Boxlight(US:BOXL)2022-05-15 16:00PART I. Financial Information This section provides Boxlight Corporation's unaudited consolidated condensed financial statements and management's discussion and analysis for the three months ended March 31, 2022 Item 1. Unaudited Consolidated Condensed Financial Statements This section presents Boxlight Corporation's unaudited consolidated condensed financial statements for the three months ended March 31, 2022 and 2021, including statements of operations, balance sheets, changes in stockholders' equity, and cash flows, along with detailed notes on accounting policies, recent acquisitions, debt, equity, and other financial disclosures Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss This statement details the company's revenues, costs, gross profit, and net loss for the three months ended March 31, 2022 and 2021 Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss (in thousands) | Metric | 3 Months Ended March 31, 2022 (in thousands) | 3 Months Ended March 31, 2021 (in thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Revenues, net | $50,603 | $33,424 | | Cost of revenues | $37,987 | $24,872 | | Gross profit | $12,616 | $8,552 | | Loss from operations | $(3,454) | $(2,034) | | Net loss | $(4,856) | $(5,169) | | Net loss per common share – basic and diluted | $(0.07) | $(0.09) | Unaudited Consolidated Condensed Balance Sheets This statement presents the company's assets, liabilities, and stockholders' equity as of March 31, 2022, and December 31, 2021 Unaudited Consolidated Condensed Balance Sheets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Total assets | $193,116 | $201,436 | | Total liabilities | $117,091 | $119,626 | | Total stockholders' equity | $47,516 | $53,301 | - Cash and cash equivalents decreased from $17,938 thousand at December 31, 2021, to $11,265 thousand at March 31, 202216 Unaudited Consolidated Condensed Statements of Changes in Stockholders' Equity This statement outlines changes in stockholders' equity, including net loss, foreign currency translation, and stock compensation, for the period ended March 31, 2022 Unaudited Consolidated Condensed Statements of Changes in Stockholders' Equity (in thousands) | Metric | December 31, 2021 (in thousands) | March 31, 2022 (in thousands) | | :----- | :------------------------------- | :---------------------------- | | Total Stockholders' Equity | $53,301 | $47,516 | | Net Loss | $(4,856) | | | Foreign currency translation | $(1,772) | | | Stock compensation | $1,135 | | - The decrease in total stockholders' equity was primarily driven by the net loss for the period and foreign currency translation adjustments, partially offset by stock compensation20 Unaudited Consolidated Condensed Statements of Cash Flows This statement details cash flows from operating, investing, and financing activities, showing the net decrease in cash for the three months ended March 31, 2022 and 2021 Unaudited Consolidated Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | 3 Months Ended March 31, 2022 (in thousands) | 3 Months Ended March 31, 2021 (in thousands) | | :----------------- | :------------------------------------------- | :------------------------------------------- | | Net cash used in operating activities | $(5,423) | $(1,557) | | Net cash used in investing activities | $(526) | $(194) | | Net cash used by financing activities | $(912) | $(747) | | Net decrease in cash and cash equivalents | $(6,673) | $(3,458) | | Cash and cash equivalents, end of the period | $11,265 | $10,002 | Notes to Unaudited Consolidated Condensed Financial Statements This section provides detailed disclosures on accounting policies, recent acquisitions, debt, equity, and other financial information supporting the condensed financial statements NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES This note describes Boxlight Corporation's business, revenue recognition policies, and the adoption of new accounting standards - Boxlight Corporation designs, produces, and distributes interactive technology solutions (interactive displays, collaboration software, accessories, professional services) under its Clevertouch and Mimio brands for education, corporate, and government markets25 - Revenue is recognized when control of products or services is transferred to customers; product revenue is recognized at shipment, while service revenue (maintenance, subscriptions) is recognized ratably over time3941 Revenue by Type (in thousands) | Revenue Type | 3 Months Ended March 31, 2022 (in thousands) | 3 Months Ended March 31, 2021 (in thousands) | | :----------- | :------------------------------------------- | :------------------------------------------- | | Product Revenues: Hardware | $47,294 | $30,761 | | Software | $1,519 | $867 | | Service Revenues: Professional Services | $355 | $270 | | Maintenance and Subscription Services | $1,435 | $1,526 | | Total | $50,603 | $33,424 | - The company adopted ASU 2016-02 "Leases" on January 1, 2022, recognizing an operating lease right-of-use (ROU) asset of $3.8 million and corresponding lease liabilities6566 NOTE 2 – RECENT BUSINESS ACQUISITIONS This note details the acquisitions of FrontRow Calypso LLC and Interactive Concepts BV, including their financing and strategic impact - On December 31, 2021, Boxlight acquired 100% of FrontRow Calypso LLC for $34.7 million, expanding its communication technology solutions for learning environments7172 - The FrontRow acquisition was financed through a new $68.5 million term loan credit facility with Whitehawk Finance LLC73 - On March 23, 2021, the company acquired 100% of Interactive Concepts BV for approximately $3.3 million, strengthening its distribution in Belgium and Luxembourg79 NOTE 3 – ACCOUNTS RECEIVABLE - TRADE This note provides the net trade accounts receivable balance as of March 31, 2022, and December 31, 2021 Accounts Receivable - Trade (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Accounts receivable – trade, net of allowances | $30,033 | $29,573 | NOTE 4 – INVENTORIES This note presents the net inventory balance and the reserve for obsolescence as of March 31, 2022, and December 31, 2021 Inventories (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Inventories, net | $49,094 | $51,591 | | Reserve for inventory obsolescence | $(1,178) | $(599) | NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS This note details prepaid expenses, other current assets, and prepayments to vendors as of March 31, 2022, and December 31, 2021 Prepaid Expenses and Other Current Assets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Prepaid expenses and other current assets | $7,913 | $9,444 | | Prepayments to vendors | $6,071 | $7,739 | NOTE 6 – INTANGIBLE ASSETS This note provides the net intangible assets and amortization expense for the three months ended March 31, 2022 Intangible Assets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Intangible assets, net of accumulated amortization | $62,075 | $65,532 | - Amortization expense for the three months ended March 31, 2022, was $2.2 million, up from $1.7 million in the prior year period86 NOTE 7 – LEASES This note outlines the operating lease cost, weighted-average remaining lease term, and discount rate as of March 31, 2022 - Operating lease cost for the three months ended March 31, 2022, was $469 thousand90 - The weighted-average remaining lease term is 3.8 years, with a weighted-average discount rate of 15.5%91 NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSE This note presents accounts payable and other liabilities as of March 31, 2022, and December 31, 2021 Accounts Payable and Accrued Expense (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Accounts payable and other liabilities | $26,131 | $33,638 | | Accounts payable | $19,398 | $25,714 | NOTE 9 – DEBT This note details the company's debt, including the Whitehawk term loan facility, related financing activities, and PPP loan forgiveness Debt (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Total debt (net of discount) | $51,025 | $51,941 | | Note payable - Whitehawk | $57,875 | $58,500 | - The company entered into a maximum $68.5 million term loan credit facility with Whitehawk Finance LLC on December 31, 2021, to finance the FrontRow acquisition and repay existing debt95 - On March 29, 2022, the company received a Notice of Events of Default but subsequently amended the Credit Agreement on April 4, 2022, to extend repayment terms for $8.5 million and waive certain defaults96216 - The PPP loan forgiveness application for $835,500 was approved on March 2, 2022, with a remaining balance of $173,100107 NOTE 10 – DERIVATIVE LIABILITIES This note provides information on derivative liabilities related to warrant instruments and their repricing as of March 31, 2022 Derivative Liabilities (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Derivative liabilities - warrant instruments | $3,073 | $3,064 | - The exercise price of warrants issued to Whitehawk repriced on March 31, 2022, to $1.19 per share (from $2.00), increasing the number of shares from 2,043,291 to 3,434,103100118119 NOTE 11 – INCOME TAXES This note details the income tax benefit (expense), pretax loss, effective tax rate, and valuation allowance for deferred tax assets Income Taxes (in thousands) | Metric | 3 Months Ended March 31, 2022 (in thousands) | 3 Months Ended March 31, 2021 (in thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Income tax benefit (expense) | $86 | $(21) | | Total pretax book income, (loss) | $(4,942) | $(5,148) | - The year-to-date effective tax rate is (139.3)% due to no tax benefit for legacy Boxlight entities and full taxation of Sahara entities122 - A full valuation allowance is maintained on the company's net deferred tax assets due to a history of cumulative losses in those jurisdictions124 NOTE 12 – EQUITY This note describes the classification of preferred stock, outstanding common stock, and shares issued in connection with the Whitehawk loan and RSU vesting - Series B and Series C Preferred Stock are classified as mezzanine or temporary equity due to redemption features not solely within the company's control133 - As of March 31, 2022, 65,522,438 shares of Class A common stock were issued and outstanding138 - 528,169 shares of Class A common stock were issued to Whitehawk in January 2022 in conjunction with the loan139 - 1,119,118 restricted stock units vested and converted into Class A common stock during the three months ended March 31, 2022142 NOTE 13 – STOCK COMPENSATION This note details total stock compensation expense, unrecognized compensation expense, and the granting of stock options and restricted stock units Stock Compensation Expense (in thousands) | Metric | 3 Months Ended March 31, 2022 (in thousands) | 3 Months Ended March 31, 2021 (in thousands) | | :----- | :------------------------------------------- | :------------------------------------------- | | Total stock compensation expense | $1,135 | $677 | - As of March 31, 2022, there was approximately $6.3 million of unrecognized compensation expense related to unvested options, restricted stock units, and warrants, with $1.9 million estimated to be recorded in the remaining nine months of 2022162 - 494,069 stock options were granted in Q1 2022 with a weighted average exercise price of $1.10151 - 2,364,110 Restricted Stock Units (RSUs) were granted in Q1 2022 with a weighted average grant date fair value of $1.68155 NOTE 14 – RELATED PARTY TRANSACTIONS This note describes the management agreement with an entity owned by the CEO and Chairman for consulting services - The company has a management agreement with an entity owned by its CEO and Chairman, Michael Pope, for consulting services, with a management fee of 0.375% of consolidated net revenues, not to exceed $250,000 annually163 NOTE 15 – COMMITMENTS AND CONTINGENCIES This note outlines the total open inventory purchase orders and operating lease commitments as of March 31, 2022 - As of March 31, 2022, the total amount of open inventory purchase orders was $55.5 million165 - The company has operating lease commitments for office building facilities and vehicles with terms extending from 2023 to 2027164 NOTE 16 – CUSTOMER AND SUPPLIER CONCENTRATION This note identifies significant customer and vendor concentrations for the three months ended March 31, 2022 - For the three months ended March 31, 2022, one customer accounted for 10.3% of the company's consolidated revenues168 - For the three months ended March 31, 2022, one vendor accounted for 29% of the company's total purchases (cost of sales)168 NOTE 17 – SUBSEQUENT EVENTS This note reports on the resignation of the CFO and the extension of stock options to a board member after the reporting period - Patrick Foley, the Chief Financial Officer, provided notice of his resignation, effective October 4, 2022169 - On May 3, 2022, the board granted an extension of previously expired stock options to James Mark Elliott (board member and former CEO) for 577,675 shares, valued at $314,000170 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Boxlight Corporation's financial performance, including revenue growth, gross profit margin, net loss, and liquidity, for the three months ended March 31, 2022 - Total revenues for the three months ended March 31, 2022, increased by 51.5% to $50.6 million, compared to $33.4 million for the same period in 2021, primarily due to the FrontRow acquisition ($6.5 million contribution) and increased demand195 - Gross profit margin for Q1 2022 was 24.9%, a 7 basis point reduction year-over-year, mainly due to additional increases in global freight/shipping costs resulting from supply chain issues197199 - Net loss improved to $4.9 million in Q1 2022 from $5.2 million in Q1 2021203 EBITDA and Adjusted EBITDA (in thousands) | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----- | :---------------------------- | :---------------------------- | | EBITDA | $(304) | $(2,376) | | Adjusted EBITDA | $1,222 | $1,591 | - As of March 31, 2022, the company had cash and cash equivalents of $11.3 million, working capital of $49.6 million, and a current ratio of 2.02, representing a significant improvement from a year ago210 - The company will lose its 'emerging growth company' status on January 1, 2023226 Item 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, Boxlight Corporation is exempt from providing quantitative and qualitative disclosures about market risk - The company is exempt from this disclosure requirement as a "smaller reporting company"227 Item 4. Controls and Procedures This section addresses the ineffectiveness of disclosure controls and procedures due to material weaknesses, while affirming the fair presentation of financial statements - Disclosure controls and procedures were not effective as of March 31, 2022, due to material weaknesses described in the 2021 Annual Report on Form 10-K229 - Despite the material weaknesses, management believes the consolidated condensed financial statements fairly present the financial condition, results of operations, and cash flows230 - Management has engaged professional services firms to assist with the review of the income tax provision and the preparation of FrontRow financial statements and warrant valuation232 PART II. Other Information This section provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and exhibits Item 1. Legal Proceedings Boxlight Corporation reported no legal proceedings for the period - No legal proceedings to report233 Item 1A. Risk Factors This section outlines significant risks including global supply chain disruptions, component shortages, increased freight costs, and geopolitical uncertainties - Global supply chain challenges have impacted the business through movement/delay in production schedules due to component shortages, continued delays in global shipping, and increased shipping costs, reducing gross profit margin234 - A global silicon chip supply shortage could potentially cause disruptions in the supply chain, affecting the ability to timely obtain and deliver finished goods234 - Heightened uncertainty surrounds global supply chains, markets, and general global economic conditions due to the ongoing conflict between Russia and Ukraine and the continuing COVID-19 pandemic236 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds Boxlight Corporation reported no unregistered sales of equity securities or use of proceeds for the period - None238 Item 3. Defaults Upon Senior Securities Boxlight Corporation reported no defaults upon senior securities for the period - None239 Item 4. Mine Safety Disclosures This item is not applicable to Boxlight Corporation's business - Not Applicable240 Item 5. Other Information Boxlight Corporation reported no other information for the period - None241 Item 6. Exhibits This section lists the exhibits filed or furnished with the 10-Q report, including warrants, credit agreements, and certifications - Key exhibits include Form of Warrant (4.1), Credit Agreement (10.1), Employment Agreement with Michael Pope (10.2), Notice of Default (10.3), Amendment to Credit Agreement (10.4), Amended and Restated Fee Letter (10.5), and CEO/CFO certifications (31.1, 31.2, 32.1, 32.2)243 Signatures The report was signed by the Chief Executive Officer and Chief Financial Officer on May 16, 2022 - The report was signed by Michael Pope (Chief Executive Officer) and Patrick Foley (Chief Financial Officer) on May 16, 2022247