Boxlight Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The unaudited statements consolidate Boxlight’s education-technology business and acquisitions made in 2018: Cohuborate, Qwizdom, and EOS. The December 31, 2017 balance-sheet comparison is identified as restated.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $10.20 million | $10.23 million | $25.86 million | $20.41 million |
| Gross profit | $2.43 million | $2.90 million | $5.64 million | $5.81 million |
| Gross margin | 24% | 28% | 22% | 28% |
| Operating income (loss) | $(1.93) million | $0.55 million | $(5.91) million | $(1.60) million |
| Net income (loss) | $(1.22) million | $0.47 million | $(6.58) million | $(1.91) million |
| Operating cash flow | Not separately presented | Not separately presented | $(3.79) million | $(0.60) million |
- At September 30, cash was $1.59 million; current assets were $17.17 million and current liabilities $19.74 million, producing a $2.57 million working-capital deficit.
- Total debt was $3.70 million, including $2.94 million of third-party short-term debt, $0.33 million of related-party short-term debt, $0.05 million of related-party convertible notes, and $0.38 million of related-party long-term debt. Separately, current deferred revenue was $5.75 million.
- Total assets were $28.74 million and total liabilities $20.56 million. Accumulated deficit was $18.61 million.
- Basic and diluted loss per share was $0.12 for Q3 and $0.66 for the nine-month period.
Changes versus comparable periods
- Nine-month revenue rose 27%, which management attributed primarily to higher sales volume; Q3 revenue was essentially flat year over year.
- Nine-month gross profit declined despite revenue growth, as cost of revenue grew 39%. Management cited lower margins on initial deliveries of two large contracts and a mix shift toward lower-margin panel sales. Q3 gross margin also fell, from 28% to 24%.
- General and administrative expense increased to $11.18 million for nine months from $7.05 million, primarily from higher stock compensation and professional fees, including management-agreement costs. Nine-month stock compensation was $1.57 million versus $0.05 million.
- The nine-month net loss widened to $6.58 million. Q3 included $0.82 million of income from a change in derivative fair value, while the nine-month period recorded a $0.33 million derivative fair-value expense.
- Acquisitions contributed goodwill and intangible assets and involved cash, shares, a promissory note, and an earn-out. Acquisition valuations were provisional and could change.
Liquidity, outlook, and risks
- Going concern: Management stated that the accumulated deficit, working-capital deficit, nine-month net loss, and operating cash outflow raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance. Management expects to seek additional equity or debt financing; availability and terms are uncertain.
- Cash declined by $0.42 million during the nine months. The company relied in part on recourse accounts-receivable financing; it had $1.31 million outstanding under Sallyport financing at period-end. Management also noted that vendor prepayments and limited vendor credit constrain liquidity.
- Management reported increased U.S. demand, a record-high sales pipeline, and expected benefits from cross-selling acquired products and integrating operations. The filing gives no quantified revenue, earnings, or margin guidance.
- One customer accounted for 31% of nine-month revenue and approximately $4.89 million of deferred revenue at period-end. Supplier purchasing was also concentrated; one supplier was a related party and represented 17% of purchases. EDI purchases totaled $3.30 million, and amounts payable to EDI were approximately $5.06 million.
- Warrants with non-fixed settlement terms were recorded as derivative liabilities. The filing reports a $1.09 million derivative liability at quarter-end and uses Level 3 valuation inputs.
- A related-party line of credit with $54,000 principal was in default. Previously disclosed supplier and other litigation matters were reported as settled or dismissed; Part II lists no current legal proceedings.
- Disclosure controls were assessed as ineffective due to material weaknesses involving review of material agreements, accounting staffing and segregation of duties, and written accounting and period-end reporting procedures. Management nevertheless stated that the financial statements fairly present the company’s condition and results in all material respects.
Important facts for investors to verify
- Whether Boxlight obtained sufficient financing after quarter-end to address the going-concern doubt, operating cash needs, and near-term debt payments.
- Collections on receivables, the timing and delivery conditions for deferred revenue, and whether the concentrated customer and supplier relationships remain stable.
- Whether margins recover from the lower-margin contract deliveries and panel-heavy sales mix, and whether acquisition integration produces the stated cross-selling and cost benefits.
- Final acquisition fair values and potential changes to provisional goodwill, intangible assets, and earn-out amounts.
- Progress in remediating material weaknesses in disclosure controls and financial reporting.