Business context and reporting period
This filing is an unaudited Form 10-Q for iGambit Inc. for the quarter and six months ended June 30, 2014. The company describes itself as a technology-focused holding company seeking acquisitions; its operating subsidiary, Gotham Innovation Lab, provides media technology services to real estate agents and brokers in the New York metropolitan area. The filing is for iGambit Inc., not Nutex Health Inc.; the company identity in the request metadata does not match the filing.
Financial performance and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $310,424 | $550,637 | $411,719 and $774,540 |
| Gross profit | $186,721 | $324,022 | $262,111 and $509,162 |
| Gross margin | 60.2% | 58.8% | 63.7% and 65.7% |
| Operating loss | $(201,251) | $(336,217) | $(166,150) and $(368,764) |
| Net income (loss) | $(75,270) | $(236,848) | $588,850 and $386,236 |
| Cash from operating activities | Not separately reported | $618,957 | $(5,551) |
For the six months, continuing operations used $36,789 of operating cash; the overall operating cash inflow mainly reflected $655,746 collected from discontinued operations. Investing activities used $4,738 and financing activities used $51,400, principally for convertible-note repayment. Cash at June 30 was $589,689, versus $26,870 at December 31, 2013.
At June 30, total assets were $722,381, current liabilities $332,936, and stockholders’ equity $389,445. Current assets were $699,430, including $589,689 cash; current liabilities consisted mainly of $329,836 accounts payable. The company reported no long-term liabilities. The convertible note and its derivative liability were settled or removed during the period. The $3,100 stockholder loan was non-interest-bearing and due by December 31, 2014.
Material changes versus the prior comparable period
- Revenue fell 24.6% year over year in the quarter and 28.9% in the six-month period. Management attributed the decrease primarily to closing the Gotham Team5 division.
- Gross margin declined in both comparisons. Cost of sales also decreased, which management attributed to lower outsourced photography vendor costs.
- General and administrative expense decreased to $387,972 for the quarter and $660,239 for six months, from $428,261 and $877,926, respectively. Lower payroll and certain operating costs drove the decrease; 2014 six-month expense included a $50,779 write-off related to the IGX rescission receivable.
- Reported earnings turned to losses from prior-year profits, when results included $755,000 of income from the IGX rescission agreement. In 2014, the company recorded a $152,076 gain on extinguishment of the convertible-note derivative, along with debt-discount amortization and interest expense.
- Shares issued and outstanding on the balance sheet increased to 26,583,990 from 25,044,056 at year-end, including 1,539,934 shares issued upon conversion of $49,000 principal of the note.
Outlook, risks, contingencies, and unusual items
- Management said it believed available capital was sufficient for present operations and expected to increase cash and liquidity, but identified Gotham expansion and potential acquisitions as funding needs. It anticipated seeking private-market capital and gave no quantified forecast or formal earnings guidance; it cautioned that financing and execution were not assured.
- One customer accounted for approximately 65% of Gotham’s six-month 2014 sales and 62% of accounts receivable at June 30, creating significant customer concentration risk.
- Digi-Data paid the judgment balance and accrued interest in full on May 12, 2014, resolving the disclosed collection litigation. Separately, the company reported a disagreement with financial adviser Brooks, Houghton & Company over a claimed minimum $300,000 transaction fee following the rescinded IGX acquisition; management said the outcome was not determinable but did not expect a material adverse effect.
- The IGX rescission receivable was settled for $175,000 in June; the remaining $50,779 was written off. The company also reported a full valuation allowance against deferred tax assets due to cumulative losses.
- Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting. The filing’s evaluation narrative refers to June 30, 2012, while its conclusion refers to June 30, 2014.
Important facts for investors to verify
- Confirm the filing’s issuer: it is iGambit Inc., despite the Nutex Health Inc. request metadata.
- Reconcile share counts: the balance sheet reports 26,583,990 shares at June 30, 2014, while the cover page reports 25,583,990 shares outstanding as of August 13, 2014.
- Reconcile the six-month net loss: the financial statements report $(236,848), while MD&A refers to an operating net loss of $(236,548).
- Assess sustainable operating cash generation separately from the one-time $655,746 collection from discontinued operations and the non-cash derivative gain.
- Monitor revenue trends, the concentrated customer relationship, acquisition financing requirements, and the unresolved adviser-fee claim.