DATA STORAGE CORPORATION This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion? (ii) our plans and results of operations will be affected by our ability to manage growth? and (iii) other risks and uncertainties indicated from time to time in our filings with theSecurities and Exchange Commission . In some cases, you can identify forward-looking statements by terminology such as 'may,' 'will,' 'should,' 'could,' 'expects,' 'plans,' 'intends,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'continue' or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this report. COMPANY OVERVIEWData Storage Corporation ("DSC" or the "Company") provides subscription based, long term agreements for disaster recovery solutions, Infrastructure as a Service (IaaS) and VoIP and carrier type solutions. Approximately 16% of our revenue is derived from equipment sales for cyber security, storage,IBM Power i systems and managed service solutions. Our mission is to protect our client's data, ensuring business continuity, assisting in their compliance requirements and providing better control over their digital information. The Company'sOctober 2016 acquisition of the assets ofABC Services, Inc. andABC Services II, Inc. (collectively, "ABC"), and its acquisition of the remaining 50% of the assets ofSecure Infrastructure and Services LLC , supports the Company's acquisition strategy. These acquisitions accelerated our strategy into cloud based managed services, expanded cyber security solutions and our hybrid cloud solutions with the ability to provide equipment and expanded technical support. The Company provides its solutions through its business development team and contracted distribution channels. DSC's contracted, approved distributors have the ability to provide Recovery and Hybrid Cloud solutions, IBM and Intel IaaS cloud-based solutions without the distributor investing in infrastructure, data centers and telecommunications services as well as specialized technical staff whereby lowering their barrier of entry for them to provide these solutions
to their client base. DSC is a 19-year veteran in cloud storage and cloud computing providing disaster recovery, business continuity and compliance solutions that assist organizations in protecting their data, minimizing downtime while ensuring regulatory compliance. Serving the business continuity market, DSC's clients save time and money, gain more control and better access to data and enable a high level of security for their data. Solutions include: Infrastructure as a Service specializing inIBM Power ; data backup recovery and restore, high availability data replication; email archival and compliance; and eDiscovery; continuous data protection; data de- duplication; and, virtualized system recovery. DSC has forged significant relationships with leading organizations creating valuable partnerships. OurIBM Power and Intel IaaS Cloud ensures enterprise level equipment and support, focusing on iSeries, AIX, Power, AS400 and our high-processing power for Intel. Our Disaster Recovery services for both Intel and IBM has a guaranteed back-to-work window. DSC is a one-stop source for managed services from VoIP to providing the client with equipment and software, monitoring, help desk and a full array of business continuity solutions. The Company provides its solutions through its business development team and contracted distribution channels. DSC's contracted approved distributors have the ability to provide our Recovery and IaaS solutions without capital investment thereby lowering their barrier of entry in providing these cloud solutions to their client base.
Headquartered in
DSC derives its revenues from subscription services and solutions, managed services, software and maintenance, equipment and onboarding provisioning. DSC maintains infrastructure and storage equipment in several technical centers inNew York ,Massachusetts andNorth Carolina . DSC services clients from its staffed technical offices inNew York andRhode Island , which consist of modern offices and a technology suite adapted to meet the needs of a technology-based business. DSC varies its use of resources, technology and work processes to meet the changing opportunities and challenges presented by the market and the internal customer requirements. The Company supports clients twenty-four hours a day, 365 days a year. 16 RESULTS OF OPERATIONS
Three months ended
Total Revenue For the three months endedMarch 31, 2020 increase by$97,429 . The increase is primarily attributed to three existing customers which increased their services for Infrastructure & Disaster Recovery/Cloud Service. Additionally, the Nexxis division increased its customer base which generated additional revenue. This was offset by a decrease in equipment and software
for
the quarter.
Revenue For the Three Months
Ended March 31,
2020 2019 $ Change % Change
Infrastructure & Disaster
Recovery/Cloud Service $ 1,393,720 $ 1,267,047 $ 126,673 10 %
Equipment and Software 328,733 428,511 (99,778 ) (23 )%
Managed Services 220,475 213,925 6,550 3 %
Nexxis VoIP Services 153,197 90,703 62,494 69 %
Other 2,585 1,095 1,490 136 %
Total Revenue $ 2,098,710 $ 2,001,281 $ 97,429 5 %
Cost of Sales. For the three months endedMarch 31, 2020 , cost of sales was$1,216,117 , an increase of$139,574 or 13% compared to$1,076,543 for the three months endedMarch 31, 2019 . The increase is primarily attributable to expenses associated with the data centers for infrastructure and disaster recovery cloud services. Operating Expenses. For the three months endedMarch 31, 2020 , operating expenses were$876,626 , an increase of$53,758 , or 7%, as compared to$822,868 for the three months endedMarch 31, 2019 . The net increase is reflected in
the
chart below.
Operating Expenses For the Three Months
Ended March 31,
2020 2019 $ Change % Change
Increase in Salaries $ 442,732 $ 366,071 $ 76,661 21 %
Decrease in Professional Fees 46,342 76,117 (29,775 ) (39 )%
Increase in Software as a Service
Expense 34,768 1,995 32,773 1,643 %
Increase in Advertising Expenses 65,380 33,963 31,417 93 %
Decrease in Commissions Expense 185,868 186,971 (1,103 ) (1 )%
Decrease in T&E 9,784 24,265 (14,481 ) (60 )%
Decrease in all other Expenses 91,752 133,486 (41,74 ) (31 )%
Total Expenses $ 876,626 $ 822,868 $ 53,758 7 %
Salaries increased by $76,661 due to increases in administrative and finance
salaries with an addition of two full-time employees. The company also awarded a
stock based compensation of options valued at $33,050 to a current employee
Software as a Service Expense (SaaS) increased by
Advertising Expensesincreased primarily due to additional marketing campaigns
for both
Professional feesdecreased primarily due to the company hiring a consultant as an employee and relying less on consultants for accounting services.
All Other Expenses decreased primarily due to the reduction of training expenses in the amount of approximately$12,700 , rent expense in the amount of approximately$7,400 due to the company downsizing in office space, bad debt recovery of about approximately$10,000 and office supplies in the amount of approximately$4,700 . Other Income (Expense). Interest income (expense) for the three months endedMarch 31, 2020 increased$2,892 to$46,440 from$49,332 for the three months endedMarch 31, 2019 .
Net Income (Loss). Net loss for the three months ended
17
LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements have been prepared using generally accepted accounting principles inthe United States of America ("GAAP") applicable for a going concern, which assumes that DSC will realize its assets and discharge its liabilities in the ordinary course of business. In 2020, we intend to continue to work to increase our presence in the cloud and business continuity marketplace specializing inIBM Power i and disaster recovery / business continuity marketplace utilizing our technical expertise, software and our capacity in our data centers. To the extent we are successful in growing our business, identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition costs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs, which will require a renegotiation of related party capital equipment leases and / or major shareholders, such as senior management, entering into financing or stock purchase arrangements. During the three months endedMarch 31, 2020 , DSC's cash increased$1,621 to$328,182 from$326,561 March 31, 2019. Net cash of$ 297,720 was provided by DSC's operating activities resulting primarily from the changes in assets and liabilities. Net cash of$56,812 was used in investing activities resulting from payments on capital expenditures. Net cash of$239,287 was used in financing activities resulting primarily from payments on capital lease obligations. DSC's working capital deficit was$2,763,533 atMarch 31, 2020 , increasing by$191,950 from$2,571,583 atDecember 31, 2019 . The increase is primarily attributable to an increase of accounts payable, dividend payable and, related party financing notes in the amount of$329,078 . The increase in short term liabilities was offset by an increase in accounts receivable and prepaid expenses of$175,178 .
Off-Balance Sheet Arrangements
DSC does not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities".
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