Filing summary
Important issuer discrepancy: The supplied filing is iGambit Inc.’s Form 10-Q for the quarter ended March 31, 2013. It is not identified as a filing by Nutex Health Inc.; investors should verify the issuer and filing before relying on this summary.
Business context and reporting period
iGambit describes itself as a technology-focused holding company seeking acquisitions. Its sole operating subsidiary, Gotham Innovation Lab, provided media technology services to real estate agents and brokers in the New York metropolitan area. The unaudited results cover the three months ended March 31, 2013, compared with the same period in 2012. The company reported that its 2013 results are not necessarily indicative of full-year results.
Financial metrics
| Metric | Q1 2013 | Q1 2012 or prior balance-sheet date |
|---|---|---|
| Revenue | $362,821 | $480,348 |
| Cost of sales | $115,770 | $255,038 |
| Gross profit and margin | $247,051; 68.1% | $225,310; 46.9% |
| General and administrative expense | $449,665 | $496,941 |
| Operating and net loss | $(202,614) | Operating loss $(271,631); net loss $(163,535) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Cash from operating activities | $(58,310) | $(4,796), including $150,000 cash provided by discontinued operations |
| Cash and total assets at March 31 | $49,261; $670,092 | Cash $104,721; assets $745,919 at December 31, 2012 |
| Current liabilities and equity at March 31 | $567,008; $103,084 | Liabilities $440,221; equity $305,698 at December 31, 2012 |
Operating cash flow was negative despite a $130,000 deferred-income receipt reflected in the cash-flow reconciliation. Investing activities provided $2,850, principally from reduced deposits; there was no financing cash flow. Cash declined $55,460 during the quarter. Current assets were $645,390 versus current liabilities of $567,008, implying working capital of $78,382. The company reported no long-term liabilities. A related-party note payable was $6,263, bears 5.5% interest, and is due December 31, 2013.
Material changes versus Q1 2012
- Revenue fell about 24.5%. Management attributed the decrease to lower Gotham revenue and the absence of $33,844 in prior-year technical consulting fees.
- Cost of sales fell about 54.6%, primarily due to lower outsourced photography costs. Gross profit increased about 9.6%, and gross margin rose to 68.1% from 46.9%.
- General and administrative expense declined about 9.5%, mainly reflecting lower payroll and Gotham-related costs. Management said these costs should remain broadly level absent a material expansion.
- Net loss increased from $163,535 to $202,614: Q1 2012 included $6,840 of interest income and a $101,256 tax benefit, while Q1 2013 had neither. The 2013 tax rate was 0% because a full valuation allowance had been established against deferred tax assets.
- Cash used in operating activities increased from $4,796 to $58,310; the prior-year comparison included $150,000 of discontinued-operation cash receipts.
Outlook, risks, contingencies, and unusual items
- Liquidity and funding: Management said available capital was sufficient for current operations and expected cash and liquidity to increase, but also anticipated seeking private-market capital for expansion or acquisitions. It cautioned there was no assurance of obtaining funding on acceptable terms and had no plan for a commercial bank credit facility.
- IGX rescission: An acquisition agreement for IGX Global and IGX Global UK was rescinded on April 8, 2013. The original proposed consideration included $500,000 cash, a $1 million note, assumption of certain liabilities up to $2.5 million, and up to 3.75 million shares subject to targets. Under the rescission, iGambit received $130,000 before the effective date, an additional $275,000 on the effective date, and was to receive $350,000 in equal monthly installments over 18 months. The acquisition was not reflected in the quarter’s financial statements; the $130,000 was recorded as deferred income at March 31.
- Digi-Data dispute: iGambit was pursuing unpaid contingency payments. The filing reports a $570,590 claim, less a $250,000 allowance, corresponding to $320,590 of discontinued-operation assets on the balance sheet. Digi-Data asserted a counterclaim for alleged indemnification obligations and later alleged set-off damages; the amounts and ultimate outcome remained uncertain. The company had filed for summary judgment. The related Verizon patent litigation was dismissed with prejudice in April 2013.
- Financial-advisor fee: BHC asserted entitlement to a $300,000 minimum fee related to the IGX transaction. iGambit disputed that the fee was earned because the transaction was rescinded. Management believed resolution would not materially adversely affect the company, but the outcome was not determinable.
- Customer concentration: Two customers accounted for approximately 44% and 17% of Q1 2013 sales; they represented approximately 41% and 3% of accounts receivable, respectively.
- Other: The company had $74,310 of future minimum lease payments disclosed for 2013–2017. Management identified quarterly-result fluctuations, regulation, technology change, and competition as risks. No quantitative market-risk disclosure was required, and the filing reported no material change in internal controls.
Most important facts for investors to verify
- Confirm the filing’s issuer: this document is for iGambit Inc., not Nutex Health Inc.
- Assess the recoverability and timing of the $320,590 net discontinued-operation receivable and the outcome of the Digi-Data claim and counterclaim.
- Verify receipt and accounting for the IGX rescission payments, including the $350,000 installment obligation, and monitor the disputed BHC fee.
- Evaluate liquidity and funding needs against the $49,261 quarter-end cash balance, negative operating cash flow, and management’s expansion and acquisition plans.
- Consider dependence on a small number of customers and the full valuation allowance against deferred tax assets.