| Summary of Significant Accounting Policies | Note 2 - Summary of Significant Accounting Policies Stock Based Compensation The Company follows the requirements of FASB
ASC 718-10-10, Share-Based Payments Principles of Consolidation The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries, jointly-owned subsidiaries over which it exercises control and entities
for which it has been determined to be the primary beneficiary. Noncontrolling interest amounts relating to the Company’s
less-than-wholly owned consolidated subsidiaries are included within the “Noncontrolling interest in consolidated subsidiaries”
captions in its Consolidated Balance Sheets and within the “Noncontrolling interests” caption in its Consolidated Statements
of Income. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in
conformity with U.S. generally accepted accounting principles 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, prepaid expenses and other current assets, accounts payable and accrued expenses and deferred revenue.
Management believes the estimated fair value of these accounts at June 30, 2018 approximate their carrying value as reflected in
the balance sheets due to the short-term nature of these 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, Cash Equivalents and Short-Term Investments 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. Recently Issued and Newly Adopted Accounting
Pronouncements During January 2016, the FASB issued ASU No.
2016-01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities In February 2016, the FASB issued ASU 2016-02,
Leases, Leases In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows : Classification of Certain Cash Receipts and Cash Payments, In October 2016, the FASB issued ASU 2016-16,
Income Taxes : Intra-Entity Transfers of Assets Other than Inventory In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows In January 2017, the FASB issued ASU No 2017-04
Intangibles-Goodwill and Other Simplifying the Accounting for Goodwill Impairment In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share , Distinguishing Liabilities from Equity , and
Derivatives and Hedging Effective January 1, 2018, the Company adopted
Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”).
The Company changed its revenue recognition policy regarding set-up fees. Beginning January 2018, 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. In addition, Management enhanced disclosure
regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the
related judgments and estimates necessary to apply the new standard. ASC 606 was applied using the modified retrospective
method. The Company recorded a journal entry as of January 1, 2018 to record the effect of the recognition of the deferred set
up fees. Accordingly, comparative periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue
Recognition (“ASC” 605). The Company generates revenue by offering Cloud
Services, Infrastructure as Service (“IaaS”), Disaster Recovery as a Service, Email Archival and Compliance Solutions
as subscription-based services. The Company also sells Equipment and Software to its customer and offers Management and Support
Services. Subscription contracts allows for high level of customization of services to meet customers’ needs. In certain
instances, combination of customized products and services are determined to be essential to the functionality of the delivered
services. In others, customers can benefit from one of these services on its own. Under ASC 606, revenue is recognized when a
customer obtains control of promised goods or services in an amount that reflects the consideration the Company expect to receive
in exchange for those goods or services. The Company measure revenue based on the consideration specified in the arrangement, and
revenue is recognized when the performance obligations are satisfied. A performance obligation is a promise in a contract to transfer
a distinct service or product to the customer. The transaction price of a contract is allocated to each distinct performance obligation
and recognized as revenue when or as, the customer receives the benefit of the performance obligation. From subscription-based
contracts, the customers continuously receive benefit of these services. With the sale of Equipment or Setup Services, the customers
usually receive the benefit at the time the product or service is delivered or provided. Substantially, all of the contracts provide
that the Company is compensated for services performed to date. In July 2018, FASB issued ASU 2018-07 Improvement
to Nonemployee Share-based Payment Accounting. 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, 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 federal 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 performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts on
factors surrounding the credit risk of specific customers, historical trends, and other information. For the six months ended June 30, 2018 the Company had one customer
that accounted for 17% of revenue. At June 30, 2018 the customer also accounted for 53% of accounts receivable. For the six months
ended June 30, 2017 the Company did not have any customer concentrations. Accounts Receivable/Allowance for Doubtful Accounts The Company sells its services to customers
on an open credit basis. Accounts receivable are uncollateralized, non-interest-bearing customer obligations. Accounts receivables
are due within 30 days. The allowance for doubtful accounts reflects the estimated accounts receivable that will not be collected
due to credit losses and allowances. 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 is 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 5 to 7 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. 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 June 30, 2018, the Company had a full valuation allowance against its
deferred tax assets. In December 2017, the 2017 Tax Cuts and Jobs
Act (Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a reduction
of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the
tax law changes in the period of enactment, such as determining the transition tax, re-measuring our U.S. deferred tax assets and
liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. 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 June 30, 2018 and December 31, 2017, the Company has
no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2016,
2015 and 2014 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 January 2017, FASB issued ASU No. 2017-04,
“Intangibles—Goodwill and Other Simplifying the Accounting for Goodwill” (ASU 2017-04”) requires goodwill
impairment loss to be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the
total goodwill allocated to that reporting unit). The new guidance eliminates Step 2, which an entity used to measure goodwill
impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.
“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,”
the ASU states. “Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount.” In accordance with GAAP, the Company tests
goodwill and other intangible assets for impairment on at least an annual basis. Goodwill impairment exists if the net book value
of a reporting unit exceeds its estimated fair value. The impairment testing is performed in two steps: (i) the Company determines
impairment by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is an impairment, the Company
measures the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.
To determine the fair value of these 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 and Disaster Recovery Revenue Subscription services such as IaaS/Hosting
Disaster Recovery, High Availability, Vault Services, IaaS, Message Logic, and Internet allows customers to centralize and streamline
their data protection services. Customer’s data can be backed up, replicated, archived and restored to meet their back to
work objective in a disaster. Infrastructure as a Service (IaaS)helps customers to achieve reliable and cost-effective computing
and high availability solutions. Message Logic service helps customers to keep message content secure and accessible. Internet
services ensure companies have connectivity in the event of outages.
2) Professional Services These services are performed at the inception
of a contract for a fixed price. The Company offers professional assistance to its customers during the installation processes.
On-boarding and set-up services ensure that the software is installed properly and function as designed to provide customers with
the best solutions. In addition, clients that are managed service clients have a requirement for DSC to offer time and material
billing.
3) Equipment and Software Revenue The Company sales servers and other hardware
and actively participate in collaboration with IBM to provide innovative business solutions to customers.
4) Managed Services To provide the best data protection, the Company
manage backup data for customers enabling them to meet compliance regulation and improve recovery time objectives. The Company
also derives revenues from providing support and management of its software to customers. The managed service includes help desk,
remote access, annual recovery tests and on-gong monitoring of system performance. Disaggregation of revenue In the following table,
revenue is disaggregated by major product line and timing of revenue recognition (in thousands of USD).
For the Six Months Ended June 30,
2018 2017
Major products/services lines
Infrastructure and Disaster Recovery $ 2,268,391 $ 2,363,341
Professional Service 117,841 255,828
Equipment and Software 1,767,804 1,100,544
Managed Service 346,656 427,045
Other 199,375 204,442
Total Revenue $ 4,700,067 $ 4,351,200
Timing of revenue recognition
Products transferred at a point in time $ 1,885,645 $ 1,356,372
Products and services transferred over time 2,814,422 2,994,828
$ 4,700,067 $ 4,351,200 Deferred revenue from 2017 of $41,000 has been
re-classified as retained earnings. During the second quarter of 2018 a total of $22,555 in onboarding fees related to the company’s
cloud-based solutions has been recorded as revenue. The amount of onboarding fees for the second quarter 2018 sales for cloud-based
solution for the company’s USA client base is immaterial when compared to second quarter revenue of $4,677,512 resulting
in a total revenue including onboarding fees of $4,700,067. Future periods may have material onboarding fees and will be reported
according to the revenue recognition standards for comparisons to previous periods. Contract receivables are recorded at the invoiced
amount and are uncollateralized, non-interest-bearing customer 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
customer standing. Sales are generally recorded in the month the
service is provided. For customers 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) Disaster Recovery (“DR”)
2) Vaulting
3) High Availability (“HA”)
4) Infrastructure as a Service (“IaaS”)
5) Message Logic
6) Internet
7) Support and Maintenance
8) Initial Set-Up Fees
9) Equipment sales
10) License Disaster Recovery with Stand-By Servers,
High Availability, Data Vaulting, IaaS, Message Logic, Support and Maintenance, and Internet Subscription services such as the above allows
customers to access a set of data or receive services for a predetermined period of time. As the customer obtains access at a point
in time but continues to have access for the remainder of the subscription period, the customer 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 should be 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 should be 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 customers 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 customer has been fulfilled (i.e., when the goods have left the shipping facility or delivered
to the customer, depending on shipping terms). License 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 customer 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 will recognize revenue at the point in time the license is granted and/or renewed for a new period. Payment terms The terms of the contracts are typically ranging
from 12 months to 36 months with auto-renew options. The Company invoice customers one month in advance for the services plus any
overages or additional services provided. Warranties The Company offers guaranteed service levels
and performance and service guarantees on some of its contracts. These warrantees are not sold separately and according to ASC
606-10-50-12(a) are accounted as “assurance warranties”. Significant judgement In the instances that contract have multiple
performance obligation, the Company uses judgment to 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, we review
our 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 $106,109 and $83,751 for advertising costs for the six months ended June
30, 2018 and 2017, respectively. 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 inclusion of the potential common shares to be issued have an anti-dilutive effect on diluted loss per
share and therefore they are not included in the calculation. Potentially dilutive securities at June 30, 2018 include 133,334
warrants and 2,017,447 options. |
