UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | Quarterly Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2020
OR
| [ ] | Transition Report UNDER Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ______________ to ______________
Commission file number 001-37564
BOXLIGHT CORPORATION
(Exact name of registrant as specified in its charter)
| Nevada | 8211 | 46-4116523 | ||
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
| incorporation or organization) | Classification Code Number) | Identification Number) |
1045 Progress Circle
Lawrenceville, Georgia 30043
Phone: (678) 367-0809
(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock | BOXL | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |||
| Non-accelerated filer | [ ] | Smaller reporting company | [X] | |||
| Emerging growth company | [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. [ ]
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares outstanding of the registrant’s common stock on August 11, 2020 was 50,120,390.
BOXLIGHT CORPORATION
TABLE OF CONTENTS
| 2 |
Consolidated Condensed Balance Sheets
As of June 30, 2020 and December 31, 2019
(Unaudited)
| June 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current asset: | ||||||||
| Cash and cash equivalents | $ | 6,133,053 | $ | 1,172,994 | ||||
| Accounts receivable – trade, net of allowances | 5,356,940 | 3,665,057 | ||||||
| Inventories, net of reserves | 2,868,192 | 3,318,857 | ||||||
| Prepaid expenses and other current assets | 3,172,768 | 1,765,741 | ||||||
| Total current assets | 17,530,953 | 9,922,649 | ||||||
| Property and equipment, net of accumulated depreciation | 198,653 | 207,397 | ||||||
| Intangible assets, net of accumulated amortization | 5,574,666 | 5,559,097 | ||||||
| Goodwill | 4,723,549 | 4,723,549 | ||||||
| Other assets | 62,327 | 56,193 | ||||||
| Total assets | $ | 28,090,148 | $ | 20,468,885 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 3,802,221 | $ | 4,721,417 | ||||
| Accounts payable and accrued expenses – related parties | 2,221,350 | 5,031,367 | ||||||
| Warranty reserve | 2,713 | 12,775 | ||||||
| Current portion of debt – third parties | 5,388,350 | 4,536,227 | ||||||
| Current portions of debt – related parties | 383,726 | 368,383 | ||||||
| Earn-out payable – related party | 122,372 | 387,118 | ||||||
| Deferred revenues – short-term | 1,577,992 | 1,972,565 | ||||||
| Derivative liabilities | 192,304 | 146,604 | ||||||
| Other short-term liabilities | 30,560 | 31,417 | ||||||
| Total current liabilities | 13,721,588 | 17,207,873 | ||||||
| Deferred revenues – long-term | 2,350,154 | 2,582,602 | ||||||
| Long-term debt – third parties | 1,277,980 | 1,201,139 | ||||||
| Long-term debt – related parties | - | 108,228 | ||||||
| Other long-term liabilities | 9,006 | 16,696 | ||||||
| Total liabilities | 17,358,728 | 21,116,538 | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized; 167,972 shares issued and outstanding | 17 | 17 | ||||||
| Common stock, $0.0001 par value, 200,000,000 shares authorized; 31,857,327 and 11,698,697 Class A shares issued and outstanding, respectively | 3,186 | 1,170 | ||||||
| Additional paid-in capital | 45,596,815 | 30,735,815 | ||||||
| Subscriptions receivable | (200 | ) | (200 | ) | ||||
| Accumulated deficit | (34,722,050 | ) | (31,346,431 | ) | ||||
| Accumulated other comprehensive loss | (146,348 | ) | (38,024 | ) | ||||
| Total stockholders’ equity (deficit) | 10,731,420 | (647,653 | ) | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 28,090,148 | $ | 20,468,885 | ||||
See accompanying notes to unaudited consolidated condensed financial statements.
| F-1 |
Consolidated Condensed Statements of Operations and Comprehensive Loss
For the six months ended June 30, 2020 and 2019
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (Note 1) | (Note 1) | |||||||||||||||
| Revenues, net | $ | 7,827,718 | $ | 10,801,523 | $ | 13,550,767 | $ | 15,794,923 | ||||||||
| Cost of revenues | 5,137,168 | 7,812,079 | 9,269,157 | 11,133,412 | ||||||||||||
| Gross profit | 2,690,550 | 2,989,444 | 4,281,610 | 4,661,511 | ||||||||||||
| Operating expense: | ||||||||||||||||
| General and administrative expenses | 3,199,486 | 3,896,374 | 7,137,215 | 7,662,442 | ||||||||||||
| Research and development | 285,210 | 324,582 | 601,966 | 560,578 | ||||||||||||
| Total operating expense | 3,484,695 | 4,220,956 | 7,739,181 | 8,223,020 | ||||||||||||
| Loss from operations | (794,146 | ) | (1,231,512 | ) | (3,457,571 | ) | (3,561,509 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense, net | (628,216 | ) | (479,022 | ) | (1,087,536 | ) | (759,625 | ) | ||||||||
| Other income, net | 17,655 | 23,670 | 75,605 | 44,879 | ||||||||||||
| Changes in fair value of derivative liabilities | (74,363 | ) | 263,260 | (45,700 | ) | (1,899,235 | ) | |||||||||
| Gain from settlements of liabilities | 53,074 | - | 1,139,583 | 146,434 | ||||||||||||
| Total other income (expense) | (631,850 | ) | (192,092 | ) | 81,952 | (2,467,547 | ) | |||||||||
| Net loss | $ | (1,425,996 | ) | $ | (1,423,604 | ) | $ | (3,375,619 | ) | $ | (6,029,056 | ) | ||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | (1,425,996 | ) | (1,423,604 | ) | $ | (3,375,619 | ) | $ | (6,029,056 | ) | ||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation gain (loss) | (4,897 | ) | 22,962 | (108,324 | ) | (15,186 | ) | |||||||||
| Total comprehensive loss | $ | (1,430,893 | ) | $ | (1,400,642 | ) | $ | (3,483,943 | ) | $ | (6,044,242 | ) | ||||
| Net loss per common share – basic and diluted | $ | (0.08 | ) | $ | (0.13 | ) | $ | (0.22 | ) | $ | (0.58 | ) | ||||
| Weighted average number of common shares outstanding – basic and diluted | 17,637,458 | 10,590,451 | 15,065,644 | 10,424,054 | ||||||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
| F-2 |
Consolidated Condensed Statements of Changes in Stockholders’ Equity
For the three and six Months Ended June 30, 2020 and 2019
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Total stockholders’ (deficit) equity, beginning balances | $ | (672,308 | ) | $ | 1,799,274 | $ | (647,653 | ) | $ | 7,968,059 | ||||||
| Series A preferred stock | 17 | 25 | 17 | 25 | ||||||||||||
| Class A common stock and additional paid-in capital: | ||||||||||||||||
| Beginning balances | 32,765,380 | 28,493,844 | 30,736,985 | 27,280,949 | ||||||||||||
| Shares issued for: | ||||||||||||||||
| Cash | 10,693,937 | - | 10,693,937 | - | ||||||||||||
| Conversion of accounts payable | 702,608 | - | 1,269,275 | 382,525 | ||||||||||||
| Conversion of notes payable | 1,158,854 | - | 2,292,369 | - | ||||||||||||
| Acquisition | - | - | - | 500,000 | ||||||||||||
| Other share-based payments | - | 12,000 | 8,000 | 24,000 | ||||||||||||
| Closing fees for issuance of notes payable | 30,358 | - | 79,371 | 199,509 | ||||||||||||
| Stock compensation expense | 248,864 | 159,742 | 520,064 | 278,603 | ||||||||||||
| Ending balances | 45,600,001 | 28,665,586 | 45,600,001 | 28,665,586 | ||||||||||||
| Subscription receivable | ||||||||||||||||
| Beginning balances | (200 | ) | (225 | ) | (200 | ) | (225 | ) | ||||||||
| Payment received from stockholder | - | 25 | - | 25 | ||||||||||||
| Ending balances | (200 | ) | (200 | ) | (200 | ) | (200 | ) | ||||||||
| Other comprehensive loss | ||||||||||||||||
| Beginning balances | (141,451 | ) | (144,566 | ) | (38,024 | ) | (106,419 | ) | ||||||||
| Foreign currency translation loss | (4,897 | ) | 22,961 | (108,324 | ) | (15,186 | ) | |||||||||
| Ending balances | (146,348 | ) | (121,605 | ) | (146,348 | ) | (121,605 | ) | ||||||||
| Accumulated deficit | ||||||||||||||||
| Beginning balances | (33,296,054 | ) | (26,549,805 | ) | (31,346,431 | ) | (19,206,271 | ) | ||||||||
| Cumulative effects of adoption of new accounting standards in prior period | - | - | - | (2,738,082 | ) | |||||||||||
| Net loss | (1,425,996 | ) | (1,423,604 | ) | (3,375,619 | ) | (6,029,056 | ) | ||||||||
| Ending balances | (34,722,050 | ) | (27,973,409 | ) | (34,722,050 | ) | (27,973,409 | ) | ||||||||
| Total stockholders’ equity, ending balances | $ | 10,731,420 | $ | 570,397 | $ | 10,731,420 | $ | 570,397 | ||||||||
See accompanying notes to unaudited consolidated condensed financial statements.
| F-3 |
Consolidated Condensed Statements of Cash Flows
For the six Months Ended June 30, 2020 and 2019
(Unaudited)
| Six Months Ended | ||||||||
| June 30, 2020 | June 30, 2019 (Note 1) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,375,619 | ) | $ | (6,029,056 | ) | ||
| Adjustments to reconcile net loss to net cash (used) in operating activities: | ||||||||
| Amortization of debt discount | 407,297 | 143,448 | ||||||
| Bad debt expense | 93,290 | (52,134 | ) | |||||
| Gain on settlement of liabilities | (1,139,583 | ) | (146,434 | ) | ||||
| Change in allowance for sales returns and volume rebate | (69,130 | ) | (150,087 | ) | ||||
| Change in inventory reserve | (21,100 | ) | 91,726 | |||||
| Change in fair value of derivative liability | 45,700 | 1,899,235 | ||||||
| Change in fair value of earn-out payable | 3,552 | - | ||||||
| Shares issued for interest payment on notes payable | 147,184 | - | ||||||
| Stock compensation expense | 520,064 | 321,188 | ||||||
| Other share-based payments | 8,000 | 24,000 | ||||||
| Depreciation and amortization | 439,824 | 467,409 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable – trade | (1,716,041 | ) | (3,548,193 | ) | ||||
| Inventories | 507,924 | 1,259,485 | ||||||
| Prepaid expenses and other current assets | (1,407,027 | ) | (168,443 | ) | ||||
| Other assets | (6,134 | ) | - | |||||
| Accounts payable and accrued expenses | (195,910 | ) | 2,848,976 | |||||
| Warranty reserve | (10,062 | ) | (70,247 | ) | ||||
| Accounts payable and accrued expenses - related parties | 189,982 | (615,759 | ) | |||||
| Other short-term liabilities | (857 | ) | 32,061 | |||||
| Deferred revenues | (627,021 | ) | (310,069 | ) | ||||
| Other liabilities | (7,690 | ) | - | |||||
| Net cash (used) in operating activities | $ | (6,213,357 | ) | $ | (4,002,894 | ) | ||
| Cash flows from investing activities: | ||||||||
| Cash paid related to acquisition | (100,000 | ) | - | |||||
| Cash receipts from acquisitions | 747 | 10,261 | ||||||
| Net cash (used) provided by investing activities | (99,253 | ) | 10,261 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from subscription receivable | - | 25 | ||||||
| Net Proceeds from issuance of common stock | 10,693,937 | - | ||||||
| Proceeds from payment protection plan loan | 1,008,575 | - | ||||||
| Proceeds from short-term debt | 5,666,844 | 9,675,867 | ||||||
| Principal payments on short-term debt | (6,697,113 | ) | (9,454,143 | ) | ||||
| Proceeds from convertible notes payable | 750,000 | 4,000,000 | ||||||
| Debt issuance costs | (41,250 | ) | (170,000 | ) | ||||
| Net cash provided by financing activities | $ | 11,380,993 | $ | 4,051,749 | ||||
| Effect of foreign currency exchange rates | (108,324 | ) | (15,186 | ) | ||||
| Net increase in cash and cash equivalents | 4,960,059 | 43,930 | ||||||
| Cash and cash equivalents, beginning of the period | 1,172,994 | 901,459 | ||||||
| Cash and cash equivalents, end of the period | $ | 6,133,053 | $ | 945,389 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest | $ | 887,046 | $ | 744,744 | ||||
| Non-cash investment and financing transactions: | ||||||||
| Shares issued to convert accounts payable | $ | 1,269,275 | $ | - | ||||
| Shares issued to convert notes payable – Lind Global | $ | 2,292,369 | $ | 382,525 | ||||
| Shares issued for closing fees related to outstanding notes payable | $ | 79,371 | $ | 199,509 | ||||
| Notes payable issued as consideration for acquisition of MyStemKit | $ | 350,000 | $ | - | ||||
| Shares and notes payable issued as consideration for acquisition of Modern Robotics, Inc. net of cash received | $ | - | $ | 559,739 | ||||
See accompanying notes to unaudited consolidated condensed financial statements.
| F-4 |
Notes to the Unaudited Consolidated Condensed Financial Statements
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Boxlight Corporation (the “Company” or “Boxlight Parent”) was incorporated in the State of Nevada on September 18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational products. In 2016, the Company acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”), Mimio LLC (“Mimio”) and Genesis Collaboration, LLC (“Genesis”). In 2018, the Company acquired Cohuborate Ltd. (“Cohuba”), Qwizdom Inc. and its subsidiary Qwizdom UK Limited (“Qwizdom Companies”) and EOSEDU, LLC (“EOS”). In 2019, the Company acquired Modern Robotics, Inc. (“MRI”). The Company currently designs, produces and distributes interactive technology solutions to the education market. In 2020, the Company acquired MyStemKits Inc., (“MyStemKits”). MyStemKits is in the business of developing, selling and distributing 3D printable science, technology, engineering and math curriculums incorporating 3D printed project kits for education, and owns the right to manufacture, market and distribute Robo 3Dbranded 3D printers and associated hardware for the global education market.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements include the accounts of Boxlight Parent, Boxlight Group, Mimio, Genesis, Cohuba, Qwizdom Companies, EOS, MRI and MyStemKits. Transactions and balances among all of the companies have been eliminated.
The accompanying unaudited consolidated condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited consolidated condensed financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The unaudited consolidated condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in the consolidated financial statements have been condensed. The December 31, 2019 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally, including our business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19 and its effects on the U.S. and global economy, it is reasonably possible that it could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. These estimates relate to certain accounts including, but not limited to, the valuation allowance related to deferred taxes, intangible assets, and other long-lived assets. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict or prepare for, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions taken in response to the pandemic, changes in consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at contractual amounts, net of an allowance for doubtful accounts. The allowance for doubtful accounts represents management’s estimate of the amounts that ultimately will not be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of receivables and knowledge of the individual customers. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required.
| F-5 |
INVENTORIES
Inventories are stated at the lower of cost or net realizable value and includes spare parts and finished goods. Inventories are primarily determined using the specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes direct cost from the contract manufacturer (“CM”) or original equipment received from the manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and the mix of products in inventory, as well as changes in consumer preferences, market and economic conditions.
Intangible assets AND GOODWILL
Intangible assets, other than goodwill are amortized using the straight-line method over their estimated period of benefit. We periodically evaluate the recoverability of intangible assets, other than goodwill, and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a market approach. Goodwill is not amortized and is not deductible for tax purposes.
DERIVATIVES
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts receivables and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. Debt approximates fair value due to either the short-term nature or recent execution of the debt agreement. The amount of consideration received is deemed to be the fair value of long-term debt net of any debt discount and issuance cost.
Derivative liabilities and the earn–out payable are recorded at fair value at each period end.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
| F-6 |
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:
| Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | Carrying June 30, | |||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | 2020 | ||||||||||||
| Derivative liabilities - warrant instruments | $ | - | $ | - | $ | 192,304 | $ | 192,304 | ||||||||
| Earn-out payable – related party | 122,372 | 122,372 | ||||||||||||||
| Note Payable – STEM Education Holdings | - | - | 350,000 | 350,000 | ||||||||||||
| $ | 664,676 | $ | 664,676 | |||||||||||||
| Markets for Identical Assets | Other Observable Inputs | Significant Unobservable Inputs | Carrying December 31, | |||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | 2019 | ||||||||||||
| Derivative liabilities - warrant instruments | $ | - | $ | - | $ | 146,604 | $ | 146,604 | ||||||||
| Earn-out payable – related party | - | - | 387,118 | 387,118 | ||||||||||||
| $ | 533,722 | $ | 533,722 | |||||||||||||
The following table shows the change in the Company’s earn-out payable rollforward for the six months ended June 30, 2020:
| Amount | ||||
| Balance, December 31, 2019 | $ | 387,118 | ||
| Amount paid | (268,298 | ) | ||
| Change in fair value of earn-out payable | 3,552 | |||
| Balance, June 30, 2020 | $ | 122,372 | ||
See rollforward of Derivative liabilities - warrant instruments in Note 10.
REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.
| F-7 |
Nature of Products and Services and Related Contractual Provisions
The Company’s sales of interactive devices, including panels, projectors, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms ranging from 36 – 60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms ranging from 36-60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content, access to replacement parts, and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s products sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers, and therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For software product sales, control is transferred when the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.
The Company’s installation, training and professional development services are generally sold separately from the Company’s products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is performed.
For the sale of third-party products and services where the Company obtains control of the products and services before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product or service. The Company has not historically entered into transactions where it does not take control of the product or service prior to transfer to the customer.
The Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated condensed balance sheets.
Significant Judgments
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. When pricing is highly variable or uncertain, the Company applies the residual approach to determining SSP by subtracting the SSP of other products or services from the total transaction price to arrive at the SSP for the performance obligations with highly variable or uncertain pricing. When multiple performance obligations in a contract have highly variable or uncertain pricing, the Company allocates the residual value to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.
| F-8 |
The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that contain the same performance obligations and are priced in a consistent manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated condensed balance sheets. Fees for the Company’s products and most of its service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional development services are fixed and generally become due as the services are performed. The Company has an established history of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In such contracts services are expected to be transferred on an ongoing basis for several years after the related payment, and the Company has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues to use the related services, so that the customer will receive the optimal benefit from the products over their lives. Additionally, the Company has elected the practical expedient to exclude any financing component from consideration for contracts where, at contract inception, the period between the transfer of services and the timing of the related payment is not expected to exceed one year.
The Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional right to consideration is reflected in accounts receivable in the accompanying consolidated condensed balance sheets in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Contract liabilities are reflected in deferred revenue in the accompanying consolidated condensed balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance, hardware maintenance, and subscription services. The Company had no material contract assets as of June 30, 2020 or December 31, 2019. During the six months ended June 30, 2020 and June 30, 2019, the Company recognized $0.7 million and $0.7 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of each period, as adjusted for Topic 606, at the beginning of the period.
Variable Consideration
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, or in connection with certain rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case by case basis, will grant exceptions, most often in cases of “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering or determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. In addition, rebates are provided to certain customers when specified volume purchase thresholds have been met. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each reporting date. There was no material revenue recognized in 2020 related to changes in estimated variable consideration that existed at December 31, 2019.
| F-9 |
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of June 30, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was approximately $3.9 million. The Company expects to recognize revenue on approximately 24% of the remaining performance obligations in 2020, 57% in 2021 and 2022, with the remainder recognized thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.
Disaggregated Revenue
The Company disaggregates revenue based upon the nature of its products and services and the timing and manner in which it is transferred to the customer. Although all product revenue is transferred to the customer at a point in time, hardware revenue is generally transferred at the point of shipment, while software is generally transferred to the customer at the time the hardware is received by the customer or when software product keys are delivered electronically to the customer. All service revenue is transferred over time to the customer; however, professional services are generally transferred to the customer within a year from the contract date as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over 3-5 years from the contract execution date as measured based upon the passage of time.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Product Revenues: | ||||||||||||||||
| Hardware | $ | 6,656,167 | $ | 9,698,634 | $ | 11,445,995 | $ | 14,013,733 | ||||||||
| Software | 286,784 | 580,250 | 444,539 | 616,813 | ||||||||||||
| Service Revenues: | ||||||||||||||||
| Professional Services | 353,802 | 204,600 | 696,112 | 495,122 | ||||||||||||
| Maintenance and Subscription Services | 530,964 | 318,039 | 964,121 | 669,255 | ||||||||||||
| $ | 7,827,718 | $ | 10,801,523 | $ | 13,550,767 | $ | 15,794,923 | |||||||||
Contract Costs
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g. a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:
| ● | The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify. | |
| ● | The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future. | |
| ● | The costs are expected to be recovered. |
| F-10 |
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain where the period of amortization would have been recognized over a period that is one year or less, the Company elected the practical expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets based on the timing of when the Company expects to recognize the expense, and are included in prepaid and other assets and other assets, respectively, in the accompanying consolidated condensed balance sheets. Total deferred commissions as of June 30, 2020 and December 31, 2019 and the related amortization for 2019 were less than $0.1 million. No impairment losses were recognized for the six months ended June 30, 2020 and 2019.
The Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
The Company’s consolidated condensed statements of operations and cash flows for the six months ended June 30, 2019 were recorded under the prior GAAP, without including the adjustments now required under Topic 606. As such, we have revised these statements to be comparable to the June 30, 2020 period which are recorded under Topic 606.
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of operations for the three and six months ended June 30, 2019:
Reconciliation of Topic 606 Adjustments for the
three months ended June 30, 2019
| Balances under | Balances under | |||||||||||
| Topic 606 | Adjustments | Prior GAAP | ||||||||||
| STATEMENT OF OPERATIONS | ||||||||||||
| Revenues | $ | 10,801,523 | $ | (294,493 | ) | $ | 11,096,016 | |||||
| Cost of revenues | 7,812,079 | (35,711 | ) | 7,847,790 | ||||||||
| Gross profit | 2,989,444 | (258,782 | ) | 3,248,226 | ||||||||
| General and administrative expenses | 3,896,374 | 2,220 | 3,894,154 | |||||||||
| Total operating expense | 4,220,956 | 2,220 | 4,218,736 | |||||||||
| Loss from operations | (1,231,512 | ) | (261,002 | ) | (970,510 | ) | ||||||
| Net loss/income | $ | (1,423,604 | ) | $ | (261,002 | ) | $ | (1,162,602 | ) | |||
| Net loss per common share – basic and diluted | $ | (0.13 | ) | $ | (0.02 | ) | $ | (0.11 | ) | |||
Reconciliation of Topic 606 Adjustments for the
six months ended June 30, 2019
| Balances under | Balances under | |||||||||||
| Topic 606 | Adjustments | Prior GAAP | ||||||||||
| STATEMENT OF OPERATIONS | ||||||||||||
| Revenues | $ | 15,794,923 | $ | (313,807 | ) | $ | 16,108,730 | |||||
| Cost of revenues | 11,133,412 | (142,552 | ) | 11,275,964 | ||||||||
| Gross profit | 4,661,511 | (171,255 | ) | 4,832,766 | ||||||||
| General and administrative expenses | 7,662,442 | 8,176 | 7,654,266 | |||||||||
| Total operating expense | 8,223,020 | 8,176 | 8,214,844 | |||||||||
| Loss from operations | (3,561,509 | ) | (179,431 | ) | (3,382,078 | ) | ||||||
| Net loss/income | $ | (6,029,056 | ) | $ | (179,431 | ) | $ | (5,849,625 | ) | |||
| Net loss per common share – basic and diluted | $ | (0.58 | ) | $ | (0.02 | ) | $ | (0.56 | ) | |||
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the six months ended June 30, 2019:
| Balances under | Balances under | |||||||||||
| Topic 606 | Adjustments | Prior GAAP | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (6,029,056 | ) | $ | (179,431 | ) | $ | (5,849,625 | ) | |||
| Prepaid expense and other current assets | (168,443 | ) | 8,176 | (176,619 | ) | |||||||
| Warranty reserve | (70,247 | ) | (142,552 | ) | 72,305 | |||||||
| Deferred revenues | (310,069 | ) | 313,807 | (623,876 | ) | |||||||
| Cash used for operating activities | $ | 4,002,894 | $ | - | $ | 4,002,894 | ||||||
| F-11 |
WARRANTY RESERVE
For customers that do not purchase hardware maintenance services, the Company generally provides warranty coverage on projectors and accessories, batteries and computers. This warranty coverage does not exceed 24 months, and the Company establishes a liability for estimated product warranty costs, included in other short-term liabilities in the consolidated condensed statements of operations, at the time the related product revenue is recognized. The warranty obligation is affected by historical product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred and consists primarily of personnel related costs, prototype and sample costs, design costs, and global product certifications mostly for wireless certifications.
INCOME TAXES
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
STOCK COMPENSATION
The Company estimates the fair value of each stock compensation award at the grant date by using the Black-Scholes option pricing model. The fair value determination represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award.
| F-12 |
NEW ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Since the Company is an Emerging Growth Company, the ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December 15, 2021. Earlier application is permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows.
NOTE 2 – LIQUIDITY
These consolidated condensed financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The long-term continuation of the Company as a going concern is dependent upon attainment of profitable operations. As of June 30, 2020, the Company had an accumulated deficit of $34,722,050 and a working capital surplus of $3,809,365. During the six months ended June 30, 2020, the Company incurred a net loss of $3,375,619 and net cash used in operations was $6,213,357. During June and July of 2020, the Company raised significant capital and is not dependent on obtaining funds for operations through public or private sales of equity and debt securities or from bank or other loans in the near term.
| F-13 |
NOTE 3 – ACQUISITIONS
The acquisition described below was accounted for as a business combination which requires, among other things, that assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired would be recorded as goodwill. The Company has not yet finalized its evaluation and determination of the fair value of certain assets acquired and liabilities assumed. The Company recorded provisional amounts based on initial measurements of the assets acquired and liabilities assumed. The provisional amounts are subject to change and could result in goodwill, which could be significant. The Company will finalize the amounts recognized no later than one year from the acquisition date.
On April 17, 2020, the Company acquired the assets, and assumed certain liabilities of MyStemKits and STEM Education Holdings, Pty, an Australian corporation (“STEM”) which is the sole shareholder of MyStemKits, for consideration of $450,000, after working capital adjustments of $150,000. Consideration included $100,000 paid in cash at closing with the balance payable in the form of a $350,000 purchase note payable in four equal installments of $87,500 (the “Installment Payments”) on July 31, 2020, October 31, 2020, January 31, 2021 and April 30, 2021. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits is materially below budget.
| Assets acquired: | ||||
| Cash | $ | 747 | ||
| Inventories | 36,159 | |||
| Total assets acquired | 36,906 | |||
| Total liabilities assumed | (33,555 | ) | ||
| Net assets acquired | 3,351 | |||
| Customer relationships | 148,883 | |||
| Trademarks | 148,883 | |||
| Technology | $ | 148,883 | ||
| Consideration paid: | ||||
| Cash | $ | 100,000 | ||
| Note Payable | 350,000 | |||
| Total | $ | 450,000 |
NOTE 4 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at June 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Accounts receivable - trade | $ | 6,238,395 | $ | 4,522,352 | ||||
| Allowance for doubtful accounts | (451,515 | ) | (358,225 | ) | ||||
| Allowance for sales returns and volume rebates | (429,940 | ) | (499,070 | ) | ||||
| Accounts receivable - trade, net of allowances | $ | 5,356,940 | $ | 3,665,057 | ||||
NOTE 5 – INVENTORIES
Inventories consisted of the following at June 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Finished goods | $ | 2,769,796 | $ | 3,239,038 | ||||
| Spare parts | 270,557 | 273,080 | ||||||
| Reserve for inventory obsolescence | (172,161 | ) | (193,261 | ) | ||||
| Inventories, net | $ | 2,868,192 | $ | 3,318,857 | ||||
NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following at June 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Prepayments to vendors | $ | 2,961,653 | $ | 1,389,044 | ||||
| Prepaid licenses and other | 206,430 | 315,354 | ||||||
| Prepaid local taxes | 4,685 | 26,088 | ||||||
| Prepaid insurance | - | 35,255 | ||||||
| Prepaid expenses and other current assets | $ | 3,172,768 | $ | 1,765,741 | ||||
| F-14 |
NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Building | $ | 199,708 | $ | 199,708 | ||||
| Building improvements | 9,086 | 9,086 | ||||||
| Leasehold improvements | 3,355 | 3,355 | ||||||
| Office equipment | 40,062 | 40,062 | ||||||
| Other equipment | 42,485 | 42,485 | ||||||
| Property and equipment, at cost | 294,696 | 294,696 | ||||||
| Accumulated depreciation | (96,043 | ) | (87,299 | ) | ||||
| Property and equipment, net of accumulated depreciation | $ | 198,653 | $ | 207,397 | ||||
For the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $8,744 and $16,768, respectively.
NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consisted of the following at June 30, 2020 and December 31, 2019:
| Useful lives | 2020 | 2019 | ||||||||
| Patents | 9 years | $ | 81,683 | $ | 81,683 | |||||
| Customer relationships | 10 years | 4,158,238 | 4,009,355 | |||||||
| Technology | 5 years | 420,468 | 271,585 | |||||||
| Domain | 15 years | 13,955 | 13,955 | |||||||
| Trademarks | 10 years | 4,066,473 | 3,917,590 | |||||||
| Intangible assets, at cost | 8,740,817 | 8,294,168 | ||||||||
| Accumulated amortization | (3,166,151 | ) | (2,735,071 | ) | ||||||
| Intangible assets, net of accumulated amortization | $ | 5,574,666 | $ | 5,559,097 | ||||||
| Goodwill from acquisition of EOS | N/A | $ | 78,411 | $ | 78,411 | |||||
| Goodwill from acquisition of Qwizdom | N/A | 463,147 | 463,147 | |||||||
| Goodwill from acquisition of Mimio | N/A | 44,931 | 44,931 | |||||||
| Goodwill from acquisition of Boxlight | N/A | 4,137,060 | 4,137,060 | |||||||
| $ | 4,723,549 | $ | 4,723,549 | |||||||
For the six months ended June 30, 2020 and 2019, the Company recorded amortization expense of $431,080 and $450,641, respectively.
| F-15 |
NOTE 9 – DEBT
The following is a summary of our debt as of June 30, 2020 and December 31, 2019:
| 2020 | 2019 | |||||||
| Debt – Third Parties | ||||||||
| Note payable – Lind Global | $ | 4,079,166 | $ | 4,797,221 | ||||
| Accounts receivable financing – Sallyport Commercial | 1,639,251 | 1,551,500 | ||||||
| Paycheck Protection Program loan | 1,008,575 | - | ||||||
| Note Payable – STEM Education Holdings | 350,000 | - | ||||||
| Total debt – third parties | 7,076,992 | 6,348,721 | ||||||
| Less: Discount and issuance cost – Lind Global | 410,662 | 611,355 | ||||||
| Current portion of debt – third parties | 5,388,350 | 4,536,227 | ||||||
| Long-term debt – third parties | $ | 1,277,980 | $ | 1,201,139 | ||||
| Debt – Related Parties | ||||||||
| Note payable – Qwizdom (Darin & Silvia Beamish) | $ | 381,563 | $ | 381,563 | ||||
| Note payable – Mark Elliott | 2,163 | 23,548 | ||||||
| Note payable – Steve Barker | - | 17,500 | ||||||
| Note payable – Logical Choice Corporation – Delaware | - | 54,000 | ||||||
| Total debt – related parties | 383,726 | 476,611 | ||||||
| Less: current portion of debt – related parties | 383,726 | 368,383 | ||||||
| Long-term debt – related parties | $ | - | $ | 108,228 | ||||
| Total debt | $ | 7,050,056 | $ | 6,213,977 | ||||
Debt - Third Parties:
Lind Global Marco Fund, LP
On March 22, 2019, the Company entered into a securities purchase agreement with Lind that contemplates a $4,000,000 working capital financing. The investment is in the form of a $4,400,000 principal amount convertible secured Boxlight Parent note, payable at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the option of Lind into the Company’s Class A voting common stock at a fixed conversion price of $4.00 per share. The Company will have the right to convert up to 50% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $8.00 for 30 consecutive days; and convert up to 100% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $12.00 for 30 consecutive days. A commitment fee in the amount of $125,000 was paid to Lind.
The Company paid Lind $275,428 for closing fees by issuing 108,091 shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company paid principal of $1,466,666 and $977,778, respectively, interest of $91,259 and $106,643, respectively, through issuance of Class A common stock to Lind.
On December 13, 2019, the Company entered into a second securities purchase agreement with Lind that contemplates a $1,250,000 working capital financing. The investment is in the form of a $1,375,000 principal amount convertible secured Boxlight Parent note, payable at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the option of Lind into the Company’s Class A voting common stock at a fixed conversion price of $2.50 per share. The Company will have the right to convert up to 50% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $5.00 for 30 consecutive days; and convert up to 100% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $6.25 for 30 consecutive days. A commitment fee in the amount of $43,750 was paid to Lind. The Company paid Lind $93,022 for closing fees by issuing 69,420 shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company paid principal of $76,388 and $0, respectively, interest of $55,925 and $0, respectively, through issuance of Class A common stock to Lind.
On February 4, 2020, the Company and Lind entered into a third securities purchase agreement pursuant to which the Company is to receive on February 6, 2020 $750,000 in exchange for the issuance to Lind of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded monthly (the “2020 Note”), (2) certain shares of restricted Class A common stock valued at $60,000, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment fee of $26,250. The Note matures over 24 months, with repayment to commence on August 4, 2020, after which time the Company will be obligated to make monthly payments of $45,833, plus interest. Interest shall accrue during the first six months of the note, after which time the interest payments, including accrued interest will be payable monthly in either conversion shares or in cash. A commitment fee in the amount of $26,250 was paid to Lind. The Company paid Lind $60,000 for closing fees by issuing 44,557 shares of Class A common stock.
As of June 30, 2020 the outstanding principal net of debt issuance cost and discount, and accrued interest owed to Lind were $3,668,504 and $62,872, respectively. As of December 31, 2019, the outstanding principal net of debt issuance cost and discount, and accrued interest owed to Lind were $4,185,866 and $5,425, respectively. Principal of $3,417,537 is due within one year from June 30, 2020.
| F-16 |
Accounts Receivable Financing – Sallyport Commercial Finance
On August 15, 2017, Boxlight Inc., and Genesis Collaboration, LLC (“Genesis”) entered into a 12-month term account sale and purchase agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 85% of the eligible accounts receivable of the Company with a right of recourse back to the Company if the receivables are not collectible. This agreement requires a minimum monthly sales volume of $1,250,000 with a maximum facility limit of $6,000,000. Advances against this agreement accrue interest at the rate of 4.00% in excess of the highest prime rate publicly announced from time to time with a floor of 4.25%. In addition, the Company is required to pay a daily audit fee of $950 per day. The Company granted Sallyport a security interest in all of the assets of Boxlight Inc. and Genesis.
As of June 30, 2020, outstanding principal and accrued interest were $1,639,251 and $0, respectively. For the six months ended June 30, 2020, the Company incurred interest expense of $411,267.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of approximately $1,008,575 under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loans and accrued interest received under the PPP are forgivable to the extent borrowers use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains their payroll levels during the designated eight-week period prior to which the PPP would otherwise be repayable. The amount of loan forgiveness is reduced if the borrower terminates employees or reduces salaries during the eight-week period.
The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP.
As of June 30, 2020, outstanding principal and accrued interest were $1,008,575 and $1,121, respectively.
STEM Education Holdings
On April 17, 2020, the Company issued a note to STEM Education Holdings, the sole shareholder of MyStemKits, in the amount of $350,000 bearing a 7% interest rate. The note was issued as part of the purchase price pursuant to the asset purchase agreement. The principal is payable in four equal installments of $87,500. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits continues to be materially below budget. As of June 30, 2020, outstanding principal and accrued interest under this note were $350,000 and $5,036, respectively.
Debt - Related Parties:
Long Term Note Payable- Qwizdom Shareholders
On June 22, 2018, the Company issued a note to Darin and Silvia Beamish, the previous 100% shareholders of Qwizdom, in the amount of $656,000 bearing an 8% interest rate. The note was issued as a part of the purchase price pursuant to a stock purchase agreement. The principal and accrued interest of the $656,000 note is due and payable in 12 equal quarterly installments. The first quarterly payment was due September 2018 and subsequent quarterly payments are due through June 2021. Principal and accrued interest become due and payable in full upon the completion of a public offering of Class A common stock or private placement of debt or equity securities for $10,000,000 or more. As of June 30, 2020, outstanding principal and accrued interest under this note were $381,563 and $22,555, respectively. As of December 31, 2019, outstanding principal and accrued interest under this agreement was $381,563 and $7,334, respectively. Principal in the amount of $381,563 is due within a year from June 30, 2020.
Note Payable – Steve Barker
On March 12, 2019, the Company purchased the net assets of MRI for 200,000 shares of the Company’s Class A common stock and a $70,000 note payable. The note was paid in full on March 31, 2020.
Line of Credit - Logical Choice Corporation-Delaware
On May 21, 2014, the Company entered into a line of credit agreement (the “LCC Line of Credit”) with Logical Choice Corporation, a-Delaware corporation (“LCC-Delaware”), the former sole member of Genesis. The LCC Line of Credit allowed the Company to borrow up to $500,000 for working capital and business expansion. The funds when borrowed accrued interest at the rate of 10% per annum. The note was paid in full on June 26, 2020.
Note Payable – Mark Elliott
On January 16, 2015, the Company issued a note to James Mark Elliott, the Company’s Chief Executive Officer, in the amount of $50,000. The note, as later amended, was due on December 31, 2019 and bears interest at an annual rate of 10%, compounded monthly. The note is convertible into the Company’s common stock at the lesser of (i) $6.28 per share, (ii) a discount of 20% to the stock price if the Company’s common stock is publicly traded, or (iii) if applicable, such other amount negotiated by the Company. The note holder may convert all, but not less than all, of the outstanding principal and interest due under this note. On July 3, 2018, Mr. Elliott and the Company amended the note to eliminate the conversion provision of the note. As of June 30, 2020, outstanding principal and accrued interest under this note were $2,163 and $1,744, respectively. The note is currently in default. As of December 31, 2019, outstanding principal and accrued interest under this note were $23,548 and $593, respectively.
| F-17 |
NOTE 10 – DERIVATIVE LIABILITIES
The Company had issued warrants that contain net cash settlement provisions or do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future. The Company concluded that the warrants should be accounted for as derivative liabilities. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at June 30, 2020 and 2019:
| June 30, 2020 | ||||
| Common stock issuable upon exercise of warrants | 295,000 | |||
| Market value of common stock on measurement date | $ | 0.92 | ||
| Exercise price | $ | 0.43 | ||
| Risk free interest rate (1) | 0.16 | % | ||
| Expected life in years | 1.50 years | |||
| Expected volatility (2) | 122.90 | % | ||
| Expected dividend yields (3) | 0 | % | ||
| June 30, 2019 | ||||
| Common stock issuable upon exercise of warrants | 1,189,949 | |||
| Market value of common stock on measurement date | $ | 3.07 | ||
| Exercise price | $ | 1.20 to 2.78 | ||
| Risk free interest rate (1) | 1.71 – 2.09 | % | ||
| Expected life in years | 0.5-2.5 years | |||
| Expected volatility (2) | 74-76 | % | ||
| Expected dividend yields (3) | 0 | % | ||
| (1) | The risk-free interest rate was determined by management using the applicable Treasury Bill as of the measurement date. | |
| (2) | The expected volatility was determined by calculating the volatility of the Company’s common stock. | |
| (3) | The Company does not expect to pay a dividend in the foreseeable future. |
The following table shows the change in the Company’s derivative liabilities rollforward for the six months ended June 30, 2020 and 2019:
| Amount | ||||
| Balance, December 31, 2019 | $ | 146,604 | ||
| Change in fair value of derivative liabilities | 45,700 | |||
| Balance, June 30, 2020 | $ | 192,304 | ||
| Amount | ||||
| Balance, December 31, 2018 | $ | 326,452 | ||
| Initial valuation of derivative liabilities upon issuance of warrants | 42,585 | |||
| Change in fair value of derivative liabilities | 1,899,235 | |||
| Balance, June 30, 2019 | $ | 2,268,272 | ||
The change in fair value of derivative liabilities includes losses from exercise price modifications.
NOTE 11 – EQUITY
Preferred Shares
The Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 shares of preferred stock consisting of: 1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,200,000 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 270,000 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) 48,280,000 shares of “blank check” preferred stock to be designated by the Company’s Board of Directors.
| F-18 |
At the time of the Company’s initial public offering, 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital for the acquisition of Genesis. All of the Series A preferred stock was convertible into 398,406 shares of Class A common stock. On August 5, 2019, 82,028 of these preferred shares were converted into 130,721 shares of Class A common stock.
Common Stock
The Company’s common stock consists of 1) 150,000,000 shares of Class A voting common stock and 2) 50,000,000 shares of Class B non-voting common stock. Class A and Class B common stock have the same rights except that Class A common stock is entitled to one vote per share while Class B common stock has no voting rights. Upon any public or private sale or disposition by any holder of Class B common stock, such shares of Class B common stock shall automatically convert into shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company had 31,857,327 and 11,698,697 shares of Class A common stock issued and outstanding, respectively. No Class B shares were outstanding at June 30, 2020 and December 31, 2019.
Issuance of common stock
Public Offering
On June 11, 2020, the Company issued 13,333,333 shares of the Company’s Class A common stock at a public offering price of $0.75 per share. In addition, on June 24, 2020 the Company issued an additional 1,999,667 shares of Class A common stock to the underwriter at $0.75 per share. Gross proceeds from the issuances were $11,499,750. Net proceeds were $10,593,937 after deducting underwriting discounts and offering expenses of $905,814.
Debt Conversion
During the period ended June 30, 2020, the Company issued 2,340,056 shares of Class A common stock in lieu of $2,929,369 in principal and interest payments due in relation to notes payable to Lind Global. In addition, the Company issued 80,467 shares of Class A common stock in lieu of payment of the closing fees of the convertible debt with an aggregate amount of $79,371 to Lind Global.
Accounts Payable Conversion
During the period ended June 30, 2020, the Company entered into an agreement with a related party, Everest Display, Inc., to convert $3.0 million in accounts payable owed in exchange for 2,202,898 shares of Class A common stock with an aggregate value of $1,269,275 resulting in the Company recording a $1,730,725 gain from settlement of liabilities.
Other
On April 17, 2020, the Company issued 142,857 shares to Stemify at a purchase price of $0.70 per share for a total proceeds of $100,000.
On June 30, 2020, the Company issued 52,241 shares to Michael Pope as part of his stock compensation as the Chief Executive Officer. The shares vested during the second quarter of the year.
During the period ended June 30, 2020, the Company issued 7,111 shares of Class A common stock in lieu of payment for services with an aggregate amount of $8,000.
Exercise of stock options
No options to purchase common stock were exercised during the six months ended June 30, 2020.
NOTE 12 – STOCK COMPENSATION
The total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s 2014 Equity Inventive Plan, as amended (the “Equity Incentive Plan”), is 2,690,438 shares. Grants made under the Equity Incentive Plan must be approved by the Company’s Board of Directors. As of June 30, 2020, the Company had 747,011 shares reserved for issuance under the Equity Incentive Plan.
On April 15, 2020, the Equity Incentive Plan was amended, whereby the Board of Directors approved increasing the shares available for issuance under the Equity Incentive Plan by 3,700,000 shares; the Company is seeking shareholder approval of the aforementioned action at the Company’s upcoming annual meeting, to be held on September 4, 2020.
| F-19 |
Stock Options
Under our stock option program, pursuant to the Equity Incentive Plan, an employee receives an award that provides the opportunity in the future to purchase the Company’s shares at the market price of our stock on the date the award is granted (strike price). The options become exercisable over a range of immediately vested to four-year vesting periods and expire five years from the grant date, unless stated differently in the option agreements, if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through compensation expense. We record compensation expense based on the estimated fair value of the awards which is amortized as compensation expense on a straight-line basis over the vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are forfeited by employees that leave the Company prior to vesting.
Following is a summary of the option activities during the six months ended June 30, 2020:
| Number of Units | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
|||||||||||
| Outstanding, December 31, 2019 | 2,384,688 | $ | 3.35 | 4.15 | |||||||||
| Granted | 2,900,000 | 0.75 | |||||||||||
| Cancelled | (384,761 | ) | 4.03 | ||||||||||
| Outstanding, June 30, 2020 | 4,899,927 | 1.76 | 4.10 | ||||||||||
| Exercisable, June 30, 2020 | 1,884,562 | 3.01 | 3.25 | ||||||||||
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As of June 30, 2020, the options had an intrinsic value of approximately $0.8 million.
On April 15, 2020, the Company granted an aggregate of 2,550,000 stock options in total to its employees with an exercise price of $0.70 per share vesting monthly over four years. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $1,503,645 on the grant date.
On January 13, 2020, the Company granted 50,000 stock options to Mark Elliott as part of his new employment agreement as the Company’s Chief Commercial Officer with an exercise price of $1.20 per share, which options vest monthly over one-year period. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $46,700 on the grant date that was calculated using the Black-Scholes option-pricing model.
On January 2, 2020, the Company granted 100,000 stock options each, for a total of 300,000 options to purchase common stock, to its President, Chairman and Chief Executive Officer, its Chief Commercial Officer and its Chief Operating Officer; such options have an exercise price of $1.30 per share, and vest monthly over one-year period. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $268,512 on the grant date that was calculated using the Black-Scholes option-pricing model.
Variables used in the Black-Scholes option-pricing model for options granted during the six months ended June 30, 2020 include: (1) discount rate of 0.29% – 1.61%, (2) expected life, using simplified method, of 3- 4 years, (3) expected volatility of 141%, and (4) zero expected dividends.
Warrants
Following is a summary of the warrant activities during the six months ended June 30, 2020:
| Number of Units | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | |||||||||||
| Outstanding, December 31, 2019 | 350,000 | $ | 2.20 | 2.11 | |||||||||
| Granted | 20,000 | 0.70 | |||||||||||
| Cancelled | (5,000 | ) | 4.80 | ||||||||||
| Outstanding, June 30, 2020 | 365,000 | 2.06 | 1.78 | ||||||||||
| Exercisable, June 30, 2020 | 345,000 | 2.14 | 1.60 | ||||||||||
On April 20, 2020, the Company granted 20,000 stock options to Ryan Legudi, the managing director of Stemify, as part of his compensation with an exercise price of $0.70 per share, which options vest quarterly over four-year period. The expiration of these options is five years from the grant date. The options had an aggregated fair value of approximately $16,444 on the grant date.
Stock compensation expense
For the six months ended June 30, 2020 and 2019, the Company recorded the following stock compensation in general and administrative expense:
| 2020 | 2019 | |||||||
| Stock options | $ | 498,742 | $ | 278,603 | ||||
| Restricted stock award | 21,322 | - | ||||||
| Warrants | - | 42,585 | ||||||
| Total stock compensation expense | $ | 520,064 | $ | 321,188 | ||||
| F-20 |
As of June 30, 2020, there was approximately $2.3 million of unrecognized compensation expense related to unvested options, which will be amortized over the remaining vesting period. Of that total, approximately $0.6 million is estimated to be recorded as compensation expense in the remaining six months of 2020.
NOTE 13 – OTHER RELATED PARTY TRANSACTIONS
Management Agreement
On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by our Chief Executive Officer, President and Director, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment agreement with the Company. The Management Agreement, effective as of the first day of the same month that Mr. Pope’s employment with the Company terminates, and, for a term of 13 months thereafter, Mr. Pope will provide consulting services to the Company including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration for the services provided, the Company will pay a management fee equal to 0.375% of the consolidated net revenues of the Company, payable in monthly installments, not to exceed $250,000 in any calendar year. At his option, Mr. Pope may defer payment until the end of each year and receive payment in the form of shares of the Company’s Class A common stock.
Sales and Purchases - EDI
Everest Display Inc. (“EDI”), an affiliate of the Company’s major shareholder K-Laser Technology, Inc., is a major supplier of products to the Company. For the six months ended June 30, 2020 and 2019, the Company had purchases of $317,327 and $379,627, respectively, from EDI. For the six months ended June 30, 2020 and 2019, the Company had sales of $35,654 and $21,336, respectively, to EDI. The Company entered into an agreement with EDI, to convert $3.0 million in accounts payable owed in exchange for 2,202,898 shares of common stock valued at $1,269,275 resulting in the Company recording a $1,730,725 gain from settlement of liabilities.
As of June 30, 2020, and December 31, 2019, the Company had accounts payable of $2,066,848 and $5,037,569, respectively, to EDI.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases three offices under non-cancelable lease agreements. The leases provide that the Company pays only monthly rental fees and is not responsible for taxes, insurance or maintenance expenses related to the properties. Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to June 30, 2020 are as follows:
| Year ending December 31, | Amount | |||
| 2020 | $ | 202,172 | ||
| 2021 | 369,914 | |||
| 2022 | 135,239 | |||
| Net Minimum Lease Payments | $ | 707,325 | ||
For the six months ended June 30, 2020 and 2019, aggregate rent expense was $219,650 and $206,227 respectively.
| F-21 |
NOTE 15 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
The Company’s revenues were concentrated among two significant customers for the six months ended June 30, 2020 and 2019:
| Customer | Total revenues from the customer to total revenues for the six months ended June 30, 2020 | Accounts receivable from the customer as of June 30, 2020 (rounded to 000’s) | |||||||
| 1 | 17 | % | $ | 869 | |||||
| 2 | 12 | % | 285 | ||||||
| Customer | Total revenues from the customer to total revenues for the six months ended June 30, 2019 | Accounts receivable from the customer as of June 30, 2019 (rounded to 000’s) | |||||||
| 1 | 20 | % | $ | 877 | |||||
| 2 | 13 | % | 1,210 | ||||||
The loss of one of the above significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
The Company’s purchases were concentrated among a few vendors for the six months ended June 30, 2020 and 2019:
| Vendor | Total purchases from the vendor to total purchases for the six months ended June 30, 2020 | Accounts payable (prepayment) to the vendor as of June 30, 2020 (rounded to 000’s) | |||||||
| 1 | 31 | % | $ | (1,319 | ) | ||||
| Vendor | Total purchases from the vendor to total purchases for the six months ended June 30, 2019 | Accounts payable (prepayment) to the vendor as of June 30, 2019 (rounded to 000’s) | |||||||
| 1 | 27 | % | $ | (2,215 | ) | ||||
| 2 | 17 | % | - | ||||||
The Company believes there are other suppliers that could be substituted should the supplier become unavailable or non-competitive.
NOTE 16 – SUBSEQUENT EVENTS
On July 13, 2020, the Company issued 118,781 shares of Class A common stock at $0.72 to Lind Global in lieu of principal and interest payment on notes payable with an aggregate amount of $85,046.
On July 16, 2020, the Company issued 488,888 shares of Class A common stock at $2.50 per share to Lind Global to convert a loan from Lind with an outstanding loan amount of $1,222,222.
On July 22, 2020, the Company issued 338,792 shares of Class A common stock at $0.76 per share to Lind Global in lieu of principal and interest payment of notes payable with an aggregate amount of $257,481.
On July 31, 2020, the Company issued 17,250,000 shares of Class A common stock at $2.00 per share, through a public offering. The Company received net proceeds of $32,025,000, after subtracting underwriting fees of $2,475,000.
On August 4, 2020, the Company issued 66,602 shares of Class A common stock at $1.19 per share to Lind Global in lieu of principal and interest payment of notes payable with an aggregate amount of $79,388.
| F-22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, this Form 10-Q may contain forward-looking statements relating to Boxlight Corporation. All statements, trend analyses and other information relative to markets for our products and trends in revenue, gross margins and anticipated expense levels, as well as other statements including words such as “anticipate”, “believe”, “plan”, “estimate”, “expect”, “trend” “intend”, and other similar expressions, constitute forward-looking statements. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those factors described below under “Factors That May Affect Future Operations”, and that actual results may differ materially from those contemplated by such forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.
Overview
We are an educational technology company that is seeking to become a world leading innovator and integrator of interactive products and software for schools, as well as for business and government learning spaces. We currently design, produce and distribute interactive projectors and distribute interactive technologies, including flat panels, projectors, whiteboards and peripherals to the education market. We also distribute science, technology, engineering and math (or “STEM”) products, including a portable science lab. All of our products are integrated into our classroom software suite that provides tools for whole class learning, assessment and collaboration.
To date, we have generated substantially all of our revenue from the sale of our software and interactive displays to the K-12 U.S. educational market.
We have also implemented a comprehensive plan to reach profitability both from our core business operations and as a result of making strategic business acquisitions. We have already started to implement this strategy as set forth below. Highlights of our plan include:
| ● | Integrating products of the acquired companies and cross training our sales reps to increase their product offerings. The combination of products and cross training has already resulted in increased sales. The synergy we have found between the products of Boxlight and Mimio are adding opportunities to resellers for both companies to increase their sales. | |
| ● | Hiring new sales representatives with significant education technology sales experience in their respective territories and our current pipeline has reached a record high level. | |
| ● | Seeking to increase demand in the US market for technology sales and have the products and infrastructure in place to handle our expected growth. |
Recent Acquisitions
On April 17, 2020, the Company acquired the assets, and assumed certain liabilities of MyStemKits and STEM Education Holdings, Pty, an Australian corporation (“STEM”) which is the sole shareholder of MyStemKits, for consideration of $450,000, after working capital adjustments of $150,000. Consideration included $100,000 paid in cash at closing with the balance payable in the form of a $350,000 purchase note payable in four equal installments of $87,500 (the “Installment Payments”) on July 31, 2020, October 31, 2020, January 31, 2021 and April 30, 2021. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits is materially below budget.
Acquisition Strategy
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. |
| 3 |
Components of our Results of Operations and Financial Condition
Revenues
Our revenue is comprised of product, installation and professional development revenues less sales discounts.
| ● | 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 revenue. We receive revenue from installation that we outsource to third parties. | |
| ● | Professional development revenue. We receive revenue from providing professional development services through third parties and our network of distributors. |
Cost of revenues
Our cost of revenues is comprised of the following:
| ● | costs to purchase components and finished goods directly; | |
| ● | third-party logistics costs; | |
| ● | inbound and outbound freight costs and duties; | |
| ● | costs associated with the repair of products under warranty; | |
| ● | write-downs of inventory carrying value to adjust for excess and obsolete inventory and periodic physical inventory counts; | |
| ● | cost of professionals to deliver professional development training related to the use of our products; and | |
| ● | cost of installation services. |
We outsource some of our warehouse operations and order fulfillment and purchase products from related and third parties. Our product costs will vary directly with volume and the costs of underlying product components as well as the prices we are able to negotiate with our contract manufacturers. Shipping costs fluctuate with volume as well as with the method of shipping chosen in order to meet customer demand. As a global company with suppliers centered in Asia and customers located worldwide, we have used, and may in the future use, air shipping to deliver our products directly to our customers. Air shipping is more costly than sea or ground shipping or other delivery options. We primarily use air shipping to meet the demand of our products during peak seasons and new product launches.
Gross profit and gross profit margin
Our gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: product, channel and geographical revenue mix; changes in product costs related to the release of projector models; component, contract manufacturing and supplier pricing and foreign currency exchange. As we primarily procure our product components and manufacture our products in Asia, our suppliers incur many costs, including labor costs, in other currencies. To the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. Gross profit and gross profit margin may fluctuate over time based on the factors described above.
Operating expenses
We classify our operating expenses into two categories: general and administrative and research and development.
| 4 |
General and administrative. General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. General and administrative expense may fluctuate as a percentage of revenue, notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue.
Research and development. Research and development expense consist primarily of personnel related costs, prototype and sample costs, design costs and global product certifications mostly for wireless certifications.
Other income (expense), net
Other income (expense), net, consists of interest expense associated with our debt financing arrangements, changes in fair value of derivative liabilities, gain from settlements of liabilities and interest income earned on our cash. 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 countries in which we do business, including the United States, United Kingdom and Mexico. The United Kingdom and Mexico have a statutory tax rate different from those in the United States. Additionally, certain of our international earnings are also taxable in the United States. Our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, 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 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. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax assets.
Operating Results – Boxlight Corporation
For the six-month periods ended June 30, 2020 and 2019
Revenues. Total revenues for the six months ended June 30, 2020 were $13,550,767, as compared to $15,794,923 for the six months ended June 30, 2019, resulting in a 14% decrease. The decrease in revenues in 2020 is primarily attributable to school closures as a result of the ongoing COVID-19 global pandemic.
Cost of Revenues. Cost of revenues for the six months ended June 30, 2020 was $9,269,157, as compared to $11,133,412 for the six months ended June 30, 2019, resulting in a 17% decrease. The decrease in cost of revenues were driven by the decrease in sales.
Gross Profit. Gross profit for the six months ended June 30, 2020 was $4,281,610 as compared to $4,661,511 for the six months ended June 30, 2019. Gross margin increase from 30% to 32% was related to changes in the Company’s product mix.
General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2020 were $7,137,215 as compared to $7,662,442 for the six months ended June 30, 2019. The decrease was driven primarily by reductions in tradeshows of $0.3 million and contract services of $0.4 million offset by increases in commissions of $0.2 million.
Research and Development Expense. Research and development expense was $601,966 and $560,578 for the six months ended June 30, 2020 and 2019, respectively. The increase in research and development expense was driven primarily by an increase in contact services offset by a decrease in payroll.
Other Income (Expense). Other income (expense) for the six months ended June 30, 2020 was $81,952, as compared to ($2,467,547) for the six months ended June 30, 2019. The increase in other income is related to gain on settlement of EDI accounts payable by $1.7 million and decreases in the change in fair value of derivative liabilities of $1.8 million which was offset by a loss on settlement of the Lind debt of $0.6 million and an increase in interest expense of $0.3 million.
Net loss. Net loss was $3,375,619 and $6,029,056 for the six months ended June 30, 2020 and 2019, respectively. The decrease in the net loss was primarily driven by slight increase of gross profit, decrease in operating expenses and increase in other income.
For the three-month periods ended June 30, 2020 and 2019
Revenues. Total revenues for the three months ended June 30, 2020 was $7,827,718, as compared to $10,801,523 for the three months ended June 30, 2019, resulting in a 28% decrease. The decreased in revenues in 2020 is primarily attributable to the school closures as a result of the ongoing COVID-19 global pandemic.
Cost of Revenues. Cost of revenues for the three months ended June 30, 2020 was $5,137,168, as compared to $7,812,079 for the three months ended June 30, 2019, resulting in a 34% decrease. The decrease in cost of revenues were driven by the decrease in sales.
Gross Profit. Gross profit for the three months ended June 30, 2020 was $2,690,550, as compared to $2,989,444 for the three months ended June 30, 2019. The increase in gross margin from 28% to 34% was related to changes in the Company’s product mix.
General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2020 was $3,199,486 as compared to $3,896,374 for the three months ended June 30, 2019. The decrease is primarily driven by reductions in tradeshows by $0.3 million and contract services of $0.3 million.
Research and Development Expenses. Research and development expense were $285,210 and $324,582 for the three months ended June 30, 2020 and 2019, respectively. The change in research and development expense is primarily driven by the decrease in both contract services and payroll.
| 5 |
Other Expense. Other expense for the three months ended June 30, 2020 was $631,850, as compared to $192,092 for the three months ended June 30, 2019. The increase in other expense is related to an increase in interest expense of $0.1 million and change in fair value of derivative liabilities of $0.3 million.
Net loss. Net loss was $1,425,996 and $1,423,604 for the three months ended June 30, 2020 and 2019, respectively. Net loss remained flat during the three months ended June 30, 2020.
To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding operations, we supplement our consolidated condensed financial statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.
EBITDA represents net loss before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus change in fair value of derivative liabilities, stock compensation expense and non-recurring expenses. Our management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of our business model. We use these non-GAAP financial measures to assess the strength of the underlying operations of our business. These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze our operations between periods and over time. We find this especially useful when reviewing results of operations, which include large non-cash amortizations of intangibles assets from acquisitions. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Notably, non-cash gains or losses such as the net settlement gain of $1.1 million in the current period, are not, and have not historically been, included as increases or decreases to EBITDA in arriving at Adjusted EBITDA. Management has determined Adjusted EBITDA is most useful as a measure of performance when defined and presented consistently across reporting periods.
| 6 |
The following table contains reconciliations of net losses to EBITDA for the periods presented.
Reconciliation of net loss for the three months ended
June 30, 2020 and 2019 to EBITDA and adjusted EBITDA
| (in thousands) | June 30, 2020 | June 30, 2019 | ||||||
| Net loss | $ | (1,426 | ) | $ | (1,424 | ) | ||
| Depreciation and amortization | 221 | 225 | ||||||
| Interest expense | 628 | 479 | ||||||
| EBITDA | $ | (577 | ) | $ | (720 | ) | ||
| Stock compensation expense | 249 | 160 | ||||||
| Change in fair value of derivative liabilities | 74 | (263 | ) | |||||
| Adjusted EBITDA | $ | (254 | ) | $ | (823 | ) | ||
Reconciliation of net loss for the six months ended
June 30, 2020 and 2019 to EBITDA and adjusted EBITDA
| (in thousands) | June 30, 2020 | June 30, 2019 | ||||||
| Net loss | $ | (3,376 | ) | $ | (6,029 | ) | ||
| Depreciation and amortization | 440 | 467 | ||||||
| Interest expense | 1,088 | 760 | ||||||
| EBITDA | $ | (1,848 | ) | $ | (4,802 | ) | ||
| Stock compensation expense | 520 | 321 | ||||||
| Change in fair value of derivative liabilities | 46 | 1,899 | ||||||
| Adjusted EBITDA | $ | (1,282 | ) | $ | (2,582 | ) | ||
Discussion of Effect of Seasonality on Financial Condition
Certain accounts on our financial statements are subject to seasonal fluctuations. As our business and revenues grow, we expect these seasonal trends to be reduced. The bulk of our products are shipped to our educational customers prior to the beginning of the school year, usually in June, July, August or September. To prepare for the upcoming school year, we generally build up inventories during the second quarter of the year. Therefore, inventories tend to be at the highest levels at that point in time. In the first quarter of the year, inventories tend to decline significantly as products are delivered to customers and we do not need the same inventory levels during the first quarter. Accounts receivable balances tend to be at the highest levels in the third quarter, in which we record the highest level of sales.
| 7 |
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.
Liquidity and Capital Resources
As of June 30, 2020, we had cash and cash equivalents of $6,133,053 and a working capital surplus of $3,809,365. For the six months ended June 30, 2020 and 2019, we had net cash used in operating activities of $6,213,357 and $4,002,894, respectively, net cash (used in) provided by investing activities of ($99,253) and $10,261 respectively, and net cash provided by financing activities of $11,380,993 and $4,051,749, respectively. We had accounts receivable net of allowances of $5,356,940 and $3,665,057 as of June 30, 2020 and year ended December 31, 2019.
On June 11, 2020, the Company issued 13,333,333 shares of the Company’s Class A common stock at a public offering price of $0.75 per share. In addition, on June 24, 2020 the Company issued an additional 1,999,667 shares of Class A common stock to the underwriter at $0.75 per share. Gross proceeds from the issuances were $11,499,750. Net proceeds were $10,593,937 after deducting underwriting discounts and offering expenses of $905,814.
We financed our operations in 2020 primarily with an accounts receivable financing arrangement entered into with a lender. The lender agreed to purchase 85% of the eligible accounts receivable of the Company, up to $6 million, with the right of recourse. Our accounts receivable and our ability to borrow against accounts receivable provides 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.
Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility 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 have limited credit available from our major vendors and are required to prepay for the majority of our inventory purchases, which further constrains our cash liquidity.
The Company had an accumulated deficit of $34,722,050 and a net working capital surplus of approximately $3,809,365 as of June 30, 2020. The long-term continuation of the Company as a going concern is dependent upon attainment of profitable operations. During June and July of 2020, the Company raised significant capital and is not dependent on obtaining funds for operations through public or private sales of equity and debt securities or from bank or other loans in the near term.
Recent Financing
On February 4, 2020, we and Lind entered into a separate securities purchase agreement (the “2020 SPA”) pursuant to which we received on February 6, 2020 $750,000 in exchange for the issuance to Lind of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded monthly (the “2020 Note”), (2) certain shares of restricted Company Class A common stock valued at $60,000, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment fee of $26,250.
The 2020 Note matures over 24 months, with repayment to commence August 4, 2020, after which time the Company will be obligated to make monthly payments of $45,833.33 (the “Monthly Payments”), plus interest. Interest payments owed under the 2020 Note (the “Interest Payments”) shall accrue beginning on the one month anniversary of the issuance of the Note. Accrued interest shall become payable in either conversion shares or in cash after the first six months of the note and monthly thereafter. As with the prior purchase agreement, we may make the Monthly Payments and any Interest Payments in shares of the Company’s Class A common stock so long as such shares are either registered for resale under the Securities Act of 1933, as amended, or may be sold without restriction pursuant to Rule 144 thereunder. As such, the Monthly Payments may be subject to reduction in any month by any amounts converted into the Company’s Class A common stock.
In connection with the February 2020 transaction, we and Lind amended and restated the $4,400,000 note and the $1,375,000 note that we issued to Lind in March and December 2019, respectively, to provide that we would not make any payments under the three Lind notes in the form of Class A Common Stock if such payments could cause the Company to violate any rules of the Nasdaq Capital Market. In addition, the Company agreed to call a stockholders meeting on or before May 31, 2020 to seek stockholder approval of the current and all prior financing transactions with Lind. While we had originally intended to hold the meeting in June 2020, due to timing and organizational issues related to calling a meeting of stockholders, we have scheduled to hold our annual meeting of stockholders on September 4, 2020.
In addition, on February 4, 2020, we and Lind entered into a second amended and restated security agreement for purposes of amending and restating a prior security agreement, dated as of December 13, 2019. In addition, Sallyport Commercial Finance, LLC, as first lien creditor, and Lind, as second lien creditor, entered into a second amended and restated intercreditor agreement for purposes of amending and restating the intercreditor agreement between the parties, dated December 13, 2019, in order to reaffirm and confirm the relative priority of each creditor’s respective security interests in our asset.
Critical Accounting Policies and Estimates
Our consolidated condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated condensed financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in the notes to the unaudited consolidated condensed financial statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain:
| 1. | Revenue recognition | |
| 2. | Intangible assets | |
| 3. | Derivatives | |
| 4. | Stock-based compensation expense |
| 8 |
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of certain specified reduced reporting and other regulatory requirements that are available to public companies that are emerging growth companies.
These provisions include:
| (1) | an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002; |
| (2) | an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
| (3) | an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about our audit and our financial statements; and |
| (4) | reduced disclosure about our executive compensation arrangements. |
We have elected to take advantage of the exemption from the adoption of new or revised financial accounting standards until they would apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the fiscal quarter ended June 30. 2020 (“Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective due to material weaknesses related to the following:
| ● | insufficient written policies and procedures over accounting transaction processing, capital transactions and period end financial disclosure. |
The above material weaknesses resulted in ineffective oversight in the establishment and proper monitoring controls over accounting and financial reporting.
Notwithstanding the existence of the above referenced internal control deficiencies, management believes that the consolidated condensed financial statements in this quarterly report on Form 10-Q fairly present, in all material respects, the Company’s financial condition as of the Evaluation Date, and its results of operations and cash flows for the Evaluation Date, in conformity with GAAP.
| 9 |
Inherent Limitations on Effectiveness of Controls.
Because of the inherent limitations in all control systems, no control system can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Notwithstanding these limitations, with the changes referenced above, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
(b) Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the six-month period ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
None.
War, terrorism, other acts of violence or natural or man-made disasters, including a global pandemic, may affect the markets in which the Company operates, the Company’s customers, the Company’s delivery of products and customer service, and could have a material adverse impact on our business, results of operations, or financial conditions.
The Company’s business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including famine, food, fire, earthquake, storm or pandemic events and spread of disease (including the recent outbreak of the coronavirus commonly referred to as “COVID-19”). Such events may cause customers to suspend their decisions on using the Company’s products and services, make it impossible to attend or sponsor trade shows or other conferences in which our products and services are presented to customers and potential customers, cause restrictions, postponements and cancellations of events that attract large crowds and public gatherings such as trade shows at which we have historically presented our products, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods or services, commitments to develop new products. These events also pose significant risks to the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.
As a result of the ongoing COVID-19 global pandemic, there is a risk related to modification of the traditional classroom setting that may result in reduced demand for our classroom solutions, including reduced demand for our interactive displays due to extended or indefinite distance and digital learning.
There is also a risk of reduced borrowing related to our purchase order financing facilities, as well as risk of inability to raise additional capital.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
| 10 |
The following exhibits are filed or furnished with this report:
| Exhibit No. | Description of Exhibit | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 11 |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BOXLIGHT CORPORATION | ||
| August 14, 2020 | By: | /s/ Michael Pope |
| Michael Pope | ||
| Chief Executive Officer | ||
| August 14, 2020 | By: | /s/ TAKESHA BROWN |
| Takesha Brown | ||
Chief Financial Officer (Principal Financial and Accounting Officer) |
| 12 |
Exhibit 31.1
CERTIFICATION
I, Michael Pope, certify that:
1. I have reviewed this quarterly Report on Form 10-Q Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934 for the period ended June 30, 2020 of Boxlight Corporation (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 14, 2020 | /s/ Michael Pope |
| Michael Pope | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Takesha Brown, certify that:
1. I have reviewed this quarterly Report on Form 10-Q Pursuant to Rule 15d-2 under the Securities Exchange Act of 1934 for the period ended June 30, 2020 of Boxlight Corporation (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 14, 2020 | /s/ Takesha Brown |
| Takesha Brown | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Boxlight Corporation (the “Company”) on Form 10-Q pursuant to Rule 15d-2 Under the Securities Exchange Act of 1934 for the period ending June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Pope, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 14, 2020
| /s/ Michael Pope | |
| Michael Pope | |
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Boxlight Corporation (the “Company”) on Form 10-Q pursuant to Rule 15d-2 Under the Securities Exchange Act of 1934 for the period ending June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Takesha Brown, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 14, 2020
| /s/ Takesha Brown | |
| Takesha Brown | |
Chief Financial Officer (Principal Financial and Accounting Officer) |
Document and Entity Information - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Aug. 11, 2020 |
|
| Cover [Abstract] | ||
| Entity Registrant Name | Boxlight Corp | |
| Entity Central Index Key | 0001624512 | |
| Document Type | 10-Q | |
| Document Period End Date | Jun. 30, 2020 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Reporting Status Current | Yes | |
| Entity Interactive Data Current | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business Flag | true | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | false | |
| Entity Shell Company | false | |
| Entity Common Stock, Shares Outstanding | 50,120,390 | |
| Document Fiscal Period Focus | Q2 | |
| Document Fiscal Year Focus | 2020 |
Consolidated Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued | 167,972 | 167,972 |
| Preferred stock, shares outstanding | 167,972 | 167,972 |
| Common stock, par value | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Class A Common Stock [Member] | ||
| Common stock, shares issued | 31,857,327 | 11,698,697 |
| Common stock, shares outstanding | 31,857,327 | 11,698,697 |
Consolidated Condensed Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Income Statement [Abstract] | ||||
| Revenues, net | $ 7,827,718 | $ 10,801,523 | $ 13,550,767 | $ 15,794,923 |
| Cost of revenues | 5,137,168 | 7,812,079 | 9,269,157 | 11,133,412 |
| Gross profit | 2,690,550 | 2,989,444 | 4,281,610 | 4,661,511 |
| Operating expense: | ||||
| General and administrative expenses | 3,199,486 | 3,896,374 | 7,137,215 | 7,662,442 |
| Research and development | 285,210 | 324,582 | 601,966 | 560,578 |
| Total operating expense | 3,484,695 | 4,220,956 | 7,739,181 | 8,223,020 |
| Loss from operations | (794,146) | (1,231,512) | (3,457,571) | (3,561,509) |
| Other income (expense): | ||||
| Interest expense, net | (628,216) | (479,022) | (1,087,536) | (759,625) |
| Other income, net | 17,655 | 23,670 | 75,605 | 44,879 |
| Changes in fair value of derivative liabilities | (74,363) | 263,260 | (45,700) | (1,899,235) |
| Gain from settlements of liabilities | 53,074 | 1,139,583 | 146,434 | |
| Total other income (expense) | (631,850) | (192,092) | 81,952 | (2,467,547) |
| Net loss | (1,425,996) | (1,423,604) | (3,375,619) | (6,029,056) |
| Comprehensive loss: | ||||
| Net loss | (1,425,996) | (1,423,604) | (3,375,619) | (6,029,056) |
| Other comprehensive loss: | ||||
| Foreign currency translation gain (loss) | (4,897) | 22,962 | (108,324) | (15,186) |
| Total comprehensive loss | $ (1,430,893) | $ (1,400,642) | $ (3,483,943) | $ (6,044,242) |
| Net loss per common share - basic and diluted | $ (0.08) | $ (0.13) | $ (0.22) | $ (0.58) |
| Weighted average number of common shares outstanding - basic and diluted | 17,637,458 | 10,590,451 | 15,065,644 | 10,424,054 |
Organization and Significant Accounting Policies |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization and Significant Accounting Policies | NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Boxlight Corporation (the “Company” or “Boxlight Parent”) was incorporated in the State of Nevada on September 18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational products. In 2016, the Company acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”), Mimio LLC (“Mimio”) and Genesis Collaboration, LLC (“Genesis”). In 2018, the Company acquired Cohuborate Ltd. (“Cohuba”), Qwizdom Inc. and its subsidiary Qwizdom UK Limited (“Qwizdom Companies”) and EOSEDU, LLC (“EOS”). In 2019, the Company acquired Modern Robotics, Inc. (“MRI”). The Company currently designs, produces and distributes interactive technology solutions to the education market. In 2020, the Company acquired MyStemKits Inc., (“MyStemKits”). MyStemKits is in the business of developing, selling and distributing 3D printable science, technology, engineering and math curriculums incorporating 3D printed project kits for education, and owns the right to manufacture, market and distribute Robo 3Dbranded 3D printers and associated hardware for the global education market.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements include the accounts of Boxlight Parent, Boxlight Group, Mimio, Genesis, Cohuba, Qwizdom Companies, EOS, MRI and MyStemKits. Transactions and balances among all of the companies have been eliminated.
The accompanying unaudited consolidated condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited consolidated condensed financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The unaudited consolidated condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in the consolidated financial statements have been condensed. The December 31, 2019 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally, including our business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19 and its effects on the U.S. and global economy, it is reasonably possible that it could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. These estimates relate to certain accounts including, but not limited to, the valuation allowance related to deferred taxes, intangible assets, and other long-lived assets. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict or prepare for, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions taken in response to the pandemic, changes in consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at contractual amounts, net of an allowance for doubtful accounts. The allowance for doubtful accounts represents management’s estimate of the amounts that ultimately will not be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of receivables and knowledge of the individual customers. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value and includes spare parts and finished goods. Inventories are primarily determined using the specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes direct cost from the contract manufacturer (“CM”) or original equipment received from the manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and the mix of products in inventory, as well as changes in consumer preferences, market and economic conditions.
Intangible assets AND GOODWILL
Intangible assets, other than goodwill are amortized using the straight-line method over their estimated period of benefit. We periodically evaluate the recoverability of intangible assets, other than goodwill, and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a market approach. Goodwill is not amortized and is not deductible for tax purposes.
DERIVATIVES
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts receivables and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. Debt approximates fair value due to either the short-term nature or recent execution of the debt agreement. The amount of consideration received is deemed to be the fair value of long-term debt net of any debt discount and issuance cost.
Derivative liabilities and the earn–out payable are recorded at fair value at each period end.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:
The following table shows the change in the Company’s earn-out payable rollforward for the six months ended June 30, 2020:
See rollforward of Derivative liabilities - warrant instruments in Note 10.
REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.
Nature of Products and Services and Related Contractual Provisions
The Company’s sales of interactive devices, including panels, projectors, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms ranging from 36 – 60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms ranging from 36-60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content, access to replacement parts, and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s products sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers, and therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For software product sales, control is transferred when the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.
The Company’s installation, training and professional development services are generally sold separately from the Company’s products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is performed.
For the sale of third-party products and services where the Company obtains control of the products and services before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product or service. The Company has not historically entered into transactions where it does not take control of the product or service prior to transfer to the customer.
The Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated condensed balance sheets.
Significant Judgments
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. When pricing is highly variable or uncertain, the Company applies the residual approach to determining SSP by subtracting the SSP of other products or services from the total transaction price to arrive at the SSP for the performance obligations with highly variable or uncertain pricing. When multiple performance obligations in a contract have highly variable or uncertain pricing, the Company allocates the residual value to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.
The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that contain the same performance obligations and are priced in a consistent manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated condensed balance sheets. Fees for the Company’s products and most of its service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional development services are fixed and generally become due as the services are performed. The Company has an established history of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In such contracts services are expected to be transferred on an ongoing basis for several years after the related payment, and the Company has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues to use the related services, so that the customer will receive the optimal benefit from the products over their lives. Additionally, the Company has elected the practical expedient to exclude any financing component from consideration for contracts where, at contract inception, the period between the transfer of services and the timing of the related payment is not expected to exceed one year.
The Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional right to consideration is reflected in accounts receivable in the accompanying consolidated condensed balance sheets in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Contract liabilities are reflected in deferred revenue in the accompanying consolidated condensed balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance, hardware maintenance, and subscription services. The Company had no material contract assets as of June 30, 2020 or December 31, 2019. During the six months ended June 30, 2020 and June 30, 2019, the Company recognized $0.7 million and $0.7 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of each period, as adjusted for Topic 606, at the beginning of the period.
Variable Consideration
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, or in connection with certain rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case by case basis, will grant exceptions, most often in cases of “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering or determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. In addition, rebates are provided to certain customers when specified volume purchase thresholds have been met. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each reporting date. There was no material revenue recognized in 2020 related to changes in estimated variable consideration that existed at December 31, 2019.
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of June 30, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was approximately $3.9 million. The Company expects to recognize revenue on approximately 24% of the remaining performance obligations in 2020, 57% in 2021 and 2022, with the remainder recognized thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.
Disaggregated Revenue
The Company disaggregates revenue based upon the nature of its products and services and the timing and manner in which it is transferred to the customer. Although all product revenue is transferred to the customer at a point in time, hardware revenue is generally transferred at the point of shipment, while software is generally transferred to the customer at the time the hardware is received by the customer or when software product keys are delivered electronically to the customer. All service revenue is transferred over time to the customer; however, professional services are generally transferred to the customer within a year from the contract date as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over 3-5 years from the contract execution date as measured based upon the passage of time.
Contract Costs
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g. a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain where the period of amortization would have been recognized over a period that is one year or less, the Company elected the practical expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets based on the timing of when the Company expects to recognize the expense, and are included in prepaid and other assets and other assets, respectively, in the accompanying consolidated condensed balance sheets. Total deferred commissions as of June 30, 2020 and December 31, 2019 and the related amortization for 2019 were less than $0.1 million. No impairment losses were recognized for the six months ended June 30, 2020 and 2019.
The Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
The Company’s consolidated condensed statements of operations and cash flows for the six months ended June 30, 2019 were recorded under the prior GAAP, without including the adjustments now required under Topic 606. As such, we have revised these statements to be comparable to the June 30, 2020 period which are recorded under Topic 606.
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of operations for the three and six months ended June 30, 2019:
Reconciliation of Topic 606 Adjustments for the three months ended June 30, 2019
Reconciliation of Topic 606 Adjustments for the six months ended June 30, 2019
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the six months ended June 30, 2019:
WARRANTY RESERVE
For customers that do not purchase hardware maintenance services, the Company generally provides warranty coverage on projectors and accessories, batteries and computers. This warranty coverage does not exceed 24 months, and the Company establishes a liability for estimated product warranty costs, included in other short-term liabilities in the consolidated condensed statements of operations, at the time the related product revenue is recognized. The warranty obligation is affected by historical product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred and consists primarily of personnel related costs, prototype and sample costs, design costs, and global product certifications mostly for wireless certifications.
INCOME TAXES
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.
STOCK COMPENSATION
The Company estimates the fair value of each stock compensation award at the grant date by using the Black-Scholes option pricing model. The fair value determination represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award.
NEW ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Since the Company is an Emerging Growth Company, the ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December 15, 2021. Earlier application is permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows. |
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Liquidity |
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Jun. 30, 2020 | |
| Liquidity | |
| Liquidity | NOTE 2 – LIQUIDITY
These consolidated condensed financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The long-term continuation of the Company as a going concern is dependent upon attainment of profitable operations. As of June 30, 2020, the Company had an accumulated deficit of $34,722,050 and a working capital surplus of $3,809,365. During the six months ended June 30, 2020, the Company incurred a net loss of $3,375,619 and net cash used in operations was $6,213,357. During June and July of 2020, the Company raised significant capital and is not dependent on obtaining funds for operations through public or private sales of equity and debt securities or from bank or other loans in the near term. |
Acquisitions |
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| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | NOTE 3 – ACQUISITIONS
The acquisition described below was accounted for as a business combination which requires, among other things, that assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date on the balance sheet. Transaction costs are expensed as incurred. Any excess of the consideration transferred over the assigned values of the net assets acquired would be recorded as goodwill. The Company has not yet finalized its evaluation and determination of the fair value of certain assets acquired and liabilities assumed. The Company recorded provisional amounts based on initial measurements of the assets acquired and liabilities assumed. The provisional amounts are subject to change and could result in goodwill, which could be significant. The Company will finalize the amounts recognized no later than one year from the acquisition date.
On April 17, 2020, the Company acquired the assets, and assumed certain liabilities of MyStemKits and STEM Education Holdings, Pty, an Australian corporation (“STEM”) which is the sole shareholder of MyStemKits, for consideration of $450,000, after working capital adjustments of $150,000. Consideration included $100,000 paid in cash at closing with the balance payable in the form of a $350,000 purchase note payable in four equal installments of $87,500 (the “Installment Payments”) on July 31, 2020, October 31, 2020, January 31, 2021 and April 30, 2021. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits is materially below budget.
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Accounts Receivable - Trade |
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| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivable - Trade | NOTE 4 – ACCOUNTS RECEIVABLE - TRADE
Accounts receivable consisted of the following at June 30, 2020 and December 31, 2019:
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Inventories |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | NOTE 5 – INVENTORIES
Inventories consisted of the following at June 30, 2020 and December 31, 2019:
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Prepaid Expenses and Other Current Assets |
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| Prepaid Expenses and Other Current Assets | NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2020 and December 31, 2019:
For the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $8,744 and $16,768, respectively. |
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Property and Equipment |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2020 and December 31, 2019:
For the six months ended June 30, 2020 and 2019, the Company recorded depreciation expense of $8,744 and $16,768, respectively. |
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Intangible Assets and Goodwill |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets and Goodwill | NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consisted of the following at June 30, 2020 and December 31, 2019:
For the six months ended June 30, 2020 and 2019, the Company recorded amortization expense of $431,080 and $450,641, respectively. |
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Debt |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | NOTE 9 – DEBT
The following is a summary of our debt as of June 30, 2020 and December 31, 2019:
Debt - Third Parties:
Lind Global Marco Fund, LP
On March 22, 2019, the Company entered into a securities purchase agreement with Lind that contemplates a $4,000,000 working capital financing. The investment is in the form of a $4,400,000 principal amount convertible secured Boxlight Parent note, payable at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the option of Lind into the Company’s Class A voting common stock at a fixed conversion price of $4.00 per share. The Company will have the right to convert up to 50% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $8.00 for 30 consecutive days; and convert up to 100% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $12.00 for 30 consecutive days. A commitment fee in the amount of $125,000 was paid to Lind.
The Company paid Lind $275,428 for closing fees by issuing 108,091 shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company paid principal of $1,466,666 and $977,778, respectively, interest of $91,259 and $106,643, respectively, through issuance of Class A common stock to Lind.
On December 13, 2019, the Company entered into a second securities purchase agreement with Lind that contemplates a $1,250,000 working capital financing. The investment is in the form of a $1,375,000 principal amount convertible secured Boxlight Parent note, payable at an 8% interest rate, compounded monthly with a maturity date of 24 months. The note is convertible at the option of Lind into the Company’s Class A voting common stock at a fixed conversion price of $2.50 per share. The Company will have the right to convert up to 50% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $5.00 for 30 consecutive days; and convert up to 100% of the outstanding amount of the note if the volume weighted average closing price of our Class A common stock trades above $6.25 for 30 consecutive days. A commitment fee in the amount of $43,750 was paid to Lind. The Company paid Lind $93,022 for closing fees by issuing 69,420 shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company paid principal of $76,388 and $0, respectively, interest of $55,925 and $0, respectively, through issuance of Class A common stock to Lind.
On February 4, 2020, the Company and Lind entered into a third securities purchase agreement pursuant to which the Company is to receive on February 6, 2020 $750,000 in exchange for the issuance to Lind of (1) an $825,000 convertible promissory note, payable at an 8% interest rate, compounded monthly (the “2020 Note”), (2) certain shares of restricted Class A common stock valued at $60,000, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended February 4, 2020, and (3) a commitment fee of $26,250. The Note matures over 24 months, with repayment to commence on August 4, 2020, after which time the Company will be obligated to make monthly payments of $45,833, plus interest. Interest shall accrue during the first six months of the note, after which time the interest payments, including accrued interest will be payable monthly in either conversion shares or in cash. A commitment fee in the amount of $26,250 was paid to Lind. The Company paid Lind $60,000 for closing fees by issuing 44,557 shares of Class A common stock.
As of June 30, 2020 the outstanding principal net of debt issuance cost and discount, and accrued interest owed to Lind were $3,668,504 and $62,872, respectively. As of December 31, 2019, the outstanding principal net of debt issuance cost and discount, and accrued interest owed to Lind were $4,185,866 and $5,425, respectively. Principal of $3,417,537 is due within one year from June 30, 2020.
Accounts Receivable Financing – Sallyport Commercial Finance
On August 15, 2017, Boxlight Inc., and Genesis Collaboration, LLC (“Genesis”) entered into a 12-month term account sale and purchase agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 85% of the eligible accounts receivable of the Company with a right of recourse back to the Company if the receivables are not collectible. This agreement requires a minimum monthly sales volume of $1,250,000 with a maximum facility limit of $6,000,000. Advances against this agreement accrue interest at the rate of 4.00% in excess of the highest prime rate publicly announced from time to time with a floor of 4.25%. In addition, the Company is required to pay a daily audit fee of $950 per day. The Company granted Sallyport a security interest in all of the assets of Boxlight Inc. and Genesis.
As of June 30, 2020, outstanding principal and accrued interest were $1,639,251 and $0, respectively. For the six months ended June 30, 2020, the Company incurred interest expense of $411,267.
Paycheck Protection Program Loan
On May 22, 2020, the Company received loan proceeds of approximately $1,008,575 under the Paycheck Protection Program (“PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The loans and accrued interest received under the PPP are forgivable to the extent borrowers use the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains their payroll levels during the designated eight-week period prior to which the PPP would otherwise be repayable. The amount of loan forgiveness is reduced if the borrower terminates employees or reduces salaries during the eight-week period.
The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP.
As of June 30, 2020, outstanding principal and accrued interest were $1,008,575 and $1,121, respectively.
STEM Education Holdings
On April 17, 2020, the Company issued a note to STEM Education Holdings, the sole shareholder of MyStemKits, in the amount of $350,000 bearing a 7% interest rate. The note was issued as part of the purchase price pursuant to the asset purchase agreement. The principal is payable in four equal installments of $87,500. Further, acknowledging the ongoing COVID-19 pandemic, the Letter Agreement states that potential adjustments may be made to the Installment Payments due on July 31, 2020 and October 31, 2020 in the event the actual gross revenue of MyStemKits continues to be materially below budget. As of June 30, 2020, outstanding principal and accrued interest under this note were $350,000 and $5,036, respectively.
Debt - Related Parties:
Long Term Note Payable- Qwizdom Shareholders
On June 22, 2018, the Company issued a note to Darin and Silvia Beamish, the previous 100% shareholders of Qwizdom, in the amount of $656,000 bearing an 8% interest rate. The note was issued as a part of the purchase price pursuant to a stock purchase agreement. The principal and accrued interest of the $656,000 note is due and payable in 12 equal quarterly installments. The first quarterly payment was due September 2018 and subsequent quarterly payments are due through June 2021. Principal and accrued interest become due and payable in full upon the completion of a public offering of Class A common stock or private placement of debt or equity securities for $10,000,000 or more. As of June 30, 2020, outstanding principal and accrued interest under this note were $381,563 and $22,555, respectively. As of December 31, 2019, outstanding principal and accrued interest under this agreement was $381,563 and $7,334, respectively. Principal in the amount of $381,563 is due within a year from June 30, 2020.
Note Payable – Steve Barker
On March 12, 2019, the Company purchased the net assets of MRI for 200,000 shares of the Company’s Class A common stock and a $70,000 note payable. The note was paid in full on March 31, 2020.
Line of Credit - Logical Choice Corporation-Delaware
On May 21, 2014, the Company entered into a line of credit agreement (the “LCC Line of Credit”) with Logical Choice Corporation, a-Delaware corporation (“LCC-Delaware”), the former sole member of Genesis. The LCC Line of Credit allowed the Company to borrow up to $500,000 for working capital and business expansion. The funds when borrowed accrued interest at the rate of 10% per annum. The note was paid in full on June 26, 2020.
Note Payable – Mark Elliott
On January 16, 2015, the Company issued a note to James Mark Elliott, the Company’s Chief Executive Officer, in the amount of $50,000. The note, as later amended, was due on December 31, 2019 and bears interest at an annual rate of 10%, compounded monthly. The note is convertible into the Company’s common stock at the lesser of (i) $6.28 per share, (ii) a discount of 20% to the stock price if the Company’s common stock is publicly traded, or (iii) if applicable, such other amount negotiated by the Company. The note holder may convert all, but not less than all, of the outstanding principal and interest due under this note. On July 3, 2018, Mr. Elliott and the Company amended the note to eliminate the conversion provision of the note. As of June 30, 2020, outstanding principal and accrued interest under this note were $2,163 and $1,744, respectively. The note is currently in default. As of December 31, 2019, outstanding principal and accrued interest under this note were $23,548 and $593, respectively. |
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Derivative Liabilities |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liabilities | NOTE 10 – DERIVATIVE LIABILITIES
The Company had issued warrants that contain net cash settlement provisions or do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future. The Company concluded that the warrants should be accounted for as derivative liabilities. In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at June 30, 2020 and 2019:
The following table shows the change in the Company’s derivative liabilities rollforward for the six months ended June 30, 2020 and 2019:
The change in fair value of derivative liabilities includes losses from exercise price modifications. |
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Equity |
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| Equity [Abstract] | |
| Equity | NOTE 11 – EQUITY
Preferred Shares
The Company’s articles of incorporation provide that the Company is authorized to issue 50,000,000 shares of preferred stock consisting of: 1) 250,000 shares of non-voting Series A preferred stock, with a par value of $0.0001 per share; 2) 1,200,000 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 270,000 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) 48,280,000 shares of “blank check” preferred stock to be designated by the Company’s Board of Directors.
At the time of the Company’s initial public offering, 250,000 shares of the Company’s non-voting convertible Series A preferred stock were issued to Vert Capital for the acquisition of Genesis. All of the Series A preferred stock was convertible into 398,406 shares of Class A common stock. On August 5, 2019, 82,028 of these preferred shares were converted into 130,721 shares of Class A common stock.
Common Stock
The Company’s common stock consists of 1) 150,000,000 shares of Class A voting common stock and 2) 50,000,000 shares of Class B non-voting common stock. Class A and Class B common stock have the same rights except that Class A common stock is entitled to one vote per share while Class B common stock has no voting rights. Upon any public or private sale or disposition by any holder of Class B common stock, such shares of Class B common stock shall automatically convert into shares of Class A common stock. As of June 30, 2020 and December 31, 2019, the Company had 31,857,327 and 11,698,697 shares of Class A common stock issued and outstanding, respectively. No Class B shares were outstanding at June 30, 2020 and December 31, 2019.
Issuance of common stock
Public Offering
On June 11, 2020, the Company issued 13,333,333 shares of the Company’s Class A common stock at a public offering price of $0.75 per share. In addition, on June 24, 2020 the Company issued an additional 1,999,667 shares of Class A common stock to the underwriter at $0.75 per share. Gross proceeds from the issuances were $11,499,750. Net proceeds were $10,593,937 after deducting underwriting discounts and offering expenses of $905,814.
Debt Conversion
During the period ended June 30, 2020, the Company issued 2,340,056 shares of Class A common stock in lieu of $2,929,369 in principal and interest payments due in relation to notes payable to Lind Global. In addition, the Company issued 80,467 shares of Class A common stock in lieu of payment of the closing fees of the convertible debt with an aggregate amount of $79,371 to Lind Global.
Accounts Payable Conversion
During the period ended June 30, 2020, the Company entered into an agreement with a related party, Everest Display, Inc., to convert $3.0 million in accounts payable owed in exchange for 2,202,898 shares of Class A common stock with an aggregate value of $1,269,275 resulting in the Company recording a $1,730,725 gain from settlement of liabilities.
Other
On April 17, 2020, the Company issued 142,857 shares to Stemify at a purchase price of $0.70 per share for a total proceeds of $100,000.
On June 30, 2020, the Company issued 52,241 shares to Michael Pope as part of his stock compensation as the Chief Executive Officer. The shares vested during the second quarter of the year.
During the period ended June 30, 2020, the Company issued 7,111 shares of Class A common stock in lieu of payment for services with an aggregate amount of $8,000.
Exercise of stock options
No options to purchase common stock were exercised during the six months ended June 30, 2020. |
Stock Compensation |
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| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation | NOTE 12 – STOCK COMPENSATION
The total number of underlying shares of the Company’s Class A common stock available for grant to directors, officers, key employees and consultants of the Company or a subsidiary of the Company under the Company’s 2014 Equity Inventive Plan, as amended (the “Equity Incentive Plan”), is 2,690,438 shares. Grants made under the Equity Incentive Plan must be approved by the Company’s Board of Directors. As of June 30, 2020, the Company had 747,011 shares reserved for issuance under the Equity Incentive Plan.
On April 15, 2020, the Equity Incentive Plan was amended, whereby the Board of Directors approved increasing the shares available for issuance under the Equity Incentive Plan by 3,700,000 shares; the Company is seeking shareholder approval of the aforementioned action at the Company’s upcoming annual meeting, to be held on September 4, 2020.
Stock Options
Under our stock option program, pursuant to the Equity Incentive Plan, an employee receives an award that provides the opportunity in the future to purchase the Company’s shares at the market price of our stock on the date the award is granted (strike price). The options become exercisable over a range of immediately vested to four-year vesting periods and expire five years from the grant date, unless stated differently in the option agreements, if they are not exercised. Stock options have no financial statement effect on the date they are granted but rather are reflected over time through compensation expense. We record compensation expense based on the estimated fair value of the awards which is amortized as compensation expense on a straight-line basis over the vesting period. Accordingly, total expense related to the award is reduced by the fair value of options that are forfeited by employees that leave the Company prior to vesting.
Following is a summary of the option activities during the six months ended June 30, 2020:
The Company estimates the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model. As of June 30, 2020, the options had an intrinsic value of approximately $0.8 million.
On April 15, 2020, the Company granted an aggregate of 2,550,000 stock options in total to its employees with an exercise price of $0.70 per share vesting monthly over four years. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $1,503,645 on the grant date.
On January 13, 2020, the Company granted 50,000 stock options to Mark Elliott as part of his new employment agreement as the Company’s Chief Commercial Officer with an exercise price of $1.20 per share, which options vest monthly over one-year period. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $46,700 on the grant date that was calculated using the Black-Scholes option-pricing model.
On January 2, 2020, the Company granted 100,000 stock options each, for a total of 300,000 options to purchase common stock, to its President, Chairman and Chief Executive Officer, its Chief Commercial Officer and its Chief Operating Officer; such options have an exercise price of $1.30 per share, and vest monthly over one-year period. The expiration date of these options is five years from the grant date. These options had an aggregated fair value of approximately $268,512 on the grant date that was calculated using the Black-Scholes option-pricing model.
Variables used in the Black-Scholes option-pricing model for options granted during the six months ended June 30, 2020 include: (1) discount rate of 0.29% – 1.61%, (2) expected life, using simplified method, of 3- 4 years, (3) expected volatility of 141%, and (4) zero expected dividends.
Warrants
Following is a summary of the warrant activities during the six months ended June 30, 2020:
On April 20, 2020, the Company granted 20,000 stock options to Ryan Legudi, the managing director of Stemify, as part of his compensation with an exercise price of $0.70 per share, which options vest quarterly over four-year period. The expiration of these options is five years from the grant date. The options had an aggregated fair value of approximately $16,444 on the grant date.
Stock compensation expense
For the six months ended June 30, 2020 and 2019, the Company recorded the following stock compensation in general and administrative expense:
As of June 30, 2020, there was approximately $2.3 million of unrecognized compensation expense related to unvested options, which will be amortized over the remaining vesting period. Of that total, approximately $0.6 million is estimated to be recorded as compensation expense in the remaining six months of 2020. |
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Other Related Party Transactions |
6 Months Ended |
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Jun. 30, 2020 | |
| Related Party Transactions [Abstract] | |
| Other Related Party Transactions | NOTE 13 – OTHER RELATED PARTY TRANSACTIONS
Management Agreement
On January 31, 2018, the Company entered into a management agreement (the “Management Agreement”) with an entity owned and controlled by our Chief Executive Officer, President and Director, Michael Pope. The Management Agreement is separate and apart from Mr. Pope’s employment agreement with the Company. The Management Agreement, effective as of the first day of the same month that Mr. Pope’s employment with the Company terminates, and, for a term of 13 months thereafter, Mr. Pope will provide consulting services to the Company including sourcing and analyzing strategic acquisitions, assisting with financing activities, and other services. As consideration for the services provided, the Company will pay a management fee equal to 0.375% of the consolidated net revenues of the Company, payable in monthly installments, not to exceed $250,000 in any calendar year. At his option, Mr. Pope may defer payment until the end of each year and receive payment in the form of shares of the Company’s Class A common stock.
Sales and Purchases - EDI
Everest Display Inc. (“EDI”), an affiliate of the Company’s major shareholder K-Laser Technology, Inc., is a major supplier of products to the Company. For the six months ended June 30, 2020 and 2019, the Company had purchases of $317,327 and $379,627, respectively, from EDI. For the six months ended June 30, 2020 and 2019, the Company had sales of $35,654 and $21,336, respectively, to EDI. The Company entered into an agreement with EDI, to convert $3.0 million in accounts payable owed in exchange for 2,202,898 shares of common stock valued at $1,269,275 resulting in the Company recording a $1,730,725 gain from settlement of liabilities.
As of June 30, 2020, and December 31, 2019, the Company had accounts payable of $2,066,848 and $5,037,569, respectively, to EDI. |
Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
| Commitments and Contingencies | NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases three offices under non-cancelable lease agreements. The leases provide that the Company pays only monthly rental fees and is not responsible for taxes, insurance or maintenance expenses related to the properties. Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to June 30, 2020 are as follows:
For the six months ended June 30, 2020 and 2019, aggregate rent expense was $219,650 and $206,227 respectively. |
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Customer and Supplier Concentration |
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| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer and Supplier Concentration | NOTE 15 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.
The Company’s revenues were concentrated among two significant customers for the six months ended June 30, 2020 and 2019:
The loss of one of the above significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
The Company’s purchases were concentrated among a few vendors for the six months ended June 30, 2020 and 2019:
The Company believes there are other suppliers that could be substituted should the supplier become unavailable or non-competitive. |
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2020 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | NOTE 16 – SUBSEQUENT EVENTS
On July 13, 2020, the Company issued 118,781 shares of Class A common stock at $0.72 to Lind Global in lieu of principal and interest payment on notes payable with an aggregate amount of $85,046.
On July 16, 2020, the Company issued 488,888 shares of Class A common stock at $2.50 per share to Lind Global to convert a loan from Lind with an outstanding loan amount of $1,222,222.
On July 22, 2020, the Company issued 338,792 shares of Class A common stock at $0.76 per share to Lind Global in lieu of principal and interest payment of notes payable with an aggregate amount of $257,481.
On July 31, 2020, the Company issued 17,250,000 shares of Class A common stock at $2.00 per share, through a public offering. The Company received net proceeds of $32,025,000, after subtracting underwriting fees of $2,475,000.
On August 4, 2020, the Company issued 66,602 shares of Class A common stock at $1.19 per share to Lind Global in lieu of principal and interest payment of notes payable with an aggregate amount of $79,388. |
Organization and Significant Accounting Policies (Policies) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Company | THE COMPANY
Boxlight Corporation (the “Company” or “Boxlight Parent”) was incorporated in the State of Nevada on September 18, 2014 with its headquarters in Atlanta, Georgia for the purpose of becoming a technology company that sells interactive educational products. In 2016, the Company acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. (“BLA”) and Boxlight Latinoamerica Servicios, S.A. DE C.V. (“BLS”) (together, “Boxlight Group”), Mimio LLC (“Mimio”) and Genesis Collaboration, LLC (“Genesis”). In 2018, the Company acquired Cohuborate Ltd. (“Cohuba”), Qwizdom Inc. and its subsidiary Qwizdom UK Limited (“Qwizdom Companies”) and EOSEDU, LLC (“EOS”). In 2019, the Company acquired Modern Robotics, Inc. (“MRI”). The Company currently designs, produces and distributes interactive technology solutions to the education market. In 2020, the Company acquired MyStemKits Inc., (“MyStemKits”). MyStemKits is in the business of developing, selling and distributing 3D printable science, technology, engineering and math curriculums incorporating 3D printed project kits for education, and owns the right to manufacture, market and distribute Robo 3Dbranded 3D printers and associated hardware for the global education market. |
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| Basis of Presentation and Principles of Consolidation | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements include the accounts of Boxlight Parent, Boxlight Group, Mimio, Genesis, Cohuba, Qwizdom Companies, EOS, MRI and MyStemKits. Transactions and balances among all of the companies have been eliminated.
The accompanying unaudited consolidated condensed financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim unaudited consolidated condensed financial information and interim financial reporting guidelines and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete consolidated financial statements. The unaudited consolidated condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019 and notes thereto contained in the Company’s Annual Report on Form 10-K. Certain information and note disclosures normally included in the consolidated financial statements have been condensed. The December 31, 2019 balance sheet included herein was derived from the audited consolidated financial statements, but does not include all disclosures, including notes, required by GAAP for complete financial statements. |
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| Estimates and Assumptions | ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.
The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and may continue to negatively impact, the macroeconomic environment in the United States and globally, including our business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19 and its effects on the U.S. and global economy, it is reasonably possible that it could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. These estimates relate to certain accounts including, but not limited to, the valuation allowance related to deferred taxes, intangible assets, and other long-lived assets. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict or prepare for, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions taken in response to the pandemic, changes in consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. |
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| Accounts Receivable and Allowance for Doubtful Accounts | ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at contractual amounts, net of an allowance for doubtful accounts. The allowance for doubtful accounts represents management’s estimate of the amounts that ultimately will not be realized in cash. The Company reviews the adequacy of the allowance for doubtful accounts on an ongoing basis, using historical payment trends, the age of receivables and knowledge of the individual customers. When the analysis indicates, management increases or decreases the allowance accordingly. However, if the financial condition of our customers were to deteriorate, additional allowances might be required. |
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| Inventories | INVENTORIES
Inventories are stated at the lower of cost or net realizable value and includes spare parts and finished goods. Inventories are primarily determined using the specific identification method and the first-in, first-out (“FIFO”) cost method. Cost includes direct cost from the contract manufacturer (“CM”) or original equipment received from the manufacturer (“OEM”), plus material overhead related to the purchase, inbound freight and import duty costs.
The Company continuously reviews its inventory levels to identify slow-moving merchandise and markdowns necessary to clear slow-moving merchandise, which reduces the cost of inventories to its estimated net realizable value. Consideration is given to a number of quantitative and qualitative factors, including current pricing levels and the anticipated need for subsequent markdowns, aging of inventories, historical sales trends, and the impact of market trends and economic conditions. Estimates of markdown requirements may differ from actual results due to changes in quantity, quality and the mix of products in inventory, as well as changes in consumer preferences, market and economic conditions. |
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| Intangible Assets and Goodwill | Intangible assets AND GOODWILL
Intangible assets, other than goodwill are amortized using the straight-line method over their estimated period of benefit. We periodically evaluate the recoverability of intangible assets, other than goodwill, and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. No material impairments of intangible assets have been identified during any of the periods presented. Goodwill is tested for impairment on an annual basis, and between annual tests if indicators of potential impairment exist, using a market approach. Goodwill is not amortized and is not deductible for tax purposes. |
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| Derivatives | DERIVATIVES
The Company classifies common stock purchase warrants and other free standing derivative financial instruments as equity if the contracts (i) require physical settlement or net-share settlement or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (iii) contain reset provisions as either an asset or a liability. The Company assesses classification of its freestanding derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.
The Company determined that certain warrants to purchase common stock do not satisfy the criteria for classification as equity instruments due to the existence of certain net cash and non-fixed settlement provisions that are not within the sole control of the Company. |
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| Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company’s financial instruments primarily include cash, accounts receivable, derivative liabilities, accounts payable and debt. Due to the short-term nature of cash, accounts receivables and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value. Debt approximates fair value due to either the short-term nature or recent execution of the debt agreement. The amount of consideration received is deemed to be the fair value of long-term debt net of any debt discount and issuance cost.
Derivative liabilities and the earn–out payable are recorded at fair value at each period end.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:
The following table shows the change in the Company’s earn-out payable rollforward for the six months ended June 30, 2020:
See rollforward of Derivative liabilities - warrant instruments in Note 10. |
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| Revenue Recognition | REVENUE RECOGNITION
In accordance with the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue at the amount to which it expects to be entitled when control of the products or services is transferred to its customers. Control is generally transferred when the Company has a present right to payment and the title and the significant risks and rewards of ownership of products or services are transferred to its customers. Product revenue is derived from the sale of projectors, interactive panels and related software and accessories to distributors, resellers, and end users. Service revenue is derived from hardware maintenance services, product installation, training, software maintenance, and subscription services.
Nature of Products and Services and Related Contractual Provisions
The Company’s sales of interactive devices, including panels, projectors, and other interactive devices generally include hardware maintenance services, a license to software, and the provision of related software maintenance. In most cases, interactive devices are sold with hardware maintenance services with terms ranging from 36 – 60 months. Software maintenance includes technical support, product updates on a when and if available basis, and error correction services. At times, non-interactive projectors are also sold with hardware maintenance services with terms ranging from 36-60 months. The Company also licenses software independently of its interactive devices, in which case it is bundled with software maintenance, and in some cases, subscription services that include access to on-line content, access to replacement parts, and cloud-based applications. The Company’s software subscription services provide access to content and software applications on an as needed basis over the Internet, but do not provide the right to take delivery of the software applications.
The Company’s products sales, including those with software and related services, generally include a single payment up front for the products and services, and revenue is recorded net of estimated sales returns and rebates based on the Company’s expectations and historical experience. For most of the Company’s product sales, control transfers, and therefore, revenue is recognized when products are shipped at the point of origin. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. For software product sales, control is transferred when the customer receives the related interactive hardware since the customer’s connection to the interactive hardware activates the software license at which time the software is made available to the customer. For the Company’s software maintenance, hardware maintenance, and subscription services, revenue is recognized ratably over time as the services are provided since time is the best output measure of how those services are transferred to the customer.
The Company’s installation, training and professional development services are generally sold separately from the Company’s products. Control of these services is transferred to our customers over time with hours/time incurred in providing the service being the best depiction of the transfer of services since the customer is receiving the benefit of the services as the work is performed.
For the sale of third-party products and services where the Company obtains control of the products and services before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of the third-party products and services including, but not limited to, evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product or service. The Company has not historically entered into transactions where it does not take control of the product or service prior to transfer to the customer.
The Company excludes all taxes assessed by a governmental agency that are both imposed on and concurrent with the specific revenue-producing transaction from revenue (for example, sales and use taxes). In essence, the Company is reporting these amounts collected on behalf of the applicable government agency on a net basis as though they are acting as an agent. The taxes collected and not yet remitted to the governmental agency are included in accounts payable and accrued expenses in the accompanying consolidated condensed balance sheets.
Significant Judgments
For contracts with multiple performance obligations, each of which represent promises within a contract that are distinct, the Company allocates revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). The Company’s products and services included in its contracts with multiple performance obligations generally are not sold separately and there are no observable prices available to determine the SSP for those products and services. Since observable prices are not available, SSPs are established that reflect the Company’s best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. The Company’s process for estimating SSPs without observable prices considers multiple factors that may vary depending upon the unique facts and circumstances related to each performance obligation including, when applicable, the estimated cost to provide the performance obligation, market trends in the pricing for similar offerings, product-specific business objectives, and competitor or other relevant market pricing and margins. When pricing is highly variable or uncertain, the Company applies the residual approach to determining SSP by subtracting the SSP of other products or services from the total transaction price to arrive at the SSP for the performance obligations with highly variable or uncertain pricing. When multiple performance obligations in a contract have highly variable or uncertain pricing, the Company allocates the residual value to those performance obligations using an alternative method of allocation that is consistent with the allocation objective and the guidance on determining SSPs in Topic 606 considering, when applicable, the estimated cost to provide the performance obligation, market pricing for competing product or service offerings, product-specific business objectives, incremental values for bundled transactions that include a service relative to similar transactions that exclude the service, and competitor pricing and margins. A separate price has not been established by the Company for its hardware maintenance services and software maintenance services. In addition, hardware maintenance services, software solutions, and the related maintenance services are never separately and are proprietary in nature, and the related selling price of these products and services is highly variable or uncertain. Therefore, the SSP of these products and services is estimated using the alternative method described above, which includes residual value techniques.
The Company has applied the portfolio approach to its allocation of the transaction price for certain portfolios of contracts that contain the same performance obligations and are priced in a consistent manner. The Company believes that the application of the portfolio approach produces the same result as if they were applied at the contract level.
Contract Balances
The timing of invoicing to customers often differs from the timing of revenue recognition and these timing differences can result in receivables, contract assets, or contract liabilities (deferred revenue) on the Company’s consolidated condensed balance sheets. Fees for the Company’s products and most of its service contracts are fixed, except as adjusted for rebate programs when applicable, and are generally due within 30-60 days of contract execution. Fees for installation, training, and professional development services are fixed and generally become due as the services are performed. The Company has an established history of collecting under the terms of its contracts without providing refunds or concessions to its customers. The Company’s contractual payment terms do not vary when products are bundled with services that are provided over multiple years. In such contracts services are expected to be transferred on an ongoing basis for several years after the related payment, and the Company has determined that the contracts generally do not include a significant financing component. The upfront invoicing terms are designed 1) to provide customers with a predictable way to purchase products and services where the payment is due in the same timeframe as when the products, which constitute the predominant portion of the contractual value, are transferred, and 2) to ensure that the customer continues to use the related services, so that the customer will receive the optimal benefit from the products over their lives. Additionally, the Company has elected the practical expedient to exclude any financing component from consideration for contracts where, at contract inception, the period between the transfer of services and the timing of the related payment is not expected to exceed one year.
The Company has an unconditional right to consideration for all products and services transferred to the customer. That unconditional right to consideration is reflected in accounts receivable in the accompanying consolidated condensed balance sheets in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Contract liabilities are reflected in deferred revenue in the accompanying consolidated condensed balance sheets and reflect amounts allocated to performance obligations that have not yet been transferred to the customer related to software maintenance, hardware maintenance, and subscription services. The Company had no material contract assets as of June 30, 2020 or December 31, 2019. During the six months ended June 30, 2020 and June 30, 2019, the Company recognized $0.7 million and $0.7 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of each period, as adjusted for Topic 606, at the beginning of the period.
Variable Consideration
The Company’s otherwise fixed consideration in its customer contracts may vary when refunds or credits are provided for sales returns, stock rotation rights, or in connection with certain rebate provisions. The Company generally does not allow product returns other than under assurance warranties or hardware maintenance contracts. However, the Company, on a case by case basis, will grant exceptions, most often in cases of “buyer’s remorse” where the distributor or reseller’s end customer either did not understand what they were ordering or determined that the product did not meet their needs. An allowance for sales returns is estimated based on an analysis of historical trends. In very limited situations, a customer may return previous purchases held in inventory for a specified period of time in exchange for credits toward additional purchases. In addition, rebates are provided to certain customers when specified volume purchase thresholds have been met. The Company includes variable consideration in its transaction price when there is a basis to reasonably estimate the amount of the fee and it is probable there will not be a significant reversal. These estimates are generally made using the expected value method based on historical experience and are measured at each reporting date. There was no material revenue recognized in 2020 related to changes in estimated variable consideration that existed at December 31, 2019.
Remaining Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting within the contract. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies performance obligations at contract inception so that it can monitor and account for the obligations over the life of the contract. Remaining performance obligations represent the portion of the transaction price in a contract allocated to products and services not yet transferred to the customer. As of June 30, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was approximately $3.9 million. The Company expects to recognize revenue on approximately 24% of the remaining performance obligations in 2020, 57% in 2021 and 2022, with the remainder recognized thereafter.
In accordance with Topic 606, the Company has elected not to disclose the value of remaining performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (for example, a time-and-materials professional services contracts). In addition, the Company has elected not to disclose the value of remaining performance obligations for contracts with performance obligations that are expected, at contract inception, to be satisfied over a period that does not exceed one year.
Disaggregated Revenue
The Company disaggregates revenue based upon the nature of its products and services and the timing and manner in which it is transferred to the customer. Although all product revenue is transferred to the customer at a point in time, hardware revenue is generally transferred at the point of shipment, while software is generally transferred to the customer at the time the hardware is received by the customer or when software product keys are delivered electronically to the customer. All service revenue is transferred over time to the customer; however, professional services are generally transferred to the customer within a year from the contract date as measured based upon hours or time incurred while software maintenance, hardware maintenance, and subscription services are generally transferred over 3-5 years from the contract execution date as measured based upon the passage of time.
Contract Costs
The Company capitalizes incremental costs to obtain a contract with a customer if the Company expects to recover those costs. The incremental costs to obtain a contract are those that the Company incurs to obtain a contract with a customer that it would not have otherwise incurred if the contract were not obtained (e.g. a sales commission). The Company capitalizes the costs incurred to fulfill a contract only if those costs meet all of the following criteria:
Certain sales commissions incurred by the Company were determined to be incremental costs to obtain the related contracts, which are deferred and amortized ratably over the estimated economic benefit period. For these sales commissions that are incremental costs to obtain where the period of amortization would have been recognized over a period that is one year or less, the Company elected the practical expedient to expense those costs as incurred. Commission costs that are deferred are classified as current or non-current assets based on the timing of when the Company expects to recognize the expense, and are included in prepaid and other assets and other assets, respectively, in the accompanying consolidated condensed balance sheets. Total deferred commissions as of June 30, 2020 and December 31, 2019 and the related amortization for 2019 were less than $0.1 million. No impairment losses were recognized for the six months ended June 30, 2020 and 2019.
The Company has not historically incurred any material fulfillment costs that meet the criteria for capitalization.
The Company’s consolidated condensed statements of operations and cash flows for the six months ended June 30, 2019 were recorded under the prior GAAP, without including the adjustments now required under Topic 606. As such, we have revised these statements to be comparable to the June 30, 2020 period which are recorded under Topic 606.
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of operations for the three and six months ended June 30, 2019:
Reconciliation of Topic 606 Adjustments for the three months ended June 30, 2019
Reconciliation of Topic 606 Adjustments for the six months ended June 30, 2019
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the six months ended June 30, 2019:
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| Warranty Reserve | WARRANTY RESERVE
For customers that do not purchase hardware maintenance services, the Company generally provides warranty coverage on projectors and accessories, batteries and computers. This warranty coverage does not exceed 24 months, and the Company establishes a liability for estimated product warranty costs, included in other short-term liabilities in the consolidated condensed statements of operations, at the time the related product revenue is recognized. The warranty obligation is affected by historical product failure rates and the related use of materials, labor costs and freight incurred in correcting any product failure. Should actual product failure rates, use of materials, or other costs differ from the Company’s estimates, additional warranty liabilities could be required, which would reduce its gross profit. |
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| Research and Development Expenses | RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred and consists primarily of personnel related costs, prototype and sample costs, design costs, and global product certifications mostly for wireless certifications. |
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| Income Taxes | INCOME TAXES
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. |
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| Stock Compensation | STOCK COMPENSATION
The Company estimates the fair value of each stock compensation award at the grant date by using the Black-Scholes option pricing model. The fair value determination represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. |
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| New Accounting Standards | NEW ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Since the Company is an Emerging Growth Company, the ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual reporting periods beginning after December 15, 2021. Earlier application is permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740). The new guidance modifies the requirements for the timing of adoption of enacted change in tax law. The effects of changes on taxes currently payable or refundable for the current year must be reflected in the computation of annual effective tax rate in the first interim period that includes the enactment date of the new legislation, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements.
There were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our financial position, operations or cash flows. |
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Organization and Significant Accounting Policies (Tables) |
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Financial Liabilities Measured on a Recurring Basis | The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value on a recurring basis as of June 30, 2020 and December 31, 2019:
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| Schedule of Earn-out Payable Rollforward | The following table shows the change in the Company’s earn-out payable rollforward for the six months ended June 30, 2020:
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| Schedule of Disaggregates Revenue |
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| Schedule of Cumulative Effect of Adjustments of Income Tax Effects on Financial Information | The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of operations for the three and six months ended June 30, 2019:
Reconciliation of Topic 606 Adjustments for the three months ended June 30, 2019
Reconciliation of Topic 606 Adjustments for the six months ended June 30, 2019
The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the six months ended June 30, 2019:
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Acquisitions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Assets Acquired and Liabilities Assumed |
|
Accounts Receivable - Trade (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accounts Receivable - Trade | Accounts receivable consisted of the following at June 30, 2020 and December 31, 2019:
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Inventories (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories consisted of the following at June 30, 2020 and December 31, 2019:
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Prepaid Expenses and Other Current Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses And Other Current Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepaid Expenses and Other Current Assets | Prepaid expenses and other current assets consisted of the following at June 30, 2020 and December 31, 2019:
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Property and Equipment (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment | Property and equipment consisted of the following at June 30, 2020 and December 31, 2019:
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Intangible Assets and Goodwill (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets and Goodwill | The following is a summary of our debt as of June 30, 2020 and December 31, 2019:
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Debt (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debt | The following is a summary of our debt as of June 30, 2020 and December 31, 2019:
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Derivative Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value of Derivative Liabilities | In determining the fair value of the derivative liabilities, the Company used the Black-Scholes option pricing model at June 30, 2020 and 2019:
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| Schedule of Change in Derivative Liabilities | The following table shows the change in the Company’s derivative liabilities rollforward for the six months ended June 30, 2020 and 2019:
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Stock Compensation (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activities | Following is a summary of the option activities during the six months ended June 30, 2020:
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| Schedule of Warrant Activity | Following is a summary of the warrant activities during the six months ended June 30, 2020:
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| Schedule of Stock Compensation Expenses | For the six months ended June 30, 2020 and 2019, the Company recorded the following stock compensation in general and administrative expense:
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||
| Schedule of Future Minimum Lease Payments | . Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to June 30, 2020 are as follows:
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Customer and Supplier Concentration (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Concentration Risk | The Company’s revenues were concentrated among two significant customers for the six months ended June 30, 2020 and 2019:
The loss of one of the above significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
The Company’s purchases were concentrated among a few vendors for the six months ended June 30, 2020 and 2019:
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Organization and Significant Accounting Policies (Details Narrative) - USD ($) |
6 Months Ended | 12 Months Ended | |
|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
| Deferred revenue | $ 700,000 | $ 700,000 | |
| Remaining performance obligations | 3,900,000 | ||
| Deferred commissions related amortization | 100,000 | $ 100,000 | |
| Impairment losses recognized | |||
| Minimum [Member] | |||
| Revenue performance obligation transfer of contract | P3Y | ||
| Maximum [Member] | |||
| Revenue performance obligation transfer of contract | P5Y | ||
| 2020 [Member] | |||
| Remaining performance obligations percentage | 24.00% | ||
| 2021 [Member] | |||
| Remaining performance obligations percentage | 57.00% | ||
| 2022 [Member] | |||
| Remaining performance obligations percentage | 57.00% | ||
Organization and Significant Accounting Policies - Schedule of Earn-out Payable Rollforward (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Balance | $ 387,118 | |
| Amount paid | (268,298) | |
| Change in fair value of earn-out payable | 3,552 | |
| Balance | $ 122,372 | |
Organization and Significant Accounting Policies - Schedule of Disaggregates Revenue (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jan. 31, 2018 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Revenue | $ 250,000 | $ 7,827,718 | $ 10,801,523 | $ 13,550,767 | $ 15,794,923 |
| Product Revenues [Member] | Hardware [Member] | |||||
| Revenue | 6,656,167 | 9,698,634 | 11,445,995 | 14,013,733 | |
| Product Revenues [Member] | Software [Member] | |||||
| Revenue | 286,784 | 580,250 | 444,539 | 616,813 | |
| Service Revenues [Member] | Professional Services [Member] | |||||
| Revenue | 353,802 | 204,600 | 696,112 | 495,122 | |
| Service Revenues [Member] | Maintenance and Subscription Services [Member] | |||||
| Revenue | $ 530,964 | $ 318,039 | $ 964,121 | $ 669,255 | |
Organization and Significant Accounting Policies - Schedule of Cumulative Effect of Adjustments of Income Tax Effects on Financial Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jan. 31, 2018 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Revenues | $ 250,000 | $ 7,827,718 | $ 10,801,523 | $ 13,550,767 | $ 15,794,923 |
| Cost of revenues | 5,137,168 | 7,812,079 | 9,269,157 | 11,133,412 | |
| Gross profit | 2,690,550 | 2,989,444 | 4,281,610 | 4,661,511 | |
| General and administrative expenses | 3,199,486 | 3,896,374 | 7,137,215 | 7,662,442 | |
| Total operating expense | 3,484,695 | 4,220,956 | 7,739,181 | 8,223,020 | |
| Loss from operations | (794,146) | (1,231,512) | (3,457,571) | (3,561,509) | |
| Net loss/income | $ (1,425,996) | $ (1,423,604) | $ (3,375,619) | $ (6,029,056) | |
| Net loss per common share - basic and diluted | $ (0.08) | $ (0.13) | $ (0.22) | $ (0.58) | |
| Net loss | $ (1,425,996) | $ (1,423,604) | $ (3,375,619) | $ (6,029,056) | |
| Prepaid expense and other current assets | (1,432,376) | (168,443) | |||
| Warranty Reserve | (10,062) | (70,247) | |||
| Deferred revenues | (627,020) | (310,069) | |||
| Cash used for operating activities | $ (6,970,197) | (4,002,894) | |||
| Adjustments [Member] | |||||
| Revenues | (294,493) | (313,807) | |||
| Cost of revenues | (35,711) | (142,552) | |||
| Gross profit | (258,782) | (171,255) | |||
| General and administrative expenses | 2,220 | 8,176 | |||
| Total operating expense | 2,220 | 8,176 | |||
| Loss from operations | (261,002) | (179,431) | |||
| Net loss/income | $ (261,002) | $ (179,431) | |||
| Net loss per common share - basic and diluted | $ (0.02) | $ (0.02) | |||
| Net loss | $ (261,002) | $ (179,431) | |||
| Prepaid expense and other current assets | 8,176 | ||||
| Warranty Reserve | (142,552) | ||||
| Deferred revenues | 313,807 | ||||
| Cash used for operating activities | |||||
| Balances under Prior GAAP [Member] | |||||
| Revenues | 11,096,016 | 16,108,730 | |||
| Cost of revenues | 7,847,790 | 11,275,964 | |||
| Gross profit | 3,248,226 | 4,832,766 | |||
| General and administrative expenses | 3,894,154 | 7,654,266 | |||
| Total operating expense | 4,218,736 | 8,214,844 | |||
| Loss from operations | (970,510) | (3,382,078) | |||
| Net loss/income | $ (1,162,602) | $ (5,849,625) | |||
| Net loss per common share - basic and diluted | $ (0.11) | $ (0.56) | |||
| Net loss | $ (1,162,602) | $ (5,849,625) | |||
| Prepaid expense and other current assets | (176,619) | ||||
| Warranty Reserve | 72,305 | ||||
| Deferred revenues | (623,876) | ||||
| Cash used for operating activities | 4,002,894 | ||||
| Adjusted for Topic 606 [Member] | |||||
| Revenues | 10,801,523 | 15,794,923 | |||
| Cost of revenues | 7,812,079 | 11,133,412 | |||
| Gross profit | 2,989,444 | 4,661,511 | |||
| General and administrative expenses | 3,896,374 | 7,662,442 | |||
| Total operating expense | 4,220,956 | 8,223,020 | |||
| Loss from operations | (1,231,512) | (3,561,509) | |||
| Net loss/income | $ (1,423,604) | $ (6,029,056) | |||
| Net loss per common share - basic and diluted | $ (0.13) | $ (0.58) | |||
| Net loss | $ (1,423,604) | $ (6,029,056) | |||
| Prepaid expense and other current assets | (168,443) | ||||
| Warranty Reserve | (70,247) | ||||
| Deferred revenues | (310,069) | ||||
| Cash used for operating activities | $ 4,002,894 | ||||
Liquidity (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
| Liquidity | |||||
| Accumulated deficit | $ (34,722,050) | $ (34,722,050) | $ (31,346,431) | ||
| Working capital surplus | 3,809,365 | 3,809,365 | |||
| Net loss | $ (1,425,996) | $ (1,423,604) | (3,375,619) | $ (6,029,056) | |
| Net cash used in operations | $ (6,970,197) | $ (4,002,894) | |||
Acquisitions (Details Narrative) - MyStemKits, Inc. [Member] - USD ($) |
Apr. 30, 2021 |
Jan. 31, 2021 |
Oct. 31, 2020 |
Jul. 31, 2020 |
Apr. 17, 2020 |
|---|---|---|---|---|---|
| Consideration amount | $ 450,000 | ||||
| Working capital adjustments | 150,000 | ||||
| Consideration paid in cash | 100,000 | ||||
| Note payable | $ 350,000 | ||||
| Forecast [Member] | |||||
| Installment payments | $ 87,500 | $ 87,500 | $ 87,500 | ||
| Subsequent Event [Member] | |||||
| Installment payments | $ 87,500 |
Acquisitions - Schedule of Assets Acquired and Liabilities Assumed (Details) - MyStemKits, Inc. [Member] |
Apr. 17, 2020
USD ($)
|
|---|---|
| Cash | $ 747 |
| Inventories | 36,159 |
| Total assets acquired | 36,906 |
| Total liabilities assumed | (33,556) |
| Net assets acquired | 3,351 |
| Customer relationships | 148,883 |
| Trademarks | 148,883 |
| Technology | 148,883 |
| Cash | 100,000 |
| Note Payable | 350,000 |
| Total | $ 450,000 |
Accounts Receivable - Trade - Schedule of Accounts Receivable - Trade (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Receivables [Abstract] | ||
| Accounts receivable - trade | $ 6,238,395 | $ 4,522,352 |
| Allowance for doubtful accounts | (451,515) | (358,225) |
| Allowance for sales returns and volume rebates | (429,940) | (499,070) |
| Accounts receivable - trade, net of allowances | $ 5,356,940 | $ 3,665,057 |
Inventories - Schedule of Inventories (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Finished goods | $ 2,769,796 | $ 3,239,038 |
| Spare parts | 270,557 | 273,080 |
| Reserve for inventory obsolescence | (172,161) | (193,261) |
| Inventories, net | $ 2,868,192 | $ 3,318,857 |
Prepaid Expenses and Other Current Assets - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Prepaid expenses and other current assets | $ 3,172,768 | $ 1,765,741 |
| Prepayments to Vendors [Member] | ||
| Prepaid expenses and other current assets | 2,961,653 | 1,389,044 |
| Prepaid Licenses and Other [Member] | ||
| Prepaid expenses and other current assets | 206,430 | 315,354 |
| Prepaid Local Taxes [Member] | ||
| Prepaid expenses and other current assets | 4,685 | 26,088 |
| Prepaid Insurance [Member] | ||
| Prepaid expenses and other current assets | $ 35,255 |
Property and Equipment (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 8,744 | $ 16,768 |
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Property and equipment, at cost | $ 294,696 | $ 294,696 |
| Accumulated depreciation | (96,043) | (87,299) |
| Property and equipment, net of accumulated depreciation | 198,653 | 207,397 |
| Building [Member] | ||
| Property and equipment, at cost | 199,708 | 199,708 |
| Building Improvements [Member] | ||
| Property and equipment, at cost | 9,086 | 9,086 |
| Leasehold Improvements [Member] | ||
| Property and equipment, at cost | 3,355 | 3,355 |
| Office Equipment [Member] | ||
| Property and equipment, at cost | 40,062 | 40,062 |
| Other Equipment [Member] | ||
| Property and equipment, at cost | $ 42,485 | $ 42,485 |
Intangible Assets and Goodwill (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization expense | $ 431,080 | $ 450,641 |
Intangible Assets and Goodwill - Schedule of Intangible Assets and Goodwill (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Dec. 31, 2019 |
|
| Intangible assets, at cost | $ 8,740,817 | $ 8,294,168 |
| Accumulated amortization | (3,166,151) | (2,735,071) |
| Intangible assets, net of accumulated amortization | 5,574,666 | 5,559,097 |
| Goodwill | 4,723,549 | 4,723,549 |
| EOS [Member] | ||
| Goodwill | 78,411 | 78,411 |
| Qwizdom, Inc [Member] | ||
| Goodwill | 463,147 | 463,147 |
| Mimio [Member] | ||
| Goodwill | 44,931 | 44,931 |
| Boxlight [Member] | ||
| Goodwill | $ 4,137,060 | 4,137,060 |
| Patents [Member] | ||
| Useful lives | 9 years | |
| Intangible assets, at cost | $ 81,683 | 81,683 |
| Customer Relationships [Member] | ||
| Useful lives | 10 years | |
| Intangible assets, at cost | $ 4,158,238 | 4,009,355 |
| Technology [Member] | ||
| Useful lives | 5 years | |
| Intangible assets, at cost | $ 420,468 | 271,585 |
| Domain [Member] | ||
| Useful lives | 15 years | |
| Intangible assets, at cost | $ 13,955 | 13,955 |
| Trademarks [Member] | ||
| Useful lives | 10 years | |
| Intangible assets, at cost | $ 4,066,473 | $ 3,917,590 |
Derivative Liabilities - Schedule of Change in Derivative Liabilities (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||
| Derivative liabilities, beginning balance | $ 146,604 | $ 326,452 | ||
| Initial valuation of derivative liabilities upon issuance of warrants | 42,585 | |||
| Change in fair value of derivative liabilities | $ 74,363 | $ (263,260) | 45,700 | 1,899,235 |
| Derivative liabilities, Ending balance | $ 192,304 | $ 2,268,272 | $ 192,304 | $ 2,268,272 |
Equity (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 11, 2020 |
Apr. 17, 2020 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
Aug. 05, 2019 |
|
| Preferred stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | |||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||
| Net proceeds from issuance of stock | $ 10,693,937 | |||||||
| Number of common stock issued, value | $ 10,693,937 | 10,693,937 | ||||||
| Gain from settlements of liabilities | $ 53,074 | $ 1,139,583 | 146,434 | |||||
| Stemify [Member] | ||||||||
| Number of common stock issued | 142,857 | |||||||
| Share price per share | $ 0.70 | |||||||
| Number of common stock issued, value | $ 100,000 | |||||||
| Board of Directors [Member] | ||||||||
| Preferred stock, shares authorized | 48,280,000 | 48,280,000 | ||||||
| Michael Pope [Member] | ||||||||
| Number of common stock issued | 52,241 | |||||||
| Series A Preferred Stock [Member] | ||||||||
| Preferred voting shares | 250,000 shares of non-voting | |||||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | ||||||
| Number of shares issued for acquisition | ||||||||
| Series A Preferred Stock [Member] | Genesis [Member] | ||||||||
| Number of shares issued for acquisition | 250,000 | |||||||
| Converted shares | 398,406 | 398,406 | ||||||
| Series B Preferred Stock [Member] | ||||||||
| Preferred voting shares | 1,200,000 shares of voting | |||||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | ||||||
| Series C Preferred Stock [Member] | ||||||||
| Preferred voting shares | 270,000 shares of voting | |||||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | ||||||
| Preferred Stock [Member] | ||||||||
| Converted shares | 82,028 | |||||||
| Class A Common Stock and Additional Paid-in Capital [Member] | ||||||||
| Converted shares | 130,721 | |||||||
| Number of common stock issued, value | $ 10,693,937 | $ 10,693,937 | ||||||
| Class A Voting Common Stock [Member] | ||||||||
| Common stock voting right | 150,000,000 shares of Class A voting common stock | |||||||
| Class B Non Voting Common Stock [Member] | ||||||||
| Common stock voting right | 50,000,000 shares of Class B non-voting common stock | |||||||
| Class A Common Stock [Member] | ||||||||
| Common stock, shares issued | 31,857,327 | 31,857,327 | 11,698,697 | |||||
| Common stock, shares outstanding | 31,857,327 | 31,857,327 | 11,698,697 | |||||
| Number of shares issued for service | 7,111 | |||||||
| Number of shares issued for service, value | $ 8,000 | |||||||
| Class A Common Stock [Member] | Notes Payable [Member] | Lind [Member] | ||||||||
| Debt converted into shares | 2,340,056 | |||||||
| Debt converted into shares, value | $ 2,929,369 | |||||||
| Class A Common Stock [Member] | Convertible Debt [Member] | Lind [Member] | ||||||||
| Debt converted into shares | 80,467 | |||||||
| Debt converted into shares, value | $ 79,371 | |||||||
| Class A Common Stock [Member] | Accounts Payable [Member] | Everest Display, Inc [Member] | ||||||||
| Debt converted into shares | 2,202,898 | |||||||
| Debt converted into shares, value | $ 1,269,275 | |||||||
| Accounts Payable | $ 3,000,000 | 3,000,000 | ||||||
| Gain from settlements of liabilities | $ 1,730,725 | |||||||
| Class B Common Stock [Member] | ||||||||
| Common stock, shares outstanding | ||||||||
| Number of common stock issued | 13,333,333 | |||||||
| Share price per share | $ 0.75 | |||||||
| Gross proceeds from issuance of stock | $ 11,499,750 | |||||||
| Net proceeds from issuance of stock | 10,593,937 | |||||||
| Underwriting discounts and offering expenses | $ 905,814 | |||||||
Stock Compensation (Details Narrative) - USD ($) |
6 Months Ended | ||||
|---|---|---|---|---|---|
Apr. 20, 2020 |
Apr. 15, 2020 |
Jan. 13, 2020 |
Jan. 02, 2019 |
Jun. 30, 2020 |
|
| Number of shares reserved for future issuance | 747,011 | ||||
| Options intrinsic value | $ 800,000 | ||||
| Number of stock options issued during period | 2,900,000 | ||||
| Option exercise price per share | $ 0.75 | ||||
| Expected volatility | 141.00% | ||||
| Expected dividends | 0.00% | ||||
| Unrecognized compensation expense | $ 2,300,000 | ||||
| Compensation expense | $ 600,000 | ||||
| Minimum [Member] | |||||
| Discount rate | 0.29% | ||||
| Expected life | 3 years | ||||
| Maximum [Member] | |||||
| Discount rate | 1.61% | ||||
| Expected life | 4 years | ||||
| Stock Options [Member] | |||||
| Option vested years | 4 years | 1 year | 1 year | 4 years | |
| Option expiration term | 5 years | 5 years | 5 years | 5 years | |
| Number of stock options issued during period | 2,550,000 | 50,000 | 300,000 | ||
| Option exercise price per share | $ 0.70 | $ 1.20 | $ 1.30 | ||
| Fair value of stock options | $ 1,503,645 | $ 46,700 | $ 268,512 | ||
| Stock Options [Member] | President [Member] | |||||
| Number of stock options issued during period | 100,000 | ||||
| Stock Options [Member] | Chief Executive Officer [Member] | |||||
| Number of stock options issued during period | 100,000 | ||||
| Stock Options [Member] | Chief Operating Officer [Member] | |||||
| Number of stock options issued during period | 100,000 | ||||
| Directors Officers Key Employees Consultants [Member] | |||||
| Share based compensation stock option available for grant | 2,690,438 | ||||
| Directors, Officers and Employees [Member] | Equity Incentive Plan [Member] | |||||
| Share based compensation stock option available for grant | 3,700,000 | ||||
| Ryan Legudi [Member] | |||||
| Option vested years | 4 years | ||||
| Option expiration term | 5 years | ||||
| Number of stock options issued during period | 20,000 | ||||
| Option exercise price per share | $ 0.70 | ||||
| Fair value of stock options | $ 16,444 |
Stock Compensation - Schedule of Stock Option Activities (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
$ / shares
shares
| |
| Share-based Payment Arrangement [Abstract] | |
| Number of Units, Outstanding, Beginning balance | shares | 2,384,688 |
| Number of Units, Granted | shares | 2,900,000 |
| Number of Units, Cancelled | shares | (384,761) |
| Number of Units, Outstanding, Ending balance | shares | 4,899,927 |
| Number of Units, Exercisable | shares | 1,884,562 |
| Weighted Average Exercise Price, Outstanding, Beginning | $ / shares | $ 3.35 |
| Weighted Average Exercise Price, Granted | $ / shares | 0.75 |
| Weighted Average Exercise Price, Cancelled | $ / shares | 4.03 |
| Weighted Average Exercise Price, Outstanding, Ending | $ / shares | 1.76 |
| Weighted Average Exercise Price, Exercisable | $ / shares | $ 3.01 |
| Weighted Average Remaining Contractual Terms (in Years), Outstanding Beginning | 4 years 1 month 24 days |
| Weighted Average Remaining Contractual Terms (in Years), Outstanding Ending | 4 years 1 month 6 days |
| Weighted Average Remaining Contractual Terms (in Years), Exercisable | 3 years 2 months 30 days |
Stock Compensation - Schedule of Warrant Activity (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
$ / shares
shares
| |
| Share-based Payment Arrangement [Abstract] | |
| Number of Units, Outstanding, Beginning Balance | shares | 350,000 |
| Number of Units, Granted | shares | 20,000 |
| Number of Units, Cancelled | shares | (5,000) |
| Number of Units, Outstanding, Ending Balance | shares | 365,000 |
| Number of Units, Exercisable | shares | 345,000 |
| Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 2.20 |
| Weighted Average Exercise Price, Granted | $ / shares | 0.70 |
| Weighted Average Exercise Price, Cancelled | $ / shares | 4.80 |
| Weighted Average Exercise Price, Ending Balance | $ / shares | 2.06 |
| Weighted Average Exercise Price, Exercisable | $ / shares | $ 2.14 |
| Weighted Average Remaining Contractual Term (in years), Beginning Balance | 2 years 1 month 9 days |
| Weighted Average Remaining Contractual Term (in years), Ending Balance | 1 year 9 months 11 days |
| Weighted Average Remaining Contractual Term (in years), Exercisable | 1 year 7 months 6 days |
Stock Compensation - Schedule of Stock Compensation Expenses (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Total stock compensation expense | $ 520,064 | $ 321,188 |
| Warrants [Member] | ||
| Total stock compensation expense | 42,585 | |
| Stock Options [Member] | ||
| Total stock compensation expense | 498,742 | 278,603 |
| Restricted Stock Award [Member] | ||
| Total stock compensation expense | $ 21,322 | |
Other Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jan. 31, 2018 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
| Percentage of annual management fee payable in cash | 0.375% | |||||
| Revenues | $ 250,000 | $ 7,827,718 | $ 10,801,523 | $ 13,550,767 | $ 15,794,923 | |
| Number of common stock issued, value | 10,693,937 | 10,693,937 | ||||
| Gain from settlements of liabilities | 53,074 | 1,139,583 | 146,434 | |||
| Everest Display, Inc [Member] | ||||||
| Payments to acquire products | 317,327 | 379,627 | ||||
| Proceeds from sale | 35,654 | $ 21,336 | ||||
| Accounts payable | 2,066,848 | 2,066,848 | $ 5,037,569 | |||
| Everest Display, Inc [Member] | Asset Purchases Agreement [Member] | ||||||
| Accounts payable | $ 3,000,000 | $ 3,000,000 | ||||
| Number of common stock issued | 2,202,898 | |||||
| Number of common stock issued, value | $ 1,269,275 | |||||
| Gain from settlements of liabilities | $ 1,730,725 | |||||
Commitments and Contingencies (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Rent expense | $ 219,650 | $ 206,227 |
Commitments and Contingencies - Schedule of Future Minimum Lease Payments (Details) |
Jun. 30, 2020
USD ($)
|
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| 2020 | $ 202,172 |
| 2021 | 369,914 |
| 2022 | 135,239 |
| Net Minimum Lease Payments | $ 707,325 |
Customer and Supplier Concentration (Details Narrative) |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Risks and Uncertainties [Abstract] | |
| Concentration risk, description | Significant customers and suppliers are those that account for greater than 10% of the Company's revenues and purchases. |
Customer and Supplier Concentration - Schedule of Concentration Risk (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Revenue [Member] | Customer One [Member] | ||
| Concentration risk percentage | 17.00% | 20.00% |
| Revenue [Member] | Customer Two [Member] | ||
| Concentration risk percentage | 12.00% | 13.00% |
| Accounts Receivable [Member] | Customer One [Member] | ||
| Accounts receivable | $ 869,000 | $ 877,000 |
| Accounts Receivable [Member] | Customer Two [Member] | ||
| Accounts receivable | $ 285,000 | $ 1,210,000 |
| Purchases [Member] | Vendor One [Member] | ||
| Concentration risk percentage | 31.00% | 27.00% |
| Purchases [Member] | Vendor Two [Member] | ||
| Concentration risk percentage | 17.00% | |
| Accounts Payable [Member] | Vendor One [Member] | ||
| Accounts payable (prepayment) | $ (1,319,000) | $ (2,215,000) |
| Accounts Payable [Member] | Vendor Two [Member] | ||
| Accounts payable (prepayment) | ||
Subsequent Events (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Aug. 04, 2020 |
Jul. 31, 2020 |
Jul. 22, 2020 |
Jul. 16, 2020 |
Jul. 13, 2020 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Number of common stock shares issued, value | $ 10,693,937 | $ 10,693,937 | |||||||
| Proceeds from common stock | $ 10,693,937 | ||||||||
| Subsequent Event [Member] | Class A Common Stock [Member] | |||||||||
| Number of common stock shares issued | 66,602 | 17,250,000 | 338,792 | 488,888 | 118,781 | ||||
| Number of common stock shares issued, value | $ 79,388 | $ 257,481 | $ 1,222,222 | $ 85,046 | |||||
| Purchase price per share | $ 1.19 | $ 2.00 | $ 0.76 | $ 2.50 | $ 0.72 | ||||
| Proceeds from common stock | $ 32,025,000 | ||||||||
| Underwriting fees | $ 2,475,000 | ||||||||