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 the Securities 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 Overview



Data Storage Corporation ("DSC" or the "Company") provides a highly secure,
enterprise level cloud for IBM i Power systems and Windows, assisting companies
in the migration process, while reducing capex and providing flexibility for
seasonality with on-demand compute power. Our clients have access to an array of
solutions: Infrastructure as a Service, disaster recovery, voice and data,
security, and email compliance & data analytics. The Company provides solutions
to business, government, education and healthcare industries.



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's October 2016 acquisition of the assets
of ABC Services, Inc. and ABC Services II, Inc. (collectively, "ABC") and its
acquisition of the remaining 50% of the assets of Secure 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 owns intellectual property with our
proprietary email archival and data analytics software, Message Logic. DSC is
marketing Message Logic on the DSC website. 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 an 18-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 in IBM 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.



Our IBM 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 have 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.

Headquartered in Melville, NY, with additional offices in Warwick, RI, DSC offers solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government industries.


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 in
New York, Massachusetts and North Carolina.



DSC services clients from its staffed technical offices in New York and Rhode
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.



  20






RESULTS OF OPERATIONS

For the three months ended September 30, 2019 as compared to the three months ended September 30, 2018





The reduction in Equipment and Software revenue in 2019 over 2018 are attributed
to long term Company clients that refresh equipment based on a cycle and upgrade
to new equipment. Software renewals and hardware maintenance continue to renew
each year and are typically a constant revenue stream, unless the Company
migrates these clients to our Infrastructure as a Service solution, IaaS. This
marketing migration program from on-premise equipment to our IBM Power
Infrastructure as a Service will impact the period revenue and profit, however
gross profit margins are higher on IaaS services, and long-term contract value
improves. Changes in Managed Services and Other categories carry higher margins
and are supported by our technical staff and are labor based services. Profit
margins on these Managed Services and our Other category services carry higher
than our average margin. Managed Services and Other classes of solutions and
services are primarily based on fulfilling client projects requirements and
client help desk support. Many clients utilize multiple services and solutions
from the Company. The following details the changes in our operations for the
three months ended September 30, 2019 and 2018, respectively.



Revenue                                        For the Three Months
3 months                                        Ended September 30,
                                               2019            2018          $ Change       % Change
Infrastructure & Disaster Recovery/Cloud
Service                                    $ 1,336,348     $ 1,222,043     $  114,305              9 %
Equipment and Software                         410,238         976,111       (565,873 )          -58 %
Managed Services                               116,266         143,228        (26,962 )          -19 %
Other                                          150,810         219,130        (68,320 )          -31 %
Total Revenue                              $ 2,013,662     $ 2,560,512     $ (546,850 )          -21 %





Cost of Sales. For the three months ended September 30, 2019, cost of sales were
$1,232,633, a decrease of $293,817, or 19%, compared to $1,526,450 for the three
months ended September 30, 2018. The decrease is attributable to the decrease in
equipment and software costs.



Operating Expenses. For the three months ended September 30, 2019, operating
expenses were $884,650, an increase of $107,857, or 14%, as compared to $776,793
for the three months ended September 30, 2018. The net increase is reflected in
the chart below.



Operating Expenses                   For the Three Months
3 months                             Ended September 30,
                                      2019          2018        $ Change      % Change
Decrease in Salaries              $  198,406     $ 214,960     $ (16,554 )        -8 %
Increase Officer's Salaries          122,589        98,422        24,167          25 %
Increase in Professional Fees         74,231        54,020        20,211          37 %

Increase in Commissions Expense      224,329       221,271         3,058           1 %
Increase in all other Expenses       265,095       188,120        76,975   

      41 %
Total Expenses                    $  884,650     $ 776,793     $ 107,857          14 %

Salaries decreased by $16,554 due to a reduction of staff in the accounting department.

Officer's Salaries increased $24,167 based on a change to senior management compensation as approved by the Board of Directors.

Professional fees increased $20,211 due to the addition of outside contracted consultant.





Other Income (Expense). Interest expense for the three months ended September
30, 2019 increased by $12,335 to $41,120 from $28,785 for the three months ended
September 30, 2018. This increase is a result of the Company purchasing new
equipment under financed leases. Other income for the three months ended
September 30, 2019 increased $11,453 from $0.00 for the three months ended
September 30, 2018.



Net Profit (loss). Net loss for the three months ended September 30, 2019 was
$133,288 a decrease of $361,785, or 158%, as compared to a net profit of
$228,497 for the three months ended September 30, 2018. This decrease was
attributed to a decrease in equipment sales as well as an increase in sales

and
marketing expenses.



  21

For the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018





The reduction in Equipment and Software revenue in 2019 over 2018 are attributed
to long term Company clients that refresh equipment based on a cycle and upgrade
to new equipment. Software renewals and hardware maintenance continue to renew
each year and are typically a constant revenue stream, unless the Company
migrates these clients to our Infrastructure as a Service solution, IaaS. This
marketing migration program from on-premise equipment to our IBM Power
Infrastructure as a Service will impact the period revenue and profit, however
gross profit margins are higher on IaaS services, and long-term contract value
improves. Changes in Managed Services and Other categories carry higher margins
and are supported by our technical staff and are labor based services. Profit
margins on these Managed Services and our Other category services carry higher
than our average margin. Managed Services and Other classes of solutions and
services are primarily based on fulfilling client projects requirements and
client help desk support. Many clients utilize multiple services and solutions
from the Company. While equipment and software sales decreased, disaster
recovery and infrastructure as a service increase $470,032 under new long-term
contracts to provide these services, increasing our Company contract value. The
following chart details the changes in our operations for the nine months ended
September 30, 2019 and 2018, respectively.



Revenue                                          For the Nine Months
9 months                                         Ended September 30,
                                                2019             2018           $ Change         % Change
Infrastructure & Disaster Recovery/Cloud
Service                                    $  3,960,466     $  3,490,434     $     470,032             13 %
Equipment and Software                        1,285,297        2,743,915        (1,458,618 )          -53 %
Managed Services                                322,133          489,884          (167,751 )          -34 %
Other                                           478,635          536,346           (57,711 )          -11 %
Total Revenue                              $  6,046,531     $  7,260,579     $  (1,214,048 )          -17 %







Cost of Sales. For the nine months ended September 30, 2019, cost of sales were
$3,410,835, a decrease of $1,045,663 or 23% compared to $4,456,498 for the nine
months ended September 30, 2018. The decrease is attributable to the decrease in
equipment and software cost.

Operating Expenses. For the nine months ended September 30, 2019, operating expenses were $2,565,252, an increase of $71,006, or 3%, as compared to $2,494,246 for the nine months ended September 30, 2018. The net increase is reflected in the chart below.





Operating Expenses                      For the Nine Months
9 months                                Ended September 30,
                                       2019             2018          $ Change       % Change
Increase in Salaries              $    592,739     $    548,739     $    44,000            8 %
Decrease in Officer's Salaries         409,602          439,749         (30,147 )         -7 %
Decrease in Professional Fees          206,041          320,816        (114,775 )        -36 %
Increase in Commissions Expense        630,822          532,373          98,449           18 %
Increase in all other Expenses         72,6048          652,569          73,479           11 %
Total Expenses                    $  2,565,252     $  2,494,246     $    71,006            3 %

Salaries increased by $44,000 due to addition of staff as part of the company's plans.

Officer's Salaries decreased $30,147 based on a change and reduction to senior management compensation as approved by the Board of Directors.

Professional fees decreased $114,775 due to the cancellation of outside contracted accounting services.


Commissions increased by $98,449. This increase in commissions are related to
employee and outside contractor (channel partner) commissions for increase sales
revenues and are paid based on the sales orders. Nexxis our telecom unit had
commissions that commenced mid-2018.



Other Income (Expense). Interest expense for the nine months ended September 30,
2019 increased $68,498 to $137,425 from $68,927 for the nine months ended
September 30, 2018. This increase is a result of the Company purchasing new
equipment for services provided to clients for disaster recovery and
Infrastructure as a Service. This equipment is located in our data centers.
Other income for the nine months ended September 30, 2019 increased $22,338 to
$23,054 for from $716 the nine months ended September 30, 2018. The increase is
attributable to adjustments to customer balances.



Net Income (loss). Net loss for the nine months ended September 30, 2019 was
$43,707, as compared to a net income of $241,637 for the nine months ended
September 30, 2018. This loss is attributed to lower new equipment and software
sales for the period.



  22

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 DSC will realize its assets
and discharge its liabilities in the ordinary course of business. In 2019, we
intend to continue to work to increase our presence in the cloud and business
continuity marketplace specializing in IBM 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 nine months ended September 30, 2019 the Company's cash increased
$54,892 to $283,682 from $228,790 at December 31, 2018. Net cash of $634,428 was
provided by the Company's operating activities. Net cash of $579,536 was used in
the Company's investing and financing activities, primarily due to purchases of
fixed assets and payments of capital lease obligations

DSC's working capital deficit was $2,554,333 at September 30, 2019, increasing $352,102 or 16% from $2,202,231 at December 31, 2018. The increase is attributable to three new finance leases acquired in 2019 for equipment purchased for the data centers.

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