Boxlight Corp. 10-Q Summary: Period Ended June 30, 2018
Business Context and Reporting Period
Boxlight Corporation (Boxlight) is a visual display technology company designing, producing, and distributing interactive projectors, LED flat panels, and educational technology solutions. The company operates as a smaller reporting company and an emerging growth company. This filing covers the quarterly period ended June 30, 2018, and the six-month period ended on that date. During this period, Boxlight completed two significant acquisitions: Cohuborate Ltd. (May 2018) and Qwizdom Inc. (June 2018).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|
| Net Revenues | $15,660,342 | $10,178,869 |
| Gross Profit | $3,206,289 | $2,910,790 |
| Gross Margin | 20.5% | 28.6% |
| Net Loss | $(5,362,060) | $(2,375,483) |
| Net Loss Per Share (Basic/Diluted) | $(0.55) | $(0.51) |
| Operating Cash Flow | $(2,313,115) | $307,810 |
| Cash and Equivalents (End of Period) | $1,799,024 | $824,572 |
| Total Debt | $2,341,754 | $856,449 |
| Working Capital | $(2,060,985) Deficit | Not explicitly stated |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 54% year-over-year, driven primarily by increased sales volume and the inclusion of acquired entities in the pro forma results.
- Margin Compression: Gross margin declined from 29% to 21% (six-month view) due to lower margins on initial deliveries of two large contracts (Clayton County, GA and Beaufort County, SC). Management notes negotiated cost reductions for the remainder of these contracts.
- Operating Expenses: General and administrative expenses rose significantly ($6.9M vs $4.8M) due to increased stock compensation ($1.1M vs $85k) and professional fees related to management agreements.
- Non-Operating Losses: Other expenses increased sharply due to a $1.16M loss from the change in fair value of derivative liabilities (warrants) and increased interest expense.
- Acquisitions: The company acquired Cohuborate and Qwizdom, adding intangible assets and goodwill. Consideration included cash, stock, promissory notes, and earn-out liabilities.
Outlook, Risks, and Contingencies
- Going Concern: The filing explicitly states that substantial doubt exists regarding the company's ability to continue as a going concern within one year. This is due to an accumulated deficit of $17.4M, a working capital deficit of $2.1M, and negative operating cash flow. Continued operations depend on obtaining additional debt or equity financing.
- Liquidity Strategy: The company relies on an accounts receivable financing facility (Sallyport Commercial Finance) and plans to raise funds through public or private sales of securities. Failure to secure funding could delay deliveries and reduce margins.
- Derivative Liabilities: The company holds significant derivative liabilities ($1.9M) related to warrants with reset provisions. Fluctuations in stock price and exercise price resets create volatility in net income.
- Customer Concentration: One customer accounted for 29% of total revenues for the six months ended June 30, 2018. Loss of this customer would have a material adverse effect.
- Internal Controls: Management identified material weaknesses in internal controls, including insufficient review of material agreements and lack of segregation of duties in the accounting function.
Investor Verification Checklist
- Financing Status: Verify if the company has secured the additional equity or debt financing required to address the going concern warning.
- Contract Margins: Confirm the status of the Clayton County and Beaufort County contracts and whether the negotiated cost reductions have been realized in subsequent periods.
- Derivative Liability Exposure: Monitor the fair value of warrant liabilities, as stock price volatility continues to impact reported net loss significantly.
- Related Party Transactions: Review the terms of debt and management agreements with related parties (e.g., Logical Choice Corporation, K-Laser/EDI) to assess potential conflicts or liquidity constraints.
- Acquisition Integration: Assess the revenue contribution and integration progress of the Cohuborate and Qwizdom acquisitions against pro forma expectations.