Business context and reporting period
Filing identity: The supplied filing is iGambit Inc.’s Form 10-Q for the quarter and six months ended June 30, 2017. It does not identify Nutex Health Inc. as the registrant; verify that this is the intended filing. Amounts below are in U.S. dollars unless stated otherwise.
iGambit described itself as shifting its strategy toward medical technology. It acquired HealthDatix in February 2017 and acquired certain CyberCare Health Network assets from EncounterCare Solutions Inc. (ECSL) in April. It completed the sale of ArcMail on June 30, 2017; ArcMail’s operations were treated as discontinued operations.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $4,595 | $8,945 | $0 |
| Gross profit (loss) | $(9,837) | $(5,667) | $0 |
| Operating expenses | $1,238,703 | $1,406,083 | $64,511 and $226,447, respectively |
| Net loss | $(1,647,250) | $(1,889,324) | $(96,052) and $(334,922), respectively |
| Net loss per share | $(0.03) | $(0.03) | $(0.00) and $(0.01), respectively |
Six-month interest expense was $13,665. The six-month results also included a $396,972 loss on the ArcMail sale and $66,937 loss from discontinued operations. Amortization expense was $338,236, and stock-based compensation expense was $739,325.
- Cash flow: Six-month net cash used in operating activities was $367,692; investing activities used $30,798; financing activities provided $391,492. Cash declined $6,998 to $3,524.
- Balance sheet at June 30, 2017: Total assets were $6,888,548, including $6,524,454 of intangible assets and $277,176 of goodwill. Total liabilities were $622,329; stockholders’ equity was $6,266,219.
- Liquidity: Current assets were $80,736 and current liabilities were $622,329, implying a working-capital deficit of $541,593. The filing reported cash of $3,524.
- Debt: Current liabilities included $52,500 of notes payable and $269,925 of convertible debentures, net, plus $8,800 accrued interest. Separate convertible notes issued in 2017 had principal of $125,000 and $75,000.
Material changes versus prior comparable periods
- Revenue began to be reported following the HealthDatix acquisition, but remained very low; gross losses and net losses increased substantially from 2016.
- Operating expenses rose significantly, reflecting acquired-business costs, payroll and benefits, marketing, transaction costs, and amortization. Management expected some operating and corporate costs to increase as HealthDatix expanded.
- Total assets rose from $510,835 at December 31, 2016, primarily due to acquired intangible assets. Total liabilities fell from $6,380,260, mainly because ArcMail’s liabilities were removed following its sale and classification as discontinued operations.
- Equity moved from a deficiency of $5,869,425 at year-end 2016 to positive equity of $6,266,219, primarily reflecting shares issued in the acquisitions and the ArcMail disposition.
Outlook, risks, and unusual items
No specific revenue or earnings guidance was provided. Management planned to grow HealthDatix’s medical-technology operations and expected working-capital needs, operating expenses, and marketing and development costs to rise. It anticipated funding needs through existing funds and further securities or debt issuances, while stating financing might not be available on acceptable terms.
The filing states that the company’s accumulated deficit and other factors raise substantial doubt about its ability to continue as a going concern. Management said existing working capital, advances, debt instruments, and anticipated cash flow were expected to fund operations for the next twelve months, but the filing also says additional capital and revenue generation would be needed over the longer term. There were no bank credit facilities.
Notable transaction and dilution items include issuance of 60 million shares valued at $6 million for the ECSL assets and 15 million shares valued at $1.05 million for HealthDatix. The ECSL purchase allocation included software, FDA 510(k) clearance, a technology license, and wearable-watch research and development. The ArcMail sale consideration was the return of 10 million previously issued iGambit shares; the company recorded a $396,972 loss.
HealthDatix had two customers accounting for approximately 64% and 32% of its six-month sales, and one customer represented all accounts receivable at June 30. The company reported no material litigation, no defaults upon senior securities, and effective disclosure controls as of quarter-end. Forward-looking statements were subject to risks including financing availability, regulation, technology change, competition, and operating-cost fluctuations.
Important facts for investors to verify
- Confirm issuer identity: the filing is for iGambit Inc., not Nutex Health Inc.
- Reconcile share counts: the balance sheet reports 118,918,990 common shares at June 30, while the cover reports 111,868,990 shares outstanding as of August 18; the filing also reports 10 million shares held as treasury stock.
- Review acquisition valuations, the preliminary purchase-price allocations, and the expected commercial potential of the HealthDatix and ECSL assets against the very limited reported revenue.
- Assess near-term liquidity and going-concern risk, including the very low cash balance, working-capital deficit, and reliance on additional securities or debt financing.
- Review the conversion and repayment terms of the convertible notes, including discounts tied to market prices, and the potential dilution from outstanding options, warrants, and subsequent share issuances.
- Evaluate HealthDatix’s customer concentration and the collection risk associated with its single-customer accounts receivable balance.