Business context and reporting period
This is nFüsz, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017, filed November 14, 2017. The filing describes a Nevada-based developer of interactive video and cloud software products under the Notifi brand. The request metadata names TON Strategy Co, but the filing itself identifies the registrant as nFüsz, Inc.; the text does not explain that discrepancy.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2017 | Nine months ended Sep. 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $109,350 | $291,190 |
| General and administrative | $1,082,131 | $3,052,161 |
| Operating loss | $(1,191,481) | $(3,343,351) |
| Net loss | $(1,880,889) | $(4,849,474) |
| Basic and diluted loss per share | $(0.02) | $(0.05) |
No revenue was reported, so a meaningful operating margin is not available. For the nine months, operating cash use was $1,174,534, investing cash flow was $0, and financing provided $1,186,678; cash increased $12,144 to $28,906. Cash interest paid was $171,375.
At September 30, 2017, total assets were $106,213, current assets $61,457, current liabilities $4,224,705, and stockholders’ deficit $4,454,322. The resulting working-capital deficit was approximately $4.16 million. Reported debt included $183,558 of notes payable, $1,964,985 of related-party notes, $786,466 of convertible notes, and $335,830 of Series A preferred-stock liability, all net of stated discounts where applicable. The filing reports no revenue-based margin metrics.
Material changes versus prior comparable periods
- For the third quarter, net loss increased to $1.88 million from $1.09 million in 2016; for the nine months, it increased to $4.85 million from $3.08 million.
- Nine-month R&D increased to $291,190 from $189,166, primarily due to software-development contractor fees. General and administrative expense rose to $3.05 million from $2.41 million, primarily reflecting higher stock-based compensation.
- Nine-month interest expense and debt-discount amortization were $375,862 and $174,981, respectively. Debt-extinguishment loss was $977,201, versus none in 2016; the filing also reports $118,698 of interest expense associated with Series A redemptions.
- Shares outstanding rose from 94,661,566 at December 31, 2016 to 112,735,353 at September 30, 2017. Options and warrants outstanding at quarter-end were 22.0 million and 24.5 million, respectively, and were excluded from diluted loss per share as anti-dilutive.
Outlook, risks, contingencies, and unusual items
- Going concern: Management says substantial doubt exists about the company’s ability to continue as a going concern. It expects expenses to exceed revenue in the near term and intends to seek debt or equity financing; it gives no assurance that financing will be available or that it will become profitable.
- Financing and dilution: A Kodiak agreement allows the company, at its discretion, to sell up to $2 million of common stock through September 2019, at 80% of a defined five-day VWAP. The filing describes associated notes and warrants, and notes that Kodiak purchases are subject to conditions including an effective resale registration statement. The filing also describes mandatory Series A preferred redemptions and additional potential share issuance.
- Debt and related parties: CEO and majority shareholder Rory Cutaia held or was owed substantial 12% notes; some were secured by substantially all company assets and several maturities were extended. One related-party note of $111,901 was described as past due. Debt extensions involving warrants generated significant extinguishment losses.
- Controls: The CEO and CFO concluded disclosure controls and procedures were not effective as of September 30, 2017. No material change in internal control over financial reporting was reported during the quarter.
- Legal matter: Multicore Technologies’ claim seeking approximately $157,000 plus interest was dismissed as to the company in September 2017 in exchange for a guarantee of two payments by another defendant totaling $5,000; the company stated it had an offset right. No other material proceedings were reported.
- Subsequent events: After quarter-end, the company reported preferred-stock redemptions, a $326,000 common-stock issuance on November 3, and the effectiveness on November 13 of the Kodiak resale registration statement. The filing also describes further share and option issuances.
- Unusual disclosures: The filing contains differing descriptions of certain Kodiak note and preferred-stock terms across sections. The company’s detailed risk factors are not applicable as a smaller reporting company.
Important facts for investors to verify
- Confirm the registrant identity and whether this nFüsz filing is the intended filing for TON Strategy Co.
- Assess near-term funding needs against $28,906 of quarter-end cash, the substantial working-capital deficit, and management’s going-concern warning.
- Verify the current status, remaining capacity, pricing, registration conditions, and potential dilution of the Kodiak equity-purchase arrangement and related securities.
- Review maturities, collateral, redemption schedules, accrued interest, and any past-due balances for debt and Series A preferred stock, including related-party obligations.
- Reconcile the filing’s descriptions of financing terms and subsequent share issuances; also monitor the stated ineffective disclosure controls.