Notes
to Consolidated Condensed Financial Statements
(Unaudited)
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, 2018 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, 2018 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 from 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 evaluate the
recoverability of intangible assets, other than goodwill 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. 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, 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 September 30, 2019 and December 31, 2018:
|
|
Markets for
Identical
Assets
|
|
|
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
Carrying
Value as
of September 30,
|
|
Description
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
2019
|
|
Derivative liabilities -
warrant instruments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
896,095
|
|
|
$
|
896,095
|
|
Earn-out payable
– related party
|
|
|
-
|
|
|
|
-
|
|
|
|
387,430
|
|
|
|
387,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,283,525
|
|
|
$
|
1,283,525
|
|
|
|
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
– related party
|
|
|
-
|
|
|
|
-
|
|
|
|
410,000
|
|
|
|
410,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
736,452
|
|
|
$
|
736,452
|
|
The following table shows the change in
the Company’s earn-out payable rollforward for the nine months ended September 30, 2019 and 2018:
|
|
Amount
|
|
Balance, December 31, 2018
|
|
$
|
410,000
|
|
Amount paid
|
|
|
(22,570
|
)
|
Change in fair value of earn-out payable
|
|
|
-
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
$
|
387,430
|
|
|
|
Amount
|
|
Balance, December 31, 2017
|
|
$
|
-
|
|
Earn-out payable – related party
|
|
|
410,000
|
|
Amount paid
|
|
|
-
|
|
Change in fair value of earn-out payable
|
|
|
-
|
|
|
|
|
|
|
Balance, September 30, 2018
|
|
$
|
410,000
|
|
REVENUE
RECOGNITION
Revenue
is 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 recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and collectability is 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 its 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 entered into
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 and training 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 services.
The
Company evaluates the criteria outlined in Accounting Standards Codification (“ASC”) Subtopic 605-45, “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 generally does not allow product returns other than under warranty. However, the Company, on a case by case basis, will
grant exceptions, mostly for “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 specific needs. An allowance for
sales returns is estimated based on an analysis of historical trends.
The
Company uses resellers and distributors to sell its products. Resellers’ sale agreements generally do not contain
any special pricing incentives, right of return or other post shipment obligations. Distributors’ sale agreements, on
the other hand, generally contain an inventory stock rotation clause, which gives the distributor the right to rotate its
inventory within a specified period and in accordance to the Company’s current
return procedures.
The Company has a warranty policy to provide
12 to 36-month warranty coverage on projectors, displays, accessories, batteries and computers except when sold through
a “Premier Education Partner” or sold to certain schools where the Company provides 60-month warranty coverage.
The Company establishes liability for estimated product warranty costs at the time the related product revenue is recognized if
the potential liability is expected to be material. The projected 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 the Company’s overall gross profit.
The
Company offers sales incentives where the Company via offering discounted products to Company’s resellers and
distributors that are redeemable only if the resellers and distributors achieve specified cumulative levels of revenue which
were formally agreed to in their reseller and distributor agreements through an executed addendum. The resellers and
distributors have to submit a request for the discounted 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 revenues based on analyses of historical data.
STOCK
COMPENSATION
The
Company estimates the fair value of each share-based 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 share-based compensation expense is recognized based on awards ultimately
expected to vest, excess tax benefits, if any, are recognized as an addition to paid-in capital.
SUBSEQUENT
EVENTS
The
Company has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.
NEW
ACCOUNTING STANDARDS
In
May 2014, the FASB issued Accounting Standard Update (“ASU”) 2014-09, “Revenue from Contracts with Customers
(Topic 606).” The new guidance provides new criteria for recognizing revenue to depict the transfer of goods or services
to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods
or services. The new guidance requires expanded disclosures to provide greater insight into both revenue that has been recognized
and revenue that is expected to be recognized in the future from existing contracts. Quantitative and qualitative information
will be provided about the significant judgments and changes in those judgments that management made to determine the revenue
that is recorded. Since the Company is an Emerging Growth Company, the ASU is effective for annual reporting periods beginning
after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019. Earlier application
is permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the
cumulative effect recognized as of the date of adoption. The Company is currently assessing the provisions of the guidance and
has not determined the impact of the adoption of this guidance on its consolidated financial statements.
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 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
test through both quantitative and qualitative assessment.
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.
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 condensed 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 September 30, 2019, the Company
had an accumulated deficit of $25,350,392 and a working capital deficit of $5,166,264. During the nine months ended
September 30, 2019, the Company incurred a net loss of $6,144,121 and net cash used in operations was $6,280,556.
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 or debt securities or from bank 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 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. The Company has not yet finalized its evaluation and determination of the fair value of certain
assets acquired and liabilities assumed. The Company recorded provisional amounts based on initial measurements of the assets
acquired and liabilities assumed. The provisional amounts are subject to change and could result in goodwill, which could be significant.
The Company will finalize the amounts recognized no later than one year from the acquisition date.
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
|
|
|
66,300
|
|
Inventories
|
|
|
386,485
|
|
Prepaid expenses
|
|
|
24,413
|
|
Intangible
assets
|
|
|
93,185
|
|
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
|
|
NOTE
4 – ACCOUNTS RECEIVABLE - TRADE
Accounts
receivable consisted of the following at September 30, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
$
|
9,275,782
|
|
|
$
|
4,658,352
|
|
Allowance for doubtful
accounts
|
|
|
(197,721
|
)
|
|
|
(276,507
|
)
|
Allowance
for sales returns and volume rebates
|
|
|
(662,955
|
)
|
|
|
(747,119
|
)
|
|
|
|
|
|
|
|
|
|
Accounts
receivable - trade, net of allowances
|
|
$
|
8,415,106
|
|
|
$
|
3,634,726
|
|
NOTE
5 – INVENTORIES
Inventories
consisted of the following at September 30, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
3,165,703
|
|
|
$
|
4,135,424
|
|
Spare parts
|
|
|
377,445
|
|
|
|
285,575
|
|
Reserve for inventory
obsolescence
|
|
|
(124,688
|
)
|
|
|
(206,683
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
3,418,460
|
|
|
$
|
4,214,316
|
|
During
the nine months ended September 30, 2019 and 2018, no obsolete inventories were written off.
NOTE
6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following at September 30, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Prepayments to vendors
|
|
$
|
990,267
|
|
|
$
|
1,033,896
|
|
Employee receivables
|
|
|
-
|
|
|
|
1,794
|
|
Prepaid local taxes
|
|
|
1,633
|
|
|
|
1,614
|
|
Prepaid insurance
|
|
|
19,451
|
|
|
|
-
|
|
Prepaid licenses
and other
|
|
|
570,285
|
|
|
|
176,853
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
and other current assets
|
|
$
|
1,581,636
|
|
|
$
|
1,214,157
|
|
NOTE
7 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at September 30, 2019 and December 31, 2018:
|
|
Useful
lives
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Building
|
|
50 years
|
|
$
|
199,708
|
|
|
$
|
199,708
|
|
Building improvements
|
|
15 years
|
|
|
9,086
|
|
|
|
9,086
|
|
Leasehold improvements
|
|
9-10 years
|
|
|
3,355
|
|
|
|
3,355
|
|
Office equipment
|
|
2-7 years
|
|
|
40,061
|
|
|
|
36,450
|
|
Other equipment
|
|
5 years
|
|
|
42,485
|
|
|
|
42,485
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
|
|
294,695
|
|
|
|
291,084
|
|
Accumulated depreciation
|
|
|
|
|
(85,175
|
)
|
|
|
(64,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation
|
|
|
|
$
|
209,520
|
|
|
$
|
226,409
|
|
For
the nine months ended September 30, 2019 and 2018, the Company recorded depreciation expense of $20,500 and $47,944, respectively.
NOTE
8 – INTANGIBLE ASSETS AND GOODWILL
Intangible
assets and goodwill consisted of the following at September 30, 2019 and December 31, 2018:
|
|
Useful
lives
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
10 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
|
|
|
|
|
(2,517,253
|
)
|
|
|
(1,848,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net of accumulated amortization
|
|
|
|
$
|
5,776,915
|
|
|
$
|
6,352,273
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended September 30, 2019 and 2018, the Company recorded amortization expense of $668,543 and $582,447, respectively.
NOTE
9 – DEBT
The
following is a summary of our debt at September 30, 2019 and December 31, 2018:
|
|
2019
|
|
|
2018
|
|
Debt –
Third Parties
|
|
|
|
|
|
|
|
|
Note
payable – Lind Global
|
|
$
|
3,915,674
|
|
|
$
|
-
|
|
Accounts receivable
financing – Sallyport Commercial
|
|
|
4,384,536
|
|
|
|
953,739
|
|
Note payable –
Radium 2 Capital
|
|
|
-
|
|
|
|
725,159
|
|
Note payable –
Whitebirk Finance Limited
|
|
|
-
|
|
|
|
127,329
|
|
Note
payable – Harbor Gates Capital
|
|
|
-
|
|
|
|
500,000
|
|
Total debt –
third parties
|
|
|
8,300,210
|
|
|
|
2,306,227
|
|
Less:
current portion of debt – third parties
|
|
|
6,883,522
|
|
|
|
2,306,227
|
|
Long-term
debt – third parties
|
|
$
|
1,416,688
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Debt –
Related Parties
|
|
|
|
|
|
|
|
|
Note payable –
Qwizdom (Darin & Silvia Beamish)
|
|
|
381,563
|
|
|
|
601,333
|
|
Note payable –
Steve Barker
|
|
$
|
35,000
|
|
|
$
|
-
|
|
Note payable –
Logical Choice Corporation – Delaware
|
|
|
54,000
|
|
|
|
54,000
|
|
Note
payable – Mark Elliott
|
|
|
50,000
|
|
|
|
50,000
|
|
Total debt –
related parties
|
|
|
520,563
|
|
|
|
705,333
|
|
Less:
current portion of debt – related parties
|
|
|
357,668
|
|
|
|
377,333
|
|
Long-term
debt – related parties
|
|
$
|
162,895
|
|
|
$
|
328,000
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
$
|
8,820,773
|
|
|
$
|
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. As of September 30, 2019, outstanding principal net of debt issuance cost and discount, and accrued interest were $3,915,674
and $178,960, respectively. Principal of $2,933,332 is due within one year from September 30, 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 September 30, 2019, outstanding principal and accrued interest were $4,384,536 and $0, respectively. For the nine months ended
September 30, 2019, the Company incurred interest expense of $573,796.
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. As of September 30,
2019, the outstanding principal and accrued interest were $0 and $0, respectively.
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. As of September 30, 2019, the outstanding principal
and accrued interest were $0 and $0, respectively.
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 at the 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. As such 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 September 30, 2019, outstanding principal and accrued interest under
this note were $381,563 and $0, 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 $218,668 is due within a year from September 30, 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 September 30, 2019, outstanding principal and accrued interest under this agreement was $35,000 and
$0, 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 September 30, 2019, outstanding principal and accrued
interest under this agreement was $54,000 and $25,355, 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 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, 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, Mr. Elliott and the Company amended the note to eliminate the
conversion provision of the note. As of September 30, 2019, outstanding principal and accrued interest under this note were $50,000
and $23,548, 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.
NOTE
10 – DEFERRED REVENUE
The
Company has future performance obligations for separately priced extended warranties sold related to its Lamps for Life program
and advances from customers. Activity during the nine months ended September 30, 2019 and 2018 was as follows:
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
1,073,014
|
|
|
$
|
1,212,292
|
|
Additions
|
|
|
1,667,812
|
|
|
|
15,830,015
|
|
Amortization
|
|
|
(2,332,161
|
)
|
|
|
(11,129,344
|
)
|
Balance, ending of period
|
|
|
408,665
|
|
|
|
5,912,963
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
– short-term
|
|
|
311,184
|
|
|
|
5,749,610
|
|
Deferred revenue
– long-term
|
|
$
|
97,481
|
|
|
$
|
163,353
|
|
During
September 2018, the Company entered an arrangement with a distributor which specifies shipment to an intermediate site before
final delivery to the end user. The distributor prepaid the majority of the sales price and assumes the title to the products
upon shipment to the intermediate site. The Company deferred both the revenue and related product costs until final delivery.
Deferred revenue related to the arrangement was $4.6 million at September 30, 2018 and was released December 2018.
NOTE
11 – 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 September 30, 2019 and 2018:
|
|
September
30, 2019
|
|
Common
stock issuable upon exercise of warrants
|
|
|
1,189,949
|
|
Market
value of common stock on measurement date
|
|
$
|
1.84
|
|
Exercise
price
|
|
$
|
1.20-2.23
|
|
Risk
free interest rate (1)
|
|
|
1.63-1.88
|
%
|
Expected
life in years
|
|
|
0.25-2.25
years
|
|
Expected
volatility (2)
|
|
|
73.69-87.03
|
%
|
Expected
dividend yields (3)
|
|
|
0
|
%
|
|
|
September
30, 2018
|
|
Common
stock issuable upon exercise of warrants
|
|
|
1,129,121
|
|
Market
value of common stock on measurement date
|
|
$
|
2.92
|
|
Exercise
price
|
|
$
|
3.10
|
|
Risk
free interest rate (1)
|
|
|
2.59
- 2.88
|
%
|
Expected
life in years
|
|
|
1.3
– 3.3 years
|
|
Expected
volatility (2)
|
|
|
67
– 68
|
%
|
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 nine months ended September
30, 2019 and 2018:
|
|
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
|
|
|
527,058
|
|
|
|
|
|
|
Balance,
September 30, 2019
|
|
$
|
896,095
|
|
|
|
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
|
|
|
334,990
|
|
|
|
|
|
|
Balance,
September 30, 2018
|
|
$
|
1,088,423
|
|
The
change in fair value of derivative liabilities includes losses from exercise price modifications.
NOTE
12 – 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.
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 September 30, 2019 and December 31, 2018, the Company had 10,849,966 and 10,176,433 shares of Class A common stock issued
and outstanding, respectively. No Class B shares were outstanding at September 30, 2019 and December 31, 2018.
Issuance
of common stock
During
the nine months ended September 30, 2019, the Company issued 14,380 shares of common stock in lieu of payment for services with
an aggregate amount of $36,000.
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
March 22, 2019, the Company issued 71,766 shares of common stock valued at $2.78 per share in lieu of payment of the closing fees
of the convertible debt issued to Lind Global.
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.
Exercise
of stock options
No
options to purchase common stock were exercised during the nine months ended September 30, 2019.
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 September 30, 2019, the Company had 461,966
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 nine months ended September 30, 2019:
|
|
Number
of Units
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining Contractual
Term (in years)
|
|
Outstanding,
December 31, 2018
|
|
|
1,718,024
|
|
|
$
|
4.18
|
|
|
|
4.64
|
|
Granted
|
|
|
543,250
|
|
|
$
|
1.83
|
|
|
|
|
|
Cancelled
|
|
|
(88,641)
|
|
|
$
|
5.33
|
|
|
|
|
|
Outstanding,
September 30, 2019
|
|
|
2,172,643
|
|
|
$
|
3.55
|
|
|
|
4.32
|
|
Exercisable,
September 30, 2019
|
|
|
1,493,809
|
|
|
$
|
3.38
|
|
|
|
3.91
|
|
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 September 30, 2019, the options had an intrinsic value of approximately $0.9 million.
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 that was calculated
using the Black-Scholes option-pricing model.
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 each of 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.
Variables
used in the Black-Scholes option-pricing model for options granted during the nine months ended September 30, 2019 include: (1)
discount rate of 1.54 - 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.
Warrants
Following
is a summary of the warrant activities during the nine months ended September 30, 2019:
|
|
Number
of Units
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (in years)
|
|
Outstanding,
December 31, 2018
|
|
|
1,184,121
|
|
|
$
|
1.9
|
|
|
|
1.63
|
|
Granted
|
|
|
60,827
|
|
|
$
|
2.2
|
|
|
|
|
|
Outstanding,
September 30, 2019
|
|
|
1,244,948
|
|
|
$
|
1.5
|
|
|
|
0.85
|
|
Exercisable,
September 30, 2019
|
|
|
1,191,824
|
|
|
$
|
1.26
|
|
|
|
0.75
|
|
During
the nine months ended September 30, 2019, the Company issued 60,827 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.
Variables used in the Black-Scholes option-pricing
model for warrants granted during the nine months ended September 30, 2019 include: (1) discount rate of 2.45 - 2.52% (2)
expected life of 0.78 – 0.81 years, (3) expected volatility of 74%, and (4) zero expected dividends.
Stock
compensation expense
For
the nine months ended September 30, 2019 and 2018, the Company recorded the following stock compensation in general and administrative
expense:
|
|
2019
|
|
|
2018
|
|
Stock
options
|
|
$
|
557,933
|
|
|
$
|
1,417,882
|
|
Warrants
|
|
|
42,585
|
|
|
|
149,294
|
|
Common
stock
|
|
|
294,998
|
|
|
|
-
|
|
Total
stock compensation expense
|
|
$
|
895,516
|
|
|
$
|
1,567,176
|
|
As
of September 30, 2019, there was approximately $1.5 million of unrecognized compensation expense related to unvested options,
which will be amortized over the remaining vesting period. Of that total, approximately $0.2 million is estimated to be recorded
as compensation expense in the remaining three months of 2019.
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 is subject to a cap of $750,000 in each of 2017
and 2018. At its option, Dynamic Capital 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. As of September 30, 2019, and December 31, 2018, the Company had a payable to Dynamic
Capital $0 and $425,619, respectively.
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 Technology, Inc., is a major supplier of products to the
Company. For the nine months ended September 30, 2019 and 2018, the Company had purchases of $855,947 and $3,296,797, respectively,
from EDI. For the nine months ended September 30, 2019 and 2018, the Company had sales of $37,360 and $18,546, respectively, to
EDI. As of September 30, 2019, and December 31, 2018, the Company had accounts payable of $5,077,670 and $5,491,616, respectively,
to EDI.
NOTE
15 – 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 September 30, 2019 are as follows:
Year
ending December 31,
|
|
Amount
|
|
2019
|
|
$
|
85,077
|
|
2020
|
|
|
335,032
|
|
2021
|
|
|
315,840
|
|
2022
|
|
|
79,440
|
|
|
|
|
|
|
Net
Minimum Lease Payments
|
|
$
|
815,389
|
|
For
the nine months ended September 30, 2019 and 2018, aggregate rent expense was $312,910 and $216,466 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 among few customers for the nine months ended September 30, 2019 and 2018:
Customer
|
|
Total
revenues from the
customer to total
revenues for the
nine months ended
September 30, 2019
|
|
|
Accounts
receivable
from the customer as of
September 30, 2019
(rounded to 000’s)
|
|
1
|
|
|
13
|
%
|
|
$
|
643
|
|
2
|
|
|
13
|
%
|
|
|
2,624
|
|
3
|
|
|
13
|
%
|
|
|
638
|
|
Customer
|
|
Total
revenues from the
customer to total
revenues for the
nine months ended
September 30, 2018
|
|
|
Accounts
receivable
from the customer as of
September 30, 2018
(rounded to 000’s)
|
|
1
|
|
|
31
|
%
|
|
$
|
4,891
|
|
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 nine months ended September 30, 2019 and 2018:
Vendor
|
|
Total
purchases from the
vendor to total
purchases for the
nine months ended
September 30, 2019
|
|
|
Accounts
payable
(prepayment) to the
vendor as of
September 30, 2019
(rounded to 000’s)
|
|
1
|
|
|
34
|
%
|
|
$
|
(1,789
|
)
|
Vendor
|
|
Total
purchases from the
vendor to total
purchases for the
nine months ended
September 30, 2018
|
|
|
Accounts
payable
(prepayment) to the
vendor as of
September 30, 2018
(rounded to 000’s)
|
|
1
|
|
|
33
|
%
|
|
$
|
(495
|
)
|
2
|
|
|
31
|
%
|
|
$
|
(429
|
)
|
3*
|
|
|
17
|
%
|
|
$
|
-
|
|
*EDI,
a related party. See Note 14.
The
Company believes there are other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE
17 – SUBSEQUENT EVENTS
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, which options vest quarterly in equal installments over a period of four years. The expiration
date of these options is five years from the grant date.