Boxlight Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited consolidated results. Boxlight designs, produces and distributes interactive display and related technology products, primarily for education.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $6.00 million | $4.19 million; up 43% |
| Gross profit / margin | $1.48 million / 24.7% | $1.20 million / about 28.6% |
| Operating expenses | $3.26 million | $2.64 million |
| Operating loss | $1.78 million | $1.44 million |
| Net loss | $1.92 million | $1.56 million |
| Operating cash flow | $(2.05) million | $(0.11) million |
| Cash at period-end | $448,345 | $2.01 million at December 31, 2017 |
Gross margin fell as sales volume shifted toward lower-margin products. General and administrative expense rose to $3.17 million, with management citing higher stock-based compensation and professional fees. Stock compensation was $497,000 versus $47,000 a year earlier. Research and development expense declined to $93,000 from $190,000. Adjusted EBITDA was a loss of $1.08 million versus a loss of $1.10 million; this is a non-GAAP measure.
At March 31, current assets were $8.50 million and current liabilities $8.56 million, a $63,131 working-capital deficit. Total debt was $923,960, including $694,960 under receivables financing; the filing also reports accrued interest on related-party obligations. The company used an accounts-receivable facility under which the lender could purchase 85% of eligible receivables, subject to a $6 million facility limit and recourse to Boxlight. Financing cash flow was a net inflow of $487,515, including $420,000 from a common-stock issuance.
Material changes and management commentary
- Revenue growth was attributed primarily to higher sales volume. Management said product integration and cross-training had supported sales, the sales pipeline was at a record level, and U.S. demand was increasing.
- Management described education sales as seasonal: shipments typically rise before the school year, with inventory building in the second quarter. The company said it was pursuing fourth- and first-quarter contracts to mitigate seasonality.
- The company reported an accumulated deficit of $14.70 million and stated that recurring losses, operating cash use and a working-capital deficit raise substantial doubt about its ability to continue as a going concern. It said continued shareholder support and additional debt or equity financing would be needed; financing may be unavailable or dilutive.
- The filing provides no quantified revenue, earnings or margin guidance. Management’s growth and pipeline comments are forward-looking statements, not formal guidance.
Risks, contingencies and unusual items
- Disclosure controls and procedures were deemed ineffective because of insufficient accounting personnel to segregate duties and inadequate written accounting and period-end reporting policies. Management nevertheless stated that the financial statements fairly present the company’s results.
- Supplier concentration was significant: one related-party vendor, Everest Display Inc. (EDI), represented 44% of purchases; Boxlight owed EDI approximately $4.61 million at quarter-end. Three customers accounted for 13%, 12% and 11% of revenue, respectively.
- Q1 included a roughly $26,000 gain from settling a supplier claim. The Asahi litigation was dismissed on April 26, 2018; the Skyview and supplier claims described in the filing had been settled.
- On May 9, 2018, Boxlight agreed to acquire Cohuborate, a UK touch-display technology developer, for 257,200 Boxlight shares and £100, with closing subject to delivery of shares and documents.
- Options outstanding increased to 1.71 million. Unrecognized compensation expense was approximately $2.8 million, including an estimated $1.5 million to be recognized during the remainder of 2018.
Important facts for investors to verify
- How the company plans to fund operations and address the disclosed going-concern uncertainty, low cash balance and operating cash burn.
- Whether gross margins recover despite the reported lower-margin sales mix, and whether revenue growth converts to improved operating cash flow.
- The terms, availability and costs of receivables financing, including recourse provisions, and the company’s ability to meet vendor prepayment needs.
- Exposure to EDI and major customers, and any changes in related-party payables or supply arrangements.
- The effectiveness of remediation for the control deficiencies and the eventual accounting and dilution impact of the Cohuborate acquisition and outstanding equity awards.
- Cash-flow disclosure: The MD&A says the company had “net cash used by financing activities” of $487,515, while the cash-flow statement reports $487,515 provided by financing activities. The statements conflict; verify the intended description.