Boxlight Corporation
11/14/2025 | Press release | Distributed by Public on 11/14/2025 14:00
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis ("MD&A") should be read in conjunction with the financial statements and the related notes thereto included elsewhere herein. The 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 report. 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 be indicative of future performance. 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. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
Unless the context otherwise requires, the terms "the Company," "we," "us," and "our" in this Quarterly Report refer to Boxlight Corporation and its consolidated direct and indirect subsidiaries, and the term "Boxlight" refers to Boxlight Inc., a Washington corporation and a wholly owned subsidiary of Boxlight Corporation. The terms "quarter" and "year to date" refer to our quarter ending September 30th.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (including the section regarding Management's Discussion and Analysis and Results of Operations, the "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. These statements are only prediction, and are based on our management's belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Factors that may cause actual results to differ materially from current expectations include, among other things
•our ability to continue to operate as a going concern;
•our substantial indebtedness which matures December 31, 2025;
•our ability to comply with certain covenants, minimum liquidity and borrowing base requirements under our existing credit agreement, or in the alternative, to continue to obtain forbearances or waivers from the lender thereunder with respect to defaults thereunder, including existing defaults;
•our history of operating losses;
•our ability to raise additional capital;
•our ability to maintain compliance with the Nasdaq Capital Market continued listing requirements and maintain a listing of our Class A common stock on Nasdaq Capital Market;
•changes in the sales of our display products;
•changes in U.S. administrative policy, including the imposition of or increases in tariffs, changes to existing trade agreements and any resulting changes in international trade relations, such as trade wars;
•unfavorable global economic or political conditions, including fluctuations in interest rates, inflation, declining consumer sentiment and market uncertainty, and the ongoing conflicts between Russia and Ukraine, and Israel and Hamas;
•changes in the spending policies or budget priorities for government funding of schools, colleges, universities, other education providers or government agencies;
•seasonal fluctuations in our business;
•changes in our working capital requirements and cash flow fluctuations;
•competition in our industry;
•our ability to enhance our products and to develop, introduce and sell new technologies and products at competitive prices and in a timely manner;
•our reliance on resellers and distributors to promote and sell our products;
•the success of our strategy to increase sales in the business and government markets;
•changes in market saturation for our products;
•challenges growing our sales in foreign markets;
•our dependency on third-party suppliers;
•our reliance on highly skilled personnel;
•governance and management risks related to turnover in our executive ranks and board of directors;
•our ability to enter into and maintain strategic alliances with third parties;
•war, terrorism, other acts of violence, or potential effects of future epidemics, pandemics, or other health crises;
•a breach in security of our electronic data or our information technology systems, including any cybersecurity attack;
•our ability to keep pace with developments in technology;
•consumer product and environmental laws;
•risks inherently related to our foreign operations;
•our compliance with the Foreign Corrupt Practices Act;
•income taxation for our worldwide operations;
•our ability to ship and transport components and final products efficiently and economically across long distances and borders;
•compliance with export control laws;
•fluctuations in foreign currencies;
•unstable market and economic conditions and potential disruptions in the credit markets;
•defects in our products and detection thereof;
•patents or other intellectual property rights necessary to protect our proprietary technology and business;
•assertions against us relating to intellectual property rights;
•our ability to anticipate consumer preferences and successfully develop attractive products;
•our ability to develop, implement and maintain an effective system of internal control over financial reporting;
•our possible or assumed future results of operations;
•our ability to attract and retain customers;
•our ability to sell additional products and services to customers;
•our cash needs and financing plans;
•our potential growth opportunities;
•expected technological advances by us or by third parties and our ability to leverage them;
•the effects of future regulation;
•our ability to protect or monetize our intellectual property; and
•and those other risks referenced herein, including those risks referred to in Part II, Item 1A-"Risk Factors" in this Quarterly Report and those risks discussed in our other filings with the Securities and Exchange Commission
("SEC"), including those risks discussed under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, which discussion is incorporated herein by this reference.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed as exhibits thereto completely and with the understanding that our actual future results may be materially different from what we expect. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a technology company that is seeking to become a world-wide 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 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.
Our operations are organized, managed, and classified into three reportable segments - Europe, Middle East, and Africa ("EMEA"), North and Central America ("Americas"), and all other geographic regions ("Rest of World"). Our EMEA segment consists of the operations of Sahara Holding Limited and its subsidiaries. Our Americas segment consists primarily of the operations of Boxlight, Inc. and its subsidiaries, and the Rest of World segment consists primarily of the operations of Boxlight Australia, PTY LTD ("Boxlight Australia").
Each of our operating segments are primarily engaged in the sale of education technology products and services in the education market but which are also sold into the health, government and corporate sectors and derive a majority of their revenues from the sale of flat-panel displays, audio and other hardware accessory products, software solutions and professional services. Generally, our displays produce higher net operating revenues but lower gross profit margins than our accessory solutions and professional services.
To date, we have generated substantially all of the Company's revenue from the sale of hardware (primarily consisting of interactive displays and audio products) 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. 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, and
•Expanding our reseller partner network both in key territories and in new markets, thereby increasing our penetration and reach.
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 displays), 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 service 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 for our products during peak seasons and new product launches.
Gross profit and gross profit margin
Gross profit and gross profit margin have been, and may in the future be, influenced by several factors including: competitive pricing within the industry, product, channel and geographical revenue mix; changes in product costs related to the release of projector models; and component, contract manufacturing and supplier pricing, freight, duties, and other shipping costs, 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 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 three categories: general and administrative, depreciation and amortization, 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, 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.
Depreciation and amortization. Depreciation and amortization expense consists of depreciation of our property and equipment and amortization of our intangible assets.
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 (expense) income, net
Other (expense) income, net primarily consists of interest expense associated with our debt financing arrangements, certain impacts of changes in foreign exchange rates, and the effects of changes in the fair value of derivative liabilities and changes in the fair value of warrants.
Income tax expense
We are subject to income taxes in the jurisdictions in which we do business, including the United States, Canada United Kingdom, Mexico, Sweden, Finland, Holland, Australia, Denmark and Germany. The United Kingdom, Mexico, Sweden, Finland, Holland, Germany, Australia, Canada, and Denmark have a statutory tax rate different from that of the United States. Additionally, certain jurisdictions 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. 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, 2025 and 2024
Revenues. Total revenues for the threemonths ended September 30, 2025were $29.3 million as compared to $36.3 million for the threemonths ended September 30, 2024, resulting in a 19.2% decrease. The decreasein revenues was due to lower sales volume across all markets primarily resulting from lower global demand for interactive flat panel displays as well as competitive industry pricing. On a sequential quarter basis, total revenues decreased 4.9% from the three months ended September 30, 2025.
Cost of Revenues.Cost of revenues for the threemonths ended September 30, 2025were $20.8 million as compared to $24.0 million for the threemonths ended September 30, 2024, resulting in a 13.5% decrease. The decreasein cost of revenues was attributable to the decrease in units sold, offset by an increase of $1.6 million in tariffs.
Gross Profit. Gross profit for the threemonths ended September 30, 2025was $8.5 million as compared to $12.3 million for the threemonths ended September 30, 2024, a decreaseof 30.3%. Gross profit margin was 29.1%for the threemonths ended September 30, 2025and 33.8%for the threemonths ended September 30, 2024. The decrease in gross profit margin is primarily related to changes in the product mix, increases in pricingpressure within the industry, and the impact of tariffs on the cost of our products compared to the prior year quarter.
General and Administrative Expenses.General and administrative expenses for the threemonths ended September 30, 2025were $8.7 million, representing 29.8% of revenue as compared to $10.0 million representing 27.6% of revenue for the threemonths ended September 30, 2024. The decreasein general and administrative expenses for the period ended September 30, 2025was primarily due to a decrease of $1.1 million in employee-related expenses, a decrease of $0.3 million in stock compensation, and a decrease of $0.1 million in travel expense, offset by an increase in professional fees of $0.2 million.
Depreciation and Amortization Expenses. Depreciation and amortization expenses for the three months ended September 30, 2025 were $2.6 million, representing 9.0% of revenue as compared to $2.1 million representing 5.7% of revenue for the three months ended September 30, 2024. The increase in depreciation and amortization expenses for the period ended September 30, 2025 was due to acceleration of amortization of intangible assets that will continue through the third quarter of 2026.
Research and Development Expenses.Research and development expenses for the three months ended September 30, 2025 and 2024 were $1.1 millionand $1.0 million, respectively and represented 3.8% and 2.8% of revenue, respectively.
Other Expense. Other expense, net for the three months ended September 30, 2025 was$2.5 millionas compared to $2.2 millionfor the three months ended September 30, 2024, representing an increase of $0.3 million. Other expense consists primarily of interest expense on our term loan, foreign currency translation, and the change in fair value of common warrants and derivative liabilities compared to the prior year quarter, and the increase in the current period relates primarily to the increase in interest expense and the change in fair value of common warrants.
Net Loss.Net loss was approximately $6.2 millionand $3.1 millionfor the three months ended September 30, 2025 and 2024, respectively, and was a result of the changes noted above.
For the nine-month periods ended September 30, 2025 and 2024
Revenues. Total revenues for the ninemonths ended September 30, 2025were $82.6 million as compared to $111.9 million for the ninemonths ended September 30, 2024, resulting in a 26.2% decrease. The decrease in revenues was due to lower sales volume across all markets primarily resulting from lower global demand for interactive flat panel displays as well as competitive industry pricing.
Cost of Revenues.Cost of revenues for the ninemonths ended September 30, 2025were $55.2 million as compared to $72.3 million for the ninemonths ended September 30, 2024, resulting in a 23.6% decrease. The decrease in cost of revenues was attributable to the decrease in units sold, offset by an additional $1.3 million in tariffs.
Gross Profit. Gross profit for the ninemonths ended September 30, 2025was $27.4 million as compared to $39.6 million for the ninemonths ended September 30, 2024, a decrease of 30.9%. Gross profit margin was 33.1% for the ninemonths ended September 30, 2025and 35.4% for the ninemonths ended September 30, 2024. The decrease in gross profit margin is primarily related to the difference in product mix, increases in pricingpressure within the interactive flat panel display market, and the impact of tariffs incurred during a portion of the current period compared to the prior year period.
General and Administrative Expenses.General and administrative expenses for the ninemonths ended September 30, 2025were $27.3 million, representing 33.0% of revenue as compared to $33.5 million representing 29.9% of revenue for the ninemonths ended September 30, 2024. The decrease in general and administrative expenses for the period ended September 30, 2025was due to ongoing initiatives to reduce operating expenses across all cost groups, with the largest declines in employee-related expenses of $5.0 million and the second largest declines in sales and marketing expense of $1.2 million.
Depreciation and Amortization Expenses. Depreciation and amortization expenses for the nine months ended September 30, 2025 were $7.7 million, representing 9.3% of revenue as compared to $6.2 million representing 5.5% of revenue for the nine months ended September 30, 2024. The increase in depreciation and amortization expenses for the period ended September 30, 2025 was due to acceleration of amortization of intangible assets that will continue through the third quarter of 2026.
Research and Development Expenses.Research and development expenses for the nine months ended September 30, 2025 and 2024 were $3.2 million in both periods and represented 3.8% and 2.8% of revenue, respectively.
Other Expense. Other expense, net for the nine months ended September 30, 2025 was$3.5 millionas compared to $7.6 millionfor the nine months ended September 30, 2024, representing a decrease of $4.1 million. Other expense consists primarily of interest expense on our term loan, foreign currency translation, and the change in fair value of common warrants compared to the prior year. The decrease in the current period was due to an increase in other income and positive changes in the fair value of common warrants.
Net Loss.Net loss was approximately $14.1 millionand $11.6 millionfor the nine months ended September 30, 2025 and 2024, respectively, and was a result of the changes noted above.
Use of Non-GAAP financial measures
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 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, loss on warrant issuance,
change in fair value of warrants and severance charges. 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 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:
| (in thousands) |
Three Months Ended September 30, 2025 |
Three Months Ended September 30, 2024 |
Nine Months Ended September 30, 2025 |
Nine Months Ended September 30, 2024 |
||||||||||||||||||||||
| Net Loss | $ | (6,184) | $ | (3,061) | $ | (14,146) | $ | (11,628) | ||||||||||||||||||
| Depreciation and amortization | 2,627 | 2,075 | 7,681 | 6,187 | ||||||||||||||||||||||
| Interest expense | 2,753 | 2,550 | 7,811 | 7,723 | ||||||||||||||||||||||
| Income tax (benefit) expense | (261) | (12) | (137) | 767 | ||||||||||||||||||||||
| EBITDA | $ | (1,065) | $ | 1,552 | $ | 1,209 | $ | 3,049 | ||||||||||||||||||
| Stock compensation expense | 111 | 441 | 459 | 1,233 | ||||||||||||||||||||||
| Change in fair value of derivative liabilities | 235 | (6) | 286 | (202) | ||||||||||||||||||||||
| Purchase accounting impact of fair valuing inventory | - | - | - | 225 | ||||||||||||||||||||||
| Loss on warrant issuance | - | - | 578 | - | ||||||||||||||||||||||
|
Change in fair value of common warrants
|
291 | - | (1,394) | - | ||||||||||||||||||||||
| Purchase accounting impact of fair valuing deferred revenue | 16 | 208 | 219 | 778 | ||||||||||||||||||||||
| Severance charges | - | - | 57 | 943 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (412) | $ | 2,195 | $ | 1,414 | $ | 6,026 | ||||||||||||||||||
Discussion of Effect of Seasonality on Financial Condition
Certain accounts in 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 each school year, we generally build up inventories during the second quarter of the year. As a result, inventories tend to be at their 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. Thereafter, during the first quarter, we do not generally need to restock inventories at the same inventory levels. Accounts receivable balances tend to be at the highest levels in the third quarter, at which point we record the highest level of sales.
Liquidity and Capital Resources
As of September 30, 2025, we had cash and cash equivalents of $11.8 million, a working capital balance of $1.5 million, and a current ratio of 1.02. As of September 30, 2024, we had $10.5 million of cash and cash equivalents, a working capital balance of $45.8 million, and a current ratio of 2.10. In addition, the Company had indebtedness of $36.7 million maturing on December 31, 2025.
For the nine months ended September 30, 2025 and 2024, we had net cash used in operating activities of $1.8 million and $2.1 million, respectively. Cash used in operating activities primarily relates to net loss for the nine months ended September 30, 2025 as well as changes in working capital management. We had net cash used in investing activities of $158 thousand and $279 thousand for the nine months ended September 30, 2025 and 2024, respectively. Cash used in investing activities is related to purchases of property and equipment. For the nine months ended September 30, 2025 and 2024, we had net cash provided by and used in financing activities of $5.7 million and $4.4 million, respectively. Cash provided by financing activities in 2025 is related to proceeds from short-term debt of $2.5 million and proceeds from issuance of common stock and the exercise of warrants of $8.3 million, partially offset by principal payments of debt of
$5.1 million. Cash used in financing activities in the 2024 period related to principal payments on debt of $7.4 million and payments of preferred dividends of $1.0 million, partially offset by $4.0 million proceeds from short-term debt.
Our liquidity needs are funded by operating cash flows and available cash. Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility 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 a percentage of our inventory purchases, which further constrains our cash liquidity. In addition, our industry is seasonal with many sales to educational customers occurring during the second and third quarters when schools make budget appropriations and classes are not in session limiting disruptions related to product installation. This seasonality makes our needs for cash vary significantly from quarter to quarter.
On April 19, 2024, the Company entered into a sixth amendment to the Credit Agreement with the Collateral Agent and Lender (the "Sixth Amendment"). The Sixth Amendment provided the Company with an additional $2 million working capital bridge loan in April 2024, and an additional $3 million working capital bridge loan in June 2024, of which $2 million was advanced to the Company. The Company was required to pay a fee equal to 6% of the aggregate amount of borrowings under the Sixth Amendment (i.e. $4.0 million). Both working capital bridge loans, including the related fee were paid in full by November 2024, and were not subject to prepayment penalties.
Given the uncertainty surrounding global supply chains, global markets, and general global uncertainty as a result of new U.S. tariff policy, trade wars, and the ongoing conflicts between Russia and Ukraine and Israel and Hamas, the availability of debt and equity capital has been reduced and the cost of capital has increased. Furthermore, recent adverse developments affecting the financial services industry including events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions may lead to market-wide liquidity problems. This in turn could result in a reduction in our ability to access funding sources and credit arrangements in amounts adequate to finance our current and future business operations. Increasing our capital through equity issuance at this time could cause significant dilution to our existing stockholders. However, there can be no guarantee we will be able to access capital when needed or be able to manage through the current challenges in the equity and debt finance markets by managing payment terms with our customers and vendors.
Cash and cash equivalents, along with anticipated cash flows from operations and recent financing arrangements with our lenders, are expected to provide sufficient liquidity for working capital needs and debt service requirements.
The Company's financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at December 31, 2023. On March 14, 2024, we entered into the Fifth Amendment with the Collateral Agent and the Lender to (1) amend and restate the Senior Leverage Ratio and Minimum Liquidity (as defined in the Fifth Amendment), and (2) waive any event of default that may rise directly as a result of the Financial Covenant Default (as defined in the Fifth Amendment) at December 31, 2023. Under the Fifth Amendment, the Senior Leverage Ratio requirement at March 31, 2024 was amended from 2.00 to 6.00, at June 30, 2024 it remained at 2.00, and thereafter it remained at 1.75.
The Company was not in compliance with its Senior Leverage Ratio financial covenant under the Credit Agreement at June 30, 2024. On August 12, 2024, we entered into the Seventh Amendment with the Collateral Agent and the Lender to (1) reduce the intellectual property sublimit under the borrowing base from $15.0 million to $11.2 million, and (2) waive the event of default that may have arisen directly as a result of the Financial Covenant Default (as defined in the Seventh Amendment) at June 30, 2024.
The Company was also not in compliance with its Senior Leverage Ratio financial covenant under the Credit Agreement at September 30, 2024. Subsequent to the end of the third quarter of 2024, we were also not in compliance with our borrowing base covenant under the Credit Agreement for month ended October 31, 2024. On November 14, 2024, we obtained a waiver for the Credit Agreement from the Collateral Agent and Lender (the "November 2024 Waiver") to waive any events of default that may have arisen directly as a result of (i) the Financial Covenant Default (as defined in the November 2024 Waiver) at September 30, 2024 and (ii) the Borrowing Base Default (as defined in the November 2024 Waiver) for the month ended October 31, 2024. In conjunction with obtaining the waiver, the Company paid down approximately $1.1 million under the Credit Agreement, inclusive of $60 thousand of prepayment penalties.
The Company was also not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at December 31, 2024. In addition, the Company was also not in compliance with its borrowing base covenant under the Credit Agreement at December 31, 2024, January 31, 2024 and February 28, 2025. On March 24, 2025, the Company entered into an eighth amendment to the Credit Agreement with the Collateral Agent and Lender (the "Eighth Amendment") to (i) provide the Company with an additional $2.5 million working capital bridge loan and (ii) waive any events of default that may have arisen as a result of the Company's failure to (A) maintain the required ratio of indebtedness to adjusted EBITDA (defined more specifically as the "Senior Leverage Ratio" in the Credit Agreement) for the periods ended December 31, 2024 and March 31, 2025 and (B) maintain a value of specified assets in excess of certain borrowings (defined more specifically as a "Borrowing Base" in the Credit Agreement) for the months ended December 31, 2024, January 31, 2025 and February 28, 2025. In addition, no payments were required to be made by the Company to pay down the borrowing base defaults for December 2024, January 2025 and February 2025. The Company was required to pay a fee equal to 6% of the working capital bridge loan under the Eighth Amendment. The bridge loan, including the related fee, was due and was paid in full on August 29, 2025, and is not subject to prepayment penalties. There can be no assurance that the Lender will not declare an event of default and acceleration of all of our obligations under the Credit Agreement in the event we are unable to maintain full compliance with these covenants in the future.
In conjunction with obtaining the waiver pursuant to the Eighth Amendment, the Company was also required to comply with additional covenants, including meeting target completion milestones related to the Company's recapitalization process, most notably achieving an expected completion of the recapitalization and/or repayment of its term loan by June 16, 2025 (the "Recapitalization Requirement").
In addition, the Company is required to provide budgets to the lender with variance analysis in excess of specified thresholds resulting in an event of default at the discretion of the lender. The amendment also prohibits the Company from paying dividends or distributions to its preferred stockholders and reduces the value assigned to its intellectual property under its borrowing base calculation.
The Company also was not in compliance with its financial covenant related to the borrowing base under the Credit Agreement at March 31, 2025. However, the non-compliance was cured by the payment of approximately $1.3 million under the Credit Agreement in April and May 2025.
The Company was not in compliance with its financial covenant related to the Senior Leverage Ratio under the Credit Agreement at September 30, 2025. In addition, the Company was not in compliance with its borrowing base covenant under the Credit Agreement at April 30, 2025, May 31, 2025, June 30, 2025, July 31, 2025, and August 31, 2025. Further, the Company had not complied with the Recapitalization Requirement. On August 13, 2025, the Company entered into a forbearance agreement and ninth amendment and waiver to the Credit Agreement with the Collateral Agent and Lender (the "Ninth Amendment") to waive any events of default that may have arisen directly as a result of (1) the Financial Covenant Event of Default (as defined in the Ninth Amendment) for the period ended June 30, 2025, (2) the Borrowing Base defaults described in the Ninth Amendment for the months ended April 30, 2024, May 31, 2025, June 30, 2025, and July 31, 2025, and (3) the failure to comply with the Recapitalization Requirement. In connection with the Ninth Amendment, the Company agreed to increase its quarterly principal payment due on September 30, 2025 from the scheduled $0.7 million to $1.0 million and to change interest payments from being due quarterly to being due monthly beginning in August 2025.
As of October 31, 2025, the Company was in default of certain financial and non-financial covenants under its credit facility with Whitehawk. Moreover, the Company's loan from Whitehawk matures on December 31, 2025, and the Company does not anticipate it will have the resources to pay the loan at that time. The Company is actively engaged in discussions with Whitehawk to obtain an additional waiver and to amend the terms of the credit facility to address the existing defaults and provide additional flexibility under the loan agreement, including with respect to the upcoming maturity. While there can be no assurance that a waiver or amendment will be obtained, management believes that ongoing negotiations with the lender will be successful. There can be no assurance that the Lender will not declare an event of default and acceleration of all of our obligations under the Credit Agreement in the event we are unable to maintain full compliance with these covenants in the future.
On November 10, 2025, the Company made a principal payment of $1,000,000 on its outstanding loan balance. The Company continues to comply with all other payment obligations under the facility.
Management continues to evaluate the potential impact of the existing covenant default on the Company's liquidity and financial condition. If the Company is unable to obtain a waiver or otherwise cure the default, the lender could exercise its rights and remedies under the loan agreement, which may include acceleration of the outstanding debt.
Because of the significant decreases in the required Senior Leverage Ratio that have occurred within the past twenty one months, our current forecast projects that we may not be able to maintain compliance with this ratio. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.
In view of this matter, continuation as a going concern is dependent upon our ability to continue to achieve positive cash flow from operations, obtain waivers or other relief under the Credit Agreement for any future non-compliance with the Senior Leverage Ratio, the borrowing base covenant, or any other financial covenants, or refinance our Credit Agreement with a different lender on a basis with more favorable terms. As part of our ongoing efforts to strengthen our financial position, the Company has initiated plans to recapitalize its balance sheet and refinance our current Credit Agreement. This initiative is part of our broader strategy to improve financial flexibility, reduce our cost of capital, and position the Company for sustainable growth in the long term. We are actively working to refinance our debt with new lenders. While we have currently engaged financial advisors and are actively working to refinance our existing debt, we do not have written or executed agreements as of the issuance of this Form 10-Q. Our ability to refinance our existing debt is based upon credit markets and economic forces that are outside of our control. We have a good working relationship with our current lending partner, however, there can be no assurance that we will be successful in refinancing our debt, or on terms acceptable to us.
Because our Class A common stock is listed on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. On April 7, 2025, the Company received a letter (the "Notice") from the Listing Qualifications Department of The Nasdaq Stock Market ("Nasdaq") notifying the Company that it did not satisfy certain continued listing requirements for the Nasdaq Capital Market. The Company submitted a compliance plan within 45 days of the date of the notification with available options to resolve the deficiency and regain compliance. The Company's compliance plan was accepted on June 20, 2025, and the Company was granted until October 6, 2025, to evidence compliance. On October 3, 2025, the Company announced that it believed that it had met the listing requirements. On October 8, 2025, Nasdaq informed the Company that it had determined that the Company complies with Nasdaq Listing Rules relating to minimum stockholders' equity, independent director, and audit committee requirements with which it previously did not comply. Nasdaq further noted that it will continue to monitor the Company's compliance with the minimum stockholders' equity and, if at the time of its next periodic report the Company does not comply, the Company may be subject to delisting.
Following a private placement offering in February 2025, which included the sale of warrants (the "2025 Common Warrants") to purchase up to an aggregate of 1,323,000 shares of Class A Common Stock, our number of authorized but unissued shares of Class A common stock remaining under our articles of incorporation would not be sufficient to issue shares should all of the 2025 Common Warrants be exercised. On August 8, 2025, at the Company's annual meeting of shareholders, the Company's shareholders approved an amendment to the Company's articles of incorporation to increase the number of authorized shares of Class A common stock from 3,750,000 to 25,000,000.
Financing
See Note 8 - Debtfor a discussion of our existing debt financing arrangements.
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 condensed consolidated financial statements are prepared in accordance with 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 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 condensed consolidated 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 condensed consolidated financial statements and in Note 1 in the Company's 2024 Annual Report, which was filed with the SEC on March 28, 2025. 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.Stock-based Compensation Expense
4.Income Taxes
Recent Accounting Pronouncements
For information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations or cash flows, see Note 1 to our unaudited condensed consolidated financial statements.
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