Business context and reporting period
Important identification issue: The supplied filing is iGambit Inc.’s Form 10-Q for the quarter ended March 31, 2016; it does not identify Nutex Health Inc. The figures below summarize the supplied iGambit filing and should not be attributed to Nutex without verification.
iGambit describes itself as a technology-focused holding company. Its principal operating subsidiary, ArcMail, sells email-archiving hardware and software and provides support and maintenance. Gotham, a real-estate media services business, sold substantially all operating assets in November 2015 and is presented as discontinued operations. ArcMail was acquired in November 2015, so the 2016 quarter includes ArcMail results while the comparable 2015 revenue was attributed to Gotham; year-over-year comparisons are therefore not like-for-like.
Financial results and position
| Metric | Q1 2016 / March 31, 2016 | Comparable / prior period |
|---|---|---|
| Revenue | $403,750 | $300,347 in Q1 2015 |
| Gross profit / margin | $400,559 / approximately 99.2% | $164,725 / approximately 54.8% |
| General and administrative expense | $558,653 | $307,919 in Q1 2015 |
| Operating loss | $(158,094) | $(143,194) in Q1 2015 |
| Interest expense | $84,334 | $1,703 in Q1 2015 |
| Net loss | $(238,870), or $(0.01) per share | $(144,897), or $(0.01) per share, in Q1 2015 |
| Cash and cash equivalents | $24,375 | $131,987 at December 31, 2015 |
| Operating cash flow | $(285,269), including $8,664 from discontinued operations | $(119,856) in Q1 2015 |
| Total assets / liabilities | $7,466,092 / $6,143,646 | $7,637,996 / $6,076,680 at December 31, 2015 |
| Stockholders’ equity | $1,322,446 | $1,561,316 at December 31, 2015 |
Revenue increased about 34%, which management principally attributed to ArcMail, acquired after the 2015 comparison period. Gross margin also rose sharply, but the filing’s different business mix and very low reported Q1 2016 cost of sales make the comparison difficult to interpret. G&A rose about 81%, driven primarily by payroll and costs associated with ArcMail. The higher interest expense contributed to the larger net loss.
Current assets were $725,072 against current liabilities of $2,949,633, implying negative working capital of approximately $2.22 million and a current ratio of approximately 0.25. Total notes payable, including related-party and other notes, were approximately $3.92 million at quarter-end, based on the balance-sheet line items; the filing also reports substantial accrued interest. Cash fell by $107,612 during the quarter. Financing provided $177,657, including $169,880 of note proceeds and $7,777 of additional amounts due to related parties.
Deferred revenue was $1,121,667, including $736,604 classified as current. Goodwill was $6,705,157, nearly 90% of total assets. No goodwill impairment was recorded; management said it was too early after the ArcMail acquisition to assess impairment, while noting weak future ArcMail results could create impairment risk. Basic weighted-average shares were 39,683,990; options and warrants were excluded from diluted EPS as anti-dilutive.
Outlook, risks, contingencies and unusual items
- Management said its 2016 capital needs could include expansion of ArcMail and possible acquisitions. It anticipated seeking private-market capital but gave no quantified forecast and cautioned that financing might not be available on acceptable terms. It said it had no current plan to obtain a bank credit facility.
- ArcMail entered merchant-financing agreements with two lenders during Q1: $210,000 of stated proceeds were repayable from future receivables, with total payments of $287,400 and maturity in January 2017. The March 31 balance under “notes payable—other” was $164,781.
- Gotham’s asset-sale consideration was $600,000: $400,000 received and the remainder scheduled in twelve monthly installments, partly contingent on the buyer maintaining a relationship with a major client. Discontinued-operation assets and liabilities were $154,075 and $23,769, respectively, at March 31.
- The company cited quarterly-results volatility, regulation, technology change and competition as risks. It reported no litigation material to ongoing operations and disclosed operating lease commitments of $130,965 through 2018.
- The filing’s controls section contains apparent period/date inconsistencies: it refers to an evaluation as of March 31, 2012 and concludes controls were effective as of March 31, 2015, while this report covers Q1 2016. Its internal-control-change statement also refers to the quarter ended March 31, 2015. These statements warrant clarification.
Most important facts for investors to verify
- Confirm the issuer: the source is an iGambit Inc. filing, not a Nutex Health Inc. filing.
- Reconcile the low cash balance, negative working capital, cash burn, debt maturities, accrued interest and merchant-financing repayment terms.
- Assess whether ArcMail’s revenue, gross profit and cash collections can support operating expenses and debt service; Q1 comparisons reflect different businesses.
- Review the recoverability of $6.71 million of goodwill and the collection and contingency terms of Gotham’s remaining sale proceeds.
- Clarify the controls-section date inconsistencies and reconcile the filing’s differing references to authorized common shares (200 million on the balance sheet versus 300 million in MD&A).