Boxlight Corporation — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018, compared with FY2017. This is an annual filing, not a standalone fourth-quarter report. Boxlight develops, sells and services interactive classroom hardware, software and education technology; substantially all revenue came from software and interactive displays sold to education customers.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $37.84 million | $25.74 million |
| Gross profit / margin | $8.65 million / 22.9% | $6.41 million / 24.9% |
| Operating loss | $(7.00) million | $(7.24) million |
| Net loss | $(7.18) million | $(6.54) million |
| Net cash used in operating activities | $(3.77) million | $(1.34) million |
| Cash and cash equivalents at year-end | $0.90 million | $2.01 million |
- Revenue grew 47%, which management attributed primarily to new school-district contracts and higher sales volume. Cost of revenue grew 51%; lower margins on initial deliveries of two large contracts and a shift toward lower-margin panel sales reduced gross margin.
- General and administrative expense rose to $14.98 million from $13.19 million, including higher stock compensation and professional fees. Research and development expense was $0.67 million, up from $0.47 million.
- Other expense was $0.18 million, versus other income of $0.70 million in 2017; the comparison included changes in the fair value of warrant-related derivative liabilities. Company-reported adjusted EBITDA, a non-GAAP measure, was a loss of $3.89 million versus a loss of $1.68 million.
- At year-end, current assets were $9.96 million and current liabilities $12.56 million, for a $2.60 million working-capital deficit. Total debt was approximately $3.01 million. Accounts payable and accrued expenses to related parties were $6.01 million.
- Boxlight financed operations in part through receivables financing, which allowed advances against eligible receivables subject to recourse. Management also cited limited vendor credit and required inventory prepayments as liquidity constraints.
Material changes and notable items
- FY2018 acquisitions included Cohuborate, Qwizdom and EOSEDU, adding interactive collaboration displays, software and professional-development services. Acquisitions were funded with a mix of shares, cash, debt and contingent earn-out consideration. Modern Robotics was acquired in March 2019, after year-end.
- The 2017 financial statements were restated to correct errors related to derivative liabilities and stock compensation. The filing reports a 2017 net loss of $6.54 million.
- One customer represented 39% of 2018 revenue, compared with 12% in 2017. The company also relied on a small number of suppliers; one related-party supplier accounted for 17% of purchases, and Boxlight reported $5.49 million payable to it at year-end.
- Warrant derivative liabilities were $0.33 million at year-end, down from $1.86 million. Warrant exercise-price resets, cancellations and fair-value changes affected reported results and equity.
Outlook, risks and contingencies
- Management described a strategy of integrating acquired products, cross-training sales teams, expanding U.S. sales and pursuing acquisitions and cost efficiencies. It cited a record-high sales pipeline, but gave no specific revenue, profit or cash-flow guidance.
- The company and its auditor stated that recurring losses, a working-capital deficit and operating cash outflows raise substantial doubt about Boxlight’s ability to continue as a going concern. Management identified the need for shareholder support, debt repayment or restructuring, additional financing and profitable operations.
- On March 22, 2019, Boxlight entered an agreement for a proposed $4.0 million working-capital financing structured as a $4.4 million secured convertible note, with 8% interest and potential conversion into shares at $4.00. The filing said closing was anticipated around March 29, 2019; it does not establish in the supplied text that funding had closed by the filing date.
- A $500,000 Harbor Gates note went unpaid at its February 2019 maturity and was converted in March 2019 into 133,750 shares. Certain other debt was described as in default, including a related-party line of credit and a note payable to the CEO.
- Management concluded disclosure controls and internal control over financial reporting were ineffective due to insufficient accounting staff for segregation of duties and inadequate written accounting and period-end reporting procedures. The auditor did not attest to internal controls.
- Seasonality is significant: shipments typically peak before the school year, with inventory buildup in the second quarter and higher receivables in the third. No material legal proceeding was reported as pending; a previously disclosed supplier dispute was settled in January 2018.
Key facts for investors to verify
- Whether the March 2019 secured convertible financing closed, how much cash was received, and its repayment, collateral and dilution effects.
- Near-term cash needs, debt maturities and defaults, and the company’s plans to address the going-concern uncertainty.
- Whether the acquired businesses contribute sustainable revenue and margins, and whether expected integration savings are achieved.
- The concentration and renewal status of the major customer relationship, as well as supplier and related-party exposure.
- Progress in correcting the disclosed material weaknesses and maintaining reliable financial reporting; also review the 2017 restatement and warrant-related accounting.