Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  

Note 11 - 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. The purchase price was $5.5 million.


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.


The following sets forth the components of the 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 following table shows the allocation of the excess purchase price.   

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, 2021.

    Three Months Ended
    June 30,
Revenues   $ 7,759,779  
Net income attributable to common shareholders   $ 1,288,367  
Net income per share   $ 0.41  
Weighted average number of shares outstanding     3,751,825  


    Six Months Ended
    June 30,
Revenues   $ 14,270,565  
Net income attributable to common shareholders   $ 1,202,704  
Net income per share   $ 0.32  
Weighted average number of shares outstanding