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EX-14 - CODE OF BUSINESS CONDUCT AND ETHICS - iGambit, Inc.exhit14.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION - iGambit, Inc.exhibit_311.htm
EX-32.1 - 18 U.S.C. SECTION 1350 - iGambit, Inc.exhibit_321.htm
EX-31.2 - CHIEF FINANCIAL OFFICER CERTIFICATION - iGambit, Inc.exhibit_312.htm
EX-32.2 - 18 U.S.C. SECTION 1350 - iGambit, Inc.exhibit_322.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Amendment No. 1
to
Form 10-K
     
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2009
 
 
OR
 
     
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-53862
 
iGAMBIT, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
 
11-3363609
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
1600 Calebs Path Extension, Suite 114
Hauppauge, New York 11788
(Address of principal executive offices)
     
(631) 780-7055
   
(Registrant’s telephone number)
 
(Registrant’s former telephone number)
 
 
Securities registered under Section 12(b) of the Exchange Act:
     
Title of Each Class: NONE
 
Name of Each Exchange on Which Registered:
 
 
Securities registered pursuant to Section 12(g) of the Act: Common Stock
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o     No þ
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
             
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company þ
       
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the act): Yes o     No þ
 
There is not currently a market for the Registrant’s common stock.
 
As of May 31, 2010, there were 23,954,056 shares of the Registrant’s $0.001 par value common stock outstanding.
 
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE: None
 
 
 
 
 
 
 
 
 
 

 

iGAMBIT, INC.
 
 
FORM 10-K — FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
             
         
Page No.
 
PART I
  
 
         
  
 
Item 1
 
Business
  1
 
Item 1A
 
Risk Factors
  5
 
Item 1B
 
Unresolved Staff Comments
  5
 
Item 2
 
Properties
  5
 
Item 3
 
Legal Proceedings
  5
 
Item 4
 
(Removed and Reserved)
  5
 
             
PART II
   
             
Item 5
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  5
 
Item 6
 
Selected Financial Data
 6
 
Item 7
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
6
 
Item 7A
 
Quantitative and Qualitative Disclosure About Market Risk
 8
 
Item 8
 
Financial Statements and Supplementary Data
 8
 
Item 9
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 8
 
Item 9A
 
Controls and Procedures
 9
 
Item 9B
 
Other Information
 9
 
             
PART III
   
             
Item 10
 
Directors, Executive Officers and Corporate Governance
 9
 
Item 11
 
Executive Compensation
 10
 
Item 12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 11
 
Item 13
 
Certain Relationships and Related Transactions, and Director Independence
 12
 
Item 14
 
Principal Accountant Fees and Services
 12
 
             
PART IV
   
             
Item 15
 
Exhibits and Financial Statement Schedules
 13
 
 EX – 14
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
     
This annual report on Form 10-K is for the year ended December 31, 2009. The Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this annual report. In addition, information that we file with the SEC in the future will automatically update and supersede information contained in this annual report. In this annual report, “Company,” “we,” “us” and “our” refer to iGambit, Inc. and its subsidiaries.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

 

PART I
     This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company has based these forward-looking statements on the Company’s current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us and the Company’s subsidiaries that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and other similar words. However, the absence of these words does not mean that the statements are not forward-looking. Factors that might cause or contribute to a material difference include, but are not limited to, those discussed elsewhere in this Annual Report, including the section entitled “Risk Factors” and the risks discussed in the Company’s other Securities and Exchange Commission filings. The following discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and related Notes thereto included elsewhere in this report.
     
ITEM 1.
 
BUSINESS
HISTORY

     We were incorporated in the State of Delaware under the name BigVault.com Inc. on April 13, 2000. On April 18, 2000, we merged with BigVault.com, Inc., a New York corporation with which we were affiliated. We survived the merger, and on December 21, 2000 changed our name to bigVAULT Storage Technologies, Inc. At that time we were in the business of providing remote, internet-based storage vaulting services and related ancillary services to end users and resellers (the “Vault Business”).

     On February 28, 2006 we sold all of our assets to Digi-Data Corporation (“DDC”), an unrelated third party, pursuant to the terms of an Asset Purchase Agreement dated December 21, 2005 (the “APA”), a copy of which is filed herewith as an exhibit. As consideration for our transfer of assets under the APA, DDC paid certain of our liabilities and agreed to make certain quarterly and annual revenue sharing payments to us, as is further described below. Mr. Salerno and Ms. Luqman accepted employment with DDC in senior management positions post closing, and continued to work for DDC until February 2009. As of March 1, 2009 Mr. Salerno and Ms. Luqman returned to their full time management roles with the Company.

     On April 5, 2006, we changed our name to iGambit, Inc.

     On October 1, 2009, we acquired the assets of Jekyll Island Ventures, Inc., a New York corporation doing business as Gotham Photo Company (“Jekyll”) through our wholly owned subsidiary Gotham Innovation Lab, Inc., a New York corporation (“Gotham”). Pursuant to the terms of the Asset Purchase Agreement and Plan of Reorganization (“APAPR”), we (i) issued 500,000 shares of our common stock to Jekyll at closing; (ii) assumed $10,410.59 of Jekyll accounts payable relating to office rent and health insurance premiums; and (iii) issued Jekyll warrants to purchase 1,500,000 shares of our common stock, at $0.01 per share, subject to a 3 year vesting schedule and the attainment by Gotham of certain revenue targets during said 3 year period.
  
   On December 2, 2009, we amended our Certificate of Incorporation increasing our authorized shares of common stock to 75 million shares.

OUR COMPANY

Introduction
   
  We are a company focused on the technology markets. Presently we have one operating subsidiary in the business of providing media technology services to the real estate industry. At this point we have limited revenues consisting solely of revenues from the operation of our Gotham subsidiary ($411,249 during the six months ended June 30, 2010) and the receipt of Quarterly Revenue Share Payments and Annual Increase Payments from DDC.  Payments earned from DDC total $1,446,014 during the year ended December 31, 2009, and $1,008,733 during the six months ended June 30, 2010 ($536,349 of which is anticipated to be paid in September 2010).
  
   Our primary focus is the acquisition of additional technology companies. We believe that the background of our management and of our Board of Directors in the technology markets is a valuable resource that makes us a desirable business partner to the companies that we are seeking to acquire. When we acquire a company, we work to assume an active role in the development and growth of the company, providing both strategic guidance and operational support. We provide strategic guidance to our partner companies relating to, among other things, market positioning, business model and product development, strategic capital expenditures, mergers and acquisitions and exit opportunities. Additionally, we provide operational support to help our partner companies manage day-to-day business and operational issues and implement best practices in the areas of finance, sales and marketing, business development, human resources and legal services. Once a company joins our partner company network, our collective expertise is leveraged to help position that company to produce high-margin, recurring and predictable earnings and generate long-term value for our stockholders.

Our current intention is to fund the purchase price of acquisitions through a combination of the issuance of our common stock at closing and the issuance of common stock purchase warrants that would become exercisable only in the event certain earn-out conditions are satisfied by the acquired company. In addition to acquiring entire companies, we would also consider entering into joint ventures and acquiring less than 100 percent of a target company.

Our Strategy to Grow the Company

General

We have an overall corporate business plan as a holding company to seek out and acquire operating companies.  Phase one of our strategy is near completion. We have established new corporate headquarters and a website, expanded our board to include 3 outside independent directors, set up quarterly board meetings, engaged a sophisticated full service law firm, engaged an PCOAB auditing firm, engaged an investment banking firm as advisors to assist in the analysis of target acquisitions, and become an SEC reporting company.  In addition, we have identified and acquired our first target company, Jekyll Island Ventures Inc., as a result of a 10 year relationship with Jekyll’s management. While completing phase one of our strategy we are working on a daily basis towards phase two of our strategy, identifying further acquisitions.

Sources of Target Businesses
  
   We anticipate that target business candidates will be brought to our attention from various sources, including our management team, investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds, consulting firms and other members of the financial community who will become aware that we are seeking business partners via public relations and marketing efforts, direct contact by management or other similar efforts, who may present solicited or unsolicited proposals. Any finder or broker would only be paid a fee upon the completion of a business combination. While we do not presently anticipate engaging the services of professional firms that specialize in acquisitions on any formal basis, we may decide to engage such firms in the future or we may be approached on an unsolicited basis. Our officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts. While our officers and directors make no commitment as to the amount of time they will spend trying to identify or investigate potential target businesses, they believe that the various relationships they have developed over their careers together with their direct inquiry, will generate a number of potential target businesses that will warrant further investigation. In no event will we pay any of our existing officers, directors, special advisors or stockholders or any entity with which they are affiliated any finder’s fee or other compensation for services rendered to us prior to or in connection with the completion of a business combination. In addition, none of our officers, directors, special advisors or existing stockholders will receive any finder’s fee, consulting fees or any similar fees from any person or entity in connection with any business combination involving us other than any compensation or fees that may be received for any services provided following such business combination.
 
1

 

Selecting Acquisition Targets

     Our management has virtually unrestricted flexibility in identifying prospective target business and diligently reviews all of the proposals we receive.
 
 
 The criteria we look for in a potential acquisition include the following:

Company Characteristics

·  
Established Company with proven track record
 
o  
Company with history of strong operating and financial performance, or
 
o  
Company undergoing a turnaround that demonstrates strong prospects for future growth
 
·  
Strong Cash Flow Characteristics.
 
o  
Cash flow neutral or positive,
 
o  
Predictable recurring revenue stream,
 
o  
High gross margins over 60%, and
 
o  
Low working capital and capital expenditure needs
 
·  
Strong Competitive Industry Position
 
o  
Leading or niche market position, and/or
 
o  
Strong channel relationships that promote barriers to entry
 
·  
Strong Management Team
 
o  
Experienced, proven track record in delivering  revenue and ability to execute, or
 
o  
A management team that can be complemented  with our contacts and team
 
·  
Diversified Customer and Supplier base
 
·  
Proprietary products or marketing position
 
Industry Characteristics

·  
Non-cyclical
 
·  
Services Consumer or niche market
 
·  
Fragmented with potential for consolidation or growth
 
·  
Emerging markets
 
Industries of Interest
·  
Real Estate Services
 
·  
Hospitality Services
 
·  
Health and Medical records management and billing systems
 
·  
Internet
 
o  
Social Networks
 
o  
Media Distribution
 
·  
User Experience
 
o  
Online
 
o  
Handheld devices
 
o  
Voice interaction
 
 
 
 
 
 
 
 
2

 
 
Investment Criteria

·  
Sales Volumes: $500 thousand to $30 million
 
·  
Cash Flow: Neutral or positive
 
·  
Structure: Controlled ownership. Closely held private company
 
·  
Geography: North America,  Asia
 
·  
Investment size: $1 million to $5 Million
 
·  
Involvement: Board oversight
 
·  
Controlling Interest: Acquire 100% of controlling interest in target
 
·  
Marketing:
 
o  
Target captures a particular segment of the market
 
o  
Target has a focused strategic marketing plan.
 
     These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business objective.

Diligence Process

           Upon receipt of a business plan, the procedure is for management to review the business plan and determine if it satisfies the Company’s acquisition criteria, and whether the business plan should be rejected or pursued further. If the plan satisfies the requirements, then Management meets with the target’s management to determine if there is a synergy that can work and to explore the business plan in greater detail. Generally this occurs over several meetings and can take some time. Depending on the nature of the business, management may enlist certain technical of industry consultants to meet with the target and provide feedback and analysis. Management will also review the target’s financials.  If the analysis suggests the target should be explored further Management will present the opportunity to the BOD for approval to pursue the opportunity further. One or two outside directors may meet with the target to make an independent assessment. If the opportunity is approved for further exploration management will discuss potential purchase structure with target’s management to be sure that a meeting of the minds exists for a potential deal.   At this point management will request that our investment banking advisors give their opinion of the industry, the market and potential financing options of the deal. Often, the investment bankers will meet with target’s management.  The investment banker’s feedback is presented to the board and, if positive, the Board analyzes the proposed financing structure, discusses effects of a transaction on the Company as they relate to taxes, capitalization, stock value etc., engaging the necessary outside consultants. If all appears positive a letter of intent is negotiated and executed, additional diligence is conducted, and definitive transaction documents are negotiated and executed.

Evaluation of the Target’s Management

     We would condition any acquisition on the commitment of management of the target business to remain in place post closing. Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that any such additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of the target business’s management will prove to be correct.

Competition

     In identifying, evaluating and selecting a target business, we may encounter intense competition from other entities having a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors, which may limit our ability to compete in acquiring certain target businesses. This inherent competitive limitation gives others an advantage in pursuing the acquisition of a target business.

Companies Currently Under Review

     We are constantly in the process of reviewing potential target companies.  Currently, we are not under contract to acquire any companies, but we are actively engaged in discussions with four potential acquisition candidates.

Our Partner Company — Gotham Photo Company

     Products and Services

     Gotham’s business is directed at providing media technology services to the real estate community. The range of media services includes the exclusive Gotham EXPO Full Screen Experience. Gotham also provides website development services, sales office technology and data interchange services for many of the real estate firms in New York City.

     When it comes to selling real estate every broker or seller listing has to have pictures. Utilizing the latest technology Gotham’s EXPO product provides a full screen listing experience. It allows brokers and sellers to present their listing in the largest format possible while giving the viewer control of the show. EXPO integrates images, photos, floor plans, agent and key listing details in an engaging format that immerses the viewer. Currently, Gotham is capable of integrating up to 16 images into a full screen presentation for any listing.

     EXPO is available for all NYC realtors and will be made available nationwide within the coming months. Currently, approximately 19% of our clients utilize EXPO, of which 24% do so on a per unit basis, 48% do so as an add-on to photography services, and 28% do so on a subscription basis.

All systems are built on accessible web platforms that integrate quickly and seamlessly into the agent’s workflow. EXPO is available on a per unit basis, as an add-on to photography services, or on a subscription basis. We price the product on a per-unit basis at $50 per unit, and offer subscription rates ranging from $400 per month to $2500 per month depending on the average yearly listing volume of the subscriber. EXPO was a key factor in our securing of a semi-exclusive media services agreement with Prudential Douglas Elliman.

     In addition to natural expansion into the areas surrounding NYC, Gotham is actively working to expand by further providing services to large accounts that exist in both Manhattan and targeted secondary markets, and through the selective hiring of one-off service providers who are currently operating in other markets.
 
 
3

     Competitive Comparison

     Gotham competes with others in the industry by focusing on user interaction, technology and delivery. Gotham maintains strict standards of photography and a roster of accomplished photographers who we engage in between their premium assignments such as fashion shoots, architectural projects, etc.

     In addition to superior media, in the opinion of management, Gotham’s technology tools set us apart from our competition. For example, our expo product offering utilizes the pre-generation of a multitude of media sets to deliver images sized perfectly for the users screen, wasting no bandwidth or file size, thereby enabling us to maintain the speed and efficiency of the product at an optimal level. In the opinion of management, a majority of our competitors either don’t seem to employ similar measures in their full screen product offerings or do so, on a more limited basis.

     Future Products and Services

     Future offerings will include enhanced products that focus on social media interaction, mobile applications and tools for realtors, as well as multi touch augmented reality technologies for presentations, etc. Gotham will continue to expand its media offerings, integrating with and adopting technologies as they become available.

     Customers

     Gotham’s currently has less than 996 client accounts, including accounts ranging from single agent accounts to large “master accounts” with large firms such as Prudential Douglas Elliman and Halstead. Taking these and other master accounts into consideration, Gotham does business with over 3,000 New York City real estate agents.   The following five customers constituted approximately 61% of the Company’s sales over the first six months of 2010:  EGR International, Inc. – 17% of sales; Cambridge Who’s Who – approximately 16% of sales; Prudential Douglas Elliman Real Estate, LLC – approximately 15% of sales; Halstead Property Development Marketing LLC – approximately 7% of sales; and Christies Great Estates, Inc. – approximately 6% of sales.  The loss of any of the foregoing client accounts could have a material adverse affect on the company’s financial condition.

     Expansion Strategy and Implementation Summary

     Gotham’s objective is to be a market leader in offering EXPO, Virtual Tours, and e-Brochures, type services to the real estate industry. Gotham is currently providing services to a number of realtors and brokers in the New York Metropolitan area including, but not limited to, Prudential Douglas Elliman (“PDE”), Corcoran and others. We plan to increase our marketing and client base in the NYC area and expand to other major cities and markets such as Boston, Philadelphia, Washington DC, Chicago, etc. Within 3 years we expect to be offering our services to over 250 US metropolitan statistical areas.

    Management meets with Gotham’s management on a bi-weekly basis and has refocused Gotham’s business model towards a recurring revenue model. The strategy is multi-fold. First to leverage the subsidiary’s strong development reputation in the New York real estate market by expanding its client base, thus creating a stronger niche in this market. This involves some transition away from non-real estate development activities. Management is assisting Gotham in its transition by creating budgets, helping to reassign personnel, and aiding in the creation of targeted marketing material.   Second to the strategy, is to complete the next version EXPO product which includes the EXPO Media Manager system. Gotham is working in partnership with PDE in the design and implementation of the launce of this new version.  Management is assisting in the launch planning process and often attends meeting with PDE and Gotham’s management.  Upon the successful launch of the PDE Expo Media Management system the third phase of the strategy is to expand and offer the EXPO Media Manage system to the other PDE offices through New York State and other real estate firms.   Management has already set up and participated in meetings with Gotham at Prudential Westchester, PDE in the Hamptons, New York, and Coach Realty.  The fourth phase after successful penetration throughout New York State is to identify other US cities’ real estate markets to target.  Management has been evaluating the various markets and has had discussions with Condo-Domain and Fore3. In addition, when analyzing other acquisitions we take into consideration companies that can complement the subsidiary’s products and services or expedite the expansion into other cities.
 
     Simultaneous to the EXPO strategy, management has assisted in successfully negotiating a revenue share agreement for Gotham with RealPlus LLC for All Access NYC (AANYC). All Access NYC is a "Virtual Office Website", or VOW.  A VOW allows real estate firms to market listings that are represented exclusively by other real estate companies within a given geographic or listing system controlled area. This is all done within the brand of the VOW real estate firm, allowing the firm to better service buyers by showing them ALL listings in one place, as opposed to the current model in NYC, which has buyers reaching out to un-regulated 3rd parties (street easy, NY Times, craigslist), and waiting on antiquated forms of listing delivery. NYC has a need for VOW services since there is no MLS service in Manhattan.  Currently, no REBNY controlled firm has the right to display or advertise another firm’s listings, leaving buyers in a place where they have to fend for themselves on unregulated sites, or wait on the agents they are dealing with to delivery listings to them. The partnership with RealPlus LLC is significant because RealPlus LLC is one of only a handful of companies in NYC pulling and centralizing the listing data from the various agents in NYC.  RealPlus provides the listing data and Access to clients.
 
DDC Revenue Share Payments and Annual Increase Payments

In connection with the sale of our assets to DDC in February 2006, DDC agreed to make certain ongoing payments to us, which payments have constituted a material amount of our revenues over the last several periods.  Specifically, DDC agreed to make quarterly payments to us, for a period of 5 years, in the amount equal to 10% of the Vault Net Revenues received by DDC through its operation of the Vault Business (the “Quarterly Revenue Share Payments”). “Vault Net Revenues” is defined in the APA as the gross revenue of DDC actually received by DDC that is solely and directly attributable to the Vault Business, to the extent that such revenue is derived from the provision of vault services and/or vault appliances which use the Big Vault core technology, less the sum of (i) any discount given by DDC in compensation for early payment, (ii) returns, allowances, quantity discounts and credits, (iii) any accounting reserve amount, as determined in accordance with GAAP, and (iv) shipping and mailing costs, duties, taxes and insurance. In addition, DDC agreed to make an annual payment to us after the 2nd, 3rd, 4th, and 5th anniversaries of the closing of the transaction, in an amount equal to 5% of any increase in the annual Vault Net Revenue over the immediately prior year’s Vault Net Revenue (the “Annual Increase Payments”, and together with the Quarterly Revenue Share Payments the “Revenue Share Payments”). A schedule of the Quarterly Revenue Share Payments and Annual Increase Payments received to date is set forth below. The final Annual Increase Payment and the final Quarterly Revenue Share Payment are each due on or before May 31, 2011.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4

 

             
Period Covered
 
Amount
 
Date Received
March 1, 2006 - December 31, 2006 Quarterly Revenue Share Payment
 
$
18,576.42
   
2/14/2007
1st Quarter 2007 Quarterly Revenue Share Payment
 
$
20,085.64
   
7/18/2007
2nd Quarter 2007 Quarterly Revenue Share Payment
 
$
54,429.29
   
9/18/2007
3rd Quarter 2007 Quarterly Revenue Share Payment
 
$
81,761.49
   
12/17/2007
4th Quarter 2007 Quarterly Revenue Share Payment
 
$
112,343.36
   
2/22/2008
1st Quarter 2008 Quarterly Revenue Share Payment
 
$
142,403.25
   
5/1/2008
March 2007 — February 2008 Annual Increase Payment
 
$
159,190.30
   
5/1/2008
2nd Quarter 2008 Quarterly Revenue Share Payment
 
$
143,815.13
   
8/9/2008
3rd Quarter 2008 Quarterly Revenue Share Payment
 
$
168,844.36
   
11/10/2008
4th Quarter 2008 Quarterly Revenue Share Payment
 
$
246,005.85
   
3/10/2009
1st Quarter 2009 Quarterly Revenue Share Payment
 
$
286,976.65
   
6/30/2009
March 2008 — February 2009 Annual Increase Payment
 
$
222,322.00
   
6/30/2009
2nd Quarter 2009 Quarterly Revenue Share Payment
 
$
325,514.21
   
9/25/2009
3rd Quarter 2009 Quarterly Revenue Share Payment
 
$
365,194.95
   
12/24/2009
4th Quarter 2009 Quarterly Revenue Share Payment
 
$
414,851.58
   
2/28/2010
1st Quarter 2010 Quarterly Revenue Share Payment
 
$
472,384
   
5/26/2010
March 2009 — February 2010 Annual Increase Payment
 
$
362,202
   
*
2nd Quarter 2010 Quarterly Revenue Share Payment
 
$
536,349
   
Anticipated in September 2010
             
   
$
4,133,249.20
     
             

*  $180,000 paid on 6/21/2010, and $182,202 paid on 7/26/2010.
 
 
    Since the sale to DDC, our management has worked to increase the Quarterly Revenue Share Payments and has actively sought to leverage its business experience and knowledge through other opportunities in the technology market. Management engages in monthly status updates with DDC to ensure that online business operations are running smoothly and to guarantee the continuity of the Quarterly Revenue Share Payments.  Management has leveraged its contacts at certain high profile target prospects, such as Cablevision Systems, AARP, USAA, Comcast and others, in an effort to encourage them to utilize DDC’s online business and to offer it to their customers. In large part as a result of the foregoing efforts, Cablevision is a contracted online customer of DDC and others continue their analysis of the opportunity.

Employees
     We presently have 9 total employees, all of which are full-time.

SEC FILINGS
     We are classified as a “Smaller Reporting Company” for the purpose of filings with the Securities and Exchange Commission. Certain Form 10-K report disclosures previously included that are not required under the disclosure requirements of a smaller reporting company have been omitted in this report.
     Interested parties may access our public filing free of charge on the SEC’s EDGAR website located at www.sec.gov.
OUR CORPORATE INFORMATION
     Our principal offices are located at 1600 Calebs Path Extension, Suite 114, Hauppauge, New York, 11788. Our telephone number is (631) 780-7055 and our fax number is (631) 656-1055. We currently operate two corporate websites that can be found at www.igambit.com and www.gothamphotocompany.com (the information on the foregoing websites does not form a part of this report).
     
ITEM 1A.
 
RISK FACTORS
     Not Required.
     
ITEM 1B.
 
UNRESOLVED STAFF COMMENTS
     Not Required.
     
ITEM 2.
 
PROPERTIES
     Our principal executive office is located in Hauppauge, New York, in an executive center, where we lease approximately 300 square feet of office space. Monthly lease payments are approximately $2,600 and the lease term is month to month.
     Our Gotham operations are located in New York, New York, where we lease approximately 3,000 square feet of office space. Monthly lease payments are approximately $5,000 and the lease term expires October 31, 2010.
     Our leased properties are suitable for their respective uses and are, in general, adequate for our present needs. Our properties are subject to various federal, state, and local statutes and ordinances regulating their operations. Management does not believe that compliance with such statutes and ordinances will materially affect our business, financial condition, or results of operations.
     
ITEM 3.
 
LEGAL PROCEEDINGS
     None.
     
ITEM 4.
 
(REMOVED AND RESERVED)
PART II
     
ITEM 5.
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
     To date there has not been an established public trading market in the Company’s common stock. The Company’s securities are not listed on any exchange or over the counter market. The Company does not have a ticker symbol.
HOLDERS
     As of August 15, 2010, there are 23,954,056 shares of our common stock outstanding, held of record by 149 persons. We have 2,335,000 common stock warrants outstanding, and 2,468,900 common stock options outstanding.
     As of August 15, 2010, approximately 21,737,018 shares of our common stock are eligible to be sold under Rule 144.
DIVIDENDS
     We have never declared or paid any dividends on our common stock. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will be dependent upon our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by the Board of Directors. The Board of Directors is not expected to declare dividends or make any other distributions in the foreseeable future, but instead intends to retain earnings, if any, for use in business operations.
 
 
 
 
5

 
EQUITY COMPENSATION PLAN INFORMATION
     We currently have one equity compensation plan outstanding which is our 2006 Long Term Incentive Plan. The Plan was adopted by our directors and approved by our stockholders on March 26, 2006. The Plan permits the award of incentive stock options, non-qualified stock options, stock appreciation rights, and stock grants. We have reserved 10 million shares for issuance under the Plan, plus an annual increase equal to 10% of the number of outstanding shares of our common stock on the first day of each year, but in no event more than 15 million shares of common stock in the aggregate. As of December 31, 2009, there were 4,798,708 shares available for issuance under the Plan.
     In addition to our 2006 Long Term Incentive Plan, we have issued and outstanding compensatory warrants to three consultants entitling the holders to purchase a total of 2,310,000 shares of our common stock at an average exercise price of $0.75 per share. Warrants to purchase 60,000 shares of common stock vested upon issuance, have an exercise price of $0.01 per share, and expire December 31, 2010. Warrants to purchase 2,000,000 shares of common stock vest in four equal installments on the date of issuance (May 26, 2009) and on each of the following three anniversaries of the date of issuance, have exercise prices ranging from $0.50 per share to $1.15 per share, and expire on May 26, 2019. Warrants to purchase 250,000 shares of common stock vest 100,000 shares on issuance (June 1, 2009), and 50,000 shares on each of the following three anniversaries of the date of issuance, have exercise prices ranging from $0.50 per share to $1.15 per share, and expire on June 1, 2019. The issuance of the compensatory warrants was not submitted to our shareholders for their approval.
     The following table describes our equity compensation plans as of December 31, 2009:
                         
                   
Number of Securities
 
                   
Remaining Available
 
                   
for Future Issuance
 
   
Number of Securities
           
under Equity
 
   
to be Issued Upon
   
Weighted Average
   
Compensation Plans
 
   
Exercise of
   
Exercise Price of
   
(excluding securities
 
   
Outstanding Options,
   
Outstanding Options,
   
referenced in
 
   
Warrants and Rights
   
Warrants and Rights
   
column (a))
 
Plan Category
 
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by our stockholders (1)
   
1,796,900
   
$
0.01
     
4,798,708
 
                         
Equity compensation plans not approved by our stockholders
   
2,310,000
   
$
0.75
     
0
 
 
     
(1)
 
Equity compensation plans approved by our stockholders consist of our 2006 Long Term Incentive Plan.
RECENT SALES OF UNREGISTERED SECURITIES
     In August 2009, we issued a total of 735,000 shares of our common stock to Mehul Mehta, Marian Rasa, Muhammad Luqman, Troy Thomas, Zui Zhi Zhang and Guy Sayers, upon their exercise of outstanding common stock purchase options. The options were exercised under a cashless exercise provision contained therein. The foregoing securities were issued in reliance on Section 4(2) of the Securities Act, and were restricted when issued.

     On May 26, 2009, we issued warrants to purchase 2,000,000 shares of our common stock to Newbridge Securities pursuant to the terms of a consulting agreement between the Company and Newbridge. 500,000 warrants, at an exercise price of $0.50 per share, vested upon issuance; 500,000 warrants, at an exercise price of $0.65 per share, vest on the 1 year anniversary of issuance; 500,000 warrants, at an exercise price of $0.80 per share, vest on the 2 year anniversary of issuance; and 500,000 warrants, at an exercise price of $1.15 per share, vest on the 3 year anniversary of issuance.  The Company determined the fair value of the warrants at issuance to be $0.09 per warrant, based on the Black-Scholes pricing model. The securities were issued in reliance on Section 4(2) of the Securities Act. The issued securities are restricted, and the agreements representing the securities contain a standard restrictive legend.

     On June 1, 2009, we issued warrants to purchase 250,000 shares of our common stock to Roetzel & Andress pursuant to the terms of an engagement letter between the Company and Roetzel. 100,000 warrants, at an exercise price of $0.50 per share, vested upon issuance; 50,000 warrants, at an exercise price of $0.65 per share, vest on the 1 year anniversary of issuance; 50,000 warrants, at an exercise price of $0.85 per share, vest on the 2 year anniversary of issuance; and 50,000 warrants, at an exercise price of $1.15 per share, vest on the 3 year anniversary of issuance. The Company determined the fair value of the warrants at issuance to be $0.09 per warrant, based on the Black-Scholes pricing model. The securities were issued in reliance on Section 4(2) of the Securities Act. The issued securities are restricted, and the agreements representing the securities contain a standard restrictive legend.

     On October 1, 2009, we issued 500,000 shares of our common stock and options to purchase 1,500,000 shares of our common stock, at $0.01 per share, to Jekyll in connection with our acquisition of the assets of Jekyll. The Company determined the fair value of the options at issuance to be $0.09 per share, based on the Black-Scholes pricing model. The securities were issued in reliance on Section 4(2) of the Securities Act. The issued securities are restricted, and the certificates representing the shares contain a standard restrictive legend.

     
ITEM 6.
 
SELECTED FINANCIAL DATA
     Not Required
     
ITEM 7.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING ESTIMATES

     Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements may require us to make estimates and assumptions that may affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements. We do not currently have any estimates or assumptions where the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change or the impact of the estimates and assumptions on financial condition or operating performance is material, except as described below.

Fair Value of Financial Instruments

     For certain of the our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and amounts due to related parties, the carrying amounts approximate fair value due to their short maturities.
Revenue Recognition

     Contingency payment income is recognized quarterly from a percentage of Digi-Data’s vaulting service revenue, and is included in discontinued operations. Our revenues from continuing operations consist of revenues primarily from sales of products and services rendered to real estate brokers. Revenues are recognized upon delivery of the products or services.

Cash and Cash Equivalents

     For purposes of reporting cash flows, cash and cash equivalents include checking and money market accounts and any highly liquid debt instruments purchased with a maturity of three months or less.

Accounts Receivable
     We analyze the collectability of accounts receivable each accounting period and adjust our allowance for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the realization of accounts receivables, including the current creditworthiness of each customer, current and historical collection history and the related aging of past due balances. We evaluate specific accounts when we become aware of information indicating that a customer may not be able to meet its financial obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors affecting the ability to render payment.
     As of December 31, 2009, we had charged $65,000 of bad debts to operations for uncollectible accounts.
 
6

Property and equipment and depreciation
     Property and equipment are stated at cost. Depreciation for both financial reporting and income tax purposes is computed using combinations of the straight line and accelerated methods over the estimated lives of the respective assets. During the year ended December 31, 2008, we purchased computer equipment totaling $1,864. Computer equipment is depreciated over 5 years. Maintenance and repairs are charged to expense when incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is credited or charged to income.
     Depreciation expense of $596 and $373 was charged to operations for the years ended December 31, 2009 and 2008, respectively.
Goodwill
          Goodwill represents the fair market value of the common shares issued and common stock options granted by the Company for the acquisition of Jekyll by the Company’s subsidiary, Gotham. In accordance with ASC Topic No. 350 “Intangibles — Goodwill and Other”, the goodwill is not being amortized, but instead will be subject to an annual assessment of impairment by applying a fair-value based test, and will be reviewed more frequently if current events and circumstances indicate a possible impairment. An impairment loss is charged to expense in the period identified. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the asset’s carrying amount, an impairment loss is charged to expense in the period identified. A lack of projected future operating results from Gotham’s operations may cause impairment. As Gotham’s marketing plan and expected core business is expected to commence later in 2010, it is too early for management to evaluate whether goodwill has been impaired. No impairment was recorded during the year ended December 31, 2009.
Stock-Based Compensation
     We account for our stock-based employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest.  We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock.  Changes in these subjective input assumptions can materially affect the fair value estimate of our stock options and warrants.

Income Taxes

     We account for income taxes using the asset and liability method in accordance with ASC Topic No. 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

     We apply the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial statements. In accordance with this provision, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
iGambit is a company focused on the technology markets. Our sole operating subsidiary, Gotham Innovation Lab, Inc., is in the business of providing media technology services to the real estate industry. During the year ended December 31, 2009 and the six months ended June 30, 2010 Gotham produced approximately $166,661 and $413,659 of revenue, respectively. We are focused on expanding the operations of Gotham by marketing the company to existing and potential new clients. Currently Gotham has several proposals outstanding to franchisees of one of its main customers, as well as other potential new clients. In addition to Gotham’s operations, we receive Quarterly Revenue Share Payments and Annual Increase Payments from Digi-Data Corporation, which are payable pursuant to the terms of an agreement under which we sold certain assets to DDC in 2006. Contingency Payments earned from DDC under the agreement totaled $1,446,014 in the year ended December 31, 2009, and $1,008,733 in the six months ended June 30, 2010 which we anticipate will be paid in September 2010. Under our arrangement with DDC, we earned an additional $198,554 of accrued revenue for the 5% year to year Contingency Payments during the six months ended June 30, 2010, which we anticipate will be paid in 2011. We expect that the payments from DDC, which we will receive through February 2011, will continue to grow based upon the expansion of DDC’s business. We are also focused on acquiring or partnering with additional technology companies.

Year Ended December 31, 2009 as Compared to Year Ended December 31, 2008
          Assets. At December 31, 2009, we had $1,655,228 in current assets and $1,994,608 in total assets, compared to $985,927 in current assets and $1,450,176 in total assets as of December 31, 2008. The increase in total assets was primarily due to the increase in cash as a result of the receipt of increased contingency payments from DDC.

     Liabilities. At December 31, 2009, we had total liabilities of $206,991 compared to $496,292 at December 31, 2008. Our total liabilities at December 31, 2009 consisted primarily of accounts payable in the amount of $204,487, whereas our total liabilities as of December 31, 2008 consisted primarily of liabilities from discontinued operations in the amount of $491,538.

     Stockholders’ Equity (Deficit). Our Stockholders’ Equity (Deficit) increased to $1,787,617 at December 31, 2009 from $953,884 at December 31, 2008. This increase was primarily due to the receipt of contingency payments from Digi-Data Corp. and a decrease in accumulated deficit from $(1,204,483) at December 31, 2008, to $(758,724) at December 31, 2009.

     Revenue and Net Incomes. We had revenue of $173,011 for the year ended December 31, 2009, versus no revenue for the year ended December 31, 2008. The increase in revenue was due to revenue generated by our acquired subsidiary Gotham. In addition, we had income from discontinued operations (net of taxes) of $923,739 for the year ended December 31, 2009, compared to $553,363 for the year ended December 31, 2008. Our net income was $445,759 for the year ended December 31, 2009, compared to $403,393 for the year ended December 31, 2008. These increases were due to primarily to the success of the agreement with Digi-Data Corporation. We continue to receive 10% of Digi-Data’s gross Vault sales and 5% of the year to year increase. This agreement ends on February 28, 2011.

     General and Administrative Expenses. General and Administrative Expenses increased to $861,512 for the year ended December 31, 2009 from $196,589 for the year ended December 31, 2008. For the year ended December 31, 2009 our General and Administrative Expenses consisted of corporate administrative expenses of $233,622, legal and accounting fees of $172,745, consulting fees of $114,000, payroll expenses of $276,145, and bad debt expenses of $65,000 related to doubtful accounts receivable of our Gotham subsidiary. For the year ended December 31, 2008 our General and Administrative Expenses consisted of corporate administrative expenses of $26,808, legal and accounting fees of $23,500, and consulting fees of $146,281. The increases from the year ended December 31, 2008 to the year ended December 31, 2009 relate primarily to: (i) salaries for officers hired by the Company in 2009; (ii) professional costs associated with the acquisition of certain assets of Jekyll Island Ventures, Inc., and the preparation and filing of a registration statement with the SEC; and (iii) costs associated with the operation of our Gotham subsidiary. Costs associated with our officers’ salaries and the operation of our Gotham subsidiary should remain level going forward, subject to a material expansion in the business operations of Gotham which would likely increase our corporate administrative expenses. Further, whereas the additional professional fees associated with the acquisition of Jekyll Island Ventures, Inc. will not carry over into future periods unless we engage in other acquisitions, we do anticipate an increase in legal and accounting fees in 2010 once we become a reporting company under the Securities Exchange Act of 1934.

LIQUIDITY AND CAPITAL RESOURCES
General
As reflected in the accompanying consolidated financial statements, at December 31, 2009, we had $857,074 cash and stockholders’ equity of $1,787,617. At December 31, 2010, we had $1,994,608 in total assets, compared to $1,450,176 at December 31, 2008.

Our primary capital requirements in 2010 are likely to arise from the expansion of our Gotham operations, and, in the event we effectuate an acquisition, from: (i) the amount of the purchase price payable in cash at closing, if any; (ii) professional fees associated with the negotiation, structuring, and closing of the transaction; and (iii) post closing costs. It is not possible to quantify those costs at this point in time, in that they depend on Gotham’s business opportunities, the state of the overall economy, the relative size of any target company we identify and the complexity of the related acquisition transaction(s). We anticipate raising capital in the private markets to cover any such costs, though there can be no guaranty we will be able to do so on terms we deem to be acceptable. We do not have any plans at this point in time to obtain a line of credit or other loan facility from a commercial bank.

While we believe in the viability of our strategy to improve Gotham’s sales volume and to acquire companies, and in our ability to raise additional funds, there can be no assurances that we will be able to fully effectuate our business plan.

We believe we will continue to increase our cash position and liquidity for the foreseeable future. We believe we have enough capital to fund our present operations.
7

Cash Flow Activity

Net cash used in operating activities was $110,593 for the year ended December 31, 2009, compared to net cash provided by operating activities of $121,090 for the twelve months ending December 31, 2008. Our primary source of operating cash flow for the year ended December 31, 2009 was from net income.  We receive Quarterly Revenue Share Payments and Annual Increase Payments from Digi-Data Corporation, which are payable pursuant to the terms of an agreement under which we sold certain assets to DDC in 2006. Cash payments received from DDC under the agreement totaled $1,383,514 in the year ended December 31, 2009, and $726,596 in the twelve months ended December 31, 2008.  We earned an additional $1,730,636 under our arrangement with DDC during the year ended December 31, 2009, of which $1,431,756 was for the four quarters Contingency Payments and $298,880 was accrued revenue for the 5% year to year Contingency Payment. Cash Payments received from DDC were $286,977 for the first quarter Contingency Payment (paid in June 2009), $325,514 for the second quarter Contingency Payment (paid in September 2009), $365,195 for the third quarter Contingency Payment (paid in December 2009) $414,852 for the fourth quarter Contingency Payment (paid in February 2010) and $222,322 was accrued revenue for the 5% year to year Contingency Payment March 2008 to February 2009 (paid in June 2009) and $362,202 was accrued revenue for the 5% year to year Contingency Payment March 2009 to February 2010 (paid in June and July 2010).  We expect that the payments from DDC, which we will receive through February 2011, will continue to grow based upon the expansion of DDC’s business.

In addition to the DCC Contingency Payments, we receive revenue from the operation of our Gotham subsidiary, which operates the business we acquired from Jekyll Island Ventures, Inc. in 2009. We anticipate that Gotham’s business and revenues will continue to grow throughout 2010. Gotham is not currently cash flow positive. Gotham generated revenues of $166,661 and a net loss of $(124,954) in 2009.

Cash provided by investing activities was $1,134,262 for the twelve months ending December 31, 2009 and $306,947 for the twelve months ending December 31, 2008.   The entire source of cash provided by investing activities is the DDC contingency payments classified as cash flows from discontinued investing activities. 

Cash provided from financing activities was $34,058 for the six months ending June 30, 2010 compared to cash used by financing activities of $141,538 for the six months ending June 30.   The cash flow from financing activities in the first six months of fiscal 2010 was an increase in a loan payable to a related party from our subsidiary Gotham. The cash used from financing activities in the first six months of fiscal year 2009 was a decrease in the DDC prepaid contingency liability.

Supplemental Cash Flow Activity

In the twelve months ending December 31, 2009 the company paid income taxes of $4,698 compared to $67 for the twelve months ending December 31, 2008. The increase in taxes was due to the company having used up its Net Operating Loss carry over in fiscal year 2009.  The company also paid interest of $1,189 during the twelve months ending December 31, 2009.

OFF BALANCE SHEET ARRANGEMENTS
     We have no off balance-sheet arrangements.
     
ITEM 7A.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     Not Required.
     
ITEM 8.
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     The Financial Statements required by this Item 8 are included in this Report beginning on page F-1, as follows:
           
Report of Independent Registered Public Accounting Firm
   
F-1
   
           
Consolidated Balance Sheet as of December 31, 2009 and 2008
   
F-2
   
           
Consolidated Statement of Income for the years ended December 31, 2009 and 2008
   
F-3
   
           
Consolidated Statement of Changes in Stockholder’s Equity for the years ended December 31, 2009 and 2008
   
F-4
   
           
Consolidated Statement of Cash Flows for the years ended December 31, 2009 and 2008
   
F-5
   
           
Notes to Financial Statements
   
F-6
   
     
ITEM 9.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8

 
 
 
     None.
 
     
ITEM 9A(T).
 
CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
     We carried out an evaluation, as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.
Management’s Annual Report on Internal Control over Financial Reporting.
     We are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal accounting and financial officer), and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
     Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
     Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth in the Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessment, we have concluded that, as of December 31, 2009, our internal control over financial reporting is effective.
Change in Internal Controls
     During the quarter ended December 31, 2009, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of the Company’s Independent Registered Public Accounting Firm
     This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
     
ITEM 9B.
 
OTHER INFORMATION
     None.
PART III
     
ITEM 10.
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
     Our board of directors manages our business and affairs. Under our Articles of Incorporation and Bylaws, the Board will consist of not less than one nor more than seven directors. Currently, our Board consists of five directors.
     The names, ages, positions and dates appointed of our current directors and executive officers are set forth below.
                 
Name
 
Age
 
Position
 
Appointed
John Salerno
   
71
   
Chief Executive Officer, President, Chairman of the Board, and Director
 
March 2009 (appointed Chairman and Director in April 2000)
Elisa Luqman
   
45
   
Chief Financial Officer, Executive Vice President, General Counsel, and Director
 
March 2009 (appointed Director in August 2009)
James J. Charles
   
67
   
Director
 
March 2006
George G. Dempster
   
70
   
Director
 
January 2001
John Waters
   
64
   
Director
 
August 2009
 
     John Salerno, Chief Executive Officer, President, Chairman of the Board, and Director. Mr. Salerno is a seasoned hands-on executive with over 40 years of experience with public and private computer software and service companies. Mr. Salerno built a multi-million dollar business from a start up, servicing the real estate industry. The business was sold in 1984 and Mr. Salerno provided consulting services to a wide range of clients through 1995. In 1996, along with his daughter and a small group of private accredited investors, he co-founded the Company. Mr. Salerno was President and CEO of the Company from April 1, 2000 until February 28, 2006. After signing contracts with Verizon and Cablevision, the Company sold its assets in 2006 to Digi-Data Corporation. From March 1, 2006 thru February 2009 Mr. Salerno served as President of the Vault Services Division of Digi-Data Corporation. Upon the expiration of his 3 year contract the Vault Services Division was at a revenue run rate of $12 million annually. As of March 1, 2009, Mr. Salerno returned to his full time management roll at the Company. Mr. Salerno is an ex — US Marine Corps, Crypto/ Communications Officer and has a BS in Mathematics from Fordham University. Mr. Salerno is Elisa Luqman’s father.

Mr. Salerno was nominated as a Director because if his intimate knowledge of the Company and its history as a founder.  Additionally, Mr. Salerno’s mathematical and technical background as a data center manager early in his professional career and later as a software developer offers the board hand’s on technical experience in both operations and software analysis.   Mr. Salerno utilized his experience and contacts to secure the major customers driving the sales that generate the Company’s payment stream from DDC.  Moreover, Mr. Salerno adds value to Gotham through his 40 plus years serving the New York Real Estate industry.  He is thoroughly familiar with the unique workings of the New York real estate industry and has many contacts within that community that are a benefit to Gotham.

     Elisa Luqman, Chief Financial Officer, Executive Vice President, General Counsel, and Director. Ms. Luqman is a computer literate attorney with over 18 years experience with intellectual property and computer software. Prior to co-founding the Company, Ms. Luqman was president of University Software Corp., a software development company focused on a wide range of student educational and intellectual applications. Ms. Luqman was Chief Operating Officer of the Company, from April 1, 2000 until February 28, 2006. From March 1, 2006 through February 28, 2009 Ms. Luqman was employed as Chief Operating Officer of the Vault Services Division of Digi-Data Corporation, the company that acquired the Company’s assets in 2006, and subsequently during her tenure with Digi-Data Corporation she became the in-house general counsel for the entire corporation. In that capacity she was responsible for acquisitions, mergers, patents, and employee contracts, and worked very closely with Digi-Data’s outside counsel firms, DLA-Piper, the Law Offices of Sandra T. Carr and the patent firm of Jordan and Hamburg. As of March 1, 2009, Ms. Luqman rejoined the Company in her current capacities. Ms Luqman received a BA degree in Marketing, a JD in Law, and a MBA Degree in Finance from Hofstra University. Ms. Luqman is a member of the bar in New York and New Jersey. Ms. Luqman is John Salerno’s daughter.

Ms. Luqman was nominated as a Director because of her intimate knowledge of the Company and its history as a founder.  Additionally, as an attorney, Ms. Luqman’s legal background enables her to provide counsel to the Company. Her experience as general counsel to the Company provides her with a unique insight into the Company’s contracts with customers and vendors, intellectual property assets and issues, financing transactions and shareholder transactions.  Moreover, having been through the merger and acquisition process on both sides of the table, Ms. Luqman offers the Company in-house guidance throughout the acquisition process. That combined with Ms. Luqman’s  MBA in Finance aids in providing the Board with more efficient analysis of input from outside auditors and  legal advisors.
 
9

     James J. Charles, Director. Mr. Charles is a high profile financial executive with a broad base of experience with firms ranging in size from $24MM to $180MM in annual revenue. He worked closely with management and Boards of Directors on matters ranging from mergers and acquisitions to stock restructurings and spin-offs. Mr. Charles has been a self employed Certified Public Accountant from 1999 to present. From 1994 to 1999 Mr. Charles was the chief financial officer of Interpharm Holdings, Inc.  Interpharm Holdings, Inc., through its subsidiary, Interpharm, Inc., engages in the development, manufacture, and marketing of generic prescription strength and over-the-counter pharmaceuticals in the United States. It also focuses on the development of products in the areas of female hormone, scheduled narcotic, soft gelatin capsule, oral liquid, products coming off patent, and other products. From 1966 to 1994 Mr. Charles was a Senior Managing Partner with Ernst & Young. Mr. Charles’ education includes studies and management programs at Harvard University and Williams College. Mr. Charles received his BBA in Accounting at Manhattan College.

Mr. Charles was nominated as a Director because of his financial expertise. He has been involved in the practice of public accounting for over forty years.  During his tenure as a Senior Managing Partner at Ernst & Young he spent considerable years analyzing potential acquisition targets for corporate clients and has particular experience and skills on matter such as mergers and acquisitions, stock restructuring and spin-offs.  He has also been a Chief Financial Officer of a public company.

     George G. Dempster, Director. Mr. Dempster was Commissioner of Commerce for the State of New York from 1979 to 1983. He served as the Chairman of the Finance Committee for Hofstra University for 25 years from 1976 through 2001, and is currently Chairman Emeritus of the Board of Trustees. Mr. Dempster has been the Chairman of Tran-Leisure Corp. since 1983, and was its CEO from 1983-2002.  Tran -Leisure Corp is a diversified holding company with interests ranging from helicopter services to manufacturing. From 1969 to 1973 Mr. Dempster served as the CEO of Cybernetics, a major computer software developer. Mr. Dempster served as a marketing manager for IBM from 1961 to 1968. Mr. Dempster has a BA in business administration from Hofstra University.

Mr. Dempster was nominated as a Director because of his strong administrative, financial and economic background.  Having served as Commissioner of Commerce for the State of New York for 4 years and on the Board of Hofstra University for over 25 years, Mr. Dempster provides the Company with extensive experience in commerce and administration in both the private and public sectors.   Moreover, during his tenure at Hofstra University Mr. Dempster was intimately involved in several financing transactions to maintain the University in a solvent and profitable manner.  Additionally, having been CEO of a diversified holding company, Mr. Dempster is thoroughly familiar with the merger and acquisition process. He offers years of experience analyzing business, their models and economics, and identifying the appropriate financing vehicles.
 
 
     John Waters, Director. Mr. Waters was a Senior Partner at Arthur Andersen from 1967 to 2001, with exceptional leadership skills in mergers and acquisitions (particularly reverse mergers) and 1933 Act fillings with the Securities and Exchange Commission. Mr. Waters was involved in raising over $60 million for a special purpose acquisition company (SPAC) Avantair Inc., and was that company’s Chief Financial Officer from February 2006 to April 2008. Mr. Waters serves on the audit committee and on the board of Authentidate Holding Corp. (ADAT) since July 2004.  ADAT is a worldwide provider of solutions that enhance the secure exchange of health information and related administrative and clinical workflows.  In the United States ADAT offers its patent pending content authentication technology in the form of the United States Postal Service® Electronic Postmark® (EPM).He was previously the Chief Administrative Officer of that company from July 2004 to December 31, 2005. Mr. Waters has been a self employed Consultant from December 31, 2005 to present. He also serves on the board of two privately held companies. My Waters is a Certified Public Accountant and has a BBA degree from Iona College.

Mr. Waters was nominated as a Director because of his financial expertise. He was involved in the practice of public accounting for thirty-four years.  During his tenure as a Senior Partner at Arthur Andersen he spent considerable years analyzing potential acquisition targets for corporate clients. He has also been a Chief Financial Officer of a public company, and has served as a Director of another public company for over six years and presently serves on the audit committee of that company.

COMMITTEES OF THE BOARD
     The Board has established an Audit Committee and a Compensation Committee. The Board does not currently have a Nominating Committee. The work typically conducted by a Nominating Committee is conducted by the full Board.
Audit Committee
     The Audit Committee presently consists of Messrs. Charles, Waters, and Dempster, with Mr. Charles serving as chairman. Our Board has determined that Mr. Charles qualifies as an “audit committee financial expert” as defined under the federal securities laws. The Audit Committee is responsible for monitoring and reviewing our financial statements and internal controls over financial reporting. In addition, they recommend the selection of the independent auditors and consult with management and our independent auditors prior to the presentation of financial statements to stockholders and the filing of our forms 10-Q and 10-K. The Company has not adopted a charter. When a charter is adopted, it will be posted on our web site. The Audit Committee was established in August 2009, and thus had no meeting in 2008.
Compensation Committee
     The Compensation Committee presently consists of Messrs. Charles, Waters, and Dempster, with Mr. Waters serving as chairman. The Compensation Committee is responsible for reviewing and recommending to the Board the compensation and over-all benefits of our executive officers, including administering the Company’s 2006 Long Term Incentive Plan. The Compensation Committee may, but is not required to, consult with outside compensation consultants. The Compensation Committee has not adopted a charter. When a charter is adopted, it will be posted on our web site. The Compensation Committee was established in August 2009, and thus had no meetings in 2008.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
     Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Company is not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2009.
CODE OF ETHICS
     The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.   A copy of the Code of Ethics is attached as an exhibit to this report.  A copy of the Code of Ethics is available on the Company’s website at www.igambit.com.  Any amendments to, or waivers from, the Code of Ethics will be disclosed on the Company’s website at www.igambit.com.
ITEM 11.
 
EXECUTIVE COMPENSATION
Summary Compensation Table

     Effective September 1, 2009 Mr. Salerno and Ms. Luqman became full time employees of the Company with annual salaries of $225,000 and $200,000 respectively. Prior to September 1, 2009 Mr. Salerno and Ms. Luqman were employees of Digi-Data Corp.

     During 2006 and 2007, Mr. Salerno exercised options to acquire 1,800,000 common shares of the Company and during 2007 Ms. Luqman exercised options to acquire 1,500,000 common shares of the Company.

     Prior to December 31, 2006, the Company was indebted to officers, John Salerno and Elisa Luqman for unpaid compensation accrued totaling $350,000. John Salerno received advances against the deferred compensation in the amounts of $74,281.25 and $44,000 as of December 31, 2007, and December 31, 2008, respectively. Elisa Luqman received advances against the deferred compensation in the amounts of $5,000 and $75,000 as of December 31, 2007, and December 31, 2008, respectively. The advances against deferred compensation totaling $79,281 and $198,281 as of December 31, 2007, and December 31, 2008, respectively were in the form of a note payable to the Company and were collateralized with the officers common shares issued and outstanding of 5,470,000 shares each. During the nine months ended September 30, 2009, the Company paid the total amount of unpaid compensation accrued to the officers, who subsequently repaid the advances received.
 
 
 
 
 
 
 
 
 
 
 
10

 
                                                                         
Current
                                         
Non-Equity
                   
Officers
                                         
Incentive
   
Nonqualified
             
Name &
                                 
Option
   
Plan
   
Deferred
   
All Other
       
Principal
         
Salary
   
Bonus
   
Stock
   
Awards
   
Compensation
   
Compensation
   
Compensation
   
Total
 
Position
 
Year
   
($)
   
($)
   
($)(1)
   
($)
   
($)
   
Earnings ($)
   
($)
   
($)
 
John Salerno
   
2009
     
77,885
(1)
   
0
     
0
     
0
     
0
     
0
     
8,739
(2)
   
86,624
 
CEO, President,
   
2008
     
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Chairman & Director
                                                                       
Elisa Luqman
   
2009
     
69,231
(3)
   
0
     
0
     
0
     
0
     
0
     
0
     
69,231
 
CFO, EVP, General
   
2008
     
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Counsel, & Director
                                                                       
 
     
(1)
 
Does not include $200,000 in deferred compensation that was earned prior to December 31, 2006, and paid during 2009.
(2)
 
Includes $5,766 in health insurance premiums and $4,069 in life insurance premiums.
(3)
 
Does not include $150,000 in deferred compensation that was earned prior to December 31, 2006, and paid during 2009.

Employment Arrangements with Named Executive Officers

     The Company does not currently have any employment agreements with it executive officers.

Compensation of the Board of Directors

    The following table sets forth the compensation received by our directors, for their service as directors, during the year ended December 31, 2009.

Name
Fees earned or paid in cash ($)
Stock awards ($)
Option awards ($)
Non-equity incentive plan compensation ($)
Nonqualified deferred compensation earnings
($)
All other compensation ($)
Total
($)
John Salerno (1)
-
-
-
-
-
-
0
Elisa Luqman (1)
-
-
-
-
-
-
0
James J. Charles
$4,000
-
-
-
-
-
$4,000
George G. Dempster
$4,000
-
-
-
-
-
$4,000
John Waters
$4,000
-
-
-
-
-
$4,000
   
(1) These individuals serve as executive officers of the Company, and do not receive any   compensation for the services they provide as directors of the Company.

    Members of our Board receive $1,000 per quarter for their service to the Company.

    Director George Dempster was engaged as an Independent Consultant to Digi-Data Corporation from the period June 1, 2006 through April 30, 2009. The Company agreed to share equally in the fees paid to Mr. George Dempster. From the period of February 2006 through February 2009 George Dempster was paid $179,448 directly from Digi-Data. The $89,724 representing the Company’s 50% share of that expense was deducted by Digi-Data from amounts Digi-Data owed to the Company.   The foregoing is not included in the Director Compensation Table set forth above.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information known to us, as of August 15, 2010, relating to the beneficial ownership of shares of common stock by: (i) each person who is known by us to be the beneficial owner of more than 5% of the Company’s outstanding common stock; (ii) each director; (iii) each executive officer; and (iv) all executive officers and directors as a group. Under securities laws, a person is considered to be the beneficial owner of securities owned by him (or certain persons whose ownership is attributed to him) or securities that can be acquired by him within 60 days, including upon the exercise of options, warrants or convertible securities. The Company determines a beneficial owner’s percentage ownership by assuming that options, warrants and convertible securities that are held by the beneficial owner and which are exercisable within 60 days, have been exercised or converted. The Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock shown as being owned by them. Unless otherwise indicated, the address of each beneficial owner in the table set forth below is care of iGambit, Inc., 1600 Calebs Path Extension, Suite 114, Hauppauge, New York, 11788. The percentages in the following table are based upon 23,954,056 shares outstanding as of August 15, 2010.
                 
   
Amount and Nature
       
   
of Beneficial
       
Name of Beneficial Owner
 
Ownership
   
Percent of Class
 
John Salerno, C.E.O., President, Chairman of the Board, and Director
   
5,616,900
(1)
   
23.3
%
Elisa Luqman, C.F.O., Executive Vice President, General Counsel and Director
   
5,715,000
(2)
   
23.9
%
James J. Charles, Director
   
500,000
(3) 
   
2.1
%
George G. Dempster, Director
   
505,000
(4)
   
2.1
%
John Waters, Director
   
500,000
(5)
   
2.1
 
Mehul Mehta
   
2,450,000
     
10.2
%
Executive Officers and Directors as a Group:
   
12,836,900
 (6)
   
51.7
%
 
     
1.
 
Includes: options to purchase 46,900 shares of common stock at $0.01 per share held by John L. Salerno, Mr. Salerno’s son; and options to purchase 100,000 shares of common stock at $0.01 per share held by Dean T. Salerno, Mr. Salerno’s son.
2.
 
Includes 245,000 shares of common stock held by Muhammad Luqman, Ms. Luqman’s husband.
3.
 
Includes options to purchase 59,000 shares of the common stock at $0.10 per share.
4.
 
Includes options to purchase 113,000 shares of the common stock at $0.10 per share.
5.
 
Includes options to purchase 500,000 shares of the common stock at $0.10 per share.
6.
 
Includes the disclosures in footnotes 1 through 5 above.
 
 
 
 
 
 

 
11

 
     
ITEM 13.
 
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
RELATED PARTY TRANSACTIONS
     Pursuant to the terms of the agreements governing the sale of our assets to DDC in 2006, we will continue to receive Revenue Share Payments from DDC until 2011. In connection with said asset sale, Mr. Salerno and Ms. Luqman entered into employment agreements with DDC and worked for DDC until those agreements terminated in February 2009. Notwithstanding the termination of said employment agreements, Mr. Salerno is entitled, pursuant to the terms thereof, to receive a share of the net proceeds of any sale or other disposition of all or substantially all of the stock or assets of DDC that occurs on or before February 2011.
     Director George Dempster was engaged as an Independent Consultant to Digi-Data Corporation from the period June 1, 2006 through April 30, 2009. The Company agreed to share equally in the fees paid to Mr. George Dempster. From the period of February 2006 through February 2009 George Dempster was paid $179,448 directly from Digi-Data. The $89,724 representing the Company’s 50% share of that expense was deducted by Digi-Data from amounts Digi-Data owed to the Company.
     Prior to December 31, 2006, the Company was indebted to officers, John Salerno and Elisa Luqman for unpaid compensation accrued totaling $350,000. John Salerno received advances against the deferred compensation in the amounts of $74,281.25 and $44,000 as of December 31, 2007, and December 31, 2008, respectively. Elisa Luqman received advances against the deferred compensation in the amounts of $5,000 and $75,000 as of December 31, 2007, and December 31, 2008, respectively. The advances against deferred compensation totaling $79,281 and $198,281 as of December 31, 2007, and December 31, 2008, respectively, were in the form of a note payable to the Company and were collateralized with the officers’ common shares issued and outstanding of 5,470,000 shares each. During the nine months ended September 30, 2009, the Company paid the total amount of unpaid compensation to the officers, who subsequently repaid the advances received.
BOARD INDEPENDENCE
     The Company has elected to use the independence standards of the NYSE AMEX Equities Exchange in its determination of whether the members of its Board are independent. Based on the foregoing, the Company has concluded that Mr. Charles, Mr. Waters, and Mr. Dempster are independent. The Board has established an Audit Committee and a Compensation Committee. The Board does not currently have a Nominating Committee. The work typically conducted by a Nominating Committee is conducted by the full Board.
 
     
ITEM 14.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
     The following table shows what Michael F. Albanese, CPA billed for the audit and other services for the years ended December 31, 2009 and December 31, 2008.
                 
   
Year Ended
   
Year Ended
 
   
12/31/ 2009
   
12/31/08
 
Audit Fees
 
$
14,000
   
$
25,000
 
Audit-Related Fees
   
     
 
Tax Fees
   
     
 
All Other Fees
   
     
 
             
Total
 
$
14,000
   
$
25,000
 
     Audit Fees — This category includes the audit of the Company’s annual financial statements, review of financial statements included in the Company’s Form 10-Q Quarterly Reports and services that are normally provided by the independent auditors in connection with engagements for those years.
     Audit-Related Fees — This category includes assurance and related services by the independent auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements and that are not reported under the caption “Audit Fees.”
     Tax Fees — This category includes services rendered by the independent auditor for tax compliance, tax advice, and tax planning.
     All Other Fees — This category includes products and services provided by the independent auditor other than the services reported under the captions “Audit Fees,” “Audit-Related Fees,” and “Tax Fees.”
     Overview — The Company’s Audit Committee, reviews, and in its sole discretion pre-approves, our independent auditors’ annual engagement letter including proposed fees and all audit and non-audit services provided by the independent auditors. Accordingly, all services described under “Audit Fees,” “Audit-Related Fees,” “Tax Fees,” and “All Other Fees” were pre-approved by our Company’s Audit Committee. The Audit Committee may not engage the independent auditors to perform the non-audit services proscribed by law or regulation. The Company’s Audit Committee may delegate pre-approval authority to a member of the Board of Directors, and authority delegated in such manner must be reported at the next scheduled meeting of the Board of Directors.
PART IV
     
ITEM 15.
 
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
     
Report of Independent Registered Public Accounting Firm
 
F-1
Consolidated Balance Sheet as of December 31, 2009 and 2008
 
F-2
Consolidated Statement of Income for the years ended December 31, 2009 and 2008
 
F-3
Consolidated Statement of Changes in Stockholder’s Equity for the years ended December 31, 2009 and 2008
 
F-4
Consolidated Statement of Cash Flows for the years ended December 31, 2009 and 2008
 
F-5
Notes to Financial Statements
 
F-6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12

 
 
(b) Exhibits
         
Exhibit No.
 
Description
 
2.1
   
Asset Purchase Agreement between the Company and Digi-Data Corporation, dated December 21, 2005 (1)
 
2.2
   
Asset Purchase Agreement and Plan of Reorganization between Jekyll Island Ventures Inc. and Gotham Innovation Lab Inc., dated September 30, 2009 (1)
 
3.1
(i)
 
Certificate of Incorporation, filed with the Delaware Secretary of State on April 13, 2000 (1)
3.1(ii)
 
Certificate of Merger, filed with the Delaware Secretary of State on April 18, 2000 (1)
3.1(iii)
 
Certificate of Amendment Changing Name, filed with the Delaware Secretary of State on December 19, 2000 (1)
3.1(iv)
 
Certificate of Merger filed with the Delaware Secretary of State on February 17, 2006 (1)
 
3.1
(v)
 
Certificate of Amendment Changing Name filed with the Delaware Secretary of State on April 5, 2006 (1)
3.1(vi)
 
Certificate of Amendment Increasing Authorized Common Stock to 75 Million Shares, filed with the Delaware Secretary of State on December 2, 2009 (1)
 
3.2
   
Bylaws (1)
 
4.1
   
Form of Stock Certificate (2)
 
4.2
   
Common Stock Purchase Warrant issued to Newbridge Securities (3)
 
4.3
   
Common Stock Purchase Warrant issued to Roetzel & Andress (3)
 
10.1
   
iGambit, Inc. 2006 Long Term Incentive Plan, Amended 12/31/2006 (1)
 
10.2
   
Newbridge Consulting Agreement (2)
 
10.3
   
Employment Agreement between Digi-Data Corporation and Mr. Salerno (2)
 
10.4
   
Employment Agreement between Digi-Data Corporation and Mrs. Luqman (2)
 
10.5
   
Agreement between the Company and Digi-Data Corporation regarding the payment of consulting fees to Mr. Dempster (2)
 
14
   
Code of Ethics
 
21
   
Subsidiaries (1)
 
31.1
   
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2
   
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1
   
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
 
32.2
   
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 as amended or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed incorporated by reference into any other filing under the Security Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
 
     
(1)
 
Incorporated by reference to Form 10 filed on December 31, 2009.
     
(2)
 
Incorporated by reference to Amendment No. 1 to Form 10 filed on June 11, 2010.
     
(3)
 
Filed with initial Form 10-K on June 15, 2010.
 
13

 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Amendment No. 1 to Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Haupauge, New York, on September 13, 2010.
         
 
iGAMBIT, INC.
 
 
 
By:  
/s/ John Salerno  
 
   
John Salerno, Chief Executive Officer 
 
       
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated:
         
Signature
 
Title
 
Date
         
/s/ John Salerno
 
John Salerno
 
Chief Executive Officer and Director
 
September 13, 2010
/s/ Elisa Luqman
 
Elisa Luqman
 
Chief Financial Officer, Executive Vice President, General Counsel, Principal Accounting Officer and Director
 
September 13, 2010
/s/ James J. Charles
 
James J. Charles
 
Director
 
September 13, 2010
/s/ George G. Dempster
 
George G. Dempster
 
Director
 
September 13, 2010
/s/ John Waters
 
John Waters
 
Director
 
September 13,  2010
 

 
 
 
 
 
 

 
 
14
 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
 
 
 
 To the Board of Directors and Shareholders of:
 iGambit Inc.
 
 
 I have audited the accompanying consolidated balance sheets of iGambit Inc. as of
 December 31, 2009 and December 31, 2008 and the related statements of income,
 changes in stockholders’ equity, and cash flows for the years then ended.  These consolidated
 financial statements are the responsibility of the Company's management.  My responsibility
 is to express an opinion on these consolidated financial statements based on my audits.
 
 I conducted my audits in accordance with the standards of the Public Company Accounting Oversight
 Board (United States).  Those standards require that I plan and perform the audits to obtain
 reasonable assurance about whether the consolidated financial statements are free of material
 misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the consolidated financial statements.  An audit also includes assessing the
 accounting principles used and significant estimates made by management, as well as evaluating
 the overall consolidated financial statement presentation.  I believe that my audits provide a
 reasonable basis for my opinion.
 
 In my opinion, the consolidated financial statements referred to above present fairly, in all
 material respects, the financial position of iGambit Inc. as of December 31, 2009 and
 December 31, 2008, and the results of its operations and cash flows for the years
 then ended in conformity with accounting principles generally accepted in the United States
 of America.
 
 The Company is not required to have, nor were we engaged to perform, an audit of its internal
 control over financial reporting.  Our audit included consideration of internal control over
 financial reporting as a basis for designing audit procedures that are appropriate in the
 circumstances, but not for the purpose of expressing an opinion on the Company’s internal
 control over financial reporting.  Accordingly, we express no such opinion
 
 ___________________________
 
 
 
 ___________________________
 Michael F. Albanese, CPA
 Parsippany, NJ
 
  May 6, 2010 - Updated July 29, 2010
 

 
 
F-1

 

IGAMBIT INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
           
   
2009
   
2008
           
ASSETS
           
Current assets
         
    Cash
$
857,074
 
$
322,439
    Accounts receivable
 
56,743
   
--
    Prepaid expenses
 
8,838
   
--
    Notes receivable - stockholders
 
17,000
   
17,000
Assets from discontinued operations
 
715,573
   
646,488
           
Total current assets
 
1,655,228
   
985,927
           
Property and equipment, net
 
895
   
1,491
           
Other assets
         
    Notes receivable - stockholders
 
--
   
198,281
    Goodwill
 
185,000
   
--
    Deposits
 
2,500
   
--
Assets from discontinued operations
 
150,985
   
264,477
           
Total other assets
 
338,485
   
462,758
           
 
$
1,994,608
 
$
1,450,176
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities
         
    Accounts payable
$
204,487
 
$
4,754
    Loans payable - stockholders
 
2,504
   
--
           
Total current liabilities
 
206,991
   
4,754
           
Long-term liabilities
         
Liabilities from discontinued operations
 
--
   
491,538
           
Total liabilities
 
206,991
   
496,292
           
Stockholders' equity
         
    Common stock, $.001 par value; authorized -
         
        75,000,000 shares in 2009 and 30,000,000 in 2008;
         
        issued and outstanding - 23,954,056 shares in 2009
         
        and 22,719,056 in 2008
 
23,954
   
22,719
    Additional paid-in capital
 
2,522,387
   
2,135,648
    Accumulated deficit
 
(758,724)
   
(1,204,483)
           
Total stockholders' equity
 
1,787,617
   
953,884
           
 
$
1,994,608
 
$
1,450,176
 
 
 

 
F-2

 


IGAMBIT INC.
 
CONSOLIDATED STATEMENTS OF INCOME
 
YEARS ENDED DECEMBER 31,
 
             
   
2009
   
2008
 
             
Sales
  $ 173,011     $ --  
                 
Cost of sales
    47,458       --  
                 
Gross profit
    125,553       --  
                 
Operating expenses
               
    General and administrative expenses
    861,512       196,589  
                 
Loss from operations
    (735,959 )     (196,589 )
                 
Other income
               
    Interest income
    3,908       2,554  
                 
Loss from continuing operations before income tax benefit
    (732,051 )     (194,035 )
                 
Income tax benefit
    (254,071 )     (44,065 )
                 
Loss from continuing operations
    (477,980 )     (149,970 )
                 
Income from discontinued operations (net of taxes of $806,898
               
  and $361,286)
    923,739       553,363  
                 
Net income
  $ 445,759     $ 403,393  
                 
                 
Basic and fully diluted earnings (loss) per common share:
               
  Continuing operations
  $ (.02 )   $ (.01 )
  Discontinued operations, net of tax
  $ .04     $ .03  
Net earnings per common share
  $ .02     $ .02  
                 
Weighted average common shares outstanding
    23,009,029       22,402,104  

 
F-3

 



IGAMBIT INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
YEARS ENDED DECEMBER 31, 2009 AND 2008
 
               
Additional
             
   
Common stock
   
Paid-in
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Totals
 
                               
Balances, December 31, 2007
    21,737,018     $ 21,737     $ 1,987,749     $ (1,607,876 )   $ 401,610  
                                         
    Compensation for vested stock options
    --       --       72,900       --       72,900  
                                         
    Common stock issued in consideration
                                       
    of cashless exercise of options,
                                       
    valued at $.01 per share
    788,100       788       7,093       --       7,881  
                                         
    Common stock issued in exercise
                                       
    of warrants, valued at $.01 per share
    60,000       60       540       --       600  
                                         
    Common stock issued in exercise
                                       
    of warrants, valued at $.50 per share
    135,000       135       67,365       --       67,500  
                                         
    Common stock retired
    (1,062 )     (1 )     1       --       --  
                                         
    Net income
                            403,393       403,393  
                                         
Balances, December 31, 2008
    22,719,056       22,719       2,135,648       (1,204,483 )     953,884  
                                         
    Compensation for vested stock options
    --       --       67,500       --       67,500  
                                         
    Compensation for vested warrants
    --       --       54,000       --       54,000  
                                         
    Common stock issued in consideration
                                       
    of cashless exercise of options,
                                       
    valued at $.01 per share
    735,000       735       6,765       --       7,500  
                                         
    Assets of acquired business
    --       --       73,974       --       73,974  
                                         
    Common stock issued in business
                                       
    acquisition
    500,000       500       49,500       --       50,000  
                                         
    Stock options granted for acquired
                                       
    business resulting in goodwill
                    135,000               135,000  
                                         
    Net income
                            445,759       445,759  
                                         
Balances, December 31, 2009
    23,954,056     $ 23,954     $ 2,522,387     $ (758,724 )   $ 1,787,617  

 
F-4

 



IGAMBIT INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
YEARS ENDED DECEMBER 31,
 
             
             
             
   
2009
   
2008
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
    Net income
  $ 445,759     $ 403,393  
    Adjustments to reconcile net income to net
               
         cash provided (used) by operating activities
               
         Income from discontinued operations
    (923,739 )     (553,363 )
         Depreciation
    596       373  
         Stock-based compensation expense
    121,500       72,900  
         Cashless exercises of stock options
    7,500       7,881  
         Write off of fixed assets
    2,993       --  
         Increase (Decrease) in cash flows as a result of
               
         changes in asset and liability account balances:
               
            Accounts receivable
    10,215       --  
            Prepaid expenses
    (4,815 )     --  
            Accounts payable
    199,733       2,095  
                 
    Net cash used by continuing operating activities
    (140,258 )     (66,721 )
    Net cash provided by discontinued operating activities
    29,665       187,811  
                 
              NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
    (110,593 )     121,090  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
    Purchases of property and equipment
    --       (1,864 )
    Increase in deposits
    (2,500 )     --  
    Repayments of loans to stockholders
    198,281       (126,000 )
                 
    Net cash provided (used) by continuing investing activities
    195,781       (127,864 )
    Net cash provided by discontinued investing activities
    938,481       434,811  
                 
              NET CASH PROVIDED BY INVESTING ACTIVITIES
    1,134,262       306,947  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
    Loans from shareholders
    2,504       --  
    Proceeds from exercise of warrants
    --       68,100  
                 
    Net cash provided by continuing financing activities
    2,504       68,100  
    Net cash used by discontinued financing activities
    (491,538 )     (214,605 )
                 
              NET CASH USED BY FINANCING ACTIVITIES
    (489,034 )     (146,505 )
                 
NET INCREASE IN CASH
    534,635       281,532  
                 
CASH - BEGINNING OF YEAR
    322,439       40,907  
                 
CASH - END OF YEAR
  $ 857,074     $ 322,439  
                 
                 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
    Cash paid during the year for:
               
      Interest
  $ 1,189     $ --  
      Income taxes
    4,698       67  
                 
    Non-cash investing and financing activities:
               
      Stock-based compensation expense
  $ 121,500     $ 72,900  
      Cashless exercise of common stock options
    7,500       7,881  
      Common stock issued in business acquisition resulting in goodwill
    50,000       --  
      Stock options granted in business acquisition resulting in goodwill
    135,000       --  
      Assets of acquired business
    73,974       --  
 
 
F-5

 

Note 1 - Organization and Basis of Presentation

The consolidated financial statements presented are those of iGambit Inc., (the “Company”) and its wholly-owned subsidiary, Gotham Innovation Lab Inc. (“Gotham”). The Company was incorporated under the laws of the State of Delaware on April 13, 2000. The Company was originally incorporated as Compusations Inc. under the laws of the State of New York on October 2, 1996.  The Company changed its name to BigVault.com Inc. upon changing its state of domicile on April 13, 2000.  The Company changed its name again to bigVault Storage Technologies Inc. on December 22, 2000 before changing to iGambit Inc. on July 18, 2006.  Gotham was incorporated under the laws of the state of New York on September 23, 2009.

Business Acquisition

The Company acquired 200 no par value common shares of Gotham for $100.  Subsequent to the acquisition of the Company’s newly formed subsidiary, Gotham, on October 1, 2009 Gotham acquired all of the assets and business operations of Jekyll Island Ventures Inc. doing business as Gotham Photo Company (“Jekyll”) for 500,000 shares of the Company’s common stock at a value of $.10 per share, and for 1,500,000 options to purchase the Company’s common stock over a three year period at a value of $.09 per share.  Jekyll is a developer of web based software solutions for the real estate industry in the areas of marketing real estate.  Subsequent to the acquisition, Jekyll dissolved and distributed its shares of the Company’s common stock to the shareholders of Jekyll.  Gotham maintained Jekyll’s d/b/a name of Gotham Photo Company.  The assets acquired from Jekyll are as follows:

 
 Cash      $ 4,023  
 Accounts receivable       66,958  
 Fixed assets        2,993  
    $  73,974  
 
                                                             
                                                                           
                                                                       

Following is a presentation of pro forma balance sheets and statements of operations for the nine months ended September 30, 2009 and for the year ended December 31, 2008, and the pro forma statements of operations for the year ended December 31, 2009:


 
 
F-6

 


Nine months ended September 30, 2009:
         
             
Pro Forma Balance Sheets
             
   
iGambit
 
Jekyll
 
Combined
             
Current assets
$
1,371,447
$
70,981
$
1,442,428
Fixed assets
 
1,044
 
2,993
 
4,037
Other assets
 
153,209
     
153,209
Total assets
 
1,525,700
 
73,974
 
1,599,674
             
Current liabilities
 
2,121
 
--
 
2,121
Long-term liabilities
 
--
 
--
 
--
Total liabilities
 
2,121
 
--
 
2,121
Stockholders' equity
 
1,523,579
 
73,974
 
1,597,553
Total liabilities and stockholders' equity
$
1,525,700
$
73,974
$
1,599,674
             
Pro Forma Statements of Operations
             
   
iGambit
 
Jekyll
 
Combined
             
Revenue
$
--
$
249,925
$
249,925
Cost of sales
 
--
 
43,151
 
43,151
Gross profit
 
--
 
206,774
 
206,774
General and administrative expenses
 
418,772
 
208,965
 
627,737
Loss from operations
 
(418,772)
 
(2,191)
 
(420,963)
Other income
 
7,435
 
--
 
7,435
Income tax benefit
 
107,059
 
--
 
107,059
Loss from continuing operations
 
(304,278)
 
(2,191)
 
(306,469)
Income from discontinued operations
 
744,973
 
--
 
744,973
Net income (loss)
$
440,695
$
(2,191)
$
438,504










Year ended December 31, 2008:
           
             
Pro Forma Balance Sheets
             
   
iGambit
 
Jekyll
 
Combined
             
Current assets
$
985,927
$
80,650
$
1,066,577
Fixed assets
 
1,491
 
--
 
1,491
Other assets
 
462,758
 
--
 
462,758
Total assets
 
1,450,176
 
80,650
 
1,530,826
             
Current liabilities
 
4,754
 
3,929
 
8,683
Long-term liabilities
 
491,538
 
--
 
491,538
Total liabilities
 
496,292
 
3,929
 
500,221
Stockholders' equity
 
953,884
 
76,721
 
1,030,605
Total liabilities and stockholders' equity
$
1,450,176
$
80,650
$
1,530,826
             
Pro Forma Statements of Operations
             
   
iGambit
 
Jekyll
 
Combined
             
Revenue
$
--
$
359,590
$
359,590
Cost of sales
 
--
 
62,100
 
62,100
Gross profit
 
--
 
297,490
 
297,490
General and administrative expenses
 
123,689
 
280,198
 
403,887
(Loss) income from operations
 
(123,689)
 
17,292
 
(106,397)
Other income
 
2,554
 
--
 
2,554
Income tax benefit
 
44,065
 
--
 
44,065
(Loss) income from continuing operations
(77,070)
 
17,292
 
(59,778)
Income from discontinued operations
 
553,363
 
--
 
553,363
Net income
$
476,293
$
17,292
$
493,585




 

 
F-7

 


Year ended December 31, 2009:
                 
                   
Pro Forma Statements of Operations
 
                   
   
iGambit
   
Jekyll
   
Combined
 
                   
Revenue
  $ 6,500     $ 416,586     $ 423,086  
Cost of sales
    --       90,608       90,608  
Gross profit
    6,500       325,978       332,478  
General and administrative expenses
    617,505       453,123       1,070,628  
Loss from operations
    (611,005 )     (127,145 )     (738,150 )
Other income
    3,908       --       3,908  
Income tax benefit
    254,071       --       254,071  
Loss from continuing operations
    (353,026 )     (127,145 )     (480,171 )
Income from discontinued operations
    923,739       --       923,739  
Net income (loss)
  $ 570,713     $ (127,145 )   $ 443,568  

Following is a presentation of the statement of operations of Jekyll since the acquisition date included in the consolidated statement of operations for the year ended December 31, 2009:

Revenue
  $ 166,661  
Cost of sales
    47,457  
Gross profit
    119,204  
General and administrative expenses
    244,158  
Net loss
  $ (124,954 )

Merger Transaction

On December 19, 2005, the Company executed a certificate of merger whereby BigVault Inc. (a Nevada corporation) merged into the Company leaving the Company as the surviving corporation.  Pursuant to the certificate of merger, each share of Big Vault Inc.’s common stock issued and outstanding was converted to one share of the Company’s common stock.

Note 2 – Discontinued Operations

Sale of Business

On February 28, 2006, the Company entered into an asset purchase agreement with Digi-Data Corporation (“Digi-Data”), whereby Digi-Data acquired the Company’s assets and its online digital vaulting business operations in exchange for $1,500,000, which was deposited into an escrow account for payment of the Company’s outstanding liabilities.  In addition, as part of the sales agreement, the Company receives payments from Digi-Data based on 10% of the net vaulting revenue payable quarterly over five years.  The Company is also entitled to an additional 5% of the increase in net vaulting revenue over the prior year’s revenue.  These adjustments to the sales price are included in the discontinued operations line of the statements of income.

The assets and liabilities of the discontinued operations are presented in the balance sheets under the captions “Assets of discontinued operations” and “Liabilities of discontinued operations.” The underlying assets and liabilities of the discontinued operations for the years ended December 31 are as follows:

   
2009
   
2008
 
                 
ASSETS
               
Current:
               
Accounts receivable
 
 $
713,732
   
$
367,430
 
Deferred income taxes
   
--
     
279,058
 
Noncurrent:
               
Restricted cash
   
150,985
     
165,727
 
Deferred income taxes
   
--
     
98,750
 
Assets of discontinued operations
 
 $
864,717
   
 $
910,965
 
                 
LIABILITIES
               
Noncurrent:
               
Prepaid contingency
 
 $
--
   
 $
141,538
 
Deferred compensation
   
--
     
350,000
 
Liabilities of discontinued operations
 
 $