Business context and reporting period
This is Verb Technology Company, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed under its former name, nFüsz, Inc. It is an annual report, not a standalone fourth-quarter report. The filing does not identify TON Strategy Co.; the company and period in the request metadata therefore do not match the filing.
The company marketed subscription-based cloud software under the Tagg brand, centered on interactive-video CRM tools, with products also targeting healthcare and education. It was at an early commercialization stage: annual subscription revenue was only $32,000. The statements were audited and presented fairly under U.S. GAAP; the auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
Financial results and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $32,000 | $6,000 |
| Operating loss | $7.792 million | $4.705 million |
| Net loss | $12.127 million | $7.266 million |
| Modified EBITDA (non-GAAP) | $(4.357) million | $(2.149) million |
| Cash used in operating activities | $4.157 million | $1.677 million |
| Cash at year-end | $634,000 | $11,000 |
- Revenue increased by $26,000, but remained very small relative to operating costs; gross margin was negative because cost of revenue ($52,000) exceeded revenue.
- Research and development expense was $980,000, versus $375,000. General and administrative expense rose to $6.792 million from $4.328 million, including higher stock compensation, professional fees, labor, marketing and travel.
- Other expense was $4.334 million, largely reflecting debt-discount amortization ($1.468 million), derivative fair-value changes ($1.167 million), financing costs ($798,000), debt extinguishment losses ($534,000) and interest ($362,000).
- Total assets were $898,000; current assets were $718,000 and current liabilities $4.888 million, implying a working-capital deficit of about $4.170 million. Total liabilities were $5.953 million and stockholders’ deficit was $5.055 million.
- Financing activities provided $4.780 million in cash, primarily from stock sales and convertible debt; investing activities used no cash. Operating cash outflow increased year over year.
- Year-end current liabilities included $818,000 of convertible notes net of discount, $2.576 million of derivative liabilities, and $112,000 of past-due related-party notes. Related-party notes totaled $1.177 million, including $1.065 million classified long-term. Convertible notes had $1.9 million principal outstanding, substantially due in April 2019.
Material changes, outlook and risks
- Management said continued operations depended on raising additional debt or equity financing until operating cash flow improved; it gave no assurance financing would be available on acceptable terms. The filing estimates expenses would continue to exceed revenue in the near term.
- In November 2018, the company agreed to acquire Sound Concepts for $25 million of consideration: $15 million cash and $10 million in stock. Closing was expected in Q1 2019, subject to conditions and without assurance of completion. The proposed transaction creates a substantial funding requirement relative to reported cash.
- Oracle NetSuite and Adobe Marketo partnerships were in place. Microsoft and Salesforce integrations were announced after year-end; revenue contribution was uncertain. TaggLIVE was planned for Q1 2019. These are plans and partnerships, not demonstrated material revenue in the reported year.
- Key risks include recurring losses, limited liquidity, reliance on external financing, potential dilution, competition from large CRM providers, customer adoption, technology and cybersecurity risks, and limited intellectual-property protection. The company reported no issued patents and a pending patent application.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate segregation of duties, risk assessment and staffing. Remediation plans included improved documentation, review and additional resources, contingent on financing.
- Two legal matters remained unresolved: EMA Financial’s warrant-exercise dispute, including the company’s counterclaims and pending injunction motion; and a former employee’s disputed compensation claims. The company disputed both claims.
- After year-end, the company changed its name to Verb Technology Company, Inc. and implemented a 1-for-15 reverse stock split, effective for trading February 4, 2019. It also issued a $500,000 convertible note in February 2019. These events do not alter FY 2018 operating results.
Modified EBITDA is a company-defined non-GAAP measure and excludes substantial items; it should not be treated as operating cash flow or a substitute for GAAP results. The filing’s MD&A comparison table gives FY 2017 total other expense as $2.587 million, while the audited statements show $2.559 million; investors should reconcile this discrepancy.
Investor verification priorities
- Confirm the filing issuer and reporting period: the document is Verb Technology Company, Inc. (formerly nFüsz), FY 2018, not TON Strategy Co. or a Q4-only filing.
- Assess the going-concern warning, cash runway, financing availability and near-term maturities, including the April 2019 convertible notes and their conversion/default terms.
- Verify the funding, closing status and dilution effects of the proposed Sound Concepts acquisition and any subsequent financing.
- Track whether partnerships and product launches generated meaningful recurring revenue, given FY 2018 revenue of only $32,000.
- Review remediation of material control weaknesses and the resolution or potential exposure from the disclosed legal disputes.