ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our plan of operation
and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included
elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that relate to future events or our
future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our 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 these forward-looking statements. These risks and other factors include, among others, those listed
under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.
COMPANY OVERVIEW
Data Storage Corporation, headquartered
in Melville, New York, together with its three subsidiaries, DSC, Flagship Solutions LLC and Nexxis, Inc. provides solutions and services
to a broad range of clients in several industries, including healthcare, banking and finance, distribution services, manufacturing, construction,
education, and government. The subsidiaries maintain business development teams, as well as independent distribution companies. As an
example, the Company’s distribution channel of companies provides long-term subscription-based disaster recovery and cloud infrastructure
without investing in the infrastructure, data centers, telecommunications or specialized technical staff, which substantially lowers their
barrier of entry in providing these solutions to their client base. The distribution company has typically provided equipment and software.
However, a client’s awareness in 2021 of the ability to migrate to an IBM Power cloud infrastructure and disaster recovery affords
the distributor the ability to maintain the client and create an annuity year after year. To further support that awareness, over 55,000
visitors arrived at the Company’s website in 2021.
During 2021, based on the May
capital raise and the up list to Nasdaq, the Company added distribution, business development representatives, marketing, and technical
personnel. Management continues to be focused on building the Company’s sales and marketing strategy and expanding its technology
assets throughout its data center network.
The Company’s business
offices are in New York and Florida. The offices include a technology center and lab, adapted to meet the technical requirements of the
Company’s clients. The Company maintains its own infrastructure, storage, and networking equipment required to provide subscription
solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina, and in Canada,
Toronto, and Barrie, serving clients in the United States and Canada.
The Company’s Business
Continuity Solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such
as Ransomware. The Company’s Managed Cloud Services starts with migration to the cloud and provides ongoing system support and management
that enables its clients to run their software applications and technical workloads in a multi-cloud environment. The Company’s
Cyber Security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services
and technologies that can be incorporated into the Company’s cloud solutions or be delivered as a standalone managed security offering
covering the client site endpoint devices, users, servers, and equipment.
Solution
architects and the Company’s business development teams work with organizations identifying and solving critical business problems.
The Company carefully plans and manages the migration and configuration process, continuing the relationship and advising its clients
long after the services have been implemented. As of this filing the Company has proposals outstanding of approximately $14 million in
total contract value; and, total proposals outstanding including equipment and software of approximately $20 million. Reflecting on client
satisfaction, the Company’s renewal rate on client subscription solutions is approximately 94% after their initial contract term
expired.
The Company provides our clients subscription-based,
long-term agreements for cloud disaster recovery, cloud infrastructure, telecommunications solutions, and high processing on-site computing
power and software solutions. While a significant portion of our revenue has been subscription-based, we also generate revenue from the
sale of equipment and software for cybersecurity, data storage, IBM Power systems equipment and managed service solutions. As of this
filing the company has a backlog of over $500,000 in Annual Recurring Revenue (ARR) and equipment and software of approximately $2 million.
2021 Business Update
On May 31, 2021, the Company
completed a merger (the “Merger”) under an Agreement and Plan of Merger (the “Merger Agreement”) with Flagship
Solutions, LLC (“Flagship”) (a Florida limited liability company) and the Company’s wholly-owned subsidiary, Data Storage
FL, LLC, a Florida limited liability company. Flagship is a provider of IBM solutions, managed services, data analytics, cyber security
and cloud solutions. The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM business
and anticipates meaningful operation efficiency of the two organizations. The Company also believes the Merger will provide the combined
entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as
middle-market customers. Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology
solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux,
including: Infrastructure as a Service (IaaS), Disaster Recovery of digital information (DRaaS), Cyber Security as a Service (CSaaS),
and Data Analytics as a Service.
Flagship focuses on the IBM
user community with solutions and services such as, equipment, software, cyber security, data analytics, managed cloud solutions globally.
The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM user community focus and
anticipates meaningful operation efficiency through the integration the organizations. The Company also believes the Merger will also
provide the combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise,
as well as middle-market customers. Key offerings for the combined companies are expected to include a wide array of multi-cloud information
technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows
and Linux, including: cloud Infrastructure as a Service, Disaster Recovery of digital information, Cyber Security as a Service, and Data
Analytics. The Company intends to continue its strategy of growth through synergistic acquisitions.
The Company’s offices
are in New York and Florida including technology centers, which are adapted to meet the requirements of its clients. In addition to office
staffing, the Company employs additional remote staff. The Company maintains its infrastructure, storage and networking equipment required
to provide our subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida,
North Carolina and Canada.
RESULTS OF OPERATIONS
Year ended December 31, 2021 as compared to December
31, 2020
Revenue
Sales for the year ended December 31, 2021, increased
by approximately 60% to $14,876,227 as compared to sales for the year ended December 31, 2020, or $9,320,933. The increase is primarily
attributed to the additional sales from the Flagship merger and an increase in monthly subscription revenue. The Company derives its sales
from five types of services that we provide: infrastructure & disaster recovery / cloud services which is the largest source of our
sales, followed by equipment and software sales, managed services, professional fees, and Nexxis, VOIP and internet access services. The
cloud infrastructure & disaster recovery/cloud services are subscription-based. We also provide equipment and software and actively
participate in collaboration with IBM to provide innovative business solutions to clients. The professional services are providing the
client cloud infrastructure and or Disaster Recovery implementation services as well as time and materials billing. Substantially all
of the Company’s sales were to customers in the United States, with less than 1% of its sales to international customers.
The following chart details the changes in the Company’s
sales for the years ended December 31, 2021 and 2020, respectively.
|
|
For
the Year |
|
|
|
|
|
|
Ended
December 31, |
|
|
|
|
|
|
2021 |
|
2020 |
|
$
Change |
|
%
Change |
Cloud Infrastructure & Disaster Recovery |
|
$ |
7,203,246 |
|
|
$ |
5,806,370 |
|
|
$ |
1,396,876 |
|
|
|
24 |
% |
Equipment and Software |
|
|
2,080,463 |
|
|
|
2,074,911 |
|
|
|
5,552 |
|
|
|
— |
% |
Managed Services |
|
|
4,661,777 |
|
|
|
380,701 |
|
|
|
4,281,076 |
|
|
|
1,125 |
% |
Nexxis Services |
|
|
772,344 |
|
|
|
696,576 |
|
|
|
75,768 |
|
|
|
11 |
% |
Other |
|
|
158,397 |
|
|
|
362,375 |
|
|
|
(203,978 |
) |
|
|
(56 |
)% |
Total
Sales |
|
$ |
14,876,227 |
|
|
$ |
9,320,933 |
|
|
$ |
5,555,294 |
|
|
|
60 |
% |
Expenses
Cost of Sales. For the year ended December
31, 2021, cost of sales was $8,459,117, an increase of $3,033,912 or 56% compared to $5,425,205 for the year ended December 31, 2020.
The increase of $3,033,912 was mostly related to variable cost incurred to produce and sell the Company’s products or services.
Selling, general and
administrative expenses. For the year ended December 31, 2021, selling, general and administrative expenses were $7,184,182,
an increase of $3,287,391, or 84%, as compared to $3,896,791 for the year ended December 31, 2020. The net increase is reflected in the
chart below.
Selling, general and administrative expenses | |
For the Year | |
| |
|
| |
Ended December 31, | |
| |
|
| |
2021 | |
2020 | |
$ Change | |
% Change |
Increase in Salaries | |
$ | 3,765,519 | | |
$ | 1,924,287 | | |
$ | 1,841,232 | | |
| 96 | % |
Increase in Professional Fees | |
| 808,039 | | |
| 208,775 | | |
| 599,264 | | |
| 287 | % |
Increase in Software as a Service Expense | |
| 228,119 | | |
| 141,642 | | |
| 86,477 | | |
| 61 | % |
Increase in Advertising Expenses | |
| 541,788 | | |
| 309,003 | | |
| 232,785 | | |
| 75 | % |
Increase in Commissions Expense | |
| 920,050 | | |
| 870,431 | | |
| 49,619 | | |
| 6 | % |
Increase in all other Expenses | |
| 920,667 | | |
| 442,653 | | |
| 478,014 | | |
| 108 | % |
Total Expenses | |
$ | 7,184,182 | | |
$ | 3,896,791 | | |
$ | 3,287,391 | | |
| 84 | % |
Salaries. Salaries
increased as a result of the increased staff due to the Flagship merger, and the hiring of additional employees, and raises granted
to employees.
Professional fees. Professional
fees increased primarily due to fees incurred for the Flagship merger, two new investor relations firms, and an increase in fees associated
with being on NASDAQ.
Software as a Service
Expense (SaaS). SaaS increased due to additional costs paid to existing vendors to make improvements to the Company’s customer
relationship management software and purchases of new user licenses.
Advertising Expense. Advertising
expense increased primarily due to additional marketing campaigns for the Flagship merger and an increase in existing advertising campaigns.
Commissions Expense. Commissions
expense increased due to the increase in new revenues. Commission expense varies due to different contractual agreements with both contracted
distributors and employees.
All Other Expenses. Other
expenses increased primarily due to a combination of an increase in online training and continuing education, increase in travel after
the Flagship merger, and an increase in bad debt expense. This was partially offset by a reduction in costs associated with employees
working from home due to the pandemic as well as a reduction in expenses related to the Company’s office space in Melville, New
York.
Other Income (Expense). Other income for
the year ended December 31, 2021, increased $452,940 to $627,362 from $174,422 for the year ended December 31, 2020. The increase in other
income is primarily attributable to the gain on forgiveness of debt from the PPP loans and a decrease in interest expense. This was offset
by the gain on contingent liability recorded in the prior year and the loss on disposal of assets recorded during the year.
Net Income (Loss) before provision for income taxes. Net
(loss) before provision for income taxes for the year ended December 31, 2021, was $(105,543), as compared to a net income of $173,359
for the year ended December 31, 2020.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated
financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”)
applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course
of business.
To the extent the Company
is successful in growing its business, identifying potential acquisition targets, and negotiating the terms of such acquisition, and the
purchase price may include a cash component, the Company plans to use its working capital and the proceeds of any financing to finance
such acquisition costs.
The Company’s opinion
concerning its liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, The
Company may not be able to meet its liquidity needs, which will require a renegotiation of related party capital equipment leases, a reduction
in advertising and marketing programs, and/or a reduction in salaries for officers that are major shareholders.
The Company has long-term
contracts to supply its subscription-based solutions that are invoiced to clients monthly. The Company believes its total contract value
of its subscription contracts with clients based on the actual contracts that it has to date, exceeds $10 million. Further, the Company
continues to see an uptick in client interest distribution channel expansion and in sales proposals. In 2021, the Company intends to continue
to work to increase its presence in the IBM “Power I” infrastructure cloud and business continuity marketplace in the niche
of IBM “Power” and in the disaster recovery global marketplace utilizing its technical expertise, data centers utilization,
assets deployed in the data centers, 24 x 365 monitoring and software.
During the year ended December
31, 2021, Data Storage’s cash increased $11,242,205 to $12,135,803 from $893,598 December 31, 2020. Net cash of $360,690 was used
by Data Storage’s operating activities resulting primarily from the changes in assets and liabilities. Net cash of $6,418,110 was
used in investing activities primarily from the purchase of Flagship. Net cash of $18,021,005 was provided by financing activities resulting
primarily from the sale of common stock and warrants. This was offset by the repayment of principle and accrued dividends as well
as finance lease obligations.
The Company’s working
capital was $12,084,815 on December 31, 2021, increasing by $14,751,263 from $(2,666,448) at December 31, 2020. The increase is primarily
attributable to an increase in cash, accounts receivable, and a decrease in dividend payable. This was offset by an increase in accounts
payable and lease payables.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements,
financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”.
Non-GAAP Financial Measures
Adjusted EBITDA
To supplement our
consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding
our financial results, we consider and are including herein Adjusted EBITDA, a Non-GAAP financial measure. We view Adjusted EBITDA
as an operating performance measure and, as such, we believe that the GAAP financial measure most directly comparable to it is net
income (loss). We define Adjusted EBITDA as net income adjusted for interest and financing fees, depreciation, amortization,
stock-based compensation, and other non-cash income and expenses. We believe that Adjusted EBITDA provides us an important measure
of operating performance because it allows management, investors, debt holders and others to evaluate and compare ongoing operating
results from period to period by removing the impact of our asset base, any asset disposals or impairments, stock-based compensation
and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our
working capital.
Our use of Adjusted EBITDA
has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an analysis of our
results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition. Additionally,
our measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA. When evaluating our performance, Adjusted
EBITDA should be considered with other financial performance measures, including various cash flow metrics, net income and other GAAP
results. In the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully
evaluate and compare our future results of operations to our previously reported results of operations.
The following table shows
our reconciliation of net income to adjusted EBITDA for the year ended December 31, 2021 and 2020, respectively:
| |
For the Year Ended |
| |
December 31, | |
December 31, |
| |
2021 | |
2020 |
| |
| |
|
Net Income | |
$ | 259,921 | | |
$ | 173,359 | |
| |
| | | |
| | |
Non-GAAP adjustments: | |
| | | |
| | |
Depreciation and amortization | |
| 1,284,345 | | |
| 1,032,566 | |
Benefit from income taxes | |
| (399,631) | | |
| | |
Flagship acquisition costs | |
| 135,512 | | |
| | |
Interest income and expense | |
| 126,746 | | |
| 175,578 | |
Gain on contingent liability | |
| | | |
| (350,000 | ) |
Loss on disposal of assets | |
| 44,732 | | |
| | |
Gain on forgiveness of debt | |
| (798,840 | ) | |
| | |
Stock-based compensation | |
| 171,798 | | |
| 158,728 | |
| |
| | | |
| | |
Adjusted EBITDA | |
$ | 824,583 | | |
$ | 1,190,231 | |
CRITICAL ACCOUNTING POLICIES
The Company’s financial statements and related
public financial information are based on the application of GAAP. GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These
estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies,
risk and financial condition. The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently
applied. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under
the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. The Company continues
to monitor significant estimates made during the preparation of our financial statements.
The Company’s significant accounting policies
are summarized in Note 2 of its financial statements. While all these significant accounting policies impact the Company’s financial
condition and results of operations, it views certain of these policies as critical. Policies determined to be critical are those policies
that have the most significant impact on the Company’s financial statements and require management to use a greater degree of judgment
and estimates. Actual results may differ from those estimates. The Company’s management believes that given current facts and circumstances,
it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on its consolidated results of
operations, financial position or liquidity for the periods presented in this report.
RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets
that have the contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses
for financial assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within
that fiscal year. The Company expects that there would be no material impact on the Company’s consolidated financial statements
upon the adoption of this ASU.
In
October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of
assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning
after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption
of ASU 2016-16 did not have a material impact on the consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill
Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair
value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure
that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under
ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with
its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit
when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests
for fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 did not have a material impact on the consolidated financial
statements.
In
July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor
to classify a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”)
as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year
beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material
impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
In November 2021, the FASB issued
ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,
issued by the Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract assets and contract liabilities
acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will
generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree
immediately before the acquisition date rather than at fair value. The Company expects that there would be no material impact on the Company’s
condensed consolidated financial statements upon the adoption of this ASU.
OFF-BALANCE SHEET TRANSACTIONS
The Company has no off-balance sheet arrangements.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Report of Independent Registered
Public Accounting Firm
To
the Board of Directors and
Stockholders
of Data Storage Corporation and Subsidiaries
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of Data Storage Corporation and Subsidiaries (the Company) as of December 31, 2021 and 2020,
and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting 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.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters
does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As
described in Note 12 to the consolidated financial statements, the Company accounted for Flagship Solutions LLC acquisition during 2021
as a business combination and allocated the purchase price among the tangible and intangible assets acquired and liabilities assumed.
The acquisition resulted in intangible assets totaling $5,250,340 consisting primarily of customer relationships and goodwill.
The
determination of the future cash flows of the goodwill and intangible assets requires management to make significant estimates and assumptions
related to forecasts of future revenues, operating margins and discount rates. The Company utilized a valuation specialist to assist
in the performance of the purchase price allocation.
We
identified the valuation of intangible assets recorded in connection with the acquisition as a critical audit matter. The fair value
estimates were based on underlying assumptions about future performance of the acquired business which involves significant estimation
uncertainty.
How
the Critical Matter Was Addressed in the Audit
The
primary procedures we performed to address this critical audit matter included:
| ● | Obtained
management’s purchase price allocation detailing fair value assigned to the acquired
tangible and intangible assets. |
| ● | Obtained
valuation reports prepared by valuation specialists engaged by management to assist in the
purchase price allocations, including determination of fair values assigned to acquired intangible
assets, and examined valuation methods used and qualifications of specialist. |
| ● | Engaged
auditor valuation specialist to assist audit engagement team in its review of management
valuation specialist’s reports including review of valuation methods, assumptions and
conclusions. |
| ● | Examined
the completeness and accuracy of the underlying data supporting the significant assumptions
and estimates used in the valuation reports, including historical and projected financial
information. |
| ● | Tested
the clerical accuracy of the models. |
/s/
Rosenberg Rich Baker Berman, P.A.
We
have served as the Company’s auditor since 2008.
Somerset, New Jersey
March
31, 2022
89
DATA STORAGE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
| |
| | | |
| | |
| |
December
31, 2021 | |
December
31, 2020 |
ASSETS | |
| | | |
| | |
Current
Assets: | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 12,135,803 | | |
$ | 893,598 | |
Accounts
receivable (less allowance for credit losses of $50,375 and $30,000 in 2021 and 2020, respectively) | |
| 2,384,367 | | |
| 554,587 | |
Prepaid
expenses and other current assets | |
| 536,401 | | |
| 239,472 | |
Total
Current Assets | |
| 15,056,571 | | |
| 1,687,657 | |
| |
| | | |
| | |
Property
and Equipment: | |
| | | |
| | |
Property
and equipment | |
| 6,595,236 | | |
| 7,845,423 | |
Less—Accumulated
depreciation | |
| (4,657,765 | ) | |
| (5,543,822 | ) |
Net
Property and Equipment | |
| 1,937,471 | | |
| 2,301,601 | |
| |
| | | |
| | |
Other
Assets: | |
| | | |
| | |
Goodwill | |
| 6,560,671 | | |
| 3,015,700 | |
Operating
lease right-of-use assets | |
| 422,318 | | |
| 241,911 | |
Other
assets | |
| 103,226 | | |
| 49,310 | |
Intangible
assets, net | |
| 2,254,566 | | |
| 455,935 | |
Total
Other Assets | |
| 9,340,781 | | |
| 3,762,856 | |
| |
| | | |
| | |
Total
Assets | |
$ | 26,334,823 | | |
$ | 7,752,114 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current
Liabilities: | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 1,343,391 | | |
$ | 979,552 | |
Dividend
payable | |
| — | | |
| 1,115,674 | |
Deferred
revenue | |
| 366,859 | | |
| 461,893 | |
Line
of credit | |
| — | | |
| 24 | |
Finance
leases payable | |
| 216,299 | | |
| 168,139 | |
Finance
leases payable related party | |
| 839,793 | | |
| 1,149,403 | |
Operating
lease liabilities short term | |
| 205,414 | | |
| 104,549 | |
Note
payable | |
| — | | |
| 374,871 | |
Total
Current Liabilities | |
| 2,971,756 | | |
| 4,354,105 | |
| |
| | | |
| | |
Note
payable long term | |
| — | | |
| 107,106 | |
Operating
lease liabilities | |
| 226,344 | | |
| 147,525 | |
Finance
leases payable | |
| 157,424 | | |
| 247,677 | |
Finance
leases payable related party | |
| 364,654 | | |
| 974,743 | |
Total
Long-Term Liabilities | |
| 748,422 | | |
| 1,477,051 | |
| |
| | | |
| | |
Total
Liabilities | |
| 3,720,178 | | |
| 5,831,156 | |
| |
| | | |
| | |
Commitments
and contingencies (Note 6) | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders’
Equity: | |
| | | |
| | |
Preferred
stock, Series A par value $.001;
10,000,000
shares authorized; 0
and 1,401,786
shares issued and outstanding in 2021 and
2020, respectively | |
| — | | |
| 1,402 | |
Common
stock, par value $.001; 250,000,000 shares
authorized; 6,693,793 and 3,214,537
shares issued and outstanding in 2021 and 2020, respectively | |
| 6,694 | | |
| 3,215 | |
Additional
paid in capital | |
| 38,241,155 | | |
| 17,745,783 | |
Accumulated
deficit | |
| (15,530,576 | ) | |
| (15,734,737 | ) |
Total
Data Storage Corp Stockholders’ Equity | |
| 22,717,273 | | |
| 2,015,663 | |
Non-controlling
interest in consolidated subsidiary | |
| (102,628 | ) | |
| (94,705 | ) |
Total
Stockholder’s Equity | |
| 22,614,645 | | |
| 1,920,958 | |
Total
Liabilities and Stockholders’ Equity | |
$ | 26,334,823 | | |
$ | 7,752,114 | |
The accompanying notes are an integral part of these
consolidated Financial Statements.
DATA STORAGE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF OPERATIONS |
| |
| | | |
| | |
| |
Year
Ended December 31, |
| |
2021 | |
2020 |
| |
| |
|
Sales | |
$ | 14,876,227 | | |
$ | 9,320,933 | |
| |
| | | |
| | |
Cost
of sales | |
| 8,459,117 | | |
| 5,425,205 | |
| |
| | | |
| | |
Gross
Profit | |
| 6,417,110 | | |
| 3,895,728 | |
| |
| | | |
| | |
Selling,
general and administrative | |
| 7,184,182 | | |
| 3,896,791 | |
| |
| | | |
| | |
Loss
from Operations | |
| (767,072 | ) | |
| (1,063 | ) |
| |
| | | |
| | |
Other
Income (Expense) | |
| | | |
| | |
Interest income | |
| — | | |
| 24 | |
Interest
expense, net | |
| (126,746 | ) | |
| (175,602 | ) |
Gain
on contingent liability | |
| — | | |
| 350,000 | |
Loss on disposal of assets | |
| (44,732 | ) | |
| — | |
Gain
on forgiveness of debt | |
| 798,840 | | |
| — | |
Total
Other Income | |
| 627,362 | | |
| 174,422 | |
| |
| | | |
| | |
| |
| | | |
| | |
Benefit from income taxes | |
| 399,631 | | |
| — | |
| |
| | | |
| | |
Net
Income | |
| 259,921 | | |
| 173,359 | |
| |
| | | |
| | |
Non-controlling
interest in consolidated subsidiary | |
| 7,923 | | |
| 26,657 | |
| |
| | | |
| | |
Net Income attributable to Data Storage Corp | |
| 267,844 | | |
| 200,016 | |
| |
| | | |
| | |
Preferred
Stock Dividends | |
| (63,683 | ) | |
| (144,677 | ) |
| |
| | | |
| | |
Net Income Attributable to Common Stockholders | |
$ | 204,161 | | |
$ | 55,339 | |
| |
| | | |
| | |
Earnings
per Share – Basic | |
$ | 0.04 | | |
$ | 0.02 | |
Earnings
per Share – Diluted | |
$ | 0.03 | | |
$ | 0.02 | |
Weighted
Average Number of Shares - Basic | |
| 5,075,716 | | |
| 3,213,157 | |
Weighted
Average Number of Shares - Diluted | |
| 6,340,125 | | |
| 3,366,010 | |
The accompanying notes are an integral part of these
consolidated Financial Statements.
DATA STORAGE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020 |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Preferred
Stock | |
Common
Stock | |
Additional
Paid-in | |
Accumulated | |
Non-Controlling | |
Total
Stockholders’ |
| |
Shares | |
Amount | |
Shares | |
Amount | |
Capital | |
Deficit | |
Interest | |
Equity |
| |
| |
| |
| |
| |
| |
| |
| |
|
Balance
January 1, 2020 | |
| 1,401,786 | | |
$ | 1,402 | | |
| 3,212,037 | | |
$ | 3,212 | | |
$ | 17,581,658 | | |
$ | (15,790,076 | ) | |
$ | (68,048 | ) | |
$ | 1,728,148 | |
Stock-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 158,728 | | |
| — | | |
| — | | |
| 158,728 | |
Stock
options exercise | |
| — | | |
| — | | |
| 2,500 | | |
| 3 | | |
| 5,397 | | |
| — | | |
| — | | |
| 5,400 | |
Net
Income (Loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 200,016 | | |
| (26,657 | ) | |
| 173,359 | |
Preferred
stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (144,677 | ) | |
| — | | |
| (144,677 | ) |
Balance,
December 31, 2020 | |
| 1,401,786 | | |
| 1,402 | | |
| 3,214,537 | | |
| 3,215 | | |
| 17,745,783 | | |
| (15,734,737 | ) | |
| (94,705 | ) | |
| 1,920,958 | |
Conversion
of preferred series to stock | |
| (1,401,786 | ) | |
| (1,402 | ) | |
| 43,806 | | |
| 44 | | |
| 1,358 | | |
| — | | |
| — | | |
| — | |
Proceeds
from issuance of common stock and warrants | |
| — | | |
| — | | |
| 2,975,000 | | |
| 2,975 | | |
| 16,941,405 | | |
| — | | |
| — | | |
| 16,944,380 | |
Stock
options exercise | |
| — | | |
| — | | |
| 5,060 | | |
| 5 | | |
| (5 | ) | |
| — | | |
| — | | |
| — | |
Stock
warrants exercise | |
| — | | |
| — | | |
| 455,390 | | |
| 455 | | |
| 3,380,816 | | |
| — | | |
| — | | |
| 3,381,271 | |
Stock-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 171,798 | | |
| — | | |
| — | | |
| 171,798 | |
Net
Income (Loss) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 267,844 | | |
| (7,923 | ) | |
| 259,921 | |
Preferred
stock dividends | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (63,683 | ) | |
| — | | |
| (63,683 | ) |
Balance,
December 31, 2021 | |
| — | | |
$ | — | | |
| 6,693,793 | | |
$ | 6,694 | | |
$ | 38,241,155 | | |
$ | (15,530,576 | ) | |
$ | (102,628 | ) | |
$ | 22,614,645 | |
The accompanying notes are an integral part of these
consolidated Financial Statements.
DATA STORAGE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2021 |
|
2020 |
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
259,921 |
|
|
$ |
173,359 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,284,345 |
|
|
|
1,032,566 |
|
Stock based compensation |
|
|
171,798 |
|
|
|
158,728 |
|
Gain on forgiveness of debt |
|
|
(798,840 |
) |
|
|
— |
|
Gain on contingent liability |
|
|
— |
|
|
|
(350,000 |
) |
Deferred
income taxes, release of valuation allowance |
|
|
(399,631 |
) |
|
|
— |
|
Loss on disposal of assets |
|
|
44,732 |
|
|
|
— |
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(440,517 |
) |
|
|
136,849 |
|
Other assets |
|
|
(6,417 |
) |
|
|
16,126 |
|
Prepaid expenses and other current assets |
|
|
(169,355 |
) |
|
|
(132,132 |
) |
Right of use asset |
|
|
(180,407 |
) |
|
|
82,356 |
|
Accounts payable and accrued expenses |
|
|
(142,232 |
) |
|
|
44,619 |
|
Deferred revenue |
|
|
(163,770 |
) |
|
|
28,951 |
|
Operating lease liability |
|
|
179,684 |
|
|
|
(80,743 |
) |
Net Cash Provided by (Used in) Operating Activities |
|
|
(360,690 |
) |
|
|
1,110,679 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Deposit |
|
|
(25,000 |
) |
|
|
— |
|
Capital expenditures |
|
|
(455,835 |
) |
|
|
(181,072 |
) |
Cash acquired in business acquisition |
|
|
212,068 |
|
|
|
— |
|
Cash consideration for business acquisition |
|
|
(6,149,343 |
) |
|
|
— |
|
Net Cash Used in Investing Activities |
|
|
(6,418,110 |
) |
|
|
(181,072 |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable |
|
|
— |
|
|
|
481,977 |
|
Proceeds from line of credit |
|
|
50,000 |
|
|
|
— |
|
Repayments of finance lease obligations related party |
|
|
(968,420 |
) |
|
|
(718,690 |
) |
Repayments of finance lease obligations |
|
|
(156,845 |
) |
|
|
(56,281 |
) |
Proceeds from issuance of common stock and warrants |
|
|
16,944,380 |
|
|
|
— |
|
Cash received for the exercised of Warrants |
|
|
3,381,271 |
|
|
|
— |
|
Cash received for the exercised of options |
|
|
— |
|
|
|
5,400 |
|
Repayments of Dividend payable |
|
|
(1,179,357 |
) |
|
|
— |
|
Repayment of line of credit |
|
|
(50,024 |
) |
|
|
(74,976 |
) |
Net Cash Provided by (Used) in Financing Activities |
|
|
18,021,005 |
|
|
|
(362,570 |
) |
|
|
|
|
|
|
|
|
|
Increase in Cash and Cash Equivalents |
|
|
11,242,205 |
|
|
|
567,037 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Year |
|
|
893,598 |
|
|
|
326,561 |
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year |
|
$ |
12,135,803 |
|
|
$ |
893,598 |
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
116,682 |
|
|
$ |
168,837 |
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Accrual of preferred stock dividend |
|
$ |
63,683 |
|
|
$ |
144,677 |
|
Assets acquired by finance lease |
|
$ |
164,754 |
|
|
$ |
808,261 |
|
The accompanying notes are an integral part of these
consolidated Financial Statements.
DATA STORAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
Note 1 - Basis of Presentation, Organization and Other Matters
Data Storage Corporation (the “Company”)
provides subscription-based, long-term agreements for disaster recovery solutions, Infrastructure as a Service (IaaS), Cyber Security
and Voice and Data solutions.
Headquartered in Melville, NY,
the Company offers solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing,
construction, education, and government industries. The Company derives its revenues from subscription services and solutions, managed
services, software and maintenance, equipment and onboarding provisioning. The Company maintains infrastructure and storage equipment
in several technical centers in New York, Massachusetts, Texas, Florida and North Carolina.
On May 31, 2021, the Company completed
a merger (the “Merger”) under an Agreement and Plan of Merger (the “Merger Agreement”) with Flagship Solutions,
LLC (“Flagship”) (a Florida limited liability company) and the Company’s wholly-owned subsidiary, Data Storage FL, LLC,
a Florida limited liability company, a Florida limited liability company. Flagship is a provider of IBM solutions, managed services and
cloud solutions. The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM business
and anticipates meaningful operation efficiency through the integration of the two organizations. The Company also believes the Merger
will provide the combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective
enterprise, as well as middle-market customers. Key offerings for the combined companies are expected to include a wide array of multi-cloud
information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft
Windows and Linux, including: Infrastructure as a Service (IaaS), Disaster Recovery of digital information (DRaaS), Cyber Security as
a Service (CSaaS), and Data Analytics as a Service.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial
statements include the accounts of (i) the Company, (ii) its wholly-owned subsidiaries, Data Storage Corporation, a Delaware corporation,
and Data Storage FL, LLC, a Florida limited liability company, (iii) Flagship Solutions, LLC, a Florida limited liability company, and
(iv) its majority-owned subsidiary, Nexxis Inc, a Nevada corporation. All significant inter-company transactions and balances have been
eliminated in consolidation.
Business
combinations.
We
account for business combinations under the acquisition method of accounting, which requires us to recognize separately from goodwill,
the assets acquired, and the liabilities assumed at their acquisition date fair values. While we use our best estimates and assumptions
to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable,
our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year
from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever
comes first, any subsequent adjustments are recognized in our consolidated statements of operations.
Accounting
for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including
our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent
consideration, where applicable. Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate,
they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently
uncertain. Critical estimates in valuing certain of the intangible assets we have acquired include future expected cash flows from product
sales, customer contracts and acquired technologies, and estimated cash flows from the projects when completed and discount rates. Unanticipated
events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Recently
Issued and Newly Adopted Accounting Pronouncements
In June 2016,
the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments
(“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the
contractual right to receive cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial
assets. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year.
The Company expects that there would be no material impact on the Company’s consolidated financial statements upon the adoption
of this ASU.
In October 2016, the FASB issued ASU 2016-16, “Income
Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition
of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to
an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within
those fiscal years. Early adoption of the update is permitted. The adoption of ASU 2016-16 did not have a material impact on the consolidated
financial statements.
In January 2017, the FASB issued ASU 2017-04
Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU
2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment
test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value
at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure
that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead,
under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated
to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any
interim goodwill impairment tests for fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04
did not have a material impact on the consolidated financial statements.
In
July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor
to classify a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”)
as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year
beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material
impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
In November
2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers, issued by the Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract
assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers
(Topic 606). The update will generally result in the recognition of contract assets and contract liabilities at amounts consistent with
those recorded by the acquiree immediately before the acquisition date rather than at fair value. The Company expects that there would
be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
Use of Estimates
The
preparation of financial statements in conformity with US GAAP 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 financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Estimated Fair Value of
Financial Instruments
The
Company’s financial instruments include cash, accounts receivable, accounts payable, line of credit, notes payable and lease commitments.
Management believes the estimated fair value of these accounts at December 31, 2021 approximates their carrying value as reflected in the
balance sheet due to the short-term nature of these instruments or the use of market interest rates for debt instruments. The carrying
values of certain of the Company’s notes payable and capital lease obligations approximate their fair values based upon a comparison
of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the
Company in the marketplace.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity or remaining maturity at the time of purchase, of three months
or less to be cash equivalents.
Concentration of Credit Risk and
Other Risks and Uncertainties
Financial
instruments and assets subjecting the Company to concentration of credit risk consist primarily of cash and cash equivalents, short-term
investments, and trade accounts receivable. The Company’s cash and cash equivalents are maintained at major U.S. financial institutions.
Deposits in these institutions may exceed the amount of insurance provided on such deposits.
The Company’s customers are
primarily concentrated in the United States.
The Company
provides credit in the normal course of business. The Company maintains allowances for credit losses on factors surrounding the credit
risk of specific customers, historical trends, and other information.
As
of December 31, 2021, the Company had one customer with an accounts receivable balance representing 16%
of total accounts receivable. As of December 31, 2020, the Company had one customer with an accounts receivable balance
representing 33%
of total accounts receivable.
For
the year ended December 31, 2021, the Company had one customer that accounted for 14%
of revenue. For the year ended December 31, 2020, the Company had one customer that accounted for 14%
of revenue.
Accounts Receivable/Allowance
for Credit Losses
The
Company sells its services to customers on an open credit basis. Accounts receivables are uncollateralized, non-interest-bearing customer
obligations. Accounts receivables are typically due within 30 days. The allowance for credit losses reflects the estimated accounts
receivable that will not be collected due to credit losses. Provisions for estimated uncollectible accounts receivable are made for individual
accounts based upon specific facts and circumstances including criteria such as their age, amount, and customer standing. Provisions are
also made for other accounts receivable not specifically reviewed based upon historical experience. Clients are invoiced in advance for
services as reflected in deferred revenue on the Company’s balance sheet.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated over their estimated useful lives or the term of the lease using the straight-line
method for financial statement purposes. Estimated useful lives in years for depreciation are 5five to 7seven years
for property
and equipment. Additions, betterments, and replacements are capitalized, while expenditures for repairs and maintenance are charged to
operations when incurred. As units of property are sold or retired, the related cost and accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in income. During the year ended December 31, 2021, the Company recorded a loss
on disposal of equipment of $29,732.
Income Taxes
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 and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. At December 31, 2021 and December 31, 2020, the Company had a full valuation
allowance against its deferred tax assets.
Per
FASB ASC 740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted
and there is a more-likely-than-not possibility that the outcome will be unfavorable. Using this guidance, as of December 31, 2021 and
2020, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company’s 2021, 2020, and 2019 Federal and State tax returns remain subject to examination by their respective taxing authorities.
Neither of the Company’s Federal or State tax returns are currently under examination.
Goodwill
and Other Intangibles
In
accordance with GAAP, the Company tests goodwill and other intangible assets for impairment on at least an annual basis. Impairment exists
if the carrying value of a reporting unit exceeds its estimated fair value. To determine the fair value of goodwill and intangible assets,
the Company uses many assumptions and estimates using a market participant approach that directly impact the results of the testing. In
making these assumptions and estimates, the Company uses industry-accepted valuation models and set criteria that are reviewed and approved
by various levels of management.
Revenue Recognition
Nature of
goods and services
The
following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction
of performance obligations, and significant payment terms for each:
|
1) |
Infrastructure as a Service (IaaS) and Disaster Recovery Revenue |
Infrastructure
as a Service (IaaS) provides clients
the ability to migrate compute and store on DSC enterprise-level technical assets in Tier 3 data centers. The Company provides a turnkey
solution whereby achieving reliable and cost-effective, multi-tenant IBM Power compute, flash storage, disaster recovery and cyber security
while eliminating client capital expenditures.
Clients
can subscribe to disaster recovery
solutions without subscribing to IaaS. Product offerings provided directly from the Company are High Availability, Data Vaulting and DRaaS
type solutions, including standby servers which allow clients to centralize and streamline their mission-critical digital information
and technical environment. Client’s data is vaulted, maintenance of retention schedules for corporate governances and regulations
to meet their back to work objective in a disaster.
These
services are performed at the inception
of a contract. The Company provides professional assistance to its clients during the implementation processes. On-boarding and set-up
services ensure that the solution or software is installed properly and function as designed to provide clients with the best solutions.
In addition, clients that are managed service clients have a requirement for the Company to offer time and material billing.
The
Company also derives both one-time and subscription-based revenue, from providing support, management and renewal of software, hardware,
third-party maintenance contracts and third-party cloud services to clients. The managed services include help desk, remote access, operating
system and software patch management, annual recovery tests and manufacturer support for equipment and on-gong monitoring of client system performance.
|
3) |
Equipment
and Software Revenue |
The
Company provides equipment and software and actively participate in collaboration with IBM to provide innovative business solutions to
clients. The Company is a partner of IBM and the various software, infrastructure and hybrid cloud solutions provided to clients.
|
4) |
Nexxis
VoIP and Data Services |
The
Company provides VoIP, Internet access and data transport services to ensure businesses maintain connectivity from any location nationwide.
The Company provides, a highly reliable Hosted VoIP solution with equipment options for IP phones and internet speeds of up to 10Gb delivered
over fiber optics, and Cloud-First SD-WAN solutions that improves connectivity to cloud services.
Disaggregation of revenue
In the
following table, revenue is disaggregated by major product line, geography, and timing of revenue recognition.
Schedule of revenue is disaggregated by major product |
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year |
Ended
December 31, 2021 |
|
|
United
States |
|
International |
|
Total |
Cloud Infrastructure & Disaster Recovery |
|
$ |
7,105,892 |
|
|
$ |
97,354 |
|
|
$ |
7,203,246 |
|
Equipment and Software |
|
|
2,080,463 |
|
|
|
— |
|
|
|
2,080,463 |
|
Managed Services |
|
|
4,661,777 |
|
|
|
— |
|
|
|
4,661,777 |
|
Nexxis Services |
|
|
772,344 |
|
|
|
— |
|
|
|
772,344 |
|
Other |
|
|
158,397 |
|
|
|
— |
|
|
|
158,397 |
|
Total
Revenue |
|
$ |
14,778,873 |
|
|
$ |
97,354 |
|
|
$ |
14,876,227 |
|
For
the Year |
Ended
December 31, 2020 |
| |
United
States | |
International | |
Total |
Infrastructure
& Disaster Recovery/Cloud Service | |
$ | 5,691,133 | | |
$ | 115,237 | | |
$ | 5,806,370 | |
Equipment
and Software | |
| 2,074,911 | | |
| — | | |
| 2,074,911 | |
Managed
Services | |
| 380,701 | | |
| — | | |
| 380,701 | |
Professional
Fees | |
| 362,375 | | |
| — | | |
| 362,375 | |
Nexxis
Services | |
| 696,576 | | |
| — | | |
| 696,576 | |
Total
Revenue | |
$ | 9,205,696 | | |
$ | 115,237 | | |
$ | 9,320,933 | |
For
the Year |
Ended
December 31, |
Timing
of revenue recognition | |
2021 | |
2020 |
Products transferred at a
point in time | |
$ | 2,694,923 | | |
$ | 2,817,987 | |
Products and services
transferred over time | |
| 12,181,304 | | |
| 6,502,946 | |
Total
Revenue | |
$ | 14,876,227 | | |
$ | 9,320,933 | |
Contract receivables are recorded at the invoiced amount and are uncollateralized, non-interest-bearing
client obligations. Provisions for estimated uncollectible accounts receivable are made for individual accounts based upon specific
facts and circumstances including criteria such as their age, amount, and client standing.
Sales
are generally recorded in the month the service is provided. For clients who are billed on an annual basis, deferred revenue is
recorded and amortized over the life of the contract.
Transaction
price allocated to the remaining performance obligations
The
Company has the following performance obligations:
|
1) |
Data Vaulting: subscription-based service that encrypts and transfers data to secure location further
replicates the data to a second Company technical center where it remains encrypted. Ensuring retention schedules for corporate compliance.
Provides for twenty-four (24) hour or less recovery time and uses advanced data reduction reduplication technology to shorten restore
time. |
|
2) |
High Availability: A managed subscription-based service that offers cost-effective
mirroring software replication technology and provides one (1) hour or less recovery time. |
|
|
|
|
3) |
Infrastructure as a Service: a cloud subscription-based service offers
“capacity-on-demand” for IBM Power and Intel server systems. |
|
|
|
|
4) |
Internet: subscription-based service offers continuous internet connection along with FailSAFE providing disaster recovery. |
|
|
|
|
5) |
Support and Maintenance: subscription-based service offers support for servers, firewalls, desktops or software and ad hoc support and help desk. |
|
|
|
|
6) |
Implementation/Set-Up Fees: onboarding and set-up IaaS and DRaaS and Cyber
Security. |
|
|
|
|
7) |
Equipment sales: sale of servers and data storage equipment to the client. |
|
|
|
|
9) |
License: granting SSL certificates and other licenses. |
|
|
|
|
10) |
VoIP services and Direct Internet Access: subscription-based business
Hosted VoIP, SIP Trunk and Toll-Free solutions. |
Disaster
Recovery with Stand-By Servers, High Availability, Data Vaulting, IaaS, Message Logic, Support and Maintenance and Internet
Subscription
services such as the above allow clients to access a set of data or receive services for a predetermined period of time. As the
client obtains access at a point in time but continues to have access for the remainder of the subscription period, the client
is considered to simultaneously receive and consume the benefits provided by the entity’s performance as the entity performs.
Accordingly, the related performance obligation is considered to be satisfied ratably over the contract term. As the performance
obligation is satisfied evenly across the term of the contract, revenue is recognized on a straight-line basis over the contract
term.
Initial
Set-Up Fees
The
Company accounts for set-up fees as separate performance obligation. Set-up services are performed one time and accordingly, the
revenue is recognized at the point in time that the service is performed, and the Company is entitled to the payment.
Equipment
Sales
For
the Equipment sales performance obligation, the control of the product transfers at a point in time (i.e., when the goods have
been shipped or delivered to the client’s location, depending on shipping terms). Noting that the satisfaction of the performance
obligation, in this sense, does not occur over time as defined within ASC 606-10-25-27 through 29, the performance obligation
is considered to be satisfied at a point in time (ASC 606-10-25-30) when the obligation to the client has been fulfilled (i.e.,
when the goods have left the shipping facility or delivered to the client, depending on shipping terms).
License –
granting SSL certificates and other licenses
In
the case of licensing performance obligation, the control of the product transfers either at point in time or over time depending
on the nature of the license. The revenue standard identifies two types of licenses of IP: a right to access IP and a right to
use IP. To assist in determining whether a license provides a right to use or a right to access IP, ASC 606 defines two categories
of IP: Functional and Symbolic. The Company’s license arrangements typically do not require the Company to make its proprietary
content available to the client either through a download or through a direct connection. Throughout the life of the contract,
the Company does not continue to provide updates or upgrades to the license granted. Based on the guidance, the Company considers
its license offerings to be akin to functional IP and recognizes revenue at the point in time the license is granted and/or renewed
for a new period.
Payment
Terms
The
terms of the contracts typically range from 12 to 36 months with auto-renew options. The Company invoices clients one month in advance
for its services plus any overages or additional services.
Warranties
The
Company offers guaranteed service levels and service guarantees on some of its contracts. These warranties are not sold separately
and according to ASC 606-10-50-12(a) are accounted as “assurance warranties.”
Significant
Judgement
In
the instances that contracts have multiple performance obligations, the Company uses judgment to a establish stand-alone price for
each performance obligation separately. The price for each performance obligation is determined by reviewing market data for similar
services as well as the Company’s historical pricing of each individual service. The sum of each performance obligation
was calculated to determine the aggregate price for the individual services. Next, the proportion of each individual service to
the aggregate price was determined. That ratio was applied to the total contract price in order to allocate the transaction price
to each performance obligation.
Impairment
of Long-Lived Assets
In
accordance with FASB ASC 360-10-35, the Company reviews its long-lived assets for impairment whenever events and circumstances
indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the
carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.
Advertising
Costs
The
Company expenses the costs associated with advertising as they are incurred. The Company incurred $396,303 and $309,003 for
advertising costs for the year ended December 31, 2021 and 2020, respectively.
Stock-Based Compensation
The Company
follows the requirements of FASB ASC 718-10-10, Share-Based Payments with regards to stock-based compensation issued
to employees and non-employees. The Company has agreements and arrangements that call for stock to be awarded to the employees and consultants
at various times as compensation and periodic bonuses. The expense for this stock-based compensation is equal to the fair value of the
stock price on the day the stock was awarded multiplied by the number of shares awarded.
The valuation
methodology used to determine the fair value of the options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes
model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the
weighted average expected life of the options. Risk–free interest rates are calculated based on continuously compounded risk–free
rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends
on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is
estimated based on management’s best assessment.
Estimated volatility
is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the
award. The Company’s calculation of estimated volatility is based on historical stock prices of these entities over a period equal
to the expected life of the awards.
Net Income
(Loss) Per Common Share
In
accordance with FASB ASC 260-10-5 Earnings Per Share, basic income (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed
by dividing net income (loss) adjusted for income or loss that would result from the assumed conversion of potential common shares
from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each period.
The
following table sets forth the information needed to compute basic and diluted earnings per share for the year ended December
31, 2021 and 2020:
Schedule of Earning per share basic and dilute |
|
|
|
|
|
|
|
|
|
|
For
the Year Ended December 31, |
|
|
2021 |
|
2020 |
|
|
|
|
|
Net Income Available to Common Shareholders |
|
$ |
204,161 |
|
|
$ |
55,339 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares – basic |
|
|
5,075,716 |
|
|
|
3,213,157 |
|
Dilutive securities |
|
|
|
|
|
|
|
|
Options |
|
|
229,825 |
|
|
|
149,520 |
|
Warrants |
|
|
1,034,583 |
|
|
|
3,333 |
|
Weighted average number of common shares
– diluted |
|
|
6,340,125 |
|
|
|
3,366,010 |
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic |
|
$ |
0.04 |
|
|
$ |
0.02 |
|
Earnings per share, diluted |
|
$ |
0.03 |
|
|
$ |
0.02 |
|
The
following table sets forth the number of potential shares of common stock that have been excluded from diluted net income (loss)
per share net income (loss) per share because their effect was anti-dilutive:
Schedule of anti-dilutive income (loss) per share | |
| | | |
| | |
|
|
Year ended December 31, |
|
|
2021 | |
2020 |
Options | |
| 37,641 | | |
| 58,129 | |
Warrants | |
| 1,384,610 | | |
| — | |
| |
| 1,422,251 | | |
| 58,129 | |
Note
3 - Property and Equipment
Property
and equipment, at cost, consist of the following:
Schedule of property and equipment |
|
|
|
|
|
|
|
|
|
|
December
31, |
|
December
31, |
|
|
2021 |
|
2020 |
Storage equipment |
|
$ |
476,887 |
|
|
$ |
756,236 |
|
Website and software |
|
|
— |
|
|
|
533,417 |
|
Furniture and fixtures |
|
|
19,491 |
|
|
|
17,441 |
|
Leasehold improvements |
|
|
20,983 |
|
|
|
20,983 |
|
Computer hardware and software |
|
|
317,729 |
|
|
|
1,236,329 |
|
Data center equipment |
|
|
5,760,146 |
|
|
|
5,281,017 |
|
|
|
|
6,595,236 |
|
|
|
7,845,423 |
|
Less: Accumulated depreciation |
|
|
(4,657,765 |
) |
|
|
(5,543,822 |
) |
Net property and equipment |
|
$ |
1,937,471 |
|
|
$ |
2,301,601 |
|
Depreciation
expense for the year ended December 31, 2021 and 2020 was $959,974 and $838,566, respectively.
Note
4 - Goodwill and Intangible Assets
Goodwill
and intangible assets consisted of the following:
Schedule of goodwill and intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
Estimated life |
|
|
|
Accumulated |
|
|
|
|
in years |
|
Gross amount |
|
Amortization |
|
Net |
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
Indefinite |
|
|
$ |
6,560,671 |
|
|
$ |
— |
|
|
$ |
6,560,671 |
|
Trademarks |
|
|
Indefinite |
|
|
|
514,268 |
|
|
|
— |
|
|
|
514,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets not subject to amortization |
|
|
|
|
|
|
7,074,939 |
|
|
|
— |
|
|
|
7,074,939 |
|
Intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
5-15 |
|
|
|
2,614,099 |
|
|
|
899,932 |
|
|
|
1,714,167 |
|
ABC acquired contracts |
|
|
5 |
|
|
|
310,000 |
|
|
|
310,000 |
|
|
|
— |
|
SIAS acquired contracts |
|
|
5 |
|
|
|
660,000 |
|
|
|
660,000 |
|
|
|
— |
|
Non-compete agreements |
|
|
4 |
|
|
|
272,147 |
|
|
|
272,147 |
|
|
|
— |
|
Website and Digital Assets |
|
|
3 |
|
|
|
33,002 |
|
|
|
6,871 |
|
|
|
26,131 |
|
Total intangible assets subject to amortization |
|
|
|
|
|
|
3,889,248 |
|
|
|
2,148,950 |
|
|
|
1,740,298 |
|
Total Goodwill and Intangible Assets |
|
|
|
|
|
$ |
10,964,187 |
|
|
$ |
2,148,950 |
|
|
$ |
8,815,237 |
|
Scheduled
amortization over the next five years are as follows:
|
Schedule of amortization over the next two years |
|
|
|
|
|
Twelve months ending December 31, |
|
|
|
2022 |
|
|
$ |
278,922 |
|
|
2023 |
|
|
|
277,560 |
|
|
2024 |
|
|
|
271,078 |
|
|
2025 |
|
|
|
267,143 |
|
|
Thereafter |
|
|
|
645,595 |
|
|
Total |
|
|
$ |
1,740,298 |
|
Amortization
expense for the year ended December 31, 2021 and 2020 were $324,371 and
$194,000 respectively.
During the year ended December 31, 2021, the Company recorded a loss on disposal of assets of $15,000 related
to trademarks.
Note
5 –Leases
Operating
Leases
The
Company currently has two leases for office space located in Melville, NY.
The
first lease for office space in Melville, NY commenced on September 1, 2019. The term of this lease is for three years and eleven
months and runs co-terminus with our existing lease in the same building. The base annual rent is $10,764 payable in equal
monthly installments of $897.
A
second lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018. The term
of this lease is five years and three months at $86,268 per year with an escalation of 3% per year and expires on July
31, 2023.
The
lease for office space in Warwick, RI, called for monthly payments of $2,324 beginning February 1, 2015, which escalated to
$2,460 on February 1, 2017. This lease commenced on February 1, 2015, and expired on January 31, 2019. The Company extended
this lease until January 31, 2020. This lease was further extended until January 31, 2021. The annual base rent was $31,176 payable
in equal monthly installments of $2,598. The Company satisfied the terms of the lease and no longer occupies this premise.
On
July 31, 2021, the Company signed a 3three-year
lease for approximately 2,880 square feet of office space at 980 North Federal Highway, Boca Raton, FL.
The commencement date of the lease was August
1, 2021. The monthly rent is approximately $4,500.
The
Company leases technical space in New York, Massachusetts, North Carolina and Florida. These leases are month to month and the
monthly rent is approximately $39,000.
In
2020, the Company entered into a new technical space lease agreement in Dallas, TX. The lease term is 13 months
and requires monthly payments of $1,403 and expires on July 31, 2023.
On January 1, 2022, the Company
entered into a lease agreement for office space with WeWork in Austin, TX. The lease term is six months and requires monthly payments
of $1,470
and expires on June
30, 2022.
Finance
Lease Obligations
On
June 1, 2020, the Company entered into a lease agreement with a finance company to lease equipment. The lease obligation is
payable in monthly installments of $5,008.
The lease carries an interest rate of 7%
and is a 3 three-year lease. The term of the lease ends June
1, 2023.
On
June 29, 2020, the Company entered into a lease agreement with a finance company to lease equipment. The lease obligation is
payable in monthly installments of $5,050.
The lease carries an interest rate of 7%
and is a 3 three-year lease. The term of the lease ends June
29, 2023.
On
July 31, 2020, the Company entered into a lease agreement with a finance company to lease equipment under a finance lease. The lease
obligation is payable in monthly installments of $4,524.
The lease carries an interest rate of 7%
and is a 3 three-year lease. The term of the lease ends July
31, 2023.
On
November 1, 2021, the Company entered into a lease agreement with a finance company to lease equipment under a finance lease. The
lease obligation is payable in monthly installments of $3,152.
The lease carries an interest rate of 6%
and is a 3 three-year lease. The term of the lease ends September 21, 2024.
Finance Lease
Obligations – Related Party
On
April 1, 2018, the Company entered into a lease agreement with Systems Trading Inc. (“Systems Trading”) to refinance all
equipment leases into one lease. This lease obligation is payable to Systems Trading with bi-monthly installments of $23,475.
The lease carries an interest rate of 5%
and is a 4 four-year lease. The term of the lease ends April
16, 2022. Systems Trading is owned and operated by the Company’s President, Harold Schwartz.
On
January 1, 2019, the Company entered into a lease agreement with Systems Trading. This lease obligation is payable to Systems
Trading with monthly installments of $29,592.
The lease carries an interest rate of 6.75%
and is a 5 five-year lease. The term of the lease ends December
31, 2023.
On
April 1, 2019, the Company entered into two lease agreements with Systems Trading to add new data center equipment. The first
lease calls for monthly installments of $1,328 and expires on March 1, 2022. It carries an interest rate of 7%.
The second lease calls for monthly installments of $461 and expires on March 1, 2022. It carries an interest rate of 6.7%.
On
January 1, 2020, the Company entered into a new lease agreement with Systems Trading to lease equipment. The lease obligation is
payable to Systems Trading with monthly installments of $10,534.
The lease carries an interest rate of 6%
and is a 3 three-year lease. The term of the lease ends January
1, 2023.
On
March 4, 2021, the Company entered into a new lease agreement with Systems Trading effective April 1, 2021. This lease obligation
is payable to Systems Trading with monthly installments of $1,567 and expires on March 31, 2024. The lease carries an
interest rate of 8%.
The
Company determines if an arrangement contains a lease at inception. Right of Use “ROU” assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising
from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value
of lease payments over the lease term. The Company’s lease term includes options to extend the lease when it is reasonably
certain that it will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet, per
the election of the practical expedient. ROU assets and liabilities are recognized at the lease commencement date based on the
estimated present value of lease payments over the lease term. The Company recognizes lease expense for these leases on a straight-line
basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments
is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement
date, otherwise variable lease payments are recognized in the period incurred. A discount rate of 5% was used in preparation
of the ROU asset and operating liabilities.
The components
of lease expense were as follows:
Schedule Of Components of lease expense |
|
|
|
|
Components of lease expense |
|
|
|
|
Year
Ended December 31, 2021 |
Finance leases: |
|
|
|
|
Amortization of assets, included in depreciation and amortization expense |
|
$ |
1,125,267 |
|
Interest on lease liabilities, included in interest expense |
|
|
166,665 |
|
Operating lease: |
|
|
|
|
Amortization of assets, included in total operating expense |
|
|
144,813 |
|
Interest on lease liabilities, included in total operating expense |
|
|
19,415 |
|
Total net lease cost |
|
$ |
1,456,160 |
|
|
|
|
|
|
Supplemental balance sheet information related to leases was as follows |
|
|
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset |
|
$ |
422,318 |
|
|
|
|
|
|
Current operating lease liabilities |
|
$ |
205,414 |
|
Noncurrent operating lease liabilities |
|
|
226,344 |
|
Total operating lease liabilities |
|
$ |
431,758 |
|
| |
December 31, 2021 |
Finance leases: | |
| | |
Property and equipment, at cost | |
$ | 4,531,418 | |
Accumulated amortization | |
| (2,759,051 | ) |
Property and equipment, net | |
$ | 1,772,367 | |
| |
| | |
Current obligations of finance leases | |
$ | 522,078 | |
Finance leases, net of current obligations | |
| 1,056,092 | |
Total finance lease liabilities | |
$ | 1,578,170 | |
Supplemental
cash flow and other information related to leases was as follows:
Supplemental balance sheet information related to leases | |
| | |
| |
Year
Ended December 31, 2021 |
Cash paid for amounts included in the
measurement of lease liabilities: | |
| | |
Operating cash flows related
to operating leases | |
$ | 179,684 | |
Financing cash flows related to finance
leases | |
$ | 1,125,265 | |
| |
| | |
Weighted average remaining lease term
(in years): | |
| | |
Operating leases | |
| 2.40 | |
Finance leases | |
| 1.72 | |
| |
| | |
Weighted average discount rate: | |
| | |
Operating leases | |
| 5 | % |
Finance leases | |
| 7 | % |
Long-term
obligations under the operating and finance leases at December 31, 2021 mature as follows:
Schedule Of Long-term obligations under the operating and Finance leases | |
| | | |
| | |
For
the Twelve Months Ended December 30, | |
Operating
Leases | |
Finance
Leases |
2022 | |
$ | 214,150 | | |
$ | 1,007,897 | |
2023 | |
| 169,770 | | |
| 568,493 | |
2024 | |
| 63,983 | | |
| 102,146 | |
Total lease payments | |
| 447,903 | | |
| 1,678,536 | |
Less:
Amounts representing interest | |
| (16,145 | ) | |
| (100,366 | ) |
Total lease obligations | |
| 431,758 | | |
| 1,578,170 | |
Less:
Current | |
| (205,414 | ) | |
| (1,056,092 | ) |
| |
$ | 226,344 | | |
$ | 522,078 | |
As
of December 31, 2021, the Company had no additional significant operating or finance leases that had not yet commenced. Rent expense
under all operating leases for the year ended December 31, 2021 and 2020 was $184,131 and $ 169,716, respectively.
Note
6 - Commitments and Contingencies
COVID-19
The
COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption. The extent to which COVID-19
will adversely impact the Company’s business, financial condition and results of operations is dependent upon numerous factors,
many of which are highly uncertain, rapidly changing and uncontrollable. These factors include, but are not limited to: (i) the
duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken
in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place
orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential
adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; (vi) increased
cybersecurity risks as a result of pervasive remote working conditions; and (vii) the Company’s ability to effectively carry
out its operations due to any adverse impacts on the health and safety of its employees and their families.
Under
NYS Executive Order 202.6, “Essential Business,” Data Storage Corporation is an “Essential Business” based on
the following in the Executive order number 2: Essential infrastructure including telecommunications and data centers; and, number 12:
Vendors that provide essential services or products, including logistics and technology support. Further, as a result of the pandemic,
all employees, including the Company’s specialized technical staff, are working remotely or in a virtual environment. The Company
always maintains the ability for team members to work virtually and the Company will continue to stay virtual, until the State and or
the Federal government indicate the environment is safe to return to work. The significant increase in remote working, particularly for
an extended period of time, could exacerbate certain risks to the Company’s business, including an increased risk of cybersecurity
events and improper dissemination of personal or confidential information, though the Company does not believe these circumstances have,
or will, materially adversely impact its internal controls or financial reporting systems. If the COVID-19 pandemic should worsen, the
Company may experience disruptions to our business including, but not limited to: equipment, its workforce, or to its business relationships
with other third parties. The extent to which COVID-19 impacts the Company’s operations or those of its third-party partners will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak,
new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
Any such disruptions or losses we incur could have a material adverse effect on the Company’s financial results and our ability
to conduct business as expected.
Revolving
Credit Facility
On
January 31, 2008, the Company entered into a revolving credit line with a bank. The credit facility provides for $100,000 at
prime plus 0.5%
and is secured by all assets of the Company and personally guaranteed by the Company’s CEO. As of December 31, 2021, and 2020
the balance was $0 and
$24 respectively.
During the year ended December 31, 2021, the Company terminated the revolving credit line.
On
March 24, 2017, Flagship entered into a revolving demand note with a bank for an amount not to exceed $750,000. The line of credit
may be cancelled by either party at any time for any reason by written notice to the other and is collateralized by all of Flagship’s
assets and the personal guarantee of two members of the Company. The stated interest rate is adjustable with interest equal to
the Prime Rate plus four percent per annum. Repayment terms consist of interest only due monthly with all principal and remaining
interest due on demand. The line of credit balance outstanding as of December 31, 2021, was $0. During the year ended December
31, 2021, the Company terminated the revolving credit line.
Note
7 – Note payable
On April 30, 2020, the Company
was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck
Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”), which was enacted on March 27, 2020. The Loan, which was in the form of a Note dated April 30, 2020, matures on April
30, 2022, and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November 5, 2020. Funds
from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.
Management used the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven
if they are used for qualifying expenses as described in the CARES Act. During the year ended December 31, 2021, the Company recorded
interest of $6,140. During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven and the Company recorded
a gain on forgiveness of debt on the Consolidated Statements of Operations.
On June 1, 2021, the Company
assumed the PPP loan of Flagship Solutions, LLC in the amount of $307,300. During the year ended December 31, 2021, the Company recorded
interest of $3,423. During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven and the Company recorded
a gain on forgiveness of debt on the Consolidated Statements of Operations.
Note
8 - Stockholders’ (Deficit)
Capital
Stock
The
Company has 260,000,000 authorized shares of capital stock, consisting of 250,000,000 shares of common stock,
par value $0.001, and 10,000,000 shares of Preferred Stock, par value $0.001 per share.
On
May 13, 2021, the Company entered into an underwritten public offering of an aggregate of 1,600,000 units, each consisting of one share of
the Company’s common stock, par value $0.001 per share , together with one warrant
to purchase one share of Common Stock at an exercise
price equal to $7.425 per share of Common Stock.
The
public offering price was $6.75 per Unit and the underwriters agreed to purchase 1,600,000 Units at a 7.5% discount
to the public offering price. The Company granted the representative a 45-day option to purchase an additional 240,000 shares
of Common Stock and/or an additional 240,000 Warrants, in any combination thereof, to cover over-allotments. On May 15, 2021,
the representative exercised the over-allotment option to purchase an additional 240,000 Warrants to purchase 240,000 shares of
Common Stock. The net proceeds from the offering were $9.5 million.
On May 14, 2021,
the Company effected a 1-for-40 reverse stock split. As a result, all share information in the accompanying condensed financial statements
has been adjusted as if the reverse stock split happened on the earliest date presented.
On
July 21, 2021, the Company entered into a securities purchase agreement with certain accredited institutional investors resulting
in the raise of $8,305,000 in gross proceeds to the Company. Pursuant to the terms of the purchase agreement, the Company
agreed to sell, (i) an aggregate of 1,375,000 shares of the Company’s common stock, par value $0.001 per
share and (ii) warrants to purchase an aggregate of 1,031,250 shares of the Company’s Common Stock at an exercise
price of $6.15 per share, subject to adjustment.
The placement agent was entitled to a cash fee of 6.5% of the gross proceeds of the Offering and the reimbursement for certain
out-of-pocket expenses up to $50,000. The net proceeds from the offering
were $7.5 million.
During
the year ended December 31, 2021, employees exercised 6,592 options via cashless exercise, into 5,060 shares
of common stock.
During
the year ended December 31, 2021, warrant holders exercised 455,390 warrants into common stock. The Company received
$3,381,271 for these warrants.
Common
Stock Options
A summary of the
Company’s option activity and related information follows:
Schedule of option activity and related information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Under Options |
|
|
Range of Option Price Per Share |
|
|
Weighted Average Exercise Price |
|
Weighted Average Contractual Life |
Options Outstanding at January 1, 2020 |
|
|
210,743 |
|
|
$ |
2.00 – 19.50 |
|
|
$ |
6.80 |
|
7.5 |
Options Granted |
|
|
8,750 |
|
|
|
4.80 – 5.20 |
|
|
|
5.20 |
|
|
Exercised |
|
|
(2,500 |
) |
|
|
1.50 |
|
|
|
2.00 |
|
|
Expired/Cancelled |
|
|
(9,246 |
) |
|
|
14.00 – 14.40 |
|
|
|
14.40 |
|
|
Options Outstanding at December 31, 2020 |
|
|
207,747 |
|
|
$ |
2.00 – 15.76 |
|
|
$ |
5.2 |
|
6.6 |
Options Granted |
|
|
82,157 |
|
|
|
3.03 – 5.80 |
|
|
|
4.50 |
|
|
Exercised |
|
|
(6,592 |
) |
|
|
2.00 |
|
|
|
2.00 |
|
|
Expire/Cancelled |
|
|
(15,846 |
) |
|
|
3.00 – 14.00 |
|
|
|
5.89 |
|
|
Options Outstanding at December 31, 2021 |
|
|
267,466 |
|
|
$ |
2.00 – 16.00 |
|
|
$ |
5.19 |
|
6.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2021 |
|
|
162,373 |
|
|
$ |
2.00 – 16.00 |
|
|
$ |
5.83 |
|
5.34 |
Share-based
compensation expense for options totaling $171,798 and $158,728 was recognized in our results for the year ended December 31,
2021 and 2020, respectively.
The
valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing
model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average
risk-free interest rate, and the weighted average expected life of the options.
The
risk-free interest rate assumption is based upon observed interest rates on zero-coupon U.S. Treasury bonds whose maturity period
is appropriate for the term of the options.
Estimated
volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected
life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of the Company over
a period equal to the expected life of the awards.
As
of December 31, 2021, there was $432,296 of total unrecognized compensation expense related to unvested employee options granted
under the Company’s share-based compensation plans that is expected to be recognized over a weighted-average period of approximately 2.66 years.
The weighted average fair value of options granted,
and the assumptions used in the Black-Scholes model during the year ended December 31, 2021 and 2020 are set forth in the table below.
Schedule of weighted average fair value of options granted |
|
|
|
|
|
|
|
|
|
|
2021 |
|
2020 |
Weighted average fair value
of options granted |
|
$ |
5.35 |
|
|
$ |
5.20 |
|
Risk-free interest rate |
|
|
1.31 – 1.62 |
% |
|
|
0.66-0.83 |
% |
Volatility |
|
|
217 – 219 |
% |
|
|
221 – 223 |
% |
Expected life (years) |
|
|
10 |
|
|
|
10 |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Common
Stock Warrant
A
summary of the Company’s warrant activity and related information follows:
Schedule of warrant activity and related information | |
| | | |
| | | |
| | | |
| | |
| |
| |
| |
| |
Weighted |
| |
Number of | |
Range of | |
Weighted | |
Average |
| |
Shares | |
Option Price | |
Average | |
Contractual |
| |
Under Options | |
Per Share | |
Exercise Price | |
Life |
Warrants Outstanding at January 1, 2020 | |
| 3,333 | | |
$ | 0.40 | | |
$ | 0.40 | | |
| 4.50 | |
Warrants Granted | |
| — | | |
| — | | |
| — | | |
| — | |
Warrant Outstanding at December 31, 2020 | |
| 3,333 | | |
$ | 0.40 | | |
$ | 0.40 | | |
| 3.50 | |
Warrant Granted | |
| 2,871,250 | | |
| 7.43
- 6.67 | | |
| 6.97 | | |
| — | |
Exercised | |
| (455,390 | ) | |
| 7.43 | | |
| 7.43 | | |
| — | |
Expired/Cancelled | |
| — | | |
| — | | |
| — | | |
| — | |
Warrant Outstanding at December 31, 2021 | |
| 2,419,193 | | |
$ | 7.43 - 0.40 | | |
$ | 6.87 | | |
| 4.67 | |
| |
| | | |
| | | |
| | | |
| | |
Warrant Exercisable at December 31, 2021 | |
| 2,419,193 | | |
$ | 7.43
- 0.40 | | |
$ | 6.87 | | |
| 4.67 | |
Preferred
Stock
Liquidation preference
Upon any liquidation, dissolution,
or winding up of the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of
any Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available
for distribution to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred
Stock equal to the Original Issue Price for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share
of Series A Preferred Stock as of the date of the Liquidation Event. No Preferred shares are issued as of December 31, 2021.
Conversion
The
number of shares of Common Stock to which a share of Series A Preferred Stock may be converted shall be the product obtained by
dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined
herein) for such share of Series A Preferred Stock. The Conversion Price for the Series A Preferred Stock shall initially be equal
to $0.02 and shall be adjusted from time to time.
Voting
Each
holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of
the Corporation (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B Common
Stock into which such shares of Series A Preferred Stock could be converted.
Dividends
Each
share of Series A Preferred Stock, in preference to the holders of all common stock, shall entitle its holder to receive, but only
out of funds that are legally available therefore, cash dividends at the rate of ten percent (10%)
per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually
unless paid by the Company. On May 18, 2021, the Company converted 1,401,786 shares
of Series A Preferred Stock into 43,806 shares of common stock. As part of this transaction, the Company also paid $1,179,357 the
accrued and unpaid dividends. Accrued dividends at December 31, 2021 and 2020 were $0
and $1,115,674,
respectively.
Note 9 - Income Taxes
The components of deferred taxes
are as follows:
Schedule of components of deferred taxes |
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
|
2021 |
|
2020 |
Deferred tax assets: |
|
|
|
|
Net operating loss carry
forwards |
|
|
1,752,000 |
|
|
|
1,313,000 |
|
Stock based compensation |
|
|
48,000 |
|
|
|
45,000 |
|
Property and equipment |
|
|
217,000 |
|
|
|
182,000 |
|
Other |
|
|
51,000 |
|
|
|
8,000 |
|
Total deferred tax assets |
|
|
2,068,000 |
|
|
|
1,548,000 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangibles |
|
|
(91,000 |
) |
|
|
— |
|
Other |
|
|
(308,000 |
) |
|
|
— |
|
Total deferred tax liabilities |
|
|
(399,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Valuation Allowance |
|
|
(1,669,000 |
) |
|
|
(1,548,000 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
|
— |
|
|
|
— |
|
The
Company had federal and state net operating tax loss carry-forwards of $5,935,000 and $5,605,000, respectively as of December
31, 2021. The tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards
beginning to expire in 2028.
In 2021 and 2020, net deferred tax assets did not
change due to the full allowance. The gross amount of the asset is entirely due to the net operating loss carry-forward. The realization
of the tax benefits is subject to the sufficiency of taxable income in future years. The combined deferred tax assets represent the amounts
expected to be realized before expiration.
The
Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all
available evidence, both positive and negative, including historical levels of income, expectations and risks associated with
estimates of future taxable income and ongoing prudent and feasible profits. As a result of this analysis of all available evidence,
both positive and negative, the Company concluded that it is more likely than not that its net deferred tax assets will ultimately
not be recovered and, accordingly, a valuation allowance was recorded as of December 31, 2021 and 2020.
A reconciliation of the Company’s effective
income tax rate to the expected income tax rate, computed by applying the federal statutory income tax rate of 21.0% for each of the years
ended December 31, 2021 and 2020 to the Company’s loss before provision (benefit) for income taxes, is as follows:
Schedule of expected income tax expense (benefit) | |
| | | |
| | |
| |
2021 | |
2020 |
U.S. federal statutory rate | |
| 21.0 | % | |
| 21.0 | % |
State taxes | |
| 7.1 | % | |
| 7.1 | % |
| |
| | | |
| | |
| |
| | | |
| | |
Valuation allowance | |
| (12.2 | )% | |
| (28.1 | )% |
Income tax provision | |
| (12.9 | )% | |
| — | % |
Note
10 - Litigation
We
are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results
of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries,
threatened against or affecting the Company, its common stock, any of its subsidiaries or of Data Storage’s or Data Storage’s
subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Note
11 - Related Party Transactions
Finance
Lease Obligations – Related Party
During
the year ended December 31, 2021, the Company entered into one related party finance lease obligations. See Note 5 for details.
Nexxis
Capital LLC
Charles M.
Piluso (Chairman and CEO) and Harold Schwartz (President) collectively own 100% of Nexxis Capital LLC (“Nexxis Capital”).
Nexxis Capital was formed to purchase equipment and provide leases to Nexxis Inc.’s customers. No lease obligations exist between
the Company and Nexxis Capital.
The Company received funds of $14,209 and $37,954 during the year
ended December 31, 2021 and 2020 respectively.
Note
12 - Merger
Flagship
Solutions, LLC
On
February 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Data Storage
FL, LLC, a Florida limited liability company and the Company’s wholly-owned subsidiary (the “Merger Sub”), Flagship
Solutions, LLC (“Flagship”), a Florida limited liability company, and the owners (collectively, the “Equityholders”)
of all of the issued and outstanding limited liability company membership interests in Flagship (collectively, the “Equity
Interests”). The Company acquired Flagship on May 31, 2021, and became its wholly-owned subsidiary.
Pursuant to the Merger, all of the Equity Interests that are issued and
outstanding immediately prior to the effectiveness of the filing of the Articles of Merger by Flagship and Merger Sub with the Secretary
of State of the State of Florida, was converted into the right to receive an aggregate amount equal to up to $10,500,000, consisting of
$5,550,000, payable in cash, subject to reduction by the amount of any excluded liabilities assumed by the Company at Closing totaling
$110,684, and subject to adjustment as set forth below in connection with a networking capital adjustment totaling $307,300, and the Company
paid the broker fess of $402,727, and up to $4,950,000, payable in shares of the Company’s common stock, subject to reduction by
the amount by which the valuation of Flagship (the “Flagship Valuation”), as calculated based on Flagship’s unaudited
pro forma 2018 financial statements and audited 2019 and 2020 financial statements (the “2020 Audit”), is less than $10,500,000.
In the event that the Flagship Valuation, as calculated based on the 2020 Audit, is less than $10,500,000, then, within fifteen (15)
days after completion of the audit of Flagship’s financial statements for its 2019, 2020 and 2021 fiscal years (the “2021
Audit”), the Company has agreed to pay the Equityholders, in shares of the Company’s common stock, the amount by which the
Flagship Valuation, as calculated based on the 2021 Audit, exceeds the sum of $5,550,000 and the value of the shares merger consideration
paid by us to the Equityholders at Closing, subject to a cap of $4,950,000.
In
addition, the cash merger consideration paid by the Company to the Equityholders at Closing shall be adjusted, on a dollar-for-dollar
basis, by the amount by which Flagship’s net working capital at Closing is more or is less than the target working capital
amount specified in the Merger Agreement.
Concurrently
with the Closing, Flagship and Mark Wyllie, Flagship’s Chief Executive Officer, entered into an Employment Agreement, which
was effective upon consummation of the Closing, pursuant to which Mr. Wyllie will continue to serve as Chief Executive Officer
of Flagship following the Closing on the terms and conditions set forth therein. Flagship’s obligations under the Wyllie
Employment Agreement will also be guaranteed by the Company. The Wyllie Employment Agreement provides for: (i) an annual base
salary of $170,000, (ii) management bonuses comprised of twenty-five percent (25%) of Flagship’s net income available in
free cash flow as determined in accordance with GAAP for each calendar quarter during the term, (iii) an agreement to issue him
stock options of the Company, subject to approval by the Board, commensurate with his position and performance and reflective
of the executive compensation plans that the Company has in place with its other subsidiaries of similar size to Flagship, (iv)
life insurance benefits in the amount of $400,000, and (v) four weeks paid vacation. In the event Mr. Wyllie’s employment
is terminated by him for good reason (as defined in the Wyllie Employment Agreement) or by Flagship without cause, he will be
entitled to receive his annual base salary through the expiration of the initial three-year employment term and an amount equal
to his last annual bonus paid, payable quarterly. Pursuant to the Wyllie Employment Agreement, we have agreed to elect Mr. Wyllie
to the Board and the board of directors of Flagship to serve so long as he continues to be employed by the Company. The employment
agreement contains customary non-competition provisions that apply during its term and for a period of two years after the term
expires. In addition, pursuant to the Wyllie Employment Agreement, Mr. Wyllie will be appointed to serve as a member of the Company’s
Board of Directors and the board of directors of Flagship to serve so long as he continues to be employed by us.
Following
the closing of the transaction, Flagship’s financial statements as of the Closing were consolidated with the Consolidated
Financial Statements of the Company. These amounts are provisional and may be adjusted during the measurement period.
The following
sets forth the components of the purchase price:
Schedule of Purchase price | |
| | |
Purchase price: | |
| | |
Cash paid to the seller | |
$ | 6,149,343 | |
Total purchase price | |
| 6,149,343 | |
| |
| | |
Tangible Assets Acquired: | |
| | |
Cash | |
| 212,068 | |
Accounts Receivable | |
| 1,389,263 | |
Prepaid Expenses | |
| 127,574 | |
Fixed Assets | |
| 4,986 | |
Website and Digital Assets | |
| 33,002 | |
Security Deposits | |
| 22,500 | |
Total Tangible Assets Acquired | |
| 1,789,393 | |
| |
| | |
Tangible Liabilities Assumed: | |
| | |
Accounts Payable and Accrued Expenses | |
| 514,354 | |
Deferred Revenue | |
| 68,736 | |
Deferred Tax Liability | |
| 399,631 | |
PPP Loan Payable | |
| 307,300 | |
Total Tangible Liabilities Assumed | |
| 1,290,021 | |
| |
| | |
Net Tangible Assets Acquired | |
| 499,372 | |
| |
| | |
Excess Purchase Price | |
$ | 5,649,971 | |
The excess purchase
price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S. GAAP. The following
table provides a summary of the allocation of the excess purchase price.
Schedule of unaudited pro-forma |
|
|
|
|
Customer Relationships |
|
$ |
1,870,000 |
|
Trade Names |
|
|
235,000 |
|
Assembled Workforce |
|
|
287,000 |
|
Goodwill |
|
|
3,257,971 |
|
|
|
|
|
|
Excess Purchase Price |
|
$ |
5,649,971 |
|
The intangible
assets acquired include the trade names, customer relationships, assembled workforce, and goodwill. The deferred tax liability represents
the tax effected timing differences relating to the acquired intangible assets to the extent they are not offset by acquired deferred
tax assets.
The goodwill
represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. No portion of
the goodwill is deductible for tax purposes.
The following
presents the unaudited pro-forma combined results of operations of the Company with Flagship Solutions as if the entities were
combined on January 1, 2020.
|
|
Year
Ended |
|
|
December 31,
2021 |
Revenues |
|
$ |
23,051,759 |
|
Net income attributable to common shareholders |
|
$ |
1,526,938 |
|
Net income per share |
|
$ |
0.30 |
|
Weighted average number of shares outstanding |
|
|
5,075,716 |
|
| |
Year
Ended |
| |
December 31,
2020 |
Revenues | |
$ | 18,172,193 | |
Net loss attributable to common shareholders | |
$ | 91,180 | |
Net loss per share | |
$ | 0.03 | |
Weighted average number of shares outstanding | |
| 3,213,157 | |
Note
13 - Subsequent Events
Subsequent to December 31, 2021, the Company
issued 38,300 options
to employees through the 2021 Stock Incentive Plan. These options vest over 3three years and have exercise prices ranging from
$3.28 –
$3.44.
Subsequent to December 31, 2021, options
were exercised to obtain 3,334 shares of common stock. These options were exercised for $ 6,935.