Clinigence Holdings, Inc. - FORM 10-Q

Attached files

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended June 30, 2011

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

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 23,954,056 shares of its common stock outstanding as of August 7, 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

Item 1 — Financial Statements

IGAMBIT INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30,

DECEMBER 31,

2012

2011

(Unaudited)

ASSETS

Current assets

Cash

653,462

224,800

Accounts receivable, net

161,350

269,353

Prepaid expenses

26,955

58,649

Notes receivable

434,512

Notes receivable - stockholder

17,000

Deferred income taxes

368,658

184,185

Assets from discontinued operations

345,590

570,590

Total current assets

1,573,015

1,759,089

Property and equipment, net

20,761

18,563

Other assets

Goodwill

111,026

Deposits

2,070

2,500

Total other assets

113,096

113,526

1,706,872

1,891,178

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

380,350

263,195

Note payable - related party

19,765

25,390

Loan payable - stockholder

5,300

Total current liabilities

405,415

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

(1,125,587)

(824,451)

Total stockholders' equity

1,301,457

1,602,593

1,706,872

1,891,178

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

THREE MONTHS

SIX MONTHS

ENDED

JUNE 30,

2012

2011

2012

2011

Sales

429,168

477,441

909,516

889,344

Cost of sales

222,573

221,592

477,611

351,813

Gross profit

206,595

255,849

431,905

537,531

Operating expenses

General and administrative expenses

433,294

450,662

930,235

903,061

Loss from operations

(226,699)

(194,813)

(498,330)

(365,530)

Other income

Interest income

5,881

6,935

12,721

14,170

Loss from continuing operations before

income tax benefit

(220,818)

(187,878)

(485,609)

(351,360)

Income tax benefit

83,217

65,643

184,473

114,860

Loss from continuing operations

(137,601)

(122,235)

(301,136)

(236,500)

Discontinued operations

Income from discontinued operations

Provision for income taxes

242,099

82,314

Income from discontinued operations, net

of taxes

159,785

Net loss

(137,601)

(122,235)

(301,136)

(76,715)

Basic and fully diluted earnings (loss) per

common share:

Continuing operations

Discontinued operations, net of tax

(.01)

Net earnings per common share

.00

.01

(.01)

.00

Weighted average common shares

outstanding

23,954,056

IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$ (301,136)

(76,715)

Adjustments to reconcile net loss to net

cash provided (used) by operating activities

Income from discontinued operations

(159,785)

Depreciation

4,249

2,894

Deferred income taxes

(184,473)

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

108,003

(154,163)

Prepaid expenses

31,694

197,475

Accounts payable

117,155

(68,561)

Net cash used by continuing operating activities

(224,508)

(258,855)

Net cash provided (used) by discontinued operating activities

225,000

(82,314)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

492

(341,169)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(1,147)

(18,751)

Decrease in deposits

430

Proceeds from repayments of notes receivable

434,512

32,988

Net cash provided by continuing investing activities

433,795

14,237

Net cash provided by discontinued investing activities

330,000

NET CASH PROVIDED BY INVESTING ACTIVITIES

433,795

344,237

NET CASH USED BY FINANCING ACTIVITIES:

Repayment of loans from shareholders

(5,625)

NET INCREASE IN CASH

428,662

3,068

CASH - BEGINNING OF PERIOD

224,800

465,549

CASH - END OF PERIOD

653,462

468,617

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

1,368

1,372

Income taxes

4,125

13,940

Non-cash investing and financing activities:

Property and equipment purchased through loan from stockholder

5,300

IGAMBIT INC.

Notes to Consolidated Financial Statements

Note 1 - Organization and Basis of Presentation

The consolidated financial statements presented are those of iGambit Inc., (the

“Company”) and its wholly-owned subsidiary, Gotham Innovation Lab Inc. (“Gotham”).

The Company was incorporated under the laws of the State of Delaware on April 13,

2000. The Company was originally incorporated as Compusations Inc. under the laws of

the State of New York on October 2, 1996. The Company changed its name to

BigVault.com Inc. upon changing its state of domicile on April 13, 2000. The Company

changed its name again to bigVault Storage Technologies Inc. on December 22, 2000

before changing to iGambit Inc. on July 18, 2006. Gotham was incorporated under the

laws of the state of New York on September 23, 2009.

In the opinion of management, the accompanying interim financial statements reflect all

adjustments (consisting of normal recurring accruals) necessary to present fairly the

financial position and the results of operations and cash flows for the interim periods

presented. The results of operations for these interim periods are not necessarily

indicative of the results to be expected for the year ending December 31, 2012.

Note 2 – Discontinued Operations

Sale of Business

On February 28, 2006, the Company entered into an asset purchase agreement with Digi-

Data Corporation (“Digi-Data”), whereby Digi-Data acquired the Company’s assets and

its online digital vaulting business operations in exchange for $1,500,000, which was

deposited into an escrow account for payment of the Company’s outstanding liabilities.

In addition, as part of the sales agreement, the Company receives payments from Digi-

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

Company is also entitled to an additional 5% of the increase in net vaulting revenue over

the prior year’s revenue. These adjustments to the sales price are included in the

discontinued operations line of the statements of operations.

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

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

operations consist of accounts receivable of $345,590 and $570,590 as of June 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 six

months ended June 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 six months ended June 30, 2012 and 2011,

respectively.

Prepaid Expenses

Prepaid expenses consist of the following:

June 30, December 31,

2012

2011

Prepaid state income taxes

$ 22,368

$ 31,758

Prepaid insurance

4,587

26,891

$ 26,955

$ 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 six months ended

June 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 $4,249 and $2,894 was charged to operations for the six months

ended June 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 six months ended June 30, 2012. Based on the

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

ended June 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.

Accrued interest on the notes was $12,044 and $20,358 for the six months ended June 30,

2012 and 2011, respectively.

Note 5 - Earnings Per Common Share

The Company calculates net earnings (loss) per common share in accordance with ASC

260 “Earnings Per Share” (“ASC 260”). Basic and diluted net earnings (loss) per

common share was determined by dividing net earnings (loss) applicable to common

stockholders by the weighted average number of common shares outstanding during the

period. The Company’s potentially dilutive shares, which include outstanding common

stock options and common stock warrants, have not been included in the computation of

diluted net earnings (loss) per share for all periods as the result would be anti-dilutive.

Six Months Ended

June 30,

2012

2011

SStock options

2,768,900 2,468,900

Common stock warrants

275,000 3,085,000

Total shares excluded from calculation

3,043,900 5,553,900

Note 6 – Stock Based Compensation

Stock-based compensation expense for all stock-based award programs, including grants

of stock options and warrants, is recorded in accordance with "Compensation—Stock

Compensation", Topic 718 of the FASB ASC. Stock-based compensation expense, which

is calculated net of estimated forfeitures, is computed using the grant date fair-value

method on a straight-line basis over the requisite service period for all stock awards that

vest during the period. The grant date fair value for stock options is calculated using the

Black-Scholes option valuation model. Determining the fair value of options at the grant

date requires judgment, including estimating the expected term that stock options will be

outstanding prior to exercise, the associated volatility and the expected dividends. Stock-

based compensation expense is reported under general and administrative expenses on

the accompanying consolidated statements of operations.

In 2006, the Company adopted the 2006 Long-Term Incentive Plan (the "2006 Plan").

Awards granted under the 2006 plan have a ten-year term and may be incentive stock

options, non-qualified stock options or warrants. The awards are granted at an exercise

price equal to the fair market value on the date of grant and generally vest over a three or

four year period. Effective January 1, 2006, the Company recognized compensation

expense ratably over the vesting period, net of estimated forfeitures. As of June 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 six months ended June 30, 2012 follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Grant-Date

Life

Warrants

Exercise Price

Fair Value

(Years)

Warrants outstanding

at January 1, 2012

275,000

0.94

0.10

No warrant activity

Warrants outstanding

at June 30, 2012

275,000

0.94

0.10

0.99

Stock Option Plan activity during the six months ended June 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

June 30, 2012

2,768,900

0.04

0.10

4.27

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

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

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

interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates

approximately equal to the expected life at the grant date. The calculated value method

using the historical volatility of the Computer Services industry is used as the basis for

the volatility assumption.

Six months ended June 30,

__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 June 30 consists of the following:

2012

2011

From operations:

Continuing operations:

Current tax expense (benefit):

Federal

$(148,524)

$ (114,860)

State and local

(35,949)

Total from continuing operations

(184,473)

(114,860)

Discontinued operations:

Current tax expense (benefit)

Federal

82,314

State and local

Total from discontinued operations

82,314

Total

$(184,473)

$ (32,546)

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

Six Months Ended

June 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)%

(4.2)%

Effective tax rate

38.0%

29.8%

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 June 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 six months ended June 30, 2012 and 2011

were $5,476 and $5,541, respectively.

Note 9 – Significant Customers

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

sales for the six months ended June 30, 2012 at 38%, 14%, and 13%, 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 June 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 $509 and $506 for the six months ended June 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 $19,765 and $25,390 at June 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 $295 was charged to operations for the six months ended June 30,

2012 and 2011, respectively.

Loan Payable - Stockholder

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

on behalf of the Company. The loan does not bear interest and has been repaid as of the

date of this report.

Note 12 - Lease Commitment

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

in Smithtown, New York commencing on March 1, 2012.

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

monthly rent of $5,500.

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

December 31 are as follows:

2012

$ 9,000

2013

18,360

2014

18,720

2015

19,080

2016

19,440

$ 84,600

Rent expense of $49,900 and $48,600 was charged to operations for the six months ended

June 30, 2012 and 2011, respectively.

Note 13 - Litigation

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

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

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 June 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. There were no

material subsequent events that required recognition or additional disclosure in these

consolidated financial statements.

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

Operations.

FORWARD LOOKING STATEMENTS

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

Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended. All statements, other than statements of historical

facts, included or incorporated by reference in this Form 10-Q which address activities,

events or developments that the Company expects or anticipates will or may occur in the

future, including such things as future capital expenditures (including the amount and

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

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

statements. These statements are based on certain assumptions and analyses made by the

Company in light of its experience and its perception of historical trends, current

conditions and expected future developments as well as other factors it believes are

appropriate in the circumstances.

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

future performance and involve significant risks and uncertainties, and that actual results

may differ materially from those projected in the forward-looking statements. Factors that

could adversely affect actual results and performance include, among others, potential

fluctuations in quarterly operating results and expenses, government regulation,

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

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

assurance that the actual results or developments anticipated by the Company will be

realized or, even if substantially realized, that they will have the expected consequence to

or effects on the Company or its business or operations. The Company assumes no

obligations to update any such forward-looking statements.

CRITICAL ACCOUNTING ESTIMATES

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

operations are based on our financial statements, which have been prepared in accordance

with accounting principles generally accepted in the United States of America. The

preparation of financial statements may require us to make estimates and assumptions

that may affect the reported amounts of assets and liabilities and the related disclosures at

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

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

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

susceptibility of such matters to change or the impact of the estimates and assumptions on

financial condition or operating performance is material, except as described below.

Fair Value of Financial Instruments

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

accounts receivable, accounts payable, and amounts due to related parties, the carrying

amounts approximate fair value due to their short maturities.

Revenue Recognition

Contingency payment income is recognized quarterly from a percentage of Digi-

Data’s vaulting service revenue, and is included in discontinued operations. Our revenues

from continuing operations consist of revenues primarily from sales of products and

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

products or services.

Cash and Cash Equivalents

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

money market accounts and any highly liquid debt instruments purchased with a maturity

of three months or less.

Accounts Receivable

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

our allowance for doubtful accounts accordingly. A considerable amount of judgment is

required in assessing the realization of accounts receivables, including the current

creditworthiness of each customer, current and historical collection history and the

related aging of past due balances. We evaluate specific accounts when we become aware

of information indicating that a customer may not be able to meet its financial obligations

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

factors affecting the ability to render payment.

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

earned for the previous quarter. Reserve for bad 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 six months ended June 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 six

months ended June 30, 2012, the Company purchased computer equipment totaling

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

depreciated over 7 years. Maintenance and repairs are charged to expense when incurred.

When property and equipment are retired or otherwise disposed of, the related cost and

accumulated depreciation are removed from the respective accounts and any gain or loss

is credited or charged to income.

Depreciation expense of $4,249 and $2,894was charged to operations for the six

months ended June 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 six months ended June 30, 2012. Based on the

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

ended June 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 six

months ended June 30, 2012 Gotham produced approximately $1,623,654 and $852,272

of revenue, respectively. We are focused on expanding the operations of Gotham by

marketing the company to existing and potential new clients. Currently Gotham has

several proposals outstanding to franchisees of one of its main customers, as well as other

potential new clients. In addition to Gotham’s operations, during the year ended

December 31, 2011 and during the six months ended June 30, 2012 we earned $160,250

and $ 57,244 in technical consulting fees. 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 expect

the balance of the amounts due to be paid during 2012. We are also focused on

acquiring or partnering with additional technology companies.

Assets. At June 30, 2012, we had $1,706,872 in total assets, compared to $1,891,178 at

December 31, 2011. The decrease in total assets was primarily due to the decrease in cash

as a result of the receipt of decreased contingency payments from DDC.

Liabilities. At June 30, 2012, our total liabilities were $405,415 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 liabilities was due

to an increase in accounts payable and a loan payable to stockholder.

Stockholders’ Equity. Our stockholders’ equity decreased to $1,301,457 at June 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 $(1,125,587) at

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

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

2011

Revenues and Net Income. We had $429,168 of revenue during the three months

ended June 30, 2012, as compared to $477,441 of revenue during the three months ended

June 30, 2011. The decrease was due to a decrease in revenue generated by our acquired

subsidiary Gotham resulting from a transition of revenue focus away from custom

development and towards online real estate media In addition, we had a net loss of

(137,601) for the three months ended June 30, 2012, compared to a net loss of ($122,235)

for the three months ended June 30, 2011.

General and Administrative Expenses. General and Administrative Expenses

decreased to $433,294 for the three months ended June 30, 2012 from $450,662 for the

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

and Administrative Expenses consisted of corporate administrative expenses of $102,331,

rent expense of $26,500, employee benefits, consisting primarily of health insurance

expense of $19,871, and payroll expenses of $284,592. For the three months ended June

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

expenses of $122,118, legal and accounting fees of $29,829 and payroll expenses of

$298,715. The decreases from the three months ended June 30, 2011 to the three months

ended June 30, 2012 relate primarily to: (i) the recoupment of legal fees as part of the

Allied lawsuits settlement, (ii) a decrease in professional costs associated with the

preparation and filing of a registration statement with the SEC; and (iii) leveling in costs

associated with the operation of our Gotham subsidiary. Costs associated with the

operation of our Gotham subsidiary should remain level going forward, subject to a

material expansion in the business operations of Gotham which would likely increase our

corporate administrative expenses. Further, we anticipated an increase in legal and

accounting fees in 2012 as a result of having become a reporting company under the

Securities Exchange Act of 1934.

Six Months Ended June 30, 2012 as Compared to Six Months Ended June 30, 2011

Revenues and Net Income. We had $909,516 of revenue during the six months ended

June 30, 2012, as compared to $889,344 of revenue during the six months ended June 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 six

months ended June 30, 2012, compared to $242,099 for the six months ended June 30,

2011, and net loss of $(301,136) for the six months ended June 30, 2012, compared to net

loss of $(76,715) for the six months ended June 30, 2011.

General and Administrative Expenses. General and Administrative Expenses

increased to $930,235 for the six months ended June 30, 2012 from $903,061 for the six

months ended June 30, 2011. For the six months ended June 30, 2012 our General and

Administrative Expenses consisted of corporate administrative expenses of $198,284,

rent expense of $49,900, employee benefits, consisting primarily of health insurance

expense of $41,881, legal and accounting fees of $31,902, business insurance expenses of

$23,898, and payroll expenses of $584,370. For the six months ended June 30, 2011 our

General and Administrative Expenses consisted of corporate administrative expenses of

$231,439, legal and accounting fees of $92,651, initial public offering expenses of

$15,000, and payroll expenses of $563,971.

The increases from the six months ended

June 30, 2011 to the six months ended June 30, 2012 relate primarily to an increase in

insurance expenses, in particular health care premium increases and D&O insurance.

(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.

Liquidity and Capital Resources

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

2012, we had $653,462 of cash and stockholders’ equity of $1,301,457 compared to

$224,800 of cash and $1,602,593 of stockholders’ equity at December 31, 2011. At June

30, 2012 we had $1,706,872 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 provided by operating activities was $492 for the six months ending

June 30, 2012, compared to net cash used by operating activities of $341,169 for the six

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

continued operating activities for the six months ending June 30, 2012 was from our

Gotham subsidiary’s revenues of $852,273. Additional contributing factors to the change

were a decrease in accounts receivable of $108,003, prepaid expenses of $31,694, and an

increase in accounts payable of $117,115. Net cash provided by discontinued operating

activities was $225,000 for the six months ending June 30, 2012 and cash used by

discontinued operating activities was $82,314 for the six months ending June 30, 2011.

The $225,000 provided from discontinued operating activities for the six months ending

June 30, 2012 was a decrease in the DDC accounts receivable. For the six months ending

June 30, 2011, the primary source of cash flows from operating activities was revenue of

$889,344. For the six months ending June 30, 2011 we also had income from

discontinued operations of $163,588 (net of taxes of $82,314). The agreement with DDC

ended on February 28, 2011. Revenue earned from DDC totaled $242,099 during the

six months ending June 30, 2011 Of the $242,099 revenue earned from DDC in the six

months ending June 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 $433,795 and $344,237 respectively, for

the first six months ending June 30, 2012 and June 30, 2011. For the six month ending

June 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 six months

ending June 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 $(5,625) and $0 for the six months ending

June 30, 2012 and June 30, 2011 respectively. The cash flows used by financing

activities in the first six months of fiscal year 2012 were from repayment of loans payable

to a related party from our subsidiary Gotham.

Supplemental Cash Flow Activity

In the six months ending June 30, 2012 the company paid income taxes of $4,125

compared to $13,940 for the six months ending June 30, 2011. The decrease in taxes was

due to tax overpayments in 2011. The Company also paid interest of $1,368 during the

first six months of fiscal year 2012 compared to $1,372 during the first six 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 June 30, 2011. 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 second 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. In response to the lawsuit, Borrower and

Guarantors Polo and Taneja, filed a counterclaim that was subsequently amended on or

about February 9, 2012. The Amended Counterclaim asserts claims against us for

alleged fraud and for alleged violations of Florida's deceptive and unfair trade practices

act for, amongst other things, the alleged failure to loan Allied $1,500,000.00 following

an alleged prior commitment to do so.

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.

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 August

8, 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.)

Attached files

Clinigence Holdings, Inc. Reports

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