NUTX 10-Q Quarter ended June 30, 2014

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ

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

ACT OF 1934

For the Quarterly period ended June 30, 2014



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

For the transition period from

to

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 

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 

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 

Smaller reporting company þ

(Do not check if a smaller reporting company)

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

Act). Yes  No þ

The Registrant had 25,583,990 shares of its common stock outstanding as of August 13, 2014.

iGambit Inc.

Form 10-Q

Part I — Financial Information

1

Item 1.

Financial Statements:

1

Consolidated Balance Sheets

1

Consolidated Statements of Income

23

Consolidated Statements of Cash Flows

3

Notes to Consolidated Financial Statements

4

Item 2 .

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

Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

Part II — Other Information

26

Item 1 .

Legal Proceedings

26

Item 1A .

Risk Factors

28

Item 2 .

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3 .

Defaults upon Senior Securities

28

Item 4 .

Removed and Reserved

28

Item 5 .

Other Information

28

Item 6 .

Exhibits

28

EX-31.1

EX-31.2

EX-32.1

EX-32.2

IGAMBIT INC.

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

IGAMBIT INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30,

2014

DECEMBER 31,

2013

(Unaudited)

(Audited)

ASSETS

Current assets

Cash

$

589,689

$

26,870

Accounts receivable, net

97,406

135,292

Prepaid expenses

12,335

10,590

Due from rescission agreement

--

239,779

Assets from discontinued operations, net

--

638,215

Total current assets

699,430

1,050,746

Property and equipment, net

10,819

11,176

Other assets

Deposits

12,132

9,420

$

722,381

$

1,071,342

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

329,836

$

316,566

Convertible note payable, net

--

40,250

Derivative liability

--

152,076

Note payable - related party

--

6,263

Loan payable - stockholder

3,100

--

Total current liabilities

332,936

515,155

Stockholders' equity

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

issued and outstanding - 26,583,990 shares in 2014

and 25,044,056 shares in 2013, respectively

26,584

25,044

Additional paid-in capital

2,797,566

2,729,000

Accumulated deficit

(2,434,705)

(2,197,857)

Total stockholders' equity

389,445

556,187

$

722,381

$

1,071,342

1

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

THREE MONTHS

SIX MONTHS

ENDED

ENDED

JUNE 30,

JUNE 30,

2014

2013

2014

2013

Sales

$

310,424

$

411,719

$

550,637

$

774,540

Cost of sales

123,703

149,608

226,615

265,378

Gross profit

186,721

262,111

324,022

509,162

Operating expenses

General and administrative expenses

387,972

428,261

660,239

877,926

Loss from operations

(201,251)

(166,150)

(336,217)

(368,764)

Other income (expenses)

Income from rescission agreement

--

755,000

--

755,000

Gain on derivative liability

152,076

--

152,076

--

Amortization of debt discount

(28,750)

--

(63,250)

--

Interest expense

(3,521)

--

(6,988)

--

Total other income (expenses)

119,805

755,000

81,838

755,000

Income (loss) from continuing operations

(81,446)

588,850

(254,379)

386,236

Income from discontinued operations

6,176

--

17,531

--

Net income (loss)

$

(75,270)

$

588,850

$

(236,848)

$

386,236

Basic and fully diluted earnings (loss) per

common share:

Continuing operations

$

.00

$

.02

$

(.01)

$

.02

Discontinued operations

$

.00

$

.00

$

.00

$

.00

Net earnings (loss) per common share

$

(.00)

$

.02

$

(.01)

$

.02

Weighted average common shares outstanding

- basic

25,439,660

25,044,056

25,242,951

25,044,056

Weighted average common shares outstanding

- fully diluted

25,439,660

25,987,956

25,242,951

25,987,956

2

IGAMBIT INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30,

(UNAUDITED)

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$ (236,848)

$

386,236

Adjustments to reconcile net loss to net

cash provided (used) by operating activities

Income from discontinued operations

(17,531)

--

Depreciation

2,383

3,211

Debt discount amortization

63,250

--

Stock-based compensation

21,106

--

Uncollectible portion of due from rescission agreement

50,779

--

Gain on derivative liability

(152,076)

--

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

37,886

(48,740)

Prepaid expenses

(1,745)

26,336

Due from rescission agreement

189,000

(331,000)

Accounts payable

7,007

(41,594)

Net cash used by continuing operating activities

(36,789)

(5,551)

Net cash provided by discontinued operating activities

655,746

--

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

618,957

(5,551)

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

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from stockholder's loan

3,600

--

Repayments of stockholder's loan

(500)

--

Repayments of convertible note payable

(54,500)

--

NET CASH USED IN FINANCING ACTIVITIES

(51,400)

--

NET INCREASE (DECREASE) IN CASH

562,819

(2,701)

CASH - BEGINNING OF PERIOD

26,870

104,721

CASH - END OF PERIOD

$

589,689

$

102,020

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

$

6,988

$

1,548

Non-cash investing and financing activities:

Note payable converted to common stock

$

(49,000)

$

--

3

IGAMBIT INC.

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 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 six months ended

June 30, 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.

4

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 $0 and $570,590 as of June 30, 2014 and December 31, 2013,

respectively,  and  of  accrued  interest  receivable  of  $0and  $67,625  as  of  June  30,  2014  and

December 31, 2013, respectively.

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

$85,156 recorded for interest granted on the balance due from Digi-data through May 2014. The

entire balance including accrued interest totaling $655,746 was repaid to the Company by Digi-

data in the six months ended June 30, 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.

5

Advertising Costs

The  Company expenses  advertising costs  as incurred.    Advertising costs  for the six  months

ended June 30, 2014 and 2013 were $2,233 and $3,018, 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 June 30, 2014

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

the six months ended June 30, 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$2,383 and $3,211 was charged to operations for the six months ended

June 30, 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

6

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.

7

Three Months Ended

Six Months Ended

June 3 0,

June 3 0,

2014

2013

2014

2013

Stock options

1,518,900

668,900

1,518,900

668,900

Stock warrants

275,000

275,000

275,000

275,000

Total shares excluded from

calculation

1,793,900

943,900

1,793,900

943,900

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 June30, 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 been exercised and 692,962 have expired to date.  There were 296,900 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 six months ended June 30, 2014 and 2013 follows:

8

Weighted

Average

Weighted

Remaining

Weighted

Average

Average

Contractual

Options

Grant-Date Fair

L ife

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

June 30, 2013

1,268,900

$

0.08

$

0.10

5.19

Options outstanding at

December 31, 2013

668,900

$

0.06

$

0.10

4.69

Options granted

850,000

$

0.04

$

0.09

7.44

Options outstanding at

June 30, 2014

1,518,900

$

0.06

$

0.10

5.27

Options outstanding at June 30, 2014 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

50,000

50,000

$0.01

May 1, 2016

May 1, 2006

46.900

46,900

$0.01

May 1, 2016

June 9, 2014

213,000

213,000

$0.03

June 9, 2024

June 9, 2014

159,000

159,000

$0.03

June 9, 2024

June 9, 2014

600,000

600,000

$0.03

June 9, 2024

June 6, 2014

250,000

250,000

$0.05

June 6, 2019

Total

1,518,900

1,518,900

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.

9

Warrant activity during the six months ended June 30, 2014 and 2013 follows:

(1)Weighted

Average

Weighted

Remaining

Weighted

Average

Average

Contractual

Warrants

G rant-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 June 30, 2013

275,000

$

0.94

$

0.10

5.92

Warrants outstanding

at December 31, 2013

275,000

$

0.94

$

0.10

5.42

No warrant activity

--

--

--

Warrants outstanding

at June 30, 2014

275,000

$

0.94

$

0.10

4.92

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

Warrants outstanding at June 30, 2014 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

P rice

Date

April 1, 2000

25,000

25,000

$3.00

2 years after IPO

June 1, 2009

100,000

100,000

$0.50

June 1, 2019

June 1, 2009

50,000

50,000

$0.65

June 1, 2019

June 1, 2009

50,000

50,000

$0.85

June 1, 2019

June 1, 2009

50,000

50,000

$1.15

June 1, 2019

Total

275,000

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 was due June 18, 2014 and was convertible any time after 180 days at

the option of the holder into shares of the Company’s 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

$2,042 was recorded for the six months ended June 30, 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

10

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 was amortized over

the term of the note. During the six months ended June 30, 2014, the Company amortized

$63,250 of debt discount.  During the six months ended June 30, 2014, the note holder converted

$49,000 of the principal balance to 1,539,934 shares of common stock, and the Company repaid

the remaining note balance of $54,500 and accrued interest of $5,646 on June 18, 2014.

Note 7 - 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 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 the

Company’s common stock of $0.51 per share. The Company recorded interest expense from the

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

December 31, 2013. A gain on derivative liability of $152,076 was recorded during the six

months ended June 30, 2014 for the satisfaction of the convertible note.

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 June 30,

2014 2013

Effective tax rate

0.0 % 0.0 %

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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 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, 2014 and 2013 were $3,581 and$9,744,

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 six months ended June 30, 2014. The customer accounted for approximately 62%of

accounts receivable at June 30, 2014.

Gotham had sales to two customers which accounted for approximately 44% and 21%,

respectively of Gotham’s total sales for the six months ended June 30, 2013. The two customers

accounted for approximately 46% and 17%, respectively of accounts receivable at June 30, 2013.

Cash

Cash is maintained at a major financial institution. Accounts held at U.S. financial institutions

are insured by the FDIC up to $250,000. Cash balances could exceed insured amounts at any

given time, however, the Company has not experienced any such losses. The Company did not

have any interest-bearing accounts at June 30, 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,

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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 June 30, 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.

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As of June 30, 2014 and December 31, 2013,  the Company  did not  have  any  derivative

instruments that were designated as hedges.

The  derivative  liability as  of December  31, 2013,  in the  amount  of $152,076  has  a  level  3

classification.   Further, there were no changes in fair value of the Company’s level 3 financial

liabilities during the six months ended June 30, 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 June 30, 2014.

Loan Payable - Stockholder

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

Company.   Repayments of $500 were made during the six months ended June 30, 2014.   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:

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2014

$   9,420

2015

19,080

2016

19,440

2017

3,240

$51,180

Rent expense of $34,453 and $37,258 was charged to operations for the six months ended June

30, 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

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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: D igi-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: C ommencing 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

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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 14, 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.

17

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 pay off 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 of

$225,779 was settled for $175,000, which was received on June 16, 2014. The uncollectible

balance of $50,779 was charged to operations.

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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.

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Revenue Recognition

Our revenues from continuing operations consist of revenues derived primarily

from sales of products and services rendered to real estate brokers. We recognize revenues when

the  services  or  products  have  been  provided  or  delivered,  the  fees  we  charge  are  fixed  or

determinable, we and our customers understand the specific nature and terms of the agreed upon

transactions, and collectability is reasonably assured.

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

vaulting service revenue, and is included in discontinued operations.

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 six months ended June

30, 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

$85,156 recorded for interest granted on the balance due from Digi-data through May 2014. The

entire balance including accrued interest totaling $655,746 was repaid to the Company by Digi-

data in the six months ended June 30, 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

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accounts and any gain or loss is credited or charged to income.

Depreciation expense of $2,383 and $3,211 was charged to operations for the six months

ended June 30, 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 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 has determined that the Company has no significant

uncertain tax positions requiring recognition and measurement under ASC 740-10.

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 was due June 18, 2014 and was convertible any time after 180 days at

the option of the holder into shares of the Company’s 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

$2,042 was recorded for the six months ended June 30, 2014.

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 passed we recorded a debt

discount related to identified embedded derivatives relating to conversion features and a reset

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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 was amortized over the term of the note. During

the six months ended June 30, 2014, we amortized $63,250 of debt discount.   During the six

months ended June 30, 2014, the note holder converted $49,000  of the  principal balance  to

1,539,934 shares of common stock, and we repaid the remaining note balance of $54,500 and

accrued interest of $5,646 on June 18, 2014.

Derivative Liability

Convertible Note

During the year ended December 31, 2013, we 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. 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 the Company’s 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. A gain on derivative liability of $152,076 was recorded during the six

months ended June 30, 2014 for the satisfaction of the convertible note.

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 our contracts based upon earliest issuance date.

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

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real estate industry. We are focused on expanding the operations of Gotham by marketing the

company to existing and potential new clients.

Assets. At June 30, 2014, we had $722,381in 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, the receivable due from discontinued operations and the receivable due from the IGX

Rescission Agreement.

Liabilities. At June 30, 2014, our total liabilities were $332,936 compared to $515,155 at

December 31, 2013. Liabilities consist of accounts payable of $329,836 and a loan payable to

stockholder of $3,100, 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 payable to a related party of

$6,263. The decrease in liabilities was primarily due to the repayment and conversion of the

convertible note payable, and the write-off the derivative liability. We do not have any long term

liabilities.

Stockholders’ Equity. Our stockholders’ equity decreased to $389,445 at June 30, 2014

from  $556,187  at  December  31,  2013.    This  decrease  was  primarily  due  to  an  increase  in

accumulated deficit from $(2,197,857) at December 31, 2013 to $(2,434,705) at June 30, 2014,

resulting from a net loss from operations of $(236,548) for the six months ended June 30, 2014.

THREE  MONTHS  ENDED  JUNE  30,  2014  AS  COMPARED  TO  THREE  MONTHS

ENDED JUNE 30, 2013

Revenues  and Cost  of Sales . We had $310,424 of revenue  during the  three  months

ended June 30, 2014 compared to revenue of $411,719 during the three months ended June30,

2013. The decrease in revenue was due primarily to a decrease in revenue generated by our

Gotham subsidiary as result of closing down the Team5 division. We also earned other income

of $119,805 for the three months ended June 30, 2014 primarily due to the gain on derivative

liability, compared to $755,000 in other income from the IGX Rescission Agreement for the

three months ended June 30, 2013... In addition to Gotham’s operations, we had income from

discontinued operations of $6,176 and $0 for the three months ended June 30, 2014 and June 30,

2013, respectively. The decrease in our cost of sales for the three months ended June 30, 2014

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

General and Administrative Expenses . General and Administrative Expenses decreased

to $387,972 for the three months ended June 30, 2014 from $428,261 for the three months ended

June 30, 2013.     For the three months ended June 30, 2014 our General and Administrative

Expenses consisted of corporate administrative expenses of $68,022, rent expense of $16,997,

legal and accounting fees of $12,628, employee benefits, consisting primarily of health insurance

expense of $15,416, $26,106 in consulting fees, payroll expenses of $198,024 and a bad debt

write off of $50,779 as part of a settlement for the receivable balance on the IGX rescission

agreement. . For the three months ended June 30, 2013 our General and Administrative Expenses

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consisted of corporate administrative expenses of $65,062, rent expense of $16,689, legal and

accounting fees of $55,420,employee benefits, consisting primarily of health insurance expense

of $24,676, and payroll expenses of $266,414. The decreases from the three months ended June

30, 2013 to the three months ended June 30, 2014 relate primarily to: (i) a decrease in payroll

expenses; (ii) a decrease in rent; and (iii) 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 . We also earned other income of $119,805 for the

three months ended June 30, 2014 primarily due to the gain on derivative liability, compared to

$755,000 in other income from the IGX Rescission Agreement for the three months ended June

30, 2013

Six Months Ended June 30, 2014 as Compared to Six Months Ended June 30, 2013

Revenues and Net Income . We had $550,637 of revenue during the six months ended June

30, 2014, as compared to $774,540 of revenue during the six months ended June 30, 2013. The

decrease  in revenue  was due to a  decrease in revenue  generated  by our acquired  subsidiary

Gotham as a result of closing down the Team5 division.  The decrease in our cost of sales for the

six months ended June 30, 2014 was due to a decrease in the cost of the outsourced photography

vendors utilized by Gotham.

General and Administrative Expenses . General and Administrative Expenses decreased to

$660,239 for the six months ended June 30, 2014 from $877,926 for the six months ended June

30, 2013. For the six months ended June 30, 2014 our General and Administrative Expenses

consisted of corporate administrative expenses of $110,176, rent expense of $34,453, employee

benefits, consisting primarily of health insurance expense of $37,338, legal and accounting fees

of $48,964, business insurance expenses of $23,500, consulting fees of $26,106, payroll

expenses  of  $328,923,  and  a  bad  debt  write  off  of  $50,779  as  part  of  a  settlement  for  the

receivable balance on the IGX rescission agreement. For the six months ended June 30, 2013 our

General   and   Administrative   Expenses   consisted   of   corporate   administrative   expenses   of

$141,828, rent expense of $37,258, employee benefits, consisting primarily of health insurance

expense  of  $49,085,  legal  and  accounting  fees  of  $82,704,  business  insurance  expenses  of

$21,334, and payroll expenses of $545,717. The decreases from the six months ended June 30,

2013 to the six months ended June 30, 2014 relate primarily to a decrease in payroll expense,

health  benefits  and corporate administrative  expenses. 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 . We had other income of $81,838 primarily due to the gain

on derivative liability for the six months ended June 30, 2014, compared to $755,000 from the

IGX Rescission Agreement for the six months ended June 30, 2013.

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LIQUIDITY AND CAPITAL RESOURCES

General

As reflected in the accompanying consolidated financial statements, at June 30, 2014, we

had $589,689of cash and stockholders’ equity of $389,445 as compared to $26,870 of cash and

stockholders’ equity of $556,187 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 provided by operating activities was $618,957 for the six months ended June 30,

2014, compared to net cash used by operating activities of $5,551 for the six months ended June

30, 2013. Net cash used by continuing operating activities was $36,789 for the six months ended

June 30, 2014, compared to net cash used by continuing operating activities of $5,551 for the six

months  ended  June  30,  2013.  Our  primary source  of  operating  cash  flows  from  continuing

operating activities for the six months ended June 30, 2014 was from our Gotham subsidiary’s

revenues  of  $550,637  and  $774,540  for  the  six  months  ended  June  30,  2013.    Additional

contributing factors to the change were from a decrease in accounts receivable of $37,886, an

increase in prepaid expenses of $1,745, an increase in accounts payable of $7,007 and a decrease

in the receivable due from the IGX rescission agreement of $189,000. Net cash provided by

discontinued operating activities was $655,746 for the six months ended June 30, 2014 and cash

provided by discontinued operating activities was $0 for the six months ended June 30,

2013.Cash provided by discontinued operations for the six months ended June 30, 2014

consisted of $655,746in cash payments received from DDC against accounts receivable included

in the Assets from Discontinued Operations.

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Cash  used  by  investing  activities  was  $4,738  for  the  six  months  ended  June  30,  2014

compared to cash provided by investing activities of $2,850 for the six months ended June 30,

2013.   For the six months ended June 30, 2014 the primary use of cash provided by investing

activities was from purchases of property and equipment of $2,026 and an increase in deposits of

$2,712.    For  the  six  months  ended  June  30,  2013  the  primary  source  of  cash  provided  by

investing activities was from a decrease in deposits.

Cash used by financing activities was $(51,400) for the six months ended June 30, 2014

compared to $0 for the six months ended June 30, 2013. The cash flows used by financing

activities for the six months ended June 30, 2014 was primarily from repayment of the

convertible note payable.

Supplemental Cash Flow Activity

In the six months ended June 30, 2014 the company paid interest of $6,988 compared to

interest of $1,548 in the six months ended June 30, 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 June 30, 2012. Based upon that evaluation, our Chief Executive Officer and Chief Financial

Officer concluded that our disclosure controls and procedures were effective as of June 30, 2014.

Change in Internal Controls

During the six months ended June 30, 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

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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: D igi-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: C ommencing 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

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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.

Item 1A. Risk Factors.

Not required

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

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. On June 2, 2014, the note holder elected to convert an

additional  $12,000 principal  amount  of the  Note into  427,046 shares  of common stock at  a

conversion price of $.0281 per share. On June 11, 2014, the note holder elected to convert an

additional  $15,000 principal  amount  of the  Note into  909,091  shares  of common stock at  a

conversion price of $.0165 per share.   We repaid the remaining note balance of $54,500 and

accrued interest of $5,646 on June 18, 2014.

Item 3. Defaults upon Senior Securities.

None

Item 4. Removed and Reserved.

Item 5. Other Information.

None

Item 6.

Exhibits

Exhibit No.

D escription

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

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