S-1 1 forms-1.htm

 

As filed with the Securities and Exchange Commission on June 8, 2015

 

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 
FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

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)

 

BOXLIGHT CORPORATION

1045 Progress Circle

Lawrenceville, Georgia 30043

Phone: 404-891-1122

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

 

 

 

Mark Elliott

Chief Executive Officer

1045 Progress Circle

Lawrenceville, Georgia 30043

Phone: 404-891-1122

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

Copies to:

 

Mitchell S. Nussbaum   Gregory Sichenzia
David C. Fischer   Jeffrey Cahlon
Tahra T. Wright   Marcelle S. Balcombe
Loeb & Loeb LLP   Sichenzia Ross Friedman Ference LLP
345 Park Avenue   61 Broadway
New York, NY 10154   New York, NY 10006
(212) 407-4000   (212) 930-9700

 

Approximate date of commencement of proposed sale to the public: As soon as possible after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
       
Non-accelerated filer [  ] Smaller reporting company [X]

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Security Being Registered  Proposed Maximum
Aggregate Offering Price
  Amount of
Registration Fee
Class A common stock, par value $0.0001 per share (1)  $17,250,000   $2,004.45 
Representative’s Class A common stock purchase warrant (3)   XX    XX 

Class A common stock issuable upon exercise of representative’s Class A common stock purchase warrant (4)

   937,500    108.94 
Total   18,187,500    2,113.39(2) 

 

(1) The registration fee for securities to be offered by the Registrant is based on an estimate of the proposed maximum aggregate offering price of the securities, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(o). The proposed maximum aggregate offering price includes $2,250,000 representing the maximum aggregate offering price of securities which the underwriters have the option to purchase to cover over-allotments, if necessary.

 

(2) Paid herewith.

 

(3) No fee required pursuant to Rule 457(g). We have agreed to issue, upon closing of this offering, compensation warrants exercisable commencing on a date which is one year after the effective date of this registration statement and expiring four years following the effective date of this registration statement representing 5% of the aggregate number of shares of Class A common stock issued in the offering but not including the over-allotment option, or the “representative warrants,” to Aegis Capital Corp. Resales of the representative warrants on a delayed or continuous basis pursuant to Rule 415 under the Securities Act are registered hereby. Resales of Class A common stock issuable upon exercise of the representative warrants are also being similarly registered on a delayed or continuous basis hereby. See “Underwriting.”

 

(4) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, based on an estimated proposed maximum aggregate offering price of $937,500 for the Class A common stock issuable upon exercise of the representative’s Class A common stock purchase warrant. We have calculated the proposed maximum aggregate offering price of the Class A common stock underlying the representative’s warrants by assuming that such warrants are exercisable to purchase shares of Class A common stock at a price per share equal to 125% of the price per share sold in this offering, or 125% of $750,000.

 

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED [                   ], 2015

 

         Shares

 

Class A Common Stock

 

 

This is a firm commitment initial public offering of                shares of Class A common stock of Boxlight Corporation. No public market currently exists for our shares. We anticipate that that the initial public offering price per share of our shares of Class A common stock will be between $       and $      .

 

We intend to list our Class A common stock on the Nasdaq Capital Market under the symbol “BOXL.” If our Class A common stock is not approved for listing on the Nasdaq Capital Market, we will not consummate this offering.

 

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus for a discussion of information that should be considered in connection with an investment in our Class A common stock.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and we have elected to comply with certain reduced public company reporting requirements.

 

   Per Share   Total 
Public offering price  $    $  
Underwriting discounts and commissions(1)  $   $ 
Proceeds to us, before expenses  $   $ 

 

(1) Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Aegis Capital Corp., the representative of the underwriters. See “Underwriting” for a description of compensation payable to the underwriters.

 

We have granted a 45 day option to the representative of the underwriters to purchase up to           additional shares of Class A common stock to cover over-allotments, if any.

 

The underwriters expect to deliver our shares to purchasers in the offering on or about           , 2015.

 

Aegis Capital Corp

  

 
 

 

TABLE OF CONTENTS

 

    Page
     
ABOUT THIS PROSPECTUS   1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   2
PROSPECTUS SUMMARY   3
RISK FACTORS   11
USE OF PROCEEDS   25
DIVIDEND POLICY   25
CAPITALIZATION   26
DILUTION   27
unaudited PRO FORMA COMBINED FINANCIAL INFORMATION   28
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   38
BUSINESS   48
MANAGEMENT   61
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   64
Principal Stockholders   66
DESCRIPTION OF CAPITAL STOCK   67
SHARES ELIGIBLE FOR FUTURE SALE   69
DETERMINATION OF OFFERING PRICE   70
UNDERWRITING   71
LEGAL MATTERS   76
EXPERTS   76
WHERE YOU CAN FIND MORE INFORMATION   77
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   78

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

i
 

 

ABOUT THIS PROSPECTUS

 

Concurrently with the consummation of the offering made by this prospectus, through share exchanges and cash payments, Boxlight Corporation, a Nevada corporation formed on September 18, 2014 (“Boxlight Parent”), will acquire three companies. Through a 100% owned Taiwanese subsidiary, Boxlight Holdings Limited, Boxlight Parent will acquire 82.3% of the shares of Everest Display Inc., a Taiwan corporation (“EDI”) and its direct and indirect subsidiaries (collectively, “Boxlight”); through a share exchange and cash payment, Boxlight Parent will acquire 100% of the outstanding shares of Globisens Ltd., an Israeli company (“Globisens”); and Vert Capital Corp, formerly the principal stockholder of Boxlight Parent, will contribute 100% of the membership interests of Genesis Collaboration LLC, a Georgia limited liability company (“Genesis”), to Boxlight Parent.

 

EDI, through a wholly owned American Samoa corporation, owns 99.6% of Boxlight Inc., a Washington corporation (“Boxlight-USA”); 100% of Boxlight LatinoAmerica, S.A. de C.V. and Boxlight LatinoAmerica Servicios, S.A. de C.V., each a Mexican corporation (together, “Boxlight Mexico”); and 53.03% of Everest Technology Ltd., a Peoples Republic of China corporation (“ETL”). Within 30 days after the consummation of this offering, we intend to acquire an additional 15.66% of ETL. As a result, we will own in the aggregate 68.69% of ETL.

 

Throughout this prospectus, unless otherwise designated or the context suggests otherwise, all references to

 

  “we,” “our,” “our capital company,” “Company” or “us” in this prospectus means Boxlight Parent and
     
  shares (other than preferred shares), Class A common stock, Class B common stock and per share data give pro forma effect to a 1 for 6.97 reverse stock split of Boxlight Parent’s outstanding capital stock to be consummated prior to the date of this prospectus.

 

EXPLANATORY NOTE

 

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, market acceptance of our products; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; our ability to develop and commercialize new and improved products and services; our ability to complete capital raising transactions; and other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations. Actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

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PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider important in making your investment decision. You should read the following summary together with the more detailed information regarding us and our Class A common stock being sold in the offering, including the risks of investing in our Class A common stock discussed under “Risk Factors,” beginning on page 11 and our historical and pro forma combined financial statements and the related notes appearing elsewhere in this prospectus, before making an investment decision. For convenience, in this prospectus, unless the context suggests otherwise, all references to “Boxlight Parent,” “we,” “our,” “our company,” “Company” or “us” in this prospectus means Boxlight Corporation, a Nevada corporation; and all references to (i) “Boxlight” means Boxlight Holdings Limited, a Taiwan corporation and its direct and indirect subsidiaries; (ii) “Globisens” means Globisens Ltd., an Israeli corporation; and (iii) “Genesis” means Genesis Collaboration LLC, a Georgia limited liability company. All references to shares (other than preferred shares), Class A common stock, Class B common stock and per share data give pro forma effect to a 1 for 6.97 reverse stock split of Boxlight Parent’s outstanding capital stock to be consummated prior to the date of this prospectus.

 

Boxlight Corporation

 

Boxlight Parent was incorporated in Nevada on September 18, 2014 for the purpose of becoming a technology company that sells interactive educational products.

 

Following the consummation of this offering and the acquisitions, Boxlight Parent will be a technology company primarily focused on the education and learning industry. Our goal is to transform the way both teachers and students, from kindergarten through secondary school (K-12) and universities, and adults in corporate and government training programs, utilize visual images, computer graphics and dynamic interactive curricula to learn. We intend to achieve our goals by enabling our customers to deploy interactive teaching approaches using visual images and customary graphic display products on multiple surfaces, such as chalk boards, marker boards, blank walls or whiteboards. By providing interactive visual imaging we expect to enhance learning experiences in schools, government and businesses by bringing life to lessons and presentations. Research suggests that interactive whiteboards and specifically interactive visual imaging can positively affect student engagement, motivation, understanding and review processes and accommodate students with different learning styles, including those who have special needs. We believe that both in the classroom and in the board room, technology and interactive teaching products have demonstrated that they materially advance learning and communication.

 

Through the acquisitions of Boxlight and Globisens, we seek to become a single source, world-leading innovator, manufacturer and integrator of interactive products for schools and universities, as well as for the instruction and professional development markets for business and governmental agencies. We intend to develop new products and expand the scope of our sales and marketing efforts to school districts, corporations and governmental agencies throughout the United States as well as in Europe, Asia, Africa and Latin America. In addition, we intend to further develop our technology by incorporating existing classroom management tools and software to establish a platform that will enable our clients to interact with each other to share presentations, lesson plans and other interactive learning techniques. Acquiring Genesis will allow us to combine a traditional value added reseller and our products and technologies with sales and support teams representing multiple education and learning solution vendors and suppliers. We believe that after the acquisitions, we will represent a unique vertically integrated interactive technology company capable of providing products, sales and distribution and service and support to our customers.

 

For the three months ended March 31, 2015, Boxlight incurred a consolidated loss of approximately $656,000 on consolidated revenues of approximately $5,190,000. For the three months ended March 31, 2015, Globisens incurred a net loss of approximately $62,000 on total revenues of $834,000. For the three months ended March 31, 2015, Genesis incurred a loss of approximately $151,000 on total revenues of $223,056. For the three months ended March 31, 2015, Boxlight Parent incurred a loss of approximately $260,000 on total revenues of $0.

 

For its fiscal year ended December 31, 2014, Boxlight incurred a consolidated loss of $1,036,000 on consolidated revenues of $24,898,000. For its fiscal year ended December 31, 2014, Globisens earned $16,000 on total revenues of $1,814,000. For its fiscal year ended December 31, 2014, Genesis incurred a loss of $412,000 on total revenues of $2,903,000. For its fiscal year ended December 31, 2014, Boxlight Parent incurred a loss of $675,000 on total revenues of $0.

 

Boxlight

 

Boxlight designs, produces and distributes interactive projectors and 70” HD and 84” 4k interactive LED flat panels. Boxlight was established in 2001 and is the leading LCD projector manufacturer in Taiwan. Boxlight’s research and development and manufacturing centers are located in Hchinshu, Taiwan and Wuxi, China. Boxlight developed the first interactive projector in the world in 2006 and holds patents for embedded interactive projectors in multiple countries. Boxlight also contract manufactures interactive projectors and components to brand name equipment suppliers.

 

Boxlight sells an expanding product line of projectors, interactive LED flat panels, display devices, audio solutions, and mobile carts and stands to the education and learning technology markets. Boxlight also distributes to these markets interactive whiteboards, tablets and enabling software solutions produced by third parties.

 

Since launching its patented interactive projectors in 2007, Boxlight has sold them to public schools in the United States and in 49 other countries, as well as to the Department of Defense International Schools in approximately 3,000 classrooms in 20 countries, the Job Corp, the Library of Congress, the Center for Disease Control, the Federal Emergency Management Agency, six foreign governments and the City of Moscow and numerous Fortune 500 companies, including Verizon, GE Healthcare, Pepsico, First Energy, ADT, Motorola, First Data and Transocean, and custom built nearly 4,000 projectors for the Israeli Defense Forces. Boxlight Parent intends to expand Boxlight’s marketing efforts in both the United States as well as in Europe, Asia, Africa and Latin America after the acquisition. Boxlight’s contract manufacturing accounts for approximately 43% of Boxlight’s revenues on a consolidated basis.

 

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Boxlight’s Current Products

 

ProjectoWrite Interactive Projectors:

 

Boxlight’s suite of patented, award-winning interactive projectors offers a wide variety of features and specifications to suit the varying needs of instructors, teachers and presenters. With an interactive projector, any wall, whiteboard or other flat surface becomes interactive. A teacher, moderator or student can use the included pens or fingers as a mouse to write or draw images displayed on the surface. As with interactive whiteboards, interactive projectors accommodate multiple users simultaneously. Images that have been created through the projected interactive surface can be saved as computer files. Boxlight’s new ProjectoWrite 10 series, launched in December 2014, allows the simultaneous use of up to ten simultaneous points of touch.

 

External Interactive Devices:

 

Boxlight’s OutWrite interactive modules employ a patented complementary metal oxide silicon, or CMOS camera, to make any non-interactive short-throw or standard-throw projector interactive. The OutWrite modules feature a preview window when connected via USB cable to allow simple setup and calibration. Boxlight has developed an interactive module that includes an embedded Android device. The OutWrite device allows for the same touch emulation with interactive pens as the P5 interactive projectors.

 

Interactive LED Flat Panels:

 

Boxlight offers the HD 70” and 4k 84” ProColor series of interactive LED panels. Both include an OPS slot for Windows 8 compatibility. ProColor Interactive LED panels utilize infrared blocking technology, offering 10 points of touch for simultaneous interaction by multiple users. ProColor’s built-in 12 watt speakers add room-filling sound to the display’s vivid colors.

 

Peripherals and Accessories

 

Boxlight also offers a line of peripherals and accessories, including amplified speaker systems, non-interactive projectors, mobile carts, installation accessories and adjustable wall-mount accessories that complement its entire line of interactive projectors, LED flat panels and standard projectors. The height and tilt adjustable DeskBoard mobile cart, which won the Best of ISTE in June 2014 for Best Hardware product, can be used as an interactive screen or interactive desktop with its P8 ultra-short throw interactive projectors.

 

Globisens

 

Globisens designs, produces and distributes science, technology, engineering and math (or “STEM”) data logging products to the educational market.

 

Globisens’s line of handheld data-logging devices enables teachers and students to measure, record, graph, analyze, and manipulate the results of physics, biology, and chemistry experiments and observations from environmental and geographic studies. For example, using Globisens’ Labdisc, a class can measure and graph the height of a ping-pong ball’s bounce against time, to observe acceleration due to gravity and derive the mathematical formula describing it.

 

Genesis

 

Genesis is a traditional value-added reseller with sales and support teams representing multiple education and learning solution technologies, vendors and suppliers. Genesis is either a premier partner or an exclusive partner throughout the United States in several key geographic markets for various education solution providers.

 

The Education and Learning Technology Market

 

The global education industry is undergoing a significant transition, as primary and secondary school districts, colleges and universities, as well as governments, corporations and individuals around the world are increasingly recognizing the importance of using technology to more effectively provide information to educate students and other users in knowledge-based societies. “Smart education” denotes a range of technologies employed to enhance the delivery and administration of education across various segments such as K-12, higher education, enterprise, government and healthcare. This market is broadly segmented by four major parameters, namely; product type, application type, e-learning modes, and geography.

 

According to a market research report, “Smart Education and Learning Market: Advanced Technologies, Digital Models, Adoption Trends and Worldwide Market Forecast (2012-2017),” the global smart education and learning market is expected to reach $220.0 billion by 2017 at a compounded annual growth rate (CAGR) of 20.3% from 2012 to 2017. The market for education and learning software is estimated to reach $37.2 billion, and the market for education and learning hardware is estimated to reach $12.1 billion by 2017. In 2011, North America accounted for about 60% of global revenue and is expected to grow at a CAGR of 15.2% from 2012 to 2017. In the United States, the K-12 education sector represents one of the largest industry segments. According to a September 2011 report to the President from the Counsel of Economic Advisors, the U.S. education market accounted for over $638 billion of expenditures, or about 4.4% of the 2011 U.S. gross domestic product, as measured by National Center for Educational Statistics for the 2010-2011 school year. According to a November 2013 study by Bank of America Merrill Lynch, total global spending on corporate eLearning was $25.5 billion in 2012 and expected to reach $32.1 billion by 2015 and $37.5 billion by 2017— an 8% CAGR between 2012 and 2017.

 

The Micro Computer Based Laboratory Market

 

Globisens competes in the Microcomputer Based Laboratory (MBL), or data logging, market. MBL or data logging refers to the process of controlling how a computer collects through sensors, analyzes, saves and outputs data. Data logging is commonly used in scientific experiments and in monitoring systems where rapid collection of data and accuracy of analysis is essential and far exceeds human capabilities. Examples of the types of information a data logging system can collect include temperatures, sound frequencies, vibrations, times, light intensities, electrical currents, pressure and changes in states of matter.

 

The MBL education market has evolved over time with technology as a key component to providing data loggers and sensors to teachers and students. There are a multitude of advantages to using data logging in the classroom, such as:

 

  actively engaging students in constructing science concepts;
     
  enhancing and complementing science teaching instruction;
     
  producing real-time graphs allowing for exploration not normally performed in the science classroom;
     
  allowing for collection, graphing, interpretation and analyses of data;
     
  allowing students to use more powerful and sophisticated techniques that more realistically reflect methods used in research and analytical laboratories;
     
  providing opportunities to predict, question, and apply science concepts;
     
  enhancing hands-on interactive learning; and
     
  making more efficient use of limited class time.

 

The Data Logging global market is roughly estimated to be from $250 to $300 million in 2013. The numbers derived are predicated on competitive bids for large projects, number of employees, sales presentations, and industry estimates.

 

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Our Opportunity

 

We believe that after the acquisitions of Boxlight, Globisens and Genesis, Boxlight Parent will be strongly positioned to become a leading manufacturer and provider of interactive educational products in the global learning and educational market—based on our existing products and those we intend to develop either alone or in collaboration with other technology companies. We believe that close connection between levels of educational attainment, evolving educational standards, personal career prospects and economic growth will increase the demand for our interactive educational products. Some of the factors that may impact our opportunity include:

 

Growth in U.S. K-12 Market Expenditures. Partially due to the recent recovery from the world-wide recession that resulted in significant cuts in 2011 and 2012 federal, state and local educational budgets, significant resources are again being devoted to primary and secondary education in the United States. As set forth in the Executive Office of the President, Council of Economic Advisers’ report, Unleashing the Potential of Educational Technology, U.S. education expenditure has been estimated at approximately $1.3 trillion, with K-12 education accounting for close to half ($625 billion) of this spending.

 

International Catalysts Driving Adoption of Learning Technology. According to Ambient Insights 2012 Snapshot of the Worldwide and US Academic Digital Learning Market, substantial growth in revenues for eLearning products in the academic market segment are anticipated throughout the world due to several convergent catalysts, including, population demographics, such as significant growth in numbers of 15-17 year old students and women in education in emerging markets; government-funded education policies mandating country-wide deployment of digital learning infrastructures; large scale digitization efforts in government and academic markets; significant increases in the amount of digital learning content; migration to digital formats by major educational publishers and content providers; mass purchases of personal learning devices and strong demand for learning platforms, content and technology services; and the rapid growth of part-time and fulltime online student enrollments.

 

Trends in Tech-Savvy Education. While industries from manufacturing to health care have adopted technology to improve their results, according to Trends in Tech-Savvy Education (Stanford Graduate School of Business), education remains heavily reliant on “chalk and talk” instruction conducted in traditional settings; however, that is starting to change as schools and colleges adopt virtual classrooms, data analysis, online games, highly customized coursework, and other cutting-edge tools to help students learn.

 

Increasing Focus on Accountability and the Quality of Student Education. U.S. K-12 education has come under significant political scrutiny in recent years. An independent task force report published in March of 2012 by the Council on Foreign Relations, a non-partisan membership organization and think tank, observed that American students rank far behind global leaders in international tests of literacy, math and science, and concluded that the current state of U.S. education severely impairs the United States’ economic, military and diplomatic security as well as broader components of America’s global leadership.

 

New Technologies. In addition to white boards and interactive projectors, other technologies are being adapted for educational uses on the Internet, mobile devices and through cloud-computing, which permit simultaneous sharing of digital files and programs among multiple computers or other devices through a virtual network. Handheld devices, including smartphones, tablets, e-readers and digital video technologies, are now fundamental to the way students communicate.

 

Demand for Interactive Projectors is on the Rise. As a complete system, interactive projectors are considerably less expensive than interactive whiteboards or interactive flat panel displays, placing them at a distinct advantage in price sensitive markets. According to FutureSource, an industry publication, “sales of interactive projectors are expected to grow steadily from 2014 to 2017 with a CAGR at 10.3% worldwide.”

 

Our Strategic Goals

 

We believe that our future success will depend upon many factors, including those discussed below. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address.

 

  Investing in research and development. We believe that, following consummation of this offering and the completion of the acquisitions described in this prospectus, our performance is significantly dependent on the investments we make in research and development and that we must continually develop and introduce innovative products, enhance existing products and effectively stimulate customer demand for existing and future products.
     
  Investing in sales and marketing. We intend to invest significant resources in our marketing, advertising and brand management efforts.

 

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  Expanding our technology base. Our long-term growth will depend in part on our ability to continually expand our product and technology offerings. We intend to do so, both through our internal research and development initiatives, as well as through strategic acquisition opportunities and joint ventures that may develop.
     
  Developing an integrated sales and distribution strategy through acquisitions and joint ventures. In addition to Genesis, we believe there are opportunities for us to acquire a number of value added resellers that are focused on the education and learning technologies market segments, have gained the trust and support of local school districts and governmental agencies, and are located in geographically strategic areas throughout the United States and internationally. We believe that, with adequate capital and infrastructure, we can materially increase our revenues and scope by acquiring or joint venturing with a number of these companies. Our vision is to bring together many of these education focused resellers into a cohesive network that will provide proven sales and sales-related services and support across the United States and internationally.
     
  Developing strategic partnerships and alliances. We currently work with a variety of major software and hardware solution providers, with whom we are developing embedded solutions to offer buffered content inside our projectors to allow smooth content streaming across multiple platforms. We intend to further existing and develop additional strategic partnerships and alliances.

 

Selected Risks Associated With Our Business

 

Investment in our Class A common stock is subject to a number of risks, which are more fully described starting on page 11 of this prospectus. These risks include:

 

  We have incurred pro forma combined losses for the year ended December 31, 2014;
     
  We may not be able to integrate our recent acquisitions or manage our acquisition strategy effectively;
     
  Our operating results and working capital requirements are subject to seasonal fluctuations;
     
  We operate in highly competitive industries;
     
 

We need to develop new, and enhance existing products and technologies to remain competitive;

     
  Future sales of interactive projectors and displays may slow or decrease as a result of market saturation;
     
  We use resellers and distributors to promote and sell our products;
     
  We may not be able to obtain patent protection on new products and may suffer if we face claims of patent infringement.

 

Our History and Proposed Acquisitions

 

In April 2013, Vert Capital Corp, formerly our principal stockholder, acquired, through a newly formed Delaware subsidiary, all of the outstanding shares of capital stock of a Georgia company that primarily distributed whiteboards to school districts, which business was discontinued in the first quarter of 2014. On October 31, 2013, Vert Capital’s subsidiary acquired all of the outstanding membership interests of Genesis, in exchange for 1,000,000 shares of Series B preferred stock of the Delaware subsidiary.

 

Boxlight Parent was incorporated in Nevada on September 18, 2014, for the purpose of becoming a technology company that sells interactive educational products.

  

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Upon consummation of the acquisitions of Boxlight, Globisens and Genesis, our organizational structure will be as follows:

 

 

* 53.03% to be acquired on the effective date of this offering and an additional 15.66% to be acquired within 30 days thereafter for a total ownership of 68.69%.

 

Acquisition of Boxlight

 

Effective as of January 31, 2015, we entered into stock purchase and option agreements with the shareholders of Boxlight.

 

Under the terms of our agreement with Boxlight’s majority shareholders, we will purchase a minimum of 82.3% of the outstanding share capital of Boxlight for a purchase price equal to $7,283,132 multiplied by the percentage of the acquired share capital out of the total issued and outstanding share capital of Boxlight. Such purchase price is payable in cash at closing. However, under the terms of a stock option agreement, the shareholders of Boxlight are obligated to exercise an option to purchase 270,000 shares of our Series C convertible preferred stock (the “Series C Preferred Stock”) at a cash option purchase price of $26.98 per share, or an aggregate of $7,284,600. The exercise of the option and payment of the per share option price and purchase and sale of the Series C Preferred Stock are to occur simultaneously with the closing of the Boxlight acquisition. After this offering and subject to customary conditions, Boxlight Parent stockholders party to the option agreement will be entitled to have shares registered for resale under the Securities Act, if Boxlight Parent files a resale registration statement for the account of any other stockholder. We also agreed to purchase, within 30 days after consummation of this offering, 15.66% of ETL owned by Boxlight’s principal stockholder, K Laser International Co., Ltd. (“K Laser”), for approximately $1,952,000 (RMB 12,000,000). As a result of this purchase, we will own 68.69% of ETL, in the aggregate.

 

Under the terms of the January 31, 2015 stock purchase and option agreement, the acquisition of Boxlight was scheduled to occur on or before March 31, 2015. On March 26, 2015, we and the Boxlight’s majority shareholders agreed to extend the outside closing date to June 30, 2015.

 

The Boxlight acquisition will close immediately after the completion of this offering. At the closing, the Series C Preferred Stock will be issued to the Boxlight’s shareholders who are parties to the option agreement and automatically convert into shares of our Class A common stock. Such newly converted shares of Class A common stock, together with bonus shares of Class A common stock (representing 8% of the shares issuable upon conversion of the Series C Preferred Stock) to be issued to Boxlight’s senior management and senior employees in amounts determined at the sole discretion of the majority Boxlight shareholders, will total 1,941,134 shares of Boxlight Parent Class A common stock, representing approximately 22.22% of the fully-diluted common stock. If Boxlight Parent subsequently acquires more than 82.3% of the Boxlight shares, additional shares of Class A common stock would be issued up to a maximum number of shares (including those previously issued) equaling as much as 27% of the fully-diluted common stock immediately prior to this offering. Among other conditions, the closing of the acquisition of Boxlight is subject to the occurrence of a “liquidity event,” which includes completion of an initial public offering of our common stock in which the shares issued to the Boxlight shareholders have a market value (based on the initial per share offering price of the shares offered in this prospectus) of not less than $16,460,000. The consummation of the Boxlight acquisition will occur immediately after the completion of this offering and immediately prior to the acquisitions of each of Globisens and Genesis.

 

Consummation of this offering is dependent upon consummation of the acquisitions of both Boxlight and Globisens. The acquisition of Genesis is not a condition to consummation of this offering.

 

Acquisition of Globisens

 

Globisens was established in 2009 in Israel as an education technology company focused on delivering pioneering solutions for teaching K-12 science. In 2011, Globisens launched the Labdisc all-in-one multi-disciplinary laboratory for fields including physics, biology, chemistry, environmental studies and geography.

 

In October 2014, we entered into a share purchase agreement to acquire 100% of the share capital of Globisens from its shareholders. Under the terms of our share purchase agreement with the shareholders of Globisens, the parties valued Globisens at $5,250,000, of which $2,500,000 is payable in cash at the closing, and the $2,750,000 balance is evidenced by a number of shares of our Class A common stock determined by dividing $2,750,000 by the initial per share offering price of shares offered under this prospectus, provided, that such number of shares represents not less than 3.437% of our fully diluted common stock. The closing of the acquisition of Globisens was to occur on the earlier of completion of this offering or March 31, 2015. On March 31, 2015, we and the Globisens shareholders agreed to extend the outside closing date to June 30, 2015. The Globisens stockholders have agreed not to sell any of their shares for a minimum of two years following the closing.

 

Following the initial two year period from the closing, to secure the value of their Boxlight Parent shares, the Globisens shareholders have a two year option to “put” all or a portion of such shares back to us at a price equal to the initial offering price of our common stock sold to the public under this prospectus. However, in the event that at any time during the two-year put option period, all of the Company shares issued to the Globisens shareholders have either been registered for resale under the Securities Act, or may immediately be resold to the public without restriction pursuant to an applicable exemption from the registration requirements of the Securities Act, and any or all of such shares have been sold at a price per share that equals or exceeds the initial offering price of our common stock sold to the public under this prospectus, the dollar amount and number of shares that we may be obligated to purchase upon exercise of the put option shall be reduced by the dollar value of the number of shares that were sold by the Globisens shareholders. The Globisens shareholders are not obligated to sell any of our shares during the two year put option period or thereafter; if they elect not to sell shares otherwise available for sale at a price equal to or above our initial per share offering price under this prospectus, we have the right, in lieu of repurchasing their shares upon exercise of the put option, to arrange for a third party to purchase in a brokers transaction or otherwise such shares at a price equal to or higher than our initial per share offering price, and, if the Globisens shareholders elect not to accept such offer to purchase, the put option and our obligations thereunder will terminate.

 

At the closing, Boxlight Parent will deliver all of the acquired shares of Globisens to a trustee, to hold, until timely payment of the put option price by Boxlight Parent or upon the expiration of the put option. In the event that Boxlight Parent fails to purchase the shares put by the shareholders of Globisens within 30 days of the exercise of the put options, the trustee will transfer the shares held in the trust to the shareholders of Globisens, in which case, the shareholders of Globisens will also retain the $2,500,000 cash purchase price regardless of the return of the Globisens’ shares.

 

Acquisition of Genesis

 

Effective as of September 30, 2014, Vert Capital’s inactive Delaware subsidiary Logical Choice Corporation (“LCC - Delaware”) distributed 100% of Genesis’s membership interests to Vert Capital, and, on January 31, 2015, Boxlight Parent, Vert Capital, and the former members of Genesis entered into an agreement whereby Boxlight Parent will acquire 100% of the outstanding equity of Genesis from Vert Capital upon consummation of this offering and immediately following the acquisitions of Boxlight and Globisens described above.

 

In connection with Boxlight Parent’s acquisition of 100% of the equity of Genesis, other than one share of common stock of the Delaware subsidiary retained by Vert Capital, each of Vert Capital and the four former members of Genesis will return to treasury all of their ownership equity in LCC - Delaware, and the former members of Genesis will receive 1,000,000 shares of Boxlight Parent Series B Preferred Stock upon consummation of this offering, which will automatically convert into 348,321 shares of our Class A common stock, or such other number of shares as will represent 4.0% of our “fully diluted common stock.” If the offering is not consummated, no shares will be issued to the former members of Genesis.

 

In summary, Boxlight Parent will acquire 100% of the equity interest of Genesis in exchange for 4.0% of Boxlight Parent’s Class A fully-diluted common stock, to be issued to the former Genesis members upon automatic conversion of the 1,000,000 shares of Series B preferred stock. At the same time, Vert Capital and the former Genesis members will return to LCC - Delaware’s treasury all but one share of capital stock of LCC - Delaware, leaving Vert Capital as LCC - Delaware’s sole stockholder. Vert Capital will not transfer this one share of capital stock of LCC – Delaware. Therefore, Boxlight Parent will have no interest in LCC - Delaware.

  

Upon completion of this offering, an aggregate of 250,000 shares of Boxlight Parent’s non-voting convertible Series A preferred stock will be issued to Vert Capital, to be held in trust for the benefit of the existing holders of Series A preferred stock in LCC-Delaware. Such 250,000 shares of Boxlight Parent’s non-voting convertible Series A preferred stock will automatically convert into 358,680 shares of our Class A common stock on a date which shall be one year from the date of this prospectus. We intend to register for resale under the Securities Act on or before expiration of such one year period all of 358,680 shares of Class A common stock issuable upon conversion of the Series A preferred stock. Subject to completion of such resale registration statement, Vert Capital will deliver the Series A Preferred Stock certificates to the Boxlight Parent, and we shall issue the 358,680 shares of Class A common stock to such stockholders of LCC-Delaware.

 

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In summary, upon consummation of the offering contemplated by this prospectus, we will issue the following shares of our capital stock in connection with the acquisitions of Boxlight, Globisens and Genesis:

 

 

in exchange for 82.3% of the shares of Boxlight, a total of 270,000 shares of our Series C preferred stock will be issued to the selling Boxlight stockholders, which will automatically convert into 1,797,346 shares of our Class A common stock or such other number of shares as represents at least $16,460,000, based on the number of shares issued in this offering multiplied by the initial per share offering price our Class A common stock.

 

An additional 143,788 bonus shares of Boxlight Parent Class A common stock will be issued to senior management and senior employees who have worked at Boxlight for more than 10 years, and Boxlight Parent has also agreed to grant employee stock options entitling the option holders to purchase upon full vesting, at the offering price of our Class A common stock, an additional 436,758 shares of our Class B common stock or such other number of shares as represents 5.0% of our fully diluted common stock (the “EDI Option Plan”). Class B common stock is identical to Class A common stock, except that Class B common stock carries no vote, other than as required by law. Mr. Nance, our President and Chief Operating Officer, who is also senior management at Boxlight, will receive approximately 46% of the bonus shares.

     
  in exchange for 100% of the common shares of Globisens, a total of 300,208 shares of our Class A common stock will be issued to the Globisens stockholders, or such other number of shares as shall represent 3.437% of our fully-diluted common stock before giving effect to this offering;
     
  a total of 1,000,000 shares of our Series B preferred stock will be issued to the four former members of Genesis, which will automatically convert into 348,321 shares of Class A common stock or such other number of shares as represents 4.0% of our fully-diluted common stock before giving effect to this offering; and
     
  following consummation of this offering, we will offer to LCC - Delaware’s holders of Series A Preferred stock the right to exchange their shares for equivalent Company Series A Preferred Stock, convertible into 358,680 shares of our Class A common stock.

 

In addition, in exchange for a transfer to a subsidiary of Everest Display of the “Boxlight” and “Boxlight Display” trademarks, we have agreed to issue to the current owner of such trademarks a number of Class A common shares as determined by dividing $250,000, by the initial per share offering price of our Class A common stock.

 

For the purpose of the acquisition agreements, fully diluted common stock includes all outstanding Boxlight Parent common stock and all shares issuable upon conversion of preferred stock and exercise of all warrants and options to purchase Boxlight Parent common stock that would be outstanding after giving effect to the acquisitions of Boxlight, Globisens and Genesis and the exchange transaction referred to in the immediately preceding paragraph. Such term does not include any of the shares of Class A common stock offered under this prospectus or any shares of Class A common stock issuable upon exercise of the representative’s warrants. As at the date of this prospectus, after giving pro forma effect to the acquisition of each of Boxlight, Globisens and Genesis and the exchange of Series A preferred stock for 358,680 shares of Boxlight Parent Class A common stock referred to above, there would be outstanding an aggregate of 8,735,649 shares of Boxlight Parent common stock, assuming the conversion of all convertible preferred stock and exercise of all warrants and options. None of the shares to be issued to the former security holders of Boxlight, Globisens, Genesis and in trust for the benefit of the LCC - Delaware Series A preferred holders will be registered under the Securities Act, in reliance upon the exemption from registration set forth in Section 4(a)(2) under the Securities Act. The consummation of this offering is dependent upon the closing of the acquisitions of Boxlight and Globisens, but is not dependent upon the closing of the acquisition of Genesis. If the offering is not consummated, none of the acquisitions will be consummated. Each acquisition is conditional upon the closing of this offering or another liquidity event acceptable to the shareholders of Boxlight and Globisens.

 

Our Corporate Information

 

Our principal executive offices are located at 1045 Progress Circle, Lawrenceville, GA 30043. Our telephone number is 404-891-1122. Our website address is www.boxlightcorp.com. These are textual references only. We do not incorporate the information on, or accessible through, any of our websites into this prospectus, and you should not consider any information on, or that can be accessed through, our websites as part of this prospectus.

  

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Our Status as an Emerging Growth Company

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Certain specified reduced reporting and other regulatory requirements are available to public companies that are emerging growth companies. These provisions include:

 

  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;
     
  an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
     
  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
     
  reduced disclosure about our executive compensation arrangements.

 

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.

 

We will continue to be an emerging growth company until the earliest of:

 

  the last day of our fiscal year in which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1,000,000) or more;
     
  the last day of our fiscal year following the fifth anniversary of the date of our first sale of common equity securities pursuant to an effective registration statement under the Securities Act;
     
  the date on which we have, during the prior three-year period, issued more than $1,000,000,000 in non-convertible debt; or
     
  the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, which means the market value of our common stock that is held by non-affiliates (or public float) exceeds $700 million as of the last day of our second fiscal quarter in our prior fiscal year.

 

We are also a “smaller reporting company,” as defined under SEC Regulation S-K. As such, we also are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and also are subject to less extensive disclosure requirements regarding executive compensation in our periodic reports and proxy statements. We will continue to be deemed a smaller reporting company until our public float exceeds $75 million on the last day of our second fiscal quarter in our prior fiscal year.

 

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The Offering

 

Class A common stock we are offering             shares (           shares if the underwriters exercise their over-allotment in full)
     
Public offering price   $       per share
     
Common stock outstanding before this offering(1)  

3,825,843 shares of Class A common stock

     
Common stock outstanding after this offering(2)(3)             shares
     
Over-allotment option   We have granted the representative a 45-day option to purchase up to          additional shares of Class A common stock solely to cover over-allotments, if any.
     
Use of proceeds   We estimate that we will receive net proceeds from this offering, after deducting estimated underwriting discount and offering expenses payable by us, of approximately $      . We intend to use the proceeds of this offering to pay a portion of the purchase price for our Globisens acquisition; to pay for ETL shares; for research and development of new products; to increase our sales and marketing efforts; improve inventory management, build infrastructure, including hiring of additional personnel; to pay outstanding loans in the aggregate amount of $354,050 made to us by Vert Capital, Mark Elliott, and Sy Silverstein and for working capital and other general corporate purposes. See “Use of Proceeds” for additional information.
     
Lock-up  

We, our directors and our executive officers have agreed with the underwriters not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities for a period of six months following the closing of this offering. See “Underwriting” for more information.

     
Proposed Nasdaq Capital Market Listing Symbol   “BOXL”
     
Risk factors   See “Risk Factors” beginning on page 11 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

 

(1) The numbers of shares of our common stock prior to and to be outstanding immediately after this offering are based on 3,825,843 shares of our Class A common stock outstanding as of May [·], 2015.

 

(2) The number of shares of our common stock outstanding after this offering includes:

 

  1,797,346 shares of our Class A common stock to be issued to the Boxlight shareholders upon consummation of this offering, or such other number of shares representing the greater of $16,460,000 divided by the initial per share offering price of our Class A common stock, issuable upon automatic conversion of 270,000 shares of Series C Preferred Stock, or 20.57% of our fully-diluted common stock before giving effect to this offering;
     
  143,788 bonus shares of Class A common stock to be issued to Boxlight’s senior management and senior employees;
     
  300,208 shares of Class A common stock to be issued to the former stockholders of Globisens or such other number of shares as represents at least 3.437% of our fully-diluted common stock before giving effect to this offering;
     
  348,321 shares of Class A common stock issuable upon automatic conversion of 1,000,000 shares of Series B Preferred Stock to be issued to the former members of Genesis, or such other number of shares as represents 4.0% of our fully-diluted common stock before giving effect to this offering; and
     
 

358,680 shares of Class A common stock issuable upon conversion of our Series A preferred stock, which we will offer to holders of Series A preferred stock of LCC - Delaware.

 

(3) The number of shares of our common stock outstanding after this offering excludes:

 

 

785,824 shares of Class B common stock issuable upon exercise of options granted under the 2014 Stock Incentive Plan and 714,176 additional shares reserved for issuance thereunder.

     
 

738,881 shares of Class A common stock issuable upon exercise of warrants with an exercise price equal to 110% of the initial per share offering price of shares offered to the public in this offering.

     
 

436,758 shares of Class B common stock issuable upon exercise of stock options granted under the EDI Option Plan.

     
  [  ] shares of Class A common stock issuable upon the exercise of the underwriters’ over-allotment option.
     
 

[  ] shares of Class A common stock issuable upon exercise of the Representative’s Warrants.

 

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RISK FACTORS

 

An investment in our Class A common stock involves a high degree of risk. You should consider carefully the following risks and other information included in this prospectus before you decide whether to buy our Class A common stock. The following risks may adversely affect our business, financial condition, and operating results. As a result, the trading price of our Class A common stock could decline and you could lose part or all of your investment.

 

Risks Related to Our Business, Operations and Financial Condition

 

We have incurred a loss for the year ended December 31, 2014 and for the three months ended March 31, 2015 on a pro forma combined basis.

 

For the year ended December 31, 2014 and for the three months ended March 31, 2015, on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014, we had a combined loss of $2,970,000 and $1,258,000, respectively. Although we believe that this loss is primarily the result of the significant reductions in global national, state and local educational budgets and purchases due to the world-wide economic recession, there can be no assurance that our losses will not continue in the future, even if expenditures for the products and solutions we sell and distribute increase.

 

Our pro forma results may not be indicative of our future performance or financial condition.

 

The unaudited pro forma combined financial information in this prospectus may not be indicative of what our operating results and financial condition would have been for the periods presented had the acquisitions of Genesis, Boxlight or Globisens taken place on the dates indicated or of our future financial condition or operating results. In addition, the unaudited pro forma combined balance sheets included in this prospectus reflect preliminary estimates of the values of assets to be acquired and liabilities to be assumed, and those values could differ materially once we complete our final valuations of these assets and liabilities.

 

We may not be able to manage our acquisition strategy effectively.

 

Our growth strategy includes acquiring assets and technologies or companies that have services, 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 potential acquisition targets, and there is no guarantee that we will complete any acquisition that we pursue.

 

The process of integrating any acquired business may create unforeseen operating difficulties and expenditures and is itself risky. The acquisitions to be completed upon consummation of this offering and any future acquisitions will be subject to a number of challenges, including:

 

  diversion of management time and resources as well as a shift of focus from operating the businesses to issues related to integration and administration, which could result in the potential disruption of our ongoing business;
     
 

the need to integrate each company’s accounting, management, information, human resources and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented;

     
  the need to implement controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition had lacked such controls, procedures and policies;
     
  difficulties in maintaining uniform standards, controls, procedures and policies;
     
  difficulties in managing operations in widely disparate time zones;
     
 

potential unknown liabilities associated with acquired businesses, including liability for activities of the acquired company before the acquisition, including violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities;

     
  difficulty retaining key alliances on attractive terms with partners and suppliers;
     
  declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, future prospects or the direction or culture of the business;
     
  in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; and
     
  in some cases, the need to transition operations, end-users, and customers onto our existing platforms.

 

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Failure to manage expansion effectively may affect our success in executing our business plan and may adversely affect our business, financial condition and results of operation. We may not realize the anticipated benefits of any or all of our acquisitions, or may not realize them in the time frame expected. Future acquisitions or mergers may require us to issue additional equity securities, spend our cash, or incur debt, and amortization expenses related to intangible assets or write-offs of goodwill, any of which could adversely affect our results of operations.

 

We generate a substantial majority of our revenue on a pro forma basis from the sale of our display products, and any significant reduction in sales of these products would materially harm our business.

 

For the year ended December 31, 2014 and for the three months ended March 31, 2015, on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014, we generated approximately 85% of our revenue from sales of our interactive display products, consisting of projectors, interactive projectors and interactive flat panels. A decrease in demand for our interactive displays would significantly reduce our revenue. If any of our competitors introduces attractive alternatives to our interactive displays, we could experience a significant decrease in sales as customers migrate to those alternative products.

 

Our business will be subject to seasonal fluctuations, which may cause our operating results to fluctuate from quarter-to-quarter and adversely affect our working capital and liquidity throughout the year.

 

The revenues and operating results of Boxlight, Globisens, and Genesis normally fluctuate as a result of seasonal variations in our business, driven largely by the purchasing cycles of the educational market. Traditionally, the bulk of expenditures by school districts occur in the second and third calendar quarters after receipt of budget allocations. We expect quarterly fluctuations in our revenues and operating results to continue. These fluctuations could result in volatility and adversely affect our cash flow. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial position.

 

Our working capital requirements and cash flows are subject to fluctuation, which could have an adverse effect on our financial condition.

 

Our working capital requirements and cash flows have historically been, and are expected to continue to be, subject to quarterly and yearly fluctuations, depending on a number of factors. Factors which could result in cash flow fluctuations include:

 

  the level of sales and the related margins on those sales;
     
  the collection of receivables;
     
  the timing and size of purchases of inventory and related components; and
     
  the timing of payment on payables and accrued liabilities.

 

If we are unable to manage fluctuations in cash flow, our business, operating results and financial condition may be materially adversely affected. For example, if we are unable to effectively manage fluctuations in our cash flows, we may be unable to make required interest payments on our indebtedness.

 

We will operate in a highly competitive industry.

 

Upon consummation of the acquisitions of Boxlight, Globisens and Genesis, we will be engaged in the interactive education industry. The combined operation will face substantial competition from developers, manufacturers and distributors of interactive learning products and solutions, including interactive projectors, interactive whiteboards and micro-computer data logging products and any new product we may offer in the future. The industry is highly competitive and characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of interactive projectors, interactive whiteboards, and micro-computer based logging technologies and combinations of them. We will face increased competition from companies with strong positions in certain markets we serve, and in new markets and regions we may enter. These companies manufacture and/or distribute new, disruptive or substitute products that compete for the pool of available funds that previously could have been spent on interactive displays and associated products.

 

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Many of these competitors have, and our potential competitors may have, significantly greater financial and other resources than we do and have spent, and may continue to spend, significant amounts of resources to try to enter or expand their presence in the market. In addition, low cost competitors have appeared in China and other countries. We may not be able to compete effectively against these current and future competitors. Increased competition or other competitive pressures have and may continue to result in price reductions, reduced margins or loss of market share, any of which could have a material adverse effect on our business, financial condition or results of operations.

 

Some of Boxlight’s customers are required to purchase equipment by soliciting proposals from a number of sources and, in some cases, are required to purchase from the lowest bidder. While we attempt to price our products competitively based upon the relative features they offer, our competitors’ prices and other factors, we are often not the lowest bidder and may lose sales to lower bidders.

 

Competitors may be able to respond to new or emerging technologies and changes in customer requirements more effectively and faster than we can or devote greater resources to the development, promotion and sale of products than we can. Current and potential competitors may establish cooperative relationships among themselves or with third parties, including through mergers or acquisitions, to increase the ability of their products to address the needs of customers. If these interactive display competitors or other substitute or alternative technology competitors acquire significantly increased market share, it could have a material adverse effect on our business, financial condition or results of operations.

 

If we are unable to continually enhance our products and to develop, introduce and sell new technologies and products at competitive prices and in a timely manner, our business will be harmed.

 

The market for interactive learning and collaboration solutions is still emerging and evolving. It is characterized by rapid technological change and frequent new product introductions, many of which may compete with, be considered as alternatives to or replace our interactive displays. For example, we have recently observed significant sales of tablet computers by competitors to school districts in the U.S. whose technology budgets could otherwise have been used to purchase interactive displays. Accordingly, our future success will depend upon our ability to enhance our products and to develop, introduce and sell new technologies and products offering enhanced performance and functionality at competitive prices and in a timely manner.

 

The development of new technologies and products involves time, substantial costs and risks. Our ability to successfully develop new technologies will depend in large measure on our ability to maintain a technically skilled research and development staff and to adapt to technological changes and advances in the industry. The success of new product introductions depends on a number of factors, including timely and successful product development, market acceptance, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the availability of components in appropriate quantities and costs to meet anticipated demand, the risk that new products may have quality or other defects and our ability to manage distribution and production issues related to new product introductions. If we are unsuccessful in selling the new products that we develop and introduce, or any future products that we may develop, we may carry obsolete inventory and have reduced available working capital for the development of other new technologies and products.

 

If we are unable, for any reason, to enhance, develop, introduce and sell new products in a timely manner, or at all, in response to changing market conditions or customer requirements or otherwise, our business will be harmed.

 

We may not be successful in our strategy to increase sales in the business and government market.

 

On a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014, the majority of our revenue has been derived from sales to the education market. Our business strategy contemplates expanding our sales in both the education market, as well as to the business and government training sectors. However, to date, there has not been widespread adoption of interactive displays and collaboration solutions in the business and government market, and these solutions may fail to achieve wide acceptance in this market. Successful expansion into the business and government markets will require us to augment and develop new distribution and reseller relationships, and we may not be successful in developing those relationships. In addition, widespread acceptance of our interactive solutions may not occur due to lack of familiarity with how our products work, the perception that our products are difficult to use and a lack of appreciation of the contribution they can make in the business and government markets. In addition, the Boxlight brand is less recognized in these markets as compared to the education market. A key part of our strategy to grow in the business and government market is to develop strategic alliances with companies in the unified communications and collaboration sector, and there can be no assurance that these alliances will help us to successfully grow our sales in this market.

 

13
 

 

Furthermore, our ability to successfully grow in the business and government market depends upon revenue and cash flows derived from sales to the education market. As the education market represents a significant portion of our revenue and cash flow (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014) we utilize cash from sales in the education market for our operating expenses. If we cannot continue to augment and develop new distributor and reseller relationships, market our brand, develop strategic alliances and innovate new technologies, which results in decreased revenue from the education market, we may not be successful in our strategy to grow in the business and government market.

 

As a result of market saturation, our future sales of interactive displays in developed markets may slow or decrease.

 

Futuresource Consulting Ltd. estimates that, as of December 31, 2012, approximately 47% of classrooms in the U.S., 85% of classrooms in the U.K., and 53% of classrooms in Australia already had an interactive display. As a result of the high levels of penetration in developed markets, the education market for interactive displays in the U.S., U.K. and Australia may have reached saturation levels. Future sales growth in those markets and other developed markets with similar penetration levels may, as a result, be difficult to achieve, and (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014), our sales of interactive displays may decline in those countries. If we are unable to replace the revenue and earnings we have (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014), historically derived from sales of interactive displays to the education market in these developed markets, whether through sales of additional products, sales in other underserved markets, such as Africa, Latin America and Asia, sales in the business and government market or otherwise, our business, financial condition and results of operations may be materially adversely affected.

 

We face significant challenges growing our sales in foreign markets.

 

For our products to gain broad acceptance in all markets, we may need to develop customized solutions specifically designed for each country in which we seek to grow our sales and to sell those solutions at prices that are competitive in that country. For example, while our hardware requires only minimal modification to be usable in other countries, our software and content require significant customization and modification to adapt to the needs of foreign customers. Specifically, our software will need to be adapted to work in a user-friendly way in several languages and alphabets, and content that fits the specific needs of foreign customers (such as, for example, classroom lessons adapted to specific foreign curricula) will need to be developed. If we are not able to develop, or choose not to support, customized products and solutions for use in a particular country, we may be unable to compete successfully in that country and our sales growth in that country will be adversely affected. We cannot assure you that we will be able to successfully develop or choose to support customized solutions for each foreign country in which we seek to grow our sales or that our solutions, if developed, will be competitive in the relevant country.

 

Growth in many foreign countries will require us to price our products competitively in those countries. In certain developing countries, we have been and may continue to be required to sell our products at prices significantly below those that we are currently charging in developed countries. Such pricing pressures could reduce our gross margins and adversely affect our revenue.

 

Our customers’ experience with our products will be directly affected by the availability and quality of our customers’ Internet access. We are unable to control broadband penetration rates, and, to the extent that broadband growth in emerging markets slows, our growth in international markets could be hindered.

 

In addition, we will face lengthy and unpredictable sales cycles in foreign markets, particularly in countries with centralized decision making. In these countries, particularly in connection with significant technology product purchases, Boxlight, Globisens and Genesis have experienced recurrent requests for proposals, significant delays in the decision making process and, in some cases, indefinite deferrals of purchases or cancellations of requests for proposals. If we are unable to overcome these challenges, the growth of our sales in these markets would be adversely affected, and we may incur unrecovered marketing costs, impairing our profitability.

 

Our suppliers may not be able to always supply components or products to us on a timely basis and on favorable terms, and as a result, our dependency on third party suppliers has adversely affected our revenue (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014) and may continue to do so.

 

We will rely on our suppliers for components and depend on obtaining adequate supplies of quality components on a timely basis with favorable terms. Some of those components, as well as certain complete products that we sell are provided to us by only one supplier or contract manufacturer. We will be subject to disruptions in our operations if our sole or limited supply contract manufacturers decrease or stop production of components and products, or if such suppliers and contract manufacturers do not produce components and products of sufficient quantity. Alternative sources for our components will not always be available. Many of our components are manufactured overseas, so they have long lead times, and events such as local disruptions, natural disasters or political conflict may cause unexpected interruptions to the supply of our products or components. In addition, we do not have written supply agreements with our suppliers. Although we are endeavoring to enter into written agreements with certain of our suppliers, we cannot assure that our efforts will be successful.

 

Boxlight experienced unexpected demand for certain of its products in 2014. As a result of these factors, Boxlight faced a temporary inventory shortage that led to a backlog in production and product delivery. As of December 31, 2014, we had a backlog of finished product delivery of approximately $2,100,000, due to the inability of certain of our suppliers to timely provide us with components for these products.

 

To prevent future overselling, we have increased our inventory of components; we have worked closely with one of our suppliers to establish protocols to handle unexpected orders of key components and expedite the delivery of key components; we have also added air-freight as an alternative to transport components to sea-freight for situations such as we experienced in 2014. As of the date hereof, our backlog issues have been resolved and all orders filled. We have also added vendors to avoid future material shortages. In addition, it is our intention, as mentioned in the use of proceeds, to allocate financial resources to improve our inventory management, including establishing an inventory buffer of components appropriate to our business.

 

However, we cannot assure that our attempt will be successful or that product or component shortages will not occur in the future. If we cannot supply products due to a lack of components, or are unable to redesign products with other components in a timely manner, our business will be significantly harmed. If inventory shortages continue, they could be expected to have a material and adverse effect on our future revenues and ability to effectively project future sales and operating results.

 

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We rely on highly skilled personnel, and, if we are unable to attract, retain or motivate qualified personnel, we may not be able to operate our business effectively.

 

Our success depends in large part on continued employment of senior management and key personnel who can effectively operate our business, as well as our ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development and other employees is intense in the high-technology industry and we may not be able to attract or retain highly qualified personnel in the future. In making employment decisions, particularly in the high-technology industry, job candidates often consider the value of the equity awards they would receive in connection with their employment. Our long-term incentive programs may not be attractive enough or perform sufficiently to attract or retain qualified personnel.

 

If any of our employees leaves us, and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial condition and results of operations could be adversely affected.

 

Our success also depends on our having highly trained financial, technical, recruiting, sales and marketing personnel. We will need to continue to hire additional personnel as our business grows. A shortage in the number of people with these skills or our failure to attract them to our company could impede our ability to increase revenues from our existing products and services, ensure full compliance with federal and state regulations, or launch new product offerings and would have an adverse effect on our business and financial results.

 

We may have difficulty in entering into and maintaining strategic alliances with third parties.

 

Boxlight, Globisens and Genesis have entered into and we may continue to enter into strategic alliances with third parties to gain access to new and innovative technologies and markets. These parties are often large, established companies. Negotiating and performing under these arrangements involves significant time and expense, and we may not have sufficient resources to devote to our strategic alliances, particularly those with companies that have significantly greater financial and other resources than we do. The anticipated benefits of these arrangements may never materialize, and performing under these arrangements may adversely affect our results of operations.

 

We will use resellers and distributors to promote and sell our products.

 

Substantially all our sales (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014) are made through resellers and distributors. Industry and economic conditions have the potential to weaken the financial position of our resellers and distributors. Such resellers and distributors may no longer sell our products, or may reduce efforts to sell our products, which could materially adversely affect our business, financial condition and results of operations. Furthermore, if our resellers’ and distributors’ abilities to repay their credit obligations were to deteriorate and result in the write-down or write-off of such receivables, it would negatively affect our operating results and, if significant, could materially adversely affect our business, financial condition and results of operations.

 

In addition, our resellers and most of our distributors will not be contractually required to sell our products exclusively and may offer competing interactive display products, and therefore we will depend on our ability to establish and develop new relationships and to build on existing relationships with resellers and distributors. We cannot assure that our resellers and distributors will act in a manner that will promote the success of our products. Factors that are largely within the control of those resellers and distributors but are important to the success of our products include:

 

  the degree to which our resellers and distributors actively promote our products;
     
  the extent to which our resellers and distributors offer and promote competitive products; and
     
  the quality of installation, training and other support services offered by our resellers and distributors.

 

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In addition, if some of our competitors offer their products to resellers and distributors on more favorable terms or have more products available to meet their needs, there may be pressure on us to reduce the price of our products, or those resellers and distributors may stop carrying our products or de-emphasize the sale of our products in favor of the products of these competitors. If we do not maintain and continue to build relationships with resellers and distributors our business will be harmed.

 

An former affiliate is in liquidation.

 

In April 2013, Vert Capital, acquired through LCC – Delaware, all of the outstanding shares of Logical Choice Technologies, Inc., a Georgia corporation (“LCT”). LCT is in liquidation, and all of its creditors may not be paid. Although LCT’s liabilities are solely its own, LCT creditors may claim that they are owed money by our Company. The aggregate obligations owed by LCT consist of approximately $4.0 million in accounts payable owed to certain former suppliers to LCT. Substantially all of these accounts payable were incurred by LCT prior to Vert’s acquisition of LCT in April 2013, and neither Vert Capital nor Boxlight Parent assumed or otherwise agreed to guarantee any of these accounts payable. However, creditors may nonetheless seek to collect from Boxlight Parent or its subsidiaries by alleging that we are successors in interest to LCT and therefore obligated for its debts. Although, we believe that any such claim, if made, would have no merit, or, at most, limited exposure to Boxlight Parent, defending such a claim would divert resources that otherwise would be used in our business.

 

Although we don’t believe that the liquidation of LCT or a successful claim of LCT’s creditors if any will affect the proposed acquisition, if we are held liable for such amounts owed by LCC- Delaware, payment of such amounts would be made from working capital, which may have an adverse affect on our financial condition.

 

In addition, the inactive status of LCC-Delaware will not have any impact on the proposed acquisitions or liquidation of LCT. However, if we were held liable for amounts owed by LCC- Delaware, payment of such amounts could have an adverse impact on our financial condition.

 

Risks Related to our Industry and Regulations

 

Decreases in, or stagnation of, spending or changes in the spending policies or budget priorities for government funding of schools, colleges, universities, other education providers or government agencies may have a material adverse effect on our revenue.

 

Our customers will include primary and secondary schools, colleges, universities, other education providers. and, to a lesser extent, government agencies, each of which depends heavily on government funding. The effect of the worldwide recession of 2008 and subsequent sovereign debt and global financial crisis have resulted in substantial declines in the revenues and fiscal capacity of many national, federal, state, provincial and local governments. Many of those governments have reacted to the decreases in revenues and could continue to react to the decreases in revenue by cutting funding to educational institutions. If our products are not a high priority expenditure for such institutions, or if such institutions allocate expenditures to substitute or alternative technologies, we could lose revenue.

 

Any additional decrease in, stagnation of or adverse change in national, federal, state, provincial or local funding for primary and secondary schools, colleges, universities, or other education providers or for government agencies that use our products could cause our current and prospective customers to further reduce their purchases of our products, which could cause us to lose additional revenue. In addition, a specific reduction in governmental funding support for products such as ours could also cause us to lose revenue.

 

If our products fail to comply with consumer product or environmental laws, it could materially affect our financial performance.

 

Because we will sell products used by children in classrooms and because our products will be subject to environmental regulations in some jurisdictions in which we will do business, we will be required to comply with a variety of product safety, product testing and environmental regulations, including compliance with applicable laws and standards with respect to lead content and other child safety and environmental issues. If our products do not meet applicable safety or regulatory standards, we could experience lost sales, diverted resources and increased costs, which could have a material adverse effect on our financial condition and results of operations. Events that give rise to actual, potential or perceived product safety or environmental concerns could expose us to government enforcement action or private litigation and result in product recalls and other liabilities. In addition, negative consumer perceptions regarding the safety of our products could cause negative publicity and harm our reputation.

 

Risks Related to our Foreign Operations

 

We are subject to risks inherent in foreign operations.

 

Sales outside the United States represented approximately 28% and 32% of our combined revenues for the year ended December 31, 2014 and for the three months ended March 31, 2015, respectively (on a pro forma basis and assuming the acquisitions of Boxlight, Globisens, and Genesis were completed on January 1, 2014). We intend to selectively pursue international market growth opportunities, which could result in those international sales accounting for a more significant portion of our revenue. We have committed, and may continue to commit, significant resources to our international operations and sales and marketing activities. While we have experience conducting business outside of the United States, we may not be aware of all the factors that may affect our business in foreign jurisdictions.

 

We are subject to a number of risks associated with international business activities that may increase costs, lengthen sales cycles and require significant management attention. International operations carry certain risks and associated costs, such as the complexities and expense of administering a business abroad, complications in compliance with, and unexpected changes in regulatory requirements, foreign laws, international import and export legislation, trading and investment policies, exchange controls, tariffs and other trade barriers, difficulties in collecting accounts receivable, potential adverse tax consequences, uncertainties of laws, difficulties in protecting, maintaining or enforcing intellectual property rights, difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs, and other factors, depending upon the country involved. Moreover, local laws and customs in many countries differ significantly and compliance with the laws of multiple jurisdictions can be complex, difficult and costly. We cannot assure that risks inherent in our foreign operations will not have a material adverse effect on our business.

 

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We must comply with the Foreign Corrupt Practices Act.

 

We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery of or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires that we maintain adequate financial records and internal controls to prevent such prohibited payments. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur in countries where we do business. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new business, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties.

 

Our worldwide operations will subject us to income taxation in many jurisdictions, and we must exercise significant judgment to determine our worldwide financial provision for income taxes. That determination ultimately is an estimate, and, accordingly, we cannot assure that our historical income tax provisions and accruals will be adequate.

 

We will be subject to income taxation in the United States and numerous other jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, we cannot assure that the final determination of any tax audits and litigation will not be materially different from that which is reflected in our historical income tax provisions and accruals. Should additional taxes be assessed against us as a result of an audit or litigation, there could be a material adverse effect on our current and future results and financial condition.

 

Certain of our subsidiaries provide products to, and may from time to time undertake certain significant transactions with, us and our other subsidiaries in different jurisdictions. In general, cross border transactions between related parties and, in particular, related party financing transactions, are subject to close review by tax authorities. Moreover, several jurisdictions in which we will operate have tax laws with detailed transfer pricing rules that require all transactions with nonresident related parties to be priced using arm’s-length pricing principles and require the existence of contemporaneous documentation to support such pricing. A tax authority in one or more jurisdictions could challenge the validity of our related party transfer pricing policies. Because such a challenge generally involves a complex area of taxation and because a significant degree of judgment by management is required to be exercised in setting related party transfer pricing policies, the resolution of such challenges often results in adjustments in favor of the taxing authority. If in the future any taxation authorities are successful in challenging our financing or transfer pricing policies, our income tax expense may be adversely affected and we could become subject to interest and penalty charges, which may harm our business, financial condition and operating results.

 

If we are unable to ship and transport components and final products efficiently and economically across long distances and borders our business would be harmed.

 

We will transport significant volumes of components and finished products across long distances and international borders. Any increases in our transportation costs, as a result of increases in the price of oil or otherwise, would increase our costs and the final prices of our products to our customers. In addition, any increases in customs or tariffs, as a result of changes to existing trade agreements between countries or otherwise, could increase our costs or the final cost of our products to our customers or decrease our margins. Such increases could harm our competitive position and could have a material adverse effect on our business. The laws governing customs and tariffs in many countries are complex, subject to many interpretations and often include substantial penalties for non-compliance. Disputes may arise and could subject us to material liabilities and have a material adverse effect on our business.

 

If our procedures to ensure compliance with export control laws are ineffective, our business could be harmed.

 

Our extensive foreign operations and sales will be subject to far reaching and complex export control laws and regulations in the United States and elsewhere. Violations of those laws and regulations could have material negative consequences for us including large fines, criminal sanctions, prohibitions on participating in certain transactions and government contracts, sanctions on other companies if they continue to do business with us and adverse publicity.

 

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We will be exposed to fluctuations in foreign currencies that may materially adversely affect our results of operations.

  

Our reporting currency is the U.S. dollar. Boxlight uses the NT dollar and Globisens uses the Israeli shekel as functional currencies to report revenue and expenses. We will be exposed to foreign exchange rate fluctuations when we translate the financial statements of Boxlight and Globisens into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the translation of our Boxlight’s and Globisens’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we may have certain monetary assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. To the extent the U.S. dollar strengthens against the NT dollar and Israeli shekel, the translation of foreign currency denominated transactions will result in reduced revenue, operating expenses and net income for our Taiwanese and Israeli operations. Similarly, to the extent the U.S. dollar weakens against the NT dollar and Israeli Shekel, the translation of the foreign currency denominated transactions will result in increased revenue, operating expenses and net income for our Taiwanese and Israeli operations. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited, and we may not be able to successfully hedge our exchange rate risks.

 

We monitor our foreign exchange exposures, and these activities mitigate, but do not eliminate, our exposure to exchange rate fluctuations. As a result, exchange rate fluctuations may materially adversely affect our operating results in future periods.

 

Risks Related to Acquiring Globisens’s Operations in Israel

 

Globisens’ principal offices, research and development facilities and suppliers are located in Israel and, therefore, the business, financial condition and results of operation of Globisens may be adversely affected by political, economic and military instability in Israel.

 

Globisens’s principal offices, research and development facilities, and its subcontracted production facility are located in Israel. In addition, all of Globisens’s employees and officers, are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect its business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect Globisens’s operations and results of operations. In addition, Globisens’s operations may be adversely affected by the call-up of certain of our employees, including members of our senior management, to active military service in the case of such hostilities.

 

Uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries. Such instability may lead to deterioration in the political and trade relationships that exist between the State of Israel and these countries. Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Such restrictions may seriously limit the ability to sell Globisens’s products to customers in those countries. Parties with whom they may do business could decline to travel to Israel during periods of heightened unrest or tension. In addition, the political and security situation in Israel may result in parties with whom it may have agreements involving performance in Israel claiming that they are not obligated to perform its commitments under those agreements pursuant to force majeure provisions in such agreements. In addition, any hostilities involving Israel could have a material adverse effect on Globisens’s facilities including the corporate office or on the facilities of local suppliers, in which event all or a portion of Globisens’s inventory may be damaged, and Globisens’ ability to deliver products to customers could be materially adversely affected. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial condition of Israel, could adversely affect Globisens’ operations and product development, cause revenues to decrease and adversely affect Boxlight Parent’s share price following this offering and consummation of the Globisens acquisition. Similarly, Israeli corporations are limited in conducting business with entities from several countries.

 

Our commercial insurance policy does not cover losses associated with terrorist attacks. Although the Israeli government in the past covered the reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts, terrorist activities or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.

 

Our operations could also be disrupted by the obligations of personnel to perform military service. As of April 15, 2015, Globisens had 9 employees and independent contractors, all of whom were based in Israel. Some of these employees may be called upon to perform up to 54 days in each three year period (and in the case of officers, up to 84 days in each three year period) of military reserve duty until they reach the age of 40 (and in some cases, depending on their specific military profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to immediate and unlimited active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists and it is possible that there will be similar large-scale military reserve duty call-ups in the future. Our operations could be disrupted by the absence of a significant number of employees related to military service, which could materially adversely affect our business and results of operations.

 

We may become subject to claims for payment of compensation for assigned service inventions by Globisens’ current or former employees, which could result in litigation and adversely affect Globisens’ business.

 

Under the Israeli Patents Law, 5727-1967, or the Patents Law, inventions conceived by an employee during the scope of his or her employment are regarded as “service inventions” and are owned by the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patents Law also provides that if no such agreement between an employer and an employee exists, which prescribes whether, to what extent, and on what conditions the employee is entitled to remuneration for his or her service inventions, then such matters may, upon application by the employee, be decided by a government-appointed compensation and royalties committee established under the Patents Law, or the Committee. Recent conflicting decisions of the Committee and the Israeli Supreme Court have created uncertainty with respect to an employee’s right to receive remuneration for service inventions. In an August 2012 decision, the Israeli Supreme Court held that an employee’s contractual waiver of rights to compensation for service inventions does not necessarily preclude the employee’s claim to such compensation, and as a result an employee who executed a waiver may still bring a claim for compensation for service inventions before the Committee. However, in a decision issued in May 2014, the Committee held that employees may waive their right to remuneration for service inventions. We understand that a petition was recently filed and is currently pending with the Israeli High Court of Justice claiming that the Committee did not have authority to render such decision. A significant portion of Globisens’s intellectual property has been developed by its employees in the course of their employment. Although Globisens’s employees have agreed to assign to Globisens all rights to any intellectual property created in the scope of their employment and most of Globisens’s current employees, including all those involved in the development of its intellectual property, have agreed to waive their economic rights with respect to service inventions, we cannot assure you that claims will not be brought against us by current or former employees demanding remuneration in consideration for assigned service inventions. If any such claims were filed, Globisens could be required to pay remuneration to our current or former employees for such assigned service inventions, or be forced to litigate such claims, which could negatively affect Globisens’ business.

 

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Risks Related to Acquiring Boxlight’s Operations in Taiwan

 

Our global manufacturing, design and sales activities subject us to risks associated with legal, political, economic or other conditions or developments in various jurisdictions, including, in particular, Taiwan, which could negatively affect our business and financial status and therefore the market value of your investment.

 

Boxlight’s principal manufacturing facilities are located in Taiwan and in the PRC. Accordingly, our business and financial condition may be affected by changes in local governmental policies and political and social instability. In addition, Boxlight has operations worldwide, and a significant percentage of its revenue comes from sales to locations outside Taiwan and the PRC. Operating overseas exposes Boxlight to changes in policies and laws, as well as the general political and economic conditions, security risks, health conditions and possible disruptions in transportation networks, in the various countries in which Boxlight operates, which could result in an adverse effect on its business operations in such countries and its results of operations.

 

Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established between the Republic of China and the PRC, such as the engagement of the Economic Cooperation Framework Agreement, or ECFA, in 2010, relations may become strained again. In June 2013, the Taiwan and PRC governments entered into the Cross-Strait Agreement on Trade in Services pursuant to the ECFA. According to this agreement, both parties agreed to certain concessions on the telecommunication industries. The Cross-Strait Agreement on Trade in Services has not yet been ratified by the Legislation Yuan of Taiwan. If the agreement is not ratified by the Legislation Yuan, Boxlight’s business operations in the PRC and its results of operation may be adversely affected. In addition, the PRC government has refused to renounce the use of military force to gain control over Taiwan. Past developments in relations between Taiwan and the PRC have on occasion depressed the market prices of the securities of companies in Taiwan. Relations between Taiwan and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities. In addition, the complexities of the relationship between Taiwan and the PRC require companies involved in cross-strait business operations to carefully monitor their actions and manage their relationships with both Taiwan and PRC governments. In the past, companies in Taiwan, including Boxlight, have received minor sanctions such as travel restrictions or minor monetary fines by Taiwan and/or PRC governments. We cannot assure you that Boxlight will be able to successfully manage its relationships with Taiwan and PRC governments for its cross-strait business operations, which could have an adverse effect on our ability to expand our business and conduct cross-strait business operations. An increase in tensions between Taiwan and the PRC and the possibility of instability and uncertainty could adversely affect Boxlight’s business.

 

If economic conditions in Taiwan deteriorate, our current business and future growth could be affected materially and adversely.

 

In recent years, the currencies of many East Asian countries, including Taiwan, have experienced considerable volatility. In Taiwan, the Central Bank of the Republic of China (Taiwan) has from time to time intervened in the foreign exchange market to minimize the fluctuation of the U.S. dollar/New Taiwan (“NT”) dollar exchange rate and to prevent significant decline in the value of the NT dollar. Our business, financial condition and results of operations may be affected by changes in Taiwan government policies, taxation, inflation, interest rates and general economic conditions in Taiwan, as well as the global economies. For example, the banking and financial sectors in Taiwan have been harmed by the general economic downturn in recent years. As a result, financial institutions are more cautious in providing credit to certain businesses in Taiwan. We cannot assure you that we will continue to have access to credit at commercially reasonable rates of interest or at all.

  

Amendments to existing tax regulations or new tax legislation in Taiwan may have an adverse effect on our net income.

 

While Boxlight is subject to tax laws and regulations in various jurisdictions in which it operates or conducts business, Boxlight’s principal operations are conducted in Taiwan, and Boxlight is exposed primarily to taxes levied by the government of Taiwan. Any changes of tax laws and regulations in this jurisdiction could affect Boxlight’s effective tax rate and operating results.

 

Risks Related to Our Intellectual Property and Technology

 

Defects in our products can be difficult to detect before shipment. If defects occur, they could have a material adverse effect on our business.

 

Boxlight and Globisens products are highly complex and sophisticated and, from time to time, have contained and may continue to contain design defects or software “bugs” or failures that are difficult to detect and correct in advance of shipping.

 

The occurrence of errors and defects in our products could result in loss of, or delay in, market acceptance of our products, including harm to our brand, and correcting such errors and failures in our products could require significant expenditure of capital by us. In addition, we are rapidly developing and introducing new products, and new products may have higher rates of errors and defects than our established products. Boxlight and Globisens have historically have provided product warranties for between one and five years, and the failure of our products to operate as described could give rise to warranty claims. The consequences of such errors, failures and other defects and claims could have a material adverse effect on our business, financial condition, results of operations and our reputation.

 

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We may not be able to obtain patents or other intellectual property rights necessary to protect our proprietary technology and business.

 

Our commercial success depends to a significant degree upon our ability to develop new or improved technologies and products, and to obtain patents or other intellectual property rights or statutory protection for these technologies and products in the United States and other countries. We will seek to patent concepts, components, processes, designs and methods, and other inventions and technologies that we consider to have commercial value or that will likely give us a technological advantage. Boxlight, Globisens and Genesis owns rights in patents and patent applications for technologies relating to interactive displays and other complementary products in the United States and other countries such as Germany, Mexico, Israel, Japan, Taiwan and China. Despite devoting resources to the research and development of proprietary technology, we may not be able to develop technology that is patentable or protectable. Patents may not be issued in connection with pending patent applications, and claims allowed may not be sufficient to allow them to use the inventions that they create exclusively. Furthermore, any patents issued could be challenged, re-examined, held invalid or unenforceable or circumvented and may not provide sufficient protection or a competitive advantage. In addition, despite efforts to protect and maintain patents, competitors and other third parties may be able to design around their patents or develop products similar to the Boxlight and Globisens products that are not within the scope of their patents. Finally, patents provide certain statutory protection only for a limited period of time that varies depending on the jurisdiction and type of patent. The statutory protection term of certain of Boxlight and Globisens’ material patents may expire soon and, thereafter, the underlying technology of such patents can be used by any third party including competitors.

 

Prosecution and protection of the rights sought in patent applications and patents can be costly and uncertain, often involve complex legal and factual issues and consume significant time and resources. In addition, the breadth of claims allowed in our patents, their enforceability and our ability to protect and maintain them cannot be predicted with any certainty. The laws of certain countries may not protect intellectual property rights to the same extent as the laws of the United States. Even if our patents are held to be valid and enforceable in a certain jurisdiction, any legal proceedings that we may initiate against third parties to enforce such patents will likely be expensive, take significant time and divert management’s attention from other business matters. We cannot assure that any of the issued patents or pending patent applications of Boxlight, Globisens and Genesis provide any protectable, maintainable or enforceable rights or competitive advantages to us.

 

In addition to patents, we will rely on a combination of copyrights, trademarks, trade secrets and other related laws and confidentiality procedures and contractual provisions to protect, maintain and enforce our proprietary technology and intellectual property rights in the United States, Israel, Germany, Japan, Mexico, Taiwan, China and other countries. However, our ability to protect our brands by registering certain trademarks may be limited. In addition, while we will generally enter into confidentiality and nondisclosure agreements with our employees, consultants, contract manufacturers, distributors and resellers and with others to attempt to limit access to and distribution of our proprietary and confidential information, it is possible that:

 

  misappropriation of our proprietary and confidential information, including technology, will nevertheless occur;
     
  our confidentiality agreements will not be honored or may be rendered unenforceable;
     
  third parties will independently develop equivalent, superior or competitive technology or products;
     
  disputes will arise with our current or future strategic licensees, customers or others concerning the ownership, validity, enforceability, use, patentability or registrability of intellectual property; or
     
  unauthorized disclosure of our know-how, trade secrets or other proprietary or confidential information will occur.

 

We cannot assure that we will be successful in protecting, maintaining or enforcing our intellectual property rights. If we are unsuccessful in protecting, maintaining or enforcing our intellectual property rights, then our business, operating results and financial condition could be materially adversely affected, which could

 

  adversely affect our relationships with current or future distributors and resellers of our products;
     
  adversely affect our reputation with customers;
     
  be time-consuming and expensive to evaluate and defend;
     
  cause product shipment delays or stoppages;
     
  divert management’s attention and resources;
     
  subject us to significant liabilities and damages;
     
  require us to enter into royalty or licensing agreements; or
     
  require us to cease certain activities, including the sale of products.

 

If it is determined that we have infringed, violated or are infringing or violating a patent or other intellectual property right of any other person or if we are found liable in respect of any other related claim, then, in addition to being liable for potentially substantial damages, we may be prohibited from developing, using, distributing, selling or commercializing certain of our technologies and products unless we obtain a license from the holder of the patent or other intellectual property right. We cannot assure that we will be able to obtain any such license on a timely basis or on commercially favorable terms, or that any such licenses will be available, or that workarounds will be feasible and cost-efficient. If we do not obtain such a license or find a cost-efficient workaround, our business, operating results and financial condition could be materially adversely affected and we could be required to cease related business operations in some markets and restructure our business to focus on our continuing operations in other markets.

 

Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property of others.

 

The markets in which we will compete are characterized by the existence of a large number of patents and trade secrets and also by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. Also, third parties may make infringement claims against us that relate to technology developed and owned by one of our suppliers for which our suppliers may or may not indemnify us. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations, and determining the extent such of such obligations could require additional litigation. Claims of intellectual property infringement against us or our suppliers might require us to redesign our products, enter into costly settlements or license agreements, pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing or selling our products or services. If we cannot or do not license the infringed intellectual property on reasonable terms or at all, or substitute similar intellectual property from another source, our revenue and operating results could be adversely impacted. Additionally, our customers and distributors may not purchase our offerings if they are concerned that they may infringe third party intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and cause us to incur significant expenses. The occurrence of any of these events may have a material adverse effect on our business, financial condition and operating results.

 

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If we are unable to anticipate consumer preferences and successfully develop attractive products, we might not be able to maintain or increase our revenue or achieve profitability

 

Our success depends on our ability to identify and originate product trends as well as to anticipate and react to change demands and preferences of customers in a timely manner. If we are unable to introduce new products or technologies in a timely manner or our new products or technologies are not accepted by our customers, our competitors may introduce more attractive products which would adversely impact our competitive position. Failure to respond in a timely manner to changing consumer preferences could lead to, among other things, lower revenues and excess inventory positions of outdated products.

 

We may be unable to keep pace with changes in technology as our business and market strategy evolves.

 

We will need to respond to technological advances and emerging industry standards in a cost-effective and timely manner in order to remain competitive. The need to respond to technological changes may require us to make substantial, unanticipated expenditures. There can be no assurance that we will be able to respond successfully to technological change.

 

Risks Related to This Offering and Our Class A Common Stock

 

There has been no public market for our Class A common stock, and an active market may not develop or be sustained, which could limit your ability to sell shares of our Class A common stock.

 

There currently is no public market for our Class A common stock, and our Class A common stock will not be traded in the open market prior to this offering. Although we intend to list the Class A common stock on a national securities exchange in connection with this offering, an adequate trading market for the Class A common stock may not develop or be sustained after this offering. The initial public offering price will be determined by negotiations between the underwriters and our board of directors and may not be representative of the market price at which our shares of Class A common stock will trade after this offering. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price.

 

Future sales of our common stock could adversely affect our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our Class A common stock.

 

We believe that our existing working capital, expected cash flow from operations and other available cash resources will enable us to meet our working capital requirements for at least the next 12 months. However, the development and marketing of new products and the expansion of distribution channels require a significant commitment of resources. From time to time, we may seek additional equity or debt financing to finance working capital requirements, continue our expansion, develop new products or make acquisitions or other investments. In addition, if our business plans change, general economic, financial or political conditions in our industry change, or other circumstances arise that have a material effect on our cash flow, the anticipated cash needs of our business, as well as our conclusions as to the adequacy of our available sources of capital, could change significantly. Any of these events or circumstances could result in significant additional funding needs, requiring us to raise additional capital. If additional funds are raised through the issuance of equity shares, preferred shares or debt securities, the terms of such securities could impose restrictions on our operations and would reduce the percentage ownership of our existing stockholders. If financing is not available on satisfactory terms, or at all, we may be unable to expand our business or to develop new business at the rate desired and our results of operations may suffer.

 

The market price of our Class A common stock may be volatile, which could cause the value of your investment to fluctuate and possibly decline significantly.

 

The market price of our Class A common stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws and market conditions in general could have a significant impact on the future market price of our Class A common stock. You may not be able to resell your shares at or above the current price due to a number of factors such as those listed under “Risk Factors”. Some of the factors that could negatively affect our share price or result in fluctuations in the price of our stock include:

 

  our operating and financial performance and prospects;
     
  our quarterly or annual earnings or those of other companies in our industry;

 

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  the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
     
  changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our Class A common stock or the stock of other companies in our industry;
     
  the failure of analysts to cover our Class A common stock;
     
  strategic actions by us or our competitors, such as acquisitions or restructurings;
     
  announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
     
  new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
     
  changes in accounting standards, policies, guidance, interpretations or principles;
     
  announcements by third parties or governmental entities of significant claims or proceedings against us;
     
  new laws and governmental regulations, or other regulatory developments, applicable to our industry;
     
  changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events;
     
  changes in government spending levels on education;
     
  changes in key personnel;
     
  sales of common stock by us, members of our management team or our stockholders;
     
  the granting or exercise of employee stock options or other equity awards;
     
  the volume of trading in our Class A common stock; and
     
  the realization of any risks described in this section under the caption “Risk Factors.”

 

Furthermore, the stock market has recently experienced volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our actual operating performance.

 

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

 

Purchasers in this offering will experience immediate and substantial dilution in net tangible book value.

 

The initial public offering price per share is expected to be substantially higher than the net tangible book value per share of our outstanding common stock. Purchasers of shares in this offering will experience immediate dilution in the net tangible book value of their shares. Based on an assumed initial public offering price of $    per share, the mid-point of the range set forth on the cover of this prospectus, dilution per share in this offering will be $     per share. See “Dilution.”

 

Our Articles of Incorporation, Bylaws and Nevada law may have anti-takeover effects.

 

Our Articles of Incorporation authorizes the issuance of common stock and preferred stock. Each share of Class A common stock entitles the holder to one vote on all matters to be voted upon by stockholders, and the Class B common stock has no vote, except as required by law. In addition, our board of directors (“Board”) has the authority to issue additional shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The ability of our Board to issue additional shares of preferred stock could make it more difficult for a third party to acquire a majority of our voting stock. Other provisions of our Bylaws also may have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest, which could have an adverse effect on the market price of our Class A common stock.

 

In addition, certain provisions of Nevada law applicable to our company could also delay or make more difficult a merger, tender offer or proxy contest involving our company, including Sections 78.411 through 78.444 of the Nevada Revised Statutes, which prohibit a Nevada corporation from engaging in any business combination with any “interested stockholder” (as defined in the statute) for a period of two years unless certain conditions are met. In addition, our senior management is entitled to certain payments upon a change in control and certain of the stock options and restricted shares we have granted provide for the acceleration of vesting in the event of a change in control of our company.

 

Our Articles of Incorporation include a provision that could make more difficult finding an attorney to bring a stockholder action against us.

 

Our Articles of Incorporation provide that in the case of any derivative litigation or other action by a stockholder against the corporation or any of its directors, officers, accountants, attorneys, financial advisors, or underwriters, in which wrongdoing is alleged for which we could be liable or with respect to which we might have an indemnification obligation, the stockholder’s counsel’s fees may be determined based only upon time expended and reasonable hourly rates, as we agree with the stockholder and its counsel before the action is commenced. This charter provision imposes no obligation on a stockholder, whether a stockholder’s action is unsuccessful, or otherwise, except to negotiate the stockholder’s counsel’s fee rates at the action’s commencement. However, a stockholder may find it more difficult to find counsel willing to be engaged on an hourly, rather than the more customary percentage-of-recovery, basis.

 

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Two trusts hold a significant percentage of our Class A common stock, and their interests may not align with the interests of our other stockholders.

 

The trustees of two family trusts have dispositive and voting power over the Class A common stock formerly owned by Vert Capital totaling approximately 28.7% of our issued and outstanding common stock on a fully diluted basis after giving effect to this offering. This significant concentration of share ownership may adversely affect the trading price of our Class A common stock because investors often perceive a disadvantage in owning shares in a company with one or several controlling stockholders. This concentration of ownership may have the effect of delaying or preventing a change in control of our company which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our Class A common stock. Furthermore, our directors and officers, as a group, have the ability to significantly influence or control the outcome of all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Although our directors owe fiduciary duties to us and our shareholders, including the duties of loyalty, our directors that serve as directors, officers, partners or employees of companies that we do business with also owe fiduciary duties or other obligations to such other companies or to the investors in their funds. The duties owed to us could conflict with the duties such directors owe to these other companies or investors.

 

We will have discretion in applying a portion of the net proceeds of this offering and may not use these proceeds in ways that will enhance the market value of our Class A common stock.

 

Our management will have considerable discretion in the application of the proceeds received by us from this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We may use the net proceeds for corporate purposes that do not improve our profitability or increase our Class A common stock price.

 

We have no intention of declaring dividends in the foreseeable future.

 

The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our Class A common stock should not expect to receive dividend income on their investment, and investors will be dependent on the appreciation of our common stock to earn a return on their investment.

 

If securities or industry analysts do not publish research or reports about us, or if they adversely change their recommendations regarding our Class A common stock, then our stock price and trading volume could decline.

 

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us, our industry and our market. If no analyst elects to cover us and publish research or reports about us, the market for our Class A common stock could be severely limited and our stock price could be adversely affected. In addition, if one or more analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. If one or more analysts who elect to cover us adversely change their recommendations regarding our Class A common stock, our stock price could decline.

 

We will incur increased costs as a result of being a publicly-traded company.

 

As a company with publicly-traded securities, we will incur additional legal, accounting and other expenses. For example, the Sarbanes-Oxley Act of 2002 (or SOX), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules promulgated by the SEC and the national securities exchange on which our Class A Common Stock will be listed require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs.

 

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We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

 

Pursuant to Sarbanes-Oxley Act of 2002, our management will be required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States of America, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

 

If our internal controls and accounting processes are insufficient, we may not detect in a timely manner misstatements that could occur in our financial statements in amounts that could be material.

 

As a public company, we will have to devote substantial efforts to the reporting obligations and internal controls required of a public company, which will result in substantial costs. A failure to properly meet these obligations could cause investors to lose confidence in us and have a negative impact on the market price of our shares. We expect to devote significant resources to the documentation, testing and continued improvement of our operational and financial systems for the foreseeable future. These improvements and efforts with respect to our accounting processes that we will need to continue to make may not be sufficient to ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations in the United States or result in misstatements in our financial statements in amounts that could be material. Insufficient internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares and may expose us to litigation risk.

 

As a public company, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404 of Sarbanes-Oxley, which requires annual management assessments of the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal control over financial reporting, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.

 

For as long as we are an “emerging growth company,” we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to some other public companies. 

 

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:

 

  the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
     
  the last day of the fiscal year following the fifth anniversary of this offering;
     
  the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
     
  the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.

 

For so long as we remain an “emerging growth company”, we will not be required to:

 

  have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
     
  comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis);
     
  submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and
     
  include detailed compensation discussion and analysis in our filings under the Exchange Act and instead may provide a reduced level of disclosure concerning executive compensation.

 

In addition, the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period for complying with new or revised accounting standards. We have elected to take advantage of the extended transition period, which allows us to delay the adoption of new or revised accounting standards until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to public companies that comply with new or revised accounting standards.

 

Because of these exemptions, some investors may find our common stock less attractive, which may result in a less active trading market for our Class A common stock, and our stock price may be more volatile.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from this offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $     million. If the underwriters fully exercise the over-allotment option, the net proceeds of the offering we sell will be approximately $    million.

 

We intend to use the net proceeds of this offering, approximately, as follows:

 

  $2,500,000 to pay a portion of the purchase price for Globisens;
     
  $1,952,000 to pay for ETL shares to be purchased from K Laser International Co., Ltd., a wholly owned subsidiary of K Laser Technology, Inc. (“K Laser”) which is a principal Boxlight stockholder. The purchase price was determined by arms-length bargaining;
     
  approximately $         for research and development of new products;
     
  approximately $         to increase our sales and marketing efforts;
     
  approximately $         to improve inventory management;
     
  approximately $         to build infrastructure, including hiring of additional personnel;
     
  approximately $214,050 to pay the outstanding loans made to us by Vert Capital under a line of credit agreement dated September 30, 2014, that accrue interest at 10% per annum and mature upon the consummation of this offering;
     
  approximately $50,000 to pay in an outstanding to convertible promissory note to Mark Elliott dated January 16, 2015, that accrues interest at 10% per annum, with an option to convert to common stock. This note is due upon consummation of this offering;
     
  approximately $100,000 to pay in an outstanding loan made to us by Sy Silverstein under a line of credit agreement dated April 3, 2015 that accrues interest at 12% per annum and includes a documentation fee of $10,000; and
     
  the balance of approximately $         for working capital and other general corporate purposes.

 

Until we use the net proceeds of the offering, we will invest the funds in short-term, investment grade, interest-bearing securities, or in savings accounts.

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our common stock, and we currently do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate using all of our earnings, if any, for working capital, to support our operations, and to finance the growth and development of our business, including potentially the acquisition of, or investment in, businesses, technologies or products that complement our existing business. Any future determination relating to dividend policy will be made at the discretion of our Board and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, applicable Nevada law, which provides that dividends are only payable out of surplus or current net profits, and other factors our Board might deem relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2015 on:

 

  an actual basis;
     
 

on a pro forma basis after giving effect to (i) the issuance of shares to independent directors and the planned acquisitions of Boxlight, Globisens, and Genesis and the automatic conversion into Class A common stock of preferred stock issued pursuant to such acquisitions upon consummation of this offering; and (ii) conversion into Class A common stock of Series A preferred stock to be offered to holders of LCC - Delaware Series A preferred stock after consummation of this offering; and

     
  on a proforma as adjusted basis giving effect to the foregoing and the sale of      shares of Class A common stock by us in this offering at the initial public offering price of $     per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

   March 31, 2015 
($000’s, except share and per share amounts)  Actual   Pro Forma   Pro Forma,
As Adjusted
 
Stockholders’ Equity:               

Preferred stock, $.0001 par value, 50,000,000 shares authorized, of which none are issued and outstanding, actual, and [_______] are issued and none are outstanding, pro forma and pro forma, as adjusted

               
                

Common Stock, $0.0001 par value, 200,000,000 shares authorized, of which 150,000,000 are Class A common stock and 50,000,000 are Class B common stock; 3,672,884 shares of common stock issued and outstanding, actual, [                  ] shares issued and outstanding, pro forma, [                  ] shares issued and outstanding, pro forma, as adjusted

               
Additional paid-in capital               
Deficit accumulated during the development stage               
Total stockholders’ equity               
Total capitalization               

 

You should read these data in conjunction with the information set forth under “Unaudited Pro Forma Combined Financial Information,” which describes these transactions and the related adjustments in greater detail and our and the acquired companies’ historical financial statements from which the pro forma financial data were derived.

 

The pro forma number of shares of our common stock prior to and to be outstanding immediately after this offering is based on 3,672,884 shares of our Class A common stock outstanding as of March 31, 2015.

 

The pro forma number of shares of our common stock outstanding, as adjusted, after this offering includes:

 

 

in connection with the acquisition of Boxlight, 1,797,346 shares of our Class A common stock to be issued to the Boxlight shareholders, upon consummation of this offering, or such other number of shares as shall represent the greater of $16,460,000, divided by the initial per share offering price of our Class A common stock, issuable upon automatic conversion of 270,000 shares of Series C Preferred Stock, or 20.57% of our fully-diluted common stock before giving effect to this offering; and 143,788 bonus shares of Class A common stock that will be issued to senior Boxlight management and employees.

     
 

in connection with the acquisition of Globisens, 300,208 shares of Class A common stock issued to the former stockholders of Globisens or such other number of shares as represents at least 3.437% of our fully-diluted Class A common stock before giving effect to this offering;

     
  in connection with the acquisition of Genesis, 348,321 shares of Class A common stock issued to the former members of Genesis upon conversion of their 1,000,000 shares of Series B Preferred Stock or such other number of shares as represents 4.0% of our fully-diluted common stock before giving effect to this offering; and
     
  358,680 shares of our Class A common stock issuable upon conversion of Series A preferred stock, that we will offer to the holders of Series A preferred stock of LCC - Delaware.

 

The pro forma number of shares of our common stock outstanding, as adjusted, after this offering excludes:

 

 

785,824 shares of Class B common stock issuable upon exercise of options granted under the 2014 Stock Incentive Plan and 714,176 additional shares reserved for issuance thereunder.

     
 

738,881 shares of Class A common stock issuable upon exercise of outstanding warrants with an exercise price equal to 110% of the initial per share offering price of shares offered to the public in this offering.

     
 

436,758 shares of Class B common stock issuable upon exercise of stock options granted under the EDI Option Plan.

     
              shares of Class A common stock issuable upon the exercise of the underwriters’ over-allotment option.
     
 

[   ] shares of Class A common stock issuable upon exercise of the Representative’s Warrants.

 

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DILUTION

 

Purchasers of our Class A common stock in this offering will experience an immediate dilution to the extent of the difference between the initial public offering price and the pro forma, as adjusted, net tangible book value per share immediately after this offering.

 

After giving effect to the sale of our Class A common stock in this offering at an assumed initial public offering price of $     per share (the mid-point of the range set forth on the cover page of this prospectus) and after deducting the underwriting discount and estimated offering expenses payable by us our pro forma, as adjusted, net tangible book value at March 31, 2015 would have been $     million or $     per share. This represents an immediate increase in pro forma, as adjusted, net tangible book value per share of $      to the existing stockholders (including Boxlight and Globisens stockholders) and dilution in pro forma, as adjusted, net tangible book value per share of $      to new investors who purchase shares in the offering. The following table illustrates this per share dilution to new investors:

 

Assumed public offering price per shares  $ 
Pro forma, as adjusted, net tangible book value per share as of March 31, 2015.   
Increase in pro forma, as adjusted, net tangible book value per share attributable to the offering    
Pro forma, as adjusted, net tangible book value per share as of March 31, 2015, after giving effect to the offering    
Dilution per share to new investors  $ 

 

A $    increase (decrease) in the assumed public offering price of $    per share of our Class A common stock would increase (decrease) our pro forma, as adjusted, net tangible book value by approximately $    and dilution per share to new investors by approximately $     , assuming that the number of shares of Class A common stock offered by us, remains the same. A     increase (decrease) in the number of shares of Class A common stock offered by us would increase (decrease) our pro forma, as adjusted, net tangible book value by approximately $     million and dilution per share to new investors by approximately $     .

 

27
 

 

unaudited PRO FORMA COMBINED FINANCIAL INFORMATION

 

We prepared the following unaudited pro forma combined financial statements by applying certain pro forma adjustments to the historical consolidated financial statements of Boxlight Corporation (“Boxlight Parent”). The pro forma adjustments give effect to the following transactions (the “Transactions”):

 

  Our planned acquisition of the assets of Everest Display Inc. and its subsidiaries (“Boxlight”),
     
  Our planned acquisition of the assets of Globisens, Ltd. (“Globisens”), and
     
  Our planned acquisition of the assets of Genesis Collaboration, LLC. (“Genesis”).

 

The unaudited pro forma combined statement of operations for the year ended December 31, 2014 and for the three months ended March 31, 2015 gives effect to the Transactions as if each of them had occurred on January 1, 2014. The unaudited pro forma combined balance sheet as of March 31, 2015 gives effect to the Transactions as if each of them had occurred on March 31, 2015.

 

These pro forma combined financial statements include adjustments for our planned acquisitions because we believe each of these acquisitions is probable under the standards of Rule 3-05 of Regulations S-X. The results of all significant business to be acquired upon consummation of the IPO are shown for the periods prior to their acquisition by Boxlight Parent.

 

We determined that each acquisition shown involved the acquisition of a business, considering the guidance in Rule 11-01 (d) of Regulation S-X, and individually, as well as in aggregate, met the significance test of Rule 3-05 of Regulation S-X.

 

The historical financial statements of Boxlight, Globisens and Genesis (“Target Sellers”), whose acquisition is planned, appear elsewhere in this prospectus.

 

We have based the pro forma adjustments upon available information and certain assumptions that we believe are reasonable under the circumstances. We describe in greater detail the assumptions underlying the pro forma combined financial statements in the notes to the unaudited pro forma combined financial statements. In many cases, we based these assumptions on preliminary information and estimates. The actual adjustments to our pro forma combined financial statements will depend upon a number of factors and additional information that will be available on or after the closing date of this offering. Accordingly, the actual adjustments that will appear in our financial statements will differ from these pro forma adjustments, and those differences may be material.

 

We account for our proposed acquisitions of Boxlight and Globisens using the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America, with Boxlight Parent being considered the acquiring entity. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, net of liabilities, based on their estimated fair values as of the acquisition date. We have not completed the acquisition of Boxlight and Globisens, and therefore, the estimated purchase price and fair value of those Target Sellers’ assets to be acquired and liabilities assumed is preliminary. Once we complete our final valuation process for our planned acquisitions, we may report changes to the value of the assets acquired and liabilities assumed, as well as the amount of goodwill, and those changes could differ materially from what we present here. For our planned acquisition of Genesis, management has made the determination that the acquisition should be accounted for as an entity under common control, and the assets and liabilities will be recorded at Genesis’ book values on the acquisition date.

 

These unaudited pro forma combined financial statements do not purport to represent what our results of operations or financial condition would have been had the Transactions actually occurred on the assumed dates, nor do they purport to project our results of operations or financial condition for any future period or future date. You should read these unaudited pro forma combined financial statements in conjunction with “Capitalization,” “Selected Historical Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical financial statements, including the related notes thereto, appearing elsewhere in this prospectus.

 

28
 

 

Boxlight Corporation

(f/k/a Logical Choice Corporation)

Unaudited Pro Forma Combined Statement of Operations

For the Three Months Ended March 31, 2015

 

(in thousands, except share
and per share data)
  Boxlight   Globisens   Genesis   Planned
Acquisition
Subtotal
   Boxlight
Parent
   Pro Forma
Adjustments  (10)
   Pro Forma
Combined
 
                             
Revenues  $5,190   $834   $223   $6,247   $-   $(41)(1)  $6,206 
Cost of revenues   4,232    729    134    5,095    -    (41)(1)   5,054 
Gross profit   958    105    89    1,152    -    -    1,152 
                                    
Operating expenses:                                   
General and administrative   1,291    99    230    1,620    251    158(2)   2,029 
Research and development   252    40    -    292    -    -    292 
Depreciation and amortization   81    25    -    106    -    186(3)   292 
Total operating expenses   1,624    164    230    2,018    251    344    2,613 
                                    
Loss from operations   (666)   (59)   (141)   (866)   (251)   (344)   (1,461)
                                    
Other income (expense):                                   
Interest expense   (88)   (1)   (11)   (100)   (9)   -    (109)
Other income, net   (34)   -    1    (33)   -    -    (33)
Total other income (expense)   (122)   (1)   (10)   (133)   (9)   -    (142)
                                    
Loss before income taxes   (788)   (60)   (151)   (999)   (260)   (344)   (1,603)
Income tax expense   -    (2)   -    (2)   -    -    (2)
Net loss   (788)   (62)   (151)   (1,001)   (260)   (344)   (1,605)
Net loss attributable to non-controlling interests   132    -    -    132    -    215    347 
                                    
Net loss attributable to company  $(656)  $(62)  $(151)  $(869)  $(260)  $(129)  $(1,258)
                                    
Net loss per common share- basic and diluted                      $(0.07)       $(0.04)
Weighted average number of common shares outstanding - basic                       3,672,884    4,089,663(9)   7,762,547 

 

29
 

 

Boxlight Corporation

(f/k/a Logical Choice Corporation)

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2014

 

(in thousands, except share
and per share data)
  Boxlight   Globisens   Genesis   Planned
Acquisition
Subtotal
   Boxlight
Parent
   Pro Forma
Adjustments(10)
   Pro Forma
Combined
 
                             
Revenues  $24,898   $1,814   $2,903   $29,615   $-   $(330)(1)  $29,285 
Cost of revenues   18,775    1,056    2,237    22,068    -    (330)(1)   21,738 
Gross profit   6,123    758   666    7,547    -    -    7,547 
                                    
Operating expenses:                                   
General and administrative   5,703    459    1,065    7,227    668    631(2)   8,526 
Research and development   1,105    188    -    1,293    -    -    1,293 
Depreciation and amortization   339    90    -    429    -    726(3)   1,155 
Total operating expenses   7,147    737    1,065    8,949    668    1,357    10,974 
                                    
Income (loss) from operations   (1,024)   21    (399)   (1,402)   (668)   (1,357)   (3,427)
                                    
Other income (expense):                                   
Interest expense   (296)   -    (13)   (309)   (7)   -    (316)
Other income, net   190    -    -    190    -    -    190 
Total other income (expense)   (106)   -    (13)   (119)   (7)   -    (126)
                                    
Income (loss) before income taxes   (1,130)   21    (412)   (1,521)   (675)   (1,357)   (3,553)
Income tax expense   (3)   (5)   -    (8)   -    -    (8)
Net income (loss)   (1,133)   16    (412)   (1,529)   (675)   (1,357)   (3,561)
Net loss attributable to non-controlling interests   97    -    -    97    -    494    591 
                                    
Net income (loss) attributable to Company  $(1,036)  $16   $(412)  $(1,432)  $(675)  $(863)  $(2,970)
                                    
Net loss per common share- basic and diluted                      $(0.21)       $(0.41)
Weighted average number of common shares outstanding – basic                       3,218,146    4,089,663(9)   7,307,809 

 

30
 

 

Boxlight Corporation

(f/k/a Logical Choice Corporation)

Unaudited Pro Forma Combined Balance Sheet

As of March 31, 2015

 

(in thousands)  Boxlight   Globisens   Genesis   Planned
Acquisition
Subtotal
   Boxlight
Parent
  

Pro Forma

For
Acquisitions(10)

   IPO Proceeds(8)   Pro Forma
Combined
 
ASSETS                                        
Current assets:                                        
Cash and cash equivalents  $5,916   $576   $42   $6,534   $1   $(2,500)(4)  $13,000   $17,035 
Restricted cash   1,456    28    -    1,484    -    -    -    1,484 
Accounts receivable – trade, net   4,666    344    159    5,169    -    (299)(1)   -    4,870 
Accounts receivable – related party   -    -    66    66    -    (66)(1)   -    - 
Inventories, net of reserves   7,286    154    -    7,440    -    -    -    7,440 
Other current assets   1,568    94    22    1,684    -    -    -    1,684 
Total current assets   20,892    1,196    289    22,377    1    (2,865)   13,000    32,513 
                                         
Property, plant & equipment, net   1,178    428    -    1,606    -    -    -    1,606 
Intangible assets   251    -    -    251    -    13,933(5)   -    14,184 
Goodwill   -    -    -    -    -    9,962(6)   -    9,962 
Other assets   196    -    10    206    50    (50)   -    206 
Total assets  $22,517   $1,624   $299   $24,440   $51   $20,980   $13,000   $58,471 
                                         
LIABILITIES AND EQUITY                                        
Current liabilities:                                        
Accounts payable and accrued expenses  $2,869   $114   $777   $3,760   $563   $(365)(1)  $-   $3,958 
Short-term debt   9,635    -    45    9,680    449    -    -    10,129 
Current portion of long-term debt   1,951    -    -    1,951    -    -    -    1,951 
Other short-term liabilities   88    100    4    192    -    -    -    192 
Total current liabilities   14,543    214    826    15,583    1,012    (365)   -    16,230 
                                         
Long-term debt, net of current portion   1,118    -    50    1,168    -    (50)   -    1,118 
Other liabilities   303    62    -    365    -    -    -    365 
Total non-current liabilities   1,421    62    50    1,533    -    (50)   -    1,483 
Total liabilities   15,964    276    876    17,116    1,012    (415)   -    17,713 
                                         
Equity:                                        
Common stock, authorized, issued and outstanding   10,692    -    -    10,692    3    (10,692)(7)   -    3 
Additional paid-in capital   846    588    42    1,476    (25)   20,361(7)   13,000    34,812 
Retained earnings (accumulated deficit)   (8,701)   862    (619)   (8,458)   (936)   8,458(6)   -    (936)
Shareholder receivable   -    -    -    -    (3)   -    -    (3)
Accumulated other comprehensive income   426    (102)   -    324    -    (324)(6)   -    - 
Equity attributable to non-controlling interests   3,290    -    -    3,290    -    3,592(6)   -    6,882 
Total equity   6,553    1,348    (577)   7,324    (961)   21,395    13,000    40,758 
Total liabilities and equity  $22,517   $1,624   $299   $24,440   $51   $20,980   $13,000   $58,471 

 

31
 

 

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

In connection with our planned acquisition of the Target Sellers, we have entered into acquisition agreements for the following companies:

 

  Boxlight and its subsidiaries
     
  Globisens
     
  Genesis

 

(1) Basis of Presentation – The pro forma adjustments to revenues, cost of revenues, accounts receivable – trade, net, accounts receivable – related party and accounts payable and accrued expenses eliminate transactions among Boxlight, Globisens and Genesis.

 

(2) Stock Option Expense – We account for stock-based compensation using the fair value method, which requires the measurement and recognition of compensation expense for all share-based payment awards based on their estimated fair values. This method requires companies to estimate the fair value of stock-based compensation on the date of grant using an option pricing model. We use the Black-Scholes option pricing model to measure stock-based compensation. The Black-Scholes model determines the fair value of share-based payment awards based on the fair value of the underlying common stock on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the fair value of the underlying common stock, expected volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The assumptions used in calculating the fair value of the stock-based awards represent management judgment. As a result, if factors change and different assumptions are used, the stock-based compensation expense could be materially different in the future. Compensation expense relating to employee stock awards is recorded on a straight-line basis.

 

Determining the fair value of stock-based awards on the grant date requires the use of estimates and assumptions, including the fair value of our common stock, exercise price of the stock option, expected volatility, expected life, risk-free interest rate and dividend rate. We estimate the expected volatility of our stock options by taking the average historical volatility of a group of comparable publicly traded companies over a period equal to the expected life of the options. As a result, we used the simplified method, as provided under SAB Topic 14.D, “Share-Based Payment,” to calculate the expected term estimate based on the options’ vesting terms and contractual terms. The risk-free interest rate is the estimated average interest rate based on U.S. Treasury zero-coupon notes with terms consistent with the expected life of the awards. The expected dividend yield is zero as we do not anticipate paying any recurring cash dividends in the foreseeable future.

 

According to our amended and restated agreement with Boxlight, effective October 31, 2014, we will grant the employees of Boxlight 10-year options to purchase 436,758 shares, which represent on an aggregate basis 5% of the fully-diluted common stock of our Class B common shares, with an exercise price of $10.00 per share. These options vests annually in equal installments over a 4-year period commencing one year after the closing date of our acquisition of Boxlight. The grant date fair value of the options of $3,153,638 was determined utilizing Black-Scholes option pricing model with the following assumptions:

 

Options    
Grant date fair value  $10.00 
Interest rate   2.07%
Expected life (in years)   6.25 
Volatility   83.48%
Expected dividends  $- 

 

For the year ended December 31, 2014, the pro forma adjustment for the option expense was $631,000. For the three months ended March 31, 2015, the pro forma adjustment for the option expense was $158,000.

 

32
 

 

(3) Amortization of Intangible Assets – We amortize intangible assets over their estimated useful lives. We based the estimated useful lives of acquired intangible assets on the amount and timing in which we expect to receive an economic benefit. We assigned these intangible assets a useful life of 10 years based upon a number of factors, including contractual agreements, consumer awareness and economic factors (including known technological advances, effects of obsolescence, demand, competition, and the period of expected future cash flow that would be associated with the intangibles) pertaining to the combined companies. We believe the level of consumer awareness of our products will contribute to the continuation of purchases stemming from the customer relationships we will obtain in these acquisitions.

 

The estimates of fair value and weighted-average useful lives could be impacted by a variety of factors including legal, regulatory, contractual, competitive, economic or other factors. Increased knowledge about these factors could result in a change to the estimated fair value of these intangible assets and/or the weighted-average useful lives from what we have assumed in these unaudited pro forma combined financial statements. In addition, the combined effect of any such changes could result in a significant increase or decrease to the related amortization expense estimates.

 

The amortization of intangible assets of our planned acquisitions assumes that the assets were acquired on January 1, 2014 and amortized over the period associated with the statement of operations. For the year ended December 31, 2014, the pro forma adjustment for the amortization expenses related to intangibles acquired was $726,000. For the three months ended March 31, 2015, the pro forma adjustment for the amortization expenses related to intangibles acquired was $186,000.

 

(4) Cash Consideration – The pro forma adjustment to cash reflects the cash we expect to pay in connection with our planned acquisitions.

 

   Acquisition Cash 
(in thousands)  Consideration 
Pro forma adjustment to cash:     
Boxlight acquisition  $- 
Globisens acquisition   2,500 
Genesis acquisition   - 
Total net pro forma adjustments to cash  $2,500 

 

(5) Intangible Assets – We based our preliminary estimates of each intangible asset type/category that we expect to recognize as part of the planned acquisitions on the nature of the businesses and the contracts that we have entered into with the Target Sellers. We also based our estimate of Boxlight on the preliminary work prepared by a third party valuation specialist. However, all of these estimates are preliminary, as we have not completed these acquisitions or analyzed all the facts surrounding the businesses to be acquired and therefore have not been able to finalize the accounting for these transactions.

 

The figures set forth below reflect the preliminary fair value of intangible assets of the businesses we plan to acquire, and their estimated useful lives. All preliminary estimates for the fair value of intangibles will be refined once the offering is completed and the final list of customers acquired is known.

 

Fair Value Adjustment to Intangible Assets of Planned Acquisitions

 

           Total    
           Planned   Estimated
(in thousands)  Boxlight   Globisens   Acquisitions   Useful Life
Trademarks  $4,073   $1,061   $5,134   Indefinite
Patents   2,883    663    3,546   10 years
Customer related   4,324    929    5,253   10 years
Total intangible assets  $11,280   $2,653   $13,933    

 

33
 

 

(6) Purchase Price Allocation – We recognize the assets and liabilities acquired at their fair value on the acquisition date, and if there is any excess in purchase price over these values it will be allocated to goodwill. Stock offering price is assumed to be $10 per share. We determined our stock offering price to be $10 per share based on an $80 million valuation of the Company (assuming the acquisitions were completed) provided to us by the underwriters and our total shares outstanding in the amount of 7,996,768 on a pro forma and fully diluted basis. If the actual valuation differs from the $80 million valuation provided by our underwriters, the difference could materially impact our pro forma presentation. We are using the $80 million valuation as our best estimate of calculating the purchase price for the acquisitions. A difference in our valuation would change the amount of goodwill created under the proposed transactions. If the valuation goes up goodwill will increase and if the valuation goes down goodwill will decrease. There are no other impacts to the pro forma financial statements.

 

We engaged a third-party valuation specialist to assist us in valuing the assets acquired and liabilities assumed for the Boxlight and Globisens acquisitions. The preliminary study is complete, and the assumptions will be updated on the consummation of the initial public offering. For our planned acquisition of Genesis, management has made the determination that the acquisition should be accounted for as an entity under common control, and the assets and liabilities will be recorded at their book values on the acquisition date.

  

The following table shows the preliminary purchase prices, estimated acquisition-date fair values of the to-be-acquired assets and liabilities assumed and calculation of goodwill for the businesses we plan to acquire as of March 31, 2015, the date of our most recent balance sheet.

 

Assets acquired:

 

(in thousands)  Boxlight   Globisens 
Current assets  $20,892   $1,196 
Property, plant and equipment   1,178    428 
Intangible assets   11,531    2,653 
Other assets   196    - 
Goodwill   8,460    1,502 
Total assets   42,257    5,779 
Total liabilities   (15,964)   (276)
           
Net assets   26,293    5,503 
Fair value of non-controlling interest   (6,882)   - 
Net assets acquired  $19,411   $5,503 

 

Consideration paid:

 

(in thousands, except share and per share data)  Boxlight   Globisens 
1,941,134 shares issued at $10.00 per share to acquire 82.3% of the outstanding ownership of Boxlight  $19,411   $- 
300,208 shares issued at $10.00 per share to acquire Globisens   -    3,003 
Cash   -    2,500 
Consideration paid  $19,411   $5,503 

 

The preliminary estimate of equity consideration to be transferred is based on an aggregate value of equity, as stated in the share purchase agreements, at the price of our common stock to be sold in this offering (currently assumed to be $10 per share). The number of shares that will be issued in connection with those acquisitions will be fixed shortly before closing of this offering. The total equity value for each acquisition will be determined at the time of closing, based on the fixed number of shares and the actual offering price. The amount of goodwill, if any, on the date of the acquisitions will vary based on the actual price of the offering.

 

34
 

 

(7) Issuance of our Common Shares in Exchange for Shares of Companies Acquired – Adjustment reflects the elimination of equity accounts of companies acquired and the issuance of 2,589,663 shares at the price of our common stock to be sold in this offering (currently assumed at $10 per share). Adjustment also reflects the adjustment to non-controlling interest as a result of the proposed acquisitions. We are issuing an aggregate of 2,589,663 shares in connection with the Transaction based upon an $80 million valuation of the Company (assuming the acquisitions were completed) and the percentage of the total Company ownership to be issued pursuant to the previously negotiated agreements in each acquisition. Details of shares to be issued are as follows:

 

Shares to be issued to  Shares 
Boxlight   1,941,134 
Globisens   300,208 
Genesis   348,321 
Total shares   2,589,663 

 

Shares to be issued to Boxlight include 1,797,346 shares to Boxlight’s shareholders and 143,788 shares for Employee Transaction Bonus Shares as defined the share purchase agreement with Boxlight. Employee Transaction Bonus Shares are to be issued to Boxlight shareholders’ representative and to be allocated among Boxlight employees by Boxlight shareholders’ representative in its sole discretion.

 

Shares to be issued to Globisens and Genesis equal to 3.437% and 4.0%, respectively, of the fully diluted common shares that would be outstanding after giving effect to the acquisitions of Boxlight, Globisens and Genesis.

 

(8) Cash Received from IPO – We assume our net proceeds from the offering will be $13 million after deducting underwriting discounts and commissions of $1.0 million and estimated offering expenses payable by us totaling $1.0 million.

 

(9) Weighted Average Outstanding Shares – On a pro forma basis, we consider all shares to be issued in connection with the acquisitions of Boxlight, Globisens and Genesis transactions to have been issued and outstanding at the beginning of the periods presented. Following is a breakdown for all shares to be issued to different parties pursuant to the Transaction:

 

   For the Three Months Ended March 31, 2015   For the Year Ended December 31, 2014 
Boxlight shareholders   1,941,134    1,941,134 
Globisens shareholders   300,208    300,208 
Genesis members   348,321    348,321 
Shares issued for cash to public offering investors   1,500,000    1,500,000 
Total shares to be issued   4,089,663    4,089,663 
Boxlight Corporation’s Weighted Average Outstanding Shares   3,672,884    3,218,146 
Pro forma Weighted Average Outstanding Shares   7,762,547    7,307,809 

 

These share amounts have been calculated based on the percentages of total fully diluted outstanding shares immediately after the completion of the acquisitions each party would receive based on the results of our negotiation with each party. Total fully diluted outstanding shares immediately after the completion of the proposed acquisitions is temporarily assumed to be 7,996,768 shares for pro forma disclosure purposes and will be updated to the final result when the offering price is set. The fully diluted outstanding shares include all shares issued and outstanding for the planned acquisitions and for cash, shares issuable upon exercise of warrants and options previously granted by Boxlight Parent that would have a dilutive effect and stock options to be granted to Boxlight’s employees according to the purchase agreement between Boxlight and Boxlight Parent.

 

(10) We have not reflected any pro forma adjustments to reflect the tax impact of the pro forma adjustments, as we believe that the tax impact would not be material.

 

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 pro forma operations, we supplement our consolidated financial statements presented on a basis consistent with U.S. generally accepted accounting principles, or GAAP, with EBITDA, a non-GAAP financial measure of earnings. EBITDA represents net income before income tax expense (benefit), interest income, interest expense, depreciation and amortization. Our management uses EBITDA as a financial measure to evaluate the profitability and efficiency of our business model. We use this non-GAAP financial measure to access 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. We find this especially useful when reviewing pro forma results of operations, which include large non-cash amortizations of intangibles assets from acquisitions. Investors should consider our non-GAAP financial measure in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

 

35
 

 

The following table contains a reconciliation of net loss to EBITDA:

 

Reconciliation of net loss for the three months ended

March 31, 2015 to EBITDA

 

(in thousands)  Boxlight   Globisens   Genesis   Subtotal   Boxlight
Parent
   Pro Forma
Adjustments
   Pro
Forma
Combined
 
Net income (loss)  $(656)  $(62)  $(151)  $(869)  $(260)  $(129)  $(1,258)
Depreciation and amortization   81    25    -    106    -    186    292 
Interest expense   88    1    11    100    9    -    109 
Income tax   -    2    -    2    -    -    2 
EBITDA  $(487)  $(34)  $(140)  $(661)  $(251)  $57   $(855)

 

Reconciliation of net income (loss) for the year ended

December 31, 2014 to EBITDA

 

(in thousands)   Boxlight     Globisens     Genesis     Subtotal     Boxlight
Parent
    Pro Forma
Adjustments
    Pro Forma
Combined
 
Net income (loss)   $ (1,036 )   $ 16     $ (412 )   $ (1,432 )   $ (675 )   $ (863 )   $ (2,970 )
Depreciation and amortization     339       90       -       429       -       726       1,155  
Interest expense     296       -       13       309       7       -       316  
Income tax     3       5       -       8       -       -       8  
EBITDA   $ (398 )   $ 111     $ (399 )   $ (686 )   $ (668 )   $ (137 )   $ (1,491 )

 

Our management also uses Adjusted EBITDA as a financial measure to evaluate the profitability and efficiency of our business model. We use this non-GAAP financial measure to access 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. We find this especially useful when reviewing pro forma results of operations, which include large non-cash amortization of intangibles assets from acquisitions. We also exclude non-recurring IPO expenses and stock option expense when determining our adjusted EBITDA. Investors should consider our non-GAAP financial measure in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

 

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The following table contains a reconciliation of net loss to Adjusted EBITDA.

 

Reconciliation of net loss for the three months ended

March 31, 2015 to Adjusted EBITDA

 

(in thousands)  Boxlight   Globisens   Genesis   Subtotal   Boxlight
Parent
   Pro Forma
Adjustments
   Pro
Forma
Combined
 
Net income (loss)  $(656)  $(62)  $(151)  $(869)  $(260)  $(129)  $(1,258)
Depreciation and amortization   81    25    -    106    -    186    292 
Interest expense   88    1    11    100    9    -    109 
Income tax   -    2    -    2    -    -    2 
Stock option expense   -    -    -    -    -    158    158 
Non-recurring IPO expenses   -                219        219 
Adjusted EBITDA  $(487)  $(34)  $(140)  $(661)  $(32)  $215   $(478)

 

Reconciliation of net income (loss) for the year ended

December 31, 2014 to Adjusted EBITDA

 

(in thousands)  Boxlight   Globisens   Genesis   Subtotal   Boxlight
Parent
   Pro Forma
Adjustments
   Pro Forma
Combined
 
Net income (loss)  $(1,036)  $16   $(412)  $(1,432)  $(675)  $(863)  $(2,970)
Depreciation and amortization   339    90    -    429    -    726    1,155 
Interest expense   296    -    13    309    7    -    316 
Income tax   3    5    -    8    -    -    8 
Stock option expense   -    -    -    -    -    631    631 
Non-recurring IPO expenses                   400        400 
Adjusted EBITDA  $(398)  $111   $(399)  $(686)  $(268)  $494   $(460)

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain forward-looking statements. 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. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in “Risk Factors.” 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.

 

Basis of presentation

 

The unaudited pro forma financial information, presented under Management Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 2015 and for the year ended December 31, 2014 give effect to Boxlight Parent’s acquisitions of Boxlight, Genesis and Globisens, as if each of them had occurred on January 1, 2014. Transactions between Boxlight, Genesis and Globisens have been eliminated.

 

Overview

 

We are a visual display technology company that is seeking to become a world leading innovator, manufacturer and integrator of interactive products for schools, as well as for business and government conferencing. We currently design, produce and distribute interactive projectors and distribute 70” HD and 84” 4k interactive LED flat panels in the education market. We also design, produce and distribute science, technology, engineering and math (or “STEM”) data logging products to the educational market.

 

To date, we have generated substantially all of our revenue from the sale of our expanding product line of projectors, LED panels, interactive whiteboards and display devices to the educational market.

 

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.

 

As a result, we believe that an analysis of the historical costs and expenses of our Target Sellers prior to their acquisition will not provide guidance as to the anticipated results after acquisition. We anticipate that we will be able to achieve significant reductions in our costs of revenue and selling, general and administrative expenses from the levels currently incurred by the Target Sellers operating independently, thereby increasing our EBITDA and cash flows.

 

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Key business metrics

 

In addition to the measures presented in our pro forma combined financial statements, we use the following key metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.

 

(in thousands) 

Three months ended

March 31, 2015

  

Year ended

December 31, 2014

 
Key business metrics:          
Projectors and peripheral units shipped   6,670    50,103 
Adjusted EBITDA  $(912)  $(1,354)

 

Units shipped. Units shipped represents the number of individual units that are shipped during a reporting period, net of any returns. We carry a variety of projectors and other peripherals which vary by model. We monitor units shipped on a monthly basis, as it is a key indicator of revenue trends for a reporting period. We use units shipped to help optimize our fulfillment operations and shipment allocations to better maintain operating efficiencies and improve customer satisfaction.
   
 Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted after excluding the impact of: provision (benefit) for income taxes, interest income, interest expense, depreciation and amortization, non-recurring IPO expense, and stock option expense. We will use Adjusted EBITDA as a key measure to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

 

Components of our Results of Operations and Financial Condition

 

Revenue

 

Our revenue is comprised of product revenue, installation revenue and professional development revenue.

 

  Product revenue. Product revenue is derived from the sale of our 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.
     
  Installation and professional development. We receive revenue from installation and professional development that we outsource to third parties.

 

Cost of revenue

 

Our cost of revenue is comprised of the following:

 

  internal manufacturing costs;
     
  manufacturing costs of our products payable to third-party contract manufacturers;
     
  third-party logistics costs;
     
  costs to purchase components and finished goods directly;
     
  inbound and outbound freight costs and duties;
     
  costs associated with the repair of products under warranty; and
     
  write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts.

 

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In addition to manufacturing a portion of our product, we also outsource our warehouse operations and order fulfillment and some of our manufacturing to third parties. Our product costs will vary directly with volume and based on 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.

 

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 three categories: research and development, general and administrative and depreciation and amortization.

 

Research and development. Research and development expense consists primarily of personnel related costs, which include salaries in addition to costs attributable to product design, test, patent, facilities and information technology. Over time, we expect our research and development expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings. Research and development 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. We have three divisions in our research and development department, each focusing on different areas of expertise:

 

  Division one focuses on developing new products and current product improvements, including both hardware and optical coding software;
     
  Division two is the idea pool that has been the source of two patents, including the clamp style audio speaker system and our external interactive module.
     
  Division three focuses on related technologies to allow for cross platform integration and ease of use for our end customers.

 

General and administrative. General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of professional services, such as accounting and legal, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increase in absolute dollars following the completion of this offering due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company. 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.
   
Depreciation and amortization. Depreciation and amortization expense consists of depreciation on our property, plant and equipment and amortization expense on our intangibles.

 

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Other income (expense), net

 

Other income (expense), net consists of interest expense associated with our debt financing arrangements and interest income earned on our cash and investment balances. We do not utilize derivatives to hedge our foreign exchange risk, as we believe the risk to be immaterial to our results of operations.

 

Income tax expense

 

We are subject to income taxes in the United States, Taiwan and other foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those 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.

 

Statements of Operations

 

The following table sets forth the components of our unaudited pro forma combined statements of operations for the periods presented (dollars in thousands).

 

   Three Months Ended
March 31, 2015
  

% of

Revenue

  

Year Ended
December 31, 2014

  

% of

Revenue

 
Revenues  $6,206    100.00%  $29,285    100.00%
Cost of Revenue   5,054    81.44%   21,738    74.23%
Gross Profit   1,152    18.56%   7,547    25.77%
                     
Operating expenses:                    
General and administrative expenses   2,029    32.68%   8,526    29.11%
Research and development   292    4.71%   1,293    4.42%
Depreciation and amortization   292    4.71%   1,155    3.94%
Total operating expenses   2,613    42.10%   10,974    37.47%
                     
Loss from operations   (1,461)   (23.54)%   (3,427)   (11.70)%
                     
Other income (expense), net   (142)   (2.27)%   (126)   (0.43)%
Loss before income taxes   (1,603)   (25.81)%   (3,553)   (12.13)%
Income tax expense   (2)   (0.03%)   (8)   (0.03)%
Net loss  $(1,605)   (25.85)%  $(3,561)   (12.16)%

 

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Pro forma results for the three months ended March 31, 2015

 

Revenue. Total revenue for the three months ended March 31, 2015 was $6.2 million. Revenue consists of product revenue and installation and professional development.

 

Cost of Revenue. Cost of revenue for the three months ended March 31, 2015 was $5 million. Cost of revenue consists primarily of product cost, labor and overhead and freight expenses directly related to the manufacture of products.

 

Gross Profit. Gross profit was $1.1 million for the three months ended March 31, 2015.

 

   Three months ended 
   March 31, 2015 
       % of 
(dollars in thousands)  Amount   Revenue 
General and administrative  $2,029    32.68%
Research and development   292    4.71%
Depreciation and amortization   292    4.71%
Total operating expenses  $2,613    42.10%

 

General and Administrative Expense. General and administrative expense for the three months ended March 31, 2015 was $2.0 million. General and administrative expense includes sales and marketing expense, which primarily consists of personnel costs, sales commission, travel, information technology, facilities, and professional service fees. General and administrative personnel include our executive, finance and human resources. Professional services fees primarily consist of legal, accounting and consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company, while our general and administrative expense as a percentage of total revenue may fluctuate. We expect the percentage of total revenue to decrease over the long term.

 

Research and Development Expense. Research and development expense was $292,000 for the three months ended March 31, 2015. Research and development expense primarily consists of costs associated with the development of proprietary technology.

 

Depreciation and Amortization Expense. Depreciation and amortization expense was $292,000 for the three months ended March 31, 2015. Depreciation and amortization are generated from our fixed and intangible assets.

 

   Three months ended 
   March 31, 2015 
       % of 
(dollars in thousands)  Amount   Revenue 
Other income (expense), net  $(142)   (2.27)%
Income tax expense   (2)   (0.03)%

 

Other income (expense), net. Other income (expense), net for the three months ended March 31, 2015 was $142,000. Other income (expense), net is comprised of interest expense and gain from investment in marketable securities.

 

Income tax expense. Income tax expense for the three months ended March 31, 2015 was $2,000.

 

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Pro forma results for the Year Ended December 31, 2014

 

Revenue. Total revenue for the year ended December 31, 2014 was $29.3 million. Revenue consists of product revenue and installation and professional development.

 

Cost of Revenue. Cost of revenue for the year ended December 31, 2014 was $21.7 million. Cost of revenue consists primarily of product cost, labor and overhead and freight expenses directly related to the manufacture of products.

 

Gross Profit. Gross profit was $7.5 million for the year ended December 31, 2014.

 

    Year ended December 31,  
    2014  
          % of  
(dollars in thousands)   Amount     Revenue  
General and administrative   $ 8,526       29.11 %
Research and development     1,293       4.42 %
Depreciation and amortization     1,155       3.94 %
Total operating expenses   $ 10,974       37.47 %

 

General and Administrative Expense. General and administrative expense for the year ended December 31, 2014 was $8.5 million. General and administrative expense includes sales and marketing expense, which primarily consists of personnel costs, sales commission, travel, information technology, facilities, and professional service fees. General and administrative personnel include our executive, finance and human resources. Professional services fees primarily consist of legal, accounting and consulting costs. We expect general and administrative expense to increase in absolute dollars due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company, while our general and administrative expense as a percentage of total revenue may fluctuate. We expect the percentage of total revenue to decrease over the long term.

 

Research and Development Expense. Research and development expense was $1.3 million for the year ended December 31, 2014. Research and development expense primarily consists of costs associated with the development of proprietary technology.

 

Depreciation and Amortization Expense. Depreciation and amortization expense was $1.2 million for the year ended December 31, 2014. Depreciation and amortization are generated from our fixed and intangible assets.

 

    Year ended December 31,  
    2014  
          % of  
(dollar in thousands)   Amount     Revenue  
Other income (expense), net   $ (126 )     (0.43 )%
Income tax expense     (8 )     (0.03 )%

 

Other income (expense), net. Other income (expense), net for the year ended December 31, 2014 was $126,000. Other income (expense), net is comprised of interest expense and gain from investment in marketable securities.

 

Income tax expense. Income tax expense for the year ended December 31, 2014 was $8,000.

 

Discussion of Effect of Seasonality on Financial Condition

 

Certain accounts on our balance sheets 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 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.

 

We have been very proactive, and will continue to be proactive, in obtaining contracts during the fourth and first quarters that will help offset the seasonality of our business.

 

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Liquidity and Capital Resources

 

As of March 31, 2015, we had cash and cash equivalents of $6.6 million before the pro forma adjustments. We financed our capital expenditures during the three months ended March 31, 2015 primarily through line of credit agreements, product financing arrangements, and bank loans.

 

In addition to our cash and banking arrangements, we had accounts receivable of $4.8 million on March 31, 2015 after pro forma adjustment. Our accounts receivable provide 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 the business.

 

For the three months ended March 31, 2015, we borrowed an additional $0.4 million to finance the purchase of product and product components at an interest rate of approximately 2%~10% bringing the total short-term and long-term debt outstanding at March 31, 2015 to $11 million and $3.1 million, respectively. We have credit facilities totaling $13.7 million with $3.5 million remaining in available credit.

 

On September 30, 2014, the Company entered into a Line of Credit Agreement with Vert Capital. Pursuant to the agreement, the Company obtained a line of credit from Vert Capital up to a maximum of $500,000 to complete our initial public offering (“IPO”) process. The advances from this agreement accrued interest at 10% per annum and are due on the effective date of the Company’s IPO. In connection with this agreement, the Company granted Vert Capital a first lien and security interest to all of our assets and properties. As of March 31, 2015, outstanding principal and accrued interest under this agreement were $214,050 and $5,727, respectively.

 

On September 30, 2014, the Company entered into a Line of Credit Agreement with LCC-Delaware, a company controlled by Vert Capital. Pursuant to the agreement, the Company obtained a line of credit from LCC-Delaware up to a maximum of $500,000 for a term of 3 years. The advances from this agreement accrue interest at 10% per annum and are due on demand. In connection with this agreement, the Company granted LCC-Delaware a second lien and security interest to all of our assets and properties, subordinate to the Vert Capital line of credit agreement. As of March 31, 2015, outstanding principal and accrued interest under this agreement were $185,129 and $10,129, respectively.

 

On January 16, 2015, the Company issued a note to Mark Elliott, the Company’s Chief Executive Officer, in the amount of $50,000. The note is due on April 30, 2015 and bears interest at an annual rate of 10%, compounded monthly. The note is convertible to the Company’s common stock at the lesser of (i) $1.00 per share, (ii) a discount of 20% to the stock price if the Company’s common stock is public traded, or (iii) if applicable, such other amount negotiated by the Company. The note holder may convert all but not less than all of the outstanding principal and interest due under this note upon conversion date. As of March 31, 2015, outstanding principal and accrued interest under this agreement were $50,000 and $1,027, respectively.

 

On January 15, 2015, the Company provided a line of credit to Genesis. The line of credit allows Genesis to borrow up to $500,000 for working capital and business expansion. The funds when borrowed accrue interest at 10% per annum. Interest accrued on any advanced funds is due monthly and the outstanding principal and any accrued interest are due in full three years from the execution date. The assets of the Genesis have been pledged as a security interest against any advances on the line of credit. As of March 31, 2015, the Company has advanced $50,000 to Genesis against this line.

 

On April 3, 2015, the Company entered into a Line of Credit Agreement with Sy Silverstein, an individual. Pursuant to the agreement, the Company obtained the line of credit for up to a maximum of $300,000 to complete its IPO process. The advances from this agreement accrue interest at 12% per annum, along with a $10,000 documentation fee, and are due on the effective date of the Company’s IPO. As of June 1, 2015, the outstanding principal balance was $90,000.

 

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Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases, capital equipment leases and other operating leases. We lease all of our office facilities. We expect to make future payments on existing leases from cash generated from operations.

 

We believe that the combination of funds currently available from our various resources will be adequate to finance our ongoing operations for the foreseeable future. In addition, we plan to continue to explore acquisitions and strategic investments related to our business that we may acquire using cash, stock, debt, contribution of assets or a combination thereof.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles accepted in the United States. 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 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 notes to each set of the 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.

 

Revenue Recognition

 

Revenue is comprised of product revenue, net of sales returns. Revenue is derived from the sale of projectors, and data - logging products, as well as the related accessories. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Evidence of an arrangement consists of an order from its distributors, resellers or end users.

 

The Company’s standard terms and conditions of sale do not allow for product returns, and it generally does not allow product returns other than under warranty. However, the Company grants limited rights to return product for certain large retailers and distributors. Estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends. Upon recognition, the Company reduces revenue and cost of sales for the estimated return. Return rates can fluctuate over time, but are sufficiently predictable to allow the Company to estimate expected future product returns.

 

The Company generally provides 24 to 36 months warranty coverage on all of its products, except when sold through a “Premier Education Partner” or sold to schools, where the Company provides a 48 to 60 months warranty. The Company’s warranty provides for repair or replacement of the associated products during the warranty period. The Company establishes a liability for estimated product warranty costs at the time product revenue is recognized, if the liability is expected to be material. The warranty obligation is affected by product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.

 

The Company offers sales incentives where the Company offers discounted products delivered by the Company to its resellers and distributors that are redeemable only if the resellers and distributors complete specified cumulative levels of revenue agreed to and written into their reseller and distributor agreements through an executed addendum. The resellers and distributors have to submit a request for the discounted products and cannot redeem additional discounts within 180 days from the date of the discount given on like products. The value of the award products as compared to the value of the transactions necessary to earn the award is generally insignificant in relation to the value of the transactions necessary to earn the award. The Company estimates and records the cost of the products related to the incentive as marketing expense based on analyses of historical data.

 

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Business Combinations

 

We account for our business combinations under the provisions of ASC 805-10, Business Combinations” (ASC 805-10), which requires that the purchase method of accounting be used for all business combinations, and have concluded that each of the businesses whose assets were acquired or are to be acquired constitute a business in accordance with ASC 805-10-55.

 

Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, we record the contingent consideration at fair value at the acquisition date with changes in the fair value after the acquisition date affecting earnings. Changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period will affect income tax expense.

 

Impairment of Long-Lived Assets and Goodwill

 

Intangible assets, including customer relationships and the value of agreements not to compete arising from our various acquisitions are recorded at cost less accumulated amortization and are amortized using a method which reflects the period in which the economic benefit of the related intangible assets is utilized, which has been estimated to be three years. For intangible assets subject to amortization, impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets.

 

The intellectual property and customer relationships and associated contracts represent the most significant portion of the value of the purchase price for each of our acquisitions. Our largest acquisition holds intangible assets and has developed substantial technologies.

 

Goodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. We expect to record goodwill in connection with all of our acquisitions. With these acquisitions, goodwill will be evaluated for impairment using a two-step process that will be performed at least annually in October of each year, or whenever events or circumstances indicate that impairment may have occurred. The first step is a comparison of the fair value of an internal reporting unit with its carrying amount, including goodwill. We will integrate all acquired businesses with our core business and utilize a single technology platform, and have our chief operating decision maker, which is our Chief Executive Officer, monitor and review financial information at a consolidated level for assessing operating results and the allocation of resources. Therefore we will have a single reporting unit. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary.

 

If the carrying value of the reporting unit exceeds its fair value, a second test is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of the goodwill is greater than the implied value, an impairment loss is recognized for the difference. The implied value of goodwill is determined as of the test date by performing a purchase price allocation, as if the reporting unit had just been acquired, using currently estimated fair values of the individual assets and liabilities of the reporting unit, together with an estimate of the fair value of the reporting unit taken as a whole. The estimate of the fair value of the reporting unit is based upon information available regarding prices of similar groups of assets, or other valuation techniques including present value techniques based upon estimates of future cash flow.

 

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Inventories

 

Inventories are stated at the lower of cost or net realizable value. Materials and spare parts inventory is primarily determined using the weighted average cost method. Finished goods is primarily determined using weighted average cost and specific identification method. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories.

 

The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and mix of products in inventory, as well as changes in consumer preferences, market and economic conditions.

 

Income Taxes

 

We account for income taxes using the asset and liability method, as prescribed by ASC 740, income taxes, which recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record net deferred tax assets to the extent that these assets will more likely than not be realized. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.

 

As of March 31, 2015, our deferred tax assets consisted of temporary differences between the book and tax bases of certain assets and liabilities.

 

Accounting for Stock-Based Compensation

 

We account for stock-based compensation to employees, including grants of employee stock options in accordance with ASC 718, “Stock Compensation,” which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations based on their grant date fair values. We will recognize stock-based compensation expense on a straight-line basis over the service period of the award.

 

Emerging Growth Company

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. 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.

 

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.

 

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BUSINESS

 

Our Company

 

Boxlight Parent was incorporated in Nevada on September 18, 2014 for the purpose of becoming a technology company that sells interactive educational products.

 

After the consummation of the acquisitions of Boxlight, Globisens and Genesis, we will be a technology company that focuses on the education and learning industry. We will improve, produce and distribute products currently offered by Boxlight and Globisens, including interactive projectors, 70” and 84” hi-resolution interactive LED panels, and science, technology, engineering and math (“STEM”) data logging products, and develop new products utilizing a combination of technologies of Boxlight and Globisens. The combined operation will integrate significant research and development, international manufacturing capabilities, and an established global reseller network. Our goal is to become a single source, world-leading innovator, manufacturer and integrator of interactive products for schools and universities, as well as for training and instruction for business and governmental agencies.

 

Integration Strategy

 

Within 120 days of this offering and the consummation of the acquisitions, we plan to centralize our business management through an enterprise resource planning system currently utilized by Boxlight USA, that offers multi-language and multi-currency. It is our intention to streamline the process to drive front-line sales forecasting to factory production. Through the enterprise resource planning system, we plan to first synchronize five separate accounting and customer relationship management systems through a cloud-based interface to improve inter-company information sharing and allow management at Boxlight Parent to have immediate access to snapshots of the performance of all of our subsidiaries, their financial data and live currency impact on our combined financial results.

 

Research and Development

 

Both Boxlight’s and Globisens’ products are designed to enhance learning experiences in schools, government and business by bringing life to lessons, using interactive educational tools. Research suggests that interactive presentation tools can positively affect student engagement, motivation, understanding and review processes and accommodate students with different learning styles, including students who have special needs. A study in 100 classrooms per year conducted by Dr. Robert Marzano, a top United States researcher in the field of education, concluded that students who had been taught using interactive whiteboards and interactive devices improved their test scores on average by 16 percentile over a two-year period.

 

Within 90 days of this offering and the consummation of the acquisitions, we intend to complete the development of a new line of interactive display products which allow for simultaneous wireless integration of our STEM products. This will enable teachers to simultaneously directly interact with students through a combination of our software and hardware products and minimize the need for additional classroom computers and tablets. We will then have a software platform which will integrate team lesson plans and other interactive learning techniques, by incorporating existing classroom management tools and software.

 

We anticipate the costs to be approximately $225,000 to accomplish this software platform and plan to use the proceeds from this offering to pay for this cost.

 

Manufacturing and Logistics

 

Within six months of this offering and the consummation of the acquisitions, we will integrate our manufacturing capacities. It is our intention to bring currently outsourced manufacturing of Globisens STEM products to our manufacturing facilities in either Taiwan or China. We plan to use a combination of direct manufacturing and established strategic partnerships. We also intend to streamline our logistic operations at various locations. In Seattle, Washington, we currently operate a logistics facility, service center, and separate service logistics operation. In Laredo, Texas, we contract with a third party facility for the central United States product distribution and product importation into our Mexico facility. In Atlanta, Georgia, we operate a logistics operation for the eastern United States distribution and our import/export to our European customers and vendors. Additionally, our Atlanta, Georgia facility houses the Company’s management as well as sales, marketing, and US service offices. Mexico City, Mexico serves as product distribution as well as sales, marketing and service for the central America. Hsin Chu Taiwan is our primary research and development and manufacturing headquarters and serves as sales, marketing and logistics for our customers in Asia and our international OEM customers. Our Wuxi, China facility, similarly, provides manufacturing and local China sales, marketing and support functions. Our Tel Aviv, Israel facility provides the research and development function for our STEM products and a limited amount of manufacturing, as well as local sales, marketing and service functions.

 

Sales and Marketing

 

Within six months of this offering and the consummation of the acquisitions, we plan to combine our global sales force. Our combined sales force will initially have ten regional managers in the US, four in Central America, two in Taiwan and three in China. Also within the same time period, we intend to expand the scope of our combined sales force, by adding five additional sales persons, primarily to drive sales of interactive projectors and data logging products to school districts, corporations and governmental agencies throughout the United States and Europe and sales of all of our products in Africa, Latin America and Asia. In addition, we will utilize traditional value-added resellers through Genesis and support them to become knowledgeable of the products, vendors, and suppliers of the combined entity.

 

We believe that the combined operation will represent a unique vertically integrated interactive-technology company capable of developing and improving products, manufacturing and distribution, and service and support to customers.

 

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Our Markets

 

The global education industry is undergoing a significant transition, as primary and secondary school districts, colleges and universities, as well as governments, corporations and individuals around the world are increasingly recognizing the importance of using technology to more effectively provide information to educate students and other users.

 

“Smart education” denotes a range of technologies employed to enhance the delivery and administration of education across various segments such as K-12, higher education, enterprise, government and healthcare. This market is broadly segmented by four major parameters; namely, product type, application type, e-learning modes, and geography.

 

According to “All Global Market Education & Learning”, an industry publication, the market for hardware products is growing due to increases in the use of interactive white boards and simulation-based learning hardware. Education institutions have become more receptive to the implementation of hi-tech learning tools. The advent of technology in the classroom has enabled multi-modal training and varying curricula. In general, technology based tools help develop student performance when integrated with curriculum. The constant progression of technology in education has helped educators to create classroom experiences that are interactive, developed and collaborative.

 

According to market research report “Smart Education and Learning Market: Advanced Technologies, Digital Models, Adoption Trends and Worldwide Market Forecast (2012-2017),” the global smart education and learning market is expected to reach $220.0 billion by 2017 at a compounded annual growth rate (CAGR) of 20.3% from 2012 to 2017. The market for education and learning software is estimated to reach $37.2 billion, and hardware is estimated to reach $12.1 billion, by 2017. In 2011, North America accounted for about 60% of global revenue and is expected to grow at a CAGR of 15.2% from 2012 to 2017.

 

In the United States, which will be our primary market upon consummation of this offering where we will sell and distribute interactive educational products for K-12 to both public and private schools, the K-12 education sector represents one of the largest industry segments.

 

In addition to its size, the U.S. K-12 education market is highly decentralized and is characterized by complex content adoption processes. The sector is comprised of approximately 15,600 public school districts across the 50 states and 132,000 public and private elementary and secondary schools. We believe this market structure underscores the importance of scale and industry relationships and the need for broad, diverse coverage across states, districts and schools. Even while we believe certain initiatives in the education sector, such as the Common Core State Standards, a set of shared math and literacy standards benchmarked to international standards, have increased standardization in K-12 education content, we believe significant state standard specific customization still exists, and we believe the need to address customization provides an ongoing need for companies in the sector to maintain relationships with individual state and district policymakers and expertise in state-varying academic standards.

 

U.S. K-12 education has come under significant political scrutiny in recent years, due to the recognition of its importance to U.S. society at large and concern over the perceived decline in U.S. student competitiveness relative to international peers. An independent task force report published in March 2012 by the Council on Foreign Relations, a non-partisan membership organization and think tank, observed that American students rank far behind global leaders in international tests of literacy, math and science, concluding that the current state of U.S. education severely impairs the United States’ economic, military and diplomatic security as well as broader components of America’s global leadership. Also, the Executive Office of the President Council of Economic Advisors, in a report titled Unleashing the Potential of Educational Technology, stated that “many observers are concerned about declines in the relative quality of U.S. primary and secondary education, and improving performance of our schools has become a national priority.” We believe that the customization of learning programs could enhance innovative and growth strategies geared towards student performance in our nation’s schools.

 

Higher education is a large and well-established market, both in the United States and worldwide. In the United States alone, total revenue for all degree-granting postsecondary institutions was over $550 billion for the 2010-2011 academic year, according to a May 2013 report by the U.S. National Center for Education Statistics. The decade between 2000 and 2010 saw a 37% increase in enrollment in postsecondary degree granting institutions in the United States, from 15.3 million to 21.0 million, according to the U.S. Department of Education, and that number is expected to rise to 23.8 million by 2021, a further increase of 13%.

 

According to a November 2013 study by Bank of America Merrill Lynch, total global spending on the business and government e-learning market was $25.5 billion in 2012 and is expected to reach $32.1 billion by 2015 and $37.5 billion by 2017; an 8% CAGR between 2012 and 2017.

 

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Our Opportunity

 

We believe that the existing patented product portfolios of Boxlight and Globisens and products we intend to develop either alone or in collaboration with other technology companies positions us to be a leading manufacturer and provider of interactive educational products in the global educational and learning market. We believe that increased consumer spending driven by the close connection between levels of educational attainment, evolving standards in curriculum, personal career prospects and economic growth will increase the demand for our interactive educational products. Some of the factors that we believe will impact our opportunity include:

 

Growth in U.S. K-12 Market Expenditures

 

Significant resources are being devoted to primary and secondary education, both in the United States and abroad. As set forth in the Executive Office of the President, Council of Economic Advisers report, U.S. education expenditure has been estimated at approximately $1.3 trillion, with K-12 education accounting for close to half ($625 billion) of this spending. Global spending is roughly triple U.S. spending for K-12 education.

 

While the market has historically grown above the pace of inflation, averaging 7.2% growth annually since 1969, as expenditures by school districts and educational institutions are largely dependent upon state and local funding, the recent world-wide economic recession caused many states and school districts to defer spending on educational materials, which materially and adversely affected our historical revenues as well as those of many of our competitors. However, expenditures and growth in the U.S. K-12 market for educational content and services now appears to be rebounding in the wake of the U.S. economic recovery. Although, the economic recovery has been slower than anticipated, and there is no assurance that any further improvement will be significant, nonetheless, states such as Florida, California and Texas are all scheduled to adopt interactive educational materials for certain subjects, including reading and math, by 2016.

 

The NCES forecasts that the current expenditures in the U.S. K-12 market are expected to grow to approximately $665 billion by 2022. The instructional supplies and services market, which uses the types of educational materials and services that we will offer, represents approximately 4.8% of this expected market, or approximately $32 billion of these expenditures. There is no guarantee that spending will increase by the amount forecasted and, if it does, there is no guarantee that our sales will increase accordingly.

 

International Catalysts Driving Adoption of Learning Technology

 

According to Ambient Insights 2012 Snapshot of the Worldwide and US Academic Digital Learning Market, substantial growth in revenues for e-learning products in the academic market segment are anticipated throughout the world due to several convergent catalysts, including population demographics such as significant growth in numbers of 15-17 year old students and women in education in emerging markets; government-funded education policies mandating country-wide deployment of digital learning infrastructures; large scale digitization efforts in government and academic markets; significant increases in the amount of digital learning content; migration to digital formats by major educational publishers and content providers; mass purchases of personal learning devices and strong demand for learning platforms, content and technology services; and rapid growth of part-time and fulltime online student enrollments.

 

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Rising Global Demand

 

We expect to profit from the rising global demand for technology based learning products by offering our interactive product hardware and software in the United States and expanding into foreign countries. In recent years, the global education sector has seen movement towards the adoption of interactive learning devices. As examples:

 

  In 2010, the Peruvian government spent $3.0 billion for an education technology rollout to provide all teachers and students with individual tablet computers and network infrastructure and classroom displays;
     
  In August 2011, the Russian government announced a plan to deploy tablets, “on a massive scale” in the Russian educational system, to replace printed textbooks;
     
  In October 2011, the Indian government launched its heavily subsidized school-designed tablet called Aakash; and
     
  In July 2011, the Thailand government announced that it intends to give every child in grades 1-6 a tablet starting with first grade students in the 2012 school year. The multi-year program is expected to equip over 5.0 million primary students with handheld devices.

 

Trends in Tech-Savvy Education

 

While industries from manufacturing to health care have adopted technology to improve their results, according to Stanford Business School, in its Trends in Tech-Savvy Education, the education field remains heavily reliant on “chalk and talk” instruction conducted in traditional settings; however, that is changing as schools and colleges adopt virtual classrooms, data analysis, online games, highly customized coursework, and other cutting-edge tools to help students learn.

 

Demand for Interactive Projectors is on the Rise

 

As a complete system, interactive projectors are considerably less expensive than interactive whiteboards or interactive flat panel displays, placing them at a distinct advantage in price sensitive markets. According to FutureSource, an industry publication, sales of interactive projectors are expected to grow steadily from 2014 to 2017 with a CAGR at 10.3% world-wide.

 

Additional Technologies

 

The delivery of digital education content is also driving a substantial shift in the education market. In addition to white boards, interactive projectors and interactive flat panels, other technologies are being adapted for educational uses on the Internet, mobile devices and through cloud-computing, which permits the sharing of digital files and programs among multiple computers or other devices at the same time through a virtual network. We intend to be a leader in the development and implementation of these additional technologies to create effective digital learning environments.

 

Handheld Device Adoption

 

Handheld devices, including smartphones, tablets, e-readers and digital video technologies, are now fundamental to the way students communicate. A 2010 FCC survey provides evidence that the rates of handheld use will increase dramatically. It reported that while 50% of respondents currently use handhelds for administrative purposes, 14% of schools and 24% of districts use such devices for academic or educational purposes. Furthermore, 45% of respondents plan to start using such devices for academic and educational purposes within the next 2 to 3 years. The survey stated that, “The use of digital video technologies to support curriculum is becoming increasingly popular as a way to improve student engagement.”

 

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Natural User Interfaces (NUIs)

 

Tablets and the new class of “smart TVs” are part of a growing list of other devices built with natural user interfaces that accept input in the form of taps, swipes, and other ways of touching; hand and arm motions; body movement; and increasingly, natural language. Natural user interfaces allow users to engage in virtual activities with movements similar to what they would use in the real world, manipulating content intuitively. The idea of being able to have a completely natural interaction with a device is not new, but neither has its full potential been realized. For example, medical students increasingly rely on simulators employing natural user interfaces to practice precise manipulations, such as catheter insertions, that would be far less productive if they had to try to simulate sensitive movements with a mouse and keyboard. NUIs make devices seem easier to use and more accessible, and interactions are far more intuitive, which promotes exploration and engagement. (NMC Horizon Project Technology Outlook STEM+ Education 2012-2017).

 

The Business and Government Market

 

The business and government market for interactive displays represents an attractive growth opportunity for us because of the desire of organizations to improve the quality of training, development and collaboration.

 

In meeting rooms, our solutions help achieve the following:

 

  Enhance brainstorming and collaboration by providing a real-time focal point upon which participants can share their ideas with the entire group of attendees, including those in remote locations;
     
  Add a tangible, interactive dimension to conferencing that enables attendees to visualize a situation or concept and make decisions based on that visualization;
     
  Save time and enhance productivity by enabling users to save and distribute their collective work product from a meeting without the inconsistencies and subjectivity that may result from individual note taking;
     
  Realize cost savings not only by reducing travel needs, but also by improving internal communication and team building; and
     
  Enable participants to access digital files and use applications in real time.

 

In training centers, we believe that our solutions help to enhance achievement levels with multi-modality (visual, auditory and kinesthetic) learning capabilities, improved interactivity and engagement and real time assessment and feedback. Our solutions may also help improve an enterprise’s return on investment by providing better trained employees reducing training time and getting employees back to their jobs, reduced travel expenses, improved customers service from well-trained employees and reduced employee turnover.

 

Competition

 

Upon consummation of the acquisitions of Boxlight, Globisens and Genesis, we will be engaged in the interactive education industry. The combined operation will face substantial competition from developers, manufacturers and distributers of interactive learning products and solutions. The industry is highly competitive and characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of interactive projectors, interactive whiteboards, and micro-computer based logging technologies and a combination of them. We will face increased competition from companies with strong positions in certain markets we serve, and in new markets and regions we may enter. These companies manufacture and/or distribute new, disruptive or substitute products that compete for the pool of available funds that previously could have been spent on interactive displays and associated products. Our ability to integrate our technologies after the combination and remain innovative and develop new technologies desired by our current and potential new contract manufacturing customers will determine our ability to grow our contract manufacturing divisions.

 

Boxlight’s Products

 

Boxlight is a global leading designer, producer and distributor of interactive projectors and high definition 70” and 4k 84” interactive LED flat panels. We believe Boxlight offers the most comprehensive and integrated line of interactive display solutions, audio products, peripherals and accessories for schools and enterprises. Boxlight’s products are backed by nearly 30 years of research and development, as it introduced the world’s first interactive projector in 2007 and received applied patents in 2010. Boxlight focuses on developing easy-to-use solutions combining interactive displays with robust software to enhance the educational environment.

 

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Advances in technology and new options for introduction into the classroom have forced school districts to look for solutions that allow teachers and students to bring their own devices into the classroom, provide school district information technology departments with the means to access data with or without Internet access, handle the demand for video, and control cloud and data storage challenges. Boxlight’s design teams are able to quickly customize products to serve the needs of clients so that existing hardware and software platforms can communicate with one another. Boxlight has created plug-ins for annotative software that makes existing legacy hardware interactive and allows designs to work with or without wires. Our goal, with the acquisition of Boxlight, is to become a single source solution to satisfy the needs of educators around the globe for interactive products.

 

Boxlight prides itself in providing industry-leading service and support and has received numerous product awards. In 2010, the ProjectoWrite2 interactive projector received an award as one of the Top 5 Products at InfoComm, the largest audio-visual dealer and reseller tradeshow in the U.S. Shortly thereafter, Pacific Media Associates, one of two leading industry reporting companies, and CE Pro Magazine announced the ProjectoWrite 2 as their choice for Best New Product of the Year in 2010. In 2011, Boxlight was an American Business Awards finalist for the Best Customer Service Department. It was a Bronze Stevie winner in the categories of Most Innovative and Fastest Growing Tech Company of the Year in 2012, and, in, 2013, Boxlight received the People’s Choice Stevie Award for the ProjectoWrite 5 for Favorite Computer Hardware Product.

 

Since Boxlight launched its patented interactive projectors in 2007, Boxlight has sold them to public schools in the United States and in 49 other countries, as well as to the Department of Defense International Schools in approximately 3,000 classrooms in 20 countries, the Job Corp, the Library of Congress, the Center for Disease Control, the Federal Emergency Management Agency, six foreign governments and the City of Moscow and numerous Fortune 500 companies, including Verizon, GE Healthcare, Pepsico, First Energy, ADT, Motorola, First Data and Transocean and custom built 4,000 projectors for the Israeli Defense Forces.

 

Interactive Projectors

 

Boxlight’s suite of patented, award-winning interactive projectors offers a wide variety of features and specifications to suit the varying needs of instructors, teachers and presenters around the world. With an interactive projector any wall, whiteboard or other flat surface can become an interactive surface and enable computer control. A user can utilize a pen stylus or finger as a mouse or to write or draw images displayed on the screen. As with interactive whiteboards, the interactive projector accommodates multiple users simultaneously. Images that have been created through the projectors can be saved as computer files. Except for the ProjectorWrite 8, or P8, series, all Boxlight interactive projects use LCD technology.

 

The ProjectoWrite 5 series provides wired interactivity and features 60 frames per second and Dual Screen Link, linking two Boxlight interactive projectors, two presenters and two screens (or one large screen) into a powerful interactive surface, allowing for Microsoft Office content, video, pictures, web page and live streaming. These projectors have built-in storage of up to 1.5 GB for on-the-go display; a USB or EZ WiFi LAN connection from the PC, Mac or mobile device to the interactive projector is required for interactivity with the projected images. The ProjectoWrite 5 interactive projector allows for a maximum of five interactive pens working simultaneously. Utilizing Boxlight’s patented embedded interactive CMOS camera at 60 frames per second, response time is less than 12 ms., and accuracy is 3 pixels.

 

The ProjectoWrite 6 series is for wireless interactivity, using a wireless USB dongle with a camera speed of to 90 frames per second. The ProjectorWrite 6 provides four separate and independent interactive touch points.

 

The ProjectoWrite 8 series can be installed just inches from the screen. This ultra-short throw offering minimizes shadowing experienced with both short-throw and standard throw offerings. Auto-calibration with the ultra-short throw unit allows for quick and easy installs.

 

Each of Boxlight’s ProjectoWrite 5, 6 and 8 series uses a stylus or pen to emulate touch features of a tablet computer with Boxlight’s driver package.

 

The new ProjectoWrite 10 series is first in Boxlight’s new line of patented finger-touch interactive projectors. With the addition of a laser module, a moderator or student can use a finger, or any solid object, to interact and control the computer at the projected image. With 10-point touch, a user can capitalize on the new touch features of Microsoft Windows 8, emulating a tablet computer.

 

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Last year, Boxlight began delivering its ProjectoWrite 6 series interactive projectors in up to 13,000 classrooms in the Dallas Independent School District. With over 15,000 network access points and 158,000 students, Boxlight needed to adapt its wireless display software to enable projectors to work over several sub-netted segments of Dallas’s network. Having its in-house developers create Dallas’s custom software platform, Boxlight completed the unique software and was able to deploy in less than 30 days. Boxlight included in each unit its long-lasting harsh environment filter, which allows up to 5,000 hours of maintenance-free use. In addition, the district subscribed to Boxlight’s Lamps for Life program, which provides unlimited projector lamps for only the cost of round-trip shipping.

 

In addition to its direct selling efforts, Boxlight currently generates approximately 43% of its revenues through contract manufacturing of interactive projectors and components to brand-name equipment suppliers. These enterprises sell the same or similar products in the same markets served by Boxlight, but have elected to purchase Boxlight’s patented interactive projectors and components, rather than seeking licenses under its patents.

 

External Interactive Devices

 

The OutWrite interactive modules employ a patented CMOS camera with optical coating that make any standard projector interactive. The OutWrite features a preview window when connected via USB cable to allow simple setup and calibration. Boxlight is developing an interactive module that supports Android devices. The OutWrite device allows for the same touch emulation with interactive pens as the ProjectoWrite 5 interactive projectors.

 

Interactive LED Flat Panels

 

Boxlight’s ProColor series of interactive LED panels are available in both 70” HD and 84” 4k models. Both include an OPS slot for embedded Windows 8 and upcoming Android operating systems. ProColor Interactive LED panels utilize infrared blocking technology, offering 10 points of touch for simultaneous interaction of multiple users. ProColor’s built-in 12 watt speakers add room filling sound to the display’s vivid colors. The interactive LED panels feature Korean glass with optical coatings that are highly scratch resistant and improve viewing angles and ambient light interference.

 

Peripherals and Accessories

 

Boxlight offers a line of peripherals and accessories, including amplified speaker systems, mobile carts, installation accessories and adjustable wall-mount accessories that complement its entire line of interactive projectors, LED flat panels and standard projectors. The height and tilt adjustable DeskBoard mobile cart, which won the Best of ISTE in June 2014 for Best Hardware product, can be used as an interactive screen or interactive desktop with the ProjectoWrite 8 ultra-short throw interactive projectors.

 

Audio Solutions

 

Boxlight offers its SoundLite audio solutions as an affordable and easy-to-install amplified speaker system for use with all of our projectors. The 30 watt SoundLite product is available with wireless microphone. This device produces quality stereo sound in any room.

 

Features in future SoundLite models will have a security-enabled system and IP addressable audio classroom solution allowing point-to-point address as well as a network wide area address. A panic switch on the wireless transmitters will enable live broadcast of classroom audio and simultaneously trigger predetermined alerts. This feature is designed to work over a school’s existing network infrastructure.

 

Non-Interactive projectors

 

Boxlight manufactures a full line of standard, non-interactive projectors. The Boston Series features embedded wireless display functions and is available in short and standard throw options. Offering brightness from 2,700 to 4,000 lumens, Boxlight furnishes projectors for small classrooms to auditoriums with the Boston platform. This series is available in both XGA and WXGA resolutions to replace projectors on existing interactive whiteboards in classrooms operating on limited budgets. Boxlight has designed this platform to provide easy user maintenance with side-changing lamps and filters and developed HEPA filtration systems for harsh environments.

 

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The ECO line of projectors is for schools with tight budgets. With inorganic high-contrast panels, long-life and reliability are ensured, while providing a quality and affordable product. This platform is available in short and standard throw and XGA and WXGA resolutions.

 

In the past several years, Boxlight, together with strategic allies, has provided customized products that fit specific needs of customers, such as the Israeli Ministry of Defense. Working with Nextel Systems, Boxlight delivered approximately 4,000 projectors, with special kitting performance, asset tagging, custom start up screens, operating defaults appropriate for harsh environments, and other unique product specifications. Boxlight also met requirements that each projector contain at least 51% U.S. content and be assembled in the United States. A service center was appointed in Israel to provide warranty service and support. The US Army in connection with the Israeli Defense Forces found Boxlight to be the only manufacturer able to meet the stringent requirements, leading not only to the original multi-year contract, but to extensions for favorable execution and performance.

 

Software Solutions

 

Boxlight produces a “driver,” which is software that allows a computer to communicate with hardware or devices. Our driver comes in various versions depending on the model of interactive projector purchased. If used with Windows7 and above, users have the ability to toggle between ‘mouse’ and ‘touch’ mode. Mouse mode allows users to operate the mouse at the interactive screen like a traditional mouse. Touch mode will allow for up to 5 pens/users to interact on the touch screen surface. The latest TouchDriver on the ProjectorWrite 10 recognizes fingers (or nearly any other solid object) at the projection surface and will allow for up to 10 points of interactivity.

 

Our LightPen 5 software allows users to annotate in multiple colors and formats with our interactive projectors and is one of several annotation packages offered. Our SPDriver must be connected to a Boxlight interactive projector to function. The LightPen software defaults to overlay mode and allows the user to annotate over almost every program and image on the computer, including static images and/or full motion video. The tool bar is easily accessible and can be moved around the interactive screen for easy access and includes three default pen colors and a highlighter.

 

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Pen line thickness and color can be changed, multi-user whiteboard mode allows for up to 5 points of interaction at a time, and a multi-page feature allows for extended note-taking. With included quick tools, such as on-screen keyboard quick tool, power point presentation mode, curtain reveal, and spot light modes, presenters’ needs are met at the tip of a pen or finger.

 

To date, all of Boxlight’s software solutions are included with the purchase of its interactive products. However, approximately 15% of Boxlight employees are engaged in software development. Subject to completion of this offering and access to adequate liquidity, we intend to offer LightPen and other software products for sale directly to businesses and government agencies for use in learning applications and virtual remote desktop connectivity.

 

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Production and Technical Support and Service

 

Boxlight manufactures and assembles its interactive projectors in-house in Taiwan, Mexico, China and the United States. Boxlight currently procures materials principally in Taiwan and Japan, with a majority of manufacturing completed in Taiwan. We believe that Boxlight can increase manufacturing capacity by 50% without material additional capital expenditure. Boxlight uses cell manufacturing processes to maintain accountability for its products down to the individual operator.

 

For certain of Boxlight’s peripheral and accessory products, Boxlight controls the entire design process internally and then outsources manufacturing and assembly to lower production costs. To create other products, Boxlight works with original design manufacturers and original equipment manufacturers, typically using their production processes.

 

Boxlight handles most of its warehouse and logistics functions in North America, Europe and Asia. In North America Boxlight’s facilities are located near Seattle, WA and Atlanta, GA.

 

In the United States, Boxlight currently has its technical support and service located near Seattle, WA and Atlanta, GA. Additionally, Boxlight provides direct support and service from its production facilities in Hsinchu, Taiwan and Wuxi, China and its assembly facility in Mexico City, Mexico, as well as through third party service partners located throughout the world. Boxlight’s technical support division is responsible for the repair and closing of the customer service cases, resulting in more than 60% of Boxlight’s customer service calls ending in immediate closure of the applicable service case. Boxlight accomplishes this as a result of the familiarity between Boxlight’s products and the customer service technician.

 

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Competition

 

Boxlight is engaged in an industry that is highly competitive. The industry is evolving and characterized by technological change. Boxlight faces increased competition from companies with strong positions in certain markets it currently serves and in new markets and regions it may enter. These companies manufacture and/or distribute new, disruptive or substitute products that compete for the pool of available funds that previously could have been spent on interactive displays and associated products. Boxlight competes with other developers, manufacturers and distributors of interactive projectors and personal computer technologies, tablets, television screens, smart phones.

 

Interactive whiteboards, since first introduced, have evolved from a high-cost technology that involves multiple components, requiring professional installers, to a one-piece technology that is available at increasingly reduced price points and affords simple installations. With lowered technology entry barriers, Boxlight faces heated competition from other interactive whiteboard developers, manufacturers and distributors. However, the market presents new opportunities in responding to demands to replace outdated and failing interactive whiteboards with more affordable and simpler solution interactive whiteboards. In addition, Boxlight has begun to see expansion in the market to sales of complementary products that work in conjunction with the interactive technology, including software, audio solutions, data capture, tablets.

 

Intellectual Property

 

Boxlight’s business depends, in part, upon protecting its intellectual property in the technology that it designs and develops. Boxlight relies on its patents, copyrights, and a combination of its software encryption, internal procedures, and nondisclosure agreements for this purpose. Boxlight will apply for patent protection where we believe it will give it a competitive advantage and licensing revenues. As of October 1, 2014 Boxlight holds 30 issued worldwide patents, with an additional 11 worldwide patent applications pending. In addition, Boxlight owns a number of trademarks that it believes are well known in its markets and represent a considerable amount of goodwill captured over many years of serving those markets.

 

Boxlight’s worldwide patents are expected to expire at various dates between May 5, 2016 and December 2, 2030.

 

Although we believe that Boxlight’s portfolio of patents and trademarks will provide us with a competitive advantage, we do not consider the expiration or termination of any one or any group of these assets to be of such importance as to have any material or adverse effect on the Boxlight business. We believe that Boxlight’s primary competitive advantage is based upon its collection of trade secrets, know-how, proprietary manufacturing techniques, and deep customer relationships and application knowledge. Boxlight’s core products contain a large number of complex algorithms, electronics, and mechanical components, refined in a customer-driven development process. We believe Boxlight’s customers rely on the inherent advantage that comes from this continuous improvement in its products over time. We believe that Boxlight’s customers also rely on Boxlight for its experience and expertise in the application of its products to meet their needs, and in many cases Boxlight’s expertise of a customer’s application exceeds that of the customer.

 

Globisens

 

Globisens designs and manufactures a line of STEM products, consisting of handheld data-logging devices that enable teachers and students to measure, record, graph, analyze, and manipulate the results of physics, biology, and chemistry experiments and observations from environmental and geographic studies. With the Labdisc, for example, a class can measure and graph the height of a ping-pong ball’s bounce against time, to observe acceleration due to gravity and derive the mathematical formula describing it. The Labdisc releases teachers from hours of setup time and can save schools substantial investments and space required by traditional laboratories.

 

In 2012, WorldDidac, the global trade association for companies providing products for education and training, recognized Labdisc with the WorldDidac award for innovation and pedagogic value. Labdisc was a Tech & Learning’s 2012 Awards of Excellence winner, and, in 2013, the Labdisc won Bizmedia Ltd’s E-Learning Gold Award for Most Innovative e-learning product.

 

The Labdisc gensci has built-in sensors measuring air pressure, electric current, geographic location (via GPS), light, sound, motion, pH, relative humidity, temperature, and voltage. The Labdisc enviro, Labdisc physics, and Labdisc biochem include specialized sensors for experiments and observations particular to the discipline. Each model is auto-calibrating and equipped with an LCD display to select experimental parameters, such as sensor sampling speed that ranges from 10 to 24,000 samples per second, and read experimental results. Each Labdisc provides USB and Bluetooth connectivity and, using Globisens’s GlobiLab software, supports PC, MAC, Linux, iOs and Android platforms. The devices weigh about 10 ounces, and battery life is 150 hours.

 

Globisens also offers GlobiMate, an Intel-designed, science-ready, three-sensor, 10-inch tablet computer, to which the Labdisc or our seven-sensor Mini can be attached, to create a powerful, portable science laboratory. With Globisens’s optional microscope adapter, the GlobiMate’s camera can be converted into a microscope. Globisens also provides a storage cart, with built in charger, that can hold up to 16 Labdiscs and tablets.

 

Production and Technical Support and Service

 

Globisens self-manufactures and contract manufactures its products to its design and specifications.

 

Competition

 

Globisens focuses on elementary schools, middle schools, high schools, community colleges and universities in the micro-computer based logging (MBL), or data logging, market. Globisens faces competition from companies that provide data logging solutions relating to interactive learning products.

 

The MBL market is currently led by a few established companies with substantial market shares in their respective countries or regions. We believe that these leading companies are now focused on small individual sensors, data logging units, cables etc. Globisens’ strategy is to differentiate itself by providing a consolidated solution, Labdisc, rather than individual probes. Globisens’s approach is to allow tablets, which are increasingly being used within the education sector, to provide the graphical presentation and data crunching, enabling Labdisc to accomplish the data logging function in a small, portable, simplified, and affordable unit that can be used in the K-6 primary schools. This is a significant market since every grade level teaches science. We believe that the increased number of computing platforms in schools and the focus on the large K-6 market, where all students are learning science, should increase the MBL K-12 market significantly in the coming few years.

 

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Western countries such as the US, UK, France, Germany, and The Netherlands have high MBL penetration into middle and high schools since the 1990s. In these countries schools are replacing MBL equipment with more technologically advanced and affordable solutions and promoting STEM in elementary schools. We believe that Globisens’ Labdisc is ideally positioned to address the requirements of both the replacement market and the emerging K-6 primary school sector.

 

Developing countries including, China, Vietnam, Mexico, Brazil, Poland, Turkey, Colombia, Chile, and those in the Near and Middle East have not historically invested in MBL solutions. They are now recognizing the importance of STEM in their economic development. A competitive bidding process for MBL solutions has either been offered or is in the process of being developed in many countries across the world. Developing countries tend to have decision making focused in a centralized decision-making, typically within a ministry of education, and this offers opportunities to the MBL/Data Logging providers. The MBL providers must have distribution capabilities in developing countries with products that are proven, affordable, available in large quantities, and with concomitant professional development, training and support.

 

As a result, competition in developing countries is significantly limited to the global providers such as Vernier, Pasco, Fourier, and SES. We believe that Globisens is well positioned to compete on a global scale in Western and developing countries, middle and high schools, the university level, as well as the K-6 market where competition is greatly reduced due to the design and ease of use with the Globisens Labdisc. We think that this, coupled with well-established customers across the globe and sales, distribution and a support team of channel partners bodes well for Globisens to become a premier provider of MBL/Data Logging solutions in a markets demanding products to meet STEM requirements

  

Genesis Collaboration

 

Products

 

Genesis is a traditional value-added reseller with sales and support teams representing multiple education and learning solution technologies, vendors and suppliers. Genesis is either a premier partner or an exclusive partner in defined geographic markets for the education solution providers listed below:

 

Vendors   Products
Boxlight   Interactive projectors, interactive flat panels, audio systems, mounting devices and mobile stands
Globisens  

Scientific Data logging devices

AHA   Interactive flat panels (4k- multiple sizes) for corporate market, interactive podiums, mobile mounting devices
Safari Montage   Video caching servers and video content
Audio Enhancement  

Audio systems, microphones, and classroom safety cameras and school security systems and classroom management tools

Learning Clip   PreK – Grade 5 supplemental interactive math curriculum
Critical Links   Classroom caching servers
BenQ   Projectors
Samsung   Tablets
nGrain   3D industrial product training
Impero   School technology infrastructure software and classroom management solutions
iDashboards   Executive dashboards – All sectors

 

Genesis has trained personnel to sell and support these solutions. Its sales team consists of 12 sales and support professionals, with an average of over 8 years’ experience selling to school districts, private schools, PreK schools, and business and government accounts. The sales representatives have been involved in selling, implementing, and supporting mission-critical solutions that were highly visible to the public due to the scope and expenditures. The implementations have represented some of the largest project managed solutions in school districts in Genesis’ geographic areas, such as Georgia, Alabama, North Florida, Pennsylvania, New Jersey and New England. The projects were often districts with several thousand classrooms involving project management, professional development, consulting, and installation of interactive whiteboards and associated peripherals. The projects were installed on time and on budget with highly referable customers as a result. Genesis has earned trusted advisor status with its customers and has access to key decision makers in all targeted markets.

 

Competition

 

Genesis is a value added reseller of interactive learning technologies. Genesis sells to the K12 education market in Georgia, Alabama, South Carolina, northern Florida, western North Carolina and eastern Tennessee. Genesis sells Boxlight’s interactive solutions into the business and government markets in the United States. Genesis also has exclusive rights to sell the AHA brands of interactive flat panels and interactive podiums in North and South America and carries consigned inventory for AHA in Genesis’s distribution center in Lawrenceville.

 

Genesis represents multiple complementary solutions and companies in the K12 education market in the geographic markets described above. Genesis competes with other value added resellers that are authorized to sell the same lines in the same areas by the vendors. Genesis also indirectly competes the market shares with the competitors of the vendors that Genesis represents.

   

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Employees

 

Boxlight Parent currently has three executives. Upon the consummation of the acquisition of Boxlight, Globisens and Genesis, we will have approximately 140 employees, of whom three are executives, 28 employees are engaged in product development, engineering and research and development, 42 employees are engaged in sales and marketing, 29 employees are engaged in administrative and clerical services and 40 employees are engaged in production. In addition, a total of approximately 20 individuals provide sales agency services to us as independent contractors.

 

Boxlight has approximately 120 employees, of whom 26 employees are engaged in product development, engineering and research and development, 36 employees are engaged in sales and marketing, 24 employees are engaged in administrative and clerical services and 37 are engaged in production.

 

Globisens has nine employees, of whom two are engaged in product development, engineering and research and development, one employee is engaged in sales and marketing, three employees are engaged in administrative and clerical services and three employees are engaged in production.

 

Genesis has seven employees, of whom five are engaged in sales and marketing and two employees are engaged in administrative and clerical services. In addition, a total of approximately 20 individuals provide sales agency services to us as independent contractors.

 

None of our employees are represented by labor organizations. We consider our relationship with our employees to be excellent. A majority of our employees have entered into non-disclosure and non-competition agreements with us or our operating subsidiaries.

  

Properties

 

Our corporate headquarter is located at 1045 Progress Circle, Lawrenceville, Georgia 30043, in a building of approximately 28,800 square feet, for which we pay approximately $11,055 of rent per month through November 2015. Our corporate headquarters house our administrative offices as well as distribution operations for Genesis and assembly for the Boxlight brand.

 

Our service center and warehouse are located in Belfair, Washington. We make monthly rental payments of approximately $2,435 for the service center of 1,900 square feet through March 2015, and thereafter, on a month-to-month lease basis. We make monthly rental payments of approximately $1,500 for the warehouse of 3,000 square feet through June 2015, and thereafter, we do not expect to renew the lease for the warehouse. 

 

After the acquisitions, we will continue to maintain an office in Belfair, Washington, for sales, marketing, technical support and service staff. Additional offices and manufacturing for the Boxlight operations are located in Hsinchu, Taiwan, WuXi, China, and Mexico City, Mexico, which meet TAA compliancy and GSA standards. Office and Manufacturing for the Globisens operations are located in Petha Tikva and Sderot in Israel.

 

Legal Proceedings

 

As of the date of this prospectus, we know of no material pending legal proceedings to which we are a party or of which any of our property is the subject. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

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MANAGEMENT

 

Directors and Executive Officers

 

The following table sets forth information concerning our directors, executive officers and other key members of our management team as of February 1, 2015:

 

Name   Age   Position(s)
James Mark Elliott   63   Chief Executive Officer and Director
Henry (“Hank”) Nance   42   President and Chief Operating Officer
Sheri Lofgren   57   Chief Financial Officer
Michael Pope   34   Director
Tiffany Kuo   26   Director
Rudolph F. Crew   65   Director
Robin D. Richards   59   Director

 

Set forth below is biographical information about each of the individuals named in the tables above:

 

James Mark Elliott. Mr. Elliott has served as our Chief Executive Officer and a director since September 18, 2014. From 2012 to date, he has also served as the President of Genesis. From 2005 through 2012, he was the President of Promethean, Inc., a manufacturer and distributor of whiteboards and interactive learning devices and led the team that grew Promethean in the Americas from $5 million in revenue to $250 million, with over 1,300,000 interactive whiteboards installed around the world. Throughout his career, Mr. Elliott has held senior executive roles, including president, senior vice president or director roles with Apple Computer, Lawson Software, E3 Corporation, PowerCerv Technologies, Tandem Computers, and Unisys/Burroughs. Mr. Elliott received a BBA in Economics from the University of North Georgia and a Master of Science degree in Industrial Management from Georgia Institute of Technology. Based on Mr. Elliott’s position as the chief executive officer of both the Company and Genesis, and his executive level experience in interactive learning devices and computer technology industries, our board of directors believes that Mr. Elliott has the appropriate set of skills to serve as a member of the board.

 

Henry (“Hank”) Nance Mr. Nance has been our President and Chief Operating Officer since September 18, 2014. Mr. Nance began his career with Boxlight in 1999 and has served as Boxlight’s President since 2009. At Boxlight, he developed the company’s first business-to-consumer division, generating over $12 million in sales within the first 24 months of inception. Shortly thereafter he took over product development, corporate relations, and negotiations for business-to-consumer and business-to-business products. Prior to Mr. Nance’s tenure at Boxlight, he managed commercial and residential construction working in the San Juan Islands in Washington State and Northern California.

 

Sheri Lofgren. Ms. Lofgren has served as our Chief Financial Officer since September 18, 2014. Since July 2013 she has also served as CFO of Genesis. She was Chief Financial Officer at Logical Choice Technologies, Inc., a Company affiliate and a distributor of interactive whiteboards, from 2006 to 2013. Ms. Lofgren is a certified public accountant with extensive experience in financial accounting and management, operational improvement, budgeting and cost control, cash management and treasury, along with broad audit experience, internal control knowledge and internal and external reporting. She started her career with KPMG and then joined Tarica and Whittemore, an Atlanta based CPA firm, as an audit manager. Ms. Lofgren is a graduate of Georgia State University where she earned a B.A. in Business Administration – Accounting.

 

Michael Pope. Mr. Pope has been a director of our Company since September 18, 2014. Mr. Pope has served as Managing Director of Vert Capital Corp., a Los Angeles based merchant bank, and its affiliates since October 2011, and manages portfolio holdings in education, consumer products and digital media. Vert Capital formerly was the Company’s principal stockholder. Prior to joining Vert Capital, from May 2008 to December 2011, Mr. Pope was the Chief Operating Officer of SkinCareRx, a leading retailer of health and beauty products. He has held various education and finance positions including CFO of SkinScience Institute, senior SEC reporting at Omniture, and an Assurance Associate at Grant Thornton, an accounting firm. Mr. Pope holds an active CPA license and currently serves on the boards of various organizations. Mr. Pope earned his undergraduate and graduate degrees in accounting from Brigham Young University with academic honors. We believe that Mr. Pope should serve as a member of our board of directors due to his experience in the financial services industry.

 

Rudolph F. Crew. Dr. Crew has been a director of our Company since April 1, 2015. Since August 2013, Dr. Crew has served as the president of Medgar Evers College. From July 2012 to July 2013, he was the chief education officer at Oregon Education Investment Board, overseeing the PK-16 system. From September 2011 to July 2012, Dr. Crew served as the president of K12 Division at Revolution Prep, a company that offers preparation courses for the SAT and ACT standardized achievement tests. Prior to that, from January 2009 to July 2013, he was a professor at USC Rossier School of Education, teaching graduate school courses. From January 2009 to September 2011, Dr. Crew also served as the president of Global Partnership Schools, an organization offers planning support services and collaborative programs to public schools and school districts. Dr. Crew received his bachelor’s degree in management from Babson College in 1792. He earned his master’s degree in urban education in 1973 and his degree of doctor of education in educational administration in 1978, both from University of Massachusetts. We believe that Dr. Crew’s in-depth knowledge and extensive experience in education field make him a valuable member of our board of directors.

 

Robin D. Richards. Mr. Richards has been a director of our Company since April 1, 2015. Since 2009, he has served as the chief executive officer at CareerArc LLC, a company that provides technology solutions to assist businesses’ recruitment and outplacement efforts. Mr. Richards received his bachelor’s degree in political science from Michigan State University in 1978.

 

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Tiffany Kuo. Ms. Kuo has been a director of our Company since September 18, 2014. Ms. Kuo has been a General Management Consultant in Strategy and Operations for Deloitte Consulting, LLP in Houston, TX since August 2011. Ms. Kuo graduated from Rice University with a Bachelor of Science and Masters of Science in Electrical Engineering in 2011 and is currently in the Sloan Masters of Business Administration Program at The Massachusetts Institute of Technology. We believe that Ms. Kuo should serve as a member of our board of directors due to her experience in business strategy and operations at Deloitte Consulting, LLP.

 

Director Independence

 

At this time, Dr. Rudy Crew and Robin Richards are our independent directors.

 

Corporate Governance

 

In connection with this offering, we will apply to list our shares of Class A common stock on the Nasdaq Capital Market. Under The Nasdaq Marketplace Rules we are required to comply with certain corporate governance standards at the time of listing, which include