Boxlight Corp 10-Q

10-Q 1 form10-q.htm 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 September 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 November 13, 2020 was 51,165,779. BOXLIGHT CORPORATION TABLE OF CONTENTS Page No. PART I. Financial Information Item 1. Unaudited Consolidated Condensed Financial Statements F-1 Unaudited Consolidated Condensed Balance Sheets as of September 30, 2020 and December 31, 2019 F-1 Unaudited Consolidated Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019 F-2 Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019 F-3 Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 F-4 Notes to Unaudited Consolidated Condensed Financial Statements F-5 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3 Item 3. Quantitative and Qualitative Disclosure About Market Risk 9 Item 4. Controls and Procedures 9 PART II. Other Information Item 1. Legal Proceedings 10 Item 1A. Risk Factors 10 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Mine Safety Disclosures 10 Item 5. Other Information 10 Item 6. Exhibits 11 Signatures 12 2 PART I. Financial Information Item 1. Financial Statements Boxlight Corporation Consolidated Condensed Balance Sheets As of September 30, 2020 and December 31, 2019 (Unaudited) September 30, 2020 December 31, 2019 ASSETS Current asset: Cash and cash equivalents $ 9,609,667 $ 1,172,994 Accounts receivable – trade, net of allowances 21,095,910 3,665,057 Inventories, net of reserves 21,571,932 3,318,857 Prepaid expenses and other current assets 4,051,356 1,765,741 Total current assets 56,328,865 9,922,649 Property and equipment, net of accumulated depreciation 383,415 207,397 Intangible assets, net of accumulated amortization 54,012,656 5,559,097 Goodwill 13,429,385 4,723,549 Other assets 70,634 56,193 Total assets $ 124,224,955 $ 20,468,885 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 11,282,365 $ 4,721,417 Accounts payable and accrued expenses – related parties 2,050,848 5,031,367 Warranty reserve 17,223 12,775 Current portion of debt – third parties 11,373,472 4,536,227 Current portions of debt – related parties - 368,383 Earn-out payable – related party 119,132 387,118 Deferred revenues – short-term 4,917,088 1,972,565 Derivative liabilities 385,944 146,604 Other short-term liabilities 1,126,813 31,417 Total current liabilities 31,272,885 17,207,873 Deferred revenues – long-term 8,801,969 2,582,602 Long-term debt – third parties 10,950,403 1,201,139 Long-term debt – related parties - 108,228 Other long-term liabilities 5,623 16,696 Total liabilities 51,030,880 21,116,538 Commitments and contingencies (Note 14) Mezzanine equity: Series B preferred stock, $0.0001 par value, 1,586,620 shares designated, 1,586,620 and -0- shares issued and outstanding, respectively 18,181,178 - Series C preferred stock, $0.0001 par value, 1,320,850 shares designated, 1,320,850 and -0- shares issued and outstanding, respectively 10,690,267 - Total mezzanine equity 28,871,445 - Stockholders’ equity (deficit): Preferred stock, $0.0001 par value, 50,000,000 shares authorized: Series A preferred stock, $0.0001 par value, 250,000 shares designated, 167,972 and 167,972 shares issued and outstanding, respectively 17 17 Common stock, $0.0001 par value, 200,000,000 shares authorized; 50,871,711 and 11,698,697 Class A shares issued and outstanding, respectively 5,087 1,170 Additional paid-in capital 82,860,910 30,735,815 Subscriptions receivable (200 ) (200 ) Accumulated deficit (38,932,954 ) (31,346,431 ) Accumulated other comprehensive income (loss) 389,770 (38,024 ) Total stockholders’ equity (deficit) 44,322,630 (647,653 ) Total liabilities, mezzanine and stockholders’ equity (deficit) $ 124,224,955 $ 20,468,885 See accompanying notes to unaudited consolidated condensed financial statements. F- 1 Boxlight Corporation Consolidated Condensed Statements of Operations and Comprehensive Loss For the three and nine months ended September 30, 2020 and 2019 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (Note 1) (Note 1) Revenues, net $ 9,476,956 $ 11,304,731 $ 23,027,723 $ 27,099,654 Cost of revenues 7,452,453 8,070,930 16,721,610 19,204,342 Gross profit 2,024,503 3,233,801 6,306,113 7,895,312 Operating expense: General and administrative expenses 3,306,845 4,230,372 10,444,060 11,892,814 Research and development 471,129 351,104 1,073,095 911,682 Total operating expense 3,777,974 4,581,476 11,517,155 12,804,496 Loss from operations (1,753,471 ) (1,347,675 ) (5,211,042 ) (4,909,184 ) Other income (expense): Interest expense, net (530,830 ) (517,391 ) (1,618,366 ) (1,277,016 ) Other (expense) income, net (14,673 ) 21,077 60,932 65,956 Changes in fair value of derivative liabilities (193,640 ) 1,372,177 (239,340 ) (527,058 ) Gain (loss) from settlements of liabilities (1,718,290 ) - (578,707 ) 146,434 Total other income (expense) (2,457,433 ) 875,863 (2,375,481 ) (1,591,684 ) Net loss $ (4,210,904 ) $ (471,812 ) $ (7,586,523 ) $ (6,500,868 ) Comprehensive loss: Net loss $ (4,210,904 ) $ (471,812 ) $ (7,586,523 ) $ (6,500,868 ) Other comprehensive loss: Foreign currency translation gain (loss) 536,118 (11,563 ) 427,794 (26,749 ) Total comprehensive loss $ (3,674,786 ) $ (483,375 ) $ (7,158,729 ) $ (6,527,617 ) Net loss per common share – basic and diluted $ (0.10 ) $ (0.04 ) $ (0.31 ) $ (0.62 ) Weighted average number of common shares outstanding – basic and diluted 44,214,758 10,746,186 24,852,937 10,533,090 See accompanying notes to unaudited consolidated condensed financial statements. F- 2 Boxlight Corporation Consolidated Condensed Statements of Changes in Stockholders’ Equity (Deficit) For the three and nine months ended September 30, 2020 and 2019 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Total stockholders’ equity (deficit), beginning balances $ 10,731,420 $ 570,397 $ (647,653 ) $ 7,968,059 Series A preferred stock Beginning balances 17 25 17 25 Shares issued for: Acquisition - (8 ) - (8 ) Ending balances 17 17 17 17 Class A common stock and additional paid-in capital: Beginning balances 45,600,001 28,665,586 30,736,985 27,280,949 Shares issued for: Cash 32,025,000 - 42,718,937 - Conversion of accounts payable - - 1,269,275 - Conversion of notes payable 4,033,869 - 6,326,238 382,525 Acquisition - - - 500,000 Other share-based payments - 12,001 8,000 36,001 Closing fees for issuance of notes payable 437,663 - 517,034 199,509 Preferred stock conversion - 8 - 8 Series C preferred stock – beneficial conversion feature 423,638 - 423,638 - Executive compensation - 294,998 - 294,998 Stock compensation expense 345,826 279,330 865,890 557,933 Ending balances 82,865,997 29,251,923 82,865,997 29,251,923 Subscription receivable Beginning balances (200 ) (200 ) (200 ) (225 ) Payment received from stockholder - - - 25 Ending balances (200 ) (200 ) (200 ) (200 ) Other comprehensive loss Beginning balances (146,348 ) (121,605 ) (38,024 ) (106,419 ) Foreign currency translation loss 536,118 (11,563 ) 427,794 (26,749 ) Ending balances 389,770 (133,168 ) 389,770 (133,168 ) Accumulated deficit Beginning balances (34,722,050 ) (27,973,409 ) (31,346,431 ) (19,206,271 ) Cumulative effects of adoption of new accounting standards in prior period - - - (2,738,082 ) Net loss (4,210,904 ) (471,812 ) (7,586,523 ) (6,500,868 ) Ending balances (38,932,954 ) (28,445,221 ) (38,932,954 ) (28,445,221 ) Total stockholders’ equity, ending balances $ 44,322,630 $ 673,349 $ 44,322,630 $ 673,349 See accompanying notes to unaudited consolidated condensed financial statements. F- 3 Boxlight Corporation Consolidated Condensed Statements of Cash Flows For the nine months ended September 30, 2020 and 2019 (Unaudited) Nine Months Ended September 30, 2020 September 30, 2019 (Note 1) Cash flows from operating activities: Net loss $ (7,586,523 ) $ (6,500,868 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 767,708 210,735 Bad debt expense 167,998 (78,786 ) Loss (gain) on settlement of liabilities 578,707 (146,434 ) Change in allowance for sales returns and volume rebate (91,199 ) (84,164 ) Change in inventory reserve 35,494 (81,995 ) Change in fair value of derivative liability 239,340 527,058 Change in fair value of earn-out payable 312 - Shares issued for interest payment on notes payable 246,739 - Stock compensation expense 865,890 895,516 Other share-based payments 8,000 36,001 Depreciation and amortization 758,179 689,043 Changes in operating assets and liabilities: Accounts receivable – trade (1,442,382 ) (4,611,130 ) Inventories (995,802 ) 1,264,336 Prepaid expenses and other current assets 224,010 (302,683 ) Other assets (14,441 ) (4 ) Accounts payable and accrued expenses (1,323,506 ) 2,817,739 Warranty reserve 4,448 (36,086 ) Accounts payable and accrued expenses - related parties 19,480 (899,052 ) Other short-term liabilities 802,498 72,768 Deferred revenues (271,559 ) (52,551 ) Other liabilities (11,073 ) - Net cash used in operating activities $ (7,017,682 ) $ (6,280,556 ) Cash flows from investing activities: Cash paid related to acquisitions (51,003,200 ) - Cash receipts from acquisitions 6,050,230 10,261 Cash paid for patents (100,000 ) - Cash paid for furniture and fixtures - (3,611 ) Net cash (used) provided by investing activities (45,052,970 ) 6,650 Cash flows from financing activities: Proceeds from subscription receivable - 25 Net proceeds from issuance of common stock 42,718,937 - Proceeds from Payment Protection Plan loan 1,008,575 - Proceeds from short-term debt 5,666,841 22,024,710 Principal payments on short-term debt (8,953,154 ) (19,626,724 ) Proceeds from convertible notes payable 20,750,000 4,000,000 Debt issuance costs (461,250 ) (170,000 ) Other - (22,570 ) Net cash provided by financing activities $ 60,729,949 $ 6,205,441 Effect of foreign currency exchange rates (222,624 ) (26,749 ) Net increase in cash and cash equivalents 8,436,673 (95,214 ) Cash and cash equivalents, beginning of the period 1,172,994 901,459 Cash and cash equivalents, end of the period $ 9,609,667 $ 806,245 Supplemental cash flow disclosures: Cash paid for interest $ 1,363,847 $ 1,160,808 Non-cash investing and financing transactions: Shares issued to convert accounts payable $ 1,269,275 $ - Shares issued to convert notes payable – Lind Global $ 6,326,238 $ 382,525 Shares issued for closing fees related to outstanding notes payable $ 517,034 $ 199,509 Shares issued to convert preferred stock $ - $ 13 Notes payable issued as consideration for acquisition of MyStemKit $ 350,000 $ - Preferred shares issued as consideration for acquisition of Sahara $ 29,295,084 $ - 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 Boxlight Corporation Notes to the Unaudited Consolidated Condensed Financial Statements NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Boxlight Corporation (the “Company” or “Boxlight Parent”) is a leading provider of interactive technology solutions under its award-winning brands Clevertouch ® , and Mimio ® . The Company aims to improve engagement and communication products and solution for use in diverse business and education environments. Boxlight develops, sells, and services its integrated solution suite including interactive displays, collaboration software, supporting accessories and professional services. The Company is headquartered in Atlanta, Georgia and was incorporated in the State of Nevada on September 18, 2014. In 2016, the Company acquired Boxlight, Inc., Boxlight Latinoamerica, S.A. DE C.V. and Boxlight Latinoamerica Servicios, S.A. DE C.V. (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 (the “Qwizdom Companies”), and EOSEDU, LLC (“EOS”). In 2019, the Company acquired Modern Robotics, Inc. (“MRI”). In 2020, the Company acquired MyStemKits Inc. (“MyStemKits”) and Sahara Presentation Systems PLC (“Sahara”). 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 3D branded 3D printers and associated hardware for the global education market. Sahara is a leader in distributed AV products and a global manufacturer of multi-award winning touchscreens and digital signage products. See Note 3 for further discussion regarding acquisitions. 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, MyStemKits, and Sahara. 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, earn-out payable, debt, and redeemable preferred stock. 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, the earn–out payable, and certain related party debt are recorded at fair value at each period end. The Company’s redeemable preferred stock was issued in conjunction with a business combination and was recorded at fair value at issuance (less the intrinsic value of a beneficial conversion feature embedded in the Series C preferred shares). The redeemable preferred stock is not measured at fair value on a recurring basis. See further discussion in Note 3 and Note 11. 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 September 30, 2020 and December 31, 2019: Markets for Identical Assets Other Observable Inputs Significant Unobservable Inputs Carrying Value as of September 30, Description (Level 1) (Level 2) (Level 3) 2020 Derivative liabilities - warrant instruments $ - $ - $ 385,944 $ 385,944 Earn-out payable – related party - - 119,132 119,132 Note payable – STEM Education Holdings - - 350,000 350,000 $ 855,076 $ 855,076 Markets for Identical Assets Other Observable Inputs Significant Unobservable Inputs Carrying Value as of 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 nine months ended September 30, 2020: Amount Balance, December 31, 2019 $ 387,118 Amount paid (268,298 ) Change in fair value of earn-out payable 312 Balance, September 30, 2020 $ 119,132 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 many of the Company’s software product sales, control is transferred when shipped at the point of origin since the software is installed on the interactive hardware device in advance of shipping. For other 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 from revenue 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). 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 sold 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 are executed in the same period, 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 September 30, 2020 or December 31, 2019. During the nine months ended September 30, 2020 and September 30, 2019, the Company recognized $0.9 million and $0.8 million, respectively, of revenue that was included in the deferred revenue balance at January 1, 2019, 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 September 30, 2020, the aggregate amount of the contractual transaction prices allocated to remaining performance obligations was approximately $11.6 million. The Company expects to recognize revenue on approximately 20% of the remaining performance obligations in 2020, 55% 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, for 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 some software is 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Product Revenues: Hardware $ 8,248,763 $ 9,410,977 $ 19,694,758 $ 23,424,710 Software 410,813 1,066,846 855,352 1,683,659 Service Revenues: Professional Services 329,491 382,380 1,025,603 877,502 Maintenance and Subscription Services 487,889 444,528 1,452,010 1,113,783 $ 9,476,956 $ 11,304,731 $ 23,027,723 $ 27,099,654 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, and ● 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 those 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 September 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 nine months ended September 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 nine months ended September 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 September 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 nine months ended September 30, 2019: Reconciliation of Topic 606 Adjustments for the three months ended September 30, 2019 Balances under Balances under Topic 606 Adjustments Prior GAAP STATEMENT OF OPERATIONS Revenues $ 11,304,731 $ (297,991 ) $ 11,602,722 Cost of revenues 8,070,930 (92,881 ) 8,163,811 Gross profit 3,233,801 (205,110 ) 3,438,911 General and administrative expenses 4,230,372 (27,794 ) 4,258,166 Total operating expense 4,581,476 (27,794 ) 4,609,270 Loss from operations (1,347,675 ) (177,316 ) (1,170,359 ) Net loss $ (471,812 ) $ (177,316 ) $ (294,496 ) Net loss per common share – basic and diluted $ (0.04 ) $ (0.02 ) $ (0.03 ) Reconciliation of Topic 606 Adjustments for the nine months ended September 30, 2019 Balances under Balances under Topic 606 Adjustments Prior GAAP STATEMENT OF OPERATIONS Revenues $ 27,099,654 $ (611,798 ) $ 27,711,452 Cost of revenues 19,204,342 (235,433 ) 19,439,775 Gross profit 7,895,312 (376,365 ) 8,271,677 General and administrative expenses 11,892,814 (19,617 ) 11,912,432 Total operating expense 12,804,496 (19,617 ) 12,824,114 Loss from operations (4,909,184 ) (356,747 ) (4,552,437 ) Net loss $ (6,500,868 ) $ (356,747 ) $ (6,144,121 ) Net loss per common share – basic and diluted $ (0.62 ) $ (0.03 ) $ (0.58 ) The following table presents the effects of adopting Topic 606 on the Company’s consolidated condensed statement of cash flows for the nine months ended September 30, 2019: Balances under Balances under Topic 606 Adjustments Prior GAAP CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (6,500,868 ) $ (356,747 ) $ (6,144,121 ) Prepaid expense and other current assets (302,683 ) (19,617 ) (283,066 ) Warranty reserve (36,086 ) (235,433 ) 199,347 Deferred revenues (52,551 ) 611,798 (664,349 ) Net cash used in operating activities $ (6,280,556 ) $ - $ (6,280,556 ) 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 option award at the grant date by using the Black-Scholes option pricing model. The fair value of each restricted stock unit award is equal to the market value of the underlying shares at the grant date. 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, 2021, and interim periods within annual reporting periods beginning after December 15, 2022. 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 June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments Credit Losses” (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance replaces the incurred loss methodology with the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade accounts receivable. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842. This new guidance changes the impairment model for most financial assets and certain other instruments. Since the Company is an Emerging Growth Company, the ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within that fiscal year. The Company is currently evaluating the impact that this standard will have, if any, 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. Since the Company is an Emerging Growth Company, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the impact that this standard will have, if any, on its financial statements. In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The new guidance simplifies the accounting for certain convertible instruments and for contracts in an entity’s own equity. Key provisions include the elimination of the “cash conversion” guidance and the “beneficial conversion feature” guidance in ASC 470-20 as well as a simplification of the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification by removing certain conditions in ASC 815-40-25. Since the Company is an Emerging Growth Company, the ASU is effective for annual reporting periods beginning after December 15, 2023. Earlier application is permitted for fiscal periods beginning after December 15, 2020. The Company is currently evaluating the impact that this standard will have 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 Company had an accumulated deficit of $38,932,954 and a working capital surplus of $25,055,980 as of September 30, 2020. The long-term continuation of the Company as a going concern is dependent upon attainment of profitable operations. During June, July and September of 2020, the Company raised significant capital which was primarily used for the acquisition of Sahara and to meet working capital requirements. The Company has the ability to raise additional funds through public or private sales of equity and debt securities or leveraging its asset based lending agreement. F- 13 NOTE 3 – ACQUISITIONS The acquisitions described below were accounted for as business combinations 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. 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 expands the Company’s geographic footprint, industry verticals served, and enhances the Company’s technology and product offerings. As consideration for the purchase of Sahara, the Company transferred $74.2 million to the Sellers, including $44.9 million in cash (net of $6.0 million in cash acquired) and $29.3 million in convertible preferred stock. The Company issued 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”). No contingent consideration was issued. The estimated preliminary fair value of the preferred shares issued was approximately $18.2 million and $11.1 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 transaction was accounted for using the acquisition method, and as a result, assets acquired and liabilities assumed are recorded at their estimated fair values in addition to any consideration transferred to the Sellers at the acquisition date. Determining the fair value of assets acquired and liabilities assumed and the 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, the Series B Preferred Stock, and the Series C Preferred Stock. Any excess consideration over the fair values of the assets acquired and liabilities assumed is 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 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 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 will result in an increase in cost of revenues in periods subsequent to the acquisition date. The Company has not yet finalized its evaluation and determination of the fair value of certain assets acquired and liabilities assumed, and has recorded provisional amounts based on initial measurements using currently available information. The Company has not received a final valuation report from the independent valuation expert for acquired intangible assets, as well as the valuation of the preferred shares consideration. In addition, the Company is still gathering information about certain items including income taxes and deferred income tax assets and liabilities, based on facts that existed as of the date of acquisition. The provisional amounts are subject to change and could result in changes to goodwill, which could be significant. The Company will finalize the amounts recognized no later than one year from the acquisition date. The following table summarizes the preliminary estimated fair values of the net assets acquired and liabilities assumed, and the preliminary estimate of the fair value of consideration paid: Assets acquired: Cash $ 6,049,483 Accounts receivable 16,065,269 Inventories 17,256,608 Prepaid expenses and other current assets 2,276,562 Property and equipment 183,182 Total assets acquired 41,831,104 Accounts payable and accrued expenses (8,622,760 ) Deferred revenue (9,435,449 ) Other liabilities (292,898 ) Total liabilities assumed (18,351,107 ) Net tangible assets acquired 23,479,997 Identifiable intangible assets: Customer relationships 39,624,196 Trademarks 5,320,403 Technology 3,366,483 Total intangible assets subject to amortization 48,311,082 Goodwill 8,407,205 Total net assets acquired $ 80,198,284 Consideration paid: Cash $ 50,903,200 Preferred shares issued 29,295,084 Total consideration paid $ 80,198,284 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 merger related costs for the acquisition and expensed all such costs incurred during the period in which the service was received. Merger related costs are included in general and administrative expenses in the Consolidated Condensed Statement of Operations and Comprehensive Loss. The results of operations of Sahara since the acquisition are included in the Consolidated Condensed Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020. Revenue and net loss attributable to Sahara in the period from the acquisition date of September 24, 2020 through September 30, 2020 were approximately $1.1 million and $0.3 million, respectively. The Company is also required to present a pro forma balance sheet assuming the transaction was consummated on the date of the latest balance sheet included in the filing and a pro forma statement of operations assuming the transaction was consummated at the beginning of the fiscal year presented and carried forward through any interim period presented. However, due to the limited time since the date of acquisition, it is impracticable for the Company to gather the necessary information for this disclosure. The Company intends to disclose the pro forma information on a future Form 8-K filing with the SEC. The Company is currently assessing its aggregation of operating segments for the newly combined entity on a go-forward basis. 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. 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. The following table summarizes the fair values of the net assets acquired and the fair value of consideration paid: Assets acquired: Cash $ 747 Inventories 36,159 Total assets acquired 36,906 Total liabilities assumed (28,611 ) Net assets acquired 8,295 Identifiable intangible assets: Customer relationships 159,000 Trademarks 67,000 Technology 13,000 Total identifiable intangible assets subject to amortization 239,000 Goodwill 202,705 Consideration paid: Cash $ 100,000 Note payable 350,000 Total consideration paid $ 450,000 F- 14 NOTE 4 – ACCOUNTS RECEIVABLE - TRADE Accounts receivable consisted of the following at September 30, 2020 and December 31, 2019: 2020 2019 Accounts receivable - trade $ 22,212,402 $ 4,522,352 Allowance for doubtful accounts (526,223 ) (358,225 ) Allowance for sales returns and volume rebates (590,269 ) (499,070 ) Accounts receivable - trade, net of allowances $ 21,095,910 $ 3,665,057 NOTE 5 – INVENTORIES Inventories consisted of the following at September 30, 2020 and December 31, 2019: 2020 2019 Finished goods $ 21,528,915 $ 3,239,038 Spare parts 271,772 273,080 Reserve for inventory obsolescence (228,755 ) (193,261 ) Inventories, net $ 21,571,932 $ 3,318,857 NOTE 6 – PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consisted of the following at September 30, 2020 and December 31, 2019: 2020 2019 Prepayments to vendors $ 2,619,526 $ 1,389,044 Prepaid licenses and other 1,313,201 332,642 Unbilled revenue 118,629 8,800 Prepaid insurance - 35,255 Prepaid expenses and other current assets $ 4,051,356 $ 1,765,741 F- 15 NOTE 7 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following at September 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 191,548 40,062 Other equipment 77,964 42,485 Property and equipment, at cost 481,661 294,696 Accumulated depreciation (98,246 ) (87,299 ) Property and equipment, net of accumulated depreciation $ 383,415 $ 207,397 For the nine months ended September 30, 2020 and 2019, the Company recorded depreciation expense of $10,947 and $20,500, respectively. NOTE 8 – INTANGIBLE ASSETS AND GOODWILL Intangible assets and goodwill consisted of the following at September 30, 2020 and December 31, 2019: Weighted Average Useful lives 2020 2019 Patents 6 years $ 181,683 $ 81,683 Customer relationships 10 years 44,244,659 4,009,355 Technology 3.2 years 3,689,479 271,585 Domain 15 years 13,955 13,955 Trademarks 10 years 9,365,698 3,917,590 Intangible assets, at cost 57,495,474 8,294,168 Accumulated amortization (3,482,818 ) (2,735,071 ) Intangible assets, net of accumulated amortization $ 54,012,656 $ 5,559,097 Goodwill from acquisition of Sahara N/A $ 8,503,131 $ - Goodwill from acquisition of STEM N/A 202,705 - 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 $ 13,429,385 $ 4,723,549 For the nine months ended September 30, 2020 and 2019, the Company recorded amortization expense of $747,232 and $668,543, respectively. F- 16 NOTE 9 – DEBT The following is a summary of our debt as of September 30, 2020 and December 31, 2019: 2020 2019 Debt – Third Parties Note payable – Lind Global $ 23,955,555 $ 4,797,221 Accounts receivable financing – Sallyport Commercial - 1,551,500 Paycheck Protection Program loan 1,008,575 - Note Payable – STEM Education Holdings 350,000 - Total debt – third parties 25,314,130 6,348,721 Less: Discount and issuance cost – Lind Global 2,990,255 611,355 Current portion of debt – third parties 11,373,472 4,536,227 Long-term debt – third parties $ 10,950,403 $ 1,201,139 Debt – Related Parties Note payable – Qwizdom (Darin & Silvia Beamish) $ - $ 381,563 Note payable – Mark Elliott - 23,548 Note payable – Steve Barker - 17,500 Note payable – Logical Choice Corporation – Delaware - 54,000 Total debt – related parties - 476,611 Less: current portion of debt – related parties - 368,383 Long-term debt – related parties $ - $ 108,228 Total debt $ 22,323,875 $ 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 has 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 September 30, 2020 and December 31, 2019, the Company had paid principal of $2,200,000 and $977,778, respectively, interest of $143,407 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 common stock at a fixed conversion price of $2.50 per share. The Company has 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 September 30, 2020 and December 31, 2019, the Company paid principal of $152,778 and $0, respectively, and interest of $64,582 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, (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, along with legal fees in the amount of $15,000. The Company paid Lind $60,000 for closing fees by issuing 44,557 shares of Class A common stock. As of September 30, 2020, the Company paid principal of $91,667 and interest of $38,749 through issuance of Class A common stock to Lind. On September 21, 2020, the Company and Lind entered into a fourth securities purchase agreement pursuant to which the Company received on September 22, 2020 $20,000,000 in exchange for the issuance to Lind of (1) a $22,000,000 convertible promissory note, payable at an 4% interest rate, compounded monthly, (2) 310,399 shares of restricted Class A common stock valued at $500,000, calculated based on the 20-day volume average weighted price of the Class A common stock for the period ended September 21, 2020, and (3) a commitment fee of $400,000. The Note matures over 24 months, with repayment to commence on November 22, 2020, after which time the Company will be obligated to make monthly payments of $1,000,000, plus interest. Interest will accrue during the first two 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 $400,000 was paid to Lind, along with legal fees in the amount of $20,000. The Company paid Lind $500,000 for closing fees by issuing 310,399 shares of Class A common stock. As of September 30, 2020, the outstanding principal net of debt issuance costs and discounts, and accrued interest owed to Lind were $20,965,300 and $33,059, 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 $13,453,408 is due within one year from September 30, 2020. F- 17 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. This agreement was terminated and replaced with an asset-based lending agreement effective September 30, 2020. On September 30, 2020, Boxlight Inc., and EOS EDU LLC. entered into a 12-month term asset-based lending agreement with Sallyport Commercial Finance, LLC (“Sallyport”). Pursuant to the agreement, Sallyport agreed to purchase 90% 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 3.50% in excess of the highest prime rate publicly announced from time to time with a floor of 3.25%. 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 September 30, 2020, outstanding principal and accrued interest were $0 and $0, respectively. For the nine months ended September 30, 2020, the Company incurred interest expense of $499,671. Paycheck Protection Program Loan On May 22, 2020, the Company received loan proceeds of $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 is using the proceeds for purposes consistent with the PPP. As of September 30, 2020, outstanding principal and accrued interest were $1,008,575 and $3,698, 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 (“MyStemKits Asset Purchase Agreement”). The principal owed under the MyStemKits Asset Purchase Agreement is payable in four equal installments of $87,500 (the “Installment Payments”). Further, acknowledging the ongoing COVID-19 pandemic, on April 17, 2020, the Company and the sellers entered into a letter agreement which stated 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. The Company failed to make the July 31, 2020 payment and is presently in negotiations with the note holder for purposes of determining a suitable adjustment as a result of the COVID-19-related sales decline. As of September 30, 2020, outstanding principal and accrued interest due under this note were $350,000 and $11,297, 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 December 31, 2019, outstanding principal and accrued interest under this agreement was $381,563 and $7,334, respectively. The note was paid in full on August 14, 2020 as a result of a public offering completed in June 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. As of December 31, 2019, outstanding principal and accrued interest under this note were $17,500 and $206, respectively. 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. As of December 31, 2019, outstanding principal and accrued interest under this note were $54,000 and $26,716, respectively. 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 December 31, 2019, outstanding principal and accrued interest under this note were $23,548 and $593, respectively. The note was paid in full on July 17, 2020. F- 18 NOTE 10 – DERIVATIVE LIABILITIES The Company 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 September 30, 2020 and 2019: September 30, 2020 Common stock issuable upon exercise of warrants 295,000 Market value of common stock on measurement date $ 1.61 Exercise price $ 0.43 Risk free interest rate (1) 0.12 % Expected life in years 1.25 years Expected volatility (2) 143.56 % Expected dividend yields (4) 0 % September 30, 2019 Common stock issuable upon exercise of warrants 1,189,949 Market value of common stock on measurement date $ 1.84 Exercise price $ 1.20 to 2.23 Risk free interest rate (1) 1.63 – 1.88 % Expected life in years 0.25-2.25 years Expected volatility (3) 73.69%-87.03 % Expected dividend yields (4) 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 expected volatility was determined by calculating the volatility of the Company’s peer common stock. (4) 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 nine months ended September 30, 2020 and 2019: Amount Balance, December 31, 2019 $ 146,604 Change in fair value of derivative liabilities 239,340 Balance, September 30, 2020 $ 385,944 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 527,058 Balance, September 30, 2019 $ 896,095 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, as amended on September 18, 2020, 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) 1,586,620 shares of voting Series B preferred stock, with a par value of $0.0001 per share; 3) 1,320,850 shares of voting Series C preferred stock, with a par value of $0.0001 per share; and 4) 46,842,530 shares of “blank check” preferred stock to be designated by the Company’s Board of Directors. Issuance of preferred shares Series B Preferred Stock and Series C Preferred Stock As stated in Note 3, on September 25, 2020, in connection with the acquisition of Sahara, the Company issued 1,586,620 shares of Series B Preferred Stock and 1,320,850 shares of Series C Preferred Stock. The Series B Preferred Stock has a stated and liquidation value of $10.00 per share and pays a dividend out of the earnings and profits of the Company at the rate of 8% per annum, payable quarterly. The Series B Preferred Stock is convertible into the Company’s Class A common stock at a conversion price of $1.66 which was the closing price of BOXL’s Class A common stock on the Nasdaq stock market on September 25, 2020 (the “Conversion Price”) either (i) at the option of the holder at any time after January 1, 2024 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price). The Series C Preferred Stock has a stated and liquidation value of $10.00 per share and is convertible into the Company’s Class A common stock at the Conversion Price either (i) at the option of the holder at any time after January 1, 2026 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price for 20 consecutive trading days (based on a volume weighted average price). To the extent not previously converted into the Company’s Class A common stock, the outstanding shares of Series B Preferred Stock shall be redeemable at the option of the Holders at any time or from time to time commencing on January 1, 2024, upon thirty (30) days prior written notice to the Holders, for a redemption price, payable in cash, equal to sum of (a) Ten ($10.00) multiplied by the number of shares of Series B Preferred Stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C Preferred Stock is also subject to redemption on the same terms commencing January 1, 2026. The Series B Preferred Stock has been recorded at its estimated fair value on the date of issuance of approximately $18.2 million, which includes the conversion and redemption features as they have not been bifurcated from the host instruments. The Company determined that the Series C Preferred Stock included a beneficial conversion feature with an intrinsic value of approximately $0.4 million. The beneficial conversion feature has been separately recorded as a component of Additional Paid-in Capital at its intrinsic value. The Series C Preferred Stock has been recorded at its estimated fair value on the date of issuance (less the intrinsic value of the beneficial conversion feature described above) of approximately $10.7 million, which includes the redemption features as they have not been bifurcated from the host instrument. As the redemption features in the Series B Preferred Stock and Series C Preferred Stock are not solely with the control of the Company, the Company has classified the Series B Preferred Stock and Series C Preferred Stock in temporary equity on the Company’s consolidated balance sheet. F- 19 Series A Preferred Stock 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 September 30, 2020 and December 31, 2019, the Company had 50,871,711 and 11,698,697 shares of Class A common stock issued and outstanding, respectively. No Class B shares were outstanding at September 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. On July 31, 2020, the Company issued 17,250,000 shares of the Company’s Class A common stock at a public offering price of $2.00 per share. Gross proceeds from the issuances were $34,500,000, including the underwriting overallotment. Net proceeds were $32,025,000 after deducting underwriting discounts and offering expenses of $2,475,000. Debt Conversion During the quarter ended March 31, 2020, the Company issued 787,489 shares of Class A common stock in lieu of $1,133,515 in principal and interest payments due in relation to notes payable to Lind Global. In addition, the Company issued 44,557 shares of Class A common stock in lieu of payment of the closing fees of the convertible debt with an aggregate amount of $49,013 to Lind Global. During the quarter ended June 30, 2020, the Company issued 1,552,567 shares of Class A common stock in lieu of $1,158,854 in principal and interest payments due in relation to notes payable to Lind Global. In addition, the Company issued 35,910 shares of Class A common stock in lieu of payment of the closing fees of the convertible debt with an aggregate amount of $30,358 to Lind Global. During the quarter ended September 30, 2020, the Company issued 1,407,364 shares of Class A common stock in lieu of $4,033,869 in principal and interest payments due in relation to notes payable to Lind Global. In addition, the Company issued 310,399 shares of Class A common stock in lieu of payment of the closing fees of the convertible debt with an aggregate amount of $437,663 to Lind Global. Accounts Payable Conversion During the quarter ended March 31, 2020, the Company entered into an agreement with a related party, Everest Display, Inc., to convert $2.0 million in accounts payable owed in exchange for 1,333,333 shares of Class A common stock with an aggregate value of $566,667 resulting in the Company recording a $1,433,333 gain from settlement of liabilities. During the quarter ended June 30, 2020, the Company entered into an agreement with a related party, Everest Display, Inc., to convert $1.0 million in accounts payable owed in exchange for 869,565 shares of Class A common stock with an aggregate value of $702,608 resulting in the Company recording a $297,392 gain from settlement of liabilities. Other During the quarter ended March 31, 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. On April 17, 2020, the Company issued 142,857 shares to Stemify at a purchase price of $0.70 per share for 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. On September 30, 2020, the Company issued an additional 46,621 shares to Mr. Pope as part of his stock compensation. The shares vested during the third quarter of the year. Exercise of stock options No options to purchase common stock were exercised during the nine months ended September 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”), was 2,690,438 shares. Grants made under the Equity Incentive Plan must be approved by the Company’s Board of Directors. 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 obtained shareholder approval of the aforementioned action at the Company’s annual meeting, which was held on September 4, 2020. The number of underlying shares available, as amended, was 6,390,438. As of September 30, 2020, the Company had issued all of the shares reserved for issuance under the Equity Incentive Plan and, as such, there no longer shares available for issuance under the Equity Incentive Plan. F- 20 Stock Options Under our stock option program, pursuant to the Equity Incentive Plan, an employee may receive 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 nine months ended September 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 2,936,000 0.76 Cancelled (463,802 ) 3.60 Outstanding, September 30, 2020 4,856,886 1.76 4.03 Exercisable, September 30, 2020 2,177,455 2.62 6.09 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 September 30, 2020, the options had an intrinsic value of approximately $3.0 million. 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. 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 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 April 20, 2020, the Company granted an aggregate of 20,000 stock options in total to a new employee with an exercise price of $0.67 per share vesting quarterly 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 $11,264 on the grant date. On September 17, 2020, the Company granted an aggregate of 16,000 stock options in total to an employee with an exercise price of $1.46 per share vesting annually over four years. The expiration date of these options is ten years from the grant date. These options had an aggregated fair value of approximately $20,135 on the grant date. Variables used in the Black-Scholes option-pricing model for options granted during the nine months ended September 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 136-148%, and (4) zero expected dividends. Restricted Stock Units Under our stock option program, pursuant to the Equity Incentive Plan, the Company grants restricted stock units (“RSUs”) to certain employees and non-employee directors. Upon granting the RSUs, the Company records a fixed compensation expense equal to the fair market value of the underlying shares of RSUs granted on a straight-line basis over the requisite services period for the RSUs. Compensation expense related to the RSUs is reduced by the fair value of units that are forfeited by employees that leave the Company prior to vesting. The restricted stock units vest over a range of immediately vested to four-year vesting periods in accordance with the terms of the applicable RSU grant agreement. Following is a summary of the RSU activities during the nine months ended September 30, 2020: Number of Units Weighted Average Grant Date Fair Value Outstanding, December 31, 2019 - $ - Granted 3,055,063 1.56 Vested (126,036 ) 0.52 Outstanding, September 30, 2020 2,929,027 1.60 On March 20, 2020, the Company granted an aggregate of 186,484 RSUs to Michael Pope. These RSUs vest over one year, and had an aggregated fair value of approximately $76,458 on the grant date. On June 30, 2020, the Company granted an aggregate of 108,696 RSUs to new board members. These RSUs vest over one year, and had an aggregated fair value of approximately $100,000 on the grant date. On September 18, 2020, the Company granted an aggregate of 34,483 RSUs to a new employee. These RSUs vest over four years, and had an aggregated fair value of approximately $50,000 on the grant date. On September 25, 2020, the Company granted an aggregate of 2,725,400 RSUs to its new employees retained in relation to the Sahara acquisition. These RSUs vest over four years, and had an aggregated fair value of approximately $4,524,164 on the grant date. Warrants Following is a summary of the warrant activities during the nine months ended September 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 ) 4.76 Outstanding, September 30, 2020 365,000 1.44 1.52 Exercisable, September 30, 2020 346,250 1.48 1.36 On April 20, 2020, the Company granted 20,000 warrants to Ryan Legudi, the managing director of Stemify, as part of his compensation with an exercise price of $0.70 per share, which warrants vest quarterly over four-year period. The expiration of these options is five years from the grant date. The warrants had an aggregated fair market value of approximately $16,444 on the grant date. Stock compensation expense For the nine months ended September 30, 2020 and 2019, the Company recorded the following stock compensation in general and administrative expense: 2020 2019 Stock options $ 779,615 $ 557,933 Restricted stock units 85,017 - Common stock - 294,998 Warrants 1,258 42,585 Total stock compensation expense $ 865,890 $ 895,516 F- 21 As of September 30, 2020, there was approximately $6.6 million of unrecognized compensation expense related to unvested options, restricted stock units, and warrants, 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 three 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 nine months ended September 30, 2020 and 2019, the Company had purchases of $339,267 and $855,947, respectively, from EDI. For the nine months ended September 30, 2020 and 2019, the Company had sales of $35,654 and $37,360, respectively, to EDI. The Company entered into agreements with EDI during the first and second quarters of 2020, to convert a total of $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 September 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 four offices under non-cancelable lease agreements. The leases provide that the Company pays monthly rental fees related to the properties. Future minimum lease payments of the Company’s operating leases with a term over one year subsequent to September 30, 2020 are as follows: Year ending December 31, Amount 2020 $ 315,723 2021 1,336,380 2022 1,307,964 2023 1,213,976 2024 352,537 2025 317,637 Net Minimum Lease Payments $ 4,844,217 For the nine months ended September 30, 2020 and 2019, aggregate rent expense was $350,836 and $312,910 respectively. F- 22 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 three significant customers for the nine months ended September 30, 2020 and 2019: Customer Total revenues from the customer to total revenues for the nine months ended September 30, 2020 Accounts receivable from the customer as of September 30, 2020 (rounded to 000’s) 1 16 % $ 3,378 2 12 % 244 3 12 % $ 114 Customer Total revenues from the customer to total revenues for the nine months ended September 30, 2019 Accounts receivable from the customer as of September 30, 2019 (rounded to 000’s) 1 - % $ - 2 13 % 643 3 13 % 638 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 two vendors for the nine months ended September 30, 2020 and 2019: Vendor Total purchases from the vendor to total purchases for the nine months ended September 30, 2020 Accounts payable (prepayment) to the vendor as of September 30, 2020 (rounded to 000’s) 1 21 % $ (406 ) 2 18 % (70 ) F- 23 Vendor Total purchases from the vendor to total purchases for the nine months ended September 30, 2019 Accounts payable (prepayment) to the vendor as of September 30, 2019 (rounded to 000’s) 1 0 % $ - 2 34 % $ (1,789 ) The Company believes there are other suppliers that could be substituted should the supplier become unavailable or non-competitive. NOTE 16 – SUBSEQUENT EVENTS On October 1, 2020, the Company granted an aggregate of 20,000 RSUs to a new employee. These RSUs vest over four years, and had an aggregated fair value of approximately $37,000 on the grant date. On October 5, 2020, the Company issued 39,597 shares of Class A common stock in lieu of principal and interest payment of notes payable with an aggregate amount of $50,722. On October 19, 2020, the Company granted an aggregate of 18,634 RSUs to a new employee. These RSUs vest over four years, and had an aggregated fair value of approximately $30,000 on the grant date. On October 22, 2020, the Company issued 180,812 shares of Class A common stock in lieu of principal and interest payment of notes payable with an aggregate amount of $252,593. On November 5, 2020, the Company issued 42,015 shares of Class A common stock in lieu of principal and interest payment of notes payable with an aggregate amount of $50,417. F- 24 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 a leading provider of interactive technology solutions under our award-winning brands Clevertouch TM , Mimio ® and Sedao TM . We aim to improve engagement and communication in diverse business and education environments. We develop, sell, and service our integrated solution suite including interactive displays, collaboration software, supporting accessories and professional services. To date, we have generated substantially all of our revenue from sales 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. Highlights of our plan include: ● Integrating products of acquired companies and cross training our sales representatives and channel partners to increase their product offerings. The combination of additional products and cross training has already resulted in a substantial increase in sales. ● Hiring new sales representatives with significant education technology sales experience in their respective territories. ● Continuing to develop innovative technology solutions for the markets we target. Recent Acquisitions and Related Financing Sahara Holdings Limited On September 24, 2020, the Company entered into a share purchase agreement (the “Sahara SPA”) with the stockholders (the “Sellers”) of Sahara Holdings Limited, a private limited company operating under the laws of the UK (“Sahara”), pursuant to which the Company purchased 100% of the outstanding shares of Sahara, thereby acquiring Sahara, its operating company, Sahara Presentations Limited PLC, a UK private limited company and its subsidiaries (together with “Sahara,” the “Sahara Entities”). Sahara Presentations is a cutting-edge audio-visual technology company operating out of Dartford, England, with operations in the U.K., the Netherlands, Germany, Sweden, Finland and the U.S. As consideration for the purchase of the Sahara Entities, the Company paid to the Sellers total consideration of £74,000,000 (approximately US$94,900,000) consisting of: (i) £52,000,000 (approximately US$66,700,00) in cash; (ii) 1,586,620 shares of Series B convertible preferred stock (the “Series B Preferred Stock”); and (iii) 1,320,850 shares of Series C non-voting convertible and redeemable preferred shares (the “Series C Preferred Stock”). The Series B Preferred Stock has a stated and liquidation value of $10.00 per share and pays a dividend out of the earnings and profits of the Company at the rate of 8% per annum, payable quarterly. The Series B Preferred Stock is convertible into the Company’s Class A common stock at a conversion price set at the closing price of BOXL’s Class A common stock on the Nasdaq stock market on September 25, 2020 (the “Conversion Price”) either (i) at the option of the holder at any time after January 1, 2024 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price. The Series C Preferred Stock has a stated and liquidation value of $10.00 per share and is convertible into the Company’s Class A common stock at the Conversion Price either (i) at the option of the holder at any time after January 1, 2026 or (ii) automatically upon the Company’s Class A common stock trading at 200% of the Conversion Price. In addition, the Company issued some 3,000,000 restricted stock units (“RSUs”) to certain Sahara employees, which RSUs will vest in equal monthly instalments over a period of 48-months. To the extent not previously converted into Conversion Shares, the outstanding shares of Series B Preferred Stock shall be redeemable at the option of the Holders at any time or from time to time commencing on January 1, 2024, upon thirty (30) days prior written notice to the Holders, for a redemption price, payable in cash, equal to sum of (a) Ten ($10.00) multiplied by the number of shares of Series B Preferred Stock being redeemed (the “Redeemed Shares”), plus (b) all accrued and unpaid dividends, if any, on such Redeemed Shares. The Series C Preferred Stock is also subject to redemption on the same terms commencing January 1, 2026. The Sahara acquisition was financed through a $22,000,000 convertible note (the “Lind Convertible Note”) sold to Lind Global Asset Management, LLC, a Delaware limited liability company (“Lind”), which closed on September 21, 2020 and through which the Company received proceeds of $20,000,000. Under the terms of the Lind Convertible Note offering, in addition to the issuance of the Lind Convertible Note, the Company paid to Lind (i) a commitment fee of $400,000 and (ii) a bonus fee (the “Bonus Payment”) of $500,000 payable in shares of Class A common stock of the Company, with the per share price of the Bonus Payment shares calculated based on the 20-day VWAP of the Common Stock prior to closing. The Lind Convertible Note has a term of 24-months, bears a 4% interest rate (0% interest so long as the Common Stock trades at $3.50 or more per share), is repayable in 22 equal instalments commencing 60 days after the Funding and, at the option of the Company, may be repaid in either cash or Common Stock. The Class A common stock issuable to Lind in conjunction with the Bonus Payment and the Lind Convertible Note are issuable pursuant to the Company’s existing shelf registration statement on Form S-3. MyStemKits 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, on April 17, 2020, the Company and the sellers entered into a letter agreement pursuant to which 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. 3 Components of our Results of Operations and Financial Condition Revenue s Our revenue is comprised of hardware, software and service revenues less sales discounts. ● Hardware revenue. Hardware revenue is derived from the sale of our interactive flat panels, projectors, peripherals and accessories, along with other third-party products, directly to our customers, as well as through our network of domestic and international distributors. ● Software revenue. We receive revenue from the sale of our software platforms in the form of licensing fees. We have also introduced a subscription-based model for our MimioConnect software platform. ● Services revenue. We receive revenue from providing professional development, training and other services. 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 expenses consist 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 expenses 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 expenses 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 As discussed in Note 3, the Company acquired 100% of the outstanding shares of Sahara on September 24, 2020. Included in the three-month and nine-month periods of 2020 below are Sahara’s operating results from September 25 through September 30. Sahara contributed approximately $1,052 thousand in revenue and approximately $92 thousand in gross profit. Sahara’s total operating expenses were $308 thousand and they incurred a net loss of approximately $276 thousand. Sahara’s gross profit and net loss was negatively impacted by the purchase accounting impact of $213 thousand as a result of marking the inventory up to fair value at acquisition date. For the nine-month periods ended September 30, 2020 and 2019 Revenues. Total revenues for the nine months ended September 30, 2020 were $23,027,723, as compared to $27,099,654 for the nine months ended September 30, 2019, resulting in a 15% decrease. The decrease in revenues in 2020 is related to the reduction in sales of panels, projectors, software and STEM products primarily attributable to school closures as a result of the ongoing COVID-19 global pandemic. Cost of Revenues. Cost of revenues for the nine months ended September 30, 2020 was $16,721,610, as compared to $19,204,342 for the nine months ended September 30, 2019, resulting in a 13% decrease. The decrease in cost of revenues were driven by the decrease in sales. Gross Profit. Gross profit for the nine months ended September 30, 2020 was $6,306,113 as compared to $7,895,312 for the nine months ended September 30, 2019. Gross margin decrease from 29% to 27% was related to changes in the Company’s product mix with a reduction in higher margin products such as software and STEM products coupled with a 15% increase in distributor sales compared to 2019. General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2020 were $10,444,060 as compared to $11,892,814 for the nine months ended September 30, 2019. The decrease was driven primarily by reductions in tradeshows of $0.3 million, contract services of $0.6 million, compensation and benefits of $0.4 million and travel and entertainment of $0.4 million. Research and Development Expense. Research and development expenses were $1,073,095 and $911,682 for the nine months ended September 30, 2020 and 2019, respectively. The increase in research and development expense was driven primarily by an increase in contact services for software consultants. Other Income (Expense). Other income (expense) for the nine months ended September 30, 2020 was ($2,375,481), as compared to ($1,591,684) for the nine months ended September 30, 2019. The increase in other expense was related to loss on settlement of the Lind debt $2.3 million, increased interest expense of $0.3 million offset by a gain on settlement of EDI accounts payable by $1.7 million and a decrease in the change in fair value of derivative liabilities of $0.3 million. Net loss. Net loss was $7,586,523 and $6,500,868 for the nine months ended September 30, 2020 and 2019, respectively. The increase in the net loss was primarily driven by a decrease of gross profit, decrease in operating expenses and increase in other expense. For the three-month periods ended September 30, 2020 and 2019 Revenues. Total revenues for the three months ended September 30, 2020 was $9,476,956, as compared to $11,304,731 for the three months ended September 30, 2019, resulting in a 15% decrease. The decrease in revenues in 2020 was related to the reduction in sales of panels, software and STEM products primarily attributable to the widespread school closures as a result of the ongoing COVID-19 global pandemic. Cost of Revenues. Cost of revenues for the three months ended September 30, 2020 was $7,452,453, as compared to $8,070,930 for the three months ended September 30, 2019, resulting in a 18% decrease. The decrease in cost of revenues were driven by the decrease in sales. Gross Profit. Gross profit for the three months ended September 30, 2020 was $2,024,503, as compared to $3,233,801 for the three months ended September 30, 2019. The decrease in gross margin from 29% to 21% related to changes in the Company’s product mix with a reduction in higher margin products such as software and STEM products coupled with a 33% increase in distributor sales compared to 2019. General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2020 was $3,306,845 as compared to $4,230,372 for the three months ended September 30, 2019. The decrease was primarily driven by reductions in compensation and benefits of $0.7 million, travel and entertainment of $0.2 million and stock compensation of $0.2 million. Research and Development Expenses. Research and development expenses were $471,129 and $351,104 for the three months ended September 30, 2020 and 2019, respectively. The change in research and development expense was primarily driven by the increase in contract services related to software consultants. 5 Other Income (Expense). Other income (expense) for the three months ended September 30, 2020 was ($2,457,433), as compared to $875,863 for the three months ended September 30, 2019. The increase in other expense was related to a change in fair value of derivative liabilities of $1.6 million and loss from settlement of liabilities of $1.7 million. Net loss. Net loss was $4,210,904 and $471,812 for the three months ended September 30, 2020 and 2019, respectively. The decrease in the net loss was primarily driven by a decrease of gross profit, decrease in operating expenses and increase in other expense. 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. Boxlight reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). However, our management also 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 intangible 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. Management has determined Adjusted EBITDA is most useful as a measure of performance when defined and presented consistently across reporting periods. EBITDA represents net loss before income tax expense, interest income, interest expense, depreciation and amortization. Adjusted EBITDA represents EBITDA, plus certain adjustments as described in the note to the tables presented below. 6 The following table contains reconciliations of net losses to EBITDA for the periods presented. Reconciliation of net loss for the three months ended September 30, 2020 and 2019 to EBITDA and adjusted EBITDA (in thousands) September 30, 2020 September 30, 2019 Net loss $ (4,211 ) $ (472 ) Depreciation and amortization 318 222 Interest expense 531 517 EBITDA $ (3,362 ) $ 267 Stock compensation expense (1) 346 574 Change in fair value of derivative liabilities (2) 194 (1,372 ) Purchase accounting impact of fair valuing inventory (3) 217 16 Net loss on settlement of Lind debt in stock (4) 1,748 - Adjusted EBITDA $ (857 ) $ (515 ) Reconciliation of net loss for the nine months ended September 30, 2020 and 2019 to EBITDA and adjusted EBITDA (in thousands) September 30, 2020 September 30, 2019 Net loss $ (7,587 ) $ (6,501 ) Depreciation and amortization 758 689 Interest expense 1,618 1,277 EBITDA $ (5,211 ) $ (4,535 ) Stock compensation expense (1) 866 896 Change in fair value of derivative liabilities (2) 239 527 Purchase accounting impact of fair valuing inventory (3) 236 40 Net loss on settlement of Lind debt in stock (4) 2,340 - Adjusted EBITDA $ (1,530 ) $ (3,072 ) (1) Stock compensation expense has been excluded from Adjusted EBITDA. Although stock-based compensation is a key incentive to our employees, management evaluates our business performance excluding this non-cash expense. (2) The change in the fair value of derivatives has been excluded from Adjusted EBITDA. We believe it is useful to understand the effect of this non-cash item in Other Income (Expense). (3) In connection with the accounting related to our acquisitions, business combinations rules require the acquired inventory be recorded at fair value on the opening balance sheet. This is different from historical cost. Essentially, we are required to write the inventory up to the end customer price less a reasonable margin as a distributor. We have excluded the resulting adjustments in inventory and cost of goods sold as the historic and forward gross margin trends will differ as a result of the adjustments. We believe it is useful to understand the effects of this on cost of goods sold and margin. (4) The non-cash losses associated with settling debt using common shares has been excluded from Adjusted EBITDA. This non-cash gain or loss can vary significantly depending on the stock price, and management feels it is useful to understand the impact on the operations. 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 September 30, 2020, we had cash and cash equivalents of $9,609,667 and a net working capital surplus of $25,055,980. For the nine months ended September 30, 2020 and 2019, we had net cash used in operating activities of $7,017,682 and $6,280,556, respectively, net cash (used in) provided by investing activities of ($45,052,970) and $6,650 respectively, and net cash provided by financing activities of $60,729,949 and $6,205,441, respectively. We had accounts receivable net of allowances of $21,095,910 and $3,665,057 as of September 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. On July 31, 2020, the Company issued 17,250,000 shares of the Company’s Class A common stock at a public offering price of $2.00 per share. Gross proceeds from the issuances were $32,025,000, including the underwriting overallotment. 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 $38,932,954 and a net working capital surplus of approximately $25,055,980 as of September 30, 2020. The long-term continuation of the Company as a going concern is dependent upon attainment of profitable operations. During June, July and September of 2020, the Company raised significant capital which was primarily used for the acquisition of Sahara and to meet working capital requirements. The Company has the ability to raise additional funds through public or private sales of equity and debt securities or leveraging its asset-based lending agreement. Recent Financing On February 4, 2020, we entered into a separate securities purchase agreement with Lind (the “2020 SPA”) pursuant to which, on February 26, 2020, we received $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, 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. At our 2020 annual meeting of stockholders, held on September 4, 2020, our stockholders approved all of the Lind financing transactions that had occurred up until that point. On September 21, 2020, the Company entered into a securities purchase agreement (the “Lind GAM SPA”) with Lind Global Asset Management, LLC, a Delaware limited liability company (“Lind GAM”), pursuant to which Lind purchased from the Company a $22,000,000 secured convertible note (the “Convertible Note”) in exchange for payment of $20,000,000 (the “Funding”). Under the terms of the Lind SPA, in addition to the issuance of the Convertible Note, the Company paid to Lind (i) a commitment fee of $400,000 and (ii) a bonus fee (the “Bonus Payment”) of $500,000 payable in shares of Class A common stock of the Company (the “Common Stock”), with the per share price of the Bonus Payment shares calculated based on the 20-day VWAP of the Common Stock prior to closing. The Convertible Note has a term of 24-months, bears a 4% interest rate (0% interest so long as the Common Stock trades at $3.50 or more per share), is repayable in 22 equal installments commencing 60 days after the Funding and, at the option of the Company, may be repaid in either cash or Common Stock. Common Stock issuable to Lind in conjunction with the Bonus Payment and the Convertible Note being issuable pursuant to the Company’s existing shelf registration statement on Form S-3. In conjunction with the Lind Convertible Note offering, on September 21, 2020, the Company and Lind Global Macro Fund, LP, an affiliate of Lind, entered into a third amended and restated security agreement (the “Third A&R Security Agreement”) for purposes of amending and restating a prior security agreement, dated as of February 4, 2020, between the Company and GMF in order to incorporate the Lind SPA and the Convertible Note therein. In addition, on September 21, 2020, the Company, Sallyport Commercial Finance, LLC (“Sallyport”), as first lien creditor, and GMF and Lind, as second lien creditors, entered into a third amended and restated intercreditor agreement (the “Third A&R Intercreditor Agreement”) for purposes of amending and restating the second amended and restated intercreditor agreement, dated as of February 4, 2020, between the Company, Sallyport and GMF, in order to (i) incorporate Lind as a second lien creditor and (ii) reaffirm and confirm the relative priority of each creditor’s respective security interests in the Company’s assets, among other matters. 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 5. Redeemable preferred stock 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 September 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 nine-month period ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS 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 ongoing 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. ITEM 5. OTHER INFORMATION None. 10 Item 6. Exhibits The following exhibits are filed or furnished with this report: Exhibit No. Description of Exhibit 4.1 Form of Certificate of Designation for Series B Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on September 25, 2020). 4.2 Form of Certificate of Designation for Series C Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed September 25, 2020). 4.3 Amended and Restated Certificate of Designation for Series B Convertible Preferred Stock. 4.4 Amended Certificate of Designation for Series C Convertible Preferred Stock. 10.1 Securities Purchase Agreement, dated September 21, 2020, between Boxlight Corporation and Lind Global Asset Management LLC (incorporated by reference to Exhibit 10.1 to the Current Report filed on September 22, 2020). 10.2 Form of Convertible Secured Note issued to Lind Global Asset Management, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on September 22, 2020). 10.3 Third Amended and Restated Security Agreement, dated September 21, 2020, between Boxlight Corporation and Lind Global Macro Fund, LP (filed as Exhibit 10.3 to the Current Report on Form 8-K filed on September 22, 2020). 10.4 Third Amended and Restated Intercreditor Agreement, dated September 21, 2020 between Boxlight Corporation, Sallyport Commercial Finance, LLC, Lind Global Macro Fund, LP and Lind Global Asset Management, LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on September 22, 2020). 10.5 Securities Purchase Agreement, dated September 24, 2020, between Boxlight Corporation and the Sellers of Sahara Holdings (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 25, 2020). 10.6 Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on September 25, 2020). 10.7 Form of Accounts Receivable Agreement, effective September 30, 2020, between Boxlight Inc., EOSEDU LLC and Sallyport Commercial Finance LLC (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed October 9, 2020). 10.8 Form of Blocked Account Agreement between Boxlight Inc., EOSEDU LLC and Sallyport Commercial Finance LLC (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed October 9, 2020) 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 SIGNATURES 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 November 16, 2020 By: /s/ Michael Pope Michael Pope Chief Executive Officer November 16, 2020 By: /s/ TAKESHA BROWN Takesha Brown Chief Financial Officer (Principal Financial and Accounting Officer) 12