What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-16 · 85 added, 66 removed, 136 unchanged (53% of the section changed)

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.

The following Management’s Discussion and Analysis should be read in conjunction with the 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 the Company’s 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.

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.

The 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.

The Company’s forward-looking statements reflect its 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.

2 unchanged sentences

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 of 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 also distribute science, technology, engineering, and math (or “STEM”) products, including a robotics and coding system, 3D printing solution and portable science lab.

The Company’s products are integrated into its software suite that provides tools for presentation creation and delivery, assessment, and collaboration.

To date, we have generated substantially all of the Company revenue from the sale of 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.

Highlights of the plan include:

● Integrating products of the acquired companies and cross training sales representatives to increase their offerings and productivity.

● Hiring new sales representatives with significant industry experience in their respective territories.

7 unchanged sentences

FrontRow also has offices in Toronto, Copenhagen, Brisbane, Hamilton (UK) and Shenzhen.

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.

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 Concepts”), 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.

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 Company’s growth strategy includes acquiring assets and technologies of companies that have products, technologies, industry specializations or geographic coverage that extend or complement existing business.

The process to undertake a potential acquisition is time-consuming and costly.

25 unchanged sentences

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:

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;

2 unchanged sentences

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.

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 future average selling prices and unit costs.

Gross profit and gross profit margin may fluctuate over time based on the factors described above.

12 unchanged sentences

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.

Additionally, certain of the Company’s 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.

5 unchanged sentences

Operating Results – Boxlight Corporation

For the three-month periods ended March 31, 2022 and 2021

Total revenues for the three months ended March 31, 2022 were $50.6 million as compared to $33.4 million for the three months ended March 31, 2021, resulting in a 51.5% increase in revenue.

For the three-month periods ended June 30, 2022 and 2021

Total revenues for the three months ended June 30, 2022 were $59.6 million as compared to $46.8 million for the three months ended June 30, 2021, resulting in a 27.5% increase in revenue.

Revenues primarily consist of hardware revenue, software revenue, and professional development.

The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for our solutions in the U.S.

FrontRow revenue for the three months ended March 31, 2022 was $6.5 million.

The increase in revenues was primarily due to the acquisition of FrontRow in December 2021, as well as increased demand for the Company’s solutions in the U.S.

FrontRow revenue for the three months ended June 30, 2022 was $6.8 million.

Cost of Revenues.

Cost of revenues for the three months ended March 31, 2022 was $38.0 million compared to $24.9 million for the three months ended March, 31, 2021, resulting in a 52.6% increase.

Cost of revenues for the three months ended June 30, 2022 was $42.8 million compared to $33.9 million for the three months ended June, 30, 2021, resulting in a 26.2% 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 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.

The increase in cost of revenues was associated with the acquisitions and growth of the business and was also due to additional increases in global freight/shipping which the company has experienced as a result of supply chain issues arising as a result of the COVID-19 pandemic.

During 2021, the cost increase was approximately four times normal costs as compared to pre-pandemic levels.

1 unchanged sentence

Gross Profit.

Gross profit for the three months ended March 31, 2022, was $12.6 million, as compared to $8.6 million for the three months ended March 31, 2021.

The gross profit margin for the three months was 24.9% which is a reduction of 7 basis points compared to the comparable three months in 2021.

Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting, was 27.4% as compared to the 28.0%, as adjusted, reported for the three months ended March 31, 2021.

As previously reported gross margins continue to be adversely impacted by supply chain challenges with increased freight costs

which are now expected to continue throughout 2022;

however, we anticipate gross profit percentage improvements in Q2 and beyond with reduced manufacturing costs.

Gross profit for the three months ended June 30, 2022, was $16.8 million, as compared to $12.8 million for the three months ended June 30, 2021.

The gross profit margin for the three months was 28.2% which is an increase of approximately 80 basis points compared to the comparable three months in 2021.

Gross profit margin, adjusted for the net effect of acquisition-related purchase accounting of $1.2 million and $805 thousand, was 30.2% as compared to the 29.2%, as adjusted, reported for the three months ended June 30, 2022 and June 30, 2021, respectively.

As previously reported gross

margins continue to be adversely impacted by supply chain challenges with increased freight costs which are now expected to continue throughout 2022.

General and Administrative Expenses.

General and administrative expenses for the three months ended March 31, 2022 were $15.5 million and 30% of revenues, as compared to $10.1 million and 30% of revenues for the three months ended March 31, 2021.

General and administrative expenses for the three months ended June 30, 2022 were $15.3 million and 25.7% of revenues, as compared to $10.8 million and 23.1% of revenues for the three months ended June 30, 2021.

The increase was mainly a result of new hires for planned growth and stock compensation issuances.

Research and Development Expenses.

Research and development expenses were $612 thousand and 1.2% of revenues for the three months ended March 31, 2022, as compared to $474 thousand and 1.4% of revenues for the three months ended March 31, 2021.

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 March 31, 2022 was $1.5 million, as compared to $3.1 million for the three months ended March 31, 2021.

Other expense decreased primarily due to $2.7 million less in losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares, offset by a $1.3 million increase in interest expense associated with increased borrowings due to the new credit facility.

Income Tax Expense (benefit).

Income tax benefit for the three months ending March 31, 2021 was $86 thousand, as compared to $21 thousand in income tax expenses for the three months ended March 31, 2021.

Net loss was $4.9 million in the three months ended March 31, 2022 and $5.2 million for the three months ended March 31, 2021, respectively.

Research and development expenses were $649 thousand and 1.1% of revenues for the three months ended June 30, 2022, as compared to $481 thousand and 1.0% of revenues for the three months ended June 30, 2021.

Other Income (Expense).

Other expense (net) for the three months ended June 30, 2022 was $814 thousand, as compared to $1.3 million for the three months ended June 30, 2021.

Other expense decreased primarily due to $1.6 million decrease in the fair value of derivative liabilities, and $536 thousand less in losses recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021, partially offset by a $1.7 million increase in interest expense associated with increased borrowings due to the new credit facility.

Income Tax Expense.

Income tax expense for the three months ending June 30, 2022 was $41 thousand, as compared to $2.5 million in income tax expense for the three months ended June 30, 2021.

This significant decrease in income tax expense year-over-year is primarily due to the Company’s recording the discrete impact of a change in UK tax rates that was enacted during second quarter 2021.

The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability in the UK to this new rate.

The remaining decrease in income tax expense is due to the lower earnings in 2022 as compared to 2021 in our foreign jurisdictions.

Net Income (Loss).

Net income was $26 thousand in the three months ended June 30, 2022 and a $2.2 million loss for the three months ended June 30, 2021, respectively.

For the six-month periods ended June 30, 2022 and 2021

Total revenues for the six months ended June 30, 2022 were $110.2 million as compared to $80.2 million for the six months ended June 30, 2021, resulting in a 37.5% increase.

The increase in revenues was primarily due to the acquisitions of Interactive Concepts in March 2021 and FrontRow in December 2021, as well as increased demand for our solutions in the U.S., Europe, Middle East, and Africa.

Organic revenue growth for Boxlight for the first half of 2022 was 19.5%.

FrontRow revenue for the first six months of 2022 was $13.3 million and Interactive was $407 thousand.

Cost of Revenues.

Cost of revenues for the six months ended June 30, 2022 were $80.8 million as compared to $58.8 million for the six months ended June 30, 2021, resulting in an 37.4% increase.

The increase in cost of revenues was associated with the acquisitions and growth of the business as discussed above and was also due to additional increases in global freight/shipping which the company has experienced following the COVID-19 pandemic.

In 2021 we reported the cost increase to be approximately four times higher compared to pre-pandemic levels, this is expected to continue throughout 2022.

Gross Profit.

Gross profit for the six months ended June 30, 2022 was $29.5 million as compared to $21.4 million for the six months ended June 30, 2021.

The gross profit margin remained flat at 26.7% for the six months ended June 30, 2021 and for the six months ending June 30, 2022.

General and Administrative Expenses.

General and administrative (“G&A”) expense for the six months ended June 30, 2022 were $30.8 million and 27.9% of revenue as compared to $20.9 million and 26.1% of revenue for the six months ended June 30, 2021.

The increase in G&A expenses resulted from additional personnel costs associated with the acquired FrontRow operations, new hires for planned growth and stock compensation issuances.

Research and Development Expenses.

Research and development expenses were $1.3 million and 1.1% of revenue for the six months ended June 30, 2022 as compared to $955 thousand and 1.2% of revenue for the six months ended June 30, 2021.

The increase in research and development expense was primarily driven by an increase in contract services related to software development.

Other Income (Expense).

Other expense, net for the six months ended June 30, 2022 was $2.3 million as compared to other expense, net, of $4.4 million for the six months ended June 30, 2021, a decrease of $2.1 million.

The decrease was primarily due to a $2.4 million loss recognized upon the settlement of certain debt obligations in exchange for issuance of common shares in 2021 coupled with a gain of $0.9 million recognized upon the settlement of certain debt obligations in 2022 and by a $1.9 million change in the fair value of derivative liabilities, offset by a $3.0 million increase in interest expense associated with increased borrowings due to the new credit facility.

Income Tax Expense.

Income tax benefit for the six months ending June 30, 2022 was $45 thousand, as compared to $2.5 million in income tax expense for the six months ended June 30, 2021.

The Company recorded $2.2 million of income tax expense in 2021 to adjust its deferred tax liability in the UK to this new rate.

The remaining decrease in income tax expense is due to the lower earnings in 2022 as compared to 2021 in our foreign jurisdictions.

The effective tax rate is 0.93% for the six months ended June 30, 2021.

The primary reason for this low rate is that there is no material income tax expense on the U.S.

operations due to existing net operating loss carryforwards that are offset by a valuation allowance.

Net loss was $4.8 million and $7.4 million for the six months ended June 30, 2022 and 2021 respectively.

The decrease in the net loss was primarily due to a $1.7 change in the fair value of the Whitehawk derivative liability, a decrease in loss on settlement of liabilities, partially offset by an increase in interest expense due to the new credit facility.

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 condensed consolidated financial statements which are prepared in accordance with GAAP with EBITDA and Adjusted EBITDA, both non-GAAP financial measures of earnings.

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.

Management uses EBITDA and Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of the Company’s 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.

Investors should consider the Company’s non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

The following table contains reconciliations of net losses to EBITDA and adjusted EBITDA for the periods presented.

Three Months Ended

Six Months Ended

(in thousands)

Net income (loss)

Depreciation and amortization

Interest expense

Income tax expense

Income tax expense (benefit)

Stock compensation expense

Change in fair value of derivative liabilities

Acquisition costs

Restructuring costs

Purchase accounting impact of fair valuing inventory

Purchase accounting impact of fair valuing deferred revenue

Net loss on settlement of Lind debt in stock

Net gain on forgiveness of PPP loan

Net loss on settlement of debt

Adjusted EBITDA

8 unchanged sentences

Liquidity and Capital Resources

As of March 31, 2022, we had cash and cash equivalents of $11.3 million, a working capital balance of $49.6 million, and a current ratio of 2.02.

This financial position represents a significant improvement from a year ago at March 31, 2021 when we had $10.0 million of cash and cash equivalents, a working capital balance of $21.8 million, and a current ratio of 1.56.

In addition to the cash flows generated by our ongoing operating activities we financed our operations during first quarter 2022 with our new credit facility from Whitehawk.

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.

As of June 30, 2022, we had cash and cash equivalents of $11.6 million, a working capital balance of $53.8 million, and a current ratio of 1.99.

This financial position represents a significant improvement from a year ago at June 30, 2021 when we had $7.4 million of cash and cash equivalents, a working capital balance of $26.7 million, and a current ratio of 1.52.

In addition to the cash flows generated by our ongoing operating activities we financed our operations during first six months of 2022 with our new credit facility from Whitehawk.

Given uncertainty surrounding global supply chains, global markets and general global economic uncertainty as a result of the ongoing conflict between Russia and the Ukraine and the continuing COVID-19 pandemic, 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.

5 unchanged sentences

Recent Financing;

To finance the acquisition of FrontRow, the Company and substantially all its direct and indirect subsidiaries, including Boxlight, Sahara and FrontRow as guarantors, entered into a maximum $68.5 million term loan credit facility, dated December 31, 2021 and as amended April 4, 2022 (the “Amended Credit Agreement”), with Whitehawk Finance LLC, as lender (the “Lender”), and White Hawk Capital Partners, LP, as collateral agent.

Under the terms of the Credit Agreement, the Company received an initial term loan of $58.5 million on December 31, 2021 (the “Initial Loan”) and was provided with a subsequent delayed draw facility of up to $10 million that may be provided for additional working capital purposes under certain conditions (the “Delayed Draw”).

The Initial Loan and Delayed Draw are collectively referred to as the “Term Loans.” The proceeds of the Initial Loan were used to finance the Company’s acquisition of FrontRow, pay off all indebtedness owed to our existing lenders, Sallyport Commercial Finance, LLC and Lind Global Asset Management, LLC, pay related fees and transaction costs, and provide working capital.

Of the Initial Loan, $8.5 million was subject to repayment on February 28, 2022, with quarterly principal payments of $625,000 and interest payments commencing March 31, 2022 and the $50.0 million remaining balance plus any Delayed Draw loans becoming due and payable in full on December 31, 2025.

The Term Loans will bear interest at the LIBOR rate plus 10.75%;

provided that after June 30, 2022, if the Company’s Senior Leverage Ratio (as defined in the Credit Agreement) is less than 2.25, the interest rate would be reduced to LIBOR plus 10.25%.

Such terms are subject to the Company maintaining a borrowing base in terms compliant with the Credit Agreement.

On March 29, 2022, the Company received a Notice of Events of Default and Reservation of Rights (the “Notice”) from the Collateral Agent, alleging, among other things, defaults as a result of (i) failure to repay $8.5 million of the facility by February 28, 2022, (ii) non-compliance with the borrowing base resulting in the Company being in an over advance position under the Credit Agreement, and (iii) failure to timely provide certain reports and documents.

As a result of the Notice, all accrued and unpaid interest owed under the Term Loan, became subject to a post-default interest rate equal to the highest interest rate allowed for under the Credit Agreement plus 2.50% until such time as the Events of Default are either waived or cured.

Following the Company’s receipt of the Notice and pursuant to amendment to the Credit Agreement, dated April 4, 2022, the Collateral Agent and Lender agreed to extend the terms of repayment of the $8.5 million originally due on February 28, 2022 until February 28, 2023 and waive and/or otherwise extend compliance with certain other terms of the Credit Agreement in order to allow the Loan Parties adequate time to comply with such terms.

The principal elements of the amendment included (a) an extension of time for the Loan Parties to repay $8.5 million of the principal amount of the term loan from February 28, 2022 to February 28, 2023, and (b) forbearance on $3,500,000 of over advances to grant the Loan Parties until May 16, 2022 to allow the Company to come into compliance with the borrowing base requirements set forth in the Credit Agreement.

In such connection, the Loan Parties have since obtained credit insurance on certain key customers whose principal offices are located in the European Union and Australia as, without the credit insurance, their accounts owed to the Loan Parties had been deemed ineligible for inclusion in the borrowing base calculation primarily due to the perceived inability of the Collateral Agent to enforce security interests on such accounts.

In addition, the Lender and Collateral Agent agreed to (i) reduce, through June 30, 2022, the minimum cash reserve requirement for the Loan Parties, (ii) reduce the interest rate by 50 basis points (to Libor plus + 9.75%) after delivery of the Loan Parties’ June 30, 2023 financial statements, subject to the Loan Parties maintaining 1.75 EBITDA coverage ratio, and (iii) waive all prior Events of Default under the Credit Agreement.

In conjunction with the amendment to the Credit Agreement, the parties entered into an amended and restated fee letter (the “Fee Letter”) pursuant to which the parties agreed to prepayment premiums of (i) 5% for payments made on or before December 31, 2022, (ii) 4% for payments made between January 1, 2023 and December 31, 2023, and (iii) 2% for payments made between January 1, 2024 and December 31, 2025.

Furthermore, the parties agreed that no prepayment premiums would be payable with respect to the first $5.0 million paid under the Term Loan, any payments made in relation to the $8.5 million due on or before February 28, 2023, any required amortization payments under the Credit Agreement and any mandatory prepayments by way of ECF or casualty events.

See Footnote 9 – Debt for a discussion of recent financing.

Off Balance Sheet Arrangements

2 unchanged sentences

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.

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.

22 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis