PART
I
This
Annual Report on Form 10-K 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. The Company has based these forward-looking
statements on the Company’s current expectations and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us and the Company’s subsidiaries that may cause
the Company’s actual results, levels of activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In many cases,
you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “believe,”
“continue,” “could,” “intend,” “may,” “plan,” “potential,”
“predict,” “should,” “will,” “expect,” “objective,” “projection,”
“forecast,” “goal,” “guidance,” “outlook,” “effort,” “target”
and other similar words. However, the absence of these words does not mean that the statements are not forward-looking. Factors
that might cause or contribute to a material difference include, but are not limited to, those discussed elsewhere in this Annual
Report, including the section entitled “Risk Factors” and the risks discussed in the Company’s other Securities
and Exchange Commission filings. The following discussion should be read in conjunction with the Company’s audited Consolidated
Financial Statements and related Notes thereto included elsewhere in this report.
ITEM
1.
BUSINESS
HISTORY
We
were incorporated in the State of Delaware under the name BigVault.com Inc. on April 13, 2000. On April 18, 2000, we
merged with BigVault.com, Inc., a New York corporation with which we were affiliated. We survived the merger, and on December 19,
2000 changed our name to bigVAULT Storage Technologies, Inc. At that time we were in the business of providing remote, internet-based
storage vaulting services and related ancillary services to end users and resellers (the “Vault Business”).
On
February 28, 2006 we sold all of our assets to Digi-Data Corporation (“DDC”), an unrelated third party, pursuant
to the terms of an Asset Purchase Agreement dated December 21, 2005 (the “APA”), a copy of which is filed herewith
as an exhibit. As consideration for our transfer of assets under the APA, DDC paid certain of our liabilities and agreed to make
certain quarterly and annual revenue sharing payments to us, as is further described below. Mr. Salerno and Ms. Luqman accepted
employment with DDC in senior management positions post closing, and continued to work for DDC until February 2009. As of
March 1, 2009 Mr. Salerno and Ms. Luqman returned to their full time management roles with the Company.
On
April 5, 2006, we changed our name to iGambit Inc.
On
October 1, 2009, we acquired the assets of Jekyll Island Ventures, Inc., a New York corporation doing business as Gotham
Photo Company (“Jekyll”) through our wholly owned subsidiary Gotham Innovation Lab, Inc., a New York corporation (“Gotham”).
On
November 4, 2015, we consummated the acquisition of Wala, Inc. doing business as ArcMail Technology (ArcMail) in accordance with
a Stock Purchase Agreement (the “ArcMail Purchase Agreement”) by and among Wala, Inc. doing business as ArcMail Technologies
(“ArcMail”), Rory T. Welch (the “Seller”) and the Company. Pursuant to the Stock Purchase, the total consideration
to be paid for the outstanding capital stock of ArcMail is 11,500,000 shares of the Company’s Common stock. 10,500,000 shares
of iGambit’s Common stock to the Seller, and/or Seller’s designees at Closing and the Holdback Amount of 1,000,000
shares of the iGambit’s Common stock to be held in Escrow and paid to the Seller on later of (i) the first (1
st
)
anniversary of completion of the first audit of Purchaser after the Closing, or (ii) that date which is twelve (12) months from
the Closing, provided that in the event iGambit or the Purchaser has any claims for indemnification against the Seller under the
Purchase Agreement, Purchaser shall continue to withhold the portion of the Holdback Amount subject to such claims until the parties
fully and finally resolve such claims.
The
ArcMail Purchase Agreement was disclosed on the Company’s current report on Form 8-K filed on November 10, 2015.
On
November 5, 2015,
through our wholly owned subsidiary Gotham Innovation Lab, Inc. (“Gotham”),
we
completed the sale of certain assets of Gotham to VHT Inc. (“VHT”) in accordance with an Asset Purchase
Agreement (the “VHT Purchase Agreement”) by and between Gotham and VHT. Pursuant to the Purchase Agreement the Company
received $600,000 in consideration, $400,000 of the consideration was received at closing and the remaining $200,000 portion of
the consideration is subject to twelve (12) equal monthly payments beginning January 2016. The sale included certain of the assets
of the Gotham, including the Elliman customer agreement, all customer accounts, all vendor agreements and all the intellectual
property.
The
VHT Purchase Agreement was disclosed on the Company’s current report on Form 8-K filed on November 11, 2015.
On
February 14, 2017, we consummated the acquisition of HubCentrix, Inc. (HubCentrix) in accordance with a Stock Exchange Agreement
(the “Exchange Agreement”) by and among HubCentrix, Jerry Robinson, Mary-Jo Robinson, Kathleen Shepherd, Edwin Shepherd,
Nora Minor,,and Sandra Gacio (the “Hub Shareholders”) and the Company. Pursuant to the Exchange Agreement, the total
consideration to be paid for the outstanding capital stock of HubCentrix is 15,000,000 shares of the Company’s Common stock.
13,500,00 shares of iGambit’s Common stock to the Hub Shareholders at Closing and the Holdback Amount of 1,500,000 shares
of the iGambit’s Common stock to be held restricted and paid to the Seller on later of (i) the first (1
st
) anniversary
of completion of the first audit of Purchaser after the Closing, or (ii) that date which is twelve (12) months from the Closing,
provided that in the event the Company has any claims for indemnification against the HubCentrix under the Exchange Agreement,
the Company shall continue to withhold the portion of the Holdback Amount subject to such claims until the parties fully and finally
resolve such claims.
The
HubCentrix Exchange Agreement was disclosed on the Company’s current report on Form 8-K filed on February 15, 2017.
On
March 27, 2017 we changed the name of HubCentrix, Inc. to HealthDatix, Inc.
On
April 5, 2017, the Company, through its wholly owned subsidiary HealthDatix, Inc. (“HealthDatix”) consummated the
acquisition of certain assets of the CyberCare Health Network Division from EncounterCare Solutions Inc. (ECSL) in accordance
with an Asset Purchase Agreement (the “Agreement”) by and among, HealthDatix, ECSL and the Company. Pursuant to the
Agreement, ECSL will sell, convey, transfer and assign to HealthDatix certain assets (the “Assets”), and HealthDatix
will purchase and accept from the ECSL all right, title and interest in and to the Assets in exchange for sixty million 60,000,000
shares of restricted common stock of iGambit.
The
ECSL Agreement was disclosed on the Company’s current report on Form 8-K filed on April 6, 2017.
On
June 30, 2017, (effective March 31, 2017) we completed the sale of ArcMail to Rory T. Welch, the CEO of ArcMail (“Welch”)
in accordance with a Stock Purchase Agreement (the “Purchase Agreement”) by and between the Company and Welch. Pursuant
to the Stock Purchase, the total consideration paid for the outstanding capital stock of ArcMail is remittance of 10,000,000 shares
of iGambit common stock previously issued to Welch. As per the Purchase Agreement, the Company’s operations of ArcMail
ended March 31, 2017 and Welch’s operation of the business is effective as of April 1, 2017
The
ArcMail Agreement was disclosed on the Company’s current report on Form 8-K filed on July 5, 2017.
OUR
COMPANY
Introduction
iGambit
is a company focused on the medical technology markets. Our primary focus is the expansion of our subsidiary HealthDatix™
Inc.
HealthDatix
is a medical technology company that provides end to end Software-as-a-Service solutions, services and products via our HealthDatix
Platform that manages, reports, and analyzes critical data, enabling healthcare and commercial organizations to deliver positive
member outcomes.
HealthDatix
Platform Products and Services
Health
Risk Assessment (HRA)
Our
Health Risk Assessment (HRA) solution is a standardized method of collecting health risk data from patients or employees that
can be used by Wellness Clinics, Insurance Companies, Third Party Administrators (TPA’s) and/or self insured companies to
identify the health risks of their employee or patient population. Our HRA solution can be tailored to deliver the HRA and a Preventive
Plan for all beneficiaries and their dependents.
Target
Market : Insurance Companies, TPA’s and/or self-insured companies.
Annual
Wellness Visit (AWV)
Our
Annual Wellness Visit (AWV) solution allows for a mass check of patients with CMS to determine if and when they are eligible for
an initial or subsequent AWV and identifies eligibility for other preventive screenings. Our proprietary algorithm determines
a patients’ qualification for preventive screenings, health and lifestyle risks and if they have 2 or more qualifying chronic
conditions that make them eligible for CCM. The program creates a 5-10 year preventive plan for the patient and meets all of CMS
audit requirements to bill for the services. The AWV provides a proactive approach to patient care and increases practice revenue
by identifying and executing CMS recommended screenings for the patient to catch early disease states before they become chronic
conditions
Target
Market: Medicare Programs including ACO’s, Primary Care Offices, Chronic Care Management and Non-Medicare including
Wellness Clinics, Insurance Companies, Medicare Advantage Plans (MAP)
BioDatix
HealthBand
Our
BioDatix Health Band requires our Remote Patient Monitoring (RPM) solution that speaks to our FDA cleared Electronic House Call
system. The BioDatix Health Band passively collects heart rate, blood pressure, blood oxygen every 15 minutes. It calculates
sleep and steps and sends to our BioDatix iOS/Android app and then to our RPM solution.
Target
Markets: Physician Groups, ACO’s, Healthcare Systems, Cardiovascular & Pulmonary Providers, Insurance Companies, Preventive
Care for High Stress Jobs, Wellness Clinics.
BioDatix
Remote Patient Monitoring
In
addition to our BioDatix HealthBand, our RPM solution accepts data from multiple FDA approved devices on a patient’s health
status, ie. blood pressure, weight, glucose levels, etc. It’s a product that is primarily for home bound patients that need
remote monitoring vs. placement in a rehab center after hospital discharge. The information in our RPM solution can then be accessed
by the physician/staff to determine the health status of the patient and whether or not a critical situation is at hand for the
patient to go to the hospital, come in for a visit, or receive a nursing staff visit.
Target
Markets: Physician Groups, ACO’s, Healthcare Systems, Cardiovascular & Pulmonary Providers, Insurance Companies,
Preventive Care for High Stress Jobs, Wellness Clinics.
HealthDatix
- Chronic Care Management (CCM) Program
Centers
for Medicaid and Medicare Services(CMS) introduced the Chronic Care Management (CCM) program in 2015 with the goal of filling
patient care gaps and providing patient care at home.
HealthDatix
Chronic Care Management (CCM) service was established to provide better care by engaging patients between visits by providing
remote monitoring of patients. eat better, exercise more, take their medications, and live healthier lives. The CCM program
delivers 20 minutes of non-face-to-face care coordination to Medicare eligible beneficiaries with two or more chronic conditions.
Target
Markets: Physician Groups, ACO’s, Healthcare Systems
Competitive
Comparison
Our
platform is agnostic and was developed to provide organizations with a backend solution designed to integrate with disparate wearable
and non-wearable health devices, and to provide a centralized data source. The platform can tie into an organization’s existing
peripherals, such as health bands, glucose meters, weight scales, temperature monitors, BP cuffs, and ECG monitors. Our HealthDatix
platform collects data in an automated, secure, encrypted cloud based-platform which can be accessed by healthcare professionals,
providing one centralized repository which provides trend reports and the ability to remotely triage patients.
HealthDatix
Platform is built on a simple and flexible design that gives customers ownership and control over their data and offers a single
comprehensive solution for Medicare compliance and data retention.
HealthDatix
competes effectively against its primary competitors by providing a simple and scalable application and world-class customer support.
HealthDatix’s primary competitive differentiation includes:
Proprietary
algorithm to generate Medicare required patient and practice reporting
|
|
•
|
Fully
automated and easy user data capture
|
|
|
•
|
First
Class Customer Service
|
Support
is provided at our U.S. headquarters by an experienced technical team
Our
BioDatix differentiator from other wearables on the market is the passive collection of vitals and syncing to our RPM solution,
where baseline alerts can be enabled to notify the user, designated care coordinator and the physician. The HealthDatix RPM solution
creates trend reports for the physician to view and analyze. The capturing of meaningful data over the course of time paints a
better picture of the overall health of the patient. Our system is not to diagnose, it is to provide the care provider with the
necessary information to determine if it is medically necessary to intervene based on the data collected resulting in closer physician
and patient engagement.
Future
Products and Services
HeathDatix’s
product strategy is to provide additional products that will support the patients that have been identified through the program
to require additional chronic care management with a medical wearable that will allow ease of use for the patient and effective
tracking and management by the physician through our developed chronic care management solution.
Our
next generation BioDatix device will collect ECG and temperature and will have the ability to set collection times on a per patient
basis.
Customers
HealthDatix
operates by bringing on Channel Partners to sell the service to primary care Physicians, ACOs and Managed Care Practices. We currently
have 5 Channel Partners with extensive sales arms through established healthcare technology companies.
Expansion
Summary
HealthDatix
objective is to be a market leader in providing a world class software application as well as expand our offering to current and
new channel partners.
Employees
We
presently have 6 total employees all of which are full-time for operations.
OUR
CORPORATE INFORMATION
Our
principal offices are located at 1050 W. Jericho Turnpike, Suite A, Smithtown, New York, 11787. Our telephone number is (631) 670-6777
and our fax number is (516) 512-7937. We currently operate two corporate websites that can be found at www.igambit.com, and
www.healthdatix.com (the information on the foregoing websites does not form a part of this report).
ITEM
1A.
RISK FACTORS
Not
Required.
ITEM
1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM
2.
PROPERTIES
Our
corporate executive office is located in Smithtown, New York, where we lease approximately 1000 square feet of office space. Monthly
lease payments are approximately $1,690. The lease is for a term of two (2) years commencing on March 1, 2017 and ending on February
28, 2019. The lease contains annual escalations of 2% of the annual rent.
Our
HealthDatix operations are located in St. Petersburg, Florida where we lease where office suites with furniture and equipment
in the Tampa Bay Innovation Center shared coworking incubator office building. Monthly lease payments are $817 paid on a month
to month basis.
Our
leased properties are suitable for their respective uses and are, in general, adequate for our present needs. Our properties are
subject to various federal, state, and local statutes and ordinances regulating their operations. Management does not believe
that compliance with such statutes and ordinances will materially affect our business, financial condition, or results of operations.
ITEM
3.
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
December 31, 2018.
ITEM
4.
(REMOVED AND RESERVED)
PART
II
ITEM
5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET
INFORMATION
Effective
March 19, 2011 the Company’s common stock is quoted on the Over the Counter Bulletin Board, a service maintained by the
Financial Industry Regulatory Authority, under the ticker symbol “IGMB”.
HOLDERS
As
of April 16, 2019, there are 351,587,519 (not including 10 million shares held in treasury stock) shares of our common stock outstanding,
held of record by approximately 1800 persons. There are 1,000 preferred shares held of record by 1 shareholder. There are 431,936,822
shares held in reserve. We have 1,875,000 common stock warrants outstanding and 20,000,000 common stock options outstanding.
As
of April 16, 2019, approximately 343,956,869 shares of our common stock are eligible to be sold under Rule 144.
DIVIDENDS
We
have never declared or paid any dividends on our common stock. Any determination to pay dividends in the future will be at the
discretion of our Board of Directors and will be dependent upon our results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the Board of Directors. The Board of Directors is not expected to
declare dividends or make any other distributions in the foreseeable future, but instead intends to retain earnings, if any, for
use in business operations.
EQUITY
COMPENSATION PLAN INFORMATION
We
currently do not have an equity compensation plan. In 2006, we adopted the 2006 Long-Term Incentive Plan (the "2006 Plan").
The Plan expired on December 31, 2009. 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.
In
addition to the 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 $0.05 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.
RECENT
SALES OF UNREGISTERED SECURITIES
During
2018 we sold securities in transactions not registered under the Securities Act of 1933, as amended (the “Securities Act”).
ITEM
6.
SELECTED FINANCIAL DATA
Not
Required
ITEM
7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL
ACCOUNTING POLICIES
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.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries HealthDatix, 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.
Long-Lived
Assets
We
assess 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. We base our 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,
we determine 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, we recognize 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.
Revenue
Recognition
iGambit
is a holding company and has no sources of revenue.
HealthDatix’s
revenues are derived primarily from its Software as a Service (SaaS) offerings that are rendered to healthcare providers.
HealthDatix recognizes revenues when the products or services have been provided or delivered, the fees charged are fixed
or determinable, HealthDatix and its customers understand the specific nature and terms of the agreed upon transactions, and collectability
is reasonably assured.
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.
Goodwill
and Intangible Assets
Goodwill
represents the excess of liabilities assumed over assets acquired of HealthDatix and the fair market value of the common shares
issued by the Company for the acquisition of HealthDatix. 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. The Company recorded a full impairment of the Goodwill as of December 31, 2017.
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 pricing model to estimate the fair value of our
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.
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 December 31, 2015, 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 years ended December 31, 2018 and 2017 follows:
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Options
outstanding at December 31, 2016
|
|
|
1,422,000
|
|
|
$
|
0.03
|
|
|
|
$
|
|
|
|
0.13
|
|
|
|
5.60
|
|
|
Options
granted
|
|
|
7,800,000
|
|
|
|
0.07
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Options
expired
|
|
|
(759,000
|
)
|
|
|
0.03
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Options
outstanding at December 31, 2017
|
|
|
8,463,000
|
|
|
|
0.07
|
|
|
|
|
|
|
|
0.07
|
|
|
|
7.41
|
|
|
Options
granted
|
|
|
12,250,000
|
|
|
|
0.01
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Options
expired
|
|
|
(213,000
|
)
|
|
|
0.03
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Options
outstanding at December 31, 2018
|
|
|
20,500,000
|
|
|
$
|
0.03
|
|
|
|
$
|
|
|
|
0.03
|
|
|
|
7.52
|
|
Options
outstanding at December 31, 2018 consist of:
|
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
June
6, 2014
|
|
|
250,000
|
|
|
|
250,000
|
|
|
$
|
0.05
|
|
|
June
6, 2019
|
|
March
24, 2015
|
|
|
200,000
|
|
|
|
200,000
|
|
|
$
|
0.01
|
|
|
March
24, 2020
|
|
April
6, 2017
|
|
|
600,000
|
|
|
|
600,000
|
|
|
$
|
0.03
|
|
|
April
6, 2027
|
|
June
6, 2017
|
|
|
700,000
|
|
|
|
700,000
|
|
|
$
|
0.07
|
|
|
June
6, 2022
|
|
June
6, 2017
|
|
|
6,500,000
|
|
|
|
6,500,000
|
|
|
$
|
0.07
|
|
|
June
6, 2027
|
|
November
1, 2018
|
|
|
12,250,000
|
|
|
|
12,250,000
|
|
|
$
|
0.01
|
|
|
November
1, 2028
|
|
Total
|
|
|
20,500,000
|
|
|
|
20,500,000
|
|
|
|
|
|
|
|
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 years ended December 31, 2018 and 2017 follows:
|
|
|
Warrants
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average Grant-Date
Fair
Value
|
|
Weighted
Average Remaining
Contractual
Life (Years)
|
|
Warrants
outstanding at December 31, 2016
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
2.42
|
|
|
Warrant
granted
|
|
|
125,000
|
|
|
|
0.40
|
|
|
|
—
|
|
|
|
|
|
|
Warrants outstanding
at December 31, 2017
|
|
|
400,000
|
|
|
$
|
0.62
|
|
|
$
|
0.10
|
|
|
|
3.27
|
|
|
Warrant
granted
|
|
|
1,500,000
|
|
|
|
0.05
|
|
|
|
—
|
|
|
|
|
|
|
Warrant
expired
|
|
|
(25,000
|
)
|
|
|
3.00
|
|
|
|
—
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2018
|
|
|
1,875,000
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
|
3.24
|
|
|
|
(1)
|
Exclusive
of 25,000 warrants expiring 2 years after initial IPO.
|
Warrants
outstanding at December 31, 2018 consist of:
|
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
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
|
|
January
1, 2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.25
|
|
|
October
10, 2021
|
|
January
1, 2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.50
|
|
|
November
7, 2021
|
|
January
5, 2017
|
|
|
25,000
|
|
|
|
25,000
|
|
|
$
|
0.50
|
|
|
January
5, 2022
|
|
February
5, 2018
|
|
|
750,000
|
|
|
|
750,000
|
|
|
$
|
0.05
|
|
|
February
5, 2023
|
|
April
27, 2018
|
|
|
750,000
|
|
|
|
750,000
|
|
|
$
|
0.05
|
|
|
April
27, 2023
|
|
Total
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
|
|
|
|
Convertible
Debenture
We
issued convertible debentures to three individuals. The debentures are convertible into 75,000 shares of common stock for up to
5 years, at the holders’ option, at an exercise price of $.05 and $.25, respectively. The debentures mature on the earlier
of the closing of a subsequent financing event by the Company resulting in gross proceeds of at least $10,000,000 or three years
from the date of issuance. The debentures bear interest at a rate of 10%. A beneficial conversion feature was not recorded as
the fair market value of the Company’s common stock was less than the exercise prices at the dates of issuance and through
the end of the period. Interest expense on the convertible debentures of $8,616 and $8,782 was recorded for the years ended December
31, 2018 and 2017, respectively
Income
Taxes
We
follow Accounting Standards Codification subtopic 740,
Income Taxes
(“ASC 740”) which requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under such method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are
classified as current or non-current, depending on the classification of the assets and liabilities to which they relate.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
iGambit
is a company focused on the medical technology markets. Our primary focus is the expansion of our newly acquired medical technology
business HealthDatix Inc.
Year
Ended December 31, 2018 as Compared to Year Ended December 31, 2017
Assets.
At December 31, 2018, we had $42,313 in current assets and $2,618,466 in total assets, compared to $55,080 in current
assets and $3,328,755 in total assets as of December 31, 2017. There was a decrease in current assets from the reduction
of prepaid expenses and cash, and there was a decrease in total assets as a result of amortization of intangible assets.
Liabilities.
At December 31, 2018, we had total liabilities of $1,385,447 compared to $959,780 at December 31, 2017. Our
total liabilities at December 31, 2018 consisted of current liabilities including accounts payable and accrued expenses of
$480,270, accrued interest on notes payable of $32,265, amounts due to related parties of $145,367, deferred revenue of $9,192,
notes payable of $52,500, convertible debentures of $377,611 and derivative liability of $288,242, whereas our total liabilities
at December 31, 2017 consisted of current liabilities including accounts payable and accrued expenses of $348,354, accrued interest
on notes payable of $21,602, amounts due to related parties of $128,476, deferred revenue of $9,100, notes payable of $52,500,
convertible debentures of $333,689 and derivative liability of $66,059. We had no long-term liabilities for the years ended December
31, 2018 and December 31, 2017, respectively. The increase in liabilities was primarily due to an increase in accounts payable
and accrued expenses, an increase in amounts due to related parties, and increase in convertible debentures and an increase in
derivative liability.
Stockholders’
Equity.
Our Stockholders’ Equity was $1,233,019 at December 31, 2018 compared to $2,368,975 at December 31, 2017.
This decrease was due to an increase in accumulated deficit from $(9,648,569) at December 31, 2017 to $(12,462,814) at December
31, 2018, resulting from a net loss of $(2,814,245).
Net
Income (Loss)
.
We had a loss from continuing operations of $(2,814,245) and $(6,007,474) for the years ended December
31, 2018 and December 31, 2017, respectively, and income from discontinued operations of $0 and $6,589,536 for the years ended
December 31, 2018 and December 31, 2017, respectively.
General
and Administrative Expenses
.
General and Administrative Expenses decreased to $1,163,766 for the year ended December 31,
2018 from $1,813,624 for the year ended December 31, 2017. For the year ended December 31, 2018, our General and Administrative
Expenses consisted of corporate administrative expenses of $75,122, legal and accounting fees of $139,087, payroll expenses of
$522,173, employee benefits expenses of $39,785 (medical and life insurance), filing fees of $21,207, marketing expense of $42,394,
automobile expense of $19,260, computer software licensing expense of $14,229 finder’s fees and commissions expense of $29,000,
consulting fees of $103,400, transfer agent expense of $38,178, rent expense of $28,885, contract labor expense of $52,034, travel
and entertainment expense of $23,012 and board compensation expense of $16,000. For the year ended December 31, 2017, our
General and Administrative Expenses consisted of corporate administrative expenses of $97,886, legal and accounting fees of $185,880,
payroll expenses of $709,399, employee benefits expenses of $55,077 (medical and life insurance), filing fees of $19,756, financing
expense of $15,000, marketing expense of $69,048, advertising expense of $2,517, finder’s fees and commissions expense of
$84,475, consulting fees of $373,136, transfer agent expense of $14,204, rent expense of $26,745, research and development expense
of $25,645 and board compensation expense of $134,856. Therefore, the decreases from the year ended December 31, 2018 to
the year ended December 31, 2017 relate primarily to a decrease in legal and accounting expense, payroll, board compensation,
filing fees, consulting expenses, and research and development expenses. In 2019 we anticipate an increase in general administrative
expenses associated with expansion of our HealthDatix subsidiary.
LIQUIDITY
AND CAPITAL RESOURCES
General
As
reflected in the accompanying consolidated financial statements, at December 31, 2018, we had $369 of cash and stockholders’
equity of $1,233,019. At December 31, 2017, we had $9,449 of cash and stockholders’ equity of $2,368,975.
Our
primary capital requirements in 2019 are likely to rise from the expansion of our HealthDatix operations. It is not possible to
quantify those costs at this point in time, in that they depend on HealthDatix’s business opportunities and the state of
the overall economy. 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 HealthDatix’s sales volume, 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 used in operating activities was $765,471 for the year ended December 31, 2018, compared to $714,623 for the year ended December
31, 2017. Net cash used in continuing operating activities was $765,471 for the year ended December 31, 2018, compared to $705,407
for the year ended December 31, 2017. Our primary use of cash flows from continuing operating activities was from net losses of
$2,814,245 and $6,007,474 from continuing operations for the years ended December 31, 2018 and 2017, respectively. Additional
contributing factors to the change were from depreciation of $1,727, amortization of $695,870, non-cash interest expense of $638,718,
stock-based compensation expense of $208,025, loss on extinguishment of debt of $312,869, change in fair value of derivative liability
of $28,745, an increase in accounts receivable of $8,617, a decrease in inventory of $127, a decrease in prepaid expenses of $39,377,
an increase in deposits of $75, an increase in accounts payable and accrued expenses of $131,916, and an increase in deferred
revenue of $92. Net cash used in discontinued operating activities was $0 and $9,216 for the years ended December 31, 2018 and
2017, respectively. Cash used in discontinued operating activities for the year ended December 31, 2017 consisted of $9,216 in
cash payments applied against accounts receivable that had been included in assets from discontinued operations.
Cash
provided by investing activities was $0 and $2,050 for the years ended December 31, 2018 and December 31, 2017, respectively.
Net cash used in continuing investing activities was $0 and $30,798 for the years ended December 31, 2018 and 2017, respectively.
For the year ended December 31, 2017, the primary uses of cash from continuing investing activities was from, pre-acquisition
loans to subsidiary of $50,000, loans to deconsolidated subsidiary of $10,382, and cash acquired from acquisition of subsidiary
of $29,584. Net cash provided by discontinued investing activities was $0 and $32,848 for the years ended December 31, 2018 and
2017, respectively.
Cash
provided by financing activities was $756,391 for the year ended December 31, 2018 compared to $711,500 for the year ended December
31, 2017. Net cash provided by continuing financing activities was $756,391 for the year ended December 31, 2018 and $735,492
for the year ended December 31, 2017. The cash flows provided by continuing financing activities for the year ended December 31,
2018 was from $709,500 in proceeds from convertible debentures, $30,000 in proceeds from the sale of common stock, $32,491 in
proceeds from related party loans, and repayments of related party loans of $(15,600). The cash flows provided by continuing financing
activities for the year ended December 31, 2017 was from $469,000 in proceeds from convertible debentures, $275,000 in proceeds
from the sale of common stock, repayments of related party loans of $(508), and repayment of notes payable of $(8,000). Net cash
used in discontinued financing activities was $0 and $23,992 for the years ended December 31, 2018 and 2017, respectively.
Plan
of Operation and Funding
We
expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances
of securities. Our working capital requirements are expected to increase in line with the growth of our business. Existing working
capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over
the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations
to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management
anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated
with a start-up business and (ii) marketing expenses. We intend to finance these expenses with further issuances of securities,
and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating
requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders.
Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not
be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we
may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially
restrict our business operations.
OFF
BALANCE SHEET ARRANGEMENTS
We
have no off balance-sheet arrangements.
ITEM
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
Required.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
Financial Statements required by this Item 8 are included in this Report beginning on page F-1, as follows:
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
Consolidated Balance
Sheet as of December 31, 2018 and 2017
|
|
F-3
|
|
Consolidated Statement
of Income for the years ended December 31, 2018 and 2017
|
|
F-5
|
|
Consolidated Statement
of Changes in Stockholder’s Equity for the years ended December 31, 2018 and 2017
|
|
F-6
|
|
Consolidated Statement
of Cash Flows for the years ended December 31, 2018 and 2017
|
|
F-7
|
|
Notes to Financial
Statements
|
|
F-9
|
ITEM
9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A.
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 Exchange Act, as of the end of the period covered by
this Annual Report on Form 10-K.
Based
on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2018, 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 SEC’s 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 December 31, 2018 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule
13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our internal control over financial
reporting was effective as of December 31, 2018.
Limitations
on Effectiveness of Controls and Procedure
s
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.
ITEM
9B.
OTHER INFORMATION
None.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2018 and 2017
Note
1 - Organization and Basis of Presentation
The
consolidated financial statements presented are those of iGambit Inc., (the “Company”) and its wholly-owned subsidiaries,
HealthDatix, Inc. (“HealthDatix”), and its discontinued operating subsidiaries Wala, Inc. doing business as Arcmail
Technology (“ArcMail”) and Gotham Innovation Lab Inc. (“Gotham”). The Company is a holding company which
seeks out acquisitions of operating companies in technology markets. HealthDatix, Inc. is engaged in the business of streamlining
the process of managing information in the document-intensive medical field for customers throughout the United States. ArcMail
provides email archive solutions to domestic and international businesses through hardware and software sales, support, and maintenance.
Gotham was in the business of providing media technology services to real estate agents and brokers in the New York metropolitan
area.
Business
Acquisition
On
February 14, 2017, the Company acquired Healthdatix, Inc., formerly known as HubCentrix, Inc. in accordance with a stock purchase
agreement. Previously, the Company was focused on the technology markets. The Company has tailored its strategy to focus on pursuing
specific medical technology strategies and objectives. The acquisition of HealthDatix, provides the Company with its first
medical technology, WellDatix, a proprietary platform that enables physicians to identify patients eligible for Annual Wellness
Visits which are reimbursed by Medicare. This technology positions the Company to participate in the anticipated accelerated market
needs of the physician community throughout the country. Pursuant to the stock purchase agreement, the total consideration paid
for the outstanding capital stock of HealthDatix was $1,050,000 consisting of 15,000,000 shares of iGambit restricted common stock,
valued at $.07 per share.
The
following table presents the preliminary allocation of the value of the common shares issued for HealthDatix to the acquired identifiable
assets, liabilities assumed and goodwill:
|
|
|
Fair
Value
|
|
Cash
|
|
$
|
29,584
|
|
|
Accounts receivable, net
|
|
|
2,250
|
|
|
Fixed assets
|
|
|
3,800
|
|
|
Software
|
|
|
156,925
|
|
|
Contracts
|
|
|
644,846
|
|
|
Notes payable
|
|
|
(60,500
|
)
|
|
Loan payable
|
|
|
(65,000
|
)
|
|
Goodwill
|
|
|
338,095
|
|
|
Purchase price
|
|
$
|
1,050,000
|
|
The
results of operations of HealthDatix for the period February 14, 2017 to December 31, 2017 have been included in the consolidated
statements of operations for the year ended December 31, 2017. The following table presents unaudited pro forma results of operations
of the Company and HealthDatix as if the acquisition had occurred at January 1, 2017. The pro forma condensed financial information
is presented for informational purposes only. The unaudited pro forma results of operations are not necessarily indicative of
results that would have occurred had the acquisition taken place at the beginning of the earliest period presented, or of future
results.
|
|
|
December
31,
|
|
|
|
2017
|
|
Pro forma
revenue
|
|
$
|
35,516
|
|
|
Pro
forma gross profit
|
|
$
|
5,029
|
|
|
Pro
forma loss from operations
|
|
$
|
(2,984,770
|
)
|
|
Pro
forma net loss
|
|
$
|
(2,941,208
|
)
|
On
April 5, 2017, the Company, through its wholly owned subsidiary HealthDatix, Inc. (“HealthDatix”) consummated the
acquisition of certain assets of the CyberCare Health Network Division from EncounterCare Solutions Inc. (ECSL) in accordance
with an Asset Purchase Agreement (the “Agreement”) by and among, HealthDatix, ECSL and the Company. Pursuant to the
Agreement, ECSL will sell, convey, transfer and assign to HealthDatix certain assets (the “Assets”), and HealthDatix
will purchase and accept from the ECSL all right, title and interest in and to the Assets in exchange for 60,000,000 shares of
restricted common stock of iGambit.
The
following table presents the preliminary allocation of the value of the common shares issued for ECSL to the acquired identifiable
assets:
|
|
|
Fair
Value
|
|
FDA 510K clearance
|
|
$
|
1,396,000
|
|
|
Technology license
|
|
|
1,000,000
|
|
|
In process research and development
|
|
|
604,000
|
|
|
Goodwill
|
|
|
3,000,000
|
|
|
Purchase
price
|
|
$
|
6,000,000
|
|
Note
2 – Discontinued Operations
Sale
of Business
Effective
October 1, 2016, management decided to dispose of its subsidiary Arcmail and entered into a letter of intent on March 1, 2017
to sell Arcmail in a stock exchange to the CEO of Arcmail. On June 30, 2017, the Company completed the sale of ArcMail to Rory
T. Welch, the CEO of Arcmail (“Welch”) in accordance with a Stock Purchase Agreement (the “Purchase Agreement”)
by and between the Company and Welch. Pursuant to the Stock Purchase, the total consideration paid for the outstanding capital
stock of ArcMail is remittance of 10,000,000 shares of iGambit common stock previously issued to Welch. As per the Purchase
Agreement, the Company’s operations of ArcMail ended March 31, 2017 and Welch’s operation of the business was effective
as of April 1, 2017. Arcmail’s operating loss for the three months ended March 31, 2017 has been included in loss from discontinued
operations in the statements of operations for the year ended December 31, 2017.
The
components of income from discontinued operations presented in the consolidated statements of operations for the year ended December
31, 2017 are presented as follows:
|
Sales
|
|
$
|
386,157
|
|
|
Cost of sales
|
|
|
(29,462
|
)
|
|
General
and administrative expenses
|
|
|
(327,662
|
)
|
|
Depreciation
and amortization
|
|
|
(4,537
|
)
|
|
Interest
expense
|
|
|
(92,848
|
)
|
|
Gain
on disposal of Arcmail
|
|
|
6,657,848
|
|
|
Income
from discontinued operations
|
|
$
|
6,589,536
|
|
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. 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 Measurements
The
Company adopted the provisions of ASC Topic 820,
Fair Value Measurements and Disclosures,
which defines fair value as used
in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The
estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature
of these instruments. The carrying amounts of our short- and long-term credit obligations approximate fair value because the effective
yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances
of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes 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 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The
estimated fair value of the derivative liability was calculated using the Black-Scholes option pricing model. The Company uses
Level 3 inputs to value its derivative liabilities. The following table provides a reconciliation of the beginning and ending
balances for the major classes of assets and liabilities measured at fair value using significant unobservable inputs (Level 3)
and reflects gains and losses for the years ended December 31, 2018 and 2017.
|
|
|
2018
|
|
2017
|
|
Liabilities:
|
|
|
|
|
|
Balance
of derivative liabilities - beginning of year
|
|
$
|
66,059
|
|
|
$
|
—
|
|
|
Issued
|
|
|
1,122,211
|
|
|
|
472,523
|
|
|
Converted
|
|
|
(928,773
|
)
|
|
|
(247,865
|
)
|
|
Change
in fair value recognized in operations
|
|
|
28,745
|
|
|
|
(158,599
|
)
|
|
Balance
of derivative liabilities - end of year
|
|
$
|
288,242
|
|
|
$
|
66,059
|
|
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815,
Derivatives
and Hedging Activities.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their stated date of redemption.
The
Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment
standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at
their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting
liabilities.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products by: (1) identify the contract (if any) with a customer; (2) identify the performance
obligations in the contract (if any); (3) determine the transaction price; (4) allocate the transaction price to each performance
obligation in the contract (if any); and (5) recognize revenue when each performance obligation is satisfied. For the comparative
periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605,
revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance
of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and
determinable; and (4) the collectability of the fee is reasonably assured. The Company has no outstanding contracts with any of
is’ customers.
There was no impact on the
Company’s financial statements as a result of adopting Topic 606 for the years ended December 31, 2018 and 2017.
iGambit
is a holding company and has no sources of revenue.
HealthDatix’s
revenues are derived primarily from its Software as a Service (SaaS) offerings that are rendered to healthcare providers.
HealthDatix recognizes revenues when the products or services have been provided or delivered, the fees charged are fixed
or determinable, HealthDatix and its customers understand the specific nature and terms of the agreed upon transactions, and collectability
is reasonably assured.
Arcmail
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.
Advertising
Costs
The
Company expenses advertising costs as incurred. Advertising costs from continuing operations for the years ended December 31,
2018 and 2017 were $0 and $2,517, 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.
Inventory
Inventory
consisting of finished products is stated at the lower of cost or net realizable value.
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
|
|
Amortization
Intangible
assets are amortized using the straight line method over the estimated lives of the respective assets as follows:
|
Software
|
|
|
5
years
|
|
|
Technology license
|
|
|
5
years
|
|
|
Purchased in process
R&D
|
|
|
Indefinite
|
|
|
Contracts
|
|
|
10
years
|
|
Goodwill
Goodwill
represents the excess of assets acquired over liabilities assumed. 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. The Company recorded a full impairment of the Goodwill as of December 31, 2017.
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 and presented as current liabilities
in the amount of $9,192 and $9,100 as of December 31, 2018 and 2017, 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
We
have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material
effect is expected on the consolidated financial statements as a result of future adoption.
Note
4 – Going Concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. The Company has previously disposed of its
operating subsidiary, and has an accumulated deficit of $12,462,814, and a working capital deficit of $1,343,134 at December 31,
2018. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for
a reasonable period of time. The Company’s continuation as a going concern is dependent upon its ability to obtain
necessary equity financing and ultimately from generating revenues from its newly acquired subsidiary to continue operations.
The Company expects that working capital requirements will continue to be funded through a combination of its existing funds and
further issuances of securities. Working capital requirements are expected to increase in line with the growth of the business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund
operations over the next twelve months. The Company has no lines of credit or other bank financing arrangements. The Company has
financed operations to date through the proceeds of a private placement of equity and debt instruments. In connection with
the Company’s business plan, management anticipates additional increases in operating expenses and capital expenditures
relating to: (i) developmental expenses associated with a start-up business and (ii) marketing expenses. The Company intends to
finance these expenses with further issuances of securities, and debt issuances. Thereafter, the Company expects it will need
to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or
convertible debt securities will result in dilution to current stockholders. Further, such securities might have rights, preferences
or privileges senior to common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective
new business endeavors or opportunities, which could significantly and materially restrict business operations.
The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Note
5 – Property and Equipment
Property
and equipment are carried at cost and consist of the following at December 31, 2018 and December 31, 2017:
|
|
|
2018
|
|
2017
|
|
Office
equipment and fixtures
|
|
$
|
10,964
|
|
|
$
|
10,964
|
|
|
Less:
Accumulated depreciation
|
|
|
8,846
|
|
|
|
7,119
|
|
|
|
|
$
|
2,118
|
|
|
$
|
3,845
|
|
Depreciation
expense of $1,727 and $1,138 was charged to continuing operations for the years ended December 31, 2018 and 2017, respectively.
Depreciation
expense of $0 and $4,538 was charged to discontinued operations for the years ended December 31, 2018 and 2017, respectively.
Note
6 – Intangible Assets
Intangible
assets from the acquisitions of HealthDatix and ECSL consist of the following at December 31, 2018 and 2017:
|
|
|
2018
|
|
2017
|
|
|
|
Software
|
|
$
|
156,925
|
|
|
$
|
156,925
|
|
|
|
5
years
|
|
|
Contracts
|
|
|
644,846
|
|
|
|
644,846
|
|
|
|
10
years
|
|
|
FDA
510K clearance
|
|
|
1,396,000
|
|
|
|
1,396,000
|
|
|
|
5
years
|
|
|
Technology
license
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
5
years
|
|
|
In
process research and development
|
|
|
604,000
|
|
|
|
604,000
|
|
|
|
Indefinite
|
|
|
|
|
|
3,801,771
|
|
|
|
3,801,771
|
|
|
|
|
|
|
Less:
Accumulated amortization
|
|
|
1,229,756
|
|
|
|
533,886
|
|
|
|
|
|
|
|
|
$
|
2,572,015
|
|
|
$
|
3,267,885
|
|
|
|
|
|
Amortization
expense of $695,870 and $533,886 was charged to continuing operations for the years ended December 31, 2018 and 2017, respectively.
Note
7 - Earnings (Loss) Per Common Share
The
Company calculates net income (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 loss per share for the years ended December 31, 2018 and 2017 as the result would be anti-dilutive.
|
|
|
Years
Ended
|
|
|
|
December
31,
|
|
|
|
2018
|
|
2017
|
|
Stock
options
|
|
|
20,500,000
|
|
|
|
8,463,000
|
|
|
Stock
warrants
|
|
|
1,875,000
|
|
|
|
400,000
|
|
|
Total
shares excluded from calculation
|
|
|
22,375,000
|
|
|
|
8,863,000
|
|
Note
8 – Stock Based Compensation
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 December 31, 2018, 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 years ended December 31, 2018 and 2017 follows:
|
|
|
Options
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Grant-Date
Fair
Value
|
|
Weighted
Average Remaining Life
(Years)
|
|
Options
outstanding at December 31, 2016
|
|
|
1,422,000
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
|
5.60
|
|
|
Options
granted
|
|
|
7,800,000
|
|
|
|
0.07
|
|
|
|
—
|
|
|
|
|
|
|
Options
expired
|
|
|
(759,000
|
)
|
|
|
0.03
|
|
|
|
—
|
|
|
|
|
|
|
Options
outstanding at December 31, 2017
|
|
|
8,463,000
|
|
|
|
0.07
|
|
|
|
0.07
|
|
|
|
7.41
|
|
|
Options
granted
|
|
|
12,250,000
|
|
|
|
0.01
|
|
|
|
—
|
|
|
|
|
|
|
Options
expired
|
|
|
(213,000
|
)
|
|
|
0.03
|
|
|
|
—
|
|
|
|
|
|
|
Options
outstanding at December 31, 2018
|
|
|
20,500,000
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2017 consist of:
|
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
June
6, 2014
|
|
|
250,000
|
|
|
|
250,000
|
|
|
$
|
0.05
|
|
|
June
6, 2019
|
|
March
24, 2015
|
|
|
200,000
|
|
|
|
200,000
|
|
|
$
|
0.01
|
|
|
March
24, 2020
|
|
April
6, 2017
|
|
|
600,000
|
|
|
|
600,000
|
|
|
$
|
0.03
|
|
|
April
6, 2027
|
|
June
6, 2017
|
|
|
700,000
|
|
|
|
700,000
|
|
|
$
|
0.07
|
|
|
June
6, 2022
|
|
June
6, 2017
|
|
|
6,500,000
|
|
|
|
6,500,000
|
|
|
$
|
0.07
|
|
|
June
6, 2027
|
|
November
1, 2018
|
|
|
12,250,000
|
|
|
|
12,250,000
|
|
|
$
|
0.01
|
|
|
November
1, 2028
|
|
Total
|
|
|
20,500,000
|
|
|
|
20,500,000
|
|
|
|
|
|
|
|
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 years ended December 31, 2018 and 2017 follows:
|
|
|
Warrants
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Grant-Date
Fair
Value
|
|
Weighted
Average Remaining
Contractual
Life (Years)
|
|
Warrants
outstanding at December 31, 2016
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
2.42
|
|
|
Warrant
granted
|
|
|
125,000
|
|
|
|
0.40
|
|
|
|
—
|
|
|
|
|
|
|
Warrants outstanding
at December 31, 2017
|
|
|
400,000
|
|
|
$
|
0.62
|
|
|
$
|
0.10
|
|
|
|
3.27
|
|
|
Warrant
granted
|
|
|
1,500,000
|
|
|
|
0.05
|
|
|
|
—
|
|
|
|
|
|
|
Warrant
expired
|
|
|
(25,000
|
)
|
|
|
3.00
|
|
|
|
—
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2018
|
|
|
1,875,000
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
|
3.24
|
|
Warrants
outstanding at December 31, 2018 consist of:
|
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
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
|
|
January
1, 2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.25
|
|
|
October
10, 2021
|
|
January
1, 2017
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.50
|
|
|
November
7, 2021
|
|
January
5, 2017
|
|
|
25,000
|
|
|
|
25,000
|
|
|
$
|
0.50
|
|
|
January
5, 2022
|
|
February
5, 2018
|
|
|
750,000
|
|
|
|
750,000
|
|
|
$
|
0.05
|
|
|
February
5, 2023
|
|
April
27, 2018
|
|
|
750,000
|
|
|
|
750,000
|
|
|
$
|
0.05
|
|
|
April
27, 2023
|
|
Total
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
|
|
|
|
Note
9 – Convertible Debt
Convertible
Notes Payable
On
April 3, 2017, the Company entered into a Convertible Promissory Note pursuant to which the Company borrowed in the aggregate
principal amount of $125,000. The convertible note is due 12 months after issuance and bears interest at a rate of 12%. The Note
is convertible into shares of common stock of the Company 180 days following the date of funding and thereafter. The conversion
price shall be subject to a discount of 50%. The conversion price shall be determined on the basis of the lowest VWAP (Volume
Weighted Average Price) of the Common Stock during the prior twenty (20) trading day period. The Investor will be limited to convert
no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time. At any time during the
period beginning on the date of the Note and ending on the date which is 180 days thereafter, the Company may repay the Note by
paying an amount equal to the then outstanding amount multiplied by 135%.
During
the year ended December 31, 2018, the noteholder converted the remaining principal balance of $39,000 and accrued interest of
$9,826 to 2,591,087 shares of common stock.
On
November 28, 2017, the Company issued an 8% convertible note in the aggregate principal amount of $103,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due September 5, 2018 and is convertible any time
after 180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted the principal balance of the note and accrued interest
of $4,120 to 8,691,189 shares of common stock.
On
October 10, 2017, the Company issued an 8% convertible note in the aggregate principal amount of $78,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due July 15, 2018 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted the principal balance of the note and accrued interest
of $3,120 to 3,709,211 shares of common stock.
On
July 5, 2017, the Company issued an 8% convertible note in the aggregate principal amount of $63,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due April 15, 2018 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted the principal balance of the note and accrued interest
of $2,520 to 2,753,093 shares of common stock.
On
January 10, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $240,000, convertible into shares
of the Company’s common stock, and includes a back-ended note with principal of $120,000 that was funded on July 10, 2018.
The Note, including accrued interest is due January 10, 2019 and is convertible any time after 180 days at the option of the holder
into shares of the Company’s common stock at 65% of the average stock price of the lowest 3 closing bid prices during the
15 trading day period ending on the latest complete trading day prior to the conversion date. During the year ended December 31,
2018, the noteholder converted $74,000 of the principal balance to 11,410,967 shares of common stock. The balance of the note
was $166,000 on December 31, 2018.
On
January 16, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $63,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due October 30, 2018 and is convertible any time
after 180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted the principal balance of the note and accrued interest
of $2,520 to 6,546,697 shares of common stock.
On
March 6, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $126,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due March 6, 2019 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% of the lowest trading price during
the 20 trading day period ending on the latest complete trading day prior to and including the conversion date. During the year
ended December 31, 2018, the noteholder converted $66,000 of the principal balance and accrued interest of $3,213 to 15,384,470
shares of common stock. The balance of the note was $60,000 on December 31, 2018.
On
May 3, 2018, the Company entered into a Convertible Promissory Note pursuant to which the Company borrowed in the aggregate principal
amount of $83,500. The convertible note is due 12 months after issuance and bears interest at a rate of 8%. The Note is convertible
into shares of common stock of the Company 180 days following the date of funding and thereafter. The conversion price shall be
subject to a discount of 35% applied to the average of the three lowest closing bid prices of the Common Stock during the prior
twenty (20) trading day period. The Investor will be limited to convert no more than 4.99% of the issued and outstanding Common
Stock at the time of conversion at any one time. At any time during the period beginning on the date of the Note and ending on
the date which is 180 days thereafter, the Company may repay the Note by paying an amount equal to the then outstanding amount
multiplied by 130%.
During the year ended December
31, 2018, the noteholder converted $29,543 of the principal balance to 8,629,314 shares of common stock. The balance of the note
was $53,957 on December 31, 2018.
On
May 15, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $58,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due February 28, 2019 and is convertible any time
after 180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted the principal balance of the note and accrued interest
of $2,320 to 14,300,023 shares of common stock.
On
June 25, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $53,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due April 15, 2019 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% 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. During the year ended December 31, 2018, the noteholder converted $15,000 of the principal balance to 5,016,722 shares of
common stock. The balance of the note was $38,000 on December 31, 2018.
On
August 13, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $53,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due May 30, 2019 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% 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.
On
September 17, 2018, the Company issued an 8% convertible note in the aggregate principal amount of $33,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due June 30, 2019 and is convertible any time after
180 days at the option of the holder into shares of the Company’s common stock at 65% 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.
The
Company recorded a debt discount related to identified embedded derivatives relating to conversion features and a reset provisions
(see Note 10) based fair values as of the inception date of the Notes. The calculated debt discount equaled the face of the 8%
note dated March 30, 2017 and was amortized through the date the convertible debt was fully extinguished. The calculated debt
discount equaled the face of the 12% note and was amortized through the date the convertible debt was fully extinguished. The
calculated debt discount equaled the face of the 8% note dated July 5, 2017 and was amortized through the date the convertible
debt was fully extinguished. The calculated debt discount equaled the face of the 8% note dated October 10, 2017 and was amortized
through the date the convertible debt was fully extinguished. The calculated debt discount equaled the face of the 8% note dated
November 28, 2017 and was amortized through the date the convertible debt was fully extinguished. The calculated debt discount
equaled the face of the 8% note dated January 10, 2018 and is being amortized and revalued over the term of the note. The calculated
debt discount equaled the face of the 8% note dated January 16, 2018 and was amortized through the date the convertible debt was
fully extinguished. The calculated debt discount equaled the face of the 8% note dated March 6, 2018 and is being amortized and
revalued over the term of the note. The calculated debt discount equaled the face of the 8% note dated May 3, 2018 and is being
amortized and revalued over the term of the note. The calculated debt discount equaled the face of the 8% note dated May 15, 2018
and was amortized through the date the convertible debt was fully extinguished. The calculated debt discount equaled the face
of the 8% note dated June 25, 2018 and is being amortized and revalued over the term of the note. Interest expense on the convertible
notes of $631,287 and $338,878 was recorded for the years ended December 31, 2018 and 2017, respectively.
The
Company issued convertible debentures in the amount of $75,000 to three individuals. The debentures are convertible into 75,000
shares of common stock for up to 5 years, at the holders’ option, at an exercise price of $.50 and $.25, respectively. The
debentures mature on the earlier of the closing of a subsequent financing event by the Company resulting in gross proceeds of
at least $10,000,000 or three years from the date of issuance. The debentures bear interest at a rate of 10%. A beneficial conversion
feature was not recorded as the fair market value of the Company’s common stock was less than the exercise prices at the
dates of issuance and through the end of the year. Interest expense on the convertible debentures of $8,616 and $8,782 was recorded
for the years ended December 31, 2018 and 2017, respectively.
Convertible
notes payable at December 31, 2018 and 2017 are summarized as follows:
|
|
|
2018
|
|
2017
|
|
Total
face value of notes
|
|
$
|
478,957
|
|
|
$
|
358,000
|
|
|
Less:
Discount
|
|
|
101,346
|
|
|
|
24,311
|
|
|
Balance
|
|
$
|
377,611
|
|
|
$
|
333,689
|
|
Note
10 – Derivative Liability
The
Company has determined that the conversion feature embedded in the convertible notes described in Note 9 contain a potential variable
conversion amount which constitutes a derivative which has been bifurcated from the note and recorded as a derivative liability
at fair value, with a corresponding discount recorded to the associated debt. The excess of the derivative value over the face
amount of the note is recorded immediately to interest expense at inception. The Company used the Binomial Option Pricing model
to value the conversion features.
The
Company used Level 3 inputs for its valuation methodology for the conversion option liability in determining the fair value using
a Black-Scholes option-pricing model with the following assumption inputs:
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2018
|
|
2017
|
|
Annual
dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Expected
life (years)
|
|
|
0.77
- 1.0
|
|
|
|
0.80
- 1.0
|
|
|
Risk-free
interest rate
|
|
|
2.07%
- 2.57%
|
|
|
|
1.2%
- 1.91%
|
|
|
Expected
volatility
|
|
|
257%
- 293%
|
|
|
|
272
|
%
|
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 notes. Pursuant to the sequencing approach, the Company evaluates its contracts based
upon earliest issuance date.
Note
11 – Notes Payable
Notes
payable at December 31, 2018 and 2017 consists of loans to HealthDatix from 3 individuals totaling $52,500. The loans do not bear
interest and there are no specific terms for repayment.
Note
12 – Stock Transactions
Designation
of Preferred Stock
On
August 2, 2018, the Company filed a Certificate of Designation with
the
Delaware Division of Corporations whereby the Company designated a Series A Preferred Stock and issued 1,000 shares to the Company’s
CEO. The holders of Series A Preferred Stock will have voting rights, when combined with their existing holdings of the Company’s
common stock, that entitle them to have an aggregate of 51% of the votes eligible to be cast by all stockholders with respect
to all matters brought before a vote of the stockholders of the Company.
Common
Stock Issued
On
August 8, 2018, the Board unanimously approved an amendment to the Company’s Articles of Incorporation to increase the number
of shares of Common Stock which the Company is authorized to issue from Four hundred million (400,000,000) to Eight Hundred Million
(800,000,000) shares of Common Stock, $0.001 par value per share.
In
connection with the convertible notes payable (see Note 9 above) the noteholders converted $588,543 of principal balance and $31,658
of accrued interest to 79,032,773 shares of common stock during the year ended December 31, 2018. The stock issued was determined
based on the terms of the convertible notes.
The
Company issued 3,000,000 common shares for services, valued at $.0296 per share on May 16, 2018.
The
Company issued 1,500,000 common shares for services, valued at $.008 per share and 230,650 common shares, valued at $.04 per share
on October 29, 2018.
The
Company issued 3,400,000 common shares for inventory, valued at $.025 per share on October 29, 2018.
The
Company sold 1,500,000 shares of common stock to an investor valued at $.02 per share during the year ended December 31, 2018
for proceeds of $30,000.
On
November 28, 2017, the Board unanimously approved an amendment to the Company’s Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue from Two hundred million (200,000,000) to Four Hundred
Million (400,000,000) shares of Common Stock, $0.001 par value per share (the “Capitalization Amendment”). On November
29, 2017, the Majority Stockholders executed and delivered to the Company a written consent approving the Current Action.
In
connection with the convertible notes payable (see Note 9 above) the noteholders converted $161,000 of principal balance and $3,000
of accrued interest to 3,327,581 shares of common stock during the year ended December 31, 2017. The stock issued was determined
based on the terms of the convertible notes.
The
Company sold 500,000 shares of common stock to an investor valued at $.05 per share on September 29, 2017 for proceeds of $25,000.
The
Company sold 500,000 shares of common stock to an investor valued at $.05 per share on September 14, 2017 for proceeds of $25,000.
The
Company sold 500,000 shares of common stock to an investor valued at $.05 per share on August 10, 2017 for proceeds of $25,000.
The
Company issued 250,000 common shares for services, valued at $.12 per share on August 10, 2017.
The
Company issued 50,000 common shares for services, valued at $.09 per share on July 13, 2017.
The
Company sold 500,000 shares of common stock to an investor valued at $.05 per share on July 5, 2017 for proceeds of $25,000.
The
Company issued 1,500,000 common shares for services, valued at $.10 per share on June 30, 2017.
The
Company issued 200,000 common shares to a vendor in settlement of balances from prior years invoices plus interest, valued at
$.0725 per share on June 6, 2017.
The
Company issued 500,000 common shares for services, valued at $.09 per share on May 30, 2017.
The
Company sold 500,000 shares of common stock to an investor valued at $.05 per share on May 7, 2017 for proceeds of $25,000.
The
Company sold 1 million shares of common stock to an investor valued at $.05 per share on April 20, 2017 for proceeds of $50,000.
The
Company issued 150,000 common shares to a noteholder for a financing fee, valued at $.10 per share on April 3, 2017.
In
connection with the acquisition of assets from ECSL the Company issued 60,000,000 common shares valued at $.10 per share to the
shareholders of ECSL on April 3, 2017.
In
connection with the acquisition of HealthDatix the Company issued 15,000,000 common shares valued at $.07 per share to the shareholders
of HealthDatix on February 14, 2017.
The
Company sold 2 million shares of common stock to an investor valued at $.05 per share on January 27, 2017 for proceeds of $100,000.
The
Company issued 10,000 common shares for services, valued at $.08 per share on January 5, 2017.
Treasury
Stock
In
connection with the sale of Arcmail, the CEO of ArcMail remitted 10,000,000 shares of iGambit common stock previously issued to
him, valued at $.10 per share on June 30, 2017.
Note
13 - Income Taxes
The
reconciliation between income tax expense computed by applying the federal statutory corporate tax rate and actual income tax
expense (benefit) is as follows:
|
|
|
Years
Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Statutory
U.S. federal income tax rate
|
|
|
(21.0
|
)%
|
|
|
(34.0
|
)%
|
|
State income taxes,
net of federal income tax benefit
|
|
|
(1.8
|
)%
|
|
|
(4.0
|
)%
|
|
Tax effect of expenses
that are not deductible for income tax purposes
|
|
|
(14.0
|
)%
|
|
|
9.0
|
%
|
|
Change
in Valuation Allowance
|
|
|
36.8
|
%
|
|
|
29.0
|
%
|
|
Effective
tax rate
|
|
|
(0.0
|
)%
|
|
|
(0.0
|
)%
|
At
December 31, the significant components of the deferred tax assets (liabilities) are summarized below:
|
|
|
2018
|
|
2017
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
Net Operating
Losses
|
|
$
|
1,446,887
|
|
|
$
|
2,329,938
|
|
|
Other
|
|
|
411,938
|
|
|
|
377,445
|
|
|
Total
deferred tax assets
|
|
|
1,858,825
|
|
|
|
2,707,383
|
|
|
Deferred
Tax Liabilities:
|
|
|
—
|
|
|
|
—
|
|
|
Total
deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
|
Valuation
Allowance
|
|
|
(1,858,825
|
)
|
|
|
(2,707,383
|
)
|
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax
rate from 35% to 21%, resulting in a deferred tax expense of approximately $392,000 for the year ended December 31, 2017 that
is still fully valued against as of December 31, 2018. This expense is attributable to the Company being in a net deferred tax
asset position at the time of remeasurement. As the Company maintains full valuation allowance, this amount can be seen on the
rate reconciliation as an adjustment to deferred tax asset and corresponding valuation allowance.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes
to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for
tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial
system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings.
As
of December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately $4.5 million and $5.5
million, which expire at various dates from 2031 through 2038. The federal net operating loss of approximately $1 million incurred
in 2018 may be carried forward indefinitely. These net operating loss carryforwards may be used to offset future taxable income
and thereby reduce the Company’s U.S. federal and state income taxes. The net operating losses may be subject to limitation
under Internal Revenue Code Section 382 should there be a greater than 50% change in ownership as determined under the regulations.
In
accordance with ASC 740, 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 as of December 31,
2018 and 2017 has been established as Management believes that the Company will more likely than not realize the benefit of those
deferred tax assets. Therefore, no tax provision has been recorded for the years ended December 31, 2018 and 2017.
The
Company complies with the provisions of ASC 740-10 in accounting for its uncertain tax positions. ASC 740-10 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Management
has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10.
The
Company is subject to income tax in the U.S., and certain state jurisdictions. The Company has not been audited by the U.S. Internal
Revenue Service, or any states in connection with income taxes. The Company’s tax years generally remain open to examination
for all federal and state income tax matters until its net operating loss carryforwards are utilized and the applicable statutes
of limitation have expired. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable
income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may
be allowed as a deduction against income for a period within the statute of limitations.
The
Company recognizes interest and penalties related to unrecognized tax benefits, if incurred, as a component of income tax expense.
Note
14 – Concentrations and Credit Risk
Sales
and Accounts Receivable
HealthDatix
had sales to one customer which accounted for approximately 75% of HealthDatix’s total sales for the year ended December
31, 2018. The customer accounted for approximately 67% of accounts receivable at December 31, 2018.
HealthDatix
had sales to three customers which accounted for approximately 44%, 27%, and 11%, respectively of HealthDatix’s total sales
for the year ended December 31, 2017. The three customers accounted for approximately 58%, 26%, and 11% of accounts receivable
at December 31, 2017.
One
customer accounted for 14% of sales included in discontinued operations for the year ended December 31, 2017.
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 December 31, 2018 and 2017, respectively.
Note
15 - Related Party Transactions
Amounts
Due to Related Parties
Amounts
due to related parties with balances of $145,367 and $128,476 at December 31, 2018 and 2017, respectively, do not bear interest
and are payable on demand. The Company’s former subsidiary, Arcmail owed amounts on a credit card that is guaranteed by
the husband of the Company’s Executive Vice President, who was held personally responsible by the credit card company for
the unpaid balance.
Note
16 – Commitments and Contingencies
Lease
Commitment
The
Company is obligated under two operating leases for its premises that expire at various times through August 31, 2019.
Total
future minimum annual lease payments under the leases for the years ending December 31 are as follows:
Rent
expense of $28,885 and $26,745 was charged to continuing operations for the years ended December 31, 2018 and 2017, respectively.
Rent
expense of $0 and $10,807 was charged to discontinued operations for the years ended December 31, 2018 and 2017, respectively.
Employment
Arrangements With Executive Officers
Effective
April 1, 2017, in connection with the acquisition of HealthDatix Inc., the Company entered into employment agreements with Jerry
Robinson, MaryJo Robinson, and Kathleen Shepherd each under a three-year term at a base salary of $75,000 per year, bonuses based
upon objectives set by the Company, and participation in all benefit programs generally made available to HealthDatix employees.
The employment agreements restrict the executive officers from engaging in certain competitive activities for the greater of 60
months from the date of the agreements or two years following the termination of their respective employment.
Note
17 – Subsequent Events
Common
Stock Issued
Subsequent
to the end of the period through the date of the report, various noteholders converted $270,957 of principal and $18,176 of accrued
interest to 146,727,525 shares of the Company’s common stock.
Equity
Financing Transaction
On
February 15, 2019, the Company issued an 8% convertible note in the aggregate principal amount of $38,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due November 30, 2019 and is convertible any time
after 180 days at the option of the holder into shares of the Company’s common stock at 65% 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.
On
March 29, 2019, the Company issued an 8% convertible note in the aggregate principal amount of $38,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due February 15, 2020 and is convertible any time
after 180 days at the option of the holder into shares of the Company’s common stock at 65% 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.