As of June 30, 2017, the aggregate market value
of shares held by non-affiliates of the registrant (based upon the closing sale prices of such shares on the OTCQB Market on June
30, 2017) was approximately $2.911 million. For purposes of calculating the aggregate market value of shares held by non-affiliates,
we have assumed that all outstanding shares are held by non-affiliates, except for shares held by each of our executive officers,
directors and 5% or greater stockholders. In the case of 5% or greater stockholders, we have not deemed such stockholders to be
affiliates unless there are facts and circumstances which would indicate that such stockholders exercise any control over our company,
or unless they hold 10% or more of our outstanding common stock. These assumptions should not be deemed to constitute an admission
that all executive officers, directors and 5% or greater stockholders are, in fact, affiliates of our company, or that there are
not other persons who may be deemed to be affiliates of our company. Further information concerning shareholdings of our officers,
directors and principal stockholders is included or incorporated by reference in Part III, Item 12 of this Annual Report on Form
10-K.
As of April 17, 2018 there were 122,290,751
(not including 10 million shares held in treasury) shares of the Registrant’s $0.001 par value common stock outstanding.
This annual report on Form
10-K is for the year ended December 31, 2017. The Securities and Exchange Commission (“SEC”) allows us to “incorporate
by reference” information that we file with the SEC, which means that we can disclose important information to you by referring
you directly to those documents. Information incorporated by reference is considered to be part of this annual report. In addition,
information that we file with the SEC in the future will automatically update and supersede information contained in this annual
report. In this annual report, “Company,” “we,” “us” and “our” refer to iGambit
Inc. and its subsidiaries.
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 17, 2018,
there are 122,290,757 (not including 10 million shares held in treasury stock) shares of our common stock outstanding, held of
record by approximately 1800 persons. There are 113,225,914 shares held in reserve. We have 415,000 common stock warrants outstanding
and 8,363,000 common stock options outstanding.
As
of April 17, 2018, approximately 115,740,757 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 2017 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.
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.
Accounts Receivable
We analyze the collectability
of accounts receivable from continuing operations each accounting period and adjust our allowance for doubtful accounts accordingly.
A considerable amount of judgment is required in assessing the realization of accounts receivables, including the creditworthiness
of each customer, current and historical collection history and the related aging of past due balances. We evaluate specific accounts
when we become aware of information indicating that a customer may not be able to meet its financial obligations due to deterioration
of its financial condition, lower credit ratings, bankruptcy or other factors affecting the ability to render payment. Allowance
for doubtful accounts from discontinued operations was $0 and $8,345 at December 31, 2017 and 2016, respectively. Bad debt expense
of $0 and $63 was charged to discontinued operations for the years ended December 31, 2017 and 2016, respectively.
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.
An impairment expense of $3,338,095 was recorded during the year ended December 31, 2017 and $6,263,320 during the year ended December
31, 2016, which is included in discontinued operations.
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, 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
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
|
3.82
|
|
Options expired
|
|
|
(296,900
|
)
|
|
|
0.01
|
|
|
|
—
|
|
|
|
|
|
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 outstanding at December 31, 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
|
|
|
$
|
0.07
|
|
|
June 6, 2022
|
June 6, 2017
|
|
|
6,500,000
|
|
|
|
6,500,000
|
|
|
$
|
0.07
|
|
|
June 6, 2027
|
Total
|
|
|
8,463,000
|
|
|
|
8,463,000
|
|
|
|
|
|
|
|
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 $0.05 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.
Warrant activity during the years ended December
31, 2017 and 2016 follows:
|
|
Warrants
Outstanding
|
|
Weighted Average Exercise Price
|
|
Weighted Average Grant-Date Fair Value
|
|
(1) Weighted Average Remaining Contractual Life (Years)
|
Warrants outstanding at December 31, 2015
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
3.42
|
|
No warrant activity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
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
|
|
(1) Exclusive of 25,000 warrants expiring 2 years after initial IPO.
Warrants outstanding at December 31, 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
|
|
|
|
|
|
|
|
Convertible Debenture
We issued convertible
debentures to an individual during the year ended December 31, 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 $.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 $7,452
was recorded for the year ended December 31, 2017.
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, 2017 as Compared to Year Ended
December 31, 2016
Assets.
At
December 31, 2017, we had $55,080 in current assets and $3,328,755 in total assets, compared to $507,932 in current assets
and $510,835 in total assets as of December 31, 2016. There was a decrease in current assets from the disposing of the ArcMail
assets, and there was an increase in total assets from intangibles and goodwill as as result of the HubCentrix and CyberCare acquisitions.
Liabilities.
At December 31, 2017, we had total liabilities of $959,780 compared to $6,380,260 at December 31, 2016. 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, 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. We had no long term liabilities
for the years ended December 31, 2017 and December 31, 2016, respectively. The decrease in liabilities was primarily due to the
sale of ArcMail.
Stockholders’
Equity (Deficiency).
Our Stockholders’ Equity was $2,368,975 at December 31, 2017 compared to Stockholders’
Deficiency of $(5,869,425) at December 31, 2016. This increase was due to a decrease in accumulated deficit from $(10,230,631)
at December 31, 2016 to $(9,648,569) at December 31, 2017 resulting from a gain on the sale of ArcMail and from the issuance of
Shares.
Net Income
(Loss)
.
We had a loss from continuing operations of $(6,007,474) and $(451,060) for the years ended December 31, 2017 and
December 31, 2016, respectively, and income from discontinued operations of $6,589,536 compared to a loss from discontinued operations
of $(6,981,181) for the years ended December 31, 2017 and December 31, 2016, respectively.
General and Administrative
Expenses
.
General and Administrative Expenses increased to $1,813,624 for the year ended December 31, 2017 from $448,595
for the year ended December 31, 2016. 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. For the year ended December 31, 2016 our General and Administrative Expenses consisted of corporate administrative
expenses of $90,617, legal and accounting fees of $115,660, payroll expenses of $91,155, directors and officers Insurance of $10,053,
employee benefits expenses of $24,217 (medical and life insurance), filing fees of $11,779, financing expense of $10,000, and $95,114
in marketing and finder’s fees. Therefore, the increases from the year ended December 31, 2016 to the year ended December 31,
2017 relate primarily to an increase in payroll, amortization, board compensation, filing fees, transfer agent expenses, consulting
expenses and in marketing expenses. In 2018 we anticipate an increase in general administrative expenses associated with the HealthDatix
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
General
As reflected in the accompanying
consolidated financial statements, at December 31, 2017, we had $9,449 of cash and stockholders’ equity of $2,368,975. At
December 31, 2016, we had $10,522 of cash and stockholders’ deficiency of $(5,869,425).
Our primary capital requirements
in 2018 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 $714,623 for the year ended December 31, 2017, compared to net cash used in operating activities of $274,223 for
the year ended December 31, 2016. Net cash used in continuing operating activities was $705,407 for the year ended December 31,
2017, compared to $142,092 for the year ended December 31, 2016. Our primary use of cash flows from continuing operating activities
was from net losses of $6,007,474 and $451,060 from continuing operations for the years ended December 31, 2017 and 2016, respectively.
Additional contributing factors to the change were from depreciation of $1,138, amortization of $533,886, impairment expense of
$3,338,095, non-cash interest expense of $363,766, stock-based compensation expense of $924,326, loss on extinguishment of debt
of $105,801, change in fair value of derivative liability of $(158,599), an increase in accounts receivable of $4,004, a decrease
in prepaid expenses of $69,594, an increase in deposits of $225, an increase in accounts payable and accrued expenses of $119,219,
, and an increase in deferred revenue of $9,100. Net cash used in discontinued operating activities was $9,216 for the year ended
December 31, 2017 and net cash used in discontinued operations was $132,131 for the year ended December 31, 2016. 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 used in discontinued operating activities for the
year ended December 31, 2016 consisted primarily of changes in assets and liabilities of Arcmail and Gotham.
Cash provided by investing activities was $2,050
for the year ended December 31, 2017 and cash used in investing activities was $9,990 for the year ended December 31, 2016. Net
cash used in continuing investing activities was $30,798 for the year ended December 31, 2017 and $15,000 for the year ended December
31, 2016. 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. For the year ended December 31, 2016 the primary use of cash from continuing investing activities was from an issuance
of note receivable of $15,000. Net cash provided by discontinued investing activities was $32,848 and $5,010 for the years ended
December 31, 2017 and December 31, 2016, respectively.
Cash provided by financing activities was $711,500
for the year ended December 31, 2017 compared to $172,444 for the year ended December 31, 2016. Net cash provided by continuing
financing activities was $735,492 for the year ended December 31, 2017 and $48,465 for the year ended December 31, 2016. 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 from proceeds from the sale of common stock, repayments of related party loans of $(508), and repayment of
notes payable of $(8,000). The cash flows provided by continuing financing activities for the year ended December 31, 2016 was
primarily from proceeds from convertible debentures of $50,000 and repayment of related party loans of ($1,535). Net cash used
in discontinued financing activities was $23,992 for the year ended December 31, 2017 and net cash provided by discontinued financing
activities was $123,979 for the year ended December 31, 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.
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, 2017 and 2016
|
F-2
|
Consolidated Statement
of Income for the years ended December 31, 2017 and 2016
|
F-3
|
Consolidated Statement
of Changes in Stockholder’s Equity for the years ended December 31, 2017 and 2016
|
F-4
|
Consolidated Statement
of Cash Flows for the years ended December 31, 2017 and 2016
|
F-5
|
Notes to Financial
Statements
|
F-6
|
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, 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 December 31, 2017 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, 2017.
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, 2017 and 2016
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”), Wala, Inc. doing business as Arcmail Technology (“ArcMail”) and Gotham
Innovation Lab Inc. (“Gotham”). The Company was incorporated under the laws of the State of Delaware on April 13,
2000. The Company was originally incorporated as Compusations Inc. under the laws of the State of New York on October 2, 1996.
The Company changed its name to BigVault.com Inc. upon changing its state of domicile on April 13, 2000. The Company changed its
name again to bigVault Storage Technologies Inc. on December 21, 2000 before changing to iGambit Inc. on April 5, 2006. Gotham
was incorporated under the laws of the state of New York on September 23, 2009. The Company is a holding company which seeks out
acquisitions of operating companies in technology markets. 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
|
|
Customer 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, 2016. 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,
|
|
December 31,
|
|
|
2017
|
|
2016
|
Pro forma revenue
|
|
$
|
35,516
|
|
|
$
|
67,989
|
|
Pro forma gross profit
|
|
$
|
5,029
|
|
|
$
|
48,474
|
|
Pro forma loss from operations
|
|
$
|
(2,984,770
|
)
|
|
$
|
(482,504
|
)
|
Pro forma net loss
|
|
$
|
(2,941,208
|
)
|
|
$
|
(485,269
|
)
|
On
April 5, 2017, the Company, through its wholly-owned subsidiary HealthDatix, Inc. consummated the acquisition of certain assets
of the CyberCare Health Network Division from EncounterCare Solutions Inc. (“ECSL”) in accordance with an Asset Purchase
Agreement by and among, HealthDatix, Inc., ECSL and the Company. Pursuant to the Agreement, ECSL sold, conveyed, transferred and
assigned to HealthDatix, Inc. certain assets, and HealthDatix, Inc. purchased and accepted from ECSL all rights, title and interest
in and to the Assets in exchange for 60,000,000 shares of restricted common stock of the Company, valued at $.10 per share. 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.
On
November 5, 2015, pursuant to an asset purchase agreement Gotham sold assets consisting of fixed assets, client and supplier lists,
trade names, software, social media accounts and websites, and domain names to VHT, Inc., a Delaware corporation for a purchase
price of $600,000. Gotham received $400,000 and commencing on January 29, 2016, VHT, Inc. shall pay twelve equal monthly installments
of $16,667 on the last business day of each month (the “Installment Payments” and each, an “Installment Payment”),
each Installment Payment to consist of (1) an earn-out payment of $10,000 (the “Earn-Out Payments” and each, an “Earn-Out
Payment”), and (2) an additional payment of $6,667 (the “Additional Payments” and each, an “Additional
Payment”); provided that VHT, Inc. shall only be required to make the Earn-Out Payments for as long as it maintains its
relationship with Gotham’s major client, unless it is dissatisfied with VHT, Inc. The terms of the installment payments
were fulfilled as of December 31, 2016.
The
assets and liabilities of the discontinued operations are presented in the consolidated balance sheets under the captions “Assets
from discontinued operations” and “Liabilities from discontinued operations”, respectively. The underlying assets
and liabilities of the discontinued operations as of December 31, 2017 and 2016 are presented as follows:
|
|
2017
|
|
2016
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
17,323
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
321,033
|
|
Inventory
|
|
|
—
|
|
|
|
1,160
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
15,300
|
|
Property and equipment
|
|
|
—
|
|
|
|
18,653
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
373,469
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
—
|
|
|
$
|
359,996
|
|
Accrued interest on notes payable
|
|
|
—
|
|
|
|
558,183
|
|
Amounts due to related party
|
|
|
—
|
|
|
|
64,509
|
|
Deferred revenue
|
|
|
—
|
|
|
|
1,092,388
|
|
Notes payable
|
|
|
—
|
|
|
|
3,119,001
|
|
Notes payable - other
|
|
|
—
|
|
|
|
153,404
|
|
Note payable - related party
|
|
|
—
|
|
|
|
626,266
|
|
|
|
$
|
—
|
|
|
$
|
5,973,747
|
|
The
components of income (loss) from discontinued operations presented in the consolidated statements of operations for the years
ended December 31, 2017 and 2016 are presented as follows:
|
|
2017
|
|
2016
|
Sales
|
|
$
|
386,157
|
|
|
$
|
1,990,490
|
|
Cost of sales
|
|
|
(29,462
|
)
|
|
|
(179,312
|
)
|
General and administrative expenses
|
|
|
(327,622
|
)
|
|
|
(1,626,355
|
)
|
Depreciation and amortization
|
|
|
(4,537
|
)
|
|
|
(463,217
|
)
|
Gain on disposal of Arcmail
|
|
|
6,657,848
|
|
|
|
—
|
|
Interest expense
|
|
|
(92,848
|
)
|
|
|
(439,467
|
)
|
Impairment expense
|
|
|
—
|
|
|
|
(6,263,320
|
)
|
Income (loss) from discontinued operations
|
|
$
|
6,589,536
|
|
|
$
|
(6,981,181
|
)
|
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, HealthDatix, Inc., Wala,
Inc. and Gotham Innovation Lab, Inc. All intercompany accounts and transactions have been eliminated.
Use
of Estimates in the Preparation of Financial Statements
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
Fair
Value 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, 2017 and 2016.
|
|
2017
|
|
2016
|
Liabilities:
|
|
|
|
|
Balance of derivative liabilities - beginning of year
|
|
$
|
—
|
|
|
$
|
—
|
|
Issued
|
|
|
472,523
|
|
|
|
—
|
|
Converted
|
|
|
(247,865
|
)
|
|
|
—
|
|
Change in fair value of derivative liabilities
|
|
|
(158,599
|
)
|
|
|
—
|
|
Balance of derivative liabilities - end of year
|
|
$
|
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
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.
Gotham’s
revenues were derived primarily from the sale of products and services rendered to real estate brokers. Gotham recognized
revenues when the services or products have been provided or delivered, the fees charged are fixed or determinable, Gotham and
its customers understood the specific nature and terms of the agreed upon transactions, and collectability was reasonably assured.
Advertising
Costs
The
Company expenses advertising costs as incurred. Advertising costs from continuing operations for the years ended December 31,
2017 and 2016 were $2,517 and $0, respectively.
Cash
and Cash Equivalents
For
purposes of reporting cash flows, cash and cash equivalents include checking and money market accounts and any highly liquid debt
instruments purchased with a maturity of three months or less.
Accounts
Receivable
The
Company analyzes the collectability of accounts receivable from continuing operations each accounting period and adjusts its allowance
for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the realization of accounts
receivables, including the creditworthiness of each customer, current and historical collection history and the related aging
of past due balances. The Company evaluates specific accounts when it becomes aware of information indicating that a customer
may not be able to meet its financial obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy
or other factors affecting the ability to render payment. Allowance for doubtful accounts from discontinued operations was
$0 and $8,345 at December 31, 2017 and 2016, respectively. Bad debt expense of $0 and $63 was charged to discontinued operations
for the years ended December 31, 2017 and 2016, respectively.
Inventories
Inventories
consisting of finished products are stated at the lower of cost or market and are presented in assets from discontinued operations.
Cost is determined on an average cost basis.
Property
and equipment and depreciation
Property
and equipment are stated at cost. Maintenance and repairs are charged to expense when incurred. When property and equipment are
retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any
gain or loss is credited or charged to income. Depreciation for both financial reporting and income tax purposes is computed using
combinations of the straight line and accelerated methods over the estimated lives of the respective assets as follows:
Office equipment and fixtures
|
5 - 7 years
|
Computer hardware
|
5 years
|
Computer software
|
3 years
|
Development equipment
|
5 years
|
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
|
Customer contracts
|
10 years
|
Goodwill
Goodwill
represents the excess of assets acquired over liabilities assumed 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. An impairment expense of $3,338,095 was recorded during the year ended December 31, 2017 and $6,263,320 during
the year ended December 31, 2016, which is included in discontinued operations.
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 current liabilities in the amount of $9,100 and $0 as of December 31, 2017 and 2016, respectively. 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 December 31, 2017 and 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, and has an accumulated deficit of $9,648,569, and a working capital deficit of $904,700 at December 31, 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 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, 2017 and December 31, 2016:
Continuing operations:
|
|
2017
|
|
2016
|
Office equipment and fixtures
|
|
$
|
10,964
|
|
|
$
|
7,164
|
|
Less: Accumulated depreciation
|
|
|
7,119
|
|
|
|
5,981
|
|
|
|
$
|
3,845
|
|
|
$
|
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 $1,138 and $473 was charged to continuing operations for the years ended December 31, 2017 and 2016, respectively.
Depreciation
expense of $4,538 and $21,381 was charged to discontinued operations for the years ended December 31, 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 December 31, 2017:
|
|
|
|
Life
|
Software
|
|
$
|
156,925
|
|
|
|
5 years
|
|
Customer contracts
|
|
|
644,846
|
|
|
|
10 years
|
|
FDA 510K clearance
|
|
|
1,396,000
|
|
|
|
5 years
|
|
Technology license
|
|
|
1,000,000
|
|
|
|
5 years
|
|
In process research and development
|
|
|
604,000
|
|
|
|
Indefinite
|
|
|
|
|
3,801,771
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
533,886
|
|
|
|
|
|
|
|
$
|
3,267,885
|
|
|
|
|
|
Amortization
expense of $533,886 was charged to continuing operations for the year ended December 31, 2017.
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 year ended December 31, 2017 as the result would be anti-dilutive.
|
|
Years Ended
|
|
|
December 31,
|
|
|
2017
|
|
2016
|
Stock options
|
|
|
8,463,000
|
|
|
|
1,422,000
|
|
Stock warrants
|
|
|
400,000
|
|
|
|
275,000
|
|
Total shares excluded from calculation
|
|
|
8,863,000
|
|
|
|
1,697,000
|
|
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, 2016, there was no unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under the 2006 plan.
The
2006 Plan provided for the granting of options to purchase up to 10,000,000 shares of common stock. 8,146,900 options
have been issued under the plan to date of which 7,157,038 have been exercised and 692,962 have expired to date. There
were 296,900 options outstanding under the 2006 Plan on its expiration date of December 31, 2009. All options issued subsequent
to this date were not issued pursuant to any plan.
Stock
option activity during the years ended December 31, 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
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
|
3.82
|
|
Options expired
|
|
|
(296,900
|
)
|
|
|
0.01
|
|
|
|
—
|
|
|
|
|
|
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
outstanding at December 31, 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
|
|
|
$
|
0.07
|
|
|
June 6, 2022
|
June 6, 2017
|
|
|
6,500,000
|
|
|
|
6,500,000
|
|
|
$
|
0.07
|
|
|
June 6, 2027
|
Total
|
|
|
8,463,000
|
|
|
|
8,463,000
|
|
|
|
|
|
|
|
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, 2017 and 2016 follows:
|
|
Warrants
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average Grant-Date Fair Value
|
|
(1) Weighted Average Remaining Contractual Life (Years)
|
Warrants outstanding at December 31, 2015
|
|
|
275,000
|
|
|
$
|
0.94
|
|
|
$
|
0.10
|
|
|
|
3.42
|
|
No warrant activity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
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
|
|
(1)
Exclusive of 25,000 warrants expiring 2 years after initial IPO.
Warrants
outstanding at December 31, 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 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, 2017, the noteholder converted $86,000 of the principal balance to 2,196,482 shares of common stock.
The balance of the note was $39,000 on December 31, 2017.
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.
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.
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. During the year ended December 31, 2017, the noteholder converted the principal balance of the note and accrued interest
of $3,000 to 1,131,099 shares of common stock.
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 and written down through the date the convertible debt was fully extinguished. The
calculated debt discount equaled the face of the 12% note and is being amortized and revalued over the term of the note. Interest
expense on the convertible notes of $338,878 was recorded for the year ended December 31, 2017.
Convertible
Debentures
The
Company issued convertible debentures to an individual during the year ended December 31, 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 $8,782 was recorded for the year ended December 31, 2017.
Note
10 – Derivative Liability
Convertible
Note
During
the year ended December 31, 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 $472,523, consisting
of $96,839 and $375,684 for the 8% and 12% notes, respectively in which to the extent of the face value of convertible notes was
treated as debt discount and the excess of the derivative over the face value of the note is accounted for as interest expense.
The
fair value of the embedded derivatives identified during the year ended December 31, 2017, in the amount of $96,839, was determined
using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility
of 271.91%, (3) weighted average risk-free interest rate of 1.91%, (4) expected life of 0.80 years, and (5) estimated fair value
of the Company’s common stock of $0.28 per share. The Company recorded interest expense from the excess of the derivative
liability over the face amount of the convertible note of $21,839 during the year ended December 31, 2017. The Company revalued
the derivative liability to fair value at each conversion and recorded changes in fair value of the derivative liability of $14,055
and loss on extinguishment of debt of $34,951 through December 1, 2017, the date the note was fully converted.
The
fair value of the embedded derivatives at December 31, 2017, in the amount of $375,684, was determined using the Binomial Option
Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 272.27%, (3) weighted average
risk-free interest rate of 1.2%, (4) expected life of 1 year, and (5) estimated fair value of the Company’s common stock
of $0.33 per share. The Company recorded interest expense from the excess of the derivative liability over the convertible note
of $250,684 during the year ended December 31, 2017. The Company revalued the derivative liability to fair value at each conversion
and at year end and recorded changes in fair value of the derivative liability of $144,544 and loss on extinguishment of debt
of $70,850.
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 December 31, 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. The balance due on December 31, 2016 was $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 matured 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
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:
|
|
|
Year Ended
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Statutory U.S. federal income tax rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes, net of federal income tax benefit
|
|
|
(4.0
|
)%
|
|
|
(4.7
|
)%
|
Tax effect of expenses that are not deductible for income tax purposes
|
|
|
9.0
|
%
|
|
|
30.8
|
%
|
Change in Valuation Allowance
|
|
|
29.0
|
%
|
|
|
7.9
|
%
|
Effective tax rate
|
|
|
(0.0
|
)%
|
|
|
(0.0
|
)%
|
At
December 31, the significant components of the deferred tax assets (liabilities) are summarized below:
|
|
2017
|
|
2016
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net Operating Losses
|
|
$
|
2,329,938
|
|
|
$
|
1,313,180
|
|
Other
|
|
|
377,445
|
|
|
|
185,670
|
|
Total deferred tax assets
|
|
|
2,707,383
|
|
|
|
1,498,850
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
—
|
|
|
|
—
|
|
Total deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
(2,707,383
|
)
|
|
|
(1,498,850
|
)
|
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 $392,000 for the year ended December 31, 2017 that is still fully
valued against as of December 31, 2017. 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. We have estimated our provision
for income taxes in accordance with the Tax Act and guidance available as of the date of this filing but have kept the full valuation
allowance. As a result, we have recorded no income tax expense in the fourth quarter of 2017, the period in which the legislation
was enacted.
On
December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations)
in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The deferred tax expense recorded
in connection with the remeasurement of deferred tax assets is a provisional amount and a reasonable estimate at December 31,
2017 based upon the best information currently available. The ultimate impact may differ from these provisional amounts, possibly
materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made,
additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. Any subsequent
adjustment to these amounts will be recorded to current tax expense in the third quarter of 2018 when the analysis is complete.
The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
As
of December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $4.8 million and $5.0
million, which expire at various dates from 2024 through 2038. 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,
2017 and 2016 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, 2017 and 2016.
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 - Retirement Plan
ArcMail
has a defined contribution 401(k) plan, which covers substantially all employees. Under the terms of the Plan, Wala is currently
not required to match employee contributions. The Company did not make any employer contributions to the Plan in 2016.
Note
15 – Concentrations and Credit Risk
Sales
and Accounts Receivable
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, 2017 and 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. The notes include interest at
6% and are subordinated to the notes payable. The balance on the related party note payable was $626,266 at December 31, 2017.
Amounts
Due to Related Parties
Amounts
due to related parties with balances of $128,476 and $508 at December 31, 2017 and 2016, 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.
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:
|
|
|
2018
|
|
$
|
27,598
|
|
2019
|
|
|
3,380
|
|
|
|
$
|
30,978
|
|
Rent
expense of $26,745 and $19,380 was charged to continuing operations for the years ended December 31, 2017 and 2016, respectively.
Rent
expense of $10,807 and $43,790 was charged to discontinued operations for the years ended December 31, 2017 and 2016, 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
18 – Subsequent Events
Common
Stock Issued
On
February 5, 2018, the Company sold 750,000 shares of common stock at $.02 per share and issued a warrant to purchase 750,000 shares
of common stock at a price of $.05 per share to an investor for proceeds of $15,000.
Subsequent
to the end of the period through the date of the report, various noteholders converted $102,000 of principal and $9,826 of accrued
interest to 5,344,180 shares of the Company’s common stock.