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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/09/22 Boxlight Corp. 10-Q 9/30/22 96:10M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.38M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 29K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 29K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 26K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 26K
11: R1 Document and Entity Information HTML 79K
12: R2 Condensed Consolidated Statements of Operations HTML 124K
and Comprehensive Loss
13: R3 Condensed Consolidated Balance Sheets HTML 147K
14: R4 Condensed Consolidated Balance Sheets HTML 53K
(Parenthetical)
15: R5 Condensed Consolidated Statements of Changes in HTML 122K
Stockholders' Equity
16: R6 Condensed Consolidated Statements of Cash Flows HTML 134K
17: R7 Organization and Significant Accounting Policies HTML 161K
18: R8 Recent Business Acquisitions HTML 96K
19: R9 Accounts Receivable - Trade HTML 39K
20: R10 Inventories HTML 40K
21: R11 Prepaid Expenses and Other Current Assets HTML 37K
22: R12 Intangible Assets HTML 58K
23: R13 Leases HTML 43K
24: R14 Accounts Payable and Accrued Expenses HTML 38K
25: R15 Debt HTML 62K
26: R16 Derivative Liabilities HTML 51K
27: R17 Income Taxes HTML 59K
28: R18 Equity HTML 74K
29: R19 Stock Compensation HTML 95K
30: R20 Related Party Transactions HTML 29K
31: R21 Commitments and Contingencies HTML 29K
32: R22 Customer and Supplier Concentration HTML 84K
33: R23 Subsequent Events HTML 28K
34: R24 Organization and Significant Accounting Policies HTML 177K
(Policies)
35: R25 Organization and Significant Accounting Policies HTML 129K
(Tables)
36: R26 Recent Business Acquisitions (Tables) HTML 95K
37: R27 Accounts Receivable - Trade (Tables) HTML 39K
38: R28 Inventories (Tables) HTML 41K
39: R29 Prepaid Expenses and Other Current Assets (Tables) HTML 37K
40: R30 Intangible Assets (Tables) HTML 57K
41: R31 Leases (Tables) HTML 42K
42: R32 Accounts Payable and Accrued Expenses (Tables) HTML 38K
43: R33 Debt (Tables) HTML 42K
44: R34 Derivative Liabilities (Tables) HTML 50K
45: R35 Income Taxes (Tables) HTML 52K
46: R36 Equity (Tables) HTML 51K
47: R37 Stock Compensation (Tables) HTML 91K
48: R38 Customer and Supplier Concentration (Tables) HTML 84K
49: R39 Organization and Significant Accounting Policies - HTML 35K
Schedule of Financial Liabilities Measured on A
Recurring Basis (Details)
50: R40 Organization and Significant Accounting Policies - HTML 35K
Changes in the Company Warrant Instruments
(Details)
51: R41 Organization and Significant Accounting Policies - HTML 51K
Eps, Revenue Recognition, Contract Balances and
Costs and Warranty Reserve (Details)
52: R42 Organization and Significant Accounting Policies - HTML 45K
Remaining Performance Obligations (Details)
53: R43 Organization and Significant Accounting Policies - HTML 45K
Disaggregated Revenue (Details)
54: R44 Organization and Significant Accounting Policies HTML 32K
(Details)
55: R45 Recent Business Acquisitions (Details) HTML 37K
56: R46 Recent Business Acquisitions - Schedule of HTML 99K
Recognized Identified Assets Acquired and
Liabilities Assumed (Details)
57: R47 Recent Business Acquisitions - Schedule of HTML 35K
Estimated Useful Lives (Details)
58: R48 Accounts Receivable - Trade (Details) HTML 33K
59: R49 Inventories (Details) HTML 36K
60: R50 Prepaid Expenses and Other Current Assets HTML 29K
(Details)
61: R51 Intangible Assets - Assets by Type (Details) HTML 59K
62: R52 Intangible Assets (Details) HTML 30K
63: R53 Leases (Details) HTML 35K
64: R54 Leases - Schedule of Future Minimum Lease Payments HTML 41K
(Details)
65: R55 Leases - Supplemental Lease Information (Details) HTML 29K
66: R56 Accounts Payable and Accrued Expenses (Details) HTML 34K
67: R57 Debt (Details) HTML 43K
68: R58 Debt - Whitehawk Finance Llc (Details) HTML 132K
69: R59 Debt - Lind Global Macro Fund and Lind Global HTML 57K
Asset Management (Details)
70: R60 Debt - Paycheck Protection Program Loan (Details) HTML 34K
71: R61 Debt - Everest Display Inc. (Details) HTML 34K
72: R62 Debt - Accounts Receivable Financing - Sallyport HTML 50K
Commercial Finance (Details)
73: R63 Derivative Liabilities - Fair Value of Derivative HTML 43K
Liabilities (Details)
74: R64 Income Taxes - Schedule of Pretax Income (Loss) HTML 32K
(Details)
75: R65 Income Taxes (Details) HTML 38K
76: R66 Equity - Preferred Shares (Details) HTML 44K
77: R67 Equity - Series A Preferred Stock (Details) HTML 43K
78: R68 Equity - Series B Preferred Stock and Series C HTML 72K
Preferred Stock (Details)
79: R69 Equity - Common Stock (Details) HTML 38K
80: R70 Equity - Issuance of Common Stock (Details) HTML 130K
81: R71 Equity - Warrants Activity (Details) HTML 54K
82: R72 Stock Compensation (Details) HTML 61K
83: R73 Stock Compensation - Stock Options Activity HTML 84K
(Details)
84: R74 Stock Compensation - Restricted Stock Units HTML 85K
Activity (Details)
85: R75 Stock Compensation - Stock Compensation Expense HTML 39K
(Details)
86: R76 Related Party Transactions (Details) HTML 34K
87: R77 Commitments and Contingencies (Details) HTML 29K
88: R78 Commitments and Contingencies - Purchase HTML 29K
Commitments (Details)
89: R79 Customer and Supplier Concentration - Customer HTML 39K
Concentration Risk (Details)
90: R80 Customer and Supplier Concentration - Supplier HTML 38K
Concentration Risk (Details)
91: R81 Subsequent Events (Details) HTML 70K
94: XML IDEA XML File -- Filing Summary XML 178K
92: XML XBRL Instance -- boxl-20220930x10q_htm XML 2.49M
93: EXCEL IDEA Workbook of Financial Reports XLSX 185K
7: EX-101.CAL XBRL Calculations -- boxl-20220930_cal XML 158K
8: EX-101.DEF XBRL Definitions -- boxl-20220930_def XML 936K
9: EX-101.LAB XBRL Labels -- boxl-20220930_lab XML 1.55M
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6: EX-101.SCH XBRL Schema -- boxl-20220930 XSD 226K
95: JSON XBRL Instance as JSON Data -- MetaLinks 474± 734K
96: ZIP XBRL Zipped Folder -- 0001558370-22-017190-xbrl Zip 395K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
(Mark One)
| i ☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, 2022
OR
| i ☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission file number i 001-37564
i BOXLIGHT CORPORATION
(Exact name of registrant as specified in its charter)
i Nevada |
| 8211 |
| i 46-4116523 |
(State or other jurisdiction of |
| (Primary Standard Industrial |
| (I.R.S. Employer |
incorporation or organization) |
| Classification Code Number) |
| Identification Number) |
i 2750 Premiere Parkway, Suite 900
i Duluth, i Georgia i 30097
Phone: i (678) i 367-0809
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
i Common Stock |
| i BOXL |
| The i 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. i Yes ☒ No ☐
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
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| i Non-accelerated filer | ☒ |
| Smaller reporting company | i ☒ |
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| Emerging growth company | i ☒ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. i ☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ i No ☒
The number of shares outstanding of the registrant’s common stock on November 7, 2022 was i 74,124,212.
BOXLIGHT CORPORATION
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| Page No. |
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| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | 4 |
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| 5 | |
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| 7 | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | 8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
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40 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Boxlight Corporation
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, | | | |||||||||
|
| 2022 |
| 2021 | | 2022 |
| 2021 | | ||||
Revenues, net | | $ | i 68,736 | | $ | i 61,008 | | $ | i 178,967 | | $ | i 141,186 | |
Cost of revenues | |
| i 47,716 | |
| i 45,210 | |
| i 128,497 | |
| i 104,002 | |
Gross profit | |
| i 21,020 | |
| i 15,798 | |
| i 50,470 | |
| i 37,184 | |
| | | | | | | | | | | | | |
Operating expense: | |
|
| |
|
| |
|
| |
|
| |
General and administrative expenses | |
| i 13,952 | |
| i 11,933 | |
| i 44,714 | |
| i 32,844 | |
Research and development | |
| i 604 | |
| i 355 | |
| i 1,865 | |
| i 1,310 | |
Total operating expense | |
| i 14,556 | |
| i 12,288 | |
| i 46,579 | |
| i 34,154 | |
| | | | | | | | | | | | | |
Income from operations | |
| i 6,464 | |
| i 3,510 | |
| i 3,891 | |
| i 3,030 | |
| | | | | | | | | | | | | |
Other income (expense): | |
|
| |
|
| |
|
| |
|
| |
Interest expense, net | |
| ( i 2,598) | |
| ( i 870) | |
| ( i 7,330) | |
| ( i 2,652) | |
Other income (expense), net | |
| ( i 128) | |
| i 34 | |
| ( i 204) | |
| i 54 | |
Gain (loss) on settlement of liabilities, net | |
| — | |
| ( i 614) | |
| i 856 | |
| ( i 2,992) | |
Changes in fair value of derivative liabilities | |
| ( i 113) | |
| i 60 | |
| i 1,537 | |
| ( i 164) | |
Total other expense | |
| ( i 2,839) | |
| ( i 1,390) | |
| ( i 5,141) | |
| ( i 5,754) | |
Income (loss) before income taxes | | $ | i 3,625 | | $ | i 2,120 | | $ | ( i 1,250) | | $ | ( i 2,724) | |
Income tax expense | |
| ( i 520) | |
| ( i 1,391) | |
| ( i 475) | |
| ( i 3,936) | |
Net income (loss) | | $ | i 3,105 | | $ | i 729 | | $ | ( i 1,725) | | $ | ( i 6,660) | |
Fixed dividends - Series B Preferred | |
| ( i 317) | |
| ( i 317) | |
| ( i 952) | |
| ( i 952) | |
Deemed contribution -Series B Preferred | | | — | | | — | | | — | | | i 367 | |
Net income (loss) attributable to common stockholders | | $ | i 2,788 | | $ | i 412 | | $ | ( i 2,677) | | $ | ( i 7,245) | |
| | | | | | | | | | | | | |
Comprehensive loss: | |
|
| |
|
| |
|
| |
|
| |
Net income (loss) | | $ | i 3,105 | | $ | i 729 | | $ | ( i 1,725) | | $ | ( i 6,660) | |
Other comprehensive loss: | |
|
| |
|
| |
| | |
| | |
Foreign currency translation adjustment | |
| ( i 5,040) | |
| ( i 2,008) | |
| ( i 11,449) | |
| ( i 1,738) | |
Total comprehensive loss | | $ | ( i 1,935) | | $ | ( i 1,279) | | $ | ( i 13,174) | | $ | ( i 8,398) | |
| | | | | | | | | | | | | |
Net income (loss) per common share – basic | | $ | i 0.04 | | $ | i 0.01 | | $ | ( i 0.04) | | $ | ( i 0.12) | |
| | | | | | | | | | | | | |
Net income (loss) per common share – diluted | | $ | i 0.03 | | $ | i 0.01 | | $ | ( i 0.04) | | $ | ( i 0.12) | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding – basic | | | i 71,547 | | | i 60,094 | | | i 67,458 | | | i 57,723 | |
| | | | | | | | | | | | | |
Weighted average number of common shares outstanding – diluted | | | i 89,574 | | | i 64,710 | | | i 67,458 | | | i 57,723 | |
| | | | | | | | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
3
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, |
| |||
| | 2022 | | 2021 | ||
| | | (unaudited) | | | |
ASSETS | | | | | | |
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | i 21,952 | | $ | i 17,938 |
Accounts receivable – trade, net of allowances | |
| i 51,254 | |
| i 29,573 |
Inventories, net of reserves | |
| i 49,435 | |
| i 51,591 |
Prepaid expenses and other current assets | |
| i 9,013 | |
| i 9,444 |
Total current assets | |
| i 131,654 | |
| i 108,546 |
| | | | | | |
Property and equipment, net of accumulated depreciation | |
| i 1,675 | |
| i 1,073 |
Operating lease right of use asset | | | i 4,370 | | | — |
Intangible assets, net of accumulated amortization | |
| i 51,913 | |
| i 65,532 |
Goodwill | |
| i 24,524 | |
| i 26,037 |
Other assets | |
| i 363 | |
| i 248 |
Total assets | | $ | i 214,499 | | $ | i 201,436 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
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| | | | | | |
Current liabilities: | |
|
| |
|
|
Accounts payable and accrued expenses | | $ | i 48,410 | | $ | i 33,638 |
Short-term debt | |
| i 9,224 | |
| i 9,804 |
Operating lease liabilities, current | | | i 1,767 | | | — |
Deferred revenues, current | |
| i 8,194 | |
| i 7,575 |
Derivative liabilities | |
| i 1,527 | |
| i 3,064 |
Other short-term liabilities | |
| i 258 | |
| i 667 |
Total current liabilities | |
| i 69,380 | |
| i 54,748 |
| | | | | | |
Deferred revenues, non-current | |
| i 15,016 | |
| i 13,952 |
Long-term debt | |
| i 44,056 | |
| i 42,137 |
Deferred tax liabilities, net | |
| i 8,036 | |
| i 8,449 |
Operating lease liabilities, non-current | | | i 2,594 | | | — |
Other long-term liabilities | |
| i 148 | |
| i 340 |
Total liabilities | |
| i 139,230 | |
| i 119,626 |
| | | | | | |
Commitments and contingencies (Note 15) | |
|
| |
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Mezzanine equity: | |
| | |
|
|
Preferred Series B, i i 1,586,620 / shares issued and outstanding | |
| i 16,146 | |
| i 16,146 |
Preferred Series C, i i 1,320,850 / shares issued and outstanding | |
| i 12,363 | |
| i 12,363 |
Total mezzanine equity | |
| i 28,509 | |
| i 28,509 |
| | | | | | |
Stockholders’ equity: | |
|
| |
|
|
Preferred stock, $ i i 0.0001 / par value, i i 50,000,000 / shares authorized; i i 167,972 / and i i 167,972 / shares issued and outstanding, respectively | |
| — | |
| — |
Common stock, $ i i 0.0001 / par value, i i 200,000,000 / shares authorized; i 74,123,492 and i 63,821,901 Class A shares issued and outstanding, respectively | |
| i 7 | |
| i 6 |
Additional paid-in capital | |
| i 117,499 | |
| i 110,867 |
Accumulated deficit | |
| ( i 63,025) | |
| ( i 61,300) |
Accumulated other comprehensive (loss) income | |
| ( i 7,721) | |
| i 3,728 |
Total stockholders’ equity | |
| i 46,760 | |
| i 53,301 |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | i 214,499 | | $ | i 201,436 |
See accompanying notes to unaudited condensed consolidated financial statements.
4
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 30, 2022
(unaudited)
(in thousands, except 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 |
| i 167,972 | | $ | — |
| i 66,207,717 | | $ | i 7 | | $ | i 112,352 | | $ | ( i 2,681) | | $ | ( i 66,130) | | $ | i 43,548 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: |
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Shares issued for acquisition |
| — | |
| — |
| i 230,770 | | | — | | | i 150 | | | — | | | — | |
| i 150 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | | — | | | — | | — | | | — | | | i 2,348 | | | — | | | — | | | i 2,348 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised |
| — | |
| — |
| i 352,940 | | | — | | | — | | | — | | | — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock, net |
| — | |
| — |
| i 7,000,000 | | | — | | | i 2,352 | | | — | | | — | |
| i 2,352 |
| | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted share units | | — | | | — | | i 332,065 | | | — | | | i 11 | | | — | | | — | | | i 11 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation | | — | | | — | | — | | | — | | | i 603 | | | — | | | — | | | i 603 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation |
| — | |
| — |
| — | | | — | | | — | | | ( i 5,040) | | | — | | | ( i 5,040) |
| | | | | | | | | | | | | | | | | | | | |
| |
Fixed dividends Preferred Series B |
| — | |
| — |
| — | | | — | | | ( i 317) | | | — | | | — | |
| ( i 317) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| — |
| — | | | — | | | — | | | — | | | i 3,105 | |
| i 3,105 |
| | | | | | | | | | | | | | | | | | | | |
| |
Balance as of September 30, 2022 |
| i 167,972 | | $ | — |
| i 74,123,492 | | $ | i 7 | | $ | i 117,499 | | $ | ( i 7,721) | | $ | ( i 63,025) | | $ | i 46,760 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 |
| i 167,972 | | $ | — | | i 63,821,901 | | $ | i 6 | | $ | i 110,867 | | $ | i 3,728 | | $ | ( i 61,300) | | $ | i 53,301 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: |
|
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| | |
| | |
| | |
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| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised |
| — | |
| — |
| i 193,841 | | | — | | | i 69 | | | — | | | — | |
| i 69 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for acquisition | | — | | | — | | i 230,770 | | | — | | | i 150 | | | — | | | — | | | i 150 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of warrants and prefunded warrants | | — | | | — | | — | | | — | | | i 2,348 | | | — | | | — | | | i 2,348 |
| | | | | | | | | | | | | | | | | | | | | | |
Debt issuance costs |
| — | |
| — |
| i 528,169 | | | — | | | — | | | — | | | — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted share units |
| — | |
| — |
| i 1,995,871 | | | — | | | — | | | — | | | — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation |
| — | |
| — |
| — | | | — | | | i 2,665 | | | — | | | — | |
| i 2,665 |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of stock | | — | | | — | | i 7,000,000 | | | i 1 | | | i 2,352 | | | — | | | — | | | i 2,353 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | i 352,940 | | | — | | | — | | | — | | | — | | | — |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation |
| — | |
| — |
| — | | | — | | | — | | | ( i 11,449) | | | — | |
| ( i 11,449) |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B |
| — | |
| — |
| — | | | — | | | ( i 952) | | | — | | | — | |
| ( i 952) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | — | | | — | | | — | | | — | | | ( i 1,725) | | | ( i 1,725) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2022 |
| i 167,972 | | $ | — |
| i 74,123,492 | | $ | i 7 | | $ | i 117,499 | | $ | ( i 7,721) | | $ | ( i 63,025) | | $ | i 46,760 |
See accompanying notes to unaudited condensed consolidated financial statements.
5
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended September 2021
(unaudited)
(in thousands, except 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 |
| i 167,972 | | $ | — | | i 59,102,072 | | $ | i 6 | | $ | i 100,559 | | $ | i 5,461 | | $ | ( i 54,886) | | $ | i 51,140 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of restricted shares |
| — | |
| — |
| i 216,418 | | | — | | | — | | | — | | | — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of debt obligations |
| — | |
| — |
| i 1,755,009 | | | — | | | i 3,911 | | | — | | | — | |
| i 3,911 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | i 162,400 | | | — | | | i 159 | | | — | | | — | | | i 159 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | i 75,000 | | | — | | | i 152 | | | — | | | — | | | i 152 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation |
| — | |
| — |
| — | | | — | | | i 1,161 | | | — | | | — | |
| i 1,161 |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | ( i 317) | | | — | | | — | | | ( i 317) |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | — | | | — | | | — | | | ( i 2,008) | | | — | | | ( i 2,008) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — | |
| — |
| — | | | — | | | — | | | — | | | i 729 | |
| i 729 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 | | i 167,972 | | $ | — | | i 61,310,899 | | $ | i 6 | | $ | i 105,625 | | $ | i 3,453 | | $ | ( i 54,157) | | $ | i 54,927 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 |
| i 167,972 | | $ | — |
| i 53,343,518 | | $ | i 6 | | $ | i 86,768 | | $ | i 5,192 | | $ | ( i 47,498) | | $ | i 44,468 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for: |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of accounts payable liabilities |
| — | |
| — |
| i 793,375 | | | — | | | i 1,626 | | | — | | | — | |
| i 1,626 |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of debt obligations |
| — | |
| — |
| i 5,693,481 | | | — | | | i 13,783 | | | — | | | — | |
| i 13,783 |
| | | | | | | | | | | | | | | | | | | | | | |
Conversion of restricted shares |
| — | |
| — |
| i 760,060 | | | — | | | — | | | — | | | — | |
| — |
| | | | | | | | | | | | | | | | | | | | | | |
Stock compensation |
| — | |
| — |
| — | | | — | | | i 3,020 | | | — | | | — | |
| i 3,020 |
| | | | | | | | | | | | | | | | | | | | | | |
Stock options exercised | | — | | | — | | i 481,834 | | | — | | | i 405 | | | — | | | — | | | i 405 |
| | | | | | | | | | | | | | | | | | | | | | |
Warrants exercised | | — | | | — | | i 95,749 | | | — | | | i 203 | | | — | | | — | | | i 203 |
| | | | | | | | | | | | | | | | | | | | | | |
Shares issued for acquisition |
| — | |
| — |
| i 142,882 | | | — | | | i 404 | | | — | | | — | |
| i 404 |
| | | | | | | | | | | | | | | | | | | | | | |
Fixed dividends Preferred Series B | | — | | | — | | — | | | — | | | ( i 951) | | | — | | | — | | | ( i 951) |
| | | | | | | | | | | | | | | | | | | | | | |
Deemed contribution from Series B preferred | | — | | | — | | — | | | — | | | i 367 | | | — | | | — | | | i 367 |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation |
| — | |
| — |
| — | | | — | | | — | | | ( i 1,739) | | | — | |
| ( i 1,739) |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss |
| — | |
| — |
| — | | | — | | | — | | | — | | | ( i 6,659) | |
| ( i 6,659) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2021 |
| i 167,972 | | $ | — |
| i 61,310,899 | | $ | i 6 | | $ | i 105,625 | | $ | i 3,453 | | $ | ( i 54,157) | | $ | i 54,927 |
| | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
6
Boxlight Corporation
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2022 and 2021
(unaudited)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | | |||
| | 2022 |
| 2021 | ||
| | | | | | |
Cash flows from operating activities: | | |
|
| |
|
Net loss | | $ | ( i 1,725) | | $ | ( i 6,660) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | |
| |
Amortization of debt discount and issuance cost | |
| i 1,645 | |
| i 1,473 |
Bad debt expense (recovery) | |
| i 9 | |
| ( i 114) |
(Gain) loss on settlement of liabilities | |
| ( i 856) | |
| i 2,992 |
Changes in deferred tax assets and liabilities | |
| ( i 654) | |
| i 912 |
Change in allowance for sales returns and volume rebate | |
| i 431 | |
| i 542 |
Change in inventory reserve | |
| i 634 | |
| i 56 |
Change in fair value of derivative liability | |
| ( i 1,537) | |
| i 164 |
Shares issued for interest payment on notes payable | |
| — | |
| i 512 |
Stock compensation expense | |
| i 2,665 | |
| i 3,020 |
Depreciation and amortization | |
| i 6,818 | |
| i 5,264 |
Non-cash lease expense | | | ( i 20) | | | — |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable – trade | |
| ( i 26,240) | |
| ( i 26,658) |
Inventories | |
| ( i 4,722) | |
| ( i 10,084) |
Prepaid expenses and other assets | |
| ( i 41) | |
| ( i 8,375) |
Other assets | |
| ( i 332) | |
| — |
Accounts payable and accrued expenses | |
| i 21,592 | |
| i 17,865 |
Other liabilities | |
| ( i 1,737) | |
| i 2,134 |
Deferred revenues | |
| i 4,570 | |
| i 3,875 |
Net cash provided by (used in) operating activities | |
| i 500 | |
| ( i 13,082) |
| | | | | | |
Cash flows from investing activities: | |
|
| |
| |
Business acquisitions (net of cash acquired) | |
| — | |
| ( i 804) |
Asset acquisition | | | ( i 100) | | | — |
Purchases of property and equipment, net | |
| ( i 960) | |
| ( i 139) |
Net cash used in investing activities | |
| ( i 1,060) | |
| ( i 943) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
| |
Net proceeds from issuance of common stock and warrants, net of issuance costs | |
| i 4,700 | |
| i 405 |
Proceeds from issuances of short-term debt | |
| i 2,500 | |
| i 43,269 |
Proceeds from exercise of options and warrants | | | i 70 | | | — |
Principal payments on debt | |
| ( i 1,878) | |
| ( i 35,487) |
Debt issuance costs | |
| — | |
| ( i 70) |
Payments of fixed dividends to Series B Preferred stockholders | |
| ( i 952) | |
| ( i 952) |
Net cash provided by financing activities | |
| i 4,440 | |
| i 7,165 |
| | | | | | |
Effect of foreign currency exchange rates | |
| i 134 | |
| ( i 377) |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | |
| i 4,014 | |
| ( i 7,237) |
| | | | | | |
Cash and cash equivalents, beginning of the period | |
| i 17,938 | |
| i 13,460 |
| | | | | | |
Cash and cash equivalents, end of the period | | $ | i 21,952 | | $ | i 6,223 |
| | | | | | |
Supplemental cash flow disclosures: | |
| | |
| |
| | | | | | |
Cash paid for income taxes | | $ | i 1,615 | | $ | i 1,458 |
Cash paid for interest | | $ | i 7,346 | | $ | i 2,130 |
| | | | | | |
Non-cash investing and financing transactions: | |
|
| |
| |
Shares issued to settle accounts payable | | $ | — | | $ | i 1,626 |
Exercise of warrants | | $ | — | | $ | i 203 |
Deemed contribution - Series B Preferred | | $ | — | | $ | i 367 |
Deferred consideration for acquisition | | $ | — | | $ | i 537 |
Shares issued to convert notes payable and accrued interest | | $ | — | | $ | i 13,786 |
Shares issued for asset acquisition | | $ | i 150 | | $ | i 403 |
See accompanying notes to unaudited condensed consolidated financial statements.
7
Boxlight Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
iNOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
iNATURE OF OPERATIONS
Boxlight Corporation, a Nevada Corporation, (“Boxlight”) designs, produces and distributes interactive technology solutions to the education, corporate and government markets under its Clevertouch and Mimio brands. The Company’s solutions include interactive displays, collaboration software, supporting accessories and professional services.
iBASIS 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 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, 2021 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in consolidated financial statements have been condensed. The December 31, 2021 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
iESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for 2021 contained in the Annual Report on Form 10-K, filed with the SEC on April 13, 2022, describes the significant accounting policies that the Company used in preparing its dated condensed financial statements. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to revenue/reserves and allowances. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions.
iFAIR 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 receivables and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. Debt approximates fair value due to either the short-term nature, variable rate, or recent execution of the debt agreement. The amount of consideration received is deemed to approximate the fair value of long-term debt net of any debt discount and issuance cost.
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
/8
prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
| ● | Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
| ● | Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. |
| ● | Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
iThe 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, 2022 and December 31, 2021 (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 | | $ | — | | $ | — | | $ | i 1,527 | | $ | i 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 | | $ | — | | $ | — | | $ | i 3,064 | | $ | i 3,064 |
9
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 | | $ | i 1,414 |
Change in fair value of derivative liabilities | |
| i 113 |
Balance, September 30, 2022 | | $ | i 1,527 |
| | | |
|
| | |
| | (in thousands) | |
Balance, December 31, 2021 | | $ | i 3,064 |
Change in fair value of derivative liabilities | |
| i 1,537 |
Balance, September 30, 2022 | | $ | i 1,527 |
| | | |
|
| | |
| | (in thousands) | |
Balance, June 30, 2021 | | $ | i 536 |
Exercise of warrants | |
| ( i 171) |
Change in fair value of derivative liabilities | | | ( i 9) |
Balance, September 30, 2021 | | $ | i 356 |
| | | |
| | | |
| | (in thousands) | |
Balance, December 31, 2020 | | $ | i 363 |
Exercise of warrants | |
| ( i 171) |
Change in fair value of derivative liabilities | |
| i 164 |
Balance, September 30, 2021 | | $ | i 356 |
iINCOME (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. 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 months ended September 30, 2022 and September 30, 2021, where the Company had income, approximately i 17.7 million and i 1.89 million of potentially dilutive shares were excluded from the computation of diluted earnings per share due to their antidilutive effect. 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 i 7.2 million shares from options to purchase common shares and unvested restricted shares as well as i 10.8 million shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of i 17.8 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 i 6.7 million shares from options to purchase common shares and unvested restricted shares as well as i 265,000 shares issuable upon exercise of warrants. Additionally, potentially dilutive securities of i 17.8 million from the assumed conversion of preferred stock are excluded from the denominator because they would be anti-dilutive.
/10
iREVENUE RECOGNITION
The Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title, and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels 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, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms of approximately i 60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms of approximately i 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.
Significant Judgments
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. Because observable prices are generally not available for the Company’s performance obligations that are sold in bundled arrangements, the Company does not apply the residual approach to determining SSP. However, the Company does have performance obligations for which pricing is highly variable or uncertain, and
/11
contracts with those performance obligations generally contain multiple performance obligations with highly variable or uncertain pricing. For these contracts the Company allocates the transaction price to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs 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.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets. Fees for the Company’s product and most service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within i 30- i 60 days of contract execution. Fees for installation, training, and professional development services are fixed and generally become due as the services are performed. The Company has an established history of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In these contracts where services are expected to be transferred on an ongoing basis for several years after the related payment, the Company has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues to use the related services; so that the customer will receive the optimal benefit from the products 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 consolidated balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance, hardware maintenance, and subscription services. The Company has no material contract assets as of September 30, 2022, or December 31, 2021. During the three months ended September 30, 2022, and September 30, 2021, the Company recognized $ i 2.2 million and $ i 2.5 million of revenue that was included in the deferred revenue balance as of December 31, 2021, and December 31, 2020, respectively. During the nine months ended September 30, 2022, and September 30, 2021, the Company recognized $ i 5.8 million and $ i 4.4 million of revenue that was included in the deferred revenue balance as of December 31, 2021 and December 31, 2020, respectively.
Variable Consideration
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, price protection provisions, or in connection with certain other rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case-by-case basis, will grant exceptions, mostly 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
12
reporting date. There was no material revenue recognized in the three and nine months ended September 30, 2022 related to changes in estimated variable consideration that existed at June 30, 2022 or December 31, 2021.
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, 2022 and December 31, 2021, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was $ i 23.2 million and $ i 21.5 million, respectively. The Company expects to recognize revenue on i 33% of the remaining performance obligations during the next i twelve months, i 26% in the following i twelve months, i 22% in the i twelve months ended September 30, 2025, i 14% in the i twelve months ended September 30, 2026, with the remaining i 5% recognized thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services 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.
Disaggregated Revenue
The Company disaggregates revenue based upon the nature of its products and services and the timing and in the manner which it is transferred to the customer. Although all products are transferred to the customer at a point in time, hardware and some software is pre-installed on the interactive device are transferred at the point of shipment, while some software is transferred to the customer at the time the hardware is received by the customer or when software product 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 five years from the contract execution date as measured based upon the passage of time.
i
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 30, | | | |||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | ||||
|
| (in thousands) |
| (in thousands) | | (in thousands) |
| (in thousands) | | ||||
Product revenues: | | |
| | |
| | |
| | |
| |
Hardware | | $ | i 64,601 | | $ | i 57,400 | | $ | i 167,967 | | $ | i 131,865 | |
Software | |
| i 906 | |
| i 1,395 | |
| i 3,959 | |
| i 3,445 | |
Service revenues: | |
| | |
| | |
| | |
| | |
Professional services | |
| i 1,359 | |
| i 534 | |
| i 2,192 | |
| i 1,103 | |
Maintenance and subscription services | |
| i 1,870 | |
| i 1,679 | |
| i 4,849 | |
| i 4,773 | |
| | $ | i 68,736 | | $ | i 61,008 | | $ | i 178,967 | | $ | i 141,186 | |
Contract Costs
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g., a sales commission). The Company capitalizes the costs incurred to 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. |
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| ● | 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 $ i 274 thousand at September 30, 2022.
Bill and Hold Arrangements
From time to time the Company enters custodial bill and hold arrangements with customers. Each arrangement is reviewed, and revenue is recognized only when the following criteria have been met: (1) the reason for the bill-and-hold arrangement is substantive (2) the product is identified as the customer’s asset (3) the product is ready for delivery 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, $ i 5.3 million of revenue was recognized for goods that will be delivered to a customer during the fourth quarter.
i
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 $ i 3.8 million and a current operating lease liability of approximately $ i 1.6 million and a long-term operating lease liability of approximately $ i 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 Instruments Credit Losses” (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss methodology with the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade accounts receivable. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842. This new guidance changes the impairment model for most financial assets and certain other instruments. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
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There 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.
iSUBSEQUENT 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.
iNOTE 2 – RECENT BUSINESS ACQUISITIONS
FrontRow Calypso LLC
On December 31, 2021, the Company, and its wholly owned subsidiary, Boxlight, Inc., consummated the acquisition of i 100% of the membership interests of FrontRow Calypso LLC, a Delaware limited liability company (“FrontRow”). FrontRow was acquired in exchange for payment of $ i 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.
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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.
i
| | | |
|
| | (in thousands) |
Assets acquired: |
| |
|
Cash | | $ | i 2,752 |
Accounts receivable | |
| i 3,381 |
Inventories | |
| i 10,240 |
Prepaid expenses | |
| i 883 |
Property and equipment | | | i 348 |
Total assets acquired | |
| i 17,604 |
| | | |
Accounts payable and accrued expenses | | | ( i 1,501) |
Deferred revenue | | | ( i 1,225) |
Other liabilities | | | ( i 12) |
Total liabilities assumed | |
| ( i 2,738) |
| | | |
Net tangible assets acquired | | $ | i 14,866 |
| | | |
Identifiable intangible assets: | | | |
Customer relationships | | | i 8,195 |
Trademarks | | | i 3,244 |
Technology | | | i 5,036 |
Non-compete | | | i 391 |
Total intangible assets subject to amortization | | | i 16,866 |
| | | |
Goodwill | | | i 2,920 |
| | | |
Total net assets acquired | | $ | i 34,652 |
| | | |
Consideration paid: | | | |
Cash | | $ | i 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:
i
| | |
|
| Estimated |
| | Weighted Average |
| | Life (years) |
Customer relationships |
| i 8 |
Trademarks |
| i 10 |
Technology | | i 8 |
Non-compete agreements | | i 3 |
Interactive Concepts
On March 23, 2021, the Company acquired i 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 $ i 3.3 million in cash, common stock and deferred consideration. Interactive has been Boxlight’s key distributor in Belgium and Luxembourg.
16
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:
i
| | | |
| | (in thousands) | |
Assets acquired: | | | |
Cash | | $ | i 1,647 |
Accounts receivable | | | i 1,045 |
Inventories | | | i 191 |
Property and equipment | | | i 37 |
Total assets acquired | | | i 2,920 |
| | | |
Accounts payable and accrued expenses | | | ( i 821) |
Deferred tax liability | | | ( i 230) |
Total liabilities assumed | | | ( i 1,051) |
| | | |
Net tangible assets acquired | | | i 1,869 |
Identifiable intangible assets: | | | |
Tradename | | | i 220 |
Customer relationships | | | i 745 |
Total intangible assets subject to amortization | | | i 965 |
| | | |
Goodwill | | | i 439 |
| | | |
Total net assets acquired | | $ | i 3,273 |
| | | |
Consideration paid: | | | |
Cash | | $ | i 1,795 |
Deferred cash consideration | | | i 1,075 |
Common shares issued | | | i 403 |
| | | |
Total consideration paid | | $ | i 3,273 |
iNOTE 3 – ACCOUNTS RECEIVABLE - TRADE
iAccounts receivable consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
| | | | | | |
Accounts receivable – trade | | $ | i 53,174 | | $ | i 31,053 |
Allowance for doubtful accounts | |
| ( i 555) | |
| ( i 405) |
Allowance for sales returns and volume rebates | |
| ( i 1,365) | |
| ( i 1,075) |
Accounts receivable - trade, net of allowances | | $ | i 51,254 | | $ | i 29,573 |
/
iNOTE 4 – INVENTORIES
Inventories are stated at the lower of cost or net realizable value and include spare parts and finished goods. Inventories are primarily determined using specific identification and the first-in, first-out (“FIFO”) cost methods. Cost includes direct cost from the Current Manufacturer (“CM”) or Original Equipment Manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
17
Inventories consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
| | | | | | |
Finished goods | | $ | i 49,577 | | $ | i 51,346 |
Spare parts | |
| i 998 | |
| i 260 |
Reserve for inventory obsolescence | | | ( i 1,232) | | | ( i 599) |
Advanced shipping costs | |
| i 92 | |
| i 584 |
Inventories, net | | $ | i 49,435 | | $ | i 51,591 |
iNOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
iPrepaid expenses and other current assets consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
| | | | | | |
Prepayments to vendors | | $ | i 7,085 | | $ | i 7,739 |
Prepaid licenses and other | |
| i 1,928 | |
| i 1,705 |
Prepaid expenses and other current assets | | $ | i 9,013 | | $ | i 9,444 |
/
iNOTE 6 – INTANGIBLE ASSETS
iIntangible assets consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | | | |
| | |
| | |
| | |
| | | | | | | | |
| | Useful lives | | 2022 | | 2021 | ||
| | | | | | | | |
Patents | | i 4- i 10 years | | $ | i 182 | | $ | i 182 |
Customer relationships | | i 8- i 15 years | |
| i 47,650 | |
| i 55,158 |
Technology | | i 3- i 5 years | |
| i 8,521 | |
| i 8,901 |
Domain | | i 7 years | |
| i 14 | |
| i 14 |
Non-compete | | i 8- i 15 years | | | i 391 | | | i 391 |
Tradenames | | i 2- i 10 years | |
| i 12,065 | |
| i 13,085 |
Intangible assets, at cost | | | | | i 68,823 | |
| i 77,731 |
Accumulated amortization | | | | | ( i 16,910) | |
| ( i 12,199) |
Intangible assets, net of accumulated amortization | | | | $ | i 51,913 | | $ | i 65,532 |
For the three months ended September 30, 2022 and 2021, the Company recorded amortization expense of $ i 2.1 million and $ i 1.8 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded amortization expense of $ i 6.5 million and $ i 5.2 million, respectively. Changes to gross carrying amount of recognized intangible assets due to translation adjustments include approximately $ i 6.3 million reduction as of September 30, 2022 and $ i 3.0 million increase as of December 31, 2021.
/ iNOTE 7 – LEASES
The Company has entered into various operating leases for certain office, support locations and vehicles with terms extending through February 2027. Generally, these leases have initial lease terms of i five years or less. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is at its sole discretion. The Company does not consider exercise of any lease renewal options reasonably certain. Certain of the Company’s lease agreements contain early termination options. i 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
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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, the Company had no leases classified as finance leases. The Company is not a lessor in any lease arrangement.
Operating lease expense was $ i 439 thousand for the three months ended September 30, 2022 and $ i 1.5 million for the nine months ended September 30, 2022. Variable lease costs and short-term lease cost were not material for the three and nine months ended September 30, 2022. Cash paid for amounts included in the measurement of lease liabilities was $ i 267 thousand for the three months ended September 30, 2022 and $ i 1.4 million for the nine months ended September 30, 2022. During the three months ended September 30, 2022, the Company obtained new operating lease right-of-use assets totaling $ i 143 thousand and for the nine months ended September 30, 2022, the Company obtained $ i 2.0 million in operating right-of-use assets.
iFuture maturities of the Company's operating lease liabilities are summarized as follows (in thousands):
Fiscal year ended,
| | | |
2022 |
| $ | i 647 |
2023 | | | i 2,000 |
2024 | | | i 1,271 |
2025 | | | i 1,068 |
2026 | | | i 731 |
| | | i 5,717 |
Less imputed interest | | | ( i 1,356) |
Total | | $ | i 4,361 |
Supplemental lease information
i
| | | |
Weighted-average remaining lease term (years) | | i 3.5 | |
Weighted-average discount rate | | i 15.5 | % |
i
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
iAccounts payable and accrued expense consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
| | 2022 |
| 2021 | ||
Accounts payable | | $ | i 38,955 | | $ | i 25,714 |
Accrued expense | | | i 8,648 | | | i 6,440 |
Other | | | i 807 | | | i 1,484 |
Accounts payable and other liabilities | | $ | i 48,410 | | $ | i 33,638 |
/
19
NOTE 9 – DEBT
iThe following is a summary of the Company’s debt as of September 30, 2022 and December 31, 2021 (in thousands):
| | | | | | |
|
| 2022 |
| 2021 | ||
Debt – Third Parties |
| |
|
| |
|
Paycheck Protection Program | | $ | i 140 | | $ | i 1,009 |
Note payable - Whitehawk | | | i 59,063 | | | i 58,500 |
Total debt | |
| i 59,203 | |
| i 59,509 |
Less: Discount and issuance costs | |
| i 5,923 | |
| i 7,568 |
Current portion of debt | |
| i 9,224 | |
| i 9,804 |
Long-term debt | | $ | i 44,056 | | $ | i 42,137 |
Total debt (net of discount and issuance costs) | | $ | i 53,280 | | $ | i 51,941 |
Debt - Third Parties:
Whitehawk Finance LLC
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 maximum $ i 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. The Company received an initial term loan of $ i 58.5 million on December 31, 2021 (the “Initial Loan”) and was provided with a subsequent delayed draw facility of up to $ i 10 million that may be provided 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, $ i 8.5 million was subject to repayment on February 28, 2022, with quarterly principal payments of $ i 625,000 and interest payments commencing March 31, 2022 and the $ i 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 i 10.75%; provided that after March 31, 2022, if the Company’s Senior Leverage Ratio (as defined in the Credit Agreement) is less than i 2.25, the interest rate would be reduced to LIBOR plus i 10.25%. Such terms are subject to the Company maintaining a borrowing base in terms compliant with the Credit Agreement.
In conjunction with its receipt of the Initial Loan, the Company issued to the Lender (i) i 528,169 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 i 2,043,291 shares of Class A common stock (subject to increase to the extent of i 3% of any Series B and Series C convertible preferred stock converted into Class A common stock), exercisable at $ i 2.00 per share (the “Warrant”), which Warrant was subject to repricing on March 31, 2022 based on the arithmetic volume weighted average prices for the i 30 trading days prior to September 30, 2022, in the event the Company’s stock is then trading below $ i 2.00 per share, (iii) a i 3% fee of $ i 1,800,000, and (iv) a $ i 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 $ i 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 $ i 1.19 per share and the shares increased to i 3,434,103.
On July 22, 2022, the Company entered into a Securities Purchase Agreement with an accredited institutional investor. According to the terms of the Whitehawk agreement, this purchase agreement triggered a reduction of the exercise price of the warrants and a revaluation of the derivative liability. The warrants were repriced to $ i 1.10 and shares increased to i 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 $ i 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
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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 i 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 $ i 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 $ i 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 $ i 8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $ i 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 i 50 basis points (to Libor plus+ i 9.75%) after delivery of the Loan Parties’ September 30, 2023 financial statements, subject to the Loan Parties maintaining i 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) i 5% for payments made on or before December 31, 2022, (ii) i 4% for payments made between January 1, 2023 and December 31, 2023, and (iii) i 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 $ i 5.0 million paid under the Term Loan, any payments made in relation to the $ i 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 $ i 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 i 13.25% for LIBOR Rate Loans and i 12.25% for Reference Rate Loans, increasing the definition of change of control from i 33% voting power to i 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 $ i 656 thousand and interest of $ i 2.0 million to Whitehawk. During the nine-month period ending September 30, 2022, the Company repaid principal of $ i 1.9 million and interest of $ i 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 $ i 9.9 million and interest of $ i 511 thousand, to Lind Global by issuing a total of i 5.7 million shares of Class A common stock with an aggregate value of $ i 13.8 million to Lind Global and recognized a loss extinguishment of debt of approximately $ i 3.4 million.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of $ i 1.1 million under the Paycheck Protection Program. During 2021, the Company applied for forgiveness in the amount of $ i 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 $ i 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. The amount remaining on the loan at September 30, 2022 was $ i 140 thousand.
21
Everest Display, Inc.
On January 26, 2021, the Company entered into an agreement with EDI and EDI’s subsidiary, AMAGIC, settling $ i 1,983,436 in accounts payable owed by the Company to EDI for i 793,375 shares of Class A common stock. During the nine months ended September 30, 2021, the Company recognized a $ i 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 i 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 i 3.50% in excess of the highest prime rate publicly announced from time to time with a floor of i 3.25%. In addition, the Company is required to pay a daily audit fee of $ i 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 $ i 13,000,000, as well as increasing the minimum monthly sales from $ i 1,250,000 to $ i 3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to a fee of $ i 50,000, representing i 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 $ i 15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $ i 20,000, representing i one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged.
iNOTE 10 – 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 at September 30, 2022 and December 31, 2021.
i
| | | | |
|
|
| ||
Common stock issuable upon exercise of warrants |
| | i 3,715,075 | |
Market value of common stock on measurement date | | $ | i 0.62 | |
Exercise price | | $ | i 1.10 | |
Risk free interest rate (1) | |
| i 4.07 | % |
Expected life in years | |
| i 4.25 years | |
Expected volatility (2) | |
| i 92 | % |
Expected dividend yields (3) | |
| i — | % |
| | | | |
|
|
| ||
Common stock issuable upon exercise of warrants |
| | i 2,043,291 | |
Market value of common stock on measurement date | | $ | i 1.38 | |
Exercise price | | $ | i 2.00 | |
Risk free interest rate (1) | |
| i 1.25 | % |
Expected life in years | |
| i 5 years | |
Expected volatility (2) | |
| i 79 | % |
Expected dividend yields (3) | |
| i — | % |
(1) | The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date. |
22
(2) | The Company does not expect to pay a dividend in the foreseeable future. |
iNOTE 11 – INCOME TAXES
iPretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):
| | | | | | |
|
| Three Months |
| Three Months | ||
| | Ended | | Ended | ||
| | September 30 | | |||
| | 2022 | | 2021 | ||
United States | | $ | i 3,320 | | $ | ( i 3,114) |
Foreign | |
| i 305 | |
| i 5,234 |
Total pretax book income | | $ | i 3,625 | | $ | i 2,120 |
| | | | | | |
|
| Nine Months Ended |
| Nine Months Ended | ||
| | September 30 | | |||
|
| 2022 |
| 2021 | ||
United States | | $ | ( i 589) | | $ | ( i 8,541) |
Foreign | |
| ( i 661) | |
| i 5,817 |
Total pretax book loss | | $ | ( i 1,250) | | $ | ( i 2,724) |
/The Company recorded income tax expense of $ i 520 thousand and $ i 1.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively and income tax expense of $ i 475 thousand of $ i 3.9 million for the nine months ended September 30, 2022 and September 30, 2021, respectively. The year-to-date effective tax rate is i 38% due to there being no material tax expense/benefit for the legacy Boxlight entities, due to their valuation allowance position, while the Sahara entities are fully taxable.
The decrease 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 for the nine months ended September 30, 2021, as well as the impact of a significant tax rate change in the UK on the Company’s deferred tax liability that was recorded in the three months ended September 30, 2021.
The Company operates in the United States, United Kingdom, and other jurisdictions. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned.
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 to which the carryforward applies. It also depends on specific tax provisions in each jurisdiction that could impact utilization. For example, in the United States, a change in ownership, as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize its U.S. net operating loss carryforwards. 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 at September 30, 2022 and December 31, 2021.
The Sahara entities have recorded a net deferred tax liability, which is primarily driven by the net deferred tax liability on the intangibles for which it does not have tax basis. 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.
/23
The tax years from 2009 to 2022 remain open to examination in the U.S. federal jurisdiction. The tax years from 2020 to 2022 remain open to examination in the U.K. Statutes of limitations vary in other immaterial jurisdictions. 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 $ i 82 thousand for its best estimate of the amount for which it will settle the exposure. This amount includes $ i 24 thousand of income tax and $ i 58 thousand of penalties and interest. The Company has not identified any other material uncertain tax positions at this time.
iNOTE 12 – EQUITY
Preferred Shares
The Company’s articles of incorporation provide that the Company is authorized to issue i 50,000,000 shares of preferred stock consisting of: 1) i 250,000 shares of non-voting Series A preferred stock, with a par value of $ i 0.0001 per share; 2) i 1,200,000 shares of voting Series B preferred stock, with a par value of $ i 0.0001 per share; 3) i 270,000 shares of voting Series C preferred stock, with a par value of $ i 0.0001 per share; and 4) i 48,280,000 shares of “blank check” preferred stock to be designated by the Company’s board of directors.
Issuance of preferred shares
Series A Preferred Stock
At the time of the Company’s initial public offering, the Company issued i 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 i 398,406 shares of Class A common stock, at the discretion of the Series A stockholder. On August 5, 2019, a total of i 82,028 shares of Series A preferred stock were converted into a total of i 130,721 shares of Class A common stock. As of September 30, 2022, a total of i 167,972 shares of Series A preferred stock remained outstanding.
Series B Preferred Stock and Series C Preferred Stock
On September 25, 2020, in connection with the acquisition of Sahara, the Company issued i 1,586,620 shares of Series B Preferred Stock and i 1,320,850 shares of Series C Preferred Stock. The Series B Preferred Stock has a stated and liquidation value of $ i 10.00 per share and pays a dividend out of the earnings and profits of the Company at the rate of i 8% per annum, payable quarterly. The Series B Preferred Stock is convertible into the Company’s Class A common stock at a conversion price of $ i 1.66 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 i 200% of the Conversion Price for i 20 consecutive trading days (based on a volume weighted average price). The Series C Preferred Stock has a stated and liquidation value of $ i 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 i 200% of the Conversion Price for i 20 consecutive trading days (based on a volume weighted average price).
To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of Series B Preferred Stock shall be redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024 upon, i 30 days prior written notice to the holders, for a redemption price, payable in cash, equal to the sum of (a) ($ i 10.00) multiplied by the number of shares of Series B Preferred Stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C Preferred Stock is also subject to redemption on the same terms commencing January 1, 2026. The aggregate estimated fair value of the Series B and C Preferred Stock of $ i 28.5 million was included as part of the total $ i 94.9 million consideration paid for the purchase of Sahara.
As the redemption features in the Series B Preferred Stock and Series C Preferred Stock are not solely within the control of the Company, the Company has classified the Series B Preferred Stock and Series C Preferred Stock as mezzanine or temporary equity in the Company’s condensed consolidated balance sheet.
/24
On March 24, 2021, the Company entered into a share redemption and conversion agreement with certain holders of Series B and Series C preferred stock (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 £ i 11.5 million (or approximately $ i 15.9 million) plus accrued dividends from January 1, 2021 to the date of purchase. Such stockholders hold i 96% of the Series C preferred stock. Upon redemption, the Series C shares held by such stockholders would convert into approximately i 7.6 million shares of Class A Common Stock at the stated conversion price of $ i 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 $ i 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 common stock consists of 1) i 150,000,000 shares of Class A voting common stock and 2) i 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 i one vote per share while Class B common stock has i 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, 2022 and December 31, 2021, the Company had i 74,123,492 and i 63,821,901 shares of Class A common stock issued and outstanding, respectively. i i No / Class B shares were outstanding at September 30, 2022 or December 31, 2021.
Issuance of 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, i 7.0 million shares (the “Shares”) of the Company’s Class A common stock, par value $ i 0.0001 per share (“Common Stock”), pre-funded warrants (the “Pre-Funded Warrants”) to purchase i 352,940 shares of Common Stock at an exercise price of $ i 0.0001 per share, which Pre-Funded Warrants were issued in lieu of shares of Common Stock to ensure that the Investor did not exceed certain beneficial ownership limitations, and warrants to purchase an aggregate of i 7,352,940 shares of Common Stock at an exercise price of $ i 0.68 per share (the “Warrants”, and collectively with the Pre-Funded Warrants and the Shares, the “Securities”). The Securities were sold at a price of $ i 0.68 per share for total gross proceeds to the Company of $ i 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 be exercisable i 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 $ i 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; $ i 2.4 million was allocated to common stock, $ i 2.2 million was allocated to warrants and $ i 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 Stock or Common Stock Equivalents (as defined in the Purchase
25
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 in 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.
Credit Facility
In conjunction with its receipt of the Whitehawk loan, the Company issued to Whitehawk i 528,169 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 the three months ended September 30, 2021, the Company repaid principal of $ i 3.1 million and interest of $ i 138 thousand by issuing i 1.8 million shares Class A common stock to Lind and recognized a $ i 0.7 million loss. During the nine months ended September 30, 2021, the Company repaid principal of $ i 9.9 million and interest of $ i 511 thousand by issuing i 5.7 million shares Class A common stock with an aggregate value of $ i 13.8 million to Lind and recognized a $ i 3.4 million loss.
Accounts Payable and Other Liabilities Conversion
During the nine months ended September 30, 2021, the Company converted $ i 2.0 million of EDI accounts payable in exchange for i 793 thousand shares of Class A common stock with an aggregate value of $ i 1.6 million and recognized a $ i 357 thousand gain.
Conversion of restricted stock units
During the three and nine months ended September 30, 2022, respectively, i 332,065 and i 1,995,871 restricted stock units vested and were converted into Class A common stock. During the three and nine months ended September 30, 2021, i 217,000 and i 760,060 restricted stock units vested and were converted into Class A common stock.
Exercise of stock options
During the three months ended September 30, 2022, i no options to purchase stock were exercised and during the nine months ended September 30, 2022, options to purchase a total of i 193,841 shares of Class A common stock were exercised. During the three months ended September 30, 2021, i 162,000 options were exercised and during the nine months ended September 30, 2021, options to purchase a total of i 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.
i
| | | | | | | |
|
| |
| | |
| Weighted |
| | | | | | | Average |
| | | | | Weighted | | Remaining |
| | Number of | | | Average | | Contractual |
| | Units | | | Exercise Price | | Term (in years) |
Outstanding, December 31, 2021 |
| i 70,000 | | $ | i 5.70 | | i 0.94 |
Granted |
| i 7,705,880 | | $ | i 0.65 | | |
Exercised |
| ( i 352,940) | | $ | - | | |
Expired | | ( i 50,000) | | | i 7.70 | | |
Outstanding, September 30, 2022 |
| i 7,372,940 | | $ | i 0.68 | | i 5.25 |
Exercisable, September 30, 2022 |
| i 12,500 | | $ | i 0.70 | | i 2.56 |
26
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, $ i 0.59; exercise price $ i 0.68; risk free interest rate, i 2.86%; expected term, i 6 years; expected volatility, i 132% and expected dividend yield of i 0%.
Exercise of warrants
During the three and nine months ended September 30, 2022, pre-funded warrants to purchase i i 352,940 / shares of Common Stock at an exercise price of $ i i 0.001 / per share were exercised. During the three and nine months ended September 30, 2021, i 75,000 and i 95,749 warrants were exercised, , respectively with an exercise price of $ i i 0.42 / .
iNOTE 13 – STOCK COMPENSATION
Grants made under the Equity Incentive Plans must be approved by the Company’s board of directors. As of September 30, 2022, the total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s 2021 Equity Incentive Plan were i 2,725,400 shares.
Stock Options
Under the Company’s stock option program, pursuant to the Equity Incentive Plans, an employee receives an award 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). The options become exercisable over a range of immediately vested to i four-year vesting periods and expire i 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:
i
| | | | | | | |
|
| |
| | |
| Weighted |
| | | | | | | Average |
| | | | Weighted | | Remaining | |
| | Number of | | Average | | Contractual | |
| | Units | | Exercise Price | | Term (in years) | |
Outstanding, December 31, 2021 |
| i 4,054,116 | | $ | i 1.92 | | i 2.29 |
Granted |
| i 1,221,744 | | $ | i 1.12 | | |
Exercised |
| ( i 193,841) | | $ | i 0.24 | | |
Cancelled |
| ( i 724,408) | | $ | i 1.75 | | |
Outstanding, September 30, 2022 |
| i 4,357,611 | | $ | i 1.80 | | i 2.28 |
Exercisable, September 30, 2022 |
| i 3,042,376 | | $ | i 2.20 | | i 1.80 |
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. The Company used the following inputs to value warrants issued during the nine months ending September 30, 2022 using the Black Scholes option valuation method: market value on measurement date, $ i 0.59 to $ i 0.93; exercise price of $ i 5.01 to $ i 0.68; risk free interest rate, i 1.69% to i 2.87%; expected term, i 3 to i 4 years; expected volatility, ranged from i 141 to i 148 and expected dividend yield of i 0%.
As of September 30, 2022 and December 31, 2021, the stock options had an intrinsic value of approximately $ i 150 thousand and $ i 1.9 million, respectively.
/27
On May 3, 2022, the Boxlight board of directors adopted a resolution, in exchange for a i 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 i 577,675 shares of Class A common stock, par value $ i 0.001 per share, which had expired on January 12, 2022. The stock price on the remeasurement date was $ i 1.04 and the incremental compensation recognized was $ i 314,000.
On June 13, 2022, the Boxlight board of directors granted Greg Wiggins, our Chief Financial Officer, stock options for i 150,000 shares of the Company’s Class A common stock will vest in equal quarterly installments over a i four-year term commencing on July 5, 2022.
Restricted Stock Units
Under the Company’s Equity Incentive Plans 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 i 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.
i
| | | | | |
|
| |
| Weighted | |
| | | | Average | |
| | | | Grant Date Fair | |
| | Number of Units | | Value | |
Outstanding, December 31, 2021 |
| i 1,973,947 | | $ | i 1.81 |
Granted |
| i 2,411,662 | | $ | i 1.20 |
Vested | | ( i 1,179,754) | | $ | i 1.73 |
Forfeited |
| ( i 370,151) | | $ | i 1.38 |
Outstanding, September 30, 2022 |
| i 2,835,704 | | $ | i 1.37 |
On March 21, 2022, the Company granted an aggregate of i 348,840 RSUs to its board members. These RSUs vest ratably over i one year and had an aggregated fair value of approximately $ i 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 i 163,637 RSU’s, valued at approximately $ i 180,000, and vesting over i three years and i 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 i 1,771,950 RSUs under the terms of Amendment No. 2 to the Boxlight Corporation 2014 Stock Incentive Plan, vesting over i four years, as long-term incentive awards to its employees in the U.S. and Europe. The aggregate fair value of the shares was $ i 2.1 million.
During the first quarter ended March 31, 2022, Jens Holstebro, a former FrontRow employee, received i 39,683 in restricted shares of Class A common stock, valued at $ i 50,000, as a bonus, which restricted stock vested immediately.
28
Stock Compensation Expense
iFor the three and nine months ended September 30, 2022 and 2021, 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 | | $ | i 128 | | $ | i 153 | | $ | i 683 | | $ | i 544 |
Restricted stock units | |
| i 474 | | | i 1,005 | |
| i 1,980 | | | i 2,472 |
Warrants | |
| i 1 | | | i 3 | |
| i 2 | | | i 4 |
Total stock compensation expense | | $ | i 603 | | $ | i 1,161 | | $ | i 2,665 | | $ | i 3,020 |
As of September 30, 2022, there was approximately $ i 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 $ i 608 thousand is estimated to be recorded as compensation expense in the remaining three months of 2022.
iNOTE 14 – RELATED PARTY TRANSACTIONS
Management Agreement
On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by the 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. Thereafter, and for a term of i 13 months, Mr. Pope shall provide consulting services to the Company including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration for the services provided, the Company will pay a management fee equal to i 0.375% of the consolidated net revenues of the Company, payable in monthly installments, not to exceed $ i 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.
/ iNOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases i seven office building facilities located in Lawrenceville, Georgia and Duluth, Georgia; Poulsbo; Scottsdale, Arizona; Miami, Florida and Utica, New York in the U.S., and i two office building facilities in Dartford and Kent in the U.K. for sales, marketing, technical support, and service staff. During the second quarter of 2022, FrontRow entered into 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.
Purchase Commitments
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, the total amount of such open inventory purchase orders was $ i 33.8 million.
/29
NOTE 16 – CUSTOMER AND SUPPLIER CONCENTRATION
There was i one customer that accounts for greater than 10% of the Company’s consolidated revenues for the nine months ended September 30, 2022. There were i two customers that accounted for greater than 10% of the Company’s consolidated revenues for the nine months ended September 30, 2021. Details are as follows:
i
| | | | | | | | | | |
| | 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, | ||
| | | 2022 | | | 2021 | ||||
Customer | | 2022 | | (in thousands) | | 2021 | | (in thousands) | ||
1 | | i 14.1 | % | $ | i 8,532 |
| i 12.8 | % | $ | i 9,815 |
2 |
| — | | | — |
| i 10.1 | % | $ | i 5,142 |
For the nine months ended September 30, 2022 and 2021, the Company’s purchases were concentrated primarily with i 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, |
| | | | 2022 | | | | 2021 | ||
Vendor | | 2022 | | | (in thousands) | | 2021 | | | (in thousands) |
1 | | i 44.0 | % | $ | i 8,275 | | i 47.0 | % | $ | i 4,188 |
2 | | i 20.0 | % | $ | ( i 10,482) | | i 18.4 | % | $ | ( i 2,070) |
The Company believes there are other suppliers that could be substituted should the above cited supplier become unavailable or non-competitive.
/ iNOTE 17 – SUBSEQUENT EVENTS
On November 4, 2022, the Company made a $ i 4.25 million payment on its Credit Agreement with Whitehawk. The payment will be credited by WhiteHawk toward the repayment of the $ i 8.5 million term loan due on February 28, 2023.There were no pre-payment penalties or premiums included with this payment.
/Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis 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”) 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. 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
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that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
Overview
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.
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 in exchange for payment of $34.7 million to Phonic Ear Inc. 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 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 control 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.
Acquisition Strategy and Challenges
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 existing business. The process to undertake a potential acquisition is time-consuming and costly. We expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets, and there is no guarantee that we will complete any acquisition that we pursue.
We believe we can achieve significant cost-savings by merging the operations of the companies we acquire and after their acquisition leverage the opportunity to reduce costs through the following methods:
| ● | Staff reductions – consolidating resources, such as accounting, marketing, and human resources. |
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| ● | 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. |
Cost of revenues
Our cost of revenues is comprised of the following:
| ● | costs to purchase components and finished goods directly; |
| ● | third-party logistics costs; |
| ● | inbound and outbound freight costs, and customs and duties charges; |
| ● | 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; 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.
Operating expenses
We classify our operating expenses into two categories: general and administrative and research and development.
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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 income (expense), net
Other income (expense), net primarily consists of interest expense associated with our debt financing arrangements, gains (losses) on the settlements of debt and trade payable obligations exchanged for common shares, and the effects of changes in the fair value of derivative liabilities.
Income tax expense
We are subject to income taxes in the 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 in the United States. Additionally, certain 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, 2022 and 2021
Revenues. Total revenues for the three months ended September 30, 2022 were $68.7 million as compared to $61.0 million for the three months ended September 30, 2021, resulting in a 12.7% increase in revenue. Revenues primarily consist of hardware revenue, software revenue, and professional development. The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for the Company’s solutions in the U.S. FrontRow revenue for the three months ended September 30, 2022 was $5.6 million.
Cost of Revenues. Cost of revenues for the three months ended September 30, 2022 was $47.7 million compared to $45.2 million for the three months ended September, 30, 2021, resulting in a 5.5% increase. Cost of revenues consists primarily of product cost, freight expenses, customs expense, and inventory adjustments. 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 compared to the comparable three months in 2021. Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $698 thousand 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.
General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2022 were $14.0 million and 20.4% of revenues, as compared to $11.9 million and 19.6% of revenues for the three months ended September 30, 2021. The increase was primarily a result of new hires for planned growth and equity-based compensation issuances.
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Research and Development Expenses. Research and development expenses were $604 thousand and 0.9% of revenues for the three months ended September 2022, as compared to $355 thousand and 0.6% of revenues 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 $1.4 million for the three months ended September 30, 2021. Other expense increased primarily due to a $1.7 million increase in interest expense associated with increased borrowings due to the new credit facility.
Income Tax Expense. Income tax expense for the three months ending September 30, 2022 was $520 thousand and was $1.4 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, 2022 were $179.0 million as compared to $141.2 million for the nine months ended September 30, 2021, resulting 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.
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). Other expense, net for the nine months ended September 30, 2022 was $5.1 million as compared to other expense, net, of $5.8 million for the nine months ended September 30, 2021, representing a decrease of $0.7 million. The decrease was primarily due to a $1.7 million change in the fair value of derivative liabilities, a $3.8 million reduction in gain recognized upon the settlement of certain debt obligations, offset by a $4.7 million increase in interest expense associated with increased borrowings due to the new credit facility.
Income Tax Expense. Income tax expense for the nine months ending September 30, 2022 was $475 thousand, as compared to $3.9 million in income tax expense for the nine months ending September 30, 2021. This significant decrease in income tax expense year-over-year was primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was
34
enacted during second quarter 2021.The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability 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-date effective tax rate is (34.7)% due to there being no material tax expense/benefit for the legacy Boxlight entities, due to their valuation allowance position, while the Sahara entities are fully taxable.
Net Loss. Net loss was $1.7 million and $6.6 million for the nine months ended September 30, 2022 and 2021 respectively. The decrease in net loss was primarily due to a $1.7 million change in the fair value of the Whitehawk derivative liability, and a $3.8 million decrease in loss on settlement of liabilities, partially offset by an increase in interest expense due to the new credit facility.
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) before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus stock compensation expense, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement and gain on the forgiveness of our PPP loan. 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 |
Discussion of Effect of Seasonality on Financial Condition
Certain accounts on 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 upcoming school year, we generally build up inventories during
35
the second quarter of the year. Therefore, inventories tend to be at the highest levels at that point in time. In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter. Accounts receivable balances tend to be at the highest levels in the third quarter, in which we record the highest level of sales.
Liquidity and Capital Resources
As of September 30, 2022, we had cash and cash equivalents of $22.0 million, 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 on September 30, 2021 when we had $6.2 million of 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 generated 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 and general global economic uncertainty as a result of the ongoing conflict between Russia and the Ukraine and the continuing COVID-19 pandemic, the availability of debt and equity capital has been reduced and the cost of capital has increased. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, we are confident that the Company will be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with customers and vendors.
Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases. We lease all our office facilities. We expect to make future payments on existing leases from cash generated from operations. We have limited credit available from our major vendors and are required to prepay for the majority of our inventory purchases, which further constrains our cash liquidity.
Recent Financing;
See Footnote 9 – Debt for a discussion of recent financing.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations or liquidity and capital resources.
Critical Accounting Policies and Estimates
Our consolidated condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our 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. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective, or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain:
1. | Revenue recognition |
2. | Business acquisitions |
3. | Goodwill and Intangible assets |
4. | Stock-based compensation expense |
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Status as Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we were able to take advantage of certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies.
These provisions include:
| (1) | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| (2) | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
| (3) | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
| (4) | reduced disclosure about our executive compensation arrangements. |
We elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Under Section 2(a)(19) of the Securities Act of 1933 and Section 3(a)(80) of the Securities Exchange Act of 1934, as amended, an emerging growth company will lose its status upon the earliest of several conditions, one of which is reaching the last day of the fiscal year in which the fifth anniversary of the company’s first sale of equity securities pursuant to an effective registration statement occurs. For the Company, this will occur on January 1, 2023.
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 2021 Annual Report on Form 10-K.
Notwithstanding the existence of these material weaknesses, we believe that the consolidated condensed financial statements included in this quarterly report on Form 10-Q fairly present in accordance with U.S. GAAP, in all material respects, our financial condition, results of operations and cash flows for the periods presented in this report.
Limitations on Effectiveness of Controls.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide
37
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, that have materially affected our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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 additional risk factors pertinent to the Company’s business please refer to the Part I Item 1A of the Company’s 2021 Annual Report on Form 10-K, which was filed with the SEC on April 13, 2022 and is incorporated by reference herein.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits
The following exhibits are filed or furnished with this report:
Exhibit No. |
| Description of Exhibit |
4.1 | | |
4.2 | | |
10.2 |
| |
10.3 | | |
10.4 | | |
| | |
31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| Inline XBRL Instance Document |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BOXLIGHT CORPORATION | |
|
|
|
By: | /s/ Michael Pope | |
|
| |
|
| Chief Executive Officer |
By: | /s/ Greg Wiggins | |
|
| |
|
| Chief Financial Officer (Principal Financial and Accounting Officer) |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 9/30/26 | ||||
| 1/1/26 | ||||
| 12/31/25 | ||||
| 9/30/25 | ||||
| 1/1/24 | ||||
| 12/31/23 | ||||
| 9/30/23 | ||||
| 2/28/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | ||||
| 12/15/22 | ||||
| Filed on: | 11/9/22 | 8-K | ||
| 11/7/22 | ||||
| 11/4/22 | ||||
| For Period end: | 9/30/22 | |||
| 8/9/22 | ||||
| 7/26/22 | 424B5, 8-K | |||
| 7/22/22 | 8-K | |||
| 7/15/22 | ||||
| 7/5/22 | 3 | |||
| 6/30/22 | 10-Q | |||
| 6/21/22 | 8-K | |||
| 6/13/22 | 8-K | |||
| 5/16/22 | 10-Q, EFFECT | |||
| 5/5/22 | 8-K, 8-K/A | |||
| 5/3/22 | ||||
| 4/13/22 | 10-K | |||
| 4/4/22 | 8-K | |||
| 3/31/22 | 10-Q, NT 10-K | |||
| 3/29/22 | 8-K, 8-K/A | |||
| 3/21/22 | ||||
| 3/2/22 | ||||
| 2/28/22 | ||||
| 2/24/22 | 4 | |||
| 2/14/22 | 4, 8-K | |||
| 1/12/22 | 4 | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 5, 8-K, 8-K/A, NT 10-K | |||
| 10/29/21 | 8-K | |||
| 9/30/21 | 10-Q | |||
| 8/6/21 | 8-K | |||
| 7/20/21 | 8-K | |||
| 6/30/21 | 10-Q | |||
| 6/14/21 | 8-K | |||
| 5/31/21 | ||||
| 3/24/21 | ||||
| 3/23/21 | ||||
| 1/26/21 | ||||
| 1/1/21 | ||||
| 12/31/20 | 10-K | |||
| 9/30/20 | 10-Q | |||
| 9/25/20 | 8-K | |||
| 5/22/20 | PRE 14A, S-1 | |||
| 8/5/19 | ||||
| 1/31/18 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 7/26/22 Boxlight Corp. 8-K:1,8,9 7/22/22 16:818K Toppan Merrill/FA 6/27/22 Boxlight Corp. 8-K:1,2,9 6/21/22 11:2.1M Toppan Merrill Bridge/FA |