Boxlight Corporation
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Thank you. And welcome to the Boxlight Third Quarter 2020 Earnings Conference Call. By now, everyone should have access to the third quarter 2020 press release issued this morning. This call is being webcast and is available for replay. The remarks today will include forward-statements, excuse me, the remarks today will include statements that are considered forward-looking within the meaning of securities law, including forward-looking statements about future results of operations, business strategies and plans, customer relationships, market trends and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions.

[Michael Pope:]

Good afternoon, everyone, and thank you for joining the call. Our progress during the third quarter was the most significant in our history and included fundraising of over $60 million in debt and equity, the acquisition of Sahara Presentation Systems, a leading interactive solution provider with significant penetration in the EMEA region, the addition of tremendous talent to our sales leadership, our formalized partnership with Samsung, enhancements to our product offering and a drastically improved balance sheet and financial outlook. Although, our revenue of $9.5 million and gross profit of 21% lag our expectations in Q3 due to several factors, including the effects of COVID-19. We are seeing increased demand in the fourth quarter and we are executing on a strong sales pipeline. With the addition of the Sahara operations and consideration -- and considering our quarter-to-date results and current pipeline, we expect to generate greater than $27 million in revenue and positive adjusted EBITDA for the fourth quarter. During the third quarter we had several new wins with Interactive Flat Panel Displays, including Bennington Public Schools and Ord public schools in Nebraska, Granite School District in Utah and Ohio County School District in West Virginia. We also began deployment of our MimioClarity Classroom Audio solution in two school districts in Michigan, installing over 300 units. We continue to deliver on key contracts such as San Diego Unified in California, Harford County Public Schools IN Maryland, Tangipahoa Parish School System in Louisiana, and Highland Park, Kline, West Orange Cove, and Alvin Independent School Districts, all in Texas.

[Takesha Brown:]

Thanks, Michael. As Michael noted, the company acquired 100% of the outstanding shares of Sahara on September 24, 2020. Included in the three months and nine month periods of 2020, as will be discussed are Sahara’s operating results for the period from September 25th through September 30th. Sahara contributed approximately $1.1 billion in revenue and approximately $0.1 million in gross profit. Sahara’s total operating expenses were $0.3 million and they incurred a net loss of approximately $0.3 million. Sahara’s gross profit and net loss was negatively impacted by the purchase accounting impact of $0.2 million as a result of marking the inventory up to fair value at acquisition date. I will now review our third quarter 2020 consolidated results. Revenue for the three months ended September 30, 2020, was $9.5 million, a decrease of $1.8 million or 16%, compared to $11.3 million for the three months ended September 30, 2019. The decrease in revenues in 2020 is related to the reduction in sales of panel, software and STEM, primarily attributable to the school closures as a result of the ongoing COVID-19 pandemic. Gross profit for the three months ended September 30, 2020, was $2 million, a decrease of $1.2 million, compared to $3.2 million for the three months ended September 30, 2019. The resulting gross margin was 21.4% for the three months ended September 30, 2020, compared to 28.6% for the three months ended September 30, 2019. The decrease in gross margin from 29% to 21% was related to changes in the company’s product mix, with a reduction in higher margin products such as software and TEM, a 33% increase in distributor sales compared to 2019 and $0.2 million purchase accounting impact of mark in the Sahara inventory up to fair value at acquisition date. General and administrative expenses for the three months ended September 30, 2020, was $3.3 million, compared to $4.2 million for the three months ended September 30, 2019. The decrease primarily driven by reductions and compensation benefits of $0.7 million, traveling entertainment of $0.2 million and stock compensation of $0.2 million.

[Operator:]

And first we’ll go to John Nobile with Taglich Brothers. Please go ahead.

[John Nobile:]

Hi. Good afternoon, Mike and Takesha. Thanks for taking my questions. I -- my first question, actually, I have a lot about the Sahara. I know that they have a portion of the sales to the corporate market. I was hoping you could kind of break out what percentage of Sahara’s sales are to the education market?

[Michael Pope:]

Yeah. John, thanks for joining the call and great question. So, we’re still going through the Sahara financial statements and we’re actually working on having their financials audited in preparation for filing 8-K in early December, which will include their standalone historical, as well as the pro forma combine statements with Boxlight. But historically, their corporate overreaching quarters, their corporate businesses meant about 15% of the total sales and about 85% has been education. So that’s kind of a rough number for you. It’s a little higher in the U.K. and then it’s a little lower throughout other parts of Europe additional into.

[John Nobile:]

Okay. So while the bulk obviously education, but 15% corporate market, I’m just curious, being you’re really focused in on the education market, if you’d be looking to grow the corporate or the non-education market of Sahara’s business or you’re looking really to just focus on the education market?

[Michael Pope:]

Right now our focus primarily is education, but we do expect to grow the corporate market as well. We follow pretty closely a resource called FutureSource. They put together some research on the Interactive Flat Panel or Interactive Display market and we follow that pretty closely and we’re seeing an uptrend in interactive display is being sold into the corporate market. We’re about in line with that with the Sahara Group where I think that 15% of the total market today, but FutureSource is projecting that to increase pretty dramatically over the next few years. In fact, I believe, by 2024 we supposed to be upwards of almost 30% of total value and north of 20% in units. And so, I would expect, before 15% today approximately within that group, I think, we’re going to start to see that increase over the next few years. But again, overwhelmingly, our business will be education.

[John Nobile:]

Okay. I just want to make sure I understand that going forward, you had mentioned, obviously looking at that growing to like 30%, is that of total sales? Am I getting this correct…

[Michael Pope:]

Yes.

[John Nobile:]

…i.e., for answered Sahara?

[Michael Pope:]

Well…

[John Nobile:]

Okay…

[Michael Pope:]

So Sahara today has about 15% is where they are their total sales. I do think that will start to increase over future quarters, because it is a focus of ours. Yes, the 30% number was from FutureSource about the total interactive display market, which still is largely education. But they’re projecting that by 2024 that of total sales that the corporate market will make up almost 30% of the total market. So I would think that we got a trend at a minimum, we got a trend with that, I think within that vertical.

[John Nobile:]

Okay. And actually for Takesha, I was hoping to get an idea of what the blended gross margins would be with Sahara going forward. Now, you’re going to have a complete fourth quarter with Sahara. So I know that typically -- well, you had some things in this quarter. But we were looking at high -- not high 20s, but 30% gross margins before the acquisition. So now with Sahara what would be a good ballpark for you to kind of figure for gross margins?

[Takesha Brown:]

So the first thing from an adjusted perspective, we probably have a range of 25% to 30%, but one of the adjustments that I spoke about, in my discussion today was related to the markup of the inventory to fair market value. As a part of purchase accounting, we had a markup of about $4 million to inventory. And only about 200 of that turned in the last six days of the quarter. So if we just take that run rate, we would anticipate about 3 million of that to reverse out during fourth quarter, which is going to have a significant impact on our margin for the quarter. So on adjusted, it could be in a range from 15% to 20%.

[Michael Pope:]

But John that’s just for the…

[John Nobile:]

For Q4 2020?

[Michael Pope:]

Yes for Q4.

[Takesha Brown:]

That’s for Q4.

[Michael Pope:]

And that’s due to the accounting treatment...

[John Nobile:]

Right, Q4, that’s what I wanted to make sure, for Q4 2020 15% to 20%. But after this inventory mark, if we could just kind of figure out for 2021, if you could give a ballpark figure for what the gross margins would be once this is finished?

[Takesha Brown:]

Yes. And I think that’s going to be that original adjusted range that I talked about of the 25% to 30%...

[John Nobile:]

25% to 30%.

[Takesha Brown:]

Yes, closer to the 30% end of it.

[John Nobile:]

Okay, so it’s not that far off from pre-acquisition margins then.

[Takesha Brown:]

That is correct. Because if you think about it, the largest majority of Sahara is going to be the panels, right, which is kind of in line with what it is that we’ve been experienced in the Boxlight.

[John Nobile:]

Okay, great. Thank you for that. I just have one final question, general question. If you could just kind of talk about the synergies that you expect from this acquisition of Sahara.

[Michael Pope:]

I think that the most significant synergies are going to be around top-line opportunity. So by combining the companies, we’re bringing in some more talented management, which is helpful. Of course, we’re opening it up to -- opening up our opportunities in other markets, but also we’re able to combine the product suites to really come up with best-in-class solutions and we’re seeing improvements on both sides of improvements to the product suite. So I think at the end of the day, we’re going to start to see more revenue top-line opportunity in both Europe as well as in the U.S. as a result of combining the companies.

[John Nobile:]

So, obviously, there is going to be some good cross-selling opportunities with that.

[Michael Pope:]

That’s right. Yes, I mean, just a couple quick examples. In Europe and Sahara, it’s been selling great solution suite, but they haven’t had a core audio solution that we have on a course in MimioClarity, that’s something we’re going to look at potentially selling over into EMEA. On the flip side, there are some great assets, including on interactive flat panels that Sahara sells. They have an Android app store, that’s something that we haven’t had. So that’s something we’re looking at adding to our displays under the Mimio Boxlight brand. And so there’s a lot of things like that we’re looking at dozens of potential opportunities around the solution suite. And over the next couple of quarters, we’ll start to realize those benefits.

[Operator:]

Next we go to the line of Brian Kinstlinger with Alliance Global Partners. Please go ahead.

[Jacob Silverman:]

This is Jacob on for Brian. Thanks for taking my questions. You talked before about the corporate market. Is there ultimately a software play on that?

[Michael Pope:]

Absolutely. Every display that we sell, we’re including software on the display. So in the corporate market, we have white boarding software that can be used in corporate environment, which is a key. We also -- the Sahara Group had acquired a company by the name of Sedao, which is a digital signage company and has a great amount of software that we have within that group to through the digital signage acquisition. And so, there is a good amount of software we’re offering. Yes, as part of the solution, we’re selling into the corporate market.

[Jacob Silverman:]

Okay. And can you talk about the progress you’re making on the Samsung partnership? And have they started to sell the bundle yet? And has this had any material impact on the results so far?

[Michael Pope:]

Yes, so it has not had a material impact at this point in time, but we expect to start seeing some business go through this quarter with a real focus on 2021. So I would just tell you that we’ve invested a tremendous amount of resources into the relationship as have they. And we’re just now to a point to where we can offer the solution and actually ship the solution, now agreements finalized, logistics is finalized, and now we’re turning our focus to sales and marketing. And we have a pretty big target for 2021, but I expect in 2020, in the fourth quarter, now that we’ll see a handful of units, but nothing ultra-substantial. But again, you’re going to see that the real uptick in 2021.

[Jacob Silverman:]

Okay and then a follow-up on Samsung. Is your plan to ultimately leverage Samsung partnership and use them as a supplier to Sahara as well?

[Michael Pope:]

That’s something we look at it. I mean, right now, our agreement with Samsung is for -- it’s just for the United States. So our focus is on the U.S. today. And our focus is on the bundle we’re offering, which includes their displays with our software as well as our training modules that we’re offering. And so, I think, right now, we’re focused on 2021 to start to see get good up took and selling units and it’s something we could evaluate down the road. But right now, again, our focus is just showing that that bundle in the U.S. and we’ll see what that leads.

[Jacob Silverman:]

Okay. And can we expect to continue seeing with the businesses combined some seasonality in the December and March quarters? And what kind of levels of seasonality do you think we would see?

[Michael Pope:]

Yes. So it’s going to be stabilized a little bit as we become more global because school have different schedules internationally in some areas than they do here in the U.S. That being said, we still expect to see a lighter Q1 and then it uptick a little bit in Q2, Q3 is still going to be the strongest quarter, Q4 will be strong as well. But you got to expect to see Q1 lighter, and we’ll provide some more guidance on that as we start to stabilize our reporting internally.

[Jacob Silverman:]

Okay. And last one for me, what was the reason for the increase in distributor sales and something that you might see in future course?

[Michael Pope:]

The increase in distributor sales was because we entered into a new distribution agreement with D&H Distributing, which is a large $4.5 billion distributor here in the U.S. They have multiple logistics centers throughout the U.S. And they sell a tremendous amount of education. And we entered into that agreement for a couple reasons. One, they had committed to carry inventory in their distribution centers. And then number two, they’ve committed a quick turnaround to ship if our partners that we sell through if they place orders with D&H, there’ll be a quick turnaround in inventory. So those were the main reasons. Beyond that also D&H has a large network of channel partners, some of which we don’t sell-through today in education and we’d hoped that we could start to gain access to some of those partners and I believe we’ll start to see that happen more. But that being said, there is a cost of selling through D&H distribution or through other distribution. And on average, it’s costing us from 2% to 5% depending on the orders that we place through them. And so we did see an uptick because we had a lot of our partners that chose to buy from D&H versus directly through us. And we’ve pushed some partners to D&H as a result of again providing a better service to our partner network. But we believe that over time, we can offset that a little bit with improving margins in other areas, but we did take a little bit of a hit to last quarter with the shift of that business to distribution?

[Operator:]

Next we go to the line of Jack Vander Aarde with Maxim Group. Please go ahead.

[Jack Aarde:]

Hi, Michael. Hi, Takesha. Congrats on the quarter and in the Sahara acquisition. Thanks for taking my questions. So, Michael, in your prepared remarks, you mentioned that you’re seeing increased demand in the fourth quarter, and you expect to generate revenue of at least $27 million along with positive adjusted EBITDA. I’m not sure if you provide this or if you feel comfortable providing this yet. But can you provide any more granularity on that $27 million plus revenue guide between maybe what you expect quarterbacks like versus Sahara with that mix would be?

[Michael Pope:]

Yes, I could provide a little bit, let me just mention that the way we came to that $27 million number was, number one looking at -- of course, orders that have shipped already during the quarter. And then number two, we looked at our backorders that we believe we can sell. And then number three, we look at our weighted pipeline, and look at realistically what we believe that we can sell and deliver from within our pipeline. So we feel really good about that $27 million number. I’m not in a position right now to try to break out what the historical Boxlight was versus kind of what the Sahara would be, because we don’t even track it like that anymore. We’re really focusing on markets. So internally, we’re tracking U.S. as a market and we track EMEA as a market. Largely, that means we’re going to be selling the Clevertouch brand. And so a lot of the partners in the past that were selling our Mimio branded solutions, a lot of those will start to shift over. And then the U.S., we’re focused primarily on our Mimio K-12 brand, there is some Clevertouch that is being sold in the U.S., and that’s going to continue. But our key focus going forward is going to be on the Mimio brand. So that being said, I think I could give you kind of an idea perhaps at the end of the quarter, but generally, it’s going to be market based. As far as what we’re seeing for the historical core Boxlight business, we’re having a great quarter, I’ll just leave it at that, that where we started off really strong, much stronger than where we started off last year. And so we expect even that core business to be significantly stronger than it was the same quarter last year. And I would just mention that the industry also seeing a strong increase. I mentioned some of the research from future source, which is the research report that we track pretty closely. But if you look at what they say around the growth in interactive displays, they’re expecting Q4 to be a really, really good quarter. In fact, Q3 was actually a strong quarter for the interactive displays, where Q3, if you look at the globe, excluding China, it actually had a pretty good increase about 11%. And then if you look at just the U.S. alone, the U.S. also had an increase that was about 11%, over the same quarter last year, and then EMEA had about an 8% increase over the same quarter last year. So even though it’s been a strange environment with COVID, and schools trying to figure out how to operate in this new environment. There actually was an increase in sales of interactive flat panels last quarter over the same time last year now. We actually got hit with some of our contracts where I don’t know that we saw that broad impact, but now that we’re a much larger more global company, I expect it to trend a little closer to the market going forward. And then if you look at future sorts, what they’re projecting in future years, they’re showing good growth, 2021 is going to be higher than 2020 and 2019, where 2019, 2020 they expect to be roughly flat, which shows the Q3 was good, Q4 should be strong. And then it’s you’re looking at growth over the next few years, they’re showing good growth. So again, I think we’re going to see good uptick in both the U.S. and EMEA on a go forward basis.

[Jack Aarde:]

Got it that’s helpful. A lot of added clarity there. I appreciate it. And then maybe if I look at Sahara’s 2019 financial statements and just do a rough conversion in U.S. dollars. Their 2019 revenue looks like it was about 100 million USD. Can provide us any insight or any color on how Sahara’s revenue has tracked during 2020 relative to their 2019 numbers has revenue been up down flat given COVID and everything I’ve had insight into that. So wonder if you can provide any clarity there?

[Michael Pope:]

Yes, so we’re a little hesitant Jack to provide too much in the form of numbers just because again, we’re still going through the audit. And once that’s complete, we’re going to provide the pro forma statements both standalone and pro forma combined. And that’s going to be first we get December, so it’s just around the corner. But I would tell you that they’re performing quite strongly. And we had -- so they’ve had a good year today, they had a tremendous October, and we’re expecting a really strong Q4. So they have not seen a significant decline. They’ve been up taking the most markets. That being said to they’ve had strong gross profit, actually slightly stronger than historical. And that’s why we’re expecting to see as Takesha mentioned, combined gross profit of 25 to 30 points, and possibly on the higher end of that, because of that gross profit margin range.

[Jack Aarde:]

Got it. Okay, that’s helpful as well. And then maybe if I just back to like Boxlight core products, can you provide maybe a status update on MimioClarity and what your business expectations are from this product in terms of revenue, because I believe earlier in the year, a couple quarters ago, you had initially planned for this to be like a 10% of revenue contributor before the launch was delayed because of COVID related issues. But any update on MimioClarity sales and revenue attribution?

[Michael Pope:]

Yes, so the delays on clarity, which we did have substantial delays, but those were on the manufacturing side, where we had a lot of complications, trying to get that to market. Those are essentially largely behind us. And so we have a finished product, we’re actually piloting the product in several school districts as we speak, and it’s going quite well. And we picked up our first sales during the quarter of that we sold about 300 units that were sold during the quarter, I still think that 10% or even potentially, something north of that is very possible for that solution and a tight margin. And so I think, Q4 is going to be a good quarter for us to be able to give you another update after Q4 of what we sold of that audio solution, but we stand behind it, I believe it’s the best in the market. And we think that we’re going to have a really good attachment to the displays that we sell -- of selling that audio solution as well.

[Jack Aarde:]

Got it. And then just one more question for me. Can you talk about your -- just as it relates to your overall customer base, and be what percentage you would say have already purchased a Boxlight virtual hybrid learning solution from you, which I believe would be considered your MimioConnect offering? What would you say your overall penetration is of your existing customer base and what’s left for remaining opportunity to sell the MimioConnect offering?

[Michael Pope:]

Yes. So I would tell you first that we are very optimistic about the platform, it’s fantastic. I don’t think there is a better platform out there. And it was built directly to address the need of today and these hybrid environments, but also virtual, but also -- it’s fantastic in a traditional environment. So it’s built for all environments. That being said, we’re early on to where we launched the platform recently, we’ve been demoing it showing it, we don’t have any large implementations that we can point to yet, but we are having it used in several districts. And we’re expecting to start to see those. In addition to that, something that we’re offering to districts that buy panels that we’re going to include MimioConnect for a trial period. And so that’s going to give them a chance to test it use it as well. So -- and we’re just now starting to launch some marketing efforts. So I think, again, I think Q4 Q1, you’re going to start to see some good adoption. But to this point in time, we don’t have any large deployments yet of Connect, I would say there is several potential in the works, but none that we could announce at this point in time.

[Jack Aarde:]

Okay, great. Thank you, Michael. I appreciate the added color, and look forward to what Q4 and beyond brings to the Boxlight store. That’s it for me. Thanks.

[Michael Pope:]

Thanks, Jack.

[Operator:]

Our next question or comment comes from the line of Allen Klee with National Securities. Please go ahead.

[Allen Klee:]

Hi, this might be a definitional question. But you’re guiding to $27 million plus of revenue, but you said your orders increased to 9.3. And your backlog is 9.7. Those numbers sound kind of low to be estimating $27 million plus of revenue. Could you explain that a little more?

[Michael Pope:]

Well, the order figure you’re looking at those are orders for last quarter, right that those are Q3 orders. So that’s not an applicable to the guidance we’re providing for Q4. The back orders are that backward figure, you could expect the vast majority if not all of that would be fulfilled within Q4. So when we’re coming up with a Q4 number to guide towards. Number one, it’s those back orders, right? And we can even -- at this point, we know what has been fulfilled to this point in time it would be a large chunk of that. Number two, we’re looking at new orders have come in during the quarter that we can process. And then number three, we’re looking at our pipeline or sales pipeline. And the combination of those have allowed us to guide to that 27. Now, we’ll say also we’ve done a lot of diligence on this historical pipeline that Sahara has had as well as their performance to pipeline, and also performance to their forecasts. And so we feel really confident the combination of where they are, where they’ve been as well as what we have with historic Boxlight business. Again, we feel really strong about those figures, but the only relevant figure of those two elements to be clear -- it’s going to be the backlog that would be fulfilled in Q4.

[Allen Klee:]

Okay, would you know what your amortization expense run rate and depreciation going forward?

[Takesha Brown:]

We’re still working on finalizing the purchase accounting. We have of course, so long to kind of finalize that since we closed the acquisition on December 24. So we have not yet finalized that, but once we get that number finalized. Once we get those balances finalized, we’ll be better able to provide an amortization amount. From a depreciation perspective, we have minimal PPE both Boxlight and Sahara. So there’s not going to be much of a change there, but the bigger change is going to be related to the intangibles that have been identified for the Sahara acquisition.

[Allen Klee:]

Okay, if I look at the historical financials that are available on Sahara, and I realized they’re not gapped, so you have to take them with a grain of salt. But is there any reason to think that those type of bottom line numbers are somewhere in the range of time of where the run rate could be for their Boxlight user?

[Michael Pope:]

I think you’re -- yes, I think you’re generally safe on that. We’re not making substantial changes to their business. So I think you’re generally safe on another one thing, though, is you got to be careful if you’re trying to calculate net income number there could be some things in there from the purchase accounting. So we’re hesitant to speak to a net income number, because we don’t know what the amortization will be, or if there’ll be other implications from the purchase accounting or otherwise. But if you’re looking at adjusted EBITDA number, we feel very comfortable about adjusted EBITDA number to be in line with what you would calculate with their numbers. No, generally historically.

[Operator:]

Next, we go to the line of Howard Schwartz with Microcap Headlines. Please go ahead.

[Howard Schwartz:]

Hello, Michael and hello Takesha. I tip my hat to the recent I consider blockbuster the news announcements over the last several months. So I want to start with that. Now, the Sahara acquisition what were the terms of the preferred stock? Is it convertible, correct?

[Michael Pope:]

That’s right, Howard. So the preferred stock is convertible. The price was said the day after the acquisition, which ended up being $1.66. So that all of that preferred stock is convertible at $1.66. Now is redeemable meaning of course, the company could pay off every preferred second any point time prior to the conversion. And then there is only convertible after there was 10 million pounds in Series C and $12 million pounds in Series B convertible preferred. The Series B is convertible after 2024. And the Series C is convertible after 2026. So my point is, as we have a long time before that potentially could convert, and then between now and then it’s redeemable if it is allowed to convert at some point in the future right after those dates. It’s a buck 66. That’s the conversion price. And there is a leak provision to where they can hit the market all at the same time.

[Howard Schwartz:]

But $66 is the absolute set price, correct?

[Michael Pope:]

That’s right. Obviously 66. Yes.

[Howard Schwartz:]

Okay, so currently -- there is proximately 50 million shares total outstanding. Is that fully diluted with taking into account the preferred stock converted or no?

[Michael Pope:]

Yes, there’s about 51 million shares outstanding, yes. But it’s only going to take into account a portion of the preferred. Takesha, do you want to speak to that?

[Takesha Brown:]

Yes. So, currently, we have about 51.2 million shares outstanding. Then we also have the land convertible debt, which is about $24 million on the balance sheet, right now. We amortize that monthly over two years, and we pay it utilizing stock. There’s a sock or cash option we pay it using stock. And there’s a 10% discount and a 20-day look back on that. So, we have that as well in addition to the preferred stock that Michael talked about previously.

[Howard Schwartz:]

That would be a Lind Partners…

[Michael Pope:]

Yes, so you got 51 million shares approximately outstanding, you got about 24 million in the convertible notes to Lind Partners, and they got about 29 million in preferred stock. So depending on how you look at that, again, the convertible notes amortize over two years, we’re on the early end of that. And so, we could elect to pay that off with cash if we wanted to which in that case, it wouldn’t be dilutive or same thing with the preferred if we were deemed the preferred at some point we wouldn’t be as dilutive or if we were to do an equity raise in the future and we have multiple years to address that perhaps not a dilutive, but you’ll have to kind of run your own calculations on that.

[Howard Schwartz:]

Right, but absolutely -- toxic provision with Lind Partners or the preferred of course.

[Michael Pope:]

No. So the payments to Lind Partners, like we said, it’s over two years monthly payments, and those are payable in stock or cash at our option. So, yes, there’s -- I don’t believe it would fit into that toxic category. And then also as convertible to premium, the most recent $22 million we raised is convertible at $3.50. So if the stock were to run north of that, yes, it would convert at -- they could convert at $3.50. And then also, I would mention that the cost of capital is relatively low and we had a low interest rate on that. Total cost was low teens if you take the OID plus the APR.

[Howard Schwartz:]

Right. All right, so I mean, to me it looks like with approximately $44 million in shareholders’ equity, what’s total outstanding, your book value is about $0.90 a share. So you’re trading right now on the two times book and trading on the one times revenue with the current price of the stock. I mean, at $2 you’d only be trading at one times of revenue.

[Michael Pope:]

How are you…

[Howard Schwartz:]

I am just making the statement.

[Michael Pope:]

How are you -- sounds like a good entry point maybe -- look we’re believers. We’ve come a long way. Those of you…

[Howard Schwartz:]

Yes, I am just…

[Michael Pope:]

…have been following the last few months…

[Howard Schwartz:]

Yes, I am just making the statement. The stock has been moving up over the last few days to over $1.70 and it closes today down at $1.50, kind of baffling to me, maybe whoever the sellers were didn’t fully understand this acquisition, they’re just looking at the third quarter, not taking into account that you’re only picking up a fraction of the revenue for the third quarter which are going to be in the fourth quarter.

[Michael Pope:]

Yes, we’re definitely flattish here the fourth quarter and start sharing next year because then you’re going to see the combined financials of both companies. So you’re spot on.

[Operator:]

This concludes our question-and-answer session. We return to Michael Pope for closing remarks.

[Michael Pope:]

Thank you everyone for joining the call. Thanks for your support. And we look forward to speaking with you again in March when we report our fourth quarter results.

[Operator:]

Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.