Boxlight Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Filed November 14, 2017. Boxlight sells interactive classroom and display technology, software, and related services. Comparatives were retrospectively adjusted for the Mimio and Genesis acquisitions; Boxlight Group was included for only part of the 2016 comparative period, limiting year-over-year comparability.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $10.23 million | $7.88 million | $20.41 million | $15.37 million |
| Gross profit | $2.90 million | $2.79 million | $5.81 million | $5.89 million |
| Gross margin | 28.4% | 35.5% | 28.5% | 38.3% |
| Operating income (loss) | $545,184 | $498,823 | ($1.60 million) | $337,638 |
| Net income (loss) | $470,294 | ($102,435) | ($1.91 million) | ($342,760) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | ($596,727) | $184,354 |
Q3 revenue increased about 30% year over year, while gross profit rose about 4% and gross margin fell. Management attributed revenue growth mainly to Boxlight Group being included for a full quarter in 2017 versus only from July 18 in 2016. Lower-margin Boxlight Group sales, reduced sales to Mimio customers, and higher air-freight costs pressured margins. For the nine months, G&A rose to $7.05 million from $4.70 million, including additional acquisition-related and IPO professional costs; R&D declined to $358,000 from $847,000. Nine-month interest expense was $463,000, and other income/expense was a net expense of $309,000.
Balance sheet, debt, and liquidity
- At September 30, cash was $783,181; accounts receivable, net, was $5.17 million; inventory was $2.37 million; and total current assets were $9.76 million.
- Current liabilities were $14.17 million, producing a reported working-capital deficit of $4.41 million. Total liabilities were $14.41 million.
- Current debt balances included $2.94 million of short-term debt, $682,000 of short-term related-party debt, and $1.05 million of related-party convertible notes. No long-term convertible notes remained on the balance sheet.
- Cash from operations was negative $597,000 for the first nine months. Financing activities provided $948,000; cash increased by $327,000 from year-end 2016.
- The 12-month Sallyport receivables-financing facility had $2.32 million outstanding at quarter-end, with a maximum facility limit of $6 million. It is secured by Boxlight Inc. and Genesis assets and includes recourse for uncollectible receivables.
Material changes, outlook, and risks
- Boxlight paid Skyview $1.58 million in September 2017 to settle principal and accrued interest on a defaulted note. The company had not received a release from Skyview, which could still seek additional costs or penalties.
- In August, related-party convertible notes and accrued interest totaling approximately $4.14 million were converted into 657,162 common shares. The filing also reports a $1.5 million related-party payable converted into 238,095 shares.
- Management stated that the business is seasonal, with shipments concentrated before the school year, typically June through September. Inventory was lower as the company drop-shipped or rapidly fulfilled backorders.
- Management said it planned to use IPO proceeds—targeting up to $7 million—to add inventory and repay or renegotiate debt. It also cited integration, cross-selling, sales hiring, and a record-high sales pipeline as growth initiatives. The filing provides no quantified operating guidance or forecast.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing debt defaults, a $7.39 million accumulated deficit, the working-capital deficit, and dependence on shareholder support, debt renegotiation, equity financing, and achieving profitability. The AHA note was in default because scheduled principal payments were not made.
- A supplier filed an October 2017 lawsuit seeking approximately $838,000 of debt and accrued interest plus about $84,000 in attorney fees; Boxlight was negotiating a settlement. A separate supplier judgment of approximately $70,000 plus interest and costs was also under negotiation.
- Two customers accounted for 13% and 10% of nine-month revenue; two vendors accounted for 41% and 31% of purchases. One related-party supplier was owed $4.14 million at quarter-end.
- Management concluded disclosure controls and procedures were ineffective, citing the lack of a functioning audit committee and independent-board oversight. The filing reports no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether the IPO and any subsequent financing generated sufficient net proceeds, and how those funds were applied to debt, suppliers, and working capital.
- The status and terms of all defaulted or near-term obligations, including the AHA note, K-Laser note due December 2017, and any remaining Skyview claims.
- Resolution and total exposure from the October supplier lawsuit and other pending supplier litigation.
- Whether receivables are collectible and whether customer/vendor concentration or related-party balances have changed.
- Progress in restoring effective disclosure controls and establishing independent audit oversight.
Note: The cash-flow statement heading refers to “six months,” but its table and figures are labeled for the nine months ended September 30; this summary uses the table’s nine-month period.