Business context and reporting period
This is an unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The supplied filing is for nFusz, Inc. (formerly bBooth, Inc.), not TON Strategy Co; confirm that this is the intended filing. nFusz describes its business as developing and licensing interactive video and cloud-based SaaS products under the Notifi brand. It reported no revenue in either 2017 or the comparable 2016 periods.
Financial performance and condition
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2017 and 2016 | $0 in 2017 and 2016 |
| Operating loss | $1.44 million in 2017; $1.13 million in 2016 | $2.15 million in 2017; $1.68 million in 2016 |
| Net loss | $2.11 million in 2017; $1.29 million in 2016 | $2.97 million in 2017; $1.98 million in 2016 |
| Loss per share, basic and diluted | $0.02 in both years | $0.03 in both years |
| Cash used in operating activities | Six-month outflow: $794,754 in 2017; $895,675 in 2016 |
At June 30, 2017, cash was $27,008, current assets were $60,109, and current liabilities were $3.81 million, implying a working-capital deficit of approximately $3.75 million. Total assets were $110,580; liabilities, including the $294,143 Series A preferred-stock liability, were approximately $4.11 million; stockholders’ deficit was $4.00 million. The filing reports no gross margin because sales were zero.
Cash increased by $10,246 during the first half, as $805,000 of financing inflows exceeded operating cash use. Financing included $450,000 from common-stock sales, $255,000 net proceeds from Series A preferred stock, and $100,000 from a note. The filing reports $2.09 million of related-party notes payable, $685,207 of convertible notes net of discount, and $125,000 of other notes payable at June 30.
Changes versus the prior comparable period
- Six-month net loss increased by about $984,000 year over year. Management attributed higher operating costs mainly to increased stock-based compensation and software-development coding fees.
- Six-month research and development expense increased to $181,840 from $119,816; general and administrative expense increased to $1.97 million from $1.56 million.
- Other expense included $552,871 of debt-extinguishment loss, primarily associated with warrants issued to extend a CEO-related note. There was no comparable debt-extinguishment loss in 2016.
- Operating cash use improved by about $101,000 versus 2016, while financing proceeds were slightly lower. Cash at period end was $27,008 versus $42,544 a year earlier.
- Common shares issued and outstanding rose to 105.1 million at June 30 from 94.7 million at December 31, 2016; 23.0 million options and 20.5 million warrants were outstanding and excluded from diluted loss per share as anti-dilutive.
Outlook, risks, contingencies and unusual items
- Management said operating expenses may continue to exceed revenue over the next three months and that additional debt or equity financing may be needed. It gave no quantified revenue or earnings guidance and offered no assurance financing will be available or that the company will become profitable.
- The filing states that recurring losses, negative operating cash flows, and a $4.00 million stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Management plans to seek financing; the statements contain no adjustments for a possible inability to continue.
- Series A preferred stock carries a 5% dividend and mandatory redemptions beginning in August 2017; redemption may be in cash or, subject to the terms, common shares. Subsequent to quarter-end, the company reported further preferred-stock issuances and cash proceeds.
- Several notes were extended after quarter-end, including CEO-related notes and an Oceanside note; extensions included warrant issuances. One $111,901 related-party note was described as past due at June 30.
- A plaintiff sought approximately $157,000 plus interest and costs in litigation over alleged web and mobile application services. The company denied the claims, plans to defend them, and recorded no reserve.
- Management concluded disclosure controls and procedures were not effective as of June 30, 2017. No material change in internal control over financial reporting was reported during the quarter.
- In the three-month discussion, the filing says “compared to the three months ended June 30, 2017,” although its tables and surrounding discussion compare 2017 with 2016. The filing also reports a CEO share issuance dated August 4, 2018 in its subsequent-events section; verify these apparent date or drafting anomalies.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q names nFusz, Inc., not TON Strategy Co.
- Assess liquidity, near-term maturities and mandatory preferred-stock redemptions against just $27,008 of quarter-end cash; verify whether subsequent financing was completed and available.
- Review related-party debt terms, extensions, security interests, past-due amounts, and warrants or other potential dilution.
- Verify the debt-extinguishment accounting and the make-whole provision related to shares issued in conversion of a note.
- Check the status and potential exposure of the approximately $157,000 lawsuit, and the remediation of ineffective disclosure controls.
- Reconcile the apparent period-comparison and subsequent-event date inconsistencies against the filed statements and exhibits.