iGambit Inc. Form 10-Q Summary
Issuer identification: The filing is for iGambit Inc., not Nutex Health Inc. The supplied filing reports the quarter ended June 30, 2013, and was signed August 15, 2013.
Business context and reporting period
iGambit describes itself as a technology-focused holding company seeking acquisitions. Its operating subsidiary, Gotham Innovation Lab, provides media technology services to real estate brokers in the New York metropolitan area. The filing presents unaudited results for the three and six months ended June 30, 2013, compared with the same 2012 periods.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $411,719 | $429,168 | $774,540 | $909,516 |
| Gross profit | $262,111 | $206,595 | $509,162 | $431,905 |
| Gross margin | 63.7% | 48.1% | 65.7% | 47.5% |
| General and administrative expenses | $428,261 | $433,294 | $877,926 | $930,235 |
| Operating income (loss) | $(166,150) | $(226,699) | $(368,764) | $(498,330) |
| Net income (loss) | $588,850 | $(137,601) | $386,236 | $(301,136) |
| Basic and diluted EPS | $0.02 | $(0.01) | $0.02 | $(0.01) |
Gross margins are calculated from the reported revenue and cost of sales. 2013 net income includes $755,000 of income from the rescission of the IGX acquisition agreement; without that item, the company continued to report operating losses.
- Cash flow: Six-month cash used by continuing operating activities was $5,551, versus $224,508 used in 2012. Total operating cash flow was also affected by discontinued operations: the filing reports $492 provided in 2012, including $225,000 from discontinued operations. Investing activities provided $2,850 in 2013, compared with $433,795 in 2012, largely reflecting Allied Airbus note collections in 2012. Cash decreased by $2,701 to $102,020.
- Liquidity and balance sheet: At June 30, 2013, cash was $102,020, current assets were $1,067,532, current liabilities were $398,627, and total assets were $1,090,561. Working capital was approximately $668,905. Stockholders’ equity was $691,934.
- Debt: Current liabilities included $392,364 of accounts payable and a $6,263 related-party note. The company reported no long-term liabilities. The note bears 5.5% interest and was due December 31, 2013.
- Other balance-sheet items: Current assets included $331,000 due under the IGX rescission agreement and $320,590 of net assets from discontinued operations. The latter relates to a disputed receivable from Digi-Data and is reported net of a $250,000 bad-debt allowance.
Material changes versus the prior comparable period
- Six-month revenue fell 14.8% year over year; second-quarter revenue declined 4.1%. Management attributed the decreases to lower Gotham revenue.
- Gross profit rose in both comparison periods as cost of sales declined, which management attributed to lower costs from outsourced photography vendors.
- G&A expense decreased about 5.6% for the six-month period, mainly from lower rent and corporate administrative costs; legal and accounting fees increased.
- Reported net results swung to profit primarily because of the $755,000 IGX rescission income. The filing does not show a return to operating profitability.
- Total assets rose from $745,919 at December 31, 2012, mainly due to receivables and the IGX rescission receivable. Liabilities declined from $440,221, primarily due to lower accounts payable.
Outlook, risks, contingencies, and unusual items
- Outlook and funding: Management said it believed existing capital was sufficient for present operations and expected liquidity to increase, while noting that business expansion or acquisitions could require additional capital. It anticipated private-market fundraising if needed, with no assurance financing would be available on acceptable terms; it had no current plan for a bank credit facility. No numerical earnings or revenue guidance was provided.
- IGX rescission: The April 2013 agreement unwound the planned acquisition of IGX Global and IGX Global UK. iGambit recognized $755,000 as other income and reported $331,000 still due at June 30, 2013, payable in monthly installments over 18 months.
- Digi-Data litigation: iGambit sought unpaid contingency payments of $570,590, before the $250,000 allowance, and requested summary judgment. Digi-Data asserted a counterclaim and alleged set-off damages, some not quantified in the filing. The related Verizon patent litigation was dismissed with prejudice. The outcome of the iGambit-Digi-Data dispute remained unresolved.
- Financial-advisor claim: Brooks, Houghton & Company asserted entitlement to a $300,000 minimum fee tied to the rescinded IGX transaction. iGambit disputed that the fee was earned; management said resolution was not expected to have a material adverse effect, but the outcome was undetermined.
- Concentration risk: Two customers accounted for approximately 44% and 21% of Gotham’s six-month 2013 sales and 46% and 17% of its receivables at June 30, 2013.
- Controls and filing caveat: Management concluded disclosure controls were effective and reported no material change in internal control. The controls discussion contains a date inconsistency: it refers to an evaluation as of June 30, 2012, but states the conclusion was effective as of June 30, 2013.
Most important facts for investors to verify
- Confirm issuer identity: this source is an iGambit Inc. filing, not a Nutex Health Inc. filing.
- Assess the collectability and timing of the $331,000 IGX receivable and the separate disputed Digi-Data receivable, including the allowance and litigation status.
- Separate recurring operating performance from the $755,000 one-time rescission income; review the company’s ability to sustain revenue and improve operating results.
- Evaluate customer concentration, low cash on hand, potential acquisition funding needs, and the availability and terms of any private financing.
- Check the status and potential financial exposure from the Digi-Data counterclaim and the disputed financial-advisor fee.