Clinigence Holdings, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Clinigence Holdings, Inc.	Financial_Report.xls
EX-31.1 - CERTIFICATION CEO - Clinigence Holdings, Inc.	exhibit311.htm
EX-32.1 - CERTIFICATION CEO - Clinigence Holdings, Inc.	exhibit321.htm
EX-31.2 - CERTIFICATION CFO - Clinigence Holdings, Inc.	exhibit312.htm
EX-32.2 - CERTIFICATION CEO - Clinigence Holdings, Inc.	exhibit322.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended March 31, 2012

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT

For the transition period from

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

(I.R.S. Employer

incorporation or organization)

Identification No.)

1050 W. Jericho Turnpike, Suite A

Smithtown, New York 11787

(Address of Principal Executive Offices) (Zip Code)

(631) 670-6777

(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 þ 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 Accelerated filer

Non-accelerated filer o

Smaller reporting

filer o

company þ

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes o No þ

The Registrant had 23,954,056 shares of its common stock outstanding as of May 14, 2012.

iGambit Inc.

Form 10-Q

Page No.

Part I — Financial Information

Item 1.

Financial Statements:

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Part II — Other Information

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults upon Senior Securities

Item 4.

Removed and Reserved

Item 5.

Other Information

Item 6.

Exhibits

EX-31.1

EX-31.2

EX-32.1

EX-32.2

PART I — FINANCIAL INFORMATION

IGAMBIT INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31,

DECEMBER 31,

2012 (Unaudited)

2011

ASSETS

Current assets

Cash

216,162

224,800

Accounts receivable, net

211,660

269,353

Prepaid expenses

43,635

58,649

Notes receivable

434,512

Notes receivable - stockholder

17,000

Deferred income taxes

285,441

184,185

Assets from discontinued operations

420,590

570,590

Total current assets

1,629,000

1,759,089

Property and equipment, net

22,886

18,563

Other assets

Goodwill

111,026

Deposits

2,070

2,500

Total other assets

113,096

113,526

1,764,982

1,891,178

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

298,359

263,195

Note payable - related party

22,265

25,390

Loan payable - stockholder

5,300

Total current liabilities

325,924

288,585

Stockholders' equity

Common stock, $.001 par value; authorized - 75,000,000 shares;

issued and outstanding - 23,954,056 shares, respectively

23,954

Additional paid-in capital

2,403,090

Accumulated deficit

(987,986)

(824,451)

Total stockholders' equity

1,439,058

1,602,593

1,764,982

1,891,178

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31,

(Unaudited)

2012

2011

Sales

480,348

411,903

Cost of sales

255,038

130,221

Gross profit

225,310

281,682

Operating expenses

General and administrative expenses

496,941

452,399

Loss from operations

(271,631)

(170,717)

Other income

Interest income

6,840

7,235

Loss from continuing operations before income tax

(264,791)

(163,482)

Income tax expense (benefit)

(101,256)

(49,217)

Loss from continuing operations

(163,535)

(114,265)

Income from discontinued operations (net of taxes of $82,314

and reserve for bad debts of $250,000)

159,785

Net (loss) income

(163,535)

45,520

Basic and fully diluted earnings (loss) per common share:

Continuing operations

(.01)

Discontinued operations, net of tax

.01

Net earnings per common share

(.01)

.00

Weighted average common shares outstanding

23,954,056

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,

(Unaudited)

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

(163,535)

45,520

Adjustments to reconcile net (loss) income to net

cash used by operating activities

Income from discontinued operations

(159,785)

Depreciation

2,124

672

Deferred income taxes

(101,256)

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

57,693

(113,616)

Prepaid expenses

15,014

140,365

Accounts payable

35,164

(86,219)

Net cash used by continuing operating activities

(154,796)

(173,063)

Net cash provided (used) by discontinued operating activities

150,000

(82,314)

NET CASH USED BY OPERATING ACTIVITIES

(4,796)

(255,377)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(1,147)

(3,242)

Decrease in deposits

430

Net cash used by continuing investing activities

(717)

(3,242)

Net cash provided by discontinued investing activities

150,000

NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES

(717)

146,758

NET CASH USED BY FINANCING ACTIVITIES:

Repayment of loans from shareholders

(3,125)

NET DECREASE IN CASH

(8,638)

(108,619)

CASH - BEGINNING OF PERIOD

224,800

465,549

CASH - END OF PERIOD

216,162

356,930

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

924

848

Income taxes

4,125

13,940

Non-cash investing and financing activities:

Property and equipment purchased through loan from stockholder

5,300

IGAMBIT INC.

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2012 and 2011

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, 2012.

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 operations.

The assets of the discontinued operations are presented in the balance sheets under the captions “Assets of

discontinued operations”. The underlying assets of the discontinued operations consist of accounts

receivable of $420,590 and $570,590 as of March 31, 2012 and December 31, 2011, respectively.

Accounts Receivable

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

bad debts of $250,000 was charged to operations for the year ended December 31, 2010. No reserve for

bad debts was charged to operations for the three months ended March 31, 2012.

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 was 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. There was no bad debt expense

charged to operations for the three months ended March 31, 2012 and 2011, respectively.

Prepaid Expenses

Prepaid expenses consist of the following:

March 31,

December 31,

2012

2011

Prepaid state income taxes $

22,379 $

31,758

Prepaid insurance

15,756

26,891

Prepaid rent

5,500

43,635 $

58,649

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 three months ended March 31, 2012, the Company purchased

furniture and computer equipment totaling $6,447. Computer equipment is depreciated over 5 years and

furniture and fixtures are depreciated over 7 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 $2,124 and $672 was charged to operations for the three months ended March

31, 2012 and 2011, 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. At December 31, 2011, the Company

performed an impairment study and determined that there is no indication that present and future cash

flows are not expected to be sufficient to recover the carrying amount of goodwill. The Company has not

performed an impairment study during the three months ended March 31, 2012. Based on the Company’s

evaluation of goodwill, no impairment was recorded during the three months ended March 31, 2012.

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 – Notes Receivable

In connection with a letter of intent the Company entered into with Allied Airbus, Inc. (“Allied”) on July

20, 2010 to which both parties were unable to reach a mutually acceptable definitive agreement, the

Company provided various loans to Allied totaling $434,512 at March 31, 2012, for which promissory

notes were issued. The notes are personally guaranteed by the officers of Allied, bear interest at a rate of

6% and are due in one year. As of March 31, 2012, all of the notes became past due. On November 1,

2011, the Company commenced litigation against Allied for nonpayment of the note principal balances

and interest, as discussed in Note 13.

Accrued interest on the notes was $6,482 and $6,983 for the three months ended March 31, 2012 and

2011, respectively.

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.

Three Months Ended

March 31,

2011

Stock options

2,768,900

2,468,900

Common stock warrants

275,000

3,085,000

Total shares excluded from calculation

3,043,900

5,553,900

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

operations.

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, the Company recognized

compensation expense ratably over the vesting period, net of estimated forfeitures. As of March 31, 2012,

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 10,000,000 shares of common

stock. 8,822,000 options have been issued or exercised to date. There are 8,617,520 options outstanding

under the 2006 Plan.

Warrant activity during the three months ended March 31, 2012 follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Grant-Date

Life

Warrants

Exercise Price

Fair Value

(Years)

Warrants outstanding at

January 1, 2012

275,000

0.94

0.10

No warrant activity

Warrants outstanding at

March 31, 2012

275,000

0.94

0.10

1.02

Stock Option Plan activity during the three months ended March 31, 2012 follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Grant-Date

Life

Options

Exercise Price

Fair Value

(Years)

Options outstanding at

January 1, 2012

2,768,900

0.04

0.10

No option activity

Options outstanding at

March 31, 2012

2,768,900

0.04

0.10

6.60

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.

Three months ended March 31,

__2012__

__2011__

Weighted average risk-free rate

0.64%

1.89%

Average expected life in years

5.0

4.6

Expected dividends

None

Volatility

44%

36%

Forfeiture rate

Note 7 - Income Taxes

The tax provision at March 31 consists of the following:

2012

2011

From operations:

Continuing operations:

Current tax expense (benefit):

Federal

$ ( 81,524) $ (54,046)

State and local

( 19,732)

4,829

Total from continuing operations

(101,256)

(49,217)

Discontinued operations:

Current tax expense (benefit)

Federal

82,314

State and local

Total from discontinued operations

82,314

Total

$ (101,256) $

33,097

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

Three Months Ended

March 31,

2012

2011

Statutory tax rate

34.0% 34.0%

Effect of:

State income taxes, net of

Federal income tax benefit

(2.1)% 6.1%

Tax effect of expenses that are not

Deductible for income tax purposes (0.6)% 1.0%

Effective tax rate

31.3% 42.1%

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. Deferred tax assets and liabilities are calculated based on the difference

between the financial reporting and tax bases of assets and liabilities using the currently enacted tax rates

in effect during the years in which the differences are expected to reverse. Deferred taxes are classified as

current or non-current, depending on the classification of the assets and liabilities to which they relate.

The Company’s provision for income taxes differs from applying the statutory U.S. federal income tax

rate to income before income taxes. The primary differences result from providing for state income taxes

and from deducting certain expenses for financial statement purposes but not for federal income tax

purposes.

In accordance with ASC Topic No. 740, Income Taxes, a valuation allowance is established based on the

future recoverability of deferred tax assets. This assessment is based upon consideration of available

positive and negative evidence, which includes, among other things, the Company’s most recent results of

operations and expected future profitability. Management has determined that no valuation allowance

related to deferred tax assets is necessary at March 31, 2012 and December 31, 2011.

Note 8 - Retirement Plan

Gotham has adopted the Gotham Innovation Lab, Inc. SIMPLE IRA Plan, which covers substantially all

employees. Participating employees may elect to contribute, on a tax-deferred basis, a portion of their

compensation in accordance with Section 408 (a) of the Internal Revenue Code. The Company matches

up to 3% of employee contributions. The Company's contributions to the plan for the three months ended

March 31, 2012 and 2011 were $2,702 and $2,591, respectively.

Note 9 – Significant Customers

Sales of Gotham to three customers amounted to approximately 65% of Gotham’s total sales for the three

months ended March 31, 2012 at 36%, 17%, and 12%, respectively.

Note 10 – Risks and Uncertainties

Uninsured Cash Balances

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

Note 11 - Related Party Transactions

Notes Receivable - Stockholders

The Company provided loans to a stockholder totaling $17,000 at March 31, 2012 and December 31,

2011. The loans bear interest at a rate of 6% and are due on December 31, 2012.

Accrued interest on the note was $254 and $252 for the three months ended March 31, 2012 and 2011,

respectively.

Note Payable – Related Party

Gotham was provided loans from an entity that is controlled by the officers of Gotham totaling $22,265

and $25,390 at March 31, 2012 and December 31, 2011, respectively. The note bears interest at a rate of

5.5% and is due on December 31, 2012.

Interest expense of $177 and $118 was charged to operations for the three months ended March 31, 2012

and 2011, respectively.

Loan Payable - Stockholder

A stockholder/officer of the Company paid for property and equipment totaling $5,300 on behalf of the

Company. The loan does not bear interest and will be repaid by December 31, 2012.

Note 12 - Lease Commitment

On February 1, 2012, iGambit entered into a 5 year lease for new executive office space in Smithtown,

New York commencing on March 1, 2012.

Gotham has an operating lease for office space renewable annually on October 16 at a monthly rent of

$5,500.

Total future minimum annual lease payments under the lease for the years ending December 31 are as

follows:

2012

$ 13.500

2013

18,360

2014

18,720

2015

19,080

2016

19,440

$ 89,100

Rent expense of $23,400 and $24,300 was charged to operations for the three months ended March 31,

2012 and 2011, respectively.

Note 13 - Litigation

On November 1, 2011, the Company commenced collection proceedings against Allied Airbus, Inc.

(“Allied”) for nonpayment of various promissory notes totaling $434,512 at March 31, 2012 in

connection with a letter of intent the Company entered into to acquire the assets and business of Allied, to

which a definitive agreement could not be reached. The claim against Allied includes accrued interest at

the rate of 6%. The Company provided loans to Allied between July 2010 and March 2011 totaling

$541,000, of which $106,488 has been repaid.

Note 14 – Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve

Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-

04”), which is intended to result in convergence between U.S. GAAP and International Financial

Reporting Standards requirements for measurement of, and disclosures about, fair value. ASU 2011-04

clarifies or changes certain fair value measurement principles and enhances the disclosure requirements

particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods

beginning after December 15, 2011, with early adoption prohibited for public companies. The new

guidance will require prospective application. The Company will adopt this pronouncement in the first

quarter of 2012 and does not expect its adoption to have a material effect on its financial position or

results of operations.

In December 2010, the FASB issued authoritative guidance regarding when to perform step 2 of the

goodwill impairment test for reporting units with zero or negative carrying amounts. The guidance

modifies Step 1 of the goodwill impairment test so that for those reporting units with zero or negative

carrying amounts, an entity is required to perform Step 2 of the goodwill impairment test if it is more

likely than not based on an assessment of qualitative indicators that a goodwill impairment exists. In

determining whether it is more likely than not that goodwill impairment exists, an entity should consider

whether there are any adverse qualitative factors indicating that an impairment may exist. This guidance

is effective for fiscal years, and interim periods within those years, beginning after December 15,

2010. The Company adopted this standard beginning January 1, 2011, and the adoption did not have a

material impact on the Company’s consolidated financial statements.

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 adopted this standard

beginning January 1, 2011, and the adoption did not have a material impact on the Company’s

consolidated financial statements.

Note 15 – Subsequent Events

In accordance with FASB ASC 855, Subsequent Events, the Company evaluates events and transactions

that occur after the balance sheet date for potential recognition in the consolidated financial statements.

The effect of all subsequent events that provide additional evidence of conditions that existed at the

balance sheet date are recognized in the consolidated financial statements as of March 31, 2012. In

preparing these consolidated financial statements, the Company evaluated the events and transactions that

occurred through the date these consolidated financial statements were issued. There were no material

subsequent events that required recognition or additional disclosure in these consolidated financial

statements.

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

FORWARD LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the

Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as

amended. All statements, other than statements of historical facts, included or incorporated by reference

in this Form 10-Q which address activities, events or developments that the Company expects or

anticipates will or may occur in the future, including such things as future capital expenditures (including

the amount and nature thereof), finding suitable merger or acquisition candidates, expansion and growth

of the Company’s business and operations, and other such matters are forward-looking statements. These

statements are based on certain assumptions and analyses made by the Company in light of its experience

and its perception of historical trends, current conditions and expected future developments as well as

other factors it believes are appropriate in the circumstances.

Investors are cautioned that any such forward-looking statements are not guarantees of future

performance and involve significant risks and uncertainties, and that actual results may differ materially

from those projected in the forward-looking statements. Factors that could adversely affect actual results

and performance include, among others, potential fluctuations in quarterly operating results and expenses,

government regulation, technology change and competition. Consequently, all of the forward-looking

statements made in this Form 10-Q are qualified by these cautionary statements and there can be no

assurance that the actual results or developments anticipated by the Company will be realized or, even if

substantially realized, that they will have the expected consequence to or effects on the Company or its

business or operations. The Company assumes no obligations to update any such forward-looking

statements.

CRITICAL ACCOUNTING ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations are

based on our financial statements, which have been prepared in accordance with accounting principles

generally accepted in the United States of America. The preparation of financial statements may require

us to make estimates and assumptions that may affect the reported amounts of assets and liabilities and

the related disclosures at the date of the financial statements. We do not currently have any estimates or

assumptions where the nature of the estimates or assumptions is material due to the levels of subjectivity

and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to

change or the impact of the estimates and assumptions on financial condition or operating performance is

material, except as described below.

Fair Value of Financial Instruments

For certain of the our financial instruments, including cash and cash equivalents, accounts receivable,

accounts payable, and amounts due to related parties, the carrying amounts approximate fair value due to

their short maturities.

Revenue Recognition

Contingency payment income is recognized quarterly from a percentage of Digi-Data’s vaulting

service revenue, and is included in discontinued operations. Our revenues from continuing operations

consist of revenues primarily from sales of products and services rendered to real estate brokers.

Revenues are recognized upon delivery of the products or services.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include checking and money market

accounts and any highly liquid debt instruments purchased with a maturity of three months or less.

Accounts Receivable

We analyze the collectability of accounts receivable each accounting period and adjust our allowance

for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the

realization of accounts receivables, including the current creditworthiness of each customer, current and

historical collection history and the related aging of past due balances. We evaluate specific accounts

when we become aware of information indicating that a customer may not be able to meet its financial

obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors

affecting the ability to render payment.

As of December 31, 2011, accounts receivable included 50% of contingency payments earned for the

previous quarter. Reserve for bad debt of $250,000 was charged to operations for the year ended

December 31, 2010. No reserve for bad debts was charged to operations for the three months ended

March 31, 2012.

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 three months ended March 31, 2012, we purchased computer

equipment totaling $6,447. Computer equipment is depreciated over 5 years and furniture and fixtures are

depreciated over 7 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 $2,124 and $672was charged to operations for the three months ended March 31,

2012 and 2011, 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