Attached files

file filename
EX-31.2 - SEC. 302 CERTIFICATION OF PFO - Clinigence Holdings, Inc.igambit10ka31-2.htm
EX-31.1 - SEC. 302 CERTIFICATION OF PEO - Clinigence Holdings, Inc.igambit10ka31-1.htm
EX-32.1 - SEC. 906 CERTIFICATION OF PEO - Clinigence Holdings, Inc.igambit10ka32-1.htm
EX-32.2 - SEC. 906 CERTIFICATION OF PFO - Clinigence Holdings, Inc.igambit10ka32-2.htm
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K/A (Amendment No. 2)

     
             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 February 23, 2011, 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
   
  8
 
Item 1B
 
          Unresolved Staff Comments
   
  8
 
Item 2
 
          Properties
   
  8
 
Item 3
 
          Legal Proceedings
   
  8
 
Item 4
 
          (Removed and Reserved)
   
  8
 
             
PART II
       
             
Item 5
 
          Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   
  8
 
Item 6
 
          Selected Financial Data
   
 11
 
Item 7
 
          Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
 11
 
Item 7A
 
          Quantitative and Qualitative Disclosure About Market Risk
   
 14
 
Item 8
 
          Financial Statements and Supplementary Data
   
 15
 
Item 9
 
          Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   
 15
 
Item 9A
 
          Controls and Procedures
   
 15
 
Item 9B
 
          Other Information
   
 17 
 
             
PART III
       
             
Item 10
 
          Directors, Executive Officers and Corporate Governance
   
 18
 
Item 11
 
          Executive Compensation
   
 20 
 
Item 12
 
          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
 21
 
Item 13
 
          Certain Relationships and Related Transactions, and Director Independence
   
 22
 
Item 14
 
          Principal Accountant Fees and Services
   
 22
 
             
PART IV
       
             
Item 15
 
          Exhibits and Financial Statement Schedules
   
 23
 
 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.
 
 
Explanatory Note
 
We are filing this Form 10-K/A (Amendment No. 2) to incorporate revised and additional disclosure as a result of our restatement of our financial statements for the year ended December 31, 2009, and comments received from the United States Securities and Exchange Commission in connection with its review of our Form 10 filing and period reports.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 

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.
 
 

 
1

 

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 ($646,002 during the nine months ended September 30, 2010) and the receipt of Quarterly Revenue Share Payments and Annual Increase Payments from DDC.  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  $1,537,486 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. 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.

    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.

 
2

 

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.

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
 

 
3

 

 
·  
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
 
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.

 
4

 


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.

 
5

 

     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.

     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 66% of the Company’s sales over the first nine months of 2010:  EGR International, Inc. – 11% of sales; Cambridge Who’s Who – approximately 15% of sales; Prudential Douglas Elliman Real Estate, LLC – approximately 18% of sales; Halstead Property Development Marketing LLC – approximately 7% of sales; and Christies Great Estates, Inc. – approximately 14% 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.   
 

 
6

 
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.
             
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
 
$
364,196
   
12/24/2009
4th Quarter 2009 Quarterly Revenue Share Payment
 
$
414,851
   
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
   
**
 3rd  Quarter 2010 Quarterly Revenue Share Payment
   
339,948
     
     
4,4
     
     
4,472,198
     

*  $180,000 paid on 6/21/2010, and $182,202 paid on 7/26/2010.
** Partial payments received. $100,000 paid on 9/29/2010 $75,000 paid on 10/27/2010.
 
     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.

 
 
 
7

 
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 February 23, 2011, 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 February 23, 2011, 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.

 
8

 

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 the past three years, we have sold the following securities in transactions not registered under the Securities Act of 1933, as amended (the “Securities Act”):

     In February 2008, we issued a total of 135,000 shares of our common stock to Charles Antonucci, Pamela LaPerch, Alyson LaPerch, and Kelli LaPerch upon their exercise of outstanding common stock purchase warrants, with an exercise price of $0.50 per share.  The Company received $67,500 as a result of the exercises.  At the time of the exercise the foregoing individuals were able to evaluate the risks and merits of the investment, had access to information regarding the Company, were given the opportunity to ask the Company’s management questions about the Company, and were able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

 
9

 


     In February 2008, we issued a warrant to purchase 60,000 shares of our common stock to Barry Sharf, at an exercise price of $0.01 per share. The warrants were issued in consideration of services rendered, and were valued at $5,400 using the Black-Scholes pricing model.  Mr. Sharf exercised the warrant with respect to all 60,000 shares, immediately upon issuance, and paid the Company $600. At the time of the issuances the foregoing individual was able to evaluate the risks and merits of the investment, had access to information regarding the Company, was given the opportunity to ask the Company’s management questions about the Company, and was able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

     In May 2008, Mehul Mehta, Marian Rasa, Muhammad Luqman, Troy Thomas, Hui Zhi Zhang and Guy Sayers exercised a total of 750,000 stock options, with an exercise price of $0.01 per share.  The options were exercised cashlessly, and, based on a $0.10 per share value for the Company’s common stock at the time of exercise, the foregoing individuals received a total of 735,000 shares of our common stock.  At the time of the exercise the foregoing individuals were able to evaluate the risks and merits of the investment, had access to information regarding the Company, were given the opportunity to ask the Company’s management questions about the Company, and were able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

     In October 2008, Mr. John L. Salerno exercised a total of 53,100 stock options, with an exercise price of $0.01 per share.  The options were exercised cashlessly, and, based on a $0.10 per share value for the Company’s common stock at the time of exercise, the following individuals, as designees of Mr. John L. Salerno, received a total of 52,038 shares of our common stock: John Eberhard, Michal Hart, Patrick J. Ryan and Gerard P. Ryan.  At the time of the exercise the foregoing individuals were able to evaluate the risks and merits of the investment, had access to information regarding the Company, were given the opportunity to ask the Company’s management questions about the Company, and were able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

     In August 2009, Mehul Mehta, Marian Rasa, Muhammad Luqman, Troy Thomas, Hui Zhi Zhang and Guy Sayers exercised a total of 750,000 stock options, with an exercise price of $0.01 per share.  The options were exercised cashlessly, and, based on a $0.10 per share value for the Company’s common stock at the time of exercise, the foregoing individuals received a total of 735,000 shares of our common stock.  At the time of the exercise the foregoing individuals were able to evaluate the risks and merits of the investment, had access to information regarding the Company, were given the opportunity to ask the Company’s management questions about the Company, and were able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

     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. The warrants were issued as part consideration for the services rendered by Newbridge Securities under the consulting agreement, and were valued at $1,759 using the Black-Scholes pricing model.  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.  At the time of the issuance Newbridge Securities was able to evaluate the risks and merits of the investment, had access to information regarding the Company, was given the opportunity to ask the Company’s management questions about the Company, and was able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained a standard restrictive legend.

 
10

 

     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.  The warrants were issued as partial consideration for the services rendered by Roetzel & Andress under the engagement letter, and were valued at $270 using the Black-Scholes pricing model.  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.  At the time of the issuance Roetzel & Andress was able to evaluate the risks and merits of the investment, had access to information regarding the Company, was given the opportunity to ask the Company’s management questions about the Company, and was able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained 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 stock to be $0.10 per share, and the fair value of the options at issuance to be $0.09 per share, based on the Black-Scholes pricing model. At the time of the issuances Jekyll was able to evaluate the risks and merits of the investment, had access to information regarding the Company, was given the opportunity to ask the Company’s management questions about the Company, and was able to bear the economic risk of the investment.  The securities were issued in reliance on Section 4(2) of the Securities Act, and contained 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.

 
11

 

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.
 
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.

 
12

 

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 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. Contingency Payments earned from DDC under the agreement 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  $1,537,486 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, 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 $1,920,634 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 $99,432 compared to $496,292 at December 31, 2008. Our total liabilities at December 31, 2009 consisted primarily of accounts payable in the amount of $96,928, 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 $1,821,202 at December 31, 2009 from $953,884 at December 31, 2008. This increase was primarily due to increase in net income.

     Revenue and Net Income. 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 $1,047,035 for the year ended December 31, 2009, compared to $553,363 for the year ended December 31, 2008. Our net income was $605,288 for the year ended December 31, 2009, compared to $403,393 for the year ended December 31, 2008. These increases were due 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 $809,542 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 $235,382, legal and accounting fees of $119,015, 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.
 
 
 
 
13

 

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 $1,821,202.  At December 31, 2009 we had $1,920,634 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.
Cash Flow Activity
 
     Net cash used in operating activities was $981,869 for the year ended December 31, 2009, compared to net cash used in operating activities of $266,747 for the year ended December 31, 2008. Our primary source of operating cash flow for the year ended December 31, 2009 was from net income of $605,288, compared to net income of $403,393 for the year ended December 31, 2008.  The primary source of net income is  income from discontinued operations totaling $1,047,035 for the year ended December 31, 2009 (net of taxes of $683,602) compared to income from discontinued operations of $553,363 for the year ended December 31, 2008 (net of taxes of $361,286).  Income from discontinued operations is comprised solely of income from DDC contingency payments, which is classified as cash provided by discontinued investing activities. 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.  Revenue earned from DDC under the agreement totaled $1,730,637 in the year ended December 31, 2009, and $914,650 in the year ended December 31, 2008.   Of the $1,730,637 revenue earned from DDC in the year ended December 31, 2009  we received $1,445,015 in cash payments from DDC   of which $246,006 was for the fourth quarter 2008 Contingency Payment (paid in March 2009),  $286,977 was for the first quarter 2009 Contingency Payment (paid in June 2009), $222,322 was for the March 2008- February 2009 Annual Increase Contingency Payment (paid in June 2009), $325,514 was for the second quarter 2009 Contingency Payment (paid in September 2009), $364,196 was for the third quarter Contingency Payment (paid in December 2009), Additionally $285,622 was offset  by an increase in the accounts receivable included in Assets from Discontinued Operations.      Of the $914,650 revenue earned from DDC in the year ended December 31, 2008  we received $726,595 in cash payments from DDC of which $ 112,343 was for the fourth quarter 2007 Contingency Payment (paid in February 2008),  $142,403 was for the first quarter 2008 Contingency Payment (paid in May 2008), $159,190 was for the March 2007- February 2008 Annual Increase Contingency Payment (paid in May 2008), $143,815 was for the second quarter Contingency Payment (paid in August 2008), $168,844 was for the third quarter Contingency Payment (paid in November 2008),  Additionally $188,044 was offset by an increase in the accounts receivable included in Assets from Discontinued Operations. 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.  Also included in discontinued investing activities is cash provided by DDC contingency payment escrow of $14,742 for the year ended December 31, 2009 and cash used by DDC contingency payment escrow of $118,552 for the year ended December 31, 2008, resulting in net cash provided by discontinued investing activities of $1,459,757 and $608,043 for the years ended December 31, 2009 and 2008, respectively.
 
     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 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 $1,655,538 for the year ended December 31, 2009 and $480,179 for the year ended December 31, 2008.   The primary source of cash provided by investing activities is the DDC Contingency Payments classified as cash flows from discontinued investing activities. 
 
     Cash used by financing activities was $139,034 for the year ended December 31, 2009 compared to cash provided by financing activities of $68,100 for the year ended December 31, 2008.  The cash flow from financing activities for the year ended December 31, 2008 was cash received from the exercise of warrants.  The cash used by financing activities in the year ended December 31, 2009 was from repayment of the prepaid contingency balance to DDC.

Supplemental Cash Flow Activity
 
     In the year ended December 31, 2009 the company paid income taxes of $4,698 compared to $67 for the year ended December 31, 2008.  The increase in taxes was due to the increase in the minimum state franchise taxes.  The company also paid interest of $1,189 during the twelve months ended 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.


 
14

 

    
     
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-4
Consolidated Statement of Changes in Stockholder’s Equity for the years ended December 31, 2009 and 2008
 
F-6
Consolidated Statement of Cash Flows for the years ended December 31, 2009 and 2008
 
F-8
Notes to Financial Statements
 
F-10
Report of Independent Registered Public Accounting Firm
 
F-27
Jekyll Island Ventures Inc. Balance Sheet as of December 31, 2008.
 
F-28
Jekyll Island Ventures Inc. Statement of Income for the year ended December 31, 2008.
 
F-29
Jekyll Island Ventures Inc.  Statement of Cash Flows for year ended December 31, 2008.
 
F-30
Jekyll Island Ventures Inc. Statement of Changes in Stockholders Equity for the year ended December 31, 2008.
 
F-30
Notes to Financial Statements
 
F-31
Report of Independent Registered Public Accounting Firm
 
F-33
Jekyll Island Ventures Inc. Balance Sheet as of  September  30, 2009.
 
F-34
Jekyll Island Ventures Inc. Statement of Income for the nine months ended September  30, 2009 .
 
F-34
Jekyll Island Ventures Inc.  Statement of Cash Flows for year the nine months ended September 30, 2009.
 
F-35
Jekyll Island Ventures Inc. Statement of Changes in Stockholders Equity for the nine month period ended September 30, 2009.
 
F-36
Notes to Financial Statements
 
F-36

     
ITEM 9.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
     None.
     
ITEM 9A.
 
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.
 

 
15

 

 
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer initially concluded that our disclosure controls and procedures were effective as of December 31, 2009.  Subsequent to this initial evaluation on February 7, 2011 our board of directors determined that our financial statements for the year ended December 31, 2009 could no longer be relied upon as a result of errors related to:
 
 
our failure to claim a deduction for payments of deferred compensation on our 2009 Federal corporate tax return which resulted in an overstated income tax accrual at December 31, 2009 aggregating $107,559,
 
 
 
an error in the Black-Scholes calculation related to the value of warrants issued as compensation in 2009 which overstated the expense to us for these issuances, and
 
 
 
the incorrect classification of unpaid compensation on our cash flow statement for the years ended December 31, 2009 and 2008 under financing activities instead of operating activities.
 
     As a result of these errors, and our subsequent need to restate our financial statements for the year ended December 31, 2009 as contained elsewhere in this amended report, our management has subsequently determined that our disclosure controls and procedures were not effective as of December 31, 2009 as a result of a material weakness in our internal control over financial reporting described later in this section.
 
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 initially concluded that, as of December 31, 2009, our internal control over financial reporting was effective.
 

 
16

 
As described in Note 4 to our financial statements appearing later in this report, we are restating our financial statements for the year ended December 31, 2009 to correct errors related to:
 
 
 
the proper recordation of accruals for Federal income taxes,
 
 
 
components within our Black-Scholes calculations used to determine the expense to us of compensatory warrants issued to third parties, and
 
 
 
the reclassification of expenses within our cash flow statement.
 
 
     As a result of these errors, our management has subsequently determined that our internal control over financial reporting was not effective at December 31, 2009 as a result of material weaknesses related to the application of U.S. generally accepted accounting principles as they relate to the proper recordation of Federal income tax accruals and the proper valuation of compensatory warrants utilizing Black-Scholes calculations.  In addition, our management determined a significant deficiency in our internal control over financial reporting existed at December 31, 2009 as a result of the error in classification of unpaid compensation within our cash flow statement.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of our financial reporting.
 
     In order to remediate these material weaknesses and significant deficiency in our internal control over financial reporting, we have engaged the services of an outside financial consultant who possess significant experience in the application of U.S. generally accepted accounting principles to augment our internal accounting staff.  We expect that the engagement of the outside financial consultant will remediate the material weaknesses and significant deficiency in our internal control over financial reporting which led to the restatements described elsewhere in this report.
 

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.

 
17

 

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.

 
18

 

     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.

     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.

 
19

 


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.
 
 
 
20

 
 
                                                                         
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 February 23, 2011.
                 
   
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.
 
 
 
21

 
     
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
 
 


 
22

 

    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.

ITEM 15.
 
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(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
Report of Independent Registered Public Accounting Firm
 
F-19
Jekyll Island Ventures Inc. Balance Sheet as of December 31, 2008.
 
F-20
Jekyll Island Ventures Inc. Statement of Income for the year ended December 31, 2008.
 
F-21
Jekyll Island Ventures Inc.  Statement of Cash Flows for year ended December 31, 2008.
 
F-22
Jekyll Island Ventures Inc. Statement of Changes in Stockholders Equity for the year ended December 31, 2008.
 
F-23
Notes to Financial Statements
 
F-24
Report of Independent Registered Public Accounting Firm
 
F-26
Jekyll Island Ventures Inc. Balance Sheet as of  September  30, 2009.
 
F-28
Jekyll Island Ventures Inc. Statement of Income for the nine months ended September  30, 2009 .
 
F-29
Jekyll Island Ventures Inc.  Statement of Cash Flows for year the nine months ended September 30, 2009.
 
F-30
Jekyll Island Ventures Inc. Statement of Changes in Stockholders Equity for the nine month period ended September 30, 2009.
 
F-31
Notes to Financial Statements
 
 
 
 
 
 
23

 
 
 
 
(b) Exhibits
         
Exhibit No.
 
Description
 
2.1
   
Asset Purchase Agreement between the Company and Digi-Data Corporation, dated December 21, 2005 (1)(4)
 
2.2
   
Asset Purchase Agreement and Plan of Reorganization between Jekyll Island Ventures Inc. and Gotham Innovation Lab Inc., dated September 30, 2009 (1)(4)
 
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 (5)
 
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.
(4)
 
We hereby agree to furnish the SEC with any omitted schedule or exhibit upon request.
(5)
 
Filed with Form 10-K/A (Amendment No. 1) on September 13, 2010.


 
24

 

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Amendment No. 2 to Annual Report on Form 10-K/A (Amendment No. 2) to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Haupauge, New York, on February 23, 2011.

         
 
iGAMBIT, INC.
 
 
February 23, 2011 
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/A (Amendment No. 2) has been signed by the following persons in the capacities indicated:

         
Signature
 
Title
 
Date
         
/s/ John Salerno
 
John Salerno
 
Chief Executive Officer and Director
 
 
February 23, 2011
/s/ Elisa Luqman
 
Elisa Luqman
 
Chief Financial Officer, Executive Vice President, General Counsel, Principal Accounting Officer and Director
 
February 23, 2011
/s/ James J. Charles
 
James J. Charles
 
Director
 
February 23, 2011
/s/ George G. Dempster
 
George G. Dempster
 
Director
 
February 23, 2011
/s/ John Waters
 
John Waters
 
Director
 
February 23, 2011


 
25

 

 
 
 
 
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.

As more fully discussed in Note 4, the company changed its method of accounting for income taxes and compensation. The net impact on these items increased net income and decreased shareholder equity by $159,529, respectively.

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.

/s/ Michael F. Albanese
------------------------------------
Michael F. Albanese, CPA
Parsippany, NJ

February 7, 2011
 
 
 

 
F-1

 


IGAMBIT INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
   
2009
   
2008
   
Restated
     
           
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
 
111,026
   
--
    Deposits
 
2,500
   
--
Assets from discontinued operations
 
150,985
   
264,477
           
Total other assets
 
264,511
   
462,758
           
 
$
1,920,634
 
$
1,450,176
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
Current liabilities
         
    Accounts payable
$
96,928
 
$
4,754
    Loans payable - stockholders
 
2,504
   
--
           
Total current liabilities
 
99,432
   
4,754
           
Long-term liabilities
         
Liabilities from discontinued operations
 
--
   
491,538
           
Total liabilities
 
99,432
   
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
 
2,396,443
   
2,135,648
    Accumulated deficit
 
(599,195)
   
(1,204,483)
           
Total stockholders' equity
 
1,821,202
   
953,884
           
 
$
1,920,634
 
$
1,450,176

 
F-2

 


IGAMBIT INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
           
   
2009
   
2008
   
Restated
     
           
Sales
$
173,011
 
$
--
           
Cost of sales
 
47,458
   
--
           
Gross profit
 
125,553
   
--
           
Operating expenses
         
    General and administrative expenses
 
809,542
   
196,589
           
Loss from operations
 
(683,989)
   
(196,589)
           
Other income
         
    Interest income
 
3,908
   
2,554
           
Loss from continuing operations before income tax benefit
 
(680,081)
   
(194,035)
           
Income tax benefit
 
(238,334)
   
(44,065)
           
Loss from continuing operations
 
(441,747)
   
(149,970)
           
Income from discontinued operations (net of taxes of $683,602
         
  and $361,286)
 
1,047,035
   
553,363
           
Net income
$
605,288
 
$
403,393
           
           
Basic and fully diluted earnings (loss) per common share:
         
  Continuing operations
$
(.02)
 
$
(.01)
  Discontinued operations, net of tax
$
.05
 
$
.03
Net earnings per common share
$
.03
 
$
.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
--
 
--
   
2,030
 
--
   
2,030
                       
    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
         
61,026
       
61,026
                       
    Net income
             
605,288
   
605,288
                       
Balances, December 31, 2009 (Restated)
23,954,056
$
23,954
 
$
2,396,443
$
(599,195)
 
$
1,821,202


 
F-4

 


 
IGAMBIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
           
   
2009
   
2008
   
Restated
   
Restated
           
CASH FLOWS FROM OPERATING ACTIVITIES:
         
    Net income
$
605,288
 
$
403,393
    Adjustments to reconcile net income to net
         
         cash used by operating activities
         
         Income from discontinued operations
 
(1,047,035)
   
(553,363)
         Depreciation
 
596
   
373
         Stock-based compensation expense
 
69,530
   
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
 
92,174
   
2,095
           
    Net cash used by continuing operating activities
 
(263,554)
   
(66,721)
    Net cash used by discontinued operating activities
 
(718,315)
   
(200,026)
           
              NET CASH USED BY OPERATING ACTIVITIES
 
(981,869)
   
(266,747)
           
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
 
1,459,757
   
608,043
           
              NET CASH PROVIDED BY INVESTING ACTIVITIES
 
1,655,538
   
480,179
           
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
 
(141,538)
   
--
           
              NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
 
(139,034)
   
68,100
           
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
$
69,530
 
$
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
 
61,026
   
--
      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:

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


 
F-6

 

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
 
196,589
 
280,198
 
476,787
(Loss) income from operations
 
(196,589)
 
17,292
 
(179,297)
Other income
 
2,554
 
--
 
2,554
Income tax benefit
 
44,065
 
--
 
44,065
(Loss) income from continuing operations
(149,970)
 
17,292
 
(132,678)
Income from discontinued operations
 
553,363
 
--
 
553,363
Net income
$
403,393
$
17,292
$
420,685


Year ended December 31, 2009:
           
             
Pro Forma Statements of Operations
             
   
iGambit
 
Jekyll
 
Combined
             
Revenue
$
6,350
$
416,586
$
422,936
Cost of sales
 
--
 
90,608
 
90,608
Gross profit
 
6,350
 
325,978
 
332,328
General and administrative expenses
 
565,384
 
453,123
 
1,018,507
Loss from operations
 
(559,034)
 
(127,145)
 
(686,179)
Other income
 
3,908
 
--
 
3,908
Income tax benefit
 
238,334
 
--
 
238,334
Loss from continuing operations
 
(316,792)
 
(127,145)
 
(443,937)
Income from discontinued operations
 
1,047,035
 
--
 
1,047,035
Net income (loss)
$
730,243
$
(127,145)
$
603,098

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.

 
F-7

 

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
 $
--
 
 $
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 was $150,985 and $165,727 at December 31, 2009 and 2008, respectively.

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 and received by the Company from Digi

 
F-8

 

Data.  The prepaid contingency balance was $0 and $141,538 as of December 31, 2009 and 2008, respectively.

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.

 
F-9

 


 
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, the Company 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

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.

 
F-10

 

Note 4 – Restatement to Prior Consolidated Financial Statements
 
On October 26, 2010, the Company’s Audit/Corporate Governance Committee determined that the previously issued audited consolidated financial statements for the year ended December 31, 2009 (contained in the Company’s Annual Report on Form 10-K filed June 15, 2010, and subsequently amended by Amendment No. 1 to the Annual Report on Form 10-K filed on September 13, 2010) and the previously issued unaudited consolidated financial statements for the quarters ended March 31, 2010,  June 30, 2010 and September 30, 2010 (contained in the Company’s Quarterly Reports on Form 10-Q filed, respectively, on June 17, 2010 (Amendment No. 1 to The Quarterly Report for March 31, 2010 on Form 10-Q filed on September 13, 2010) August 16, 2010, and November 22, 2010) should be revised. The restatements to these consolidated financial statements reflect the appropriate income tax provision, goodwill, compensation from vested warrants, and reclassifications in the statements of cash flows.

For the year ended December 31, 2009, the Company determined that a schedule M-1 deduction for payments of deferred compensation was not claimed on the 2009 corporate tax return, resulting in an overstated income tax accrual aggregating $107,559.  The December 31, 2009 Form 10-K/A properly reflects this item. The net impact on this item increased net income by $107,559. This item also increased prepaid expenses for the overpaid taxes by $107,559 for the three months ended March 31, 2010 and for the six months ended June 30, 2010.  The Company also determined that its reporting of the Gotham acquisition resulted in an overstatement of goodwill and additional paid-in capital of $73,974.  The net impact of this item decreased goodwill and additional paid-in capital by $73,974.  The March 31, 2010 and June 30, 2010 goodwill and additional paid-in capital balances were restated accordingly.


For the year ended December 31, 2009, the Company determined that compensation expense for 2,250,000 stock warrants granted on May 26, 2009 was overstated as a result of overvaluing the warrants.  The December 31, 2009 Form 10-K/A properly reflects this item. The net impact on this item increased net income and decreased additional paid-in capital by $51,970.

The Company determined that payment for unpaid compensation was incorrectly classified as a financing activity.  The December 31, 2009 and September 30, 2009 statements of cash flows were restated to reflect the proper classification of the payment for unpaid compensation as an operating activity.  The Company determined that part of the cash received from discontinued operations of Digi-Data classified as operating activities should have been classified as investing activities.  The December 31, 2009 and 2008 and the September 30, 2010 and 2009 statements of cash flows were restated to reflect the proper classification of cash received from discontinued operations of Digi-Data.

The following table presents the previously reported and the restated amounts included in the restatements:
   
Previously
       
Restated as
   
Reported as of
       
of
   
December 31,
 
Effect of
   
December 31,
   
2009
 
Restatement
   
2009
                 
Changes to Consolidated Balance Sheet
               
Goodwill
$
     185,000
 
$
     (73,974)
 
$
      111,026
Accounts payable
$
     204,487
 
$
   (107,559)
 
$
        96,928
Additional paid-in capital
$
  2,522,387
 
$
   (125,944)
 
$
   2,396,443
Accumulated deficit
$
   (758,724)
 
$
     159,529
 
$
   (599,195)
                 
Changes to Consolidated Statement of Income
               
General and administrative expenses
$
861,512
 
$
(51,970)
 
$
809,542
Income tax benefit - continuing operations
$
   (254,071)
 
$
       15,737
 
$
   (238,334)
Tax provision - discontinued operations
$
     806,898
 
$
   (123,296)
 
$
      683,602
Net income
$
     445,759
 
$
     159,529
 
$
      605,288
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued financing activities
$
   (491,538)
 
$
     350,000
 
$
(141,538)
Net cash provided (used) by discontinued operating activities
$
       29,665
 
$
   (747,980)
 
$
       (718,315)
Net cash provided by discontinued investing activities
$
     938,481
 
$
     521,276
 
$
   1,459,757
                 

   
Previously
       
Restated as
   
Reported as of
       
of
   
December 31,
 
Effect of
   
December 31,
   
2008
 
Restatement
   
2008
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued financing activities
$
   (214,605)
 
$
     214,605
 
$
0
Net cash provided (used) by discontinued operating activities
$
     187,811
 
$
   (387,837)
 
$
       (200,026)
Net cash provided by discontinued investing activities
$
     434,811
 
$
     173,232
 
$
        608,043

   
Previously
       
Restated as
   
Reported as of
       
of
   
March 31,
 
Effect of
   
March 31,
   
2010
 
Restatement
   
2010
                 
Changes to Consolidated Balance Sheet
               
Goodwill
$
     185,000
 
$
     (73,974)
 
$
       111,026
Prepaid expenses
$
       13,519
 
$
     107,559
 
$
       121,078
Additional paid-in capital
$
  2,522,387
 
$
   (125,944)
 
$
    2,396,443
Accumulated deficit
$
   (602,538)
 
$
     159,529
 
$
    (443,009)
 
F-11

 


   
Previously
       
Restated as
   
Reported as of
       
of
   
June 30,
 
Effect of
   
June 30,
   
2010
 
Restatement
   
2010
                 
Changes to Consolidated Balance Sheet
               
Goodwill
$
     185,000
 
$
     (73,974)
 
$
       111,026
Prepaid expenses
$
     210,358
 
$
     107,559
 
$
       317,917
Additional paid-in capital
$
  2,522,387
 
$
   (125,944)
 
$
2,396,443
Accumulated deficit
$
   (397,700)
 
$
     159,529
 
$
    (238,171)


   
Previously
       
Restated as
   
Reported as of
       
of
   
Sept. 30,
 
Effect of
   
Sept. 30,
   
2010
 
Restatement
   
2010
Changes to Consolidated Balance Sheet
               
Additional paid-in capital
$
  2,531,513
 
$
   (129,238)
 
$
2,402,275
Accumulated deficit
$
   (354,765)
 
$
     129,238
 
$
    (225,527)
                 
Changes to Consolidated Statement of Income
               
General and administrative expenses
$
  1,384,889
 
$
     (77,268)
 
$
    1,307,621
Net income
$
     296,400
 
$
       77,268
 
$
       373,668
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued operating activities
$
   (186,208)
 
$
       (419,258)
 
$
    (605,466)
Net cash provided by discontinued investing activities
$
  1,081,164
 
$
         419,258
 
$
    1,500,422

   
Previously
       
Restated as
   
Reported as of
       
of
   
June 30,
 
Effect of
   
June 30,
   
2009
 
Restatement
   
2009
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued financing activities
$
   (141,538)
 
$
     141,538
 
$
0
Net cash provided by discontinued operating activities
$
     166,301
 
$
   (141,538)
 
$
          24,763

   
Previously
       
Restated as
   
Reported as of
       
of
   
Sept. 30,
 
Effect of
   
Sept. 30,
   
2009
 
Restatement
   
2009
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued financing activities
$
   (491,538)
 
$
      491,538
 
$
0
Net cash provided (used) by discontinued operating activities
$
     909,974
 
$
  (1,572,356)
 
$
       (662,382)
Net cash provided by discontinued investing activities
$
       15,118
 
$
   1,080,818
 
$
    1,095,936

Note 5 - 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.  

 
F-12

 


         
      Year Ended
         December 31,
 
               
2009
   
2008
 
               Stock options
                   
1,796,900
     
1,046,900
 
               Aver Common stock warrants
                   
3,085,000
     
835,000
 
                                 
               Basic Total shares excluded from calculation
                   
4,881,900
     
1,881,900
 

Note 6 – 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 December 31, 2009, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2006 plan.

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 1,796,900 options outstanding under the 2006 Plan.

Warrant activity during the years ended December 31, 2009 and 2008 follows:

                     
Weighted
                     
Average
               
                Weighted
 
Remaining
       
Average
 
 Average
 
Contractual
 
Warrants
 
Exercise Price
 
Grant-Date         Fair Value
 
Life (Years)
Warrants outstanding at January 1, 2008
 
1,652,518
 
$
0.67
 
$
 
0.10
   
Granted during 2008
 
60,000
   
0.01
     
0.10
   
Exercised during 2008
 
(195,000)
   
0.35
     
0.10
   
Expired during 2008
 
(682,518)
   
0.32
     
0.10
   
Warrants outstanding at December 31, 2008
 
835,000
   
0.99
     
0.10
   
Granted during 2009
 
2,250,000
   
0.77
     
0.10
   
Warrants outstanding at December 31, 2009
 
3,085,000
 
$
0.83
 
$
 
0.10
 
7.07

Stock Option Plan activity during the years ended December 31, 2009 and 2008 follows:

                     
Weighted
                     
Average
               
               Weighted
 
Remaining
       
Average
 
 Average
 
Contractual
 
Options
 
Exercise Price
 
Grant-Date         Fair Value
 
Life (Years)
Options outstanding at January 1, 2008
 
1,835,000
 
$
0.01
 
$
 
0.10
   
Exercised during 2008
 
(788,100)
   
0.01
     
0.10
   
Options outstanding at December 31, 2008
 
1,046,900
   
0.01
     
0.10
   
Exercised during 2009
 
(750,000)
   
0.01
     
0.10
   
Granted during 2009
 
1,500,000
   
0.01
     
0.10
   
Options outstanding at December 31, 2009
 
1,796,900
 
$
0.01
 
$
 
0.10
 
5.85

 
 
 
F-13

 
 
 
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.

   
Years ended December 31,
 
   
2009
   
2008
 
Weighted average risk-free rate
   
4.87
%
   
4.64
%
Average expected life in years
   
6.6
     
5.8
 
Expected dividends
 
None
   
None
 
Volatility
   
20
%
   
20
%
Forfeiture rate
   
0
%
   
0
%

Note 7 – 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 8 - Income Taxes

The tax provision at December 31 consists of the following:

2009                      2008
From operations:
Continuing operations:
Current tax expense (benefit):                                                                           
    Federal                                                                                       $(238,841)              $  (46,228)
    State and local                                                                                    507                       2,163
          (238,334)                  (44,065)
Deferred tax expense (benefit)                                                                 --                             --
    Total from continuing operations                                           (238,334)                  (44,065)
Discontinued operations:
Current tax expense (benefit)                                                                                                           
    Federal                                                                                            42,640                             --
    State and local                                                                               24,313                             --
                                                                                                             66,953                             --

Deferred tax expense (benefit):
    Federal                                                                                          497,319                   285,370
    State and local                                                                             119,330                     75,916
                                                                                                           616,649                   361,286
 
 
    Total from discontinued operations                                        683,602                   361,286

    Total                                                                                           $ 445,268                   317,221


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

   Year Ended
   December 31,
2009                      2008

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 NOL carryforwards                                                          --                    (16.0)%
Tax effect of expenses that are not
  deductible for income tax purposes                                                (4.5)%                (0.8)%
Effective tax rate applicable
  to continuing operations                                                                   35.0%                22.7%

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.

 
F-14

 


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 December 31, 2009 and 2008.

The deferred tax assets included in assets from discontinued operations in the accompanying balance sheets includes the following at December 31:

2009                      2008

Current:                                           
    Net operating loss carryforwards                                          $          --                  $ 279,058
Non-current:
    Net operating loss carryforwards                                                      --                               --
    Deferred compensation                                                                       --                       98,750

       $           --                  $ 377,808

Note 9 – Risks and Uncertainties

Contingency Payment Income – Discontinued Operations

The discontinued operations of contingency payments received from Digi-Data is the Company’s sole 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 revenue.

Uninsured Cash Balances

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

Note 10 - Related Party Transactions

Notes Receivable - Stockholders

The Company provided loans to a stockholder totaling $17,000 and $10,000 at December 31, 2009 and 2008, respectively.  The loans bear interest at a rate of 6% and are due on December 31, 2009.

Accrued interest on the note was $1,020 and $698 for the years ended December 31, 2009 and 2008, 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 December 31, 2009.  The loans from the stockholders do not bear interest and are payable on demand.

 
F-15

 
Lease Commitment

iGambit Inc. entered into an operating lease for office space for a term of 12 months effective June 1, 2009.  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 $32,100 was charged to operations for the year ended December 31, 2009.

Note 11 – 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 12 – 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

 
F-16

 

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

 
F-17

 

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.

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.

 
F-18

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
 
 
 
 To the Board of Directors and Shareholders of:
 JEKYLL ISLAND VENTURES INC.
 
 
 I have audited the accompanying balance sheet of Jekyll Island Ventures, Inc. as of
 December 31, 2008 and the related statement of income, changes in stockholders’ equity,
 and cash flows for the year then ended.  These financial statements are the responsibility
 of the Company's management.  My responsibility is to express an opinion on these
 financial statements based on my audit.
 
 I conducted my audit in accordance with standards of the Public Company Accounting Oversight
 Board (United States).  Those standards require that I plan and perform the audit to obtain
 reasonable assurance about whether the financial statements are free of material misstatement.
 An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
 in the financial statements.  An audit also includes assessing the accounting principles
 used and significant estimates made by management, as well as evaluating the overall
 financial statement presentation.  I believe that my audit provides a reasonable basis for
 my opinion.
 
 In my opinion, the financial statements referred to above present fairly, in all
 material respects, the financial position of Jekyll Island Ventures, Inc.  as of
 December 31, 2008, and the results of its operations and cash flows for the year then
 ended in conformity with U.S. generally accepted accounting principles.
 
 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.
 
 
 
/s/ Michael F. Albanese
 ___________________________
 Michael F. Albanese, CPA
 Parsippany, NJ
 
 October 5, 2010
 

 
 
F-19

 
 

 
 
JEKYLL ISLAND VENTURES INC.
 
 
BALANCE SHEET
 
 
DECEMBER 31, 2008
 
         
 
ASSETS
 
         
 
Current assets
     
 
    Cash
$
                     8,165
 
 
    Accounts receivable
 
                   72,485
 
 
    Prepaid expenses
 
             563
 
         
         
   
$
                   81,213
 
         
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
         
 
Current liabilities
     
 
    Accounts payable
$
                          23
 
         
         
 
Stockholders' equity
     
 
    Common stock, no par value; 200 shares
     
 
         authorized, issued and outstanding
 
                        667
 
 
    Retained earnings
 
                   80,523
 
         
 
Total stockholders' equity
 
                   81,190
 
         
   
$
                   81,213
 
         



 
F-20

 

 
JEKYLL ISLAND VENTURES INC.
INCOME STATEMENT
DECEMBER 31, 2008
     
 
Sales
$
359,590
 
       
Cost of sales
 
77,700
 
       
Gross profit
 
281,890
 
       
Operating expenses
     
    General and administrative expenses
 
259,730
 
       
Income from operations before provision for income taxes
 
22,160
 
       
Provision for income taxes
 
400
 
       
Net income
$
21,760
 
       
       
 

 

 
F-21

 

 

 
JEKYLL ISLAND VENTURES INC.
 
STATEMENT OF CASH FLOWS
 
DECEMBER 31, 2008
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
   
    Net income
$
21,760
    Adjustments to reconcile net income to net
   
         cash used by operating activities
   
         Increase (Decrease) in cash flows as a result of
   
         changes in asset and liability account balances:
   
            Accounts receivable
 
(21,348)
            Prepaid expenses
 
(563)
            Accounts payable
 
(186)
     
              NET CASH USED BY OPERATING ACTIVITIES
 
(337)
     
NET DECREASE IN CASH
 
(337)
     
CASH - BEGINNING OF YEAR
 
8,502
     
CASH - END OF YEAR
$
8,165
     
     
     
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   
    Cash paid during the year for:
   
      Income taxes
$
400
     

 
 
 
 

 
 
F-22

 
 
 
 
 
 
 
 
JEKYLL ISLAND VENTURES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 2008

 
Common stock
   
Retained
     
 
Shares
   
Amount
   
Earnings
   
Totals
                     
Balances, December 31, 2007
200
 
$
667
 
$
58,763
 
$
59,430
                     
    Net income
           
21,760
   
21,760
                     
Balances, December 31, 2008
200
 
$
667
 
$
80,523
 
$
81,190
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
F-23

 

Note 1 - Organization and Basis of Presentation

The financial statements presented are those Jekyll Island Ventures Inc., (the “Company”). The Company was incorporated under the laws of the State of New York on January 7, 2005.  The Company provides media technology services to the real estate community.  The Company also provides website development services, sales office technology and data interchange services for many real estate firms located in New York City.

Note 2 – Summary of Significant Accounting Policies

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.

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.

Revenue Recognition

Revenue is recognized when services are completed and delivered to the customer.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date.



The Company is an S Corporation for federal and New York State income tax purposes.  The stockholders of an S Corporation include their respective share of the corporation's income or loss in their individual income tax returns.  Accordingly, the Company pays no federal and New York State income taxes on income earned and receives no income tax benefits for losses sustained.  It is, however, subject to New York City income taxes.

 
F-24

 

Note 3 – Risks and Uncertainties

Uninsured Cash Balances

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

Note 4 – 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 5 – Subsequent Events

On October 1, 2009 Gotham Innovation Lab Inc. (“Gotham Lab”) acquired all of the assets and business operations of the Company for 500,000 shares of Gotham Lab’s common stock at a value of $.10 per share, and for 1,500,000 options to purchase the Gotham Lab’s common stock over a three year period at a value of $.09 per share.    On February 1, 2010, the Company dissolved and distributed its shares of Gotham Lab’s common stock to the Company’s shareholders.  Gotham Lab maintained the Company’s d/b/a name of Gotham Photo Company.

Gotham Lab was incorporated on September 23, 2009 under the laws of the state of New York and is a wholly owned subsidiary of iGambit Inc.  Gotham Lab was created to complete the acquisition of the Company.

 
F-25

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
 
 
 
 To the Board of Directors and Shareholders of:
 JEKYLL ISLAND VENTURES INC.
 
 
 I have reviewed the accompanying balance sheet and the related statement of operations,
 changes in stockholders’ equity, and cash flows of Jekyll Island Ventures, Inc. as of
 September 30, 2009.  These financial statements are the responsibility
 of the Company's management.
 
 Except as discussed in the following paragraph, I conducted my review in accordance with the
 standards of the Public Company Accounting Oversight Board (United States).   A review
 of interim financial information consists principally of applying analytical procedures
 and making inquiries of persons responsible for financial and accounting matters.  It is
 substantially less in scope than an audit conducted in accordance with the standards
 of the Public Company Accounting Oversight Board, the objective of which is the expression
 of an opinion regarding the financial statements taken as a whole.   Accordingly, I do not
 express such an opinion.
 
 Based on my review, except for the effects of the Company’s presentation of accounts receivable
 not including a reserve of $46,000, I am not aware of any material modifications that should
 be made to the accompanying interim financial statements for them to be in conformity
 with U.S. generally accepted accounting principles.
 
 
 
/s/ Michael F. Albanese
 ___________________________
 Michael F. Albanese, CPA
 Parsippany, NJ
 
  October 5, 2010


 
F-26

 

 

 
JEKYLL ISLAND VENTURES INC.
BALANCE SHEET
FOR THE NINE MONTHS ENDING SEPTEMBER 31, 2009
 
 
 
ASSETS
 
Current assets
       
 
    Cash
$
             4,023
   
 
    Accounts receivable
 
           66,958
   
           
   
$
           70,981
   
           
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
           
 
Stockholders' equity
       
 
    Common stock, no par value; 200 shares
       
 
         authorized, issued and outstanding
 
 --
   
 
    Retained earnings
 
           70,981
   
           
 
Total stockholders' equity
 
           70,981
   
           
   
$
           70,981
   
 
 

 
 
F-27

 
 
 
 

 
 
 
 
JEKYLL ISLAND VENTURES INC.
 
INCOME STATEMENT
 
FOR THE NINE MONTHS ENDING SEPTEMBER 31, 2009
 
     
     
Sales
$
249,925
     
Cost of sales
 
59,417
     
Gross profit
 
190,508
     
Operating expenses
   
    General and administrative expenses
 
199,619
     
Loss from operations before provision for income taxes
 
(9,111)
     
Provision for income taxes
 
431
     
Net loss
$
(9,542)
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
F-28

 


 
 
 
JEKYLL ISLAND VENTURES INC.
 
STATEMENT OF CASH FLOWS
 
FOR THE NINE MONTHS ENDING SEPTEMBER 31, 2009
 
     
CASH FLOWS FROM OPERATING ACTIVITIES:
   
    Net loss
$
(9,542)
    Adjustments to reconcile net loss to net
   
         cash used by operating activities
   
         Increase (Decrease) in cash flows as a result of
   
         changes in asset and liability account balances:
   
            Accounts receivable
 
5,527
            Prepaid expenses
 
563
            Accounts payable
 
(23)
     
     
              NET CASH USED BY OPERATING ACTIVITIES
 
(3,475)
     
NET CASH USED BY FINANCING ACTIVITIES:
   
     Return of capital
 
(667)
     
NET DECREASE IN CASH
 
(4,142)
     
CASH - BEGINNING OF PERIOD
 
8,165
     
CASH - END OF PERIOD
$
4,023
     
     
     
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   
    Cash paid during the period for:
   
      Income taxes
$
431
     
 

 

 
F-29

 

 

 
 
JEKYLL ISLAND VENTURES INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDING SEPTEMBER 31, 2009
             
 
Common stock
   
Retained
       
 
Shares
   
Amount
   
Earnings
   
Totals
 
                       
Balances, December 31, 2008
200
 
$
667
 
$
80,523
 
$
81,190
 
                       
    Return of capital
--
   
(667)
   
--
   
(667)
 
                       
    Net loss
           
(9,542)
   
(9,542)
 
                       
Balances, September 30, 2009
200
 
$
--
 
$
70,981
 
$
70,981
 
                       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
F-30

 
 
Note 1 - Organization and Basis of Presentation

The financial statements presented are those Jekyll Island Ventures Inc., (the “Company”). The Company was incorporated under the laws of the State of New York on January 7, 2005.  The Company provides media technology services to the real estate community.  The Company also provides website development services, sales office technology and data interchange services for many real estate firms located in New York City.

Note 2 – Summary of Significant Accounting Policies

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.

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.

Revenue Recognition
 
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date.

The Company is an S Corporation for federal and New York State income tax purposes.  The stockholders of an S Corporation include their respective share of the corporation's income or loss in their individual income tax returns.  Accordingly, the Company pays no federal and New York State income taxes on income earned and receives no income tax benefits for losses sustained.  It is, however, subject to New York City income taxes.

Note 3 – Risks and Uncertainties

Uninsured Cash Balances

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

Note 4 – 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 5 – Subsequent Events

On October 1, 2009 Gotham Innovation Lab Inc. (“Gotham Lab”) acquired all of the assets and business operations of the Company for 500,000 shares of Gotham Lab’s common stock at a value of $.10 per share, and for 1,500,000 options to purchase the Gotham Lab’s common stock over a three year period at a value of $.09 per share.    On February 1, 2010, the Company dissolved and distributed its shares of Gotham Lab’s common stock to the Company’s shareholders.  Gotham Lab maintained the Company’s d/b/a name of Gotham Photo Company.

Gotham Lab was incorporated on September 23, 2009 under the laws of the state of New York and is a wholly owned subsidiary of iGambit Inc.  Gotham Lab was created to complete the acquisition of the Company.

 

 
F-31