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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

  ☒ Quarterly Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2021

 

OR

 

  ☐  Transition Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from ______________ to ______________

 

Commission file number 001-37564

 

BOXLIGHT CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   8211   46-4116523
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification Number)

 

1045 Progress Circle

Lawrenceville, Georgia 30043

Phone: (678) 367-0809

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock   BOXL   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐    Accelerated filer ☐   
             
  Non-accelerated filer ☒    Smaller reporting company ☒   
             
        Emerging growth company ☒   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s common stock on August 10, 2021 was 59,857,183.

 

 

 

 

 

 

BOXLIGHT CORPORATION

 

TABLE OF CONTENTS

 

    Page No.
     
  PART I. Financial Information  
     
Item 1. Unaudited Consolidated Condensed Financial Statements 3
     
  Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 3
     
  Unaudited Consolidated Condensed Balance Sheets as of June 30, 2021 and December 31, 2020 4
     
  Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 5
     
  Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2021 and 2020 7
     
  Notes to Unaudited Consolidated Condensed Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
Item 3. Quantitative and Qualitative Disclosure About Market Risk 35
     
Item 4. Controls and Procedures 35
     
  PART II. Other Information  
     
Item 1. Legal Proceedings 35
     
Item 1A. Risk Factors 35
     
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 36
     
Item 3. Defaults Upon Senior Securities 36
     
Item 4. Mine Safety Disclosures 36
     
Item 5. Other Information 36
     
Item 6. Exhibits 37
     
  Signatures 38

 

2

 

 

PART I. Financial Information

 

Item 1. Financial Statements

 

Boxlight Corporation

Consolidated Condensed Statements of Operations and Comprehensive Loss

For the six months ended June 30, 2021 and 2020

(Unaudited)

(in thousands, except per share amounts)

 

                         
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
Revenues, net   $ 46,754     $ 7,828     $ 80,177     $ 13,551  
Cost of revenues     33,920       5,137       58,791       9,269  
Gross profit     12,834       2,691       21,386       4,282  
                                 
Operating expense:                                
General and administrative expenses     10,800       3,200       20,911       7,137  
Research and development     481       285       955       602  
Total operating expense     11,281       3,485       21,866       7,739  
                                 
Income (loss) from operations     1,553       (794 )     (480 )     (3,457 )
                                 
Other income (expense):                                
Interest expense, net     (764 )     (628 )     (1,782 )     (1,088 )
Other income, net     5       17       20       76  
Changes in fair value of derivative liabilities     41       (74 )     (225 )     (46 )
(Loss) gain from settlements of liabilities     (533 )     53       (2,378 )     1,139  
Total other income (expense)     (1,251 )     (632 )     (4,365 )    

81

 
                                 
Income (loss) before income taxes   $ 302     $ (1,426 )   $ (4,845 )   $ (3,376 )
Income tax expense     (2,522 )     -       (2,543 )     -  
Net loss   $ (2,220 )   $ (1,426 )   $ (7,388 )   $ (3,376 )
Fixed dividends - Series B Preferred     (317 )     -       (635 )     -  
Deemed Contribution -Series B Preferred     367       -       367       -  
Net loss attributable to common stockholders   $ (2,170 )   $ (1,426 )   $ (7,656 )   $ (3,376 )
                                 
Comprehensive loss:                                
Net loss   $ (2,220 )   $ (1,426 )   $ (7,388 )   $ (3,376 )
Foreign currency translation gain (loss)     530     (5 )     269     (108 )
Total comprehensive loss   $ (1,690 )   $ (1,431 )   $ (7,119 )   $ (3,484 )
                                 
Net loss per common share – basic and diluted   $ (0.04 )   $ (0.08 )   $ (0.13 )   $ (0.22 )
Weighted average number of common shares outstanding – basic and diluted     57,871       17,637       56,518       15,066  

 

See accompanying notes to unaudited consolidated condensed financial statements.

 

3

 

 

Boxlight Corporation

Consolidated Condensed Balance Sheets

As of June 30, 2021 and December 31, 2020

(Unaudited)

(in thousands)

 

    June 30, 2021     December 31, 2020  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 7,437     $ 13,460  
Accounts receivable – trade, net of allowances     36,115       20,869  
Inventories, net of reserves     20,870       20,913  
Prepaid expenses and other current assets     13,463       6,161  
Total current assets     77,885       61,403  
                 
Property and equipment, net of accumulated depreciation     584       562  
Intangible assets, net of accumulated amortization     53,306       55,156  
Goodwill     23,352       22,742  
Other assets     170       90  
Total assets   $ 155,297     $ 139,953  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 26,107     $ 14,246  
Accounts payable and accrued expenses – related parties     -       1,967  
Short-term debt     16,485       16,817  
Earn-out payable – related party     -       119  
Deferred revenues – short-term     6,197       5,671  
Derivative liabilities     536       363  
Other short-term liabilities     1,857       1,209  
Total current liabilities     51,182       40,392  
                 
Deferred revenues – long-term     12,334       10,482  
Long-term debt     2,392       7,831  
Deferred tax liability     9,375       7,902  
Other long-term liabilities     365       2  
Total liabilities     75,648       66,609  
                 
Commitments and contingencies (Note 13)                
                 
Mezzanine equity:                
Preferred Series B     16,146       16,513  
Preferred Series C     12,363       12,363  
Total mezzanine equity     28,509       28,876  
                 
Stockholders’ equity:                
Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 and 167,972 shares issued and outstanding, respectively     -       -  
Common stock, $0.0001 par value, 200,000,000 shares authorized; 59,102,072 and 53,343,518 Class A shares issued and outstanding, respectively     6       6  
Additional paid-in capital     100,559       86,768  
Accumulated deficit     (54,886 )     (47,498 )
Accumulated other comprehensive loss     5,461       5,192  
Total stockholders’ equity     51,140       44,468  
                 
Total liabilities and stockholders’ equity   $ 155,297     $ 139,953  

 

See accompanying notes to unaudited consolidated condensed financial statements.

 

4

 

 

Boxlight Corporation

Consolidated Condensed Statements of Changes in Stockholders’ Equity

For the three and six Months Ended June 30, 2021

(Unaudited)

(in thousands)

 

                                                     
    Series A     Class A     Additional     Accumulated Other              
    Preferred Stock   Common Stock   Paid-in     Comprehensive     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Income     Deficit     Total  
                                                 
Balance as of December 31, 2020     168     $ -       53,344     $

5

    $ 86,768     $ 5,192     $ (47,498 )   $ 44,468  
                                                                 
Shares issued for:                                                                
                                                                 
Stock options exercised     -       -       322       -       247       -       -       247  
                                                                 
Conversion of accounts payable liabilities     -       -       793             1,626       -       -       1,626  
Conversion of debt obligations     -       -       2,251       1       6,033       -       -       6,034  
                                                                 
Conversion of Restricted Shares     -       -       59       -       -       -       -       -  
Warrants exercised     -       -       21       -       51       -       -       51  
Stock compensation     -       -       -       -       677       -       -       677  
Foreign currency translation adjustment     -       -       -       -       -       (261 )     -       (261 )
Fixed dividends Preferred Series B     -       -       -       -       (317 )     -       -       (317 )
Net loss     -       -       -       -       -       -       (5,168 )     (5,168 )
                                                                 
Balance as of March 31, 2021     168       -       56,787     $ 6     $ 95,084     $ 4,931     $ (52,666 )   $ 47,355  
                                                                 
Shares issued for:                                                                
                                                                 
Conversion of debt obligations     -       -       1,688       -       3,839       -       -       3,839  
                                                                 
Conversion of Restricted Shares     -       -       484       -       -       -       -       -  
                                                                 
Stock compensation     -       -       -       -       1,182       -       -       1,182  
Shares issued for Interactive Concepts acquisition     -       -       143       -       404       -       -       404  
Foreign currency translation income     -       -       -       -       -       530       -       530  
                                                                 
Deemed Contribution - Preferred Series B     -       -       -       -       367       -       -       367  
                                                                 
Fixed dividends - Preferred Series B     -       -       -       -       (317 )     -       -       (317 )
Net loss     -       -       -       -       -       -       (2,220 )     (2,220 )
                                                              -  
Balance as of June 30, 2021     168     $ -       59,102     $ 6     $ 100,559     $ 5,461     $ (54,886 )   $ 51,140  

 

See accompanying notes to unaudited consolidated condensed financial statements.

 

5

 

 

Boxlight Corporation

Consolidated Condensed Statements of Changes in Stockholders’ Equity

For the three and six Months Ended June 30, 2020

(Unaudited)

(in thousands)

 

    Series A     Class A     Additional     Accumulated Other              
    Preferred Stock   Common Stock   Paid-in     Comprehensive     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Income     Deficit     Total  
                                                 
Balance as of December 31, 2019     168     $ -       11,699     $ -     $ 30,736     $ (38 )   $ (31,346 )   $ (648)  
                                                                 
Shares issued for:                                                                
                                                                 
Stock options exercised     -       -       -       -       -       -       -       -  
                                                                 
In lieu of payment for services rendered -     -       -     7       -       8       -       -       8  
                                                                 
Conversion of accounts payable liabilities -   -       -       1,333       -       567         -     -       567  
                                                                 
Conversion of debt obligations     -       -       832       -       1,182       -       -       1,182  
                                                                 
Conversion of Restricted Shares     -       -       -       -       -       -       -       -  
Warrants exercised     -       -       -       -       -       -       -       -  
Stock compensation     -       -       -       -       271       -       -       271  
Foreign currency translation adjustment     -       -       -       -       -       (103 )     -       (103 )
Net loss     -       -       -       -       -       -       (1,950 )     (1,950)  
                                                                 
Balance as of March 31, 2020     168       -       13,871     $ 1     $ 32,764     $ (141)     $ (33,296 )   $ (673)  
                                                                 
Shares issued for:                                                                
                                                                 
Conversion of accounts payable liabilities     -       -       870       -       703       -       -       703  
                                                                 
Conversion of debt obligations     -       -       1,588       -       1,189         -       -     1,189  
                                                                 
Conversion of Restricted Shares     -       -       52       -       -       -       -       -  
                                                                 
Stock compensation     -       -       -       -       249       -       -       249  
Shares issued for Stemify acquisition     -       -       143       -       100       -       -       100  
Public offering -   -       -       15,333       2       10,592       -       -       10,594  
                                                                 
Foreign currency translation     -       -       -       -         -     (5)       -       (5 )
Net loss     -       -       -       -       -       -       (1,426 )     (1,426 )
                                                              -  
Balance as of June 30, 2020     168     $ -       31,857     $ 3     $ 45,597     $ (146)     $ (34,722 )   $ 10,731  

 

6

 

 

Boxlight Corporation

Consolidated Condensed Statements of Cash Flows

For the six Months Ended June 30, 2021 and 2020

(Unaudited)

(in thousands)

 

             
    Six Months Ended
    June 30, 2021     June 30, 2020  
             
Cash flows from operating activities:                
Net loss   $ (7,388 )   $ (3,376 )
Adjustments to reconcile net loss to net cash (used) in operating activities:                
Amortization of debt discount and issuance cost     1,061       407  
Bad debt (recovery) expense     (195 )     93  
Loss (gain) on settlement of liabilities     2,378       (1,139 )
Change in allowance for sales returns and volume rebate     327       (69 )
Change in inventory reserve     (33 )     (21 )
Change in deferred tax assets and liabilities     1,243       -  
Change in fair value of derivative liability     225       46  
Change in fair value of earn-out payable     -       4  
Shares issued for interest payment on notes payable     373       147  
Stock compensation expense     1,859       520  
Other share-based payments     -       8  
Depreciation and amortization     3,567       440  
Changes in operating assets and liabilities:                
Accounts receivable – trade     (14,560 )     (1,716 )
Inventories     37       508  
Prepaid expenses and other current assets     (7,282 )     (1,407 )
Other assets     (83 )     (6 )
Accounts payable and accrued expenses     10,950       (196 )
Warranty liability     (87 )     (10 )
Accounts payable and accrued expenses - related parties    

16

      190  
Other short-term liabilities    

483

      (1 )
Deferred revenues     2,535       (627 )
Other liabilities     4       (9 )
Net cash used in operating activities   $ (4,570 )   $ (6,213 )
                 
Cash flows from investing activities:                
Business acquisitions (net of cash acquired)     (685 )     (99 )
Settlement of earn out obligations     (119 )    

-

 
Purchases of furniture and fixtures     (48 )     -  
Net cash used in investing activities     (852 )     (99 )
                 
Cash flows from financing activities:                
Net Proceeds from issuance of common stock     -       10,694  
Proceeds from payment protection plan loan     -       1,008  
Proceeds from short-term debt     17,350       5,667  
Principal payments on short-term debt     (17,417 )     (6,697 )
Proceeds from convertible debt     -       750  
Proceeds from the exercise of stock options and warrants     245       -  
Debt issuance costs     -       (41 )
Payments of fixed dividends - Series B Preferred     (317 )     -  
Net cash (used in) provided by financing activities   $ (139 )   $ 11,381  
                 
Effect of foreign currency exchange rates     (463 )     (109 )
                 
Net (decrease) increase in cash and cash equivalents     (6,023 )     4,960  
                 
Cash and cash equivalents, beginning of the period     13,460       1,173  
                 
Cash and cash equivalents, end of the period   $ 7,437     $ 6,133  
                 
Supplemental cash flow disclosures:                
                 
Cash paid for income taxes   $ 1,031     $ -  
Cash paid for interest   $ 1,368     $ 887  
                 
Non-cash investing and financing transactions:                
Shares issued to settle accounts payable   $ 1,626     $ 1,269  
Shares issued for conversion of notes payable and accrued interest   $ 9,872     $ 2,371  
Shares issued for Interactive Concepts acquisition   $

403

    $ -  
Exercise of warrants   $ 51     $ -  
Declared but unpaid fixed dividends - Series B Preferred   $ 317     $ -  
Deemed contribution - Series B Preferred   $ 367     $ -  
Deferred consideration for Interactive acquisition   $

537

    $ -  
Notes payable issued as consideration for acquisition of MyStemKit   $ -     $ 350  

 

See accompanying notes to unaudited consolidated condensed financial statements.

 

7

 

 

Boxlight Corporation

Notes to the Unaudited Consolidated Condensed Financial Statements

 

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

THE COMPANY AND RECENT ACQUISITIVE GROWTH

 

Boxlight Corporation (“Boxlight”) designs, produces and distributes interactive technology solutions to the education, corporate and government markets under its Clevertouch and Mimio brands. The Company’s solutions include interactive displays, collaboration software, supporting accessories and professional services.

 

On March 23, 2021 the Company acquired Interactive Concepts BV, a Belgium company (“Interactive”) and a distributor of interactive technologies. On September 24, 2020, Boxlight acquired Sahara Presentation Systems PLC (“Sahara”), a leader in distributed and manufactured AV solutions, headquartered in the United Kingdom.

 

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Boxlight and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying unaudited consolidated condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited consolidated condensed financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated condensed financial statements. The unaudited consolidated condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2020 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in consolidated financial statements have been condensed. The December 31, 2020 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

 

ESTIMATES AND ASSUMPTIONS

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 in the Notes to the Consolidated Financial Statements for 2020 contained in the Annual Report on Form 10-K, filed with the SEC on March 31, 2021, describes the significant accounting policies that the Company used in preparing our consolidated condensed financial statements. On an ongoing basis, the Company evaluates our estimates, including, but not limited to, those related to revenue/reserves and allowances. The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts receivables and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. Debt approximates fair value due to either the short-term nature or recent execution of the debt agreement. The amount of consideration received is deemed to approximate the fair value of long-term debt net of any debt discount and issuance cost.

 

8

 

 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

  ● Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
     
  ● Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
     
  ● Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):

 

   

Markets for

Identical

Assets

   

Other

Observable

Inputs

   

Significant

Unobservable

Inputs

   

Carrying

Value as of June 30,

 
Description   (Level 1)     (Level 2)     (Level 3)     2021  
Derivative liabilities - warrant instruments   $ -     $           -     $ 536     $ 536  
Earn-out payable – related party     -       -       -       -  
                                 
                    $ 536     $ 536  

 

   

Markets for

Identical

Assets

   

Other

Observable

Inputs

   

Significant

Unobservable

Inputs

   

Carrying

Value as of December 31,

 
Description   (Level 1)     (Level 2)     (Level 3)     2020  
Derivative liabilities - warrant instruments   $ -     $ -     $ 363     $ 363  
Earn-out payable – related party     -                      -       119       119  
                                 
                    $ 482     $ 482  

 

9

 

 

The following table shows the change in the Company’s warrant instruments rollforward for the six months ended June 30, 2021:

 

   

Amount

(in thousands)

 
Balance, December 31, 2020   $ 363  
Exercise of warrants     (51 )
Change in fair value of derivative liabilities     224  
         
Balance, June 30, 2021   $ 536  

 

The following table shows the change in the Company’s earn-out payable rollforward for the six months ended June 30, 2021:

 

   

Amount

(in thousands)

 
Balance, December 31, 2020   $ 119  
Settlement of earn-out payable     (119 )
         
Balance, June 30, 2021   $ -  

 

REVENUE RECOGNITION

 

In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title, and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.

 

Nature of Products and Services and Related Contractual Provisions

 

The Company’s sales of interactive devices, including panels, projectors, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms of approximately 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 of approximately 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, 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 many of the Company’s software product sales, control is transferred when shipped at the point of origin since the software is installed on the interactive hardware device in advance of shipping. For software product sales, control is transferred when the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.

 

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.

 

10

 

 

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.

 

Customer Financing Arrangements

 

Through a third-party leasing partner we provide financing programs that are designed to offer customers a variety of options to purchase interactive technology solutions whereby customers enter into purchase agreements with us and a separate financing or leasing contract with a third-party lender, who advances the proceeds from the sale to us upon contract execution and shipment of goods. The sales to the customer are final and the Company bears no risk of loss regarding subsequent payments.

 

Significant Judgments

 

For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. Because observable prices are generally not available for the Company’s performance obligations that are sold in bundled arrangements, the Company does not apply the residual approach to determining SSP. However, the Company does have certain performance obligations for which pricing is highly variable or uncertain, and contracts with those performance obligations generally contain multiple performance obligations with highly variable or uncertain pricing. For these contracts the Company allocates the transaction price to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, residual values based on the estimated SSP for certain goods, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never sold separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.

 

The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that are executed in the same manner, contain the same performance obligations, and are priced in a consistent manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.

 

11

 

 

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 during the course of such product’s lifetime. 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 on June 30, 2021 or December 31, 2020. During the six months ended June 30, 2021 and June 30, 2020, the Company recognized $1.5 million and $0.7 million, respectively of revenue that was included in the deferred revenue balance as of December 31, 2020 and December 31, 2019, respectively.

 

Variable Consideration

 

The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, price protection provisions, or in connection with certain other rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case-by-case basis, will grant exceptions, mostly for “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering or otherwise determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each reporting date. There was no material revenue recognized in Q2 of 2021 related to changes in estimated variable consideration that existed at December 31, 2020.

 

Remaining Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of June 30, 2021 and December 31, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was $18.5 million and $16.1 million, respectively. The Company expects to recognize revenue on 16% of the remaining performance obligations during the 3rd and 4th quarters of 2021, 32% in 2022, 41% in 2023 and 2024, with the remaining 11% recognized thereafter.

 

12

 

 

In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.

 

Disaggregated Revenue

 

The Company disaggregates revenue based upon the nature of its products and services and the timing and in the manner which it is transferred to the customer. Although all products are transferred to the customer at a point in time, hardware and some software is pre-installed on the interactive device are transferred at the point of shipment, while some software is transferred to the customer at the time the hardware is received by the customer or when software product keys are delivered electronically to the customer. All service revenue is transferred over time to the customer; however, professional services are generally transferred to the customer within a year from the contract date as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over five years from the contract execution date as measured based upon the passage of time.

 

                         
    Three Months Ended     Six Months Ended  
   

June 30, 2021

(in thousands)

   

June 30, 2020

(in thousands)

 
    2021     2020     2021     2020  
                         
Product Revenues:                                
Hardware   $ 43,145     $ 6,656     $ 73,905     $ 11,446  
Software     1,818       287       2,685       445  
Service Revenues:                                
Professional Services     205       354       475       696  
Maintenance and Subscription Services     1,586       531       3,112       964  
Revenue   $ 46,754     $ 7,828     $ 80,177     $ 13,551  

 

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 the following criteria:

 

  ● The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.
     
  ● The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
     
  ● The costs are expected to be recovered.

 

Certain sales commissions incurred by the Company are determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain where the period of amortization would be recognized over a period that is one year or less, the Company has elected the practical expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets based on the timing of when the Company expects to recognize the expense and are included in prepaid and other assets and other assets, respectively, in the accompanying condensed consolidated balance sheets. Total deferred commissions, net of accumulated amortization was $207 thousand at June 30, 2021.

 

SUBSEQUENT EVENTS

 

We reviewed all material events through the date on which these consolidated condensed financial statements were issued for subsequent event disclosure consideration as described in Note 15.

 

NEW ACCOUNTING STANDARDS

 

In May 2021, the FASB issued ASU No. 2021-04, “Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.” The FASB issued this update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this will be effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its financial statements.

 

In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The new guidance simplifies the accounting for certain convertible instruments and for contracts in an entity’s own equity. Key provisions include the elimination of the “cash conversion” guidance and the “beneficial conversion feature” guidance in ASC 470-20 as well as a simplification of the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification by removing certain conditions in ASC 815-40-25. Since the Company is an Emerging Growth Company, the ASU is not effective until annual reporting periods beginning after December 15, 2023. Earlier application is permitted. The Company is currently evaluating the impact that this standard will have on its financial statements, and whether it will adopt the new standard earlier than January 2024.

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted changes in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of the annual effective tax rate. Since the Company is an Emerging Growth Company, the ASU is not effective until fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments Credit Losses” (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new guidance replaces the incurred loss methodology with the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade accounts receivable. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842. This new guidance changes the impairment model for most financial assets and certain other instruments. Since the Company is an Emerging Growth Company, the ASU is not effective until fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. The Company continues to evaluate the impact that this standard will have, if any, on its financial statements.

 

In February 2016, the FASB issued ASC 842 “Leases” 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. Under the previous guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily depended on its classification as a finance or operating lease. The new guidance also requires disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For Emerging Growth Companies, the new standard is not effective until annual reporting periods beginning after December 15, 2021, including interim periods within that reporting period. Earlier application is permitted.

 

13

 

 

There were various other accounting standards and interpretations issued recently, some of which although applicable, are expected to a have a material impact on our financial position, operations, or cash flows.

 

NOTE 2 – RECENT BUSINESS ACQUISITION

 

Interactive Concepts

 

On March 23, 2021 the Company acquired 100% of the outstanding shares of Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies (“Interactive”), for total consideration of approximately $3.3 million in cash, common stock and deferred consideration. The company has been Boxlight’s key distributor in Belgium and Luxembourg.

 

The following table summarizes the estimated acquisition date fair values of the net assets acquired and liabilities assumed, and the estimate of the fair value of consideration paid:

 

    (in thousands)  
Assets acquired:        
Cash   $ 1,647  
Accounts receivable     1,045  
Inventories     191  
Property and equipment     37  
Total assets acquired     2,920  
         
Accounts payable and accrued expenses     (821 )
Deferred tax liability     (230 )
Total liabilities assumed     (1,051 )
         
Net tangible assets acquired     1,869  
         
Identifiable intangible assets:        
Tradename     220  
Customer relationships     745  
Total intangible assets subject to amortization     965  
         
Goodwill     439  
         
Total net assets acquired   $ 3,273  
         
Consideration paid:        
Cash   $ 1,795  
Deferred cash consideration     1,075  
Common shares issued     403  
         
Total consideration paid   $ 3,273  

 

Sahara Presentation Systems PLC

 

On September 24, 2020, the Company acquired 100% of the outstanding shares of Sahara Holdings Limited, a private limited company operating under the laws of the UK and all of its subsidiaries, including Sahara Presentation Systems PLC (collectively, “Sahara”). Sahara is a distributor of audio and video software and equipment including the Clevertouch branded product line of interactive touch screens. This strategic acquisition expanded the Company’s geographic footprint, industry verticals served, and enhanced the Company’s technology and product offerings.

 

14

 

 

As consideration for the purchase of Sahara, the Company transferred GBP 74.0 million (approximately USD $94.9 million) in the form of GBP 52.0 million (approximately USD $66.7 million) in cash and GBP 22.0 million (approximately USD $28.2 million) in our Series B convertible preferred stock and our Series C convertible preferred stock. The convertible preferred stock was comprised of 1,586,620 shares of Series B convertible redeemable preferred stock (the “Series B Preferred Stock”) and 1,320,850 shares of Series C convertible redeemable preferred stock (the “Series C Preferred Stock”). The fair value of the preferred shares issued was $16.5 million and $12.4 million for the Series B Preferred Stock and Series C Preferred Stock, respectively. See further discussion of the features of the preferred shares in Note 10.

 

The consideration transferred to the selling shareholders along with the assets acquired and liabilities assumed were recorded at their estimated fair values at the acquisition date. The excess consideration over the net fair values of the assets acquired and liabilities assumed was recognized as goodwill.

 

The fair value of the deferred revenue at the date of acquisition was determined based on the estimated direct and incremental costs to fulfill the remaining performance obligations associated with the deferred revenue, plus a reasonable profit margin. Accordingly, the carrying amount of deferred revenue at the acquisition date was reduced to its estimated fair value based on the assumptions above which has resulted in and will result in a reduction in revenue that otherwise would have been recognized in periods subsequent to the acquisition date.

 

The following table summarizes the estimated fair values of the net assets acquired and liabilities assumed, and the estimate of the fair value of consideration paid:

 

    (in thousands)  
Assets acquired:        
Cash   $ 6,049  
Accounts receivable     16,066  
Inventories     17,257  
Prepaid expenses and other current assets     2,277  
Property and equipment     183  
Total assets acquired     41,832  
         
Accounts payable and accrued expenses     (8,624 )
Deferred revenue     (9,435 )
Deferred tax liability     (8,794 )
Other liabilities     (293 )
Total liabilities assumed     (27,146 )
         
Net tangible assets acquired     14,686  
         
Identifiable intangible assets:        
Customer relationships     39,629  
Trademarks     5,319  
Technology     3,372  
Total intangible assets subject to amortization     48,320  
         
Goodwill     16,774  
         
Total net assets acquired   $ 79,780  
         
Consideration paid:        
Cash   $ 50,903  
Preferred shares issued     28,877  
         
Total consideration paid   $ 79,780  

 

15

 

 

The results of operations of Sahara following the acquisition are included in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the six months ended June 30, 2021.

 

Pro Forma Financial Results

 

The following unaudited pro forma information reflects our consolidated results of operations for the three and six months ending June 30, 2020 as if the acquisition of Sahara had taken place on January 1, 2020. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination are included in the pro forma revenue and net earnings reflected below.

 

    Three months ended June 30, 2020  
    (Unaudited) in thousands As Reported     (Unaudited) in thousands Proforma  
Revenues, net   $ 7,828     $ 28,819  
Net loss attributable to common shareholders   $ (1,425 )   $ (1,148 )

 

    Six months ended June 30, 2020  
    (Unaudited) in thousands As Reported     (Unaudited) in thousands Proforma  
Revenues, net   $ 13,551     $ 52,557  
Net loss attributable to common shareholders   $ (3,376 )   $ (5,043 )

 

NOTE 3 – ACCOUNTS RECEIVABLE - TRADE

 

Accounts receivable consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

 

    2021     2020  
             
Accounts receivable – trade   $ 36,932     $ 21,768  
Allowance for doubtful accounts     (279 )     (473 )
Allowance for sales returns and volume rebates     (538 )     (426 )
                 
Accounts receivable - trade, net of allowances   $ 36,115     $ 20,869  

 

NOTE 4 – INVENTORIES

 

Inventories are stated at the lower of cost or net realizable value and include spare parts and finished goods. Inventories are primarily determined using specific identification and the first-in, first-out (“FIFO”) cost methods. Cost includes direct cost from the Current Manufacturer (“CM”) or Original Equipment Manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.

 

Inventories consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

 

    2021     2020  
             
Finished goods   $ 21,041     $ 20,997  
Spare parts     261       265  
Reserve for inventory obsolescence     (432 )     (349 )
                 
Inventories, net   $ 20,870     $ 20,913  

 

16

 

 

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

 

    2021     2020  
             
Prepayments to vendors   $ 12,006     $ 5,727  
Prepaid licenses and other     858       339  
Unbilled revenue     599       95  
Prepaid expenses and other current assets   $ 13,463     $ 6,161  

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following at June 30, 2021 and December 31, 2020 (in thousands):

 

    Useful lives   2021     2020  
                 
Patents   7 years   $ 182     $ 182  
Customer relationships   10-15 years     48,025       46,614  
Technology   3 years     3,900       3,900  
Domain   7 years     14       14  
Tradenames   2-10 years     9,902       9,682  
                     
Intangible assets, at cost         62,023       60,392  
Accumulated amortization         (8,717 )     (5,236 )
                     
Intangible assets, net of accumulated amortization       $ 53,306     $ 55,156  

 

For the six months ended June 30, 2021 and 2020, the Company recorded amortization expense of $3.5 million and $431 thousand, respectively.

 

NOTE 7 – DEBT

 

The following is a summary of our debt as of June 30, 2021 and December 31, 2020:

 

    2021     2020  
Debt – Third Parties                
Note payable – Lind Global   $ 14,321     $ 21,085  
Paycheck Protection Program     1,008       1,008  
Accounts receivable financing – Sallyport Commercial     4,445       4,512  
Note payable – STEM Education Holdings     175       175  
Total debt     19,949       26,780  
Less: Discount and issuance cost – Lind Global     1,072       2,132  
Current portion of debt     16,485       16,817  
Long-term debt   $ 2,392     $ 7,831  
                 
Total debt (net of discount)   $ 18,877     $ 24,648  

 

17

 

 

Debt - Third Parties:

 

Lind Global Marco Fund and Lind Global Asset Management

 

On February 4, 2020, the Company and Lind Global Macro Fund L.P. (“Lind”) entered into a second securities purchase agreement pursuant to which the Company received $750 thousand in exchange for the issuance to Lind of (1) $825 thousand convertible promissory note, payable at an 8% interest rate, compounded monthly, (2) certain shares of restricted Class A common stock valued at $60 thousand, 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 $26.25 thousand. The Note matures over 24 months, with repayment that commenced on August 4, 2020, after which time the Company is obligated to make monthly payments of $45,833 thousand plus interest. Interest accrued during the first six months of the note, after which time the interest payments, including accrued interest is payable monthly in either conversion shares or in cash. A commitment fee in the amount of $26 thousand was paid to Lind, along with legal fees in the amount of $15 thousand. The Company paid Lind $60 thousand for closing fees by issuing 44,557 shares of restricted Class A common stock.

 

On September 21, 2020, the Company and Lind Global Asset Management, LLC (“Lind Global”) entered into a securities purchase agreement (the “Lind SPA”) pursuant to which the Company received $20.0 million in exchange for the issuance to Lind of (1) a $22.0 million convertible promissory note, payable at a 4% interest rate, compounded monthly, (2) 310,399 shares of restricted Class A common stock valued at $900 thousand, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended September 21, 2020, and (3) a commitment fee of $400 thousand. The Note matures over 24 months, with repayment commencing on November 22, 2020, after which time the Company became obligated to make monthly payments of $1.0 million, plus interest. Interest accrued during the first two months of the note, after which time the interest payments, including accrued interest is payable monthly in either conversion shares or in cash. The commitment fee in the amount of $400 thousand was paid to Lind Global, along with legal fees in the amount of $20 thousand. The Company paid Lind $500 thousand for closing fees by issuing 310,399 shares of Class A common stock. The shares of Class A common stock issuable to Lind under the Note are registered pursuant to our effective shelf registration statement on Form S-3.

 

During the six months ended June 30, 2021, the Company repaid combined principal of $6.8 million and interest of $373 thousand to Lind and Lind Global by issuing a total of 3.9 million shares Class A common stock with an aggregate value of $9.9 million to Lind and recognized a $2.7 million loss.

 

Paycheck Protection Program Loan

 

On May 22, 2020, the Company received loan proceeds of $1.09 million under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loans and accrued interest received under the PPP are forgivable to the extent borrowers use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains their payroll levels during the designated period prior to which the PPP would otherwise be repayable. The Company used the proceeds for purposes consistent with the PPP. During 2020, the Company applied for forgiveness in the amount of $837 thousand of the original PPP loan and is presently still awaiting a decision from the Small Business Administration. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.

 

Everest Display, Inc.

 

On June 22, 2020, the Company entered into an agreement with Everest Display, Inc., a Taiwan corporation (“EDI”), and EDI’s subsidiary, AMAGIC Holographics, Inc., a California corporation (“AMAGIC”), effective June 11, 2020, pursuant to which $1,000,000 in accounts payable owed by the Company to EDI was settled in exchange for the Company’s issuance of 869,565 shares (the “Shares”) of its Class A common stock to AMAGIC at a $1.15 per share purchase price. The Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of Regulation D under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

 

On January 26, 2021, the Company entered into an agreement with EDI and EDI’s subsidiary, AMAGIC, pursuant to which $1,983,436 in accounts payable owed by the Company to EDI was settled in exchange for the Company’s issuance of 793,375 shares (the “2021 Shares”) of its Class A common stock to AMAGIC at a $2.50 per share purchase price. The 2021 Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of Regulation D under Section 4(a)(2) of the Securities Act.

 

18

 

 

Accounts Receivable Financing – Sallyport Commercial Finance

 

On September 30, 2020, Boxlight Inc., and EOS EDU LLC. entered into an asset-based lending agreement with Sallyport Commercial Finance, LLC (“Sallyport”), which agreement has a 12-month term (the “Term”). Pursuant to the agreement, Sallyport agreed to purchase 90% of the eligible accounts receivable of the Company during the Term 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 $8,000,000. Advances against this agreement accrue interest at the rate of 3.50% in excess of the highest prime rate publicly announced from time to time with a floor of 3.25%. 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 the assets of Boxlight Inc. and Genesis Collaboration, LLC.

 

On July 20, 2021, Boxlight and Sallyport amended the Accounts Receivable Agreement (the “ARC Amendment”) for purposes of increasing the Maximum Facility Limit Amount to $13,000,000, as well as increasing the minimum monthly sales from $1,250,000 to $3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to a fee of $50,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged. On August 6, 2021, Boxlight and Sallyport entered into an additional amendment of the Accounts Receivable Agreement (the “Second ARC Amendment”), which further increased the Maximum Facility Limit Amount to $15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $20,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged.

 

NOTE 8 – DERIVATIVE LIABILITIES

 

The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company. Conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future. Such warrants are measured at fair value at each reporting date, and the changes in fair value are included in determining net income (loss) for the period. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at June 30, 2021 and December 31, 2020:

 

    June 30, 2021  
Common stock issuable upon exercise of warrants     270,000  
Market value of common stock on measurement date   $ 2.41  
Exercise price   $ 0.43  
Risk free interest rate (1)     0.06 %
Expected life in years     0.50 years  
Expected volatility (2)     102 %
Expected dividend yields (3)     0 %

 

    December 31, 2020  
Common stock issuable upon exercise of warrants     295,000  
Market value of common stock on measurement date   $ 1.53  
Exercise price   $ 0.42  
Risk free interest rate (1)     0.13 %
Expected life in years     1 year  
Expected volatility (2)     160 %
Expected dividend yields (3)     0 %

 

  (1) The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date.
  (2) The expected volatility was determined by calculating the volatility of the Company’s common stock.
  (3) The Company does not expect to pay a dividend in the foreseeable future.

 

19

 

 

The following table shows the change in the Company’s derivative liabilities rollforward for the six months ended June 30, 2021 and 2020 (in thousands):

 

    Amount  
Balance, December 31, 2020   $ 363  
Exercise of warrants     (51 )
Change in fair value of derivative liabilities     224  
Balance, June 30, 2021   $ 536  

 

    Amount  
Balance, December 31, 2019   $ 146  
Change in fair value of derivative liabilities     46  
Balance, June 30, 2020   $ 192  

 

The change in fair value of derivative liabilities includes losses from exercise price modifications.

 

NOTE 9 – INCOME TAXES

 

Pretax (loss) income resulting from domestic and foreign operations is as follows (in thousands):

 

    Three Months Ended
June 30 		    Three Months Ended
June 30, 		 
    2021     2020  
United States   $ (105 )   $ (1,426 )
Foreign     407       -  
Total pretax book income, (loss)     302     $ (1,426 )

 

    Six Months Ended
June 30 		    Six Months Ended
June 30, 		 
    2021     2020  
United States   $ (5,428 )   $ (3,376 )
Foreign     583       -  
                 
Total pretax book loss     (4,845 )   $ (3,376 )

 

The Company recorded income tax expense of $2.52 million and $2.54 million for the three and six months ended June 30, 2021, respectively. The company recorded a significant tax impact of $2.2 million this quarter to reflect a discrete event directly pertaining to the tax impact on our UK deferred tax liability associated with the intangible assets acquired as part of the Sahara business combination, and the effect of  a recent UK rate income tax rate change. Finance Bill 2021 (“the Bill”) provides for an increase in the UK statutory tax rate to 25% for taxpayers with profits over £250K beginning April 1, 2023. We expect this rate to apply to the earnings of our Sahara operations in the UK. The Bill received Royal Assent on June 10, 2021, and it is considered enacted on that date under U.S. GAAP. As such, we must reflect the tax impact as a discrete event in our second quarter results. The year-to-date effective tax rate is 6.94% and is relatively low due to the effect of net operating loss carryforwards associated with our legacy operations in the U.S.

 

The Company operates in the United States, United Kingdom, and other jurisdictions. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned.

 

Prior to the Sahara acquisition, the Company had a net deferred tax asset position in the United States, the United Kingdom, and other jurisdictions, primarily driven by net operating losses. The recoverability of these deferred tax assets depends on the Company’s ability to generate taxable income in the jurisdiction to which the loss carryforward applies. The Company also depends on specific tax provisions in each jurisdiction that could impact utilization. The Company has evaluated both positive and negative evidence as to the ability of its legacy entities in each jurisdiction to generate future taxable income. Based on its history of cumulative losses in those jurisdictions, we believe it is appropriate to maintain a full valuation allowance on the Company’s net deferred tax asset at June 30, 2021 and December 31, 2020.

 

20

 

 

Due to the Sahara and Interactive Concepts acquisitions, the Company has recognized a net deferred tax liability for the acquired entities, primarily driven by acquired intangible assets for which it does not have tax basis in the jurisdictions in which operates (primarily the United Kingdom, the Netherlands, and the United States). The Company does not expect to qualify for any consolidated filing positions in any of these countries, so there is no ability to net the deferred tax liabilities of the Sahara companies against the deferred tax assets of the legacy Boxlight companies.

 

The tax years from 2016 to 2020 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.

 

During the second quarter of 2021, the Company became aware of a potential state tax exposure for failure to file minimum tax returns in a state for a number of years. The Company has tentatively agreed to the proposed tax assessment, but it is appealing the associated interest and penalty assessment. The Company has recorded an exposure item of $50K this quarter for its best estimate of the amount for which it will settle the exposure. This amount includes $20K of income tax and $30K of penalties and interest.

 

NOTE 10 – EQUITY

 

Preferred Shares

 

The Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 shares of preferred stock consisting of: 1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,200,000 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 270,000 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) 48,280,000 shares of “blank check” preferred stock to be designated by the Company’s Board of Directors.

 

Issuance of preferred shares

 

Series A Preferred Stock

 

At the time of the Company’s initial public offering 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital for the acquisition of Genesis. All of the Series A preferred stock was convertible into 398,406 shares of Class A common stock. On August 5, 2019, a total of 82,028 shares of Series A preferred stock were converted into a total of 130,721 shares of Class A common stock.

 

Series B Preferred Stock and Series C Preferred Stock

 

As discussed in Note 2 above, on September 25, 2020, in connection with the acquisition of Sahara, the Company issued 1,586,620 shares of Series B Preferred Stock and 1,320,850 shares of Series C Preferred Stock. The Series B Preferred Stock has a stated and liquidation value of $10.00 per share and pays a dividend out of the earnings and profits of the Company at the rate of 8% per annum, payable quarterly. The Series B Preferred Stock is convertible into the Company’s Class A common stock at a conversion price of $1.66 per share which was the closing price of the Company’s Class A common stock on the Nasdaq Stock Market on September 25, 2020 (the “Conversion Price”). Such conversion may occur either (i) at the option of the holder at any time after January 1, 2024 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price). The Series C Preferred Stock has a stated and liquidation value of $10.00 per share and is convertible into the Company’s Class A common stock at the Conversion Price either (i) at the option of the holder at any time after January 1, 2026 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price).

 

To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of Series B Preferred Stock shall be redeemable at the option of the holders at any time or from time to time commencing on January 1, 2024, upon thirty (30) days prior written notice to the holders, for a redemption price, payable in cash, equal to the sum of (a) ($10.00) multiplied by the number of shares of Series B Preferred Stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C Preferred Stock is also subject to redemption on the same terms commencing January 1, 2026.

 

21

 

 

As disclosed in in Note 2, the aggregate estimated fair value of the Series B and C Preferred Stock of $28.9 million was included as part of the total $94.9 million consideration paid for the purchase of Sahara.

 

As the redemption features in the Series B Preferred Stock and Series C Preferred Stock are not solely within the control of the Company, the Company has classified the Series B Preferred Stock and Series C Preferred Stock as mezzanine or temporary equity in the Company’s condensed consolidated balance sheet.

 

On March 24, 2021 the Company entered into a share redemption and conversion agreement with certain holders of Series B and Series C preferred stock (the “Redemption Agreement”) which allows the Company to redeem and purchase each such stockholder’s shares of Series B preferred stock on or before June 30, 2021 for the stated or liquidation value of approximately £11.5 million (or approximately $15.9 million) plus accrued dividends from January 1, 2021 to the date of purchase. The same stockholders hold 96% of the Series C preferred stock. Upon redemption, the Series C shares would convert into approximately 7.6 million shares of Class A Common Stock at the stated conversion price of $1.66 per share.

 

On June 14, 2021, the Company entered into an amendment to the Redemption Agreement (the “Amended Redemption Agreement”) for purposes of extending the completion date to on or before December 31, 2021. In addition, the Amended Redemption Agreement changed the definition of “Redemption Payments” such that the redemption payment schedule would begin on or before May 31, 2021, for the quarter then ended and continue quarterly until the date of Completion.

 

In regard to these amendments the Company applied the accounting guidance from ASC 470-50 pertaining to determining whether an amendment to an equity-classified preferred share is an extinguishment or modification, and concluded that the Amended Redemption Agreement on June 14, 2021, as it effected the Series B Preferred Stock, resulted in an extinguishment of the original equity instruments subject to redemption agreement. Accordingly, the Series B Preferred Stock subject to the Amended Redemption Agreement was recorded at its fair value as of June 14, 2021, and a $367 thousand deemed contribution was credited to additional-paid-in-capital. With the Redemption Agreement, the Series B Preferred Stock includes a beneficial conversion feature, but in accordance with ASC 470-20, since it is dependent upon contingencies that are not solely in the control of the holder, the beneficial conversion feature was not recognized for accounting purposes.

 

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 would automatically convert into shares of Class A common stock. As of June 30, 2021 and December 31, 2020, the Company had 59,102,072 and 53,343,518 shares of Class A common stock issued and outstanding, respectively. No Class B shares were outstanding at June 30, 2021 or December 31, 2020.

 

Issuance of common stock

 

Public Offering

 

On July 31, 2020, the Company issued 17,250,000 shares of the Company’s Class A common stock at a public offering price of $2.00 per share. Gross proceeds from the issuances were $34,500,000, including the underwriting overallotment. Net proceeds were $32.0 million after deducting underwriting discounts and offering expenses of $2.5 million.

 

On June 11, 2020, the Company issued 13,333,333 shares of the Company’s Class A common stock at a public offering price of $0.75 per share. In addition, on June 24, 2020 the Company issued an additional 1,999,667 shares of Class A common stock to the underwriter at $0.75 per share. Gross proceeds from the issuances were $11.5 million. Net proceeds were $10.6 million after deducting underwriting discounts and offering expenses of $906 thousand.

 

22

 

 

Debt Conversion

 

During the six months ended June 30, 2021, the Company repaid principal of $6.8 million and interest of $373 thousand by issuing 3.9 million shares Class A common stock with an aggregate value of $9.9 million to Lind and recognized a $2.7 million loss.

 

Accounts Payable and Other Liabilities Conversions

 

During the six months ended June 30, 2021, the Company converted $2.0 million of EDI accounts payable in exchange for 793 thousand shares of Class A common stock with an aggregate value of $1.6 million and recognized a $357 thousand gain.

 

Compensation

 

During the six months ended June 30, 2021 and in accordance with the terms of his employment agreement, Michael Pope, our Chairman and Chief Executive Officer, received 875,000 shares of restricted Class A common stock, which shares remain subject to certain vesting conditions. The shares will vest in substantially equal monthly installments over a period of 12 months.

 

Exercise of stock options

 

During the six months ended June 30, 2021, options to purchase a total of 322 thousand shares of Class A common stock were exercised.

 

NOTE 11 – STOCK COMPENSATION

 

The total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s 2021 Equity Incentive Plan and 2014 Equity Inventive Plan, as amended (together “Equity Incentive Plans”), in the aggregate were 5,000,000 and 116,837 shares, respectively. The 2021 Equity Incentive Plan was approved by the Company’s Board on April 12, 2021 and approved by the shareholders at the Company’s Annual Shareholders Meeting held on June 11, 2021. All grants made under the Equity Incentive Plans must be approved by the Company’s Board prior to issuance.

 

Stock Options

 

Under our stock option program, pursuant to the Equity Incentive Plans, an employee receives an award that provides the opportunity in the future to purchase the Company’s shares at the market price of our stock on the date the award is granted (the 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.

 

The following is a summary of the option activities during the six months ended June 30, 2021:

 

    Number of Units    

Weighted

Average

Exercise Price

   

Weighted Average

Remaining Contractual

Term (in years)

 
Outstanding, December 31, 2020     4,850,784     $ 1.76       3.51  
Granted     -       -       -  
Exercised     (322,143 )     0.77          
Cancelled     (275,625 )     1.02          
Outstanding, June 30, 2021     4,253,015     $ 1.88       2.86  
Exercisable, June 30, 2021     2,729,205     $ 2.39       2.24  

 

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The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As of June 30, 2021 and December 31, 2020, the stock options had an intrinsic value of approximately $5.3 million and $2.9 million, respectively.

 

Restricted Stock Units

 

Under our Equity Incentive Plans the Company may grant restricted stock units (“RSUs”) to certain employees and non-employee directors. Upon granting the RSUs, the Company recognizes a fixed compensation expense equal to the fair market value of the underlying shares of RSUs granted on a straight-line basis over the requisite services period for the RSUs. Compensation expense related to the RSUs is reduced by the fair value of units that are forfeited by employees that leave the Company prior to vesting. The restricted stock units vest over a range of immediately vested to four-year vesting periods in accordance with the terms of the applicable RSU grant agreement.

 

The following is a summary of the restricted stock activities during the six months ended June 30, 2021.

 

    Number of Units    

Weighted

Average

Grant Date Fair Value

 
Outstanding, December 31, 2020     2,721,347     $ 1.62  
Granted     1,005,790       2.83  
Vested     (696,612 )     1.95  
Outstanding, June 30, 2021     3,030,525     $ 1.95  

 

On February 24, 2021, the Company granted an aggregate of 130,547 RSUs to its board members. These RSUs vest ratably over one year and had an aggregated fair value of approximately $374 thousand on the grant date.

 

In addition, on March 20, 2021, the Company granted an aggregate of 875,245 shares of restricted common stock to Michael Pope, CEO and Chairman, pursuant to his employment agreement. These shares were issued pursuant to the 2014 Equity Incentive Plan, vest ratably over one year, are issued monthly as they vest, and had an aggregated fair value of approximately $2.5 million on the grant date.

 

Warrants

 

Following is a summary of the warrant activities during the six months ended June 30, 2021:

 

    Number of Units    

Weighted

Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Term (in years)

 
Outstanding, December 31, 2020     365,000     $ 1.44       1.27  
Granted     -                  
Exercised     (20,749 )    

0.42

     

-

 
Outstanding, June 30, 2021     344,251     $ 1.52       0.80  
Exercisable, June 30, 2021     326,000     $ 1.55       0.67  

 

24

 

 

Stock compensation expense

 

For the six months ended June 30, 2021 and 2020, the Company recorded the following stock compensation in general and administrative expense (in thousands):

 

    2021     2020  
Stock options   $ 391     $ 499  
Restricted stock units     1,467       21  
Warrants     1       -  
Total stock compensation expense   $ 1,859     $ 520  

 

As of June 30, 2021, there was approximately $6.8 million of unrecognized compensation expense related to unvested options, restricted stock units, and warrants, which will be amortized over the remaining vesting period. Of that total, approximately $2.0 million is estimated to be recorded as compensation expense in the remaining six months of 2021.

 

NOTE 12 – RELATED PARTY TRANSACTIONS

 

Management Agreement

 

On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by our Chief Executive Officer and Chairman, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment agreement with the Company. Under the Management Agreement, effective as of the first day of the same month that Mr. Pope’s employment with the Company shall terminate. Thereafter, and for a term of 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.

 

On June 21, 2018, the Company issued a warrant to purchase 270,000 Class A common stock, at an exercise price of $1.20 per share, to an entity wholly owned by Mr. Pope in exchange for the cancellation of a warrant that had been issued to in November 2014 as compensation for certain advisory services rendered.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases six office building facilities located in Lawrenceville, Georgia, Poulsbo, Washington, Lexington, Massachusetts, Scottsdale, Arizona, Miami, Florida and Utica, New York in the U.S., and two office building facilities in Dartford and Kent in the U.K. for sales, marketing, technical support and service staff. All such facilities are under non-cancelable lease agreements with terms ending in 2023.

 

For the six months ended June 30, 2021 and 2020, aggregate rent expense was $984 thousand and $220 thousand respectively.

 

Purchase Commitments

 

The Company is legally obligated to fulfill certain purchase commitments made to vendors that supply materials used in the Company’s products. As of June 30, 2021 the total amount of such open inventory purchase orders was $63.9 million.

 

25

 

 

NOTE 14 – CUSTOMER AND SUPPLIER CONCENTRATION

 

There were two customers that account for greater than 10% of the Company’s consolidated revenues for the six months ended June 30, 2021. Details are as follows:

 

Customer  

Total revenues

from the customer
as a percentage of total revenues

for the six months ended June 30, 2021

   

Accounts

receivable from this customer as of

June 30, 2021 (in thousands)

 
1     11.1 %   $ 5,544  
2     10.1 %   $ 6,135  

 

For the six months ended June 30, 2021, the Company’s purchases were concentrated amongst two vendors. Details are as follows:

 

Vendor  

Total purchases from the

vendor as a percentage of

total cost of sales

for the

six months ended

June 30, 2021

   

Accounts payable

(prepayment) to the

vendor as of

June 30, 2021

(in thousands)

 
1     35.8 %   $ 611  
2     23.8 %   $ 5,002  

 

The Company believes there are other suppliers that could be substituted should the above cited suppliers become unavailable or non-competitive.

 

NOTE 15 – SUBSEQUENT EVENTS

 

Financing Arrangements

 

As previously disclosed, Boxlight Corporation entered into an accounts receivable agreement, effective September 30, 2020 (the “Accounts Receivable Agreement”), between Sallyport Commercial Finance LLC (“Sallyport”) and the Company’s subsidiaries. Under the terms of the Accounts Receivable Agreement, the Subsidiaries were originally able to sell up to $6,000,000 (the “Maximum Facility Limit Amount”) of eligible accounts receivable that are accepted by Sallyport for up to 90% of the face amount of each such eligible account. On July 20, 2021, Boxlight and Sallyport amended the Accounts Receivable Agreement (the “ARC Amendment”) for purposes of increasing the Maximum Facility Limit Amount to $13,000,000, as well as increasing the minimum monthly sales from $1,250,000 to $3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to pay a fee of $50,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged. On August 6, 2021, Boxlight and Sallyport entered into an additional amendment of the Accounts Receivable Agreement (the “Second ARC Amendment”), which further increased the Maximum Facility Limit Amount to $15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $20,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged.

 

Settlement of Debt Transactions

 

On July 8, 2021, the Company issued 22,179 shares of Class A common stock in lieu of principal and interest payment of notes payable with an aggregate amount of $48,583.

 

On July 21, 2021, the Company issued 576,325 shares of Class A common stock in lieu of principal and interest payment of notes payable with an aggregate amount of $1,000,000.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein. The Management’s Discussion and Analysis (“MD&A”) contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors.

 

Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.

 

Overview

 

We are a technology company that is seeking to become a world leading innovator and integrator of interactive products and software for schools education, business, and government interactive spaces. We currently design, produce and distribute interactive displays, collaboration software, supporting accessories and professional services. We also distribute science, technology, engineering, and math (or “STEM”) products, including our robotics and coding system, 3D printing solution and portable science lab. Our products are integrated into our software suite that provides tools for presentation creation and delivery, assessment, and collaboration.

 

To date, we have generated substantially all of our revenue from the sale of our hardware (primarily consisting of interactive displays) and software to the educational market in the United States and Europe.

 

We have also implemented a comprehensive plan to reach and maintain profitability both from our core business operations and as a result of making strategic business acquisitions. Highlights of our plan include:

 

  ● Integrating products of the acquired companies and cross training our sales reps to increase their offerings and productivity.
     
  ● Hiring new sales representatives with significant industry experience in their respective territories.
     
  ● Expanding our reseller partner network both in key territories and in new markets, thereby increasing our penetration and reach.

 

Recent Acquisitions

 

On March 23, 2021, the Company acquired 100% of the outstanding shares of Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies (“Interactive”), for total consideration of approximately $3.3 million in cash, common stock and deferred consideration. The company has been Boxlight’s key distributor in Belgium and Luxembourg.

 

27

 

 

On September 24, 2020, the Company acquired Sahara Presentation Systems PLC, a leader in distributed and manufactured AV solutions (“Sahara”). Headquartered in the United Kingdom, Sahara is a leader in distributed AV products and a manufacturer of multi-award-winning touchscreens and digital signage products, including the globally renowned Clevertouch and Sedao brands. In consideration for the acquisition, the Company paid to the shareholders of Sahara a total purchase price of GBP 74.0 million (approximately USD $94.9 million) in the form of GBP 52.0 million (approximately USD $66.7 million) in cash and GBP 22.0 million (approximately USD $28.2 million) in our Series B convertible preferred stock and our Series C convertible preferred stock.

 

Acquisition Strategy and Challenges

 

Our growth strategy includes acquiring assets and technologies of companies that have products, technologies, industry specializations or geographic coverage that extend or complement our existing business. The process to undertake a potential acquisition is time-consuming and costly. We expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets, and there is no guarantee that we will complete any acquisition that we pursue.

 

We believe we can achieve significant cost-savings by merging the operations of the companies we acquire and after their acquisition leverage the opportunity to reduce costs through the following methods:

 

  ● Staff reductions – consolidating resources, such as accounting, marketing and human resources.
     
  ● Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers.
     
  ● Improved market reach and industry visibility – increase in customer base and entry into new markets.

 

Components of our Results of Operations and Financial Condition

 

Revenues are comprised of hardware products, software services, and professional development revenues less sales discounts.

 

  ● Product revenue. Product revenue is derived from the sale of our hardware (interactive projectors), flat panels, peripherals and accessories, along with other third-party products, directly to our customers, as well as through our network of domestic and international distributors.
     
  ● Professional development revenue. We receive revenue from providing professional development services through third parties and our network of distributors.

 

Cost of revenues

 

Our cost of revenues is comprised of the following:

 

  ● costs to purchase components and finished goods directly;
     
  ● third-party logistics costs;
     
  ● inbound and outbound freight costs, and customs and duties charges;

 

  ● costs associated with the repair of products under warranty;
     
  ● write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts; and
     
  ● cost of professionals to deliver professional development training related to the use of our products.

 

We outsource some of our warehouse operations and order fulfillment and purchase products from related and third parties. Our product costs will vary directly with volume and the costs of underlying product components as well as the prices we are able to negotiate with our contract manufacturers. Shipping costs fluctuate with volume as well as with the method of shipping chosen in order to meet customer demand. As a global company with suppliers centered in Asia and customers located worldwide, we have used, and may in the future use, air shipping to deliver our products directly to our customers. Air shipping is more costly than sea or ground shipping or other delivery options. We primarily use air shipping to meet the demand of our products during peak seasons and new product launches.

 

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Gross profit and gross profit margin

 

Our gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: product, channel and geographical revenue mix; changes in product costs related to the release of projector models; component, contract manufacturing and supplier pricing and foreign currency exchange. As we primarily procure our product components and manufacture our products in Asia, our suppliers incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. Gross profit and gross profit margin may fluctuate over time based on the factors described above.

 

Operating expenses

 

We classify our operating expenses into two categories: general and administrative and research and development.

 

General and administrative. General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. General and administrative expense may fluctuate as a percentage of revenue, notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue.

 

Research and development. Research and development expense consists primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.

 

Other income (expense), net

 

Other income (expense), net primarily consists of interest expense associated with our debt financing arrangements, gains (losses) on the settlements of debt and trade payable obligations exchanged for common shares, and the effects of changes in the fair value of derivative liabilities.

 

Income tax expense

 

We are subject to income taxes in the United States, United Kingdom, Mexico, Sweden, Finland, Holland, and Germany where we do business. The United Kingdom, Mexico, Sweden, Finland, Holland, and Germany have a statutory tax rate different from that in the United States. Additionally, certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.

 

Operating Results – Boxlight Corporation

 

For the three-month periods ended June 30, 2021 and 2020

 

Revenues. Total revenues for the three months ended June 30, 2021 were $46.8 million as compared to $7.8 million for the three months ended June 30, 2020, resulting in a 500% increase. Revenues primarily consist of hardware revenue, software revenue, and professional development. The increase in revenues was primarily due to the acquisitions of Sahara Presentation Systems in September 2020 and increased demand for our solutions in the U.S. and Europe.

 

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Cost of Revenues. Cost of revenues for the three months ended June 30, 2021 was $33.9 million as compared to $5.1 million for the three months ended June 30, 2020, resulting in a 565% increase. Cost of revenues consists primarily of product cost, freight expenses, customs expense, and inventory adjustments. The increase in cost of revenues was associated with the acquisitions and growth of the business as outlined above, and was also due to additional increases in global freight/shipping which the company has experienced as have many others as following the COVID-10 pandemic. In Q1/2021 we reported the cost increase to be ~4x compared to pre-pandemic levels, this is expected to continue throughout 2021.

 

Gross Profit. Gross profit for the three months ended June 30, 2021 was $12.8 million, as compared to $2.7 million for the three months ended June 30, 2020. The decrease in gross profit margin from 34% to 27% was primarily driven by the effects of freight /shipping expenses discussed above, product cost increases (which have been partially offset by increased sales prices) and certain purchase accounting adjustments stemming from the Sahara acquisition and effecting recognized revenues.

 

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2021 were $10.8 million and 23% of revenues, as compared to $3.2 million and 41% of revenues for the three months ended June 30, 2020. The increase was mainly a result from the additional personnel costs associated with the acquired Sahara operations, new hires for planned growth and stock compensation issuances.

 

Research and Development Expenses. Research and development expense were $481 thousand and 1% of revenues for the three months ended June 30, 2021, as compared to $285 thousand and 4% of revenues for the three months ended June 30, 2020. Research and development expense primarily consists of costs associated with development of our proprietary hardware and software technologies, The absolute increase in research and development expense was primarily driven by an increase in contract services related to software development.

 

Other Expense (net). Other expense (net) for the three months ended June 30, 2021 was $1.3 million for the three months ended June 30, 2021, as compared to $0.6 million for the three months ended June 30, 2020. Other expense increased primarily due to an $136 thousand increase in interest expense associated with increased borrowings, and $585 thousand of additional losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares.

 

Income Tax Expense. Income tax expense for the three months ending June 30, 2021 was $2.5 million, as compared no income tax expenses for the three months ended June 30, 2020. Income tax have been recognized in connection with our acquired Sahara operations. The Company recorded a significant tax impact of $2.2 million this quarter to reflect a discrete event directly pertaining to the tax impact on our UK deferred tax liability associated with the intangible assets acquired as part of the Sahara business combination, and the effect of a recent UK rate income tax rate change. Finance Bill 2021 (“the Bill”) provides for an increase in the UK statutory tax rate to 25% for taxpayers with profits over £250K beginning April 1, 2023. We expect this rate to apply to the earnings of our Sahara operations in the UK. The Bill received Royal Assent on June 10, 2021, and it is considered enacted on that date under U.S. GAAP. As such, we must reflect the tax impact as a discrete event in our second quarter results. The effective tax rate is 6.94% and is relatively low due to the effect of net operating loss carryforwards associated with our legacy operations in the U.S.

 

Net Loss. Net loss was $2.2 million and $1.4 million for the three months ended June 30, 2021 and 2020, respectively. Net loss has been significantly reduced as result of the Company achieving positive operating income and operating margin in Q2 of 2021.

 

For the six-month periods ended June 30, 2021 and 2020

 

Revenues. Total revenues for the six months ended June 30, 2021 were $80.2 million as compared to $13.6 million for the six months ended June 30, 2020, resulting in a 490% increase. The increase in revenues was primarily due to the acquisitions of Sahara Presentation Systems in September 2020 and Interactive Concepts in March 2021, and increased demand for our solutions in the U.S., Europe, Middle East, and Africa. Organic revenue growth for the first half of 2021 was 40%.

 

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Cost of Revenues. Cost of revenues for the six months ended June 30, 2021 were $58.8 million as compared to $9.3 million for the six months ended June 30, 2020, resulting in an 532% increase. The increase in cost of revenues was associated with the acquisitions and growth of the business as outlined above, and was also due to additional increases in global freight/shipping which the company has experienced as have many others as following the COVID-10 pandemic. In Q1/2021 we reported the cost increase to be ~4x compared to pre-pandemic levels, this is expected to continue throughout 2021.

 

Gross Profit. Gross profit for the six months ended June 30, 2021 was $21.4 million as compared to $4.3 million for the six months ended June 30, 2020. The gross profit margin decreased from 32% for the six months ended June 30, 2020 to 27% in for the six months ending June 30, 2021 was primarily driven by the effects of customs and freight expenses discussed above, and certain purchase accounting adjustments stemming from the Sahara acquisition and effecting recognized revenues.

 

General and Administrative Expenses. General and administrative (“G&A”) expense for the six months ended June 30, 2021 were $20.9 million and 26% of revenue as compared to $7.1 million and 52% of revenue for the six months ended June 30, 2020. The increase in G&A expenses resulted from additional personnel costs associated with the acquired Sahara operations, new hires for planned growth and stock compensation issuances.

 

Research and Development Expenses. Research and development expenses were $955 thousand and 1% of revenue for the six months ended June 30, 2021 as compared to $602 thousand and 4% of revenue for the six months ended June 30, 2020. The absolute increase in research and development expense was primarily driven by an increase in contract services related to software development.

 

Other Income (Expense) Net. Other expense, net for the six months ended June 30, 2021 was $(4.4) million as compared to other income, net, of $82 thousand for the six months ended June 30, 2020. Other expense increased primarily due to a $695 thousand increase in interest expense associated with increased borrowings, and net movement year on year of $3.5 million of additional losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares.

 

Income Tax Expense. Income tax expense for the three months ending June 30, 2021 was $2.5 million, as compared no income tax expenses for the six months ended June 30, 2020. Income tax was recognized in connection with our acquired Sahara operations. The Company recorded a significant tax impact of $2.2 million during the second quarter to reflect a discrete event directly pertaining to the tax impact on our UK deferred tax liability associated with the intangible assets acquired as part of the Sahara business combination, and the effect of a recent UK rate income tax rate change. Finance Bill 2021 (“the Bill”) provides for an increase in the UK statutory tax rate to 25% for taxpayers with profits over £250K beginning April 1, 2023. We expect this rate to apply to the earnings of our Sahara operations in the UK. The Bill received Royal Assent on June 10, 2021, and it is considered enacted on that date under U.S. GAAP. As such, we must reflect the tax impact as a discrete event in our second quarter results. The effective tax rate is 6.94% and is relatively low due to the effect of net operating loss carryforwards associated with our legacy operations in the U.S.

 

Net Loss. Net loss was $7.4 million and $3.4 million for the six months ended June 30, 2021 and 2020, respectively. The increase in the net loss was primarily due to the lower gross profit margins, increased interest expense, increased tax expense, amortization of intangible assets following the Sahara acquisition , stock compensation expense, and losses incurred on the settlement of certain debt obligations in exchange for shares of our common stock.

 

To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our consolidated condensed financial statements, which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, with both non-GAAP financial measures of earnings.

 

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EBITDA represents net income (loss) before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus stock compensation expense, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement. Our management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of our business model, and to assess the strength of the underlying operations of our business. These adjustments, and the non-GAAP financial measure that is derived from them, provide supplemental information to analyze our operations between periods and over time. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

 

The following tables contains reconciliations of net losses to EBITDA for the periods presented.

 

Reconciliation of net loss for the three months ended

June 30, 2021 and 2020 to EBITDA and adjusted EBITDA

 

(in thousands)   June 30, 2021     June 30, 2020  
Net loss   $ (2,220 )   $ (1,426 )
Depreciation and amortization     1,815       221  
Interest expense     764       628  
Income tax expense     2,522       -  
EBITDA   $ 2,881     $ (577 )
Stock compensation expense     1,182       249  
Change in fair value of derivative liabilities     (41 )     74  
Purchase accounting impact of fair valuing inventory     15      

14

 
Purchase accounting impact of fair valuing deferred revenue     790       -  
Net loss on settlement of Lind debt in stock     532       244  
Adjusted EBITDA   $ 5,359     $

4

  

Reconciliation of net loss for the six months ended

June 30, 2021 and 2020 to EBITDA and adjusted EBITDA

 

(in thousands)   June 30, 2021     June 30, 2020  
Net loss   $ (7,388 )   $ (3,376 )
Depreciation and amortization     3,570       440  
Interest expense     1,782       1,088  
Income tax expense     2,543       -  
EBITDA   $ 507     $ (1,848 )
Stock compensation expense     1,859       520  
Change in fair value of derivative liabilities     225       46  
Purchase accounting impact of fair valuing inventory     30      

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Purchase accounting impact of fair valuing deferred revenue     1,597       -  
Net loss on settlement of Lind debt in stock     2,735       591  
Adjusted EBITDA   $ 6,953     $ (672 )

  

Discussion of Effect of Seasonality on Financial Condition

 

Certain accounts on our financial statements are subject to seasonal fluctuations. As our business and revenues grow, we expect these seasonal trends to be reduced. The bulk of our products are shipped to our educational customers prior to the beginning of the school year, usually in June, July, August or September. To prepare for the upcoming school year, we generally build up inventories during the second quarter of the year. Therefore, inventories tend to be at the highest levels at that point in time. In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter. Accounts receivable balances tend to be at the highest levels in the third quarter, in which we record the highest level of sales.

 

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Due to some continuing travel restrictions and concerns for the safety for our employees during the ongoing COVID-19 pandemic, we have reduced face-to-face meetings with customers and attendance at tradeshow events. We have assessed the impact that these changes will have on our peak season sales and have concluded that funding priority will be given to initiatives that provide for continuity of learning which may result in lower priority on total learning solution sales including hardware, software and teacher training.

 

Liquidity and Capital Resources

 

As of June 30, 2021, we had cash and cash equivalents of $7.4 million, a working capital balance of $26.7 million, and a current ratio of 1.52. This financial position represents a significant improvement from a year ago at June 30, 2020 when we had $6.1 million of cash and cash equivalents, a working capital balance of $3.8 million, and a current ratio of 1.28.

 

For the six months ended June 30, 2021 and 2020, we had net cash used in operating activities of $4.6 million and $6.2 million, respectively, net cash used for investing activities of $852 thousand and $99 thousand respectively, and net cash provided by (used in) financing activities of $(139) thousand and $11.4 million, respectively. We had accounts receivable net of allowances of $36.1 million and $20.9 million as of June 30, 2021 and year ended December 31, 2020, respectively.

 

In addition to the cash flows generated by our ongoing operating activities we financed our operations during 2021 with a new $20.0 million tranche of debt funded by our primary lender, and from a pre-existing accounts receivable financing arrangement with another lender who purchases 85% of the eligible accounts receivable of the Company, for up to $15.0 million, with the right of recourse. Our accounts receivable and our ability to borrow against accounts receivable provides us with an additional source of liquidity as cash payments are collected from customers in the normal course of business. Our accounts receivable balance fluctuates throughout the year based on the seasonality of our business.

 

In the current lingering COVID-19 pandemic environment, the availability of debt and equity capital has been reduced and the cost of capital has increased. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, we are confident that the Company will be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with customers and vendors.

 

Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases. We lease all of our office facilities. We expect to make future payments on existing leases from cash generated from operations. We have limited credit available from our major vendors and are required to prepay for the majority of our inventory purchases, which further constrains our cash liquidity.

 

Recent Financing

 

As disclosed below, previously the Company entered into an accounts receivable agreement, effective September 30, 2020 (the “Accounts Receivable Agreement”), between Sallyport Commercial Finance LLC (“Sallyport”) and the Company’s subsidiaries. Under the terms of the Accounts Receivable Agreement, the Subsidiaries were originally able to sell up to $6,000,000 (the “Maximum Facility Limit Amount”) of eligible accounts receivable that are accepted by Sallyport for up to 90% of the face amount of each such eligible account. On July 20, 2021, Boxlight and Sallyport amended the Accounts Receivable Agreement (the “ARC Amendment”) for purposes of increasing the Maximum Facility Limit Amount to $13,000,000, as well as increasing the minimum monthly sales from $1,250,000 to $3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to a fee of $50,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged. On August 6, 2021, Boxlight and Sallyport entered into an additional amendment of the Accounts Receivable Agreement (the “Second ARC Amendment”), which further increased the Maximum Facility Limit Amount to $15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $20,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remain unchanged.

 

On January 26, 2021, we entered into an agreement with Everest Display Inc., a Taiwan corporation (“EDI”), and EDI’s subsidiary, AMAGIC Holographics Inc., a California corporation (“AMAGIC”), pursuant to which $1,983,436 in accounts payable owed by us to EDI was settled in exchange for our issuance of 793,375 shares (the “2021 Shares”) of its Class A common stock to AMAGIC at a $2.50 per share purchase price. The 2021 Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of Regulation D under Section 4(a)(2) of the Securities Act.

 

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On September 21, 2020, we and Lind Global Asset Management LLC (“Lind Global”) entered into a securities purchase agreement (the “Lind Global SPA”), pursuant to which Lind Global purchased from the Company a $22,000,000 secured convertible note (the “Convertible Note”) in exchange for payment to us of $20,000,000 (the “Funding”). Under the terms of the Lind Global SPA, in addition to the issuance of the Convertible Note, the Company paid to Lind (i) a commitment fee of $400,000 and (ii) a bonus fee (the “Bonus Payment”) of $500,000 payable in shares of Class A common stock of the Company, with the per share price of the Bonus Payment shares calculated based on the 20-day VWAP of the Class A Common Stock prior to closing. The Convertible Note has a term of 24-months, bears a 4% interest rate (0% interest so long as the Class A Common Stock trades at $3.50 or more per share), is repayable in 22 equal instalments commencing 60 days after the Funding and, at the option of the Company, may be repaid in either cash or Class A common stock. Class A common stock issuable to Lind Global in conjunction with the Bonus Payment and the Convertible Note was registered pursuant to a shelf takedown on the Company’s existing shelf registration statement on Form S-3 (SEC File No. 333-239939).

 

In conjunction with our entry into the Lind Global SPA and the issuance of the Convertible Note, on September 21, 2020, the Company and Lind Global Macro Fund, LP, an affiliate of Lind Global(“Lind”), entered into a third amended and restated security agreement (the “Third A&R Security Agreement”) for purposes of amending and restating a prior security agreement, dated as of February 4, 2020, between the Company and Lind in order to incorporate the Lind Global SPA and the Convertible Note therein. In addition, on September 21, 2020, the Company, Sallyport Commercial Finance, LLC (“Sallyport”), as first lien creditor, and Lind and Lind Global, as second lien creditors, entered into a third amended and restated intercreditor agreement (the “Third A&R Intercreditor Agreement”) for purposes of amending and restating the second amended and restated intercreditor agreement, dated as of February 4, 2020, between the Company, Sallyport and Lind, in order to (i) incorporate Lind Global as a second lien creditor and (ii) reaffirm and confirm the relative priority of each creditor’s respective security interests in the Company’s assets, among other matters.

 

On July 28, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group, LLC, a Delaware limited liability company (“Maxim”), pursuant to which Maxim, as representative of the underwriters, agreed to underwrite the public offering (the “Offering”) of up to 15,000,00 shares of the Company’s Class A common stock, at a public offering price of $2.00 per share, in addition to an overallotment option (the “Overallotment Option”) of 2,250,000 shares of Common Stock. The Offering closed on July 31, 2020, with the sale of all 17,250,000 shares of the Company’s Common Stock, including the Overallotment Option, for gross proceeds of $34,500,000. Maxim acted as sole book-running manager, National Securities Corporation acted as a co-manager for the Offering, and A.G.P./Alliance Global Partners (“A.G.P.”) acted as financial advisor. As compensation for underwriting the Offering, the underwriters received an underwriting discount of 7%, equaling approximately $2,415,000, in addition to $60,000 in expenses. A.G.P.’s compensation was paid out of the underwriting discount. The Offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (SEC File No. 333-239939) (the “Registration Statement”) and the related base prospectus included therein, as supplemented by the prospectus supplement dated July 28, 2020 (the “Preliminary Prospectus”) and the final prospectus supplement, filed July 29, 2020 (the “Final Prospectus” and collectively with the Preliminary Prospectus, the “Prospectus”)

 

On June 8, 2020, the Company entered into an underwriting agreement (the “June Underwriting Agreement”) with Maxim pursuant to which Maxim agreed to underwrite the public offering (the “June Offering”) of 13,333,333 shares (the “Shares”) of the Company’s Class A common stock at a public offering price of $0.75 per share. National acted as co-manager of the June Offering. The June Offering closed on June 11, 2020, with the Company’s sale of the Shares for gross proceeds of $10,000,000. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 2,000,000 shares of Class A common stock at the public offering price less discounts and commissions (the “June Over-Allotment Option”). The June Over-Allotment Option was exercised in full on June 24, 2020, for additional proceeds of $1,500,000, through the sale of an additional 1,999,667 shares of Class A common stock. Maxim acted as sole-bookrunner and National acted as co-manager for the Offering. Gross proceeds, before underwriting discounts and commissions and estimated offering expenses, totaled $11.5 million. As compensation for underwriting the Offering, Maxim and National together received an underwriting discount of 7% of the Offering and the Over-Allotment Option and were reimbursed for up to $85,000 in underwriting expenses. The June Offering was conducted pursuant to the Company’s registration statement on Form S-1 (SEC File No. 333-238634) previously filed with and subsequently declared effective by the SEC.

 

Off Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations or liquidity and capital resources.

 

Critical Accounting Policies and Estimates

 

Our consolidated condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated condensed financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

 

Our significant accounting policies are discussed in the notes to the unaudited consolidated condensed financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain:

 

  1. Revenue recognition
  2. Business acquisitions
  3. Goodwill and Intangible assets
  4. Stock-based compensation expense

 

Emerging Growth Company

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies.

 

These provisions include:

 

(1) an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;
   
(2) an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
   
(3) an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and
   
(4) reduced disclosure about our executive compensation arrangements.

 

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We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

As a “smaller reporting company,” this item is not required.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures.

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this report (“Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective due to material weaknesses described in our 2020 Annual Report on Form 10-K and a material weakness related to the accounting for prospective changes to the rate of corporation tax applicable in the UK, which was enacted during the quarter.

 

Notwithstanding the existence of these material weaknesses, we believe that the consolidated condensed financial statements included in this interim report on Form 10-Q fairly present in accordance with U.S. GAAP, in all material respects, our financial condition, results of operations and cash flows for the periods presented in this report.

 

Limitations on Effectiveness of Controls.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.

 

(b) Changes in internal controls over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the six-month period ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

The Company has experienced challenges within the global supply chain which has impacted the business in three key areas: (i) movement and/or delay in production schedules due to component shortages, (ii) continued delays to global shipping and receipt of goods and (iii) increased shipping costs which has reduced gross profit margin. In addition, there is presently a global silicon chip supply shortage that could potentially cause disruptions in our supply chain. While the Company’s business has not yet been affected by such disruption, in the event any of our suppliers experience such supply chain disruption, there is potential that such disruption could ultimately affect our ability to timely obtain and deliver finished goods and products.

 

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For additional risk factors pertinent our business please refer to the Part I Item 1A of the Company’s 2020 Annual Report on Form 10-K, which is incorporated by reference herein.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On January 29, 2021, pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act and Regulation D thereunder, the Company issued 793 thousand shares of Class A common stock to Amagic Holographics Inc., an affiliate of K Laser Technology Inc. (“K Laser”) in exchange for cancellation of $1.9 million in accounts payable owed by the Company to K Laser’s affiliate.

  

We did not receive any direct proceeds from the issuance of the shares, aside from a reduction of debt owed.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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Item 6. Exhibits

 

The following exhibits are filed or furnished with this report:

 

Exhibit No.   Description of Exhibit
     
3.1   Amended and Restated Bylaws, adopted June 24, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on June 24, 2021).
     
10.1   Amendment to Preferred Stock Redemption Agreement, dated June 14, 2021, between Boxlight Corporation and the Preferred Stockholders (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed June 16, 2021).
     
10.2   Amendment to Accounts Receivable Agreement, dated July 20, 2021, between Boxlight Corporation and Sallyport Commercial Finance LLC (incorporated by reference to the Current Report on Form 8-K filed July 21, 2021).
     
10.3   Amendment to Accounts Receivable Agreement, dated August 6, 2021, between Boxlight Corporation and Sallyport Commercial Finance LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed August 9, 2021).
     
10.4   Boxlight Corporation 2021 Equity Incentive Plan (filed herewith).
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

37

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BOXLIGHT CORPORATION
     
August 12, 2021 By: /s/ Michael Pope
    Michael Pope
    Chief Executive Officer

 

August 12, 2021 By: /s/ Patrick Foley
    Patrick Foley
   

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

38

 

 

EXHIBIT 10.3

 

BOXLIGHT CORPORATION

 

2021 EQUITY INCENTIVE PLAN

 

1. Purposes of the Plan. The purposes of this Plan are:

 

  ● to attract and retain the best available personnel for positions of substantial responsibility,
  ● to provide incentives to individuals who perform services for the Company, and
  ● to promote the success of the Company’s business.

 

The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

 

2. Definitions. As used herein, the following definitions will apply:

 

(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 hereof.

 

(b) “Affiliate” means any corporation or any other entity (including, but not limited to, partnerships and joint ventures) controlling, controlled by, or under common control with the Company.

 

(c) “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plans.

 

(d) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator may determine.

 

(e) “Award Agreement” means the written agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.

 

(f) “Board” means the Board of Directors of the Company.

 

(g) “Change in Control” means the occurrence of any of the following events after the Effective Date:

 

 

 

 

(i)    A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of stock in the Company that, together with the stock already held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any Person who is considered to own more than 50% of the total voting power of the stock of the Company before the acquisition will not be considered a Change in Control; or

 

(ii)  The individuals who constitute the members of the Board cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least fifty-one percent (51%) of the members of the Board; or

 

(iii) The consummation of any of the following events: (A) a change in the ownership of a substantial portion of the Company’s assets, which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such Person) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions, or (B) a merger, consolidation or reorganization involving the Company, where either or both of the events described in clauses (i) or (ii) above would be the result. For purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets or a Change in Control: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least 50% of the total equity or voting power of which is owned, directly or indirectly, by a Person described in subsection (iii)(B)(3) above. For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

For purposes of this Section 2(g), persons will be considered to be acting as a group if they are owners of a corporation or other entity that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.

 

(h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

 

   -2-  
 

 

(i) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

 

(j) “Common Stock” means the Class A common stock, par value $0.0001 per share, of the Company.

 

(k) “Company” means Boxlight Corporation, a Nevada corporation, or any successor thereto.

 

(l) “Consultant” means any person, including an advisor, other than an Employee engaged by the Company or a Parent, Subsidiary or Affiliate to render services to such entity.

 

(m) “Director” means a member of the Board.

 

(n) “Disability” means permanent and total disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

 

(o) “Effective Date” shall have the meaning set forth in Section 17 hereof.

 

(p) “Employee” means any person, including Officers and Directors, other than a Consultant employed by the Company or any Parent, Subsidiary or Affiliate of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

 

(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(r) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, and/or (ii) the exercise price of an outstanding Award is reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.

 

(s) “Fair Market Value” means, as of any date, the value of the Common Stock as the Administrator may determine in good faith, by reference to the closing price of such stock on any established stock exchange or on a national market system on the day of determination, if the Common Stock is so listed on any established stock exchange or on a national market system. If the Common Stock is not listed on any established stock exchange or on a national market system, the value of the Common Stock will be determined as the Administrator may determine in good faith using (i) a valuation methodology set forth in Treasury Regulation 1.409A-1(b)(5)(iv)(B) or (ii) with respect to valuations applicable to Awards that are not subject to Code Section 409A, such other valuation methods as the Administrator may select.

 

(t) “Fiscal Year” means the fiscal year of the Company.

 

   -3-  
 

 

(u) “Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

 

(v) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or expressly provides that it is not intended to qualify as an Incentive Stock Option.

 

(w) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

 

(x) “Option” means a stock option granted pursuant to Section 6 hereof.

 

(y) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

(z) “Participant” means the holder of an outstanding Award.

 

(aa) “Performance Goals” will have the meaning set forth in Section 11 hereof.

 

(bb) “Performance Period” means any Fiscal Year of the Company or such other period as determined by the Administrator in its sole discretion.

 

(cc) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Section 10 hereof.

 

(dd) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10 hereof.

 

(ee) “Period of Restriction” means the period during which transfers of Shares of Restricted Stock are subject to restrictions and, therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events specified in the applicable Award, as interpreted and construed by the Administrator.

 

(ff) “Plan” means this Boxlight Corporation 2021 Equity Incentive Plan.

 

(gg) “Restricted Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 8 hereof, or issued pursuant to the early exercise of an Option.

 

(hh) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 9 hereof. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

 

(ii) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

 

   -4-  
 

 

(jj) “Section 16(b)” means Section 16(b) of the Exchange Act.

 

(kk) “Service Provider” means an Employee, Director or Consultant.

 

(ll) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 hereof.

 

(mm) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that pursuant to Section 7 is designated as a Stock Appreciation Right.

 

(nn) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

 

3. Stock Subject to the Plan.

 

(a) Subject to the provisions of Section 14 hereof, the maximum aggregate number of Shares that may be awarded and sold under the Plan is FIVE MILLION (5,000,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock.

 

(b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Upon exercise of a Stock Appreciation Right settled in Shares, the gross number of Shares covered by the portion of the Award so settled will cease to be available under the Plan. Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares subject to an Award that are transferred to or retained by the Company to pay the tax and/or exercise price of an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan and, for the elimination of doubt, the number of Shares of equal value to such cash payment shall become available for future grant or sale under the Plan. Notwithstanding the foregoing provisions of this Section 3(b), subject to adjustment provided in Section 14 hereof, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a) above, plus, to the extent allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this Section 3(b).

 

(c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.

 

   -5-  
 

 

4. Administration of the Plan.

 

(a) Procedure.

 

(i)   Multiple Administrative Bodies. Different Committees may be established with respect to different groups of Service Providers; in that event, the Committee established with respect to a group of Service Providers shall administer the Plan with respect to Awards granted to members of such group.

 

(ii)   Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.

 

(iii)   Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.

 

(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

 

(i) to determine Fair Market Value;

 

(ii) to select the Service Providers to whom Awards may be granted hereunder;

 

(iii)  to determine the terms and condition, not inconsistent with the terms of the Plan, of any Award granted hereunder;

 

(iv)  to institute an Exchange Program and to determine the terms and conditions, not inconsistent with the terms of the Plan, for (1) the surrender or cancellation of outstanding Awards in exchange for Awards of the same type, Awards of a different type, and/or cash, or (2) the reduction of the exercise price of outstanding Awards;

 

(v)   to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

 

(vi) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

 

(vii)   to modify or amend each Award (subject to Section 19(c) hereof);

 

(viii) to authorize any person to execute on behalf of the Company any instrument required to reflect or implement the grant of an Award previously granted by the Administrator;

 

   -6-  
 

 

(ix)   to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award pursuant to such procedures as the Administrator may determine consistent with the requirements for compliance with or exemption from the provisions of Code Section 409A; and

 

(x)   to make all other determinations deemed necessary or advisable for administering the Plan.

 

(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations, and interpretations will be final and binding on all Participants and any other holders of Awards.

 

5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares, and such other cash or stock awards as the Administrator determines may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

 

6. Stock Options.

 

(a) Limitations.

 

(i)    Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000 (U.S.), such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.

 

(ii)   Subject to the limits set forth in Section 3, the Administrator will have complete discretion to determine the number of Shares subject to an Option granted to any Participant.

 

(b) Term of Option. The Administrator will determine the term of each Option in its sole discretion; provided, however, that the term will be no more than ten (10) years from the date of grant thereof in the case of Incentive Stock Options Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

 

   -7-  
 

 

(c) Option Exercise Price and Consideration.

 

(i)     Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator, but will be no less than 100% of the Fair Market Value per Share on the date of grant. In addition, in the case of an Incentive Stock Option granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the date of grant. Notwithstanding the foregoing provisions of this Section 6(c), Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to the issuance or assumption of an Option in a transaction to which Section 424(a) of the Code applies in a manner consistent with said Section 424(a).

 

(ii)  Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.

 

(iii) Form of Consideration. The Administrator will determine the acceptable form(s) of consideration for exercising an Option, including the method of payment, to the extent permitted by Applicable Laws including but not limited to tendering capital stock of the Company owned by a Participant, duly endorsed for transfer to the Company.

 

(d) Exercise of Option.

 

(i)    Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.

 

An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator specifies from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with any applicable withholding taxes). No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 14 hereof.

 

(ii)    Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by Award Agreement or by operation of this Section 6(d)(3), the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

   -8-  
 

 

(iii)   Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of cessation (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for six (6) months following the date the Participant ceases to be a Service Provider. Unless otherwise provided by the Administrator, if on the date of cessation the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after cessation the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for six (6) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will continue to vest in accordance with the Award Agreement. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

 

   -9-  
 

 

7. Stock Appreciation Rights.

 

(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.

 

(b) Number of Shares. The Administrator will have complete discretion to determine the number of Stock Appreciation Rights granted to any Participant.

 

(c) Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under the Plan; provided, however, that the exercise price will be not less than 100% of the Fair Market Value of a Share on the date of grant.

 

(d) Stock Appreciation Rights Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the exercise price, the number of Shares with respect to which the Award is granted, the term of the Stock Appreciation Right, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire upon the date determined by the Administrator, in its sole discret `ion, and set forth in the Award Agreement; provided, however, that the term will be no more than ten (10) years from the date of grant thereof. Notwithstanding the foregoing, the rules of Section 6(d) above also will apply to Stock Appreciation Rights.

 

(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

 

(i)   The difference between the Fair Market Value of a Share on the date of exercise over the “stock appreciation right exercise price,” as defined under Treasury Regulation Section 1.409A-1(b)(i)(B)(2), i.e., the Fair Market Value of a Share on the date of grant of the Stock Appreciation Right; times

 

(ii)  The number of Shares with respect to which the Stock Appreciation Right is exercised.

 

At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

 

8. Restricted Stock.

 

(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

 

   -10-  
 

 

(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(c) Transferability. Except as provided in this Section 8, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until such Shares become non-forfeitable at the end of the applicable Period of Restriction.

 

(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

 

(e) Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise in a manner not prohibited by the Award Agreement.

 

(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and provisions for forfeiture as the Shares of Restricted Stock with respect to which they were paid.

 

(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.

 

9. Restricted Stock Units.

 

(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms and conditions as the Administrator, in its sole discretion, will determine in accordance with the terms and conditions of the Plan, including all terms, conditions, and restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 9(d) hereof, may be left to the discretion of the Administrator.

 

(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such Restricted Stock Units. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion will determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed, subject to the prohibition on acceleration of the timing of distribution of deferred compensation subject to Section 409A of the Code, to the extent applicable to the Award.

 

   -11-  
 

 

(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as specified in the Award Agreement.

 

(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as practicable after the date(s) set forth in the Award Agreement, which shall satisfy the requirements of Section 409A of the Code, to the extent applicable to such Award. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully paid in cash again will be available for grant under the Plan.

 

(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.

 

10. Performance Units and Performance Shares.

 

(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units/Shares granted to each Participant.

 

(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

 

(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions. The Administrator may set vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Administrator in its discretion. Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

 

(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.

 

   -12-  
 

 

(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period or, if earlier, after the date on which a Participant’s interest in such Performance Units/Shares is no longer subject to a substantial risk of forfeiture, provided however, that in no event shall such payment be made after the later to occur of (i) December 31 of the year in which such risk of forfeiture lapses or (ii) two and one-half months after such risk of forfeiture lapses. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

 

(f) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.

 

11. Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company, or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months and one day following the commencement of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.

 

12. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award may only be transferred (i) by will, (ii) by the laws of descent and distribution, (iii) to a revocable trust, or (iv) as permitted by Rule 701 of the Securities Act of 1933, as amended.

 

13. Adjustments; Dissolution or Liquidation; Merger or Change in Control.

 

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits set forth in Sections 3, 6, 7, 8, 9 and 10 hereof.

 

   -13-  
 

 

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, any corporate separation or division, including, but not limited to, a split-up, a split-off or a spin-off; a reverse merger in which the Company is the surviving entity, but the shares of Company stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or the transfer of more than fifty percent (50%) of the then outstanding voting stock of the Company to another person or entity. the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. The Company, to the extent permitted by applicable law but otherwise in its sole discretion may provide for: (i) the continuation Awards by the Company (if the Company is surviving entity or its parent; (ii) the assumption of the Plan and such outstanding Awards by the surviving entity or its parent; (iii) the substitution by the surviving entity or its parent of rights with substantially the same terms for such outstanding Awards; or (iv) the cancellation of such outstanding Rights without payment of any consideration provided that in the case of this clause (iv), the Administrator will provide notice of its intention to cancel Award and offer a reasonable opportunity to exercise vested Awards.

 

(c) Change in Control. In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award will be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation (the “Successor Corporation”). The Administrator will not be required to treat all Awards similarly in the transaction.

 

In the event that the Successor Corporation does not assume or substitute for the Award, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock will lapse, and, with respect to Restricted Stock Units, Performance Shares and Performance Units, all Performance Goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.

 

For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to settle in cash or a Performance Share or Performance Unit which the Administrator can determine to settle in cash, the fair market value of the consideration received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the Successor Corporation, the Administrator may, with the consent of the Successor Corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Performance Share or Performance Unit, for each Share subject to such Award (or in the case of Performance Units, the number of implied shares determined by dividing the value of the Performance Units by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the Successor Corporation equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

 

   -14-  
 

 

Notwithstanding anything in this Section 13(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more Performance Goals will not be considered assumed if the Company or its successor modifies any of such Performance Goals without the Participant’s consent; provided, however, a modification to such Performance Goals only to reflect the Successor Corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

 

14. Tax Withholding

 

(a) Withholding Requirements. At any time prior to or following the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).

 

(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

 

15. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

 

16. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.

 

   -15-  
 

 

17. Term of Plan. Subject to Section 21 hereof, the Plan will become effective upon its adoption by the Board (the “Effective Date”). It will continue in effect for a term of ten (10) years unless terminated earlier under Section 18 hereof; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of this Plan shall continue to apply to such Awards.

 

18. Amendment and Termination of the Plan.

 

(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.

 

(b) Stockholder Approval. Subject to Section 21, the Company will obtain stockholder approval of the Plan and any Plan amendment to the extent necessary or desirable to comply with Applicable Laws.

 

(c) Effect of Amendment or Termination. No amendment, alteration, suspension, or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

 

19. Conditions Upon Issuance of Shares.

 

(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

(c) Restrictive Legends. All Award Agreements and all securities of the Company issued pursuant thereto shall bear such legends regarding restrictions on transfer and such other legends as the appropriate officer of the Company shall determine to be necessary or advisable to comply with applicable securities and other laws.

 

20. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

 

21. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws, including without limitation Section 422 of the Code. In the event that stockholder approval is not obtained within twelve (12) months after the date the Plan is adopted by the Board, all Incentive Stock Options granted hereunder shall be void ab initio and of no effect. Notwithstanding any other provisions of the Plan, no Awards shall be exercisable until the date of such stockholder approval.

 

   -16-  
 

 

22. Notification of Election Under Section 83 of the Code. If any Service Provider shall, in connection with the acquisition of Shares under the Plan, make an election permitted under either Section 83(b) or Section 83(i) of the Code, such Service Provider shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service and provide the Company with a copy thereof, in addition to any filing and a notification required pursuant to regulations issued under the authority of Sections 83(b) or 83(i) of the Code, as applicable. A Service Provider shall not be permitted to make a Section 83(b) election with respect to an Award of a Restricted Stock Unit.

 

23. Notification Upon Disqualifying Disposition Under Section 421(b) of the Code. Each Service Provider shall notify the Company of any disposition of Shares issued pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within ten (10) days of such disposition.

 

24. 409A Timing Rule for Specified Employees. If at the time of a Service Provider’s separation from service, such individual is considered a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, and if any payment that such Service Provider becomes entitled to under the Plan or any Award is deemed payable on account of such individual’s separation from service, then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the individual’s separation from service, or (ii) the individual’s death.

 

25. Governing Law. The law of the State of Nevada shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules, subject to the Company’s intention that the Plan satisfy the requirements of jurisdictions outside of the United States of America with respect to Awards subject to such jurisdictions.

 

26. General Provisions.

 

(a) No Rights as Stockholder. Except as specifically provided in this plan, a Participant or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by the Award until the date of the issuance of such shares to the Participant, and no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions of other rights for which the record date is prior to the date such Stock is issued.

 

(b) Other Compensation Arrangements. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

 

   -17-  
 

 

(c) Disqualifying Dispositions. Any participant who shall make a “disposition” (as defined in Section 424 of the Code) of all or any portion of an Incentive Stock Option within two (2) years from the date of grant of such Incentive Stock Option or within (1) year after the issuance of the shares of Stock acquired upon exercise of such Incentive Stock Option shall be required to immediately advise the Company in writing as to the occurrence of the sale and the price realized upon the sale of such shares of Stock.

 

(d) Regulatory Matters Each Stock Option Agreement and Stock Purchase Agreement shall provide that no shares shall be purchased or sold thereunder unless and until (i) any then applicable requirements of state or federal laws and regulatory agencies shall have been fully compiled with to the satisfaction of the Company and its counsel and (ii) if required to do so by the Company, the Optionee or Offeree shall have executed and delivered to the Company a letter of investment intent in such form and containing such provisions as the Board or Committee may require.

 

(e) Delivery. Upon exercise of an Award granted under this Plan, the Company shall issue Stock or pay any amounts due within a reasonable period of time thereafter. Subject to any statutory obligations the Company may otherwise have, for purposes of this Plan, thirty days shall be considered a reasonable period of time.

 

(f) Other Provisions. The Stock Option Agreements and Stock Purchase Agreements authorized under the Plan may contain such other provisions not inconsistent with this Plan, including, without limitation, restrictions upon the exercise of the Rights, as the Administrator may deem advisable.

 

(g) Section 409A. Awards under the Plan are intended either to be exempt from the rules of Section 409A of the Code or to satisfy those rules, and the Plan and such awards shall be construed accordingly. Granted rights may be modified at any time, in the Administrator’s direction, so as to increase the likelihood of exemption from or compliance with the rules of Section 409A of the Code.

 

   -18-  

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Michael Pope, certify that:

 

1. I have reviewed this quarterly Report on Form 10-Q Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934 for the period ended June 30, 2021 of Boxlight Corporation (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 12, 2021 /s/ Michael Pope
  Michael Pope
 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Patrick Foley, certify that:

 

1. I have reviewed this quarterly Report on Form 10-Q Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934 for the period ended June 30, 2021 of Boxlight Corporation (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 12, 2021 /s/ Patrick Foley
  Patrick Foley
 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Boxlight Corporation (the “Company”) on Form 10-Q pursuant to Rule 15d-2 Under the Securities Exchange Act of 1934 for the period ending June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Pope, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 12, 2021

 

  /s/ Michael Pope
  Michael Pope
 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Boxlight Corporation (the “Company”) on Form 10-Q pursuant to Rule 15d-2 Under the Securities Exchange Act of 1934 for the period ending June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick Foley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 12, 2021

 

  /s/ Patrick Foley
  Patrick Foley
 

Chief Financial Officer

(Principal Financial and Accounting Officer)