Boxlight Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparative period is Q1 2018. Boxlight designs and distributes interactive educational technology and related software and services. The unaudited financial statements consolidate its subsidiaries, including Modern Robotics, acquired during the quarter.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 or prior balance |
|---|---|---|
| Revenue | $5.01 million | $6.00 million |
| Gross profit and margin | $1.58 million; 32% | $1.48 million; 25% |
| Operating loss | $2.41 million | $1.81 million |
| Net loss | $4.69 million | $0.91 million |
| Adjusted EBITDA, non-GAAP | $(1.84) million | $(1.08) million |
| Operating cash flow | $0.56 million provided | $2.05 million used |
| Cash at period end | $2.72 million | $0.90 million at December 31, 2018 |
| Total debt | $3.67 million | $3.01 million at December 31, 2018 |
| Working capital | $(4.94) million | Not provided as a comparable figure |
Revenue declined 16%, which management attributed primarily to unusually large projects fulfilled in Q1 2018. Gross margin improved with a higher-margin product and services mix and lower freight costs. Operating expenses rose: general and administrative costs increased to $3.76 million, partly due to staffing from prior acquisitions, and research and development expense increased to $236,000. Net loss widened substantially, mainly because of higher operating costs and a $2.16 million loss from remeasuring derivative liabilities; the prior-year quarter recorded a $1.04 million gain on those liabilities.
Cash from operations benefited from working-capital movements, including lower receivables and inventory. Financing activities provided $1.28 million. Current liabilities exceeded current assets by $4.94 million at quarter-end.
Material developments, outlook and risks
- Going concern: Management states that the accumulated deficit was $23.89 million and the working-capital deficit was $4.94 million. The quarterly net loss and dependence on shareholder support and additional debt or equity financing raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance. Management is seeking financing; the statements include no adjustments that might be needed if the company cannot continue.
- Financing: A March 2019 agreement with Lind Global provides for $4 million of working-capital financing through a secured convertible note with $4.4 million principal, 8% interest, and a 24-month maturity. The company reported receiving $2 million in March and $2 million in April; a subsequent-events note says it received $1.845 million net of fees on April 3. The note is convertible at the investor’s option at $4 per share and requires principal installments beginning six months after closing.
- Debt and related parties: The filing identifies defaulted related-party notes, including a $54,000 line of credit and a $50,000 CEO note. Accounts payable to EDI, an affiliate of a major shareholder and a supplier, were approximately $5.52 million. Related-party balances and financing terms merit scrutiny.
- Derivative exposure: Warrant derivative liabilities rose from $326,000 at year-end to $2.53 million, driven by fair-value changes including exercise-price modifications. This non-cash remeasurement was a major contributor to the reported loss and may remain volatile.
- Acquisition and strategy: Boxlight acquired Modern Robotics’ education-focused robotics and STEM business on March 12 for 200,000 shares and a $70,000 note. Purchase accounting remained provisional. Management’s strategy emphasizes product integration, sales expansion, and acquisitions; it cited a record-high sales pipeline but provided no quantified revenue or earnings guidance.
- Seasonality and operating risks: Management says first-quarter sales are typically the lowest and that inventory generally builds in Q2 ahead of the school year. It also notes exposure to product mix, supplier and manufacturing costs, freight, foreign currency, inventory estimates, and customer concentration. One customer generated 24% of Q1 2019 revenue.
- Controls and contingencies: Disclosure controls were not effective due to insufficient accounting staff for segregation of duties and insufficient written accounting and reporting procedures. The filing reports no legal proceedings and no material changes to internal controls during the quarter.
Most important facts for investors to verify
- Whether the company secures sufficient additional financing and can address the disclosed going-concern uncertainty and working-capital deficit.
- The full Lind note funding, net proceeds, repayment schedule, collateral, conversion and potential dilution implications, including the April funding figures.
- The composition, payment status and maturity of debt and related-party payables, especially the EDI balance and defaulted notes.
- Whether gross-margin improvement is sustainable despite falling revenue, and how seasonal sales and the stated pipeline develop.
- How much of the reported loss reflects recurring operations versus derivative remeasurement, and the assumptions underlying the warrant valuation.
- Progress in remediating the disclosed material weaknesses and finalization of Modern Robotics acquisition accounting.