Amortization
Intangible
assets are amortized using the straight line method over the estimated lives of the respective assets as follows:
Software
|
5
years
|
FDA
510K clearance
|
5
years
|
Technology
license
|
5
years
|
R&D
- medical wearable watch
|
5
years
|
Workforce
|
10
years
|
Customer
contracts
|
10
years
|
Goodwill
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. No impairment was recorded during the nine months ended September 30, 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 included in discontinued operations 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 discontinued liabilities in the amount of $0 and $1,092,388 as of September 30, 2017 and December 31, 2016, 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.
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 disposed of its operating
subsidiary, Arcmail and has an accumulated deficit of $5,794,941 at September 30, 2017. 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 subsidiaries 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 September 30, 2017 and December 31, 2016:
Continuing
operations:
|
|
2017
|
|
2016
|
Office
equipment and fixtures
|
|
$
|
10,964
|
|
|
$
|
7,164
|
|
Less:
Accumulated depreciation
|
|
|
6,811
|
|
|
|
5,981
|
|
|
|
$
|
4,153
|
|
|
$
|
1,183
|
|
Discontinued
operations:
|
|
2017
|
|
2016
|
Office
equipment and fixtures
|
|
$
|
—
|
|
|
$
|
131,842
|
|
Computer
hardware
|
|
|
—
|
|
|
|
92,200
|
|
Computer
software
|
|
|
—
|
|
|
|
77,700
|
|
Development
equipment
|
|
|
—
|
|
|
|
35,318
|
|
|
|
|
—
|
|
|
|
337,060
|
|
Less:
Accumulated depreciation
|
|
|
—
|
|
|
|
318,407
|
|
|
|
$
|
—
|
|
|
$
|
18,653
|
|
Depreciation
expense of $830 and $355 was charged to continuing operations for the nine months ended September 30, 2017 and 2016, respectively.
Depreciation
expense of $4,538 and $16,841 was charged to discontinued operations for the nine months ended September 30, 2017 and 2016, respectively.
Note
6 – Intangible Assets
Intangible
assets from the acquisitions of HealthDatix and ECSL are carried at cost and consist of the following at September 30, 2017:
|
|
|
|
Life
|
Workforce
|
|
$
|
60,919
|
|
|
|
10
years
|
|
Software
|
|
|
156,925
|
|
|
|
5
years
|
|
Customer contracts
|
|
|
644,846
|
|
|
|
10
years
|
|
EHC software and technology
|
|
|
2,500,000
|
|
|
|
5
years
|
|
FDA 510K clearance
|
|
|
1,396,000
|
|
|
|
5
years
|
|
Technology license
|
|
|
1,818,182
|
|
|
|
5
years
|
|
In process research
and development
|
|
|
285,818
|
|
|
|
5
years
|
|
|
|
|
6,862,690
|
|
|
|
|
|
Less: Accumulated
amortization
|
|
|
663,726
|
|
|
|
|
|
|
|
$
|
6,198,964
|
|
|
|
|
|
Amortization
expense of $663,726 was charged to continuing operations for the nine months ended September 30, 2017.
Note
7 - Earnings (Loss) Per Common Share
The
Company calculates net earnings (loss) per common share in accordance with ASC 260 “
Earnings Per Share
” (“ASC
260”). Basic and diluted net earnings (loss) per common share was determined by dividing net earnings (loss) applicable
to common stockholders by the weighted average number of common shares outstanding during the period. The 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 income (loss) per share for all periods as the result would be anti-dilutive.
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock
options
|
|
|
8,463,000
|
|
|
|
1,422,000
|
|
|
|
8,463,000
|
|
|
|
1,422,000
|
|
Stock
warrants
|
|
|
400,000
|
|
|
|
275,000
|
|
|
|
400,000
|
|
|
|
275,000
|
|
Total
shares excluded from calculation
|
|
|
8,863,000
|
|
|
|
1,697,000
|
|
|
|
8,863,000
|
|
|
|
1697,000
|
|
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 September 30, 2017, 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 nine months ended September 30, 2017 and 2016 follows:
|
|
Options
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Grant - Date Fair Value
|
|
Weighted
Average Remaining Contractual Life
(Years)
|
Options outstanding at December
31, 2015
|
|
|
1,718,900
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
3.82
|
|
Options
expired
|
|
|
(296,900
|
)
|
|
$
|
0
|
|
|
|
—
|
|
|
|
|
|
Options outstanding
at September 30, 2016
|
|
|
1,422,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
5.85
|
|
Options outstanding
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
1,422,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
5.6
|
|
Options granted
|
|
|
7,800,000
|
|
|
$
|
0
|
|
|
|
—
|
|
|
|
|
|
Options
cancelled
|
|
|
(759,000
|
)
|
|
$
|
0
|
|
|
|
—
|
|
|
|
|
|
Options outstanding
at September 30, 2017
|
|
|
8,463,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
7.66
|
|
Options
outstanding at September 30, 2017 consist of:
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
June
9, 2014
|
|
|
213,000
|
|
|
|
213,000
|
|
|
$
|
0.03
|
|
|
June
9, 2024
|
June
6, 2014
|
|
|
250,000
|
|
|
|
250,000
|
|
|
$
|
0.05
|
|
|
June
6, 2019
|
March
24, 2015
|
|
|
200,000
|
|
|
|
200,000
|
|
|
$
|
0.01
|
|
|
March
24, 2020
|
April
6, 2017
|
|
|
600,000
|
|
|
|
600,000
|
|
|
$
|
0.03
|
|
|
April
6, 2027
|
June
6, 2017
|
|
|
700,000
|
|
|
|
700,000
|
|
|
$
|
0.0725
|
|
|
June
6, 2022
|
June
6, 2017
|
|
|
6,500,000
|
|
|
|
6,500,000
|
|
|
$
|
0.0725
|
|
|
June
6, 2027
|
Total
|
|
|
8,463,000
|
|
|
|
8,463,000
|
|
|
|
|
|
|
|
Warrants
In
addition to our 2006 Long Term Incentive Plan, we have issued and have 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 6 months after the Company engages in an IPO, have an exercise price of $3.00 per
share, and expire 2 years after the Company engages in an IPO. Warrants to purchase 250,000 shares of common stock vest 100,000
shares on issuance (June 1, 2009), and 50,000 shares on each of the following three anniversaries of the date of issuance,
have exercise prices ranging from $0.50 per share to $1.15 per share, and expire on June 1, 2019. The issuance of the compensatory
warrants was not submitted to our shareholders for their approval.
Warrant
activity during the nine months ended September 30, 2017 and 2016 follows:
|
|
Warrants
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Grant-Date Fair Value
|
|
Weighted
Average Remaining Contractual Life
(Years)
(1)
|
Warrants
outstanding at December 31, 2015
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
3.42
|
|
No
warrant activity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Warrants
outstanding at September 30, 2016
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
2.67
|
|
Warrants outstanding
at December 31, 2016
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
2.42
|
|
Warrant
granted
|
|
|
125,000
|
|
|
$
|
0.40
|
|
|
|
—
|
|
|
|
|
|
Warrants
outstanding at September 30, 2017
|
|
|
400,000
|
|
|
$
|
0.62
|
|
|
$
|
0.10
|
|
|
|
3.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Exclusive of 25,000 warrants expiring 2 years after initial IPO
|
|
|
|
|
Warrants
outstanding at September 30, 2017 consist of:
Date
Issued
|
|
Number
Outstanding
|
|
Number
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
April
1, 2000
|
|
|
25,000
|
|
|
|
25,000
|
|
|
$
|
3.00
|
|
|
2
years after IPO
|
June
1, 2009
|
|
|
100,000
|
|
|
|
100,000
|
|
|
$
|
0.50
|
|
|
June
1, 2019
|
June
1, 2009
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.65
|
|
|
June
1, 2019
|
June
1, 2009
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
0.85
|
|
|
June
1, 2019
|
June
1, 2009
|
|
|
50,000
|
|
|
|
50,000
|
|
|
$
|
1.15
|
|
|
June
1, 2019
|
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
|
Total
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
|
|
|
|
Note
9 – Convertible Debt
Convertible
Notes Payable
On
April 3, 2017, the Company entered into a Convertible Promissory Note with
an
accredited investor pursuant to an exemption under section 4(a)(2) of the securities act of 1933
,
pursuant to which the investor agreed to lend and the Company agreed to repay the investors 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%.
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.
On
March 30, 2017, the Company issued an 8% convertible note in the aggregate principal amount of $75,000, convertible into shares
of the Company’s common stock. The Note, including accrued interest is due January 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.
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 is being amortized over the term of the note. The face of the 12% note exceeded the calculated debt
discount by $13,403 and is being amortized over the term of the note. Interest expense on the convertible notes of $11,623 was
recorded for the nine months ended September 30, 2017.
Convertible
Debentures
The
Company issued convertible debentures to an individual during the nine months ended September 30, 2017 and to two individuals
during the year ended December 31, 2016.
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 period. Interest expense on the convertible
debentures of $4,360 was recorded for the nine months ended September 30, 2017.
Note
10 – Derivative Liability
Convertible
Note
During
the nine months ended September 30, 2017, the Company issued three convertible notes (see Note 9 above).
The
notes are convertible into common stock, at the holders’ option, at a discount to the market price of the Company’s
common stock. The Company has identified embedded derivatives included in the 8% note dated March 30, 2017 and the 12% note relating
to the conversion features. The accounting treatment of derivative financial instruments requires that the Company record the
fair value of the derivatives as of the inception date of the convertible note and a corresponding debt discount and revalued
to fair value as of each subsequent reporting date. This resulted in a fair value of derivative liability of $195,370, consisting
of $83,773 and $111,597 for the 8% and 12% notes, respectively in which to the extent of the face value of convertible notes was
treated as debt discount with the remainder treated as interest expense.
The
fair value of the embedded derivatives at September 30, 2017, in the amount of $83,773, was determined using the Binomial Option
Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 211.00%, (3) weighted average
risk-free interest rate of 0.12%, (4) expected life of 0.80 years, and (5) estimated fair value of the Company’s common
stock of $0.09 per share. The Company recorded interest expense from the excess of the derivative liability over the convertible
note of $8,773 during the nine months ended September 30, 2017.
The
fair value of the embedded derivatives at September 30, 2017, in the amount of $111,597, was determined using the Binomial Option
Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 212.00%, (3) weighted average
risk-free interest rate of 0.12%, (4) expected life of 1 year, and (5) estimated fair value of the Company’s common stock
of $0.10 per share.
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 from continuing operations at September 30, 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.
Notes
payable at December 31, 2016 are presented in liabilities from discontinued operations and consist of various notes payable in
annual installments totaling $779,750 through September 2019. The notes include interest at 7% and are secured by the assets of
ArcMail.
Principal
amounts due on notes payable for the years ended December 31, are as follows:
2017
|
|
$
|
779,750
|
|
2018
|
|
|
779,750
|
|
2019
|
|
|
779,750
|
|
2020
|
|
|
779,751
|
|
|
|
$
|
3,119,001
|
|
During
the year ended December 31, 2016, Arcmail entered into merchant financing agreements with various lenders for proceeds totaling
$395,583 payable in daily amounts based on various percentages of future collections of accounts receivable, which were assigned
to the lenders. The obligations will be satisfied upon total payments of $504,591 and will mature in March 2017. The outstanding
balance of notes payable - other was $153,404 and presented in liabilities from discontinued operations at December 31, 2016.
Note
12 – Stock Transactions
Common
Stock Issued
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 of 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
A
full valuation allowance was recorded against the Company’s net deferred tax assets. A valuation allowance must be established
if it is more likely than not that the deferred tax assets will not be realized. This assessment is based upon consideration of
available positive and negative evidence, which includes, among other things, the 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 has been established as Management believes that the Company will not realize
the benefit of those deferred tax assets.
Note
14 - Retirement Plan
ArcMail
has a defined contribution 401(k) plan, which covers substantially all employees. Under the terms of the Plan, Arcmail is currently
not required to match employee contributions. The Company did not make any employer contributions to the Plan during the nine
months ended September 30, 2017.
Note
15 – Concentrations and Credit Risk
Sales
and Accounts Receivable
HealthDatix
had sales to five customers which accounted for approximately 29%, 18%, 16%, 13%, and 12%, respectively of HealthDatix’s
total sales for the nine months ended September 30, 2017. Four customers accounted for approximately 33%, 32%, 15%, and 11% of
accounts receivable at September 30, 2017.
No
customer accounted for more than 10% of sales included in discontinued operations for the nine months ended September 30, 2017
and 2016, respectively.
Cash
Cash
is maintained at a major financial institution. Accounts held at U.S. financial institutions are insured by the FDIC up to $250,000.
Cash balances could exceed insured amounts at any given time, however, the Company has not experienced any such losses. The Company
did not have any interest-bearing accounts at June 30, 2017 and December 31, 2016, respectively.
Note
16 - Related Party Transactions
Note
Payable – Related Party
ArcMail
issued a promissory note to the president of ArcMail on June 30, 2015 for funds advanced. The note is payable in annual installments
of $155,566 through December 2019 and is presented in liabilities from discontinued operations at December 31, 2016. The notes
include interest at 6% and are subordinated to the notes payable (see Note 11).
Principal
amounts due on notes payable for the years ended December 31, are as follows:
2017
|
|
$
|
155,566
|
|
2018
|
|
|
155,566
|
|
2019
|
|
|
155,567
|
|
2020
|
|
|
155,567
|
|
|
|
$
|
626,266
|
|
Amounts
Due to Related Parties
Amounts
due to related parties with balances of $5,043 and $508 at September 30, 2017 and December 31, 2016, respectively, consist of
cash advances from an officer/stockholder. These advances do not bear interest and are payable on demand.
Amounts
due to related parties with a balance of $64,509 at December 31, 2016, consists of cash advances from the president of Arcmail,
and is presented in liabilities from discontinued operations. These advances do not bear interest and are payable on demand.
Note
17 – Commitments and Contingencies
Lease
Commitment
The
Company is obligated under two operating leases for its premises that expire at various times through February 28, 2019.
Total
future minimum annual lease payments under the leases for the years ending December 31 are as follows:
2017
|
|
|
$
|
33,325
|
|
2018
|
|
|
|
56,743
|
|
2019
|
|
|
|
3,380
|
|
|
|
|
|
93,448
|
|
Rent
expense of $19,694 and $14,520 was charged to continuing operations for the nine months ended September 30, 2017 and 2016, respectively.
Rent
expense of $10,807 and $33,039 was charged to discontinued operations for the nine months ended September 30, 2017 and 2016, respectively.
Note
18 – Subsequent Events
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.
Subsequent to the end of the period through the date of the report,
various noteholders converted $120,000 of principal to 1,524,756 of the Company’s common shares.
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD
LOOKING STATEMENTS
This
Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included or incorporated by reference in this Form 10-Q which address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including
the amount and nature thereof), finding suitable merger or acquisition candidates, expansion and growth of the Company’s
business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected
future developments as well as other factors it believes are appropriate in the circumstances.
Investors
are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks
and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Factors
that could adversely affect actual results and performance include, among others, potential fluctuations in quarterly operating
results and expenses, government regulation, technology change and competition. Consequently, all of the forward-looking statements
made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to
or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking
statements.
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.
HealthDatix
is an end to end Software-as-a-Service solution that manages, reports, and analyzes critical data, enabling healthcare organizations
to deliver positive patient outcomes. HealthDatix provides an opportunity for physicians to identify patients eligible for both
“Annual Wellness Visits” (AWV) as well as “Chronic Care Management” both of which are reimbursed by Medicare.
Our
WellDatix solution offers a fully-hosted cloud service for healthcare providers to conduct the Medicare Annual Wellness Visit
(AWV) program to their Medicare patients providing the patient with a 5-10 year Personalized Preventive Plan and physician reports
that meet all Medicare audit requirements. The AWV is a program that allows a physician to identify those patients that have 2+
chronic conditions that require additional screening and management.
Additionally
our CareDatix Chronic Care Management System, encompasses our FDA approved Electronic House Call system and Medicare covered platform,
for continuous management of chronic care patients. The CareDatix platform can be tailored for individual care and health management
of patients susceptible to chronic illness. The CareDatix platform is also designed to accumulate information from any TeleMedicine
or wearable device.
Assets.
At September 30, 2017, we had $6,569,951 in total assets, compared to $510,835 at December 31, 2016. The increase in total
assets was primarily due to the increase in intangible assets from the acquisition of certain assets from EncouterCare Solutions
Inc. (“ECSL Acquisition) by our HealthDatix subsidiary.
Liabilities.
At September 30, 2017, our total liabilities were $734,038 compared to $6,380,260 at December 31, 2016. Our current liabilities
at September 30, 2017 consisted of accounts payable and accrued expenses of $318,521, accrued interest on notes payable of $15,984,
notes payable of $52,500, convertible debentures of $146,620, and derivative liability of $195,370 whereas our total liabilities
at December 31, 2016 consisted of current liabilities including accounts payable and accrued expenses of $356,005, amounts
due to related parties of $508, convertible debentures of $50,000 and liabilities from discontinued operations of $5,973,747.
The decrease in total liabilities was due to the sale of our subsidiary WaLa. Inc. dba ArcMail Technologies Inc. (“ArcMail”).
Stockholders’
Equity (Deficiency).
Our Stockholders’ Equity was $5,835,913 at September 30, 2017 compared to Stockholders Deficiency
of ($5,869,425) at December 31, 2016. This increase was primarily due to an increase in Common Stock and Additional paid-in capital
from the ECSL acquisition, and a decrease in Accumulated Deficit due to the sale of ArcMail during the nine months ended September
30, 2017.
Three
Months Ended SEPTEMBER 30, 2017 as Compared to Three Months Ended SEPTEMBER 30, 2016
Revenues
and Net Income
.
We had $19,012 of revenue from our HealthDatix subsidiary and a net income of $6,325,014 during the three
months ended September 30, 2017, compared to revenue of $0 and a net income of $216,666 for the three months ended September 30,
2016. The increase in revenue was due primarily to revenue generated by our HealthDatix subsidiary acquired in February 2017.
In addition to HealthDatix’s operations, we had income from discontinued operations of $7,053,622 compared to income from
discontinued operations of $293,036 for the three months ended September 30, 2017 and September 30, 2016, respectively.
General
and Administrative Expenses
.
General and Administrative Expenses increased to $723,000 for the three months ended September
30, 2017 from $75,699 for the three months ended September 30, 2016. For the three months ended September 30, 2017 our General
and Administrative Expenses consisted of corporate administrative expenses of $25,942, amortization and depreciation expense of
$325,799, legal and accounting fees of $19,180, employee benefits expenses (health and life insurance) of $14,427, marketing expenses
of $18,662, payroll expenses of $86,757, exchange filing fees of $7,181, rent expense of $7,052, consulting fees expense of $186,000,
commissions expense of $6,000, finders fess of $15,000 and research and development expense of $11,000. For the three months ended
September 30, 2016 our General and Administrative Expenses consisted of corporate administrative expenses of $11,286, legal and
accounting fees of $11,517, employee benefits (health and life insurance) expenses of $6,597, payroll expenses of $12,530, travel
expenses of $9,289, marketing expense of $17,364, exchange and filing fees expense of $2,256, and rent expense of $4,860. The
increases from the three months ended September 30, 2016 to the three months ended September 30, 2017 relate primarily due to:
(i) an increase in payroll expense and employee benefits, (ii) an increase in marketing expenses; and (iii) an increase in
general and administrative costs associated with the operation of our HealthDatix subsidiary as well as costs associated with
the ECSL acquisition and ArcMail sale. Costs associated with our officers’ salaries and the operation of our HealthDatix
subsidiary are expected to increase going forward, as we expand the business operations of HealthDatix which would likely increase
our corporate administrative expenses.
Other
Income (Expense)
.
We reported interest expense of $16,668 and $671 for the three months ended September 30, 2017 and 2016,
respectively. A gain of $6,657,848 on the sale of ArcMail was reported for the three months ended September 30, 2017.
NINE
Months Ended SEPTEMBER 30, 2017 as Compared to NINE Months Ended SEPTEMBER 30, 2016
Revenues
and Net Income (Loss)
.
We had $27,957 of revenue from our HealthDatix subsidiary and net income of $4,435,690 during the
nine months ended September 30, 2017, compared to revenue of $0 and a net loss of $118,256, for the nine months ended September
30, 2016. The increase in revenue was due primarily to the revenue generated by our HealthDatix subsidiary acquired in February
2017. In addition to HealthDatix’s operations, we had income from discontinued operations of $6,589,713 compared to income
from discontinued operations of $185,773, for the nine months ended September 30, 2017 and September 30, 2016, respectively.
General
and Administrative Expenses
.
General and Administrative Expenses increased to $2,129,083 for the nine months ended September
30, 2017 from $302,146 for the nine months ended September 30, 2016. For the nine months ended September 30, 2017 our General
and Administrative Expenses consisted of corporate administrative expenses of $82,669, amortization and depreciation expenses
of $664,556, board compensation expense of $134,856, legal and accounting fees of $129,981, employee benefits expenses (health
and life insurance) of $40,670, marketing expense of $52,381, payroll expenses of $505,150, commissions fees expense of $70,475,
consulting fees expense of $373,136, finders fees expense of $15,000, exchange filing fees of $18,515, rent expense of $19,694,
and research and development expense of $22,000. For the nine months ended September 30, 2016 our General and Administrative Expenses
consisted of corporate administrative expenses of $36,717, amortization and depreciation expenses of $355, board compensation
expense of $6,000, legal and accounting fees of $52,842, employee benefits expenses (health and life insurance) of $17,786, marketing
expense of $50,698, payroll expenses of $68,788, commissions and fees expense of $26,250, directors and officers insurance expense
of $10,053, exchange filing fees of $10,834, rent expense of $14,520 and travel expense of $10,573. The increases from the nine
months ended September 30, 2016 to the nine months ended September 30, 2017 relate primarily due to: (i) an increase in payroll
expense and employee benefits, (ii) an increase in marketing expenses; and (iii) an increase in general and administrative costs
associated with the operation of our HealthDatix subsidiary as well as costs associated with the ECSL acquisition and ArcMail
sale. Costs associated with our officers’ salaries and the operation of our HealthDatix subsidiary are expected to increase
going forward, as we expand the business operations of HealthDatix which would likely increase our corporate administrative expenses.
Other
Income (Expense)
.
We reported interest expense of $30,333 and $1,883 for the nine months ended September 30, 2017 and
2016, respectively. A gain of $6,657,848 on the sale of ArcMail was reported for the nine months ended September 30, 2017.
Liquidity
and Capital Resources
General
As
reflected in the accompanying unaudited consolidated financial statements, at September 30, 2017, we had $15,489 of cash and stockholders’
equity of $5,835,913. At December 31, 2016, we had $10,522 of cash and stockholders’ deficiency of $(5,869,425).
Our
primary capital requirements in 2017 are likely to arise 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 $523,545, for the nine months ended September 30, 2017, compared to $200,571 for the nine
months ended September 30, 2016. Net cash used in continuing operating activities was $522,984 for the nine months ended September
30, 2017, compared to $78,679 for the nine months ended September 30, 2016. Our primary use of operating cash flows from continuing
operating activities was from net income of $4,435,690 and $118,256 for the nine months ended September 30, 2017 and 2016, respectively.
Additional contributing factors to the change were from depreciation expense of $830, amortization expense of $663,726, non-cash
interest expense of $9,812, stock based compensation of $938,825, an increase in accounts receivable of $8,725, a decrease in
prepaid expenses of $48,071, a decrease in accounts payable and accrued expenses of $37,484, and an increase in accrued interest
on notes payable of $15,984. Net cash used in discontinued operations was $561 for the nine months ended September 30, 2017 and
net cash used in discontinued operating activities was $121,892 for the nine months ended September 30, 2016. Cash provided by
discontinued operations was primarily due to a decrease in accounts receivable from discontinued operations for the nine months
ended September 30, 2017, and cash used in discontinued operations was primarily from net losses of $107,263 from the ArcMail
subsidiary for the nine months ended September 30, 2016.
Net
cash used in continuing investing activities was $31,023 for the nine months ended September 30, 2017 and $0 for the nine months
ended September 30, 2016. For the nine months ended September 30, 2017 the primary use of cash flows in investing activities was
pre-acquisition loans to subsidiaries and loans to our Arcmail subsidiary prior to deconsolidation. Net cash provided by discontinued
investing activities was $0 for the nine months ended September 30, 2017 and $15,902 for the nine months ended September 30, 2016.
Net
Cash provided by financing activities was $559,535 for the nine months ended September 30, 2017 compared to $77,714 for the nine
months ended September 30, 2016. The cash flows provided by continuing financing activities for the nine months ended September
30, 2017 was primarily from $275,000 in proceeds from the sale of common stock and $288,000 in proceeds from issuance of convertible
debentures. The cash flows provided by continuing financing activities for the nine months ended September 30, 2016 consisted
of an increase in amounts due to related parties of $5,515. The cash flows provided by discontinued financing activities for the
nine months ended September 30, 2017 was $0 compared to $72,199 in cash flows provided by discontinued financing activities for
the nine months ended September 30, 2016.
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.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
Not
Required.
Item 4.
Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of
our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by
this Quarterly Report on Form 10-Q.
Based
on this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2017, 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 September 30, 2017 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
.
Limitations
on Effectiveness of Controls and Procedures
In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management
is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART
II — OTHER INFORMATION
Item 1.
Legal Proceedings.
From
time-to-time, the Company is involved in various civil actions as part of its normal course of business. The Company is not a
party to any litigation that is material to ongoing operations as defined in Item 103 of Regulation S-K as of the period
ended September 30, 2017.
Item 1A.
Risk Factors.
Not
required
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
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 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.
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.
Item 3.
Defaults upon Senior Securities.
None
Item 4.
Removed and Reserved.
Item 5.
Other Information.
None
Item
6. Exhibits
Exhibit
No.
|
|
Description
|
31.1
|
|
Certification
of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification
of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certification
of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall not be
deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
|
32.2
|
|
Certification
of the Interim Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (This exhibit shall
not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
|