Notes
to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2016 and 2015
Note 1 - Organization and Basis of Presentation
The
consolidated
financial
statements
presented
are
those
of
iGambit
Inc.,
(the
“Company”)
and
its wholly-owned subsidiaries, Wala, Inc.
doing
business as Arcmail Technology
(“ArcMail”) and
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.
ArcMail
provides
email
archive
solutions
to
domestic
and
international
businesses
through
hardware
and
software
sales,
support,
and maintenance. 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, 2015,
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,
2016 are
not necessarily indicative of results that may be expected for the year ending December 31, 2016.
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,
2015
included
in
the
Company’s
Annual
Report
on
Form
10-K,
filed
with
the
Securities
and
Exchange
Commission (“SEC”) on April 14, 2016.
Business Acquisition
On November 4, 2015, the Company acquired
Wala, Inc. doing business as ArcMail
Technology
in
accordance
with
a
stock
purchase
agreement.
Pursuant
to
the
stock
purchase
agreement,
the
total
consideration
paid
for
the
outstanding
capital
stock
of
Wala
was
11,500,000
shares
of
iGambit
common stock, valued at $.10 per share. The following
table presents the allocation of the value
of
the
common
shares
issued
for
ArcMail
to
the
acquired
identifiable
assets,
liabilities
assumed
and goodwill:
Common shares issued, valued at $.10 per share $
1,150,000
Cash
$
10,198
7
Accounts receivable, net
205,208
Inventories
21,160
Prepaid expenses
276
Fixed assets
41,235
Total identifiable assets
278,077
Accounts payable and accrued expenses
(442,300)
Accrued interest
(254,718)
Deferred revenue
(1,254,865)
Note payable
(3,881,351)
Total liabilities assumed
(5,833,234)
Excess of liabilities assumed over identifiable assets
5,555,157
Total goodwill
$
6,705,157
Note 2 – Discontinued Operations
Sale of Business
On November 5, 2015, pursuant to an asset purchase agreement Gotham sold assets consisting of
fixed
assets,
client
and
supplier
lists,
trade
names,
software,
social
media
accounts
and
websites,
and
domain
names
to
VHT,
Inc.,
a
Delaware
corporation
for
a
purchase
price
of
$600,000.
Gotham
received
$400,000
and
commencing
on
January
29,
2016,
VHT,
Inc.
shall
pay
twelve
equal
monthly installments of $16,667 on the last business day of each month (the “Installment
Payments”
and
each,
an
“Installment
Payment”),
each
Installment
Payment
to
consist
of
(1)
an
earn-out
payment
of
$10,000
(the
“Earn-Out
Payments”
and
each,
an
“Earn-Out
Payment”),
and
(2) an additional payment of $6,667 (the “Additional Payments” and each, an
“Additional
Payment”); provided that VHT, Inc. shall only be required to make the Earn-Out Payments for as
long
as it maintains its relationship with Gotham’s major client, unless it is dissatisfied with VHT,
Inc.
8
The assets and liabilities of the discontinued operations are presented in the consolidated balance
sheets under the captions “Assets from discontinued operations” and “Liabilities from
discontinued
operations”,
respectively.
The
underlying
assets
and
liabilities
of
the
discontinued
operations as of June 30, 2016 and December 31, 2015 are presented as follows:
2016
2015
Assets:
Cash
$
--
$
13,893
Accounts receivable, net
118,934
247,372
Prepaid expenses
1,500
1,500
Total assets
$
120,434
$
262,765
Liabilities:
Accounts payable and accrued expenses
14,452
117,417
Note payable - related party
4,436
9,936
$
18,888
$
127,353
Note 3 – Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries,
Wala,
Inc.
and
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,
accounts
receivable,
prepaid
expenses,
accounts
payable,
accrued
interest,
deferred
revenue,
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
recognizes
revenue
from
product
sales
when
the
following
four
revenue
recognition
criteria
are
met:
persuasive
evidence
of
an
arrangement exists,
an
equipment
order
has
been
placed
9
with the
vendor, the
selling
price is fixed or
determinable, and collectability
is reasonably
assured.
Revenues from maintenance contracts
covering multiple future periods are recognized during the
current
periods
and
deferred
revenue
is
recorded
for
future
periods
and
classified
as
current
or
noncurrent, depending on the terms of the contracts.
Gotham’s revenues were derived primarily from the sale of products and services rendered to real
estate
brokers.
Gotham
recognized
revenues
when
the
services
or
products
have
been
provided
or delivered, the fees charged are fixed or determinable, Gotham and its customers understood the
specific
nature and terms of the agreed upon transactions,
and collectability
was reasonably
assured.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs for the six months ended
June 30, 2016 and 2015 were $130,249 and $2,037, 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 $8,345 at
June 30, 2016 and
December
31,
2015,
respectively.
There
was
no
bad
debt
expense
charged
to
operations
for
the
six months ended June 30, 2016 and 2015, respectively.
Inventories
Inventories
consisting
of
finished
products
are
stated
at
the
lower
of
cost
or
market.
Cost
is
determined on an average cost basis.
Property and equipment and depreciation
Property and equipment
are stated at cost.
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
10
or
charged
to
income.
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 as follows:
Office equipment and fixtures
5 - 7 years
Computer hardware
5 years
Computer software
3 years
Development equipment
5 years
Goodwill
Goodwill represents the excess of liabilities assumed over assets acquired of ArcMail and the fair
market
value
of
the
common
shares
issued
by
the
Company
for
the
acquisition
of
ArcMail.
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
ArcMail’s
operations
may
cause
impairment. As
the
acquisition
of
ArcMail
occurred
on
November
4,
2015,
it
is
too
early
for
management
to
evaluate
whether
goodwill
has
been
impaired.
No
impairment
was
recorded
during
the six months ended June 30, 2016.
Long-Lived Assets
The
Company
assesses the
valuation of components of
its property
and equipment and other long-
lived assets whenever events or circumstances dictate that the carrying value might not be
recoverable. The
Company bases
its
evaluation
on
indicators
such
as
the
nature
of the
assets, the
future
economic
benefit of
the
assets, any
historical or
future
profitability
measurements and other
external market conditions or factors that may
be present. If such factors indicate that the carrying
amount
of
an
asset
or
asset
group
may
not
be
recoverable,
the
Company
determines
whether
an
impairment has occurred by
analyzing an estimate of undiscounted future cash flows at the
lowest
level for which identifiable cash flows exist.
If the estimate of undiscounted cash flows during
the
estimated useful life of the asset is less than the carrying
value of the asset, the Company
recognizes
a
loss
for
the
difference
between
the
carrying
value
of
the
asset
and
its
estimated
fair
value, generally measured by the present value of the estimated cash flows.
Deferred Revenue
Deposits
from
customers
are
not
recognized
as
revenues,
but
as
liabilities,
until
the
following
conditions are met: revenues are realized when cash or claims to cash (receivable) are received in
exchange
for
goods
or
services
or
when
assets
received
in
such
exchange
are
readily convertible
to
cash
or
claim
to
cash
or
when
such
goods/services
are
transferred.
When
such
income
item
is
earned, the related revenue item is recognized, and the deferred revenue is reduced. To the
extent
revenues
are
generated
from
the
Company’s
support
and
maintenance
services,
the
Company
recognizes
such
revenues
when
services
are
completed
and
billed.
The
Company
has
received
deposits from its various customers that have been recorded as deferred revenue in the amount of
11
$1,188,457 and $1,190,279 as of June 30, 2016 and December 31, 2015, respectively.
Stock-Based Compensation
The Company accounts for its stock-based awards
granted under its employee compensation plan
in
accordance
with
ASC
Topic
No.
718-20,
Awards
Classified
as
Equity,
which
requires
the
measurement
of
compensation
expense
for
all
share-based
compensation
granted
to
employees
and
non-employee
directors
at
fair
value
on
the
date
of
grant
and
recognition
of
compensation
expense
over
the
related
service
period
for
awards expected
to
vest. The
Company
uses
the
Black-
Scholes
option
pricing
model
to
estimate
the
fair
value
of
its
stock
options
and
warrants.
The
Black-Scholes option pricing model requires the input of highly subjective assumptions including
the
expected
stock
price
volatility of
the
Company’s
common
stock,
the
risk
free
interest
rate
at
the
date
of
grant,
the
expected
vesting
term
of
the
grant,
expected
dividends,
and
an
assumption
related to forfeitures of such grants. Changes in these
subjective
input assumptions can materially
affect the fair value estimate of the Company’s stock options and warrants.
Income Taxes
The
Company accounts
for income
taxes
using the
asset
and
liability method
in
accordance
with
ASC
Topic
No.
740,
Income
Taxes
.
Under
this
method,
deferred
tax
assets
and
liabilities
are
determined
based
on differences
between financial reporting
and
tax bases of
assets
and
liabilities,
and
are
measured
using
the
enacted
tax
rates
and
laws
that
are
expected
to
be
in
effect
when
the
differences are expected to reverse.
The
Company
applies
the
provisions
of
ASC
Topic
No.
740
for
the
financial
statement
recognition,
measurement
and
disclosure
of
uncertain
tax
positions
recognized
in
the
Company’s
financial
statements
.
In
accordance
with
this
provision,
tax
positions
must
meet
a
more-likely-than-not
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position.
Recent Accounting Pronouncements
FASB ASC 606 ASU 2014-09 - Revenue from contracts with customers:
In
May 2014,
the
FASB
issued
amended
guidance
on
contracts
with
customers
to
transfer
goods
or
services or contracts for
the
transfer of nonfinancial assets,
unless those
contracts are
within the
scope
of
other
standards
(e.g.,
insurance
contracts
or
lease
contracts).
The
guidance
requires
an
entity to
recognize
revenue
on
contracts
with
customers
to
depict
the
transfer
of
promised
goods
or services to customers in an amount that reflects the consideration to which the entity
expects to
be entitled in exchange for those goods or services. The guidance requires that an entity
depict the
consideration by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
12
The amendments in this ASU are effective for annual reporting
periods beginning after December
15,
2016,
including
interim
periods
within
that
reporting
period.
Early
application
is
not
permitted.
This amendment is to be either retrospectively
adopted to each prior reporting period presented or
retrospectively with the cumulative effect of initially applying this ASU recognized at the date of
initial
application.
Adoption
of
this
guidance
is
not
expected
to
have
a
material
impact
on
the
Company's consolidated financial statements.
FASB ASC 718 ASU 2014-12 – Compensation – Stock Compensation:
In
June 2014, the
FASB
issued ASU No. 2014-12, "Compensation
- Stock Compensation
(Topic
718): Accounting for Share-Based Payments When the Terms of an Award Provide that a
Performance
Target
Could
be
Achieved
after
the
Requisite
Service
Period,"
("ASU
2014-12").
The
amendments
in
ASU
2014-12
require
that
a
performance
target
that
affects
vesting
and
that
could
be
achieved
after
the
requisite
service
period
be
treated
as
a
performance
condition. A
reporting entity should apply existing guidance in ASC Topic No. 718, "Compensation - Stock
Compensation"
as it
relates
to
awards
with
performance
conditions
that
affect
vesting
to
account
for
such
awards.
The
amendments
in
ASU
2014-12
are
effective
for
annual
periods
and
interim
periods within those annual periods beginning after December
15, 2015. Early
adoption is
permitted.
Entities
may
apply
the
amendments
in
ASU
2014-12
either:
(a)
prospectively
to
all
awards
granted
or
modified
after
the
effective
date;
or
(b)
retrospectively
to
all
awards
with
performance
targets
that are
outstanding
as
of
the
beginning
of
the
earliest
annual period
presented
in
the
financial
statements
and
to
all
new
or
modified
awards
thereafter.
The
Company
does
not
anticipate
that
the
adoption
of
ASU
2014-12
will
have
a
material
impact
on
its
consolidated
financial statements.
FASB ASC 740 ASU 2015-17 - Balance Sheet Classification of Deferred Taxes:
In
November
2015,
the
FASB
issued
ASU
No.
2015-17,
“Income
Taxes
(Topic
740):
Balance
Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The
FASB issued this ASU as part of
its
ongoing
Simplification
Initiative,
with
the
objective
of
reducing
complexity
in
accounting
standards.
The
amendments
in
ASU
2015-17
require
entities
that present a
classified
balance
sheet
to
classify
all
deferred
tax
liabilities
and
assets
as
a
noncurrent
amount.
This
guidance
does
not
change
the
offsetting
requirements
for
deferred
tax
liabilities
and
assets,
which
results
in
the
presentation of one amount on the balance sheet. Additionally, the amendments in this ASU align
the deferred income tax presentation with the requirements in International Accounting Standards
(IAS)
1, Presentation of Financial Statements. The
amendments in ASU
2015-17 are effective
for
financial
statements
issued
for
annual
periods
beginning
after
December
15,
2016,
and
interim
periods
within
those
annual
periods.
The
Company
does
not
anticipate
that
the
adoption
of
this
standard will have a material impact on its consolidated financial statements.
FASB ASC 842 ASU 2016-02 – Leases:
In
February 2016,
the
FASB
issued
ASU
No.
2016-02, “Leases
(Topic
842)”
(“ASU
2016-02”).
ASU
2016-02
requires
an
entity
to
recognize
assets
and
liabilities
arising
from
a
lease
for
both
financing and operating leases. The ASU will also require new qualitative and quantitative
disclosures
to
help
investors
and
other
financial
statement
users
better
understand
the
amount,
13