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EX-31.2 - SEC. 302 CERTIFICATION OF PFO - Clinigence Holdings, Inc.igambit10qa063010ex31-2.htm
EX-32.1 - SEC. 906 CERTIFICATION OF PEO - Clinigence Holdings, Inc.igambit10qa063010ex32-1.htm
EX-31.1 - SEC. 302 CERTIFICATION OF PEO - Clinigence Holdings, Inc.igambit10qa063010ex31-1.htm
EX-32.2 - SEC. 906 CERTIFICATION OF PFO - Clinigence Holdings, Inc.igambit10qa063010ex32-2.htm
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A (Amendment No. 1)
     
            þ
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2010
     
            o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
                                                                                                        For the transition period from                       to
 
 
Commission file number 000-53862
 
iGambit, Inc.
(Exact name of small business issuer as specified in its charter)
     
Delaware
 
11-3363609
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1600 Calebs Path Extension, Suite 114
Hauppauge, New York 11788
(Address of Principal Executive Offices)(Zip Code)
 
(631) 780-7055
(Issuer’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
             
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company þ
       
(Do not check if a smaller reporting company)
 
   
Iindicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ
 
The Registrant had 23,954,056 shares of its common stock outstanding as of February 23, 2011.
 
 

 
 

 
 

 

 
iGambit, Inc.
Form 10-Q
 
         
Part I — Financial Information
 
1
         
Item 1.
 
Financial Statements:
 
1
   
Consolidated Balance Sheets
 
1
   
Consolidated Statements of Income
 
2
   
Consolidated Statements of Cash Flows
 
3
   
Notes to Consolidated Financial Statements
 
4
         
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
19
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
26
         
Item 4.
 
Controls and Procedures
 
26
         
Part II — Other Information
 
27
         
Item 1.
 
Legal Proceedings
 
27
         
Item 1A.
 
Risk Factors
 
27
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
27
         
Item 3.
 
Defaults upon Senior Securities
 
27
         
Item 4.
 
Removed and Reserved
 
28
         
Item 5.
 
Other Information
 
28
         
Item 6.
 
Exhibits
 
28
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 
 
 





 
 

 

Explanatory Note
 
We are filing this Form 10-Q/A (Amendment No. 1) to incorporate revised and additional disclosure as a result of our restatement of our financial statements for the year ended December 31, 2009, and the quarters ended March 31, 2010 and June 30, 2010, 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 — FINANCIAL INFORMATION
Item 1 — Financial Statements
IGAMBIT INC.
 
CONSOLIDATED BALANCE SHEETS
 
           
   
JUNE 30,
 
DECEMBER 31,
 
   
2010
 
2009
 
   
Restated
 
Restated
 
ASSETS
 
           
Current assets
         
    Cash
$
967,518
$
857,074
 
    Accounts receivable
 
130,254
 
56,743
 
    Prepaid expenses
 
317,917
 
8,838
 
    Notes receivable – stockholders
 
17,000
 
17,000
 
Assets from discontinued operations
 
856,130
 
715,573
 
           
Total current assets
 
2,288,819
 
1,655,228
 
           
Property and equipment, net
 
715
 
895
 
           
Other assets
         
    Goodwill
 
111,026
 
111,026
 
    Deposits
 
2,500
 
2,500
 
Assets from discontinued operations
 
151,398
 
150,985
 
           
Total other assets
 
264,924
 
264,511
 
           
 
$
2,554,458
$
1,920,634
 
           
LIABILITIES AND STOCKHOLDERS' EQUITY
 
           
Current liabilities
         
    Accounts payable
$
335,670
$
96,928
 
    Note payable - related party
 
34,058
 
--
 
    Loans payable – stockholders
 
2,504
 
2,504
 
           
Total current liabilities
 
372,232
 
99,432
 
           
Stockholders' equity
         
    Common stock, $.001 par value; authorized -
         
        75,000,000 shares; issued and outstanding -
         
        23,954,056 shares
 
23,954
 
23,954
 
    Additional paid-in capital
 
2,396,443
 
2,396,443
 
    Accumulated deficit
 
(238,171)
 
(599,195
 
           
Total stockholders' equity
 
2,182,226
 
1,821,202
 
           
 
$
2,554,458
$
1,920,634
 
           

 
1

 


IGAMBIT INC.
CONSOLIDATED STATEMENTS OF INCOME
                       
   
THREE MONTHS
   
SIX MONTHS
   
ENDED
   
ENDED
   
JUNE 30,
   
JUNE 30,
   
2010
   
2009
   
2010
   
2009
   
Restated
         
Restated
     
                       
Sales
$
246,317
 
$
--
 
$
413,659
 
$
--
                       
Cost of sales
 
96,453
   
--
   
144,325
   
--
                       
Gross profit
 
149,864
   
--
   
269,334
   
--
                       
Operating expenses
                     
    General and administrative expenses
 
429,173
   
96,124
   
858,740
   
139,819
                       
Loss from operations
 
(279,309)
   
(96,124)
   
(589,406)
   
(139,819)
                       
Other income
                     
    Interest income
 
434
   
2,408
   
918
   
2,408
                       
Loss from continuing operations before income tax benefit
 
(278,875)
   
(93,716)
   
(588,488)
   
(137,411)
                       
Income tax expense (benefit)
 
(108,259)
   
(37,017)
   
(229,065)
   
(54,277)
                       
Loss from continuing operations
 
(170,616)
   
(56,699)
   
(359,423)
   
(83,134)
                       
Discontinued operations
                     
    Income from discontinued operations
 
642,130
   
416,364
   
1,207,287
   
769,479
    Provision for income taxes
 
(266,676)
   
(135,607)
   
(486,840)
   
(275,087)
                       
Income from discontinued operations, net of taxes
 
375,454
   
280,757
   
720,447
   
494,392
                       
Net income
$
204,838
 
$
224,058
 
$
361,024
 
$
411,258
                       
                       
Basic and fully diluted earnings (loss) per common share:
                     
  Continuing operations
$
(.01)
 
$
(.00)
 
$
(.02)
 
$
(.00)
  Discontinued operations, net of tax
$
.02
 
$
.01
 
$
.03
 
$
.02
Net earnings per common share
$
.01
 
$
.01
 
$
.01
 
$
.02
                       
Weighted average common shares outstanding
 
23,954,056
   
22,719,056
   
23,954,056
   
22,719,056


 
2

 



IGAMBIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
         
   
2010
 
2009
   
Restated
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
       
    Net income
$
361 ,024
$
411,258
    Adjustments to reconcile net income to net
       
         cash (used) provided by operating activities
       
         Income from discontinued operations
 
(720,447)
 
(494,392)
         Depreciation
 
180
 
298
         Stock-based compensation expense
       
         Increase (Decrease) in cash flows as a result of
       
         changes in asset and liability account balances:
       
            Accounts receivable
 
(73,511)
 
--
            Prepaid expenses
 
(309,079)
 
--
            Accounts payable
 
238,742
 
4,588
         
    Net cash used by continuing operating activities
 
(503,091)
 
(78,248)
    Net cash (used) provided by discontinued operating activities
 
(487,345)
 
(94,612)
         
              NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
(990,436)
 
(172,860)
         
CASH FLOWS FROM INVESTING ACTIVITIES:
       
    Increase in deposits
 
--
 
(2,500)
    Payments received from loans to stockholders
 
--
 
4,000
         
    Net cash provided by continuing investing activities
 
--
 
1,500
    Net cash provided by discontinued investing activities
 
1,066,822
 
771,032
         
              NET CASH PROVIDED BY INVESTING ACTIVITIES
 
1,066,822
 
772,532
         
CASH FLOWS FROM FINANCING ACTIVITIES:
       
    Increase in loans payable to related party
 
34,058
 
--
         
    Net cash provided by continuing financing activities
 
34,058
 
--
    Net cash provided by discontinued financing activities
 
--
 
(141,538)
         
              NET CASH PROVIDED BY FINANCING ACTIVITIES
 
34,058
 
(141,538)
         
NET INCREASE IN CASH
 
110,444
 
458,134
         
CASH - BEGINNING OF PERIOD
 
857,074
 
322,439
         
CASH - END OF PERIOD
$
967,518
$
780,573
         
         
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     
    Cash paid during the period for:
       
      Interest
$
480
$
--
      Income taxes
 
384,934
 
3,344





 
3

 

Note 1 - Organization and Basis of Presentation

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

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

Business Acquisition

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

Cash                                                                $  4,023
Accounts receivable                                      66,958
Fixed assets                                                       2,993          
                                                                        $73,974
 
Following is a presentation of pro forma balance sheets and statements of operations for the nine months ended September 30, 2009 and for the year ended December 31, 2008, and the pro forma statements of operations for the year ended December 31, 2009:
Nine months ended September 30, 2009:
         
             
Pro Forma Balance Sheets
             
   
iGambit
 
Jekyll
 
Combined
             
Current assets
$
1,371,447
$
70,981
$
1,442,428
Fixed assets
 
1,044
 
2,993
 
4,037
Other assets
 
153,209
     
153,209
Total assets
 
1,525,700
 
73,974
 
1,599,674
             
Current liabilities
 
2,121
 
--
 
2,121
Long-term liabilities
 
--
 
--
 
--
Total liabilities
 
2,121
 
--
 
2,121
Stockholders' equity
 
1,523,579
 
73,974
 
1,597,553
Total liabilities and stockholders' equity
$
1,525,700
$
73,974
$
1,599,674
             
Pro Forma Statements of Operations
             
   
iGambit
 
Jekyll
 
Combined
             
Revenue
$
--
$
249,925
$
249,925
Cost of sales
 
--
 
43,151
 
43,151
Gross profit
 
--
 
206,774
 
206,774
General and administrative expenses
 
418,772
 
208,965
 
627,737
Loss from operations
 
(418,772)
 
(2,191)
 
(420,963)
Other income
 
7,435
 
--
 
7,435
Income tax benefit
 
107,059
 
--
 
107,059
Loss from continuing operations
 
(304,278)
 
(2,191)
 
(306,469)
Income from discontinued operations
 
744,973
 
--
 
744,973
Net income (loss)
$
440,695
$
(2,191)
$
438,504


 
4

 

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
 
 
 
 
5

 

 
Merger Transaction

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

Note 2 – Discontinued Operations

Sale of Business

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

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

   
 
2009
   
 
2008
 
                 
ASSETS
               
Current:
               
Accounts receivable
 
 $
713,732
   
$
367,430
 
Deferred income taxes
   
--
     
279,058
 
Noncurrent:
               
Restricted cash
   
150,985
     
165,727
 
Deferred income taxes
   
--
     
98,750
 
Assets of discontinued operations
 
 $
864,717
   
 $
910,965
 
                 
LIABILITIES
               
Noncurrent:
               
Prepaid contingency
 
 $
--
   
 $
141,538
 
Deferred compensation
   
--
     
350,000
 
Liabilities of discontinued operations
 
 $
--
   
 $
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 $151,398 and $150,985 at June 30, 2010 and December 31, 2009, respectively.



 
6

 



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-Data.  The prepaid contingency balance was fully repaid as of December 31, 2009.

Deferred Compensation

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

Note 3 – Summary of Significant Accounting Policies

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

Use of Estimates in the Preparation of Financial Statements

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

Fair Value of Financial Instruments

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

Revenue Recognition

Contingency payment income is recognized quarterly from a percentage of Digi-Data’s vaulting service revenue, and is included in discontinued operations.

The Company’s revenues from continuing operations consists of revenues primarily from sales of products and services rendered to real estate brokers.  Revenues are recognized upon delivery of the products or services.

Cash and Cash Equivalents

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

Accounts Receivable

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

 
7

 

Property and equipment and depreciation

Property and equipment are stated at cost.  Depreciation for both financial reporting and income tax purposes is computed using combinations of the straight line and accelerated methods over the estimated lives of the respective assets. During the 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 $180 and $298 was charged to operations for the six months ended June 30, 2010 and 2009, respectively.
 
Goodwill

Goodwill represents the fair market value of the common shares issued and common stock options granted by the Company for the acquisition of Jekyll by the Company’s subsidiary, Gotham.  In accordance with ASC Topic No. 350 “Intangibles – Goodwill and Other”), the goodwill is not being amortized, but instead will be subject to an annual assessment of impairment by applying a fair-value based test, and will be reviewed more frequently if current events and circumstances indicate a possible impairment. An impairment loss is charged to expense in the period identified. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the asset’s carrying amount, an impairment loss is charged to expense in the period identified. A lack of projected future operating results from Gotham’s operations may cause impairment.  As Gotham’s marketing plan and expected core business is expected to commence later in 2010, it is too early for management to evaluate whether goodwill has been impaired.  No impairment was recorded during the six months ended June 30, 2010.

Stock-Based Compensation

The Company accounts for its stock-based employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest.  The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options and warrants. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock.  Changes in these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options and warrants.

Income Taxes

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

The Company applies the provisions of ASC Topic No. 740 for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the Company’s financial statements. In accordance with this provision, tax positions must meet a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position.

Note 4 – 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) and 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.

 
8

 


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 June 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
   
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
   
June 30,
 
Effect of
   
June 30,
   
2010
 
Restatement
   
2010
                 
Changes to Consolidated Statement of Cash Flows
               
Net cash used by discontinued operating activities
$
   (140,557)
 
$
     (346,788)
 
$
(487,345)
Net cash provided by discontinued investing activities
$
     720,034
 
$
   346,788
 
$
          1,066,822



   
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 provided (used) by discontinued operating activities
$
   166,301
 
$
     (260,913)
 
$
(94,612)
Net cash provided by discontinued investing activities
$
     510,119
 
$
   260,913
 
$
          771,032

 
 
 
9

 

 
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.  
         
  
   Six Months Ended
         June 30,
 
               
2010
   
2009
 
           Stock options
                   
1,046,900
     
296,900
 
            Aver Common stock warrants
                   
835,000
     
3,085,000
 
                                 
            Basic Total shares excluded from                                         calculation
                   
1,881,900
     
3,381,900
 

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 June 30, 2010, 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 six months ended June 30, 2010 follows:


                     
Weighted
                     
Average
               
   Weighted
 
Remaining
       
Average
 
 Average
 
Contractual
 
Warrants
 
Exercise Price
 
Grant-Date         Fair Value
 
Life (Years)
Warrants outstanding at January 1, 2010
 
3,085,000
 
$
0.83
 
$
 
0.10
   
No warrant activity
 
--
   
--
     
--
   
Warrants outstanding at June 30, 2010
 
3,085,000
 
$
0.83
 
$
 
0.10
 
6.58
Stock Option Plan activity during the six months ended June 30, 2010 follows:

 
10

 


                     
Weighted
                     
Average
               
   Weighted
 
Remaining
       
Average
 
 Average
 
Contractual
 
Options
 
Exercise Price
 
Grant-Date         Fair Value
 
Life (Years)
Options outstanding at January 1, 2010
 
1,796,000
 
$
0.01
 
$
 
0.10
   
No option activity
 
--
   
--
     
--
   
Options outstanding at June 30, 2010
 
1,796,900
 
$
0.01
 
$
 
0.10
 
5.34

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.

   
Six months ended June 30,
 
   
2010
   
2009
 
Weighted average risk-free rate
   
4.87
%
   
4.64
%
Average expected life in years
   
6.0
     
5.3
 
Expected dividends
 
None
   
None
 
Volatility
   
36
%
   
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.
 
11

 
Note 8 - Income Taxes

The tax provision at June 30 consists of the following:
 
2010                      2009
From operations:
Continuing operations:
Current tax expense (benefit):                                                                           
    Federal                                                                                        $(180,932)           $   (42,872)
    State and local                                                                               (48,133)                (11,405)
           (229,065)                (54,277)
Deferred tax expense (benefit)                                                                 --                           --
    Total from continuing operations                                            (229,065)                (54,277)
Discontinued operations:
Current tax expense (benefit)                                                                                                           
    Federal                                                                                           386,573                211,220
    State and local                                                                              100,267                  63,867
                                                                                                            486,840                275,087
Deferred tax expense (benefit):
    Federal                                                                                                     --                         --
    State and local                                                                                        --                         --
                                                                                                                      --                         --
 
    Total from discontinued operations                                         486,840                         --

    Total                                                                                           $ 257,775           $  220,810

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

          Six Months Ended
       June 30,
2010          2009

Statutory tax rate                                                                                34.0%        34.0%
  Effect of:
State income taxes, net of
Federal income tax benefit                                                                  5.5%          5.5%
Tax effect of expenses that are not
  deductible for income tax purposes                                              (0.6)%            --
Effective tax rate                                                                                 38.9%        39.5%

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.

 
12

 


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

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

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

2010                      2009

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

       $           --               $ 377,808

Note 9 – Risks and Uncertainties

Contingency Payment Income – Discontinued Operations

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

Uninsured Cash Balances

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

 
13

 
Note 10 - Related Party Transactions

Notes Receivable - Stockholders

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

Accrued interest on the note was $506 for the six months ended June 30, 2010 and 2009, respectively.

The Company provided advances to two stockholders and former officers totaling $198,281 and $79,281 as of December 31, 2008, against their respective deferred compensation balances.  The advances to the stockholders were collateralized with their common shares issued and outstanding of 5,470,000 shares each.  The former officers repaid the advances to the Company during the year ended December 31, 2009.

Loans Payable - Stockholders

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

Note Payable – Related Party

Gotham provided loans to an entity that is controlled by the officers of Gotham totaling $34,058 at June 30, 2010.  The note bears interest at a rate of 5.5% and is due on July 1, 2011.
Interest expense of $310 was charged to operations for the six months ended June 30, 2010.

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 $43,100 was charged to operations for the six months ended June 30, 2010.

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.

 
14

 


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

 
15

 

extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. The intent of the standard is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. Adoption of the standard was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, The Company adopted the standard on January 1, 2009. The Company does not expect the standard to have a material impact on its accounting for future acquisitions of intangible assets.

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

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

In April 2009, the FASB issued an accounting standard now codified within ASC 820, “Fair Value Measurements and Disclosures”, which provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales, The standard reaffirms the objective of fair value measurement, which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. The standard is effective for interim and annual periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009.
 
In May 2009, the FASB issued an accounting standard now codified within ASC 855, “Subsequent Events”, which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued

 
16

 

or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The standard was effective for interim or annual periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (ASU 2010-09) “Subsequent Events” (Topic 855): “Amendments to Certain Recognition and Disclosure Requirements”. This ASU amends FASB Codification topic 855. The amendments in ASU 2010-09 removes the requirement in ASC 855-10 for a SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This ASU was effective upon issuance and the Company adopted this ASU as of December 31, 2009. Except for the removal of disclosure requirements in ASC 855-10, the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
 
In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurements and Disclosures - Measuring Liabilities at Fair Value”. The ASU provides additional guidance for the fair value measurement of liabilities under ASC 820, Fair Value Measurements and Disclosures. The ASU provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. The ASU also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. It also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level fair value measurements. The Company adopted the ASU in the fourth fiscal quarter of 2009.

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

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.

 
17

 


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.

 
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Note 13 – Subsequent Events

On July 20, 2010, the Company entered into a letter of intent to acquire the assets and business of Allied Airbus, Inc. (“Allied”).  In exchange for the acquisition of Allied, the Company would issue to Allied upon execution of the definitive agreement 500,000 shares of the Company’s common stock and an additional 2,250,000 common shares over a three year period beginning on January 1, 2011 based upon certain performance criteria, as well as additional cash or discounted common stock based upon earnings criteria.  The Company would also assume or retire debt of Allied of not more than $225,000.  The letter of intent will terminate on September 30, 2010 if both parties are unable to negotiate a mutually acceptable definitive agreement, unless the parties agree in writing to extend such date.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD LOOKING STATEMENTS
 
    This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), finding suitable merger or acquisition candidates, expansion and growth of the Company’s business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances.
 
    Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Factors that could adversely affect actual results and performance include, among others, potential fluctuations in quarterly operating results and expenses, government regulation, technology change and competition. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.

 
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CRITICAL ACCOUNTING ESTIMATES
 
     Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements may require us to make estimates and assumptions that may affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements. We do not currently have any estimates or assumptions where the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change or the impact of the estimates and assumptions on financial condition or operating performance is material, except as described below.
 
Fair Value of Financial Instruments
 
     For certain of the our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and amounts due to related parties, the carrying amounts approximate fair value due to their short maturities.
 
Revenue Recognition
 
     Contingency payment income is recognized quarterly from a percentage of Digi-Data’s vaulting service revenue, and is included in discontinued operations. Our revenues from continuing operations consist of revenues primarily from sales of products and services rendered to real estate brokers. Revenues are recognized upon delivery of the products or services.
 
Cash and Cash Equivalents
 
     For purposes of reporting cash flows, cash and cash equivalents include checking and money market accounts and any highly liquid debt instruments purchased with a maturity of three months or less.
 
Accounts Receivable
 
    We analyze the collectability of accounts receivable each accounting period and adjust our allowance for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the realization of accounts receivables, including the current creditworthiness of each customer, current and historical collection history and the related aging of past due balances. We evaluate specific accounts when we become aware of information indicating that a customer may not be able to meet its financial obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors affecting the ability to render payment.
 
    As of December 31, 2009, we had charged $65,000 of bad debts to operations for uncollectible accounts.
 
 
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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 $180 and $298 was charged to operations for the six months ended June 30, 2010 and 2009, respectively.
 
Goodwill
 
     Goodwill represents the fair market value of the common shares issued and common stock options granted by the Company for the acquisition of Jekyll by the Company’s subsidiary, Gotham. In accordance with ASC Topic No. 350 “Intangibles — Goodwill and Other”, the goodwill is not being amortized, but instead will be subject to an annual assessment of impairment by applying a fair-value based test, and will be reviewed more frequently if current events and circumstances indicate a possible impairment. An impairment loss is charged to expense in the period identified. If indicators of impairment are present and future cash flows are not expected to be sufficient to recover the asset’s carrying amount, an impairment loss is charged to expense in the period identified. A lack of projected future operating results from Gotham’s operations may cause impairment. As Gotham’s marketing plan and expected core business is expected to commence later in 2010, it is too early for management to evaluate whether goodwill has been impaired. No impairment was recorded during the six months ended June 30, 2010.

Stock-Based Compensation
 
    We account for our stock-based employee compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as Equity, which requires the measurement of compensation expense for all share-based compensation granted to employees and non-employee directors at fair value on the date of grant and recognition of compensation expense over the related service period for awards expected to vest.  We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants. The Black-Scholes option valuation model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock.  Changes in these subjective input assumptions can materially affect the fair value estimate of our stock options and warrants.
 
Income Taxes

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

 
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     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 six months ended June 30, 2010 Gotham produced approximately $166,661 and $413,659 of revenue, respectively. We are focused on expanding the operations of Gotham by marketing the company to existing and potential new clients. Currently Gotham has several proposals outstanding to franchisees of one of its main customers, as well as other potential new clients. In addition to Gotham’s operations, we receive Quarterly Revenue Share Payments and Annual Increase Payments from Digi-Data Corporation, which are payable pursuant to the terms of an agreement under which we sold certain assets to DDC in 2006. 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  $1,207,287 under our arrangement with DDC during the six months ended June 30, 2010, of which $1,008,733 was for the first two quarters Contingency Payments and $198,554 was accrued revenue for the 5% year to year Contingency Payment for the months January 2010 to June 2010. We expect that the payments from DDC, which we will receive through February 2011, will continue to grow based upon the expansion of DDC’s business. We are also focused on acquiring or partnering with additional technology companies.

     Assets. At June 30, 2010, we had $2,554,458 in total assets, compared to $1,920,634 at December 31, 2009.   The increase in total assets was primarily due to the increase in cash as a result of the receipt of increased contingency payments from DDC.

     Liabilities. At June 30, 2010, our total liabilities were $372,232 compared to $99,432 at December 31, 2009. Liabilities consist of accounts payablea note payable to a related party , and a loan payable to stockholders. We do not have any long term liabilities.  The increase in total liabilities was primarily due to the income tax provision.

     Stockholders’ Equity (Deficit). Our stockholders’ equity increased to $2,182,226 at June 30, 2010 from $1,821,202 at December 31, 2009. This increase was primarily due to the receipt of contingency payments from Digi-Data Corp. and a decrease in accumulated deficit from $(599,195) at December 31, 2009, to $(238,171) at June 30, 2010.

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

    Revenues and Net Income. We had $246,317 of revenue during the three months ended June 30, 2010, as compared to no revenue during the three months ended June 30, 2009.  The increase in revenue was due to revenue generated by our acquired subsidiary Gotham.  In addition, we had income from discontinued operations of $375,454 for the three months ended June 30, 2010, compared to $280,757 for the three months ended June 30, 2009. Our increase in revenue was offset entirely by a $331,980 increase in General and administrative expenses. We continue to receive 10% of Digi-Data’s gross Vault sales and 5% of the year to year increase. This agreement ends on February 28, 2011.

     General and Administrative Expenses. General and Administrative Expenses increased to $429,173 for the three months ended June 30, 2010 from $96,124 for the three months ended June 30, 2009. For the three months ended June 30, 2010 our General and Administrative Expenses consisted of corporate administrative expenses of $125,937, legal and accounting fees of $47,855, payroll expenses of $255,381 For the three months ended June 30, 2009 our General and Administrative Expenses consisted of corporate administrative expenses of $24,779, and legal and accounting fees of $71,345. The increases from the three months ended June 30, 2009 to the three months ended June 30, 2010 relate primarily to: (i) professional costs associated with the preparation and filing of a registration statement with the SEC; and (ii) costs associated with the operation of our Gotham subsidiary. Costs associated with the operation of our Gotham subsidiary should remain level going forward, subject to a material expansion in the business operations of Gotham which would likely increase our corporate administrative expenses. Further, we anticipated an increase in legal and accounting fees in 2010 as a result of having become a reporting company under the Securities Exchange Act of 1934.

Six Months Ended June 30, 2010 as Compared to Six Months Ended June 30, 2009

     Revenues and Net Income. We had $413,659 of revenue during the six months ended June 30, 2010, as compared to no revenue during the six months ended June 30, 2009.  The increase in revenue was due to revenue generated by our acquired subsidiary Gotham.  In addition, we had income from discontinued operations of $720,447 for the six months ended June 30, 2010, compared to $494,392 for the six months ended June 30, 2009, and net income of $361,024 for the six months ended June 30, 2010, compared to $411,258 for the six months ended June 30, 2009. Our increase in revenue was offset entirely by a $718,921 increase in General and administrative expenses. We continue to receive 10% of Digi-Data’s gross Vault sales and 5% of the year to year increase. This agreement ends on February 28, 2011.

     General and Administrative Expenses. General and Administrative Expenses increased to $858,740 for the six months ended June 30, 2010 from $139,819 for the six months ended June 30, 2009. For the six months ended June 30, 2010 our General and

 
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Administrative Expenses consisted of corporate administrative expenses of $211,529, legal and accounting fees of $68,730, initial public offering expenses of $49,276, and payroll expenses of $529,205 For the six months ended June 30, 2009 our General and Administrative Expenses consisted of corporate administrative expenses of $51,724 and legal and accounting fees of $88,095. The increases from the six months ended June 30, 2009 to the six months ended June 30, 2010 relate primarily to: (i) salaries for officers hired by the Company at the end of the 2nd quarter of 2009; (ii) professional costs associated with the preparation and filing of a registration statement with the SEC; and (iii) costs associated with the operation of our Gotham subsidiary. Costs associated with our officers’ salaries and the operation of our Gotham subsidiary should remain level going forward, subject to a material expansion in the business operations of Gotham which would likely increase our corporate administrative expenses. Further, whereas the additional professional fees associated with the acquisition of Jekyll Island Ventures, Inc. will not carry over into future periods unless we engage in other acquisitions, we anticipated an increase in legal and accounting fees in 2010 as a result of having become a reporting company under the Securities Exchange Act of 1934.

Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, at June 30, 2010, we had $967,518 cash and stockholders’ equity of $2,182,226. At June 30, 2010 we had $2,554,458 in total assets, compared to $1,920,634 at December 31, 2009.

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

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

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

 
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Cash Flow Activity

Net cash used in operating activities was $990,436 for the six months June 30, 2010, compared to net cash used in operating activities of $172,860 for the six months ending June 30, 2009. Our primary source of operating cash flow for the six months ending June 30, 2010 was from net income of $361,024, compared to net income of $411,258 for the six months ending June 30, 2009.  The primary source of net income is  income from discontinued operations totaling $720,447 for the six months ending June 30, 2010 (net of taxes of $468,840) compared to income from discontinued operations of $494,392 for the six months ending June 30, 2009 (net of taxes of $275,087).  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 $1,207,287 during the six months ended June 30, 2010, and $769,479 during the six months ending June 30, 2009.    Of the $1,207,398 revenue earned from DDC in the six months ending June 30, 2010 we received $1,067,235 in cash payments from DDC $414,851 of which was for the fourth quarter 2009 Contngency Payment, $472,384 was for the first quarter 2010 Contingency Payment and $180,000 was partial payment for the March 2009-February 2010 Annual Increase Contingency Payment.  Additionally $140,052 was offset by an increase in the accounts receivable included in Assets from Discontinued Operations.   Of the $769,479 revenue earned from DDC in the six months ending June 30, 2009 we received $755,304.50 in cash payments from DDC of which $246,008.85 was for the fourth quarter 2008 Contingency Payment, $286,976.65 was for the first quarter 2009 Contingency Payment and $222,322 was for the March 2008-February 2009 Annual Increase Contingency Payment.  Additionally $14,174.50 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 used by DDC contingency payment escrow of $413 for the six months ending June 30, 2010 and cash provided by DDC contingency payment escrow of $15,727 for the six months ending June 30, 2009, resulting in net cash provided by discontinued investing activities of $1,066,822 and $772,532 for the six months ending June 30, 2010 and 2009, 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 incurred a net loss of $(124,954) in 2009 and generated revenues of $411,246 and incurred a net loss of $(152,549) for the six months ended June 30, 2010.

Cash provided by investing activities was $1,066,822 for the first six months ended June 30, 2010 and $772,532 for the six months ended June 30, 2009.   The primary source of cash provided by investing activities is the DDC Contingency Payments classified as cash flows from discontinued investing activities. 

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

Supplemental Cash Flow Activity

In the six months ended June 30, 2010 the company paid income taxes of $384,934 compared to $3,344 for the six months ended June 30, 2009. The increase in taxes was due to the company having used up its Net Operating Loss carry over in fiscal year 2009. The company also paid interest of $480 during the first six months of fiscal year 2010.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
Not Required.
 
Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2010. Based on their initial evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective. As described in Note 4 to our financial statements appearing later in this report, we are restating our financial statements for the three and nine months ended June 30, 2010 to correct errors related to

 
an error in the Black-Scholes calculation related to the value of warrants issued as compensation during the period ended June 30, 2010 which overstated the expense to us for these issuances, and
 
the incorrect classification of unpaid compensation on our cash flow statement for the period ended June 30, 2010 under financing activities instead of operating activities.

These errors within our financial statements at June 30, 2010 and for the period then ended also related to errors within our financial statements for the year ended December 31, 2009 which led to a restatement of those financial statements as described in our Annual Report on Form 10-K/A as filed with the Securities and Exchange Commission on February 23, 2011.

 
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As a result of these errors, our management has subsequently determined that our disclosure controls and procedures were not effective at June 30, 2010 as a result of continuing material weaknesses and significant deficiencies in our internal control over financial reporting related to our application of U.S. generally accepted accounting principles.  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 the company’s 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.

Changes in internal controls. There were no changes in our internal controls over financial reporting during the second fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II — OTHER INFORMATION
     
Item 1.
 
Legal Proceedings.
From time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period ended June 30, 2010.
     
Item 1A.
 
Risk Factors.
Not required
     
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
None
     
Item 3.
 
Defaults upon Senior Securities.
 


 
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one
     
Item 4.
 
Removed and Reserved.
     
Item 5.
 
Other Information.
None
     
Item 6.
 
Exhibits
         
Exhibit No.
 
Description
         
 
31.1
   
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
         
 
31.2
   
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
         
 
32.1
   
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
         
 
32.2
   
Certification of the Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 


 
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on  February 23, 2011.
         
 
iGambit, Inc.
 
 
 
/s/ John Salerno  
 
 
John Salerno 
 
 
Chief Executive Officer 
 
 
         
     
 
/s/ Elisa Luqman  
 
 
Elisa Luqman 
 
 
Chief Financial Officer 
 

 
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Exhibit Index
         
Exhibit No.
 
Description
         
 
31.1
   
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
         
 
31.2
   
Certification of the Interim Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
         
 
32.1
   
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
         
 
32.2
   
Certification of the Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
 


 
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