Nutex Health, Inc. - Quarter Report: 2012 September (Form 10-Q)

Converted by EDGARwiz

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 September 30, 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 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

Accelerated filer o

Non-accelerated filer o

Smaller reporting

company þ

(Do not check if a smaller reporting company)

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

Yes o No þ

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

iGambit Inc.

Form 10-Q

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

SEPTEMBER

DECEMBER

30,

31,

2012

2011

(Unaudited)

ASSETS

Current assets

Cash

363,591

224,800

Accounts receivable, net

158,448

269,353

Prepaid expenses

58,619

58,649

Notes receivable

434,512

Notes receivable - stockholder

17,000

Deferred income taxes

438,876

184,185

Assets from discontinued operations

320,590

570,590

Total current assets

1,357,124

1,759,089

Property and equipment, net

18,637

18,563

Other assets

Goodwill

111,026

Deposits

9,420

2,500

Total other assets

120,446

113,526

1,496,207

1,891,178

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

302,949

263,195

Note payable - related party

6,263

25,390

Total current liabilities

309,212

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

(1,240,049)

(824,451)

Total stockholders' equity

1,186,995

1,602,593

1,496,207

1,891,178

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

THREE MONTHS

NINE MONTHS

ENDED

SEPTEMBER 30,

2012

2011

2012

2011

Sales

416,429

410,258

$ 1,325,945 $ 1,299,602

Cost of sales

163,308

191,056

640,919

542,869

Gross profit

253,121

219,202

685,026

756,733

Operating expenses

General and administrative expenses

438,058

458,574

1,368,293

1,361,635

Loss from operations

(184,937)

(239,372)

(683,267)

(604,902)

Other income

Interest income

257

8,110

12,978

22,280

Loss from continuing operations before income tax benefit

(184,680)

(231,262)

(670,289)

(582,622)

Income tax benefit

70,218

77,789

254,691

192,649

Loss from continuing operations

(114,462)

(153,473)

(415,598)

(389,973)

Discontinued operations

Income from discontinued operations

242,099

Provision for income taxes

82,314

Income from discontinued operations, net of taxes

159,785

Net loss

$ (114,462) $ (153,473) $ (415,598) $ (230,188)

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

Continuing operations

(.00)

(.01)

(.02)

Discontinued operations, net of tax

.00

.01

Net earnings per common share

(.00)

(.01)

(.02)

(.01)

Weighted average common shares outstanding

23,954,056

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30,

(UNAUDITED)

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$ (415,598)

$ (230,188)

Adjustments to reconcile net loss to net

cash provided (used) by operating activities

Income from discontinued operations

(159,785)

Depreciation

6,373

4,436

Stock-based compensation

815

Deferred income taxes

(254,691)

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

110,905

(131,682)

Prepaid expenses

150,809

Accounts payable

39,754

(95,231)

Net cash used by continuing operating activities

(513,227)

(460,826)

Net cash provided (used) by discontinued operating activities

250,000

(82,312)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

(263,227)

(543,138)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(6,447)

(19,392)

Increase in deposits

(6,920)

Proceeds from repayments of notes receivable

434,512

35,488

Net cash provided by continuing investing activities

421,145

16,096

Net cash provided by discontinued investing activities

365,000

NET CASH PROVIDED BY INVESTING ACTIVITIES

421,145

381,096

NET CASH USED BY FINANCING ACTIVITIES:

Repayment of loans from shareholders

(19,127)

NET INCREASE IN CASH

138,791

(162,042)

CASH - BEGINNING OF PERIOD

224,800

465,549

CASH - END OF PERIOD

363,591

303,507

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

1,478

1,826

Income taxes

4,125

13,940

Non-cash investing and financing activities:

Property and equipment purchased through loan from stockholder

5,300

Stock-based compensation expense

815

IGAMBIT INC.

Notes to Consolidated Financial Statements

Nine Months Ended September 30, 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 received 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 $320,590 and $570,590 as of September 30, 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 nine months ended September

30, 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 nine

months ended September 30, 2012 and 2011, respectively.

Prepaid Expenses

Prepaid expenses consist of the following:

September 30, December 31,

2012

2011

Prepaid state income taxes

$ 22,368

$ 31,758

Prepaid insurance

36,251

26,891

$ 58,619

$ 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 nine months ended September 30, 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 $6,373 and $4,436 was charged to operations for the nine months ended

September 30, 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 nine months ended September 30, 2012. Based

on the Company’s evaluation of goodwill, no impairment was recorded during the nine months

ended September 30, 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 December 31,

2011, for which promissory notes were issued. The notes, which became past due during the

period, were repaid in full including accrued interest on June 27, 2012. Interest received of

$45,611 includes $12,044 that had been accrued in 2012.

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.

Nine Months Ended

September 30,

2012

2011

StocS Stock options

2,768,900

Common stock warrants

275,000

3,085,000

Basic Total shares excluded from calculation

3,043,900

5,853,900

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 September 30, 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 nine months ended September 30, 2012 follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Grant-Date

Warrants

Exercise Price

Fair Value

Life (Years)

Warrants outstanding at

January 1, 2012

275,000

0.94

0.10

No warrant activity

Warrants outstanding at

September 30, 2012

275,000

0.94

0.10

0.95

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

September 30, 2012

2,768,900

0.04

0.10

6.10

The fair value of warrants and options granted is estimated on the date of grant based on the

weighted-average assumptions in the table below. The assumption for the expected life is based

on evaluations of historical and expected exercise behavior. The risk-free interest rate is based

on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the

expected life at the grant date. The calculated value method using the historical volatility of the

Computer Services industry is used as the basis for the volatility assumption.

Nine months ended September 30,

__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 September 30 consists of the following:

2012

2011

From operations:

Continuing operations:

Current tax expense (benefit):

Federal

$(205,059)

$ (192,649)

State and local

(49,632)

Total from continuing operations

(254,691)

(192,649)

Discontinued operations:

Current tax expense (benefit)

Federal

82,314

State and local

Total from discontinued operations

82,314

Total

$(254,691)

$ (110,335)

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

Nine Months Ended

September 30,

2012

2011

Statutory tax rate

34.0%

Effect of:

State income taxes, net of

federal income tax benefit

5.0%

0.0%

Tax effect of expenses that are not

deductible for income tax purposes

(1.0)%

(0.9)%

Effective tax rate

38.0%

33.1%

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

September 30, 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 nine months ended September 30, 2012 and 2011 were $5,476 and $9,284,

respectively.

Note 9 – Significant Customers

Sales of Gotham to three customers amounted to approximately 64% of Gotham’s total sales for

the nine months ended September 30, 2012 at 38%, 15%, and 11%, 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 September 30, 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 $766 and $763 for the nine months ended September 30, 2012

and 2011, respectively.

Note Payable – Related Party

Gotham was provided loans from an entity that is controlled by the officers of Gotham totaling

$6,263 and $25,390 at September 30, 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 $354 and $531 was charged to operations for the nine months ended

September 30, 2012 and 2011, respectively.

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 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:

2012

$ 4,500

2013

18,360

2014

18,720

2015

19,080

2016

19,440

$ 80,100

Rent expense of $69,642 and $72,112 was charged to operations for the nine months ended

September 30, 2012 and 2011, respectively.

Note 13 - 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 September 30, 2012, exclusive of the bad debt reserve of

$250,000.

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%.

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.

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 adopted 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 September 30, 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.

Litigation

As discussed in Note 13, the Company filed a complaint against Digi-Data on October 1, 2012

for unpaid contingency payments owed to the Company totaling $570,590 at September 30,

2012, exclusive of the bad debt reserve of $250,000.

IGAMBIT INC.

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 nine

months ended September 30, 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 nine months ended

September 30, 2012, the Company purchased computer equipment totaling $ 6,447. 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 $6,373 and $4,436 was charged to operations for the nine months

ended September 30, 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

nine months ended September 30, 2012. Based on the Company’s evaluation of goodwill, no

impairment was recorded during the nine months ended September 30, 2012.

Stock-Based Compensation

We account for our stock-based employee compensation plan in accordance with ASC Topic

No. 718-20, Awards Classified as Equity, which requires the measurement of compensation

expense for all share-based compensation granted to employees and non-employee directors at

fair value on the date of grant and recognition of compensation expense over the related service

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

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

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

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

materially affect the fair value estimate of our stock options and warrants.

Income Taxes

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

Topic No. 740, Income Taxes. Under this method, deferred tax assets and liabilities are

determined based on differences between financial reporting and tax bases of assets and

liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect

when the differences are expected to reverse.

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

measurement and disclosure of uncertain tax positions recognized in the Company’s financial

statements. In accordance with this provision, tax positions must meet a more-likely-than-not

recognition threshold and measurement attribute for the financial statement recognition and

measurement of a tax position.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Introduction

iGambit is a company focused on the technology markets. Our sole operating subsidiary,

Gotham Innovation Lab, Inc., is in the business of providing media technology services to the

real estate industry. During the year ended December 31, 2011 and during the nine months ended

September 30, 2012 Gotham produced approximately $1,623,654 and $1,260,881 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. We also

received Quarterly Revenue Share Payments and Annual Increase Payments from Digi-Data

Corporation, which were payable pursuant to the terms of an agreement under which we sold

certain assets to DDC in 2006. We earned $247,860 of Contingency Payments from DDC in the

year ended December 31, 2011. The agreement with DDC ended on February 28, 2011. We are

also focused on acquiring or partnering with additional technology companies.

Assets. At September 30, 2012, we had $1,496,207 in total assets, compared to $1,891,178 at

December 31, 2011. The decrease in total assets was primarily due to the repayment of notes

receivable from Allied Airbus that was used to fund the operating loss.

Liabilities. At September 30, 2012, our total liabilities were $309,212 compared to $288,585

at December 31, 2011. Liabilities consist of accounts payable and a note payable to a related

party. We do not have any long term liabilities. The increase in total liabilities was primarily

due to an increase in accounts payable.

Stockholders’ Equity (Deficit). Our stockholders’ equity decreased to $1,186,995 at

September 30, 2012 from $1,602,593 at December 31, 2011. This decrease was primarily due to

an increase in accumulated deficit from $(824,451) at December 31, 2011 to $(1,240,049) at

September 30, 2012 resulting from the end of the contingency payments from Digi-Data Corp.

and from operating losses of Gotham.

Three Months Ended September 30, 2012 as Compared to Three Months Ended September 30,

2011

Revenues and Net Income. We had $416,429 of revenue during the three months ended

September 30, 2012, as compared to $410,258 of revenue during the three months ended

September 30, 2011. The increase in revenue was due to revenue generated by our acquired

subsidiary Gotham.

General and Administrative Expenses. General and Administrative Expenses decreased to

$438,058 for the three months ended September 30, 2012 from $458,574 for the three months

ended September 30, 2011. For the three months ended September 30, 2012 our General and

Administrative expenses consisted of corporate administrative expenses of $96,829, legal and

accounting fees of $35,573, payroll expenses of $279,068, health and insurance expenses of

$17,131 and directors and officers insurance of $9,457. For the three months ended September

30, 2011 our General and Administrative expenses consisted of corporate administrative

expenses of $128,682, legal and accounting fees of $21,760, and payroll expenses of $307,317

and compensation for vested options of $815. The decreases from the three months ended

September 30, 2011 to the three months ended September 30, 2012 relate primarily to a decrease

in payroll expenses due to a decrease in staff during the period.

Nine months ended September 30, 2012 as Compared to Nine months ended September 30,

2012

Revenues and Net Income. We had $1,325,945 of revenue during the nine months ended

September 30, 2012, as compared to revenue of $1,299,602 during the nine months ended

September 30, 2011. The increase in revenue was due to revenue generated by our acquired

subsidiary Gotham. In addition, we had no income from discontinued operations for the nine

month ended September 30, 2012 compared to $242,099 for the nine months ended September

30, 2011, and net loss of $(415,598) for the nine months ended September 30, 2012, compared to

net loss of $(230,188) for the nine months ended September 30, 2011. Our increase in net loss

was due to the Digi-Data agreement ending on February 28, 2011.

General and Administrative Expenses. General and Administrative Expenses increased to

$1,368,293 for the nine months ended September 30, 2012 from $1,361,635 for the nine months

ended September 30, 2011. For the nine months ended September 30, 2012 our General and

Administrative Expenses consisted of corporate administrative expenses of $358,604, legal and

accounting fees of $67,475, payroll expenses of $863,342, health insurance expenses of $51,820

and directors and officers insurance expense of $27,052. For the nine months ended September

30, 2011 our General and Administrative Expenses consisted of corporate administrative

expenses of $375,122, legal and accounting fees of $114,411 and payroll expenses of $871,287

and compensation for vested options expense of $815. The increases from the nine months ended

September 30, 2011 to the nine months ended September 30, 2012 relate primarily to an increase

in insurance expenses.

Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, at September 30,

2012, we had $363,591 of cash and stockholders’ equity of $1,186,995, compared to

stockholders’ equity of $1,602,593 at December 31, 2011. At September 30, 2012 we had

$1,496,207 in total assets, compared to $1,891,178 at December 31, 2011.

Our primary capital requirements in 2012 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 $-263,227 for the nine months ending

September 30, 2012, compared to net cash used by operating activities of $543,138for the nine

months ending September 30, 2011. Our primary source of operating cash flows from continued

operating activities for the nine months ending September 30, 2012 was from our Gotham

subsidiary’s revenues of $1,260,881. Additional contributing factors to the change were from

collections of accounts receivable of $110,905, decrease in prepaid expenses of $30, and an

increase in accounts payable of $39,754. Net cash provided by discontinued operating activities

was $250,000 for the nine months ending September 30, 2012 and cash used by discontinued

operating activities was $82,312 for the nine months ending September 30, 2011. The $250,000

provided from discontinued operating activities for the nine months ending September 30, 2012

was from collections of the DDC accounts receivable. Our primary source of operating cash flow

for the nine months ending September 30, 2011 was from a decrease in prepaid expenses of

$150,809. For the nine months ending September 30, 2011 we also had income from

discontinued operations of $82,312. The agreement with DDC ended on February 28, 2011.

Revenue earned from DDC totaled $242,099 during the nine months ending September 30, 2011

Of the $242,099 revenue earned from DDC in the nine months ending September 30, 2011 we

received $330,000 in cash payments from DDC all of which was for the second and third quarter

2010 Contingency Payments. Additionally $92,099 was offset by an increase in the accounts

receivable included in Assets from Discontinued Operations.

Cash provided by investing activities was $421,145 and $381,096 respectively, for the first

nine months ending September 30, 2012 and September 30, 2011. For the nine months ending

September 30, 2012 the primary source of cash provided by continuing investing activities was

from the repayment of notes receivable due from Allied Airbus Inc. For the nine months ending

September 30, 2011 the entire source of cash provided by discontinued investing activities is the

DDC contingency payments and the cash provided by continuing investing activities was from

the repayment of notes receivable due from Allied Airbus Inc.

Cash used by financing activities was $19,127 for the nine months ended September 30,

2012 compared to $0 for the nine months ended September 30, 2011The cash flow used by

financing activities in the first nine months of fiscal 2012 was a repayment of loans from

shareholders.

Supplemental Cash Flow Activity

In the nine months ended September 30, 2012 the company paid income taxes of $4,125

compared to $13,940 for the nine months ended September 30, 2011.The decrease in taxes was

due to tax overpayments in 2010. The Company also paid interest of $1,478 during the first nine

months of fiscal year 2012 compared to $1,826 during the first nine months of fiscal year 2011.

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

September 30, 2010. Based on their evaluation, our principal executive officer and principal

financial officer concluded that our disclosure controls and procedures were effective.

Changes in internal controls. There were no changes in our internal controls over financial

reporting during the third fiscal quarter of 2011 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.

On November 1, 2011, we filed a lawsuit in the Circuit Court in and for Broward County,

Florida, asserting claims against Allied Airbus, Inc. (as "Borrower") and Michael Polo, Kishore

Taneja and Alberto Gonzalez (collectively, as "Guarantors") for monetary damages arising from

the breach of multiple promissory notes owed by Borrower to us and to enforce guaranty

agreements executed by Guarantors to secure payment of the promissory notes. On or about

January 20, 2012, we filed an Amended Complaint after additional promissory notes owed by

Borrower became due and following Borrower's and Guarantors' default on payment of same.

On June 12, 2012, the parties settled the lawsuit and entered into a settlement agreement pursuant to which

the Company was paid, on June 27, 2012, all principal and interest owed under the notes, as well as all legal

fees incurred.

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.

Item 1A. Risk Factors.

Not required

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

None

Item 3. Defaults upon Senior Securities.

None

Item 4. Removed and Reserved.

Item 5. Other Information.

None

Item 6. Exhibits

Exhibit No.

Description

31.1

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

Sarbanes-Oxley Act of 2002.

31.2

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

Sarbanes-Oxley Act of 2002.

32.1

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

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

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

otherwise subject to the liability of that section. Further, this exhibit shall not be

deemed to be incorporated by reference into any filing under the Securities Act

of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

32.2

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

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

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

otherwise subject to the liability of that section. Further, this exhibit shall not be

deemed to be incorporated by reference into any filing under the Securities Act

of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)

SIGNATURES

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

signed on its behalf by the undersigned, thereunto duly authorized, on November 14, 2012.

iGambit Inc.

/s/ John Salerno

John Salerno

Chief Executive Officer

/s/ Elisa Luqman

Elisa Luqman

Chief Financial Officer

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.)