Business Context and Reporting Period
Data Storage Corporation (Nevada) filed this Form 8-K on May 30, 2012, reporting an event dated May 16, 2012. The filing details a proposed acquisition of an 80% equity interest in e-ternity Business Continuity Consultants, Inc., a Canadian corporation.
Key Financial Metrics and Transaction Terms
The transaction involves a total purchase price of $2,000,000 for the 80% interest, structured as follows:
- Total Consideration: $2,000,000 ($1,600,000 cash and $400,000 in common stock valued at $0.85 per share).
- Closing Payment: $1,000,000 ($800,000 cash and $200,000 stock) payable at closing.
- Deferred Payment: $1,000,000 ($800,000 cash and $200,000 stock) payable one year post-closing, contingent on e-ternity achieving specific revenue and gross profit margin targets.
- Future Option: The Company received a call option to acquire the remaining 20% interest within two years, exercisable no earlier than one year after closing.
The filing does not provide current revenue, profit, cash flow, debt, or liquidity metrics for Data Storage Corporation.
Material Changes
This filing represents a material change in the Company's strategic direction through the proposed acquisition. The transaction is subject to satisfactory due diligence and is expected to close within 90 days of the Term Sheet signing. No prior comparable period financial data is provided in this document to assess historical performance changes.
Outlook, Risks, and Contingencies
Contingencies: The transaction is conditional upon a satisfactory due diligence review. The deferred portion of the purchase price is contingent upon the target company meeting specific financial performance metrics (revenue and gross profit margins).
Risks: The filing notes that the description of the Term Sheet is not complete and is qualified by the full text of the exhibit. There is a risk that the transaction may not close if due diligence is unsatisfactory or if the target fails to meet performance targets for the deferred payment.
Investor Verification Checklist
- Verify the Company's current cash position to confirm ability to fund the $800,000 immediate cash payment.
- Review the attached Term Sheet (Exhibit 99.1) for specific definitions of the revenue and gross profit margin targets required for the deferred payment.
- Confirm the status of the due diligence review to assess the likelihood of closing within the 90-day window.
- Assess the dilution impact of issuing $400,000 worth of common stock at $0.85 per share.