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EX-32.2 - CERTIFICATION IGAMBIT - iGambit, Inc.exhibit322.htm
EX-32.1 - CERTIFICATION IGAMBIT - iGambit, Inc.exhibit321.htm
EX-31.2 - CERTIFICATION IGAMBIT - iGambit, Inc.exhibit312.htm
EX-31.1 - CERTIFICATION IGAMBIT - 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, 2016

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

Non-accelerated filer o

Smaller

accelerated

filer o

reporting

filer o

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

As  of  June  30,  2016,  the  aggregate  market  value  of  shares  held  by  non-affiliates  of  the

registrant  (based  upon  the  closing  sale  prices  of  such  shares  on  the  OTCQB  Market  on

June  30,  2016)  was  approximately  $370.773.  For  purposes  of  calculating  the  aggregate

market value of shares held by non-affiliates, we have assumed that all outstanding shares

are  held  by  non-affiliates,  except  for  shares  held  by  each  of  our  executive  officers,

directors  and  5%  or  greater  stockholders.  In  the  case  of  5%  or  greater  stockholders,  we

have   not   deemed   such   stockholders   to   be   affiliates   unless   there   are   facts   and

circumstances  which  would  indicate  that  such  stockholders  exercise  any control  over  our

company,  or  unless  they  hold  10%  or  more  of  our  outstanding  common  stock.  These

assumptions  should  not  be  deemed  to  constitute  an  admission  that  all  executive  officers,

directors  and  5%  or  greater  stockholders  are,  in  fact,  affiliates  of  our  company,  or  that

there  are  not  other  persons  who  may  be  deemed  to  be  affiliates  of  our  company.  Further

information concerning shareholdings of our officers, directors and principal stockholders

is  included  or  incorporated  by  reference  in  Part  III,  Item  12  of  this  Annual  Report  on

Form 10-K.



As  of  April  17,  2017  there  were  116,868,990  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, 2016

TABLE OF CONTENTS

Page No.

PART I

Item 1

Business

1

Item 1A

Risk Factors

5

Item 1B

Unresolved Staff Comments

5

Item 2

Properties

5

Item 3

Legal Proceedings

6

Item 4

(Removed and Reserved)

6

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

6

Item 6

Selected Financial Data

7

Item 7

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

7

Item 7A

Quantitative and Qualitative Disclosure About Market Risk

14

Item 8

Financial Statements and Supplementary Data

14

Item 9

Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure

14

Item 9A

Controls and Procedures

15

Item 9B

Other Information

15

PART III

Item 10

Directors, Executive Officers and Corporate Governance

16

Item 11

Executive Compensation

19

Item 12

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

21

Item 13

Certain Relationships, Related Transactions and Director

Independence

22

Item 14

Principal Accountant Fees and Services

23

PART IV

Item 15

Exhibits and Financial Statement Schedules

24

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,  2016.  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  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

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

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

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

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

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

accounts, all vendor agreements and all the intellectual property.

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

Form 8-K filed on November 11, 2015.

On  February  14,  2017,  we  consummated  the  acquisition  of  HubCentrix,  Inc.

(HubCentrix)   in   accordance   with   a   Stock   Exchange   Agreement   (the   “Exchange

Agreement”)  by  and  among  HubCentrix,  Jerry  Robinson,  Mary-Jo  Robinson,  Kathleen

Shepherd, Edwin Shepherd, Nora Minor,,and Sandra Gacio (the “Hub Shareholders”) and

the Company. Pursuant to the Exchange  Agreement, the total  consideration to be paid for

the  outstanding  capital  stock  of  HubCentrix  is  15,000,000  shares  of  the  Company’s

Common stock. 13,500,00 shares of iGambit’s Common stock to the Hub Shareholders at

Closing  and  the  Holdback  Amount  of  1,500,000  shares  of  the  iGambit’s  Common  stock

to  be  held  restricted  and  paid  to  the  Seller  on  later  of  (i)  the  first  (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  the  Company  has  any

2



claims  for  indemnification  against  the  HubCentrix   under  the  Exchange  Agreement,  the

Company shall  continue  to  withhold  the  portion  of  the  Holdback Amount  subject  to  such

claims until the parties fully and finally resolve such claims.

The  HubCentrix  Exchange  Agreement  was  disclosed  on  the  Company’s  current

report on Form 8-K filed on February 15, 2017.

On March 27, 2017 we changed the name of HubCentrix, Inc. to HealthDatix, Inc.

On   April   5,   2017,   the   Company,   through   its   wholly   owned   subsidiary

HealthDatix,  Inc.  (“HealthDatix”)  consummated  the  acquisition  of  certain  assets  of  the

CyberCare   Health   Network   Division   from   EncounterCare   Solutions   Inc.   (ECSL)   in

accordance   with   an   Asset   Purchase   Agreement   (the   “Agreement”)   by   and   among,

HealthDatix,   ECSL  and   the  Company.   Pursuant   to   the  Agreement,   ECSL  will  sell,

convey, transfer and assign to HealthDatix certain assets (the “Assets”), and  HealthDatix

will purchase and  accept  from the ECSL all right,  title and interest  in and to the Assets in

exchange for sixty million 60,000,000 shares of restricted common stock of iGambit.

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

K filed on April 6, 2017.

OUR COMPANY

Introduction

Previously  we  were  a  company  focused  on  the  technology  markets.  We  have

tailored  our  strategy  to  focus  on  pursuing  specific  medical  technology  strategies  and

objectives.

Presently we have one operating subsidiary, 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.    On  March  7, 2017  we  entered  into  a  Letter  of  Intent  (LOI)  to  sell  substantially

all  the  assets  of  ArcMail.    The  LOI  has  certain  binding  and  non-binding  obligations,

including the  acquisition  consideration  which is  subject  to  adjustment  and  the  transaction

is  subject  to  various  conditions  to  closing,  including  satisfactory  completion  of  due

diligence,    approval    of    the    Company’s    shareholders,    if    required,    and    definitive

documentation.   There can be no assurance that the transactions contemplated by the  LOI

will  be  consummated.

As  a  result  of  the  entry  into  the  LOI,  the  generally  accepted

accounting   principles   require   us   to   present   the   ArcMail   financial   information   as

discontinued operations.  See financial disclosures below.

Our  primary  focus  is  the  expansion  of  our  newly  acquired  medical  technology

business HealthDatix Inc.

3



HealthDatix

Products and Services

HealthDatix   is   an   end   to   end   Software-as-a-Service   solution   that   manages,

reports,  and  analyzes  critical  data,  enabling  healthcare  organizations  to  deliver  positive

patient  outcomes.   We   offer  a  fully-hosted   cloud  service  for  healthcare  providers  to

conduct  the  Medicare  Annual  Wellness  Visit  (AWV)  program  to  their  Medicare  patients

providing the patient with a 5-10  year Personalized Preventive Plan and physician reports

that  meet  all   Medicare   audit  requirements.     The  AWV   is   a  program   that  allows  a

physician to identify those patients that have 2+ chronic conditions that require additional

screening and management.

Competitive Comparison

HealthDatix  AWV  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  Medicare  compliance  and  data  retention.  HealthDatix  primary  competitors

include  AWV360  and  AWVTotal  Solutions.  Their  primary  focus  is  on  just  the  primary

care physicians and not operating through a downstream channel program

HealthDatix  competes  effectively  against  its  primary  competitors  by  providing  a

simple and  scalable application  and  world-class  customer  support. HealthDatix’s  primary

competitive differentiation includes:

§     Simple User Interface

§     Efficient Reporting

Proprietary  algorithm  to  generate  Medicare  required  patient  and  practice

reporting

§     HIPAA complaint

§     Fully automated and easy user data capture

§     Channel Program

§     First Class Customer Service

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

team

Future Products and Services

HeathDatix’s  product  strategy  is  to  provide  additional  products  that  will  support

the  patients  that  have  been  identified  through  the  program  to  require  additional  chronic

care  management  with  a  medical  wearable  that  will  allow  ease  of  use  for  the  patient  and

effective  tracking  and  management  by  the  physician  through  our  developed  chronic  care

management solution.

Customers

HealthDatix   operates   by  bringing  on   Channel   Partners   to   sell   the  service  to

primary  care   Physicians,   ACOs   and   Managed   Care   Practices.   We   currently  have  5

Channel  Partners  with  extensive  sales  arms  through  established  healthcare  technology

companies.

4



Expansion Summary

HealthDatix objective is to be a market leader in providing a world class AWV

software application as well as expand our offering to current and new channel partners

with our new chronic care management and medical wearable technology acquired

pursuant to the recent ECSL transaction.

Employees

We presently have 7 total employees all of which are full-time for operations and

11 full time employees from discontinued operations.

OUR CORPORATE INFORMATION

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

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

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

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

websites does not form a part of this report).

ITEM 1A.  RISK FACTORS

Not Required.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

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

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

approximately $1,660.  The  lease  is  for  a  term  of  two  (2)  years  commencing  on  March  1,

2017  and  ending  on  February  28,  2019.   The  lease  contains  annual  escalations  of  2%  of

the annual rent.

Our  HealthDatix  operations  are  located  in  St.  Petersbug,  Florida  where  we  lease

where  office  suites  with  furniture  and  equipment  in  the  TecGarage  shared  coworking

incubator  office  building.  Monthly  lease  payments  are  $695  paid  on  a  month  to  month

basis.

Our ArcMail discontinued operations are located in Shreveport, Louisiana, where

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

rentable  square  feet  to  be  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)

5



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

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

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

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

financial condition, or results of operations.

ITEM 3.  LEGAL PROCEEDINGS

From  time-to-time,  the  Company is  involved  in  various  civil  actions  as  part  of its  normal

course  of  business.  The  Company  is  not  a  party  to  any  litigation  that  is  material  to

ongoing  operations  as  defined  in  Item  103  of  Regulation  S-K  as  of  the  period  ended

December 31, 2017.

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   17,   2017,   there   are   116,868,990   shares   of   our   common   stock

outstanding,  held  of  record  by  approximately  181  persons.  There  are  27,867,133  shares

held  in  reserve.   We  have  400,000  common  stock  warrants  outstanding  and   1,034,900

common stock options outstanding.

As  of  April  17,  2016, approximately 39,683,990  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

6



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  2016  we  sold  securities  in  transactions  not  registered  under  the  Securities

Act of 1933, as amended (the “Securities Act”).

ITEM 6.   SELECTED FINANCIAL DATA

Not Required

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Our  management’s  discussion  and  analysis  of  our  financial  condition  and  results

of   operations   are   based   on   our   financial   statements,   which   have   been   prepared   in

accordance   with   accounting   principles   generally   accepted   in   the   United   States   of

America.  The  preparation  of  financial  statements  may  require  us  to  make  estimates  and

assumptions  that  may  affect  the  reported  amounts  of  assets  and  liabilities  and  the  related

disclosures at the date of the financial statements. We do not currently have any estimates

or  assumptions  where  the  nature  of  the  estimates  or  assumptions  is  material  due  to  the

levels  of  subjectivity  and  judgment  necessary  to  account  for  highly  uncertain  matters  or

the   susceptibility   of   such   matters   to   change   or   the   impact   of   the   estimates   and

7



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.

Long-Lived Assets

We  assess  the  valuation  of  components  of  its  property  and  equipment  and  other

long-lived  assets  whenever  events  or  circumstances  dictate  that  the  carrying  value  might

not  be  recoverable.  We  base  our  evaluation  on  indicators  such  as  the  nature  of the  assets,

the   future   economic   benefit   of   the   assets,   any   historical   or   future   profitability

measurements and other external market conditions or factors that may be present. If such

factors   indicate   that   the   carrying   amount   of   an   asset   or   asset   group   may   not   be

recoverable,  we  determine  whether  an  impairment  has  occurred  by analyzing an  estimate

of  undiscounted  future  cash  flows  at  the  lowest  level  for  which  identifiable  cash  flows

exist.  If  the  estimate  of  undiscounted  cash  flows  during  the  estimated  useful  life  of  the

asset  is  less  than  the  carrying  value  of  the  asset,  we  recognize  a  loss  for  the  difference

between  the  carrying  value  of  the  asset  and  its  estimated  fair  value,  generally  measured

by the present value of the estimated cash flows.

Revenue Recognition

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

8



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  $1,092,388  and  $1,190,270  as

of the years ended December 31, 2016 and 2015, respectively.

Accounts Receivable

We  analyze  the  collectability  of  accounts  receivable  from  continuing  operations

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

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

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

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

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

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

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

Allowance   for   doubtful   accounts   was   $8,345   at   December   31,   2016   and   2015,

respectively.   Bad  debt  expense  of $0  and  $5,971  was  charged  to  operations  for  the  years

ended December 31, 2016 and 2015, respectively.

Goodwill and Intangible Assets

Goodwill  represents  the  excess  of  liabilities  assumed  over  assets  acquired  of

ArcMail  and  the  fair  market  value  of  the  common  shares  we  issued  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.   During  the

year  ended  December  31,  2016,  goodwill  was  reallocated  to  intangible  assets  acquired  as

follows:

Workforce

$

138,783

Non-compete

145,315

Customer relations

3,357,756

3,641,854

Goodwill

3,063,303

$     6,705,157

In   connection   with   management’s   decision   to   sell   Arcmail,   we   recorded   an

impairment   charge   to   discontinued   operations   of   $6,263,320,   and   amortization   of

$441,837  was  charged  to  discontinued  operations  during  the  year  ended  December  31,

2016.

9



Stock-Based Compensation

We    account    for    our    stock-based    awards    granted    under    our    employee

compensation  plan  in  accordance  with  ASC  Topic  No.  718-20,  Awards  Classified  as

Equity,  which  requires  the  measurement  of  compensation  expense  for  all  share-based

compensation  granted  to  employees  and  non-employee  directors  at  fair  value  on  the  date

of  grant  and  recognition  of  compensation  expense  over  the  related  service  period  for

awards  expected  to  vest.  We  use  the  Black-Scholes  option  pricing  model  to  estimate  the

fair  value  of  our  stock  options  and  warrants.  The  Black-Scholes  option  pricing  model

requires  the  input  of  highly  subjective  assumptions  including  the  expected  stock  price

volatility of  the  Company’s  common  stock,  the  risk  free  interest  rate  at  the  date  of  grant,

the  expected  vesting  term  of  the  grant,  expected  dividends,  and  an  assumption  related  to

forfeitures  of  such  grants.  Changes  in  these  subjective  input  assumptions  can  materially

affect the fair value estimate of the Company’s stock options and warrants.

Options

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

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

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

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

four  year  period.  The  Plan  expired  on  December  31,  2009,  therefore  as  of  December  31,

2015,  there  was  no  unrecognized  compensation  cost  related  to  non-vested  share-based

compensation arrangements granted under the 2006 plan.

The  2006  Plan  provided  for  the  granting  of  options  to  purchase  up  to  10,000,000

shares  of  common  stock.  8,146,900  options  have  been  issued  under  the  plan  to  date  of

which  7,157,038  have  been  exercised  and  692,962  have  expired  to  date.  There  were

296,900  options  outstanding  under  the  2006  Plan  on  its  expiration  date  of  December  31,

2009. All options issued subsequent to this date were not issued pursuant to any plan.

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.

Convertible Debenture

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During  the  year  ended  December  31,  2016,  we  issued  convertible  debentures  to

two  individuals.   The  debentures  are  convertible  into  50,000  shares  of  common  stock  for

up  to  5  years,  at  the  holders’  option,  at  an  exercise  price  of  $.50  and  $.25,  respectively.

The  debentures  mature  on  the  earlier  of  the  closing  of  a  subsequent  financing  event  by

the  Company  resulting  in  gross  proceeds  of  at  least  $10,000,000  or  three  years  from  the

date of issuance. The  debentures  bear interest  at  a  rate of 10%  and  is  deferred  until  2017.

A   beneficial   conversion   feature   was   not   recorded   as   the   fair   market   value   of   the

Company’s  common  stock  was  less  than  the  exercise  prices  at  the  dates  of  issuance  and

through the end of the year.

Income Taxes

We follow Accounting Standards Codification subtopic 740, Income Taxes (“ASC

740”) which requires the  recognition of deferred tax  liabilities and assets for the expected

future  tax  consequences  of  events  that  have  been  included  in  the  financial  statements  or

tax  returns.  Under  such  method,  deferred  tax  assets  and  liabilities  are  recognized  for  the

future   tax   consequences   attributable   to   differences   between   the   financial   statement

carrying  amounts  of  existing  assets  and  liabilities  and  their  respective  tax  bases  using

enacted  tax  rates  in  effect  for  the  year  in  which  the  differences  are  expected  to  reverse.

Deferred  taxes  are  classified  as  current  or  non-current,  depending  on  the  classification  of

the assets and liabilities to which they relate.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Introduction

iGambit  is  a  company  focused  on  the  medical  technology  markets.   Our  primary

focus  is  the  expansion  of  our  newly  acquired  medical  technology  business  HealthDatix

Inc.

Year Ended December 31, 2016 as Compared to Year Ended December 31, 2015

Assets.  At  December 31,  2016,  we  had  $507,932  in  current  assets  and  $510,835

in  total  assets,  compared  to  $7,634,620  in  current  assets  and  $7,637,996  in  total  assets  as

of  December 31,  2015.   The  decrease  in  total  assets  was  primarily  due  to  a  decrease  in

assets  from  discontinued  operations  as  a  result  of  impairment  of  goodwill  and  intangible

assets.

Liabilities.   At   December 31,   2016,   we   had   total   liabilities   of   $6,380,260

compared to $6,076,680 at December 31, 2015. Our total liabilities at December 31, 2016

consisted   of   current   liabilities   including   accounts   payable   and   accrued   expenses   of

$356,005,  amounts due to  related parties of $508, convertible debentures of $50,000 and

labilities  from  discontinued  operations  of  $5,905,666,  whereas  our  total  liabilities  at

December   31,   2015   consisted   of   current   liabilities   including     accounts   payable   of

$168,971,  amounts  due  to  related  parties  of  $2,043,  and  liabilities  from  discontinued

operations  of  $5,905,666.  We  had  no  long  term  liabilities  for  the  year  ended  December

11



31, 2016.   The increase in liabilities was primarily due to an increase in accounts payable

and accrued interest

Stockholders’     Equity     (Deficiency).     Our     Stockholders’     Deficiency     was

$(5,869,425)  at  December  31,  2016  compared  to  Stockholders’  Equity  of  $1,561,316  at

December  31,  2015  This  decrease  was  due  to  an  increase  in  accumulated  deficit  from

$(2,798,390)  at  December  31,  2015  to  $(10,230,631)  at  December  31,  2016  resulting

from  net  loss  from  continuing  operations  of  $(451,060)  and  a  net  loss  from  discontinued

operations of $(6,981,181) primarily due to impairment of goodwill and intangible assets.

Net  Income  (Loss).  We  had  a  loss  from  continuing operations  of  $(451,060)  and

$(536,130) for the  years ended December 31, 2016 and December 31, 2015, respectively,

and  a  loss   from  discontinued  operations   of  $(6,981,181)  compared  to   income  from

discontinued   operations   of   $619,939   for   the   year   ended   December   31,   2016   and

December 31, 2015, respectively.

General  and  Administrative  Expenses.  General  and  Administrative  Expenses

decreased  to  $448,595  for the  year  ended  December 31, 2016  from $532,988 for  the  year

ended  December 31,  2015.  For  the  year  ended  December 31,  2016  our  General  and

Administrative Expenses consisted of corporate administrative expenses of $90,617, legal

and  accounting  fees  of  $115,660,  payroll  expenses  of  $91,155,  Directors  and  Officers

Insurance of $10,053 employee benefits expenses of $24,217 (medical and life insurance)

filing  fees  of  $11,779,  financing  expense  of  $10,000,  and  $95,114  in  marketing  and

finder’s  fees.  For  the  year  ended  December 31,  2015  our  General  and  Administrative

Expenses   consisted   of   corporate   administrative   expenses   of   $98,085,   legal   and

accounting   fees   of   $124,555,   payroll   expenses   of   $111,838,   Directors   and   Officers

Insurance   of   $42,206,   employee   benefits   expenses   of   $20,790   (medical     and   life

insurance),  filing  fees  of  $12,489,    and  $123,025  in  in  marketing  and  finder’s  fees.

Therefore  the  decreases  from  the  year  ended  December 31,  2015  to  the  year  ended

December 31,  2016  relate  primarily  to  a  decrease  in  payroll,  legal  and  professional  fees

and   in   marketing   and   finder’s   fees.   In   2017   we   anticipate   an   increase   in   General

Administrative Expenses associated with the HealthDatix acquisition.

LIQUIDITY AND CAPITAL RESOURCES

General

As  reflected  in  the  accompanying  consolidated  financial  statements,  at  December

31,  2016,  we  had  $10,522  of  cash  and  stockholders’  deficiiency  of  $(5,869,425).    At

December 31, 2015, we had $122,291 of cash and stockholders’ equity of $1,561,316.

Our primary capital requirements in 2017 are likely to arise from the expansion of

our  HealthDatix  operations,  It  is  not  possible  to  quantify those  costs  at  this  point  in  time,

in  that  they  depend  on  HealthDatix’s  business  opportunities  and  the  state  of  the  overall

economy.  We  anticipate  raising  capital  in  the  private  markets  to  cover  any  such  costs,

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

12



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

other loan facility from a commercial bank.

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

volume,  and  in  our  ability  to  raise  additional  funds,  there  can  be  no  assurances  that  we

will be able to fully effectuate our business plan.

We  believe  we  will  continue  to  increase  our  cash  position  and  liquidity  for  the

foreseeable future. We believe we have enough capital to fund our present operations.

Cash Flow Activity

Net  cash  used  in  operating  activities  was  $274,223,  for  the  year  ended  December

31,  2016,  compared  to  net  cash  provided  by  operating  activities  of  $44,907  for  the  year

ended   December   31,   2015.     Net   cash   used   in   continuing   operating   activities   was

$142,092  for  the  year  ended  December  31,  2016,  compared  to  $313,932  for  the  year

ended  December  31,  2015.  Our  primary  use  of  operating  cash  flows  from  continuing

operating  activities  was  from  net  losses   of  $451,060  and  $536,130  for  the  years  ended

December  31,  2016  and  2015,  respectively.  Additional  contributing factors  to  the  change

were  from  a  decrease  in  prepaid  expenses  of  $119,961,  and  an  increase  in  accounts

payable  and  accrued  expenses  of  $187,034.    Net  cash  used  in  discontinued  operating

activities  was  $132,131  for  the  year  ended  December  31,  2016  and  net  cash  provided  by

discontinued  operations  was  $358,839  for  the  year  ended  December  31,  2015.  Cash  used

in discontinued operations for the  year ended December 31, 2016 consisted of $1,990,490

in  revenue  from  our  ArcMail  subsidiary  and  $180,849  in  cash  payments  received  from

VHT  Inc.  pursuant  to  the  VHT  Purchase  Agreement.  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.

Cash  used  in  investing  activities  was  $9,990  for  the  year  ended  December  31,  2016

and  cash  provided  by  investing  activities  was  $1,828  for  the  year  ended  December  31,

2015.  For  the  year  ended  December  31,  2016  the  primary  source  of  cash  from  investing

activities  was  from  an  increase  in  note  receivable  of  $15,000.    For  the  year  ended

December  31,  2015  the  primary  source  of  cash  from  investing  activities  was  from  a

decrease in deposits of $10,413.

Cash  provided  by  financing  activities  was  $172,444  for  the  year  ended  December

31,  2016  compared  to  cash  used  in  financing  activities  of  $(51,277)  for  the  year  ended

December  31,  2015.  The  cash  flows  provided  by  financing  activities  for  the  year  ended

December  31,  2016  was  primarily  from  proceeds  from  convertible  debentures.  The  cash

flows  used  in  financing  activities  for  the  year  ended  December  31,  2015  was  primarily

from repayment of stockholders loans and a note payable from discontinued operations..

Plan of Operation and Funding

We  expect  that working capital  requirements will continue to be funded through  a

combination of our existing funds and further issuances of securities. Our working capital

13



requirements  are  expected  to  increase  in  line  with  the  growth  of  our  business.  Existing

working  capital,  further  advances  and  debt  instruments,  and  anticipated  cash  flow  are

expected  to  be  adequate  to  fund  our  operations  over the  next  twelve  months.  We  have  no

lines   of   credit   or   other   bank   financing   arrangements.   Generally,   we   have   financed

operations  to  date  through  the  proceeds  of  the  private  placement  of  equity  and  debt

instruments.    In  connection  with  our  business  plan,  management  anticipates  additional

increases  in  operating  expenses  and  capital  expenditures  relating  to:  (i)  developmental

expenses  associated  with  a  start-up  business  and  (ii)  marketing  expenses.  We  intend  to

finance   these   expenses   with   further   issuances   of   securities,   and   debt   issuances.

Thereafter,  we  expect  we  will  need  to  raise  additional  capital  and  generate  revenues  to

meet  long-term  operating  requirements.  Additional  issuances  of  equity  or  convertible

debt  securities  will  result  in  dilution  to  our  current  shareholders.  Further,  such  securities

might  have  rights,  preferences  or  privileges  senior  to  our  common  stock.  Additional

financing  may not  be  available upon  acceptable terms,  or  at  all.  If  adequate  funds  are  not

available  or  are  not  available  on  acceptable  terms,  we  may  not  be  able  to  take  advantage

of  prospective  new  business  endeavors  or  opportunities,  which  could  significantly  and

materially restrict our business operations.

OFF BALANCE SHEET ARRANGEMENTS

We have no off balance-sheet arrangements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

Not Required.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements required by this Item 8 are included in this Report beginning

on page F-1, as follows:

Report of Independent Registered Public Accounting Firm

F-1

Consolidated Balance Sheet as of December 31, 2016 and 2015

F-2

Consolidated Statement of Income for the years ended December 31, 2016 and

F-3

2015

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

F-4

December 31, 2016 and 2015

Consolidated Statement of Cash Flows for the years ended December 31, 2016

F-5

and 2015

Notes to Financial Statements

F-7

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

14



ITEM 9A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our  management,  with  the  participation  of  our  chief  executive  officer  and  chief

financial  officer,  evaluated  the  effectiveness  of  our  disclosure  controls  and  procedures

pursuant  to  Rule  13a-15  under  the  Exchange  Act,  as  of  the  end  of  the  period  covered  by

this Annual Report on Form 10-K.

Based  on  this  evaluation,  our  chief  executive  officer  and  chief  financial  officer

concluded  that,  as  of  December  31,  2016,  our  disclosure  controls  and  procedures  are

designed at a reasonable assurance level and are effective to provide reasonable assurance

that  information  we  are  required  to  disclose  in  reports  that  we  file  or  submit  under  the

Exchange  Act  is  recorded,  processed,  summarized,  and  reported  within  the  time  periods

specified  in  the  SEC’s  rules  and  forms,  and  that  such  information  is  accumulated  and

communicated   to   our   management,   including   our   chief   executive   officer   and   chief

financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There   were   no   changes   in   our   internal   control   over   financial   reporting   that

occurred  during  the  quarter  ended  December  31,  2016  that  have  materially  affected,  or

are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal

control  over  financial  reporting,  as  defined  in  Rule  13a-15(f)  of  the  Exchange  Act.  Our

management  conducted  an  evaluation  of  the  effectiveness  of  our  internal  control  over

financial  reporting  based  on  the  framework  in  Internal  Control—Integrated  Framework

issued  by  the  Committee  of  Sponsoring  Organizations  of  the  Treadway  Commission

(2013  framework).  Based  on  this  evaluation,  management  concluded  that  our  internal

control over financial reporting was effective as of December 31, 2016.

Limitations on Effectiveness of Controls and Procedures

In  designing  and  evaluating  the  disclosure  controls  and  procedures,  management

recognizes  that  any  controls  and  procedures,  no  matter  how  well  designed  and  operated,

can  provide  only  reasonable  assurance  of  achieving  the  desired  control  objectives.  In

addition,  the  design  of  disclosure  controls  and  procedures  must  reflect  the  fact  that  there

are   resource   constraints   and   that   management   is   required   to   apply   its   judgment   in

evaluating the benefits of possible controls and procedures relative to their costs.

ITEM 9B.  OTHER INFORMATION

None.

15



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

78     Chief Executive Officer, President,    March 2009

Chairman of the Board, and

(appointed Chairman

Director

and Director in

April 2000)

Elisa Luqman

52     Chief Financial Officer, Executive     March 2009

Vice President, General Counsel,

(appointed Director

and Director

in August 2009)

George G. Dempster

77     Director

January 2001

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.

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

16



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

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.

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.

17



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,

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.

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  consisted  of  Messrs. Charles,  Keefe  and  Dempster,  with

Mr.  Charles  serving  as  chairman.  On  September  14,  2016  Mr.  Charles  resigned  from  the

Board, as disclosed on the Company’s current report on Form 8-K filed on September 19,

2016.  Our  Board  is  actively  seeking  a  suitable  replacement  that  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.

Compensation Committee

The Compensation Committee consisted of Messrs. Charles, Keefe and Dempster,

with  Mr. Keefe  serving  as  chairman.  On  September  14,  2016  Mr.  Keefe  resigned  from

the Board, as disclosed on the Company’s current report on  Form 8-K filed on September

19,  2016.  Our  Board  is  actively  seeking  a  suitable  replacement.  The  Compensation

Committee    is    responsible    for    reviewing    and    recommending    to    the    Board    the

compensation   and   over-all   benefits   of   our   executive   officers.   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

18



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.

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, 2016.

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

2016

37,846

0

0

0

0

0

27,454 (1)

65,300

CEO,

President      2015

46,635

0

0

0

0

0

20,790 (2)

67,425

Chairman

&

2014      131,250

0

0

0

0

0

13,206(3)

144,456

Director

Elisa

Luqman

2016

60,459

0

0

0

0

0

0

60,459

CFO,

EVP,  GC     2015

60,577

0

0

0

0

0

0

60,577

and

Director

2014      143,746

0

0

0

0

0

36,514(4)

180,260

(1)      Includes $3,237 in health insurance premiums and $24,217 in life insurance premiums.

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

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

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

19



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.

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

Equity

Market      Equity

Equity

Incentive

Number     Value     Incentive     Incentive

Plan

of

of

Plan

Plan

Awards:

Shares     Shares     Awards:      Awards:

Number of

Number of

Number of

or Units

or

Number     Market or

Securities

Securities

Securities

of Stock     Units

of

Payout

Underlying      Underlying

Underlying

That

of

Unearned     Value of

Unexercised     Unexercised     Unexercised     Option

Have

Stock

Shares,      Unearned

Options

Options

Unearned     Exercise

Option

Not

That

Units or

Shares,

(#)

(#)

Options

Price

Expiration

Vested      Have

Other

Units or

Exercisable    Unexercisable

(#)

($)

Date

(#)

Not

Rights

Other

Name (a)

(b)

(c)

(d)

(e)

(f)

(g)

Vested

That

Rights

20



 

($)

Have Not

That

(h)

Vested      Have Not

(#)

Vested

(i)

(#)

(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, 2016.

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

George G. Dempster

$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  17,  2017,

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

21



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 17, 2017.

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

5,000,000

%

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

President, General Counsel and Director

5,685,000,(1)

%

%

George G. Dempster, Director

605,000(2)

%

Rory T. Welch, CEO & President ArcMail

10,000,000

HealthDatix Management

11,250,000

Executive Officers and Directors as Group:

32,540,000 (3)

%

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

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

3.    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. Dempster  is

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.

22



ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The   following   table   shows   what   Paritz   and   Company   P.A.   and   Michael   F.

Albanese,  CPA  billed  for  the  audit  and  other  services  for  the  year  ended  December  31,

2016 and December 31, 2015 respectively.

Year Ended  Year Ended

12/31/ 2016    12/31/2015

Audit Fees

$

47,500  $

38,500

Audit-Related Fees

        ---

          ---

All Tax Fees

---

Other Fees

---

Total

$

47,500   $

38,500

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.

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

23



(a) Financial Statements

Report of Independent Registered Public Accounting Firm

F-1

Consolidated Balance Sheet as of December 31, 2016 and 2015

F-2

Consolidated Statement of Income for the years ended December 31, 2016 and

F-3

2015

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

F-4

ended December 31, 2016 and 2015

Consolidated Statement of Cash Flows for the years ended December 31, 2016

F-5

and 2015

Notes to Financial Statements

F-7

(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)

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

24



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.

25



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 17, 2017.

iGambit Inc.

April 17, 2017

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 17, 2017

John Salerno

/s/ Elisa Luqman

Chief Financial Officer, Executive

April 17, 2017

Vice President, General Counsel,

Elisa Luqman

Principal Accounting Officer and

Director

26



15 Warren Street, Suite 25

P

Hackensack, New Jersey 07601

(201) 342-7753

aritz

Fax:  (201) 342-7598

& Company, P.A

E-Mail:  PARITZ@paritz.com

Certified Public Accountants

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders’

iGambit, Inc.

We  have  audited  the  accompanying  consolidated  balance  sheets  of  iGambit,  Inc.  as  of  December  31,  2016

and   2015   and   the   related   consolidated   statements   of   operations,   changes   in   stockholders’   equity

(deficiency)  and  cash  flows  for  the  years  ended  December  31,  2016  and  2015.   These  financial  statements

are  the  responsibility  of  the  Company's  management.   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  audits  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 audit provides a reasonable basis for our opinion.

In  our  opinion,  the  consolidated  financial  statements  referred  to  above  present  fairly,  in  all  material

respects,  the  financial  position  of  iGambit,  Inc.as  of  December  31,  2016  and  2015,  and  the  results  of  its

operations  and  cash  flows  for  the  years  ended  December  31,  2016  and  2015  in  conformity with  accounting

principles generally accepted in the United States of America.

The  accompanying  consolidated  financial  statements  have  been  prepared  on  a  going  concern  basis,  which

contemplates the realization of assets and the satisfaction of liabilities in  the normal  course of business.  As

discussed  in  Note  4,  the  Company  is  in  the  process  of  disposing  of  its  operating  subsidiary  and  has  a

stockholders'  deficiency  of  $5,869,425  at  December  31,  2016.  These  factors,  among  others,  raise  substantial

doubt  about  the  ability  of  the  Company  to  continue  as  a  going  concern.  Management  plans  are  also

discussed  in  Note  4.The  financial  statements  do  not  include  any  adjustments  that  might  result  from  the

outcome of this uncertainty.

/S/Paritz & Company, P.A.

Hackensack, New Jersey

April 17, 2017

F-1



IGAMBIT INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

2016

2015

ASSETS

Current assets

Cash

$

10,522

$

122,291

Prepaid expenses and other current assets

108,941

228,902

Note receivable

15,000

--

Assets from discontinued operations, net

373,469

7,283,427

Total current assets

507,932

7,634,620

Property and equipment, net

1,183

1,656

Other assets

Deposits

1,720

1,720

$

510,835

$

7,637,996

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities

Accounts payable and accrued expenses

$

356,005

$

168,971

Amounts due to related parties

508

2,043

Convertible debentures

50,000

--

Liabilities from discontinued operations

5,973,747

5,905,666

Total current liabilities

6,380,260

6,076,680

Stockholders' equity (deficiency)

Preferred stock, $.001 par value; authorized - 100,000,000 shares;

issued and outstanding - 0 shares in 2016 and 2015, respectively

--

--

Common stock, $.001 par value; authorized - 200,000,000 shares;

issued and outstanding - 39,708,990 shares in 2016 and

39,683,990 shares in 2015, respectively

39,709

39,684

Additional paid-in capital

4,321,497

4,320,022

Accumulated deficit

(10,230,631)

(2,798,390)

Total stockholders' equity (deficiency)

(5,869,425)

1,561,316

$

510,835

$

7,637,996

See accompanying notes to the consolidated financial statements.

F-2



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

2016

2015

Sales

$

--  $

--

Cost of sales

--

--

Gross profit

--

--

Operating expenses

General and administrative expenses

448,595

532,988

Operating loss from continuing operations

(448,595)

(532,988)

Other income (expenses)

Interest expense

(2,579)

(3,146)

Interest income

114

4

Total other income (expenses)

(2,465)

(3,142)

Loss from continuing operations

(451,060)

(536,130)

Income (loss) from discontinued operations

(6,981,181)

619,939

Net income (loss)

$   (7,432,241)  $

83,809

Basic and fully diluted earnings (loss) per common share:

Continuing operations

$

(.01)  $

(.02)

Discontinued operations

$

(.18)  $

.02

Net income (loss) per common share

$

(.19)  $

.00

Weighted average common shares outstanding - basic and fully diluted

39,687,747      29,168,374

      

See accompanying notes to the consolidated financial statements.

F-3



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 2016 AND 2015

Additional

Common stock

Paid-in

Accumulated

Shares

Amount

Capital

Deficit

Totals

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

Common stock issued for services

25,000

25

1,475

--

1,500

Net loss

(7,432,241)     (7,432,241)

Balances, December 31, 2016

39,708,990  $    39,709  $   4,321,497  $   (10,230,631)  $  (5,869,425)

See accompanying notes to the consolidated financial statements.

F-4



IGAMBIT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,

2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$ (7,432,241)  $      83,809

(Income) loss from discontinued operations

6,981,181    (619,939)

Net earnings from continuing operations

(451,060)    (536,130)

Adjustments to reconcile net income (loss) to net

cash provided by (used in) operating activities

Sale of discontinued property and equipment

--

6,118

Depreciation

473

662

Stock-based compensation expense

1,500

331,998

Increase (Decrease) in cash flows as a result of

changes in asset and liability account balances:

Prepaid expenses and other current assets

119,961    (194,374)

Accounts payable and accrued expenses

187,034

77,794

Net cash used in continuing operating activities

(142,092)    (313,932)

Net cash provided by (used in) discontinued operating activities

(132,131)

358,839

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     (274,223)

44,907

CASH FLOWS FROM INVESTING ACTIVITIES:

Issuance of note receivable

(15,000)

--

Decrease in deposits

--

10,413

Net cash provided by (used in) continuing investing activities

(15,000)

10,413

Net cash provided by (used in) discontinued investing activities

5,010

(8,585)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(9,990)

1,828

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from stockholders' loans

--

2,043

Repayments of stockholders' loans

(1,535)

--

Proceeds from convertible debentures

50,000

--

Net cash provided by continuing financing activities

48,465

2,043

Net cash provided by (used in) discontinued financing activities

123,979      (53,320)

F-5



NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

172,444      (51,277)

NET DECREASE IN CASH

(111,769)

(4,542)

CASH - BEGINNING OF YEAR

122,291

126,833

CASH - END OF YEAR

$

10,522  $    122,291

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the  year for:

Interest

$

2,579  $

3,146

Non-cash investing and financing activities:

Common stock issued in business acquisition

$

--  $ 1,150,000

See accompanying notes to the consolidated financial statements.

F-6



IGAMBIT INC.

Notes to Consolidated Financial Statements

Years Ended December 31, 2016 and 2015

Note 1 - Organization and Basis of Presentation

The   consolidated   financial   statements   presented   are   those   of   iGambit   Inc.,   (the

“Company”)  and  its  wholly-owned  subsidiaries,  Wala,  Inc.  doing  business  as  Arcmail

Technology  (“ArcMail”)  and  Gotham  Innovation  Lab  Inc.  (“Gotham”).  The  Company

was  incorporated  under  the  laws  of  the  State  of  Delaware  on  April  13,  2000.  The

Company was originally incorporated as Compusations Inc. under the laws of the State of

New  York  on  October  2,  1996.   The  Company  changed  its  name  to  BigVault.com  Inc.

upon  changing  its  state  of  domicile  on  April  13,  2000.   The  Company  changed  its  name

again  to  bigVault  Storage  Technologies  Inc.  on  December  21,  2000  before  changing  to

iGambit  Inc.  on  April  5,  2006.   Gotham  was  incorporated  under  the  laws  of  the  state  of

New York on  September  23, 2009.   The  Company is  a holding company which seeks out

acquisitions  of  operating  companies  in  technology  markets.    ArcMail  provides  email

archive solutions to domestic and international businesses through hardware and software

sales,   support,   and   maintenance.     Gotham   is   in   the   business   of   providing   media

technology services to real estate agents and brokers in the New York metropolitan area.

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:

Fair Value

Cash

$

10,198

Accounts receivable, net

205,208

Inventories

21,160

Prepaid expenses

276

Fixed assets

41,235

Accounts payable and accrued expenses

(442,300)

Accrued interest

(254,718)

Deferred revenue

(1,254,865)

Notes payable

(3,881,351)

Workforce

138,783

Non-compete

145,315

Customer relations

3,357,756

Goodwill

3,063,303

Purchase price

$

1,150,000

F-7



The results of operations of ArcMail have been included in the consolidated statements of

operations as discontinued 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,  2015.  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,

2015

Pro forma revenue

$

2,165,646

Pro forma gross profit

$

2,080,851

Pro forma loss from operations

$

(414,366)

Pro forma net loss

$

(207,014)

Note 2 – Discontinued Operations

Sale of Business

Effective  October  1,  2016,  management  decided  to  dispose  of  its  subsidiary Arcmail  and

entered into  a  letter of intent  on  March  1,  2017  to  sell  Arcmail  in  a  stock exchange  to  the

CEO of Arcmail.

On  November  5,  2015,  pursuant  to  an  asset  purchase  agreement  Gotham  sold  assets

consisting  of  fixed  assets,  client  and  supplier  lists,  trade  names,  software,  social  media

accounts  and  websites,  and  domain  names  to  VHT,  Inc.,  a  Delaware  corporation  for  a

purchase  price of  $600,000.   Gotham received $400,000 and  commencing on January 29,

2016,  VHT,  Inc.  shall  pay  twelve  equal  monthly  installments  of  $16,667  on  the  last

business   day  of   each   month  (the   “Installment   Payments”  and   each,   an   “Installment

Payment”),  each  Installment  Payment  to  consist  of  (1)  an  earn-out  payment  of  $10,000

(the  “Earn-Out  Payments”  and  each,  an  “Earn-Out  Payment”),  and  (2)  an  additional

payment  of  $6,667  (the  “Additional  Payments”  and  each,  an  “Additional  Payment”);

provided  that  VHT,  Inc.  shall  only  be  required  to  make  the  Earn-Out  Payments  for  as

long  as  it  maintains  its  relationship  with  Gotham’s  major  client,  unless  it  is  dissatisfied

with VHT,  Inc.   The terms  of  the installment payments were  fulfilled  as of December 31,

2016.

The  assets  and  liabilities  of  the  discontinued  operations  are  presented  in  the  consolidated

balance  sheets  under  the  captions  “Assets  from  discontinued  operations”  and  “Liabilities

from  discontinued  operations”,  respectively.   The  underlying  assets  and  liabilities  of  the

discontinued operations as of December 31, 2016 and 2015 are presented as follows:

2016

2015

Assets:

Cash

$

17,323

$

23,590

F-8



Accounts receivable, net

321,033

477,554

Inventory

1,160

21,160

Prepaid expenses

15,300

17,189

Property and equipment

18,653

38,777

Workforce

--

138,783

Non-compete

--

145,315

Customer relations

--

3,357,756

Goodwill

--

3,063,303

Total assets

$

373,469

$     7,283,427

Liabilities:

Accounts payable and accrued expenses

359,996

585,079

Accrued interest on notes payable

558,183

302,278

Amounts due to related party

64,509

72,827

Deferred revenue

1,092,388

1,190,279

Notes payable

3,119,001

3,119,001

Notes payable - other

153,404

--

Note payable - related party

626,266

636,202

$     5,973,747

$     5,905,666

The   components   of   income   (loss)   from   discontinued   operations   presented   in   the

consolidated  statements  of  operations  for  the  years  ended  December  31,  2016  and  2015

are presented as follows:

2016

2015

Sales

$    1,990,490

$    1,549,564

Cost of sales

(179,312)

(524,249)

General and administrative expenses

(1,626,355)

(941,987)

Depreciation and amortization

(463,217)

(6,164)

Gain on sale of assets

--

590,764

Interest expense

(439,467)

(47,989)

Impairment expense

(6,263,320)

--

Income (loss) from discontinued operations

$    (6,981,181)

$

619,939

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.,  which  are

F-9



presented   as   discontinued   operations   (See   Note   2).  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,  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

iGambit is a holding company and has no sources of revenue.

Arcmail   recognizes   revenue   from   product   sales   when   the   following   four   revenue

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

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

collectability  is  reasonably  assured.    Revenues  from  maintenance  contracts  covering

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

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

terms of the contracts.

Gotham’s   revenues   were   derived   primarily   from   the   sale   of   products   and   services

rendered  to  real  estate  brokers.    Gotham  recognized  revenues  when  the  services  or

products  have  been  provided  or  delivered,  the  fees  charged  are  fixed  or  determinable,

Gotham  and  its  customers  understood  the  specific  nature  and  terms  of  the  agreed  upon

transactions, and collectability was reasonably assured.

Advertising Costs

The  Company  expenses  advertising  costs  as  incurred.   There  were  no  advertising  costs

for the years ended December 31, 2016 and 2015, 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.

F-10



Accounts Receivable

The   Company   analyzes   the   collectability   of   accounts   receivable   from   continuing

operations   each   accounting   period   and   adjusts   its   allowance   for   doubtful   accounts

accordingly.   A  considerable  amount  of  judgment  is  required  in  assessing  the  realization

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

historical  collection  history  and  the  related  aging  of  past  due  balances.   The  Company

evaluates  specific  accounts  when  it  becomes  aware  of  information  indicating  that  a

customer  may  not  be  able  to  meet  its  financial  obligations  due  to  deterioration  of  its

financial  condition,  lower  credit  ratings,  bankruptcy  or  other  factors  affecting  the  ability

to  render  payment.   Allowance  for  doubtful  accounts  was  $8,345  at  December  31,  2016

and  2015,  respectively.   Bad  debt  expense  of  $0  and  $5,971  was  charged  to  discontinued

operations for the  years ended December 31, 2016 and 2015, respectively.

Inventories

Inventories  consisting  of  finished  products  are  stated  at  the  lower  of  cost  or  market  and

are  presented  in  assets  from  discontinued  operations.   Cost  is  determined  on  an  average

cost basis.

Property and equipment and depreciation

Property  and  equipment  are  stated  at  cost.    Maintenance  and  repairs  are  charged  to

expense  when  incurred.   When  property  and  equipment  are  retired  or  otherwise  disposed

of,   the   related   cost   and   accumulated   depreciation   are   removed   from   the   respective

accounts  and  any  gain  or  loss  is  credited  or  charged  to  income.   Depreciation  for  both

financial  reporting  and  income  tax  purposes  is  computed  using  combinations  of  the

straight  line  and  accelerated  methods  over  the  estimated  lives  of  the  respective  assets  as

follows:

Office equipment and fixtures

5 - 7 years

Computer hardware

5 years

Computer software

3 years

Development equipment

5 years

Amortization

Intangible  assets  are  amortized  using  the  straight  line  method  over  the  estimated  lives  of

the respective assets as follows:

Non-compete

5 years

Workforce

10 years

Customer relations

10 years

Goodwill and Intangible Assets

Goodwill represents the excess of liabilities assumed over assets acquired of ArcMail and

F-11



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.   During  the

year  ended  December  31,  2016,  goodwill  was  reallocated  to  intangible  assets  acquired  as

follows:

Workforce

$

138,783

Non-compete

145,315

Customer relations

3,357,756

3,641,854

Goodwill

3,063,303

$     6,705,157

In  connection  with  management’s  decision  to  sell  Arcmail,  the  Company  recorded  an

impairment   charge   to   discontinued   operations   of   $6,263,320,   and   amortization   of

$441,837  was  charged  to  discontinued  operations  during  the  year  ended  December  31,

2016.

Long-Lived Assets

The  Company  assesses  the  valuation  of  components  of  its  property  and  equipment  and

other  long-lived  assets  whenever  events  or  circumstances  dictate  that  the  carrying  value

might  not  be  recoverable.  The  Company  bases  its  evaluation  on  indicators  such  as  the

nature  of  the  assets,  the  future  economic  benefit  of  the  assets,  any  historical  or  future

profitability  measurements  and  other  external  market  conditions  or  factors  that  may  be

present.  If  such  factors  indicate  that  the  carrying  amount  of  an  asset  or  asset  group  may

not  be  recoverable,  the  Company  determines  whether  an  impairment  has  occurred  by

analyzing  an  estimate  of  undiscounted  future  cash  flows  at  the  lowest  level  for  which

identifiable  cash  flows  exist.  If  the  estimate  of  undiscounted  cash  flows  during  the

estimated  useful  life  of  the  asset  is  less  than  the  carrying value  of the  asset, the  Company

recognizes  a  loss  for  the  difference  between  the  carrying  value  of  the  asset  and  its

estimated fair value, generally measured by the present value of the estimated cash flows.

Deferred Revenue

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

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

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

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

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

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

generated   from   the   Company’s   support   and   maintenance   services,   the   Company

F-12



recognizes  such  revenues  when  services  are  completed  and  billed.  The  Company  has

received  deposits  from its  various  customers  that  have  been  recorded  as  deferred revenue

and  presented  as  discontinued  liabilities  in  the  amount  of  $1,092,388  and  $1,190,279  as

of the years ended December 31, 2016 and 2015, respectively.

Stock-Based Compensation

The   Company   accounts   for   its   stock-based   awards   granted   under   its   employee

compensation  plan  in  accordance  with  ASC  Topic  No.  718-20,  Awards  Classified  as

Equity,  which  requires  the  measurement  of  compensation  expense  for  all  share-based

compensation  granted  to  employees  and  non-employee  directors  at  fair  value  on  the  date

of  grant  and  recognition  of  compensation  expense  over  the  related  service  period  for

awards  expected  to  vest.  The  Company  uses  the  Black-Scholes  option  pricing  model  to

estimate  the  fair  value  of  its  stock  options  and  warrants.  The  Black-Scholes  option

pricing  model  requires  the  input  of  highly subjective  assumptions  including  the  expected

stock  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:

F-13



Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The  amendments  in  this  ASU  are  effective  for  annual  reporting  periods  beginning  after

December   15,   2016,   including   interim   periods   within   that   reporting   period.   Early

application  is  not  permitted.  This  amendment  is  to  be  either  retrospectively  adopted  to

each  prior  reporting  period  presented  or  retrospectively  with  the  cumulative  effect  of

initially  applying  this  ASU  recognized  at  the  date  of  initial  application.  Adoption  of  this

guidance  is  not  expected  to  have  a  material  impact  on  the  Company's  consolidated

financial statements.

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

F-14



interim  periods  within  those  annual  periods.  The  Company  does  not  anticipate  that  the

adoption   of   this   standard   will   have   a   material   impact   on   its   consolidated   financial

statements.

FASB ASC 842 ASU 2016-02 – Leases:

In  February  2016,  the  FASB  issued  ASU  No.  2016-02, “Leases  (Topic  842)”  (“ASU

2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from

a lease for both financing and operating leases. The ASU will also require new qualitative

and  quantitative  disclosures  to  help  investors  and  other  financial  statement  users  better

understand  the  amount,  timing,  and  uncertainty  of  cash  flows  arising  from  leases. ASU

2016-02  is  effective  for  fiscal  years  beginning  after  December  15,  2018,  with  early

adoption permitted. The  Company is currently evaluating ASU 2016-02 and its impact on

its consolidated financial statements.

Note 4 – Going Concern

The  accompanying  consolidated  financial  statements  have  been  prepared  on  a  going

concern   basis,   which   contemplates   the   realization   of   assets   and   the   satisfaction   of

liabilities  in  the  normal  course  of  business.   The  Company  is  in  the  process  of  disposing

of its  operating subsidiary and  has  a   stockholders' deficiency  of $5,869,425  at  December 31,

2016.   These   factors,   among   others,   raise   substantial   doubt   about   the   ability  of   the

Company   to   continue   as   a   going   concern   for   a   reasonable   period   of   time.  The

Company’s  continuation   as  a  going  concern  is  dependent  upon  its  ability  to  obtain

necessary  equity  financing  and   ultimately  from   generating  revenues   from   its   newly

acquired  subsidiaries  to  continue  operations.   The  Company  expects  that  working  capital

requirements  will  continue  to  be  funded  through  a  combination  of  its  existing  funds  and

further  issuances  of  securities.  Working  capital  requirements  are  expected  to  increase  in

line with the  growth of  the business.   Existing working capital,  further advances  and debt

instruments,  and  anticipated  cash  flow  are  expected  to  be  adequate  to  fund  operations

over the next twelve months. The Company has  no lines of credit or other bank financing

arrangements.  The  Company  has  financed  operations  to  date  through  the  proceeds  of  a

private  placement  of  equity  and  debt  instruments.   In  connection  with  the  Company’s

business  plan,  management  anticipates  additional  increases  in  operating  expenses  and

capital  expenditures  relating  to:  (i)  developmental  expenses  associated  with  a  start-up

business  and  (ii)  marketing  expenses.  The  Company  intends  to  finance  these  expenses

with  further  issuances  of  securities,  and  debt  issuances.  Thereafter,  the  Company expects

it  will  need  to  raise  additional  capital  and  generate  revenues  to  meet  long-term  operating

requirements.  Additional  issuances  of  equity  or  convertible  debt  securities  will  result  in

dilution to current  shareholders.  Further, such securities might  have  rights, preferences or

privileges  senior  to  common  stock.  Additional  financing  may  not  be  available  upon

acceptable  terms,  or  at  all.  If  adequate  funds  are  not  available  or  are  not  available  on

acceptable  terms,  the  Company  may  not  be  able  to  take  advantage  of  prospective  new

business  endeavors  or  opportunities,  which  could  significantly  and  materially  restrict

business operations

F-15



The  consolidated  financial  statements  do  not  include  any  adjustments  relating  to  the

recoverability   and   classification   of   recorded   asset   amounts   or   the   amounts   and

classification  of  liabilities  that  might  be  necessary  should  the  Company  be  unable  to

continue as a going concern.

Note 5 – Property and Equipment

Property  and  equipment  are  carried  at  cost  and  consist  of  the  following  at  December  31,

2016 and 2015:

Continuing operations:

2016

2015

Office equipment and fixtures

$

7,164

$

7,164

Less: Accumulated depreciation

5,981

5,508

$

1,183

$

1,656

Discontinued operations:

2016

2015

Office equipment and fixtures

$

131,842

$

131,842

Computer hardware

92,200

90,943

Computer software

77,700

77,700

Development equipment

35,318

35,318

337,060

335,803

Less: Accumulated depreciation

318,407

297,026

$

18,653

$

38,777

Depreciation  expense  of  $473  and  $662  was  charged  to  continuing  operations  for  the

years ended December 31, 2016 and 2015, respectively.

Depreciation  expense  of  $21,381  and  $6,164  was  charged  to  discontinued  operations  for

the years ended December 31, 2016 and 2015, respectively.

Note 6 - Income (Loss) Per Common Share

The  Company  calculates  net  income  (loss)  per  common  share  in  accordance  with  ASC

260   Earnings   Per   Share”  (“ASC   260”).   Basic  and   diluted   net   earnings   (loss)  per

common  share  was  determined  by  dividing  net  earnings  (loss)  applicable  to  common

stockholders  by  the  weighted  average  number  of  common  shares  outstanding  during  the

period.  The  Company’s  potentially  dilutive  shares,  which  include  outstanding  common

stock  options  and  common  stock  warrants,  have  not  been  included  in  the  computation  of

diluted  net  loss  per  share  for  the  year  ended  December  31,  2016  as  the  result  would  be

anti-dilutive.

F-16



Years Ended

December 31,

2016

2015

Stock options

1,422,000

1,718,900

Stock warrants

275,000

275,000

Total shares excluded from calculation

1,697,000

1,993,900

Note 7 – Stock Based Compensation

Options

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

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

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

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

four  year  period.  The  Plan  expired  on  December  31,  2009,  therefore  as  of  December  31,

2016,  there  was  no  unrecognized  compensation  cost  related  to  non-vested  share-based

compensation arrangements granted under the 2006 plan.

The  2006  Plan  provided  for  the  granting  of  options  to  purchase  up  to  10,000,000  shares

of  common  stock.  8,146,900  options  have  been  issued  under  the  plan  to  date  of  which

7,157,038  have  been  exercised  and  692,962  have  expired  to  date.  There  were  296,900

options outstanding under the  2006 Plan on its expiration date of December 31, 2009. All

options issued subsequent to this date were not issued pursuant to any plan.

Stock option activity during the  years ended December 31, 2016 and 2015 follows:

Weighted

Average

Weighted

Remaining

Weighted

Average

Average

Contractual

Options

Grant-Date

Life

Outstanding

Exercise Price

Fair Value

(Years)

Options outstanding at

December 31, 2014

1,518,900

$

0.03

$

0.10

4.76

Options granted

200,000

0.01

0.10

Options outstanding at

December 31, 2015

1,718,900

0.03

0.13

3.82

Options expired

(296,900)

0.01

--

Options outstanding at

December 31, 2016

1,422,000

$

0.03

$

0.13

5.60

F-17



Options outstanding at December 31, 2016 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

June 9, 2014

213,000

213,000

$0.03

June 9, 2024

June 9, 2014

159,000

159,000

$0.03

June 9, 2024

June 9, 2014

600,000

600,000

$0.03

June 9, 2024

June 6, 2014

250,000

250,000

$0.05

June 6, 2019

March 24, 2015

200,000

200,000

$0.01

March 24, 2020

Total

1,4228,000

1,422,000

Warrants

In  addition  to  our  2006  Long  Term  Incentive  Plan,  we  have  issued  and  outstanding

compensatory  warrants  to  two  consultants  entitling  the  holders  to  purchase  a  total  of

275,000  shares  of  our  common  stock  at  an  average  exercise  price  of  $0.94  per  share.

Warrants  to  purchase  25,000  shares  of  common  stock  vest  upon  6  months  after  the

Company  engages  in  an  IPO,  have  an  exercise  price  of  $3.00  per  share,  and  expire  2

years  after  the  Company  engages  in  an  IPO.  Warrants  to  purchase  250,000  shares  of

common stock vest 100,000 shares on issuance (June 1, 2009), and 50,000 shares on each

of  the  following  three  anniversaries  of  the  date  of  issuance,  have  exercise  prices  ranging

from  $0.50  per  share  to  $1.15  per  share,  and  expire  on  June 1,  2019.  The  issuance  of  the

compensatory warrants was not submitted to our shareholders for their approval.

Weighted

(1)Weighted

Weighted

Average Grant-

Average

Date

Remaining

Warrants

Average

Contractual

Outstanding

Exercise Price

Fair Value

Life (Years)

Warrants outstanding

at December 31, 2014

275,000

$

0.94

$

0.10

4.42

No warrant activity

--

--

--

Warrants outstanding

at December 31, 2015

275,000

$

0.94

$

0.10

3.42

No warrant activity

--

--

--

Warrants outstanding

at December 31, 2016

275,000

$

0.94

$

0.10

2.42

Warrant activity during the years ended December 31, 2016 and 2015 follows:

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

F-18



Warrants outstanding at December 31, 2016 consist of:

Date

Number

Number

Exercise

Expiration

Issued

Outstanding

Exercisable

Price

Date

April 1, 2000

25,000

25,000

$3.00

2  years after IPO

June 1, 2009

100,000

100,000

$0.50

June 1, 2019

June 1, 2009

50,000

50,000

$0.65

June 1, 2019

June 1, 2009

50,000

50,000

$0.85

June 1, 2019

June 1, 2009

50,000

50,000

$1.15

June 1, 2019

Total

275,000

275,000

Note 8 – Deferred Revenue

Deferred  revenue  included  in  liabilities  from  discontinued  operations  represents  sales  of

maintenance  contracts  that  extend  to  and  will  be  realized  in  future  periods.    Deferred

revenue at December 31, 2016 will be realized in the following years ended

December 31,

2017

$

717,553

2018

270,715

2019

85,465

2020

15,075

2021

3,580

$     1,092,388

Note 9 – Convertible Debentures

During the year ended December 31, 2016, the Company issued convertible debentures to

two individuals.

The  debentures  are  convertible  into  50,000  shares  of  common  stock  for  up  to  5  years,  at

the  holders’  option,  at  an  exercise  price  of  $.50  and  $.25,  respectively.  The  debentures

mature  on  the  earlier  of  the  closing  of  a  subsequent  financing  event  by  the  Company

resulting  in  gross  proceeds  of  at  least  $10,000,000  or  three  years  from  the  date  of

issuance.  The  debentures  bear  interest  at  a  rate  of  10%  and  is  deferred  until  2017.    A

beneficial  conversion feature was not recorded as  the fair  market  value of the Company’s

common  stock  was  less  than  the  exercise  prices  at  the  dates  of  issuance  and  through  the

end of the year.

Note 10 – Notes Payable

Notes   payable   at   December   31,   2016   are   presented   in   liabilities   from   discontinued

operations  and  consist  of  various  notes  payable  in  annual  installments  totaling  $779,750

through  September  2019.   The  notes  bear  interest  at  7%  and  are  secured  by  the  assets  of

ArcMail.

F-19



Principal amounts due on notes payable for the years ended December 31, are as follows:

2017

$

779,750

2018

779,750

2019

779,750

2020

779,751

$     3,119,001

During  the  year  ended  December  31,  2016,  Arcmail  entered  into  merchant  financing

agreements  with  various lenders  for  proceeds  totaling $395,583  payable in  daily amounts

based  on  various  percentages  of  future  collections  of  accounts  receivable,  which  were

assigned   to   the   lenders.     The   obligations   will   be   satisfied   upon   total   payments   of

$504,591  and  will  mature  in  March  2017.   The  outstanding  balance  of  notes  payable  -

other was $153,404 and presented in liabilities from discontinued operations at December

31, 2016.

Note 11 – Stock Transactions

Common Stock Issued

The  Company  issued  25,000  common  shares  for  services,  valued  at  $.06  per  share  on

November 7, 2016.

In  connection  with  the  acquisition  of  ArcMail  the  Company  issued  11,500,000  common

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

2015.

The  Company  issued  1,000,000  and  600,000  common  shares  for  services,  valued  at  $.20

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

Note 12 - Income Taxes

The  Company  follows  Accounting  Standards  Codification  subtopic  740,  Income  Taxes

(“ASC  740”)  which  requires  the  recognition  of  deferred  tax  liabilities  and  assets  for  the

expected  future  tax  consequences  of  events  that  have  been  included  in  the  financial

statements  or  tax  returns.  Under  such  method,  deferred  tax  assets  and  liabilities  are

recognized   for   the   future   tax   consequences   attributable   to   differences   between   the

financial  statement  carrying amounts  of  existing assets  and  liabilities  and  their  respective

tax  bases  using  enacted  tax  rates  in  effect  for  the  year  in  which  the  differences  are

expected  to  reverse.  Deferred  taxes  are  classified  as  current  or non-current,  depending on

the classification of the assets and liabilities to which they relate.

The  difference  between  income  tax  expense  computed  by  applying  the  federal  statutory

corporate tax rate and actual income tax expense (benefit) is as follows:

F-20



Years Ended

December 31,

2016

2015

Statutory U.S. federal income tax rate

(34.0)%

34.0%

State income taxes, net of

federal income tax benefit

(4.7)%

4.7%

Tax effect of expenses that are not

deductible for income tax purposes

30.8%

(11.2)%

Change in Valuation Allowance

7.9%

(27.5)%

Effective tax rate

(0.0)%

(0.0)%

At  December 31,  the  significant  components  of  the  deferred  tax  assets  (liabilities)  are

summarized below:

2016

2015

Deferred Tax Assets:

Net Operating Losses

$1,313,180

$412,750

Other

185,670

184,646

Total deferred tax assets

1,498,850

597,397

Deferred Tax Liabilities:

--

--

Total deferred tax liabilities

--

--

Valuation Allowance

(1,498,850)

(597,397)

Net deferred tax assets

$

--

$

--

As   of   December   31,   2016,   the   Company   had   federal   and   state   net   operating   loss

carryforwards  of approximately $2.7  million  and  $3.3  million, respectively,  which  expire

at  various  dates  from  2024  through  2037.  These  net  operating  loss  carryforwards  may be

used  to  offset  future  taxable  income  and  thereby  reduce  the  Company’s  U.S.  federal  and

state income taxes. The net operating losses may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% change in ownership as determined under the regulations.

In  accordance  with  ASC  740,  a  valuation  allowance  must  be  established  if  it  is  more

likely  than  not  that  the  deferred  tax  assets  will  not  be  realized.  This  assessment  is  based

upon  consideration  of  available  positive  and  negative  evidence,  which  includes,  among

other   things,   the   Company’s   most   recent   results   of   operations   and   expected   future

profitability.  Based  on  the  Company’s  cumulative  losses  in  recent  years,  a  full  valuation

allowance  against  the  Company’s  deferred  tax  assets  as  of  December  31,  2016  and  2015

has  been  established  as  Management  believes  that  the  Company  will  not  realize  the

benefit of those deferred tax assets.  Therefore, no tax provision has been recorded for the

years ended December 31, 2016 and 2015.

The   Company   complies   with   the   provisions   of   ASC   740-10   in   accounting   for   its

uncertain  tax  positions.   ASC  740-10  addresses  the  determination  of  whether  tax  benefits

claimed  or  expected  to  be  claimed  on  a  tax  return  should  be  recorded  in  the  financial

F-21



statements.  Under  ASC  740-10,  the  Company  may  recognize  the  tax  benefit  from  an

uncertain  tax  position  only  if  it  is  more  likely  that  not  that  the  tax  position  will  be

sustained  on  examination  by  the  taxing  authorities,  based  on  the  technical  merits  of  the

position.  Management  has  determined  that  the  Company  has  no  significant  uncertain  tax

positions requiring recognition under ASC 740-10.

The  Company  is  subject  to  income  tax  in  the  U.S.,  and  certain  state  jurisdictions.  The

Company  has  not  been  audited  by  the  U.S.  Internal  Revenue  Service,  or  any  states  in

connection   with   income   taxes.   The  Company’s   tax   years   generally   remain   open   to

examination  for  all  federal  and  state  income  tax  matters  until  its  net  operating  loss

carryforwards  are  utilized  and  the  applicable  statutes  of  limitation  have  expired.  The

federal  and  state  tax  authorities  can  generally  reduce  a  net  operating  loss  (but  not  create

taxable  income)  for  a  period  outside  the  statute  of  limitations  in  order  to  determine  the

correct amount of net operating loss which may be allowed as a deduction against income

for a period within the statute of limitations.

The  Company  recognizes  interest  and  penalties  related  to  unrecognized  tax  benefits,  if

incurred, as a component of income tax expense.

Note 13 - Retirement Plan

ArcMail   has   a   defined   contribution   401(k)   plan,   which   covers   substantially   all

employees.   Under   the   terms   of   the   Plan,   Wala   is   currently   not   required   to   match

employee  contributions.   The  Company  did  not  make  any  employer  contributions  to  the

Plan in 2016.

Note 14 – Concentrations and Credit Risk

Sales and Accounts Receivable

No  customer  accounted  for  more  than  10%  of  sales  included  in  discontinued  operations

for the years ended December 31, 2016 and 2015, respectively.

Cash

Cash  is  maintained  at  a  major  financial  institution.  Accounts  held  at  U.S.  financial

institutions  are  insured  by the  FDIC  up  to  $250,000.  Cash  balances  could  exceed  insured

amounts  at  any  given  time,  however,  the  Company  has  not  experienced  any  such  losses.

The  Company  did  not  have  any  interest-bearing  accounts  at  December  31,  2016  and

2015, respectively.

Note 15 - Related Party Transactions

Note Payable – Related Party

ArcMail issued  a promissory note to the president  of ArcMail  on June  30,  2015 for funds

advanced.  The  note  is  payable  in  annual  installments  of  $155,566  through  December

F-22



2019  and  is  presented  in  liabilities  from  discontinued  operations.    The  notes  include

interest at 6% and are subordinated to the notes payable (see Note 10).

Principal amounts due on notes payable for the years ended December 31, are as follows:

2017

$

155,566

2018

155,566

2019

155,567

2020

155,567

$

626,266

Amounts Due to Related Parties

Amounts  due  to  related  parties  with  balances  of  $508  and  $2,043  at  December  31,  2016

and  2015,  respectively,  consist  of  cash  advances  from  an  officer/stockholder.    These

advances do not bear interest and are payable on demand.

Amounts  due  to  related  parties  with  balances  of  $64,509  and  $72,827  at  December  31,

2016 and 2015, respectively, consist of cash advances from the president  of Arcmail, and

is  presented  in  liabilities  from  discontinued  operations.    These  advances  do  not  bear

interest and are payable on demand.

Note 16 – Commitments and Contingencies

Lease Commitment

The  Company  is  obligated  under  two  operating  leases  for  its  premises  that  expire  at

various times through February 28, 2019.

Total  future  minimum  annual  lease  payments  under  the  leases  for  the  years  ending

December 31 are as follows:

2017

$  63,131

2018

56,743

2019

3,380

$123,254

Rent  expense  of  $19,380  and  $19,020  was  charged  to  continuing operations  for  the  years  ended

December 31, 2016 and 2015, respectively.

Rent  expense  of  $43,790  and  $48,711  was  charged  to  discontinued  operations  for  the

years ended December 31, 2016 and 2015, respectively.

F-23



Contingencies

The  Company  provides  accruals  for  costs  associated  with  the  estimated  resolution  of

contingencies  at  the  earliest  date  at  which  it  is  deemed  probable  that  a  liability  has  been

incurred and the amount of such liability can be reasonably estimated.

Note 17 – Subsequent Events

Business Acquisitions

On  February  14,  2017,  the  Company  acquired  100%  of  the  stock  of  HubCentrix,  Inc.  in

exchange   for   15,000,000   shares   of    restricted   common   stock   of    the   Company.

HubCentrix,  Inc.,  which  subsequently  changed  its  name  to  HealthDatix,  Inc.  is  engaged

in  the  business  of  streamlining  the  process  of  managing  information  in  the  document-

intensive   medical   field   for   customers   throughout   the   United   States.     Prior   to   the

acquisition, the Company issued a promissory note to HealthDatix, Inc. on November 15,

2016  for  $15,000.   The  note  bears  interest  at  a  rate  of  6%  and  is  due  on  November  15,

2017.

On  April  5,  2017,  the  Company,  through  its  wholly-owned  subsidiary  HealthDatix,  Inc.

consummated the  acquisition of certain assets of the CyberCare  Health Network Division

from  EncounterCare  Solutions  Inc.  (“ECSL”)  in  accordance  with  an  Asset  Purchase

Agreement  by  and  among,  HealthDatix,  Inc.,  ECSL  and  the  Company.   Pursuant  to  the

Agreement,  ECSL  will  sell,  convey,  transfer  and  assign  to  HealthDatix,  Inc.  certain

assets,  and  HealthDatix,  Inc.  will  purchase  and  accept  from  ECSL  all  rights,  title  and

interest  in  and  to  the  Assets  in  exchange  for  60,000,000  shares  of  restricted  common

stock of the Company.

Equity Financing Transactions

On  January 27,  2017,  the  Company entered  into  a  common  stock  subscription  agreement

with  an  accredited  investor  relating  to  the  issuance  and  sale  of  the  Company’s  common

stock in a private placement.   Pursuant  to the stock subscription agreement, the Company

sold  a  total  of  2,000,000  shares  of  restricted  common  stock  to  the  investor  at  $.05  per

share, for aggregate consideration of $100,000.

On  March  30,  2017,  the  Company  entered  into  a  securities  purchase  agreement  with  an

accredited investor pursuant to an  exemption under section 4(a)(2)  of the  securities act of

1933, pursuant to which the Company agreed to sell, and the investor agreed to purchase,

convertible  debentures  in  the  aggregate  principal  amount  of  $75,000.    The  convertible

debentures are due 9 months after issuance and bear interest at a rate of 8%. The debentures are convertible into shares of common stock of the Company 180 days following the date of funding and thereafter.  The conversion price shall be subject to a discount of 35%.  The conversion price shall be determined on the basis of the three (3) lowest closing bids for the Common Stock during the prior ten (10) trading day period.  The Investor will be limited to convert no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.  At any time during the period beginning on the date of the Note and ending on the date which is 180 days thereafter, the Company may repay the Note by paying an amount equal to the then outstanding amount multiplied by 120%.

On  April  3,  2017,  the  Company  entered  into  a  Convertible  Promissory  Note  with  an

accredited investor pursuant to an  exemption under section 4(a)(2)  of the  securities act of

1933, pursuant to which the investor agreed to lend and the Company agreed to repay the

investors  the  aggregate  principal  amount  of  $125,000.    The  convertible  note  is  due  12

months after issuance and bears interest at a rate of 12%.The Note is convertible into shares of common stock of the Company 180 days following the date of funding and thereafter.  The conversion price shall be subject to a discount of 50%.  The conversion price shall be determined on the basis of the lowest VWAP (Volume Weighted Average Price) of the Common Stock during the prior twenty (20) trading day period.  The Investor will be limited to convert no more than 4.99% of the issued and outstanding Common Stock at the time of conversion at any one time.  At any time during the period beginning on the date of the Note and ending on the date which is 180 days thereafter, the Company may repay the Note by paying an amount equal to the then outstanding amount multiplied by 135%.

F-24