Nutex Health, Inc. - Quarter Report: 2014 March (Form 10-Q)

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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, 2014

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 25,247,853shares of its common stock outstanding as of May 14, 2014.

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

IGAMBIT INC.

PART I — FINANCIAL INFORMATION

IGAMBIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31,

2014

DECEMBER 31,

(Unaudited)

2013

ASSETS

Current assets

Cash

28,607

26,870

Accounts receivable, net

102,711

135,292

Prepaid expenses

24,794

10,590

Due from rescission agreement

229,779

239,779

Assets from discontinued operations, net

612,070

638,215

Total current assets

997,961

1,050,746

Property and equipment, net

12,011

11,176

Other assets

Deposits

12,132

9,420

1,022,104

1,071,342

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

397,069

316,566

Convertible note payable, net

74,750

40,250

Derivative liability

152,076

Note payable - related party

6,263

Loan payable - stockholder

3,600

Total current liabilities

627,495

515,155

Stockholders' equity

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

issued and outstanding - 25,044,056 shares in 2014 and 2013,

respectively

25,044

Additional paid-in capital

2,729,000

Accumulated deficit

(2,359,435)

(2,197,857)

Total stockholders' equity

394,609

556,187

1,022,104

1,071,342

IGAMBIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

2014

2013

Sales

240,213

362,821

Cost of sales

102,912

115,770

Gross profit

137,301

247,051

Operating expenses

General and administrative expenses

272,267

449,027

Loss from operations

(134,966)

(201,976)

Other income (expenses)

Interest expense

(3,467)

(638)

Amortization of debt discount

(34,500)

Total other income (expenses)

(37,967)

(638)

Loss from continuing operations

(172,933)

(202,614)

Income from discontinued operations

11,355

Net loss

(161,578)

(202,614)

Basic and fully diluted loss per common share

(.01)

Weighted average common shares outstanding

25,044,056

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,

(UNAUDITED)

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$ (161,578)

$ (202,614)

Adjustments to reconcile net loss to net

cash provided (used) by operating activities

Income from discontinued operations

(11,355)

Depreciation

1,191

1,538

Debt discount amortization

34,500

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

32,581

1,396

Prepaid expenses

(14,204)

14,583

Due from rescission agreement

10,000

Accounts payable

74,240

(3,213)

Deferred income

130,000

Net cash used by continuing operating activities

(34,625)

(58,310)

Net cash provided by discontinued operating activities

37,500

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

2,875

(58,310)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(2,026)

(Increase) decrease in deposits

(2,712)

2,850

NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES

(4,738)

2,850

NET CASH PROVIDED BY FINANCING ACTIVITIES:

Proceeds from stockholder's loan

3,600

NET INCREASE (DECREASE) IN CASH

1,737

(55,460)

CASH - BEGINNING OF PERIOD

26,870

104,721

CASH - END OF PERIOD

28,607

49,261

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

1,425

638

IGAMBIT INC.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2014 and 2013

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, 2013, 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, 2014 are not

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

2014. 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, 2013 included in the Company’s Annual Report on Form 10-K, filed with

the Securities and Exchange Commission (“SEC”) on April 1, 2014.

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 were 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 $533,090 and $570,590 as of

March 31, 2014 and December 31, 2013, respectively, and of accrued interest receivable

of $78,980 as of March 31, 2014.

Accounts Receivable

Assets from discontinued operations, net includes accounts receivable which represents

50% of contingency payments earned for the previous quarters.The reserve for bad debts

of $250,000 charged to operations in 2010 was reversed in connection with the Summary

Judgment and Forbearance Agreement described in Note 11.Also included is accrued

interest receivable of $78,980 recorded for interest granted on the balance due from Digi-

data through March 31, 2014.

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. The Company recognizes revenues when the services or

products have been provided or delivered, the fees charged are fixed or determinable, the

Company and its customers understand the specific nature and terms of the agreed upon

transactions, and collectability is reasonably assured.

Advertising Costs

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

months ended March 31, 2014 and 2013 were $843 and $1,989, 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. Allowance for doubtful accounts was $17,865 at March 31, 2014 and

December 31, 2013, respectively. There was no bad debt expense charged to operations

for the three months ended March 31, 2014 and 2013, 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$1,191 and $1,538 was charged to operations for the three

months ended March 31, 2014 and 2013, respectively.

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 – 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,

2014

2013

Stock options

668,900

1,268,900

Stock warrants

275,000

Total shares excluded from calculation

943,900

1,543,900

Note 5–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 and

amortized 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 2006Long-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. The Plan expired on December 31, 2009, therefore as of March31,

2014, 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 beenexercised and 692,962 have expired to date. There were296,900

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, 2014 and 2013 follows:

Weighted

Average

Weighted

Remaining

Weighted

Average

Contractual

Options

Grant-DateFair

Life

Outstanding

Exercise Price

Value

(Years)

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

Options outstanding at

December 31, 2013

668,900

0.06

0.10

4.69

No option activity

Options outstanding at

March 31, 2014

668,900

0.06

0.10

4.44

Options outstanding at March 31, 2014 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 11, 2011

100,000

$0.10

July 11, 2021

July 11, 2011

100,000

$0.10

July 11, 2021

Total

668,900

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, 2014 and 2013follows:

(1)Weighted

Average

Weighted

Remaining

Weighted

Average

Contractual

Warrants

Grant-Date Fair

Outstanding

Exercise Price

Value

Life (Years)

Warrants outstanding

at December 31, 2012

275,000

0.94

0.10

6.42

No warrant activity

Warrants outstanding

at March 31, 2013

275,000

0.94

0.10

6.17

Warrants outstanding

at December 31, 2013

275,000

0.94

0.10

5.42

No warrant activity

Warrants outstanding

at March 31, 2014

275,000

0.94

0.10

5.17

(1) Exclusive of 25,000 warrants expiring 2 years after initial IPO.

Warrants outstanding at March 31, 2014 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 6 – Convertible Note Payable

On September 16, 2013, the Company issued an 8% convertible note in the aggregate

principal amount of $103,500, convertible into shares of the Company’s common stock.

The Note, including accrued interest is due June 18, 2014 and is convertible any time

after 180 days at the option of the holder into shares of the Company’s common stockat

55% of the average stock price of the lowest 3 closing bid prices during the 10 trading

day period ending on the latest complete trading day prior to the conversion date. Interest

expense on the convertible note of $2,042 was recorded for the three months ended

March 31, 2014.

Initially the Company had anticipated repaying the obligation prior to the effective date

of the holder electing to convert. Since the effective date of the election to convert has

passed the Company recorded a debt discount related to identified embedded derivatives

relating to conversion features and a reset provisions (see Note 7) based fair values as of

the inception date of the Note. The calculated debt discount equaled the face of the note

and is being amortized over the term of the note. During the three months ended March

31, 2014, the Company amortized $34,500 of debt discount.

Note7 - Derivative Liability

Convertible Note

During the year ended December 31, 2013, the Company issued a convertible note (see

Note 6 above).

The note is convertible into common stock, at the holders’ option, at a discount to the

market price of the Company’s common stock. The Company has identified embedded

derivatives included in these notes as a result of certain anti-dilutive (reset) provisions,

related to certain conversion features. The accounting treatment of derivative financial

instruments requires that the Company record the fair value of the derivatives as of the

inception date of the convertible note and debt discount amortization to fair value as of

each subsequent reporting date. This resulted in a fair value of derivative liability of

$152,076 in which to the extent of the face value of convertible note was treated as debt

discount with the remainder treated as interest expense.

The fair value of the embedded derivatives at March 31, 2014 and December 31, 2013, in

the amount of $152,076, respectively, was determined using the Binomial Option Pricing

Model based on the following assumptions: (1) dividend yield of 0%; (2) expected

volatility of 243.00%, (3) weighted average risk-free interest rate of 0.09%, (4) expected

lives of 0.72 to 0.75 years, and (5) estimated fair value of the Company’s common stock

of $0.51 per share. The Company recorded interest expense from the excessof the

derivative liability over the convertible note of $48,576 during the year ended December

31, 2013.

Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted

a sequencing approach regarding the application of ASC 815-40 to its outstanding

convertible note. Pursuant to the sequencing approach, the Company evaluates its

contracts based upon earliest issuance date.

Note 8 - Income Taxes

Quarter Ended March 31,

2014 2013

Effective tax rate

0.0 % 0.0 %

A full valuation allowance was recorded against the Company’s net deferred tax assets. 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 9 - Retirement Plan

Gotham as 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, 2014 and 2013

were $2,149 and$6,522, respectively.

Note 10 – Concentrations and Credit Risk

Sales and Accounts Receivable

Gotham had sales to one customer which accounted for approximately 65%of Gotham’s

total sales for the three months ended March 31, 2014.The customer accounted for

approximately 62%of accounts receivable at March 31, 2014.

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.

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, 2014. As of December 31, 2013, 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, 2014 and December 31, 2013, respectively.

Note 11 - Fair Value Measurement

The Company adopted the provisions of Accounting Standards Codification subtopic

825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines

fair value as the price that would be received from selling an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities required or

permitted to be recorded at fair value, the Company considers the principal or most

advantageous market in which it would transact and considers assumptions that market

participants would use when pricing the asset or liability, such as inherent risk, transfer

restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy

that requires an entity to maximize the use of observable inputs and minimize the use of

unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of

inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar

assets or liabilities; quoted prices in markets with insufficient volume or infrequent

transactions (less active markets); or model-derived valuations in which all significant

inputs are observable or can be derived principally from or corroborated by observable

market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs to the valuation methodology that are significant to the

measurement of fair value of assets or liabilities.

All items required to be recorded or measured on a recurring basis consist of derivative

liabilities and are based upon level 3 inputs.

To the extent that valuation is based on models or inputs that are less observable or

unobservable in the market, the determination of fair value requires more judgment. In

certain cases, the inputs used to measure fair value may fall into different levels of the

fair value hierarchy. In such cases, for disclosure purposes, the level is the fair value

hierarchy within which the fair value measurement is disclosed and is determined based

on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning

retained earnings and no impact on the consolidated financial statements.

The carrying value of the Company’s cash and cash equivalents, accounts receivable,

accounts payable, short-term borrowings (including convertible note payable), and other

current assets and liabilities approximate fair value because of their short-term maturity.

As of March 31, 2014 and December 31, 2013, the Company did not have any items that

would be classified as level 1 or 2 disclosures.

The Company recognizes its derivative liabilities as level 3 and values its derivatives

using the methods discussed in Note 7. While the Company believes that its valuation

methods are appropriate and consistent with other market participants, it recognizes that

the use of different methodologies or assumptions to determine the fair value of certain

financial instruments could result in a different estimate of fair value at the reporting

date. The primary assumptions that would significantly affect the fair values using the

methods discussed in Note 7 are that of volatility and market price of the underlying

common stock of the Company.

As of March 31, 2014 and December 31, 2013, the Company did not have any derivative

instruments that were designated as hedges.

The derivative liability as of March 31, 2014 and December 31, 2013, in the amount of

$152,076, respectively has a level 3 classification. Further, there were no changes in fair

value of the Company’s level 3 financial liabilities during the three months ended March

31, 2014.

Fluctuations in the Company’s stock price are a primary driver for the changes in the

derivative valuations during each reporting period. As the stock price decreases for each

of the related derivative instruments, the value to the holder of the instrument generally

decreases, therefore decreasing the liability on the Company’s balance sheet.

Additionally, stock price volatility is one of the significant unobservable inputs used in

the fair value measurement of each of the Company’s derivative instruments. The

simulated fair value of these liabilities is sensitive to changes in the Company’s expected

volatility. A 10% change in pricing inputs and changes in volatilities and correlation

factors would currently not result in a material change in value for the level 3 financial

liability.

Note 12 - Related Party Transactions

Note Payable – Related Party

Gotham was provided a loan which was due on December 31, 2013 from an entity that

was previously a related party. The balance of $6,263 has not been paid and is

accordingly included in accounts payable at March 31, 2014.

Loan Payable - Stockholder

A stockholder/officer of the Company made cash advances totaling $3,600 on behalf of

the Company. The loan does not bear interest and will be repaid by December 31, 2014.

Note 13 – 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 at a monthly rent of $1,500

with 2% annual increases.

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

August 2, 2012 at a monthly license fee of $4,025. 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:

2014

$ 14,130

2015

19,080

2016

19,440

2017

3,240

$ 55,890

Rent expense of $17,456 and $20,750 was charged to operations for the three months

ended March 31, 2014 and 2013, respectively.

Contingencies

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 December 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").The Verizon Patent Litigation is a result of 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. On 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 to the Maryland District Court’s Local Rules, Digi-Data is not

authorized to file a Surreply without Court order.

On December 13, 2013 the Court Granted Summary Judgment in iGambit’s favor

against Digi-Data in the amount of $570,590, plus interest at the Maryland legal rate of

6% per annum from August 31, 2012, and post judgment interest at the Federal statutory

Rate. Furthermore, Digi-Data’s Counterclaim was dismissed.

On February 24, 2014 the Company entered into a Forbearance Agreement with Digi-

Data pursuant to which Digi-Data shall pay to iGambit Six Hundred Forty-Six

Thousand, Six Hundred Sixty-Eight Dollars and Sixty-Seven Cents ($646,668.67) (the

“Settlement Amount”) in full satisfaction of the Judgment.

Initial Payment: Data shall pay the Settlement Amount by delivering Twenty-Five

Thousand Dollars and No Cents ($25,000.00) to iGambit upon the execution of this

Agreement (“Initial Payment”), and delivering the remaining Six Hundred Twenty-One

Thousand, Six Hundred Sixty-Eight Dollars and Sixty-Seven Cents ($621,668.67), plus

interest at a rate of 6% per annum (calculated at Actual/360) (the “Remaining Balance”)

to iGambit.

Monthly Payments: Commencing thirty (30) calendar days after the Effective Date, and

continuing for the three following months, Digi-Data shall make monthly payments of

Twelve Thousand, Five Hundred Dollars and No Cents ($12,500.00) to iGambit (each, an

“Initial Monthly Payment”). Thirty (30) calendar days after the fourth Initial Monthly

Payment is made, Digi-Data shall commence making a monthly payment of Twenty-Five

Thousand Dollars and No Cents ($25,000.00) to iGambit until the Remaining Balance is

paid in full (each, a “Subsequent Monthly Payment”). Such Initial Monthly Payments

and Subsequent Monthly Payments shall be credited to payment of the Settlement

Amount and Remaining Balance, with payment being first applied to accrued and/or

outstanding interests, then to principal.

Line of Credit Payments: In the event that Digi-Data obtains a new line of credit

subsequent to the Effective Date under terms acceptable to Digi-Data in the amount of

Three Million Dollars and No Cents ($3,000,000.00) or greater it shall, within fifteen

(15) calendar days upon obtaining such funding, pay the full Remaining Balance to

iGambit (the “LOC Payment”). In the event that Digi-Data obtains a new line of credit

subsequent to the Effective Date under terms acceptable to Digi-Data for any amount less

than Three Million Dollars and No Cents ($3,000,000.00) that is secured by its

receivables it shall, within fifteen (15) calendar days of obtaining such funding, pay

Twenty-Five Thousand Dollars and No Cents ($25,000.00) to iGambit (the “Receivables

Payment”). Such Receivables Payment shall be credited to payment of the Settlement

Amount and Remaining Balance, with payment being first applied to accrued and/or

outstanding interests, then to principal.

Digi-Data Sale: In the event of a Digi-Data Sale, iGambit shall be paid the Remaining

Balance at closing of any such Digi-Data Sale as provided in paragraph 2, below.

iGambit acknowledges that, if the Digi-Data Sale is a sale or sales of the Digi-Data

Assets, there may be insufficient proceeds to pay the Remaining Balance in full. If the

Digi-Data Sale is a sale or sales of the stock of Digi-Data and there are insufficient

proceeds at closing to pay the Remaining Balance in full, iGambit shall continue to

receive the Subsequent Monthly Payment until the full Remaining Balance is paid. On May 12, 2014, Digi-Data paid the full balance due on the judgment plus all accrued interest upon the sale of Digi-Data.

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 14 – 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 of 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, 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.

The consideration from IGX totaling $755,000 is reported as Other Income in the

Statements of Operations for the year ended December 31, 2013. The balance due from

IGX was $229,779 and $239,779 at March 31, 2014 and December 31, 2013,

respectively.

Note 15 – Subsequent Events

In connection with the convertible note payable (see Note 6), on April 1, 2014, the note

holder elected to convert $10,000 principal amount of the Note into 90,909 shares of

common stock at a conversion price of $.11 per share. On April 24, 2014, the note holder

elected to convert an additional $12,000 principal amount of the Note into 112,888 shares

of common stock at a conversion price of $.1063 per share. The remaining principal

balance after the conversions is $81,500.

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.

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, 2014

and 2013, respectively.

Assets from discontinued operations, net includes accounts receivable which

represents 50% of contingency payments earned for the previous quarters. The reserve

for bad debts of $250,000 charged to operations in 2010 was reversed in connection with

the Summary Judgment and Forbearance Agreement described in Note 11.Also included

is accrued interest receivable of $78,980 recorded for interest granted on the balance due

from Digi-data through March 31, 2014.

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 $1,191 and $1,538 was charged to operations for the

three months ended March 31, 2014 and 2013, respectively.

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 our 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.

Convertible Note

On September 16, 2013, we issued an 8% convertible note in the aggregate

principal amount of $103,500, convertible into shares of the Company’s common stock.

The Note, including accrued interest is due June 18, 2014 and is convertible any time

after 180 days at the option of the holder into shares of our common stock at 55% of the

average stock price of the lowest 3 closing bid prices during the 10 trading day period

ending on the latest complete trading day prior to the conversion date. Interest expense on

the convertible note of $2,405 was recorded for the year ended December 31, 2013.

Initially we anticipated repaying the obligation prior to the effective date of the

holder electing to convert. Since the effective date of the election to convert has passed

we recorded a debt discount related to identified embedded derivatives relating to

conversion features and a reset provisions (see Note 7) based fair values as of the

inception date of the Note. The calculated debt discount equaled the face of the note and

is being amortized over the term of the note. During the year ended December 31, 2013,

we amortized $40,250 of debt discount.

Derivative Liability

During the year ended December 31, 2013, we issued a convertible note.

The note is convertible into common stock, at the holders’ option, at a discount to

the market price of our common stock. We identified embedded derivatives included in

these notes as a result of certain anti-dilutive (reset) provisions, related to certain

conversion features. The accounting treatment of derivative financial instruments requires

that we record the fair value of the derivatives as of the inception date of the convertible

note and debt discount amortization to fair value as of each subsequent reporting date.

This resulted in a fair value of derivative liability of $152,076 in which to the extent of

the face value of convertible note was treated as debt discount with the remainder treated

as interest expense.

The fair value of the embedded derivatives at December 31, 2013, in the amount

of $152,076, was determined using the Binomial Option Pricing Model based on the

following assumptions: (1) dividend yield of 0%; (2) expected volatility of 243.00%, (3)

weighted average risk-free interest rate of 0.09%, (4) expected lives of 0.72 to 0.75 years,

and (5) estimated fair value of our common stock of $0.51 per share. We recorded

interest expense from the excess of the derivative liability over the convertible note of

$48,576 during the year ended December 31, 2013.

Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) we adopted a

sequencing approach regarding the application of ASC 815-40 to its outstanding

convertible note. Pursuant to the sequencing approach, we evaluate its contracts based

upon earliest issuance date.

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, 2014, we had $1,022,104 in total assets, compared to

$1,071,342 at December 31, 2013. The decrease in total assets was primarily due to the

decrease in accounts receivable and the decrease in assets from discontinued operations.

Liabilities.At March 31, 2014, our total liabilities were $627,495 compared to

$515,155 at December 31, 2013. Our total liabilities at March 31, 2014 consisted of

accounts payable of $397,069, a convertible note payable of $74,750, a derivative

liability for certain provisions of the convertible note of $152,076 and a loan payable to a

stockholder of $3,600, whereas our total liabilities as of December 31, 2013 consisted of

accounts payable of $316,566, a convertible note payable of $40.250, a derivative

liability for certain provisions of the convertible note of $152,076 and a note to a related

party of $6,263. The increase in liabilities was primarily due to a derivative liability

recorded for the issuance of a convertible note payable to an unrelated party. We do not

have any long term liabilities.

Stockholders’ Equity. Our stockholders’ equity decreased to $394,609 at March

31, 2014 from $556,187 atDecember 31, 2013. This decrease was primarily due to an

increase in accumulated deficit from $(2,197,857) at December 31, 2013 to $(2,359,435)

at March 31, 2014, resulting from losses from operations of $(134,966) for the three

months ended March 31, 2014.

THREE MONTHS ENDED MARCH 31, 2014 AS COMPARED TO THREE

MONTHS ENDED MARCH 31, 2013

Revenues and Cost of Sales. We had $240,213 of revenue during the three

months ended March 31, 2014 compared to revenue of $362,821 during the three months

ended March 31, 2013. The decrease in revenue was due primarily to a decrease in

revenue generated by our Gotham subsidiary as result of transitioning out our customer

technical services division and focusing more on the real estate photography division.

The decrease in our cost of goods sold for the three months ended March 31, 2014 was

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

In addition to Gotham’s operations, we had income from discontinued operations of

$0and $11,355for the three months ended March 31, 2013and March 31, 2014,

respectively.

General and AdministrativeExpenses. General and Administrative Expenses

decreased to 272,267 for the three months ended March 31, 2014 from $449,027 for the

three months ended March 31, 2013. For the three months ended March 31, 2014 our

General and Administrative Expenses consisted of corporate administrative expenses of

$74,221, legal and accounting fees of $36,336,health insurance expenses of $19,887,

directors and officers insurance expenses of $10,924 and payroll expenses of 130,899.

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.. The decreases from the three months ended March 31,

2013 to the three months ended March 31, 2014 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, 2014and March 31, 2013,

respectively.

LIQUIDITY AND CAPITAL RESOURCES

General

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

2014, we had $28,607of cash and stockholders’ equity of $394,609 as compared to

$26,870 and $556,187 at December 31, 2013. At March 31, 2014 we had $1,022,104 in

total assets, compared to $1,071,342 at December 31, 2013.

Our primary capital requirements in 2014 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 $34,625 for the three months ended

March 31, 2014, compared to net cash used by operating activities of $58,310 for the

three months ended March 31, 2013. Our primary source of operating cash flows from

continuing operating activities for the three months ended March 31, 2014 was from our

Gotham subsidiary’s revenues of $240,213 and $362,821 for the three months ended

March 31, 2013. Additional contributing factors to the change were from a decrease in

accounts receivable of $32,581, an increase in prepaid expenses of $14,204, an increase

in accounts payable of $74,240 and a receivable due from the IGX rescission agreement

of $10,000. Net cash provided by discontinued operating activities was $37,500 for the

three months ended March 31, 2014 and cash provided by discontinued operating

activities was $0 for the three months ended March 31, 2013.The $37,500 cash provided

by discontinued operations for the three months ended March 31, 2014, was $37,500 in

cash payments received from DDC which was offset by a decrease in accounts receivable

included in the Assets from Discontinued Operations.

Cash used in investing activities was $4,738 for the three months ended March 31,

2014 and Cash provided by investing activities was $2,850 for the three months ended

March 31, 2013. For the three months ended March 31, 2014the primary source of cash

provided by investing activities was $2,026from the purchase of property and equipment

and an increase in deposits of $2,712. For the three months ended March 31, 2013 the

source of cash provided by investing activities was from a decrease in deposits of $2,850.

Cash provided by financing activities was $3,600 for the three months ended March

31, 2014 compared to $0 for the three months ended March 31, 2013. The cash provided

by financing activities for the three months ended March 31, 2013was a loan of $3,600

from a stockholder.

Supplemental Cash Flow Activity

In the three months ended March 31, 2014 the company paid interest of $1,425

compared to interest of $638 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, 2014.

Change in Internal Controls

During the quarter ended March 31, 2014, 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.

Digi-Data Corporation

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 December 13, 2013 the Court Granted Summary Judgment in iGambit’s favor

against Digi-Data in the amount of $570,590, plus interest at the Maryland legal rate of

6% per annum from August 31, 2012, and post judgment interest at the Federal statutory

Rate. Furthermore, Digi-Data’s Counterclaim was dismissed.

On February 24, 2014 we entered into a Forbearance Agreement with Digi-Data

pursuant to which Digi-Data shall pay to iGambit Six Hundred Forty-Six Thousand, Six

Hundred Sixty-Eight Dollars and Sixty-Seven Cents ($646,668.67) (the “Settlement

Amount”) in full satisfaction of the Judgment based upon the following terms:

Initial Payment: Digi-Data shall pay the Settlement Amount by delivering

Twenty-Five Thousand Dollars and No Cents ($25,000.00) to iGambit upon the

execution of this Agreement (“Initial Payment”), and delivering the remaining Six

Hundred Twenty-One Thousand, Six Hundred Sixty-Eight Dollars and Sixty-Seven Cents

($621,668.67), plus interest at a rate of 6% per annum (calculated at Actual/360) (the

“Remaining Balance”) to iGambit.

Monthly Payments: Commencing thirty (30) calendar days after the Effective

Date, and continuing for the three following months, Digi-Data shall make monthly

payments of Twelve Thousand, Five Hundred Dollars and No Cents ($12,500.00) to

iGambit (each, an “Initial Monthly Payment”). Thirty (30) calendar days after the fourth

Initial Monthly Payment is made, Digi-Data shall commence making a monthly payment

of Twenty-Five Thousand Dollars and No Cents ($25,000.00) to iGambit until the

Remaining Balance is paid in full (each, a “Subsequent Monthly Payment”). Such Initial

Monthly Payments and Subsequent Monthly Payments shall be credited to payment of

the Settlement Amount and Remaining Balance, with payment being first applied to

accrued and/or outstanding interests, then to principal.