Boxlight Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere herein. The Management’s Discussion and Analysis (“MD&A”) contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Overview We are a technology company that is seeking to become a world leading innovator and integrator of interactive products and software for schools, education, business, and government interactive spaces. We currently design, produce and distribute interactive displays, collaboration software, supporting accessories and professional services. We also distribute science, technology, engineering, and math (or “STEM”) products, including our robotics and coding system, 3D printing solution and portable science lab. Our products are integrated into our software suite that provides tools for presentation creation and delivery, assessment, and collaboration. To date, we have generated substantially all our revenue from the sale of our hardware (primarily consisting of interactive displays) and software to the educational market in the United States and Europe. We have also implemented a comprehensive plan to reach and maintain profitability both from our core business operations and as a result of making strategic business acquisitions. Highlights of our plan include: ● Integrating products of the acquired companies and cross training our sales reps to increase their offerings and productivity. ● Hiring new sales representatives with significant industry experience in their respective territories. ● Expanding our reseller partner network both in key territories and in new markets, thereby increasing our penetration and reach. Recent Acquisitions On March 23, 2021, the Company acquired 100% of the outstanding shares of Interactive Concepts BV, a company incorporated and registered in Belgium and a distributor of interactive technologies (“Interactive”), for total consideration of approximately $3.3 million in cash, common stock, and deferred consideration. Interactive has been the Company’s key distributor in Belgium and Luxembourg. 27 On September 24, 2020, the Company acquired Sahara Presentation Systems PLC, a leader in distributed and manufactured AV solutions (“Sahara”). Headquartered in the United Kingdom, Sahara is a leader in distributed AV products and a manufacturer of multi-award-winning touchscreens and digital signage products, including the globally renowned Clevertouch and Sedao brands. In consideration for the acquisition, the Company paid to the shareholders of Sahara a total purchase price of GBP 74.0 million (approximately USD $94.9 million) in the form of GBP 52.0 million (approximately USD $66.7 million) in cash and GBP 22.0 million (approximately USD $28.2 million) in our Series B convertible preferred stock and our Series C convertible preferred stock. Acquisition Strategy and Challenges Our growth strategy includes acquiring assets and technologies of companies that have products, technologies, industry specializations or geographic coverage that extend or complement our existing business. The process to undertake a potential acquisition is time-consuming and costly. We expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets, and there is no guarantee that we will complete any acquisition that we pursue. We believe we can achieve significant cost-savings by merging the operations of the companies we acquire and after their acquisition leverage the opportunity to reduce costs through the following methods: ● Staff reductions – consolidating resources, such as accounting, marketing, and human resources. ● Economies of scale – improved purchasing power with a greater ability to negotiate prices with suppliers. ● Improved market reach and industry visibility – increase in customer base and entry into new markets. Components of our Results of Operations and Financial Condition Revenues are comprised of hardware products, software services, and professional development revenues less sales discounts. ● Product revenue. Product revenue is derived from the sale of our hardware (interactive projectors), flat panels, peripherals, and accessories, along with other third-party products, directly to our customers, as well as through our network of domestic and international distributors. ● Professional development revenue. We receive revenue from providing professional development services through third parties and our network of distributors. Cost of revenues Our cost of revenues is comprised of the following: ● costs to purchase components and finished goods directly; ● third-party logistics costs; ● inbound and outbound freight costs, and customs and duties charges; ● 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; and ● cost of professionals to deliver professional development training related to the use of our products. 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. 28 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. General and administrative. General and administrative expense consists of personnel related costs, which include salaries and stock-based compensation, as well as the costs of professional services, such as accounting and legal, facilities, information technology, depreciation and amortization and other administrative expenses. General and administrative expense may fluctuate as a percentage of revenue, notably in the second and third quarters of our fiscal year when we have historically experienced our highest levels of revenue. Research and development. Research and development expense consists 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 primarily consists of interest expense associated with our debt financing arrangements, gains (losses) on the settlements of debt and trade payable obligations exchanged for common shares, and the effects of changes in the fair value of derivative liabilities. Income tax expense We are subject to income taxes in the jurisdictions in which we do business, including the United States, United Kingdom, Mexico, Sweden, Finland, Holland, and Germany. The United Kingdom, Mexico, Sweden, Finland, Holland, and Germany have a statutory tax rate different from that in the United States. Additionally, certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations. Operating Results – Boxlight Corporation For the three-month periods ended September 30, 2021 and 2020 Revenues. Total revenues for the three months ended September 30, 2021 were $61.0 million as compared to $9.5 million for the three months ended September 30, 2020, resulting in a 544% increase in revenue. Revenues primarily consist of hardware revenue, software revenue, and professional development. The increase in revenues was primarily due to the acquisitions of Sahara Presentation Systems in September 2020 and Interactive Concepts in March 2021 as well as increased demand for our solutions in the U.S. and Europe. 29 Cost of Revenues. Cost of revenues for the three months ended September 30, 2021 was $ 45.2 million compared to $7.5 million for the three months ended September 30, 2020, resulting in a 507% increase. Cost of revenues consists primarily of product cost, freight expenses, customs expense, and inventory adjustments. The increase in cost of revenues was associated with the acquisitions and growth of the business as outlined above and was also due to additional increases in global freight/shipping which the company has experienced (as have many others) as a result of supply chain issues arising as a result of the COVID-19 pandemic. In the first quarter of 2021 we reported the cost increase to be approximately four times normal costs as compared to pre-pandemic levels. We expect such cost increases to continue throughout 2021. Gross Profit. Gross profit for the three months ended September 30, 2021, was $15.8 million, as compared to $2.0 million for the three months ended September 30, 2020. Gross profit margin increased from 21% to 26% despite the effects of increased freight and shipping expenses discussed above, product cost increases (which have been partially offset by increased sales prices) and certain purchase accounting adjustments stemming from the Sahara acquisition and effecting recognized revenues. General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2021 were $11.9 million and 20% of revenues, as compared to $3.3 million and 35% of revenues for the three months ended September 30, 2020. The increase was mainly a result of the additional personnel costs associated with the acquired Sahara operations, new hires for planned growth and stock compensation issuances. Research and Development Expenses. Research and development expenses were $355 thousand and 0.6% of revenues for the three months ended September 30, 2021, as compared to $471 thousand and 5% of revenues for the three months ended September 30, 2020. Research and development expense primarily consists of costs associated with development of our proprietary hardware and software technologies. Other Expense (net). Other expense (net) for the three months ended September 30, 2021 was $1.4 million, as compared to $2.5 million for the three months ended September 30, 2020. Other expense decreased primarily due to $1.1 million less in losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares, offset by a $339 thousand increase in interest expense associated with increased borrowings. Income Tax Expense. Income tax expense for the three months ending September 30, 2021 was $1.4 million, as compared no income tax expenses for the three months ended September 30, 2020. Income tax have been recognized in connection with our acquired Sahara operations. Net Income (Loss). Net income was $729 thousand in the three months ended September 30, 2021 and net loss was $4.2 million for the three months ended September 30, 2020, respectively. The Company had net income in the quarter, a result of achieving positive operating income and operating margin in the quarter. For the nine-month periods ended September 30, 2021 and 2020 Revenues. Total revenues for the nine months ended September 30, 2021 were $141.2 million as compared to $23.0 million for the nine months ended September 30, 2020, resulting in a 514% increase in revenue. The increase in revenues was primarily due to the acquisitions of Sahara Presentation Systems in September 2020 and Interactive Concepts in March 2021, and increased demand for our solutions in the U.S., Europe, and Australia. Organic revenue growth for the nine months of 2021 was 125%. 30 Cost of Revenues. Cost of revenues for the nine months ended September 30, 2021, were $104.0 million as compared to $16.7 million for the nine months ended September 30, 2020, resulting in an 52 2% increase. The increase in cost of revenues was associated with the acquisitions and growth of the business as outlined above and was also due to additional increases in global freight/shipping which the company has experienced as have many others as following the COVID-10 pandemic. In the first quarter of 2021 we reported the cost increase to be approximately four times higher as compared to pre-pandemic levels, this is expected to continue throughout 2021. Gross Profit. Gross profit for the nine months ended September 30, 2021 was $37.2 million as compared to $6.3 million for the nine months ended September 30, 2020. The gross profit margin decreased from 27% for the nine months ended September 30, 2020 to 26% in for the nine months ending September 30, 2021, primarily driven by the effects of customs and freight expenses discussed above, and certain purchase accounting adjustments stemming from the Sahara acquisition and effecting recognized revenues. General and Administrative Expenses. General and administrative (“G&A”) expenses for the nine months ended September 30, 2021 were $32.8 million and 23% of revenue as compared to $10.4 million and 45% of revenue for the nine months ended September 30, 2020. The increase in G&A expenses resulted from additional personnel costs associated with the acquired Sahara operations, new hires for planned growth and stock compensation issuances. Research and Development Expenses. Research and development expenses were $1.3 million and 0.9% of revenue for the nine months ended September 30, 2021, as compared to $1.1 million and 5% of revenue for the nine months ended September 30, 2020. The absolute increase in research and development expense was primarily driven by an increase in contract services related to software development. Other Income (Expense) Net. Other expense, net, for the nine months ended September 30, 2021 was $5.8 million as compared to other expense, net, of $2.4 million for the nine months ended September 30, 2020. Other expense increased primarily due to a $1.0 million increase in interest expense associated with increased borrowings, and net movement year on year of $2.4 million of additional losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares. Income Tax Expense. Income tax expense for the nine months ending September 30, 2021 was $3.9 million, as compared no income tax expenses for the nine months ended September 30, 2020. Income tax was recognized in connection with our acquired Sahara operations. The Company recorded a significant tax impact of $2.2 million during the second quarter of 2021 to reflect a discrete event directly pertaining to the tax impact on our UK deferred tax liability associated with the intangible assets acquired as part of the Sahara business combination, and the effect of a recent UK rate income tax rate change. Finance Bill 2021 (“the Bill”) provides for an increase in the UK statutory tax rate to 25% for taxpayers with profits over £250K beginning April 1, 2023. We expect this rate to apply to the earnings of our Sahara operations in the UK. The Bill received Royal Assent on June 10, 2021 and it is considered enacted on that date under U.S. GAAP. As such, we reflected the tax impact as a discrete event in our second quarter results. The effective tax rate is (139.3)% due to there being no tax expense/benefit for the legacy Boxlight entities, but the Sahara entities are fully taxable. Net Loss. Net loss was $6.6 million and $7.6 million for the nine months ended September 30, 2021 and 2020, respectively. The slight decrease in the net loss was primarily due to the slightly lower gross profit margins, increased interest expense, increased tax expense, amortization of intangible assets following the Sahara acquisition, stock compensation expense, and losses incurred on the settlement of certain debt obligations in exchange for shares of our common stock. 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, with both non-GAAP financial measures of earnings. 31 EBITDA represents net income (loss) before income tax expense, interest income, interest expense, depreciation, and amortization. Adjusted EBITDA represents EBITDA, plus stock compensation expense, the change in fair value of derivative liabilities, purchase accounting impact of fair valuing inventory and deferred revenue, and non-cash losses associated with debt settlement. Our management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of our business model, and to assess the strength of the underlying operations of our business. These adjustments, and the non-GAAP financial measure that is derived from them, provide supplemental information to analyze our operations between periods and over time. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. The following tables contains reconciliations of net losses to EBITDA for the periods presented. Reconciliation of net loss for the three months ended September 30, 2021 and 2020 to EBITDA and adjusted EBITDA (in thousands) September 30, 2021 September 30, 2020 Net income $ 729 $ (4,211 ) Depreciation and amortization 1,697 318 Interest expense 870 531 Income tax expense 1,391 - EBITDA $ 4,687 $ (3,362 ) Stock compensation expense 1,161 346 Change in fair value of derivative liabilities (60 ) 194 Purchase accounting impact of fair valuing inventory 15 217 Purchase accounting impact of fair valuing deferred revenue 715 - Net loss on settlement of Lind debt in stock 638 1,748 Adjusted EBITDA $ 7,156 $ (857 ) Reconciliation of net loss for the nine months ended September 30, 2021 and 2020 to EBITDA and adjusted EBITDA (in thousands) September 30, 2021 September 30, 2020 Net loss $ (6,660 ) $ (7,587 ) Depreciation and amortization 5,264 758 Interest expense 2,652 1,618 Income tax expense 3,936 - EBITDA $ 5,192 $ (5,211 ) Stock compensation expense 3,020 866 Change in fair value of derivative liabilities 164 239 Purchase accounting impact of fair valuing inventory 45 236 Purchase accounting impact of fair valuing deferred revenue 2,312 - Net loss on settlement of Lind debt in stock 3,373 2,340 Adjusted EBITDA $ 14,106 $ (1,530 ) 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, 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. 32 Due to some continuing travel restrictions and concerns for the safety for our employees during the ongoing COVID-19 pandemic, we have reduced face-to-face meetings with customers and attendance at tradeshow events. We have assessed the impact that these changes will have on our peak season sales and have concluded that funding priority will be given to initiatives that provide for continuity of learning which may result in lower priority on total learning solution sales including hardware, software, and teacher training. Liquidity and Capital Resources As of September 30, 2021, we had cash and cash equivalents of $6.2 million, a working capital balance of $32.0 million, and a current ratio of 1.48. This financial position represents a significant improvement from a year ago at September 30, 2020 when we had $9.6 million of cash and cash equivalents, a working capital balance of $25.1 million, and a current ratio of 1.80. For the nine months ended September 30, 2021 and 2020, we had net cash used in operating activities of $13.1 million and $7.0 million, respectively, net cash used for investing activities of $943 thousand and $45.0 million respectively, and net cash provided by financing activities of $7.2 million and $60.7 million, respectively. We had accounts receivable net of allowances of $47.9 million and $20.9 million as of September 30, 2021, and year ended December 31, 2020, respectively. In addition to the cash flows generated by our ongoing operating activities we financed our operations during 2021 with a new $20.0 million tranche of debt funded by our primary lender, and from a pre-existing accounts receivable financing arrangement with another lender who purchases 85% of the eligible accounts receivable of the Company, for up to $15.0 million, with the right of recourse. Our accounts receivable and our ability to borrow against accounts receivable provides us with 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 our business. In the current lingering COVID-19 pandemic environment, the availability of debt and equity capital has been reduced and the cost of capital has increased. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, we are confident that the Company will be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with customers and vendors. Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases. We lease all 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. Recent Financing As disclosed below, the Company entered into an accounts receivable agreement, effective September 30, 2020 (the “Accounts Receivable Agreement”), between Sallyport Commercial Finance LLC (“Sallyport”) and the Company’s subsidiaries, Boxlight, Inc. and EOSEDU LLC (the Subsidiaries”). Under the terms of the Accounts Receivable Agreement, the Subsidiaries were originally able to sell up to $6,000,000 (the “Maximum Facility Limit Amount”) of eligible accounts receivable that are accepted by Sallyport for up to 90% of the face amount of each such eligible account. On July 20, 2021, Boxlight and Sallyport amended the Accounts Receivable Agreement (the “ARC Amendment”) for purposes of increasing the Maximum Facility Limit Amount to $13,000,000, as well as increasing the minimum monthly sales from $1,250,000 to $3,000,000. In exchange for entry into the ARC Amendment, Boxlight agreed to a fee of $50,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remained unchanged. On August 6, 2021, Boxlight and Sallyport entered into an additional amendment of the Accounts Receivable Agreement (the “Second ARC Amendment”), which further increased the Maximum Facility Limit Amount to $15,000,000. In exchange for entry into the Second ARC Amendment, Boxlight agreed to a fee of $20,000, representing one percent of the increased Maximum Facility Limit Amount. Other terms of the Accounts Receivable Agreement remained unchanged. On August 23, 2021, the Company and Sallyport, as first lien creditor, and Lind Global Macro Fund, LP (“LGMF”) and Lind Global Asset Management, LLC (“Lind Global”), together as second lien creditors, entered into the fourth amended and restated intercreditor agreement (the “Fourth A&R Intercreditor Agreement”) for the sole purpose of increasing the permitted first lien cap thereunder from $6 million to $20 million. On January 26, 2021, we entered into an agreement with Everest Display Inc., a Taiwan corporation (“EDI”), and EDI’s subsidiary, AMAGIC Holographics Inc., a California corporation (“AMAGIC”), pursuant to which $1,983,436 in accounts payable owed by us to EDI was settled in exchange for our issuance of 793,375 shares (the “2021 Shares”) of its Class A common stock to AMAGIC at a $2.50 per share purchase price. The 2021 Shares were issued to AMAGIC pursuant to an exemption from registration provided by Rule 506 of Regulation D under Section 4(a)(2) of the Securities Act. 33 On September 21, 2020, we and Lind Global entered into a securities purchase agreement (the “Lind Global SPA”), pursuant to which Lind Global purchased from the Company a $22,000,000 secured convertible note (the “Convertible Note”) in exchange for payment to us of $20,000,000 (the “Funding”). Under the terms of the Lind Global 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, with the per share price of the Bonus Payment shares calculated based on the 20-day VWAP of the Class A 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 Class A 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 Class A common stock. Class A common stock issuable to Lind Global in conjunction with the Bonus Payment and the Convertible Note was registered pursuant to a shelf takedown on the Company’s existing shelf registration statement on Form S-3 (SEC File No. 333-239939). In conjunction with our entry into the Lind Global SPA and the issuance of the Convertible Note, on September 21, 2020, the Company and Lind Global Macro Fund, LP, an affiliate of Lind Global, 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 Lind in order to incorporate the Lind Global SPA and the Convertible Note therein. In addition, on September 21, 2020, the Company, Sallyport Commercial Finance, LLC (“Sallyport”), as first lien creditor, and Lind and Lind Global, 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 Lind, in order to (i) incorporate Lind Global 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. On July 28, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group, LLC, a Delaware limited liability company (“Maxim”), pursuant to which Maxim, as representative of the underwriters, agreed to underwrite the public offering (the “Offering”) of up to 15,000,00 shares of the Company’s Class A common stock, at a public offering price of $2.00 per share, in addition to an overallotment option (the “Overallotment Option”) of 2,250,000 shares of Common Stock. The Offering closed on July 31, 2020, with the sale of all 17,250,000 shares of the Company’s Common Stock, including the Overallotment Option, for gross proceeds of $34,500,000. Maxim acted as sole book-running manager, National Securities Corporation acted as a co-manager for the Offering, and A.G.P./Alliance Global Partners (“A.G.P.”) acted as financial advisor. As compensation for underwriting the Offering, the underwriters received an underwriting discount of 7%, equaling approximately $2,415,000, in addition to $60,000 in expenses. A.G.P.’s compensation was paid out of the underwriting discount. The Offering was made pursuant to the Company’s effective shelf registration statement on Form S-3 (SEC File No. 333-239939) (the “Registration Statement”) and the related base prospectus included therein, as supplemented by the prospectus supplement dated July 28, 2020 (the “Preliminary Prospectus”) and the final prospectus supplement, filed July 29, 2020 (the “Final Prospectus” and collectively with the Preliminary Prospectus, the “Prospectus”). On September 8, 2020, the Company entered into an underwriting agreement (the “September Underwriting Agreement”) with Maxim pursuant to which Maxim agreed to underwrite the public offering (the “September Offering”) of 13,333,333 shares (the “Shares”) of the Company’s Class A common stock at a public offering price of $0.75 per share. The September Offering closed on September 11, 2020, and the Company sold the Shares for gross proceeds of $10,000,000. In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 2,000,000 shares of Class A common stock at the public offering price less discounts and commissions (the “September Over-Allotment Option”). The September Over-Allotment Option was exercised in full on September 24, 2020, for additional proceeds of $1,500,000, through the sale of an additional 1,999,667 shares of Class A common stock. Maxim acted as sole-bookrunner and National acted as co-manager for the September Offering. Gross proceeds, before underwriting discounts and commissions and estimated offering expenses, totaled $11.5 million. As compensation for underwriting the Offering, Maxim and National together received an underwriting discount of 7% of the Offering and the Over-Allotment Option and were reimbursed for up to $85,000 in underwriting expenses. The September Offering was conducted pursuant to the Company’s registration statement on Form S-1 (SEC File No. 333-238634) previously filed with and declared effective by the SEC. 34 Off Balance Sheet Arrangements We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations or liquidity and capital resources. 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. Business acquisitions 3. Goodwill and Intangible assets 4. Stock-based compensation expense 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. 35 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. Under Section 2(a)(19) of the Securities Act of 1933 and Section 3(a)(80) of the Securities Exchange Act of 1934, as amended, an emerging growth company will lose its status upon the earliest of several conditions, one of which is reaching the last day of the fiscal year in which the fifth anniversary of the company’s first sale of equity securities pursuant to an effective registration statement occurs. For the Company, this will occur on January 1, 2022. Item 3. Quantitative and Qualitative Disclosure About Market Risk As a “smaller reporting company,” this item is not required.