Business Context and Reporting Period
Data Storage Corporation (Nevada) filed this Form 8-K on October 31, 2012, reporting the consummation of an asset acquisition. The Company acquired the end-user customer base and related assets, including intellectual property, of Message Logic, Inc. ("ML"). The transaction closed on October 31, 2012.
Key Financial Metrics and Transaction Terms
The total consideration for the acquisition consists of equity and cash, subject to due diligence and revenue benchmarks:
- Total Stock Consideration: 1,495,190 shares of common stock.
- Total Cash Consideration: $800,000.
- Payment Structure:
- At Closing: 725,960 shares issued (including 187,532 shares to Zojax Group, LLC to satisfy an ML debt).
- 13-Month Anniversary: 384,615 shares and $375,000 cash, contingent on revenue benchmarks.
- 25-Month Anniversary: 384,615 shares and $250,000 cash, contingent on revenue benchmarks.
- Other Cash Payments: $25,000 due in the 7th month and $150,000 due in the 19th month, both contingent on revenue benchmarks.
The filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity metrics for the Company or the acquired business.
Material Changes
The primary material change is the expansion of the Company's asset base through the acquisition of ML's customer base and intellectual property. The transaction involves a significant issuance of unregistered equity securities (1,495,190 shares) under Section 4(2) of the Securities Act of 1933.
Outlook, Risks, and Contingencies
Contingencies: A substantial portion of the consideration (approximately 51% of the stock and 100% of the cash) is contingent upon the Purchased Business achieving specific revenue benchmarks at the 13th and 25th months post-closing. If benchmarks are not met, payments will be reduced proportionally.
Risks: The transaction is subject to satisfactory due diligence. The filing notes that specific portions of the Asset Purchase Agreement were omitted for confidential treatment.
Management Commentary: The Company issued a press release on November 6, 2012, announcing the acquisition. No specific forward-looking financial guidance was included in this filing.
Investor Verification Checklist
- Verify the specific revenue benchmarks required to trigger the deferred stock and cash payments.
- Review the full text of the Asset Purchase Agreement (Exhibit 2.1) for omitted confidential terms.
- Assess the impact of the 1,495,190 new shares on existing shareholder dilution.
- Confirm the financial status of the acquired customer base and the viability of the revenue projections.
- Monitor the Company's cash position to ensure it can meet the $800,000 cash obligation if benchmarks are met.