PART
I
ITEM
1. DESCRIPTION OF BUSINESS
We
are an education technology company that develops, sells and services interactive classroom solutions for the global education
market. We are seeking to become a world leading innovator and integrator of interactive products and software for schools, as
well as for business and government learning spaces. We currently design, produce and distribute interactive technologies including
flat panels, projectors, whiteboards and peripherals to the education market. We also distribute science, technology, engineering
and math (or “STEM”) products, including our portable science lab. All of our products are integrated into our classroom
software suite that provides tools for whole class learning, assessment and collaboration. To date, we have generated substantially
all of our revenue from the sale of our software and interactive displays to the educational market.
We are a vertically integrated
total solution provider operating in the education sector providing educators with hardware, engineering and manufacturing,
software and content development for use in the classroom. We provide comprehensive services to our clients and customers,
including installation, training, consulting and maintenance. We seek to provide easy-to-use solutions combining interactive displays
with robust software to enhance the educational environment, ease the teacher technology burden, and improve student outcomes.
Our goal is to become a single source solution to satisfy the needs of educators around the globe and provide a holistic approach
to the modern classroom. Our products are currently sold in approximately 60 countries and our software is available in 32 languages,
helping children learn in over 850,000 classrooms. We sell our products and software through more than 500 global reseller
partners. We believe we offer the most comprehensive and integrated line of interactive display solutions, audio products, peripherals
and accessories for schools and enterprises. Our products are backed by nearly 30 years of research and development. We introduced
the world’s first interactive projector in 2007 and obtained patents to the technology in 2010.
Advances in technology
and new options for introduction into the classroom have forced school districts to look for solutions that allow teachers and
students to bring their own devices into the classroom, provide school districts with information technology departments
with the means to access data with or without internet access, handle the demand for video, and control cloud and data storage
challenges. Our design teams are able to quickly customize systems and configurations to serve the needs of clients so that existing
hardware and software platforms can communicate with one another. We have created plug-ins for annotative software that make existing
and legacy hardware interactive and allows interactivity with or without wires through our MimioTeach product. Our goal is to
become a single source solution to satisfy the needs of educators around the globe and provide a holistic approach to the modern
classroom.
We pride ourselves in providing industry-leading service and support
and have received numerous product awards:
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In
2018, we won the BETT Awards 2018 for our STEM product, Labdisc, tools for teaching, learning and assessment category,
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In
2017, our MimioStudio with MimioMobile was a BETT Awards finalist in the tools for teaching, learning and assessment area,
our Labdisc product was named Best of BETT 2017 for the Tech & Learning award, won the Best In Show at TCEA and our P12
Projector Series won the Tech & Learning best in show award at ISTE in 2017,
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In
2016, our MimioMobile App with Mimio Studio Classroom Software won the 2016 Cool Tool Award and we received the 2016 Award
of Excellence for our MimioTeach at the 34th Tech & Learning Awards of Excellence program honoring new
and upgraded software.
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Since
the Company launched its patented interactive projectors in 2007, we have sold them to public schools in the United States and
in 49 other countries, as well as to the Department of Defense International Schools, and in approximately 3,000 classrooms in
20 countries, the Job Corp, the Library of Congress, the Center for Disease Control, the Federal Emergency Management Agency,
nine foreign governments and the City of Moscow and numerous Fortune 500 companies, including Verizon, GE Healthcare, Pepsico,
First Energy, ADT, Motorola, First Data and Transocean and custom built 4,000 projectors for the Israeli Defense Forces.
The COVID-19 pandemic
has impacted global economies, resulting in workforce and travel restrictions, supply chain and production disruptions and reduced
demand and spending across the education technology sector. These factors began having adverse impacts on our operations, financial
performance, liquidity and price of our securities as well as on the operations and financial performance of many of the customers
and suppliers in the education technology sector.
We have taken steps to protect the health
and safety of our employees and maintain business continuity. In addition, we have taken steps to reduce the financial and operating
effects on our business including making significant reductions in payroll, reducing travel & entertainment expenditures,
professional fees, marketing expense, contract services and other operating expenses. In March 2020, we had a payroll reduction
which resulted in an approximately 17% reduction of our total annual payroll expense.
Please refer to item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations for discussion of specific impacts on seasonality and
liquidity and capital resources.
Our
Company
Boxlight
Corporation was incorporated in Nevada on September 18, 2014 for the purpose of acquiring technology companies that sell interactive
products into the education market. As of the date of this Annual Report, we have five subsidiaries, consisting of Boxlight Inc.,
a Washington State corporation, Boxlight Latinoamerica, S.A. DE C.V. and Boxlight Latinamerica Servicios, S.A. DE C.V., both incorporated
in Mexico, Boxlight Group Ltd., a company incorporated in the UK, EOSEDU, LLC, a Nevada limited liability company
and Modern Robotics Inc.
Effective
April 1, 2016, we acquired Mimio LLC (“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 Collaboration LLC (“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 Boxlight Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica
Servicios, S.A. DE C.V. (“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 new 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, we acquired 100% of the share capital of Cohuborate, Ltd., a United Kingdom
corporation based in Lancashire, England. Cohuborate produces, sells and distribute 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 Cohuborate will
enhance our software capability and product offerings.
On
June 22, 2018 pursuant to a stock purchase agreement, the Company acquired 100% of the capital stock of Qwizdom Inc., a
Washington corporation and its subsidiary Qwizdom UK Ltd. a corporation organized under the laws of Ireland (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
December 20, 2018, Cohuborate Ltd. transferred all of its assets and liabilities to Qwizdom UK Limited and changed its name to
Qwizdom UK Limited. On December 20, 2018, Qwizdom UK Limited changed its name to Boxlight Group Ltd. On January 24, 2019, we merged
Qwizdom, Inc with and into Boxlight, Inc.
The
businesses previously conducted by Cohuborate Ltd. and Qwizdom UK Limited are now operated by the Boxlight Group Ltd. wholly-owned
subsidiary of Boxlight, Inc.
On
August 31, 2018, we purchased 100% of the membership interest equity of EOSEDU, LLC, an Arizona limited liability company owned
by Daniel and Aleksandra Leis. EOSEDU 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 Boxlight
Inc. acquired substantially all of the assets and assumed certain liabilities of Modern Robotics Inc., a New York corporation
(“Modern Robotics”) is a company engaged in the business of developing, selling and distributing STEM, robotics
and programming solutions to the education market globally.
On April 17, 2020,
Boxlight Inc. acquired substantially all of the assets and assumed certain liabilities of MyStemKits Inc. (“MyStemKits”).
MyStemKits is in the business of developing, selling and distributing 3D printable science, technology, engineering and math curriculums
incorporating 3D printed project kits for education, and owns the right to manufacture, market and distribute Robo 3D branded
3D printers and associated hardware for the global education market.
For a description of the
terms of our acquisitions of Cohuborate, the Qwizdom Companies, EOSEDU and the acquisitions of the assets of Modern Robotics
and MyStemKits, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Recent Acquisitions” elsewhere in this Annual Report.
The
organizational structure of our companies is as follows:
Our
Markets
The global education industry
is undergoing a significant transition, as primary and secondary school districts, colleges and universities, as well as governments,
corporations and individuals around the world are increasingly recognizing the importance of using technology to more effectively
provide information to educate students and other users. In the United States, which is our primary market, we sell and distribute
interactive educational products for grades K-12 to both public and private schools. The K-12 education sector represents
one of the largest industry segments. The sector is comprised of approximately 15,600 public school districts across the 50 states
and 132,000 public and private elementary and secondary schools. In addition to its size, the U.S. K-12 education market is highly
decentralized and is characterized by complex content adoption processes. We believe this market structure underscores the importance
of scale and industry relationships and the need for broad, diverse coverage across states, districts and schools. Even while
we believe certain initiatives in the education sector, such as the Common Core State Standards, a set of shared math and literacy
standards benchmarked to international standards, have increased standardization in K-12 education content, we believe significant
state standard specific customization still exists, and we believe the need to address customization provides an ongoing need
for companies in the sector to maintain relationships with individual state and district policymakers and expertise in state-varying
academic standards.
According
to “All Global Market Education & Learning”, an industry publication, the market for hardware products
is growing due to increases in the use of interactive whiteboards and simulation-based learning hardware. Educational institutions
have become more receptive to the implementation of hi-tech learning tools. The advent of technology in the classroom has enabled
multi-modal training and varying curricula. In general, technology based tools help develop student performance when integrated
with the curriculum. The constant progression of technology in education has helped educators to create classroom experiences
that are interactive, developed and collaborative.
Our
Opportunity
We
believe that our Connected Classroom™ solution uniquely positions Boxlight to be the leading provider of EdTech products
within our categories in the global education technology market. Our holistic solution of hardware, software, content and professional
development improves learning progression by increasing student engagement and timely interventions. Coupled with our innovations:
we have a strong brand, operations and supply-chain; our channel to the US and global market is growing year-on-year; and a global
24/7 technical and customer services team retains a very high satisfaction rating.
It is widely acknowledged
globally that long-term economic growth is closely correlated to investment in education and educational technology, thus sustaining
long-term growth in the market, even during periods of economic downturn. Further details of our solution and favorable macro-economic
analysis:
Growth
in U.S. K-12 Market Expenditures
Significant
resources are being devoted to primary and secondary education, both in the United States and abroad. As set forth in the
Executive Office of the President, Council of Economic Advisers report, U.S. education expenditure has been estimated at
approximately $1.3 trillion (~6% of U.S. GDP), with K-12 education accounting for close to half ($625 billion) of this
spending. Global spending is roughly triple U.S. spending for K-12 education.
The market for
K-12 services and technology has historically grown above the pace of inflation, averaging 7.2% growth annually since 1969.
Deviations around this mean occur during periods of economic growth and recession causing peaks and troughs in the K-12
market, albeit below other sectors.
Justifying
HolonIQ market analysis states that Global EdTech Venture Capital has been $32 billion in the last decade (approximately 33%
within the US), and predicts nearly triple that investment through to 2030. Following that the global “expenditure on
education and training from governments, parents, individuals and corporates continues to grow to historic levels and is
expected to reach USD$10T by 2030”.
Futuresource, in 2019,
stated: “forecast [for US Interactive Display Market] for the next four years is expected to be strong, averaging 13% growth
per year. The transition to IFPDs will contribute to the market almost doubling in value over five years to $1.6B in 2023.”
Increasing
Focus on Accountability and the Quality of Student Education
U.S.
K-12 education has come under significant political scrutiny in recent years, with findings that American students rank far behind
other global leaders in international tests of literacy, math and science, with the resulting conclusion that the current state
of U.S. education severely impairs the United States’ economic, military and diplomatic security as well as broader components
of America’s global leadership.
Trends
in Tech-Savvy Education
While
industries from manufacturing to health care have adopted technology to improve their results, according to Stanford Business
School, in its Trends in Tech-Savvy Education, the education field remains heavily reliant on “chalk and talk”
instruction conducted in traditional settings; however, that is changing as schools and colleges adopt virtual classrooms, data
analysis, online games, highly customized coursework, and other cutting-edge tools to help students learn.
New
Technologies
The
delivery of digital education content is also driving a substantial shift in the education market. In addition to whiteboards,
interactive projectors and interactive flat panels, other technologies are being adapted for educational uses on the Internet,
mobile devices and through cloud-computing, which permits the sharing of digital files and programs among multiple computers or
other devices at the same time through a virtual network. We intend to be a leader in the development and implementation of these
additional technologies to create effective digital learning environments.
Demand
for Interactive Projectors is on the Rise
As
a complete system, interactive projectors are considerably less expensive than interactive whiteboards or interactive flat panel
displays, placing them at a distinct advantage in price sensitive markets.
International
Catalysts Driving Adoption of Learning Technology
According
to Ambient Insights 2012 Snapshot of the Worldwide and US Academic Digital Learning Market, substantial growth in revenues
for e-learning products in the academic market segment are anticipated throughout the world due to several convergent catalysts,
including population demographics such as significant growth in numbers of 15-17 year old students and women in education in emerging
markets; government-funded education policies mandating country-wide deployment of digital learning infrastructures; large scale
digitization efforts in government and academic markets; significant increases in the amount of digital learning content; migration
to digital formats by major educational publishers and content providers; mass purchases of personal learning devices and strong
demand for learning platforms, content and technology services; and rapid growth of part-time and fulltime online student enrollments.
Growth
in the E-learning Market
According
to the “E-learning Market – Global Outlook and Forecast 2018-2023”
The
introduction of technology-enabled learning that helps organizations train human resource is driving the growth of the global
e-learning market. These training modules offer continuous and effective learning at an optimal cost and provide customized course
content that meets the specific requirements of end-users. The advent of cloud infrastructure, peer-to-peer problem solving, and
open content creation will help to expand business opportunities for service providers in the global e-learning market.
Vendors
are also focusing on offering choices on the course content at competitive prices to gain the share in the global e-learning market.
The exponential growth in the number of smartphone users and internet connectivity across emerging markets is driving the e-learning
market in these regions. The introduction of cloud-based learning and AR/VR mobile-based learning is likely to revolutionize the
e-learning market during the forecast period.
Major
vendors are introducing technology-enabled tools that can facilitate user engagement, motivate learners, and help in collaborations,
thereby increasing the market share and attracting new consumers to the market. The growing popularity of blended learning that
enhances the efficiency of learners will drive the growth of the e-learning market. The e-learning market is expected to generate
revenue of $65.41 billion by 2023, growing at a CAGR of 7.07% during the forecast period.
Handheld
Device Adoption
Handheld devices, including
smartphones, tablets, e-readers and digital video technologies, are now fundamental to the way students communicate. A 2010 Federal
Communications Commission (FCC) survey provides evidence that the rates of handheld use will increase dramatically. It reported
that while 50% of respondents currently use handhelds for administrative purposes, 14% of schools and 24% of districts use such
devices for academic or educational purposes. Furthermore, 45% of respondents plan to start using such devices for academic and
educational purposes within the next two to three years. The survey stated that, “The use of digital video technologies
to support curriculum is becoming increasingly popular as a way to improve student engagement.”
Natural
User Interfaces (NUIs)
Tablets
and the new class of “smart TVs” are part of a growing list of other devices built with natural user interfaces that
accept input in the form of taps, swipes, and other ways of touching; hand and arm motions; body movement; and increasingly, natural
language. Natural user interfaces allow users to engage in virtual activities with movements similar to what they would use in
the real world, manipulating content intuitively. The idea of being able to have a completely natural interaction with a device
is not new, but neither has its full potential been realized. For example, medical students increasingly rely on simulators employing
natural user interfaces to practice precise manipulations, such as catheter insertions, that would be far less productive if they
had to try to simulate sensitive movements with a mouse and keyboard. NUIs make devices seem easier to use and more accessible,
and interactions are far more intuitive, which promotes exploration and engagement. (NMC Horizon Project Technology Outlook
STEM+ Education 2012-2017).
Our
Portfolio
We
currently offer products within the following categories:
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Front-of-Class
Display
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Classroom
Audio
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STEM
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Educational
Software & Content
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Peripherals
and Accessories
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Professional
Development
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Boxlight
Connected Classroom are permutations of these products coming together to create a holistic integrated solution centered around
the teacher and learners within and outside the confines of the physical room.
Front-of-Class Display Category
Boxlight offers a choice
of Interactive Front Panel Displays (IFPD), Interactive Whiteboards (IWB), Interactive Projectors and Non-Interactive Projectors.
Each comes with licensed copies of our software, access to prepared content and Professional Development modules. There are upsell
opportunities for our software and PD modules.
ProColor Series
3 Interactive Flat Panel Display
The ProColor Series 3 interactive LED panels are available in three sizes – 65”, 75”, and 86”. Each offers 4K
resolution that produces extraordinarily sharp images suitable for a range of classroom sizes. They also include a slot for
an optional PC Module that provides embedded Windows 10. All also include embedded Android computing capability for PC free
control, applications, and annotation. ProColor Interactive LED panels utilize infrared touch tracking technology, offering
20 points of touch for simultaneous interaction of multiple users. ProColor’s built-in speakers add room filling sound
to the display’s vivid colors. The interactive LED panels feature anti-glare safety glass with optical coatings that
are highly scratch resistant, improve viewing angles, and reduce ambient light interference.
MimioDisplay
3 Interactive Flat Panel Display
MimioDisplay
3 is a touchscreen UHD HDR display with 20 points of touch, digital passive pen and eraser, and comes in three sizes – 65,
75 and 86”. The product has a Natural User Interface, so is designed to be intuitive to realize higher adoption of features,
and as a result is more effective in helping teachers realize learning objectives. For example: in Windows Ink compliant applications,
like Office 365, the passive digital pen draws, the eraser block erases digital ink (whilst cleaning the glass) and touches provide
gestures without having to use the software’s user interface. Like the ProColor 3, the display has a custom inbuilt Android
8 Launcher tailored for an interactive large screen and comes with:
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Infinite
Sketch – a whiteboard app to create and capture outcomes;
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Floating widgets such as annotate-over-video, screen capture, calculator
and others;
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Unplug’d
– Boxlight’s mirroring app that allows teachers to orchestrate up to four simultaneous displays across Windows,
Chrome OS, Android and iOS and casting of the MimioDisplay to all the devices in a classroom;
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NDMS
– Boxlight’s cloud-based device management system to remotely manage displays; and,
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K12-Store
– a curated list of Android applications that teachers can install onto the device.
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MimioTeach
Interactive Whiteboard
Boxlight’s
MimioTeach is one of our best known and longest-lived products. Hundreds of thousands of MimioTeach interactive whiteboards and
its predecessor models are used in classrooms around the world. MimioTeach can turn any whiteboard (retrofit) into an interactive
whiteboard in as little as 30 seconds. This portable product fits into a tote bag with room for a small desktop projector, which
is attractive to teachers who move from classroom to classroom. For schools where “change is our normal,” MimioTeach
eliminates the high cost of moving fixed-mount implementations.
MimioFrame
Touch Kit
MimioFrame
can turn a projection (dry-erase) board into an Interactive Whiteboard in 10-15 minutes. Millions of classrooms already have a
conventional whiteboard and a non-interactive projector. MimioFrame uses infrared (IR) technology embedded in the four sides of
the frame to turn that non-interactive combination into a modern 10-touch-interactive Digital Classroom. No drilling or cutting
is required, MimioFrame easily and quickly attaches with industrial-strength double-sided tape.
MimioBoard
Touch Interactive Whiteboard
Boxlight’s
MimioBoard Interactive Touch Boards are available in 78” 4:3 aspect ratio and 87” 16:10 aspect ratio. These boards
provide sophisticated interactivity with any projector because the touch interactivity is built into the board. Unlike many competitive
products, Boxlight’s touch boards are suited for use with dry erase markers. Many competitive products advise against using
dry erase markers because their boards stain. Boxlight’s touch boards use a porcelain-on-steel surface for durability and
dry erase compatibility. The Boxlight Touch Boards are also much lighter weight than most competitive products which results in
faster, easier and a lower cost installation process.
Non-Interactive
Projectors
We
distribute a full line of standard, non-interactive projectors. The Cambridge Series features embedded wireless display functions
and is available in short and standard throw options. Offering brightness from 2,700 to 4,000 lumens, we furnish projectors for
small classrooms to large classrooms with the Cambridge platform. This series is available in both XGA and WXGA resolutions to
replace projectors on existing interactive whiteboards in classrooms operating on limited budgets. The Boxlight Group has designed
this platform to provide easy user maintenance with side-changing lamps and filters and developed HEPA filtration systems for
harsh environments.
Over
the past several years, we have together with strategic allies, provided customized products that fit specific needs of customers,
such as the Israeli Ministry of Defense. Working with Nextel Systems, the Boxlight Group delivered approximately 4,000 projectors,
with special kitting performance, asset tagging, custom start up screens, operating defaults appropriate for harsh environments,
and other unique product specifications. the Boxlight Group also met requirements that each projector contain at least 51% U.S.
content and be assembled in the United States. A service center was appointed in Israel to provide warranty service and support.
The US Army in connection with the Israeli Defense Forces found the Boxlight Group to be the only manufacturer able to meet the
stringent requirements, leading not only to the original multi-year contract, but to extensions for favorable execution and performance.
Classroom
Audio Category
Unfortunately,
not every classroom is acoustically efficient and not every child has normal hearing. However, learning is noticeably enhanced
when each child receives clear, intelligible instruction throughout the day, regardless of class size, background noise, seat
location, or if the child has a mild hearing loss. Audio systems are becoming standard for new construction and refurbishment
projects, and the federal government passed the Americans With Disabilities Act (ADA) and provides funding support for such solutions.
For this reason Boxlight has launched this new category and the debut product is MimioClarity.
MimioClarity™
MimioClarity
is a premium offering that distributes audio around the classroom and integrates with the front-of-class display. The system is
designed to improve learning outcomes by reducing noise, increasing word recognition and improving student engagement. It has
a combined 60W amplifier and microphone receiver, comes both a teacher and student microphone, with an option of a two or four
speaker-system. Consistent with other Boxlight offerings the focus has been to keep the user experience as simple as possible
and the costs of implementation and ownership as low as possible.
STEM
Category
Through
acquisitions of Modern Robotics, Robo3D and MyStemKits, Boxlight has added to its portfolio a growing category of STEM (science,
technology, engineering and math) products.
Mimio
MyBot
The
Mimio MyBot system bridges the gap between learning about robotics in the classroom and the application of robotics in the real
world. Our intuitive and accessible system helps students develop core skills in programming, engineering, and robotics. We provide
a system to facilitate learning and ignite a passion in students with the freedom and flexibility to build, code, and test new
and unique models. Mimio MyBot allows students to explore and learn freely while removing common obstacles such as requiring network
infrastructure changes or expensive workstations.
Robo3D
Robo
E3, Robo E3 Pro (Coming Soon) and Robo C2 are smart, safe, and simple 3D printers that come with access to over 300+ lessons of
3D printable STEM curriculum, replacement materials and accessories.
MyStemKits
MyStemKits
offers hundreds of standards-driven lesson plans for grades K-12 math and science teachers. High-quality lessons plans are developed
and studied by The Florida Center for Research in Science. Technology, Engineering, and Mathematics (FCR-STEM), which is part
of one of the nation’s oldest and most productive university-based education research organizations.
MimioView
document camera
Boxlight’s
MimioView 350Uis a 4K document camera that is integrated with MimioStudio to make the combination easy to use with a single cable
connection that carries power, video, and control. MimioView 350U is fully integrated into our MimioStudio software solution and
is controlled through MimioStudio’s applications menu. With two clicks, the teacher or user can turn on, auto-focus, and
illuminate the included LED lights for smooth high-definition images.
Educational
Software Category
Boxlight’s
suite of software is a combination of titles from acquisitions of Mimio and Qwizdom, both were leading brands in the IWB and Formative
Assessment Software Categories, and since then capabilities have been built upon that IP since. The premise of our software is
to:
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Provide
the “glue” that integrates the hardware together to provide a Connected Classroom.
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Help
educators inform their decisions in the classroom, through more systematic data about their students’ performance and
behaviors.
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Help
make learning be more engaging, interactive, accessible and innovative.
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Help
teachers be more efficient in planning, preparation, reporting and analysis, and effective in instruction and assessment.
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MimioStudio
Interactive Instructional Software
MimioStudio
Interactive Instructional Software enables the creation, editing, and presentation of interactive instructional lessons and activities.
These lessons and activities can be presented and managed from the front of the classroom using any of Boxlight’s front
of classroom display systems including MimioTeach + our non-interactive projectors, ProColor Interactive LED panels, MimioBoard
Touch + our non-interactive projectors, MimioFrame + our non-interactive projectors or ProjectoWrite “P” Series interactive
projectors in either pen or touch controlled versions. MimioStudio can also be operated using MimioPad as a full-featured remote
control or a mobile device such as an iPad or tablet which includes a display screen that fully replicates the front-of-classroom
display generated by MimioStudio. Operation with a mobile device is enabled via the three-user license for MimioMobile, provided
with the MimioStudio license that accompanies all front-of-classroom devices from Mimio.
MimioMobile
Collaboration and Assessment Application
The
introduction of MimioMobile, a software accessory for MimioStudio, in 2014 introduced a new era of fully interactive student activities
that are directly and immediately able to be displayed on the front-of-classroom interactive displays through MimioStudio.
MimioMobile
allows fully interactive activities to be pushed to student classroom devices. The students can manipulate objects within the
activities, annotate “on top” of them, and even create completely new content on their own handheld devices. MimioMobile
also enables assessment using the mobile devices. The teacher can create multiple choice, truefalse, yesno, and text entry assessment
questions. The students can respond at their own speed and their answers are stored within MimioStudio from which the teacher
can display graphs showing student results. This “continuous assessment” allows formative assessment that can help
guide the teacher as to whether to re-teach the material if understanding is low or move forward in the lesson. We believe that
this interactive and student dependent instructional model can dramatically enhance student outcomes.
Oktopus
Instructional and Whiteboarding Software
Designed
specifically for touch-enabled devices, Oktopus Interactive Instructional Software enables the creation, editing, and presentation
of interactive instructional lessons and activities. Over 70 interactive widgets, tools, and classroom game modes make it simple
and fun to run ad-hoc or pre-planned sessions. Similar to MimioStudio, these lessons and activities can be presented and managed
from the front of the classroom using any of Boxlight’s front of classroom display systems.
Notes+
Collaboration and Assessment Application
Notes+
is a software accessory for use with Oktopus Software or a PPT plugin that allows students to view and interact with the teacher
presentation during a live class session. Students can answer questions, annotate, request help, and share content with the main
display from nearly any mobile device or laptop. Question types supported include multiple choice, multiple-mark, yes/no, true/false,
sequencing, numeric, and text response.
GameZones
Multi-student Interactive Gaming Software
GameZones
allows up to four students to work simultaneously on a touch screen or tablet to complete interactive ‘game style’
activities. The solution is extremely simple and easy to use and includes over 150 educational activities.
MimioInteract
Multi-student Interactive Gaming Software
MimioInteract
allows up to four students to work simultaneously on a touch screen or tablet to complete interactive ‘game style’
activities. The solution includes over 200 educational activities and also allows teachers to create or modify activities through
the software.
Peripherals
and Accessories
We
offer a line of peripherals and accessories, including amplified speaker systems, mobile carts, installation accessories and adjustable
wall-mount accessories that complement our entire line of interactive projectors, interactive LED flat panels and standard projectors.
MimioVote
Student Assessment System
Boxlight’s MimioVote
is a handheld “clicker” that enables student assessment with essentially zero training. MimioVote is so simple it
genuinely qualifies as intuitive, an elusive and often proclaimed attribute that is actually merited by MimioVote. MimioVote fully
integrates into the MimioMobile environment and offers everything from attendance to fully immersive and on-the-fly student assessment.
The MimioVote was specifically designed to survive the rigors of even kindergarten and elementary classrooms where being dropped,
stepped on, and kicked are all part of a normal day. The handset’s non-slip coating helps keep it from sliding off desktops
or out of little hands. Should they take “flight”, Mimio Vote’s rugged construction keeps each handset working.
MimioPad
wireless pen tablet
MimioPad
is a lightweight, rechargeable, wireless tablet used as a remote control for the MimioStudio running on a teacher’s Windows,
Mac, or Linux computer. MimioPad enables the teacher to roam the classroom which significantly aids classroom management. MimioPad
is a classroom management tool which can be handed off to enable a student to be part of the interactive experience – all
without leaving their seat to go to the front of the room.
Boxlight-EOS
Professional Development
Boxlight
strives to provide the best tools to help teachers improve student outcomes. Through our subsidiary, EOS Education, we can extend
our commitment to schools and districts by providing a rich portfolio of classroom training, professional development, and educator
certification.
We provide engaging, differentiated professional development for
teachers to ensure that every student benefits from the technology tools available in their classrooms and schools. Programs can
be customized, building comfort and confidence using the specific hardware and software platforms available to each teacher.
EOS
is unique because:
|
●
|
Teacher-centric:
We help teachers use the technology they have access to for their specific instructional purposes—we go beyond just
point and click.
|
|
●
|
Hands-on:
Teachers have an opportunity to practice new technical skills during sessions.
|
|
●
|
Differentiated:
Adjusted to current skills, knowledge, and teachers’ in-classroom practices.
|
|
●
|
Job-embedded:
Grounded in day-to-day teaching to be relevant, engaging, and practical to implement.
|
|
●
|
Student
context: Introducing technology tools to students and how to engage them with purpose.
|
Integration
Strategy
We have centralized
our business management for all acquisitions through an enterprise resource planning (ERP) system. This newly implemented ERP
system offers streamlined subsidiary integration utilizing a multi-currency platform. We have strengthened and refined the process
to drive front-line sales forecasting to factory production. Through the ERP system, we have synchronized five separate accounting
and customer relationship management systems through a cloud-based interface to improve inter-company information sharing and
allow management at the Company to have immediate access to snapshots of the performance of each of our subsidiaries in a common
currency. As we grow, organically or through acquisition, we plan to quickly integrate each subsidiary or division into this new
ERP and allow for dynamic snapshots of our subsidiaries and divisions to allow for timely and effective business decisions.
Logistics;
Suppliers
Logistics is currently
provided by our Lawrenceville, Georgia facility and multiple third-party logistics partners throughout the world (3PL’s).
These 3PL partners allow Boxlight to provide affordable freight routes and shorter delivery times to our customers by providing
on-hand inventory in localized markets. Contract manufacturing for Boxlight’s products are through original design manufacturer
(ODM) and original equipment manufacturer (OEM) partners according to Boxlight’s specific engineering specifications
and utilizing IP developed and owned by Boxlight. Boxlight’s factories for ODM and OEM are located in the USA, Taiwan, China,
and Germany.
Technical
Support and Service
The
Company currently has its technical support and service centers located near Seattle, WA, Boston, MA, Atlanta, GA, and Belfast,
Northern Ireland. Additionally, the Company’s technical support division is responsible for the repair and management of
customer service cases, resulting in more than 60% of the Company’s customer service calls ending in immediate closure of
the applicable service case. We accomplish this as a result of the familiarity between our products and having specialized customer
service technicians.
Sales
and Marketing
Our sales
force consists of nine regional account managers in the US, one in Latin America, four in Europe and one Head of Sales, and
two sales support staff all of which is overseen by our Senior Vice President of Global Sales and Marketing. Our marketing
team consists of one Vice President of Marketing Communications, one Marketing Coordinators, one Education Specialist,
and one Graphic Designer). Our sales force and marketing teams primarily drive sales of interactive flat panels, interactive projectors,
interactive touch table, education software, STEM data logging and robotics products and related peripherals and accessories to
school districts, throughout North, Central and South America, Europe, the Middle East and Asia. In addition, we go to market
through an indirect channel distribution model and utilize traditional value-added resellers and support them with training to
become knowledgeable about the products we sell. We currently have approximately 800 resellers.
We
believe Boxlight offers the most comprehensive product portfolio in today’s education technology industry, along with best-in-class
service and technical support. Boxlight’s award-winning, interactive classroom technology and easy to use line of classroom
hardware and software solutions provide schools and districts with the most complete line of progressive, integrated classroom
technologies available worldwide.
Competition
The
interactive education industry is highly competitive and characterized by frequent product introductions and rapid technological
advances that have substantially increased the capabilities and use of interactive projectors and interactive whiteboards. Interactive
whiteboards, since first introduced, have evolved from a high-cost technology that involves multiple components, requiring professional
installers, to a one-piece technology that is available at increasingly reduced price points and affords simple installations.
With lowered technology entry barriers, we face heated competition from other interactive whiteboard developers, manufacturers
and distributors. We compete with other developers, manufacturers and distributors of interactive projectors and personal computer
technologies, tablets, television screens, smart phones, such as Smart Technologies, Promethean, ViewSonic, Dell Computers, Samsung,
Panasonic and ClearTouch.
Even
with these competitors, the market presents new opportunities
in responding to demands to replace outdated and failing interactive whiteboards with more affordable and simpler solution interactive
whiteboards. Our ability to integrate our technologies and remain innovative and develop new technologies desired by our current
and potential new contract manufacturing customers will determine our ability to grow our contract manufacturing divisions. In
addition, we have begun to see expansion in the market to sales of complementary products that work in conjunction with the interactive
technology, including software, audio solutions, data capture and tablets.
Employees
As
of December 31, 2019, we had approximately 68 employees, of whom 5 are executives, five employees are engaged in product
development, engineering and research and development, 14 employees are engaged in sales and marketing, 21 employees are
engaged in administrative and clerical services and eight employees are engaged in service and production. In addition, a
total of approximately five individuals provide sales agency services to us as independent contractors.
None
of our employees are represented by labor organizations. We consider our relationship with our employees to be excellent. A majority
of our employees have entered into non-disclosure and non-competition agreements with us or our operating subsidiaries.
ITEM
1A. RISK FACTORS
War,
terrorism, other acts of violence or natural or man-made disasters, including a global pandemic, may affect the markets in which
the Company operates, the Company’s customers, the Company’s delivery of products and customer service, and could
have a material adverse impact on our business, results of operations, or financial conditions.
The Company’s
business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless
of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine,
food, fire, earthquake, storm or pandemic events and spread of disease (including the recent outbreak of the coronavirus commonly
referred to as “COVID-19”). Such events may cause customers to suspend their decisions on using the Company’s
products and services, make it impossible to attend or sponsor trade shows or other conferences in which our products and services
are presented to customers and potential customers, cause restrictions, postponements and cancellations of events that attract
large crowds and public gatherings such as trade shows at which we have historically presented our products, and give rise to
sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods
or services, commitments to develop new products. These events also pose significant risks to the Company’s personnel and
to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.
As a result of the
ongoing COVID-19 pandemic, there is a risk related to modification of the traditional classroom setting that may result in reduced
demand for our classroom solutions, including reduced demand for our interactive displays due to extended or indefinite distance
and digital learning.
There is also a risk
of reduced borrowing with our factoring and purchase order financing facilities, as well as risk of inability to raise additional
capital.
ITEM
2. PROPERTIES
Our
corporate headquarters is located at 1045 Progress Circle, Lawrenceville, Georgia 30043, in a building of approximately 48,000
square feet, for which we pay approximately $25,000 per month as rent pursuant to a rental agreement that extends through March
2022. Our corporate headquarters house our administrative offices as well as distribution operations and assembly for the Boxlight
brand.
We
also maintain offices in Poulsbo, Washington, Lexington, Massachusetts, Scottsdale, Arizona, Miami, Florida and Utica, NY
for sales, marketing, technical support and service staff.
ITEM
3. LEGAL PROCEEDINGS
From time to time we
may be party to litigation matters occurring in the ordinary course of our business. As of the date of this Annual Report, however,
there are no material pending legal or governmental proceedings relating to our Company to which we are a party, and to our knowledge
there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or
which have a material interest adverse to us.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
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 exepense 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. This 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.