todisclose the value of remaining performance obligations for contracts for which the transactions necessaryCompany recognizes revenue at the amount to earnwhich it has the award is generally insignificant in relationright to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of the transactions necessaryremaining performance obligations for contracts with performance obligations that are expected, at contract inception, 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.
be satisfied over a period that does not exceed one year.
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 primarily 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 COMPENSATIONDisaggregated Revenue
The Company estimatesdisaggregates revenue based upon the fair valuenature of each share-based compensation awardits 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 grantpoint of shipment, while some software is transferred to the customer at the time the hardware is received by the customer or when software product keys 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 by usingas measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over five years from the Black-Scholes option pricing model. The fair value determined representscontract execution date as measured based upon 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.passage of time.
| Three Months Ended | ||||||||
March 31, 2021 (in thousands) | March 31, 2020 (in thousands) | |||||||
| Product Revenues: | ||||||||
| Hardware | $ | 30,761 | $ | 4,789 | ||||
| Software | 867 | 159 | ||||||
| Service Revenues: | ||||||||
| Professional Services | 270 | 342 | ||||||
| Maintenance and Subscription Services | 1,526 | 433 | ||||||
| $ | 33,424 | $ | 5,723 | |||||
| F-9 |
NET INCOME (LOSS) PER COMMON SHAREContract Costs
Basic net income (loss) per common share attributableThe Company capitalizes incremental costs to common stockholders is calculated by dividingobtain a contract with a customer if the net loss attributableCompany expects to common stockholdersrecover 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 fulfill 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 weighted-average number of common shares outstanding forCompany are 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 without considerationof amortization would be recognized over a period that is one year or less, the Company has 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 condensed consolidated balance sheets. Total deferred commissions at March 31, 2021 and December 31, 2020 and the related amortization for common stock equivalents. Diluted net income per common share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of stock options.
For the nine months ended September 30, 2017 and 2016 and2021 were less than $0.1 million. No impairment losses were recognized for the three months ended September 30, 2016, potentially dilutive securities were not included in the calculation of diluted net loss per share because to do so would be anti-dilutive. Following is a reconciliation of basic earnings per common share (“EPS”)March 31, 2021 and diluted EPS for the three months ended September 30, 2017:2020.
The Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
| Three months ended September 30, 2017 | ||||||||||||
| Net income | Shares | Per share amount | ||||||||||
| Basic EPS | $ | 470,294 | 5,379,762 | $ | 0.09 | |||||||
| Dilutive effect of exercise of options | - | 430,993 | (0.01 | ) | ||||||||
| Diluted EPS | $ | 470,294 | 5,810,755 | $ | 0.08 | |||||||
SUBSEQUENT EVENTS
The Company has evaluatedWe reviewed all transactionsmaterial events through the date of these condensed consolidated financial statement issuance datestatements were issued for subsequent event disclosure consideration.consideration as described in Note 16.
NEW ACCOUNTING PRONOUNCEMENTSSTANDARDS
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, 2017, including interim reporting periods within that reporting period. 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 has adopted this standard for the year ending December 31, 2016.
In February 2016, a pronouncement wasthe FASB issued ASC 842 “Leases” 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 currentUnder the previous guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will dependdepended on its classification as a finance or operating lease. The new guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. TheFor Emerging Growth Companies, the new standard is not effective foruntil annual reporting periods beginning after December 15, 2018,2021, including interim periods within that reporting period, with earlyperiod. Earlier application permitted. The new standard is to be applied using a modified retrospective approach.permitted. The Company is currently evaluating the impact of thethis new pronouncement on its financial statements.
In AprilJune 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation” (topic 718)2016-13, “Financial Instruments Credit Losses” (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss methodology with the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade accounts receivable. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842. This new guidance changes the impairment model for most financial assets and certain other instruments. Since the Company is an Emerging Growth Company, the ASU is not effective until fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
| F-10 |
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted changes in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of the annual effective tax rate. Since the Company is an Emerging Growth Company, the ASU is not effective until fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
In August 2020, the FASB issued this update to improveASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The new guidance simplifies the accounting for employee share-based paymentscertain convertible instruments and affect all organizations that issue share-based payment awards to their employees. Several aspectsfor contracts in an entity’s own equity. Key provisions include the elimination of the accounting“cash conversion” guidance and the “beneficial conversion feature” guidance in ASC 470-20 as well as a simplification of the settlement assessment that entities are required to perform to determine whether a contract qualifies for share-based payment award transactions are simplified, including: (a) income tax consequences; (b)equity classification of awards as either equity or liabilities; and (c) classification onby removing certain conditions in ASC 815-40-25. Since the statement of cash flows. The updated guidanceCompany is an Emerging Growth Company, the ASU is not effective foruntil annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years.2023. Earlier application is permitted. The Company adopted this guidance inis currently evaluating the first quarter of 2017. The adoption ofimpact that this standard had no material effectwill have on the Company’sits financial position or results of operations.statements.
There were various other accounting standards and interpretations issued recently, nonesome of which although applicable, 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 obligations currently in default or negotiate alternative repayment arrangements, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As of September 30, 2017, the Company was in default of certain of its debt obligations and had an accumulated deficit of $7,394,001 and a working capital deficit of $4,414,859. 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 – ACQUISITIONSRECENT BUSINESS ACQUISITION
Acquisition of MimioInteractive Concepts
Effective April 1, 2016, pursuant to a membership interest purchase agreement,On March 23, 2021 the Company acquired 100% of the membership interestoutstanding shares of Interactive Concepts BV, a company incorporated and registered in Mimio from Mim Holdings. AsBelgium and a distributor of interactive technologies (“Interactive”), for total consideration the Company issued a $2,000,000 unsecured convertible promissory note (the “Marlborough Note”) to Marlborough Trust. See Note 12.
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 Mimioapproximately $3.3 million in cash, common stock and interest accrued on the note.deferred consideration. 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 9.company has been Boxlight’s key distributor in Belgium and Luxembourg.
The Company’svaluation of intangible assets acquired was not final at the date these condensed consolidated financial statements included Mimio’s assetswere issued. Amounts recorded for acquired intangibles and liabilitiesgoodwill are provisional. The finalization of the valuation of certain acquired intangibles may result in measurement period adjustments to the fair value of customer relationships and intangibles and corresponding changes to the carrying value of goodwill. As a result of the eight-day period between the acquisition date and March 31, 2021, such adjustments are not expected to materially affect prospective amortization, which will be calculated as if the accounting had been completed at the historical costacquisition date, or have other material effects on the reported results of Mim Holdings. Mimio was acquired by Mim Holdings on November 4, 2015. Mim Holdings accounts for acquired businesses usingoperations or cash flows.
The following table summarizes the acquisition method of accounting, which requires, among other things, that most assets acquired and liabilities assumed be recognized at theirpreliminary 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 and liabilities assumed, and the estimate of the fair value of consideration paid:
| (in thousands) | ||||
| Assets acquired: | ||||
| Cash | $ | 1,647 | ||
| Accounts receivable | 1,045 | |||
| Inventories | 191 | |||
| Property and equipment | 37 | |||
| Total assets acquired | 2,920 | |||
| Accounts payable and accrued expenses | (821 | ) | ||
| Deferred tax liability | (275 | ) | ||
| Total liabilities assumed | (1,096 | ) | ||
| Net tangible assets acquired | 1,824 | |||
| Identifiable intangible assets: | ||||
| Customer relationships | 986 | |||
| Total intangible assets subject to amortization | 986 | |||
| Goodwill | 478 | |||
| Total net assets acquired | $ | 3,283 | ||
| Consideration paid: | ||||
| Cash | $ | 1,795 | ||
| Deferred cash consideration | 1,075 | |||
| Common shares issued | 413 | |||
| Total consideration paid | $ | 3,283 | ||
| F-11 |
Sahara Presentation Systems PLC
On September 24, 2020, the Company acquired 100% of the outstanding shares of Sahara Holdings Limited, a private limited company operating under the laws of the UK and all of its subsidiaries, including Sahara Presentation Systems PLC (collectively, “Sahara”). Sahara is recorded as goodwill.a distributor of audio and video software and equipment including the Clevertouch branded product line of interactive touch screens. This strategic acquisition expanded the Company’s geographic footprint, industry verticals served, and enhanced the Company’s technology and product offerings.
As consideration for the purchase of Sahara, the Company transferred $73.7 million to the Sellers, including $44.9 million in cash (net of $6.0 million in cash acquired) and $28.9 million in convertible preferred stock. The convertible preferred stock was comprised of 1,586,620 shares of Series B convertible redeemable preferred stock (the “Series B Preferred Stock”) and 1,320,850 shares of Series C convertible redeemable preferred stock (the “Series C Preferred Stock”). The fair value of the preferred shares issued was $16.5 million and $12.4 million for the Series B Preferred Stock and Series C Preferred Stock, respectively. See further discussion of the features of the preferred shares in Note 10.
On March 24, 2021 the Company entered into a share redemption and conversion agreement with the former shareholders of Sahara Presentation Systems PLC (“Sahara”) who together own approximately 96% of our Series B and Series C preferred stock. Under the terms of the agreement, we agreed to redeem and purchase from such preferred stockholders on or before June 30, 2021 all of the shares of Series B preferred stock for £11.5 million (or approximately $15.9 million) being the stated or liquidation value of the Series B preferred stock plus (b) accrued dividends from January 1, 2021 to the date of purchase. In addition, the holders of 96% of the Series C preferred stock agreed to convert those shares into 7,.6 million shares of our Class A Common Stock at a conversion price of $1.66 per share. In the event for any reason, we do not complete the conversion and redemption by June 30, 2021, and the Sahara shareholders do not agree to an extension, the agreement will terminate without liability by any party.
The following table showsconsideration transferred to the purchase price, acquisition-dateselling shareholders along with the assets acquired and liabilities assumed were recorded at their estimated fair values at the acquisition date. The excess consideration over the net 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 thewas recognized as goodwill.
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, upon consummation of the Company’s initial public offering, will automatically convert into such number of shares that represents 4.0% of the Company’s fully diluted common stock as defined in the agreement. 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 will be 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 a date which shall be one year fromdeferred revenue at 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 the ultimate parent, 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, whichacquisition 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 initial public offering (“IPO”) and subject to the listing of its Class A common stockdetermined based on the Nasdaq Capital Market or other securities exchange acceptableestimated direct and incremental costs to EDI,fulfill the Series C Preferred Stock shall automatically convert into sharesremaining performance obligations associated with the deferred revenue, plus a reasonable profit margin. Accordingly, the carrying amount of Class A common stock. Such newly converted shares of Class A common stock to be issued to EDI or its subsidiaries represents 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, the parties agreed that EDI and Boxlight Corporation would settle and pay approximately $5.75 million of accrued accounts payable owed to EDIdeferred revenue at September 28, 2016, in the manner set forth below.
The Company recognized the assets acquired and liabilities assumed from Boxlight Group at their fair value on the acquisition date and the excess in purchase price over these values was allocatedreduced to goodwill. Theits estimated fair values of consideration paid, assets acquired and liabilities assumed were determinedvalue based on third-party valuation reports provided by specialists.the assumptions above which has resulted in and will result in a reduction in revenue that otherwise would have been recognized in periods subsequent to the acquisition date.
The following table showssummarizes the purchase price, estimated acquisition-date fair values of the net assets acquired and liabilities assumed, and calculationthe estimate of goodwill for Boxlight Group utilizing the information at acquisition date.fair value of consideration paid:
| (in thousands) | ||||
| Assets acquired: | ||||
| Cash | $ | 6,049 | ||
| Accounts receivable | 16,066 | |||
| Inventories | 17,257 | |||
| Prepaid expenses and other current assets | 2,277 | |||
| Property and equipment | 183 | |||
| Total assets acquired | 41,832 | |||
| Accounts payable and accrued expenses | (8,624 | ) | ||
| Deferred revenue | (9,435 | ) | ||
| Deferred tax liability | (8,794 | ) | ||
| Other liabilities | (293 | ) | ||
| Total liabilities assumed | (27,146 | ) | ||
| Net tangible assets acquired | 14,686 | |||
| Identifiable intangible assets: | ||||
| Customer relationships | 39,629 | |||
| Trademarks | 5,319 | |||
| Technology | 3,372 | |||
| Total intangible assets subject to amortization | 48,320 | |||
| Goodwill | 16,774 | |||
| Total net assets acquired | $ | 79,780 | ||
| Consideration paid: | ||||
| Cash | $ | 50,903 | ||
| Preferred shares issued | 28,877 | |||
| Total consideration paid | $ | 79,780 | ||
| F-12 |
| 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 | ||
| Pre-existing net payable to Boxlight Group | (585,056 | ) | ||
| Total | $ | 8,243,297 |
The Company valuedresults of operations of Sahara since the Series C Preferred shares issuedacquisition are included in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2021. Revenue and net income attributable to EDI basedSahara for the 1st quarter of 2021 were $22.8 million and $2.0 million, respectively.
Pro Forma Financial Results
The following unaudited pro forma information reflects our consolidated results of operations for the three months ending March 31, 2020 as if the acquisition of Sahara had taken place on an entity valueJanuary 1, 2020. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition actually occurred at the beginning of approximately $39,700,000these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The nature and 270,000 sharesamount of any material, nonrecurring pro forma adjustments directly attributable to the Series C Preferred Stock representing approximately 22.22% of ownership ofbusiness combination are included in the Company.pro forma revenue and net earnings reflected below.
| Quarter ended March 31, 2020 | ||||||||
| (Unaudited) in thousands As Reported | | (Unaudited) in thousands Proforma | ||||||
| Revenues, net | $ | 5,723 | $ | 23,738 | ||||
| Net loss attributable to common shareholders | $ | (1,950 | ) | $ | (3,895 | ) | ||
NOTE 43 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020 (in thousands):
| September 30, 2017 | December 31, 2016 | 2021 | 2020 | |||||||||||||
| Accounts receivable - trade | $ | 6,094,858 | $ | 3,562,832 | ||||||||||||
| Accounts receivable – trade | $ | 23,947 | $ | 21,768 | ||||||||||||
| Allowance for doubtful accounts | (477,253 | ) | (453,059 | ) | (408 | ) | (473 | ) | ||||||||
| Allowance for sales returns and volume rebates | (448,964 | ) | (165,819 | ) | (615 | ) | (426 | ) | ||||||||
| Accounts receivable – trade, net of allowances | $ | 5,168,641 | $ | 2,943,954 | ||||||||||||
| Accounts receivable - trade, net of allowances | $ | 22,924 | $ | 20,869 | ||||||||||||
| F-13 |
NOTE 54 – INVENTORIESINVENTORIES.
Inventories consisted of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020 (in thousands):
| September 30, 2017 | December 31, 2016 | |||||||
| Finished goods | $ | 2,268,100 | $ | 4,102,621 | ||||
| Spare parts | 161,092 | 183,357 | ||||||
| Reserves for inventory obsolescence | (58,087 | ) | (121,862 | ) | ||||
| Inventories, net | $ | 2,371,105 | $ | 4,164,116 | ||||
During the nine months ended September 30, 2017 and 2016, the Company wrote off obsolete inventories of $48,692 and $311,493, respectively.
| 2021 | 2020 | |||||||
| Finished goods | $ | 22,574 | $ | 20.997 | ||||
| Spare parts | 262 | 265 | ||||||
| Reserve for inventory obsolescence | (275 | ) | (349 | ) | ||||
| Inventories, net | $ | 22,561 | $ | 20,913 | ||||
NOTE 65 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020 (in thousands):
| September 30, 2017 | December 31, 2016 | |||||||
| Prepayments to vendors | $ | 1,314,476 | $ | 351,408 | ||||
| Employee receivables | 2,300 | 3,571 | ||||||
| Prepaid state and local taxes | - | 16,385 | ||||||
| Prepaid and refundable income taxes | 33,435 | 30,879 | ||||||
| Prepaid license and other | 85,348 | 44,793 | ||||||
| Prepaid expenses and other current assets | $ | 1,435,559 | $ | 447,036 | ||||
Prepayments to vendors represent deposits made to vendors for purchases of inventories.
| 2021 | 2020 | |||||||
| Prepayments to vendors | $ | 4,125 | $ | 5,727 | ||||
| Prepaid licenses and other | 1,127 | 339 | ||||||
| Unbilled revenue | 138 | 95 | ||||||
| Prepaid expenses and other current assets | $ | 5,390 | $ | 6,161 | ||||
NOTE 76 – PROPERTY AND EQUIPMENTINTANGIBLE ASSETS
Property and equipmentIntangible assets consisted of the following at September 30, 2017March 31, 2021 and December 31, 2016:2020 (in thousands):
| Useful lives | September 30, 2017 | December 31, 2016 | ||||||||
| Leasehold improvements | 9-10 years | $ | 3,248 | $ | 3,355 | |||||
| Office equipment | 3-5 years | 21,341 | 21,341 | |||||||
| Other equipment | 5 years | 42,485 | 42,485 | |||||||
| Property and equipment, at cost | 67,074 | 67,181 | ||||||||
| Accumulated depreciation | (32,678 | ) | (7,141 | ) | ||||||
| Property and equipment, net of accumulated depreciation | $ | 34,396 | $ | 60,040 | ||||||
| Useful lives | 2021 | 2020 | ||||||||
| Patents | 7 years | $ | 182 | $ | 182 | |||||
| Customer relationships | 10 years | 48,034 | 46,614 | |||||||
| Technology | 3 years | 3,932 | 3,900 | |||||||
| Domain | 7 years | 14 | 14 | |||||||
| Trademarks | 10 years | 9,740 | 9,682 | |||||||
| Intangible assets, at cost | 61,902 | 60,392 | ||||||||
| Accumulated amortization | (7,032 | ) | (5,235 | ) | ||||||
| Intangible assets, net of accumulated amortization | $ | 54,870 | $ | 55,157 | ||||||
For the ninethree months ended September 30, 2017March 31, 2021 and 2016, the Company recorded depreciation expense of $25,538 and $4,043, respectively.
NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consisted of the following at September 30, 2017 and December 31, 2016:
| Useful lives | September 30, 2017 | December 31, 2016 | ||||||||
| Patents | 10 years | $ | 67,395 | $ | 67,395 | |||||
| Customer relationships | 10 years | 3,567,396 | 3,567,396 | |||||||
| Trademarks | 10 years | 3,544,931 | 3,544,931 | |||||||
| Intangible assets, at cost | 7,179,722 | 7,179,722 | ||||||||
| Accumulated amortization | (879,974) | (346,245 | ) | |||||||
| Intangible assets, net of accumulated amortization | $ | 6,299,748 | $ | 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 nine months ended September 30, 2017 and 2016,2020, the Company recorded amortization expense of $533,729$1.7 million and $159,058,$215 thousand, respectively.
NOTE 7 – DEBT
The following is a summary of our debt on March 31, 2021 and December 31, 2020 (in thousands):
| 2021 | 2020 | |||||||
| Debt – Third Parties | ||||||||
| Note payable – Lind Global | $ | 17,475 | $ | 21,085 | ||||
| Paycheck Protection Program | 1,008 | 1,008 | ||||||
| Accounts receivable financing – Sallyport Commercial | 3,481 | 4,512 | ||||||
| Note payable – STEM Education Holdings | 175 | 175 | ||||||
| Total debt | 22,139 | 26,780 | ||||||
| Less: Discount and issuance cost – Lind Global | 1,539 | 2,132 | ||||||
| Current portion of debt | 15,668 | 16,817 | ||||||
| Long-term debt | $ | 4,932 | $ | 7,831 | ||||
| Total debt | $ | 22,139 | $ | 26,780 | ||||
| F-14 |
NOTE 9 – SHORT-TERM DEBTDebt - Third Parties:
Line of Credit – Sy SilversteinLind Global Marco Fund and Lind Global Asset Management
On April 3, 2015,February 4, 2020, the Company and Lind Global Macro Fund L.P. (“Lind”) entered into a line of creditsecond securities purchase agreement with Sy Silverstein, an individual. Pursuantpursuant to the agreement,which the Company obtainedreceived $750 thousand in exchange for the lineissuance to Lind 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(1) $825 thousand convertible promissory note, payable at an 8% interest at 12% per annum, along with a $10,000 documentation fee, and is 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 109,915rate, compounded monthly, (2) certain shares of the Company’srestricted Class A common stock. These shares werestock valued at $115,919$60 thousand, calculated based on the Company’s most recent selling20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment fee of $26.25 thousand. The Note matures over 24 months, with repayment that commenced on the settlement date.
Skyview Note
On April 1, 2016,August 4, 2020, after which time the Company assumed from Mim Holdings a $3,425,000 senior secured note that is payableobligated to Skyview,make monthly payments of $45,833 thousand plus interest. Interest accrued during the former equity owner of Mimio for the acquisition of Mimio. The Skyview Note accrues 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 principalfirst six months of the note, was increased to $4,010,508 to include an additional fee of $350,000 to extendafter which time 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 unpaidpayments, including 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 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.
On September 11, 2017, the outstanding principal and accrued interest were settledpayable monthly 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., a Korean corporation,either conversion shares or in cash. The commitment fee in the amount of $1,895,413$26 thousand was paid to settle unpaid accounts payable of $1,866,418 for the purchases of inventory for the Company. Interest shall be payableLind, along with legal fees 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 shall be paid in consecutive monthly installments for eight months, due and payable upon the last business day of each month. As of September 30, 2017, outstanding principal and accrued interest for AHA note were $610,783 and $42,095, respectively. As of December 31, 2016, outstanding principal and accrued interest were $610,783 and $12,401, respectively.$15 thousand. The Company was not able to make monthly principal payments in accordance with note agreement and, accordingly, the note was in default at September 30, 2017 and December 31, 2016.
Loan and Security Agreement – Hitachi Capital America Corp.
On 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 balancepaid Lind $60 thousand for closing fees by issuing 44,557 shares 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. The outstanding amount payable to Hitachi was paid in full on September 29, 2016, from the proceeds of the line of credit financing received from Crestmark Bank. In connection with the agreement with Hitachi, the Company paid $18,000 for loan fees which was included in interest expense.
Line of Credit – Crestmark BankClass A common stock.
On September 21, 2016,2020, the Company and Lind Global Asset Management, LLC (“Lind Global”) entered into a securities purchase agreement (the “Lind SPA”) pursuant to which the Company received $20.0 million in exchange for the issuance to Lind of (1) a $22.0 million convertible promissory note, payable at a 4% interest rate, compounded monthly, (2) 310,399 shares of restricted Class A common stock valued at $900 thousand, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended September 21, 2020, and (3) a commitment fee of $400 thousand. The Note matures over 24 months, with repayment commencing on November 22, 2020, after which time the Company became obligated to make monthly payments of $1.0 million, plus interest. Interest accrued during the first two months of the note, after which time the interest payments, including accrued interest is payable monthly in either conversion shares or in cash. The commitment fee in the amount of $400 thousand was paid to Lind Global, along with legal fees in the amount of $20 thousand. The Company paid Lind $500 thousand for closing fees by issuing 310,399 shares of Class A common stock.
During the three months ended March 31, 2021, the Company repaid principal of $3.63 million and interest of $204 thousand by issuing 2.25 million shares Class A common stock with an aggregate value of $5.96 million to Lind and recognized a $2.2 million loss.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of $1.09 million under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loans and accrued interest received under the PPP are forgivable to the extent borrowers use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains their payroll levels during the designated period prior to which the PPP would otherwise be repayable. The Company used the proceeds for purposes consistent with the PPP. During 2020, the Company applied for forgiveness in the amount of $837 thousand of the original PPP loan and is presently awaiting a decision from the Small Business Administration. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.
Everest Display, Inc.
On June 22, 2020, the Company entered into a $5,000,000 line of creditan agreement with Crestmark Bank. Advances against this agreement accrued interestEverest Display, Inc., a Taiwan corporation (“EDI”), and EDI’s subsidiary, AMAGIC Holographics, Inc., a California corporation (“AMAGIC”), effective June 11, 2020, pursuant to which $1,000,000 in accounts payable owed by the Company to EDI was settled in exchange for the Company’s issuance of 869,565 shares (the “Shares”) of its Class A common stock to AMAGIC at 2.25% in excessa $1.15 per share purchase price. The Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of prime rate, with a minimum rateRegulation D under Section 4(a)(2) of 5.75% per annum. The outstanding balance under this agreement was due and payable upon demand.the Securities Act of 1933, as amended.
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 failure to meet the tangible net worth covenant requirement. On February 2, 2017, the Company satisfied in full all obligations due to Crestmark.
Accounts Receivable Financing – Sallyport Commercial Finance
On August 15, 2017,September 30, 2020, Boxlight Inc,Inc., and GenesisEOS EDU LLC. entered into a 12-month term account sale and purchaseasset-based lending agreement with SallyportCommercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 85%90% of the eligible accounts receivable of the Company with a right of recourse back to the Company if the receivables are not collectible. This agreement requires a minimum monthly drawsales volume of $1,250,000 with a maximum facility limit of $6,000,000.$8,000,000. Advances against this agreement accrue interest at 4%the rate of 3.50% in excess of the highest prime rate publicly announced from time to time with a floor of 4.25%3.25%. In addition, the Company is required to pay a $950daily audit fee of $950 per day. The Company granted Sallyport a security interest toin all of the assets of Boxlight Inc. and Genesis’s assets.Genesis Collaboration, LLC.
| F-15 |
NOTE 8 – DERIVATIVE LIABILITIES
AsThe Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of September 30, 2017, outstanding principalcertain net cash and accrued interest were $2,324,218non-fixed settlement provisions that are not within the sole control of the Company. Conversion and $0, respectively. Forexercise prices may be lowered if the nineCompany issues securities at lower prices in the future. Such warrants are measured at fair value at each reporting date, and the changes in fair value are included in determining net income (loss) for the period. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at March 31, 2021 and December 31, 2020:
| March 31, 2021 | ||||
| Common stock issuable upon exercise of warrants | 270,000 | |||
| Market value of common stock on measurement date | $ | 2.53 | ||
| Exercise price | $ | 0.42 | ||
| Risk free interest rate (1) | 0.16 | % | ||
| Expected life in years | 0.75 years | |||
| Expected volatility (2) | 142 | % | ||
| Expected dividend yields (3) | 0 | % | ||
| December 31, 2020 | ||||
| Common stock issuable upon exercise of warrants | 295,000 | |||
| Market value of common stock on measurement date | $ | 1.53 | ||
| Exercise price | $ | 0.42 | ||
| Risk free interest rate (1) | 0.13 | % | ||
| Expected life in years | 1 year | |||
| Expected volatility (2) | 160 | % | ||
| Expected dividend yields (3) | 0 | % | ||
| (1) | The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date. | |
| (2) | The expected volatility was determined by calculating the volatility of the Company’s peers’ common stock. | |
| (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 rollforward for the three months ended September 30, 2017,March 31, 2021 and 2020 (in thousands):
| Amount | ||||
| Balance, December 31, 2019 | $ | 147 | ||
| Change in fair value of derivative liabilities | (29 | ) | ||
| Balance, March 31, 2020 | $ | 118 | ||
| Amount | ||||
| Balance, December 31, 2020 | $ | 363 | ||
| Exercise of warrants | (51 | ) | ||
| Change in fair value of derivative liabilities | 265 | |||
| Balance, March 31, 2021 | $ | 577 | ||
The change in fair value of derivative liabilities includes losses from exercise price modifications.
| F-16 |
NOTE 9 – INCOME TAXES
Pretax loss resulting from domestic and foreign operations is as follows (in thousands):
| Three Months Ended March, 31 | Three Months Ended March, 31 | |||||||
| 2021 | 2020 | |||||||
| United States | $ | (5,243 | ) | $ | (1,950 | ) | ||
| Foreign | 44 | - | ||||||
| Total pretax book loss | (5,199 | ) | $ | (1,950 | ) | |||
The Company recorded income tax expense of $21 thousand for the three months ended March 31, 2021.
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.
Prior to the Sahara acquisition, the Company incurred interest expensehad a net deferred tax asset position in the United States, the United Kingdom, and loan feesother jurisdictions, primarily driven by the aforementioned net operating losses. The recoverability of $112,115.these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction to which the carryforward applies. The Company also depends on specific tax provisions in each jurisdiction that could impact utilization. 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, we believe it is appropriate to maintain a full valuation allowance on the Company’s net deferred tax asset at March 31, 2021 and December 31, 2020.
Due to the Sahara acquisition, the Company has recognized a net deferred tax liability for the acquired entities, primarily driven by acquired intangible assets for which it does not have tax basis in the jurisdictions in which operates (primarily the United Kingdom, the Netherlands, and the United States). The Company does not expect to 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.
The tax years from 2016 to 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company has not identified any uncertain tax positions at this time.
NOTE 10 – 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, the Company’s majority shareholder. 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 now accrue interest at 5.75% per annum. See Note 3. The advance is 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 which is subordinated to the Sallyport accounts receivable financing. As of September 30, 2017, outstanding principal and accrued interest under this agreement were $627,550 and $141,679, respectively. 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 September 30, 2017, outstanding principal and accrued interest under this agreement was $54,000 and $14,555, 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 is 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, subordinate to 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.
NOTE 11 – CONVERTIBLE NOTES PAYABLE – RELATED 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 30, 2017 as amended and bears interest at an annual rate of 10%, compounded monthly. 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 September 30, 2017, outstanding principal and accrued interest under this agreement were $50,000 and $13,548, 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. As of December 31, 2015, outstanding principal and accrued interest under this agreement were $45,000 and $2,404, respectively. The outstanding balance under this note was fully repaid on March 31, 2016.
Convertible Promissory Note– K Laser
On January 13, 2017, the Company issued a convertible promissory note to K Laser International Co., Ltd. (“K Laser”) in the amount of $1,000,000. The note is due on December 31, 2017 and bears interest at an annual rate of 8%, compounded monthly. The note is convertible into the Company’s common stock at $5.60 per share prior to a listing on a public exchange. If converted after a listing on a public exchange, the conversion shares shall be calculated as the average of the 7 days closing price. As of September 30, 2017, outstanding principal and accrued interest for the note were $1,000,000 and $28,055 respectively. The note is secured by all assets of the Company and subordinated to the Sallyport accounts receivable financing.
NOTE 12 – LONG-TERM DEBT – RELATED PARTIES
Marlborough Note
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 is 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 was converted to 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
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 to settle the unpaid balance of the account payable owed by Boxlight Group to EDI. The note bears a one-time simple interest charge of 4% and all principal and accrued interest is due on March 31, 2019. Following the completion of Boxlight Corporation’s IPO, the EDI Note is convertible into shares of Boxlight Corporation’s Class A common stock at a conversion price equal to 80% of the initial per share offering price of the Class A common stock offered under the IPO. Boxlight Corporation has the option, in lieu of issuing its Class A common stock, to prepay the entire unpaid principal amount of the EDI Note plus accrued interest thereon within 72 hours of the first conversion notice.
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 is 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% due on March 31, 2019.
On June 27, 2017, EDI entered into a note conversion agreement with Boxlight Parent 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 was converted to 327,027 shares.
As of December 31, 2016, outstanding principal and long-term accrued interest for EDI Note were $2,000,000 and $20,603, respectively.
NOTE 13 – 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 the assets acquired and liabilities assumed.
Change in deferred revenue consisted of the following for the nine months ended September 30, 2017 and for the year ended December 31, 2016:
| September 30, 2017 | December 31, 2016 | |||||||
| Balance, beginning | $ | 767,726 | $ | - | ||||
| Assumed from Boxlight Group | - | 761,622 | ||||||
| Additions | 247,349 | 259,744 | ||||||
| Amortization | (372,831 | ) | (253,640 | ) | ||||
| Balance, ending | $ | 642,244 | $ | 767,726 | ||||
| Deferred revenue – short-term | $ | 403,870 | $ | 495,603 | ||||
| Deferred revenue – long-term | $ | 238,374 | $ | 272,123 | ||||
NOTE 14 – EQUITY
Preferred Shares
The Company’s articles of incorporation, as amended on September 18, 2020, provide that the Company is authorized to issue 50,000,000 shares of preferred sharesstock consisting of: 1) 250,000 shares of votingnon-voting Series A preferred stock, with a par value of $0.0001 per share (of which none are issued);share; 2) 1,200,0001,586,620 shares of voting Series B preferred stock, with a par value of $0.0001 per share (of which 1,000,000 shares are issued);share; 3) 270,0001,320,850 shares of voting Series C preferred stock, with a par value of $0.0001 per share (all of which are issued);share; and 4) 48,280,00046,842,530 shares of “blank check” preferred stock to be designated by the Company’s Board of Directors.
Issuance of preferred shares
Upon
Series A Preferred Stock
At the effectivenesstime of a registration statement registeringthe 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 resaleacquisition of Genesis. All of the Series A preferred stock was convertible into 398,406 shares of Class A common stock. On August 5, 2019 a total of 82,028 shares of Series A preferred stock were converted into a total of 130,721 shares of Class A common stock.
| F-17 |
Series B Preferred Stock and Series C Preferred Stock
As discussed in Note 2, 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 $1.66 per share which was the closing price of the Company’s Class A common stock andon the listingNasdaq Stock Market on September 25, 2020 (the “Conversion Price”). Such conversion may occur either (i) at the option of ourthe 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 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. The Series C Preferred Stock is also subject to redemption on the Nasdaq Capital Market or other securities exchange, allsame terms commencing January 1, 2026.
As disclosed in in Note 2, the aggregate estimated fair value of the sharesSeries B and C Preferred Stock of $28.9 million was included as part of the total $79.7 million consideration paid for the purchase of Sahara.
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 as mezzanine or temporary equity in the Company’s condensed consolidated balance sheet.
On March 24, 2021 the Company entered into a share redemption and conversion agreement with certain holders of Series B and Series C Preferred Stock shall be automatically convertedpreferred stock which allows the Company to redeem and purchase each stockholder’s shares of Series B preferred stock on or before June 30, 2021 for the stated or liquidation value of approximately £11.5 million (or approximately $15.9 million) plus accrued dividends from January 1, 2021 to the date of purchase. The same stockholders hold 96% of the Series C preferred stock. Upon redemption, the Series C shares would convert into the applicable number ofapproximately 7.6 million shares of Class A common stock. AllCommon Stock at the stated conversion price of $1.66 per share. In the Series A Preferred Stock shall be automatically converted into Class A common stockevent for any reason, we do not later than one year aftercomplete the effective date ofconversion and redemption by June 30, 2021, and the Company’s registration statement in connection withSahara shareholders do not agree to an IPO ofextension, the Company’s Class A common stock. As of September 30, 2017 and 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.agreement will terminate without liability by any party.
Common SharesStock
In 2014, the Company issued 4,079,681 shares of its Class AThe Company’s common stock to various investors for cashconsists of $2,560. The Company received promissory notes from the investors for the proceeds. These notes were due on March 31, 2015 and bear no interest through March 31, 2015. After March 31, 2015, the notes bear interest of 12% per annum. As of December 31, 2016, the Company has received proceeds of $2,335 from issuance of these shares and $225 was recorded by the Company as subscription receivable.
In January 2015, the Company amended its articles of incorporation to state that the Company’s common shares consist of: 1) 150,000,000200,000,000 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 September 30, 2017March 31, 2021, and December 31, 2016,2020, the Company had 5,808,34656,786,557 and 4,621,68753,3436,518 shares respectively, of Class A common stock issued and outstanding.outstanding, respectively. No Class B shares were outstanding at September 30, 2017 andeither March 31, 2021 or December 31, 2016.2020.
IssuancesIssuance of common stock to K-Laser for cash
Public Offering
On September 28, 2016, pursuant to an amended agreement with EDI, K Laser,July 31, 2020, the principal stockholder of EDI, purchased 178,572Company issued 17,250,000 shares of Class A common stock at $5.60 per share. The per share sale price was intended to be 80% of the initial price per share of the Company’s Class A common stock offered to theat a public under IPO. Accordingly, the 178,572 shares of Class A common stock are subject to increase in the event that the initial offering price of $2.00 per share. Gross proceeds from the shares offered is less than $7.00. The $5.60 priceissuances were $34,500,000, including the underwriting overallotment. Net proceeds were $32.0 million after deducting underwriting discounts and the numberoffering expenses of shares sold in the private placement will not change if the initial per share offering price is greater than $7.00. The Company agreed to use $650,000 of the proceeds to retire a separate obligation owed by Boxlight Inc. to EDI.$2.5 million.
Issuances of common stock for cash
In September 2016,On June 11, 2020, the Company issued 18,01413,333,333 shares of the Company’s Class A common stock at $1.055a public offering price of $0.75 per share for cash of $19,000. As of September 30, 2017 and December 31, 2016, the Company had received cash of $18,900 and had subscriptions receivable of $100.
share. 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 September and October 2016,addition, on June 24, 2020 the Company issued an aggregate of 94,735 shares at a fair value of $1.055 per share to settle accounts payable of $99,910 (including $77,268 accrued commission payable to Mark Elliott, the Company’s CEO).
In October 2016, the Company issued 3,556additional 1,999,667 shares of Class A common stock to the underwriter at $0.75 per share. Gross proceeds from the issuances were $11.5 million. Net proceeds were $10.6 million after deducting underwriting discounts and offering expenses of $906 thousand.
Debt Conversion
During the three months ended March 31, 2021, the Company repaid principal of $3.6 million and interest of $204 thousand by issuing 2.25 million shares Class A common stock to Lind and recognized a third party at $5.906 per share to settle$2.2 million loss.
| F-18 |
Accounts Payable and Other Liabilities Conversion
During the three months ended March 31, 2021, the Company converted $1.98 million of EDI accounts payable of $21,000.
In October 2016, the Company issued 109,915in exchange for 793 thousand shares of Class A common stock at a fairwith an aggregate value of $1.055 per share to settle $100,000 of the outstanding principal short-term debt$1.63 million and $15,919 of accrued interest.recognized a $357 thousand gain.
In June 2017, EDI agreedCompensation
During the three months ended March 31, 2021 and in accordance with the terms of his employment agreement, Michael Pope, our Chairman and Chief Executive Officer, received 875,000 shares of restricted Class A common stock, which shares remain subject to convert $1,500,000certain vesting conditions. The shares will vest in substantially equal monthly installments over a period of accounts payable into 238,09512 months.
Exercise of stock options
During the three months ended March 31, 2021, options to purchase a total of 319,434 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 note 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 12. No gain or loss was recorded on the conversion.were exercised.
Distribution to Vert CapitalNOTE 11 – STOCK COMPENSATION
During the first quarter of 2016, Mimio was under the control of Vert Capital. It distributed cash of $700,375 to Vert Capital for payments of the Skyview Note prior to the acquisition by the Company.
Adoption of the 2014 Stock Option Plan
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 planCompany’s 2021 and 2014 Equity Inventive Plans, as amended (the “Equity Incentive Plans”), in the aggregate were 5,000,000 and 116,837 shares, respectively. The 2021 Equity Incentive Plan was approved by the Company’s Board of Directors on April 12, 2021 and is 2,390,438 shares. As of September 30, 2017, the Company had 1,591,357 shares reserved for issuancepending shareholder approval. All grants made under the plan.
NOTE 15 – STOCK SPLITS
In December 2016,Equity Incentive Plans must be approved by the Company completed a stock splitCompany’s Board of 0.948207171 for 1 of its Class A common stock increasing its outstanding Class A common stockDirectors prior to 4,621,687 shares. All share numbers or per share information presented give effect to the stock splits.
NOTE 16 – STOCK-BASED COMPENSATIONissuance.
Stock Options
Under our Equity Incentive Plan, an employee may receive 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 (the strike price). The options become exercisable over a range of immediately vested to four-year vesting periods and, if not exercised, expire five years from the grant date, unless stated differently in the relevant option agreements. Stock options have no financial statement effect on the date they are granted but rather are recorded over time as compensation expense. 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.
The following is a summary of the stock option activities during the three months ended March 31, 2021:
| Number of Units | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | ||||||||||
| Outstanding, December 31, 2020 | 4,850,784 | $ | 1.76 | 3.51 | ||||||||
| Granted | - | - | ||||||||||
| Exercised | (319,434 | ) | $ | 0.77 | ||||||||
| Cancelled | (275,625 | ) | $ | 1.02 | ||||||||
| Outstanding, March 31, 2021 | 4,255,725 | $ | 1.88 | 2.97 | ||||||||
| Exercisable, March 31, 2021 | 2,550,572 | $ | 2.39 | 2.28 | ||||||||
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As of March 31, 2021 and December 31, 2020, the stock options had an intrinsic value of approximately $5.5 million and $2.9 million, respectively.
| F-19 |
Restricted Stock Units
Under our Equity Incentive Plans, pursuant to the Equity Incentive Plans, the Company may grant restricted stock units (“RSUs”) to certain employees 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. 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 three months ended March 31, 2021.
| Number of Units | Weighted Average Grant Date Fair Value | |||||||
| Outstanding, December 31, 2020 | 2,721,347 | $ | 1.62 | |||||
| Granted | 1,005,792 | $ | 2.83 | |||||
| Vested | (243,062 | ) | $ | 1.37 | ||||
| Outstanding, March 31, 2021 | 3,484,077 | $ | 1.99 | |||||
On February 24, 2021, the Company granted an aggregate of 130,547 RSUs to its board members. These RSUs vest ratably over one year and had an aggregated fair value of approximately $374 thousand on the grant date.
In addition, on March 20, 2021, the Company granted an aggregate of 875,245 shares of restricted common stock to Michael Pope, CEO pursuant to his employment agreement. These shares were issued pursuant to the 2014 Equity Incentive Plan, vest ratably over one year, are issued monthly as they vest, and had an aggregated fair value of approximately $2.5 million on the grant date.
Warrants
Following is a summary of the optionwarrant activities during the ninethree months ended September 30, 2017:March 31, 2021:
| Number of Units | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | |||||||||||
| Outstanding, December 31,2016 | 850,405 | $ | 0.08 | 7.29 | |||||||||
| Granted | 18,000 | $ | 5.60 | 5.00 | |||||||||
| Exercised | (291,402 | ) | $ | 0.0001 | |||||||||
| Cancelled | (120,971 | ) | $ | 0.12 | |||||||||
| Outstanding, September 30, 2017 | 456,032 | $ | 0.35 | 5.25 | |||||||||
| Exercisable, September 30, 2017 | 334,091 | $ | 0.17 | 6.96 | |||||||||
| Number of Units | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | ||||||||||
| Outstanding, December 31, 2020 | 365,000 | $ | 1.44 | 1.27 | ||||||||
| Granted | - | |||||||||||
| Exercised | (25,000 | ) | 0.42 | - | ||||||||
| Outstanding, March 31, 2021 | 340,000 | $ | 1.52 | 1.04 | ||||||||
| Exercisable, March 31, 2021 | 323,750 | $ | 1.55 | 0.91 | ||||||||
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.
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. In 2017, the officer exercised the options and the Company issued 291,402 shares to the officer.
On April 4, 2017, the Company granted options to purchase 18,000 shares of Series A common stock at $5.60 per share to an employee 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.
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.
Variables used in the Black-Scholes option-pricing model for options granted during the nine months ended September 30, 2017 include: (1) discount rate of 1.47% (2) expected life of 3.75 years, (3) expected volatility of 68%, and (4) zero expected dividends.Stock compensation expense
For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Company recorded the following stock compensation in general and administrative expense (in thousands):
| 2021 | 2020 | |||||||
| Stock options | $ | 237 | $ | 271 | ||||
| Restricted stock units | 439 | - | ||||||
| Warrants | 1 | - | ||||||
| Total stock compensation expense | $ | 677 | $ | 271 | ||||
As of $50,046March 31, 2021, there was approximately $8.0 million of unrecognized compensation expense related to unvested options, restricted stock units, and $13,531, respectively.warrants, which will be amortized over the remaining vesting period. Of that total, approximately $3.5 million is estimated to be recorded as compensation expense in the remaining nine months of 2021.
| F-20 |
NOTE 17 –RELATED12 – RELATED PARTY TRANSACTIONS
Management Agreement – VC2 Advisors, LLC
On July 15, 2015,January 31, 2018, the Company executedentered into a management agreement (the “Management Agreement”) with an agreement with VC2 Advisors, LLC (“VC2”), a Delaware limited liability company, in which Michael Pope, the Company’sentity owned and controlled by our Chief Executive Officer, President and Director, Michael Pope. The Management Agreement is a managing member. VC2 is owned by Sugar House Trustseparate and AEL Irrevocable Trust, trusts forapart from Mr. Pope’s employment agreement with the benefitCompany’s Management Agreement, effective as of the families of Michael Pope and Adam Levin, respectively. The effective date of this agreement is the datefirst day of the consummationsame month that Mr. Pope’s employment with the Company shall terminate, and for a term of the IPO of the Company’s Class A common stock. Pursuant13 months, Mr. Pope shall provide consulting services to the agreement, VC2 shall perform consulting services for the Company relating to, among other things,including sourcing and analyzing strategic acquisitions, assisting with financing activities, and introductions to various financing sources. VC2other services. As consideration for the services provided, the Company shall receive an annualpay a management fee payable in cash equal to 1.5%0.375% of totalthe consolidated net revenues atof the end of each fiscal year ended December 31, 2016, 2017 and 2018,Company, payable in monthly installments, commencing as of the date of the Company’s IPO. The annual fee is subjectnot to a cap of $1,000,000exceed $250,000 in each of 2016, 2017 and 2018.any calendar year. At itshis option, VC2Mr. Pope may also defer payment until the end of each year payable as an option to purchaseand receive payment in the form of shares of Class A common stock of the Company.
On June 21, 2018, the Company atissued a price per share equalwarrant to 100% of the closing price of the Company’spurchase 270,000 Class A common stock, as traded on Nasdaq or any other national securitiesat an exercise price of $1.20 per share, to Canaan Parish, LLC, an entity wholly owned by Mr. Pope (the “Canaan Warrant”). The Canaan Warrant was issued in exchange asfor the cancellation of December 31 of such year. Effective as of 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.
Warrant Agreement
On November 7, 2014, wewarrant that had been issued to Vert Capital Corporation, an entity owned by Mr. Pope 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 of the shares being sold under the Company’s initial public offering. Among other provisions, such warrants contain “cashless” exercise rights and prohibit the holder from selling any of the shares issuable upon exercise of such warrantsMr. Levin (“Vert”), in November 2014 as compensation for a period of not less than nine months from the date of issuance. Effective as of October 12, 2016, and as a result of Adam Levin and Michael Pope no longer being employed atcertain advisory services rendered by Vert Capital, Boxlight Parent cancelled the remaining balance of the Vert Capital warrants and reissued 597,610 and 199,203 of such warrants to entities associated with Adam Levin and to Michael Pope, respectively. These warrants had a value at par per share at the grant date because the Company was incorporated in September 2014 and at development stage. These warrants expire on December 31, 2019. These warrants will be valued using Black-Scholes option-pricing model upon the completion of the Company’s initial public offering.
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 nine months ended September 30, 2017 and 2016, the CompanyA similar replacement warrant had purchases of $3,210,252 and $804,122, respectively, from Everest Display Inc. For the nine months ended September 30, 2017 and 2016, the Company had sales of $30,527 and $160,048, respectively,also been issued to Everest Display Inc. As of September 30, 2017 and December 31, 2016, the Company had accounts payable of $4,143,544 and $3,379,161, respectively, to Everest Display Inc.
Other advance - EDI
In 2017, the Company received cash of $235,000 and $250,000 from Taiwanese individuals and EDI, respectively. These individuals and EDI intended to purchase the Company’s Class A common shares. However, the sales were not finalized and these investors requested cash refunds. As of September 30, 2017, the CompanyMr. Levin’s entity, Dynamic Capital, but that warrant has paid EDI $250,000. and has recorded the advances from Taiwanese individuals in accounts payable and accrued liabilities to third parties.since expired.
NOTE 1813 – 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 paid 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 settlement terms with the supplier.
In October 2017, a supplier filed a lawsuit against the Company. See Note 20.
Trademark
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. has paid $32,580 related to this agreement.
In October 2014, Boxlight Inc. entered into an amendment to the trademark license agreement with Mr. Myers, where 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 on the date the registration statement is declared effective by the Securities and Exchange Commission. Trademark cost of $250,000 is included in the accompanying consolidated balance sheets under the caption “Intangible assets”, with the corresponding liability included under the caption “Other current liabilities”.
Operating Lease Commitments
The Company leases six office building facilities located in Lawrenceville, Georgia, Poulsbo, Washington, Lexington, Massachusetts, Scottsdale, Arizona, Miami, Florida and Utica, New York in the U.S., and two office spacesbuilding facilities in Dartford and Kent in the U.K. for sales, marketing, technical support and service staff. All such facilities are 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 leasesagreements with a term subsequent to September 30, 2017 are as follows:terms ending in 2023.
| Year ending December 31, | Amount | |||
| 2017 | $ | 67,350 | ||
| 2018 | 265,050 | |||
| 2019 | 60,600 | |||
| Net Minimum Lease Payments | $ | 393,000 | ||
The Company also has another office lease on a month-to-month basis. For the ninethree months ended September 30, 2017,March 31, 2021 and 2020, aggregate rent expense was approximately $210,250.
$310 thousand and $132 thousand respectively.
Agreements with Board of Directors
Purchase Commitments
In March 2015, as amended on February 26, 2016, the
The Company entered into agreements with two new Board members. In consideration of their agreementis legally obligated to serve onfulfill certain purchase commitments made to vendors that supply materials used in the Company’s Board,products. As of March 31, 2021 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. The number of the fully-diluted common shares are to be determined on a date no later than 2 business days prior to the effective date of a registration statement in connection with an IPO of the Company’s Class A common stock. The purchase price per share will be $0.0001 per share. The issuance of these shares will be recorded after the IPO. Additionally, one of the directors receives a fee of $50,000 per annum, which commenced on February 26, 2016.
Warrant Agreement
On November 7, 2014, the Company granted warrants to Lackamoola, LLC 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 or, in the situation that the Company becomes a publicly traded company through reverse merger or other alternative methods, the volume weighted average price per share for the 20 consecutive trading days immediately after the Company becomes a publicly traded company. These warrants expire on December 31, 2019. These warrants will be valued using Black-Scholes option-pricing Model upon the completion of the Company’s initial public offering.
Agreement with Loeb & Loeb
On December 16, 2015, the Company executed an agreement with its legal counsel, Loeb & Loeb LLP (“Loeb”), pursuant to which the Company agreed to issue 231,152 shares of Class A common stock as partial compensation for services rendered by Loeb in connection with the Company’s IPO. The shares will be issued upon the consummation of the Company’s IPO. Upon timely payment of the cash component of compensation due and owing to Loeb as set forth in the agreement, Loeb will be obligated to return to the Company up to 207,864 shares of common stock not yet sold by Loeb for no further consideration and will continue to beneficially own 23,288 shares of our Class A common stock.
On April 24, 2017, the agreement was amended to increase the payable to Loeb for services rendered in connection with the Company’s IPO to $900,000. Pursuant to the amended agreement, the Company shall make a cash payment to Loeb of $235,000 and issue 231,152 restricted shares of Class A common stock at the closing of the IPO. 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 $39,166 no later than the fifth day of each month for a total amount of $235,000. Upon receipt of the entire $235,000, Loeb will return 69,345 shares to the Company. Not later than 12 months after the closing of the IPO, the Company shall pay to Loeb the remaining balance of $430,000. Upon receipt of such final payment, Loeb will return an additional 138,691 shares to the Company. Loeb will continue to beneficially own 23,116 shares of our Class A common stock.open inventory purchase orders was $49.5 million.
NOTE 1914 – CUSTOMER AND SUPPLIER CONCENTRATION
SignificantThere were no customers and suppliers are those that account for greater than 10% of the Company’s consolidated revenues and purchases.
The Company generated a portion of its revenues from two customers (13% and 10%) for the ninethree months ended September 30, 2017. As of September 30, 2017 and DecemberMarch 31, 2016, the amount due from the two customers included in accounts receivable was $1,295,937 and $174,217, respectively. The loss of the significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.2021.
The Company purchasedPurchases were concentrated among a portion of materials from twofew vendors (41% and 31%) for the ninethree months ended September 30, 2017. As of September 30, 2017March 31, 2021 and December 31, 2016, the amounts due to one of the vendors included in accounts payable – related party was $4,143,544 and $3,379,161, respectively. As of September 30, 2017 and December 31, 2016, the Company had prepayments to another vendor included in prepaid expenses and other current assets of $724,856 and $228,552, respectively. 2020:
| Vendor | % of Total purchases from the vendor to total purchases for the three months ended March 31, 2021 | Accounts payable to the vendor as of March 31, 2021 (in thousands) | ||||||
| 1 | 40 | % | $ | 3,916 | ||||
| 2 | 31 | % | 5,948 | |||||
| Vendor | % of Total purchases from the vendor to total purchases for the three months ended March 31, 2020 | Accounts payable (prepayment) to the vendor as of March 31, 2020 (in thousands) | ||||||
| 1 | 36 | % | $ | 1.218 | ||||
The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE 2015 – SUBSEQUENT EVENTS
In October 2017,Pursuant to the terms of the share purchase agreement, dated March 23, 2021, between our subsidiaries, Sahara Holdings Ltd. and Clevertouch BV and the holders of 100% of the outstanding shares of Interactive Concepts BV, a supplier filedBelgium company, we issued a lawsuit againsttotal of 142,882 shares of the Company’s Class A common stock in April and May, 2021, as partial consideration for the purchase price.
On April 5, 2021, the Company for outstanding debtissued 23,574 shares of Class A common stock in lieu of principal and accrued interest owed bypayment of notes payable with an aggregate amount of $48,583.
On April 21, 2021, the Company issued 601,339 shares of approximately $838,214. The lawsuit also included a claim for attorney feesClass A common stock in lieu of $83,846. Theprincipal and interest payment of notes payable with an aggregate amount of $1,057,753.
On May 4, 2021, the Company has obtained legal counselissued 28,179 shares of Class A common stock in lieu of principal and is in the processinterest payment of negotiating a settlement.notes payable with an aggregate amount of $48,889.
| F-21 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, this Form 10-Q may containThe following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein. The Management’s Discussion and Analysis (“MD&A”) contains forward-looking statements relating to Boxlight Corporation. All statements, trend analyses and other information relative to markets for our products and trends in revenue, gross margins and anticipated expense levels, as well as other statements including words such as “anticipate”, “believe”, “plan”, “estimate”, “expect”, and “intend”, and other similar expressions, constitute forward-looking statements. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those factors described below under “Factors That May Affect Future Operations”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. 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.
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 such forward-lookingthese statements. ISC undertakesWe undertake no obligation to publicly update or revise any forward-looking statements, to reflect changed assumptions, the occurrence of unanticipatedincluding any changes that might result from any facts, events, or changes incircumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future operating results.results, events, levels of activity, performance, or achievements.
Overview
We are a visual display technology company that is seeking to become a world leading innovator and integrator of interactive products and software for schools, as well as for business and government conferencing.interactive spaces. We currently design, produce and distribute interactive projectorsdisplays, collaboration software, supporting accessories and distribute interactive LED flat panels in the education market.professional services. We also distribute science, technology, engineering and math (or “STEM”) data logging products, to the educational market.including our robotics and coding system, 3D printing solution and portable science lab. All our products are integrated into our software suite that provides tools for presentation creation and delivery, assessment and collaboration.
To date, we have generated substantially all of our revenue from the sale of our softwareinteractive displays and expanding product line of projectors, LED panels, interactive whiteboards and display devicessoftware to the educational market.market in the United States and Europe.
In addition, weWe have also implemented a comprehensive plan to reach profitability forboth from our core business operations and as a result of making strategic business acquisitions. We have already started to implement this strategy as set forth below. Highlights of thisour plan include:
| ● | ||
| ● | ||
| ● |
Recent Acquisitions
On September 24, 2020, the Company acquired Sahara Presentation Systems PLC, a leader in distributed and manufactured AV solutions (“Sahara”). Headquartered in the United Kingdom, Sahara is a leader in distributed AV products and a manufacturer of multi-award-winning touchscreens and digital signage products, including the globally renowned Clevertouch and Sedao brands. In consideration for the acquisition, the Company paid to the shareholders of Sahara a total purchase price of GBP 74.0 million (approximately USD $94.9 million) in the form of GBP 52.0 million (approximately USD $66.7 million) in cash and GBP 22.0 million (approximately USD $28.2 million) in our Series B convertible preferred stock and our Series C convertible preferred stock.
| 3 |
On March 24, 2021, we entered into a share redemption and conversion agreement with the former Sahara shareholders who own approximately 96% of our Series B and Series C preferred stock. Under the agreement, we agreed to redeem and purchase from such preferred stockholders on or before June 30, 2021 all of the shares of Series B preferred stock for £11.5 million being the stated or liquidation value of the Series B preferred stock plus (b) accrued dividends from January 1, 2021 to the date of purchase. In addition, the holders of 96% of the Series C preferred stock agreed to convert those shares into 7.6 million shares of our Class A Common Stock at a conversion price of $1.66 per share. In the event, for any reason, we do not complete the conversion and redemption by June 30, 2021, and the Sahara shareholders do not agree to an extension, the agreement will terminate without liability by any party.
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. We expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets, 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. |
Components of our Results of Operations and Financial Condition
Revenues
Revenues are comprised of hardware products, software services, and professional development revenues less sales discounts.
| ● | 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. | |
| ● | Professional development revenue. We receive revenue from providing professional development services through third parties and our network of distributors. |
Cost of revenues
Our cost of revenues is comprised of the following:
| ● | costs to purchase components and finished goods directly; | |
| ● | third-party logistics costs; | |
| ● | inbound and outbound freight costs, and customs and duties charges; |
| 4 |
| ● | 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 professional development training related to the use of our products; and |
We outsource some of our warehouse operations and order fulfillment and purchase products from related and third parties. Our product costs will vary directly with volume and 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 result,global company with suppliers centered in Asia and customers located worldwide, we believe that an analysis ofhave used, and may in the historical costs and expensesfuture 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 air shipping to meet the demand of our Target Sellers prior to acquisition will not provide guidance asproducts during peak seasons and new product launches.
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 anticipated results after acquisition. release of projector models; component, contract manufacturing and supplier pricing and foreign currency exchange. 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.
Operating expenses
We anticipate that we will be able to achieve significant reductions inclassify our costs of revenue and selling,operating expenses into two categories: general and administrative expensesand research and development.
General and administrative. General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. 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.
Research and development. Research and development expense consist primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.
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 trade payable obligations exchanged for common shares, and the effects of changes in the fair value of derivative liabilities.
Income tax expense
We are subject to income taxes in the United States, United Kingdom, Mexico, Sweden, Finland, Holland, and Germany where we do business. The United Kingdom, Mexico, Sweden, Finland, Holland, and Germany have a statutory tax rate different from that 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 levels currently incurredexamination of our tax returns by the Target Sellers operating independently, thereby increasingU.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our EBITDAincome tax reserves and cash flows.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.
| 5 |
Operating Results – Boxlight Corporation (Retrospectively adjusted for the acquisitions of Mimio and Genesis)
For the nine-monththree month periods ended September 30, 2017March 31, 2021 and 2016
Revenues.Total revenues for the nine months ended September 30, 2017 were $20,407,258 as compared to $15,371,130 for the nine months ended September 30, 2016. Revenues consist of product revenues, software revenues, installation and professional development. The increase was mainly due to the inclusion of Boxlight Group’s operating results for the nine months ended September 30, 2017. Boxlight Group was acquired on July 18, 2016, and was only included from July 18 through September 30 in the nine-month period ended September 30, 2016.2020
Cost of Revenues. Cost of revenues for the nine months ended September 30, 2017 was $14,595,780 as compared to $9,485,596 for the nine months ended September 30, 2016. Cost of revenues consist primarily of product cost, freight expenses and inventory write-downs. Cost of revenues increased because of the increase in revenues. Gross profit decreased mainly because Boxlight Group’s margin is lower than Mimio’s margin. Sales to Mimio’s customers decreased for the nine months ended September 30, 2017 and Mimio’s gross margin for the nine months ended September 30, 2016 was higher than usual. In addition, the Company incurred significantly more freight fees in early 2017 due to the usage of air freight shipments instead of ocean cargo in order to more quickly meet our customer’s needs.
General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2017 was $7,049,288 as compared to $4,701,275 for the nine months ended September 30, 2016. The increase mainly resulted from the inclusion of Boxlight Group’s operating expenses for the nine months ended September 30, 2017 and additional professional expenses incurred related to the initial public offering.
Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2017 was $357,955 as compared to $846,621 for the nine months ended September 30, 2016. The decrease mainly resulted from lower research and development activity in 2017.
Other income (expense), net.Other expense for the nine months ended September 30, 2017 was $309,424 as compared to $680,398 for the nine months ended September 30, 2016. The decrease was a result of the reduction in interest expense resulting from the conversion and payoff of debt in the third quarter of 2017.
Net loss.Net loss was $1,905,189 and $342,760 for the nine months ended September 30, 2017 and 2016, respectively. The change was mainly attributable to the decrease in gross profit, primarily due to the increase in freight costs incurred to air freight to our customers, along with the increase in operating expenses from the inclusion of Boxlight Group’s results for the nine months ended September 30, 2017.
For the three-month periods ended September 30, 2017 and 2016
Revenues.Total revenues for the three months ended September 30, 2017March 31, 2021 were $10,228,389$33.4 million as compared to $7,877,595$5.7 million for the three months ended September 30, 2016.March 31, 2020, resulting in a 484% increase. Revenues primarily consist of product revenues,hardware revenue, software revenues, installationrevenue, and professional development. The increase in revenues was mainly due toprimarily a result of the inclusionacquisition of Boxlight Group’s operating resultsSahara Presentation Systems in September 2020 and increased demand for our solutions in both the three months ended September 30, 2017. Boxlight Group was acquired on July 18, 2016,U.S. and was only included from July 18 through September 30 inEurope, the three-month period ended September 30, 2016.Middle East, and Africa.
Cost of Revenues. Cost of revenues for the three months ended September 30, 2017March 31, 2021 was $7,327,701$25.2 million as compared to $5,084,340$4.1 million for the three months ended September 30, 2016.March 31, 2020, resulting in an 509% increase. Cost of revenues consistconsists primarily of product cost, freight expenses, customs expense and inventory write-downs. Costadjustments. The increase in cost of revenues increased because ofwas associated with the increase in revenues. revenues, and also additional customs/freight costs which increased from approximately $700 thousand in Q1 2020 to $1.3 million in Q1 2021 due to supply chain challenges caused by product fulfillment complications attributable to the Covid-19 pandemic.
Gross Profit. Gross profit decreased mainly because Boxlight Group’s margin is lower than Mimio’s margin. Sales to Mimio’s customers decreased for the three months ended September 30, 2017.March 31, 2021 was $8.2 million as compared to $1.6 million for the three months ended March 31, 2020. The Gross Profit Margin decreased from 28% in Q1 2020 to 25% in Q1 2021. The gross margin decrease was primarily driven by the effects of customs and freight expenses discussed above, and certain purchase accounting adjustments stemming from the Sahara acquisition and effecting recognized revenues.
General and Administrative Expenses. General and administrative expenses(“G&A”) expense for the three months ended September 30, 2017 was $2,295,101March 31, 2021 were $10.0 million and 30% of revenue as compared to $2,049,917$3.9 million and 69% of revenue for the three months ended September 30, 2016.March 31, 2020. The increase mainly resulted from additional personnel costs associated with the inclusionacquired Sahara operations. The reduction in G&A costs as a percentage of Boxlight Group’s operating expenses for the three months ended September 30, 2017 and additional professional expenses incurred relatedrevenue was due to the initial public offering.effect of significant cost cutting actions undertaken during 2020 in response to the general depressed economic environment caused by the Covid-19 pandemic.
Research and Development Expenses. Research and development expensesexpense was $474 thousand and 1% of revenue for the three months ended September 30, 2017 was $60,403March 31, 2021 as compared to $244,515$316 thousand and 5% of revenue for the three months ended September 30, 2016.March 31, 2020. Research and development expense primarily consists of costs associated with development of proprietary technology. The decrease mainly resulted from lowerincrease in research and development activityexpense was primarily driven by an increase in 2017.contract services related to software development.
Other income (expense), net.Income (Expense). Other expense for the three months ended September 30, 2017March 31, 2021 was $74,890$(3.1) million as compared to $601,258income of $713 thousand for the three months ended September 30, 2016. For the three months ended September 30, 2016, the Company incurred additionalMarch 31, 2020. Other expense increased primarily due to an $601 thousand increase in interest expense associated with increased borrowings, and $2.9 million of additional losses recognized upon the settlement of certain debt obligations in exchange for the extensionissuance of debt. In addition,common shares.
Net loss. Net losses were $5.2 million and $1.9 million for the three months ended September 30, 2017,March 31, 2021 and 2020, respectively. The increase in the Company convertednet loss was primarily due to the lower gross profit margins, increased interest expense, and losses incurred on the settlement of certain related parties’ debt intoobligations in exchange for shares of our common shares.stock.
Net IncomeTo provide investors with additional insight and loss.Netallow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our condensed consolidated financial statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.
| 6 |
EBITDA represents net income was $470,294(loss) before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus stock compensation expense, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement. Our management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of our business model, and 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. 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 three months ended September 30, 2017 as compared
March 31, 2021 and 2020 to net loss of $102,435 for the three months ended September 30, 2016. The change was mainly attributable to the decrease in interest expenseEBITDA and research and development expenses.adjusted EBITDA
| (in thousands) | March 31, 2021 | March 31, 2020 | ||||||
| Net loss | $ | (5,167 | ) | $ | (1,950 | ) | ||
| Depreciation and amortization | 1,754 | 219 | ||||||
| Interest expense | 1,018 | 459 | ||||||
| Income tax benefit | 21 | - | ||||||
| EBITDA | $ | (2,374 | ) | $ | (1,272 | ) | ||
| Stock-based compensation expense | 677 | 271 | ||||||
| Change in fair value of derivative liabilities | 265 | (29 | ) | |||||
| Purchase accounting impact of fair valuing inventory | 15 | 6 | ||||||
| Purchase accounting impact of fair valuing deferred revenue | 807 | - | ||||||
| Net loss on settlement of Lind debt in stock | 2,203 | 347 | ||||||
| Adjusted EBITDA | $ | 1,593 | $ | (677 | ) | |||
Discussion of Effect of Seasonality on Financial Condition
Certain accounts on our balance sheetsfinancial statements 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 between June July, August and September. To prepare for the upcoming school year, we generally build up inventories during the second quarter of the year. However, thisTherefore, 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.
Due to travel restrictions and concerns for the safety for our inventories have decreased, asemployees during the ongoing COVID-19 pandemic, we have reduced face-to-face meetings with customers and attendance at tradeshow events. We are either drop shipping products directlycurrently assessing the impact these changes will have on our peak season sales. Our initial assessment is that funding priority will be given to the customer or bringing inventoryinitiatives that provide for continuity of learning which may result in lower priority on total learning solution sales including hardware, software and immediately shipping out to customers in order to cover our backorders.
We have been very proactive, and will continue to be proactive, in obtaining contracts during the fourth and first quarters that will help offset the seasonality of our business.teacher training.
Liquidity and Capital Resources
As of September 30, 2017,March 31, 2021, we had cash and cash equivalents of $783,181$10.0 million and a working capital balance of $21.8 million. This financial position represents a significant improvement from a year ago at March 31, 2020 when we had a working capital deficit of $4,414,859. $(7.1) million and $612 thousand of cash and cash equivalents.
For the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, we had net cash provided by (used in)used in operating activities of ($596,727)$1.6 million and 184,354, respectively. In addition, we had$890 thousand, respectively, net cash used by investing activities of $194 thousand and $0 respectively, and net cash (used in) provided by (used in) financing activities of $948,448$(747) thousand and ($706,084),$434 thousand, respectively. We had accounts receivable net of allowances of $22.9 million and $4.3 million as of March 31, 2021 and year ended December 31, 2020, respectively.
On August 15, 2017, the Company entered into a 12-month term line of credit agreement with Sallyport Commercial Finance, LLC. As of September 30, 2017, the outstanding principal balance on this facility was $2,324,218.
The Company must continue to raise funds and negotiate its debt payment terms, including the AHA Note that is currently in default, to continue to meet its liquidity requirements. Our principal plan to meet our liquidity requirements are to raise up to $7,000,000 in an IPO; with the option of converting up to $1,050,000 of debt into Class A common stock; and use a portion of the IPO proceeds to repay or renegotiate the Company’s debt obligations.
We financed our capital expenditures during the nine months ended September 30, 2017 primarily through the Sallyport line of credit, along with delaying payments on accounts payable, conversion of accounts payable to equity and the issuance of note payable to K-Laser.
On January 13, 2017, the Company issued a convertible promissory note to K-Laser International Co., Ltd. in the amount of $1,000,000. The note is due on December 31, 2017 and bears interest at an annual rate of 8%, compounded monthly. The note is convertible to the Company’s common stock at $5.60 per share prior to a listing on a public exchange. If converted after a listing on a public exchange, the conversion shares shall be calculated as the average of the 7 days closing price. As of September 30, 2017, outstanding principal and accrued interest for the note were $1,000,000 and $28,055, respectively. The note is secured by all assets of the Company. We used the proceeds for general working capital requirements.
| 7 |
In addition to the cash flows generated by our cashongoing operating activities we financed our operations during 2021 with a new $20.0 million tranche of debt funded by our primary lender, and banking arrangements, we hadfrom a pre-existing accounts receivable financing arrangement with another lender who purchases 85% of the eligible accounts receivable of $5,168,641 on September 30, 2017.the Company, for up to $6.0 million, with the right of recourse. Our accounts receivable and our ability to borrow against accounts receivable provides us with 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 theour business.
In the current COVID-19 pandemic environment, the availability of capital has been significantly reduced and the cost of capital has increased. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders as a result of diminished stock value due to market volatility and uncertainty arising from the COVID-19 pandemic. However, 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 customers and vendors.
Our other cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases, capital equipment 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 for the majority of our inventory purchases, which further constrains our cash liquidity.
Recent Financing
On September 21, 2020, we and Lind Global Asset Management LLC (“Lind Global”) entered into a securities purchase agreement (the “Lind Global SPA”), pursuant to which Lind Global purchased from the Company a $22,000,000 secured convertible note (the “Convertible Note”) in exchange for payment to us of $20,000,000 (the “Funding”). Under the terms of the Lind Global SPA, in addition to the issuance of the Convertible Note, the Company paid to Lind (i) a commitment fee of $400,000 and (ii) a bonus fee (the “Bonus Payment”) of $500,000 payable in shares of Class A common stock of the Company, with the per share price of the Bonus Payment shares calculated based on the 20-day VWAP of the Class A Common Stock prior to closing. The Convertible Note has a term of 24-months, bears a 4% interest rate (0% interest so long as the Class A Common Stock trades at $3.50 or more per share), is repayable in 22 equal instalments commencing 60 days after the Funding and, at the option of the Company, may be repaid in either cash or Class A common stock. Class A common stock issuable to Lind Global in conjunction with the Bonus Payment and the Convertible Note was registered pursuant to a shelf takedown on the Company’s existing shelf registration statement on Form S-3 (SEC File No. 333-239939).
In conjunction with our entry into the Lind Global SPA and the issuance of the Convertible Note, on September 21, 2020, the Company and Lind Global Macro Fund, LP, an affiliate of Lind Global(“Lind”), entered into a third amended and restated security agreement (the “Third A&R Security Agreement”) for purposes of amending and restating a prior security agreement, dated as of February 4, 2020, between the Company and Lind in order to incorporate the Lind Global SPA and the Convertible Note therein. In addition, on September 21, 2020, the Company, Sallyport Commercial Finance, LLC (“Sallyport”), as first lien creditor, and Lind and Lind Global, as second lien creditors, entered into a third amended and restated intercreditor agreement (the “Third A&R Intercreditor Agreement”) for purposes of amending and restating the second amended and restated intercreditor agreement, dated as of February 4, 2020, between the Company, Sallyport and Lind, in order to (i) incorporate Lind Global as a second lien creditor and (ii) reaffirm and confirm the relative priority of each creditor’s respective security interests in the Company’s assets, among other matters.
On July 28, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group, LLC, a Delaware limited liability company (“Maxim”), pursuant to which Maxim, as representative of the underwriters, agreed to underwrite the public offering (the “Offering”) of up to 15,000,00 shares of the Company’s Class A common stock, at a public offering price of $2.00 per share, in addition to an overallotment option (the “Overallotment Option”) of 2,250,000 shares of Common Stock. The Offering closed on July 31, 2020, with the sale of all 17,250,000 shares of the Company’s Common Stock, including the Overallotment Option, for gross proceeds of $34,500,000. Maxim acted as sole book-running manager, National Securities Corporation acted as a co-manager for the Offering, and A.G.P./Alliance Global Partners (“A.G.P.”) acted as financial advisor. As compensation for underwriting the Offering, the underwriters received an underwriting discount of 7%, equaling approximately $2,415,000, in addition to $60,000 in expenses. A.G.P.’s compensation was paid out of the underwriting discount. The Offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (SEC File No. 333-239939) (the “Registration Statement”) and the related base prospectus included therein, as supplemented by the prospectus supplement dated July 28, 2020 (the “Preliminary Prospectus”) and the final prospectus supplement, filed July 29, 2020 (the “Final Prospectus” and collectively with the Preliminary Prospectus, the “Prospectus”)
| 8 |
As approved by the Company’s board of directors on June 22, 2020, the Company entered into an agreement with Everest Display, Inc., a Taiwan corporation (“EDI”), and EDI’s subsidiary, AMAGIC Holographics, Inc., a California corporation (“AMAGIC”), effective June 11, 2020, pursuant to which EDI forgave $1,000,000 in accounts payable owed by the Company to EDI in exchange for the Company’s issuance of 869,565 shares (the “Shares”) of its Class A common stock, par value $0.0001 per share, to AMAGIC at a $1.15 per share purchase price. The Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of Regulation D under Section 4(a)(2) of the Securities Act of 1933, as amended.
On June 8, 2020, the Company entered into an underwriting agreement (the “June Underwriting Agreement”) with Maxim pursuant to which Maxim agreed to underwrite the public offering (the “June Offering”) of 13,333,333 shares (the “Shares”) of the Company’s Class A common stock at a public offering price of $0.75 per share. National acted as co-manager of the June Offering. The June Offering closed on June 11, 2020, with the Company’s sale of the Shares for gross proceeds of $10,000,000. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 2,000,000 shares of Class A common stock at the public offering price less discounts and commissions (the “June Over-Allotment Option”). The June Over-Allotment Option was exercised in full on June 24, 2020, for additional proceeds of $1,500,000, through the sale of an additional 1,999,667 shares of Class A common stock. Maxim acted as sole-bookrunner and National acted as co-manager for the Offering. Gross proceeds, before underwriting discounts and commissions and estimated offering expenses, totaled $11.5 million. As compensation for underwriting the Offering, Maxim and National together received an underwriting discount of 7% of the Offering and the Over-Allotment Option and were reimbursed for up to $85,000 in underwriting expenses. The June Offering was conducted pursuant to the Company’s registration statement on Form S-1 (SEC File No. 333-238634) previously filed with and subsequently declared effective by the SEC.
On February 4, 2020, we and Lind Global Marco Fund, LP (the “Investor” or “Lind”) entered into a purchase agreement (the “2020 SPA”) pursuant to which we received $750,000 in exchange for the issuance to Lind of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded monthly (the “2020 Note”), (2) certain shares of restricted Company Class A common stock valued at $60,000, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment fee of $26,250. The Note matures over 24 months, with repayment commencing on August 4, 2020, after which time the Company will be obligated to make monthly payments of $45,833 (the “Monthly Payments”), plus interest. Interest payments owed under the 2020 Note (the “Interest Payments”) began accruing on the one-month anniversary of the issuance of the Note, however such accrued Interest Payments, which may be paid in either conversion shares or cash, did not become until after the six month anniversary of the Note’s issuance. We may make the Monthly Payments and any Interest Payments in shares of the Company’s Class A common stock so long as such shares are either registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction pursuant to Rule 144 thereunder. As such, the Monthly Payments may be subject to reduction in any month by any amounts converted into the Company’s Class A common stock. In connection with this transaction the Company and Lind amended and restated the $4,400,000 note and the $1,375,000 note referred to below that we issued to Lind in March and December 2019, respectively, to provide that we would not make any payments under the Lind notes in the form of Class A Common Stock if such payments could cause the Company to violate any rules of the Nasdaq Capital Market. In addition, on February 4, 2020, we and Lind entered into a second amended and restated security agreement for purposes of amending and restating a prior security agreement, dated as of December 13, 2019. Also, Sallyport Commercial Finance, LLC, as first lien creditor, and Lind, as second lien creditor, entered into a second amended and restated intercreditor agreement for purposes of amending and restating the intercreditor agreement between the parties, dated as of December 13, 2019, in order to reaffirm and confirm the relative priority of each creditor’s respective security interests in our assets.
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.
| 9 |
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles generally accepted in the United States.States (“GAAP”). 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 condensed 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 the notes to each set of the unaudited condensed consolidated financial statements. 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.:
Revenue Recognition
Revenue is comprised of product sales and service revenue, net of sales returns, co-operative advertising credits, early payment discounts and volume discount paid to 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’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.
Before Mimio was acquired by the Company, it generally provided 24 to 60 months of warranty coverage on all of its products. Mimio products’ 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 periodic review of the warranty liability reserve, and based on historical cost-to-trailing- revenue history, will adjust the warranty liability, with the offset to this adjustment recorded 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 of 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 does not record warranty costs upon sale, and instead conducts a periodic review of the warranty liability reserve, and based on historical experience, will adjust the warranty liability, with the offset to this adjustment recorded to cost of revenue. 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.
| 1. | Revenue recognition | |
| 2. | Business acquisitions | |
| 3. | Goodwill and Intangible assets | |
| 4. | Share-based compensation expense |
| 10 |
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.
Intangible Assets and Impairment
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.
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.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. CertainAs an emerging growth company, we may take advantage of 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; | |
| (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 | |
| (4) | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.As a “smaller reporting company,” this item is not required.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures.
Under the supervision and with the participation of management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company conducted an evaluation of itsWe maintain disclosure controls and procedures as such term is defined under Rulein Rules 13a-15(e) promulgatedand 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 Securities 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 1934, as amended (the “Exchange Act”)disclosure controls and procedures as of March 31, 2014.the end of the period covered by this 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 material weaknesses described in our 2020 Annual Report on Form 10-K.
Notwithstanding the existence of the material weaknesses, we believe that the consolidated financial statements included in this 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 report.
Limitations on 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 its CEOof controls can provide absolute assurance that all control issues and CFO concluded the Company’sinstances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are not effective duedesigned to lackprovide reasonable assurance of a functioning audit committee, a majority of independent members and a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment, and lack of monitoring of required internal control and procedures.achieving its objectives.
| 11 |
(b) Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the nine-monththree-month period ended September 30, 2017March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Inherent Limitations on Effectiveness of Controls.
Because of the inherent limitations in all control systems, no control system can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Notwithstanding these limitations, with the changes referenced above, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
None.
On June 1, 2017, a lawsuit was filed against the Company, Mimio LLC, Mim Holdings, VC2 Partners and Vert Capital Corp by Skyview Capital for breach of a $1,460,508 restated note. On September 11, 2017, we paid Skyview the sum of $1,577,653, which included the principal balance of $1,460,508, plus accrued interest of $117,145, due and payable to Skyview. Although we believe that we have paid this obligation in full, Skyview may seek additional costs and penalties as we have not received a release from Skyview in connection with the pending lawsuit.
In October 2017, a supplier filed a lawsuit against the Company for outstanding debt and accrued interest owed by the Company of approximately $838,214. The lawsuit also included a claim for attorney fees of $83,846. The Company has obtained legal counsel and is in the process of negotiating a settlement.
Not Applicable.
The Company has experienced challenges within the global supply chain which has impacted the business in three key areas: (i) movement and/or delay in production schedules due to component shortages, (ii) continued delays to global shipping and receipt of goods and (iii) increased shipping costs which has reduced gross profit margin. In addition, there is presently a global silicon chip supply shortage that could potentially cause disruptions in our supply chain. While the Company’s business has not yet been affected by such disruption, in the event any of our suppliers experience such supply chain disruption, there is potential that such disruption could ultimately affect our ability to timely obtain and deliver finished goods and products.
For additional risk factors pertinent our business please refer to the Part I Item 1A of the Company’s 2020 Annual Report on Form 10-K, which is incorporated by reference herein.
ITEM 2. RECENT SALES OF UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.On January 29, 2021, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D thereunder, the Company issued 793,375 shares of Class A common stock to Amagic Holographics Inc., an affiliate of K Laser Technology Inc. (“K Laser”) in exchange for cancellation of $1,983,436 in accounts payable owed by the Company to K Laser’s affiliate.
On March 24, 2021 we entered into a share redemption and conversion agreement with the former Sahara Presentation Systems PLC (“Sahara”) shareholders. Under the agreement, the Company has an option to redeem and purchase from such preferred stockholders on or before June 30, 2021 all of the shares of Series B preferred stock for £11,508,495 (or approximately $15,876,084) being the stated or liquidation value of the Series B preferred stock plus (b) accrued dividends from January 1, 2021 to the date of purchase. In addition, the holders of 96% of the Series C preferred stock agreed to convert those shares into 7,630,699 shares of our Class A Common Stock at a conversion price of $1.66 per share. In the event that we do not complete the conversion and redemption by June 30, 2021, and the Sahara shareholders do not agree to an extension, the redemption and conversion agreement will terminate without liability by any party.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
| 12 |
The following exhibits are filed or furnished with this report:
| Exhibit No. | Description of Exhibit | |
| 10.1 | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 13 |
Pursuant toIn accordance with the requirements of the SecuritiesExchange Act, of 1933 the registrant has duly caused this registration statementreport to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Lawrenceville, of the State of Georgia, on this 14thday of November, 2017.authorized.
| BOXLIGHT CORPORATION | ||
| May 13, 2021 | By: | /s/ |
| Michael Pope | ||
| Chief Executive Officer | ||
| May 13, 2021 | By: | |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) | ||||
| 14 |