Nutex Health Inc. quarterly report, Q3 FY2014

Business context and reporting period

This summary covers iGambit Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. The filing identifies the issuer as iGambit Inc., not Nutex Health Inc.; investors should verify the company and filing identity. iGambit was a holding company seeking technology acquisitions; its operating subsidiary, Gotham Innovation Lab, provided media technology services to real estate professionals.

Financial performance and position

• At September 30, cash was $332,379; current assets were $474,472 and current liabilities $292,552, for working capital of $181,920. Total assets were $496,232, total liabilities $292,552, and stockholders’ equity $203,680.
• No debt was reported at quarter-end. The company converted $49,000 of a convertible note into 1,539,934 shares and repaid the remaining $54,500 principal plus accrued interest in June.
• Nine-month operating cash flow was $364,747, but included $655,746 collected on discontinued-operation receivables. Continuing operating activities used $290,999. Investing activities used $4,738 and financing activities used $54,500; cash increased by $305,509.

Changes, outlook, risks and unusual items

• Revenue declined 32% in the quarter and 30% for the nine months, principally because Gotham closed its Team5 division. Management also attributed lower cost of sales to reduced outsourced photography costs. Lower payroll and related expenses helped reduce nine-month operating expenses, but gross margin contracted.
• The prior-year nine-month profit included $755,000 of income from rescinding the IGX acquisition agreement. In 2014, a $152,076 gain from extinguishing the convertible-note derivative liability partly offset operating losses; the company also recorded a $50,779 write-off related to the IGX receivable settlement.
• Digi-Data paid the judgment balance and accrued interest in May 2014. A separate dispute with financial advisor Brooks, Houghton & Company over a claimed minimum $300,000 transaction fee remained unresolved; management said it did not expect a material adverse effect.
• One customer generated approximately 66% of Gotham’s nine-month 2014 sales and represented approximately 70% of quarter-end receivables, creating significant customer and collection concentration.
• Management said existing capital should fund present operations and expected liquidity to increase, but anticipated private-market fundraising for expansion or acquisitions and gave no quantified forecast. It cautioned that financing may not be available on acceptable terms and that execution of its business plan is not assured.
• After quarter-end, the board approved an increase in authorized common shares from 75 million to 300 million and authorized a preferred-stock class, with its rights to be set by the board. The filing reports 26,583,990 common shares outstanding on November 12, 2014.
• The filing states disclosure controls were effective, while one sentence in the controls discussion refers to an evaluation as of September 30, 2012; the conclusion elsewhere says September 30, 2014.

Most important facts to verify

1. Confirm that this iGambit filing, rather than a Nutex Health filing, is the intended document.
2. Assess the durability of revenue after the Team5 closure, gross-margin decline, and reliance on one customer.
3. Verify cash generation excluding the one-time Digi-Data collection and evaluate funding needs for the stated growth and acquisition plans.
4. Confirm the status and potential exposure of the BHC fee dispute and any other contingencies.
5. Review the authorized-share and preferred-stock amendments, potential dilution, and the controls-date inconsistency.