TON Strategy Co annual report, FY2014

Filing summary

Entity and period: The supplied filing is bBooth, Inc.’s Form 10-K for the fiscal year ended December 31, 2014—not a TON Strategy Co. filing or a quarterly report. It compares full-year 2014 with 2013. The company’s business changed materially after its October 2014 reverse-merger transaction.

Business context

bBooth focused on deploying internet-connected recording-studio kiosks in shopping malls and developing a related video and music-sharing app, later branded “kord.” At year-end, it had no operating revenue. Three kiosks were reported deployed, and the app was in beta. The filing’s financial statements reflect the acquired bBooth business for periods before the transaction, rather than the former shell’s historical operations.

Financial performance and liquidity

Gross and operating margins are not meaningful because the company reported no revenue. Net loss increased $597,694 year over year. General and administrative expense rose, including Studio One-related costs, share-based compensation, consulting, payroll and professional fees; lower R&D partly offset the increase.

At December 31, 2014, cash was $1,172,117, working capital was $1,691,333, total assets were $2,426,526, current liabilities were $411,958, and stockholders’ equity was $2,014,568. The comparable 2013 working capital position was a deficit of $123,670. Year-end notes payable were $100,000; the $1.5 million convertible-note financing and accrued interest had been converted into equity before year-end. No material long-term debt balance is reported in the balance sheet. Financing cash flow was $5,086,987, including $4.5 million of private-placement proceeds; investing cash use was $310,206.

Changes, outlook and material items

• The company raised $4.5 million in a private placement and completed the reverse merger in October 2014. Shares outstanding were 60.6 million at year-end and 61.1 million at March 30, 2015.
• Management expected operating expenses to exceed revenue for the next 12 months and said additional debt or equity financing would be needed. It provided no quantified revenue or earnings guidance.
• The auditor included a going-concern explanatory paragraph, citing recurring losses and no revenue and expressing substantial doubt about the company’s ability to continue as a going concern. Management’s plans included seeking financing and pursuing acquisitions or mergers.
• After year-end, the company acquired Songstagram/Qubeey-related assets and intellectual property in January 2015, using forgiveness of Wright’s note and enforcement of security over Songstagram collateral. The filing also reports subsequent demand loans, a 500,000-share settlement issuance, and financing-advisor costs and warrants.
• Other notable exposures include an unfinished Studio One licensing arrangement with remaining payments, mall lease commitments of $224,300 for 2015, dependence on third-party vendors, execution and consumer-adoption risks, potential dilution, and an OTC/penny-stock trading market. Management reported ineffective disclosure controls and internal control over financial reporting at year-end, citing inadequate segregation of duties, no CFO and untimely accounting information.

Investor verification points

• Confirm the issuer and reporting period: the source is bBooth, Inc., fiscal 2014, despite the request metadata naming TON Strategy Co. and 2014 Q4.
• Check the full audited statements and notes for the cash runway, financing terms, debt and subsequent events; the filing states that additional capital is necessary.
• Verify the status, consideration and accounting for the Songstagram/Qubeey acquisition and the Studio One license and payment obligations.
• Assess actual kiosk deployment, app launch, user traction and revenue generation against management’s forward-looking plans.
• Review remediation of the disclosed material weaknesses and any later filings for changes to controls, liquidity, share count or financing.