RECENT BUSINESS ACQUISITIONS

9 Months Ended

Sep. 30, 2022

RECENT BUSINESS ACQUISITIONS

RECENT BUSINESS ACQUISITIONS

NOTE 2 – RECENT BUSINESS ACQUISITIONS

FrontRow Calypso LLC

On December 31, 2021, the Company, and its wholly owned subsidiary, Boxlight, Inc., consummated the acquisition of 100% of the membership interests of FrontRow Calypso LLC, a Delaware limited liability company (“FrontRow”). FrontRow was acquired in exchange for payment of $34.7 million to Phonic Ear Inc. and Calypso Systems LLC, the equity holders of FrontRow.

Based in Petaluma, California, FrontRow makes technology that improves communication in learning environments, including developing network-based solutions for intercom, paging, bells, mass notification, classroom sound, lesson sharing, AV control and management. FrontRow also has offices in Toronto, Copenhagen, Brisbane, Hamilton (UK) and Shenzhen.

In order to finance the acquisition of FrontRow, the Company and substantially all of its direct and indirect subsidiaries, including Boxlight and FrontRow as guarantors, entered into a term loan credit facility with Whitehawk Finance LLC described in more detail in Note 9.

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 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. The excess consideration over the net fair values of the assets acquired and liabilities assumed was recognized as goodwill.

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 will result in an increase in cost of revenues subsequent to the acquisition date in 2022. The fair value of accounts receivable acquired in connection with the acquisition approximated the contractual amount due from customers at that date.

The Company has early adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” and therefore, the acquired contract liabilities of FrontRow have been recognized and measured in accordance with Topic 606 as follows.

		(in thousands)
Assets acquired:
Cash	$	2,752
Accounts receivable		3,381
Inventories		10,240
Prepaid expenses		883
Property and equipment		348
Total assets acquired		17,604
Accounts payable and accrued expenses		(1,501)
Deferred revenue		(1,225)
Other liabilities		(12)
Total liabilities assumed		(2,738)
Net tangible assets acquired	$	14,866
Identifiable intangible assets:
Customer relationships		8,195
Trademarks		3,244
Technology		5,036
Non-compete		391
Total intangible assets subject to amortization		16,866
Goodwill		2,920
Total net assets acquired	$	34,652
Consideration paid:
Cash	$	34,652

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	8
Trademarks	10
Technology	8
Non-compete agreements	3

Interactive Concepts

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

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

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