Business Context and Reporting Period
Data Storage Corporation (Nevada) filed this Form 8-K on September 4, 2012, to disclose a material event occurring on August 31, 2012. The Company entered into a term sheet to acquire the end-user customer base and related assets (excluding cash and accounts receivable) of Message Logic, Inc.
Key Financial Metrics and Transaction Structure
The acquisition consideration consists of equity and cash, subject to revenue benchmarks for deferred portions:
- Total Equity Consideration: 1,538,461 shares of common stock ($0.001 par value).
- Total Cash Consideration: $800,000.
- Equity Distribution:
- 769,231 shares at closing.
- 384,615 shares on the 13th-month anniversary (subject to revenue benchmarks).
- 384,615 shares on the 25th-month anniversary (subject to revenue benchmarks).
- Cash Distribution:
- $25,000 on the 7th-month anniversary.
- $375,000 on the 13th-month anniversary.
- $150,000 on the 19th-month anniversary.
- $250,000 on the 25th-month anniversary.
Deferred payments (both equity and cash) are contingent upon the Purchased Business achieving specific revenue benchmarks. If benchmarks are not met, payments are reduced proportionally.
Material Changes and Unusual Items
This filing represents a potential material change to the Company's capital structure and operations through the proposed acquisition. The transaction is subject to a satisfactory due diligence review. No financial performance metrics (revenue, profit, cash flow) for the Company or the target were provided in this filing.
Guidance, Outlook, and Risks
Management Commentary: The Company has agreed to the acquisition terms subject to due diligence. The term sheet description is qualified by the full text of the exhibit.
Risks and Contingencies:
- Transaction completion is contingent on satisfactory due diligence.
- A significant portion of the consideration (approximately 50% of shares and 100% of cash) is contingent on future revenue performance of the acquired business.
- Failure to meet revenue benchmarks will result in reduced payments to the Seller.
Investor Verification Checklist
- Verify the completion of the due diligence review and the final execution of the definitive purchase agreement.
- Confirm the specific revenue benchmarks required to trigger the deferred equity and cash payments.
- Assess the impact of issuing 1,538,461 new shares on existing shareholder dilution.
- Review the full text of the Term Sheet (Exhibit 99.1) for additional covenants or conditions not summarized here.