Boxlight Corporation — FY2017 Form 10-K
Reporting period: Year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. Boxlight sells interactive classroom displays, projectors, software, STEM products and related services, primarily to education customers. Comparative financial statements reflect retrospective adjustments for certain acquisitions; Boxlight Group results were included from its July 2016 acquisition date.
Financial results and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $25.74 million | $20.37 million |
| Gross profit | $6.41 million | $7.41 million |
| Gross margin | 24.9% | 36.4% |
| Operating loss | $7.14 million | $1.29 million |
| Net loss | $7.30 million | $2.06 million |
| Adjusted EBITDA (non-GAAP) | $(1.68) million | $0.10 million |
| Net cash used in operating activities | $1.34 million | Net cash provided: $2.37 million |
| Cash at year-end | $2.01 million | $0.46 million |
| Total debt at year-end | $0.86 million | $7.78 million |
- Revenue rose 26%, primarily because FY2017 included a full year of Boxlight Group revenue, versus only the post-acquisition period in 2016. The filing does not provide a directly comparable organic-growth measure.
- Gross profit fell despite higher revenue. Management cited lower-margin sales used to improve payment terms and approximately $1.7 million of higher freight expense related to cash and credit constraints. It expected freight costs to be significantly lower in 2018.
- General and administrative expense increased to $13.09 million from $7.69 million, including approximately $4 million of noncash stock compensation. Research and development expense declined to $0.47 million from $1.01 million.
- At year-end, current assets were $10.11 million and current liabilities $9.37 million, yielding working capital of $0.74 million. Accounts receivable was $3.09 million; inventory was $4.63 million. The filing reported $1.5 million of additional borrowing availability under its receivables facility.
- The November 2017 IPO generated $7.0 million gross and $5.68 million net proceeds. The company said proceeds were used for debt repayment, inventory and working capital. Debt reduction also included conversion of related-party notes to equity.
Outlook, risks and unusual items
- Going concern: The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring operating losses and cash used in operations. Management also disclosed a $12.79 million accumulated deficit and dependence on shareholder support, financing and achieving profitable operations.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2017, citing insufficient accounting personnel to segregate duties and inadequate written accounting and close procedures. The auditor did not attest to internal controls.
- Debt and contingencies: The company entered 2017 with significant liquidity and credit constraints. It settled the defaulted Skyview note in 2017; related litigation was reported as satisfied in March 2018, with a court release pending. A separate supplier settlement was paid in January 2018. Asahi Net litigation and a related claim seeking to void transactions with Vert remained unresolved; Boxlight disputed the allegations.
- Concentration and related parties: Two customers represented 12% and 11% of 2017 revenue. One related-party supplier, Everest Display, accounted for 34% of purchases and was owed approximately $4.33 million at year-end. Supplier purchases overall were concentrated.
- Management outlook: Management cited a record-high sales pipeline, increasing U.S. demand and cross-selling benefits from integrating acquired products. These are forward-looking statements, not quantified revenue, earnings or cash-flow guidance. The company also identified seasonality, competition, supplier and freight costs, foreign exchange, customer collections and acquisition integration as relevant risks.
- Other unusual items: The company recorded $4.24 million of stock-based compensation, including $2.15 million related to warrants and $1.30 million for director share grants. A $0.28 million net gain on settlement of liabilities partly offset other expenses. No cash dividends had been paid, and none were anticipated in the foreseeable future.
Important facts for investors to verify
- Whether operating cash flow, gross margin and profitability improve after the IPO and the expected reduction in freight expense.
- Whether the company can sustain liquidity and meet obligations while addressing the auditor’s going-concern warning; review receivables-facility terms, availability and recourse provisions.
- Whether ineffective financial controls are remediated, and whether subsequent filings identify material weaknesses or reporting issues.
- The status and potential financial impact of the Asahi claims, Skyview court release and other contingencies.
- How much revenue growth is organic, and the extent of ongoing customer, supplier and related-party concentration.
- The effects of share-based compensation, warrants, preferred-stock conversion and other equity awards on dilution.