Nutex Health (NUTX) - 2020 Q2 - Quarterly Report

Part I — Financial Information Financial Statements The unaudited consolidated financial statements for H1 2020 show significant changes from asset sales and subsidiary disposal, leading to net income from gains despite operating losses and a going concern warning Unaudited Condensed Consolidated Balance Sheets As of June 30, 2020, total assets increased to $7.18 million due to a $6.4 million investment in AHA, while liabilities decreased significantly to $1.41 million, boosting stockholders' equity to $5.76 million Condensed Consolidated Balance Sheet Data (as of June 30, 2020 vs. Dec 31, 2019) | Account | June 30, 2020 | Dec 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $364,994 | $1,243,352 | ▼ $878,358 | | Cash | $63,622 | $1,065,434 | ▼ $1,001,812 | | Investment in AHA | $6,402,278 | $0 | ▲ $6,402,278 | | Goodwill & Intangible assets, net | $0 | $5,007,482 | ▼ $5,007,482 | | Total Assets | $7,175,222 | $6,692,504 | ▲ $482,718 | | Total Current Liabilities | $1,064,493 | $4,610,453 | ▼ $3,545,960 | | Current portion of convertible notes payable | $0 | $2,112,060 | ▼ $2,112,060 | | Total Liabilities | $1,410,753 | $4,834,071 | ▼ $3,423,318 | | Total Stockholders' Equity | $5,764,469 | $1,858,433 | ▲ $3,906,036 | Unaudited Condensed Consolidated Statements of Operations For Q2 2020, net income reached $2.76 million, driven by a $4.86 million asset sale gain, despite operating losses widening to $1.68 million, leading to a six-month net income of $1.64 million Statement of Operations Highlights | Metric | Q2 2020 | Q2 2019 | 6 Months 2020 | 6 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Sales | $378,588 | $445,279 | $844,218 | $657,414 | | Gross Profit | $113,729 | $118,223 | $380,231 | $161,905 | | Loss from Operations | ($1,682,621) | ($1,485,642) | ($2,622,536) | ($2,411,553) | | Gain on sale of assets | $4,862,948 | $0 | $4,862,948 | $0 | | Net Income (Loss) | $2,763,247 | ($1,630,556) | $1,640,517 | ($2,598,717) | | Net Income (Loss) per Share | $0.59 | ($0.44) | $0.35 | ($0.83) | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased from $1.86 million to $5.76 million, primarily driven by a $2.76 million net income in Q2 2020, supplemented by stock-based compensation and common stock issued for services - Net income of $2.76 million for the quarter ended June 30, 2020, was the primary driver for the increase in stockholders' equity[14] - The company issued 225,820 shares of common stock for services valued at $361,312 and recognized $1,056,599 in stock option expense during the second quarter of 2020[14] Unaudited Condensed Consolidated Statements of Cash Flows For H1 2020, net cash used in operations was $1.37 million, leading to a $1.0 million decrease in cash to $63,622, despite $367,903 from financing activities Cash Flow Summary (Six Months Ended June 30) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($1,367,059) | ($1,688,597) | | Net Cash Used in Investing Activities | ($2,656) | ($61,302) | | Net Cash Provided by Financing Activities | $367,903 | $2,458,324 | | Net (Decrease) Increase in Cash | ($1,001,812) | $708,425 | | Cash - End of Period | $63,622 | $827,692 | - A significant non-cash investing activity was the receipt of a $6.4 million investment in AHA in exchange for assets sold and liabilities assumed[17] Notes to Consolidated Financial Statements The notes detail significant corporate events like the IP sale to AHA and HealthDatix disposal, highlight a going concern warning due to recurring losses, and mention COVID-19 relief loans and a CEO change - On May 29, 2020, the company sold intellectual property assets to AHA Analytics, Inc. in exchange for Series E Preferred Stock in AHA and the assumption of $3.41 million in liabilities by AHA, resulting in a reported gain on sale of $4.86 million[22][24][27] - The company sold its HealthDatix, Inc. subsidiary effective March 1, 2020, with its results now reported as discontinued operations, contributing income of $39,752 for the six-month period, including a gain on disposal[36][37] - The financial statements include a going concern warning due to an accumulated deficit of $10.9 million and a working capital deficit of $699,499 as of June 30, 2020, with the company's continuation dependent on obtaining financing and generating revenue[68] - Subsequent to the quarter end, CEO Jacob Margolin resigned effective July 11, 2020, and the company sold 190,476 restricted shares for proceeds of $120,000 in August 2020[119][121] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of asset sales and subsidiary disposal, noting Q2 2020 revenue decrease due to COVID-19, with net income driven by asset sale gains despite widening operating losses and strained liquidity, reinforcing going concern risk Results of Operations For Q2 2020, revenue decreased by 15% to $378,588 due to COVID-19, while operating loss widened to $1.68 million from higher G&A expenses, though six-month revenue increased to $844,218 Quarterly Results Comparison (Q2 2020 vs Q2 2019) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Revenue | $378,588 | $445,279 | -15.0% | | Cost of Sales | $264,859 | $327,056 | -19.0% | | G&A Expense | $1,341,701 | $1,179,503 | +13.8% | | Loss from Operations | ($1,682,621) | ($1,485,642) | +13.2% | - The decrease in Q2 2020 revenue was attributed to the loss of revenue from customers adversely affected by the Covid-19 pandemic[142] - The increase in G&A expense for Q2 2020 was primarily due to board stock-based compensation expense of $861,339[145] Liquidity and Capital Resources The company's liquidity is critical, with cash at $63,622 and a working capital deficiency, necessitating additional capital raises with no guarantee of success, reinforcing the going concern warning - As of June 30, 2020, the company had cash of $63,622 and a working capital deficiency[159] - The company's ability to continue as a going concern is dependent on raising additional capital, as noted in the financial statements[165] - The company intends to finance future operating expenses with further issuances of securities and debt, but acknowledges that additional financing may not be available on acceptable terms, or at all[164] Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required for smaller reporting companies - The company has indicated that this disclosure is not required[167] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with ongoing efforts to refine internal controls over financial reporting - Management concluded that as of June 30, 2020, disclosure controls and procedures were effective at a reasonable assurance level[169] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[170] Part II — Other Information Legal Proceedings The company is not a party to any material litigation as of June 30, 2020 - As of the period ended June 30, 2020, the Company is not a party to any material litigation[174] Risk Factors The company faces numerous significant risks, including substantial doubt about its going concern ability, dependence on financing, extensive healthcare regulations, potential data breaches, customer concentration, competition, and COVID-19 pandemic impacts - There is substantial doubt about the company's ability to continue as a going concern, as it has a working capital deficiency, a history of net losses, and is dependent on raising additional capital[176][266] - The business is subject to extensive and complex healthcare regulations (e.g., Stark Law, Anti-Kickback Act, HIPAA), and failure to comply could result in significant penalties and reputational harm[181][182][194] - The company faces risks of security breaches of its platform, which could lead to unauthorized access to sensitive patient data (PHI), resulting in liability, reputational damage, and loss of clients[202][220] - The COVID-19 pandemic has negatively impacted operations, financial condition, and demand for services by limiting access to facilities and customers, and similar unforeseen events could occur in the future[247] - The company has historically relied on a limited number of customers for a substantial portion of revenue, and the loss or renegotiation of any major contract could adversely affect results[209] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported[267] Defaults upon Senior Securities No defaults upon senior securities were reported - None reported[267] Other Information No other information was reported - None reported[267] Exhibits The report lists CEO and CFO certifications as exhibits, pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 Exhibits Filed | Exhibit No. | Description | | :--- | :--- | | 31.1 | CEO Certification (Sarbanes-Oxley Section 302) | | 31.2 | CFO Certification (Sarbanes-Oxley Section 302) | | 32.1 | CEO Certification (Sarbanes-Oxley Section 906) | | 32.2 | CFO Certification (Sarbanes-Oxley Section 906) |