Boxlight Corporation — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed May 12, 2020. The filing is an annual report, not a standalone fourth-quarter report. Boxlight develops, sells and services education-technology hardware, software and related services, primarily for K–12 education.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $33.03 million | $37.84 million |
| Gross profit / margin | $8.94 million / about 27% | $8.65 million / about 23% |
| Operating loss | $(8.06) million | $(7.00) million |
| Net loss | $(9.40) million | $(7.18) million |
| Basic and diluted loss per share | $(0.88) | $(0.72) |
| Adjusted EBITDA, non-GAAP | $(5.81) million | $(3.89) million |
- Revenue fell 13%, primarily from approximately $6 million lower hardware sales, including a roughly $0.6 million Topic 606 accounting impact, and the absence of two large 2018 school-district contracts. Higher software and professional-development revenue partly offset the decline.
- Gross margin improved as the 2018 contracts had lower initial-delivery margins and 2019 sales shifted toward higher-margin software and professional services. Operating expenses rose to $17.00 million: G&A increased to $15.77 million, and R&D to $1.23 million.
- Interest expense increased to $1.79 million from $0.84 million. Management attributed the larger net loss to lower sales volume, higher compensation and interest expense.
- Net cash used in operations was $4.26 million, versus $3.77 million in 2018. Investing activities provided $0.007 million; financing activities provided $4.46 million. Cash at year-end was $1.17 million, compared with $0.90 million a year earlier.
- Year-end current assets were $9.92 million and current liabilities $17.21 million, producing a $7.29 million working-capital deficit. Total debt was approximately $6.21 million; scheduled principal repayments were $5.52 million in 2020 and $1.31 million in 2021.
- Revenue mix in 2019: hardware $28.84 million; software $1.46 million; professional services $1.21 million; maintenance and subscriptions $1.52 million.
Material changes and accounting
- Boxlight acquired Modern Robotics in March 2019, adding STEM, robotics and programming products. It continued integrating acquired businesses and products.
- The company adopted ASC Topic 606 on January 1, 2019. Adoption reduced reported 2019 revenue by about $0.60 million relative to prior GAAP and increased opening deferred revenue by $3.3 million, with a $2.74 million cumulative reduction to opening equity. The 2018 comparative statements were not recast, so year-over-year results are not fully comparable.
- The filing describes immaterial prior-period errors relating to revenue recognition and tax disclosures; the company concluded restatement was not required.
- Customer concentration was significant: three customers accounted for 14%, 13% and 12% of 2019 revenue. One supplier represented 32% of 2019 purchases. Everest Display, a related-party supplier, was owed approximately $5.04 million at year-end.
Liquidity, outlook and risks
- The auditor highlighted substantial doubt about Boxlight’s ability to continue as a going concern. The company reported recurring losses, negative working capital and operating cash outflows, and said continued operations depend on financing, debt arrangements and achieving profitability.
- Boxlight relied on receivables financing from Sallyport, which advances against 85% of eligible receivables, up to $6 million, with recourse. The company said COVID-19-related changes to the lender’s funding process constrained cash availability. It was considering additional debt or equity financing; equity issuance could significantly dilute shareholders.
- In 2019, Boxlight issued secured convertible notes to Lind with stated principal amounts of $4.4 million and $1.375 million, 8% interest and conversion prices of $4.00 and $2.50 per share. The filing reports principal and interest payments made in shares. A further $750,000 Lind financing was completed in February 2020, with an $825,000 note and additional fees and stock consideration.
- In March 2020, Everest Display agreed to forgive $2 million of related-party accounts payable in exchange for 1,333,333 shares at $1.50 per share. In April 2020, Boxlight acquired MyStemKits for $600,000, partly payable through a $350,000 note; certain installments could be adjusted if revenue remained materially below budget.
- COVID-19 created risks from school closures, reduced classroom hardware demand, disrupted supply chains and limited travel, customer meetings and trade-show access. Management said it cut costs, including payroll by approximately 17% on an annualized basis in March 2020, and was assessing peak-season sales. It provided no quantified financial guidance.
- Management cited a record-high sales pipeline and expected acquisition integration and cross-selling to support growth, but these are forward-looking statements, not quantified guidance. Seasonality is material, with shipments typically concentrated before the school year.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to insufficient written accounting procedures and insufficient accounting personnel to segregate duties. The company also reported Nasdaq noncompliance with the majority-independent-board requirement and said it planned to appoint additional independent directors.
Investor verification priorities
- Confirm current cash, borrowing availability under the receivables facility, covenant or default status, and the ability to meet the 2020 debt maturities and operating needs.
- Review subsequent financing, conversions and share issuance—including Lind terms, the Everest Display debt-for-equity exchange, and the 2020 stock-option plan expansion—for dilution and related-party implications.
- Assess whether COVID-19 affected school-district budgets, order timing, customer collections, supplier availability and the sales pipeline beyond management’s initial assessment.
- Reconcile Topic 606 adjustments and deferred revenue with reported comparisons, and monitor remediation of the disclosed accounting-control weaknesses.
- Evaluate customer and supplier concentration, including the related-party payable to Everest Display, and progress toward profitability and positive operating cash flow.