SECURITIES AND EXCHANGE COMMISSION
| | | | | | | | |
| ☒x
| QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,
2022OR
2023or
| | | | | | | | |
| ☐o
| TRANSITION REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission
file numberFile Number 001-37564
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Nevada | | 8211
| | 46-4116523 36-4794936 |
(State or other jurisdiction of | | (Primary Standard Industrial
| | (I.R.S. Employer
|
incorporation or organization)
| | Classification Code Number)
| | (I.R.S. Employer Identification Number) |
2750 Premiere Parkway, Suite 900
Duluth,
, Georgia30097Phone: (678)367-0809
(Address including zip code, andof principal executive offices)(Zip Code)
(678) 367-0809
(Registrant’s telephone number, including area code,code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the
registrant’s principal executive offices)Act: | | | | |
| | | | | | | | | |
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 ☐o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐o 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 | ☐o
| | Accelerated filer | ☐o
| |
| | | | | | |
| Non-accelerated filer | ☒x
| | Smaller reporting company | ☒x
| |
| | | | | | |
| | | | Emerging growth company | ☒o
| |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐o
Indicate by check mark ifwhether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x The number of shares outstanding of the registrant’s common stock on November
7, 20226, 2023 was
74,124,212.9,610,634.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended September 30, 2022 and 2021
(Unaudited)
(in thousands, except share and per share amounts)
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2022 | | 2021 | | 2022 | | 2021 | |
Revenues, net | | $ | 68,736 | | $ | 61,008 | | $ | 178,967 | | $ | 141,186 | |
Cost of revenues | | | 47,716 | | | 45,210 | | | 128,497 | | | 104,002 | |
Gross profit | | | 21,020 | | | 15,798 | | | 50,470 | | | 37,184 | |
| | | | | | | | | | | | | |
Operating expense: | | | | | | | | | | | | | |
General and administrative expenses | | | 13,952 | | | 11,933 | | | 44,714 | | | 32,844 | |
Research and development | | | 604 | | | 355 | | | 1,865 | | | 1,310 | |
Total operating expense | | | 14,556 | | | 12,288 | | | 46,579 | | | 34,154 | |
| | | | | | | | | | | | | |
Income from operations | | | 6,464 | | | 3,510 | | | 3,891 | | | 3,030 | |
| | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | |
Interest expense, net | | | (2,598) | | | (870) | | | (7,330) | | | (2,652) | |
Other income (expense), net | | | (128) | | | 34 | | | (204) | | | 54 | |
Gain (loss) on settlement of liabilities, net | | | — | | | (614) | | | 856 | | | (2,992) | |
Changes in fair value of derivative liabilities | | | (113) | | | 60 | | | 1,537 | | | (164) | |
Total other expense | | | (2,839) | | | (1,390) | | | (5,141) | | | (5,754) | |
Income (loss) before income taxes | | $ | 3,625 | | $ | 2,120 | | $ | (1,250) | | $ | (2,724) | |
Income tax expense | | | (520) | | | (1,391) | | | (475) | | | (3,936) | |
Net income (loss) | | $ | 3,105 | | $ | 729 | | $ | (1,725) | | $ | (6,660) | |
Fixed dividends - Series B Preferred | | | (317) | | | (317) | | | (952) | | | (952) | |
Deemed contribution -Series B Preferred | | | — | | | — | | | — | | | 367 | |
Net income (loss) attributable to common stockholders | | $ | 2,788 | | $ | 412 | | $ | (2,677) | | $ | (7,245) | |
| | | | | | | | | | | | | |
Comprehensive loss: | | | | | | | | | | | | | |
Net income (loss) | | $ | 3,105 | | $ | 729 | | $ | (1,725) | | $ | (6,660) | |
Other comprehensive loss: | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (5,040) | | | (2,008) | | | (11,449) | | | (1,738) | |
Total comprehensive loss | | $ | (1,935) | | $ | (1,279) | | $ | (13,174) | | $ | (8,398) | |
| | | | | | | | | | | | | |
Net income (loss) per common share – basic | | $ | 0.04 | | $ | 0.01 | | $ | (0.04) | | $ | (0.12) | |
| | | | | | | | | | | | | |
Net income (loss) per common share – diluted | | $ | 0.03 | | $ | 0.01 | | $ | (0.04) | | $ | (0.12) | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding – basic | | | 71,547 | | | 60,094 | | | 67,458 | | | 57,723 | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding – diluted | | | 89,574 | | | 64,710 | | | 67,458 | | | 57,723 | |
| | | | | | | | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Condensed Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(in thousands, except share and per share amounts)
| | | | | | |
| | September 30, | | December 31, |
| | 2022 | | 2021 |
| | | (unaudited) | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 21,952 | | $ | 17,938 |
Accounts receivable – trade, net of allowances | | | 51,254 | | | 29,573 |
Inventories, net of reserves | | | 49,435 | | | 51,591 |
Prepaid expenses and other current assets | | | 9,013 | | | 9,444 |
Total current assets | | | 131,654 | | | 108,546 |
| | | | | | |
Property and equipment, net of accumulated depreciation | | | 1,675 | | | 1,073 |
Operating lease right of use asset | | | 4,370 | | | — |
Intangible assets, net of accumulated amortization | | | 51,913 | | | 65,532 |
Goodwill | | | 24,524 | | | 26,037 |
Other assets | | | 363 | | | 248 |
Total assets | | $ | 214,499 | | $ | 201,436 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| | | | | | |
Current liabilities: | | | | | | |
Accounts payable and accrued expenses | | $ | 48,410 | | $ | 33,638 |
Short-term debt | | | 9,224 | | | 9,804 |
Operating lease liabilities, current | | | 1,767 | | | — |
Deferred revenues, current | | | 8,194 | | | 7,575 |
Derivative liabilities | | | 1,527 | | | 3,064 |
Other short-term liabilities | | | 258 | | | 667 |
Total current liabilities | | | 69,380 | | | 54,748 |
| | | | | | |
Deferred revenues, non-current | | | 15,016 | | | 13,952 |
Long-term debt | | | 44,056 | | | 42,137 |
Deferred tax liabilities, net | | | 8,036 | | | 8,449 |
Operating lease liabilities, non-current | | | 2,594 | | | — |
Other long-term liabilities | | | 148 | | | 340 |
Total liabilities | | | 139,230 | | | 119,626 |
| | | | | | |
Commitments and contingencies (Note 15) | | | | | | |
Mezzanine equity: | | | | | | |
Preferred Series B, 1,586,620 shares issued and outstanding | | | 16,146 | | | 16,146 |
Preferred Series C, 1,320,850 shares issued and outstanding | | | 12,363 | | | 12,363 |
Total mezzanine equity | | | 28,509 | | | 28,509 |
| | | | | | |
Stockholders’ equity: | | | | | | |
Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 and 167,972 shares issued and outstanding, respectively | | | — | | | — |
Common stock, $0.0001 par value, 200,000,000 shares authorized; 74,123,492 and 63,821,901 Class A shares issued and outstanding, respectively | | | 7 | | | 6 |
Additional paid-in capital | | | 117,499 | | | 110,867 |
Accumulated deficit | | | (63,025) | | | (61,300) |
Accumulated other comprehensive (loss) income | | | (7,721) | | | 3,728 |
Total stockholders’ equity | | | 46,760 | | | 53,301 |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | 214,499 | | $ | 201,436 |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2023 and 2022
(unaudited)
(Unaudited)
(in thousands, except
per share amounts)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated | | | | | | |
| | Series A | | Class A | | Additional | | Other | | | | | | |
| | Preferred Stock | | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | (Loss) Income | | Deficit | | Total |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2022 | | 167,972 | | $ | — | | 66,207,717 | | $ | 7 | | $ | 112,352 | | $ | (2,681) | | $ | (66,130) | | $ | 43,548 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for acquisition | | — | | | — | | 230,770 | | | — | | | 150 | | | — | | | — | | | 150 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | | — | | | — | | — | | | — | | | 2,348 | | | — | | | — | | | 2,348 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | 352,940 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock, net | | — | | | — | | 7,000,000 | | | — | | | 2,352 | | | — | | | — | | | 2,352 |
| | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted share units | | — | | | — | | 332,065 | | | — | | | 11 | | | — | | | — | | | 11 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation | | — | | | — | | — | | | — | | | 603 | | | — | | | — | | | 603 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | — | | | — | | | — | | | (5,040) | | | — | | | (5,040) |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | (317) | | | — | | | — | | | (317) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | — | | | — | | | — | | | — | | | 3,105 | | | 3,105 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 | | 167,972 | | $ | — | | 74,123,492 | | $ | 7 | | $ | 117,499 | | $ | (7,721) | | $ | (63,025) | | $ | 46,760 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | | 167,972 | | $ | — | | 63,821,901 | | $ | 6 | | $ | 110,867 | | $ | 3,728 | | $ | (61,300) | | $ | 53,301 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | 193,841 | | | — | | | 69 | | | — | | | — | | | 69 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for acquisition | | — | | | — | | 230,770 | | | — | | | 150 | | | — | | | — | | | 150 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | | — | | | — | | — | | | — | | | 2,348 | | | — | | | — | | | 2,348 |
| | | | | | | | | | | | | | | | | | | | | | |
Debt issuance costs | | — | | | — | | 528,169 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted share units | | — | | | — | | 1,995,871 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation | | — | | | — | | — | | | — | | | 2,665 | | | — | | | — | | | 2,665 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock | | — | | | — | | 7,000,000 | | | 1 | | | 2,352 | | | — | | | — | | | 2,353 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | 352,940 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | — | | | — | | | — | | | (11,449) | | | — | | | (11,449) |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | (952) | | | — | | | — | | | (952) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | — | | | (1,725) | | | (1,725) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 | | 167,972 | | $ | — | | 74,123,492 | | $ | 7 | | $ | 117,499 | | $ | (7,721) | | $ | (63,025) | | $ | 46,760 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues, net | $ | 49,667 | | | $ | 68,736 | | | $ | 137,909 | | | $ | 178,967 | |
Cost of revenues | 31,653 | | | 47,716 | | | 86,919 | | | 128,497 | |
Gross profit | 18,014 | | | 21,020 | | | 50,990 | | | 50,470 | |
| | | | | | | |
Operating expense: | | | | | | | |
General and administrative | 15,408 | | | 13,952 | | | 45,366 | | | 44,714 | |
Research and development | 979 | | | 604 | | | 2,101 | | | 1,865 | |
Impairment of goodwill | 13,226 | | | — | | | 13,226 | | | — | |
Total operating expense | 29,613 | | | 14,556 | | | 60,693 | | | 46,579 | |
| | | | | | | |
(Loss) income from operations | (11,599) | | | 6,464 | | | (9,703) | | | 3,891 | |
| | | | | | | |
Other (expense) income: | | | | | | | |
Interest expense, net | (2,987) | | | (2,598) | | | (8,222) | | | (7,330) | |
Other expense, net | (181) | | | (128) | | | (231) | | | (204) | |
Gain on settlement of liabilities, net | — | | | — | | | — | | | 856 | |
Change in fair value of derivative liabilities | 90 | | | (113) | | | 50 | | | 1,537 | |
Total other expense | (3,078) | | | (2,839) | | | (8,403) | | | (5,141) | |
(Loss) income before income taxes | $ | (14,677) | | | $ | 3,625 | | | $ | (18,106) | | | $ | (1,250) | |
Income tax expense | (3,073) | | | (520) | | | (3,379) | | | (475) | |
Net (loss) income | $ | (17,750) | | | $ | 3,105 | | | $ | (21,485) | | | $ | (1,725) | |
Fixed dividends - Series B Preferred | (317) | | | (317) | | | (952) | | | (952) | |
Net (loss) income attributable to common stockholders | $ | (18,067) | | | $ | 2,788 | | | $ | (22,437) | | | $ | (2,677) | |
| | | | | | | |
Comprehensive loss: | | | | | | | |
Net (loss) income | $ | (17,750) | | | $ | 3,105 | | | $ | (21,485) | | | $ | (1,725) | |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustment | (2,854) | | | (5,040) | | | (574) | | | (11,449) | |
Total comprehensive loss | $ | (20,604) | | | $ | (1,935) | | | $ | (22,059) | | | $ | (13,174) | |
| | | | | | | |
Net (loss) income per common share – basic, as adjusted | $ | (1.90) | | | $ | 0.31 | | | $ | (2.39) | | | $ | (0.32) | |
| | | | | | | |
Net (loss) income per common share - diluted, as adjusted | $ | (1.90) | | | $ | 0.28 | | | $ | (2.39) | | | $ | (0.32) | |
| | | | | | | |
Weighted average number of common shares outstanding – basic, as adjusted | 9,484 | | 8,943 | | 9,399 | | 8,432 |
| | | | | | | |
Weighted average number of common shares outstanding – diluted, as adjusted | 9,484 | | 11,197 | | 9,399 | | 8,432 |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated StatementsBalance Sheets
As of
Changes in Stockholders’ EquityFor the threeSeptember 30, 2023 and nine months ended September 2021
(unaudited)
December 31, 2022
(in thousands, except share
and per share amounts)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated | | | | | | |
| | Series A | | Class A | | Additional | | Other | | | | | | |
| | Preferred Stock | | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Income | | Deficit | | Total |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2021 | | 167,972 | | $ | — | | 59,102,072 | | $ | 6 | | $ | 100,559 | | $ | 5,461 | | $ | (54,886) | | $ | 51,140 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of restricted shares | | — | | | — | | 216,418 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of debt obligations | | — | | | — | | 1,755,009 | | | — | | | 3,911 | | | — | | | — | | | 3,911 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | 162,400 | | | — | | | 159 | | | — | | | — | | | 159 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | 75,000 | | | — | | | 152 | | | — | | | — | | | 152 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation | | — | | | — | | — | | | — | | | 1,161 | | | — | | | — | | | 1,161 |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | (317) | | | — | | | — | | | (317) |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | — | | | — | | | — | | | (2,008) | | | — | | | (2,008) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | — | | | — | | — | | | — | | | — | | | — | | | 729 | | | 729 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 | | 167,972 | | $ | — | | 61,310,899 | | $ | 6 | | $ | 105,625 | | $ | 3,453 | | $ | (54,157) | | $ | 54,927 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | 167,972 | | $ | — | | 53,343,518 | | $ | 6 | | $ | 86,768 | | $ | 5,192 | | $ | (47,498) | | $ | 44,468 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of accounts payable liabilities | | — | | | — | | 793,375 | | | — | | | 1,626 | | | — | | | — | | | 1,626 |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of debt obligations | | — | | | — | | 5,693,481 | | | — | | | 13,783 | | | — | | | — | | | 13,783 |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of restricted shares | | — | | | — | | 760,060 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation | | — | | | — | | — | | | — | | | 3,020 | | | — | | | — | | | 3,020 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | 481,834 | | | — | | | 405 | | | — | | | — | | | 405 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | 95,749 | | | — | | | 203 | | | — | | | — | | | 203 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for acquisition | | — | | | — | | 142,882 | | | — | | | 404 | | | — | | | — | | | 404 |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | (951) | | | — | | | — | | | (951) |
| | | | | | | | | | | | | | | | | | | | | | |
Deemed contribution from Series B preferred | | — | | | — | | — | | | — | | | 367 | | | — | | | — | | | 367 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | — | | | — | | | — | | | (1,739) | | | — | | | (1,739) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | — | | | (6,659) | | | (6,659) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 | | 167,972 | | $ | — | | 61,310,899 | | $ | 6 | | $ | 105,625 | | $ | 3,453 | | $ | (54,157) | | $ | 54,927 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| (Unaudited) | | (as adjusted) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 18,415 | | | $ | 14,591 | |
Accounts receivable – trade, net of allowances | 40,421 | | | 31,009 | |
Inventories, net of reserves | 44,142 | | | 58,211 | |
Prepaid expenses and other current assets | 8,099 | | | 7,433 | |
Total current assets | 111,077 | | | 111,244 | |
| | | |
Property and equipment, net of accumulated depreciation | 1,500 | | | 1,733 | |
Operating lease right of use asset | 8,428 | | | 4,350 | |
Intangible assets, net of accumulated amortization | 46,547 | | | 52,579 | |
Goodwill | 11,969 | | | 25,092 | |
Other assets | 851 | | | 397 | |
Total assets | $ | 180,372 | | | $ | 195,395 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 35,988 | | | $ | 36,566 | |
Short-term debt | 1,022 | | | 845 | |
Operating lease liabilities, current | 1,570 | | | 1,898 | |
Deferred revenues, current | 8,202 | | | 8,308 | |
Derivative liabilities | 422 | | | 472 | |
Other short-term liabilities | 2,441 | | | 386 | |
Total current liabilities | 49,645 | | | 48,475 | |
| | | |
Deferred revenues, non-current | 15,531 | | | 15,603 | |
Long-term debt | 43,355 | | | 43,778 | |
Deferred tax liabilities, net | 5,584 | | | 4,680 | |
Operating lease liabilities, non-current | 7,106 | | | 2,457 | |
Total liabilities | 121,221 | | | 114,993 | |
| | | |
Commitments and contingencies (Note 14) | | | |
Mezzanine equity: | | | |
Preferred Series B, 1,586,620 shares issued and outstanding | 16,146 | | | 16,146 | |
Preferred Series C, 1,320,850 shares issued and outstanding | 12,363 | | | 12,363 | |
Total mezzanine equity | 28,509 | | | 28,509 | |
| | | |
Stockholders’ equity: | | | |
Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 and 167,972 shares issued and outstanding, respectively | — | | | — | |
Common stock, $0.0001 par value, 68,750,000 shares authorized; 9,605,360 and 9,339,587 Class A shares issued and outstanding, respectively | 1 | | | 1 | |
Additional paid-in capital | 118,733 | | | 117,849 | |
Accumulated deficit | (86,604) | | | (65,043) | |
Accumulated other comprehensive loss | (1,488) | | | (914) | |
Total stockholders’ equity | 30,642 | | | 51,893 | |
| | | |
Total liabilities and stockholders’ equity | $ | 180,372 | | | $ | 195,395 | |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of
Cash FlowsChanges in Stockholders’ Equity
For the
ninethree months ended September 30,
2022 and 2021(unaudited)
| | | | | | |
| | Nine Months Ended |
| | September 30, | | September 30, |
| | 2022 | | 2021 |
| | | | | | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (1,725) | | $ | (6,660) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | |
Amortization of debt discount and issuance cost | | | 1,645 | | | 1,473 |
Bad debt expense (recovery) | | | 9 | | | (114) |
(Gain) loss on settlement of liabilities | | | (856) | | | 2,992 |
Changes in deferred tax assets and liabilities | | | (654) | | | 912 |
Change in allowance for sales returns and volume rebate | | | 431 | | | 542 |
Change in inventory reserve | | | 634 | | | 56 |
Change in fair value of derivative liability | | | (1,537) | | | 164 |
Shares issued for interest payment on notes payable | | | — | | | 512 |
Stock compensation expense | | | 2,665 | | | 3,020 |
Depreciation and amortization | | | 6,818 | | | 5,264 |
Non-cash lease expense | | | (20) | | | — |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable – trade | | | (26,240) | | | (26,658) |
Inventories | | | (4,722) | | | (10,084) |
Prepaid expenses and other assets | | | (41) | | | (8,375) |
Other assets | | | (332) | | | — |
Accounts payable and accrued expenses | | | 21,592 | | | 17,865 |
Other liabilities | | | (1,737) | | | 2,134 |
Deferred revenues | | | 4,570 | | | 3,875 |
Net cash provided by (used in) operating activities | | | 500 | | | (13,082) |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Business acquisitions (net of cash acquired) | | | — | | | (804) |
Asset acquisition | | | (100) | | | — |
Purchases of property and equipment, net | | | (960) | | | (139) |
Net cash used in investing activities | | | (1,060) | | | (943) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Net proceeds from issuance of common stock and warrants, net of issuance costs | | | 4,700 | | | 405 |
Proceeds from issuances of short-term debt | | | 2,500 | | | 43,269 |
Proceeds from exercise of options and warrants | | | 70 | | | — |
Principal payments on debt | | | (1,878) | | | (35,487) |
Debt issuance costs | | | — | | | (70) |
Payments of fixed dividends to Series B Preferred stockholders | | | (952) | | | (952) |
Net cash provided by financing activities | | | 4,440 | | | 7,165 |
| | | | | | |
Effect of foreign currency exchange rates | | | 134 | | | (377) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 4,014 | | | (7,237) |
| | | | | | |
Cash and cash equivalents, beginning of the period | | | 17,938 | | | 13,460 |
| | | | | | |
Cash and cash equivalents, end of the period | | $ | 21,952 | | $ | 6,223 |
| | | | | | |
Supplemental cash flow disclosures: | | | | | | |
| | | | | | |
Cash paid for income taxes | | $ | 1,615 | | $ | 1,458 |
Cash paid for interest | | $ | 7,346 | | $ | 2,130 |
| | | | | | |
Non-cash investing and financing transactions: | | | | | | |
Shares issued to settle accounts payable | | $ | — | | $ | 1,626 |
Exercise of warrants | | $ | — | | $ | 203 |
Deemed contribution - Series B Preferred | | $ | — | | $ | 367 |
Deferred consideration for acquisition | | $ | — | | $ | 537 |
Shares issued to convert notes payable and accrued interest | | $ | — | | $ | 13,786 |
Shares issued for asset acquisition | | $ | 150 | | $ | 403 |
2023
(Unaudited)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Class A Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2023 | 167,972 | | $ | — | | | 9,465,494 | | $ | 1 | | | $ | 118,379 | | | $ | 1,366 | | | $ | (68,854) | | | $ | 50,892 | |
| | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Vesting of restricted share units | — | | — | | | 139,866 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock compensation | — | | — | | | — | | — | | | 671 | | | — | | | — | | | 671 | |
| | | | | | | | | | | | | | | |
Foreign currency translation | — | | — | | | — | | — | | | — | | | (2,854) | | | — | | | (2,854) | |
| | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | — | | — | | | — | | — | | | (317) | | | — | | | — | | | (317) | |
| | | | | | | | | | | | | | | |
Net loss | — | | — | | | — | | — | | | — | | | — | | | (17,750) | | | (17,750) | |
| | | | | | | | | | | | | | | |
Balance as of September 30, 2023 | 167,972 | | $ | — | | | 9,605,360 | | $ | 1 | | | $ | 118,733 | | | $ | (1,488) | | | $ | (86,604) | | | $ | 30,642 | |
| | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the nine months ended September 30, 2023
(Unaudited)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Class A Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2022 | 167,972 | | $ | — | | | 9,339,587 | | $ | 1 | | | $ | 117,849 | | | $ | (914) | | | $ | (65,043) | | | $ | 51,893 | |
| | | | | | | | | | | | | | | |
Cumulative effect of change in accounting principle, net of tax | — | | — | | | — | | — | | | — | | | — | | | (76) | | | (76) | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2022 - as adjusted | 167,972 | | — | | | 9,339,587 | | 1 | | | 117,849 | | | (914) | | | (65,119) | | | 51,817 | |
| | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock options exercised | — | | — | | | 12,500 | | — | | | 13 | | | — | | | — | | | 13 | |
| | | | | | | | | | | | | | | |
Vesting of restricted share units | — | | — | | | 219,859 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Reverse stock split fractional adjustment | — | | — | | | 33,414 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Stock compensation | — | | — | | | — | | — | | | 1,823 | | | — | | | — | | | 1,823 | |
| | | | | | | | | | | | | | | |
Foreign currency translation | — | | — | | | — | | — | | | — | | | (574) | | | — | | | (574) | |
| | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | — | | — | | | — | | — | | | (952) | | | — | | | — | | | (952) | |
| | | | | | | | | | | | | | | |
Net loss | — | | — | | | — | | — | | | — | | | — | | | (21,485) | | | (21,485) | |
| | | | | | | | | | | | | | | |
Balance as of September 30, 2023 | 167,972 | | $ | — | | | 9,605,360 | | $ | 1 | | | $ | 118,733 | | | $ | (1,488) | | | $ | (86,604) | | | $ | 30,642 | |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three months ended September 30, 2022, as adjusted
(Unaudited)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Class A Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2022 | 167,972 | | $ | — | | | 8,275,965 | | $ | 1 | | | $ | 112,358 | | | $ | (2,681) | | | $ | (66,130) | | | $ | 43,548 | |
| | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Shares issued for acquisition | — | | — | | | 28,847 | | — | | | 150 | | | — | | | — | | | 150 | |
| | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | — | | — | | | — | | — | | | 2,348 | | | — | | | | | 2,348 | |
| | | | | | | | | | | | | | | |
Warrants Exercised | — | | — | | | 44,118 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Issuance of Stock, net | — | | — | | | 875,000 | | — | | | 2,352 | | | — | | — | | | 2,352 | |
| | | | | | | | | | | | | | | |
Vesting of restricted shares units | — | | — | | | 41,507 | | — | | | 11 | | | — | | | — | | | 11 | |
| | | | | | | | | | | | | | | |
Stock compensation | — | | — | | | — | | — | | | 603 | | | — | | | — | | | 603 | |
| | | | | | | | | | | | | | | |
Foreign currency translation | — | | — | | | — | | — | | | — | | | (5,040) | | | — | | | (5,040) | |
| | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | — | | — | | | — | | — | | | (317) | | | — | | | — | | | (317) | |
| | | | | | | | | | | | | | | |
Net income | — | | — | | | — | | — | | | — | | | — | | | 3,105 | | | 3,105 | |
| | | | | | | | | | | | | | | |
Balance as of September 30, 2022 | 167,972 | | $ | — | | | 9,265,437 | | $ | 1 | | | $ | 117,505 | | | $ | (7,721) | | | $ | (63,025) | | | $ | 46,760 | |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the nine months ended September 30, 2022, as adjusted
(Unaudited)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Preferred Stock | | Class A Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total |
| Shares | | Amount | | Shares | | Amount | | | | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | 167,972 | | $ | — | | | 7,977,738 | | $ | — | | | $ | 110,873 | | | $ | 3,728 | | | $ | (61,300) | | | $ | 53,301 | |
| | | | | | | | | | | | | | | |
Shares issued for: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock options exercised | — | | — | | | 24,231 | | — | | | 69 | | | — | | | — | | | 69 | |
| | | | | | | | | | | | | | | |
Shares issued for acquisition | — | | — | | | 28,847 | | — | | | 150 | | | — | | | — | | | 150 | |
| | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | — | | — | | | — | | — | | | 2,348 | | | — | | | — | | | 2,348 | |
| | | | | | | | | | | | | | | |
Debt issuance costs | — | | — | | | 66,021 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Vesting of restricted share units | — | | — | | | 249,482 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Stock compensation | — | | — | | | — | | — | | | 2,665 | | | — | | | — | | | 2,665 | |
| | | | | | | | | | | | | | | |
Issuance of stock | — | | — | | | 875,000 | | 1 | | | 2,352 | | | — | | | — | | | 2,353 | |
| | | | | | | | | | | | | | | |
Warrants exercised | — | | — | | | 44,118 | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Foreign currency translation | — | | — | | | — | | — | | | — | | | (11,449) | | | — | | | (11,449) | |
| | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | — | | — | | | — | | — | | | (952) | | | — | | | — | | | (952) | |
| | | | | | | | | | | | | | | |
Net loss | — | | — | | | — | | — | | | — | | | — | | | (1,725) | | | (1,725) | |
| | | | | | | | | | | | | | | |
Balance as of September 30, 2022 | 167,972 | | $ | — | | | 9,265,437 | | $ | 1 | | | $ | 117,505 | | | $ | (7,721) | | | $ | (63,025) | | | $ | 46,760 | |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2023 and 2022
(Unaudited)
(in thousands) | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2023 | | September 30, 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (21,485) | | | $ | (1,725) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Amortization of debt premium, discount and issuance cost | 1,800 | | | 1,645 | |
Bad debt expense | (197) | | | 9 | |
Gain on settlement of liabilities | — | | | (856) | |
Changes in deferred tax assets and liabilities | 907 | | | (654) | |
Change in allowance for sales returns and volume rebates | 1,266 | | | 431 | |
Change in inventory reserve | 676 | | | 634 | |
Change in fair value of derivative liabilities | (50) | | | (1,537) | |
Stock compensation expense | 1,823 | | | 2,665 | |
Depreciation and amortization | 6,893 | | | 6,818 | |
Impairment of goodwill | 13,226 | | | — | |
Change in right of use assets and lease liabilities | 249 | | | (20) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable – trade | (10,344) | | | (26,240) | |
Inventories | 13,788 | | | (4,722) | |
Prepaid expenses and other assets | (602) | | | (41) | |
Other assets | (450) | | | (332) | |
Accounts payable and accrued expenses | (972) | | | 21,592 | |
Other liabilities | 2,036 | | | (1,737) | |
Deferred revenues | (322) | | | 4,570 | |
Net cash provided by operating activities | $ | 8,242 | | | $ | 500 | |
| | | |
Cash flows from investing activities: | | | |
Asset acquisition | — | | | (100) | |
Purchases of furniture and fixtures, net | (226) | | | (960) | |
Net cash used in investing activities | $ | (226) | | | $ | (1,060) | |
| | | |
Cash flows from financing activities: | | | |
Proceeds from short-term debt | 3,000 | | | — | |
Proceeds from long-term debt | — | | | 2,500 | |
Principal payments on short term debt | (3,000) | | | — | |
Principal payments on long term debt | (2,048) | | | (1,878) | |
Net proceeds from issuance of common stock and warrants, net of issuance costs | — | | | 4,700 | |
Payments of fixed dividends to Series B Preferred stockholders | (952) | | | (952) | |
Proceeds from the exercise of options and warrants | 13 | | | 70 | |
Net cash (used in) provided by financing activities | $ | (2,987) | | | $ | 4,440 | |
| | | |
Effect of foreign currency exchange rates | (1,206) | | | 134 | |
| | | |
Net increase in cash and cash equivalents | 3,823 | | | 4,014 | |
| | | |
Cash and cash equivalents, beginning of the period | 14,591 | | | 17,938 | |
| | | |
Cash and cash equivalents, end of the period | $ | 18,414 | | | $ | 21,952 | |
| | | |
Supplemental cash flow disclosures: | | | |
| | | |
Cash paid for income taxes | $ | 2,650 | | | $ | 1,615 | |
Cash paid for interest | $ | 6,390 | | | $ | 7,346 | |
| | | |
Non-cash investing and financing transactions: | | | |
Addition of operating lease liabilities | $ | 5,369 | | | $ | — | |
Shares issued for asset acquisition | $ | — | | | $ | 150 | |
See accompanying notes to unaudited condensed consolidated financial statements.
Boxlight Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Boxlight Corporation, a Nevada Corporation (“Boxlight”)
, designs, produces and distributes interactive technology solutions
tofor the education, corporate and government markets under its Clevertouch and Mimio brands.
The Company’sBoxlight’s solutions include interactive displays, collaboration software, supporting accessories, and professional services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Boxlight and its wholly owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements and related notes have 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 condensed 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,
20212022 and notes thereto contained in the Company’s Annual Report on Form
10-K.10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report”). Certain information and note disclosures normally included in consolidated financial statements have been condensed. The December 31,
20212022 balance sheet included herein was derived from the
Company’s audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
Effective January 1, 2023, the Company’s internal reporting structure used by the chief operating decision maker (or CODM) changed resulting in changes to the Company’s segment reporting to align such reporting with the geographic markets in which the Company operates, as further discussed below and in Note 16 - Segments. Corresponding prior period amounts have been restated to conform to current period classification.
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
condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for
20212022 contained in the
2022 Annual Report
on Form 10-K, filed with the SEC on
April 13, 2022,March 17, 2023, describes the significant accounting policies that the Company used in preparing its
dated condensed
consolidated financial statements. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to
revenue/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 results could differ materially from these estimates under different assumptions or conditions.
REVERSE STOCK SPLIT
On June 14, 2023, the Company effected a reverse stock split of the Company’s Class A common stock whereby each eight shares of the Company’s authorized and outstanding Class A common stock was converted into one share of common stock. The par value of the common stock was not adjusted. Following the reverse split, the authorized shares for Class A common stock was adjusted to 18,750,000, the authorized shares for Class B common stock remained at 50,000,000 shares, and the authorized share of preferred stock remained unchanged at 50,000,000 shares. All Class A common share and per share amounts for all periods presented in the condensed consolidated financial statements and the
notes to the consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in aggregate par value of Class A common stock to additional paid-in capital on the condensed consolidated balance sheets of approximately $6 thousand. The quantity of Class A common stock equivalents and the conversion and exercise ratios were adjusted for the effect of the reverse stock split for warrants, stock-based compensation arrangements, and the conversion features on preferred shares. All of the agreements include existing conversion language in the event of a stock split and thus did not result in modification accounting or additional incremental expense as a result of this transaction. The Company issued 33,414 shares of Class A common stock to adjust fractional shares following the reverse stock split to the nearest whole share. There are presently no shares of Class B common stock outstanding and none were outstanding as of September 30, 2023.
GOING CONCERN
The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
At September 30, 2023 the Company was not in compliance with its Senior Leverage Ratio financial covenant under the credit agreement, originally dated December 31, 2021, as amended (the "Credit Agreement"), between the Company, its direct and indirect subsidiaries, and Whitehawk Finance LLC, as lender, and White Hawk Capital Partners, LP, as collateral agent. (The terms of the Credit Agreement and the amendments thereto are described in more detail in Note 8 below). The Company's non-compliance with the Credit Agreement was cured by the Company paying $4.3 million, inclusive of $0.3 million in prepayment penalties and accrued interest, in November 2023 which would have resulted in the Company being in compliance with the Senior Leverage Ratio at September 30, 2023. The Senior Leverage Ratio, as stated in the Third Amendment to the Credit Agreement, decreases to 2.50 at December 31, 2023, 2.00 at March 31, 2024 and June 30, 2024 and 1.75 thereafter. Because of the significant decreases in the required Senior Leverage Ratio that will occur over the next twelve months, the Company’s current forecast projects the Company may not be able to maintain compliance with this ratio. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
In view of this matter, continuation as a going concern is dependent upon the Company’s ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-compliance with the Senior Leverage Ratio, or refinance its Credit Agreement with a different lender on more favorable terms. The Company is actively working to refinance its debt with new lenders on terms more favorable to the Company. While the Company is confident in its ability to refinance its existing debt, it does not have written or executed agreements as of the issuance of this Form 10-Q. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. The Company has a good working relationship with its current banking partner, and has seen a positive trend in the credit markets as of late. However, there can be no assurance that the Company will be successful in refinancing its debt, or on terms acceptable to the Company.
These financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts
receivablesreceivable and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value.
Debt approximates fair value due to eitherThe Company has determined that the
short-term nature, variable rate, or recent execution of the debt agreement. The amount of consideration received is deemed to approximate theestimated fair value of
long-term debt
net of any debt discountis approximately $49 million when the carrying value, excluding discounts, premiums and issuance
cost.costs, is approximately $47.9 million. The fair value of debt was estimated using market rates the Company believes would be available for similar types of financial instruments and represents a Level 2 measurement.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted
prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
| ● | Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
| ● | Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. |
| ● | Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
•Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
•Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The 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 September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | | | | | | | |
| | Markets for | | Other | | Significant | | Carrying |
| | Identical | | Observable | | Unobservable | | Value as of |
| | Assets | | Inputs | | Inputs | | September 30, |
Description | | (Level 1) | | (Level 2) | | (Level 3) | | 2022 |
Derivative liabilities - warrant instruments | | $ | — | | $ | — | | $ | 1,527 | | $ | 1,527 |
| | | | | | | | | | | | |
| | Markets for | | Other | | Significant | | Carrying |
| | Identical | | Observable | | Unobservable | | Value as of |
| | Assets | | Inputs | | Inputs | | December 31, |
Description | | (Level 1) | | (Level 2) | | (Level 3) | | 2021 |
Derivative liabilities - warrant instruments | | $ | — | | $ | — | | $ | 3,064 | | $ | 3,064 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Markets for Identical Assets (Level 1) | | Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value as of September 30, 2023 |
Derivative liabilities - warrant instruments | | — | | | — | | | $ | 422 | | | $ | 422 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Markets for Identical Assets (Level 1) | | Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Value as of December 31, 2022 |
Derivative liabilities - warrant instruments | | — | | | — | | | $ | 472 | | | $ | 472 | |
| | | | | | | | |
The following tables reconcile the beginning and ending balances of the warrant instruments within Level 3 of the fair value hierarchy:
| | | |
| | |
| | (in thousands) |
Balance, June 30, 2022 | | $ | 1,414 |
Change in fair value of derivative liabilities | | | 113 |
Balance, September 30, 2022 | | $ | 1,527 |
| | | |
| | |
| | (in thousands) |
Balance, December 31, 2021 | | $ | 3,064 |
Change in fair value of derivative liabilities | | | 1,537 |
Balance, September 30, 2022 | | $ | 1,527 |
| | | |
| | |
| | (in thousands) |
Balance, June 30, 2021 | | $ | 536 |
Exercise of warrants | | | (171) |
Change in fair value of derivative liabilities | | | (9) |
Balance, September 30, 2021 | | $ | 356 |
| | | |
| | | |
| | (in thousands) |
Balance, December 31, 2020 | | $ | 363 |
Exercise of warrants | | | (171) |
Change in fair value of derivative liabilities | | | 164 |
Balance, September 30, 2021 | | $ | 356 |
| | | | | |
| (in thousands) |
Balance, June 30, 2023 | $ | 512 | |
Change in fair value of derivative liabilities | (90) | |
Balance, September 30, 2023 | $ | 422 | |
| |
| |
| (in thousands) |
Balance, December 31, 2022 | $ | 472 | |
Change in fair value of derivative liabilities | (50) | |
Balance, September 30, 2023 | $ | 422 | |
| |
| (in thousands) |
Balance, June 30, 2022 | $ | 1,414 | |
Change in fair value of derivative liabilities | 113 | |
Balance, September 30, 2022 | $ | 1,527 | |
| |
| (in thousands) |
Balance, December 31, 2021 | $ | 3,064 | |
Change in fair value of derivative liabilities | (1,537) | |
Balance, September 30, 2022 | $ | 1,527 | |
INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
For purposes of this calculation, options to purchase common stock, restricted stock units subject to vesting, and warrants to purchase common stock were considered to be common stock equivalents. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period giving effect to all potentially dilutive securities to the extent they are dilutive. The dilutive effect of options to purchase common stock, restricted stock units subject to vesting and other share-based payment awards is calculated using the “treasury stock method,” which assumes that the “proceeds” from the exercise of these instruments are used to purchase common shares at the average market price for the period. The dilutive effect of convertible securities is calculated using the “if-converted method.” Under the if-converted method, securities are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted calculation for the entire period being presented.
For the three and nine months ended September 30, 2022 and September 30, 2021, where the Company had income, approximately 17.7 million and 1.89 million of2023, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 0.3 million shares wereissuable upon exercise of options to purchase common stock, 0.5 million of unvested shares of restricted stock and 1.4 million shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of 2.2 million shares issuable from the assumed conversion of preferred stock are excluded from the computation of diluted earnings per share due to their antidilutive effect.denominator because they would be anti-dilutive. For the nine months ended September 30, 2022, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 7.20.9 million shares from options to purchase shares of common sharesstock and unvested shares of restricted sharesstock as well as 10.81.4 million shares of common stock issuable upon exercise of warrants. Additionally, potentially dilutive securities of 17.82.2 million from the assumed conversion of preferred stock are excluded from the denominator because they would be anti-dilutive. For the nine months ended September 30, 2021 potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise 6.7 million shares from options to purchase common shares and unvested restricted shares as well as 265,000 shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of 17.8 million from the assumed conversion of preferred stock are excluded from the denominator because they would be anti-dilutive.
The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title, and the significant risks and rewards of ownership of
the products or services,
arehave been transferred to its customers. Product revenue is derived from the sale of
projectors, interactive
panelsdevices and related software and accessories to distributors, resellers and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance and subscription services.
Nature of Products and Services and Related Contractual Provisions
The Company’s sales of interactive devices, including panels,
projectors,whiteboards, and other interactive devices generally include hardware maintenance services, a license to
use software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms of approximately
6030-60 months. Software maintenance includes technical support, product updates
performed on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms of approximately 60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s product sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers and, therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For many of the Company’s software product sales, control is transferred when shipped at the point of origin since the software is installed on the interactive hardware device in advance of shipping. For 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.
Customer Financing Arrangements
Through a third-party leasing partner, we provide financing programs that are designed to offer customers a variety of options to purchase interactive technology solutions whereby customers enter into purchase agreements with the Company along with a separate financing or leasing contract with a third-party lender, who advances the proceeds from the sale to us upon contract execution and shipment of goods. In such situations, the sales to the customer are final and the Company bears no risk of loss regarding subsequent payments.
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 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.pricing terms. 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 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 performance obligations generally included in its contracts. In addition, the Company’s contracts generally include performance obligations that are never sold separately, 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.
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.
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)(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)(2) to ensure that the customer continues to use the related services; so that the customer
willcan receive the optimal benefit from the products during the course of such product’s lifetime. 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 condensed consolidated balance sheets in accordance with Topic 606. Contract liabilities are reflected in deferred revenue in the accompanying
condensed 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
hashad no material contract assets as of September 30,
2022,2023 or December 31,
2021.2022. During the three months ended September 30,
2022,2023 and September 30,
2021,2022, respectively, the Company recognized
$2.2$1.9 million and
$2.5$2.2 million of revenue that was included in the deferred revenue balance as of December 31,
2021,2022 and December 31,
2020,2021, respectively. During the nine months ended September 30,
2022,2023 and September 30,
2021,2022, the Company recognized
$5.8$6.0 million and
$4.4$5.8 million of revenue that was included in the deferred revenue balance as of December 31,
20212022 and December 31,
2020,2021, respectively.
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, price protection provisions, or in connection with certain other rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case-by-case basis, will grant exceptions, mostly for “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering or otherwise determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each
reporting date. There was no material revenue recognized in the three and nine months ended September 30, 20222023 related to changes in estimated variable consideration that existed at June 30, 2022 or December 31, 2021.
2022.
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and
recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of September 30,
20222023 and December 31,
2021,2022, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was
$23.2$23.7 million and
$21.5$23.9 million, respectively. The Company expects to recognize revenue on
33%34.3% of the remaining performance obligations during the next
twelve12 months,
26%28.2% in the following
twelve12 months,
22%21.3% in the
twelve months ended September 30, 2025, 14% in the twelve12 months ended September 30, 2026,
12.5% in the 12 months ended September 30, 2027, with the remaining
5%3.7% recognized
thereafter.thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.
The Company disaggregates revenue based upon the nature of its products and services and the timing and in the manner which it is transferred to the customer. Although all products are transferred to the customer at a point in time, hardware and some software iswhich comes pre-installed on thean interactive device areis transferred at the point of shipment, while some software is transferred to the customer at the time the hardware is received by the customer or when software product 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 as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over three to five years from the contract execution date as measured based upon the passage of time.
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2022 | | 2021 | | 2022 | | 2021 | |
| | (in thousands) | | (in thousands) | | (in thousands) | | (in thousands) | |
Product revenues: | | | | | | | | | | | | | |
Hardware | | $ | 64,601 | | $ | 57,400 | | $ | 167,967 | | $ | 131,865 | |
Software | | | 906 | | | 1,395 | | | 3,959 | | | 3,445 | |
Service revenues: | | | | | | | | | | | | | |
Professional services | | | 1,359 | | | 534 | | | 2,192 | | | 1,103 | |
Maintenance and subscription services | | | 1,870 | | | 1,679 | | | 4,849 | | | 4,773 | |
| | $ | 68,736 | | $ | 61,008 | | $ | 178,967 | | $ | 141,186 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands) | | (in thousands) |
| 2023 | | 2022 | | 2023 | | 2022 |
Product revenues: | | | | | | | |
Hardware | $ | 46,650 | | | $ | 64,601 | | | $ | 128,781 | | | $ | 167,967 | |
Software | 733 | | | 906 | | | 1,818 | | | 3,959 | |
Service revenues: | | | | | | | |
Professional services | 45 | | | 1,359 | | | 872 | | | 2,192 | |
Maintenance and subscription services | 2,239 | | | 1,870 | | | 6,438 | | | 4,849 | |
| $ | 49,667 | | | $ | 68,736 | | | $ | 137,909 | | | $ | 178,967 | |
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g., a sales commission). The Company capitalizes the costs incurred to 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 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; and
| ● | The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. |
| ● | The costs are expected to be recovered. |
Certain sales commissions incurred by the Company 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 of 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, net of accumulated amortization,
was $274 thousand at September 30,
2022.Bill2023 and Hold Arrangements
From timeDecember 31, 2022 was $0.5 million.
SEGMENT REPORTING
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), or decision-making group, in deciding how to timeallocate resources and in assessing performance. Our CODM is our Chief Executive Officer.
Effective January 1, 2023, the Company enters custodial billchanged its segment reporting to align with the geographic markets in which it operates, as further discussed in Note 16 - Segments. The Company previously managed the Company as one operating segment. Following the integration of recent acquisitions which further expanded the Company’s operations into Europe, Middle East and hold arrangements with customers. Africa (“EMEA”) and other international markets, the Company’s operations are now organized, managed and classified into three reportable segments – EMEA, North and Central America (the “Americas”) and all other geographic regions (“Rest of World”). Our EMEA segment consists of the operations of Sahara Holding Limited and its subsidiaries (the “Sahara Entities”). Our Americas segment consists primarily of Boxlight, Inc. and its subsidiaries and the Rest of World segment consists primarily of Boxlight Australia, PTY LTD ("Boxlight Australia”).
Each
arrangement is reviewed,of our operating segments are primarily engaged in the sale of education technology products and
revenue is recognized only whenservices in the
following criteria have been met: (1)education market but which are also sold into the
reasonhealth, government and corporate sectors and derive a majority of their revenues from the sale of flat-panel displays, audio and other hardware accessory products, software solutions and professional services. Generally, our displays produce higher net operating revenues but lower gross profit margins than our accessory solutions and professional services. The Americas operating segment includes salaries and overhead for
the bill-and-hold arrangement is substantive (2) the product is identified as the customer’s asset (3) the product is ready for deliverycorporate functions that are not allocated to the
customer (4) there must be a fixed schedule for delivery (5) the seller cannot use the product or direct the product to another customer. At September 30, 2022,$5.3 million of revenue was recognized for goods that will be delivered to a customer during the fourth quarter.
Company’s individual reporting segments. Transfers between segments are generally valued at market and are eliminated in consolidation.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Leases
Accounting Standards Update ("ASU") No. 2016-02 "Leases” (Topic 842), as amended, requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company elected the modified retrospective approach which we applied on January 1, 2022, and therefore have not restated comparative periods. The Company elected certain relief options offered in ASU 2016-02 including the package of practical expedients, and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). The Company also elected the practical expedient to not separate lease and non-lease components, which allows it to account for lease and non-lease components as a single component. Finally, the Company elected the hindsight practical expedient to determine the lease term for existing leases.
The Company’s operating leases relate primarily to office space. As a result of the adoption of ASU 2016-02, the Company recognized an operating lease right-of-use ("ROU") asset of $3.8 million and a current operating lease liability of approximately $1.6 million and a long-term operating lease liability of approximately $2.3 million as of January 1, 2022, with no impact on the Company’s Condensed Consolidated Statement of Operations and Comprehensive Loss or Condensed Consolidated Statement of Cash Flows. The ROU asset and operating lease liabilities are recorded as separate line items in the Condensed Consolidated Balance Sheet.
ACCOUNTING STANDARDS PENDING ADOPTION
In June 2016, the FASB issued ASU No. 2016-13, “Financial“Financial Instruments – Credit Losses”Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments,” which introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”). The new guidance replaces the incurred loss methodology with the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicableapplies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, including trade accounts receivable. Itloan commitments and other off-balance sheet credit exposures. The new guidance also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees,debt securities and other similar instruments)financial assets measured at fair value through other comprehensive income. Estimated credit losses under CECL consider relevant information about past events, current conditions and net investments in leases recognized by a lessor in accordance with Topic 842. Thisreasonable and supporting forecasts that affect the collectability of financial assets. The new guidance changeswas effective January 1, 2023 and was applied using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of January 1, 2023. Prior period comparative information has not been recast and continues to be reported under the impairment modelaccounting guidance in effect for most financial assets and certain other instruments. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.periods. The Company is currently evaluatingrecognized a cumulative-effect adjustment to reduce retained earnings by $76 thousand, net of taxes. The change in the impact that this standard will have, if any, on its financial statements.
allowance for credit losses was not significant during the three and nine months ended September 30, 2023. ACCOUNTING STANDARDS PENDING ADOPTIONThere were various other accounting standards and interpretations issued recently, some of which although applicable, are not expected to a have a material impact on the Company’s financial position, operations, or cash flows.
SUBSEQUENT EVENTS
We reviewed all material events through the date on which these condensed consolidated financial statements were issued for subsequent event disclosure consideration as described in Note 17.
NOTE 2 – RECENT BUSINESS ACQUISITIONS
FrontRow Calypso LLC
On December 31, 2021, the Company, and its wholly owned subsidiary, Boxlight, Inc., consummated the acquisition of 100% of the membership interests of FrontRow Calypso LLC, a Delaware limited liability company (“FrontRow”). FrontRow was acquired in exchange for payment of $34.7 million to Phonic Ear Inc. and Calypso Systems LLC, the equity holders of FrontRow.
Based in Petaluma, California, FrontRow makes technology that improves communication in learning environments, including developing network-based solutions for intercom, paging, bells, mass notification, classroom sound, lesson sharing, AV control and management. FrontRow also has offices in Toronto, Copenhagen, Brisbane, Hamilton (UK) and Shenzhen.
In order to finance the acquisition of FrontRow, the Company and substantially all of its direct and indirect subsidiaries, including Boxlight and FrontRow as guarantors, entered into a term loan credit facility with Whitehawk Finance LLC described in more detail in Note 9.
The assets acquired and liabilities assumed were recorded at their estimated fair values at the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. The Company engaged the assistance of an independent third-party valuation specialist to determine certain fair value measurements related to acquired assets. The excess consideration over the net fair values of the assets acquired and liabilities assumed was recognized as goodwill.
The fair value or net realizable value of inventories at the date of acquisition was determined using a “top-down” approach based upon the estimated sales value, less a reasonable profit margin and less the estimated costs to dispose of the inventory, including selling costs and other disposal costs such as freight. Accordingly, the carrying amount of inventories at the acquisition date was increased to its estimated fair value based on these assumptions which will result in an increase in cost of revenues subsequent to the acquisition date in 2022. The fair value of accounts receivable acquired in connection with the acquisition approximated the contractual amount due from customers at that date.
The Company has early adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” and therefore, the acquired contract liabilities of FrontRow have been recognized and measured in accordance with Topic 606 as follows.
| | | |
| | | (in thousands) |
Assets acquired: | | | |
Cash | | $ | 2,752 |
Accounts receivable | | | 3,381 |
Inventories | | | 10,240 |
Prepaid expenses | | | 883 |
Property and equipment | | | 348 |
Total assets acquired | | | 17,604 |
| | | |
Accounts payable and accrued expenses | | | (1,501) |
Deferred revenue | | | (1,225) |
Other liabilities | | | (12) |
Total liabilities assumed | | | (2,738) |
| | | |
Net tangible assets acquired | | $ | 14,866 |
| | | |
Identifiable intangible assets: | | | |
Customer relationships | | | 8,195 |
Trademarks | | | 3,244 |
Technology | | | 5,036 |
Non-compete | | | 391 |
Total intangible assets subject to amortization | | | 16,866 |
| | | |
Goodwill | | | 2,920 |
| | | |
Total net assets acquired | | $ | 34,652 |
| | | |
Consideration paid: | | | |
Cash | | $ | 34,652 |
The following table presents the useful lives over which the acquired intangible assets will be amortized on a straight-line basis, which approximates the pattern by which the related economic benefits of the assets are consumed:
| | |
|
| Estimated
|
|
| Weighted Average
|
|
| Life (years)
|
Customer relationships
| | 8
|
Trademarks
| | 10
|
Technology
|
| 8
|
Non-compete agreements
|
| 3
|
Interactive Concepts
On March 23, 2021, the Company acquired 100% of the outstanding shares of Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies (“Interactive”), for total consideration of approximately $3.3 million in cash, common stock and deferred consideration. Interactive has been Boxlight’s key distributor in Belgium and Luxembourg.
The following table summarizes the estimated acquisition date fair 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 | | | (230) |
Total liabilities assumed | | | (1,051) |
| | | |
Net tangible assets acquired | | | 1,869 |
Identifiable intangible assets: | | | |
Tradename | | | 220 |
Customer relationships | | | 745 |
Total intangible assets subject to amortization | | | 965 |
| | | |
Goodwill | | | 439 |
| | | |
Total net assets acquired | | $ | 3,273 |
| | | |
Consideration paid: | | | |
Cash | | $ | 1,795 |
Deferred cash consideration | | | 1,075 |
Common shares issued | | | 403 |
| | | |
Total consideration paid | | $ | 3,273 |
NOTE
32 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | |
| | 2022 | | 2021 |
| | | | | | |
Accounts receivable – trade | | $ | 53,174 | | $ | 31,053 |
Allowance for doubtful accounts | | | (555) | | | (405) |
Allowance for sales returns and volume rebates | | | (1,365) | | | (1,075) |
Accounts receivable - trade, net of allowances | | $ | 51,254 | | $ | 29,573 |
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
Accounts receivable – trade | $ | 43,773 | | | $ | 33,198 | |
Allowance for doubtful accounts | (315) | | | (414) | |
Allowance for sales returns and volume rebates | (3,037) | | | (1,775) | |
Accounts receivable - trade, net of allowances | $ | 40,421 | | | $ | 31,009 | |
Inventories are stated at the lower of cost or net realizable value and include spare parts and finished goods. Inventories are primarily determined using specific identification and the first-in, first-out (“FIFO”) cost methods. Cost includes direct cost from the Current Manufacturer (“CM”) or Original Equipment Manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
Inventories consisted of the following at September 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | |
| | 2022 | | 2021 |
| | | | | | |
Finished goods | | $ | 49,577 | | $ | 51,346 |
Spare parts | | | 998 | | | 260 |
Reserve for inventory obsolescence | | | (1,232) | | | (599) |
Advanced shipping costs | | | 92 | | | 584 |
Inventories, net | | $ | 49,435 | | $ | 51,591 |
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
Finished goods | $ | 43,680 | | | $ | 56,583 | |
Spare parts | 1,329 | | | 775 | |
Reserve for inventory obsolescence | (1,807) | | | (531) | |
Advanced shipping costs | 940 | | | 1,384 | |
Inventories, net | $ | 44,142 | | | $ | 58,211 | |
NOTE
54 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | |
| | 2022 | | 2021 |
| | | | | | |
Prepayments to vendors | | $ | 7,085 | | $ | 7,739 |
Prepaid licenses and other | | | 1,928 | | | 1,705 |
Prepaid expenses and other current assets | | $ | 9,013 | | $ | 9,444 |
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
Prepayments to vendors | $ | 4,352 | | | $ | 4,131 | |
Prepaid licenses and other | 3,747 | | | 3,302 | |
Prepaid expenses and other current assets | $ | 8,099 | | | $ | 7,433 | |
NOTE
65 – INTANGIBLE ASSETS
AND GOODWILL
Intangible Assets
Intangible assets consisted of the following at September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Useful lives | | 2022 | | 2021 |
| | | | | | | | |
Patents | | 4-10 years | | $ | 182 | | $ | 182 |
Customer relationships | | 8-15 years | | | 47,650 | | | 55,158 |
Technology | | 3-5 years | | | 8,521 | | | 8,901 |
Domain | | 7 years | | | 14 | | | 14 |
Non-compete | | 8-15 years | | | 391 | | | 391 |
Tradenames | | 2-10 years | | | 12,065 | | | 13,085 |
Intangible assets, at cost | | | | | 68,823 | | | 77,731 |
Accumulated amortization | | | | | (16,910) | | | (12,199) |
Intangible assets, net of accumulated amortization | | | | $ | 51,913 | | $ | 65,532 |
| | | | | | | | | | | | | | | | | |
| Useful lives | | 2023 | | 2022 |
INTANGIBLE ASSETS | | | | | |
Patents | 4-10 years | | $ | 182 | | | $ | 182 | |
Customer relationships | 8-15 years | | 51,031 | | | 52,736 | |
Technology | 3-5 years | | 8,804 | | | 8,943 | |
Domain | 7 years | | 14 | | | 14 | |
Non-compete | 8-15 years | | 391 | | | 391 | |
Tradenames | 2-10 years | | 12,528 | | | 12,769 | |
Intangible assets, at cost | | | 72,950 | | | 75,035 | |
Accumulated amortization | | | (26,403) | | | (22,456) | |
Intangible assets, net of accumulated amortization | | | $ | 46,547 | | | $ | 52,579 | |
For the three months ended September 30,
20222023 and
2021,2022, the Company recorded amortization expense of $2.1
million and $1.8 million, respectively.million. For the nine months ended September 30,
20222023 and
2021,2022, the Company recorded amortization expense of
$6.5$6.4 million and
$5.2$6.5 million, respectively. Changes to gross carrying amount of recognized intangible assets due to translation adjustments include approximately
$6.3$2.1 million reduction as of September 30,
20222023 and
$3.0$3.1 million
increasereduction as of December 31,
2021.2022.
During the quarter ended September 30, 2023, as a result of the triggering events disclosed below, the Company performed an interim impairment test on its finite-lived intangible assets using undiscounted cash flows. There was no impairment recorded on finite-lived intangible assets during the nine months ended September 30, 2023.
Goodwill
During the quarter ended June 30, 2023, the Company determined that a triggering event had occurred as a result of the Company’s market capitalization that suggested one or more of the reporting units may have fallen below the carrying amounts. In addition, the Company’s change in reporting segments resulted in a change in the composition of the Company’s reporting units. As a result of these changes, the Company determined it has two reporting units for purposes of testing based upon entities that comprise the Americas and EMEA reporting segments. For purposes of impairment testing, the Company allocated goodwill to the reporting units based upon a relative fair value allocation approach and has assigned approximately $22.4 million and $2.8 million of goodwill to the Americas and EMEA reporting units, respectively. However, the allocation used for purposes of segment information disclosures in Note 16 differs from these values used for impairment testing as the information used by the Chief Operating Decision Maker does not assign goodwill in the same manner.
As of June 30, 2023, the Company performed an interim goodwill impairment test as a result of the triggering events identified. In analyzing goodwill for potential impairment in the quantitative impairment test, the Company used a combination of the income and market approaches to estimate the fair value. Under the income approach, the Company calculated the fair value based on estimated future discounted cash flows. The assumptions used are based on what the Company believes a hypothetical marketplace participant would use in estimating fair value and include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. Under the market approach, the Company estimated the fair value based on market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies. If the fair value exceeds carrying value, then no further testing is required. However, if the fair value were to be less than carrying value, the Company would then determine the amount of the impairment charge, if any, which would be the amount that the carrying value of the goodwill exceeded its implied value. Based on the results of the quantitative interim impairment test, the Company concluded that the reporting unit's goodwill was not impaired as of June 30, 2023.
During the quarter ended September 30, 2023, due to further declines in the Company’s market capitalization and a reduction in cash-flows resulting from continued softening in the industry leading to a reduction in sales from interactive flat-panel displays, the Company determined that a triggering event had occurred.
As of September 30, 2023, the Company performed an interim goodwill impairment test as a result of the triggering events identified. The Company’s methodology for estimating fair value was consistent with the income and market approaches used as of June 30, 2023. Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were revised based on current industry and Company trends. For the three and nine months ended September 30, 2023, the Company recorded goodwill impairment charges of $10.4 million and $2.8 million to the Americas and EMEA reporting units, respectively, which also represents total accumulated goodwill impairment charges for each reporting unit.
The Company has entered into various operating leases for certain office,offices, support locations and vehicles with terms extending through February 2027.July 2038. Generally, these leases have initial lease terms of five years or less. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is at itsthe Company’s sole discretion. The Company does not consider the exercise of any lease renewal options reasonably certain. CertainIn addition, certain of the Company’s lease agreements contain early termination options. No renewal options or early termination options have been included in the calculation of the operating right-of-use assets or operating lease liabilities. Certain of the Company’s lease agreements provide for periodic adjustments to rental payments for inflation. As the majority of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental borrowing rate is based on the term of the lease. In connection with
the adoption of ASC 842, the Company used incremental borrowing rates on January 1, 2022 for operating leases that commenced prior to that date. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over the lease term. At September 30, 2022,2023, the Company had no leases classified as finance leases. The Company is currently not a lessor in any lease arrangement.
Operating lease expense was
$712 thousand and $439 thousand for the three months ended September 30,
2023 and September 30, 2022,
respectively and $1.8 million and $1.5 million for the nine months ended September 30,
2022.2023 and September 30, 2022, respectively. Variable lease costs and short-term lease cost were not material for the three and nine months ended September 30,
2023 and September 30, 2022. Cash paid for amounts included in the measurement of lease liabilities was
$660 thousand and $267 thousand for the three months ended September 30,
2023 and September 30, 2022,
respectively and $1.9 million and $1.4 million for the nine months ended September 30,
2022. During the three months ended2023 and September 30,
2022, the Company obtained new operating lease right-of-use assets totaling $143 thousand and for the nine months ended September 30, 2022, the Company obtained $2.0 million in operating right-of-use assets.
2022.
Future maturities of the Company's operating lease liabilities are summarized as follows (in thousands):
Fiscal year ended,
| | | |
2022 | | $ | 647 |
2023 | | | 2,000 |
2024 | | | 1,271 |
2025 | | | 1,068 |
2026 | | | 731 |
| | | 5,717 |
Less imputed interest | | | (1,356) |
Total | | $ | 4,361 |
Supplemental
| | | | | |
2023 | $ | 697 | |
2024 | 1,396 | |
2025 | 1,490 | |
2026 | 1,137 | |
2027 | 697 | |
Thereafter | 4,371 | |
| 9,788 | |
Less imputed interest | (1,112) | |
Total | $ | 8,676 | |
The following is supplemental lease information
at September 30, 2023: | | | | | |
Weighted-average remaining lease term (years) | 9.9
| 3.5
|
|
Weighted-average discount rate | 11.0
| 15.5
| % |
NOTE
87 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consisted of the following at September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | |
| | 2022 | | 2021 |
Accounts payable | | $ | 38,955 | | $ | 25,714 |
Accrued expense | | | 8,648 | | | 6,440 |
Other | | | 807 | | | 1,484 |
Accounts payable and other liabilities | | $ | 48,410 | | $ | 33,638 |
| | | | | | | | | | | |
| 2023 | | 2022 |
Accounts payable | $ | 30,096 | | | $ | 30,719 | |
Accrued expense and other | 5,892 | | | 5,847 | |
Accounts payable and other liabilities | $ | 35,988 | | | $ | 36,566 | |
The following is a summary of the Company’s debt as of September 30,
20222023 and December 31,
20212022 (in thousands):
| | | | | | |
| | 2022 | | 2021 |
Debt – Third Parties | | | | | | |
Paycheck Protection Program | | $ | 140 | | $ | 1,009 |
Note payable - Whitehawk | | | 59,063 | | | 58,500 |
Total debt | | | 59,203 | | | 59,509 |
Less: Discount and issuance costs | | | 5,923 | | | 7,568 |
Current portion of debt | | | 9,224 | | | 9,804 |
Long-term debt | | $ | 44,056 | | $ | 42,137 |
Total debt (net of discount and issuance costs) | | $ | 53,280 | | $ | 51,941 |
| | | | | | | | | | | |
| 2023 | | 2022 |
Debt – Third Parties | | | |
Paycheck Protection Program | $ | 85 | | | $ | 127 | |
Note payable - Whitehawk | 47,900 | | | 49,906 | |
Total debt | 47,985 | | | 50,033 | |
Less: Premium, discount and issuance costs | 3,608 | | | 5,410 | |
Current portion of debt | 1,022 | | | 845 | |
Long-term debt | $ | 43,355 | | | $ | 43,778 | |
Total debt (net of premium, discount and issuance costs) | $ | 44,377 | | | $ | 44,623 | |
In order to finance the acquisition of FrontRow
Calypso LLC (“FrontRow”), which closed on December 31, 2021, the Company and substantially all of its direct and indirect subsidiaries, including Boxlight and FrontRow as guarantors, entered into a maximum $68.5 million term loan credit facility, dated December 31, 2021 (the “Credit Agreement”), with Whitehawk Finance LLC, as lender (the “Lender”), and White Hawk Capital Partners, LP, as collateral
agent.agent (“Whitehawk” or the “Collateral Agent”). The Company received an initial term loan of $58.5 million on December 31, 2021 (the “Initial Loan”) and was provided with a subsequent delayed draw facility of up to $10 million that may be
providedavailable for additional working capital purposes under certain conditions (the “Delayed Draw”). The Initial Loan and Delayed Draw are collectively referred to as the “Term Loans.” The proceeds of the Initial Loan were used to finance the Company’s acquisition of FrontRow, pay off all indebtedness owed to the Company’s then existing lenders, Sallyport Commercial Finance, LLC and Lind Global Asset Management, LLC, pay related fees and transaction costs, and provide working capital. Of the Initial Loan, $8.5 million was subject to repayment on February 28, 2022, with quarterly principal payments of $625,000 and interest payments commencing March 31, 2022 and the $40.0 million remaining balance plus any Delayed Draw loans becoming due and payable in full on December 31, 2025. The Term Loans bear interest at the LIBOR rate plus 10.75%; provided that after March 31, 2022, if the Company’s Senior Leverage Ratio (as defined in the Credit Agreement) is less than 2.25, the interest rate would be reduced to LIBOR plus 10.25%. Such terms are subject to the Company maintaining a borrowing base in
terms compliantcompliance with the Credit Agreement.
In the event of non-compliance with the borrowing base, the Company would be subject to an increased interest rate as stated in the Credit Agreement.
On April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023. The principal elements of the April amendment included (a) an extension of time to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3.5 million in over advances until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement. In such connection, the Company and substantially all of its direct and indirect subsidiaries (together with the Company, the "Loan Parties") obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, the accounts of these key customers had been deemed ineligible for inclusion in the borrowing base
calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts. In addition, the Lender and Collateral Agent agreed to (i) reduce, through September 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to Libor plus+ 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default under the Credit Agreement. Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of excess cash flow or casualty events.
On June 21, 2022, the Loan Parties entered into a second amendment (the “Second Amendment”) to the Credit Agreement with the Collateral Agent and Lender. The Second Amendment to the Credit Agreement was entered into for purposes of the Lender funding a $2.5 million delayed draw term loan and adjusting certain terms to the Credit Agreement, including adjusting the Applicable Margin (as defined in the Second Amendment) to 13.25% for LIBOR Rate Loans and 12.25% for Reference Rate Loans, increasing the definition of change of control from 33% voting power to 40% voting power, requiring the Company to engage a financial advisor, and allowing additional time, until July 15, 2022, for the Company to come into compliance with certain borrowing base requirements set forth in the Second Amendment to the Credit Agreement, among other adjustments.
On April 24, 2023, the Company entered into a third amendment (the “Third Amendment”) to the Credit Agreement, with the Collateral Agent and the Lender. The Third Amendment was entered into for purposes of the Lender funding an additional $3.0 million delayed draw term loan (the “Additional Draw”). The Additional Draw was funded on April 24, 2023, must be repaid on or prior to September 29, 2023, is not subject to any prepayment penalties, and adjusts certain terms to the Credit Agreement, including adjusting the test period end dates and corresponding Senior Leverage Ratios (as defined in the Credit Amendment) and revising the minimum liquidity requirements that the Company must maintain compliance with pertaining to certain Borrowing Base Requirements, among other adjustments. The completion of the additional draw eliminates further delayed draws under the term loan agreement. On July 20, 2023, the Company paid the $3.0 million due under the terms of the Third Amendment. There were no prepayment penalties or premiums included with this payment. During the nine months ended September 30, 2023, the Company repaid principal of $5.0 million and interest of $6.4 million to Whitehawk.
On June 26, 2023, the Company entered into a fourth amendment (the “Fourth Amendment”) with the Collateral Agent and the Lender for the sole purpose of replacing LIBOR-based rates with a SOFR-based rate. Following the Fourth Amendment, the Company’s interest rate is calculated as the Daily Simple SOFR, subject to a floor of 1%, plus the SOFR Term Adjustment and Applicable Margin, as defined in the Credit Agreement, as amended. The Fourth Amendment made no other changes to the Credit Agreement.
Covenant Compliance and Liquidity Considerations
The Company's Credit Agreement, as amended to date, requires compliance with certain monthly covenants, which include provisions regarding over advance limitations based upon a borrowing base. In the second quarter of 2023, as part of obtaining an appropriate waiver, the Company agreed to engage a financial advisor and to use commercial reasonable efforts to refinance the Credit Agreement with an alternative lender and repay the Credit Facility by September 30, 2023, or as soon thereafter as practical. The waiver did not amend the maturity date of the Credit Agreement. Upon repayment, the Company will be subject to a prepayment premium that is higher than the prepayment premium included in the original Credit Agreement, as defined in the waiver.
The Company has either implemented or initiated appropriate plans regarding refinancing procedures that are within management’s control to comply with the waiver requirements. The financial statements do not include any adjustments that might result from the outcome of the Company’s ability to refinance and repay the credit facility.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at September 30, 2023. The Company cured the non-compliance by paying $4.3 million inclusive of $0.3 million in prepayment penalties and accrued interest in November 2023 which would have resulted in the Company being in compliance with the Senior Leverage Ratio at September 30, 2023.
Issuance Cost and Warrants
In conjunction with its receipt of the Initial Loan, the Company issued to the Lender (i)
528,16966,022 shares of Class A common stock (the “Shares”), which Shares were registered pursuant to its existing shelf registration statement and were delivered to the Lender in January 2022, (ii) a warrant to purchase
2,043,291255,411 shares of Class A common stock (subject to increase to the extent
ofthat 3% of any Series B and Series C convertible preferred stock converted into Class A common stock), exercisable at
$2.00$16.00 per share (the “Warrant”), which Warrant was subject to repricing on March 31, 2022 based on the arithmetic volume weighted average prices for the 30 trading days prior to September 30, 2022, in the event the Company’s stock is then trading below
$2.00$16.00 per share, (iii) a 3% fee of $1,800,000, and (iv) a $500,000 original issue discount. In addition, the Company agreed to register for resale the shares issuable upon exercise of the Warrant. The Company also incurred agency fees, legal fees, and other costs in connection with the execution of the Credit Agreement totaling approximately $1.7 million. Under the terms of the warrant issued to Whitehawk on December 31, 2021, the exercise price of the warrants would reprice if the stock price on March 31, 2022 was less than the original exercise price, at which time the number of warrants would also be increased proportionately, so that after such adjustment the aggregate exercise price payable for the increased number of warrant shares would be the same as the aggregate exercise price previously in effect. The warrants repriced on March 31, 2022 to
$1.19$9.52 per share and the shares increased to
3,434,103.
429,263.
On July 22, 2022, the Company entered into a
Securities Purchase Agreementsecurities purchase agreement (the “Purchase Agreement”) with an accredited institutional investor. According to the terms of the
Whitehawk agreement, this purchase agreementCredit Agreement, as amended, the Purchase Agreement triggered a reduction of the exercise price of the warrants and a revaluation of the derivative liability. The
Whitehawk warrants were repriced to
$1.10$8.80 and shares increased to
3,715,075.
On March 29, 2022, the Company received a notice from the collateral agent, alleging, among other things, defaults as a result of (i) failure to repay $8.5 million of the facility by February 28, 2022, (ii) non-compliance with the borrowing base resulting in the Company being in an over advance position under the Credit Agreement, and (iii) failure to timely provide certain reports and
464,385.documents. As a result, all accrued and unpaid interest owed under the Term Loan, became subject to a post-default interest rate equal to the highest interest rate allowed for under the Credit Agreement plus 2.50% until such time as the events of default were either waived or cured. In February 2022, WhiteHawk and the Company agreed in principle to an extension of the February 2022 Payment. Pursuant to amendment to the Credit Agreement, dated April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023 and waive and/or otherwise extend compliance with certain other terms of the Credit Agreement in order to allow the Loan Parties adequate time to comply with such terms. In July 2022, the Company and Whitehawk agreed that the notice had inadvertently included the default with respect to the failure to repay $8.5 million of the facility. As a result, notwithstanding the notice, both WhiteHawk and the Company have agreed that the Company was not in default in making the February 2022 Payment to WhiteHawk.
The principal elements of the April amendment included (a) an extension of time to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3,500,000 in over advances until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement. In such connection, the Loan Parties have obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, their accounts owed to the Loan Parties had been deemed ineligible for inclusion in the borrowing base calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts. In addition, the Lender and Collateral Agent agreed to (i) reduce, through September 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to Libor plus+ 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default under the Credit Agreement. In conjunction with the amendment to the Credit Agreement, the parties entered into an amended and restated fee letter (the “Fee Letter”) pursuant to which the parties agreed to prepayment premiums of (i) 5% for payments made on or before December 31, 2022, (ii) 4% for payments made between January 1, 2023 and December 31, 2023, and (iii) 2% for payments made between January 1, 2024 and December 31, 2025. Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of ECF or casualty events.
On June 21, 2022, the Company and substantially all of its direct and indirect subsidiaries (together with the Company, the “Loan Parties”), entered into a second amendment (the “Second Amendment”) to the four year term loan credit facility, originally entered into December 31, 2021 and as amended on April 4, 2022 (the “Credit Agreement”), with the Collateral Agent and Lender.
The Second Amendment to the Credit Agreement was entered into for purposes of the Lender funding a $2.5 million delayed draw term loan and adjusting certain terms to the Credit Agreement, including adjusting the Applicable Margin (as defined in the Second Amendment) to 13.25% for LIBOR Rate Loans and 12.25% for Reference Rate Loans, increasing the definition of change of control from 33% voting power to 40% voting power, requiring the Company to engage a financial advisor, and allowing additional time, until July 15, 2022, for the Company to come into compliance with certain borrowing base requirements set forth in the Second Amendment to the Credit Agreement, among other adjustments. During the three-month period ending September 30, 2022, the Company repaid principal of $656 thousand and interest of $2.0 million to Whitehawk. During the nine-month period ending September 30, 2022, the Company repaid principal of $1.9 million and interest of $5.6 million to Whitehawk.
Lind Global Marco Fund and Lind Global Asset Management
During the nine months ended September 30, 2021, the Company repaid principal of $9.9 million and interest of $511 thousand, to Lind Global by issuing a total of 5.7 million shares of Class A common stock with an aggregate value of $13.8 million to Lind Global and recognized a loss extinguishment of debt of approximately $3.4 million.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of $1.1 million under the Paycheck Protection Program. During 2021, the Company applied for forgiveness in the amount of $836 thousand. On March 2, 2022, we received a decision letter from the lender that the forgiveness application had been approved, leaving a remaining balance of $173 thousand to be paid. The Company received a payment schedule from our lender on May 5, 2022, extending the payoff date until May 2025. TheAs of September 30, 2023, the amount remaining on the loan at September 30, 2022 was $140less than $100 thousand.
Everest Display, Inc.
On January 26, 2021, the Company entered into an agreement with EDI and EDI’s subsidiary, AMAGIC, settling $1,983,436 in accounts payable owed by the Company to EDI for 793,375 shares of Class A common stock. During the nine months ended September 30, 2021, the Company recognized a $357 thousand gain.
Accounts Receivable Financing – Sallyport Commercial Finance
On September 30, 2020, Boxlight Inc. and EOS EDU LLC entered into an asset-based lending agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Sallyport agreed to purchase 90% of the eligible accounts receivable of the Company during the Term with a right of recourse back to the Company if the receivables are not collectible. Advances against this agreement accrue interest at the rate of 3.50% in excess of the highest prime rate publicly announced from time to time with a floor of 3.25%. In addition, the Company is required to pay a daily audit fee of $950 per day.
On July 20, 2021, Boxlight and Sallyport amended the Accounts Receivable Agreement (the “ARC Amendment”) for purposes of increasing the Maximum Facility Limit Amount to $13,000,000, as well as increasing the minimum monthly sales from $1,250,000 to $3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to a fee of $50,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged. On August 6, 2021, Boxlight and Sallyport entered into an additional amendment of the Accounts Receivable Agreement (the “Second ARC Amendment”), which further increased the Maximum Facility Limit Amount to $15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $20,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged.
NOTE
109 – DERIVATIVE LIABILITIES
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company. Conversion and exercise prices may be lowered if the Company 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. The Company used a Monte Carlo Simulation model to determine the fair value of the derivative liabilities
atas of September 30,
20222023 and December 31,
2021.
| | | | |
| | September 30, 2022 | |
Common stock issuable upon exercise of warrants | | | 3,715,075 | |
Market value of common stock on measurement date | | $ | 0.62 | |
Exercise price | | $ | 1.10 | |
Risk free interest rate (1) | | | 4.07 | % |
Expected life in years | | | 4.25 years | |
Expected volatility (2) | | | 92 | % |
Expected dividend yields (3) | | | — | % |
| | | | |
| | December 31, 2021 | |
Common stock issuable upon exercise of warrants | | | 2,043,291 | |
Market value of common stock on measurement date | | $ | 1.38 | |
Exercise price | | $ | 2.00 | |
Risk free interest rate (1) | | | 1.25 | % |
Expected life in years | | | 5 years | |
Expected volatility (2) | | | 79 | % |
Expected dividend yields (3) | | | — | % |
| (1)
| The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
|
| (2)
| The Company does not expect to pay a
| | | |
| September 30, 2023 |
Common stock issuable upon exercise of warrants | 464,385 |
Market value of common stock on measurement date | $ | 1.91 | |
Exercise price | $ | 8.80 | |
Risk free interest rate (1) | 4.66 | % |
Expected life in years | 3.25 years |
Expected volatility (2) | 106.0 | % |
Expected dividend in the foreseeable future.yields (3) | — | % |
| | | | | |
| December 31, 2022 |
Common stock issuable upon exercise of warrants | 464,385 |
Market value of common stock on measurement date | $ | 2.48 | |
Exercise price | $ | 8.80 | |
Risk free interest rate (1) | 4.02 | % |
Expected life in years | 4 years |
Expected volatility (2) | 83.6 | % |
Expected dividend yields (3) | — | % |
(1)The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
(2)The historical trading volatility was based on historical fluctuations in stock price for Boxlight and certain peer companies.
(3)The Company does not expect to pay a dividend in the foreseeable future.
Pretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):
| | | | | | |
| | Three Months | | Three Months |
| | Ended | | Ended |
| | September 30 | | September 30, |
| | 2022 | | 2021 |
United States | | $ | 3,320 | | $ | (3,114) |
Foreign | | | 305 | | | 5,234 |
Total pretax book income | | $ | 3,625 | | $ | 2,120 |
| | | | | | |
| | Nine Months Ended | | Nine Months Ended |
| | September 30 | | September 30, |
| | 2022 | | 2021 |
United States | | $ | (589) | | $ | (8,541) |
Foreign | | | (661) | | | 5,817 |
Total pretax book loss | | $ | (1,250) | | $ | (2,724) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
United States | $ | (8,041) | | | $ | 3,320 | | | $ | (11,761) | | | $ | (589) | |
Foreign | (6,636) | | | 305 | | | (6,345) | | | (661) | |
Total pretax book (loss) income | $ | (14,677) | | | $ | 3,625 | | | $ | (18,106) | | | $ | (1,250) | |
The Company recorded income tax expense of
$3.1 million and $520 thousand
and $1.4 million for the three months ended September 30,
20222023 and
September 30, 2021,2022, respectively, and income tax expense of
$3.4 million and $475 thousand
of $3.9 million for the nine months ended September 30,
20222023 and
September 30, 2021,2022, respectively. The year-to-date effective tax rate is
38%18.7% while the September 30, 2022 year-to-date effective rate was 38.0%. The negative effective tax rate for 2023 is due to
there being no material tax expense/benefit for the
legacy Boxlight entities, due to their valuation allowance position,Company paying income taxes in various jurisdictions while
the Sahara entities are fully taxable.incurring a worldwide net loss.
The
decreaseincrease in tax expense year-over-year is largely due to
foreign pretax book loss for the
nine months ended September 30, 2022 as compared to foreign pretax income forincrease in the
nine months ended September 30, 2021, as well as the impact of a significantestimated annual effective tax rate
change inof the
UK on the Company’s deferred tax liability that was recorded inUS legacy Boxlight entities for the three months ended September 30,
2021.
2023 as compared to the estimated annual effective tax rate of the US legacy Boxlight entities for the three months ended September 30, 2022.
The Company operates in the United States, United Kingdom and
various other jurisdictions. Income taxes have been provided
in accordance with ASC-740-270, based upon the tax laws and rates of the countries in which operations are
conducted and income is earned.conducted.
The legacy Boxlight entities are in a net deferred tax asset position in the United States, the United Kingdom and other jurisdictions, primarily driven by
the aforementioned net operating losses. The recoverability of these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction
toin which the carryforward applies. It also depends on specific tax provisions in each jurisdiction that could impact utilization. For example, in the United States, a change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carryforwards.
The company is in process of analyzing whether an ownership change has occurred in recent years. Additionally, because U.S. tax laws limit the time during which the net operating losses generated prior to 2018 may be applied against future taxes, if the Company fails to generate U.S. taxable income prior to the expiration dates, the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. The Company has evaluated both positive and negative evidence as to the ability of its legacy entities in each jurisdiction to generate future taxable income. Based on its long history of cumulative losses in those jurisdictions, it believes it is appropriate to maintain a full valuation allowance on its net deferred tax asset
atas of September 30,
20222023 and December 31,
2021.2022.
The Sahara entities have recorded a net deferred tax liability, which is primarily driven by the net deferred tax liability on the intangibles for which it doesthe Sahara entities do not have tax basis. This includes the deferred tax liability recorded during 2021 for the acquisition of Interactive Concepts. The Company does not qualify for any consolidated filing positions in any of these countries, so there is no ability to net the deferred tax liabilities of the Sahara companies against the deferred tax assets of the legacy Boxlight companies.
The tax years from 2009 to 2022 remain open to examination in the U.S. federal jurisdiction.jurisdiction and in most U.S. state jurisdictions. The tax years from 2020 to 2022 remain open to examination in the U.K. Statutes of limitations vary in other immaterial jurisdictions.
On August 16, 2022, the president signed the Inflation Reduction Act (IRA) into law. The IRA enacted a 15% corporate minimum tax effective in 2024, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives. We currently do not expect the tax-related provisions of the IRA to have a material effect on our financial results.
During the second quarter of 2021, the Company became aware of a potential state tax exposure for failure to file minimum tax returns in a state for several years. The Company has recorded an exposure item of $82$82 thousand for its best estimate of the amount for which it will settle the exposure. This amount includes $24$24 thousand of income tax and $58$58 thousand of penalties and interest. The Company has not identified any other material uncertain tax positions at this time.during the nine months ended September 30, 2023.
The Company’s articles of incorporation,
as amended, provide that the Company is authorized to issue 50,000,000 shares of preferred stock,
with such preferred stock consisting of:
1)(1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share;
2) 1,200,000(2) 1,586,620 shares of voting Series B preferred stock, with a par value of $0.0001 per share;
3) 270,000(3) 1,320,850 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and
4)(4) 48,280,000 shares of “blank check” preferred stock to be designated by the Company’s board of directors.
Each authorized series of preferred stock is described below.
Issuance of
preferred sharesPreferred Shares
At the time of the Company’s initial public offering, the Company issued 250,000 shares of the Company’s non-voting convertible Series A preferred stock to Vert Capital for the acquisition of Genesis. All of the Series A preferred stock was convertible into
398,40649,801 shares of Class A common stock, at the discretion of the Series A stockholder. On August 5, 2019, a total of 82,028 shares of Series A preferred stock were converted into a total of
130,72116,341 shares of Class A common stock. As of September 30,
2022,2023, a total of 167,972 shares of Series A preferred stock remained
outstanding.outstanding which can be converted into 33,461 shares of Class A common stock, at the discretion of the Series A stockholder.
Series B Preferred Stock and Series C Preferred Stock
On September 25, 2020, in connection with the acquisition of Sahara
Holding Limited ("Sahara”), the Company issued 1,586,620 shares of Series B
Preferred Stockpreferred stock and 1,320,850 shares of Series C
Preferred Stock.preferred stock. The Series B
Preferred Stockpreferred 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 Stockpreferred stock is convertible into the Company’s Class A common stock at a conversion price of
$1.66$13.28 per share which was the closing price of the Company’s Class A common stock on the Nasdaq Stock Market on September 25, 2020 (the “Conversion Price”). Such conversion may occur either (i) at the option of the holder at any time after January 1, 2024, or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price). The Series C
Preferred Stockpreferred 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 Stockpreferred stock shall be redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days prior written notice to the 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 Stockpreferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C
Preferred Stockpreferred stock is also subject to redemption on the same terms commencing January 1, 2026. The aggregate estimated fair value of the Series B and C
Preferred Stockpreferred stock of $28.5 million was included as part of the total
$94.9 million consideration paid for the purchase of Sahara.
As the redemption features in the Series B Preferred Stockpreferred stock and Series C Preferred Stockpreferred stock are not solely within the control of the Company, the Company has classified the Series B Preferred Stockpreferred stock and Series C Preferred Stockpreferred stock as mezzanine or temporary equity in the Company’s condensed consolidated balance sheet.
On March 24, 2021, the Company entered intoSeptember 30, 2023, a share redemptiontotal of 1,586,620 and conversion agreement with certain holders1,320,850 shares of Series B and Series C preferred stock (the “Redemption Agreement”) which allows the Company to redeem and repurchase each such 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. Such stockholders hold 96% of the Series C preferred stock. Upon redemption, the Series C shares held by such stockholders would convert into approximately 7.6 million shares of Class A remained outstanding, respectively.
Common Stock
at the stated conversion price of $1.66 per share.On June 14, 2021, the Company entered into an amendment to the Redemption Agreement (the “Amended Redemption Agreement”) for purposes of extending the completion date to on or before December 31, 2021. In addition, the Amended Redemption Agreement changed the definition of “Redemption Payments” such that the redemption payment schedule would begin on or before May 31, 2021, for the quarter then ended and continue quarterly until the date of completion.
Regarding these amendments, the Company applied the accounting guidance from ASC 470-50 pertaining to determining whether an amendment to an equity-classified preferred share is an extinguishment or modification, and concluded that the Amended Redemption Agreement on June 14, 2021, as it effected the Series B Preferred Stock, resulted in an extinguishment of the original equity instruments subject to redemption agreement. Accordingly, the Series B Preferred Stock subject to the Amended Redemption Agreement was recorded at its fair value as of June 14, 2021, and a $367 thousand deemed contribution was credited to additional-paid-in-capital. With the Redemption Agreement, the Series B Preferred Stock includes a beneficial conversion feature. The Company early adopted (as of January 1, 2021) ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which includes a key provision eliminating the beneficial conversion feature guidance in ASC Subtopic 470-20, “Debt with Conversion and Other Options.
Common Stock
The Company’s
authorized common stock consists of 1)
150,000,00018,750,000 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 would automatically convert into shares of Class A common stock. As of September 30,
20222023 and December 31,
2021,2022, the Company had
74,123,4929,605,360 and
63,821,9019,339,587 shares of Class A common stock
issued and
outstanding,, respectively. No Class B shares were outstanding at September 30,
20222023 or December 31,
2021.2022.
Issuance of
common stockSecurities Purchase Agreement
|
Common Stock
Securities Purchase Agreement
On July 22, 2022, the Company, entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited institutional investor (the “Investor”) pursuant to which the Company agreed to issue and sell, in a registered direct offering directly to the Investor,
7.0 million(i) 875,000 shares
(the “Shares”) of the Company’s Class A common stock, par value
of $0.0001 per share,
(“Common Stock”),(ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase
352,94044,118 shares of
Common Stockcommon stock at an exercise price of
$0.0001$0.0008 per share, which Pre-Funded Warrants were issued in lieu of shares of
Common Stockcommon stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and
(iii) warrants to purchase an aggregate of
7,352,940919,118 shares of
Common Stockcommon stock at an exercise price of
$0.68$5.44 per share (the
“Warrants”,“Warrants,” and collectively with the Pre-Funded Warrants and the Shares, the “Securities”). The Securities were sold at a price of
$0.68$5.44 per share for total gross proceeds to the Company of $5.0 million (the “Offering”), before deducting estimated offering expenses, and excluding the exercise of any Warrants or Pre-Funded Warrants. The Pre-Funded Warrants were exercisable immediately and the Warrants
will bewere exercisable six months after the date of issuance and will expire
five and a half years from the date of issuance. As such, the net proceeds to the Company from the Offering, after deducting placement agent’s fees and estimated expenses payable by the Company and excluding the exercise of any Warrants or Pre-Funded Warrants, was $4.6 million of which the proceeds net of issuance costs were allocated based on the relative fair values of the instruments, warrants and prefunded warrants;
with $2.4 million
was allocated to common stock, $2.2 million
was allocated to warrants and $118 thousand
was allocated to the pre-funded warrants.
The net proceeds received by the Company will be used for working capital purposes.The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Investors and customary indemnification rights and obligations of the parties. Pursuant to the terms of the Purchase Agreement, the Company has agreed to certain restrictions on the issuance and sale of its Common Stockcommon stock or Common Stock Equivalentscommon stock equivalents (as defined in the Purchase
Agreement) during the 60-day period following the closing of the Offering, which was on July 26, 2022. On August 9, 2022, the Investor exercised the prefunded warrants.
The Company evaluated whether the Warrants, Pre-Funded Warrants and/or Shares were
inwithin the scope of ASC 480 which discusses the accounting for instruments with characteristics of both liabilities and equity. The guidance in ASC 480, and the resulting liability classification, is applicable to such instruments when certain criteria are met. Based on its analysis, the Company concluded that the Warrants, Pre-Funded Warrants and Shares did not meet any of the criteria to be subject to liability classification under ASC 480 and are therefore classified as equity.
Warrants
The Company had equity warrants outstanding of 921,150 and 920,680 at September 30, 2023 and December 31, 2022, respectively.
In conjunction with its receipt of the Whitehawk loan, the Company issued to Whitehawk
528,16966,022 shares of Class A common stock, which were registered pursuant to the Company’s existing shelf registration statement and were delivered to
the Whitehawk in January 2022.
Debt Conversion
During
Repurchase Plan
On February 14, 2023, the
three months ended September 30, 2021,Board of Directors of Boxlight Corporation approved the Company’s establishment of a share repurchase program (the “Repurchase Program”) authorizing the Company
repaid principalto purchase up to $15.0 million of
$3.1 million and interest of $138 thousand by issuing 1.8 million sharesthe Company’s Class A common stock. Pursuant to the Repurchase Program, the Company may, from time to time, repurchase its Class A common stock
in the open market, in privately negotiated transactions or by other means, including through the use of trading plans intended to
Lindqualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in accordance with applicable securities laws and
recognized a $0.7 million loss. Duringother restrictions. The timing and total amount of any repurchases made under the
nine months ended September 30, 2021,Repurchase Program will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The authorization expires on January 26, 2027, may be suspended or discontinued at any time, and does not obligate the Company
repaid principal of $9.9 million and interest of $511 thousand by issuing 5.7 million shares Class A common stock with an aggregate value of $13.8 million to
Lind and recognized a $3.4 million loss.
Accounts Payable and Other Liabilities Conversion
During the nine months ended September 30, 2021, the Company converted $2.0 million of EDI accounts payable in exchange for 793 thousand sharesacquire any amount of Class A common stock with an aggregate valuestock. As of $1.6 million and recognized a $357 thousand gain.
Conversion of restricted stock units
During the three and nine months ended September 30, 2022, respectively, 332,065 and 1,995,871 restricted stock units vested and were converted into Class A common stock. During2023, the three and nine months ended September 30, 2021, 217,000 and 760,060 restricted stock units vested and were converted into Class A common stock.
Exercise of stock options
DuringCompany has not utilized the three months ended September 30, 2022, no options to purchase stock were exercised and during the nine months ended September 30, 2022, options to purchase a total of 193,841 shares of Class A common stock were exercised. During the three months ended September 30, 2021, 162,000 options were exercised and during the nine months ended September 30, 2021, options to purchase a total of 481,834 shares of Class A common stock were exercised.
Warrants
The following is a summary of the equity warrant activities during the nine months ended September 30, 2022.
| | | | | | | |
| | | | | | | Weighted |
| | | | | | | Average |
| | | | | Weighted | | Remaining |
| | Number of | | | Average | | Contractual |
| | Units | | | Exercise Price | | Term (in years) |
Outstanding, December 31, 2021 | | 70,000 | | $ | 5.70 | | 0.94 |
Granted | | 7,705,880 | | $ | 0.65 | | |
Exercised | | (352,940) | | $ | - | | |
Expired | | (50,000) | | | 7.70 | | |
Outstanding, September 30, 2022 | | 7,372,940 | | $ | 0.68 | | 5.25 |
Exercisable, September 30, 2022 | | 12,500 | | $ | 0.70 | | 2.56 |
Repurchase Program.
The Company used the following inputs to value warrants issued during the nine months ending September 30, 2022 using the Black Scholes option valuation method: market value on measurement date, $0.59; exercise price $0.68; risk free interest rate, 2.86%; expected term, 6 years; expected volatility, 132% and expected dividend yield of 0%.
Exercise of warrants
During the three and nine months ended September 30, 2022, pre-funded warrants to purchase 352,940 shares of Common Stock at an exercise price of $0.001 per share were exercised. During the three and nine months ended September 30, 2021, 75,000 and 95,749 warrants were exercised, , respectively with an exercise price of $0.42.
NOTE
1312 – STOCK COMPENSATION
Grants made
The Company has issued grants under
the Equity Incentive Plans must betwo equity incentive plans, both of which have been approved by the Company’s
boardshareholders: (i) the 2014 Equity Incentive Plan, as amended (the “2014 Plan”), pursuant to which a total of
directors. As of September 30, 2022, the total number of underlying798,805 shares of the Company’s Class A common stock
availablehave been approved for
grant to directors, officers, key employeesissuance, and
consultants of(ii) the
Company or a subsidiary of the Company under the Company’s 2021 Equity Incentive Plan
(the “2021 Plan”), pursuant to which a total of 625,000 shares of the Company’s Class A common stock have been approved for issuance. Upon approval of the 2021 Plan in September 2021, any shares remaining available for issuance under the 2014 Plan were
2,725,400 shares.
cancelled, and all future grants were issued under the 2021 Plan. The 2021 Plan allows for issuance of shares of our Class A common stock, whether through restricted stock, restricted stock units, options, stock appreciation rights or otherwise, to the Company’s officers, directors, employees and consultants. Prior to the second quarter of 2023, the Company had issued 774,904 shares under the 2021 Plan such that the Company was over the authorized share number. During the nine months ended September 30, 2023, the Company cancelled 384,340 shares of previously issued awards such that the Company is under the authorized number of share awards. The fair value of shares previously issued in excess of the approved shares under the 2021 Plan of approximately $13 thousand was reclassed from liability to equity during the second quarter.
Under the Company’s stock option program, pursuant to the
Equity Incentive Plans, an employee receives an award2014 Plan and 2021 Plan, employees may be eligible to receive awards that provides the opportunity in the future to purchase the Company’s shares at the market price of the stock on the date the award is granted (the strike price).
TheFollowing the issuance, such options become exercisable over a range of immediately vested to four-year vesting periods and expire five years from the grant date, unless stated differently in the option agreements, if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through 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 option activities during the nine months ended September 30,
2022:
| | | | | | | |
| | | | | | | Weighted |
| | | | | | | Average |
| | | | Weighted | | Remaining |
| | Number of | | Average | | Contractual |
| | Units | | Exercise Price | | Term (in years) |
Outstanding, December 31, 2021 | | 4,054,116 | | $ | 1.92 | | 2.29 |
Granted | | 1,221,744 | | $ | 1.12 | | |
Exercised | | (193,841) | | $ | 0.24 | | |
Cancelled | | (724,408) | | $ | 1.75 | | |
Outstanding, September 30, 2022 | | 4,357,611 | | $ | 1.80 | | 2.28 |
Exercisable, September 30, 2022 | | 3,042,376 | | $ | 2.20 | | 1.80 |
2023:
| | | | | |
| Number of Units |
Outstanding, December 31, 2022 | 489,485 |
Granted | 364,299 |
Exercised | (12,500) |
Cancelled | (491,336) |
Outstanding, September 30, 2023 | 349,948 |
Exercisable, September 30, 2023 | 275,150 |
During the first quarter of 2023, the Company granted 364,299 options of which 322,040 were subsequently cancelled and 42,259 vested during the period. During the third quarter of 2023, 59,116 out of the money options were cancelled, with such shares being returned to the 2021 Plan and becoming available for re-issuance in new grants. The Company
estimatesestimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. The Company used the following inputs to value
warrantsoptions issued during the nine months
endingended September 30,
2022 using the Black Scholes option valuation method:2023: market value on measurement date,
$0.59$1.68 to
$0.93;$2.24; exercise price of
$5.01$2.48 to
$0.68;$3.20; risk free interest rate,
1.69%4.19% to
2.87%4.22%; expected term, 3
years to 4 years; expected volatility, ranged from
141111.45% to
148111.74% and expected dividend yield of 0%.
As of September 30, 2022 and December 31, 2021, the stock options had an intrinsic value of approximately $150 thousand and $1.9 million, respectively.
On May 3, 2022, the Boxlight board of directors adopted a resolution, in exchange for a three-year non-compete agreement, to grant Mark Elliott, a member of the board and former CEO of the Company, an extension for one year, of previously granted stock options to purchase a total of 577,675 shares of Class A common stock, par value $0.001 per share, which had expired on January 12, 2022. The stock price on the remeasurement date was $1.04 and the incremental compensation recognized was $314,000.
On June 13, 2022, the Boxlight board of directors granted Greg Wiggins, our Chief Financial Officer, stock options for 150,000 shares of the Company’s Class A common stock will vest in equal quarterly installments over a four-year term commencing on July 5, 2022.
Restricted Stock Units
Under the Company’s
Equity Incentive Plans2014 Plan and 2021 Plan, the Company may grant restricted stock units (“RSUs”) to certain employees and non-employee directors. Upon granting the RSUs, the Company recognizes 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 RSUs 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 RSU activities during the nine months ended September 30,
2022.
| | | | | |
| | | | Weighted |
| | | | Average |
| | | | Grant Date Fair |
| | Number of Units | | Value |
Outstanding, December 31, 2021 | | 1,973,947 | | $ | 1.81 |
Granted | | 2,411,662 | | $ | 1.20 |
Vested | | (1,179,754) | | $ | 1.73 |
Forfeited | | (370,151) | | $ | 1.38 |
Outstanding, September 30, 2022 | | 2,835,704 | | $ | 1.37 |
On March 21,2023:
| | | | | |
| Number of Units |
Outstanding, December 31, 2022 | 303,879 |
Granted | 498,398 |
Vested | (219,859) |
Forfeited | (72,297) |
Outstanding, September 30, 2023 | 510,121 |
During the first quarter of 2023, the Company granted
an aggregate72,348 RSUs of
348,840which 62,300 were subsequently cancelled and 10,048 vested during the first six months of the year. During the third quarter of 2023, the Company granted 426,049 RSUs to its board
members. These RSUs vest ratably over one year and had an aggregated fair value of approximately $450 thousand on the grant date.On February 14, 2022, with an effective date of January 1, 2022, the Company entered into a letter agreement with Michael Pope, the Chairman and Chief Executive Officer, extending Mr. Pope’s term of employment with the Company. Under the terms of the agreement, Mr. Pope received a grant of 163,637 RSU’s, valued at approximately $180,000, and vesting over three years and 494,069 options to purchase Class A Common Stock, which are valued using the Black-Scholes Model with the Company’s customary inputs.
On February 24, 2022, following approval by the Company’s board of directors the Company’s senior management issued a total of 1,771,950 RSUs under the terms of Amendment No. 2 to the Boxlight Corporation 2014 Stock Incentive Plan, vesting over four years, as long-term incentive awards to its employees in the U.S. and Europe. The aggregate fair value of the shares was $2.1 million.
During the first quarter ended March 31, 2022, Jens Holstebro, a former FrontRow employee, received 39,683 in restricted shares of Class A common stock, valued at $50,000, as a bonus, which restricted stock vested immediately.
key executive officers.
Stock Compensation Expense
For the three and nine months ended September 30,
20222023 and
2021,2022, the Company recorded the following stock compensation in general and administrative expense (in thousands):
| | | | | | | | | | | | |
| | | Three months ended September 30, | | | Nine months ended September 30, |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Stock options | | $ | 128 | | $ | 153 | | $ | 683 | | $ | 544 |
Restricted stock units | | | 474 | | | 1,005 | | | 1,980 | | | 2,472 |
Warrants | | | 1 | | | 3 | | | 2 | | | 4 |
Total stock compensation expense | | $ | 603 | | $ | 1,161 | | $ | 2,665 | | $ | 3,020 |
As of September 30, 2022, there was approximately $4.7 million of unrecognized compensation expense related to unvested options, restricted stock units, and warrants, which expense will be amortized over the remaining vesting period of such awards. Of that total, approximately $608 thousand is estimated to be recorded as compensation expense in the remaining three months of 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Stock options | $ | 125 | | | $ | 128 | | | $ | 446 | | | $ | 683 | |
Restricted stock units | 545 | | | 474 | | | 1,375 | | | 1,980 | |
Warrants | 1 | | | 1 | | | 2 | | | 2 | |
Total stock compensation expense | $ | 671 | | | $ | 603 | | | $ | 1,823 | | | $ | 2,665 | |
NOTE
1413 – RELATED PARTY TRANSACTIONS
On November 1, 2022, the Company entered into a consulting agreement with Mark Elliott, former CEO of Boxlight and a current member of the Board of Directors. Under the terms of the agreement, Mr. Elliott is to provide sales, marketing, management and related consulting services to assist the Company in sourcing and entering into agreements with one or more customers to provide products and services for specified school districts. The Company will pay Mr. Elliott a fixed payment of $4 thousand per month and commissions equal to 15% of gross profit derived by the Company based on total purchase order revenue. The agreement, unless renewed or extended, will expire on December 31, 2023. For the nine months ended September 30, 2023, the Company paid $92 thousand under the agreement.
On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by theour Chief Executive Officer and Chairman, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment agreement with the Company. The Management Agreement will become effective as of the first day of the same month that Mr. Pope’s employment with the Company shall terminate.terminates. Thereafter, and for a term of 13 months, Mr. Pope shallwill provide consulting services to the Company including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration for the services provided, the Company will pay Mr. Pope a management fee equal to 0.375% of the consolidated net revenues of the Company, payable in monthly installments, not to exceed $250,000 in any calendar year. At his option, Mr. Pope may defer payment until the end of each year and/or receive payment in the form of shares of Class A common stock of the Company.
NOTE
1514 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
Contingencies
The Company leases seven office building facilities located in Lawrenceville, Georgiaassesses its exposure related to legal matters and Duluth, Georgia; Poulsbo; Scottsdale, Arizona; Miami, Florida and Utica, New Yorkother items that arise in the U.S., and two office building facilities in Dartford and Kent inregular course of its business. If the U.K. for sales, marketing, technical support, and service staff. DuringCompany determines that it is probable a loss has been incurred, the second quarteramount of 2022, FrontRow entered intothe loss, or an amount within the range of loss, that can be reasonably estimated is recorded. The Company has not identified any legal matters that could have a building lease in Australia and assumed a lease from FrontRow’s former owner in Denmark. All such leased facilities are under non-cancelable lease agreements with terms ending from 2023 to 2027.material adverse effect on our consolidated results of operations, financial position or cash flows.
The Company is legally obligated to fulfill certain purchase commitments made to vendors that supply materials used in the Company’s products. As of September 30, 2022,2023, the total amount of such open inventory purchase orders was $33.8$28.4 million.
NOTE
1615 – CUSTOMER AND SUPPLIER CONCENTRATION
There was one customer
that accounts for greater than 10% of the Company’s consolidated revenues for the nine months ended September 30, 2022. There were two customers that accounted for greater than 10% of the Company’s consolidated revenues for the nine months ended September 30,
2021.2023 and 2022. Details are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Customer | | Total revenues from the customer as a percentage of total revenues for the nine months ended September 30, 2023 | | Accounts receivable from the customer as of September 30, 2023 (in thousands) | | Total revenues from the customer as a percentage of total revenues for the nine months ended September 30, 2022 | | Accounts receivable from the customer as of September 30, 2022 (in thousands) |
1 | | 12.8 | % | | $ | 5,417 | | | 14.1 | % | | $ | 8,532 | |
For the nine months ended September 30, 2023, | | | | | | | | | | |
| | Total revenues | | | | | Total revenues | | Accounts |
| | from the customer | | Accounts | | from the customer | | receivable from |
| | as a percentage of | | receivable from | | as a percentage of | | the customer as |
| | total revenues | | this customer as of | | total revenues | | of |
| | for the nine months ended | | September 30, | | for the nine months ended | | September 30, |
| | September 30, | | 2022 | | September 30, | | 2021 |
Customer | | 2022 | | (in thousands) | | 2021 | | (in thousands) |
1 | | 14.1 | % | $ | 8,532 | | 12.8 | % | $ | 9,815 |
2 | | — | | | — | | 10.1 | % | $ | 5,142 |
the Company’s purchases were concentrated primarily with one vendor
. For the nine months ended September 30, 2022, and 2021, the Company’s purchases were concentrated primarily with two vendors. Details are as follows:
| | | | | | | | | | |
| | Total purchases | | | | | Total purchases | | | |
| | from the vendor | | | | | from the vendor | | | Accounts payable |
| | as a percentage of | | | Accounts payable | | as a percentage | | | (prepayment) to |
| | total cost of | | | (prepayment) to | | of total cost of | | | the |
| | revenues for | | | the vendor as of | | revenues for | | | vendor as of |
| | the nine months ended | | | September 30, | | the nine months ended | | | September 30, |
| | September 30, | | | 2022 | | September 30, | | | 2021 |
Vendor | | 2022 | | | (in thousands) | | 2021 | | | (in thousands) |
1 | | 44.0 | % | $ | 8,275 | | 47.0 | % | $ | 4,188 |
2 | | 20.0 | % | $ | (10,482) | | 18.4 | % | $ | (2,070) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Vendor | | Total purchases from the vendor as a percentage of total cost of revenues for the nine months ended September 30, 2023 | | Accounts payable to the vendor as of September 30, 2023 (in thousands) | | Total purchases from the vendors as a percentage of total cost of revenues for the nine months ended September 30, 2022 | | Accounts payable (prepayment) to the vendors as of September 30, 2022 (in thousands) |
1 | | 45.1 | % | | $ | 22,715 | | | 44.0 | % | | $ | 8,275 | |
2 | | — | % | | $ | — | | | 20.0 | % | | $ | (10,482) | |
The Company believes there are other suppliers that could be substituted should the above cited suppliervendor become unavailable or non-competitive.
NOTE 16 – SEGMENTS
Information about our Company’s operations by operating segment is shown in the following tables (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue, net | | | | | | | |
Americas | $ | 25,717 | | | $ | 31,780 | | | $ | 76,851 | | | $ | 79,537 | |
EMEA | 24,330 | | | 37,537 | | | 68,249 | | | 100,143 | |
Rest of World | 799 | | | 168 | | | 2,443 | | | 359 | |
Eliminations and Adjustments (1) | (1,179) | | | (749) | | | (9,634) | | | (1,072) | |
Total Revenue, net | $ | 49,667 | | | $ | 68,736 | | | $ | 137,909 | | | $ | 178,967 | |
(Loss) Income from Operations | | | | | | | |
Americas | (5,124) | | | 3,861 | | | (2,330) | | | 1,772 | |
EMEA | (6,945) | | | 2,721 | | | (8,205) | | | 2,264 | |
Rest of World | 401 | | | 12 | | | 806 | | | 25 | |
Eliminations and Adjustments (1) | 69 | | | (130) | | | 26 | | | (170) | |
Total (Loss) Income from Operations | $ | (11,599) | | | $ | 6,464 | | | $ | (9,703) | | | $ | 3,891 | |
(1)Eliminations and adjustments represent net sales between the Americas, EMEA and Rest of World segments. Sales between these segments are generally valued at market.
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Identifiable Assets | | | |
Americas | $ | 93,644 | | | $ | 88,451 | |
EMEA | 84,135 | | | 104,978 | |
Rest of World | 2,593 | | | 1,966 | |
Total Identifiable Assets | $ | 180,372 | | | $ | 195,395 | |
NOTE 17 – SUBSEQUENT EVENTS
On November
4, 2022,3, 2023, the Company
made a $4.25paid $4.3 million
paymentinclusive of $0.3 million in prepayment penalties and accrued interest on its Credit
Agreement. The Company made the payment in order to cure it's non-compliance with the Senior Leverage Ratio financial covenant under the Credit Agreement
as of September 30, 2023. In conjunction with
Whitehawk. Thethe $4.3 million payment,
will be credited by WhiteHawk toward the
repaymentCompany obtained a waiver from its lender stating that the Company was in compliance with all covenants under the Credit Agreement as of
the $8.5 million term loan due on February 28, 2023.There were no pre-payment penalties or premiums included with this payment.
September 30, 2023.Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis
(“MD&A”) should be read in conjunction with the financial statements and the related notes thereto included elsewhere herein. The
Management’s Discussion and Analysis (“MD
&A”)&A contains forward-looking statements that involve risks and uncertainties, such as statements of the Company’s 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.report. The 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 be indicative of future performance. The Company’s forward-looking statements reflect its current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof
that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
We are a technology company that is seeking to become a world-wide leading innovator and integrator of interactive products and software for schools, education, business, and government interactive spaces. We currently design, produce and distribute interactive displays, collaboration software, supporting accessories and professional services. We also distribute science, technology, engineering, and math (or “STEM”) products, including a robotics and coding system, 3D printing solution and portable science lab. The Company’s products are integrated into its software suite that provides tools for presentation creation and delivery, assessment, and collaboration.
Effective January 1, 2023, we changed our segment reporting to align with the geographic markets in which we operate. Our operations are now organized, managed, and classified into three reportable segments – Europe, Middle East, and Africa (“EMEA”), North and Central America (“Americas”), and all other geographic regions (“Rest of World”). Our EMEA segment consists of the operations of Sahara Holding Limited and its subsidiaries. Our Americas segment consists primarily of Boxlight, Inc. and its subsidiaries, and the Rest of World segment consists primarily of Boxlight Australia, PTY LTD (“Boxlight Australia”).
Each of our operating segments are primarily engaged in the sale of education technology products and services in the education market but which are also sold into the health, government and corporate sectors and derive a majority of their revenues from the sale of flat-panel displays, audio and other hardware accessory products, software solutions and
professional services. Generally, our displays produce higher net operating revenues but lower gross profit margins than our accessory solutions and professional services.
To date, we have generated substantially all of the Company’s revenue from the sale of hardware (primarily consisting of interactive displays) and software to the educational market in the United States and Europe.
We have also implemented a comprehensive plan to reach and maintain profitability both from our core business operations and as a result of making strategic business acquisitions. Highlights of the plan include:
| ● | •Integrating products of the acquired companies and cross training sales representatives to increase their offerings and productivity. |
| ● | Hiring new sales representatives with significant industry experience in their respective territories. |
| ● | Expanding our reseller partner network both in key territories and in new markets, thereby increasing our penetration and reach. |
Recent Acquisitions
On December 31, 2021, the Company and its wholly owned subsidiary, Boxlight, Inc, consummated the acquisition of 100% of the membership interests of FrontRow Calypso LLC, a Delaware limited liability company (“FrontRow”). FrontRow was acquired companies and cross training sales representatives to increase their offerings and productivity;
•Hiring new sales representatives with significant industry experience in exchange for payment of $34.7 million to Phonic Ear Inc.their respective territories, and Calypso Systems LLC, the equity holders of FrontRow (the “Equityholders”). The acquisition occurred pursuant to the terms of a membership interest purchase agreement, dated October 29, 2021 (the “Purchase Agreement”), between the Company, Boxlight, FrontRow
•Expanding our reseller partner network both in key territories and the Equityholders.Based in Petaluma, California, FrontRow makes technology that improves communication in learning environments, including developing network-based solutions for intercom, paging, bells, mass notification, classroom sound, lesson sharing, AV controlnew markets, thereby increasing our penetration and management. FrontRow also has offices in Toronto, Copenhagen, Brisbane, Hamilton (UK) and Shenzhen.
On March 23, 2021, the Company acquired 100% of the outstanding shares of Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies (“Interactive Concepts”), for total consideration of approximately $3.3 million in cash, common stock, and deferred consideration. Interactive has been the Company’s key distributor in Belgium and Luxembourg.
reach.
Acquisition Strategy and Challenges
The Company has completed multiple acquisitions from 2015 through 2021 and may target additional acquisition opportunities in the future. The Company’s 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.
WeIn the event we pursue additional acquisitions, 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. |
31
•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; and
•Improved market reach and industry visibility – increasing our customer base and entry into new markets.
| ● | 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 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 hardware (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. |
•Product revenue. Product revenue is derived from the sale of our hardware (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.
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; |
| ● | 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; and |
| ● | cost of professionals to deliver professional development training related to the use of our products. |
•costs to purchase components and finished goods directly;
•third-party logistics costs;
•inbound and outbound freight costs, and customs and duties charges;
•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; and
•cost of professionals to deliver professional development training related to the use of our products.
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 global company with suppliers centered in Asia and customers located worldwide, we have used, and may in the future use, air shipping to deliver our products directly to our customers. Air shipping is more costly than sea or ground shipping or other delivery options. We primarily use air shipping to meet the demand of our products during peak seasons and new product launches.
Gross profit and gross profit margin
Gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: product, channel and geographical revenue mix; changes in product costs related to the release of projector models;
and 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 future average selling prices and unit costs. Gross profit and gross profit margin may fluctuate over time based on the factors described above.
We classify our operating expenses into two categories: general and administrative and 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 consists primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications. Other
(expense) income,
(expense), net
Other
(expense) 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.
We are subject to income taxes in the jurisdictions in which we do business, including the United States, United Kingdom, Mexico, Sweden, Finland, Holland and Germany. The United Kingdom, Mexico, Sweden, Finland, Holland and Germany have a statutory tax rate different from that
inof the United States. Additionally, certain
jurisdictions of the Company’s international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.
Operating Results – Boxlight Corporation
For the three-month periods ended September 30,
20222023 and
20212022
Revenues. Total revenues for the three months ended September 30, 2023 were $49.7 million as compared to $68.7 million for the three months ended September 30, 2022, resulting in a 27.7% decrease. The decrease in revenues was primarily due to lower sales volume across all markets.
Cost of Revenues. Cost of revenues for the three months ended September 30, 2023were $68.7$31.7 million as compared to $61.0$47.7 million for the three months ended September 30, 2021,2022, resulting in a 12.7% increase33.7% decrease. The decrease in revenue. Revenues primarily consistcost of hardware revenue, software revenue, and professional development. The increase in revenues was primarily dueattributable to the acquisitiondecrease in units sold, along with lower manufacturing and shipping costs in the third quarter of FrontRow in December 2021, as well as increased demand2023 compared to the prior year’s third quarter.
Gross Profit. Gross profit for the Company’s solutions in the U.S. FrontRow revenuethree months ended September 30, 2023 was $18.0 million as compared to $21.0 million for the three months ended September 30, 2022, a decrease of 14.3%. The gross profit margin was $5.6 million.Cost of Revenues. Cost of revenues36.3% for the three months ended
September 30, 2022 was $47.7 million compared to $45.2 million2023 and 30.6% for the three months endedending September 30, 2021, resulting in a 5.5% increase. Cost of revenues consists primarily of product cost, freight expenses, customs expense, and inventory adjustments.2022. The increase in cost of revenues was associated with increased sales and the FrontRow acquisition.Gross Profit. Gross profit for the three months ended September 30, 2022, was $21.0 million, as compared to $15.8 million for the three months ended September 30, 2021. The gross profit margin for the three months ended September 30, 2022 was 30.6% which is an increase of 470 basis points comparedprimarily related to the comparable three monthsdecrease in 2021. Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $698 thousandmanufacturing and $730 thousand, was 31.6% as compared to the 27.1%, as adjusted, reported for the three months ended September 30, 2022 and September 30, 2021, respectively.
shipping costs noted above.
General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 20222023 were $14.0$15.4 million, and 20.4%representing 31.0% of revenues,revenue as compared to $11.9$14.0 million and 19.6%or 20.3% of revenuesrevenue for the three months ended September 30, 2021.2022. The increase wascan be attributed primarily a resultto an increase in payroll related expenses to support the growth of new hires for planned growth and equity-based compensation issuances.the business in certain markets.
Research and Development Expenses. Research and development expenses were $604$979 thousand and 0.9% of revenues$604 thousand for the three months ended September 2022, as compared to $355 thousand30, 2023 and 0.6%2022, respectively, and representing 2.0% of revenuesrevenue for the three months ended September 30, 2023, and 0.9% of revenue for the three months ended September 30, 2021.
Other Income (Expense). Other expense (net) for the three months ended September 30, 2022 was $2.8 million, as compared to $1.42022.
Impairment of Goodwill. The Company recorded goodwill impairment charges of $13.2 million for the three months ended September 30, 2021. 2023. There were no goodwill impairment charges recorded in 2022.
Other Expense. Other expense, increasednet for the three months ended September 30, 2023 was $3.1 million as compared to $2.8 million for the three months ended September 30, 2022, representing an increase of $0.2 million. The increase in other expenses was primarily due to a $1.7$0.4 million increase in interest expense, associated with increased borrowings due topartially offset by a $0.2 million change in the new credit facility.fair value of derivative liabilities.
Income Tax Expense. Income tax expense for the three months endingended September 30, 2023 was $3.1 million, as compared to $520 thousand for the three months ended September 30, 2022. The increase in tax expense year-over-year is largely due to foreign pretax book income for the three months ended September 30, 2023 as compared to foreign pretax loss for the three months ended September 30, 2022.
Net (Loss) Income. Net loss was $17.8 million for the three months ended September 30, 2023. Net income was $3.1 million for the three months ended September 30, 2022 and was a result of the changes noted above.
For the nine-month periods ended September 30, 2023 and 2022
Revenues. Total revenues for the nine months ended September 30, 2023 were $137.9 million as compared to $179.0 million for the nine months ended September 30, 2022, resulting in a 22.9% decrease. The decrease in revenues was $520 thousandprimarily due to lower sales volume across all markets.
Cost of Revenues. Cost of revenues for the nine months ended September 30, 2023 were $86.9 million as compared to $128.5 million for the nine months ended September 30, 2022, resulting in a 32% decrease. The decrease in cost of revenues was attributable to the decrease in units sold, along with lower manufacturing and shipping costs in the first three quarters of 2023 compared to the first three quarters of the prior year.
Gross Profit. Gross profit for the nine months ended September 30, 2023was $1.4$51.0 million as compared to $50.5 million for the nine months ended September 30, 2022, an increase of 1.0%. Gross profit margin was 37.0% for
the nine months ended September 30, 2023 and 28.2% for the nine months ended September 30, 2022. The increase in gross profit is primarily related to the decrease in manufacturing and shipping costs noted above.
General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2023 were $45.4 million, representing 32.9% of revenue as compared to $44.7 million representing 25.0% of revenue for the nine months ended September 30, 2022. The increase in general and administrative expenses for the period ended September 30, 2023 can be attributed primarily to an increase in payroll related expenses to support the growth of the business in certain markets.
Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2023 and 2022 were $2.1 million and $1.9 million and represented 1.5% and 1.0% of revenue, respectively.
Impairment of Goodwill. The Company recorded goodwill impairment charges of $13.2 million for the nine months ended September 30, 2021
Net Income. Net income was $3.1 million for the three months ended September 30, 2022 and $729 thousand for the three months ended September 30, 2021.
For the nine-month periods ended September 30, 2022 and 2021
Revenues. Total revenues for the nine months ended September 30, 20222023. There were $179.0 million as compared to $141.2 million for the nine months ended September 30, 2021, resultingno goodwill impairment charges recorded in a 26.8% increase. The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for our solutions across all markets. Organic revenue growth for Boxlight for the nine months ended September 30, 2022 was 13.3%. FrontRow revenue for the first nine months of 2022 was $19.0 million.
Cost of Revenues. Cost of revenues for the nine months ended September 30, 2022 were $128.5 million as compared to $104.0 million for the nine months ended Septembers 30, 2021, resulting in an 23.6% increase. The increase in cost of revenues was associated with the acquisitions and growth of the business as discussed above and was also due to additional increases in global freight/shipping which the Company has experienced following the COVID-19 pandemic. In 2021 we reported the cost increase to be approximately four times higher compared to pre-pandemic levels, this continued through the first half of 2022 but has recently begun to decline.
Gross Profit. Gross profit for the nine months ended September 30, 2022 was $50.5 million as compared to $37.2 million for the nine months ended September 30, 2021, an increase of $13.3 million. The gross profit margin was 28.2% for the nine months ended September 30, 2022 and $26.3% for the nine months ending September 30, 2021. The increase in gross profit and an increase in demand for the Company’s services.
2022.
margin during the nine months ended September 30, 2022 was a result increased margin associated with FrontRow products
General and Administrative Expenses. General and administrative (“G&A”) expense for the nine months ended September 30, 2022 were $44.7 million and 25% of revenue as compared to $32.8 million and 23.3% of revenue for the nine months ended September 30, 2021. The increase in G&A expenses resulted from additional personnel costs associated with the acquired FrontRow operations, new hires for planned growth and stock compensation issuances.
Research and Development Expenses. Research and development expenses were $1.9 million and 1.0% of revenue for the nine months ended September 30, 2022 as compared to $1.3 million and 0.9% of revenue for the nine months ended September 30, 2021. The increase in research and development expense was primarily driven by an increase in contract services related to software development. The acquisition of FrontRow contributed $180 thousand to the increase.
Other Income (Expense). Expense. Other expense, net for the nine months ended September 30, 20222023 was $5.1 $8.4 million as compared to other expense, net, of $5.8$5.1 million for the nine months ended September 30, 2021,2022, representing a decreasean increase of $0.7 million.$3.3 million. The decreaseincrease was primarily due to a $1.7$1.5 million change decrease in the fair value of derivative liabilities, a $3.8$0.9 million reduction increase in gaininterest expense, and $0.9 million recognized upon the settlement of certain debt obligations offset by a $4.7 million increase in interest expense associated with increased borrowings due toduring the new credit facility.
nine months ended September 30, 2022.
Income Tax Expense. Income tax expense for the nine months endingended September 30, 20222023 was $475 thousand,$3.4 million, as compared to $3.9 milliona $475 thousand in income tax expense for the nine months ending ended September 30, 2021. This significant decrease2022. The increase in income tax expense year-over-year was primarilyis largely due to the Company’s recording the discrete impact of a change in UK tax rates that was
enacted during second quarter 2021.The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liabilityincrease in the UK to this new rate. The remaining decrease in income tax expense is due to the lower earnings in 2022 as compared to 2021 in our foreign jurisdictions. The year-to-dateestimated annual effective tax rate is (34.7)% due to there being no material tax expense/benefit forof the US legacy Boxlight entities, due to their valuation allowance position, while the Sahara entities are fully taxable.
entities.
Net Loss. Net loss was $1.7$21.5 million and $6.6$1.7 million for the nine months ended September 30, 2023 and 2022 respectively and 2021 respectively. The decrease in net loss was primarily due to a $1.7 million change in the fair valueresult of the Whitehawk derivative liability, and a $3.8 million decrease in loss on settlementchanges noted above.
Use of
liabilities, partially offset by an increase in interest expense due to the new credit facility.
Non-GAAP financial measures
To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our condensed consolidated financial statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.
EBITDA represents net
income (loss)loss before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus stock compensation expense,
impairment of goodwill, 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 and gain on the forgiveness of our PPP loan.settlement. Management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of the Company’s 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 the Company’s 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 income and losses to EBITDA and adjusted EBITDA for the periods
presented.
| | | | | | | | | | | | |
| | | Three Months Ended | | | Three Months Ended | | | Nine Months Ended | | | Nine Months Ended |
| | | September 30, | | | September 30, | | | September 30, | | | September 30, |
(in thousands) | | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Net income (loss) | | $ | 3,105 | | $ | 729 | | $ | (1,725) | | $ | (6,660) |
Depreciation and amortization | | | 2,231 | | | 1,697 | | | 6,818 | | | 5,264 |
Interest expense | | | 2,598 | | | 870 | | | 7,330 | | | 2,652 |
Income tax expense | | | 520 | | | 1,391 | | | 475 | | | 3,936 |
EBITDA | | $ | 8,454 | | $ | 4,687 | | $ | 12,898 | | $ | 5,192 |
Stock compensation expense | | | 603 | | | 1,161 | | | 2,665 | | | 3,020 |
Change in fair value of derivative liabilities | | | 113 | | | (60) | | | (1,537) | | | 164 |
Purchase accounting impact of fair valuing inventory | | | 189 | | | 15 | | | 1,395 | | | 45 |
Purchase accounting impact of fair valuing deferred revenue | | | 509 | | | 715 | | | 1,747 | | | 2,312 |
Net (gain) loss on settlement of debt | | | — | | | 638 | | | (856) | | | 3,373 |
Adjusted EBITDA | | $ | 9,868 | | $ | 7,156 | | $ | 16,312 | | $ | 14,106 |
presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2022 |
Net (Loss) Income | | $ | (17,750) | | | $ | 3,105 | | | $ | (21,485) | | | $ | (1,725) | |
Depreciation and amortization | | 2,332 | | | 2,231 | | | 6,893 | | | 6,818 | |
Interest expense | | 2,987 | | | 2,598 | | | 8,222 | | | 7,330 | |
Income tax expense | | 3,073 | | | 520 | | | 3,379 | | | 475 | |
EBITDA | | $ | (9,358) | | | $ | 8,454 | | | $ | (2,991) | | | $ | 12,898 | |
Stock compensation expense | | 671 | | | 603 | | | 1,823 | | | 2,665 | |
Change in fair value of derivative liabilities | | (90) | | | 113 | | | (50) | | | (1,537) | |
Purchase accounting impact of fair valuing inventory | | 113 | | | 189 | | | 336 | | | 1,395 | |
Purchase accounting impact of fair valuing deferred revenue | | 366 | | | 509 | | | 1,308 | | | 1,747 | |
Gain on settlement of debt | | — | | | — | | | — | | | (856) | |
Impairment of goodwill | | 13,226 | | | — | | | 13,226 | | | — | |
Adjusted EBITDA | | $ | 4,928 | | | $ | 9,868 | | | $ | 13,652 | | | $ | 16,312 | |
Discussion of Effect of Seasonality on Financial Condition
Certain accounts onin our financial 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 July, August or September. To prepare for the upcomingeach school year, we generally build up inventories during
the second quarter of the year. Therefore,As a result, inventories tend to be at thetheir 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 andcustomers. Thereafter, during the first quarter, we do not generally need to restock inventories at the same inventory levels during the first quarter.levels. Accounts receivable balances tend to be at the highest levels in the third quarter, inat which point we record the highest level of sales.
Liquidity and Capital Resources
As of September 30, 2022,2023, we had cash and cash equivalents of $18.4 million, a working capital balance of $61.4 million, and a current ratio of 2.24. On September 30, 2022, we had $22.0 million of cash and cash equivalents, a working capital balance of $62.3 million, and a current ratio of 1.90. This financial position represents a significant improvement from a year ago on1.9.
For the nine months ended September 30, 2021 when2023 and 2022, we had $6.2 million ofnet cash and cash equivalents, a working capital balance of $32.0 million, and a current ratio of 1.48.In addition to the cash flows generatedprovided by our ongoing operating activities we financed our operations during first nine months of 2022 with our credit facility from Whitehawk.
Given uncertainty surrounding global supply chains, global markets$8.2 and general global economic uncertainty$0.5 million, respectively. Cash provided by operating activities increased year over year as a result of higher margins on our products leading to increased operating income. We had net cash used in investing activities of $226 thousand and $1.1 million for the ongoing conflict between Russianine months ended September 30, 2023 and 2022, respectively. Cash used in investing activities is related to purchases of property and equipment. For the Ukrainenine months ended September 30, 2023 and the continuing COVID-19 pandemic, the availability2022, we had net cash used in financing activities of $3.0 million and net cash provided by investing activities of $4.4 million, respectively. Cash provided by financing activities is primarily related to principal payments on debt of $5.0 million and equity capital has been reduced and the cost$1.0 million in
payments of capital has increased. Increasing our capital through equity issuance at this time could cause significant dilutionfixed dividends to our existing stockholders. However, weSeries B preferred shareholders, slightly offset by a $3.0 million draw under the Company’s Credit Facility and stock option exercise proceeds of $13 thousand. Our liquidity needs are
confident that the Company will be able to manage through the current challenges in the equityfunded by operating cash flow and
debt finance markets by managing payment terms with customers and vendors.available cash. Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility 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 majoritya percentage of our inventory purchases, which further constrains our cash liquidity.
Recent Financing;
In addition, our industry is seasonal with many sales to educational customers occurring during the second and third quarters when schools make budget appropriations and classes are not in session
limiting disruptions related to product installation. This seasonality makes our needs for cash vary significantly from quarter to quarter.
In addition to the cash flows generated by our ongoing operating activities we financed our operations during 2023 and 2022 with our Credit Facility with Whitehawk. Prior to April 24, 2023, we maintained a delayed draw term loan of which we had $7.5 million available. On April 24, 2023, we drew $3.0 million on our delayed draw term loan that was used for working capital purposes. The completion of the additional draw eliminates further delayed draws under the term loan agreement. The $3.0 million was repaid during the third quarter of 2023.
To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of our Series B preferred stock are redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, 30 days’ prior written notice to the Company, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B preferred stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. We may be required to seek alternative financing arrangements or restructure the terms of the agreement with the Series B preferred shareholders on terms that are not favorable to us if cash and cash equivalents are not sufficient to fully redeem the Series B preferred shares. We are currently evaluating alternatives to refinance or restructure the Series B preferred shares including extending the maturity of the Series B preferred shares beyond the current optional conversion date.
Given the uncertainty surrounding global supply chains, global markets, and general global uncertainty as a result of the ongoing conflict between Russia and Ukraine and the continuing COVID-19 pandemic, the availability of debt and equity capital has been reduced and the cost of capital has increased. Furthermore, recent adverse developments affecting the financial services industry including events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions may lead to market-wide liquidity problems. This in turn could result in a reduction in our ability to access funding sources and credit arrangements in amounts adequate to finance our current and future business operations. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, while there can be no guarantee we will be able to access capital when needed, we are confident that the Company will be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with our customers and vendors.
Cash and cash equivalents, along with anticipated cash flows from operations, are expected to provide sufficient liquidity for working capital needs and debt service requirements.
The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
The Company was not in compliance with its Senior Leverage Ratio financial covenant under the Credit Agreement at September 30, 2023. The non-compliance was cured by the Company paying $4.3 million, inclusive of $0.3 million in prepayment penalties and interest in November 2023 in order to bring the Company into compliance with the Senior Leverage Ratio at September 30, 2023. The Senior Leverage Ratio, as stated in the Third Amendment to the Credit Agreement, decreases to 2.50 at December 31, 2023, 2.00 at March 31, 2024 and June 30, 2024 and 1.75 thereafter. Because of the significant decreases in the required Senior Leverage Ratio within the next twelve months, the Company’s current forecast projects the Company may not be able to maintain compliance with this ratio. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
In view of this matter, continuation as a going concern is dependent upon the Company’s ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-compliance with the Senior Leverage Ratio, or refinance its Credit Agreement with a different lender on a basis with more favorable terms. The Company is actively working to refinance its debt with new lenders on terms more favorable to the Company. While the Company is confident in its ability to refinance its existing debt, it does not have written or executed agreements as of the issuance of this Form 10-Q. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. The Company has a good working relationship with its current banking partner, and has seen a positive trend in the credit markets as of late. However, there can be no assurance that the Company will be successful in refinancing its debt, or on terms acceptable to the Company.
Financing
See Footnote 9Note 8 – Debt for a discussion of recent financing.our existing debt financing arrangements.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations or liquidity and capital resources.
Critical Accounting Policies and Estimates
Our
condensed consolidated
condensed financial statements are prepared in accordance with
accounting principles generally accepted in the United States (“GAAP”).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
condensed 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 the unaudited condensed consolidated financial statements.statements and in Note 1 in the Company’s 2022 Annual Report, which was filed with the SEC on March 17, 2023. 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: | 3.
| Goodwill and Intangible assets
|
| 4.
| Stock-based compensation expense
|
1.Revenue Recognition2.Goodwill and Intangible assets
StatusJune 30, 2023, we determined that a triggering event had occurred as Emerging Growth Company
We are an “emerging growth company,” as defineda result of our market capitalization that suggested one or more of the reporting units may have fallen below the carrying amounts. In addition, changes in our reporting segments resulted in a change in the Jumpstart Our Business Startups Actcomposition of 2012, or the JOBS Act. As an emerging growth company, we were able to take advantage of certain specified reducedour 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 elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies.units. As a result of this election, our financial statements may not be comparablethese changes, we determined the Company had two reporting units for purposes of testing based upon entities that comprise the Americas and EMEA reporting segments. For purposes of impairment testing, we allocated goodwill to companies that comply with public company effective dates.
Under Section 2(a)(19)the reporting units based upon a relative fair value allocation approach and assigned approximately $22.4 million and $2.8 million of goodwill to the America and EMEA reporting units, respectively.
As of June 30, 2023, we performed an interim goodwill impairment test as a result of the Securities Act of 1933 and Section 3(a)(80)triggering events identified. In analyzing goodwill for potential impairment in the quantitative impairment test, we used a combination of the Securities Exchange Actincome and market approaches to estimate the fair value. Under the income approach, we calculated the fair value based on estimated future discounted cash flows. The assumptions used are based on what we believe a hypothetical marketplace participant would use in estimating fair value and include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of 1934,terminal values. Under the market approach, we estimated the fair value based on market multiples of revenue or earnings before interest, income taxes, depreciation, and amortization for benchmark companies. Based on the results of our interim test as amended, an emerging growth company will lose its status uponof June 30, 2023, we concluded that the earliestestimated fair value of several conditions,each reporting unit exceeded the respective carrying value and, as such, we concluded that the goodwill assigned to each reporting unit, as of June 30, 2023, was not impaired. However, we concluded that as of June 30, 2023, our Americas reporting unit was at risk of failing step one of whichthe goodwill impairment test.
As of June 30, 2023, we determined that our Americas reporting unit had an estimated fair value in excess of its respective carrying value of approximately 4%. The estimated fair value of our reporting units are closely aligned with the ultimate amount of revenue and operating income that it achieves over the projected period. Our discounted cash flows, for goodwill impairment testing purposes, assumed that, through fiscal year 2028, this reporting unit would achieve a compounded annual revenue growth rate of approximately 5.0% from its forecasted 2023 revenue. Beyond fiscal 2028, we assumed a long-term revenue growth rate of 3.0% in the terminal year. As of June 30, 2023, we utilized a WACC of 14.0% for the Americas reporting unit. Given expected growth projections from industry sources, we believe these modest long-term growth rates and the WACC are appropriate to use for our future cash flow assumptions. We also believe that it is reachingpossible that our actual revenue growth rates could be significantly higher due to a number of factors, including: (i) the last day
availability of government funding allocated to the education sector as a result of the fiscal yearCARES Act and other recent economic relief stimulus packages; (ii) the growth of education technology products and services outside of flat-panel sales such as audio, STEM products and professional services; and (iii) the continued growth in whichsales to enterprise customers. Modest changes in other key assumptions used in our June 30, 2023 impairment analysis may result in the fifth anniversaryrequirement to proceed to step two of the company’s first salegoodwill impairment test in future periods. If this reporting unit fails step one in the future, we would be required to perform step two of equity securities pursuantthe goodwill impairment test. If we perform step two, up to $22.5 million of goodwill assigned to the Americas reporting unit could be written off in the period that the impairment is triggered.
During the quarter ended September 30, 2023, due to further declines in the Company’s market capitalization and a reduction in cash-flows resulting from continued softening in the industry leading to a reduction in sales from interactive flat-panel displays, the Company determined that a triggering event had occurred.
As of September 30, 2023, the Company performed an effective registration statement occurs.interim goodwill impairment test as a result of the triggering event identified. The Company’s methodology for estimating fair value was consistent with the income and market approaches used as of June 30, 2023. Certain estimates and assumptions, including the Company’s operating forecast for 2023 and future periods, were revised based on current industry and Company trends. For the three and nine months ended September 30, 2023, the Company this will occurrecorded goodwill impairment charges of $10.4 million and 2.8 million to the Americas and EMEA reporting units, respectively, which also represents total accumulated goodwill impairment charges for each reporting unit.
3.Stock-based Compensation Expense
4.Derivative Warrant Liabilities
5.Income Taxes
Recent Accounting Pronouncements
For information on
Januaryaccounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations or cash flows, see Note 1
2023.to our unaudited condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a “smaller reporting company,” this item is not required.
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this 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
20212022 Annual Report on Form
10-K.10-K, as filed with the SEC on March 17, 2023.
Notwithstanding the existence of these material weaknesses, we believe that the
unaudited condensed consolidated
condensed financial statements included in this
quarterly reportQuarterly Report on Form 10-Q fairly present in accordance with
U.S.the 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 of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.
(b)Changes in internal controls over financial reporting.During 2022, the Company’s management has engaged professional services firms to assist with the preparation and review of the income tax provision. Management has also engaged third-party professional services who prepared the valuation of warrants issued in connection with Whitehawk credit facility.
There were no
additional changes made in the internal controls over financial reporting for the quarter ended September 30,
2022,2023 that have materially affected our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
While we are not currently involved in any material legal proceedings, from time-to-time we are, and we anticipate that we will be, involved in legal proceedings, claims, and litigation arising in the ordinary course of our business and otherwise. The ultimate costs to resolve any such matters could have a material adverse effect on our financial statements. The Company’s management believes, based on current information, matters currently pending or threatened are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
ITEM 1A. RISK FACTORS
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 materially affected by such disruption, in the event any of the Company’s 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. Furthermore, there is heightened uncertainty surrounding global supply chains, global markets and general global economic uncertainty as a result of the ongoing conflict between Russia and the Ukraine and the continuing COVID-19 pandemic.
As a result of our operations outside of the U.S., the Company is exposed to exchange rate risk that our operations and profitability may be affected by changes in the exchange rates between currencies. There are three types of risk caused by currency volatility: transaction exposure, translation exposure, and economic or operating exposure. Transaction exposure arises from the effect that exchange rate fluctuations have on a company’s obligations to make or receive payments in a foreign currency, translation exposure arises from the effects of currency fluctuations on a company’s consolidated financial statements and economic exposure is the effect of unexpected currency fluctuations on a company’s future cash flows and market value. In general, our reported financial results are affected positively by a weaker U.S. Dollar and are affected negatively by a stronger U.S. Dollar as compared to the foreign currencies in which we conduct our business.
For additionalinformation regarding risk factors pertinent to the Company’s business please refer to the Part I Item 1A of the Company’s 20212022 Annual Report on Form 10-K, which was filed with the SEC on April 13, 2022March 17, 2023 and is incorporated by reference herein.There have been no material changes from the risk factors described in our Form 10-K other than the following:
Unstable market and economic conditions and potential disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial condition.
If internally generated funds are not available from operations, we may be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity needs. Our access to funds under our revolving credit facility or pursuant to arrangements with other financial institutions is dependent on the financial institution’s ability to meet funding commitments. Financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience high volumes of borrowing requests from other borrowers within a short period of time.
In addition, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, inflationary pressure and interest rate changes and uncertainty about economic stability. More recently, the closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation (FDIC) created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve and the FDIC jointly released a statement that depositors at Silicon Valley Bank and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, financial institutions, manufacturers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and on budget.
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds.UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASE OF EQUITY SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
Not Applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
Item
The following exhibits are filed or furnished with this report:
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Exhibit No. | | Description of Exhibit |
3.1 | | | |
3.2 | | |
4.1 | |
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4.2 | | |
4.3 | | |
4.4 | | |
4.5 | | |
4.6 | | |
4.7 | | |
4.1 4.8 |
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4.2 4.9 |
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10.2
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10.1* | | Second Amendment to Credit Agreement (including Exhibit A),Consent of Waiver of Leverage Ratio Default, dated June 21, 2022,November 2, 2023, between Boxlight Corporation, its subsidiaries, Whitehawk Capital Partners, LP and Whitehawk Finance LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed June 27, 2022).LLC.
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10.3 31.1* |
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10.4
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| Form of Placement Agency Agreement, dated July 22, 2022, between Boxlight Corporation and Maxim Group LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed July 26, 2022).
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31.1
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* | | |
31.2
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32.1** | | |
32.1
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32.2** | | |
32.2
| | |
101.INS | | |
101.INS
| | Inline XBRL Instance Document |
101.SCH | | |
101.SCH
| | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | |
101.CAL
| | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | |
101.DEF
| | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | |
101.LAB
| | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | |
101.PRE
| | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | |
104
| | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
**Furnished herewith.
SIGNATURES
In accordance with
Pursuant to the requirementsrequirement of the Securities Exchange Act of 1934, the registrant has duly caused this reportreort to be signed on its behalf by the undersigned thereunto duly authorized.
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| BOXLIGHT CORPORATION |
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November 9, 2022 8, 2023 | By: | /s/ Michael Pope |
| | Michael Pope |
| | Chief Executive Officer |
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November 9, 2022 8, 2023 | By: | /s/ Greg Wiggins |
| | Greg Wiggins |
| | Chief Financial Officer (Principal Financial and Accounting Officer)
|