nFüsz, Inc. Form 10-Q Summary
Issuer identification: The supplied filing is for nFüsz, Inc., not TON Strategy Co. The filing covers the quarter ended March 31, 2018; financial statements are unaudited. Comparisons are with the three months ended March 31, 2017 unless otherwise noted.
Business context and reporting period
nFüsz develops and markets interactive-video and SaaS products under the notifi brand, including CRM, advertising, lead-generation, and social-engagement services. Its SaaS platform launched in the fourth quarter of 2017. The company identifies itself as an early-stage business dependent on external financing.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $8,003 | $0 |
| Research and development | $130,000 | $89,600 |
| General and administrative expense | $5,269,574 | $617,537 |
| Operating loss | $5,391,571 | $707,137 |
| Net loss | $8,494,418 | $856,820 |
| Basic and diluted loss per share | $0.07 | $0.01 |
| Cash used in operating activities | $991,923 | $318,092 |
| Cash provided by financing activities | $2,585,500 | $425,000 |
Revenue was too small relative to expenses for a meaningful operating margin. Modified EBITDA, a non-GAAP measure, was a loss of $781,551, versus a loss of $437,558 a year earlier. The filing cautions that this measure is not a substitute for GAAP results or operating cash flow.
At March 31, 2018, cash was $1,604,137; current assets were $1,640,017 and current liabilities were $4,463,378, implying a working-capital deficit of approximately $2.82 million. Total assets were $1,674,046, total liabilities $4,463,378, and stockholders’ deficit $2,789,332. Current liabilities included $1,964,985 of related-party notes and a $1,735,354 derivative liability. Convertible notes were reported as settled or paid by quarter-end.
Changes versus the prior period
- Revenue began with the recently launched SaaS platform, but remained minimal.
- Net loss increased by about $7.64 million. G&A rose by about $4.65 million, primarily due to $4,610,954 of share-based compensation and higher labor, legal, and audit costs.
- Other expense was $3,102,847, reflecting derivative fair-value changes, debt-extinguishment and financing costs, and interest, partly offset by a $1,718,816 gain on extinguishment of derivative liabilities.
- Cash rose from $10,560 at year-end 2017 to $1,604,137, chiefly through equity issuance and other financing. The company issued substantial shares for cash, services, debt conversion, and accrued CEO salary; outstanding common shares increased to 152,126,287 at quarter-end.
Outlook, risks, contingencies, and unusual items
- Going concern: Management says recurring losses, negative operating cash flows, and the stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on obtaining debt or equity financing; availability and terms are uncertain. Management expected operating expenses to exceed revenue over the following three months.
- Debt and related parties: Related-party notes bear 12% interest; one $111,901 note was past due, and the company said it was negotiating a settlement. Other related-party balances included notes maturing in August 2018. Some notes permit conversion into common shares at $0.07 per share.
- Derivatives and dilution: Derivative liabilities are remeasured using valuation assumptions and created significant reported expense volatility. At quarter-end the company also disclosed 22,447,225 options and 30,107,413 warrants outstanding, plus potential shares from note conversions; these were excluded from diluted loss per share as anti-dilutive.
- Controls: Management concluded disclosure controls and procedures were not effective as of March 31, 2018. It reported no material change in internal control over financial reporting during the quarter.
- Subsequent events: After quarter-end, the company reported $700,000 of net proceeds from issuing 1,050,000 shares, option exercises producing $34,133, and a cashless warrant exercise. On April 16, it agreed with Kodiak that notes between them would be deemed satisfied and cancelled, and imposed revised limits on Kodiak’s weekly share sales.
- The filing reports no material pending legal proceedings and provides no formal revenue or earnings guidance.
Important facts for investors to verify
- Confirm the issuer: the filing identifies nFüsz, Inc.; the request metadata names TON Strategy Co.
- Review the ability to raise financing, near-term cash needs, and the status and terms of past-due and related-party debt.
- Assess dilution from equity compensation, warrants, options, and convertible instruments, including the post-quarter share count.
- Reconcile apparent internal inconsistencies: the filing gives differing figures for some stock-sale proceeds and debt-conversion share values, and the debt-extinguishment expense differs between the statements and note discussion. Confirm amounts against the filed financial statements and exhibits.
- Consider the effect of ineffective disclosure controls and the significant use of estimates in valuing derivative liabilities and share-based compensation.