Business Context and Reporting Period
The supplied filing is iGambit Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed April 17, 2017. It does not appear to be a Nutex Health Inc. filing, and it reports annual results rather than a standalone 2016 fourth quarter. The company’s 2016 operations included ArcMail and Gotham; management classified these businesses as discontinued operations and was shifting its focus to medical technology. HealthDatix was acquired in February 2017, after the reporting period.
Key Financial Metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Continuing-operations revenue | $0 | $0 |
| Loss from continuing operations | $451,060 | $536,130 |
| Discontinued-operations revenue | $1,990,490 | $1,549,564 |
| Discontinued-operations income (loss) | $(6,981,181) | $619,939 |
| Net income (loss) | $(7,432,241) | $83,809 |
| Cash and cash equivalents at year-end | $10,522 | $122,291 |
| Operating cash flow | $(274,223) | $44,907 |
| Total assets at year-end | $510,835 | $7,637,996 |
| Total liabilities at year-end | $6,380,260 | $6,076,680 |
| Stockholders’ equity (deficiency) | $(5,869,425) | $1,561,316 |
ArcMail’s discontinued operations reported $1.99 million of revenue and $179,312 of cost of sales in 2016; the consolidated company had no continuing-operations sales, so a continuing-operations gross margin is not applicable. General and administrative expense fell to $448,595 from $532,988. The company reported a $6,263,320 impairment charge and $441,837 of amortization in discontinued operations, principally associated with the decision to sell ArcMail.
Year-end current assets were $507,932 against current liabilities of $6,380,260, a working-capital deficit of approximately $5.87 million. Current liabilities included $50,000 of convertible debentures and $5,973,747 of discontinued-operations liabilities. Those discontinued liabilities included $3,119,001 of notes payable, $153,404 of other notes payable, $626,266 due to a related party, and $558,183 of accrued interest. ArcMail’s notes payable were generally secured by its assets and bore 7% interest; its related-party note bore 6%. The company also issued $50,000 of debentures bearing 10% interest.
Changes, Outlook, Risks, and Unusual Items
- Total assets fell sharply, primarily due to impairment of goodwill and intangible assets. The company moved from positive equity in 2015 to a substantial stockholders’ deficiency in 2016.
- Operating cash flow shifted from a $44,907 inflow to a $274,223 outflow; cash fell by $111,769 during 2016. Financing provided $172,444, primarily from convertible debentures.
- The auditor’s report includes a going-concern emphasis: the operating subsidiary was being disposed of and the company had a $5.87 million stockholders’ deficiency. The auditor stated these conditions raised substantial doubt about the company’s ability to continue as a going concern.
- Management expected to fund near-term operations through existing funds, advances, debt instruments, and anticipated cash flow, while also stating that capital raising might be needed and could be unavailable on acceptable terms. No bank line of credit was in place. Management anticipated higher 2017 administrative, development, and marketing costs; no quantified guidance was provided.
- In March 2017, the company entered a letter of intent to sell substantially all ArcMail assets; completion was conditional and not assured. Subsequent events included the February 2017 HealthDatix acquisition for 15 million shares and an April 2017 acquisition of CyberCare Health Network assets for 60 million restricted shares. These transactions occurred after year-end and should not be treated as 2016 results.
- The filing reports an unqualified audit opinion, while noting the going-concern uncertainty. Management said disclosure controls and internal control over financial reporting were effective; the auditor was not engaged to audit internal control effectiveness.
Important Facts for Investors to Verify
- Confirm the issuer and filing identity: the supplied document is for iGambit Inc., not Nutex Health Inc.
- Review the audited statements and notes for the status, terms, and repayment capacity of discontinued-operations liabilities, secured debt, merchant financing, and convertible debentures.
- Verify the ArcMail sale’s completion and consideration, and the operating and financing status of HealthDatix and the CyberCare assets after the reporting date.
- Reconcile the filing’s share-count disclosures: it reports 39,708,990 shares outstanding at December 31, 2016, but also states 116,868,990 outstanding as of April 17, 2017; an ownership table gives a different 25,044,056-share basis. The filing text does not provide a clear reconciliation.
- Assess the company’s ability to raise capital and address the auditor’s going-concern warning; additional equity or convertible debt could materially dilute existing holders.