NUTX

SEC Filing Summary: iGambit, Inc. (10-Q)

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for iGambit, Inc. for the period ended September 30, 2010. The Company is a smaller reporting company incorporated in Delaware. Its primary operating subsidiary is Gotham Innovation Lab, Inc., which provides media technology services to the real estate industry. The Company also generates significant income from discontinued operations related to a 2006 asset sale to Digi-Data Corporation, receiving quarterly revenue share payments.

Key Financial Metrics (Nine Months Ended Sept 30, 2010)

Operating Cash Flow: Net cash used by operating activities was $(834,015) for the nine months ended September 30, 2010, compared to cash provided of $239,269 in the prior year period. This shift is largely due to the timing of discontinued operations payments and increased operating expenses.

Material Changes vs. Prior Period

• Revenue Generation: Continuing operations revenue increased from $0 to $646,002, driven entirely by the operations of the Gotham subsidiary acquired in late 2009.
• Expense Surge: General and administrative expenses increased by $1,087,617 (from $297,272 to $1,384,889). This was primarily due to payroll for Gotham staff, stock-based compensation ($83,100), and professional fees related to SEC registration.
• Net Income Decline: Despite higher revenue and higher discontinued operations income, total net income decreased by 47% ($296,400 vs. $562,195) due to the significant increase in operating expenses and a higher tax provision on discontinued operations.
• Balance Sheet: Total assets increased by approximately $700,000, primarily due to cash inflows from Digi-Data contingency payments. Liabilities increased significantly due to accrued income taxes and a new related-party note payable.

Outlook, Risks, and Management Commentary

• Discontinued Operations Risk: The Company's primary source of income remains the contingency payments from Digi-Data. Management noted that Digi-Data's largest customer (Verizon Online) renegotiated its contract, resulting in a pricing model change that will decrease Digi-Data's vault revenue. Consequently, future contingency payments are expected to grow at a lesser pace, returning closer to 2009 levels. The agreement with Digi-Data ends on February 28, 2011.
• Continuing Operations: Gotham is not currently cash flow positive, reporting a net loss of $(250,503) for the period. Management is focused on expanding Gotham's client base and acquiring additional technology companies.
• Liquidity: The Company holds $926,951 in cash and believes it has sufficient capital to fund present operations. However, future capital requirements for acquisitions or expansion may require raising funds in private markets, with no guarantee of success.
• Potential Acquisition: The Company entered a letter of intent on July 20, 2010, to acquire Allied Airbus, Inc. This involves issuing stock and assuming up to $225,000 in debt. The Company has provided $200,000 in loans to Allied pending the definitive agreement.

Investor Verification Checklist

• Sustainability of Digi-Data Payments: Verify the impact of the Verizon Online contract renegotiation on future Digi-Data revenue and the resulting contingency payments, which are the Company's primary income source.
• Gotham Profitability: Assess the timeline for Gotham Innovation Lab to achieve cash flow positivity given its current operating losses and high administrative costs.
• Acquisition Status: Confirm the status of the letter of intent with Allied Airbus, Inc., including whether a definitive agreement was reached before the December 31, 2010 deadline.
• Related Party Transactions: Review the $200,000 loan provided to Allied and the $26,886 note payable to a related party for terms and repayment likelihood.
• Stock-Based Compensation: Monitor the impact of the $83,100 stock-based compensation expense and the $99,000 of unrecognized compensation cost on future earnings.