Notes
to the Unaudited Consolidated Condensed Financial Statements
NOTE
1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE
COMPANY
Boxlight
Corporation (the “Company” or “Boxlight Parent”) was incorporated in the State of Nevada on September
18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational
products. In 2016, the Company acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight
Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”), Mimio LLC (“Mimio”)
and Genesis Collaboration, LLC (“Genesis”). In 2018, the Company acquired Cohuborate Ltd. (“Cohuba”),
Qwizdom Inc. and its subsidiary Qwizdom UK Limited (“Qwizdom Companies”) and EOSEDU, LLC (“EOS”). In 2019,
the Company acquired Modern Robotics, Inc. (“MRI”). The Company currently designs, produces and distributes interactive
technology solutions to the education market.
BASIS
OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
accompanying consolidated condensed financial statements include the accounts of Boxlight Parent, Boxlight Group, Mimio, Genesis,
Cohuba, Qwizdom Companies, EOS and MRI. Transactions and balances among all of the companies have been eliminated.
The
accompanying unaudited consolidated condensed 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 consolidated condensed
financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated
financial statements. The unaudited consolidated condensed 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 consolidated
condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company
for the year ended December 31, 2019 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information
and note disclosures normally included in the consolidated financial statements have been condensed. The December 31, 2019 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. Actual amounts could differ from those
estimates.
ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are stated at contractual amounts, net of an allowance for doubtful accounts. The allowance for doubtful accounts represents
management’s estimate of the amounts that ultimately will not be realized in cash. The Company reviews the adequacy of the
allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of receivables and knowledge of
the individual customers. When the analysis indicates, management increases or decreases the allowance accordingly. However, if
the financial condition of our customers were to deteriorate, additional allowances might be required.
INVENTORIES
Inventories
are stated at the lower of cost or net realizable value and includes spare parts and finished goods. Inventories are primarily
determined using the specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes
direct cost from the contract manufacturer (“CM”) or original equipment received from the manufacturer
(“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
The
Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving
merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of
quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging
of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements
may differ from actual results due to changes in quantity, quality and the mix of products in inventory, as well as changes in
consumer preferences, market and economic conditions.
Intangible
assets AND GOODWILL
Intangible
assets, other than goodwill are amortized using the straight-line method over their estimated period of benefit. We periodically
evaluate the recoverability of intangible assets, other than goodwill, and take into account events or circumstances
that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible
assets have been identified during any of the periods presented. Goodwill is tested for impairment on an annual basis, and between
annual tests if indicators of potential impairment exist, using a market approach. Goodwill is not amortized and is not deductible
for tax purposes.
DERIVATIVES
The
Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts
(i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement
in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash
settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control
of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share
settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding
derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The
Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments
due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company.
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 or recent execution
of the debt agreement. The amount of consideration received is deemed to be the fair value of long-term debt net of any debt discount
and issuance cost.
Derivative
liabilities and the earn–out payable are recorded at fair value at each period end.
Fair
value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority
to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair
value hierarchy is as follows:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally
from or corroborated by market data by correlation or other means.
Level
3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
Financial
assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The
Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect
the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
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 March 31, 2020 and December 31, 2019:
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of March 31,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2020
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
117,941
|
|
|
|
117,941
|
|
Earn-out payable – related party
|
|
|
-
|
|
|
|
-
|
|
|
|
351,595
|
|
|
|
351,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
469,536
|
|
|
|
469,536
|
|
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as of December 31,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2019
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
146,604
|
|
|
$
|
146,604
|
|
Earn-out payable – related party
|
|
|
-
|
|
|
|
-
|
|
|
|
387,118
|
|
|
|
387,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
533,722
|
|
|
$
|
533,722
|
|
The
following table shows the change in the Company’s earn-out payable rollforward for the three months ended March 31, 2020
and 2019:
|
|
Amount
|
|
Balance, December 31, 2019
|
|
$
|
387,118
|
|
Change in fair value of earn-out payable
|
|
|
(35,523
|
)
|
|
|
|
|
|
Balance, March 31, 2020
|
|
$
|
351,595
|
|
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 ranging from 36 – 60 months. Software maintenance includes technical
support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors
are also sold with hardware maintenance services with terms ranging from 36-60 months. The Company also licenses software independently
of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that
include access to on-line content, access to replacement parts, and cloud-based applications. The Company’s software subscription
services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right
to take delivery of the software applications.
The
Company’s products 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 software product sales, control is transferred when
the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates
the software license at which time the software is made available to the customer. For the Company’s software maintenance,
hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time
is the best output measure of how those services are transferred to the customer.
The
Company’s installation, training and professional development services are generally sold separately from the Company’s
products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service
being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is
performed.
For
the sale of third-party products and services where the Company obtains control of the products and services before transferring
it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple
factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating
if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring
acceptability of the product or service. The Company has not historically entered into transactions where it does not take control
of the product or service prior to transfer to the customer.
The
Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing
transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf
of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted
to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated condensed
balance sheets.
Significant
Judgments
For
contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company
allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”).
The Company’s products and services included in its contracts with multiple performance obligations generally are not sold
separately and there are no observable prices available to determine the SSP for those products and services. Since observable
prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the
performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating
SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related
to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends
in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and
margins. When pricing is highly variable or uncertain, the Company applies the residual approach to determining SSP by subtracting
the SSP of other products or services from the total transaction price to arrive at the SSP for the performance obligations with
highly variable or uncertain pricing. When multiple performance obligations in a contract have highly variable or uncertain pricing,
the Company allocates the residual value 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, 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 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
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 condensed
balance sheets. Fees for the Company’s product and most service contracts are fixed, except as adjusted for rebate programs
when applicable, and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional
development services are fixed and generally become due as the services are performed. The Company has an established history
of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s
contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In these
contracts where services are expected to be transferred on an ongoing basis for several years after the related payment, the Company
has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are
designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same
timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to
ensure that the customer continues to use the related services, so that the customer will receive the optimal benefit from the
products over their lives. Additionally, the Company has elected the practical expedient to exclude any financing component from
consideration for contracts where, at contract inception, the period between the transfer of services and the timing of the related
payment is not expected to exceed one year.
The
Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional
right to consideration is reflected in accounts receivable in the accompanying consolidated condensed balance sheets in
accordance with Topic 606. Contract liabilities are reflected in deferred revenue in the accompanying consolidated condensed
balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer
related to software maintenance, hardware maintenance, and subscription services. The Company has no material contract assets
at March 31, 2020 or December 31, 2019. During the three months ended March 31, 2020 and March 31, 2019, the Company
recognized $0.3 million and $0.7 million, respectively, of revenue that was included in the deferred revenue balance as
of December 31, 2018, as adjusted for Topic 606, at the beginning of the period.
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, or in connection with certain 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 due to “buyer’s remorse” where the distributor or reseller’s end
customer either did not understand what they were ordering or determined that the product did not meet their needs. An allowance
for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous
purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. In addition, rebates
are provided to certain customers when specified volume purchase thresholds have been achieved. 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 2020 related to changes in estimated variable
consideration that existed at December 31, 2019.
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 March 31, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations
was approximately $4.5 million, out of this amount $3.8 million represents the effect of Topic 606. The Company expects
to recognize revenue on approximately 39% of the remaining performance obligations in 2020, 46% in 2021 and 2022, with the remainder
recognized thereafter.
In
accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts
for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example,
a time-and-materials professional services 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 manner in which it is transferred
to the customer. Although all product revenue is transferred to the customer at a point in time, hardware revenue is generally
transferred at the point of shipment, while software is generally 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 3-5 years from the contract execution date as measured based upon the passage of time.
|
|
Three
Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Product Revenues:
|
|
|
|
|
|
|
|
|
Hardware
|
|
$
|
4,788,498
|
|
|
$
|
4,315,098
|
|
Software
|
|
|
159,084
|
|
|
|
36,563
|
|
Service Revenues:
|
|
|
|
|
|
|
|
|
Professional Services
|
|
|
342,310
|
|
|
|
290,522
|
|
Maintenance and Subscription Services
|
|
|
433,156
|
|
|
|
351,216
|
|
|
|
$
|
5,723,049
|
|
|
$
|
4,993,399
|
|
Contract
Costs
The
Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The
incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not
have otherwise incurred if the contract were not obtained (e.g. a sales commission). The Company capitalizes the costs incurred
to fulfill a contract only if those costs meet all of the following criteria:
|
●
|
The
costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.
|
|
●
|
The
costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance
obligations in the future.
|
|
●
|
The
costs are expected to be recovered.
|
Certain
sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred
and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain
where the period of amortization would have been recognized over a period that is one year or less, the Company elected the practical
expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets
based on the timing of when the Company expects to recognize the expense, and are included in prepaid and other assets and other
assets, respectively, in the accompanying consolidated condensed balance sheets. Total deferred commissions at March 31,
2020 and December 31, 2019 and the related amortization for 2019 were less than $0.1 million. No impairment losses were recognized
for the three months ended March 31, 2020 and 2019.
The
Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
The Company’s consolidated condensed
statements of operations and cash flows for the three months ended March 31, 2019 were recorded
under the prior GAAP, we revised these statements to be comparable to the March 31, 2020 period which are recorded under Topic
606.
The following table presents the effects of
adopting Topic 606 on the Company’s consolidated condensed statement of operations for the three months ended March
31, 2019:
|
|
Balances under
|
|
|
|
|
|
Balances under
|
|
|
|
Topic 606
|
|
|
Adjustments
|
|
|
Prior GAAP
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,993,399
|
|
|
$
|
(19,314
|
)
|
|
$
|
5,012,713
|
|
Cost of revenues
|
|
|
3,321,332
|
|
|
|
(106,841
|
)
|
|
|
3,428,173
|
|
Gross profit
|
|
|
1,672,067
|
|
|
|
87,527
|
|
|
|
1,584,540
|
|
General and administrative expenses
|
|
|
3,766,068
|
|
|
|
5,956
|
|
|
|
3,760,112
|
|
Total operating expense
|
|
|
4,002,064
|
|
|
|
5,956
|
|
|
|
3,996,108
|
|
Loss from operations
|
|
|
(2,329,997
|
)
|
|
|
81,571
|
|
|
|
(2,411,568
|
)
|
Net loss/income
|
|
$
|
(4,605,452
|
)
|
|
$
|
81,571
|
|
|
$
|
(4,687,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.46
|
)
|
The following table presents the effects
of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the three months ended March 31,
2019:
|
|
Balances
under
|
|
|
|
|
|
Balances
under
|
|
|
|
Topic
606
|
|
|
Adjustments
|
|
|
Prior
GAAP
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,605,452
|
)
|
|
$
|
81,571
|
|
|
$
|
(4,687,023
|
)
|
Prepaid expense and other current assets
|
|
|
362,500
|
|
|
|
5,956
|
|
|
|
356,544
|
|
Warranty reserve
|
|
|
(121,393
|
)
|
|
|
(106,841
|
)
|
|
|
(14,552
|
)
|
Deferred revenues
|
|
|
(508,192
|
)
|
|
|
19,314
|
|
|
|
(527,506
|
)
|
Cash used for operating activities
|
|
$
|
564,744
|
|
|
$
|
-
|
|
|
$
|
564,744
|
|
WARRANTY
RESERVE
For
customers that do not purchase hardware maintenance services, the Company generally provides warranty coverage on projectors and
accessories, batteries and computers. This warranty coverage does not exceed 24 months, and the Company establishes a liability
for estimated product warranty costs, included in other short-term liabilities in the consolidated condensed statements
of operations, at the time the related product revenue is recognized. The warranty obligation is affected by historical product
failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual
product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities
could be required, which would reduce its gross profit.
RESEARCH
AND DEVELOPMENT EXPENSES
Research
and development costs are expensed as incurred and consists primarily of personnel related costs, prototype and sample costs,
design costs, and global product certifications mostly for wireless certifications.
INCOME
TAXES
An
asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from
temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses
in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In
addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
STOCK
COMPENSATION
The
Company estimates the fair value of each stock compensation award at the grant date by using the Black-Scholes option pricing
model. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee
is required to provide service in exchange for the award.
NEW
ACCOUNTING STANDARDS
In
February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The new guidance requires organizations that lease
assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases,
regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement,
and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating
lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and
uncertainty of cash flows arising from leases. Since the Company is an Emerging Growth Company, the ASU is effective for annual
reporting periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December
15, 2021. Earlier application is permitted. The new standard is to be applied using a modified retrospective approach. The Company
is currently evaluating the impact of the new pronouncement on its financial statements.
In December 2019, the FASB issued ASU No.
2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted
change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the
computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation,
beginning after December 15, 2020. Early adoption is permitted. 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, none of which are expected to a have a material impact
on our financial position, operations or cash flows.
NOTE
2 – GOING CONCERN
These
consolidated condensed financial statements have been prepared on a going concern basis, which assumes the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going
concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary
debt or equity financing to continue operations, and the attainment of profitable operations. As of March 31, 2020, the Company
had an accumulated deficit of $33,296,054 and a working capital deficit of $7,117,972. During the three months ended March 31,
2020, the Company incurred a net loss of $1,949,623 and net cash used in operations was $890,281. These factors raise substantial
doubt regarding the Company’s ability to continue as a going concern within one year after the issuance date of these consolidated
condensed financial statements. These consolidated condensed financial statements do not include any adjustments to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern. The Company is seeking to obtain funds for operations through public or private sales of equity
and debt securities or from bank or other loans.
NOTE
3 – ACCOUNTS RECEIVABLE - TRADE
Accounts
receivable consisted of the following at March 31, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
$
|
5,110,590
|
|
|
$
|
4,522,352
|
|
Allowance for doubtful accounts
|
|
|
(349,514
|
)
|
|
|
(358,225
|
)
|
Allowance for sales returns and volume rebates
|
|
|
(500,731
|
)
|
|
|
(499,070
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade, net of allowances
|
|
$
|
4,260,345
|
|
|
$
|
3,665,057
|
|
NOTE
4 – INVENTORIES
Inventories
consisted of the following at March 31, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2,762,076
|
|
|
$
|
3,239,038
|
|
Spare parts
|
|
|
272,125
|
|
|
|
273,080
|
|
Reserve for inventory obsolescence
|
|
|
(149,561
|
)
|
|
|
(193,261
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
2,884,640
|
|
|
$
|
3,318,857
|
|
NOTE
5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following at March 31, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Prepayments to vendors
|
|
$
|
839,932
|
|
|
$
|
1,389,044
|
|
Prepaid licenses and other
|
|
|
277,843
|
|
|
|
315,354
|
|
Prepaid local taxes
|
|
|
27,204
|
|
|
|
26,088
|
|
Prepaid
insurance
|
|
|
34,370
|
|
|
|
35,255
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
1,179,349
|
|
|
$
|
1,765,741
|
|
NOTE
6 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
199,708
|
|
|
$
|
199,708
|
|
Building improvements
|
|
|
9,086
|
|
|
|
9,086
|
|
Leasehold improvements
|
|
|
3,355
|
|
|
|
3,355
|
|
Office equipment
|
|
|
40,062
|
|
|
|
40,062
|
|
Other equipment
|
|
|
42,485
|
|
|
|
42,485
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
294,696
|
|
|
|
294,696
|
|
Accumulated depreciation
|
|
|
(91,209
|
)
|
|
|
(87,299
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation
|
|
$
|
203,487
|
|
|
$
|
207,397
|
|
For
the three months ended March 31, 2020 and 2019, the Company recorded depreciation expense of $3,910 and $10,378, respectively.
NOTE
7 – INTANGIBLE ASSETS AND GOODWILL
Intangible
assets and goodwill consisted of the following at March 31, 2020 and December 31, 2019:
|
|
Useful
lives
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
9
years
|
|
$
|
81,683
|
|
|
$
|
81,683
|
|
Customer
relationships
|
|
10
years
|
|
|
4,009,355
|
|
|
|
4,009,355
|
|
Technology
|
|
5
years
|
|
|
271,585
|
|
|
|
271,585
|
|
Domain
|
|
15
years
|
|
|
13,955
|
|
|
|
13,955
|
|
Trademarks
|
|
10
years
|
|
|
3,917,590
|
|
|
|
3,917,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, at cost
|
|
|
|
|
8,294,168
|
|
|
|
8,294,168
|
|
Accumulated
amortization
|
|
|
|
|
(2,950,611
|
)
|
|
|
(2,735,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net of accumulated amortization
|
|
|
|
$
|
5,343,557
|
|
|
$
|
5,559,097
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
from acquisition of EOS
|
|
N/A
|
|
$
|
78,411
|
|
|
|
78,411
|
|
Goodwill
from acquisition of Qwizdom
|
|
N/A
|
|
|
463,147
|
|
|
$
|
463,147
|
|
Goodwill
from acquisition of Mimio
|
|
N/A
|
|
|
44,931
|
|
|
|
44,931
|
|
Goodwill
from acquisition of Boxlight
|
|
N/A
|
|
|
4,137,060
|
|
|
|
4,137,060
|
|
|
|
|
|
$
|
4,723,549
|
|
|
$
|
4,723,549
|
|
For
the three months ended March 31, 2020 and 2019, the Company recorded amortization expense of $215,540 and $235,769, respectively.
NOTE
8 – DEBT
The
following is a summary of our debt at March 31, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
Debt –
Third Parties
|
|
|
|
|
|
|
|
|
Note
payable – Lind Global
|
|
$
|
4,888,888
|
|
|
$
|
4,797,221
|
|
Accounts receivable
financing – Sallyport Commercial
|
|
|
1,861,499
|
|
|
|
1,551,500
|
|
Note
payable – Eternal Asia International
|
|
|
189,242
|
|
|
|
-
|
|
Total debt –
third parties
|
|
|
6,939,629
|
|
|
|
6,348,721
|
|
Less: Discount and
issuance cost – Lind Global
|
|
|
616,775
|
|
|
|
611,355
|
|
Current
portion of debt – third parties
|
|
|
5,264,057
|
|
|
|
4,536,227
|
|
Long-term
debt – third parties
|
|
$
|
1,058,797
|
|
|
$
|
1,201,139
|
|
|
|
|
|
|
|
|
|
|
Debt –
Related Parties
|
|
|
|
|
|
|
|
|
Note payable –
Qwizdom (Darin & Silvia Beamish)
|
|
$
|
381,563
|
|
|
$
|
381,563
|
|
Note payable –
Steve Barker
|
|
|
-
|
|
|
|
17,500
|
|
Note payable –
Logical Choice Corporation – Delaware
|
|
|
54,000
|
|
|
|
54,000
|
|
Note
payable – Mark Elliott
|
|
|
23,548
|
|
|
|
23,548
|
|
Total debt –
related parties
|
|
|
459,111
|
|
|
|
476,611
|
|
Less:
current portion of debt – related parties
|
|
|
405,550
|
|
|
|
368,383
|
|
Long-term
debt – related parties
|
|
$
|
53,561
|
|
|
$
|
108,228
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$
|
7,398,740
|
|
|
$
|
6,213,977
|
|
Debt
- Third Parties:
Lind
Global Marco Fund, LP
On March 22, 2019, the Company entered
into a securities purchase agreement with Lind that contemplates a $4,000,000 working capital financing for Boxlight Parent
and its subsidiaries. The investment is in the form of a $4,400,000 principal amount convertible secured Boxlight Parent
note, payable at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the
option of Lind into the Company’s Class A voting common stock at a fixed conversion price of $4.00 per share. The
Company will have the right to force the Investor to convert up to 50% of the outstanding amount of the note if the volume
weighted average closing price of our Class A common stock trades above $8.00 for 30 consecutive days; and convert up to 100%
of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above
$12.00 for 30 consecutive days. A commitment fee in the amount of $125,000 was paid to the Investor.
The Company paid the Investor $275,428
for closing fees by issuing 108,091 shares of Class A common stock. As of March 31, 2020 and December 31, 2019, the Company paid
principal of $733,332 and $977,778, respectively, interest of $42,370 and $106,643, respectively, through issuance of Class A
common stock to the Investor.
On December 13, 2019, the Company entered
into a securities purchase agreement with Lind that contemplates a $1,250,000 working capital loan for Boxlight Parent and its
subsidiaries. The investment is in the form of a $1,375,000 principal amount convertible secured Boxlight Parent note, payable
at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the option of the Investor
into the Company’s Class A voting common stock at a fixed conversion price of $2.50 per share. The Company will have the
right to force the Investor to convert up to 50% of the outstanding amount of the note if the volume weighted average closing
price of our Class A common stock trades above $5.00 for 30 consecutive days; and convert up to 100% of the outstanding amount
of the note if the volume weighted average closing price of our Class A common stock trades above $6.25 for 30 consecutive days.
A commitment fee in the amount of $43,750 was paid to the Investor. The Company paid the Investor $93,022 for closing fees by
issuing 69,420 shares of Class A common stock.
On February 4, 2020, the Company and the
Investor entered into a securities purchase agreement pursuant to which the Company is to receive on February 6, 2020 $750,000
in exchange for the issuance to the Investor of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded
monthly (the “2020 Note”), (2) certain shares of restricted Class A common stock valued at $60,000, calculated based
on the 20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment
fee of $26,250. The Note matures over 24 months, with repayment to commence August 4, 2020, after which time the Company will
be obligated to make monthly payments of $45,833, plus interest. Interest shall accrue during the first six months of the note,
after which time the interest payments, including accrued interest will be payable monthly in either conversion shares or in cash.
A commitment fee in the amount of $26,250 was paid to the Investor. The Company paid the Investor $60,000 for closing fees by
issuing 44,557 shares of Class A common stock.
As of March 31, 2020, the outstanding principal
net of debt issuance cost and discount, and accrued interest to the Investor were $4,272,113 and $68,896, respectively.
Principal of $3,830,091 is due within one year from March 31, 2020.
Accounts
Receivable Financing – Sallyport Commercial Finance
On
August 15, 2017, Boxlight Inc., and Genesis Collaboration, LLC (“Genesis”) entered into a 12-month term account
sale and purchase agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport
agreed to purchase 85% of the eligible accounts receivable of the Company with a right of recourse back to the Company if the
receivables are not collectible. This agreement requires a minimum monthly sales volume of $1,250,000 with a maximum facility
limit of $6,000,000. Advances against this agreement accrue interest at the rate of 4% in excess of the highest prime rate publicly
announced from time to time with a floor of 4.25%. In addition, the Company is required to pay a daily audit fee of $950 per day.
The Company granted Sallyport a security interest in all of Boxlight Inc. and Genesis’ assets.
As
of March 31, 2020, outstanding principal and accrued interest were $1,861,499 and $0, respectively. For the three months ended
March 31, 2020, the Company incurred interest expense of $132,245.
Eternal Asia International
On
January 19, 2020, the Company and Eternal Asia International (“EA”) commited to a payment schedule to pay invoices and
interest with EA in the amount of $756,800 and $52,976 in 12 equal weekly installments starting in January 27, 2020. As of March
31, 2020, outstanding principal and accrued interest under this agreement were $189,242 and $4,415, respectively.
Debt
- Related Parties:
Long
Term Note Payable- Qwizdom Shareholders
On
June 22, 2018, the Company issued a note to Darin and Silvia Beamish, the previous 100% shareholders of Qwizdom, in the amount
of $656,000 bearing an 8% interest rate. The note was issued as a part of the purchase price pursuant to a stock purchase agreement.
The principal and accrued interest of the $656,000 note is due and payable in 12 equal quarterly payments. The first quarterly
payment was due September 2018 and subsequent quarterly payments are due through June 2021. Principal and accrued interest become
due and payable in full upon the completion of a public offering of Class A common stock or private placement of debt or equity
securities for $10,000,000 or more. As of March 31, 2020, outstanding principal and accrued interest under this note were $381,563
and $14,945, respectively. As of December 31, 2019, outstanding principal and accrued interest under this agreement was $381,563
and $7,334, respectively. Principal in the amount of $328,002 is due within a year from March 31, 2020.
Note
Payable – Steve Barker
On
March 12, 2019, the Company purchased the MRI net assets for 200,000 shares of the Company’s Class A common stock and a
$70,000 note payable. The note was paid in full on March 31, 2020.
Line
of Credit - Logical Choice Corporation-Delaware
On
May 21, 2014, the Company entered into a line of credit agreement (the “LCC Line of Credit”) with Logical Choice Corporation-Delaware
(“LCC-Delaware”), the former sole member of Genesis. The LCC Line of Credit allowed the Company to borrow up to $500,000
for working capital and business expansion. The funds when borrowed accrued interest at the rate of 10% per annum. Interest
accrued on any advanced funds was due monthly and the outstanding principal and any accrued interest were due in full on May 21,
2015. In May 2016, the maturity date was extended to May 21, 2018. The LCC Line of Credit is currently in default. The assets
of Genesis have been pledged, but subordinated to Sallyport financing, as a security interest against any advances on the line
of credit. As of March 31, 2020, outstanding principal and accrued interest under this agreement was $54,000 and $28,062, respectively.
As of December 31, 2019, outstanding principal and accrued interest under this agreement was $54,000 and $26,716, respectively.
Note
Payable – Mark Elliott
On
January 16, 2015, the Company issued a note to James Mark Elliott, the Company’s Chief Executive Officer, in the amount
of $50,000. The note, as later amended, was due on December 31, 2019 and bears interest at an annual rate of 10%, compounded monthly.
The note is convertible into the Company’s common stock at the lesser of (i) $6.28 per share, (ii) a discount of 20% to
the stock price if the Company’s common stock is publicly traded, or (iii) if applicable, such other amount negotiated by
the Company. The note holder may convert all, but not less than all, of the outstanding principal and interest due under this
note. On July 3, 2018, Mr. Elliott and the Company amended the note to eliminate the conversion provision of the note. As of March
31, 2020, outstanding principal and accrued interest under this note were $23,548 and $1,180, respectively. The note is currently
in default. As of December 31, 2019, outstanding principal and accrued interest under this note were $23,548 and $593, respectively.
NOTE
9 – DERIVATIVE LIABILITIES
The
Company had issued warrants that contain net cash settlement provisions or do not have fixed settlement provisions because their
conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future. The Company concluded
that the warrants should be accounted for as derivative liabilities. In determining the fair value of the derivative liabilities,
the Company used the Black-Scholes option pricing model at March 31, 2020 and 2019:
|
|
March 31, 2020
|
|
Common stock issuable upon exercise of warrants
|
|
|
295,000
|
|
Market value of common stock on measurement date
|
|
$
|
0.57
|
|
Exercise price
|
|
$
|
0.43
|
|
Risk free interest rate (1)
|
|
|
0.23
|
%
|
Expected life in years
|
|
|
1.75 years
|
|
Expected volatility (2)
|
|
|
142
|
%
|
Expected dividend yields (3)
|
|
|
0
|
%
|
|
|
March 31, 2019
|
|
Common stock issuable upon exercise of warrants
|
|
|
1,191,999
|
|
Market value of common stock on measurement date
|
|
$
|
3.20
|
|
Exercise price
|
|
$
|
1.20
|
|
Risk free interest rate (1)
|
|
|
2.21-2.4
|
%
|
Expected life in years
|
|
|
0.76-2.76 years
|
|
Expected volatility (2)
|
|
|
64
– 119
|
%
|
Expected dividend yields (3)
|
|
|
0
|
%
|
|
(1)
|
The
risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
|
|
(2)
|
The
expected volatility was determined by calculating the volatility of the Company’s peers’ common stock.
|
|
(3)
|
The
Company does not expect to pay a dividend in the foreseeable future.
|
The
following table shows the change in the Company’s derivative liabilities rollforward for the three months ended March 31,
2020 and 2018:
|
|
Amount
|
|
Balance, December 31, 2019
|
|
$
|
146,604
|
|
Initial valuation of derivative liabilities upon issuance of warrants
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
(28,663
|
)
|
|
|
|
|
|
Balance, March 31, 2020
|
|
$
|
117,941
|
|
|
|
Amount
|
|
Balance, December 31, 2018
|
|
$
|
326,452
|
|
Initial valuation of derivative liabilities upon issuance of warrants
|
|
|
42,585
|
|
Change in fair value of derivative liabilities
|
|
|
2,162,495
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
$
|
2,531,532
|
|
The
change in fair value of derivative liabilities includes losses from exercise price modifications.
NOTE
10 – EQUITY
Preferred
Shares
The
Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 shares of preferred stock
consisting of: 1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,200,000 shares
of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 270,000 shares of voting Series C preferred stock,
with a par value of $0.0001 per share; and 4) 48,280,000 shares to be designated by the Company’s Board of Directors.
At
the IPO date, 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital
for the acquisition of Genesis. All of the Series A preferred stock was convertible into 398,406 shares of Class A common stock.
On August 5, 2019, 82,028 of these preferred shares were converted into 130,721 shares of Class A common stock.
Common
Stock
The
Company’s common stock consists of: 1) 150,000,000 shares of Class A voting common stock and 2) 50,000,000 shares of Class
B non-voting common stock. Class A and Class B common stock have the same rights except that Class A common stock is entitled
to one vote per share while Class B common stock has no voting rights. Upon any public or private sale or disposition by any holder
of Class B common stock, such shares of Class B common stock shall automatically convert into shares of Class A common stock.
As of March 31, 2020 and December 31, 2019, the Company had 13,871,187 and 11,698,697 shares of Class A common stock issued
and outstanding, respectively. No Class B shares were outstanding at March 31, 2020 and December 31, 2019.
Issuance
of common stock
During
the period ended March 31, 2020, the Company issued 7,111 shares of Class A common stock in lieu of payment for
services with an aggregate amount of $8,000.
During
the period ended March 31, 2020, the Company issued 44,557 shares of Class A common stock in lieu of payment
of the closing fees of the convertible debt with an aggregate amount of $49,013 to Lind Global.
During
the period ended March 31, 2020, the Company issued 787,489 shares of Class A common stock in lieu of principal
and interest payment of notes payable with an aggregate amount of $1,133,515 to Lind Global.
The
Company entered into an agreement with a related party, Everest Display, Inc., to forgive $2.0 million in accounts payable owed
in exchange for 1,333,333 shares of common stock valued at $566,667 resulting in the Company recording a $1,433,333 gain from
settlement of liabilities.
Exercise
of stock options
No
options to purchase common stock were exercised during the three months ended March 31, 2020.
NOTE
11 – STOCK COMPENSATION
The
total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key
employees, and consultants of the Company or a subsidiary of the Company under the plan is 2,690,438 shares. Grants made under
this plan must be approved by the Company’s Board of Directors. As of March 31, 2020, the Company had 109,859 shares
reserved for issuance under the plan.
On
April 15, 2020, the 2014 Stock Option plan was amended, wherein the Board of Directors approved the addition of 3,700,000 shares
available for grant to directors, officers and employees. The amendment is pending shareholder approval.
Stock
Options
Under
our stock option program, an employee receives an award that provides the opportunity in the future to purchase the Company’s
shares at the market price of our stock on the date the award is granted (strike price). The options become exercisable over a
range of immediately vested to four-year vesting periods and expire five years from the grant date, unless stated differently
in the option agreements, if they are not exercised. Stock options have no financial statement effect on the date they are granted
but rather are reflected over time through compensation expense. We record compensation expense based on the estimated fair value
of the awards which is amortized as compensation expense on a straight-line basis over the vesting period. Accordingly, total
expense related to the award is reduced by the fair value of options that are forfeited by employees that leave the Company prior
to vesting.
Following
is a summary of the option activities during the three months ended March 31, 2020:
|
|
Number of Units
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Term (in years)
|
|
Outstanding, December 31, 2019
|
|
|
2,384,688
|
|
|
$
|
3.35
|
|
|
|
4.15
|
|
Granted
|
|
|
350,000
|
|
|
|
1.16
|
|
|
|
|
|
Cancelled
|
|
|
(154,110
|
)
|
|
|
3.55
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
2,580,579
|
|
|
|
3.04
|
|
|
|
4.03
|
|
Exercisable, March 31, 2020
|
|
|
1,803,357
|
|
|
|
3.19
|
|
|
|
3.52
|
|
The
Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As
of March 31, 2020, the options had an intrinsic value of approximately $0.2 million.
On
January 13, 2020, the Company granted 50,000 stock options to Mark Elliott as part of the new employment agreement as the Chief
Commercial Officer with an exercise price of $1.20 per share, which options vest monthly over one-year period. The expiration
date of these options is five years from the grant date. These options had an aggregated fair value of approximately $46,700 on
the grant date that was calculated using the Black-Scholes option-pricing model.
On
January 2, 2020, the Company granted 100,000 stock options each, for a total of 300,000 options to purchase common stock, to its
President, Chairman and Chief Executive Officer, Chief Commercial Officer and Chief Operating Officer with an exercise price of
$1.30 per share, which options vest monthly over one-year period. The expiration date of these options is five years from the
grant date. These options had an aggregated fair value of approximately $268,512 on the grant date that was calculated using the
Black-Scholes option-pricing model.
Variables
used in the Black-Scholes option-pricing model for options granted during the three months ended March 31, 2020 include: (1)
discount rate of 1.59% – 1.60% (2) expected life, using simplified method, of 3 years, (3) expected volatility of 139.48%,
and (4) zero expected dividends.
Warrants
Following
is a summary of the warrant activities during the three months ended March 31, 2020:
|
|
Number of Units
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Term (in years)
|
|
Outstanding, December 31, 2019
|
|
|
350,000
|
|
|
$
|
2.20
|
|
|
|
2.11
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
350,000
|
|
|
|
2.20
|
|
|
|
1.87
|
|
Exercisable, March 31, 2020
|
|
|
347,500
|
|
|
|
2.16
|
|
|
|
1.86
|
|
Stock
compensation expense
For
the three months ended March 31, 2020 and 2019, the Company recorded the following stock compensation in general and administrative
expense:
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
$
|
271,200
|
|
|
$
|
118,861
|
|
Warrants
|
|
|
-
|
|
|
|
42,585
|
|
Total stock compensation expense
|
|
$
|
271,200
|
|
|
$
|
161,446
|
|
As
of March 31, 2020, there was approximately $1.1 million of unrecognized compensation expense related to unvested options, which
will be amortized over the remaining vesting period. Of that total, approximately $0.6 million is estimated to be recorded as
compensation expense in the remaining nine months of 2020.
NOTE
12 – OTHER 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 our Chief Executive
Officer, President and Director, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment
agreement with the Company’s Management Agreement, effective as of the first day of the same month that Mr. Pope’s
employment with the Company shall terminate, and for a term of 13 months, Mr. Pope shall provide consulting services to the Company
including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration
for the services provided, the Company shall pay a management fee equal to 0.375% of the consolidated net revenues of the Company,
payable in monthly installments, not to exceed $250,000 in any calendar year. At his option, Mr. Pope may defer payment until
the end of each year and receive payment in the form of shares of Class A common stock of the Company.
Sales
and Purchases - EDI
Everest
Display Inc. (“EDI”), an affiliate of the Company’s major shareholder K-Laser Technology, Inc., is a major supplier
of products to the Company. For the three months ended March 31, 2020 and 2019, the Company had purchases of $81,900 and $124,569,
respectively, from EDI. For the three months ended March 31, 2020 and 2019, the Company had sales of $3,900 and $10,299, respectively,
to EDI. The Company entered into an agreement with EDI, to forgive $2.0 million in accounts payable owed in exchange for 1,333,333
shares of common stock valued at $566,667 resulting in the Company recording a $1,433,333 gain from settlement of liabilities.
As of March 31, 2020, and December
31, 2019, the Company had accounts payable of $3,269,396 and $5,037,569, respectively, to EDI.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
Operating
Lease Commitments
The
Company leases three offices under non-cancelable lease agreements. The leases provide that the Company pays only a monthly rental
and is not responsible for taxes, insurance or maintenance expenses related to the property. Future minimum lease payments of
the Company’s operating leases with a term over one year subsequent to March 31, 2020 are as follows:
Year ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
311,616
|
|
2021
|
|
|
369,914
|
|
2022
|
|
|
135,239
|
|
|
|
|
|
|
Net Minimum Lease Payments
|
|
$
|
816,769
|
|
For
the three months ended March 31, 2020 and 2019, aggregate rent expense was $132,329 and $102,620 respectively.
NOTE
14 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant
customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
The
Company’s revenues were concentrated to one customer for the three months ended March 31, 2020 and 2019:
Customer
|
|
Total revenues from the
customer to total
revenues for the
three months ended
March 31, 2020
|
|
|
Accounts receivable
from the customer as of
March 31, 2020
(rounded to 000’s)
|
|
1
|
|
|
13.8
|
%
|
|
$
|
735,000
|
|
Customer
|
|
Total revenues from the
customer to total
revenues for the
three months ended
March 31, 2019
|
|
|
Accounts receivable
from the customer as of
March 31, 2019
(rounded to 000’s)
|
|
1
|
|
|
24
|
%
|
|
$
|
235,000
|
|
The
loss of our one significant customer or the failure to attract new customers could have a material adverse effect on our
business, results of operations and financial condition.
The
Company’s purchases were concentrated among a few vendors for the three months ended March 31, 2020 and 2019:
Vendor
|
|
Total purchases from the
vendor to total
purchases for the
three months ended
March 31, 2020
|
|
|
Accounts payable
(prepayment) to the
vendor as of
March 31, 2020
(rounded to 000’s)
|
|
1
|
|
|
36
|
%
|
|
$
|
1,218,000
|
|
Vendor
|
|
Total purchases from the
vendor to total
purchases for the
three months ended
March 31, 2019
|
|
|
Accounts payable
(prepayment) to the
vendor as of
March 31, 2019
(rounded to 000’s)
|
|
1
|
|
|
31
|
%
|
|
$
|
(125,000
|
)
|
2
|
|
|
15
|
%
|
|
$
|
(21,000
|
)
|
3
|
|
|
12
|
%
|
|
$
|
(53,000
|
)
|
The
Company believes there are other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE
15 – SUBSEQUENT EVENTS
On
April 17, 2020, the Company, consummated the transactions contemplated by an asset purchase agreement, dated February 4, 2020
(the “Asset Purchase Agreement”), with MyStemKits, Inc., a Delaware corporation (“MyStemKits”), and STEM
Education Holdings, Pty, an Australian corporation (“STEM”) which is the sole shareholder of MyStemKits. Pursuant
to the Asset Purchase Agreement, Boxlight acquired the assets, and assumed certain liabilities, of MyStemKits in exchange for
a purchase price of $600,000 (the “Purchase Price”). Pursuant to a letter agreement, dated April 17, 2020 (the “Letter
Agreement”), between MyStemKits, Boxlight and the Company, the form of payment of the $600,000 Purchase Price was adjusted
so that: (i) $100,000 is cash payable at closing, (ii) $150,000 is payable in the form of a working capital credit and inventory
adjustment, and (iii) the balance is payable in the form of a $350,000 purchase note (the “Purchase Note”) payable
in four equal installments of $87,500 (the “Installment Payments”) on July 31, 2020, October 31, 2020, January 31,
2021 and April 30, 2020. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments
may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits
continues to be materially below budget.
On
April 17, 2020, Stemify agreed to purchase 142,857 shares of the Company’s Class A common stock at a purchase price of $0.70
per share for a total of $100,000.
On April 15, 2020, the 2014 Stock Option plan
was amended, wherein the Board of Directors approved the addition of 3,700,000 shares available for grant to directors, officers
and employees. The amendment is pending shareholder approval.
On
April 15, 2020, the Company granted an aggregate of 670,000 stock options in total to its employees with an exercise price of
$.70 per share vesting monthly over four years. The expiration date of these options is five years from the grant date. These
options had an aggregated fair value of approximately $362,891 on the grant date.
On
April 15, 2020, the Company granted 1,400,000 stock options to its executive team including the Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer and Senior Vice President Global Sales and Marketing with an exercise price of $.70
per share vesting monthly over four years. The expiration date of these options is five years from the grant date. These options
had an aggregate fair value of approximately $758,280 on the grant date.
On
April 15, 2020, the Company granted 480,000 stock options to its Board of Directors with an exercise price of $.70 per share vesting
monthly over four years. The expiration date of these options is five years from the grant date. These options had an aggregated
fair value of approximately $259,982 on the grant date.
On
April 10, 2020, the Company announced that Mr. Daniel Leis has been appointed to the position of Senior Vice President Global
Sales and Marketing, Mr. Leis will receive a salary of $121,000 per year, along with a target commission of $129,000 per year.