Notes
to Consolidated 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.
Effective
April 1, 2016, we acquired Mimio. Mimio designs, produces and distributes a broad range of Interactive Classroom Technology products
primarily targeted at the global K-12 education market. Mimio’s core products include interactive projectors, interactive
flat panel displays, interactive touch projectors, touchboards and MimioTeach, which can turn any whiteboard interactive within
30 seconds. Mimio’s product line also includes an accessory document camera, teacher pad for remote control and an assessment
system. Mimio was founded on July 11, 2013 and maintained its headquarters in Boston, Massachusetts. Manufacturing is by ODM’s
and OEM’s in Taiwan and China. Mimio products have been deployed in over 600,000 classrooms in dozens of countries. Mimio’s
software is provided in over 30 languages. Effective October 1, 2016, Mimio LLC was merged into our Boxlight Inc. subsidiary.
Effective
May 9, 2016, we acquired Genesis. Genesis is a value-added reseller of interactive learning technologies, selling into the K-12
education market in Georgia, Alabama, South Carolina, northern Florida, western North Carolina and eastern Tennessee. Genesis
also sells our interactive solutions into the business and government markets in the United States. Effective August 1, 2016,
Genesis was merged into our Boxlight Inc. subsidiary.
Effective
July 18, 2016, we acquired BLA and BLS (together, “Boxlight Group”). The Boxlight Group sells and distributes a suite
of patented, award-winning interactive projectors that offer a wide variety of features and specifications to suit the varying
needs of instructors, teachers and presenters. With an interactive projector, any wall, whiteboard or other flat surface becomes
interactive. A teacher, moderator or student can use the included pens or their fingers as a mouse to write or draw images displayed
on the surface. As with interactive whiteboards, interactive projectors accommodate multiple users simultaneously. Images that
have been created through the projected interactive surface can be saved as computer files. The Company’s new ProjectoWrite
12 series, launched in February 2016, allows the simultaneous use of up to ten simultaneous points of touch.
On
May 9, 2018, and pursuant to a stock purchase agreement, Boxlight Parent acquired 100% of the capital stock of Cohuba based in
Lancashire, England. Cohuba produces, sells and distributes interactive display panels designed to provide new learning and working
experiences through high-quality technologies and solutions through in-room and room-to-room multi-devices multi-user collaboration.
On
June 22, 2018, and pursuant to a stock purchase agreement, Boxlight Parent acquired 100% of the capital stock of the Qwizdom Companies.
The Qwizdom Companies develop software and hardware solutions that are quick to implement and designed to increase participation,
provide immediate data feedback, and, most importantly, accelerate and improve comprehension and learning. The Qwizdom Companies
have offices outside Seattle, WA and Belfast, Northern Ireland and deliver products in 44 languages to customers around the world
through a network of partners. Over the last three years, over 80,000 licenses have been distributed for the Qwizdom Companies’
interactive whiteboard software and online solutions.
On
August 31, 2018, we purchased 100% of the membership interest equity of EOS, an Arizona limited liability company owned by Daniel
and Aleksandra Leis. EOS is in the business of providing technology consulting, training, and professional development services
to create sustainable programs that integrate technology with curriculum in K-12 schools and districts.
On
March 12, 2019, the Company entered into an asset purchase agreement with Modern Robotics Inc. (MRI), based in Miami, Florida.
MRI is engaged in the business of developing, selling and distributing science, technology, engineering and math (STEM), robotics
and programming solutions to the global education market.
BASIS
OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The
accompanying consolidated 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.
ESTIMATES
AND ASSUMPTIONS
The
preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts could differ from those estimates. Significant estimates include estimates
of allowances for bad debts, inventory obsolescence, deferred tax asset, initial valuations and recoverability of intangible assets
including goodwill, stock compensation, fair values of assets acquired and estimates for contingent liabilities related to debt
obligations and litigation matters.
FOREIGN
CURRENCIES
The
Company’s functional currency is the U.S. dollar. Boxlight Group’s functional currency is the British Pound. The Company
translates their financial statements from their functional currencies into the U.S. dollar.
An
entity’s functional currency is the currency of the primary economic environment in which it operates and is generally the
currency in which the business generates and expends cash. Boxlight Group, whose functional currency is the British Pound, translates
their assets and liabilities into U.S. dollars at the exchange rates in effect as of the balance sheet date. Revenues and expenses
are translated into U.S. dollars at the average exchange rates for the year. Translation adjustments are included in accumulated
other comprehensive income (loss), a separate component of equity (deficit). Foreign exchange gains and losses included in net
income result from foreign exchange fluctuations on transactions denominated in a currency other than an entity’s functional
currency.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash
equivalents. These investments are carried at cost, which approximates fair value. The Company maintains cash balances at financial
institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits of $250,000 for banks located
in the U.S. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any
risk of loss on its cash bank accounts.
ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts
receivable are stated at 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 include spare parts and finished goods. Inventories are primarily
determined using specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes direct
cost from the CM or OEM, plus material overhead related to the purchase, inbound freight and import duty costs.
The
Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving
merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of
quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging
of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements
may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer
preferences, market and economic conditions.
PROPERTY
AND EQUIPMENT
Property
and equipment is stated at cost and depreciated using the straight-line method over the estimated life of the asset. Repairs and
maintenance are charged to expense as incurred.
LONG–LIVED
ASSETS
Long-lived
assets to be held and used or disposed of other than by sale are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. When required, impairment losses on assets to be held and used or disposed
of other than by sale are recognized based on the fair value of the asset. Long-lived assets to be disposed of by sale are reported
at the lower of carrying amount or fair value less cost to sell.
GOODWILL
Goodwill
represents the cost in excess of the fair value of the net assets of acquired businesses. Goodwill is not amortized and is not
deductible for tax purposes.
Under
ASC 350, we have an option to perform a “qualitative” assessment of the Company to determine whether further impairment
testing is necessary. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the
fair value of the business is less than carrying amount, the quantitative impairment test is required. Otherwise, no further testing
is required. If we determine that the Company meets these criteria, we perform a qualitative assessment. In this qualitative assessment,
we consider the following items: macroeconomic conditions, industry and market conditions, overall financial performance and other
entity specific events. In addition, we assess whether the most recent fair value determination results in an amount that exceeds
the carrying amount of the Company. Based on these assessments, we determine whether the likelihood that a current fair value
determination would be less than the current carrying amount is not more likely than not. If it is determined it is not more likely
than not, no further testing is required. If further testing is required, we continue with the quantitative impairment test.
Because
the qualitative assessment is an option, we may bypass it for any reporting unit in any period as begin our analysis with the
quantitative impairment test. We may elect to perform a quantitative impairment test based on the period of time that has passed
since the most recent determination of fair value, even when the we do not believe that it is more-likely-than-not that the fair
value of the business is less than carrying amount.
In
analyzing goodwill for potential impairment in the quantitative impairment test, we use a combination of the income and market
approaches to estimate the fair value. Under the income approach, we calculate the fair value based on estimated future discounted
cash flows. The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating
fair value. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings before interest,
income taxes, depreciation and amortization for benchmark companies. If the fair value exceeds carrying value, then no further
testing is required. However, if the fair value were to be less than carrying value, we would then determine the amount of the
impairment charge, if any, which would be the amount that the carrying value of the goodwill exceeded its implied value.
Intangible
assets
Intangible
assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of
intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or
that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods
presented. Intangible assets are tested for impairment on an annual basis, and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach.
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.
Derivatives
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 tables set 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 December 31, 2019 and 2018:
|
|
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
|
|
|
|
|
|
|
|
|
|
|
387,118
|
|
|
|
387,118
|
|
|
|
|
|
|
|
|
|
|
|
$
|
533,722
|
|
|
$
|
533,722
|
|
|
|
Markets for Identical Assets
|
|
|
Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
Carrying Value as of December 31,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2018
|
|
Derivative liabilities - warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
326,452
|
|
|
$
|
326,452
|
|
Earn-out payable
|
|
|
|
|
|
|
|
|
|
|
410,000
|
|
|
|
410,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
736,452
|
|
|
$
|
736,452
|
|
|
|
Amount
|
|
Balance, December 31, 2017
|
|
$
|
-
|
|
Earn-out payable – related party
|
|
|
410,000
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
410,000
|
|
Amount paid
|
|
|
(22,570
|
)
|
Change in fair value of earn-out payable
|
|
|
(312
|
)
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
387,118
|
|
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 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 software product sales, control is transferred when
the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates
the software license at which time the software is made available to the customer. For the Company’s software maintenance,
hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time
is the best output measure of how those services are transferred to the customer.
The
Company’s installation, training and professional development services are generally sold separately from the Company’s
products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service
being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is
performed.
For
the sale of third-party products and services where the Company obtains control of the products and services before transferring
it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple
factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating
if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring
acceptability of the product or service. The Company has not historically entered into transactions where it does not take control
of the product or service prior to transfer to the customer.
The
Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing
transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf
of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted
to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.
Significant
Judgments
For
contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company
allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”).
The Company’s products and services included in its contracts with multiple performance obligations generally are not sold
separately and there are no observable prices available to determine the SSP for those products and services. Since observable
prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the
performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating
SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related
to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends
in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and
margins. Because observable prices are generally not available for the Company’s performance obligations that are sold in
bundled arrangements, the Company does not apply the residual approach to determining SSP. However, the Company does have certain
performance obligations for which pricing is highly variable or uncertain, and contracts with those performance obligations generally
contain multiple performance obligations with highly variable or uncertain pricing. For these contracts with performance obligations
with highly variable or uncertain pricing, 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
contain the same performance obligations and are priced in a consistent manner. The Company believes that the application of the
portfolio approach produces the same result as if they were applied at the contract level.
Contract
Balances
The
timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result
in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated balance sheets.
Fees for the Company’s product and most service contracts are fixed, except as adjusted for rebate programs when applicable,
and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional development services
are fixed and generally become due as the services are performed. The Company has an established history of collecting under the
terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms
do not vary when products are bundled with services that are provided over multiple years. In these contracts where services are
expected to be transferred on an ongoing basis for several years after the related payment, the Company has determined that the
contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers
with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products,
which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues
to use the related services, so that the customer will receive the optimal benefit from the products over their lives. Additionally,
the Company has elected the practical expedient to exclude any financing component from consideration for contracts where, at
contract inception, the period between the transfer of services and the timing of the related payment is not expected to exceed
one year.
The
Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional
right to consideration is reflected in accounts receivable in the accompanying consolidated balance sheets in accordance with
Topic 606. Contract liabilities are reflected in deferred revenue in the accompanying consolidated balance sheets and reflect
amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance,
hardware maintenance, and subscription services. The Company has no material contract assets at January 1, 2019 or December 31,
2019. During the year ended December 31, 2019, the Company recognized $2 million 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 “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 2019 related to changes in estimated variable
consideration that existed at December 31, 2018.
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 December 31, 2019, the aggregate amount of the contractual transaction prices allocated
to remaining performance obligations was approximately $4.6 million. The Company expects to recognize revenue on approximately
43% of the remaining performance obligations in 2020, 44% 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.
|
|
Year Ended
|
|
|
|
December 31, 2019
|
|
Product Revenues:
|
|
|
|
|
Hardware
|
|
$
|
28,840,650
|
|
Software
|
|
|
1,460,038
|
|
Service Revenues:
|
|
|
|
|
Professional Services
|
|
|
1,208,188
|
|
Maintenance and Subscription Services
|
|
|
1,521,481
|
|
|
|
$
|
33,030,357
|
|
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 balance sheets. Total deferred commissions at December 31, 2018 and 2019
and the related amortization for 2019 were less than $0.1 million. No impairment losses were recognized during 2018 or 2019.
The
Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
Immaterial
Correction of Errors
In
connection with the identification of performance obligations for the initial application of Topic 606, the Company discovered
errors in prior periods under ASC 985-605, Software Revenue Recognition, related to unspecified software updates which
impact the timing of revenues previously recognized. The Company’s business practice of providing unspecified updates for
certain software, when available, and other agreements to make unspecified updates available to customers in the event such updates
are developed, constitute implied post contract customer support (“PCS”). The Company had not previously identified
implied PCS as a separate deliverable under ASC 985-605. Under ASC 985-605, given there was no vendor specific objective evidence
(VSOE) of the fair value of the implied PCS, the consideration for license sales should have been recognized over the license
period, the period corresponding to the undelivered element, rather than at the time of the license sale when the customer was
provided the right to use the software.
Revenues
and income for year ended December 31, 2018 were overstated by $245,000 and deferred revenue was understated by $322,000 at December
31, 2018. Topic 606, when applied to historical periods, results in the recognition of a significant amount of the revenue identified
in the overstatement under ASC 985-605; the amount allocated to license fees for functional software is recognized at the point
in time the customer obtains control of the license under the new standard. The overall adoption of Topic 606 for all goods and
services transferred under contracts with customers resulted in an increase of deferred revenue of $3.3 million which was recognized
in the cumulative effect of initially applying Topic 606 at January 1, 2019. The increase in deferred revenue for the initial
application of Topic 606 includes the out-of-period adjustment for the implied PCS portion of the understatement discussed above
which is estimated to be $123,000. This represents the unrecognized revenue for implied PCS under both ASC 985-605 and Topic 606.
The
Company, in consultation with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the
Company’s consolidated financial statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements and determined it was not necessary to restate its previously issued consolidated financial statements, or unaudited
interim period consolidated financial statements, because the errors did not materially misstate any previously issued consolidated
financial statements and the correction of the errors in the current fiscal year is also not material. The Company looked at both
quantitative and qualitative characteristics of the required corrections.
During
2018, revenue was comprised of product sales and service revenue, net of sales returns, early payment discounts, and volume rebate
payments paid to the value-added resellers (“VARs”). The Company recognized revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability was reasonably assured
Product
revenue is derived from the sale of projectors, interactive panels and related accessories. Evidence of an arrangement consists
of an order from distributors, resellers or end users. The Company considers delivery to have occurred once title and risk of
loss has been transferred.
Service
revenue is comprised of product installation services and training services. These service revenues are normally contracted at
the time products are sold. Service prices are established depending on product equipment sold and include a cost value for the
estimated services to be performed based on historical experience. The Company outsources installation services to third parties
and recognizes revenue upon completion of the services. The Company also performs training and professional development services
and recognizes revenue upon completion of the training sessions.
The
Company evaluates the criteria outlined in Topic 606, Principal Agent Considerations, in determining whether it is appropriate
to record the gross amount of product sales and related costs or the net amount earned as revenue. Generally, when the Company
is primarily obligated in a transaction, is subject to inventory risk, has latitude in establishing prices and selecting suppliers,
or has several but not all of these indicators, revenue is recorded at the gross amount. If the Company is not primarily obligated
and amounts earned are determined using a fixed percentage, a fixed-payment schedule, or a combination of the two, the Company
generally records the net amounts as revenue earned.
The
Company does enter into some bill and hold arrangements with customers. Each arrangement is reviewed and revenue is recognized
only when the following criteria have been met: (1) the risk of ownership has passed to the buyer (2) the customer must have made
a fixed commitment to purchase the goods (3) the buyer must request the transaction to be on a bill and hold basis and have a
substantial business purpose for the request (4) there must be a fixed schedule for delivery (5) no remaining performance obligations
and (6) goods are complete and ready to ship and segregated from inventory.
The
Company generally does not allow product returns other than under warranty. However, the Company, on a case by case basis, will
grant exceptions, mostly “buyer’s remorse” where the VAR’s end user customer either did not understand
what they were ordering, or determined that the product did not meet their needs. An allowance for sales returns is estimated
based on an analysis of historical trends.
While
the Company uses resellers and distributors to sell its products, the Company’s sale agreements do not contain any special
pricing incentives, right of return or other post shipment obligations.
The
Company offers sales incentives where the Company offers discounted products delivered by the Company to its resellers and distributors
that are redeemable only if the resellers and distributors complete specified cumulative levels of revenue agreed to and written
into their reseller and distributor agreements through an executed addendum. The resellers and distributors have to submit a request
for the discounted products and cannot redeem additional discounts within 180 days from the date of the discount given on like
products. The value of the award products as compared to the value of the transactions necessary to earn the award is generally
insignificant in relation to the value of the transactions necessary to earn the award. The Company estimates and records the
cost of the products related to the incentive as marketing expense based on analyses of historical data.
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 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. As stock compensation expense is recognized 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 the options that are forfeited by the employees that leave
the Company prior to vesting.
SUBSEQUENT
EVENTS
The
Company has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.
NEW
ACCOUNTING PRONOUNCEMENTS
In
May 2014, the FASB issued Topic 606, which replaced the previous revenue recognition guidance. The Company adopted Topic 606 effective
January 1, 2019 using the modified retrospective transition method. Under this method, the Company elected to apply the cumulative
effect method to all customer contracts as of the adoption date. The impact to revenue in 2019 as a result of the adoption of
Topic 606 was approximately $0.6 million, which is the result of the identification of additional units of accounting or performance
obligations upon adoption of Topic 606. Specifically, the Company identified software (previously combined with hardware for accounting
purposes), the related software maintenance, and hardware maintenance (previously accounted for under guidance applicable to extended
warranties) as units of accounting. Under prior GAAP, no portion of the transaction price was allocated to, and therefore, no
revenue was recognized upon the transfer of these products and services. While revenue related to software may only be deferred
for up to a few days relative to the timing of revenue recognition under prior GAAP, software maintenance and hardware maintenance
revenue will now be recognized over a period of 3-5 years based on the specified term in the contract or the estimated service
term, if not specified. As a result, the cumulative impact due to the adoption of Topic 606 on the opening consolidated balance
sheet was a decrease in opening retained earnings, with an increase in deferred commissions, an increase in deferred revenue,
and a decrease in accrued warranty costs.
The
accompanying consolidated balance sheet and the consolidated statements of operations and cash flows for year ended December 31,
2018 have not been revised for the effects of Topic 606 and are therefore not comparable to the December 31, 2019 period.
The
following table presents the cumulative effect of adjustments, net of income tax effects, to beginning consolidated balance sheet
accounts for Topic 606 adopted by the Company on January 1, 2019:
|
|
January 1,
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
Adjustments
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
1,234,736
|
|
|
$
|
20,579
|
|
|
$
|
1,214,157
|
|
Total current assets
|
|
|
9,985,237
|
|
|
|
20,579
|
|
|
|
9,964,658
|
|
Other assets
|
|
|
40,064
|
|
|
|
39,766
|
|
|
|
298
|
|
Total assets
|
|
$
|
21,327,532
|
|
|
$
|
60,345
|
|
|
$
|
21,267,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
|
|
$
|
73,976
|
|
|
$
|
(506,260
|
)
|
|
$
|
580,236
|
|
Deferred revenues - short-term
|
|
|
2,063,009
|
|
|
|
1,124,959
|
|
|
|
938,050
|
|
Total current liabilities
|
|
|
13,181,530
|
|
|
|
618,699
|
|
|
|
12,562,831
|
|
Deferred revenues-long-term
|
|
|
2,314,692
|
|
|
|
2,179,728
|
|
|
|
134,964
|
|
Total liabilities
|
|
|
16,097,555
|
|
|
|
2,798,427
|
|
|
|
13,299,128
|
|
Accumulated deficit
|
|
|
(21,944,353
|
)
|
|
|
(2,738,082
|
)
|
|
|
(19,206,271
|
)
|
Total stockholders’ equity
|
|
|
5,229,977
|
|
|
|
(2,738,082
|
)
|
|
|
7,968,059
|
|
Total liabilities and stockholders’ equity
|
|
$
|
21,327,532
|
|
|
$
|
60,345
|
|
|
$
|
21,267,187
|
|
The
following table presents the effects of adopting Topic 606 on the Company’s balance sheet at December 31, 2019:
|
|
Balances under
|
|
|
|
|
|
Balances under
|
|
|
|
Topic 606
|
|
|
Adjustments
|
|
|
Prior GAAP
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
$
|
1,765,741
|
|
|
$
|
27,311
|
|
|
$
|
1,738,430
|
|
Total current assets
|
|
|
9,922,649
|
|
|
|
27,311
|
|
|
|
9,895,338
|
|
Other assets
|
|
|
56,193
|
|
|
|
55,891
|
|
|
|
302
|
|
Total assets
|
|
$
|
20,468,885
|
|
|
$
|
83,202
|
|
|
$
|
20,385,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty
|
|
$
|
12,775
|
|
|
$
|
(452,345
|
)
|
|
$
|
465,120
|
|
Deferred revenues - short-term
|
|
|
1,972,565
|
|
|
|
1,394,864
|
|
|
|
577,701
|
|
Total current liabilities
|
|
|
17,207,873
|
|
|
|
942,519
|
|
|
|
16,265,354
|
|
Deferred revenues-long-term
|
|
|
2,582,602
|
|
|
|
2,507,978
|
|
|
|
74,624
|
|
Total liabilities
|
|
|
21,116,538
|
|
|
|
3,450,497
|
|
|
|
17,666,041
|
|
Accumulated deficit
|
|
|
(31,346,431
|
)
|
|
|
(3,367,295
|
)
|
|
|
(27,979,136
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(647,653
|
)
|
|
|
(3,367.295
|
)
|
|
|
2,719,642
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
20,468,885
|
|
|
$
|
83,202
|
|
|
$
|
20,385,683
|
|
The
following table presents the effects of adopting Topic 606 on the Company’s consolidated statement of operations for the
year ended December 31, 2019:
|
|
Balances under
|
|
|
|
|
|
Balances under
|
|
|
|
Topic 606
|
|
|
Adjustments
|
|
|
Prior GAAP
|
|
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
33,030,357
|
|
|
$
|
(598,155
|
)
|
|
$
|
33,628,512
|
|
Cost of revenues
|
|
|
24,088,639
|
|
|
|
53,915
|
|
|
|
24,034,724
|
|
Gross profit
|
|
|
8,941,718
|
|
|
|
(652,070
|
)
|
|
|
9,593,788
|
|
General and administrative expenses
|
|
|
15,771,187
|
|
|
|
(22,857
|
)
|
|
|
15,794,044
|
|
Total operating expense
|
|
|
17,000,667
|
|
|
|
(22,857
|
)
|
|
|
17,023,524
|
|
Loss from operations
|
|
|
(8,058,949
|
)
|
|
|
(629,213
|
)
|
|
|
(7,429,736
|
)
|
Net loss/income
|
|
$
|
(9,402,078
|
)
|
|
$
|
(629,213
|
)
|
|
$
|
(8,772,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.88
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.82
|
)
|
In
February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new
guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights
and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent
with 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. The new standard is effective
for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. 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
February 2017, the FASB issued ASU 2017-04 to simplify how all entities assess goodwill for impairment by eliminating Step 2 from
the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a
reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying
amount exceeds the reporting unit’s fair value. The ASU is effective for annual reporting periods beginning after December
12, 2019. The new pronouncement has no impact to the Company’s procedure in measuring the fair value of goodwill and will
continue to perform goodwill impairment tests through both quantitative and qualitative assessments.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.”
This ASU provides amendments to the current guidance on determining which changes to the terms and conditions of share-based payment
awards require the application of modification accounting. The effects of a modification should be accounted for unless there
are no changes between the fair value, vesting conditions, and classification of the modified award and the original award immediately
before the original award is modified. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The adoption of this ASU did not have a significant impact on the financial statements.
In
June 2018, the FASB issued ASU 2018-07, Improvements to Non-employee Share-Based Payment Accounting to simplify the accounting
of share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain
exceptions. The new guidance expands the scope of FASB ASC Topic 718, Compensation - Stock Compensation, to include share-based
payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations. The ASU
supersedes the guidance in Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. Awards to nonemployees
are measured by estimating the fair value of the goods or services received or the fair value of the equity instruments issued,
whichever can be measured more reliably. The guidance is effective for calendar-year public business entities in annual periods
after December 15, 2018, and interim periods within those years. The Company adopted this pronouncement in the first quarter of
2019 and it did not have a material impact on its consolidated financial statements.
In
March 2019, the Company adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement.” The new guidance modifies the disclosure requirements for fair
value measurement, most notably eliminating the need to disclose the amount and reasons for transfers between Level 1 and Level
2, the policy for timing of transfers between levels, and the valuation processes for Level 3 measurements. Certain disclosure
modifications are not yet applicable to the Company as an emerging growth company. Those include the requirements added to Topic
820, such as enhanced disclosures regarding uncertainty, providing the changes in unrealized gains and losses for the period included
in other comprehensive income for recurring Level 3 measurements, and the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements.
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
financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets
and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent
upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligation currently
in default or negotiate alternative repayment arrangements, to obtain necessary equity financing to continue operations, and the
attainment of profitable operations. As of December 31, 2019, the Company had an accumulated deficit of $31,346,431 and a net
working capital deficit of $7,285,224. During the year ended December 31, 2019, the Company incurred a net loss of $9,402,078
and net cash used in operations was $4,263,453. These factors raise substantial doubt regarding the Company’s ability to
continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern. The Company is seeking to obtain funds for operations from public or private sales of equity or
debt securities or from banks or other loans.
NOTE
3 – ACQUISITIONS
The
acquisition described below was accounted for as a business combination which requires, among other things, that assets acquired,
and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the consolidated balance sheet.
Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets
acquired would be recorded as goodwill.
On
March 12, 2019, the Company entered into an asset purchase agreement with MRI, based in Miami, Florida. MRI is engaged in the
business of developing, selling and distributing science, technology, engineering and math (STEM), robotics and programming solutions
to the global education market. The Company purchased the net assets of MRI in exchange for 200,000 shares of the Company’s
Class A common stock and a $70,000 note payable.
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
10,261
|
|
Accounts receivable
|
|
|
6,300
|
|
Inventories
|
|
|
386,485
|
|
Prepaid expenses
|
|
|
24,413
|
|
Intangible assets
|
|
|
93,185
|
|
Other current
asset
|
|
|
60,000
|
|
Total assets acquired
|
|
|
580,644
|
|
Total liabilities
assumed
|
|
|
(10,644
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
570,000
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
Issuance of 200,000 shares of Class
A common stock
|
|
$
|
500,000
|
|
Note payable
|
|
|
70,000
|
|
|
|
|
|
|
Total
|
|
$
|
570,000
|
|
On
May 9, 2018, the Company acquired 100% of the share capital of Cohuba, based in Lancashire, England. Cohuba produces, sells and
distributes interactive display panels designed to provide new learning and working experience through high-quality technologies
and solutions through in-room and room-to-room multi-device multi-user collaboration. Although a development stage company with
minimal revenues to date, we believe that Cohuba will enhance our software capability and product offerings. We purchased the
Cohuba shares for 257,200 shares of the Company’s Class A common stock and 100 British pound sterling (US$138).
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
1,038,368
|
|
Accounts receivable
|
|
|
12,114
|
|
Inventory
|
|
|
315,438
|
|
Other current assets
|
|
|
22,928
|
|
Property and equipment
|
|
|
4,321
|
|
Intangible assets
|
|
|
190,430
|
|
Total assets acquired
|
|
|
1,583,599
|
|
Total liabilities
assumed
|
|
|
(148,285
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,435,314
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
Issuance of 257,200 shares of Class
A common stock
|
|
$
|
1,435,176
|
|
Cash
|
|
|
138
|
|
|
|
|
|
|
Total
|
|
$
|
1,435,314
|
|
On
June 22, 2018, the Company acquired 100% of the share capital of Qwizdom, Inc. based in the state of Washington and its subsidiary
Qwizdom UK Limited based in Northern Ireland (the “Qwizdom Companies”). We purchased the Qwizdom shares for (1) $410,000
in cash, (2) issuance of an 8% promissory note of $656,000 (3) issuance of 142,857 shares of the Company’s Class A common
stock, and (4) an annual earn-out payment at maximum of $410,000 based on 16.4% of future consolidated revenues as defined in
the agreement from 2018 to 2020.
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
239,698
|
|
Accounts receivable
|
|
|
662,636
|
|
Inventory
|
|
|
132,411
|
|
Other current assets
|
|
|
20,857
|
|
Property and equipment
|
|
|
299,525
|
|
Intangible assets
|
|
|
664,186
|
|
Goodwill
|
|
|
463,147
|
|
Total assets acquired
|
|
|
2,482,460
|
|
Total liabilities
assumed
|
|
|
(177,890
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
2,304,570
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
Cash
|
|
$
|
410,000
|
|
Promissory note
|
|
|
656,000
|
|
Issuance of 142,857 shares of Class
A common stock
|
|
|
828,570
|
|
Earn-out payable
|
|
|
410,000
|
|
|
|
|
|
|
Total
|
|
$
|
2,304,570
|
|
On
August 31, 2018, the Company acquired 100% of the share capital of EOS based in Arizona. EOS is in the business of providing technology
consulting, training, and professional development services to create sustainable programs that integrate technology with curriculum
in K-12 schools and districts. The Company purchased the EOS shares for 100,000 shares of the Company’s Class A common stock.
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
32,269
|
|
Accounts receivable
|
|
|
89,871
|
|
Other current assets
|
|
|
4,543
|
|
Intangible assets
|
|
|
156,823
|
|
Goodwill
|
|
|
78,411
|
|
Total assets acquired
|
|
|
361,917
|
|
Total liabilities
assumed
|
|
|
(7,917
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
354,000
|
|
|
|
|
|
|
Consideration paid:
|
|
|
|
|
Issuance of 100,000
shares of Class A common stock
|
|
$
|
354,000
|
|
|
|
|
|
|
Total
|
|
$
|
354,000
|
|
NOTE
4 – ACCOUNTS RECEIVABLE - TRADE
Accounts
receivable consisted of the following at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accounts receivable –
trade
|
|
$
|
4,522,352
|
|
|
$
|
4,658,352
|
|
Allowance for doubtful accounts
|
|
|
(358,225
|
)
|
|
|
(276,507
|
)
|
Allowance for
sales returns and volume rebates
|
|
|
(499,070
|
)
|
|
|
(747,119
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable
- trade, net of allowances
|
|
$
|
3,665,057
|
|
|
$
|
3,634,726
|
|
The
Company wrote off accounts receivable of $89,123 and $90,890 for the years ended December 31, 2019 and 2018, respectively.
NOTE
5 – INVENTORIES
Inventories
consisted of the following at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
3,239,038
|
|
|
$
|
4,135,424
|
|
Spare parts
|
|
|
273,080
|
|
|
|
285,575
|
|
Reserves for
inventory obsolescence
|
|
|
(193,261
|
)
|
|
|
(206,683
|
)
|
|
|
|
|
|
|
|
|
|
Inventories,
net
|
|
$
|
3,318,857
|
|
|
$
|
4,214,316
|
|
The
Company wrote off inventories of $74,421 and $105,669 for the years ended December 31, 2019 and 2018, respectively.
NOTE
6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Prepayments to vendors
|
|
$
|
1,389,044
|
|
|
$
|
1,033,896
|
|
Prepaid licenses and other
|
|
|
315,354
|
|
|
|
176,853
|
|
Prepaid insurance
|
|
|
35,255
|
|
|
|
-
|
|
Prepaid local taxes
|
|
|
26,088
|
|
|
|
1,614
|
|
Employee receivables
|
|
|
-
|
|
|
|
1,794
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
and other current assets
|
|
$
|
1,765,741
|
|
|
$
|
1,214,157
|
|
NOTE
7 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
199,708
|
|
|
$
|
199,708
|
|
Building improvements
|
|
|
9,086
|
|
|
|
9,086
|
|
Leasehold improvements
|
|
|
3,355
|
|
|
|
3,355
|
|
Office equipment
|
|
|
40,062
|
|
|
|
36,450
|
|
Other equipment
|
|
|
42,485
|
|
|
|
42,485
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
294,696
|
|
|
|
291,084
|
|
Accumulated depreciation
|
|
|
(87,299
|
)
|
|
|
(64,675
|
)
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation
|
|
$
|
207,397
|
|
|
$
|
226,409
|
|
For
the years ended December 31, 2019 and 2018, the Company recorded depreciation expense of $22,624 and $101,133 respectively.
NOTE
8 – INTANGIBLE ASSETS AND GOODWILL
Intangible
assets and goodwill consisted of the following at December 31, 2019 and 2018:
|
|
Weighted
Average useful lives
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
9
years
|
|
|
$
|
81,683
|
|
|
$
|
81,683
|
|
Customer relationships
|
|
|
10
years
|
|
|
|
4,009,355
|
|
|
|
4,009,355
|
|
Technology
|
|
|
5
years
|
|
|
|
271,585
|
|
|
|
178,400
|
|
Domain
|
|
|
15
years
|
|
|
|
13,955
|
|
|
|
13,955
|
|
Trademarks
|
|
|
10
years
|
|
|
|
3,917,590
|
|
|
|
3,917,590
|
|
Intangible assets, at cost
|
|
|
|
|
|
|
8,294,168
|
|
|
|
8,200,983
|
|
Accumulated amortization
|
|
|
|
|
|
|
(2,735,071
|
)
|
|
|
(1,848,710
|
)
|
Intangible assets,
net of accumulated amortization
|
|
|
|
|
|
$
|
5,559,097
|
|
|
$
|
6,352,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill from acquisition of Mimio
|
|
|
N/A
|
|
|
$
|
44,931
|
|
|
$
|
44,931
|
|
Goodwill from acquisition of Boxlight
|
|
|
N/A
|
|
|
|
4,137,060
|
|
|
|
4,137,060
|
|
Goodwill from acquisition of EOS
|
|
|
N/A
|
|
|
|
78,411
|
|
|
|
78,411
|
|
Goodwill from
acquisition of Qwizdom
|
|
|
N/A
|
|
|
|
463,147
|
|
|
|
463,147
|
|
|
|
|
|
|
|
$
|
4,723,549
|
|
|
$
|
4,723,549
|
|
For
the years ended December 31, 2019 and 2018, the Company recorded amortization expense of $886,361 and $784,566, respectively.
NOTE
9 – DEBT
The
following is debt at December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Debt – Third
Parties
|
|
|
|
|
|
|
|
|
Note payable – Lind
Global
|
|
$
|
4,797,221
|
|
|
$
|
-
|
|
Accounts receivable financing –
Sallyport Commercial
|
|
|
1,551,500
|
|
|
|
953,739
|
|
Note payable – Radium Capital
|
|
|
-
|
|
|
|
725,159
|
|
Note payable – Whitebirk Finance
Limited
|
|
|
-
|
|
|
|
127,329
|
|
Note payable
– Harbor Gates Capital
|
|
|
-
|
|
|
|
500,000
|
|
Total debt – third parties
|
|
|
6,348,721
|
|
|
|
2,306,227
|
|
Less: Discount and issuance cost –
Lind Global
|
|
|
611,355
|
|
|
|
|
|
Current
portion of debt – third parties
|
|
|
4,536,227
|
|
|
|
2,306,227
|
|
Long-term debt
– third parties
|
|
$
|
1,201,139
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Debt – Related
Parties
|
|
|
|
|
|
|
|
|
Note payable – Qwizdom (Darin
& Silvia Beamish)
|
|
|
381,563
|
|
|
|
601,333
|
|
Note payable – Steve Barker
|
|
$
|
17,500
|
|
|
$
|
-
|
|
Note payable – Logical Choice
Corporation – Delaware
|
|
|
54,000
|
|
|
|
54,000
|
|
Note payable
– Mark Elliott
|
|
|
23,548
|
|
|
|
50,000
|
|
Total debt – related parties
|
|
|
476,611
|
|
|
|
705,333
|
|
Less: current
portion of debt – related parties
|
|
|
368,383
|
|
|
|
377,333
|
|
Long-term debt
– related parties
|
|
$
|
108,228
|
|
|
$
|
328,000
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
6,213,977
|
|
|
$
|
3,011,560
|
|
Debt
- Third Parties:
Lind
Global Marco Fund, LP
On
March 22, 2019, the Company entered into a securities purchase agreement with Lind Global Marco Fund, LP (the “Investor”)
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 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 $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 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.
On
December 13, 2019, the Company entered into a securities purchase agreement with the Investor that contemplates a $1,250,000 working
capital financing for Boxlight Parent and its subsidiaries. The investment is in the form of a $1,375,000 principal amount convertible
secured Boxlight Parent note 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 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.
During
2019, the Company paid the Investor $368,452 for closing fees by issuing 177,511 shares of Class A common stock. As of December
31, 2019, the Company paid principal and interest of $977,778 and $106,643 by issuing Class A common stock to the Investor.
As
of December 31, 2019, outstanding principal net of debt issuance cost and discount, and accrued interest were $4,185,866 and $5,425,
respectively. Principal of $3,596,083 is due within one year from December 31, 2019.
Accounts
Receivable Financing – Sallyport Commercial Finance
On
August 15, 2017, Boxlight Inc., and 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 December 31, 2019, outstanding principal and accrued interest were $1,551,500 and $0, respectively. As of December 31, 2018,
outstanding principal and accrued interest under this agreement was $953,739 and $0, respectively. For the twelve months ended
December 31, 2019 and 2018, the Company incurred interest expense of $756,736 and $642,888, respectively.
Radium
Capital
On
September 20, 2018, the Company entered into an agreement for the purchase and sale of future receipts with Radium Capital. Pursuant
to the agreement, Radium provided proceeds of $1,000,000 to the Company based on expected future revenue. The cost of the proceeds
was 26% of the loan amount plus a $10,000 origination fee. The origination fee was recorded as original issue discount and fully
amortized due to the short-term nature of the agreement. In order to repay the debt, the Company made weekly payments of $26,636
that commenced on October 3, 2018 and continued until August 28, 2019. The principal and accrued interest was paid in full in
August 2019.
Whitebirk
Finance Limited
On
September 20, 2018, the Company entered into an unsecured promissory note agreement for £98,701 with Whitebirk Finance Limited.
The note bears interest at a rate of 5% and matures on August 31, 2019. This note was executed to settle outstanding accounts
payable between Cohuba and Whitebirk related to inventory purchases. The principal and accrued interest was paid in full in August
2019.
Harbor
Gates Capital
On
May 16, 2018, the Company entered into an unsecured promissory note agreement for $500,000 with Harbor Gates Capital. The note
bore an interest rate of 7% per annum and matured on February 16, 2019. In addition, the Company issued 5,715 shares of its Class
A common stock valued at $56,236 to the lender in lieu of payment of origination fees. The note was recorded at original issue
discount and fully amortized because of its short-term nature. The Company failed to pay the note on the maturity date. On March
14, 2019, the note was converted into 133,750 shares of Class A common stock including the accrued interest valued at $2.86 per
share.
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 December 31, 2019, outstanding principal and accrued interest under this note were $381,563
and $7,334, respectively. As of December 31, 2018, outstanding principal and accrued interest under this agreement was $601,333
and $12,126, respectively. Principal in the amount of $273,335 is due within a year from December 31, 2019
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. As of December 31, 2019, outstanding principal and accrued interest under this agreement was $17,500 and
$206, respectively.
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 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
December 31, 2019, outstanding principal and accrued interest under this agreement was $54,000 and $26,716, respectively. As of
December 31, 2018, outstanding principal and accrued interest under this agreement was $54,000 and $21,316, respectively.
Note
Payable – Mark Elliott
On
January 16, 2015, the Company issued a note to Mark Elliott, the Company’s Chief Commercial Officer, in the amount of $50,000.
The note as amended was due on December 31, 2018 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, Mark Elliott, the Company’s Chief Commercial Officer amended the note to eliminate the conversion provision of the
note. As of December 31, 2019, outstanding principal and accrued interest under this note were $23,548 and $593, respectively.
The note is currently in default. As of December 31, 2018, outstanding principal and accrued interest under this note were $50,000
and $19,808, respectively.
Principal
repayments to be made during the next five years are as follows:
|
|
$
|
|
2020
|
|
|
5,515,965
|
|
2021
|
|
|
1,309,367
|
|
2022
|
|
|
-
|
|
2023
|
|
|
-
|
|
2024
|
|
|
-
|
|
Total
|
|
|
6,825,332
|
|
NOTE
10 – DERIVATIVE LIABILITIES
At
December 31, 2019 and December 31, 2018, the Company had 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 December 31, 2019 and 2018:
|
|
December
31, 2019
|
|
Common stock issuable upon
exercise of warrants
|
|
|
295,000
|
|
Market value of common stock on measurement
date
|
|
$
|
1.11
|
|
Exercise price
|
|
$
|
1.20
|
|
Risk free interest rate (1)
|
|
|
1.58
|
%
|
Expected life in years
|
|
|
2
years
|
|
Expected volatility (2)
|
|
|
86.66
|
%
|
Expected dividend yields (3)
|
|
|
0
|
%
|
|
|
December
31, 2018
|
|
Common stock issuable upon
exercise of warrants
|
|
|
1,129,121
|
|
Market value of common stock on measurement
date
|
|
$
|
1.20
|
|
Exercise price
|
|
$
|
1.68
|
|
Risk free interest rate (1)
|
|
|
2.46
– 2.63
|
%
|
Expected life in years
|
|
|
1.3
– 3.3 years
|
|
Expected volatility (2)
|
|
|
74%
– 124
|
%
|
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
historical trading 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 years ended December 31, 2019
and 2018:
|
|
Amount
|
|
Balance, December 31, 2018
|
|
$
|
326,452
|
|
Initial valuation of derivative liabilities
upon issuance of warrants
|
|
|
64,946
|
|
Change in fair
value of derivative liabilities
|
|
|
(244,794
|
)
|
|
|
|
|
|
Balance, December 31, 2019
|
|
$
|
146,604
|
|
|
|
Amount
|
|
Balance, December 31, 2017
|
|
$
|
1,857,252
|
|
Initial valuation of derivative liabilities
upon issuance of warrants
|
|
|
149,321
|
|
Cancellation of warrants
|
|
|
(1,253,140
|
)
|
Change in fair
value of derivative liabilities
|
|
|
(426,981
|
)
|
|
|
|
|
|
Balance, December 31, 2018
|
|
$
|
326,452
|
|
The
change in fair value of derivative liabilities includes losses from exercise price modifications.
NOTE
11 – INCOME TAXES
The
Company operates in the United States, United Kingdom and Mexico. 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 Company idled its office in Mexico in 2016.
For the years ended December 31, 2019 and 2018, the Company has incurred net losses and, therefore, has no tax liability. The
cumulative Federal net operating losses carry-forward on tax basis income was approximately $19.6 million and $13.3 million at
December 31, 2019 and 2018, respectively, of which $13.3 million will expire on December 31, 2038 and $6.1 million will carryforward
indefinitely. The cumulative state net operating losses carried forward was $19.8 million and $12.4 million at December 31, 2019
and 2018, respectively. The cumulative foreign net operating losses carried forward was $2.7 million and $2.7 million at December
31, 2019 and 2018, respectively. Pre-tax book loss was $9.4 million for 2019 with $9.5 million loss derived from the United States
and .1 million income derived from the United Kingdom.
The
recoverability of these carryforwards depends on the Company’s ability to generate taxable income. A change in ownership,
as defined by federal income tax regulations, could significantly limit the Company’s ability to utilize our net operating
loss carryforwards. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may
be applied against future taxes, if the Company fails to generate 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 cumulative losses
and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred
tax asset at December 31, 2019 and 2018.
Revision
of Prior Period Errors
In
connection with the preparation of the income tax provision and disclosures the Company identified errors in the amounts previously
reported for cumulative net operating loss carry-forwards; the
reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income
tax expense; deferred income tax assets; and the valuation allowance. The recorded and disclosed amounts of net deferred income
tax assets were correct, as previously reported, as a result of the full valuation allowance provided for deferred income taxes.
However, gross cumulative Federal net operating loss carry-forwards at December 31, 2018 were previously disclosed as $9.8 million
compared to the correct amount of $13.3 million. Gross cumulative state and foreign net operating losses carry-forwards of $12.4
million and $2.7 million, respectively, at December 31, 2018 were not previously disclosed and the related deferred tax assets
and valuation allowances were not presented as components of deferred tax assets. In addition, deferred tax assets and valuation
allowances for temporary differences for interest expense limitations were not presented as components of deferred tax assets.
The
amounts reported for the comparative period end, December 31, 2018 reflect corrections to the amounts previously reported. The
net deferred tax assets remain unchanged. However, the net operating losses component of deferred tax assets reported below is
$2.0 million higher than previously reported and a deferred tax asset for interest limitations of $195,000 is reported. The deferred
tax asset valuation allowance reported below is $2.2 million higher than previously reported.
The
Company, in consultation with the Audit Committee of the Board of Directors, evaluated the effect of these adjustments on the
Company’s consolidated financial statements under ASC 250, Accounting Changes and Error Corrections and Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements and determined it was not necessary to amend its previously issued consolidated financial statements, or unaudited
interim period consolidated financial statements, because the errors did not misstate any line items within the previously issued
basic consolidated financial statements; corrections were limited to the related notes to the consolidated financial statements.
The Company looked at both quantitative and qualitative characteristics of the required corrections in making such determination.
The
Company is subject to United States federal, state and international income taxes. The reconciliation of the provision for income
taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows
(rounded to nearest $000):
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
(as
Restated)
|
|
Income tax benefit computed
at the statutory rate
|
|
$
|
(1,975,000
|
)
|
|
$
|
(1,507,000
|
)
|
State tax benefit
|
|
|
(259,000
|
)
|
|
|
(154,000
|
)
|
Rate changes and differentials
|
|
|
(23,000
|
)
|
|
|
(105,000
|
)
|
Other
|
|
|
(1,000
|
)
|
|
|
(18,000
|
|
Non-deductible expenses
|
|
|
386,000
|
|
|
|
503,000
|
|
Change in valuation
allowance
|
|
|
1,872,000
|
|
|
|
1,281,000
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of the Company’s deferred tax assets after applying enacted corporate income tax rates are as follows (rounded
to nearest $000):
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
(As
Restated)
|
|
Depreciation and amortization
expenses
|
|
$
|
14,000
|
|
|
$
|
26,000
|
|
Non-deductible accruals and allowances
|
|
|
310,000
|
|
|
|
438,000
|
|
Others
|
|
|
17,000
|
|
|
|
31,000
|
|
Interest expense limitation
|
|
|
640,000
|
|
|
|
195,000
|
|
Net operating loss carry-forwards
|
|
|
5,646,000
|
|
|
|
4,065,000
|
|
Valuation allowance
|
|
|
(6,627,000
|
)
|
|
|
(4,755,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred
income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
tax years from 2015 to 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject. The
Company has not identified any uncertain tax positions at this time.
NOTE
12 – EQUITY
Preferred
Shares
The
Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 preferred shares 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.
The
Company issued 1,000,000 shares of Series B preferred stock for the acquisition of Genesis and 270,000 shares of Series C preferred
stock for the acquisition of Boxlight Group. Upon the completion of the initial public offering (“IPO”) in November
2017, all shares of Series B and C preferred stock related to the acquisitions of Genesis and Boxlight Group were converted to
Class A common stock.
Upon
completion of the Company’s IPO, an aggregate of 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 shall be converted 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 December 31, 2019, and December 31, 2018, the Company had 11,698,697 and 10,176,433 shares of Class A common stock issued
and outstanding, respectively. No Class B shares were outstanding at December 31, 2019 and December 31, 2018.
Issuance
of common stock
Issuances
in 2019:
During
the year ended December 31, 2019, the Company issued 21,704 shares of common stock in lieu of payment for services with an aggregate
amount of $48,000.
During
the year ended December 31, 2019, the Company issued 141,186 shares of common stock in lieu of payment of the closing fees of
the convertible debt with an aggregate amount of $292,518 to Lind Global.
During
the year ended December 31, 2019, the company issued 735,662 shares of commons stock in lieu of principal and interest payment
of notes payable with an aggregate amount of $1,084,420 to Lind Global.
On
March 12, 2019, the Company issued 200,000 shares of common stock to the shareholder of Modern Robotics, Inc. valued at $2.50
per share, related to the asset purchases agreement.
On
March 14, 2019, the Company issued 133,750 shares of common stock valued at $2.86 per share to Harbor Gates Capital to settle
the $500,000 outstanding convertible note including accrued interest.
On
August 6, 2019, the Company issued 122,916 shares of common stock valued at $2.40 per share as part of executive compensation.
On
August 6, 2019, the Company issued 130,721 shares of common stock to convert 82,028 shares of preferred stock issued to Vert Capital
for the acquisition of Genesis.
On
October 22, 2019, the Company issued 36,325 shares of common stock valued at $2.09 per share in pursuant of the “Make Whole
Share” clause related to the convertible debt issued to Lind Global on March 22, 2019.
Exercise
of stock options
No
options to purchase common stock were exercised during the twelve months ended December 31, 2019.
Issuances
in 2018:
On
January 8, 2018, the Company issued 60,000 shares of common stock to K Laser valued at $7.00 per share for cash of $420,000.
On
April 13, 2018, the Company issued 1,015 shares of common stock at $3.94 to a consultant in lieu of payment for services.
On
May 9, 2018, the Company issued 257,200 shares of common stock to the shareholders of Cohuba valued at $5.58 per share related
to the acquisition of 100% of Cohuborate, Ltd.
On
May 15, 2018, the Company issued 416 shares of common stock to Tysadco Partners valued at $9.62 per share in lieu of payment of
professional fees.
On
May 16, 2018, the Company issued 5,715 shares of common stock to a third-party lender valued at $9.84 per share in lieu of payment
of origination fees.
On
June 15, 2018, the Company issued 694 shares of common stock to Tysadco Partners valued at $5.76 per share in lieu of payment
of professional fees.
On
June 22, 2018, the Company issued 142,857 shares of common stock to the shareholders of Qwizdom, Inc. valued at $5.80 per share
related to the acquisition of 100% of Qwizdom.
On
July 15, 2018, the Company issued 962 shares of Class A common stock at $4.16 per share to a consultant in lieu of payment for
services.
On
August 15, 2018, the Company issued 806 shares of Class A common stock at $4.96 per share to a consultant in lieu of payment for
services.
On
August 20, 2018, the Company issued 10,968 shares of Class A common stock at $3.71 per share to a vendor for the settlement of
accounts payable.
On
August 31, 2018, the Company issued 100,000 shares of common stock to the shareholders of EOSEDU, LLC valued at $3.54 per share
related to the acquisition of 100% of EOS.
On
September 14, 2018, the Company issued 1,290 shares of Class A common stock at $3.10 per share to a consultant in lieu of payment
for services.
On
October 15, 2018, the Company issued 1,960 shares of Class A common stock at $2.04 per share to a consultant in lieu of payment
for services.
On
November 15, 2018, the Company issued 1,970 shares of Class A common stock at $2.03 per share to a consultant in lieu of payment
for services.
On
December 17, 2018, the Company issued 2,381 shares of Class A common stock at $1.68 per share to a consultant in lieu of payment
for services.
Exercise
of stock options
On
March 20, 2018, the former Chief Financial Officer exercised 29,200 stock options and paid a total of $3 for the collective exercise
price.
NOTE
13 – 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 December 31, 2019, the Company had 305,749 shares
reserved for issuance under the plan.
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 years ended December 31, 2019 and 2018:
|
|
|
Number
of Units
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Term (in years)
|
|
Outstanding,
December 31, 2017
|
|
|
|
812,574
|
|
|
$
|
3.01
|
|
|
|
5.64
|
|
Granted
|
|
|
|
1,019,500
|
|
|
$
|
5.08
|
|
|
|
|
|
Exercised
|
|
|
|
(29,200
|
)
|
|
$
|
0.0001
|
|
|
|
|
|
Cancelled
|
|
|
|
(84,850
|
)
|
|
$
|
4.81
|
|
|
|
|
|
Outstanding, December
31, 2018
|
|
|
|
1,718,024
|
|
|
$
|
4.18
|
|
|
|
4.64
|
|
Granted
|
|
|
|
802,882
|
|
|
$
|
1.84
|
|
|
|
|
|
Exercised
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Cancelled
|
|
|
|
(136,218
|
)
|
|
$
|
4.86
|
|
|
|
|
|
Outstanding,
December 31, 2019
|
|
|
|
2,384,688
|
|
|
$
|
3.35
|
|
|
|
4.15
|
|
Exercisable,
December 31, 2019
|
|
|
|
1,652,995
|
|
|
$
|
3.27
|
|
|
|
3.70
|
|
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 December 31, 2019 and 2018, the options had an intrinsic value of approximately $0.4 million and $0.5 million, respectively.
Issuances
in 2019:
On
January 2, 2019, the Company granted 100,000 stock options each, for a total of 300,000 options to purchase common stock, to its
President, Chief Executive 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 $186,411 on the grant date.
On
March 12, 2019, the Company issued 20,000 stock options to Steve Barker, Vice President of Robotics at Boxlight with an exercise
price of $2.50 per share. The expiration date of these options is ten years from the grant date. These options had an aggregate
fair value of approximately $31,436 on the grant date.
On
June 22, 2019, the Company granted 60,000 stock options to employees from the Qwizdom acquisition with an exercise price of $2.85
per share vesting annually over four years commencing June 22, 2020 as part of their compensation. The expiration date of these
options is ten years from grant date. These options have an aggregate fair value of approximately $106,861on the grant date.
On
August 6, 2019, the Company granted an aggregate of 131,250 stock options to its directors with an exercise price of $2.40 per
share vesting monthly over one year. The expiration date of these options is five years from the grant date. These options had
an aggregated fair value of approximately $146,380 on the grant date that was calculated using the Black-Scholes option-pricing
model.
On
September 17, 2019, the Company granted 32,000 stock options to employees from the EOS acquisition with an exercise price of $2.09
per share vesting annually over four years commencing September 17, 2020 as part of their compensation. The expiration date of
these options is ten years from grant date. These options have an aggregate fair value of approximately $41,811on the grant date.
On
October 1, 2019, the Company granted an aggregate of 207,000 stock options to its employees with an exercise price of $1.84 per
share vesting quarterly in equal installments over a period of four years. The expiration date of these options is five years
from the grant date. These options had an aggregated fair value of approximately $200,993 on the grant date.
On
October 15, 2019, the Company granted 52,632 stock options to one of its Board of Directors with an exercise price of $1.9 per
share vesting quarterly over one year. The expiration date of these options is five years from the grant date. These options had
an aggregated fair value of approximately $46,593 on the grant date.
Variables
used in the Black-Scholes option-pricing model for options granted during the nine months ended December 31, 2019 include: (1)
discount rate of 1.51 - 2.47% (2) expected life, using a simplified method, of 3 to 6 years, (3) expected volatility of 69 - 70%,
and (4) zero expected dividends.
Issuances
in 2018:
On
January 2, 2018, the Company granted 100,000 stock options each, 300,000 options in total, to its President, Chief Executive Officer
and former Chief Financial Officer with an exercise price of $5.01 per share vesting monthly over one year. The expiration date
of these options is five years from the grant date. These options had an aggregate fair value of approximately $689,000 on the
grant date.
On
January 2, 2018, the Company granted 200,000 stock options to its Chief Operating Officer with an exercise price of $5.01 per
share vesting monthly over one year. The expiration date of these options is five years from the grant date. These options had
a fair value of approximately $459,000 on the grant date.
On
February 14, 2018, the Company granted an aggregate of 367,500 stock options in total to its employees with an exercise price
of $5.40 per share vesting quarterly 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 $998,000 on the grant date.
On
March 19, 2018, the Company granted 35,000 stock options to its Chief Financial Officer with an exercise price of $4.00 per share
vesting monthly over one year. The expiration date of these options is five years from the grant date. These options had an aggregate
fair value of approximately $65,000 on the grant date.
On
March 29, 2018, the Company granted 25,000 stock options to one of its Board of Directors with an exercise price of $4.06 per
share vesting quarterly over one year. The expiration date of these options is five years from the grant date. These options had
an aggregated fair value of approximately $47,000 on the grant date.
On
June 22, 2018, the Company granted 60,000 stock options to employees from the Qwizdom acquisition with an exercise price of $5.78
per share vesting annually over four years commencing June 22, 2019. The expiration date of these options is ten years from the
grant date. These options have an aggregate fair value of approximately $214,000 on the grant date.
On
September 17, 2018, the Company granted 32,000 stock options to employees from the EOS acquisition with an exercise price of $3.08
per share vesting annually over four years commencing September 17, 2019. The expiration date of these options is ten years from
the grant date. These options have an aggregate fair value of approximately $63,000 on the grant date.
Variables
used in the Black-Scholes option-pricing model for options granted during the year ended December 31, 2018 include: (1) discount
rate of 2.01% – 2.89% (2) expected life, using simplified method, of 3 – 6 years, (3) expected volatility of 66% –
71%, and (4) zero expected dividends.
Warrants
Following
is a summary of the warrant activities during the years ended December 31, 2019 and 2018:
|
|
|
Number of
Units
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
|
|
|
1,070,717
|
|
|
|
7.57
|
|
|
|
2.12
|
|
Granted
|
|
|
|
402,657
|
|
|
$
|
1.70
|
|
|
|
-
|
|
Cancelled
|
|
|
|
(289,253
|
)
|
|
$
|
3.94
|
|
|
|
1.50
|
|
Outstanding, December
31, 2018
|
|
|
|
1,184,121
|
|
|
$
|
1.90
|
|
|
|
1.63
|
|
Granted
|
|
|
|
187,038
|
|
|
$
|
1.50
|
|
|
|
-
|
|
Cancelled
|
|
|
|
(1,021,159
|
)
|
|
$
|
1.25
|
|
|
|
-
|
|
Outstanding, December
31, 2019
|
|
|
|
350,000
|
|
|
$
|
2.20
|
|
|
|
2.11
|
|
Exercisable,
December 31, 2019
|
|
|
|
347,187
|
|
|
$
|
2.16
|
|
|
|
2.11
|
|
2019
Warrants
On
March 12, 2019, the Company issued 30,000 warrants to Dynamic Capital, the warrants were issued in accordance with the terms of
the warrant agreement that required the issuance of additional shares when the Company issues shares to either raise additional
capital or complete an acquisition. The warrants were issued in relation to acquisition of MRI.
On
March 14, 2019, the Company issued 20,063 warrants to Dynamic Capital, the warrants were issued in accordance with the terms of
the warrant agreement that required the issuance of additional shares when the Company issues shares to either raise additional
capital or complete an acquisition. The warrants were issued in relation to converting the debt from Harbor Gates.
On
March 22, 2019, the Company issued 10,765 warrants to Dynamic Capital, the warrants were issued in accordance with the terms of
the warrant agreement that required the issuance of additional shares when the Company issues shares to either raise additional
capital or complete an acquisition. The warrants were issued in relation to raising capital through loan with Lind Partner.
On
October 22, 2019, the Company issued 25,398 warrants to Dynamic Capital, the warrants were issued in accordance with the terms
of the warrant agreement that required the issuance of additional shares when the Company issues shares in repayment of outstanding
debt. The warrants were issued in relation to paying principal and interest of notes payable to Lind Partner.
On
November 13, 2019, the Company issued 24,892 warrants to Dynamic Capital, the warrants were issued in accordance with the terms
of the warrant agreement that required the issuance of additional shares when the Company issues shares in repayment of outstanding
debt. The warrants were issued in relation to paying principal and interest of notes payable to Lind Partner.
On
December 3, 2019, the Company issued 29,172 warrants to Dynamic Capital, the warrants were issued in accordance with the terms
of the warrant agreement that required the issuance of additional shares when the Company issues shares in repayment of outstanding
debt. The warrants were issued in relation to paying principal and interest of notes payable to Lind Partner.
On
December 13, 2019, the Company issued 10,413 warrants to Dynamic Capital, the warrants were issued in accordance with the terms
of the warrant agreement that required the issuance of additional shares when the Company issues shares to either raise additional
capital or complete an acquisition.
On
December 27, 2019, the Company issued 36,337 warrants to Dynamic Capital, the warrants were issued in accordance with the terms
of the warrant agreement that required the issuance of additional shares when the Company issues shares in repayment of outstanding
debt. The warrants were issued in relation to paying principal and interest of notes payable to Lind Partner.
An
aggregate amount of 1,021,159 warrants that was previously issued to Dynamic Capital were deemed expired as of December 31, 2019.
Variables
used in the binomial and Black-Scholes option-pricing model for warrants granted during the year ended December 31, 2019 include:
(1) discount rate of 1.55-2.52% (2) expected life of 0.05-2.00 years, (3) expected volatility of 54-120%, and (4) zero expected
dividends. As of December 31, 2019, the warrants had an intrinsic value of $0.
2018
Warrants
On
April 2, 2018, the Company issued a warrant to purchase 5,000 shares of Class A common stock at a strike price of $4.76 per share
to a consultant. The warrant will vest on a quarterly basis over 4 years beginning September 30, 2018. The expiration date is
5 years from the issue date. These warrants have an aggregate fair value of approximately $12,000 on the grant date that was calculated
using the Black-Scholes option-pricing model.
On
May 31, 2018, the Company cancelled warrants to purchase 289,253 shares of Class A common stock at a strike price of $3.94
per share. The Company recorded additional contribution of $1,149,580 and gain from settlement of liabilities of $103,560 in
connection with the cancellation.
On
June 21, 2018, the Company issued warrants to purchase 270,000 and 25,000 shares of Class A common stock at a strike price of
$6.00 per share to Canaan Parish, an entity controlled by our president, and a consultant, respectively, for future advisory services.
The warrants are exercisable by the holder only after October 1, 2018 and expire on December 31, 2021. These warrants have an
aggregate fair value of approximately $930,000 on the grant date that was calculated using the Black-Scholes option-pricing model.
These warrants contain non-fixed settlement provision that the exercise price can be lower when a qualified event occur as defined
in the agreement. The Company concluded that the instruments are accounted for as derivative liabilities. See Note 11. During
the year ended, the Company recorded approximately $62,000 compensation and derivative liabilities based on vesting term.
In
2018, the Company issued 86,511 and 16,146 warrants to Dynamic Capital and Canaan Parish, respectively. The warrants were issued
in accordance with the terms of the warrant agreements that required the issuance of additional shares when the Company issues
shares to either raise additional capital or complete an acquisition.
During
the year ended December 31, 2018, 1,129,121 warrants’ exercise prices were reset to $1.68 per share, respectively, upon
a qualified event as defined in the agreements.
Variables
used in the binomial and Black-Scholes option-pricing model for warrants granted during the year ended December 31, 2018 include:
(1) discount rate of 2.46% – 2.63% (2) expected life of 1.00 – 3.00 years, (3) expected volatility of 71% –
74%, and (4) zero expected dividends. As of December 31, 2018, the warrants had an intrinsic value of $0.
The
warrants granted to Dynamic, Canaan Parish and Lackamoola contain net cash settlement provisions and do not have fixed settlement
provisions because their exercise prices may be lowered if the Company issues securities at lower prices in the future. The Company
concluded that the instruments are accounted for as derivative liabilities because of the net cash and non-fixed settlement provisions.
Stock
compensation expense
For
the year ended December 31, 2019 and 2018, the Company recorded the following stock compensation in general and administrative
expense:
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
$
|
777,632
|
|
|
$
|
1,835,293
|
|
Warrants
|
|
|
64,945
|
|
|
|
149,294
|
|
Class A common
stock grants
|
|
|
294,998
|
|
|
|
-
|
|
Total stock compensation
expense
|
|
$
|
1,137,575
|
|
|
$
|
1,984,587
|
|
As
of December 31, 2019, there was approximately $1.3 million of unrecognized compensation expense related to unvested options, which
will be amortized over the remaining vesting period. Of that total, approximately $0.7 million is estimated to be recorded as
compensation expense in 2020.
NOTE
14 – OTHER RELATED PARTY TRANSACTIONS
Management
Agreement
On
November 30, 2017, the Company entered into a management agreement with Dynamic Capital, LLC, a Nevada limited liability company
owned by the AEL Irrevocable Trust and managed by Adam Levin (“Dynamic Capital”). Pursuant to the agreement, Dynamic
Capital was to perform consulting services for the Company relating to, among other things, sourcing and analyzing strategic acquisitions
and introductions to various financing sources. In consideration for its services, Dynamic Capital was to receive a management
fee payable in cash equal to 1.125% of total consolidated net revenues for the fiscal years ended December 31, 2017 and 2018,
payable in monthly installments. The annual fee was subject to a cap of $750,000 in each of 2017 and 2018. As of December 31,
2019, and December 31, 2018, the Company had a payable to Dynamic Capital $0 and $425,619, respectively. The remaining annual
fee for the amount of $99,950 was paid on May 7, 2019.
On
January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned
and controlled by our 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, is a major supplier of products
to the Company. For the years ended December 31, 2019 and 2018, the Company had purchases of $900,434 and $4,203,800 respectively,
from EDI. For the years ended December 31, 2019 and 2018, the Company had sales of $51,228 and $19,167, respectively, to EDI.
As of December 31, 2019, and 2018, the Company had accounts payable to EDI of approximately of $5,037,569 and $5,491,616 respectively,
to EDI.
NOTE
15 – COMMITMENTS AND CONTINGENCIES
Operating
Lease Commitments
The
Company leases four office spaces under non-cancelable lease agreements. The leases provide that the Company pay 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 December 31, 2019 are as follows:
Year
ending December 31,
|
|
Amount
|
|
2020
|
|
$
|
418,180
|
|
2021
|
|
|
369,914
|
|
2022
|
|
|
135,239
|
|
Minimum
Lease Payments
|
|
$
|
923,333
|
|
The
Company also has another office lease on a month-to-month basis. For the years ended December 31, 2019 and 2018, aggregate rent
expense was approximately $444,810 and $357,244, respectively.
NOTE
16 – 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 with a few customers for the years ended December 31, 2019 and 2018:
Customer
|
|
|
Total
revenues from the customer to total revenues for the year ended December 31, 2019
|
|
|
Accounts
receivable from the customer as of December 31, 2019 (rounded to 000)
|
|
|
Total
revenues from the customer to total revenues for the year ended December 31, 2018
|
|
|
Accounts
receivable from the customer as of December 31, 2018 (rounded to 000)
|
|
|
1
|
|
|
|
14
|
%
|
|
$
|
184,000
|
|
|
|
39
|
%
|
|
$
|
1,495,000
|
|
|
2
|
|
|
|
13
|
%
|
|
|
605,000
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
12
|
%
|
|
|
235,000
|
|
|
|
|
|
|
|
|
|
The
loss of the 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 years ended December 31, 2019 and 2018:
Vendor
|
|
|
Total
purchases from the vendor to total purchases for the year ended December 31, 2019
|
|
|
Accounts
payable (prepayment) to the vendor as of December 31, 2019 (rounded to 000)
|
|
|
Total
purchases from the vendor to total purchases for the year ended December 31, 2018
|
|
|
Accounts
payable (prepayment) to the vendor as of December 31, 2018 (rounded to 000)
|
|
|
1
|
|
|
|
32
|
%
|
|
$
|
1,359,000
|
|
|
|
33
|
%
|
|
$
|
(282,000
|
)
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
$
|
(17,000
|
)
|
|
3*
|
|
|
|
|
|
|
|
|
|
|
|
17
|
%
|
|
$
|
5,492,000
|
|
*
EDI, a related party. See Note 15.
The
Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE
17 – 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, 2021. 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 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.
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 SVP of 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.
On
March 20, 2020, the Company entered into an employment agreement with Mr. Michael Pope as the Chairman and Chief Executive Officer,
Mr. Pope will receive 186,484 shares of the Company’s restricted Class A common stock, which shares will vest in equal installments
over a period of 12 months.
On
March 13, 2020, the Company entered into an agreement with Everest Display, Inc. (EDI), to which EDI will forgive $2,000,000 in
accounts payable owed by the Company to EDI in exchange for the Company’s issuance of 1,333,333 shares of its Class A common
stock, at $1.50 per share.
On
February 4, 2020, the Company and Lind Global Macro Fund, LP, a Delaware limited partnership (“Lind”), entered into
a securities purchase agreement (the “SPA”) pursuant to which the Company is to receive on February 6, 2020 $750,000
in exchange for the issuance to Lind of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded
monthly (the “2020 Note”), (2) certain shares of restricted 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 $45,833.33 (the “Monthly Payments”), plus interest. Interest payments owed
under the Note (the “Interest Payments”) shall accrue beginning on the one month anniversary of the issuance of the
Note, however such Interest Payments shall accrued during the first six months of the Note, after which time the Interest Payments,
including such accrued Interest Payments, shall be payable on a monthly basis in either conversion shares or in cash
On
January 13, 2020, the Company entered into an employment agreement with Mr. Harold Bevis as the Chief Operating Officer, Mr. Bevis
received 506,355 restricted shares of the Company’s common stock. On March 20, 2020, Mr. Bevis resigned as the Chief Executive
Officer. Mr. Bevis’ shares were forfeited and none vested during his time as the Chief Executive Officer.
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 a fair value of $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.
Boxlight
Corporation
Consolidated
Condensed Balance Sheets
As
of March 31, 2020 and December 31, 2019
(Unaudited)
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
asset:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
612,936
|
|
|
$
|
1,172,994
|
|
Accounts
receivable – trade, net of allowances
|
|
|
4,260,345
|
|
|
|
3,665,057
|
|
Inventories,
net of reserves
|
|
|
2,884,640
|
|
|
|
3,318,857
|
|
Prepaid
expenses and other current assets
|
|
|
1,179,349
|
|
|
|
1,765,741
|
|
Total
current assets
|
|
|
8,937,270
|
|
|
|
9,922,649
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
203,487
|
|
|
|
207,397
|
|
Intangible
assets, net of accumulated amortization
|
|
|
5,343,557
|
|
|
|
5,559,097
|
|
Goodwill
|
|
|
4,723,549
|
|
|
|
4,723,549
|
|
Other
assets
|
|
|
59,649
|
|
|
|
56,193
|
|
Total
assets
|
|
$
|
19,267,512
|
|
|
$
|
20,468,885
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
4,794,939
|
|
|
$
|
4,721,417
|
|
Accounts
payable and accrued expenses – related parties
|
|
|
3,301,412
|
|
|
|
5,031,367
|
|
Warranty
reserve
|
|
|
31,448
|
|
|
|
12,775
|
|
Current
portion of debt – third parties
|
|
|
5,264,057
|
|
|
|
4,536,227
|
|
Current
portions of debt – related parties
|
|
|
405,550
|
|
|
|
368,383
|
|
Earn-out
payable – related party
|
|
|
351,595
|
|
|
|
387,118
|
|
Deferred
revenues – short-term
|
|
|
1,733,660
|
|
|
|
1,972,565
|
|
Derivative
liabilities
|
|
|
117,941
|
|
|
|
146,604
|
|
Other
short-term liabilities
|
|
|
54,640
|
|
|
|
31,417
|
|
Total
current liabilities
|
|
|
16,055,242
|
|
|
|
17,207,873
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenues – long-term
|
|
|
2,759,831
|
|
|
|
2,582,602
|
|
Long-term
debt – third parties
|
|
|
1,058,797
|
|
|
|
1,201,139
|
|
Long-term
debt – related parties
|
|
|
53,561
|
|
|
|
108,228
|
|
Other
long-term liabilities
|
|
|
12,389
|
|
|
|
16,696
|
|
Total
liabilities
|
|
|
19,939,820
|
|
|
|
21,116,538
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 shares issued and outstanding
|
|
|
17
|
|
|
|
17
|
|
Common
stock, $0.0001 par value, 200,000,000 shares authorized; 13,871,187 and 11,698,697 Class A shares issued and outstanding,
respectively
|
|
|
1,388
|
|
|
|
1,170
|
|
Additional
paid-in capital
|
|
|
32,763,992
|
|
|
|
30,735,815
|
|
Subscriptions
receivable
|
|
|
(200
|
)
|
|
|
(200
|
)
|
Accumulated
deficit
|
|
|
(33,296,054
|
)
|
|
|
(31,346,431
|
)
|
Accumulated
other comprehensive loss
|
|
|
(141,451
|
)
|
|
|
(38,024
|
)
|
Total
stockholders’ deficit
|
|
|
(672,308
|
)
|
|
|
(647,653
|
)
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficit
|
|
$
|
19,267,512
|
|
|
$
|
20,468,885
|
|
See
accompanying notes to unaudited consolidated condensed financial statements.
Boxlight
Corporation
Consolidated
Condensed Statements of Operations and Comprehensive Loss
For
the three months ended March 31, 2020 and 2019
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
(Note
1)
|
|
|
|
|
|
|
|
|
Revenues,
net
|
|
$
|
5,723,049
|
|
|
$
|
4,993,399
|
|
Cost
of revenues
|
|
|
4,131,989
|
|
|
|
3,321,332
|
|
Gross
profit
|
|
|
1,591,060
|
|
|
|
1,672,067
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
3,937,729
|
|
|
|
3,766,068
|
|
Research
and development
|
|
|
316,756
|
|
|
|
235,996
|
|
Total
operating expense
|
|
|
4,254,485
|
|
|
|
4,002,064
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,663,425
|
)
|
|
|
(2,329,997
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(459,320
|
)
|
|
|
(280,603
|
)
|
Other
income, net
|
|
|
57,950
|
|
|
|
21,209
|
|
Changes
in fair value of derivative liabilities
|
|
|
28,663
|
|
|
|
(2,162,495
|
)
|
Gain
from settlements of liabilities
|
|
|
1,086,509
|
|
|
|
146,434
|
|
Total
other income (expense)
|
|
|
713,802
|
|
|
|
(2,275,455
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,949,623
|
)
|
|
$
|
(4,605,452
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,949,623
|
)
|
|
$
|
(4,605,452
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
Foreign
currency translation loss
|
|
|
(103,427
|
)
|
|
|
(38,147
|
)
|
Total
comprehensive loss
|
|
$
|
(2,053,050
|
)
|
|
$
|
(4,643,599
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per common share – basic and diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.45
|
)
|
Weighted
average number of common shares outstanding – basic and diluted
|
|
|
12,493,829
|
|
|
|
10,255,808
|
|
See
accompanying notes to unaudited consolidated condensed financial statements.
Boxlight
Corporation
Consolidated
Condensed Statements of Changes in Stockholders’ Equity (Deficit)
For
the three Months Ended March 31, 2020 and 2019
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit), beginning balances
|
|
$
|
(647,653
|
)
|
|
$
|
7,968,059
|
|
|
|
|
|
|
|
|
|
|
Series
A preferred stock
|
|
|
17
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Class
A common stock and additional paid-in capital:
|
|
|
|
|
|
|
|
|
Beginning
balances
|
|
|
30,736,985
|
|
|
|
27,280,949
|
|
Shares
issued for:
|
|
|
|
|
|
|
|
|
Conversion
of accounts payable
|
|
|
566,667
|
|
|
|
-
|
|
Conversion
of notes payable
|
|
|
1,133,515
|
|
|
|
382,525
|
|
Closing
fees for issuance of notes payable
|
|
|
49,013
|
|
|
|
199,509
|
|
Acquisition
|
|
|
-
|
|
|
|
500,000
|
|
Other
share-based payments
|
|
|
8,000
|
|
|
|
12,000
|
|
Stock
compensation expense
|
|
|
271,200
|
|
|
|
118,861
|
|
Ending
balances
|
|
|
32,765,380
|
|
|
|
28,493,844
|
|
|
|
|
|
|
|
|
|
|
Subscription
receivable
|
|
|
(200
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
Beginning
balances
|
|
|
(38,024
|
)
|
|
|
(106,419
|
)
|
Foreign
currency translation loss
|
|
|
(103,427
|
)
|
|
|
(38,147
|
)
|
Ending
balances
|
|
|
(141,451
|
)
|
|
|
(144,566
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
|
|
|
|
|
|
Beginning
balances
|
|
|
(31,346,431
|
)
|
|
|
(19,206,271
|
)
|
Cumulative
effects of adoption of new accounting standards in prior period
|
|
|
-
|
|
|
|
(2,738,082
|
)
|
Net
loss
|
|
|
(1,949,623
|
)
|
|
|
(4,605,452
|
)
|
Ending
balances
|
|
|
(33,296,054
|
)
|
|
|
(26,549,805
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit), ending balances
|
|
$
|
(672,308
|
)
|
|
$
|
1,799,274
|
|
See
accompanying notes to unaudited consolidated condensed financial statements.
Boxlight
Corporation
Consolidated
Condensed Statements of Cash Flows
For
the three Months Ended March 31, 2020 and 2019
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31, 2020
|
|
|
March
31, 2019
(Note
1)
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,949,623
|
)
|
|
$
|
(4,605,452
|
)
|
Adjustments
to reconcile net loss to net cash (used) provided in operating activities:
|
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
170,830
|
|
|
|
4,839
|
|
Bad
debt expense
|
|
|
(8,711
|
)
|
|
|
(116,007
|
)
|
Gain
on settlement of liabilities
|
|
|
(1,086,509
|
)
|
|
|
(146,434
|
)
|
Change
in allowance for sales returns and volume rebate
|
|
|
1,661
|
|
|
|
(377,232
|
)
|
Change
in inventory reserve
|
|
|
(43,700
|
)
|
|
|
35,168
|
|
Change
in fair value of derivative liability
|
|
|
(28,663
|
)
|
|
|
2,162,495
|
|
Change
in fair value of earn-out payable
|
|
|
(35,523
|
)
|
|
|
-
|
|
Shares
issued for interest payment on notes payable
|
|
|
42,370
|
|
|
|
-
|
|
Stock
compensation expense
|
|
|
271,200
|
|
|
|
161,446
|
|
Other
share-based payments
|
|
|
8,000
|
|
|
|
12,000
|
|
Depreciation
and amortization
|
|
|
219,450
|
|
|
|
246,147
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable – trade
|
|
|
(588,238
|
)
|
|
|
1,864,532
|
|
Inventories
|
|
|
477,917
|
|
|
|
962,894
|
|
Prepaid
expenses and other current assets
|
|
|
586,392
|
|
|
|
362,500
|
|
Other
assets
|
|
|
(3,456
|
)
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
830,364
|
|
|
|
655,681
|
|
Warranty
reserve
|
|
|
18,673
|
|
|
|
(121,393
|
)
|
Accounts
payable and accrued expenses - related parties
|
|
|
270,045
|
|
|
|
(42,439
|
)
|
Other
short-term liabilities
|
|
|
23,223
|
|
|
|
14,191
|
|
Deferred
revenues
|
|
|
(61,676
|
)
|
|
|
(508,192
|
)
|
Other
liabilities
|
|
|
(4,307
|
)
|
|
|
-
|
|
Net
cash (used) provided in operating activities
|
|
$
|
(890,281
|
)
|
|
$
|
564,744
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
receipts from acquisitions
|
|
|
-
|
|
|
|
10,261
|
|
Net
cash provided by investing activities
|
|
|
-
|
|
|
|
10,261
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from short-term debt
|
|
|
2,816,620
|
|
|
|
4,806,787
|
|
Principal
payments on short-term debt
|
|
|
(3,091,720
|
)
|
|
|
(5,361,951
|
)
|
Proceeds
from convertible notes payable
|
|
|
750,000
|
|
|
|
2,000,000
|
|
Debt
issuance costs
|
|
|
(41,250
|
)
|
|
|
(165,530
|
)
|
Net
cash provided by financing activities
|
|
$
|
433,650
|
|
|
$
|
1,279,306
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency exchange rates
|
|
|
(103,427
|
)
|
|
|
(38,147
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(560,058
|
)
|
|
|
1,816,164
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of the period
|
|
|
1,172,994
|
|
|
|
901,459
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of the period
|
|
$
|
612,936
|
|
|
$
|
2,717,623
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
340,313
|
|
|
$
|
275,676
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investment and financing transactions:
|
|
|
|
|
|
|
|
|
Shares
issued to convert accounts payable
|
|
$
|
566,667
|
|
|
$
|
-
|
|
Shares
issued to convert notes payable – Lind Global
|
|
$
|
1,133,515
|
|
|
$
|
382,525
|
|
Shares
issued for closing fees related to outstanding notes payable
|
|
$
|
49,013
|
|
|
$
|
199,509
|
|
Shares
and notes payable issued as consideration for acquisition of Modern Robotics, Inc. net of cash received
|
|
$
|
-
|
|
|
$
|
559,739
|
|
See
accompanying notes to unaudited consolidated condensed financial statements.
Boxlight
Corporation
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”) committed 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.
10,752,688
Shares
Class
A Common Stock
Sole
Book-Running Manager
Maxim
Group LLC
,
2020
Through
and including , 2020 (the 25th day after the date of this offering), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s
obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.