Recent Business Acquisitions

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Recent Business Acquisitions

NOTE 2 – RECENT BUSINESS ACQUISITIONS

The acquisitions described below were accounted for as business combinations which require, among other things, that assets acquired, and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Deferred income taxes are recognized and measured in accordance with Topic 740 “Accounting for Income Taxes”. 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.

Sahara Presentation Systems PLC

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

As consideration for the purchase of Sahara, the Company transferred $73.7 million to the Sellers, including $44.9 million in cash (net of $6.0 million in cash acquired) and $28.9 million in convertible preferred stock. The convertible preferred stock was comprised of 1,586,620 shares of Series B convertible redeemable preferred stock (the “Series B Preferred Stock”) and 1,320,850 shares of Series C convertible redeemable preferred stock (the “Series C Preferred Stock”). The fair value of the preferred shares issued was $16.5 million and $12.4 million for the Series B Preferred Stock and Series C Preferred Stock, respectively. See further discussion of the features of the preferred shares in Note 11.

The consideration transferred to the selling shareholders along with the assets acquired and liabilities assumed were recorded at their estimated fair values at the acquisition date. Determining the fair value of assets acquired and liabilities assumed, and the issued shares of Series B Preferred Stock and Series C Preferred Stock requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparable companies. The Company engaged the assistance of an independent third-party valuation specialist to determine certain fair value measurements related to acquired assets, and the Series B Preferred Stock, and the Series C Preferred Stock. The excess consideration over the net fair values of the assets acquired and liabilities assumed was recognized as goodwill.

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

The fair value or net realizable value of inventories at the date of acquisition was determined using a “top-down” approach based upon the estimated sales value, less a reasonable profit margin and less the estimated costs to dispose of the inventory, including selling costs and other disposal costs such as freight. Accordingly, the carrying amount of inventories at the acquisition date was increased to its estimated fair value based on these assumptions which resulted in an increase in cost of revenues subsequent to the acquisition date in 2020.

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

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

The following table presents the useful lives over which the acquired intangible assets will be amortized on a straight-line basis, which approximates the pattern by which the related economic benefits of the assets are consumed:

	Estimated Weighted Average Life (years)
Customer relationships		10
Trademarks		10
Technology		3

Goodwill is primarily attributable to synergies expected from the acquisition and the assembled workforce. The Company incurred a total of $0.2 million in acquisition-related costs and expensed all such costs incurred during the period in which the service was received. Acquisition related costs are included in general and administrative expenses in the Consolidated Statement of Operations and Comprehensive Loss. The results of operations of Sahara since the acquisition are included in the Consolidated Statement of Operations and Comprehensive Loss for the twelve months ended December 31, 2020. Revenue and net loss attributable to Sahara in the period from the acquisition date of September 24, 2020 through December 31, 2020 were $24.7 million and $5.3 million, respectively.

As disclosed in the third quarter unaudited condensed consolidated financial statements, the Company had not yet finalized its evaluation and determination of the fair value of certain assets acquired and liabilities assumed and recorded provisional amounts based on initial measurements using currently available information. The Company was still gathering information about certain items including income taxes and deferred income tax assets and liabilities. During the fourth quarter, the Company recorded a measurement period adjustment to the initial provisional amounts for deferred income tax assets and liabilities and an immaterial out-of-period correction to the estimated fair value of preferred shares issued which resulting in an increase in goodwill.

The following unaudited pro forma information reflects our consolidated results of operations as if the acquisition of Sahara had taken place on January 1, 2019. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination are included in the pro forma revenue and net earnings reflected below.

	Year ended December 31,
	2020						2019
	(in thousands)			(Unaudited) (in thousands)			(in thousands)			(Unaudited) (in thousands)
	As Reported			Pro Forma			As Reported			Pro Forma
Revenues, net	$	54,891		$	119,207		$	33,030		$	129,393
Net loss attributable common shareholders	$	(16,490	)	$	(17,406	)	$	(9,334	)	$	(13,931	)

MyStemKits and STEM Education Holdings, Pty

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. Acknowledging the ongoing COVID-19 pandemic, on April 17, 2020, the Company and STEM entered into a letter agreement pursuant to which the parties agreed 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. Accordingly, and as agreed between Boxlight and the STEM sellers the note payable has since been adjusted to $175,000.

The following table summarizes the fair values of the net assets acquired and the fair value of consideration paid:

	(in thousands)
Assets acquired:
Cash	$	1
Inventories		36
Total assets acquired		37
Total liabilities assumed		(29	)
Net assets acquired		8
Identifiable intangible assets:
Customer relationships		42
Trademarks		59
Technology		12
Total identifiable intangible assets subject to amortization		113
Goodwill		154
Consideration paid:
Cash	$	100
Note payable		175
Total consideration paid	$	275

MRI

On March 12, 2019, the Company entered into an asset purchase agreement with MRI, based in Miami, Florida. MRI is engaged in the business of developing, selling and distributing science, technology, engineering and math (STEM), robotics and programming solutions to the global education market. The Company purchased the net assets of MRI in exchange for 200,000 shares of the Company’s Class A common stock and a $70,000 note payable, which has since been paid.

		(in thousands)
Assets acquired:
Cash	$	10
Accounts receivable		8
Inventories		386
Prepaid expenses		24
Intangible assets		93
Other current asset		60
Total assets acquired		581
Total liabilities assumed		(11	)
Net assets acquired	$	570
Consideration paid:
Issuance of 200,000 shares of Class A common stock	$	500
Note payable		70
Total	$	570