Clinigence Holdings, Inc. - FORM 10-Q

Attached files

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

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, 2013

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 filer

Accelerated filer

Non-accelerated filer o

Smaller reporting company

(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 25,044,056 shares of its common stock outstanding as of July 23, 2013.

iGambit Inc.

Form 10-Q

Page

No.

Part I — Financial Information

Item 1.

Financial Statements:

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Cash Flows

Notes to Condensed 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.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31,

2013

DECEMBER 31,

(Unaudited)

2012

ASSETS

Current assets

Cash

49,261

104,721

Accounts receivable, net

157,045

158,441

Prepaid expenses

118,494

133,077

Assets from discontinued operations, net

320,590

Total current assets

645,390

716,829

Property and equipment, net

16,332

17,870

Other assets

Deposits

8,370

11,220

670,092

745,919

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

430,745

433,958

Deferred income

130,000

Note payable - related party

6,263

Total current liabilities

567,008

440,221

Stockholders' equity

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

issued and outstanding - 25,044,056 shares, respectively

25,044

Additional paid-in capital

2,729,000

Accumulated deficit

(2,650,960)

(2,448,346)

Total stockholders' equity

103,084

305,698

670,092

745,919

IGAMBIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

2013

2012

Sales

362,821

480,348

Cost of sales

115,770

255,038

Gross profit

247,051

225,310

Operating expenses

General and administrative expenses

449,665

496,941

Loss from operations

(202,614)

(271,631)

Other income

Interest income

6,840

Loss from operations before income tax

(202,614)

(264,791)

Income tax (benefit)

(101,256)

Net loss

(202,614)

(163,535)

Basic and fully diluted loss per common share

(.01)

Weighted average common shares outstanding

25,044,056

23,954,056

IGAMBIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

(202,614)

(163,535)

Adjustments to reconcile net loss to net

cash used in operating activities

Depreciation

1,538

2,124

Deferred income taxes

(101,256)

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

1,396

57,693

Prepaid expenses

14,583

15,014

Accounts payable

(3,213)

35,164

Deferred income

130,000

Net cash used in continuing operating activities

(58,310)

(154,796)

Net cash provided by discontinued operating activities

150,000

NET CASH USED IN OPERATING ACTIVITIES

(58,310)

(4,796)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(1,147)

Decrease in deposits

2,850

430

NET CASH PROVIDED BY (USED IN) INVESTING

ACTIVITIES

2,850

(717)

NET CASH USED IN FINANCING ACTIVITIES:

Repayment of loans payable to related party

(3,125)

NET DECREASE IN CASH

(55,460)

(8,638)

CASH - BEGINNING OF PERIOD

104,721

224,800

CASH - END OF PERIOD

49,261

216,162

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

INFORMATION:

Cash paid during the period for:

Interest

638

924

Income taxes

4,125

Non-cash investing and financing activities:

Property and equipment purchased through loan from stockholder

5,300

IGAMBIT INC.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2013 and 2012

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 21, 2000

before changing to iGambit Inc. on April 5, 2006. Gotham was incorporated under the

laws of the state of New York on September 23, 2009. The Company is a holding

company which seeks out acquisitions of operating companies in technology markets.

Gotham is in the business of providing media technology services to real estate agents

and brokers in the New York metropolitan area.

Interim Financial Statements

The following (a) condensed consolidated balance sheet as of December 31, 2012, which

has been derived from audited financial statements, and (b) the unaudited condensed

consolidated interim financial statements of the Company have been prepared in

accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by GAAP

for complete financial statements. In the opinion of management, all adjustments

(consisting of normal recurring accruals) considered necessary for a fair presentation

have been included. Operating results for the three months ended March 31, 2013 are not

necessarily indicative of results that may be expected for the year ending December 31,

2013. These condensed consolidated financial statements should be read in conjunction

with the audited consolidated financial statements and notes thereto for the year ended

December 31, 2012 included in the Company’s Annual Report on Form 10-K, filed with

the Securities and Exchange Commission (“SEC”) on June 20, 2013.

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 received payments from Digi-

Data based on 10% of the net vaulting revenue payable quarterly over five years. The

Company was 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 for the year ended December

31, 2011, the last year of payments.

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

captions “Assets from discontinued operations”. The underlying assets of the

discontinued operations consist of accounts receivable of $320,590 as of March 31, 2013

and December 31, 2012, respectively.

Accounts Receivable

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

quarters and are stated net of an allowance for bad debts of $250,000.

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 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

reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the consolidated 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. Additionally, there are no

assets or liabilities for which fair value is remeasured on a recurring basis.

Revenue Recognition

The Company’s revenues are derived primarily from the sale of products and services

rendered to real estate brokers. Revenues are recognized upon delivery of the products or

services.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs for the three

months ended March 31, 2013 and 2012 were $1,989 and $6,889, respectively.

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 from continuing

operations 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 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, 2013 and 2012, respectively.

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. 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 $1,538 and $2,124 was charged to operations for the three

months ended March 31, 2013 and 2012, respectively.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of the

net assets acquired in a business combination, specifically the acquisition of Jekyll by the

Company’s subsidiary, Gotham. In accordance with ASC Topic No. 350 “Intangibles –

Goodwill and Other”, goodwill is not amortized, but instead is subject to an annual

assessment of impairment by applying a fair-value based test, and is reviewed more

frequently if current events and circumstances indicate a possible impairment. 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, 2012, the Company

performed its annual impairment study and determined that present and future cash flows

were not expected to be sufficient to recover the carrying amount of goodwill, and the

goodwill was written off.

Stock-Based Compensation

The Company accounts for its stock-based awards granted under its 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 pricing model to

estimate the fair value of its stock options and warrants. The Black-Scholes option

pricing model requires the input of highly subjective assumptions including the expected

stock price volatility of the Company’s common stock, the risk free interest rate at the

date of grant, the expected vesting term of the grant, expected dividends, and an

assumption related to forfeitures of such grants. 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.

Recent Accounting Pronouncements

The Company has reviewed recently issued, but not yet adopted, accounting standards in

order to determine their effects, if any, on its results of operations, financial position or

cash flows. Based on that review, the Company believes that none of these

pronouncements will have a significant effect on its consolidated financial statements.

Note 4 – Deferred Income

As of March 31, 2013, the Company received $130,000 from IGX Global Inc. in

connection with a rescission agreement dated April 8, 2013, as described in Note 12.

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,

2013

2012

Stock options

1,268,900 2,768,900

Common stock warrants

275,000

Basic Total shares excluded from calculation

1,543,900 3,043,900

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

are expected to vest. The grant date fair value for stock options and warrants is calculated

using the Black-Scholes option pricing 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 of the Company’s

common stock, expected dividends, and a risk-free interest rate. Stock-based

compensation expense is reported under general and administrative expenses in the

accompanying consolidated statements of operations.

Options

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 began recognizing

compensation expense ratably over the vesting period, net of estimated forfeitures. The

Plan expired on December 31, 2009, therefore as of March 31, 2013, there was no

unrecognized compensation cost related to non-vested share-based compensation

arrangements granted under the 2006 plan.

The 2006 Plan provided for the granting of options to purchase up to 10,000,000 shares

of common stock. 8,146,900 options have been issued under the plan to date of which

7,157,038 have been exercised to date. There were no options outstanding under the

2006 Plan on its expiration date of December 31, 2009. All options issued subsequent to

this date were not issued pursuant to any plan.

Stock option activity during the three months ended March 31, 2013 and 2012 follows:

Weighted

Average

Weighted

Remaining

Weighted

Average

Contractual

Options

Grant-Date

Life

Outstanding

Exercise Price

Fair Value

(Years)

Options outstanding at

December 31, 2011

2,768,900

0.04

0.10

6.85

No option activity

Options outstanding at

March 31, 2012

2,768,900

0.04

0.10

6.60

Options outstanding at

December 31, 2012

1,268,900

0.08

0.10

6.16

No option activity

Options outstanding at

March 31, 2013

1,268,900

0.08

0.10

5.91

Warrants

In addition to our 2006 Long Term Incentive Plan, we have issued and outstanding

compensatory warrants to two consultants entitling the holders to purchase a total of

275,000 shares of our common stock at an average exercise price of $0.94 per share.

Warrants to purchase 25,000 shares of common stock vest upon 6 months after the

Company engages in an IPO, have an exercise price of $3.00 per share, and expire 2

years after the Company engages in an IPO. Warrants to purchase 250,000 shares of

common stock vest 100,000 shares on issuance (June 1, 2009), and 50,000 shares on each

of the following three anniversaries of the date of issuance, have exercise prices ranging

from $0.50 per share to $1.15 per share, and expire on June 1, 2019. The issuance of the

compensatory warrants was not submitted to our shareholders for their approval.

Warrant activity during the three months ended March 31, 2013 and 2012 follows:

Weighted

Average

Weighted

Remaining

Weighted

Average

Contractual

Warrants

Grant-Date

Life

Outstanding

Exercise Price

Fair Value

(Years)

Warrants outstanding

at December 31, 2011

275,000

0.94

0.10

1.06

No warrant activity

Warrants outstanding

at March 31, 2012

275,000

0.94

0.10

1.02

Warrants outstanding

at December 31, 2012

275,000

0.94

0.10

.92

No warrant activity

Warrants outstanding

at March 31, 2013

275,000

0.94

0.10

.88

Options outstanding at March 31, 2013 consist of:

Date

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

May 1, 2006

100,000

$0.01

May 1, 2016

May 1, 2006

100,000

$0.01

May 1, 2016

May 1, 2006

50,000

$0.01

May 1, 2016

May 1, 2006

46.900

46,900

$0.01

May 1, 2016

July 21, 2010

113,000

$0.10

July 21, 2020

July 21, 2010

59,000

$0.10

July 21, 2020

July 21, 2010

500,000

$0.10

July 21, 2020

July 11, 2011

100,000

$0.10

July 11, 2021

July 11, 2011

100,000

$0.10

July 11, 2021

July 11, 2011

100,000

$0.10

July 11, 2021

Total

1,268,900

Warrants outstanding at March 31, 2013 consist of:

Date

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

April 1, 2000

25,000

$3.00

2 years after IPO

June 1, 2009

100,000

$0.50

June 1, 2019

June 1, 2009

50,000

$0.65

June 1, 2019

June 1, 2009

50,000

$0.85

June 1, 2019

June 1, 2009

50,000

$1.15

June 1, 2019

Total

275,000

Note 7 - Income Taxes

Quarter Ended March 31,

2013

2012

Effective tax rate

0.0 %

30.3 %

The decrease in the effective tax rate for the quarter ended March 31, 2013 is due to the

establishment of a full valuation allowance against the Company’s net deferred tax assets

which was initially recorded in the fourth quarter of 2012. A valuation allowance must be

established if it is more likely than not that the deferred tax assets will not be realized.

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. Based on the Company’s cumulative losses in recent years,

a full valuation allowance against the Company’s deferred tax assets has been established

as Management believes that the Company will not realize the benefit of those deferred

tax assets.

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, 2013 and 2012

were $6,522 and $2,702, respectively.

Note 9 – Concentrations and Credit Risk

Sales and Accounts Receivable

Gotham had sales to two customers which accounted for approximately 44% and 17%,

respectively of Gotham’s total sales for the three months ended March 31, 2013. The two

customers accounted for approximately 41% and 3%, respectively of accounts receivable

at March 31, 2013.

Gotham had sales to three customers which accounted for approximately 36%, 17% and

12%, respectively of Gotham’s total sales for the three months ended March 31, 2012.

Two of the three customers accounted for approximately 44% of accounts receivable at

March 31, 2012.

Cash

Cash is maintained at a major financial institution and, at times, balances may exceed

federally insured limits. The Company has never experienced any losses related to these

balances. All of the Company’s non-interest bearing cash balances were fully insured at

March 31, 2013. As of December 31, 2012, the Company had no amounts of cash or cash

equivalents in financial institutions in excess of amounts insured by agencies of the U.S.

Government, the limit of which is $250,000. The Company did not have any interest-

bearing accounts at March 31, 2013 and December 31, 2012, respectively.

Note 10 - Related Party Transactions

Note Payable – Related Party

Gotham was provided a loan from an entity that is controlled by the officers of Gotham,

such amounts outstanding were $6,263 at March 31, 2013 and December 31, 2012,

respectively. The note bears interest at a rate of 5.5% and is due on December 31, 2013.

Note 11 – Commitments and Contingencies

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 a month to month license agreement for office space that commenced on

August 2, 2012 at a monthly license fee of $2,400. The license agreement may be

terminated upon 30 days notice.

Total future minimum annual lease payments under the lease for the years ending

December 31 are as follows:

2013

$ 13,830

2014

18,720

2015

19,080

2016

19,440

2017

3,240

$ 74,310

Rent expense of $20,570 and $23,400 was charged to operations for the three months

ended March 31, 2013 and 2012, respectively.

The Company provides accruals for 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.

Litigation

Digi-Data Corporation

In connection with the asset purchase agreement discussed in Note 2, the Company filed

a complaint against Digi-Data on October 1, 2012 for unpaid contingency payments

owed to the Company totaling $570,590 at March 31, 2013, exclusive of an allowance for

bad debts of $250,000. On or about December 3, 2012, Digi-Data filed its Answer,

Affirmative Defenses and Counterclaim against the Company. The Counterclaim seeks

damages against the Company for breach of the Agreement for the alleged failure to

indemnify Digi-Data for expenses related to pending litigation between Verizon

Communications, Inc. (one of Digi-Data's customers) and an unrelated third party,

Titanide Ventures, LLC, concerning alleged patent violations (hereinafter "Verizon

Patent Litigation"). Upon information and belief, the Verizon Patent Litigation is a

"patent troll" whereby Titanide seeks to extract settlement funds from alleged patent

infringers without seeking actual adjudication of its purported patent rights. The

Company has advised Digi-Data of what it believes is "prior act" related to the subject

intellectual property that is at-issue in the Verizon Patent Litigation, a possible defense to

the claims by Titanide. A pre-trial order was issued by the Court with detailed deadlines

regarding among other items, discovery cut-off and status report deadline date of April

29, 2013 and dispositive motions deadline date of May 28, 2013. The Company

propounded its initial discovery upon Digi-Data, responses to which were due on or about

March 8, 2013. On April 4, 2013, Digi-Data provided discovery to the Company. No

depositions have been scheduled as of the date of this report, nor has the Company

received any information from Digi-data regarding any specific quantified “damages”

directly resulting from this Order or the settlement agreement between Verizon and the

Plaintiff. On April 4, 2013, an Order of Dismissal in the Verizon Patent Litigation was

filed. The Dismissal is with prejudice with each party to bear its own costs and fees. On

May 24, 2013, the Company filed a Motion for Summary Judgment with the Court asking

the Court to move in its favor against DDC for the entire outstanding balance due along

with attorney’s fees and post and pre-judgment interest as applicable under Maryland

Law.

Allied Airbus, Inc.

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

Airbus, Inc. (“Allied”) for nonpayment of various promissory notes totaling $434,512 at

December 31, 2011 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 included accrued interest at the rate of 6% per annum.

As a result of a settlement reached on June 12, 2012, the Company received payment of

the total balance, accrued interest and legal fees on June 27, 2012.

Financial Advisor Contract

Brooks, Houghton & Company, Inc. (BHC)

The Company had entered into a contract with BHC in which BHC would provide

financial advisory services in connection with the Company’s proposed business

combinations and related fund raising transactions. As part of that agreement BHC would

be entitled to a “Business Combination Fee” equal to three percent of the amount of the

company’s total proceeds and other consideration paid or to be paid for the assets

acquired, inclusive of equity or any debt issued; however the fee was to be no less than

$300,000. As a result of the IGX transaction, as described in Note 12, BHC initially felt

entitled to $300,000. The Company has taken a position that since the transaction has

been rescinded, that the fee is has not been earned and thus not to be paid. While the

ultimate outcome of this matter is not presently determinable, it is the opinion of

management that the resolution of any outstanding claim will not have a material adverse

effect on the financial position or results of operations of the Company.

Note 12 – Subsequent Events

Rescission of Purchase Agreement for Acquisition of IGX Global Inc. and IGX Global UK

Limited

On April 8, 2013, the Company and its wholly owned subsidiary, IGXGLOBAL, CORP.

entered into, and became obligated under, a transaction to rescind the Company’s purchase

agreement dated December 28, 2012 (the “Purchase Agreement”) with

IGX Global

Inc.(“IGXUS”), IGX Global UK Limited (“IGXUK”) and Tomas Duffy (“DUFFY”) the sole

shareholder of both IGXUK and IGXUS.

Under the Purchase Agreement, the Company intended to purchase, as December 31,

2012, substantially all of the assets of IGXUS and all of the issued and outstanding shares

of IGXUK and thereby the acquired business operated by IGXUS and IGXUK (the

“Acquired Business”). The original agreement called for a $500,000 payment at closing,

a $1,000,000 Promissory Note, assumption of certain liabilities of the IGXUS up to

$2,500,000 and 3.75 million shares of iGambit stock to be earned over a three year period

based upon certain revenue and earnings targets. The Company had arranged financing at

the original effective date of the purchase to pay the $500,000 payment and payoff

certain liabilities of IGXUS.

On April 8, 2013, under the terms of a Rescission Agreement, the Company, IGXUS,

IGXUK and Duffy (IGX), agreed to unwind the Purchase Agreement in its entirety and to

fully restore each to the positions they were respectively prior to entering into the

Purchase Agreement. This included IGX obtaining financing to payoff the entire balance

of the financing the Company had obtained to fund the upfront payment and certain

liabilities at the original closing date; IGX also assumed and paid certain expenses related

to the purchase. Also as consideration for iGambit’s expenses and inconvenience, the

Company received $130,000 prior to the effective date of the rescission from IGX (see

Note 4), and upon the effective date of the rescission, an additional payment of $275,000,

and will receive an additional $350,000 payable in equal monthly installments over 18

months. Based upon timing and terms of the Rescission Agreement, the Company has

not recognized the effects of the purchase of IGX on the financial statements presented as

of and for the three months ending March 31, 2013. In addition, the settlement

consideration received under the rescission agreement was recognized on its effective

date of April 8, 2013.

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.

Revenue Recognition

Our revenues from continuing operations consist of revenues derived primarily

from sales of products and services rendered to real estate brokers. Revenues are

recognized upon delivery of the products or services.

Contingency payment income was recognized quarterly from a percentage of

Digi-Data’s vaulting service revenue until February 28, 2011.

Deferred Income

As of March 31, 2013, the Company received $130,000 from IGX Global Inc. in

connection with a rescission agreement dated April 8, 2013, as described in Note 12 of

the Notes to Condensed Consolidated Financial Statements.

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 from continuing operations

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 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. There

was no bad debt expense charged to operations for three months ended March 31, 2013

and 2012, respectively.

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. 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.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value

of the net assets acquired in a business combination, specifically 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 amortized, but instead is subject

to an annual assessment of impairment by applying a fair-value based test, and is

reviewed more frequently if current events and circumstances indicate a possible

impairment. 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, 2012, the Company

performed its annual impairment study and determined that present and future cash flows

were not expected to be sufficient to recover the carrying amount of goodwill, and the

goodwill was written off.

Stock-Based Compensation

We account for our stock-based awards granted under our employee

compensation plan in accordance with ASC Topic No. 718-20, Awards Classified as

Equity, which requires the measurement of compensation expense for all share-based

compensation granted to employees and non-employee directors at fair value on the date

of grant and recognition of compensation expense over the related service period for

awards expected to vest. We use the Black-Scholes option valuation model to estimate

the fair value of our stock options and warrants. The Black-Scholes option valuation

model requires the input of highly subjective assumptions including the expected stock

price volatility of the Company’s common stock. Changes in these subjective input

assumptions can materially affect the fair value estimate of our stock options and

warrants.

Income Taxes

We account for income taxes using the asset and liability method in accordance

with ASC Topic No. 740, Income Taxes. Under this method, deferred tax assets and

liabilities are determined based on differences between financial reporting and tax bases

of assets and liabilities, and are measured using the enacted tax rates and laws that are

expected to be in effect when the differences are expected to reverse.

We apply the provisions of ASC Topic No. 740 for the financial statement

recognition, measurement and disclosure of uncertain tax positions recognized in the

Company’s financial statements. In accordance with this provision, tax positions must

meet a more-likely-than-not recognition threshold and measurement attribute for the

financial statement recognition and measurement of a tax position.

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. We are focused on expanding the

operations of Gotham by marketing the company to existing and potential new clients.

Assets. At March 31, 2013, we had $670,092 in total assets, compared to

$745,919 at December 31, 2012. The decrease in total assets was primarily due to the

decrease in cash used to fund the loss, the decrease in accounts receivable and the

decrease in prepaid expenses.

Liabilities. At March 31, 2013, our total liabilities were $567,008 compared to

$440,221 at December 31, 2012. Liabilities consist of accounts payable, a note payable to

a related party and deferred income. We do not have any long term liabilities. The

increase in liabilities was primarily due to deferred income of $130,000 from the IGX

Rescission Agreement.

Stockholders’ Equity. Our stockholders’ equity decreased to $103,084 at March

31, 2013 from $305,698 at December 31, 2012. This decrease was primarily due to an

increase in accumulated deficit from $(2,448,346) at December 31, 2012 to $(2,650,960)

at March 31, 2013, resulting from losses from operations of $(202,614) for the three

months ended March 31, 2013.

THREE MONTHS ENDED MARCH 31, 2013 AS COMPARED TO THREE

MONTHS ENDED MARCH 31, 2012

Revenues and Cost of Sales. We had $362,821 of revenue during the three

months ended March 31, 2013 compared to revenue of $480,348 during the three months

ended March 31, 2012. The decrease in revenue was due primarily to a decrease in

revenue generated by our Gotham subsidiary from $446,504 for the three months ended

March 31, 2012 compared to $362,821 for the three months ended March 31, 2013. We

also earned revenue of $33,844 in technical consulting fees for the three months ended

March 31, 2012 compared to $0 for the three months ended March 31, 2013. The

decrease in our cost of goods sold for the three months ended March 31, 2013 was due to

a decrease in the cost of the outsourced photography vendors utilized by Gotham.

General and Administrative Expenses. General and Administrative Expenses

decreased to $449,665 for the three months ended March 31, 2013 from $496,941 for the

three months ended March 31, 2012. For the three months ended March 31, 2013 our

General and Administrative Expenses consisted of corporate administrative expenses of

$95,990, legal and accounting fees of $27,284, health insurance expenses of $22,088,

commissions and finder’s fees of $25,000 and payroll expenses of $279,303. For the

three months ended March 31, 2012 our General and Administrative Expenses consisted

of corporate administrative expenses of $125,028, legal and accounting fees of $39,085,

health insurance expenses of $18,294, consulting fees of $14,756 and payroll expenses of

$299,778. The decreases from the three months ended March 31, 2012 to the three

months ended March 31, 2013 relate primarily to: (i) a decrease in payroll expenses; and

(ii) a decrease in general and administrative 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.

Other Income (Expense) and Taxes. There was no interest income and no

income tax benefit for the three months ended March 31, 2013 compared to interest

income of $6,840 and an income tax benefit of $(101,256) for the three months ended

March 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES

General

As reflected in the accompanying consolidated financial statements, at March 31,

2013, we had $49,261 of cash and stockholders’ equity of $103,084 as compared to

$104,721 and $305,698 at December 31, 2012. At March 31, 2013 we had $670,092 in

total assets, compared to $745,919 at December 31, 2012.

Our primary capital requirements in 2013 are likely to arise from the expansion of

our Gotham operations, and, in the event we effectuate an acquisition, from: (i) the

amount of the purchase price payable in cash at closing, if any; (ii) professional fees

associated with the negotiation, structuring, and closing of the transaction; and (iii) post

closing costs. It is not possible to quantify those costs at this point in time, in that they

depend on Gotham’s business opportunities, the state of the overall economy, the relative

size of any target company we identify and the complexity of the related acquisition

transaction(s). We anticipate raising capital in the private markets to cover any such

costs, though there can be no guaranty we will be able to do so on terms we deem to be

acceptable. We do not have any plans at this point in time to obtain a line of credit or

other loan facility from a commercial bank.

While we believe in the viability of our strategy to improve Gotham’s sales volume

and to acquire companies, and in our ability to raise additional funds, there can be no

assurances that we will be able to fully effectuate our business plan.

We believe we will continue to increase our cash position and liquidity for the

foreseeable future. We believe we have enough capital to fund our present operations.

Cash Flow Activity

Net cash used by operating activities was $58,310 for the three months ended

March 31, 2013, compared to net cash used by operating activities of $4,796 for the three

months ended March 31, 2012. Our primary source of operating cash flows from

continuing operating activities for the three months ended March 31, 2013 was from our

Gotham subsidiary’s revenues of $362,821 and $446,504 for the three months ended

March 31, 2012. Additional contributing factors to the change were from a decrease in

accounts receivable of $1,396, a decrease in prepaid expenses of $14,583, a decrease in

accounts payable of $(3,213) and deferred income of $130,000. Net cash provided by

discontinued operating activities was $0 for the three months ended March 31, 2013 and

cash provided by discontinued operating activities was $150,000 for the three months

ended March 31, 2012. The $150,000 cash provided by discontinued operations for the

three months ended March 31, 2012, was $150,000 in cash payments received from DDC

which was offset by a decrease in accounts receivable included in the Assets from

Discontinued Operations.

Cash provided by investing activities was $2,850 for the three months ended March

31, 2013 and Cash used by investing activities was $(717) for the three months ended

March 31, 2012. For the three months ended March 31, 2013 the primary source of cash

provided by investing activities was from a decrease in deposits. For the three months

ended March 31, 2012 the source of cash used in investing activities was $(1,147) from

the purchase of property and equipment and a decrease in deposits of $430.

Cash used by financing activities was $0 for the three months ended March 31, 2013

compared to $(3,125) for the three months ended March 31, 2012. The cash flows used

by financing activities for the three months ended March 31, 2012 was a repayment of

loans payable to related party.

Supplemental Cash Flow Activity

In the three months ended March 31, 2013 the company paid income taxes of $0

and interest of $638 compared to income taxes of $4,125 and interest of $924 in the three

months ended March 31, 2013.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not Required.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, as required by paragraph (b) of Rule 13a-15 and

15d-15 of the Exchange Act under the supervision and with the participation of our

management, including our Chief Executive Officer and Chief Financial Officer, of the

effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and

15d-15(e) under the Exchange Act as of March 31, 2012. Based upon that evaluation, our

Chief Executive Officer and Chief Financial Officer concluded that our disclosure

controls and procedures were effective as of March 31, 2013.

Change in Internal Controls

During the quarter ended March 31, 2013, there were no changes in our internal

control over financial reporting that materially affected, or are reasonably likely to

materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On October 1, 2012, we filed a lawsuit in the United States District Court for the

District of Maryland, Baltimore Division, asserting claims against DigiData Corp.

("Defendant") for monetary damages arising from the Defendant's breach of contract

regarding that certain Asset Purchase Agreement dated February 26, 2006 among the

parties, and to enforce payment of outstanding contingency payments due to the

Company pursuant to said agreement.

On or about December 3, 2012, Digi-Data filed its Answer, Affirmative Defenses

and Counterclaim against iGambit. The Counterclaim seeks damages against iGambit for

breach of the Agreement for the alleged failure to indemnify Digi-Data for expenses

related to pending litigation between Verizon Communications, Inc. (one of Digi-Data's

customers) an unrelated third party, Titanide Ventures, LLC, concerning alleged patent

violations (hereinafter "Verizon Patent Litigation").

Upon information and belief, the Verizon Patent Litigation is a "patent troll"

whereby Titanide seeks to extract settlement funds from alleged patent infringers without

seeking actual adjudication of its purported patent rights. iGambit has advised Digi-Data

of what iGambit believes is "prior art" related to the subject intellectual properly that is

at-issue in the Verizon Patent Litigation, a possible defense to the claims by Titanide.

A pre-trial order was issued by the Court with detailed deadlines. E.g., discovery

cut-off and status report (4/29/13) and dispositive motions (5/28/13). iGambit

propounded its initial discovery upon Digi-Data, responses to which were due on or about

March 8, 2013.

On April 4, 2013, Digi-Data provided discovery to iGambit. To date, no

depositions have been scheduled. To date, we have not received any information from

DDC regarding any specific quantified “damages” directly resulting from this Order or

the settlement agreement between Verizon and the Plaintiff.

On April 4, 2013 an Order of Dismissal in the Verizon Patent Litigation was

filed. The Dismissal is with prejudice with each party to bear its own costs and fees.

On May 24, 2013 we filed a Motion for Summary Judgment with the Court

asking the Court to move in our favor against DDC for the entire outstanding balance due

along with attorney’s fees and post and pre-judgment interest as applicable under

Maryland Law.

One June 11, 2013, Digi-Data filed its Response to the Motion for Summary

Judgment and, for the first time, purported to liquidate certain alleged damages for which

Digi-Data seeks a set-off against the amounts admittedly owed by Digi-Data to iGambit

and alludes the existence of additional although not yet quantified damages. The

Response relies entirely upon the Affidavit of a Vice President of Digi-Data for its

evidentiary support. Notwithstanding, Digi-Data failed to produce documentary support

for its alleged damages and to explain why it failed to disclose such information during

the discovery period or thereafter.

On July 9, 2013, the Company filed its Reply to Digi-Data’s Response and,

thereby, advised the Court of Digi-Data’s apparent litigation-by-ambush tactic such as

withholding allegations of damages until the end of discovery and attempting to use such

previously withheld information to defeat summary judgment, and the legal inadequacy

of same. Pursuant the Maryland District Court’s Local Rules, Digi-Data is not authorized

to file a Surreply without Court order.

Item 1A. Risk Factors.

Not required

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults upon Senior Securities.

None

Item 4. Removed and Reserved.

Item 5. Other Information.

None

Item 6.

Exhibits

Exhibit No.

Description

31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed “filed” for

the purposes of Section 18 of the Securities Exchange Act of 1934, as

amended, or otherwise subject to the liability of that section. Further, this

exhibit shall not be deemed to be incorporated by reference into any filing

under the Securities Act of 1933, as amended, or the Securities Exchange

Act of 1934, as amended.)

32.2 Certification of the Interim Chief Financial Officer Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed

“filed” for the purposes of Section 18 of the Securities Exchange Act of

1934, as amended, or otherwise subject to the liability of that section.

Further, this exhibit shall not be deemed to be incorporated by reference

into any filing under the Securities Act of 1933, as amended, or the

Securities Exchange Act of 1934, as amended.)

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this

report to be signed on its behalf by the undersigned, thereunto duly authorized, on July

23, 2013.

iGambit Inc.

/s/ John Salerno

John Salerno

Chief Executive Officer

/s/ Elisa Luqman

Elisa Luqman

Chief Financial Officer and

Principal Accounting Officer

Clinigence Holdings, Inc. - FORM 10-Q - July 23, 2013

Attached files

Clinigence Holdings, Inc. Reports