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EX-32.2 - IGAMBIT CERTIFICATION - iGambit, Inc.exhibit322.htm
EX-31.2 - IGAMBIT CERTIFICATION - iGambit, Inc.exhibit312.htm
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EX-32.1 - IGAMBIT CERTIFICATION - iGambit, Inc.exhibit321.htm
EX-31.1 - IGAMBIT CERTIFICATION - iGambit, Inc.exhibit311.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

 þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2015

OR

 o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-53862

IGAMBIT INC.

(Exact name of registrant as specified in its charter)

Delaware

11-3363609

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1050 W. Jericho Turnpike, Suite A

Smithtown, New York 11787

(Address of principal executive offices)

(631) 670-6777

(Registrant’s telephone number)

(Registrant’s former telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class: NONE

Name of Each Exchange on Which Registered:

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate  by  check  mark  if  the  registrant  is  a  well-known  seasoned  issuer,  as  defined  in  Rule  405  of  the

Securities Act. Yes o     No þ

Indicate  by  check  mark  if  the  registrant  is  not  required  to  file  reports  pursuant  to  Section 13  or  Section

15(d) of the Exchange Act. Yes o      No þ

Indicate by check  mark  whether  the registrant:  (1) has  filed all  reports  required  to  be  filed by Section 13  or

15(d)  of  the  Securities  Exchange  Act  of  1934  during  the  preceding  12 months  (or  for  such  shorter  period

that the registrant  was  required to file such reports), and (2) has  been subject to such filing requirements for

the past 90 days. Yes þ     No o



Indicate  by  check  mark  whether  the  registrant  has  submitted  electronically  and  posted  on  its  corporate

website,  if  any,  every  Interactive  Date  File  required  to  be  submitted  and  posted  pursuant  to  Rule 405  of

Regulation S-T (Section 232.405 of the chapter) during the preceding 12 months (or for such shorter period

that the registrant was required to submit and post such files). Yes þ     No o

Indicate  by  check  mark  if  disclosure  of  delinquent  filers  pursuant  to  Item 405  of  Regulation S-K  is  not

contained  herein,  and  will  not  be  contained,  to  the  best  of  registrant’s  knowledge,  in  definitive  proxy  or

information  statements  incorporated  by  reference  in  Part III  of  this  Form  10-K  or  any  amendment  to  this

Form 10-K. o

Indicate  by  check  mark  whether  the  registrant  is  a  large  accelerated  filer,  an  accelerated  filer,  a  non-

accelerated   filer,   or   a   smaller   reporting   company.   See   the   definitions   of   “large   accelerated   filer,”

“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated

Accelerated

Non-accelerated filer o

Smaller

filer o

filer o

reporting

company þ

(Do not check if a smaller reporting company)

Indicate  by  check  mark  whether  the  registrant  is  a  shell  company  (as  defined  in  Rule 126-2  of  the  act):

Yes o     No þ

There is not currently a market for the Registrant’s common stock.

As  of  April  14,  2016  there  were  39,683,990  shares  of  the  Registrant’s  $0.001  par  value  common  stock

outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None



iGambit Inc.

FORM 10-K — FOR THE YEAR ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

Page No.

PART I

Item 1

Business

1

Item 1A

Risk Factors

10

Item 1B

Unresolved Staff Comments

10

Item 2

Properties

10

Item 3

Legal Proceedings

10

Item 4

(Removed and Reserved)

11

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

11

Item 6

Selected Financial Data

12

Item 7

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

12

Item 7A

Quantitative and Qualitative Disclosure About Market Risk

23

Item 8

Financial Statements and Supplementary Data

23

Item 9

Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure

23

Item 9A

Controls and Procedures

24

Item 9B

Other Information

25

PART III

Item 10

Directors, Executive Officers and Corporate Governance

25

Item 11

Executive Compensation

29

Item 12

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

32

Item 13

Certain Relationships, Related Transactions and Director

Independence

33

Item 14

Principal Accountant  Fees and Services

33

PART IV

Item 15

Exhibits and Financial Statement Schedules

34

EX-31.1

EX-31.2

EX-32.1

EX-32.2

i



This  annual  report  on  Form  10-K  is  for  the  year  ended  December 31,  2015.  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.

ii



PART I

This Annual Report on Form 10-K includes forward-looking statements within the

meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the

Securities  Exchange  Act  of  1934,  as  amended.  The  Company  has  based  these  forward-

looking  statements  on  the  Company’s  current  expectations  and  projections  about  future

events.   These   forward-looking   statements   are   subject   to   known   and   unknown   risks,

uncertainties  and  assumptions  about  us  and  the  Company’s  subsidiaries  that  may  cause

the  Company’s  actual  results,  levels  of  activity,  performance  or  achievements  to  be

materially   different   from   any   future   results,   levels   of   activity,   performance   or

achievements  expressed  or  implied  by  such  forward-looking  statements.  In  many  cases,

you   can   identify   forward-looking   statements   by   terminology   such   as   “anticipate,”

“estimate,”   “believe,”   “continue,”   “could,”   “intend,”   “may,”   “plan,”   “potential,”

“predict,”  “should,”  “will,”  “expect,”  “objective,”  “projection,”  “forecast,”  “goal,”

“guidance,”   “outlook,”   “effort,”   “target”   and   other   similar   words.   However,   the

absence  of  these  words  does  not  mean  that  the  statements  are  not  forward-looking.

Factors  that  might  cause  or  contribute  to  a  material  difference  include,  but  are  not

limited  to, those  discussed  elsewhere  in  this  Annual  Report, including  the section  entitled

“Risk  Factors”  and  the  risks  discussed  in  the  Company’s  other  Securities  and  Exchange

Commission  filings.  The  following  discussion  should  be  read  in  conjunction  with  the

Company’s   audited   Consolidated   Financial   Statements   and   related   Notes   thereto

included elsewhere in this report.

ITEM 1.  BUSINESS

HISTORY

We were incorporated in the State of Delaware under the name BigVault.com Inc.

on  April 13,  2000.  On  April 18,  2000,  we  merged  with  BigVault.com,  Inc.,  a  New  York

corporation with which we were affiliated. We survived the merger, and on December 19,

2000  changed  our  name  to  bigVAULT  Storage  Technologies,  Inc.  At  that  time  we  were

in  the  business  of  providing  remote,  internet-based  storage  vaulting  services  and  related

ancillary services to end users and resellers (the “Vault Business”).

On   February 28,   2006   we   sold   all   of   our   assets   to   Digi-Data   Corporation

(“DDC”), an unrelated third party, pursuant to the  terms of an Asset  Purchase Agreement

dated  December 21,  2005  (the  “APA”),  a  copy  of  which  is  filed  herewith  as  an  exhibit.

As  consideration  for  our  transfer  of  assets  under  the  APA,  DDC  paid  certain  of  our

liabilities  and  agreed  to  make  certain  quarterly  and  annual  revenue  sharing  payments  to

us,  as  is  further  described  below.  Mr. Salerno  and  Ms.  Luqman  accepted  employment

with  DDC  in  senior  management  positions  post  closing,  and  continued  to  work  for  DDC

until  February 2009.  As  of  March 1,  2009  Mr. Salerno  and  Ms. Luqman  returned  to  their

full time management roles with the Company.

On April 5, 2006, we changed our name to iGambit Inc.

1



On October 1, 2009, we  acquired the  assets  of Jekyll  Island Ventures, Inc., a New

York  corporation  doing  business  as  Gotham  Photo  Company  (“Jekyll”)  through  our

wholly   owned   subsidiary   Gotham   Innovation   Lab,   Inc.,   a   New   York   corporation

(“Gotham”).

On December 28, 2012,  we entered  into an  Asset  and Stock   Purchase  Agreement

(the “Purchase Agreement”) to acquire substantially all of the assets of IGX Global  Inc. a

Connecticut  corporation  (“IGXUS”),  and  all  of  the  issued  and  outstanding  shares  of  IGX

Global  UK  Limited  a  UK  Private  Limited  company  (“IGXUK”)  through  our  wholly

owned  subsidiary  IGXGLOBAL  CORP.,  a  Delaware  corporation  (“IGXGLOBAL”),  and

thereby acquired the business operated by IGSUS and IGSUK (the “Acquired Business”).

Thomas  Duffy  is  the  sole  shareholder  of  both  IGXUK  and  IGXUS  (the  “Shareholder”).

The  Purchase  Agreement  was  disclosed  on  the  Company’s  current  report  on  Form  8-K

filed on January 7, 2013.

On  April  8,  2013,  iGambit  Inc.  (“iGambit”)  and  its’  wholly  owned  subsidiary,

IGXGLOBAL,  CORP.    (“IGXGLOBAL”,  and  collectively,  the  "Company"),  entered

into,  and  became  obligated  under,  a  transaction  to  rescind  the  Company’s  Purchase

Agreement  dated  December  28,  2012   with   IGX  Global  Inc.  (“IGXUS”),  IGX  Global

UK Limited (“IGXUK”, and collectively,  “IGXNJ”) and Tomas  Duffy (“Duffy”) the sole

shareholder of both IGXUK and IGXUS (the “Shareholder”).   The Rescission Agreement

was disclosed on the Company’s current report on Form 8-K filed on April 12, 2013.

On  April  25,  2013  the  conditions  to  closing  the  Rescission  Agreement  were

completed.

On  November  4,  2015,  we  consummated  the  acquisition  of  Wala,  Inc.  doing

business   as   ArcMail   Technology   (ArcMail)   in   accordance   with   a   Stock   Purchase

Agreement   (the   “ArcMail   Purchase   Agreement”)   by   and   among   Wala,   Inc.   doing

business  as  ArcMail  Technologies  (“ArcMail”),  Rory  T.  Welch  (the  “Seller”)  and  the

Company.  Pursuant  to  the  Stock  Purchase,  the  total  consideration  to  be  paid  for  the  outstanding

capital  stock  of  ArcMail  is  11,500,000  shares  of  the  Company’s  Common  stock.  10,500,000

shares  of  iGambit’s  Common  stock  to  the  Seller,  and/or  Seller’s  designees  at  Closing  and

the  Holdback  Amount  of  1,000,000  shares  of  the  iGambit’s  Common  stock  to  be  held  in

Escrow and paid to the Seller on later of (i) the first (1st) anniversary of completion of the

first  audit  of  Purchaser  after  the  Closing,  or  (ii)  that  date  which  is  twelve  (12)  months

from  the  Closing,  provided  that  in  the  event  iGambit  or  the  Purchaser  has  any  claims  for

indemnification   against   the   Seller   under   the   Purchase   Agreement,   Purchaser   shall

continue to withhold the portion of the Holdback Amount subject  to such  claims until the

parties fully and finally resolve such claims.

The ArcMail Purchase Agreement  was  disclosed  on the Company’s  current report

on Form 8-K filed on November 10, 2015.

On  November  5,  2015,  through  our  wholly  owned  subsidiary  Gotham  Innovation

Lab,  Inc.  (“Gotham”),  we  completed  the  sale  of  certain  assets  of  Gotham  to  VHT  Inc.

(“VHT”)   in   accordance   with   an   Asset   Purchase   Agreement   (the   “VHT   Purchase

2



Agreement”)  by  and  between  Gotham  and  VHT.      Pursuant  to  the  Purchase  Agreement

the  Company  received  $600,000  in  consideration,  $400,000  of  the  consideration  was

received  at  closing  and  the  remaining  $200,000  portion  of  the  consideration  is  subject  to

twelve  (12)  equal  monthly  payments  beginning  January  2016.  The  sale  included  certain

of  the  assets  of  the  Gotham,  including  the  Elliman  customer  agreement,  all  customer

accounts, all vendor agreements and all the intellectual property.

The VHT  Purchase Agreement  was  disclosed on  the Company’s  current  report  on

Form 8-K filed on November 11, 2015.

OUR COMPANY

Introduction

We  are  a  company  focused  on  the  technology  markets.  Presently  we  have  one

operating  subsidiary,  of  Wala,  Inc.  doing  business  as  ArcMail  Technology  (ArcMail)

which  was  purchased  on  November  4,  2015.  .  ArcMail  is  in  the  business  of  providing

simple,   secure   and   cost-effective   email   and   enterprise   archiving   and   management

solutions  to  businesses  of  all  sizes  across  a  wide  range  of  vertical  markets     Revenues

consist  entirely  of  revenues  from  the  operation  of  our  ArcMail  subsidiary  ($474,679

during   the  period  November  4,  2015  through  the  year  ended  December  31,  2015).   In

addition   to   ArcMail’s   operations,   we   had   income   from   discontinued   operations   of

$627,384.

Our  primary  focus  is  the  acquisition  of  additional  technology  companies.  We

believe  that  the  background  of  our  management  and  of  our  Board  of  Directors  in  the

technology  markets  is  a  valuable  resource  that  makes  us  a  desirable  business  partner  to

the  companies  that  we  are  seeking  to  acquire.  When  we  acquire  a  company,  we  work  to

assume  an  active  role  in  the  development  and  growth  of  the  company,  providing  both

strategic  guidance  and  operational  support.  We  provide  strategic  guidance  to  our  partner

companies   relating  to,   among  other   things,   market   positioning,  business   model   and

product  development,  strategic  capital  expenditures,  mergers  and  acquisitions  and  exit

opportunities. Additionally, we provide operational support to help our partner companies

manage  day-to-day  business  and  operational  issues  and  implement  best  practices  in  the

areas  of  finance,  sales  and  marketing,  business  development,  human  resources  and  legal

services.  Once  a  company  joins  our  partner  company  network,  our  collective  expertise  is

leveraged   to   help   position   that   company   to   produce   high-margin,   recurring   and

predictable earnings and generate long-term value for our stockholders.

Our  current  intention  is  to  fund  the  purchase  price  of  acquisitions  through  a

combination of the issuance of our common stock at  closing and the issuance of common

stock  purchase  or  common-stock  warrants  that  would  become  exercisable  only  in  the

event  certain  earn-out  conditions  are  satisfied  by  the  acquired  company.  In  addition  to

acquiring  entire  companies,  we  would  also  consider  entering  into  joint  ventures  and

acquiring less than 100 percent of a target company.

3



Our Strategy to Grow the Company

General

We  have  an overall  corporate business  plan  as  a  holding company to seek out  and

acquire  operating companies.   Phase  one  of our strategy is  complete.  We  established new

corporate   headquarters   and   a   website,   expanded   our   board   to   include   3   outside

independent   directors,   set   up   periodic   board   meetings,   engaged   a   sophisticated   full

service law firm, engaged a new PCAOB registered auditing firm, engaged an investment

banking  firm  as  advisors  to  assist  in  the  analysis  of  target  acquisitions,  and  become  an

SEC  reporting  company.    In  addition,  we  are  working  on  a  daily  basis  towards  our

strategy, identifying further  acquisitions  that  will expand  and  or  complement  our existing

subsidiary.

Sources of Target Businesses

We  anticipate that target business candidates will  be brought to our attention from

various  sources,  including  our  management  team,  investment  bankers,  venture  capital

funds,   private   equity   funds,   leveraged   buyout   funds,   management   buyout   funds,

consulting  firms  and  other  members  of  the  financial  community  who  will  become  aware

that  we  are  seeking  business  partners  via  public  relations  and  marketing  efforts,  direct

contact  by  management  or  other  similar  efforts,  who  may present  solicited  or  unsolicited

proposals.  Any  finder  or  broker  would  only  be  paid  a  fee  upon  the  completion  of  a

business  combination.  While  we  do  not  presently  anticipate  engaging  the  services  of

professional  firms  that  specialize  in  acquisitions  on  any  formal  basis,  we  may  decide  to

engage  such  firms  in  the  future  or  we  may  be  approached  on  an  unsolicited  basis.  Our

officers  and  directors,  as  well  as  their  affiliates,  may  also  bring  to  our  attention  target

business candidates that  they become aware of through their business contacts.  While  our

officers  and  directors  make  no  commitment  as  to  the  amount  of  time  they  will  spend

trying  to  identify  or  investigate  potential  target  businesses,  they  believe  that  the  various

relationships  they  have  developed  over  their  careers  together  with  their  direct  inquiry,

will   generate   a   number   of   potential   target   businesses   that   will   warrant   further

investigation.  In  no  event  will  we  pay  any  of  our  existing  officers,  directors,  special

advisors  or  stockholders  or  any  entity  with  which  they  are  affiliated  any  finder’s  fee  or

other   compensation   for   services   rendered   to   us   prior   to   or   in   connection   with   the

completion of a  business  combination.  In  addition, none of our  officers, directors, special

advisors  or  existing  stockholders  will  receive  any  finder’s  fee,  consulting  fees  or  any

similar  fees  from  any  person  or  entity  in  connection  with  any  business  combination

involving  us  other  than  any  compensation  or  fees  that  may  be  received  for  any  services

provided following such business combination.

Selecting Acquisition Targets

Our  management  has  virtually  unrestricted  flexibility  in  identifying  prospective

target business and diligently reviews all of the proposals we receive.

4



The  criteria  we  look  for  in  a  potential  acquisition  include,  but  are  not  limited  to,

the following:

Company Characteristics

§     Established Company with proven track record

o    Company with history of strong operating and financial performance, or

o    Company  undergoing  a  turnaround  that  demonstrates  strong  prospects  for

future growth

§     Strong Cash Flow Characteristics.

o    Cash flow neutral or positive,

o    Predictable recurring revenue stream,

o    High gross margins and

o    Low working capital and capital expenditure needs

§     Strong Competitive Industry Position

o    Leading or niche market position, and/or

o    Strong channel relationships that promote barriers to entry

§     Strong Management Team

o    Experienced,  proven  track  record  in  delivering    revenue  and  ability  to

execute, or

o    A  management  team  that  can  be  complemented    with  our  contacts  and

team

§     Diversified Customer and Supplier base

§     Proprietary products or marketing position

Industry Characteristics

§     Non-cyclical

§     Services Consumer or niche market

§     Fragmented with potential for consolidation or growth

§     Emerging markets

Industries of Interest

§     Real Estate Services

§     Managed Security Services Providers (MSSP)

§     IT   Solutions   Providers   specializing   in   security   and   network   technology

products, services, and support

§     Internet

o    Cloud Computing

o     Security focused applications

5



Investment Criteria

§     Sales Volumes: $500 thousand to $30 million

§     Cash Flow: Neutral or positive

§     Structure: Controlled ownership. Closely held private company

§     Geography: North America  Investment size: $1 million to $5 Million

§     Involvement: Board oversight

§     Controlling Interest: Acquire 100% of controlling interest in target

§     Marketing:

o    Target captures a particular segment of the market

o    Target has a focused strategic marketing plan.

These  criteria  are  not  intended  to  be  exhaustive.  Any  evaluation  relating  to  the

merits  of  a  particular  business  combination  will  be  based,  to  the  extent  relevant,  on  the

above  factors  as  well  as  other  considerations  deemed  relevant  by  our  management  in

effecting a business combination consistent with our business objective.

Diligence Process

Upon  receipt  of  a  business  plan,  the  procedure  is  for  management  to  review  the

business plan and determine if it satisfies the Company’s acquisition criteria, and whether

the   business   plan   should   be   rejected   or   pursued   further.   If   the   plan   satisfies   the

requirements, then Management meets with the target’s management to determine if there

is  a  synergy  that  can  work  and  to  explore  the  business  plan  in  greater  detail.  Generally

this occurs over several meetings and can take some time. Depending on the nature of the

business,  management  may  enlist  certain  technical  or  industry  consultants  to  meet  with

the  target  and  provide  feedback  and  analysis.  Management  will  also  review  the  target’s

financials.  If the analysis suggests the target should be explored further Management will

present the opportunity to the BOD for approval to pursue the opportunity further. One or

two outside directors  may meet  with the target to  make an independent  assessment.  If the

opportunity   is   approved   for   further   exploration   management   will   discuss   potential

purchase structure with target’s  management to be sure that a  meeting of the minds exists

for  a  potential  deal.    At  this  point  management  will  request  that  our  investment  banking

advisors  give  their  opinion  of  the  industry,  the  market  and  potential  financing  options  of

the   deal.   Often,   the   investment   bankers   will   meet   with   target’s   management.     The

investment   banker’s   feedback  is   presented   to   the  board   and,   if   positive,   the   Board

analyzes   the   proposed   financing  structure,   discusses   effects   of   a   transaction   on   the

Company  as  they  relate  to  taxes,  capitalization,  stock  value  etc.,  engaging  the  necessary

outside  consultants.  If  all  appears  positive  a  letter  of  intent  is  negotiated  and  executed,

additional  diligence  is  conducted,  and  definitive  transaction  documents  are  negotiated

and executed.

6



Evaluation of the Target’s Management

We  would  condition  any  acquisition  on  the  commitment  of  management  of  the

target  business  to  remain  in  place  post-closing.  Following  a  business  combination,  we

may seek to recruit  additional managers to supplement  the incumbent  management of the

target  business.  We  cannot  assure  you  that  we  will  have  the  ability  to  recruit  additional

managers,  or  that  any  such  additional  managers  will  have  the  requisite  skills,  knowledge

or  experience  necessary  to  enhance  the  incumbent  management.  Although  we  intend  to

closely  scrutinize  the  management  of  a  prospective  target  business  when  evaluating  the

desirability   of   effecting   a   business   combination,   we   cannot   assure   you   that   our

assessment of the target business’s management will prove to be correct.

Competition

In  identifying,  evaluating  and  selecting  a  target  business,  we  may  encounter

intense  competition  from  other  entities  having a  business  objective  similar  to  ours.  Many

of  these  entities  are  well  established  and  have  extensive  experience  identifying  and

effecting  business  combinations  directly  or  through  affiliates.  Many  of  these  competitors

possess  greater  technical,  human  and  other  resources  than  us  and  our  financial  resources

will be relatively limited when contrasted with those of many of these competitors, which

may  limit  our  ability  to  compete  in  acquiring  certain  target  businesses.  This  inherent

competitive  limitation  gives  others  an  advantage  in  pursuing  the  acquisition  of  a  target

business.

Companies Currently Under Review

We   are   constantly   in   the   process   of   reviewing   potential   target   companies.

Currently, we are not under contract to acquire any companies.

Our Partner Company

Wala Inc. dba ArcMail Technology

Products and Services

ArcMail  is  a  provider of  enterprise  information  archiving solutions  for businesses

of  all  sizes  across  a  wide  range  of  vertical  markets.   ArcMail  offers  a  full  array  of  email

and  data  archiving  solutions  with  broad  deployment  options  that  support  a  wide  range  of

content types from various sources.

ArcMail’s  products  and  services  are  offered  in  a  variety  of  deployment  options

that  include  a  turnkey  appliance,  a  virtual  machine  (VM)  software  (VMware  or  MS

Hyper-V), a cloud/premise-based hybrid gateway (which can store information to a SAN,

NAS,  or  any  cloud-based  storage  provider),  and  fully-hosted  services  in  the  cloud.   Each

deployment  option  can  support  multiple  data  types  from:  most  commercially  available

mail  servers,  including  all  versions  of  MS  Exchange,  Linux  variants,  IBM  Lotus  Notes,

IBM   Domino,   and   GroupWise   among   others;   most   cloud-based   systems,   including

7



Google   Gmail,   MS   Office365,   Google   Apps,   and   Google   Docs   among   others;   and

Microsoft   SharePoint,   enterprise   social   media   such   as   your   corporate   Twitter;   and

Microsoft and Linux-based file systems.

Whether  a  customer  wants  their  archive  to  reside  behind  the  firewall,  in  the

cloud,  or  anywhere  else,  ArcMail  offers  products  and  services  to  fit  that  deployment

strategy.  Whatever  deployment  option  ArcMail’s  customers  elect,  their  data  is  properly

organized  and  maintained, for e-Discovery,  compliance, disaster recovery and for finding

that  file  that  a  CEO  needs  immediately.  Customers  discoverable  information  is  being

archived  using  a  compliant  and  secure  solution  that  is  scalable,  dependable,  and  easy  to

install, deploy, use, and maintain.

In  addition  to  being  an  archiving  solutions  provider,  ArcMail  has  created  a  sales

and  support  organization  to  help  companies  in  search  of  expertise,  information,  and

supporting  resources  as  they  investigate  their  need  and  develop  strategies  for  enterprise

information  archiving.   ArcMail  recognizes  that  customers'  needs  are  not  met  through  a

"cookie  cutter/one  size  fits  all"  approach.  As  an  expert  in  the  enterprise  information

archiving  market,  ArcMail  works  in  partnership  with  customers  to  ensure  their  archiving

solution is tailored to meet their unique situation and environment.

Competitive Comparison

ArcMail’s  archiving  solution  is  built  on  a  simple  and  flexible  design  that  gives

customers  ownership  and  control  over  their  data  and  offers  a  single  comprehensive

solution  for  regulatory  compliance,  data  retention  and  eDiscovery.  ArcMail’s  primary

competitors   include   Barracuda   Networks,   Inc.,   MS   Office365,   and   Google   Vault.

ArcMail  rarely  encounters  other  competitors  such  as  EMC,  Symantec  and  Smarsh,  as

they primarily focus on Fortune 500 and SME markets.

ArcMail  competes  effectively  against  its  primary  competitors  by  providing  a  simple  and

scalable  architecture,  and  world-class  customer  support.   ArcMail’s  primary  competitive

differentiation includes:

§     Simplest User Interface

MS Outlook client or a simple Web-based UI

§     Fastest Search and Retrieval

Proprietary algorithms with granular indexing

§     Most  Data Source Types

We  archive  email,  hosted  email,  SharePoint,  system  files,  social  media,

Google Drive, and other data sources

§     Most Deployment Options

We    offer    appliances,    VM    software,    a    cloud/premise-based    hybrid

gateway, and a fully-hosted solution

8



§     Leading Storage-Saving Performance

Single-instance  storage,  granular  retention  rules  and  one  of  the  highest

Data compression rates

§     Best  Customer Service

Support  is  provided  at  our  U.S.  headquarters  by  an  experienced  technical

team

Future Products and Services

ArcMail’s product strategy is to provide architectures and deployment capabilities

that  address  the  widest  possible  segment  of  the  archiving  market.  While  ArcMail  is  not

attempting to  be  “all  things  to  all  people”  per  se,  ArcMail,  as  a  result  of  its  differentiated

capabilities,   is   able   to   address   a   majority   segment.   We   see   the   ArcMail   platform

including  appliance,  hosted  and  virtual  products  and  services  as  viable  in  both  the  near

and  long  term.  Enterprise  class  customers  will  continue  to  see  the  appliance  model  as

preferential  to  a  hosted  platform  in  most  cases.  The  SMB  market,  which  is  transitioning

to   the   cloud   in   significant   numbers,   will   help   our   virtualized   and   hosted   solutions

continue to gain ground.

Customers

ArcMail currently has approximately 1,500 client accounts ranging from 50 active

email  accounts  to  5,000  active  email  accounts.   Most  of  ArcMail’s  customers  are  in  the

Northeast, South, and Central  region of the  country.   The typical  profile of our customers

are  100-5,000  email  mailboxes/employees.   ArcMail’s  customers  are  usually in  regulated

industries  or  have  e-discovery  legal  requests,  H.R.  audits,  and/or  regulatory  compliance

issues.  Their  pain  points  will  vary depending  on  the  prospect  you  are  speaking  with.   No

one  Customer  constitutes  more  than  5%  of  ArcMail’s  sales  and  the  loss  of  any  customer

will not have a material adverse effect on the Company’s financial condition.

Expansion Summary

ArcMail’s   objective   is   to   be   a   market   leader   in   the   Enterprise   Information

archiving  industry.  ArcMail  currently  has  significant  market  share  in  the  education  and

local/County/State  government  industry  sector.   ArcMail  is  currently  expanding  its  sales

and marketing initiatives to further penetrate the health care, financial services, insurance,

manufacturing,  and  transportation  industry  sectors.     ArcMail  has   expanded  its  sales

channel  overseas  to  such  areas  as  New  Zealand,  Australia,  Canada,  Mexico  and  other

Latin  American  countries.    ArcMail  is  also  actively  working  to  expand  by  providing

services to larger accounts in the SME enterprises with 5,000+ end users.  ArcMail is also

planning  to  expand  its  products  and  services  portfolio  and  customer  channels  through

acquisition.

Employees

We presently have 14 total employees all of which are full-time.

9



OUR CORPORATE INFORMATION

Our   principal   offices   are   located   at   1050   W.   Jericho   Turnpike,   Suite   A,

Smithtown,  New  York,  11787.  Our  telephone  number  is  (631) 670-6777  and  our  fax

number  is  (631) 670-6780.  We  currently  operate  two  corporate  websites  that  can  be

found  at  www.igambit.com,  and  www.arcmail.com  (the  information  on  the  foregoing

websites does not form a part of this report).

ITEM 1A.  RISK FACTORS

Not Required.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

Our  corporate  executive  office  is  located  in  Smithtown,  New  York,  where  we

lease   approximately  1000   square   feet   of   office   space.   Monthly   lease   payments   are

approximately $1,620.  The  lease  is  for  a  term  of  five  (5)  years  commencing on  March  1,

2012  and  ending  on  February  28,  2017.   The  lease  contains  annual  escalations  of  2%  of

the annual rent.

Our  ArcMail  operations  are  located  in  Shreveport,  Louisiana,  where  we  lease

approximately 2,989  rentable  square  feet  to  used  as  office  space  and  178  rentable  square

feet  to used  as  storage  space, for a  total  of 3,167  rentable square  feet.  space.   The  lease  is

for  a  term  of  forty  five  (35)  months  beginning  February  1,  2015  and  ending  October  31,

2018 payable monthly in the following manner:

02-01-15 through 04-30-15

$    0.00/mth.

05-01-15 through 04-30-16

$ 3,404.19/mth. ($13.25/s.f/yr.-office; $7.00/s.f.Iyr.-storage)

05-01-16 through 04-30-17

$ 3,528.73/mth. ($13.75/s.f/yr.--office; $7.00/s.f./yr.-storage)

05-01-17 through 10-31-18

$ 3,653.27/mth. ($14.25/s.f/yr.--office; $7.00/s.f./yr.-storage)

Our  leased  properties  are  suitable  for  their  respective  uses  and  are,  in  general,

adequate  for  our  present  needs.  Our  properties  are  subject  to  various  federal,  state,  and

local  statutes  and  ordinances  regulating  their  operations.  Management  does  not  believe

that  compliance  with  such  statutes  and  ordinances  will  materially  affect  our  business,

financial condition, or results of operations.

ITEM 3.  LEGAL PROCEEDINGS

Digi-Data Corporation

On  October  1,  2012,  we  filed  a  lawsuit  in  the  United  States  District  Court  for  the

District   of   Maryland,   Baltimore   Division,   asserting   claims   against   DigiData   Corp.

10



("Defendant")  for  monetary  damages  arising  from  the  Defendant's  breach  of  contract

regarding  that  certain  Asset  Purchase  Agreement  dated  February  26,  2006  among  the

parties,   and   to   enforce   payment   of   outstanding   contingency   payments   due   to   the

Company pursuant to said agreement.

On December 13, 2013 the  Court Granted Summary Judgment in iGambit’s favor

against  Digi-Data  in  the  amount  of  $570,590,  plus  interest  at  the  Maryland  legal  rate  of

6% per annum from August 31, 2012, and post judgment interest at the Federal statutory

Rate.   Furthermore, Digi-Data’s Counterclaim was dismissed.

On  February  24,  2014  we  entered  into  a  Forbearance  Agreement  with  Digi-Data

pursuant  to  which  Digi-Data  shall  pay  to  iGambit  Six  Hundred  Forty-Six  Thousand,  Six

Hundred   Sixty-Eight   Dollars   and   Sixty-Seven   Cents   ($646,668.67)   (the   “Settlement

Amount”) in  full  satisfaction  of the  Judgment  based  upon   certain   terms,  which  included

the following:

Digi-Data  Sale:    In  the  event  of  a  Digi-Data  Sale,  iGambit  shall  be  paid  the

Remaining   Balance   at   closing   of   any   such   Digi-Data   Sale   as   provided   in

paragraph 2, below.   iGambit  acknowledges that,  if the Digi-Data  Sale is  a  sale or

sales  of  the  Digi-Data  Assets,  there  may  be  insufficient  proceeds  to  pay  the

Remaining  Balance  in  full.   If  the  Digi-Data  Sale  is  a  sale  or  sales  of  the  stock  of

Digi-Data  and  there  are  insufficient  proceeds  at  closing  to  pay  the  Remaining

Balance   in   full,   iGambit   shall   continue   to   receive   the   Subsequent   Monthly

Payment until the full Remaining Balance is paid.

On  May  12,  2014,  Digi-Data paid  the  full  balance  due on  the  judgment  plus  all

accrued interest upon the sale of Digi-Data.

ITEM 4.  (REMOVED AND RESERVED)

PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY

SECURITIES

MARKET INFORMATION

Effective  March  19,  2011  the  Company’s  common  stock  is  quoted  on  the  Over

the  Counter  Bulletin  Board,  a  service  maintained  by  the  Financial  Industry  Regulatory

Authority, under the ticker symbol “IGMB”.

HOLDERS

As   of   April   14,   2016,   there   are   39,683,990   shares   of   our   common   stock

outstanding,  held  of  record  by  approximately  181  persons.   We  have  275,000  common

stock warrants outstanding and 1,718,900 common stock options outstanding.

11



As  of  April  14,  2016,  approximately  26,583,990  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  $0.50  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.

RECENT SALES OF UNREGISTERED SECURITIES

During  2015  we  did  not  sell  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

12



CRITICAL ACCOUNTING ESTIMATES

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,   Wala,   Inc.   and   Gotham   Innovation   Lab,   Inc.  All

intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements

The  preparation  of  financial  statements  in  conformity  with  generally  accepted

accounting principles requires management to make estimates and assumptions that affect

the  reported  amounts  of  assets  and  liabilities  and  disclosure  of  contingent  assets  and

liabilities  at  the  date of  the  consolidated  financial  statements  and  the  reported  amounts  of

revenues and expenses during the period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

For  certain  of  our  financial  instruments,  including  cash,  accounts   receivable,

prepaid  expenses,  accounts  payable,  accrued  interest,  deferred  revenue,  and  amounts  due

to   related   parties,   the   carrying   amounts   approximate   fair   value   due   to   their   short

maturities.     Additionally,   there   are   no   assets   or   liabilities   for   which   fair   value   is

remeasured on a recurring basis.

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

13



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

We   recognize   revenue   from   product   sales   when   the   following   four   revenue

recognition  criteria  are  met:  persuasive  evidence  of  an  arrangement  exists,  an  equipment

order  has  been  placed  with  the  vendor,  the  selling  price  is  fixed  or  determinable,  and

collectability  is  reasonably  assured.    Revenues  from  maintenance  contracts  covering

multiple  future  periods  are  recognized  during  the  current  periods  and  deferred  revenue  is

recorded  for  future  periods  and  classified  as  current  or  noncurrent,  depending  on  the

terms of the contracts.

Deferred Revenue

Deposits  from  customers  are  not  recognized  as  revenues,  but  as  liabilities,  until

the  following  conditions  are  met:  revenues  are  realized  when  cash  or  claims  to  cash

(receivable)  are  received  in  exchange  for  goods  or  services  or  when  assets  received  in

such   exchange   are   readily   convertible   to   cash   or   claim   to   cash   or   when   such

goods/services  are  transferred.  When  such  income  item  is  earned,  the  related  revenue

item  is  recognized,  and  the  deferred  revenue  is  reduced.  To  the  extent  revenues  are

generated  from  our  support  and  maintenance  services,  we  recognize  such  revenues  when

services are completed and billed. We have received deposits from various customers that

have  been  recorded  as  deferred  revenue  in  the  amount  of  $1,190,279  and  $0  as  of  the

years ended December 31, 2015 and 2014, respectively.

Deferred  revenue  at  December  31,  2015  will  be  realized  in  the  following  years

ended December 31,

2016

$

811,227

2017

78,307

2018

298,446

2019

1,200

2020

1,099

$     1,190,279

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.

14



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

We  analyze  the  collectability  of  accounts  receivable  from  continuing  operations

each  accounting  period  and  adjust  our  allowance  for  doubtful  accounts  accordingly.  A

considerable  amount  of  judgment  is  required  in  assessing  the  realization  of  accounts

receivables,  including  the    creditworthiness  of  each  customer,  current  and  historical

collection  history  and  the  related  aging  of  past  due  balances.   We   evaluate  specific

accounts  when  we  become  aware  of  information  indicating  that  a  customer  may  not  be

able  to  meet  its  financial  obligations  due  to  deterioration  of  its  financial  condition,  lower

credit   ratings,   bankruptcy   or   other   factors   affecting   the   ability   to   render   payment.

Allowance  for  doubtful  accounts  was  $8,344  and  $0  at  December  31,  2015  and  2014,

respectively.   Bad  debt  expense  of  $5,971  and  $4,295  was  charged  to  operations  for  the

years ended December 31, 2015 and 2014, respectively.

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

Depreciation expense of $4,917 and $4,766 was charged to operations for the

years ended December 31, 2015 and 2014, respectively.

Goodwill

Goodwill  represents  the  excess  of  liabilities  assumed  over  assets  acquired  of

ArcMail  and  the  fair  market  value  of  the  common  shares  issued  by  the  Company  for  the

acquisition  of  ArcMail.   In  accordance  with  ASC  Topic No.  350  “Intangibles    Goodwill

and Other”),  the  goodwill  is  not  being amortized,  but  instead  will  be  subject  to an  annual

assessment  of  impairment  by applying  a  fair-value  based  test,  and  will  be  reviewed  more

frequently   if   current   events   and   circumstances   indicate   a   possible   impairment.   An

impairment loss is charged to expense in the period identified. If indicators of impairment

are  present  and  future  cash  flows  are  not  expected  to  be  sufficient  to  recover  the  asset’s

15



carrying  amount,  an  impairment  loss  is  charged  to  expense  in  the  period  identified.  A

lack   of   projected   future   operating   results   from   ArcMail’s   operations   may   cause

impairment.   As the acquisition of ArcMail  occurred on November 4, 2015, it is too early

for  management  to  evaluate  whether  goodwill  has  been  impaired.   No  impairment  was

recorded during the year ended December 31, 2015.

Stock-Based Compensation

Stock-based  compensation  expense  for  all  stock-based  award  programs, including

grants  of  stock  options  and  warrants,  is  recorded  in  accordance  with  "Compensation—

Stock  Compensation",  Topic  718  of  the  FASB  ASC.  Stock-based  compensation  expense,

which  is  calculated  net  of  estimated  forfeitures,  is  computed  using  the  grant  date  fair-

value  and   amortized   over  the  requisite  service  period  for  all  stock   awards   that  are

expected  to  vest.  The  grant  date  fair  value  for  stock  options  and  warrants  is  calculated

using  the  Black-Scholes  option  pricing  model.  Determining  the  fair  value  of  options  at

the  grant  date  requires   judgment,  including  estimating  the  expected  term  that  stock

options  will  be  outstanding  prior  to  exercise,  the  associated  volatility  of  the  Company’s

common    stock,    expected    dividends,    and    a    risk-free    interest    rate.    Stock-based

compensation  expense  is   reported   under   general  and  administrative   expenses   in  the

accompanying consolidated statements of operations.

Options

In  2006,  we  adopted  the  2006  Long-Term  Incentive  Plan  (the  "2006  Plan").

Awards  granted  under  the  2006  Plan  have  a  ten-year  term  and  may  be  incentive  stock

options,  non-qualified  stock  options  or  warrants.  The  awards  are  granted  at  an  exercise

price  equal to the  fair market value  on the date of  grant  and  generally vest  over a  three  or

four  year  period.  The  Plan  expired  on  December  31,  2009,  therefore  as  of  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, 2015 and 2014 follows:

16



Weighted

Average

Weighted

Remaining

Weighted

Average

Average

Contractual

Options

Grant-Date

Life

Outstanding

Exercise Price

Fair Value

(Years)

Options outstanding at

December 31, 2013

668,900

$

0.06

$

0.10

4.69

Options granted

850,000

0.04

0.10

Options outstanding at

December 31, 2014

1,518,900

0.03

0.10

4.76

Options granted

200,000

0.01

0.10

Options outstanding at

December 31, 2015

1,718,900

$

0.03

$

0.13

3.82

Options outstanding at December 31, 2015 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

50,000

50,000

$0.01

May 1, 2016

May 1, 2006

46.900

46,900

$0.01

May 1, 2016

June 9, 2014

213,000

213,000

$0.03

June 9, 2024

June 9, 2014

159,000

159,000

$0.03

June 9, 2024

June 9, 2014

600,000

600,000

$0.03

June 9, 2024

June 6, 2014

250,000

250,000

$0.05

June 6, 2019

March 24, 2015

200,000

200,000

$0.01

March 24, 2020

Total

1,718,900

1,718,900

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, 2015 and 2014 follows:

17



Weighted

(1)Weighted

Weighted

Average Grant-

Average

Date

Remaining

Warrants

Average

Contractual

Outstanding

Exercise Price

Fair Value

Life (Years)

Warrants outstanding

at December 31, 2013

275,000

$

0.94

$

0.10

5.42

No warrant activity

--

--

--

Warrants outstanding

at December 31, 2014

275,000

$

0.94

$

0.10

4.42

No warrant activity

--

--

--

Warrants outstanding

at December 31, 2015

275,000

$

0.94

$

0.10

3.42

(1)  Exclusive of 25,000 warrants expiring 2 years after initial IPO.

Warrants outstanding at December 31, 2015 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

April 1, 2000

25,000

25,000

$3.00

2 years after IPO

June 1, 2009

100,000

100,000

$0.50

June 1, 2019

June 1, 2009

50,000

50,000

$0.65

June 1, 2019

June 1, 2009

50,000

50,000

$0.85

June 1, 2019

June 1, 2009

50,000

50,000

$1.15

June 1, 2019

Total

275,000

275,000

Convertible Note

On  September  16,  2013,  we  issued  an  8%  convertible  note  in  the  aggregate

principal  amount  of  $103,500,  convertible  into  shares  of  tour  common  stock.   The  Note,

including accrued  interest  was  due  June  18,  2014  and  was  convertible  any  time  after  180

days  at  the  option  of  the  holder  into  shares  of  the  our  common  stock  at  55%  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.    Interest  expense

on the convertible note of $3,242 was recorded for the year ended December 31, 2014.

Initially  we  anticipated  repaying  the  obligation  prior  to  the  effective  date  of  the

holder  electing  to  convert.   Since  the  effective  date  of  the  election  to  convert  has  passed

we   recorded   a   debt   discount   related   to   identified   embedded   derivatives   relating   to

conversion  features  and  a  reset  provisions  (see  Note  7)  based  fair  values  as  of  the

inception  date of the  Note.   The  calculated debt  discount  equaled  the  face  of the  note and

was  amortized  over  the  term  of  the  note.   During  the  year  ended  December  31,  2014,  the

note  holder  converted  $49,000  of  the  principal  balance  to  1,539,934  shares  of  common

stock,  and  we  repaid  the  remaining  note  balance  of  $54,500  and  accrued  interest  of

$5,646 on June 18, 2014.

18



Derivative Liability

Convertible Note

During the year ended December 31, 2013, we issued a convertible note.

The note is convertible into common stock, at the  holders’ option, at  a discount to

the   market   price   of   our   common   stock.   We   have   identified   embedded   derivatives

included  in  these  notes  as  a  result  of  certain  anti-dilutive  (reset)  provisions,  related  to

certain  conversion  features.  The  accounting  treatment  of  derivative  financial  instruments

requires  that  we  record  the  fair  value  of  the  derivatives  as  of  the  inception  date  of  the

convertible  note  and  debt  discount  amortization  to  fair  value  as  of  each  subsequent

reporting date.   This resulted in a fair value of derivative liability of $152,076 in which to

the  extent  of  the  face  value  of  convertible  note  was  treated  as  debt  discount  with  the

remainder treated as interest expense.

The  fair  value  of  the  embedded  derivatives  at  December  31,  2013,  in  the  amount

of  $152,076,  was  determined  using  the  Binomial  Option  Pricing  Model  based  on  the

following  assumptions:  (1)  dividend  yield  of  0%;  (2)  expected  volatility  of  243.00%,  (3)

weighted average  risk-free interest rate of 0.09%, (4) expected lives of 0.72 to 0.75 years,

and  (5)  estimated  fair  value  of  the  Company’s  common  stock  of  $0.51  per  share.  The

Company  recorded  interest  expense  from  the  excess  of  the  derivative  liability  over  the

convertible  note  of  $48,576  during  the  year  ended  December  31,  2013.  A  gain   on

derivative  liability  of  $152,076  was  recorded  during  the  year  ended  December  31,  2014

for the satisfaction of the convertible note.

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   note.   Pursuant   to   the   sequencing   approach,   the   Company

evaluates its contracts based upon earliest issuance date.

Stock Transactions

On  September  25,  2014,  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  seventy  five  million  (75,000,000)  to

Three  Hundred  Million  (300,000,000)  shares  of  Common  Stock,  $0.001  par  value  per

share,   and   to   create   a   new   class   of   stock   entitled   “preferred   stock”   (together,   the

“Capitalization  Amendments”).  The  Capitalization  Amendments  create  provisions  in  the

Company’s  Articles  of  Incorporation,  which  allows  the  voting  powers,  designations,

preferences  and  other  special  rights,  and  qualifications,  limitations  and  restrictions  of

each  series  of  preferred  stock  to  be  established  from  time  to  time  by  the  Board  without

approval of the stockholders. No dividend, voting, conversion, liquidation or redemptions

rights as well  as redemption or sinking fund provisions are  yet established  with respect to

the Company’s preferred  stock.   On October 3, 2014, the Majority Stockholders executed

and   delivered   to   the    Company   a   written   consent    approving   the   Capitalization

Amendments.

19



Common Stock Issued

In  connection  with  the  acquisition  of  Wala,  Inc.  we  issued  11,500,000  common

shares  valued  at  $.10  per  share  to  the  president  and  CEO  of  Wala,  Inc.  on  November  4,

2015.

We  issued  1,000,000  and  600,000  common  shares  for services, valued  at  $.20 per

share on August 3, 2015 and May 18, 2015, respectively.

In connection with the convertible note payable the note holder converted $49,000

of  the  principal  balance  to  1,539,934  shares  of  common  stock  during  the  year  ended

December   31,   2014.     The   stock   issued   was   determined   based   on   the  terms   of  the

convertible note.

Income Taxes

We  account  for  income  taxes  using  the  asset  and  liability  method  in  accordance

with  ASC  Topic  No.  740,  Income  Taxes.  Under  this  method,  deferred  tax  assets  and

liabilities  are  determined  based  on  differences  between  financial  reporting  and  tax  bases

of  assets  and  liabilities,  and  are  measured  using  the  enacted  tax  rates  and  laws  that  are

expected to be in effect when the differences are expected to reverse.

We  apply  the  provisions   of  ASC  Topic  No.  740  for  the  financial  statement

recognition,  measurement  and  disclosure  of  uncertain  tax  positions  recognized  in  the

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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Introduction

iGambit  is  a  company  focused  on  the  technology  markets.  Our  sole  operating

subsidiary,  of  Wala,  Inc.  doing  business  as  ArcMail  Technology  (ArcMail)  is  in  the

business  of  providing simple,  secure  and  cost-effective  We  are  focused  on  expanding the

operations of ArcMail by marketing the company to existing and potential new clients.

Year Ended December 31, 2015 as Compared to Year Ended December 31, 2014

Assets. At December 31, 2015, we had $890,686 in current assets and $7,637,996

in  total  assets,  compared  to  $276,398  in  current  assets  and  $280,786  in  total  assets  as  of

December 31,  2014.    The  increase  in  total  assets  was  primarily  due  to  an  increase  in

goodwill, inventories,  accounts  receivable and  prepaid  expenses  from the  purchase  of the

ArcMail  business,  and  an  increase  in  assets  from  discontinued  operations  as  a  result  of

the sale of Gotham in 2015.

20



Liabilities.   At   December 31,   2015,   we   had   total   liabilities   of   $6,076,680

compared  to  $285,277  at  December 31,  2014.  Our  total  liabilities  at  December 31,  2015

consisted   of   current   liabilities   including   accounts   payable   and   accrued   expenses   of

$636,633,  accrued  interest  on  notes  payable  of  $302,278,  Notes  payable  of  $779,750,

Notes  Payable  to  a  related  party  of  $156,566,  liabilities  from  discontinued  operations  of

$127,353  and  deferred  revenue  of  $811,227,  and  long-term  liabilities  including  notes

payable of $2,339,251,  notes payable to a  related  party of $469,699  and deferred revenue

of  $379,052,  whereas  our  total  liabilities  at  December  31,  2014  consisted  of  current

liabilities   including     accounts   payable   of   $91,177   and   liabilities   from   discontinued

operations  of  $194,100.  We  had  no  long term  liabilities  for  the  year  ended  December  31,

2014.      The  increase  in  liabilities  was  primarily  due  to  the  liabilities  assumed  in  the

purchase of the ArcMail business.

Stockholders’   Equity   (Deficiency).   Our   Stockholders’   Equity   was   $1,561,316   at

December  31,  2015  compared  to  Stockholders’  Deficiency   of  $(4,491)  at  December 31,

2014. This  increase  was  due  to  the  common  shares  issued  in  the  purchase  of the  ArcMail

business  and   a  decrease  in  accumulated  deficit  from  $(2,882,199)  at  December  31,  2014

to  $(2,798,390)  at  December 31, 2015  resulting from net  income   of $83,809 for  the  year

ended December 31, 2015 compared to net loss of $684,342 for the  year ended December

31, 2014

Revenue  and  Net  Income.  We  had  revenue  of  $474,679  for  the  year  ended

December 31, 2015, compared to revenue of $1,068,617 for the year ended December 31,

2014.   The  decrease  in  revenue  was  due  primarily to  the  sale of the  Gotham  business  and

purchase  of  the  ArcMail  business  in  November  2015.   We  had  no  other  income  for  the

year  ended  December  31,  2015  compared  to  other  income  of  $84,701  for  the  year  ended

December  31,  2014  primarily  due  to  the  gain  on  derivative  liability  of  $152,076.  In

addition   to   ArcMail’s   operations,   we   had   income   from   discontinued   operations   of

$627,384  and  $17,531  for  the  year  ended  December  31,  2015  and  December  31,  2014,

respectively.

General  and  Administrative  Expenses.  General  and  Administrative  Expenses

decreased  to  $965,609  for  the  year  ended  December 31,  2015  from  $1,383,646  for  the

year  ended  December 31,  2014.  For  the  year  ended  December 31,  2015  our  General  and

Administrative Expenses consisted of corporate administrative expenses of $73,308, legal

and  accounting  fees  of  $165,041,  payroll  expenses  of  $330,671,  Directors  and  Officers

Insurance   of   $42,206,   employee   benefits   expenses   of   $22,385   (medical,   dental,

retirement  plan,  and  life  insurance)  and   $331,998  in  stock  based  compensation  expense.

For   the   year   ended   December 31,   2014   our   General   and   Administrative   Expenses

consisted  of  corporate  administrative  expenses  of  $292,096,  legal  and  accounting  fees  of

$111,477,  payroll  expenses  of  $731,606,  Directors  and  Officers  Insurance  of  $43,754,

employee   benefits   expenses   of   $74,975   (medical,   dental,   retirement   plan,   and   life

insurance),  $74,664  in  stock  based  compensation  expense,    and  a  bad  debt  write  off  of

$55,074.  Therefore  the  decreases  from  the  year  ended  December 31,  2014  to  the  year

ended December 31, 2015 relate  primarily to  a  decrease in payroll  and employee  benefits

expenses.  In  the  event  the  company  effectuates  an  acquisition  in  2016  we  anticipate

additional professional fees associated with the acquisition.

21



LIQUIDITY AND CAPITAL RESOURCES

General

As  reflected  in  the  accompanying  consolidated  financial  statements,  at  December

31, 2015, we had $131,987 of cash and stockholders’ equity of $1,561,316.  At December

31, 2014, we had $126,833 of cash and stockholders’ deficit of $(4,491).

Our primary capital requirements in 2016 are likely to arise from the expansion of

our  ArcMail  operations,  and,  in  the  event  we  effectuate  an  acquisition,  from:  (i) the

amount  of  the  purchase  price  payable  in  cash  at  closing,  if  any;  (ii) professional  fees

associated  with  the  negotiation,  structuring,  and  closing  of  the  transaction;  and  (iii) post

closing  costs.  It  is  not  possible  to  quantify  those  costs  at  this  point  in  time,  in  that  they

depend on ArcMail’s business opportunities, the state of the overall economy, the relative

size  of  any  target  company  we  identify  and  the  complexity  of  the  related  acquisition

transaction(s).  We  anticipate  raising  capital  in  the  private  markets  to  cover  any  such

costs,  though  there  can  be  no  guaranty  we  will  be  able  to  do  so  on  terms  we  deem  to  be

acceptable.  We  do  not  have  any  plans  at  this  point  in  time  to  obtain  a  line  of  credit  or

other loan facility from a commercial bank.

While  we  believe  in  the  viability  of  our  strategy  to  improve  ArcMail’s  sales

volume  and  to  acquire  companies,  and  in  our  ability  to  raise  additional  funds,  there  can

be no assurances that we will be able to fully effectuate our business plan.

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   provided   by   operating   activities   was   $44,907   for   the   year   ended

December  31,  2015,  compared  to  $159,202  for  the  year  ended  December  31,  2014.   Net

cash  used  by  continuing  operating  activities  was  $451,023  for  the  year  ended  December

31,  2015,  compared  to  $491,127  for  the  year  ended  December  31,  2014.  Our  primary

source  of  operating  cash  flows  from  continuing  operating  activities  for  the  year  ended

December 31, 2015 was from our ArcMail subsidiary’s revenues of $466,628 and  for the

year   ended   December   31,   2014   our   primary   source   of   operating   cash   flows   from

continuing   operating   activities   was   from   revenues   of   $1,068,617   from   our   Gotham

subsidiary  that  was  sold  in  November  2015.    Additional  contributing  factors  to  the

change  were  from  a  decrease  in  accounts  receivable  of  $56,697,  an  increase  in  prepaid

expenses  of  $199,207,  a  decrease  in  accounts  payable  and  accrued  expenses  of  $90,944,

an  increase  in accrued interest  of $47,559  and  a  decrease  in  deferred  revenue  of $64,586,

Net  cash  provided  by  discontinued  operating  activities  was  $495,930  for  the  year  ended

December 31, 2015 and   $650,329 for the  year ended December 31, 2014.  Cash provided

by  discontinued  operations  for  the  year  ended  December  31,  2015  consisted  of  $495,930

in cash payments received from VHT Inc. pursuant to the VHT  Purchase Agreement.

22



Cash  provided  by investing activities  was  $11,524  for  the  year  ended  December  31,

2015  and  cash  used  by  investing  activities  was  $4,739  for  the  year  ended  December  31,

2014.  For  the  year  ended  December  31,  2015  the  primary  source  of  cash  from  investing

activities  was  cash  from  the  subsidiary  acquisitions  and  a  decrease  in  deposits.   For  the

year  ended  December  31,  2014  the  primary  source  of  cash  used  by  investing  activities

was  from  purchases  of  property  and  equipment  of  $2,026  and  an  increase  in  deposits  of

$2,713.

Cash  used  by  financing  activities  was  $(51,277)  for  the  year  ended  December  31,

2015  compared  to  cash  used  by  financing  activities  of  $(54,500)  for  the  year  ended

December  31,  2014.  The  cash  flows  used  by  financing  activities  for  the  year  ended

December  31,  2015  was  primarily  from  repayment  of  stockholders  loans  and  a  note

payable.  The  cash  flows  used  by  financing  activities  for  the  year  ended  December  31,

2014 was primarily from repayment of the convertible note payable.

Supplemental Cash Flow Activity

In   the   year   ended   December   31,   2015   the  company  paid   interest   of   $3,146

compared to interest of $10,033 in the year ended December 31, 2014.

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, 2014 and 2013

F-3

Consolidated Statement of Income for the years ended December 31, 2014 and

F-4

2013

Consolidated Statement of Changes in Stockholder’s Equity for the years ended

F-5

December 31, 2014 and 2013

Consolidated Statement of Cash Flows for the years ended December 31, 2014

F-6

and 2013

Notes to Financial Statements

F-7

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

23



ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We  carried  out  an  evaluation,  as  required  by  paragraph  (b) of  Rule 13a-15  and

15d-15  of  the  Exchange  Act  under  the  supervision  and  with  the  participation  of  our

management,  including  our  Chief  Executive  Officer  and  Chief  Financial  Officer,  of  the

effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and

15d-15(e)  under the  Exchange Act as  of December 31, 2015.  Based upon  that  evaluation,

our  Chief  Executive  Officer  and  Chief  Financial  Officer  concluded  that  our  disclosure

controls and procedures were effective as of December 31, 2015.

Management’s Annual Report on Internal Control over Financial Reporting.

We  are  responsible  for  establishing  and  maintaining  adequate  internal  control

over  financial  reporting.  Internal  control  over  financial  reporting  is  defined  in  Rule 13a-

15(f)  and  Rule  15d-15(f)  promulgated  under  the  Exchange  Act  as  a  process  designed  by,

or  under  the  supervision  of,  our  Chief  Executive  Officer  (our  principal  executive  officer)

and  Chief  Financial  Officer  (our  principal  accounting and  financial  officer),  and  effected

by  our   board   of   directors,   management   and   other   personnel,   to   provide   reasonable

assurance  regarding  the  reliability  of  financial  reporting  and  the  preparation  of  financial

statements   for   external   purposes   in   accordance   with   generally   accepted   accounting

principles.   Our   internal   control   over   financial   reporting   includes   those   policies   and

procedures that:

§     Pertain  to  the  maintenance  of  records  that,  in  reasonable  detail,  accurately

and fairly reflect the transactions and dispositions of our assets;

§     Provide  reasonable  assurance  that  transactions  are  recorded  as  necessary

to  permit  preparation  of  financial  statements  in  accordance  with  generally

accepted  accounting  principles,  and  that  our  receipts  and  expenditures  are

being  made  only  in  accordance  with  authorizations  of  our  management

and our directors; and

§     Provide  reasonable  assurance  regarding  prevention  or  timely  detection  of

unauthorized  acquisition,  use  or disposition  of  our assets  that  could  have  a

material effect on the financial statements.

Our  internal  control  system  was  designed  to  provide  reasonable  assurance  to  our

management  and  board  of  directors  regarding  the  preparation  and  fair  presentation  of

published  financial  statements.  Because  of  its  inherent  limitations,  internal  control  over

financial  reporting  may  not  prevent  or  detect  misstatements.  Also,  projections  of  any

evaluation  of  effectiveness  to  future  periods  are  subject  to  the  risk  that  controls  may

become  inadequate  because  of  changes  in  conditions,  or  that  the  degree  of  compliance

with the policies or procedures may deteriorate.

24



Our  management  assessed  the  effectiveness  of  the  Company’s  internal  control

over   financial   reporting   as   of   December 31,    2015.   In   making   this   assessment,

management  used  the  criteria  set  forth  in  the  Internal  Control    Integrated  Framework

issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission

(COSO).  Based  on  management’s  assessment,  we  concluded  that,  as  of  December 31,

2015, our internal control over financial reporting was effective.

Change in Internal Controls

During the quarter ended December 31, 2015, there were no changes in our

internal control over financial reporting that materially affected, or are reasonably likely

to materially affect, our internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

None.

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE

GOVERNANCE

DIRECTORS AND EXECUTIVE OFFICERS

Our board of directors manages our business and affairs. Under our Articles of

Incorporation and Bylaws, the Board will consist of not less than one, nor more than

seven directors. Currently, our Board consists of five directors.

The  names,  ages,  positions  and  dates  appointed  of  our  current  directors  and

executive officers are set forth below.

Name

Age

Position

Appointed

John Salerno

77     Chief Executive Officer, President,    March 2009

Chairman of the Board, and

(appointed Chairman

Director

and Director in

April 2000)

Elisa Luqman

51     Chief Financial Officer, Executive     March 2009

Vice President, General Counsel,

(appointed Director

and Director

in August 2009)

James J. Charles

73     Director

March 2006

George G. Dempster

76     Director

January 2001

John Keefe

73     Director

July 2013

John  Salerno,  Chief  Executive  Officer,  President,  Chairman  of  the  Board,

and  Director.  Mr.  Salerno  is  a  seasoned  hands-on  executive  with  over  40 years  of

experience    with    public    and    private    computer    software    and    service    companies.

25



Mr. Salerno  built  a  multi-million  dollar  business  from  a  start  up,  servicing  the  real  estate

industry.  The  business  was  sold  in  1984  and  Mr. Salerno  provided  consulting services  to

a  wide  range  of  clients  through  1995.  In  1996, along with  his  daughter and  a  small  group

of  private  accredited  investors,  he  co-founded  the  Company.  Mr. Salerno  was  President

and  CEO  of  the  Company  from  April 1,  2000  until  February 28,  2006.  After  signing

contracts with Verizon and Cablevision, the Company sold its assets in 2006 to Digi-Data

Corporation.  From  March 1,  2006  thru  February 2009  Mr. Salerno  served  as  President  of

the  Vault  Services  Division  of  Digi-Data  Corporation.  Upon  the  expiration  of  his  3 year

contract the Vault Services Division was at a revenue run rate of $12 million annually. As

of March 1, 2009,  Mr. Salerno returned to his full  time management roll  at  the Company.

Mr. Salerno is an ex — US Marine Corps, Crypto/ Communications Officer and has a BS

in Mathematics from Fordham University. Mr. Salerno is Elisa Luqman’s father.

Mr. Salerno was nominated as a Director because  if his intimate  knowledge of the

Company  and  its  history  as  a  founder.    Additionally,  Mr.  Salerno’s  mathematical  and

technical background as a data center manager early in his professional career and later as

a  software  developer  offers  the  board  hand’s  on  technical  experience  in  both  operations

and  software  analysis.     Mr.  Salerno  utilized  his  experience  and  contacts  to  secure  the

major  customers  driving  the  sales  that  generate  the  Company’s  payment  stream  from

DDC.   Moreover,  Mr.  Salerno  adds  value  to  Gotham  through  his  40  plus  years  serving

the  New  York  Real  Estate  industry.   He  is  thoroughly  familiar  with  the  unique  workings

of  the  New  York  real  estate  industry  and  has  many  contacts  within  that  community  that

are a benefit to Gotham.

Elisa  Luqman,  Chief  Financial  Officer,  Executive  Vice  President,  General

Counsel,  and  Director.  Ms. Luqman  is  a  computer  literate  attorney  with  over  18 years

experience  with  intellectual  property  and  computer  software.  Prior  to  co-founding  the

Company,   Ms. Luqman   was   president   of   University   Software   Corp.,   a   software

development  company  focused  on  a  wide  range  of  student  educational  and  intellectual

applications.  Ms. Luqman  was  Chief  Operating  Officer  of  the  Company,  from  April 1,

2000   until   February 28,   2006.   From   March 1,   2006   through    February 28,   2009

Ms. Luqman  was  employed  as  Chief  Operating  Officer  of  the  Vault  Services  Division  of

Digi-Data  Corporation,  the  company  that  acquired  the  Company’s  assets  in  2006,  and

subsequently  during  her  tenure  with  Digi-Data  Corporation  she  became  the  in-house

general  counsel  for  the  entire  corporation.  In   that  capacity  she  was   responsible  for

acquisitions,  mergers,  patents,  and  employee  contracts,  and  worked  very  closely  with

Digi-Data’s outside counsel firms, DLA-Piper, the  Law Offices of Sandra T. Carr and the

patent  firm  of  Jordan  and  Hamburg.  As  of  March 1,  2009,  Ms.  Luqman  rejoined  the

Company in her current  capacities. Ms  Luqman  received  a BA degree in  Marketing, a JD

in  Law,  and  a  MBA  Degree  in  Finance  from  Hofstra  University.  Ms. Luqman  is  a

member   of   the   bar   in   New   York   and   New   Jersey.   Ms. Luqman   is   John   Salerno’s

daughter.

Ms.  Luqman  was  nominated  as  a  Director  because  of  her  intimate  knowledge  of

the  Company  and  its  history  as  a  founder.   Additionally,  as  an  attorney,  Ms.  Luqman’s

legal  background  enables  her  to  provide  counsel  to  the  Company.  Her  experience  as

general  counsel  to  the  Company  provides  her  with  a  unique  insight  into  the  Company’s

26



contracts  with  customers  and  vendors,  intellectual  property  assets  and  issues,  financing

transactions  and  shareholder  transactions.    Moreover,  having  been  through  the  merger

and  acquisition  process  on  both  sides  of  the  table,  Ms.  Luqman  offers  the  Company  in-

house  guidance  throughout  the  acquisition  process.  That  combined  with  Ms.  Luqman’s

MBA  in  Finance  aids  in  providing  the  Board  with  more  efficient  analysis  of  input  from

outside auditors and legal advisors.

James  J.  Charles,  Director.  Mr. Charles  is  a  high  profile  financial  executive

with  a  broad  base  of  experience  with  firms  ranging  in  size  from  $24MM  to  $180MM  in

annual revenue. He  worked closely with  management  and Boards of Directors on  matters

ranging  from  mergers  and  acquisitions  to  stock  restructurings  and  spin-offs.  Mr. Charles

has  been  a  self  employed  Certified  Public  Accountant  from  1999  to  present.  From  1994

to   1999   Mr. Charles   was   the   chief   financial   officer   of   Interpharm   Holdings,   Inc.

Interpharm   Holdings,   Inc.,   through   its   subsidiary,   Interpharm,   Inc.,   engaged   in   the

development,  manufacture,  and  marketing  of  generic  prescription  strength  and  over-the-

counter  pharmaceuticals  in  the  United  States.  It  also  focused  on  the  development  of

products  in  the  areas  of  female  hormone,  scheduled  narcotic,  soft  gelatin  capsule,  oral

liquid,  products  coming  off  patent,  and  other  products.  From  1966  to  1994  Mr. Charles

was  a  Senior  Managing  Partner  with  Ernst  &  Young.  Mr. Charles’  education  includes

studies   and   management   programs   at   Harvard   University   and   Williams   College.

Mr. Charles received his BBA in Accounting at Manhattan College.

Mr.  Charles  was  nominated  as  a  Director  because  of  his  financial  expertise.  He

has  been  involved  in  the  practice  of  public  accounting  for  over  forty  years.   During  his

tenure  as  a  Senior  Managing  Partner  at  Ernst  &  Young  he  spent  considerable  years

analyzing  potential  acquisition  targets  for  corporate  clients  and  has  particular  experience

and  skills  on  matter  such  as  mergers  and  acquisitions,  stock  restructuring  and  spin-offs.

He has also been a Chief Financial Officer of a public company.

George  G.  Dempster,  Director.  Mr. Dempster  was  Commissioner  of  Commerce

for  the  State  of  New  York  from  1979  to  1983.  He  served  as  the  Chairman  of  the  Finance

Committee  for  Hofstra  University  for  25 years  from  1976  through  2001,  and  is  currently

Chairman  Emeritus  of  the  Board  of  Trustees.  Mr. Dempster  has  been  the  Chairman  of

Tran-Leisure  Corp.  since  1983,  and  was  its CEO from 1983-2002.   Tran -Leisure  Corp  is

a   diversified   holding   company   with   interests   ranging   from   helicopter   services   to

manufacturing.  From  1969  to  1973  Mr. Dempster  served  as  the  CEO  of  Cybernetics,  a

major  computer  software  developer.  Mr. Dempster  served  as  a  marketing  manager  for

IBM from 1961 to 1968. Mr. Dempster has a BA in business administration from Hofstra

University.

Mr.  Dempster  was  nominated  as  a  Director  because  of  his  strong  administrative,

financial  and  economic  background.   Having  served  as  Commissioner  of  Commerce  for

the  State  of  New  York  for  4  years  and  on  the  Board  of  Hofstra  University  for  over  25

years,  Mr.  Dempster  provides  the  Company  with  extensive  experience  in  commerce  and

administration  in  both  the  private  and  public  sectors.     Moreover,  during  his  tenure  at

Hofstra   University   Mr.    Dempster   was   intimately   involved   in   several   financing

transactions  to  maintain  the  University in  a  solvent  and  profitable  manner.   Additionally,

27



having been  CEO of a  diversified holding company, Mr. Dempster is thoroughly familiar

with   the   merger   and   acquisition   process.   He   offers   years   of   experience   analyzing

business, their models and economics, and identifying the appropriate financing vehicles.

John  Keefe,  Director.  Mr.  Keefe  is  an  investment  banker,  venture  capitalist,  founder

of  three  businesses,  and  a  turnaround  consultant  to  businesses  in  trouble.   Since  2011  to

Present,  Mr.  Keefe  is  the  Founder  and  Chief  Development  Officer  of  Security  Capital

Advisors  LLC,  located  in  Jersey  City,  NJ.    Security  Capital  Advisors  LLC  is  a  firm

providing  indirect  financing  to  local  governments  in  the  US.     From  2007  to  2011  Mr.

Keefe  was  Managing  Director  of  Nachman  Hays  Brownstein,  located  in  New  York,  NY.

Nachman   Hays   Brownstein   is   a   national   turnaround   management   firm,   assisting

underperforming   and   troubled   companies,   maximizing   value   for   owners,   investors,

creditors  and  employees.  Mr.  Keefe  was  also  a  founding  General  Partner  of  a  venture

capital   firm,   a   founder   and   CFO   of   a   computer   software   company,   a   Senior   Vice

President  of  an  investment  banking  firm,  and  emergency  CFO  and  Chief  Restructuring

Officer of several distressed businesses. He is a  graduate of Harvard College and Harvard

Business School.

Mr.   Keefe’   was   nominated   as   a   Director   because   of   his   financial   expertise

combined  with  his  strong  technical  background.  He  started  his  career  as  a  computer

software  engineer  and  designer  for  IBM,  General  Electric,  and  Litton  Industries.  He

evolved  into  the  financial  arena  serving  many  years  a  corporate  Chief  Financial  Officer.

He   is  now  involved  in  the  practice  of  venture  capital  and  investment  banking   He  has

particular   skills   acting   as   a   turnaround   consultant   to   businesses   in   trouble   being   a

‘Certified  Turnaround  Professional’  by  the  Turnaround  Management  Association.  He

offers  years  of  experience  analyzing  business,  their  revenue  models,  and  identifying

appropriate financing vehicles.

COMMITTEES OF THE BOARD

The  Board  has  established  an  Audit  Committee  and  a  Compensation  Committee.

The   Board   does   not   currently   have   a   Nominating   Committee.   The   work   typically

conducted by a Nominating Committee is conducted by the full Board.

Audit Committee

The    Audit    Committee    presently   consists    of    Messrs. Charles,    Keefe    and

Dempster,   with   Mr.   Charles   serving   as   chairman.   Our   Board   has   determined   that

Mr. Charles  qualifies  as   an  “audit  committee  financial  expert”  as  defined  under  the

federal securities laws. The Audit Committee is responsible for monitoring and reviewing

our  financial  statements  and  internal  controls  over  financial  reporting.  In  addition,  they

recommend  the  selection  of  the  independent  auditors  and  consult  with  management  and

our  independent  auditors  prior  to  the  presentation  of  financial  statements  to  stockholders

and  the  filing  of  our  forms  10-Q  and  10-K.  The  Audit  Committee  has  adopted  a  charter

and it is posted on our web site at www.igambit.com.

28



Compensation Committee

The  Compensation  Committee  presently  consists  of  Messrs.  Charles,  Keefe  and

Dempster,   with   Mr. Keefe   serving   as   chairman.   The   Compensation   Committee   is

responsible for reviewing and  recommending to  the  Board the  compensation  and  over-all

benefits  of  our  executive  officers,  including  administering  the  Company’s  2006  Long

Term  Incentive  Plan.  The  Compensation  Committee  may,  but  is  not  required  to,  consult

with  outside  compensation  consultants.  The  Compensation  Committee  has  adopted  a

charter and the charter is posted on our web site at www.igambit.com.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Based  solely  upon  a  review  of  Forms  3  and  4  and  amendments  thereto  furnished

to the Company under Rule 16a-3(e) under the Exchange Act during its most recent fiscal

year  and  Forms  5  and  amendments  thereto  furnished  to  the  Company  with  respect  to  its

most recent fiscal  year, and any written representation to the Company from the reporting

person  that  no  Form  5  is  required,  no  person  who,  at  any time  during the  fiscal  year, was

a  director, officer,  beneficial  owner of  more  than  ten  percent  of  the  Company’s  Common

Stock,  or  any  other  person  known  to  the  Company  to  be  subject  to  section  16  of  the

Exchange  Act  with  respect  to  the  Company,  failed  to  file  on  a  timely  basis,  as  disclosed

in  the  above  Forms,  reports  required  by  section  16(a)  of  the  Exchange  Act  during  the

most recent fiscal year or prior fiscal years, except as described below:

Name

No. of Late Reports

No. of transactions

Failure to file a

that were not

required Form

reported on a timely

basis

Rory T Welch

1

1

0

CODE OF ETHICS

The  Company has  adopted  a  Code  of  Ethics  that  applies  to  its  principal  executive

officer,  principal  financial  officer,  principal  accounting  officer  or  controller,  or  persons

performing  similar  functions.    A  copy  of  the  Code  of  Ethics  is  attached  as  an  exhibit  to

this  report.    A  copy  of  the  Code  of  Ethics  is  available  on  the  Company’s  website  at

www.igambit.com.    Any  amendments  to,  or  waivers  from,  the  Code  of  Ethics  will  be

disclosed on the Company’s website at www.igambit.com.

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the compensation received by our executive

officers, for their service, during the year ended December 31, 2015.

29



Current

Nonqualified

Officers

Non-equity

Deferred

Name &

Option      Incentive Plan      Compensation

All Other

Principal

Salary

Bonus     Stock     Awards      Compensation

Earnings

Compensation

Total

Position

Year

($)

($)

($)

($)

($)

($)

($)

($)

John

Salerno

2015

46,635

0

0

0

0

0

20,790 (1)

67,425

CEO,

President      2014      131,250

0

0

0

0

0

13,206(2)

144,456

Chairman

&

2013      200,000

0

0

0

0

0

10,237(3)

210,237

Director

Elisa

Luqman

2015

60,577

0

0

0

0

0

0

60,577

Acting

CFO,

2014      143,746

0

0

0

0

0

36,514(4)

180,260

EVP,  GC

and

2013      200,000

0

0

0

0

0

30,125(5)

230,125

Director

Rory T

Welch

2015     37,500(6)

0

0

0

0

0

1831(7)

39,331

(1)    Includes $5,220 in health insurance premiums and $15,670 in life insurance

premiums.

(2)    Includes $6,264 in health insurance premiums and $6,942 in life insurance

premiums.

(3)    Includes $6,168 in health insurance premiums and $4,069 in life insurance

premiums.

(4)    Includes $36,514 in health and dental insurance premiums.

(5)    Includes $30,125 in health and dental insurance premiums.

(7)    Includes $1,831  in health, dental and life insurance premiums.

Employment Arrangements with Named Executive Officers

Effective   November   4,   2015,   along   with   the   acquisition   ArcMail,   we   entered   into   an

employment  agreement  with  Rory  T.  Welch  (the  Welch  Employment  Agreement).  Under  the

five-year agreement, Mr. Welch is entitled to (a) a base salary of $180,000 per year, (b) an annual

bonus  of  $45,000,  and  (c)  participation  in  all  benefit  programs  generally  made  available  to

ArcMail  employees.  The  Welch  Employment  Agreement  also  contains  provisions  designed  to

protect  the  confidentiality  of  the  Company’s  confidential  information  and  restricting  Mr.  Welch

from  engaging  in  certain  competitive  activities  for  the  greater  of  60  months  from  the  date  of  the

agreement or two years following the termination of his employment.

Mr.  Welch  has  diverse  management  experience  in  growing  international  businesses

across multiple industries, Rory Welch is ushering ArcMail into the next phase  of the Company’s

lifecycle with emphasis on expanding global sales, marketing and distribution strategies. A senior

executive  with  more  than  20  years  of  experience  in  strategy,  supply chain,  sourcing,  distribution,

logistics,  marketing  and  sales  management,  he  has  success  in  expanding  profits  through  both

revenue growth and cost savings.

30



Prior  to  joining  ArcMail,  he  managed  his  own  consulting  firm,  and  then  before  that  held

leadership  positions  at  Movado  Group,  Inc.,  including  COO  for  the  boutique  division  and  Senior

Vice  President  of  wholesale  operations.  Earlier  in  his  career,  Welch  served  as  VP  of  strategic

planning  and  analysis  at  Arrow  Electronics,  where  he  was  responsible  for  building  performance

models across all aspects of the organization. While at Arrow, Welch also held positions as VP of

product  management  for  Asia-Pacific,  with  responsibility  for  overseeing  all  aspects  of  product

management for the $1 billion division; as well as general manager of aerospace/military program

accounts; product manager; and asset and logistics manager.

A  graduate  of  Indiana  University’s  Kelley  School  of  Business  with  a  master’s  degree  in

business administration, Welch holds a bachelor’s degree in economics from Furman University.

We do not currently have any other employment agreements with our executive officers.

Compensation of the Board of Directors

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS

STOCK AWARDS

Name (a)

Number of Securities Underlying Unexercised Options
(#)
Exercisable
(b)

Number of Securities Underlying Unexercised Options
(#)
Unexercisable
(c)

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
(d)

Option Exercise Price
($)
(e)

Option Expiration Date
(f)

Number of Shares or Units of Stock That Have Not Vested
(#)
(g)

Market Value of Shares or Units of Stock That Have Not Vested
($)
(h)

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(i)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
(j)

James Charles

59,000

0

0

$0.03

06/09/2024

0

0

0

0

James Charles

100,000

0

0

$0.03

06/09/2024

0

0

0

0

George Dempster

113,000

0

0

$0.03

06/09/2024

0

0

0

0

George Dempster

100,000

0

0

$0.03

06/09/2024

0

0

0

0

John Keefe

600,000

0

0

$0.03

06/09/2024

0

0

0

0

The  following  table  sets  forth  the  compensation  received  by  our  directors,  for  their

service as directors, during the year ended December 31, 2014.

31



Nonqualified

Fees

Non-equity

deferred

earned or

Stock

Option

incentive plan

compensation

All other

paid in

awards

awards

compensation

earnings

compensation

Total

Name

cash ($)

($)

($)

($)

($)

($)

($)

John Salerno (1)

-

-

-

-

-

-

0

Elisa Luqman (1)

-

-

-

-

-

-

0

James J. Charles

$4,000

-

-

-

-

$4,000

George G. Dempster

$4,000

-

-

-

-

$4,000

John Keefe

$4,000

-

-

-

-

$4,000

(1)  These  individuals  serve  as  executive  officers  of  the  Company,  and  do  not

receive   any   compensation   for   the   services   they   provide   as   directors   of   the

Company.

Members of our Board receive $1,000 per quarter for their service to the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The  following  table  sets  forth  information  known  to  us,  as  of  April  14,  2016,

relating to the beneficial ownership of shares of common stock by:  (i) each person who is

known  by  us  to  be  the  beneficial  owner  of  more  than  5%  of  the  Company’s  outstanding

common   stock;   (ii) each   director;   (iii) each   executive   officer;   and   (iv) all   executive

officers  and  directors  as  a  group.  Under  securities  laws,  a  person  is  considered  to  be  the

beneficial  owner  of  securities  owned  by  him  (or  certain  persons  whose  ownership  is

attributed  to  him)  or  securities  that  can  be  acquired  by  him  within  60 days,  including

upon the exercise of options, warrants or convertible securities. The Company determines

a   beneficial   owner’s   percentage   ownership   by   assuming   that   options,   warrants   and

convertible  securities  that  are  held  by  the  beneficial  owner  and  which  are  exercisable

within 60 days, have been exercised or converted.  The Company believes that  all persons

named  in  the  table  have  sole  voting  and  investment  power  with  respect  to  all  shares  of

common  stock  shown  as  being  owned  by  them.  Unless  otherwise  indicated,  the  address

of  each  beneficial  owner  in  the  table  set  forth  below  is  care  of  iGambit  Inc.,  1050  W.

Jericho  Turnpike,  New  York,  11787.  The  percentages  in  the  following  table  are  based

upon 25,044,056 shares outstanding as of April 14, 2016.

Amount and Nature

of Beneficial

Name of Beneficial Owner

Ownership

Percent of Class

John Salerno, C.E.O., President, Chairman

of the Board, and Director

5,146,900(1)

%

Elisa Luqman, C.F.O., Executive Vice

President, General Counsel and Director

5,685,000,(2)

%

James J. Charles, Director

600,000(3)

%

George G. Dempster, Director

605,000(4)

%

Rory T. Welch, CEO & President ArcMail

10,000,000

Executive Officers and Directors as Group:

20,036,900 (4)

%

32



1.    Includes: options to purchase 46,900 shares of common stock at $0.01 per share held by John L.

Salerno, Mr. Salerno’s son; and options to purchase 100,000 shares of common stock at $0.01 per

share held by Dean T. Salerno, Mr. Salerno’s son.

2.    Includes 685,000 shares of common stock held by Muhammad Luqman, Ms. Luqman’s husband.

3.    Includes options to purchase 159,000 shares of the common stock at $0.03 per share.

4.    Includes options to purchase 213,000 shares of the common stock at $0.03 per share.

5.    Includes the disclosures in footnotes 1 through 4 above.

ITEM 13.   CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND

DIRECTOR INDEPENDENCE

RELATED PARTY TRANSACTIONS

None.

BOARD INDEPENDENCE

The Company has elected to use  the independence standards of the  NYSE AMEX

Equities   Exchange   in   its   determination   of   whether   the   members   of   its   Board   are

independent.  Based  on  the  foregoing,  the  Company  has  concluded  that  Mr. Charles  and

Mr. Dempster  are  independent.  The  Board  has  established  an  Audit  Committee  and  a

Compensation  Committee.  The  Board  does  not  currently  have  a  Nominating  Committee.

The  work  typically  conducted  by  a  Nominating  Committee  is  conducted  by  the  full

Board.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  following  table  shows  what  Michael  F.  Albanese,  CPA  billed  for  the  audit

and   other   services   for   the   year   ended   December   31,   2015   and   December 31,   2014

respectively.

Year Ended  Year Ended

12/31/ 2015    12/31/2014

Audit Fees

$

38,500  $

39,725

Audit-Related Fees

15,000-

---

All Tax Fees

---

Other Fees

---

Total

$

53,500  $

39,725

Audit Fees — This category includes the audit of the Company’s annual financial

statements,   review   of   financial   statements   included   in   the   Company’s   Form   10-Q

Quarterly Reports  and  services  that  are  normally provided  by the  independent  auditors  in

connection with engagements for those  years.

33



Audit-Related  Fees    This  category  includes  assurance  and  related  services  by

the  independent  auditor  that  are  reasonably  related  to  the  performance  of  the  audit  or

review of the  Company’s  financial  statements  and  that  are  not  reported  under the  caption

“Audit Fees.”

Tax  Fees    This  category includes  services  rendered  by the  independent  auditor

for tax compliance, tax advice, and tax planning.

All  Other  Fees    This  category  includes  products  and  services  provided  by  the

independent  auditor  other  than  the  services  reported  under  the  captions  “Audit  Fees,”

“Audit-Related Fees,” and “Tax Fees.”

Overview      The   Company’s   Audit   Committee,   reviews,   and   in   its   sole

discretion  pre-approves,  our  independent  auditors’  annual  engagement  letter  including

proposed  fees  and  all  audit  and  non-audit  services  provided  by  the  independent  auditors.

Accordingly,  all  services  described  under  “Audit  Fees,”  “Audit-Related  Fees,”  “Tax

Fees,” and “All Other Fees” were pre-approved by our Company’s Audit Committee. The

Audit  Committee  may  not  engage  the  independent  auditors  to  perform  the  non-audit

services  proscribed  by law  or  regulation.  The  Company’s  Audit  Committee  may delegate

pre-approval  authority to  a  member  of  the  Board  of  Directors,  and  authority delegated  in

such manner must be reported at the next scheduled meeting of the Board of Directors.

PART IV

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

Report of Independent Registered Public Accounting Firm

F-1

Consolidated Balance Sheet as of December 31, 2015 and 2014

F-2

Consolidated Statement of Income for the years ended December 31, 2015 and

F-4

2014

Consolidated Statement of Changes in Stockholder’s Equity for the years

F-5

ended December 31, 2015 and 2014

Consolidated Statement of Cash Flows for the years ended December 31, 2015

F-6

and 2014

Notes to Financial Statements

F-8

(b) Exhibits

Exhibit No.    Description

3.1(i)    Certificate of Incorporation, filed with the Delaware Secretary of State on

April 13, 2000 (1)

3.1(ii)

Certificate of Merger, filed with the Delaware Secretary of State on

April 18, 2000 (1)

3.1(iii)

Certificate of Amendment Changing Name, filed with the Delaware

Secretary of State on December 19, 2000 (1)

34



3.1(iv)

Certificate of Merger filed with the Delaware Secretary of State on

February 17, 2006 (1)

3.1(v)

Certificate of Amendment Changing Name filed with the Delaware

Secretary of State on April 5, 2006 (1)

3.1(vi)

Certificate of Amendment Increasing Authorized Common Stock to 75

Million Shares, filed with the Delaware Secretary of State on

December 2, 2009 (1)

3.1(vii)

Certificate of Amendment Increasing Authorized Common Stock to300

Million shares of Common Stock and to create a new class of stock

entitled “Preferred Stock, filed with the Delaware Secretary of State on

November 24, 2014.

3.2

Bylaws (1)

4.1

Form of Stock Certificate (2)

4.2

Common Stock Purchase Warrant issued to Roetzel & Andress (3)

10.1

iGambit Inc. 2006 Long Term Incentive Plan, Amended 12/31/2006 (1)

10.2

Employment Agreement between Digi-Data Corporation and Mr. Salerno

(2)

10.3

Employment Agreement between Digi-Data Corporation and

Mrs. Luqman (2)

14

Code of Ethics (5)

21

Subsidiaries (1)

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 incorporated by reference into

any other filing under the Security Act of 1933, as amended, or by the

Security Exchange Act of 1934, as amended.)

32.2

Certification of the 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 incorporated by reference into any other

filing under the Security Act of 1933, as amended, or by the Security

Exchange Act of 1934, as amended.)

(1)  Incorporated by reference to Form 10 filed on December 31, 2009.

(2)  Incorporated by reference to Amendment No. 1 to Form 10 filed on June 11, 2010.

(3)  Filed with initial Form 10-K on June 15, 2010.

(4)  We hereby agree to furnish the SEC with any omitted schedule or exhibit upon

request.

(5)  Filed with Form 10-K/A (Amendment No. 1) on September 13, 2010.

35



36



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the

registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by

the undersigned, thereunto duly authorized, in the City of Hauppauge, New York, on

April 14, 2016.

iGambit Inc.

April 14, 2016

By:   /s/ John Salerno

John Salerno, Chief Executive

Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this

Annual Report on Form 10-K has been signed by the following persons in the capacities

indicated:

Signature

Title

Date

/s/ John Salerno

Chief Executive Officer and

Director

April 14, 2016

John Salerno

/s/ Elisa Luqman

Chief Financial Officer, Executive

April 14, 2016

Vice President, General Counsel,

Elisa Luqman

Principal Accounting Officer and

Director

/s/ James J. Charles

Director

April 14, 2016

James J. Charles

/s/ George G. Dempster

Director

April 14, 2016

George G. Dempster

/s/ John Keefe

Director

April 14, 2016

John Keefe

37



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of iGambit Inc.

We  have  audited  the  accompanying  consolidated  balance  sheet  of  iGambit  Inc.  as  of

December  31,  2015  and  December  31,  2014,  and  the  related  consolidated  statement  of

operations,  consolidated  statement  of  changes  in  stockholders’  equity  (deficiency),  and

consolidated  statement  of  cash  flows  for  the  two  year  period  ended  December  31,  2015.

iGambit    Inc.’s    management    is    responsible    for    these    financial    statements.    Our

responsibility is to express an opinion on these financial statements based on our audits.

We  conducted   our  audits   in  accordance  with  the  standards   of  the   Public  Company

Accounting  Oversight  Board  (United  States).  Those  standards  require  that  we  plan  and

perform  the  audit  to  obtain  reasonable  assurance  about  whether  the  financial  statements

are  free  of  material  misstatement.  The  company  is  not  required  to  have,  nor  were  we

engaged  to  perform,  an  audit  of  its  internal  control  over  financial  reporting.  Our  audit

included consideration of internal control over financial  reporting as a basis for designing

audit  procedures  that  are  appropriate  in  the  circumstances,  but  not  for  the  purpose  of

expressing   an   opinion   on   the   effectiveness   of   the   company’s   internal   control   over

financial  reporting.  Accordingly,  we  express  no  such  opinion.  An  audit  also  includes

examining,  on   a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in  the

financial  statements,  assessing  the  accounting  principles  used  and  significant  estimates

made  by  management,  as  well  as  evaluating  the  overall  financial  statement  presentation.

We believe that our audits provide a reasonable basis for our opinion.

In  our  opinion,  the  financial  statements  referred  to  above  present  fairly,  in  all  material

respects, the financial position of iGambit Inc. as of December 31, 2015 and 2014 and the

results  of  its  operations  and  its  cash  flows  for  the  year  in  the  period  ended  December  31,

2015, in conformity with accounting principles  generally accepted in the United States of

America.

/s/ Michael F. Albanese

Michael F. Albanese, CPA

Parsippany, New Jersey

April 14, 2016

F-1



IGAMBIT  INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

2015

2014

ASSETS

Current assets

Cash

$

131,987

$

126,833

Accounts receivable, net

230,182

--

Inventories

21,160

--

Prepaid expenses

244,592

34,529

Assets from discontinued operations, net

262,765

115,036

Total current assets

890,686

276,398

Property and equipment, net

40,433

2,318

Other assets

Goodwill

6,705,157

--

Deposits

1,720

2,070

Total other assets

6,706,877

2,070

$

7,637,996

$

280,786

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

Accounts payable and accrued expenses

$

636,633

$

91,177

Accrued interest on notes payable

291,107

--

Accrued interest on notes payable  - related party

11,171

--

Amounts due to related parties

74,871

--

Deferred revenue, current portion

811,227

--

Notes payable, current portion

779,750

--

Note payable - related party, current portion

156,566

--

Liabilities from discontinued operations

127,353

194,100

Total current liabilities

2,888,678

285,277

Long-term liabilities

F-2



Deferred revenue, net of current portion

379,052

--

Notes payable

2,339,251

--

Note payable - related party

469,699

--

Total long-term liabilities

3,188,002

--

Total liabilities

6,076,680

285,277

Stockholders' equity (deficiency)

Preferred stock, $.001 par value; authorized - 100,000,000 shares;

issued and outstanding - 0 shares in 2015 and 2014, respectively

--

--

Common stock, $.001 par value; authorized - 200,000,000 shares;

issued and outstanding - 39,683,990 shares in 2015 and

26,583,990 shares in 2014

39,684

26,584

Additional paid-in capital

4,320,022

2,851,124

Accumulated deficit

(2,798,390)

(2,882,199)

Total stockholders' equity (deficiency)

1,561,316

(4,491)

$

7,637,996

$

280,786

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-3



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

2015

2014

Sales:

Hardware and software

$

140,942

$

--

Support and maintenance

333,737

--

Total sales

474,679

--

Cost of sales

8,051

--

Gross profit

466,628

--

Operating expenses

General and administrative expenses

965,609

723,432

Loss from operations

(498,981)

(723,432)

Other income (expenses)

Gain on derivative liability

--

152,076

Interest expense

(44,598)

(4,719)

Amortization of debt discount

--

(63,250)

Interest income

4

--

Total other income (expenses)

(44,594)

84,107

Loss from continuing operations

(543,575)

(639,325)

Income (loss) from discontinued operations

627,384

(45,017)

Net income (loss)

$

83,809

$

(684,342)

Basic and fully diluted earnings (loss) per common share:

Continuing operations

$

(.02)

$

(.03)

Discontinued operations

$

.02

$

.00

Net earnings per common share

$

.00

$

(.03)

Weighted average common shares outstanding - basic

29,168,374

25,947,791

Weighted average common shares outstanding - fully

diluted

30,962,274

27,373,471

The   accompanying   notes   are   an   integral   part   of   these   condensed   consolidated   financial

statements.

F-4



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 2015 AND 2014

Common stock

Paid-in

Accumulated

Shares

Amount

Capital

Deficit

Totals

Balances, December 31, 2013

25,044,056

$

25,044

$     2,729,000

$

(2,197,857)

$

556,187

Note payable converted to

common stock

1,539,934

1,540

47,460

--

49,000

Compensation for vested stock

options

--

--

74,664

--

74,664

Net loss

(684,342)

(684,342)

Balances, December 31, 2014

26,583,990

26,584

2,851,124

(2,882,199)

(4,491)

Compensation for vested stock

options

--

--

11,998

--

11,998

Common stock issued for

services

1,600,000

1,600

318,400

--

320,000

Common stock issued in

business acquisition

11,500,000

11,500

1,138,500

--

1,150,000

Net income

83,809

83,809

Balances, December 31, 2015

39,683,990

$

39,684

$     4,320,022

$

(2,798,390)

$     1,561,316

The  accompanying  notes  are  an  integral  part  of  these  condensed  consolidated  financial

statements.

F-5



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

2015

2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

83,809

$    (684,342)

Adjustments to reconcile net income (loss) to net

cash provided by operating activities

Income from discontinued operations

(627,384)

45,017

Sale of discontinued property and equipment

6,118

--

Depreciation

4,917

4,766

Debt discount amortization

--

63,250

Stock-based compensation expense

331,998

74,664

Gain on derivative liability

--

(152,076)

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Accounts receivable

56,697

--

Prepaid expenses

(199,207)

(26,021)

Due from rescission agreement

--

239,779

Accounts payable and accrued expenses

(90,944)

(56,164)

Accrued interest on notes payable

47,559

--

Deferred revenue

(64,586)

--

Net cash used by continuing operating activities

(451,023)

(491,127)

Net cash provided by discontinued operating activities

495,930

650,329

NET CASH PROVIDED BY OPERATING ACTIVITIES

44,907

159,202

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(1,797)

--

Cash received from acquisition

10,198

--

(Increase) decrease in deposits

10,413

--

Net cash provided (used) by continuing investing activities

18,814

--

Net cash used by discontinued investing activities

(7,290)

(4,739)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

(4,739)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from stockholders' loans

3,516

3,600

Repayments of stockholders' loans

(38,671)

(3,600)

F-6



Repayments of note payable

(26,058)

--

Repayments of convertible note payable

--

(54,500)

Net cash used by continuing financing activities

(61,213)

(54,500)

Net cash provided by discontinued financing activities

9,936

--

NET CASH USED BY FINANCING ACTIVITIES

(51,277)

(54,500)

NET INCREASE (DECREASE) IN CASH

5,154

99,963

CASH - BEGINNING OF YEAR

126,833

26,870

CASH - END OF YEAR

$

131,987

$

126,833

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

Interest

$

3,146

$

10,333

Non-cash investing and financing activities:

Note payable converted to common stock

$

--

$      (49,000)

Common stock issued in business acquisition

1,150,000

--

The   accompanying   notes   are   an   integral   part   of   these   condensed   consolidated   financial

statements.

F-7



IGAMBIT INC.

Notes to Consolidated Financial Statements

Years Ended December 31, 2015 and 2014

Note 1 - Organization and Basis of Presentation

The   consolidated   financial   statements   presented   are   those   of   iGambit   Inc.,   (the

“Company”)  and  its  wholly-owned  subsidiaries,  Wala,  Inc.  doing  business  as  Arcmail

Technology  (“ArcMail”)  and  Gotham  Innovation  Lab  Inc.  (“Gotham”).  The  Company

was  incorporated  under  the  laws  of  the  State  of  Delaware  on  April  13,  2000.  The

Company was originally incorporated as Compusations Inc. under the laws of the State of

New  York  on  October  2,  1996.   The  Company  changed  its  name  to  BigVault.com  Inc.

upon  changing  its  state  of  domicile  on  April  13,  2000.   The  Company  changed  its  name

again  to  bigVault  Storage  Technologies  Inc.  on  December  21,  2000  before  changing  to

iGambit  Inc.  on  April  5,  2006.   Gotham  was  incorporated  under  the  laws  of  the  state  of

New York on  September  23, 2009.   The  Company is  a holding company which seeks out

acquisitions  of  operating  companies  in  technology  markets.    ArcMail  provides  email

archive solutions to domestic and international businesses through hardware and software

sales,   support,   and   maintenance.     Gotham   is   in   the   business   of   providing   media

technology services to real estate agents and brokers in the New York metropolitan area.

Business Acquisition

On  November  4,  2015,  the  Company  acquired  Wala,  Inc.  doing  business  as  ArcMail

Technology  in  accordance  with  a  stock  purchase  agreement.    Pursuant  to  the  stock

purchase agreement, the total consideration paid for the outstanding capital stock of  Wala

was  11,500,000  shares  of  iGambit  common  stock,  valued  at  $.10  per  share.

The

following  table  presents  the  allocation  of  the  value  of  the  common  shares  issued  for

ArcMail to the acquired identifiable assets, liabilities assumed and goodwill:

Common shares issued, valued at $.10 per share

$     1,150,000

Cash

$

10,198

Accounts receivable, net

205,208

Inventories

21,160

Prepaid expenses

276

Fixed assets

41,235

Total identifiable assets

278,077

Accounts payable and accrued expenses

(442,300)

Accrued interest

(254,718)

Deferred revenue

(1,254,865)

Note payable

(3,881,351)

Total liabilities assumed

(5,833,234)

Excess of liabilities assumed over identifiable assets

5,555,157

Total goodwill

$     6,705,157

F-8



The results of operations of ArcMail have been included in the consolidated statements of

operations  from  the  acquisition  date.  The  following  table  presents  pro  forma  results  of

operations  of  the  Company  and  ArcMail  as  if  the  companies  had  been  combined  as  of

January  1,  2014.  The  pro  forma  condensed  combined  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,

2015

2014

Pro forma revenue

$

1,876,313

$

3,423,954

Pro forma gross profit

$

1,791,518

$

2,579,661

Pro forma loss from operations

$

(703,699)

$

(1,381,581)

Pro forma net loss

$

(496,347)

$

(1,828,332)

Note 2 – Discontinued Operations

Sale of Business

On  November  5,  2015,  pursuant  to  an  asset  purchase  agreement  Gotham  sold  assets

consisting  of  fixed  assets,  client  and  supplier  lists,  trade  names,  software,  social  media

accounts  and  websites,  and  domain  names  to  VHT,  Inc.,  a  Delaware  corporation  for  a

purchase  price of  $600,000.   Gotham received $400,000 and  commencing on January 29,

2016,  VHT,  Inc.  shall  pay  twelve  equal  monthly  installments  of  $16,667  on  the  last

business   day  of   each   month  (the   “Installment   Payments”  and   each,   an   “Installment

Payment”),  each  Installment  Payment  to  consist  of  (1)  an  earn-out  payment  of  $10,000

(the  “Earn-Out  Payments”  and  each,  an  “Earn-Out  Payment”),  and  (2)  an  additional

payment  of  $6,667  (the  “Additional  Payments”  and  each,  an  “Additional  Payment”);

provided  that  VHT,  Inc.  shall  only  be  required  to  make  the  Earn-Out  Payments  for  as

long  as  it  maintains  its  relationship  with  Gotham’s  major  client,  unless  it  is  dissatisfied

with VHT, Inc.

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  for  the  years  ended  December  31,  2015  and  2014  are  presented

as follows:

2015

2014

Assets:

Cash

$

13,893

$

6,603

Accounts receivable, net

247,372

81,671

Prepaid expenses

1,500

10,581

Deposits

--

10,063

F-9



Property and equipment

--

6,118

Total assets

$

262,765

$

115,036

Liabilities:

Accounts payable and accrued expenses

117,417

194,100

Note payable - related party

9,936

--

$

127,353

$

194,100

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation

The  consolidated   financial  statements  include  the  accounts   of  the  Company  and   its

wholly-owned    subsidiaries,    Wala,    Inc.    and    Gotham    Innovation    Lab,    Inc.  All

intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting

principles   requires   management   to   make   estimates   and   assumptions   that   affect   the

reported   amounts   of   assets   and   liabilities   and   disclosure   of   contingent   assets   and

liabilities  at  the  date of  the  consolidated  financial  statements  and  the  reported  amounts  of

revenues and expenses during the period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

For  certain  of  the  Company’s  financial  instruments,  including  cash,  accounts  receivable,

prepaid  expenses,  accounts  payable,  accrued  interest,  deferred  revenue,  and  amounts  due

to   related   parties,   the   carrying   amounts   approximate   fair   value   due   to   their   short

maturities.     Additionally,   there   are   no   assets   or   liabilities   for   which   fair   value   is

remeasured on a recurring basis.

Revenue Recognition

The  Company  recognizes  revenue  from  product  sales  when  the  following  four  revenue

recognition  criteria  are  met:  persuasive  evidence  of  an  arrangement  exists,  an  equipment

order  has  been  placed  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,

F-10



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.   There  were  no  advertising  costs

for the years ended December 31, 2015 and 2014, respectively.

Cash and Cash Equivalents

For  purposes  of  reporting  cash  flows,  cash  and  cash  equivalents  include  checking  and

money market accounts and any highly liquid debt instruments purchased with a maturity

of three months or less.

Accounts Receivable

The   Company   analyzes   the   collectability   of   accounts   receivable   from   continuing

operations   each   accounting   period   and   adjusts   its   allowance   for   doubtful   accounts

accordingly.   A  considerable  amount  of  judgment  is  required  in  assessing  the  realization

of  accounts  receivables,  including  the  creditworthiness  of  each  customer,  current  and

historical  collection  history  and  the  related  aging  of  past  due  balances.   The  Company

evaluates  specific  accounts  when  it  becomes  aware  of  information  indicating  that  a

customer  may  not  be  able  to  meet  its  financial  obligations  due  to  deterioration  of  its

financial  condition,  lower  credit  ratings,  bankruptcy  or  other  factors  affecting  the  ability

to render payment.  Allowance  for doubtful  accounts  was  $8,345 and $0 at  December 31,

2015  and  2014,  respectively.    Bad  debt  expense  of  $5,971  and  $0  was  charged  to

operations for the  years ended December 31, 2015 and 2014, respectively.

Inventories

Inventories  consisting  of  finished  products  are  state  at  the  lower  of  cost  or  market.   Cost

is determined on an average cost basis.

Property and equipment and depreciation

Property  and  equipment  are  stated  at  cost.    Maintenance  and  repairs  are  charged  to

expense  when  incurred.   When  property  and  equipment  are  retired  or  otherwise  disposed

of,   the   related   cost   and   accumulated   depreciation   are   removed   from   the   respective

accounts  and  any  gain  or  loss  is  credited  or  charged  to  income.   Depreciation  for  both

financial  reporting  and  income  tax  purposes  is  computed  using  combinations  of  the

straight  line  and  accelerated  methods  over  the  estimated  lives  of  the  respective  assets  as

follows:

Office equipment and fixtures

5 - 7 years

Computer hardware

5 years

Computer software

3 years

Development equipment

5 years

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Goodwill

Goodwill represents the excess of liabilities assumed over assets acquired of ArcMail and

the  fair  market  value  of the  common  shares  issued  by the  Company for  the  acquisition  of

ArcMail.   In  accordance  with  ASC  Topic  No.  350  “Intangibles    Goodwill  and  Other”),

the  goodwill  is  not  being  amortized,  but  instead  will  be  subject  to  an  annual  assessment

of  impairment  by  applying  a  fair-value  based  test,  and  will  be  reviewed  more  frequently

if current events and circumstances indicate a possible impairment. An impairment loss is

charged  to  expense  in  the  period  identified.  If  indicators  of  impairment  are  present  and

future cash flows  are not  expected to be  sufficient  to recover the asset’s carrying amount,

an  impairment  loss  is  charged  to  expense  in  the  period  identified.  A  lack  of  projected

future  operating   results   from   ArcMail’s   operations   may  cause   impairment.     As   the

acquisition  of  ArcMail  occurred  on  November  4,  2015,  it  is  too  early for  management  to

evaluate  whether  goodwill  has  been  impaired.   No  impairment  was  recorded  during  the

year ended December 31, 2015.

Long-Lived Assets

The  Company  assesses  the  valuation  of  components  of  its  property  and  equipment  and

other  long-lived  assets  whenever  events  or  circumstances  dictate  that  the  carrying  value

might  not  be  recoverable.  The  Company  bases  its  evaluation  on  indicators  such  as  the

nature  of  the  assets,  the  future  economic  benefit  of  the  assets,  any  historical  or  future

profitability  measurements  and  other  external  market  conditions  or  factors  that  may  be

present.  If  such  factors  indicate  that  the  carrying  amount  of  an  asset  or  asset  group  may

not  be  recoverable,  the  Company  determines  whether  an  impairment  has  occurred  by

analyzing  an  estimate  of  undiscounted  future  cash  flows  at  the  lowest  level  for  which

identifiable  cash  flows  exist.  If  the  estimate  of  undiscounted  cash  flows  during  the

estimated  useful  life  of  the  asset  is  less  than  the  carrying value  of the  asset, the  Company

recognizes  a  loss  for  the  difference  between  the  carrying  value  of  the  asset  and  its

estimated fair value, generally measured by the present value of the estimated cash flows.

Deferred Revenue

Deposits  from  customers  are  not  recognized  as  revenues,  but  as  liabilities,  until  the

following   conditions   are   met:   revenues   are   realized   when   cash   or   claims   to   cash

(receivable)  are  received  in  exchange  for  goods  or  services  or  when  assets  received  in

such   exchange   are   readily   convertible   to   cash   or   claim   to   cash   or   when   such

goods/services  are  transferred.  When  such  income  item  is  earned,  the  related  revenue

item  is  recognized,  and  the  deferred  revenue  is  reduced.  To  the  extent  revenues  are

generated   from   the   Company’s   support   and   maintenance   services,   the   Company

recognizes  such  revenues  when  services  are  completed  and  billed.  The  Company  has

received  deposits  from its  various  customers  that  have  been  recorded  as  deferred revenue

in  the  amount  of  $1,190,279  and  $0  as  of  the  years  ended  December  31,  2015  and  2014,

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

F-12



Equity,  which  requires  the  measurement  of  compensation  expense  for  all  share-based

compensation  granted  to  employees  and  non-employee  directors  at  fair  value  on  the  date

of  grant  and  recognition  of  compensation  expense  over  the  related  service  period  for

awards  expected  to  vest.  The  Company  uses  the  Black-Scholes  option  pricing  model  to

estimate  the  fair  value  of  its  stock  options  and  warrants.  The  Black-Scholes  option

pricing  model  requires  the  input  of  highly subjective  assumptions  including  the  expected

stock  price  volatility  of  the  Company’s  common  stock,  the  risk  free  interest  rate  at  the

date   of   grant,   the   expected   vesting   term   of   the   grant,   expected   dividends,   and   an

assumption   related   to   forfeitures   of   such   grants.  Changes   in   these   subjective   input

assumptions  can  materially affect  the  fair  value  estimate  of  the  Company’s  stock  options

and warrants.

Income Taxes

The   Company   accounts   for   income   taxes   using   the   asset   and   liability   method   in

accordance  with  ASC  Topic  No.  740,  Income  Taxes.  Under  this  method,  deferred  tax

assets  and  liabilities  are  determined  based  on  differences  between  financial  reporting  and

tax  bases  of  assets  and  liabilities,  and  are  measured  using  the  enacted  tax  rates  and  laws

that are expected to be in effect when the differences are expected to reverse.

The  Company  applies  the  provisions  of  ASC  Topic  No.  740  for  the  financial  statement

recognition,  measurement  and  disclosure  of  uncertain  tax  positions  recognized  in  the

Company’s  financial  statements.  In  accordance  with  this  provision,  tax  positions  must

meet  a  more-likely-than-not  recognition  threshold  and  measurement  attribute  for  the

financial statement recognition and measurement of a tax position.

Recent Accounting Pronouncements

FASB ASC 606 ASU 2014-09 - Revenue from contracts with customers:

In May 2014, the FASB issued amended guidance  on contracts with customers to transfer

goods   or   services   or   contracts   for   the   transfer   of   nonfinancial   assets,   unless   those

contracts   are  within  the  scope  of  other  standards  (e.g.,  insurance  contracts  or  lease

contracts).   The   guidance   requires   an   entity  to   recognize   revenue   on   contracts   with

customers  to  depict  the  transfer  of  promised  goods  or  services  to  customers  in  an  amount

that  reflects  the  consideration  to  which  the  entity  expects  to  be  entitled  in  exchange  for

those  goods  or  services.  The  guidance  requires  that  an  entity  depict  the  consideration  by

applying the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The  amendments  in  this  ASU  are  effective  for  annual  reporting  periods  beginning  after

December   15,   2016,   including   interim   periods   within   that   reporting   period.   Early

F-13



application  is  not  permitted.  This  amendment  is  to  be  either  retrospectively  adopted  to

each  prior  reporting  period  presented  or  retrospectively  with  the  cumulative  effect  of

initially  applying  this  ASU  recognized  at  the  date  of  initial  application.  Adoption  of  this

guidance  is  not  expected  to  have  a  material  impact  on  the  Company's  consolidated

financial statements.

FASB ASC 718 ASU 2014-12 – Compensation – Stock Compensation:

In June 2014, the  FASB  issued ASU No. 2014-12, "Compensation - Stock Compensation

(Topic   718):  Accounting   for   Share-Based   Payments   When   the  Terms   of  an   Award

Provide   that   a   Performance   Target   Could   be   Achieved   after   the   Requisite   Service

Period,"   ("ASU      2014-12").      The   amendments   in   ASU   2014-12   require   that   a

performance  target  that  affects  vesting  and  that  could  be  achieved  after  the  requisite

service  period  be  treated  as  a  performance  condition.   A  reporting  entity   should  apply

existing   guidance in ASC Topic No. 718,   "Compensation   - Stock   Compensation"   as  it

relates  to  awards  with   performance   conditions  that  affect   vesting  to  account  for  such

awards.   The  amendments  in  ASU  2014-12  are  effective  for  annual  periods  and  interim

periods  within  those  annual  periods  beginning  after  December  15,  2015.   Early  adoption

is   permitted.      Entities   may   apply   the   amendments   in   ASU   2014-12   either:   (a)

prospectively   to   all   awards   granted   or   modified   after   the   effective   date;   or   (b)

retrospectively  to  all  awards  with  performance  targets  that  are  outstanding  as  of  the

beginning  of  the  earliest  annual  period  presented  in  the  financial  statements  and  to  all

new or modified awards thereafter. The Company does not anticipate that the adoption of

ASU 2014-12 will have a material impact on its consolidated financial statements.

FASB ASC 740 ASU 2015-17 - Balance Sheet Classification of Deferred Taxes:

In  November  2015,  the  FASB  issued  ASU  No.  2015-17,  “Income  Taxes  (Topic  740):

Balance  Sheet  Classification  of  Deferred  Taxes”  (“ASU  2015-17”).  The  FASB  issued

this  ASU  as  part  of  its  ongoing  Simplification  Initiative,  with  the  objective  of  reducing

complexity  in  accounting  standards.  The  amendments  in  ASU  2015-17  require  entities

that  present  a  classified  balance  sheet  to  classify all  deferred  tax  liabilities  and  assets  as  a

noncurrent   amount.   This   guidance   does   not   change   the   offsetting   requirements   for

deferred  tax  liabilities  and  assets,  which  results  in  the  presentation  of  one  amount  on  the

balance  sheet.  Additionally,  the  amendments  in  this  ASU  align  the  deferred  income  tax

presentation   with   the   requirements   in   International   Accounting   Standards   (IAS)   1,

Presentation of  Financial  Statements.  The  amendments  in  ASU 2015-17  are effective for

financial  statements  issued  for  annual  periods  beginning  after  December  15,  2016,  and

interim  periods  within  those  annual  periods.  The  Company  does  not  anticipate  that  the

adoption   of   this   standard   will   have   a   material   impact   on   its   consolidated   financial

statements.

FASB ASC 842 ASU 2016-02 – Leases:

In  February  2016,  the  FASB  issued  ASU  No.  2016-02, “Leases  (Topic  842)”  (“ASU

2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from

a lease for both financing and operating leases. The ASU will also require new qualitative

F-14



and  quantitative  disclosures  to  help  investors  and  other  financial  statement  users  better

understand  the  amount,  timing,  and  uncertainty  of  cash  flows  arising  from  leases. ASU

2016-02  is  effective  for  fiscal  years  beginning  after  December  15,  2018,  with  early

adoption permitted. The  Company is currently evaluating ASU 2016-02 and its impact on

its consolidated financial statements.

Note 4 – Property and Equipment

Property  and  equipment  are  carried  at  cost  and  consist  of  the  following  at  December  31,

2015 and 2014:

2015

2014

Office equipment and fixtures

$

139,006

$

7,164

Computer hardware

90,943

--

Computer software

77,700

--

Development equipment

35,318

--

342,967

7,164

Less: Accumulated depreciation

302,534

4,846

$

40,433

$

2,318

Depreciation expense of $4,917 and $4,766 was charged to operations for the years ended

December 31, 2015 and 2014, respectively.

Note 5 - Earnings (Loss) Per Common Share

The  Company  calculates  net  earnings  (loss)  per  common  share  in  accordance  with  ASC

260   Earnings   Per   Share”  (“ASC   260”).   Basic  and   diluted   net   earnings   (loss)  per

common  share  was  determined  by  dividing  net  earnings  (loss)  applicable  to  common

stockholders  by  the  weighted  average  number  of  common  shares  outstanding  during  the

period.  The  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 earnings (loss) per share for all periods as the result would be anti-dilutive.

Years Ended

December 31,

2015

2014

Stock options

1,718,900

1,518,900

Stock warrants

275,000

275,000

Total shares excluded from calculation

1,993,900

1,793,900

F-15



Note 6 – Stock Based Compensation

Stock-based  compensation  expense  for  all  stock-based  award  programs,  including  grants

of  stock  options  and  warrants,  is  recorded  in  accordance  with  "Compensation—Stock

Compensation", Topic 718 of the  FASB ASC. Stock-based compensation expense, which

is  calculated  net  of  estimated  forfeitures,  is  computed  using  the  grant  date  fair-value  and

amortized  over  the  requisite  service  period  for  all  stock  awards  that  are  expected  to  vest.

The  grant  date  fair  value  for  stock  options  and  warrants  is  calculated  using  the  Black-

Scholes  option  pricing  model.  Determining  the  fair  value  of  options  at  the  grant  date

requires  judgment,  including  estimating  the  expected  term  that  stock  options  will  be

outstanding  prior  to  exercise,  the  associated  volatility  of  the  Company’s  common  stock,

expected  dividends,  and  a  risk-free  interest  rate.  Stock-based  compensation  expense  is

reported  under  general  and  administrative  expenses  in  the  accompanying  consolidated

statements of operations.

Options

In  2006,  the  Company  adopted  the  2006  Long-Term  Incentive  Plan  (the  "2006  Plan").

Awards  granted  under  the  2006  Plan  have  a  ten-year  term  and  may  be  incentive  stock

options,  non-qualified  stock  options  or  warrants.  The  awards  are  granted  at  an  exercise

price  equal to the  fair market value  on the date of  grant  and  generally vest  over a  three  or

four  year  period.  The  Plan  expired  on  December  31,  2009,  therefore  as  of  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.

F-16



Stock option activity during the  years ended December 31, 2015 and 2014 follows:

Weighted

Average

Weighted

Remaining

Weighted

Average

Average

Contractual

Options

Grant-Date

Life

Outstanding

Exercise Price

Fair Value

(Years)

Options outstanding at

December 31, 2013

668,900

$

0.06

$

0.10

4.69

Options granted

850,000

0.04

0.10

Options outstanding at

December 31, 2014

1,518,900

0.03

0.10

4.76

Options granted

200,000

0.01

0.10

Options outstanding at

December 31, 2015

1,718,900

$

0.03

$

0.13

3.82

Options outstanding at December 31, 2015 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

100,000

100,000

$0.01

May 1, 2016

May 1, 2006

50,000

50,000

$0.01

May 1, 2016

May 1, 2006

46.900

46,900

$0.01

May 1, 2016

June 9, 2014

213,000

213,000

$0.03

June 9, 2024

June 9, 2014

159,000

159,000

$0.03

June 9, 2024

June 9, 2014

600,000

600,000

$0.03

June 9, 2024

June 6, 2014

250,000

250,000

$0.05

June 6, 2019

March 24, 2015

200,000

200,000

$0.01

March 24, 2020

Total

1,718,900

1,718,900

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.

F-17



Warrant activity during the years ended December 31, 2015 and 2014 follows:

Weighted

(1)Weighted

Weighted

Average Grant-

Average

Date

Remaining

Warrants

Average

Contractual

Outstanding

Exercise Price

Fair Value

Life (Years)

Warrants outstanding

at December 31, 2013

275,000

$

0.94

$

0.10

5.42

No warrant activity

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