Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011, for iGambit, Inc. (a Delaware corporation and smaller reporting company). The Company operates primarily through its wholly-owned subsidiary, Gotham Innovation Lab, Inc., which provides media technology services to the real estate industry. Additionally, the Company receives revenue share payments from Digi-Data Corporation related to a 2006 asset sale, classified as discontinued operations. The agreement with Digi-Data concluded on February 28, 2011.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 (Restated) |
|---|---|---|
| Revenue (Continuing Ops) | $411,903 | $167,342 |
| Gross Profit | $281,682 | $119,470 |
| Gross Margin | 68.4% | 71.4% |
| Operating Loss | $(170,717) | $(310,097) |
| Net Income | $45,520 | $156,186 |
| Cash and Equivalents (End of Period) | $356,930 | $752,203 |
| Total Assets | $2,296,089 | $2,336,788 |
| Total Liabilities | $265,398 | $351,617 |
| Stockholders' Equity | $2,030,691 | $1,985,171 |
| Net Cash Used in Operating Activities | $(255,377) | $(519,489) |
Note: Net Income for Q1 2011 includes $159,785 from discontinued operations. Continuing operations generated a loss of $114,265.
Material Changes vs. Prior Period
- Revenue Growth: Continuing operations revenue increased 146% to $411,903, driven by the operations of the Gotham subsidiary.
- Discontinued Operations Decline: Income from discontinued operations dropped significantly to $159,785 from $344,993 in the prior year, as the revenue-sharing agreement with Digi-Data ended in late February 2011.
- Operating Expenses: General and administrative expenses rose to $452,399 from $429,567, attributed to professional fees for SEC registration and Gotham operational costs.
- Liquidity: Cash decreased by $108,619 during the quarter. Total liabilities decreased by $86,219 primarily due to a reduction in accounts payable.
- Restatements: Prior period financial statements (2009-2010) were restated to correct income tax provisions, goodwill valuations, and cash flow classifications.
Outlook, Risks, and Management Commentary
- Strategy: Management is focused on expanding Gotham's operations and marketing to new clients. The Company is also seeking to acquire or partner with additional technology companies.
- Capital Needs: Future capital requirements may arise from Gotham's expansion or potential acquisitions. The Company anticipates raising capital in private markets but has no current plans for bank credit facilities.
- Customer Concentration: Four customers accounted for approximately 74% of Gotham's sales in Q1 2011 (27%, 24%, 13%, and 10% respectively).
- Related Party Transactions: The Company holds notes receivable from a stockholder ($17,000) and a related party note payable ($25,390). Loans to Allied Airbus, Inc. totaling $472,000 are outstanding but no definitive agreement was reached.
- Goodwill: Goodwill of $111,026 related to the Jekyll acquisition was tested for impairment at year-end 2010 with no impairment recorded. No test was performed in Q1 2011.
Investor Verification Checklist
- Discontinued Operations Cessation: Verify the finality of the Digi-Data agreement termination and the impact on future cash flows, as this was a primary income source.
- Customer Concentration Risk: Assess the stability of the four major clients representing 74% of Gotham's revenue.
- Related Party Loans: Review the collectability of the $472,000 loan to Allied Airbus, Inc., given the lack of a definitive agreement.
- Restatement History: Note the history of financial restatements regarding taxes and goodwill, which may indicate internal control weaknesses.
- Cash Burn Rate: Monitor the net cash used in operating activities ($255k for the quarter) against the current cash balance ($357k) to assess runway without new financing.