Boxlight Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited consolidated results. Boxlight designs and distributes interactive educational technology, software, and related services, primarily to the K–12 education market. Comparative 2019 figures were revised to reflect Topic 606 revenue accounting.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $5.72 million | $4.99 million | Up 15%, primarily from higher U.S. panel sales |
| Cost of revenue | $4.13 million | $3.32 million | Up 24%, reflecting higher hardware volume and onsite support costs |
| Gross profit / margin | $1.59 million / 27.8% | $1.67 million / 33.5% | Margin declined with product mix |
| Operating loss | $2.66 million | $2.33 million | Loss widened; operating expenses increased to $4.25 million from $4.00 million |
| Net loss | $1.95 million | $4.61 million | Improved largely due to other income, including liability-settlement gains and a favorable derivative fair-value change |
| Adjusted EBITDA (non-GAAP) | $(1.03) million | $(1.76) million | Improved; management’s calculation excludes settlement gains |
| Operating cash flow | $(0.89) million | $0.56 million | Cash used increased |
At March 31, 2020, cash was $0.61 million, current assets were $8.94 million, and current liabilities were $16.06 million. The company reported a working-capital deficit of $7.12 million and an accumulated deficit of $33.30 million. Total debt was approximately $7.40 million, including $5.67 million classified as current debt. Total liabilities were $19.94 million, compared with assets of $19.27 million, leaving stockholders’ deficit of $0.67 million.
Financing cash flow was $0.43 million. The company relied on receivables financing and additional Lind Global borrowing; it also issued shares to convert debt and accounts payable. The Lind notes carry 8% interest compounded monthly. The company’s $1.86 million Sallyport receivables facility is recourse, secured by assets, and advances against eligible receivables.
Material changes and unusual items
- Product revenue was $4.95 million, led by hardware revenue of $4.79 million. Software revenue was $0.16 million; service revenue totaled $0.78 million.
- Gross margin fell to approximately 28% from 33%, while operating loss widened despite higher revenue.
- A related-party agreement with Everest Display forgave $2.0 million of accounts payable in exchange for 1,333,333 shares valued at $566,667. Boxlight recorded a $1.43 million gain on settlement.
- Other income included a $28,663 gain from the change in fair value of derivative liabilities. In Q1 2019, derivative fair-value changes were a $2.16 million loss, materially affecting the year-over-year net-loss comparison.
- Common shares outstanding increased to 13.87 million at quarter-end from 11.70 million at year-end 2019; shares were issued for debt conversion, payable conversion, fees, and services.
- Revenue concentration declined: one customer represented 13.8% of Q1 revenue, versus 24% in Q1 2019. One supplier represented 36% of Q1 purchases.
Outlook, risks, and contingencies
- Going concern: Management states that the working-capital deficit, accumulated deficit, quarterly loss, and operating cash outflow raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance. It expects to seek additional debt or equity financing and also cites shareholder support and achieving profitable operations as dependencies.
- COVID-19: The filing warns that school closures and a shift to distance or digital learning could reduce demand for classroom displays. It also cites possible lower purchase-order financing and difficulty raising capital. The filing does not provide quantified COVID-19 effects on Q1 results or a financial forecast.
- Seasonality: Sales typically peak before the school year; inventory generally builds in Q2 and receivables tend to peak in Q3. Management says it is pursuing contracts in Q4 and Q1 to help offset seasonality.
- Acquisition after quarter-end: On April 17, 2020, Boxlight acquired MyStemKits assets and assumed certain liabilities for $600,000: $100,000 cash, $150,000 working-capital credit/inventory adjustment, and a $350,000 note payable in installments. Certain installments may be adjusted if revenue remains materially below budget.
- Debt and obligations: Repayment of the February 2020 Lind note was scheduled to begin August 2020, at $45,833 monthly plus interest. Related-party notes to Logical Choice and Mark Elliott were disclosed as in default. The company also disclosed operating lease payments of $816,769 for the remaining stated lease terms.
- Controls: Management disclosed ineffective disclosure controls due to insufficient written accounting and financial-reporting procedures. The evaluation paragraph refers to September 30, 2019, rather than the current quarter-end; this date inconsistency is in the filing text.
- Guidance: No quantified revenue, earnings, or cash-flow guidance is provided. The company cites a record-high sales pipeline and plans to integrate acquired products and expand sales efforts, but these are not quantified forecasts.
Most important facts for investors to verify
- Whether Boxlight can secure sufficient financing to address its $7.12 million working-capital deficit and near-term debt obligations.
- Whether the reduced gross margin and negative operating cash flow persist, and how seasonal demand and COVID-19 affect sales, collections, and financing availability.
- The terms, repayment capacity, and potential dilution associated with Lind financing, share-based debt payments, and the increased share count.
- The financial contribution and contingent payment adjustments, if any, from the MyStemKits acquisition.
- The status of disclosed accounting-control weaknesses and clarification of the evaluation date stated in the controls section.
- The effect of customer and supplier concentration, related-party transactions, and the disclosed defaults on ongoing operations.