Filing Summary
Issuer and period: The supplied filing is iGambit Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. It is not identified as a Nutex Health Inc. filing; verify the issuer before relying on this summary.
Business context and reporting period
iGambit describes itself as a technology-focused holding company seeking acquisitions. Its operating subsidiary, Gotham Innovation Lab, provided media technology services to real estate agents and brokers in the New York metropolitan area. The interim statements are unaudited and should be read with the company’s 2012 Form 10-K.
Key financial metrics
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $397,081 | $416,429 | $1,171,621 | $1,325,945 |
| Gross profit | $263,067 | $253,121 | $772,229 | $685,026 |
| Gross margin | 66.2% | 60.8% | 65.9% | 51.7% |
| Operating income (loss) | $(158,231) | $(184,937) | $(526,995) | $(683,267) |
| Net income (loss) | $(158,231) | $(114,462) | $228,005 | $(415,598) |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $6,597 | $(263,227) |
- Q3 gross margin improved despite lower revenue, while the quarterly net loss widened as the company had no comparable income-tax benefit to the $70,218 benefit recorded in Q3 2012.
- Nine-month 2013 net income included $755,000 of income from rescinding the IGX acquisition. Excluding that one-time income, the period had a pretax loss of $526,995, equal to the reported operating loss.
- At September 30, 2013, cash was $216,618; current assets were $1,036,121; current liabilities were $524,823; total assets were $1,058,526; and stockholders’ equity was $533,703. Working capital was approximately $511,000.
- Current liabilities included a $103,500 convertible note and a $6,263 related-party note. The company reported no long-term liabilities. The convertible note bears 8% interest, is due June 18, 2014, and after 180 days may be converted at the holder’s option at 55% of the average of the three lowest trading prices in a specified 10-trading-day period.
- Nine-month cash rose by $111,897 to $216,618, principally reflecting $103,500 of note proceeds. Operating cash flow was only $6,597; a $272,223 increase in the IGX receivable was a significant cash-flow use.
Material changes versus the prior comparable period
- Nine-month revenue decreased 11.6% year over year, which management attributed to lower revenue at Gotham. Q3 revenue declined about 4.6%.
- Nine-month cost of sales fell to $399,392 from $640,919, lifting gross profit despite lower sales; management cited lower outsourced photography costs.
- Nine-month general and administrative expense decreased to $1,299,224 from $1,368,293, primarily due to lower payroll and corporate administrative costs.
- Total assets increased from $745,919 at December 31, 2012, mainly from receivables and amounts due under the IGX rescission. Liabilities rose from $440,221, primarily because of the convertible note.
- The company established a full valuation allowance against deferred tax assets, resulting in a 0% effective tax rate for the 2013 nine-month period, versus 38% in 2012.
Outlook, commentary, risks and unusual items
- Management said it believed existing capital was sufficient for present operations and expected cash and liquidity to increase in the foreseeable future. It also anticipated private-market fundraising if expansion or acquisitions required additional capital, but gave no assurance financing would be available on acceptable terms. No bank credit facility was planned.
- Management planned to expand Gotham and pursue acquisitions; costs and funding needs for any acquisition were not quantified. It said operating and officer salary costs should remain level absent material expansion.
- The IGX purchase agreement was rescinded in April 2013. The company recognized $755,000 in rescission consideration; $272,223 remained due at September 30, 2013. The filing describes $350,000 as payable in equal monthly installments over 18 months.
- iGambit’s lawsuit against Digi-Data seeks unpaid contingency payments. A $320,590 discontinued-operations receivable remained on the balance sheet, stated net of a $250,000 bad-debt allowance. The filing also describes a larger claim amount at June 30, 2013; collection and litigation outcomes remain uncertain. Digi-Data asserted counterclaims and sought offsets.
- Two customers represented approximately 44% and 25% of Gotham’s nine-month 2013 sales; they represented 61% and 11% of accounts receivable at September 30, 2013. This indicates significant customer and collection concentration.
- A financial adviser claimed a minimum $300,000 fee relating to the rescinded IGX transaction. Management disputed that the fee had been earned and believed resolution would not materially adversely affect the company, but said the outcome was not determinable.
- Management cited possible fluctuations in quarterly results and expenses, government regulation, technology change, competition, acquisition execution, and ability to raise capital as risks. The filing says disclosure controls were effective and reports no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm issuer identity: this filing is for iGambit Inc., not Nutex Health Inc.
- Assess collectability and timing of the $272,223 IGX receivable and the $320,590 legacy discontinued-operations receivable, including the Digi-Data litigation and allowance.
- Review the convertible note’s maturity and market-price-based conversion terms for potential dilution and repayment risk.
- Separate recurring operating performance from the $755,000 rescission income when evaluating nine-month profitability and cash generation.
- Evaluate customer concentration, financing availability, and the company’s stated acquisition and Gotham expansion plans.