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EX-31.1 - EXHIBIT 31.1 - iGambit, Inc.igambit311exhibit111910.htm
EX-32.1 - EXHIBIT 32.1 - iGambit, Inc.igambit321exhibit111910.htm
EX-31.2 - EXHIBIT 31.2 - iGambit, Inc.igambit312exhibit111910.htm
EX-32.2 - EXHIBIT 32.2 - iGambit, Inc.igambit322exhibit111910.htm





 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
   
þ
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2010

     
o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from                       to
Commission file number 000-53862

iGambit, Inc.
(Exact name of small business issuer 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)(Zip Code)
(631) 780-7055
(Issuer’s Telephone Number, Including Area Code)
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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this 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 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 12b-2 of the Exchange Act). Yes o     No þ
The Registrant had 23,954,056 shares of its common stock outstanding as of November 15, 2010.


 

 
 

 


 
 iGambit, Inc.
 
 
Form 10-Q
 
         
Part I — Financial Information
 
2
         
Item 1.
 
Financial Statements:
 
2
   
Consolidated Balance Sheets
 
2
   
Consolidated Statements of Income
 
3
   
Consolidated Statements of Cash Flows
 
4
   
Notes to Consolidated Financial Statements
 
5
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
12
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
14
         
Item 4T.
 
Controls and Procedures
 
14
         
Part II — Other Information
 
15
         
Item 1.
 
Legal Proceedings
 
15
         
Item 1A.
 
Risk Factors
 
15
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
15
         
Item 3.
 
Defaults upon Senior Securities
 
15
         
Item 4.
 
Removed and Reserved
 
15
         
Item 5.
 
Other Information
 
15
         
Item 6.
 
Exhibits
 
15
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 
 
 

 
 

 

PART I — FINANCIAL INFORMATION
 
Item 1 — Financial Statements
IGAMBIT INC.
 
CONSOLIDATED BALANCE SHEETS
 
             
   
SEPTEMBER 30,
   
DECEMBER 31,
 
   
2010
   
2009
 
             
ASSETS
 
             
Current assets
           
    Cash
  $ 926,951     $ 857,074  
    Accounts receivable
    126,189       56,743  
    Prepaid expenses
    330,122       8,838  
    Notes receivable - stockholders
    17,000       17,000  
    Notes receivable
    200,000       --  
Assets from discontinued operations
    901,781       715,573  
                 
Total current assets
    2,502,043       1,655,228  
                 
Property and equipment, net
    4,159       895  
                 
Other assets
               
    Goodwill
    111,026       111,026  
    Deposits
    2,500       2,500  
Assets from discontinued operations
    --       150,985  
                 
Total other assets
    113,526       264,511  
                 
    $ 2,619,728     $ 1,920,634  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
                 
Current liabilities
               
    Accounts payable
  $ 389,636     $ 96,928  
    Note payable - related party
    26,886       --  
    Loans payable - stockholders
    2,504       2,504  
                 
Total current liabilities
    419,026       99,432  
                 
Stockholders' equity
               
    Common stock, $.001 par value; authorized -
               
        75,000,000 shares; issued and outstanding -
               
        23,954,056 shares
    23,954       23,954  
    Additional paid-in capital
    2,531,513       2,448,413  
    Accumulated deficit
    (354,765 )     (651,165 )
                 
Total stockholders' equity
    2,200,702       1,821,202  
                 
    $ 2,619,728     $ 1,920,634  
 

 
2

 
IGAMBIT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                         
   
THREE MONTHS
   
NINE MONTHS
   
ENDED
   
ENDED
   
SEPTEMBER 30,
   
SEPTEMBER 30,
   
2010
   
2009
   
2010
 
2009
                     
Sales
  $ 232,343     $ --     $ 646,002   $ --  
                                 
Cost of sales
    99,387       --       243,712     --  
                                 
Gross profit
    132,956       --       402,290     --  
                                 
Operating expenses
                               
    General and administrative expenses
    476,649       157,453       1,384,889     297,272  
                                 
Loss from operations
    (343,693 )     (157,453 )     (982,599 )   (297,272 )
                                 
Other income
                               
    Miscellaneous income
    --       4,160       --     4,160  
    Interest income
    1,853       867       2,771     3,275  
                                 
Total other income
    1,853       5,027       2,771     7,435  
                                 
Loss from continuing operations before income tax benefit
    (341,840 )     (152,426 )     (979,828 )   (289,837 )
                                 
Income tax expense (benefit)
    (116,984 )     (52,782 )     (346,049 )   (107,059 )
                                 
Loss from continuing operations
    (224,856 )     (99,644 )     (633,779 )   (182,778 )
                                 
Discontinued operations
                               
    Income from discontinued operations
    330,199       461,882       1,537,486     1,231,361  
    Provision for income taxes
    120,467       211,301       607,307     486,388  
                                 
Income from discontinued operations, net of taxes
    209,732       250,581       930,179     744,973  
                                 
Net income (loss)
  $ (15,124 )   $ 150,937     $ 296,400   $ 562,195  
                                 
                                 
Basic and fully diluted earnings (loss) per common share:
                               
  Continuing operations
  $ (.01 )   $ (.00 )   $ (.03 ) $ (.01 )
  Discontinued operations, net of tax
  $ .01     $ .01     $ .04   $ .03  
Net earnings per common share
  $ .00     $ .01     $ .01   $ .02  
                                 
Weighted average common shares outstanding
    23,954,056       23,134,491       23,954,056     22,859,056  

 
3

 



IGAMBIT INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NINE MONTHS ENDED SEPTEMBER 30,
 
             
   
2010
   
2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
    Net income
  $ 296,400     $ 562,195  
    Adjustments to reconcile net income to net
               
         cash (used) provided by operating activities
               
         Income from discontinued operations
    (930,179 )     (744,973 )
         Depreciation
    894       447  
         Stock-based compensation expense
    83,100       7,500  
         Increase (Decrease) in cash flows as a result of
               
         changes in asset and liability account balances:
               
            Accounts receivable
    (69,446 )     --  
            Prepaid expenses
    (321,284 )     (1,703 )
            Accounts payable
    292,708       (2,633 )
                 
    Net cash used by continuing operating activities
    (647,807 )     (179,167 )
    Net cash (used) provided by discontinued operating activities
    (186,208 )     418,436  
                 
              NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
    (834,015 )     239,269  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
    Purchases of property and equipment
    (4,158 )     --  
    Increase in notes receivable
    (200,000 )     --  
    Increase in deposits
    --       (2,600 )
    Payments received from loans to stockholders
    --       198,281  
                 
    Net cash (used) provided by continuing investing activities
    (204,158 )     195,681  
    Net cash provided by discontinued investing activities
    1,081,164       15,118  
                 
              NET CASH PROVIDED BY INVESTING ACTIVITIES
    877,006       210,799  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
    Increase in loans payable to related party
    26,886       --  
                 
    Net cash provided by continuing financing activities
    26,886       --  
    Net cash provided by discontinued financing activities
    --       --  
                 
              NET CASH PROVIDED BY FINANCING ACTIVITIES
    26,886       --  
                 
NET INCREASE IN CASH
    69,877       450,068  
                 
CASH - BEGINNING OF PERIOD
    857,074       322,439  
                 
CASH - END OF PERIOD
  $ 926,951     $ 772,507  
                 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
    Cash paid during the period for:
               
      Interest
  $ 851     $ 1,189  
      Income taxes
    390,634       4,698  
                 
    Non-cash investing and financing activities:
               
      Cashless exercise of common stock options
  $ --     $ 7,500  
      Stock-based compensation expense
    83,100       7,500  


 
4

 
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.

In the opinion of management, the accompanying interim financial statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2010.

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:

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  


 
5

 

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  




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
    238,334       --       238,334  
Loss from continuing operations
    (368,763 )     (127,145 )     (495,908 )
Income from discontinued operations
    1,047,035       --       1,047,035  
Net income (loss)
  $ 678,272     $ (127,145 )   $ 551,127  

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:

 
6

 


   
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
 
 $
--
   
 $
491,538
 

Accounts Receivable

Accounts receivable includes 50% of contingency payments earned for the previous quarter.

Restricted Cash

An escrow account was established in connection with the sale of business to Digi-Data to hold funds for contingent liabilities.  Under the terms of the sale, 25% of the quarterly contingency payments are deposited into the escrow account for a period of three years.  Also under the terms of the sale, 50% of the balance of the escrow funds held will be released after three years, and the remaining balance released after two more years.  The escrow account balance of $151,543 was released to the Company on September 29, 2010.  The escrow account balance was $150,985 at December 31, 2009.

Prepaid Contingency

Prepaid contingency includes cash and expenses advanced by Digi-Data prior to the sale.  The balance is being repaid with 25% of quarterly contingency payments earned that is retained by Digi-Data.  The prepaid contingency balance was fully repaid as of December 31, 2009.

Deferred Compensation

The Company was indebted to two former officers for unpaid compensation totaling $350,000 at December 31, 2008.  The officers received advances against the deferred compensation totaling $198,281 as of December 31, 2008.  In 2009, compensation was fully repaid to the former officers who subsequently repaid the advances against the deferred compensation.

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Gotham Innovation Lab, Inc.  All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reporting amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

For certain of the Company’s 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.

The Company’s revenues from continuing operations consists 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

The Company analyzes the collectability of accounts receivable each accounting period and adjusts its 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.  The Company evaluates specific accounts when it becomes 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, the Company has charged $65,000 of bad debts to operations for uncollectible accounts.  The Company has charged $6,803 of bad debts to operations for the nine months ended September 30, 2010.

 
 
7

 
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 nine months ended September 30, 2010, the Company purchased computer equipment totaling $4,158. 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 $894 and $447 was charged to operations for the nine months ended September 30, 2010 and 2009, 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 nine months ended September 30, 2010.

Stock-Based Compensation

The Company accounts for its 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.  The Company uses the Black-Scholes option valuation model to estimate the fair value of its 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 the Company’s stock options and warrants.

Income Taxes

The Company accounts 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.

The Company applies 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.




Note 4 - Earnings Per Common Share

The Company calculates net earnings (loss) per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net earnings (loss) per common share was determined by dividing net earnings (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include outstanding common stock options and common stock warrants, have not been included in the computation of diluted net earnings (loss) per share for all periods as the result would be anti-dilutive.  

   
  Nine Months Ended
  September 30,
 
   
2010
   
2009
 
StocS   Stock options
   
2,468,900
     
296,900
 
Aver    Common stock warrants
   
3,085,000
     
3,085,000
 
                 
Basic   Total shares excluded from calculation
   
5,553,900
     
3,381,900
 

Note 5 – Stock Based Compensation

Stock-based compensation expense for all stock-based award programs, including grants of stock options and warrants, is recorded in accordance with "Compensation—Stock Compensation", Topic 718 of the FASB ASC. Stock-based compensation expense, which is calculated net of estimated forfeitures, is computed using the grant date fair-value method on a straight-line basis over the requisite service period for all stock awards that vest during the period. The grant date fair value for stock options is calculated using the Black-Scholes option valuation model. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Stock-based compensation expense is reported under general and administrative expenses on the accompanying consolidated statements of income.

In 2006, the Company adopted the 2006 Long-Term Incentive Plan (the "2006 Plan").   Awards granted under the 2006 plan have a ten-year term and may be incentive stock options, non-qualified stock options or warrants. The awards are granted at an exercise price equal to the fair market value on the date of grant and generally vest over a three or four year period. Effective January 1, 2006, we recognized compensation expense ratably over the vesting period, net of estimated forfeitures. As of September 30, 2010, there was approximately $99,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2006 plan. This cost is expected to be recognized over a remaining weighted-average vesting period of 1.67 years.  Stock-based compensation of $33,600 for vested options and of $49,500 for vested warrants was charged to operations for the nine months ended September 30, 2010.

The 2006 Plan provides for the granting of options to purchase up to 5,510,000 shares of common stock.  5,213,100 options have been exercised to date.  There are 2,468,900 options outstanding under the 2006 Plan.

 
8

 
Warrant activity during the nine months ended September 30, 2010 follows:

               
Weighted
               
Average
           
   Weighted
Remaining
     
Average
 
 Average
Contractual
 
Warrants
 
Exercise Price
 
Grant-Date         Fair Value
Life (Years)
Warrants outstanding at January 1, 2010
3,085,000
 
$
0.83
 
$
0.10
 
No warrant activity
--
   
--
   
--
 
Warrants outstanding at September 30, 2010
3,085,000
 
$
0.83
 
$
0.10
2.58

Stock Option Plan activity during the nine months ended September 30, 2010 follows:

               
Weighted
               
Average
           
   Weighted
Remaining
     
Average
 
 Average
Contractual
 
Options
 
Exercise Price
 
Grant-Date         Fair Value
Life (Years)
Options outstanding at January 1, 2010
1,796,000
 
$
0.01
 
$
0.10
 
Granted during 2010
672,000
   
0.10
   
0.10
 
Options outstanding at September 30, 2010
2,468,900
 
$
0.03
 
$
0.10
7.10
The fair value of warrants and options granted is estimated on the date of grant based on the weighted-average assumptions in the table below.  The assumption for the expected life is based on evaluations of historical and expected exercise behavior.  The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date.  The calculated value method using the historical volatility of the Computer Services industry is used as the basis for the volatility assumption.

   
Nine months ended September 30,
 
   
2010
   
2009
 
Weighted average risk-free rate
   
4.87
%
   
4.23
%
Average expected life in years
   
5.0
     
5.1
 
Expected dividends
 
None
   
None
 
Volatility
   
20
%
   
20
%
Forfeiture rate
   
0
%
   
0
%

Note 6 – Common Stock Issued

During the year ended December 31, 2009, the Company issued 500,000 common shares in exchange for the asset acquisition of Jekyll Island Ventures Inc. by its wholly-owned subsidiary, Gotham Innovation Labs Inc.  Also, during the year ended December 31, 2009, options were exercised for 735,000 shares of common stock, valued at $.01 per share.

On December 2, 2009, the Company amended its certificate of incorporation to increase the number of authorized common shares to 75,000,000.

Dividends may be paid on outstanding shares as declared by the Board of Directors from time to time. Each share of common stock is entitled to one vote.

Note 7 - Income Taxes

The tax provision at September 30 consists of the following:

 
    2010     2009  
             
 From operations:            
 Continuing operations:            
 Current tax expense (benefit):              
      Federal      $ (275,153 )     $ (85,764 )
     State and local        (73,198 )        (21,295 )
      (348,351 )       (107,059 )
 Deferred tax expense (benefit)     ___ --        --  
       Total from continuing operations     (348,351       (107,059)   
  Discontinued operations:                
 Current tax expense (benefit)                
      Federal      479,696       384,185  
     State and local     127,611       102,203  
      607,307       486,388  
                 
 Deferred tax expense (benefit):                
      Federal      --       --  
     State and local        --        --  
       --        --  
                 
 Total from discontinued operations       607,307        486,388  
                 
 Total      $ 258,956     $ 379,329  
                                                                                            
 
9

 
A reconciliation of the statutory federal income tax rate and the effective tax rate follows:

 
Nine Months Ended  
September 30,  
    2010     2009  
             
 Statutory tax rate     34.0     34.0 %
     Effect of:                
 State income taxes, net of                
 Federal income tax benefit       5.5 %       5.5 %
 Tax effect of expenses that are not                
    deductible for income tax purposes     (4.2 )%      (2.6 )%
 Effective tax rate     35.3     36.9 %
 
                            
                                                                                                                                                                                                                                                                                                                 
The Company recognizes deferred tax assets and liabilities based on the future tax consequences of events that have been included in the financial statements or tax returns.  The differences relate primarily to net operating loss carryovers and to deferred compensation. Deferred tax assets and liabilities are calculated based on the difference between the financial reporting and tax bases of assets and liabilities using the currently enacted tax rates in effect during the years in which the differences are expected to reverse.  Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate.

The Company’s provision for income taxes differs from applying the statutory U.S. federal income tax rate to income before income taxes.  The primary differences result from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax purposes.

In accordance with ASC Topic No. 740, Income Taxes, a valuation allowance is established based on the future recoverability of deferred tax assets.  This assessment is based upon consideration of available positive and negative evidence, which includes, among other things, the Company’s most recent results of operations and expected future profitability.  Management has determined that no valuation allowance related to deferred tax assets is necessary at September 30, 2010 and December 31, 2009.

The deferred tax assets included in assets from discontinued operations in the accompanying balance sheets includes the following at September 30 and December 31, respectively:

 
    2010     2009  
             
 Current:               
    Net operating loss carryforwards    $ --     $ 279,058  
 Non-current:                
    Net operating loss carryforwards      --       --  
    Deferred compensation       --        98,750  
                 
    $ --     $ 377,808  
 
        Note 8 – Risks and Uncertainties

Contingency Payment Income – Discontinued Operations

The discontinued operations of contingency payments received from Digi-Data is the Company’s primary source of income.  Should Digi-Data not achieve sufficient vaulting revenue or continue to exist, substantial doubt would be raised as to the Company’s ability to continue to exist, as the Company has no other source of significant revenue.

Uninsured Cash Balances

Substantially all amounts of cash accounts held at financial institutions are insured by the FDIC.

Note 9 - Related Party Transactions

Notes Receivable - Stockholders

The Company provided loans to a stockholder totaling $17,000 at September 30, 2010 and December 31, 2009.  The loans bear interest at a rate of 6% and are due on December 31, 2010.

Accrued interest on the note was $763 for the nine months ended September 30, 2010 and 2009, respectively.
The Company provided advances to two stockholders and former officers totaling $198,281 and $79,281 as of December 31, 2008, against their respective deferred compensation balances.  The advances to the stockholders were collateralized with their common shares issued and outstanding of 5,470,000 shares each.  The former officers repaid the advances to the Company during the year ended December 31, 2009.

Loans Payable - Stockholders

Two stockholders of the Company who are also former stockholders of Jekyll provided advances to Gotham for expenses totaling $2,504 at September 30, 2010 and December 31, 2009.  The loans from the stockholders do not bear interest and are payable on demand.

Note Payable – Related Party

Gotham provided loans to an entity that is controlled by the officers of Gotham totaling $26,886 at September 30, 2010.  The note bears interest at a rate of 5.5% and is due on July 1, 2011.

Interest expense of $516 was charged to operations for the nine months ended September 30, 2010.

 
10

 
Lease Commitment

iGambit Inc. entered into an operating lease for office space for a term of 12 months effective June 1, 2010.  Monthly rent under the lease is $2,600.

Gotham has an operating lease for office space renewable annually on October 16 at a monthly rent of $5,500.

Rent expense of $67,400 was charged to operations for the nine months ended September 30, 2010.

Note 10 – Commitments and Contingencies

The Company provides accruals for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated.

Note 11 – Recent Accounting Pronouncements

In September 2009, the Company adopted Accounting Standards Codification (ASC) 105-10-05, which provides for the Financial Accounting Standards Board Accounting Standards Codification (the Codification) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP) to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The Codification does not change GAAP, but combines all authoritative standards into a comprehensive, topically organized online database. ASC 105-10-05 explicitly recognizes rules and interpretative releases of the Securities and Exchange Commission (SEC) under Federal securities laws as authoritative GAAP for SEC registrants. Subsequent revisions to GAAP will be incorporated into the Codification through Accounting Standards Updates (ASU). ASC 105-10-05 is effective for interim and annual periods ending after September 15, 2009, and was effective for the Company in the third quarter of 2009. The adoption of ASC 105-10-05 impacted the Company's financial statement disclosures, as all references to authoritative accounting literature were updated to and in accordance with the Codification.

In February 2009, the FASB issued an accounting standard now codified within ASC 805, “Business Combinations” that amends the provisions related to the initial recognition and measurement, subsequent measurement, and disclosure of assets and liabilities arising from contingencies in a business combination. The standard applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of ASC 450, “Contingencies”, if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies that are subject to specific guidance in ASC 805. The standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of the standard by the Company was effective January 1, 2009 and did not have an impact on the Company's financial position and results of operations.

Effective January 1, 2008, the Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”. This pronouncement defines fair value, establishes a hierarchal disclosure framework for measuring fair value, and requires expanded disclosures about fair value measurements. The provisions of this statement apply to all financial instruments that are being measured and reported on a fair value basis. Effective January 1, 2009, the Company adopted the remaining provisions of ASC Topic 820 that were delayed by the issuance of ASC Section 820-10-55, “Fair Value Measurements and Disclosures: Overall: Implementation Guidance and Illustrations”.

In April 2008, the FASB issued an accounting standard now codified within ASC 350, “Intangibles-Goodwill and Other” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. Under this standard, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. The intent of the standard is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. Adoption of the standard was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, The Company adopted the standard on January 1, 2009. The Company does not expect the standard to have a material impact on its accounting for future acquisitions of intangible assets.

In November 2008, the FASB issued an accounting now standard codified within ASC 350, “Intangibles-Goodwill and Other” that applies to defensive assets which are acquired intangible assets which the acquirer does not intend to actively use, but intends to hold to prevent its competitors from obtaining access to the asset. The standard clarifies that defensive intangible assets are separately identifiable and should be accounted for as a separate unit of accounting in accordance with guidance provided within ASC 805, “Business Combinations” and ASC 820, “Fair Value Measurements and Disclosures”. The standard was effective for intangible assets acquired in fiscal years beginning on or after December 15, 2008. The Company adopted this standard effective January 1, 2009 and will apply the provisions of this guidance to intangible assets acquired on or after that date. The Company does not expect the standard to have a material impact on its accounting for future acquisitions of intangible assets.

In April 2009, the FASB issued an accounting standard now codified within ASC 825, “Financial Instruments” that requires disclosures about the fair value of financial instruments that are not reflected in the consolidated balance sheets at fair value whenever summarized financial information for interim reporting periods is presented. Entities are required to disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions, if any, during the period. The standard was effective for interim reporting periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009.

In April 2009, the FASB issued an accounting standard now codified within ASC 820, “Fair Value Measurements and Disclosures”, which provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales, The standard reaffirms the objective of fair value measurement, which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. The standard is effective for interim and annual periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009.
 
In May 2009, the FASB issued an accounting standard now codified within ASC 855, “Subsequent Events”, which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The standard was effective for interim or annual periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (ASU 2010-09) “Subsequent Events” (Topic 855): “Amendments to Certain Recognition and Disclosure Requirements”. This ASU amends FASB Codification topic 855. The amendments in ASU 2010-09 removes the requirement in ASC 855-10 for a SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This ASU was effective upon issuance and the Company adopted this ASU as of December 31, 2009. Except for the removal of disclosure requirements in ASC 855-10, the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures - Measuring Liabilities at Fair Value”. The ASU provides additional guidance for the fair value measurement of liabilities under ASC 820, Fair Value Measurements and Disclosures. The ASU provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. The ASU also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. It also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level fair value measurements. The Company adopted the ASU in the fourth fiscal quarter of 2009.

The adoption of the pronouncements above did not have a material effect on the Company's financial position or results of operations.

 
11

 
New Accounting Pronouncements Not Yet Effective

In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to ASC Topic 605, Revenue Recognition) (ASU 2009-13) and ASU 2009-14, “Certain Arrangements that Include Software Elements”, (amendments to ASC Topic 985, Software) (ASU 2009-14). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,2010, with early adoption permitted. The Company is currently evaluating the impact of the adoption of these ASUs on its consolidated results of operations or financial condition.

In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable” Interest Entities, which amends ASC 810, Consolidation to address the elimination of the concept of a qualifying special purpose entity. The standard also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE whereas previous accounting guidance required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. The standard provides more timely and useful information about an enterprise's involvement with a variable interest entity and will be effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009, which for the Company would be January 1, 2010. The Company does not expect the adoption of this standard to have a material effect on its consolidated results of operations and financial condition.

In January 2010, the FASB issued ASU No. 2010-6, “Improving Disclosures About Fair Value Measurements”, which provides amendments to ASC 820 Fair Value Measurements and Disclosures, including requiring reporting entities to make more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements including information on purchases, sales, issuances, and settlements on a gross basis and (4) the transfers between Levels 1, 2, and 3. The standard is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures, which are effective for annual periods beginning after December 15, 2010. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

The FASB updated ASC Topic 810, Consolidations, and ASC Topic 860, “Transfers and Servicing”, which significantly changed the accounting for transfers of financial assets and the criteria for determining whether to consolidate a variable interest entity (VIE). The update to ASC Topic 860 eliminates the qualifying special purpose entity (QSPE) concept, establishes conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the financial asset de-recognition criteria, revises how interests retained by the transferor in a sale of financial assets initially are measured, and removes the guaranteed mortgage securitization re-characterization provisions. The update to ASC Topic 810 requires reporting entities to evaluate former QSPEs for consolidation, changes the approach to determining a VIE's primary beneficiary from a mainly quantitative assessment to an exclusively qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

Note 12 – Potential Acquisition

On July 20, 2010, the Company entered into a letter of intent to acquire the assets and business of Allied Airbus, Inc. (“Allied”).  In exchange for the acquisition of Allied, the Company would issue to Allied upon execution of the definitive agreement 500,000 shares of the Company’s common stock and an additional 2,250,000 common shares over a three year period beginning on January 1, 2011 based upon certain performance criteria, as well as additional cash or discounted common stock based upon earnings criteria.  The Company would also assume or retire debt of Allied of not more than $225,000.  The letter of intent will terminate on December 31, 2010 if both parties are unable to negotiate a mutually acceptable definitive agreement, unless the parties agree in writing to extend such date.

In connection with the letter of intent, the Company provided various loans to Allied totaling $200,000 at September 30, 2010, for which promissory notes were issued.  The notes are personally guaranteed by the officers of Allied, bear interest at a rate of 6% and are due in one year.

Accrued interest on the notes was $1,450 for the nine months ended September 30, 2010.


Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD LOOKING STATEMENTS
This Form 10-Q 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. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), finding suitable merger or acquisition candidates, expansion and growth of the Company’s business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances.
     Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Factors that could adversely affect actual results and performance include, among others, potential fluctuations in quarterly operating results and expenses, government regulation, technology change and competition. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
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.
 
12

 
 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 nine months ended September 30, 2010, the Company purchased computer equipment totaling $4,158. 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 $894 and $447 was charged to operations for the nine months ended September 30, 2010 and 2009, 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 nine months ended September 30, 2010.

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 period October 1, 2009 to December 31, 2009 and during the nine months ended September 30, 2010 Gotham produced approximately $166,661 and $646,002 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. Payments earned from DDC totaled $ 1,730,637 during the year ended December 31, 2009, of which $1,364,538 was for the four quarters of 2009 Contingency Payments and $339,099 was accrued revenue for the 5% year to year Contingency Payment for the year ended December 31, 2009.   We earned  $1,348,680 under our arrangement with DDC during the nine months ended September 30, 2010, of which $1,159,874 was for the first three quarters Contingency Payments and $188,806 was accrued revenue for the 5% year to year Contingency Payment for the months January 2010 to September 2010. During the third quarter 2010 DDC disclosed to Management that their largest customer Verizon Online re-negotiated their contract with DDC and the pricing model has changed. As a result of the new pricing model the DDC Vault Revenue will decrease from the levels that have occurred in recent months and return closer to revenue levels seen in 2009.  Subsequently the DDC Contingency Payments will also return to revenue levels closer to 2009.  We expect that the payments from DDC, which we will receive through February 2011, will continue to grow, but at a lesser pace, based upon the past three month’s revenue reporting from DDC and the expansion of DDC’s business. We are also focused on acquiring or partnering with additional technology companies.

     Assets. At September 30, 2010, we had $2,619,728 in total assets, compared to $1,920,634 at December 31, 2009.   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 September 30, 2010, our total liabilities were $419,026 compared to $99,432 at December 31, 2009. Liabilities consist of accounts payable and a note payable to a related party.  We do not have any long term liabilities.  The increase in total liabilities was primarily due to the income tax provision.

     Stockholders’ Equity (Deficit). Our stockholders’ equity increased to $2,200,702 at September 30, 2010 from $1,821,202 at December 31, 2009. This increase was primarily due to income derived from the receipt of contingency payments from Digi-Data Corp

Three Months Ended September 30, 2010 as Compared to Three Months Ended September 30, 2009

     Revenues and Net Income. We had $232,343 of revenue during the three months ended September 30, 2010, as compared to no revenue during the three months ended September 30, 2009.  The increase in revenue was due to revenue generated by our acquired subsidiary Gotham.  In addition, we had income from discontinued operations of $330,199 for the three months ended September 30, 2010, compared to $461,882 for the three months ended September 30, 2009 and net loss of $(15,124) for the three months ended September 30, 2010, compared to $150,937 for the three months ended September 30, 2009.  Our increase in revenue was offset entirely by a $319,196 increase in General and administrative expenses. 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 $476,649 for the three months ended September 30, 2010 from $157,453 for the three months ended September 30, 2009. For the three months ended September 30, 2010 our General and Administrative Expenses consisted of corporate administrative expenses of $90,881, legal and accounting fees of $38,208, payroll expenses of $255,460 and compensation for vested warrants expense of $83,100. For the three months ended September 30, 2009 our General and Administrative Expenses consisted of corporate administrative expenses of $17,628,  legal and accounting fees of $73,000, initial public offering expenses of $15,000, and payroll expenses of $51,825. The increases from the three months ended September 30, 2009 to the three months ended September 30, 2010 relate primarily to: (i) professional costs associated with the preparation and filing of a registration statement with the SEC; and (ii) costs associated with the operation of our Gotham subsidiary. Costs associated with 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, we anticipated an increase in legal and accounting fees in 2010 as a result of having become a reporting company under the Securities Exchange Act of 1934.

Nine months ended September 30, 2010 as Compared to Nine months ended September 30, 2009

     Revenues and Net Income. We had $646,002 of revenue during the nine months ended September 30, 2010, as compared to no revenue during the nine months ended September 30, 2009.  The increase in revenue was due to revenue generated by our acquired subsidiary Gotham.  In addition, we had income from discontinued operations of $1,537,486 for the nine months ended September 30, 2010, compared to $1,231,361 for the nine months ended September 30, 2009, and net income of $296,400 for the nine months ended September 30, 2010, compared to $562,195 for the nine months ended September 30, 2009. Our increase in revenue was offset entirely by a $1,087,617 increase in General and administrative expenses. 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.

 
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     General and Administrative Expenses. General and Administrative Expenses increased to $1,384,889 for the nine months ended September 30, 2010 from $297,272 for the nine months ended September 30, 2009. For the nine months ended September 30, 2010 our General and Administrative Expenses consisted of corporate administrative expenses of $377,262, legal and accounting fees of $112,938 , initial public offering expenses of $58,276,  payroll expenses of $753,313 and compensation for vested warrants expense of $83,100.     For the nine months ended September 30, 2009 our General and Administrative Expenses consisted of corporate administrative expenses of $121,852, legal and accounting fees of $123,595, initial public offering expenses of 20,000, and payroll expenses of $51,825. The increases from the nine months ended September 30, 2009 to the nine months ended September 30, 2010 relate primarily to: (i) salaries for the addition of the Gotham subsidiary officers and staff; (ii) professional costs associated with 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  we anticipate an increase in legal and accounting as we engage in other acquisitions, and we anticipate an increase in legal and accounting fees in 2011 as a result of having become a reporting company under the Securities Exchange Act of 1934.

Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, at September 30, 2010, we had $926,951 of cash and stockholders’ equity of $2,200,702. At September 30, 2010 we had $2,619,728 in total assets, compared to $1,920,634 at December 31, 2009.

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

Cash Flow Activity

Cash used in operating activities was $834,015 for the first nine months ended September 30, 2010, compared to cash provided by September operating activities of $239,269 for the first nine months ended September 30, 2009. Our primary source of operating cash flow for the nine months ended September 30, 2010 is from net income of $296,400 compared to net income of $562,195 for the nine months ended September 30, 2009. The primary source of net income is income from discontinued operations totaling $1,537,486 for the nine months ended September 30, 2010 (net of taxes of $607,307) compared to income from discontinued operations totaling $1,231,361 for the nine months ended September 30, 2009 (net of taxes of  $486,388).  Income from discontinued operations is comprised solely of income from DDC Contingency Payments. 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.    We earned  $1,537,486 under our arrangement with DDC during the nine months ended September 30, 2010, of which $1,348,680 was for the first three quarters Contingency Payments and $188,806 was accrued revenue for the 5% year to year Contingency Payment for the months January 2010 to September 2010. $472,384 for the first quarter Contingency Payment was paid in May 2010 and  $362,202 was paid in July 2010 and applied against the 2009-2010 5% year to year Contingency Payment.  We anticipate the second and third quarter Contingency Payments will be paid in 2011. The 5% year to year Contingency Payment will continue to accrue monthly and be paid in 2011 as per the agreement. We earned  $1,231,361 under our arrangement with DDC during the nine months ended September 30, 2009, of which $1,016,903 was for the first three quarters Contingency Payments and $214,458 was accrued revenue for the 5% year to year Contingency Payment for the months January 2009 to September 2009. 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 DDC Contingency Payments, we receive revenue from the operation of our Gotham subsidiary, which operates the business we acquired from Jekyll Island Ventures, Inc. in fourth quarter 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 $646,002 and a net loss of $(250,503) in 2010.
 
 

Cash provided by investing activities was $877,006 for the first nine months ended September 30, 2010 and $210,799 for the nine months ended September 30, 2009.   The primary 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 $26,886 for the nine months ended September 30, 2010 compared to no cash flows from financing activities for the nine months ended September 30, 2009.   The cash flow from financing activities in the first nine months of fiscal 2010 was an increase in a loan payable to a related party from our subsidiary Gotham.

Supplemental Cash Flow Activity


In the nine months ended September 30, 2010 the company paid income taxes of $390,634 compared to $4,698 for the nine months ended September 30, 2009. 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 $851 during the first nine months of fiscal year 2010.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Required.
Item 4T. Controls and Procedures.
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2010. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.
Changes in internal controls. There were no changes in our internal controls over financial reporting during the third fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
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PART II — OTHER INFORMATION
     
Item 1.
 
Legal Proceedings.
From time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period ended September 30, 2010.
     
Item 1A.
 
Risk Factors.
Not required
     
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
None
     
Item 3.
 
Defaults upon Senior Securities.
None
     
Item 4.
 
Removed and Reserved.
     
Item 5.
 
Other Information.
None
     
Item 6.
 
Exhibits
         
Exhibit No.
 
Description
         
 
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 to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
         
 
32.2
   
Certification of the Interim 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 to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 



SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 22, 2010.

         
 
iGambit, Inc.
 
 
 
/s/ John Salerno  
 
 
John Salerno 
 
 
Chief Executive Officer 
 
 
         
     
 
/s/ Elisa Luqman  
 
 
Elisa Luqman 
 
 
Chief Financial Officer 
 
         
 


 
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Exhibit Index

       
Exhibit No.
 
Description
       
31.1
 
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
31.2
 
Certification of the Interim 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 to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
       
32.2
 
Certification of the Interim 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 to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)


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