PART I FINANCIAL INFORMATION
Item 1
Financial
Statements
IGAMBIT INC.
CONDENSED CONSOLIDATED
BALANCE
SHEETS
SEPTEMBER
30,
2016
DECEMBER 31,
(Unaudited)
2015
ASSETS
Current assets
Cash
$
21,829
$
131,987
Accounts receivable, net
545,873
230,182
Inventories
1,160
21,160
Prepaid expenses
141,995
244,592
Assets from discontinued operations, net
53,389
262,765
Total current assets
764,246
890,686
Property and equipment, net
24,432
40,433
Other assets
Goodwill
6,705,157
6,705,157
Deposits
1,720
1,720
Total other assets
6,706,877
6,706,877
$
7,495,555
$
7,637,996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses
$
745,725
$
636,633
Accrued interest on notes payable
454,854
291,107
Accrued interest on notes payable - related party
39,353
11,171
Amounts due to related parties
82,923
74,871
Deferred revenue, current portion
385,396
811,227
Notes payable, current portion
786,624
779,750
Note payable - related party, current portion
156,566
156,566
1
Notes payable - other
79,459
--
Liabilities from discontinued operations
15,557
127,353
Total current liabilities
2,746,457
2,888,678
Long-term liabilities
Deferred revenue, net of current portion
497,088
379,052
Notes payable
2,339,251
2,339,251
Note payable - related party
469,699
469,699
Total long-term liabilities
3,306,038
3,188,002
Total liabilities
6,052,495
6,076,680
Stockholders' equity
Preferred stock, $.001 par value; authorized - 100,000,000
shares;
issued and outstanding - 0 shares in 2016 and 2015,
respectively
--
--
Common stock, $.001 par value; authorized - 200,000,000
shares;
issued and outstanding - 39,683,990 shares in 2016 and
2015, respectively
39,684
39,684
Additional paid-in capital
4,320,022
4,320,022
Accumulated deficit
(2,916,646)
(2,798,390)
Total stockholders' equity
1,443,060
1,561,316
$
7,495,555
$
7,637,996
See accompanying notes to the condensed consolidated financial statements.
2
IGAMBIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
THREE MONTHS
NINE MONTHS
ENDED
ENDED
SEPTEMBER 30,
SEPTEMBER 30,
2016
2015
2016
2015
Sales:
Hardware and software
$
200,506
$
--
$
442,800
$
--
Support and maintenance
597,311
--
1,348,718
--
Total sales
797,817
--
1,791,518
--
Cost of sales
7,667
--
36,121
--
Gross profit
790,150
--
1,755,397
--
Operating expenses
General and administrative expenses
458,686
121,833
1,598,461
348,840
Income (loss) from operations
331,464
(121,833)
156,936
(348,840)
Other income (expenses)
Interest expense
(115,348)
(635)
(279,060)
(2,136)
Total other income (expenses)
(115,348)
(635)
(279,060)
(2,136)
Income (loss) from continuing operations
216,116
(122,468)
(122,124)
(350,976)
Income from discontinued operations
550
47,619
3,868
79,584
Net income (loss)
$
216,666
$
(74,849)
$
(118,256)
$
(271,392)
Basic and fully diluted loss per common
share:
Continuing operations
$
.01
$
(.00)
$
(.00)
$
(.01)
Discontinued operations
$
.00
$
.00
$
.00
$
.00
Net loss per common share
$
.01
$
(.00)
$
(.00)
$
(.01)
Weighted average common shares
outstanding - basic
39,683,990
27,825,294
39,683,990
27,099,008
See accompanying notes to the condensed consolidated financial statements.
3
IGAMBIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH
FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(118,256)
$
(271,392)
Adjustments to reconcile net loss to net
cash used in operating activities
Income from
discontinued operations
(3,868)
(79,584)
Depreciation
17,196
496
Stock-based compensation expense
--
331,998
Increase (Decrease) in cash flows as a result of
changes in asset and liability account balances:
Accounts receivable
(315,691)
--
Inventories
20,000
--
Prepaid expenses
102,597
(187,434)
Accounts payable and accrued expenses
109,092
34,004
Accrued interest on notes payable
191,929
--
Deferred revenue
(307,795)
--
Net cash used in continuing operating activities
(304,796)
(171,912)
Net cash provided by discontinued operating activities
106,947
23,920
NET CASH USED IN OPERATING ACTIVITIES
(197,849)
(147,992)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(1,194)
--
Net cash used in continuing investing activities
(1,194)
--
Net cash used in discontinued investing activities
--
(5,026)
NET CASH USED IN INVESTING ACTIVITIES
(1,194)
(5,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stockholders' loans
--
28,700
Repayments of stockholders' loans
--
(7,300)
Proceeds from notes payable
125,083
--
Repayments of notes payable
(38,750)
--
Increase in amounts due to related parties
8,052
--
Net cash provided by continuing financing activities
94,385
21,400
Net cash provided by (used in) discontinued financing activities
(5,500)
16,936
NET CASH PROVIDED BY FINANCING ACTIVITIES
88,885
38,336
NET DECREASE IN CASH
(110,158)
(114,682)
CASH - BEGINNING OF PERIOD
131,987
133,436
CASH - END OF PERIOD
$
21,829
$
18,754
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during
the period for:
Interest
$
13,427
$
7,147
See accompanying notes to the condensed consolidated financial statements.
4
IGAMBIT INC.
Notes
to Condensed Consolidated Financial Statements
Nine Months Ended September 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
nine
months
ended
September
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
Companys
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:
5
Common shares issued, valued at $.10 per share
$
1,150,000
Cash
$
10,198
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 Gothams major client, unless it is dissatisfied with VHT, Inc.
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
September
30,
2016
and
December
31,
2015
are
presented
as follows:
2016
2015
Assets:
Cash
$
--
$
13,893
Accounts receivable, net
51,889
247,372
Prepaid expenses
1,500
1,500
Total assets
$
53,389
$
262,765
6
Liabilities:
Accounts payable and accrued expenses
11,121
117,417
Note payable - related party
4,436
9,936
$
15,557
$
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
Companys
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
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.
Gothams 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.
7
Advertising Costs
The
Company
expenses
advertising
costs
as
incurred.
Advertising
costs
for
the
nine
months
ended
September
30,
2016
and
2015
were
$208,662
and
$3,352,
respectively.
Advertising costs for the
three months ended September 30, 2016 and 2015 were $45,079
and $33,333, respectively.
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 September 30, 2016 and
December
31,
2015,
respectively.
There
was
no
bad
debt
expense
charged
to
operations
for the nine months ended September 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
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
8
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 assets carrying amount,
an
impairment
loss
is
charged
to
expense
in
the
period
identified.
A
lack
of
projected
future
operating results from ArcMails 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
nine
months
ended
September 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
Companys
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 $882,484 and $1,190,279 as
of September 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
9
price
volatility
of
the
Companys
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 Companys 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
Companys
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.
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.
10
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,
timing,
and
uncertainty
of
cash
flows
arising
from
leases. ASU
2016-02 is effective for fiscal years beginning after December 15, 2018, with early
adoption permitted. The
Company is currently evaluating ASU 2016-02 and its impact on
its consolidated financial statements.
11
Note 4 Property and Equipment
Property
and
equipment
are
carried
at
cost
and
consist
of
the
following
at
September
30,
2016 and December 31, 2015:
2016
2015
Office equipment and fixtures
$
139,006
$
139,006
Computer hardware
92,138
90,943
Computer software
77,700
77,700
Development equipment
35,318
35,318
344,162
342,967
Less: Accumulated depreciation
319,730
302,534
$
24,432
$
40,433
Depreciation expense of $17,196 and $496 was charged to operations for the nine months
ended September 30, 2016 and 2015, respectively.
Note 5 - Earnings (Loss) 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
Companys
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.
Three Months Ended
Nine Months Ended
Septemb
er 30,
S
eptemb
er 30,
2016
2015
2016
2015
Stock options
1,422,000
1,718,900
1,422,000
1,718,900
Stock warrants
275,000
275,000
275,000
275,000
Total shares excluded from calculation
1,697,000
1,993,900
1,697,000
1,993,900
Note 6 Stock Based Compensation
Stock-based
compensation
expense
for
all
stock-based
award
programs,
including
grants
of
stock
options and warrants,
is recorded
in accordance with "
CompensationStock
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.
12
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
Companys
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
2006 Long-Term Incentive
Plan
(the
"2006
Plan").
Awards
granted
under
the
2006
Plan
have
a
ten-year
term
and
may
be
incentive
stock
options,
non-qualified stock
options or
warrants. The awards are granted at an
exercise price equal to the fair market value on the date of grant and generally vest over a
three or four year period. The Plan expired on December 31, 2009, therefore as of
September
30,
2016,
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 and vested
upon issuance.
Stock
option activity
during
the
nine months ended September
30, 2016 and 2015 follows:
Weighted
Average
Weighted
Remaining
Weighted
Average
Average
Contractual
Options
Grant-Date
Outstanding
Exercise Price
Fair Value
Life (Years)
Options outstanding at
December 31, 2014
1,518,900
$
0.03
$
0.10
4.51
Options granted
200,000
0.01
0.40
4.48
Options outstanding at
September 30, 2015
1,718,900
$
0.03
0.13
4.07
Options outstanding at
December 31, 2015
1,718,900
$
0.03
0.13
3.82
Options expired
(296,900)
0.01
--
Options outstanding at
September 30, 2016
1,422,000
$
0.03
$
0.13
5.85
13
Options outstanding at September 30, 2016 consist of:
Date
Number
Number
Exercise
Expiration
Issued
Outstanding
Exercisable
Price
Date
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
March 24, 2015
200,000
200,000
$0.01
March 24, 2020
Total
1,422,000
1,422,000
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.
Warrant activity during the nine months ended September 30, 2016 and 2015 follows:
Weighted
(1)Weighted
Weighted
Average Grant-
Average
Date
Remaining
Warrants
Average
Contractual
Outstanding
Exercise Price
Fair Value
Life (Years)
Warrants outstanding
at December 31, 2014
275,000
$
0.94
$
0.10
4.17
No warrant activity
--
--
--
Warrants outstanding
at September 30, 2015
275,000
$
0.94
$
0.10
3.67
Warrants outstanding
at December 31, 2015
275,000
$
0.94
$
0.10
3.42
No warrant activity
--
--
--
Warrants outstanding
at September 30, 2016
275,000
$
0.94
$
0.10
2.67
(1)
Exclusive of 25,000 warrants expiring 2 years after initial IPO.
14
Warrants outstanding at September 30, 2016 consist of:
Date
Number
Number
Exercise
Expiration
Issued
Outstanding
Exercisable
Price
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 7 Deferred Revenue
Deferred
revenue
represents
sales
of
maintenance
contracts
that
extend
to
and
will
be
realized in future periods. Deferred revenue at September 30, 2016 will be realized in the
following years ended December 31,
2016
$
385,396
2017
243,139
2018
119,890
2019
111,956
2020
20,403
2021
1,700
$
882,484
Note 8 Notes Payable
Notes
payable
at
September
30,
2016
consist
of
various
notes
payable
in
annual
installments totaling $779,750 through September 2019. The notes include interest at 7%
and are secured by the assets of ArcMail.
Principal amounts due on notes payable for the years ended December 31, are as follows:
2016
$
786,624
2017
779,750
2018
779,750
2019
779,751
$
3,125,875
During the nine months ended
September 30, 2016, Arcmail entered into merchant
financing
agreements
with
two
lenders
for
proceeds
totaling
$281,000
payable
in
daily
amounts based on various percentages of future
collections of accounts receivable, which
were
assigned
to
the
lenders. The
obligations
will
be
satisfied
upon
total
payments
of
$358,400
and
will
mature
in
January
2017.
The
outstanding
balance
of
notes
payable
-
other was $79,459 at September 30, 2016.
15
Note 9 Stock Transactions
Common Stock Issued
In
connection
with
the
acquisition
of
ArcMail
the
Company
issued
11,500,000
common
shares
valued
at
$.10
per
share
to
the
president
and
CEO
of
Wala,
Inc.
on
November
4,
2015.
The
Company
issued
1,000,000
and
600,000
common
shares
for
services,
valued
at
$.20
per share on August 3, 2015 and May 18, 2015, respectively.
Note 10 - Income Taxes
Quarter Ended September 30,
2016
2015
Effective tax rate
0.0 %
0.0 %
A full valuation allowance was recorded against the Companys 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 Companys
most
recent
results
of
operations
and
expected
future
profitability.
Based
on
the
Companys
cumulative losses in recent years, a full valuation allowance against the Companys
deferred
tax
assets
has
been
established
as
Management
believes
that
the
Company
will
not realize the benefit of those deferred tax assets.
Note 11 - Retirement Plan
ArcMail has a defined contribution 401(k) plan, which covers substantially all employees.
Under the terms
of the Plan, Arcmail is
currently not required
to match employee
contributions. The Company did not
make any employer contributions to the Plan during
the nine months ended September 30, 2016.
Note 12 Concentrations and Credit Risk
Sales and Accounts Receivable
No
customer
accounted
for
more
than
10%
of
sales
or
accounts
receivable
for
the
nine
months ended September 30, 2016 and 2015, respectively.
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
September
30,
2016
and
December 31, 2015, respectively.
16
Note 13 - Related Party Transactions
Note Payable Related Party
ArcMail issued
a promissory note to the president
of ArcMail
on June
30,
2015 for funds
advanced.
The
note
is
payable
in
annual
installments of
$156,566
through December
2019.
The notes include interest at 6% and are subordinated to the notes payable (see Note 8).
Principal amounts due on notes payable for the years ended December 31, are as follows:
2016
$
156,566
2017
156,566
2018
156,566
2019
156,567
$
626,265
Amounts Due to Related Parties
Amounts
due
to
related
parties
with
balances
of
$82,923
and
$74,871
at
September
30,
2016
and
December
31,
2015,
respectively,
consist
of
cash
advances
from
two
stockholders/officers. These advances do not bear interest and are payable on demand.
Note 14 Commitments and Contingencies
Lease Commitment
The
Company
is
obligated
under
two
operating
leases
for
its
premises
that
expire
at
various
times through October 31, 2018.
Total future minimum annual lease payments under the leases for the years ending
December 31 are as follows:
2016
$ 15,446
2017
46,581
2018
36,533
$ 98,560
Rent
expense
of
$47,559
and
$50,963 was charged
to
operations
for
the
nine
months
ended
September 30, 2016 and 2015, 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.
17
Item 2
Managements
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 Companys 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.
Revenue Recognition
We
recognize
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
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.
Gothams 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.
18
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
our
support and
maintenance
services,
we
recognize
such
revenues
when
services
are
completed
and
billed.
We
received
deposits
from
our
various
customers
that
have
been
recorded
as
deferred
revenue in the amount of $882,484 and
$1,190,279 as of September 30, 2016 and
December 31, 2015, respectively
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.
Allowance
for
doubtful
accounts was $8,345 at September 30, 2016 and December 31, 2015, respectively.
There
was
no
bad
debt
expense
charged
to
operations
for
the
nine
months
ended
September 30,
2016 and 2015, respectively.
Property and Equipment
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
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
Depreciation
expense
of $17,196
and
$496
was
charged
to
operations
for
the
nine
months ended September 30, 2016 and 2015, respectively.
19
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
assets
carrying amount, an impairment loss is charged to expense in the period identified. A lack
of
projected
future
operating
results
from
ArcMails
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
nine months ended September 30, 2016.
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
"
CompensationStock
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
Companys
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,
we
adopted
the
2006
Long-Term
Incentive
Plan
(the
"2006
Plan").
Awards
granted
under
the
2006
Plan
have
a
ten-year
term
and
may
be
incentive
stock
options,
non-qualified stock
options or
warrants. The awards are granted at an
exercise price equal to the fair market value on the date of grant and generally vest over a
three
or
four year
period. The
Plan expired on December
31,
2009, therefore as of June
30,
2016,
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.
20
All options issued subsequent to this date were not issued pursuant to any plan.
Stock option activity during the nine months ended September 30, 2016 and 2015
follows:
Weighted
Average
Weighted
Remaining
Weighted
Average
Average
Contractual
Options
Grant-Date
Life
Outstanding
Exercise Price
Fair Value
(Years)
Options outstanding at
December 31, 2014
1,518,900
$
0.03
$
0.10
4.51
Options granted
200,000
0.01
0.40
4.48
Options outstanding at
September 30, 2015
1,718,900
$
0.03
0.13
4.07
Options outstanding at
December 31, 2015
1,718,900
$
0.03
0.13
3.82
Options expired
(296,900)
0.01
--
Options outstanding at
September 30, 2016
1,422,000
$
0.03
$
0.13
5.85
Options outstanding at September 30, 2016 consist of:
Date
Number
Number
Exercise
Expiration
Issued
Outstanding
Exercisable
Price
Date
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
March 24, 2015
200,000
200,000
$0.01
March 24, 2020
Total
1,422,000
1,422,000
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
21
$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.
Warrant activity during the nine months ended September 30, 2016 and 2015 follows:
Weighted
(1)Weighted
Weighted
Average Grant-
Average
Date
Remaining
Warrants
Average
Contractual
Outstanding
Exercise Price
Fair Value
Life (Years)
Warrants outstanding
at December 31, 2014
275,000
$
0.94
$
0.10
4.17
No warrant activity
--
--
--
Warrants outstanding
at September 30, 2015
275,000
$
0.94
$
0.10
3.67
Warrants outstanding
at December 31, 2015
275,000
$
0.94
$
0.10
3.42
No warrant activity
--
--
--
Warrants outstanding
at September 30, 2016
275,000
$
0.94
$
0.10
2.67
(1)
Exclusive of 25,000 warrants expiring 2 years after initial IPO.
Warrants outstanding at September 30, 2016 consist of:
Date
Number
Number
Exercise
Expiration
Issued
Outstanding
Exercisable
Price
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
Stock Transactions
Common Stock Issued
In
connection
with
the
acquisition
of
Wala,
Inc.
we
issued
11,500,000
common
shares
valued
at
$.10
per
share
to
the
president
and
CEO
of
Wala,
Inc.
on
November
4,
2015.
22
We
issued
1,000,000
and
600,000
common
shares
for services, valued
at
$.20 per
share on August 3, 2015 and May 18, 2015, respectively.
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
Companys
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.
MANAGEMENTS
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
iGambit
is
a
company
focused
on
the
technology
markets.
Our
sole
operating
subsidiary, Wala, Inc. doing business as ArcMail Technology (ArcMail) is in the business
of providing simple, secure
and
cost-effective
e
nterprise
information
and
email
archiving
solutions
for businesses
of all
sizes
across a
range of vertical
markets.
We
are
focused on
expanding the
operations
of ArcMail
by marketing the
company to
existing
and
potential
new clients.
Assets.
At
September
30,
2016,
we
had
$7,495,555
in
total
assets,
compared
to
$7,637,996
at
December
31,
2015.
The
decrease
in
total
assets
was
primarily
due
to
the
decrease in cash, the decrease in prepaid expenses, and the decrease in assets from
discontinued operations.
Liabilities.
At September 30, 2016, our total liabilities were $6,052,495 compared
to $6,076,680 at December 31, 2015. Our current liabilities at September 30, 2016
consisted of accounts payable
and accrued expenses
of
$745,725,
accrued
interest on
notes
payable of
$494,207
amounts
due to
related
parties
of
$82,923,
notes
payable
of
$1,022,649, liabilities from discontinued operations of $15,557 and deferred revenue
current portion of $385,396, whereas our current liabilities as of December 31, 2015
consisted
of
accounts
payable
and
accrued
expenses
of
$636,633,
accrued
interest
on
notes
payable
of
$302,278,
notes
payable
of
$936,316,
amounts
due
to
related
parties
of
$74,871,
liabilities
from discontinued
operations
of $127,353 and
deferred
revenue
current
portion
of
$811,227. Our
long
term
liabilities at September 30,
2016 consisted of Notes payable
of
23
$2,808,950 and deferred
revenue non-current
portion of $497,088, whereas
our long term
liabilities as of December 31, 2015 consisted of Notes payable of $2,808,950 and deferred
revenue non-current portion of $379,052.
Stockholders
Equity.
Our
stockholders
equity
decreased
to
$1,443,060
at
September
30, 2016 from $1,561,316 at December 31, 2015. This decrease was a
result of
a net loss of $(118,256) for the nine months ended September 30, 2016.
THREE
MONTHS
ENDED
SEPTEMBER
30,
2016
AS
COMPARED
TO
THREE
MONTHS ENDED SEPTEMBER 30, 2015
Revenues
and
Net
Loss
.
We
had
$797,817
of
revenue
from
our
ArcMail
subsidiary
and
net
income
of
$216,666
during
the
three
months
ended
September
30,
2016,
compared to revenue of $0 and net
loss of $74,849 for the three months
ended September
30,
2015.
The
increase
in
revenue
was
due
primarily to
an
increase
in
revenue
generated
by
our
ArcMail
subsidiary
acquired
in
November
2015.
In
addition
to
ArcMails
operations,
we
had
income
from
discontinued
operations
of
$550
compared
to
income
from
discontinued
operations
of
$47,619
for
the
three
months
ended
September
30,
2016
and
September 30, 2015, respectively.
General and Administrative Expenses
.
General and Administrative Expenses
increased
to $458,686
for
the
three
months
ended
September 30,
2016
from $121,833
for
the
three
months
ended
September
30,
2015.
For
the
three
months
ended
September
30,
2016 our General and Administrative Expenses consisted of corporate administrative
expenses
of
$66,705,
legal
and
accounting
fees
of
$22,307,
health
insurance
expenses
of
$18,992,
general
business
insurance
expense
of
$8,142,
payroll
expenses
of
$288,457,
marketing
expense
of
$45,079,
computer
and
internet
expense
of
$6,748,
and
exchange
filing
fees
of
$2,256.
For
the
three
months
ended
September
30,
2015
our
General
and
Administrative Expenses consisted of corporate administrative expenses of $29,778, legal
and
accounting
fees
of
$16,222,
finders
fees
and
commissions
of
$17,500,
marketing
expense
of
$33,333,
and
investor
relations
expenses
of
$25,000.
The
increases
from
the
three
months
ended
September
30,
2015
to
the
three
months
ended
September
30,
2016
relate primarily to: (i) an increase in payroll expenses; (ii) an increase in consulting
expenses;
(iii)
an
increase
in
exchange
filing
fees;
and
(iv)
an
increase
in
general
and
administrative
costs
associated
with
the
operation
of
our
ArcMail
subsidiary
acquired
in
November
2015.
Costs
associated
with
our
officers
salaries
and
the
operation
of
our
ArcMail subsidiary should remain level
going forward, subject
to a
material
expansion in
the business operations of ArcMail which would likely increase our corporate
administrative expenses.
Other Income (Expense) and Taxes
.
We had interest expense of $115,348 for the
three
months
ended
September
30,
2016
compared
to
$635
for
the
three
months
ended
September 30, 2015.
24
Nine
Months
Ended
September
30,
2016
as
Compared
to
Six
Months
Ended
September 30, 2015
Revenues and Net Loss
.
We
had $1,791,518 of revenue
and net
loss of $118,256
during
the nine
months ended September 30, 2016,
compared to revenue of $0 and net loss
of $271,392
for the
nine
months
ended September
30, 2015. The
increase
in
revenue
was
due
primarily
to
an
increase
in
revenue
generated
by
our
ArcMail
subsidiary
acquired
in
November
2015.
In
addition
to
ArcMails
operations,
we
had
income
from
discontinued
operations
of
$3,868
and
$79,584
for
the
nine
months
ended
September
30,
2016
and
September 30, 2015, respectively.
General and Administrative Expenses
.
General and Administrative Expenses
increased to $1,598,461 for the nine months ended September 30, 2016 from $348,840 for
the
nine
months
ended
September
30,
2015.
For
the
nine
months
ended
September
30,
2016
our
General
and
Administrative
Expenses
consisted
of
corporate
administrative
expenses
of
$198,233
legal
and
accounting fees
of
$83,562,
health
insurance
expenses
of
$56,438,
directors
and
officers
insurance
expense
of
$10,053,
general business
insurance
expense
of
$19,797
payroll
expenses
of
$953,386,
finders
fees
and
commissions
of
$26,250,
marketing expense
of $208,662,
computer and
internet
expense
of $31,246
and
exchange
filing
fees
of
$10,834.
For
the
nine
months
ended
September
30,
2015
our
General
and
Administrative Expenses consisted of corporate administrative expenses of $69,185, legal
and
accounting
fees
of
$80,870,
directors
and
officers
insurance
expense
of
$27,249,
general
business
insurance
expense
of
$4,496,
consulting
fees
of
$14,498,
finders
fees
and
commissions
of
$35,000,
marketing
expense
of
$33,333,
investor
relations
expenses
of
$34,649,
filing fees
of
$10,993,
and
payroll
expenses
of
$38,567.
The
increases
from
the
nine
months
ended
September
30,
2015
to
the
nine
months
ended
September
30,
2016
relate primarily to: (i) an increase in payroll expenses; (ii) an increase in consulting
expenses;
(iii)
an
increase
in
exchange
filing
fees;
and
(iv)
an
increase
in
general
and
administrative
costs
associated
with
the
operation
of
our
ArcMail
subsidiary
acquired
in
November
2915.
Costs
associated
with
our
officers
salaries
and
the
operation
of
our
ArcMail subsidiary should remain level
going forward, subject
to a
material
expansion in
the business operations of ArcMail which would likely increase our corporate
administrative expenses.
Other Income (Expense) and Taxes
.
We had interest expense of $279,060 for the
nine
months
ended
September
30,
2016
compared
to
$2,136
for
the
nine
months
ended
September 30, 2015.
LIQUIDITY AND CAPITAL RESOURCES
As
reflected
in the
accompanying
consolidated
financial
statements,
at
September
30, 2016, we had $21,829 of cash and stockholders equity of $1,443,060
as compared to
$131,987 and $1,561,316, respectively at December 31, 2015. At September 30, 2016 we
had $7,495,555 in total assets, compared to $7,637,996 at December 31, 2015.
25
Our primary capital requirements in 2016 are likely to arise from the expansion of
our
Arcmail
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
Arcmails 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
Arcmails
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.
Cash Flow Activity
Net cash used in continuing operating activities was $304,796 for the nine months
ended
September
30,
2016,
compared
to
$171,912
for
the
nine
months
ended
September
30, 2015. Our primary source of operating cash flows from continuing operating activities
for the nine months ended September 30, 2016 was from our ArcMail subsidiarys
revenues
of
$1,791,518.
Additional
contributing
factors to
the change
were
from
an
increase in accounts receivable of $315,691, a decrease in inventories of $20,000, a
decrease
in
prepaid
expenses
of
$102,597,
an
increase
in
accounts
payable
and
accrued
expenses
of
$109,092,
an
increase
in
accrued
interest
of
$191,929,
and
a
decrease
in
deferred revenue of $307,795. Net cash provided by
discontinued operating activities was
$106,947 for the nine months ended September 30, 2016 and $23,920 for the nine months
ended September 30, 2015. Cash provided by
discontinued operations for the nine months
ended
September
30,
2016
and
September
30,
2015,
respectively,
represents
cash
payments
received from VHT which was offset by a decrease in accounts receivable included in the
Assets from Discontinued Operations.
Cash
used
in
continuing
investing
activities
was
$1,194
for
the
nine
months
ended
September
30,
2016
and
cash
used
in
discontinued
investing
activities
of
$5,026
for
the
nine months ended September 30, 2015 was from the purchase of property and equipment
Cash provided by financing activities was
$88,885 for the nine
months ended
September 30, 2016 compared to $38,336 for the nine months ended September 30, 2015.
The
cash
provided
by
financing
activities
for
the
nine
months
ended
September
30,
2016
consisted of a
net
increase in notes payable of $86,333 and amounts due to related parties
of
$8,052
whereas
the
cash
provided
by
financing
activities
for
the
nine
months
ended
September 30, 2015 consisted of proceeds from loans from shareholders of $38,336.
26
Supplemental Cash Flow Activity
In
the
nine
months ended
September
30,
2016
the
company
paid
interest
of
$13,427
compared to interest of $7,147 in the nine months ended September 30, 2015.
Item 3.
Quantitative
and Qualitative Disclosures about Market Risk.
Not Required.
Item 4.
Controls
and Procedures.
Evaluation of Disclosure Controls and Procedures
Our
management,
with
the
participation
of
our
chief
executive
officer
and
chief
financial
officer,
evaluated
the
effectiveness
of
our
disclosure
controls
and
procedures
pursuant
to
Rule
13a-15
under
the
Securities
Exchange
Act
of
1934,
as
amended
(Exchange
Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based
on
this
evaluation,
our
chief
executive
officer
and
chief
financial
officer
concluded
that,
as
of
September
30,
2016,
our
disclosure
controls
and
procedures
are
designed at a reasonable assurance level and are effective to provide reasonable assurance
that
information
we
are
required
to
disclose
in
reports
that
we
file
or
submit
under
the
Exchange
Act
is
recorded,
processed,
summarized,
and
reported
within
the
time
periods
specified
in
the
SECs
rules
and
forms,
and
that
such
information
is
accumulated
and
communicated
to
our
management,
including
our
chief
executive
officer
and
chief
financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There
were
no
changes
in
our
internal
control
over
financial
reporting
that
occurred
during
the
quarter
ended
September
30,
2016
that
have
materially
affected,
or
are
reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In
designing
and
evaluating
the
disclosure
controls
and
procedures,
management
recognizes
that
any
controls
and
procedures,
no
matter
how
well
designed
and
operated,
can
provide
only
reasonable
assurance
of
achieving
the
desired control
objectives.
In
addition,
the
design
of
disclosure
controls
and
procedures
must
reflect
the
fact
that
there
are
resource
constraints
and
that
management
is
required
to
apply
its
judgment
in
evaluating the benefits of possible controls and procedures relative to their costs.
27
PART II OTHER INFORMATION
Item 1.
Legal
Proceedings.
From
time-to-time,
the
Company is
involved
in
various
civil
actions
as
part
of its
normal
course
of business.
The Company
is not a party
to any
litigation that is material to ongoing
operations as defined in Item 103 of Regulation S-K as of the period ended September 30,
2016.
Item 1A.
Risk
Factors.
Not required
Item 2.
Unregistered Sales of
Equity
Securities and Use of Proceeds.
On
May
18,
2015,
the
Company
issued
600,000
common
shares
for
services,
valued
at
$.20
per share.
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 1933, as amended, or the Securities Exchange Act of
1934, as amended.)
32.2
Certification of the Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002. (This exhibit shall not be deemed filed for the purposes of Section 18
of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability
of
that section. Further, this exhibit shall not be deemed to be incorporated by
reference into
any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.)
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on
November 21, 2016.
iGambit Inc.
/s/ John Salerno
John Salerno
Chief Executive Officer
/s/ Elisa Luqman
Elisa Luqman
Chief Financial Officer
29
Exhibit Index
Exhibit No.
Description
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certification of the Interim Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for
the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liability
of that section. Further, this
exhibit shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended.)
32.2
Certification of the Interim Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be
deemed filed for the purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, or otherwise subject to the liability of that
section. Further, this exhibit shall not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended.)
30