UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
| (Primary Standard Industrial |
| (I.R.S. Employer |
incorporation or organization) |
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| Identification Number) |
Phone:
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
Title of each class |
| Trading Symbol(s) |
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| The |
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.
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).
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.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The number of shares outstanding of the registrant’s common stock on August 8, 2022 was
BOXLIGHT CORPORATION
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Boxlight Corporation
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2022 and 2021
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | |||||||
Revenues, net | $ | | $ | | $ | | $ | | |||||
Cost of revenues |
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Gross profit |
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Operating expense: |
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General and administrative expenses |
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Research and development |
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Total operating expense |
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Income (loss) from operations |
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Other income (expense): |
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Interest expense, net |
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Other income (expense), net |
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Gain (loss) on settlement of liabilities, net |
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Changes in fair value of derivative liabilities |
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Total other income (expense) |
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Income (loss) before income taxes | $ | | $ | | $ | ( | $ | ( | |||||
Income tax (expense) benefit |
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Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Fixed dividends - Series B Preferred |
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| ( |
| ( |
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Deemed contribution -Series B Preferred | — | | — | | |||||||||
Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Comprehensive loss: |
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Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Other comprehensive (loss) income: |
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Foreign currency translation adjustment |
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Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per common share – basic and diluted | ( | ( | ( | ( | |||||||||
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Weighted average number of common shares outstanding – basic and diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
Boxlight Corporation
Condensed Consolidated Balance Sheets
As of June 30, 2022 and December 31, 2021
(in thousands, except share and per share amounts)
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
(unaudited) | ||||||
ASSETS | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable – trade, net of allowances |
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Inventories, net of reserves |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation |
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Operating lease right of use asset | | — | ||||
Intangible assets, net of accumulated amortization |
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Goodwill |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses | $ | | $ | | ||
Short-term debt |
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Operating lease liabilities, current | | — | ||||
Deferred revenues, current |
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Derivative liabilities |
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Other short-term liabilities |
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Total current liabilities |
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Deferred revenues, non-current |
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Long-term debt |
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Deferred tax liabilities, net |
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Operating lease liabilities, non-current | | — | ||||
Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 15) |
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Mezzanine equity: |
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Preferred Series B, |
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Preferred Series C, |
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Total mezzanine equity |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive (loss) income |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and six months ended June 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 March 31, 2022 |
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Shares issued for: |
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Stock options exercised |
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Conversion of restricted shares | — | — | | — | — | — | — | — | ||||||||||||||
Stock compensation | — | — | — | — | | — | — | | ||||||||||||||
Foreign currency translation |
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Fixed dividends Preferred Series B |
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Net income |
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Balance as of June 30, 2022 |
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Balance as of December 31, 2021 |
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Shares issued for: |
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Stock options exercised |
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Debt issuance costs |
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Conversion of restricted shares |
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Stock compensation |
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Foreign currency translation |
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Fixed dividends Preferred Series B |
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Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||
Balance as of June 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Boxlight Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and six months ended June 2021
(unaudited)
(in thousands, except share amounts)
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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 March 31, 2021 |
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Shares issued for: |
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Conversion of restricted shares |
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Conversion of debt obligations |
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Stock compensation |
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Shares issued for acquisition |
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Fixed dividends Preferred Series B | — | — | — | — | ( | — | — | ( | ||||||||||||||
Deemed contribution from Series B preferred | — | — | — | — | | — | — | | ||||||||||||||
Foreign currency translation | — | — | — | — | — | | — | | ||||||||||||||
Net loss |
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Balance as of June 30, 2021 | | — | | | | ( | | |||||||||||||||
Balance as of December 31, 2020 |
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Shares issued for: |
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Conversion of accounts payable liabilities |
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Conversion of debt obligations |
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Conversion of Restricted Shares |
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Stock compensation |
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Stock options exercised | — | — | | — | | — | — | | ||||||||||||||
Warrants exercised | — | — | | — | | — | — | | ||||||||||||||
Shares issued for acquisition |
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Fixed dividends Preferred Series B | — | — | — | — | ( | — | — | ( | ||||||||||||||
Deemed contribution from Series B preferred | — | — | — | — | | — | — | | ||||||||||||||
Foreign currency translation |
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Net loss |
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Balance as of June 30, 2021 |
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See accompanying notes to unaudited condensed consolidated financial statements
6
Boxlight Corporation
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2022 and 2021
(unaudited)
Six Months Ended | ||||||
June 30, | June 30, | |||||
2022 |
| 2021 | ||||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Amortization of debt discount and issuance cost |
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Bad debt expense (recovery) |
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(Gain) loss on settlement of liabilities |
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Changes in deferred tax assets and liabilities |
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Change in allowance for sales returns and volume rebate |
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Change in inventory reserve |
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Change in fair value of derivative liability |
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Shares issued for interest payment on notes payable |
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Stock compensation expense |
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Depreciation and amortization |
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Non-cash lease expense | ( | — | ||||
Changes in operating assets and liabilities: |
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Accounts receivable – trade |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable and accrued expenses |
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Other liabilities |
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Deferred revenues |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Business acquisitions (net of cash acquired) |
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Settlement of earnout obligations |
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Purchases of furniture and fixtures, net |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from short-term debt |
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Principal payments on debt |
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Payments of fixed dividends to Series B Preferred stockholders |
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Proceeds from the exercise of options and warrants | | | ||||
Net cash provided by (used in) financing activities |
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Effect of foreign currency exchange rates |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents, beginning of the period |
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Cash and cash equivalents, end of the period | $ | | $ | | ||
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Supplemental cash flow disclosures: |
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Cash paid for income taxes | $ | | $ | | ||
Cash paid for interest | $ | | $ | | ||
Non-cash investing and financing transactions: |
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Shares issued to settle accounts payable | $ | — | $ | | ||
Exercise of warrants | $ | — | $ | | ||
Deemed contribution - Series B Preferred | $ | — | $ | | ||
Deferred consideration for acquisition | $ | — | $ | | ||
Shares issued to convert notes payable and accrued interest | $ | — | $ | | ||
Shares issued for acquisition | $ | — | $ | | ||
Declared but unpaid fixed dividends on Series B Preferred Stock | $ | — | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements.
7
Boxlight Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
NATURE 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.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Boxlight and its wholly owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited condensed consolidated financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all 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.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts 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
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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.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 (in thousands):
| Markets for |
| Other |
| Significant |
| Carrying | |||||
Identical | Observable | Unobservable | Value as of | |||||||||
Assets | Inputs | Inputs | June 30, | |||||||||
Description | (Level 1) | (Level 2) | (Level 3) | 2022 | ||||||||
Derivative liabilities - warrant instruments | $ | — | $ | — | $ | | $ | | ||||
| 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 | $ | — | $ | — | $ | | $ | | ||||
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The following tables reconcile the beginning and ending balances of the warrant instruments within Level 3 of the fair value hierarchy (in thousands):
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(in thousands) | |||
Balance, March 31, 2022 | $ | | |
Change in fair value of derivative liabilities |
| ( | |
Balance, June 30, 2022 | $ | | |
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(in thousands) | |||
Balance, December 31, 2021 | $ | | |
Change in fair value of derivative liabilities |
| ( | |
Balance, June 30, 2022 | $ | | |
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(in thousands) | |||
Balance, March 31, 2021 | $ | | |
Change in fair value of derivative liabilities |
| ( | |
Balance, June 30, 2021 | $ | | |
(in thousands) | |||
Balance, December 31, 2020 | $ | | |
Exercise of warrants |
| ( | |
Change in fair value of derivative liabilities |
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Balance, June 30, 2021 | $ | | |
INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. 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 June 30, 2022, potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise
Since the Company was in a loss position for the periods presented, basic net loss per common share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. For the six months ended June
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30, 2022 potentially dilutive securities that were not included in the diluted per share calculation because they would be anti-dilutive comprise
REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the 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
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
11
factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. Because observable prices are generally not available for the Company’s performance obligations that are sold in bundled arrangements, the Company does not apply the residual approach to determining SSP. However, the Company does have certain performance obligations for which pricing is highly variable or uncertain, and contracts with those performance obligations generally contain multiple performance obligations with highly variable or uncertain pricing. For these contracts the Company allocates the transaction price to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, residual values based on the estimated SSP for certain goods, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never sold separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.
The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that are executed in the same manner, contain the same performance obligations, and are priced in a consistent manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets. Fees for the Company’s product and most service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within
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 June 30, 2022 or December 31, 2021. During the three months ended June 30, 2022 and June 30, 2021, respectively, the Company recognized $
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
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estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each reporting date. There was no material revenue recognized in the three and six months ended June 30, 2022 related to changes in estimated variable consideration that existed at 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 June 30, 2022 and December 31, 2021, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was $
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.
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
| (in thousands) |
| (in thousands) | (in thousands) |
| (in thousands) | |||||||
Product Revenues: |
|
|
|
| |||||||||
Hardware | $ | | $ | | $ | | $ | | |||||
Software |
| |
| |
| |
| | |||||
Service Revenues: |
|
|
|
|
|
| |||||||
Professional Services |
| |
| |
| |
| | |||||
Maintenance and Subscription Services |
| |
| |
| |
| | |||||
$ | | $ | | $ | | $ | | ||||||
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
13
otherwise incurred if the contract were not obtained (e.g., a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all the following criteria:
| ● | The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify. |
| ● | The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. |
| ● | The costs are expected to be recovered. |
Certain sales commissions incurred by the 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 $
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 $
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.
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.
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SUBSEQUENT EVENTS
We reviewed all material events through the date on which these condensed consolidated financial statements were issued for subsequent event disclosure consideration as described in Note 17.
NOTE 2 – RECENT BUSINESS ACQUISITIONS
FrontRow Calypso LLC
On December 31, 2021, the Company, and its wholly owned subsidiary, Boxlight, Inc., consummated the acquisition of
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 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.
15
The Company has early adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” and therefore, the acquired contract liabilities of FrontRow have been recognized and measured in accordance with Topic 606 as follows.
| (in thousands) | ||
Assets acquired: |
|
| |
Cash | $ | | |
Accounts receivable |
| | |
Inventories |
| | |
Prepaid expenses |
| | |
Property and equipment | | ||
Total assets acquired |
| | |
Accounts payable and accrued expenses | ( | ||
Deferred revenue | ( | ||
Other liabilities | ( | ||
Total liabilities assumed |
| ( | |
Net tangible assets acquired | $ | | |
Identifiable intangible assets: | |||
Customer relationships | | ||
Trademarks | | ||
Technology | | ||
Non-compete | | ||
Total intangible assets subject to amortization | | ||
Goodwill | | ||
Total net assets acquired | $ | | |
Consideration paid: | |||
Cash | $ | |
The following table presents the useful lives over which the acquired intangible assets will be amortized on a straight-line basis, which approximates the pattern by which the related economic benefits of the assets are consumed:
| Estimated | ||
Weighted Average | |||
Life (years) | |||
Customer relationships |
| ||
Trademarks |
| ||
Technology | |||
Non-compete agreements |
Interactive Concepts
On March 23, 2021, the Company acquired
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:
| (in thousands) | ||
Assets acquired: |
|
| |
Cash | $ | | |
Accounts receivable |
| | |
Inventories |
| | |
Property and equipment |
| | |
Total assets acquired |
| | |
Accounts payable and accrued expenses |
| ( | |
Deferred tax liability |
| ( | |
Total liabilities assumed |
| ( | |
Net tangible assets acquired |
| | |
Identifiable intangible assets: |
|
| |
Tradename |
| | |
Customer relationships |
| | |
Total intangible assets subject to amortization |
| | |
Goodwill |
| | |
Total net assets acquired | $ | | |
Consideration paid: |
|
| |
Cash | $ | | |
Deferred cash consideration |
| | |
Common shares issued |
| | |
Total consideration paid | $ | | |
NOTE 3 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| 2022 |
| 2021 | |||
Accounts receivable – trade | $ | | $ | | ||
Allowance for doubtful accounts |
| ( |
| ( | ||
Allowance for sales returns and volume rebates |
| ( |
| ( | ||
Accounts receivable - trade, net of allowances | $ | | $ | | ||
NOTE 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 June 30, 2022 and December 31, 2021 (in thousands):
| 2022 |
| 2021 | |||
Finished goods | $ | | $ | | ||
Spare parts |
| |
| | ||
Reserve for inventory obsolescence | ( | ( | ||||
Advanced shipping costs |
| |
| | ||
Inventories, net | $ | | $ | | ||
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
| 2022 |
| 2021 | |||
Prepayments to vendors | $ | | $ | | ||
Prepaid licenses and other |
| |
| | ||
Prepaid expenses and other current assets | $ | | $ | | ||
NOTE 6 – INTANGIBLE ASSETS
Intangible assets consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
|
| |||||||
Useful lives | 2022 | 2021 | ||||||
Patents | $ | | $ | | ||||
Customer relationships |
| |
| | ||||
Technology |
| |
| | ||||
Domain |
| |
| | ||||
Non-compete | | | ||||||
Tradenames |
| |
| | ||||
Intangible assets, at cost | |
| | |||||
Accumulated amortization | ( |
| ( | |||||
Intangible assets, net of accumulated amortization | $ | | $ | | ||||
For the three months ended June 30, 2022 and 2021, the Company recorded amortization expense of $
NOTE 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
18
Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental borrowing rate is based on the term of the lease. In connection with the adoption of ASC 842, the Company used incremental borrowing rates on January 1, 2022 for operating leases that commenced prior to that date. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over the lease term. At June 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 $
Future maturities of the Company's operating lease liabilities are summarized as follows (in thousands):
Fiscal year ended,
2022 |
| $ | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
| |||
Less imputed interest | ( | ||
Total | $ | |
Supplemental lease information
Weighted-average remaining lease term (years) | |||
Weighted-average discount rate | % |
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expense consisted of the following at June 30, 2022 and December 31, 2021 (in thousands):
2022 |
| 2021 | ||||
Accounts payable | $ | | $ | | ||
Accrued expense | | | ||||
Other | | | ||||
Accounts payable and other liabilities | $ | | $ | | ||
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NOTE 9 – DEBT
The following is a summary of the Company’s debt as of June 30, 2022 and December 31, 2021 (in thousands):
| 2022 |
| 2021 | |||
Debt – Third Parties |
|
|
|
| ||
Paycheck Protection Program | $ | | $ | | ||
Note payable - Whitehawk | | | ||||
Total debt |
| |
| | ||
Less: Discount and issuance cost |
| |
| | ||
Current portion of debt |
| |
| | ||
Long-term debt | $ | | $ | | ||
Total debt (net of discount) | $ | | $ | | ||
Debt - Third Parties:
Whitehawk Finance LLC
In order to finance the acquisition of FrontRow, the Company and substantially all its direct and indirect subsidiaries, including Boxlight and FrontRow as guarantors, entered into a maximum $
In conjunction with its receipt of the Initial Loan, the Company issued to the Lender (i)
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 $
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terms of repayment of the $
The principal elements of the April amendment included (a) an extension of time to repay $
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 $
During the six-month period ending June 30, 2022, the Company repaid principal of $
Lind Global Marco Fund and Lind Global Asset Management
During the six months ended June 30, 2021, the Company repaid principal of $
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of $
Everest Display, Inc.
On January 26, 2021, the Company entered into an agreement with EDI and EDI’s subsidiary, AMAGIC, pursuant to which $
21
(the “2021 Shares”) of its Class A common stock to AMAGIC at a $
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”), which agreement has a
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 $
NOTE 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 June 30, 2022 and December 31, 2021.
| June 30, 2022 |
| ||
Common stock issuable upon exercise of warrants |
| | ||
Market value of common stock on measurement date | $ | | ||
Exercise price | $ | | ||
Risk free interest rate (1) |
| | % | |
Expected life in years |
| |||
Expected volatility |
| | % | |
Expected dividend yields (2) |
| | % | |
| December 31, 2021 |
| ||
Common stock issuable upon exercise of warrants |
| | ||
Market value of common stock on measurement date | $ | | ||
Exercise price | $ | | ||
Risk free interest rate (1) |
| | % | |
Expected life in years |
| |||
Expected volatility |
| | % | |
Expected dividend yields (2) |
| | % | |
(1) | The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date. |
(2) | The Company does not expect to pay a dividend in the foreseeable future. |
22
NOTE 11 – INCOME TAXES
Pretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):
| Three Months |
| Three Months | |||
Ended | Ended | |||||
June 30 | June 30, | |||||
2022 | 2021 | |||||
United States | $ | | $ | ( | ||
Foreign |
| ( |
| | ||
Total pretax book income | $ | | $ | | ||
| Six Months Ended |
| Six Months Ended | |||
June 30 | June 30, | |||||
| 2022 |
| 2021 | |||
United States | $ | ( | $ | ( | ||
Foreign |
| ( |
| | ||
Total pretax book loss | $ | ( | $ | ( | ||
The Company recorded income tax expense of $
The decrease in tax expense year-over-year is largely due to foreign pretax book loss for the three months ended June 30, 2022 as compared to foreign pretax income for the three months ended June 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 June 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 June 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 $
NOTE 12 – EQUITY
Preferred Shares
The Company’s articles of incorporation provide that the Company is authorized to issue
Issuance of preferred shares
Series A Preferred Stock
At the time of the Company’s initial public offering, the Company issued
Series B Preferred Stock and Series C Preferred Stock
On September 25, 2020, in connection with the acquisition of Sahara, the Company issued
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,
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 £
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 $
Common Stock
The Company’s common stock consists of 1)
Issuance of common stock
Credit Facility
In conjunction with its receipt of the Whitehawk loan, the Company issued to the Whitehawk
Debt Conversion
During the three months ended June 30, 2021, the Company repaid principal of $
25
Accounts Payable and Other Liabilities Conversion
During the six months ended June 30, 2021, the Company converted $
Conversion of restricted stock units
During the three and six months ended June 30, 2022, respectively,
Exercise of stock options
During the three and six months ended June 30, 2022, options to purchase a total of
Exercise of warrants
NOTE 13 – STOCK COMPENSATION
Grants made under the Equity Incentive Plans must be approved by the Company’s board of directors. As of June 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
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
26
The following is a summary of the option activities during the six months ended June 30, 2022:
|
|
| Weighted | ||||
Average | |||||||
Weighted | Remaining | ||||||
Number of | Average | Contractual | |||||
Units | Exercise Price | Term (in years) | |||||
Outstanding, December 31, 2021 |
| | $ | | $ | ||
Granted |
| | $ | | |||
Exercised |
| ( | $ | | |||
Cancelled |
| ( | $ | | |||
Outstanding, June 30, 2022 |
| | $ | | |||
Exercisable, June 30, 2022 |
| | $ | | $ | ||
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As of June 30, 2022 and December 31, 2021, the stock options had an intrinsic value of approximately $
On May 3, 2022, the Boxlight board of directors adopted a resolution, in exchange for a
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
The following is a summary of the RSU activities during the six months ended June 30, 2022.
|
| Weighted | |||
Average | |||||
Grant Date Fair | |||||
Number of Units | Value | ||||
Outstanding, December 31, 2021 |
| | $ | | |
Granted |
| | $ | | |
Vested | ( | $ | | ||
Forfeited |
| ( | $ | | |
Outstanding, June 30, 2022 |
| | $ | | |
On March 21, 2022, the Company granted an aggregate of
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
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On February 24, 2022, following approval by the Company’s board of directors, the Company’s senior management issued a total of
During the first quarter ended March 31, 2022, Jens Holstebro, a former FrontRow employee, received
Stock Compensation Expense
For the three and six months ended June 30, 2022 and 2021, the Company recorded the following stock compensation in general and administrative expense (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||
| 2022 | 2021 |
| 2022 | 2021 | ||||
Stock options | $ | $ | | $ | | $ | | ||
Restricted stock units |
|
| |
| |
| | ||
Warrants |
| — |
| — |
| |
| | |
Total stock compensation expense | $ | $ | | $ | | $ | | ||
As of June 30, 2022, there was approximately $
NOTE 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
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases
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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 June 30, 2022, the total amount of such open inventory purchase orders was $
NOTE 16 – CUSTOMER AND SUPPLIER CONCENTRATION
There was
Total revenues | Total revenues from the | Accounts | ||||||||
from the customer | Accounts | customer | receivable from | |||||||
as a percentage of | receivable from | as a percentage | the customer as | |||||||
total revenues | this customer as of | of total revenues | of | |||||||
for the year ended | June 30, | for the year | June 30, | |||||||
June 30, | 2022 (in | ended June 20, 2021 | 2021 (in | |||||||
Customer | 2022 | thousands) | thousands) | |||||||
1 | | % | $ | |
| % | $ | | ||
2 |
| N/A | N/A |
| % | $ | | |||
For the six months ended June 30, 2022 and 2021, the Company’s purchases were concentrated primarily with
| Total purchases |
|
| Total purchases |
| |||||
from the vendor | Accounts payable | from the vendor | Accounts payable | |||||||
as a percentage of | (prepayment) to | as a percentage | (prepayment) to | |||||||
total cost of | the | of total cost of | the | |||||||
sales for | vendor as of | revenues for | vendor as of | |||||||
the year ended | June 30, | the year ended | June 30, | |||||||
June 30, | 2022 | June 30, | 2021 | |||||||
Vendor | 2022 | (in thousands) | 2021 | (in thousands) | ||||||
1 | | % | $ | | % | $ | | |||
2 | | % | $ | | % | $ | | |||
The Company believes there are other suppliers that could be substituted should the above cited supplier become unavailable or non-competitive.
NOTE 17 – SUBSEQUENT EVENTS
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,
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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 Agreement) during the period following the closing of the Offering, which closed on July 26, 2022. The Securities were offered by the Company pursuant to the Company’s effective shelf registration statement on Form S-3 (SEC File No. 333-239939), which was declared effective on July 28, 2020 (the “Registration Statement”) and the prospectus supplement, filed July 26, 2022.
On July 6, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that, for the preceding consecutive business days, the closing bid price for the Company’s Class A common stock was trading below the minimum $
In accordance with Nasdaq Rules, the Company has been provided an initial period of calendar days, or until January 2, 2023 (the “Compliance Date”), to regain compliance with the Bid Price Requirement. If at any time before the Compliance Date the closing bid price for the Company’s Common Stock is at least $
On June 13, 2022, the Company entered into an employment agreement with Greg Wiggins, pursuant to which Mr. Wiggins commenced service as the Company’s Chief Financial Officer on July 5, 2022. Mr. Wiggins will receive annual base compensation of $
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 (“MDA”) 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.
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Historical results may not indicate future performance. The Company’s forward-looking statements reflect its current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
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 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.
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We believe we can achieve significant cost-savings by merging the operations of the companies we acquire and after their acquisition leverage the opportunity to reduce costs through the following methods:
| ● | Staff reductions – consolidating resources, such as accounting, marketing, and human resources. |
| ● | Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers. |
| ● | Improved market reach and industry visibility – increase in customer base and entry into new markets. |
Components of our Results of Operations and Financial Condition
Revenues 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.
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Operating expenses
We classify our operating expenses into two categories: general and administrative and research and development.
General and administrative. General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. General and administrative expense may fluctuate as a percentage of revenue, notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue.
Research and development. Research and development expense consists primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.
Other 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 June 30, 2022 and 2021
Revenues. Total revenues for the three months ended June 30, 2022 were $59.6 million as compared to $46.8 million for the three months ended June 30, 2021, resulting in a 27.5% 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. and Europe. FrontRow revenue for the three months ended June 30, 2022 was $6.8 million.
Cost of Revenues. Cost of revenues for the three months ended June 30, 2022 was $42.8 million compared to $33.9 million for the three months ended June, 30, 2021, resulting in a 26.2% 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 the acquisitions and growth of the business and was also due to additional increases in global freight/shipping which the company has experienced as a result of supply chain issues arising as a result of the COVID-19 pandemic. During 2021, the cost increase was approximately four times normal costs as compared to pre-pandemic levels. We expect such cost increases to continue throughout 2022.
Gross Profit. Gross profit for the three months ended June 30, 2022, was $16.8 million, as compared to $12.8 million for the three months ended June 30, 2021. The gross profit margin for the three months was 28.2% which is an increase of approximately 80 basis points compared to the comparable three months in 2021. Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $1.2 million and $805 thousand, was 30.2% as compared to the 29.2%, as adjusted, reported for the three months ended June 30, 2022 and June 30, 2021, respectively. As previously reported gross
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margins continue to be adversely impacted by supply chain challenges with increased freight costs which are now expected to continue throughout 2022.
General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2022 were $15.3 million and 25.7% of revenues, as compared to $10.8 million and 23.1% of revenues for the three months ended June 30, 2021. The increase was mainly a result of new hires for planned growth and stock compensation issuances.
Research and Development Expenses. Research and development expenses were $649 thousand and 1.1% of revenues for the three months ended June 30, 2022, as compared to $481 thousand and 1.0% of revenues for the three months ended June 30, 2021.
Other Income (Expense). Other expense (net) for the three months ended June 30, 2022 was $814 thousand, as compared to $1.3 million for the three months ended June 30, 2021. Other expense decreased primarily due to $1.6 million decrease in the fair value of derivative liabilities, and $536 thousand less in losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021, partially offset by 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 June 30, 2022 was $41 thousand, as compared to $2.5 million in income tax expense for the three months ended June 30, 2021. This significant decrease in income tax expense year-over-year is primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was enacted during second quarter 2021. The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax 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.
Net Income (Loss). Net income was $26 thousand in the three months ended June 30, 2022 and a $2.2 million loss for the three months ended June 30, 2021, respectively.
For the six-month periods ended June 30, 2022 and 2021
Revenues. Total revenues for the six months ended June 30, 2022 were $110.2 million as compared to $80.2 million for the six months ended June 30, 2021, resulting in a 37.5% increase. The increase in revenues was primarily due to the acquisitions of Interactive Concepts in March 2021 and FrontRow in December 2021, as well as increased demand for our solutions in the U.S., Europe, Middle East, and Africa. Organic revenue growth for Boxlight for the first half of 2022 was 19.5%. FrontRow revenue for the first six months of 2022 was $13.3 million and Interactive was $407 thousand.
Cost of Revenues. Cost of revenues for the six months ended June 30, 2022 were $80.8 million as compared to $58.8 million for the six months ended June 30, 2021, resulting in an 37.4% 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 is expected to continue throughout 2022.
Gross Profit. Gross profit for the six months ended June 30, 2022 was $29.5 million as compared to $21.4 million for the six months ended June 30, 2021. The gross profit margin remained flat at 26.7% for the six months ended June 30, 2021 and for the six months ending June 30, 2022.
General and Administrative Expenses. General and administrative (“GA”) expense for the six months ended June 30, 2022 were $30.8 million and 27.9% of revenue as compared to $20.9 million and 26.1% of revenue for the six months ended June 30, 2021. The increase in GA 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 $1.3 million and 1.1% of revenue for the six months ended June 30, 2022 as compared to $955 thousand and 1.2% of revenue for the six months ended June 30, 2021.
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The increase in research and development expense was primarily driven by an increase in contract services related to software development.
Other Income (Expense). Other expense, net for the six months ended June 30, 2022 was $2.3 million as compared to other expense, net, of $4.4 million for the six months ended June 30, 2021, a decrease of $2.1 million. The decrease was primarily due to a $2.4 million loss recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021 coupled with a gain of $0.9 million recognized upon the settlement of certain debt obligations in 2022 and by a $1.9 million change in the fair value of derivative liabilities, offset by a $3.0 million increase in interest expense associated with increased borrowings due to the new credit facility.
Income Tax Expense. Income tax benefit for the six months ending June 30, 2022 was $45 thousand, as compared to $2.5 million in income tax expense for the six months ended June 30, 2021. This significant decrease in income tax expense year-over-year is primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was enacted during second quarter 2021. The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax 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 effective tax rate is 0.93% for the six months ended June 30, 2021. The primary reason for this low rate is that there is no material income tax expense on the U.S. operations due to existing net operating loss carryforwards that are offset by a valuation allowance.
Net Loss. Net loss was $4.8 million and $7.4 million for the six months ended June 30, 2022 and 2021 respectively. The decrease in the net loss was primarily due to a $1.7 change in the fair value of the Whitehawk derivative liability, a 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.
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The following table contains reconciliations of net losses to EBITDA and adjusted EBITDA for the periods presented.
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | |||||||||
| June 30, |
| June 30, | June 30, |
| June 30, | ||||||
(in thousands) |
| 2022 |
| 2021 | 2022 |
| 2021 | |||||
Net income (loss) | $ | 26 | $ | (2,220) | $ | (4,829) | $ | (7,388) | ||||
Depreciation and amortization |
| 2,266 |
| 1,815 |
| 4,587 |
| 3,567 | ||||
Interest expense |
| 2,417 |
| 764 |
| 4,733 |
| 1,782 | ||||
Income tax expense (benefit) |
| 41 |
| 2,522 |
| (45) |
| 2,543 | ||||
EBITDA | $ | 4,750 | $ | 2,881 | $ | 4,446 | $ | 504 | ||||
Stock compensation expense |
| 929 |
| 1,182 |
| 2,062 |
| 1,859 | ||||
Change in fair value of derivative liabilities |
| (1,660) |
| (41) |
| (1,650) |
| 225 | ||||
Purchase accounting impact of fair valuing inventory |
| 589 |
| 15 |
| 1,206 |
| 30 | ||||
Purchase accounting impact of fair valuing deferred revenue |
| 589 |
| 790 |
| 1,238 |
| 1,597 | ||||
Net loss on settlement of debt |
| (3) |
| 533 |
| (856) |
| 2,735 | ||||
Adjusted EBITDA | $ | 5,194 | $ | 5,360 | $ | 6,446 | $ | 6,950 |
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 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 June 30, 2022, we had cash and cash equivalents of $11.6 million, a working capital balance of $53.8 million, and a current ratio of 1.99. This financial position represents a significant improvement from a year ago at June 30, 2021 when we had $7.4 million of cash and cash equivalents, a working capital balance of $26.7 million, and a current ratio of 1.52.
In addition to the cash flows generated by our ongoing operating activities we financed our operations during first six months of 2022 with our new 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.
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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 consolidated condensed 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 |
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.
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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 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 of the review of the income tax provision. Management has also engaged third-party professional services who prepared and 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 June 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 its supply chain. While the Company’s business has not yet been affected by such disruption, in the event any of the Company’s suppliers experience such supply chain disruption, there is potential that such disruption
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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.
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 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.
ITEM 5. OTHER INFORMATION
None.
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Item 6. Exhibits
The following exhibits are filed or furnished with this report:
Exhibit No. |
| Description of Exhibit |
4.1 | ||
4.2 | ||
10.1 |
| |
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 | |
|
|
|
August 11, 2022 | By: | /s/ Michael Pope |
|
| Michael Pope |
|
| Chief Executive Officer |
August 11, 2022 | By: | /s/ Greg Wiggins |
|
| Greg Wiggins |
|
| Chief Financial Officer (Principal Financial and Accounting Officer) |
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