UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 20202021

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File No. 001-35384

 

DATA STORAGE CORPORATION

(Exact name of registrant as specified in its charter)

 

NEVADA 98-0530147
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

 

48 South Service Road


Melville, NY

 11747
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (212) 564-4922

Securities registered pursuant to Section 12(b) of the Act: None 

Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common Stock, par value $0.001 per shareDTSTThe Nasdaq Stock Market, LLC
(The Nasdaq Capital Market)

   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company filer. See definition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated FilerAccelerated Filer
Non-Accelerated Filer Smaller Reporting Company
 Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A

 

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 19, 2020,17, 2021, was 128,539,4183,215,063.

 

 

 

DATA STORAGE CORPORATION

FORM 10-Q

INDEX

 

 Page
PART I— FINANCIAL INFORMATION 
    
 Item 1Financial Statements3
    
  Condensed Consolidated Balance Sheets as of March 31, 20202021 (unaudited) and December 31, 201920203
    
  Condensed Consolidated Statements of Operations for the three ended March 31, 20202021 and 20192020 (unaudited)4
    
  Condensed Consolidated Statements of Stockholders’ Equity for three months ended March 31, 20202021 and 20192020 (unaudited)5
    
  Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20202021 and 20192020 (unaudited)6
    
  Notes to Condensed Consolidated Financial Statements7-157-20
    
 Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations16-1821-24
    
 Item 3.Quantitative and Qualitative Disclosures About Market Risk1925
    
 Item 4.Control and Procedures1925
    
PART II— OTHER INFORMATION 
  
 Item 1.Legal Proceedings2026
    
 Item 1A.Risk Factors2026
    
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2026
    
 Item 3.Defaults Upon Senior Securities2026
    
 Item 4.Mine Safety Disclosures2026
    
 Item 5.Other Information2026
    
 Item 6.Exhibits2127

 

2

2

 

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 March 31, 2020 December 31, 2019 March 31, 2021 December 31, 2020
 (Unaudited)    (Unaudited)  
ASSETS             
Current Assets:             
Cash and cash equivalents $328,182  $326,561  $634,312  $893,598 
Accounts receivable (less allowance for doubtful accounts of $30,000 in 2020 and 2019) 836,957 691,436 
Accounts receivable (less allowance for credit losses of $30,000 in 2021 and 2020)  724,683   554,587 
Prepaid expenses and other current assets  110,385  80,728   529,490   239,472 
Total Current Assets  1,275,524  1,098,725   1,888,485   1,687,657 
             
Property and Equipment:             
Property and equipment 7,287,064 6,894,087   8,152,661   7,845,423 
Less—Accumulated depreciation  (4,898,414)  (4,705,256)  (5,762,511)  (5,543,822)
Net Property and Equipment  2,388,650  2,188,831   2,390,150   2,301,601 
             
Other Assets:             
Goodwill 3,015,700 3,015,700   3,015,700   3,015,700 
Operating lease right-of-use assets 304,200 324,267   220,419   241,911 
Other assets 65,433 65,433   49,654   49,310 
Intangible assets, net  601,435  649,934   407,435   455,935 
Total Other Assets  3,986,768  4,055,334   3,693,208   3,762,856 
             
Total Assets $7,650,942 $7,342,890  $7,971,843  $7,752,114 
             
LIABILITIES AND STOCKHOLDERS' DEFICIT     
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current Liabilities:             
Accounts payable and accrued expenses $1,030,607 $906,716  $1,538,231  $979,552 
Dividend payable 1,005,183 970,997   1,154,556   1,115,674 
Deferred revenue 546,843 432,942   402,404   461,893 
Line of credit 24 75,000   24   24 
Finance lease payable  171,099   168,139 
Finance leases payable related party 1,004,149 833,148   1,102,488   1,149,403 
Operating lease liabilities short term 102,251 101,505   105,319   104,549 
Note payable  350,000  350,000   455,200   374,871 
Total Current Liabilities  4,039,057  3,670,308   4,929,321   4,354,105 
             
Note payable long term  26,777   107,106 
Operating lease liabilities long term 211,373 231,312   125,391   147,525 
Finance leases payable, long term  208,035   247,677 
Finance leases payable related party, long term  1,708,575  1,713,122   757,733   974,743 
Total Long Term Liabilities  1,919,948  1,944,434   1,117,936   1,477,051 
             
Total Liabilities  5,959,005  5,614,742  $6,047,257  $5,831,156 
             
Stockholders’ Equity:             
Preferred stock, Series A par value $.001; 10,000,000 shares authorized; 1,401,786 shares issued and outstanding in each year 1,402 1,402 
Common stock, par value $.001; 250,000,000 shares authorized; 128,539,418 and 128,439,418 shares issued and outstanding in 2020 and 2019, respectively 128,539 128,439 
Preferred stock, Series A par value $0.001; 10,000,000 shares authorized; 1,401,786 shares issued and outstanding in each year  1,402   1,402 
Common stock, par value $0.001; 250,000,000 shares authorized; 3,215,063 shares issued and outstanding in 2021 and 2020  3,213   3,213 
Additional paid in capital 17,494,779 17,456,431   17,787,956   17,745,785 
Accumulated deficit  (15,858,672)  (15,790,076)  (15,771,521)  (15,734,737)
Total Data Storage Corp Stockholders' Equity 1,766,048 1,796,196 
Total Data Storage Corp Stockholders’ Equity  2,021,050   2,015,663 
Non-controlling interest in consolidated subsidiary  (74,111)  (68,048)  (96,464)  (94,705)
Total Stockholder’s Equity  1,691,937  1,728,148 
Total Liabilities and Stockholders' Equity $7,650,942 $7,342,890 
Total Stockholders’ Equity  1,924,586   1,920,958 
Total Liabilities and Stockholders’ Equity $7,971,843  $7,752,114 

  

The accompanying notes are an integral part of these condensed consolidated Financial Statements.

 

3


DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  Three Months Ended March 31,
  2021 2020
     
Sales $2,574,691  $2,098,710 
         
Cost of sales  1,420,899   1,216,117 
         
Gross Profit  1,153,792   882,593 
         
Selling, general and administrative  1,118,407   876,626 
         
Income from Operations  35,385   5,967 
         
Other Income (Expense)        
Interest income  2   20 
Interest expense  (35,047)  (46,460)
Total Other Income (Expense)  (35,045)  (46,440)
         
Income (Loss) before provision for income taxes  340   (40,473)
         
Provision for income taxes      
         
Net Income (Loss)  340   (40,473)
         
Non-controlling interest in consolidated subsidiary  1,759   6,063 
         
Net Income (Loss) attributable to Data Storage Corp  2,099   (34,410)
         
Preferred Stock Dividends  (38,883)  (34,186)
         
Net Loss attributable to Common Stockholders $(36,784) $(68,596)
         
Earning (Loss) per Share – Basic $(0.01) $(0.02)
Earning (Loss) per Share – Diluted $(0.01) $(0.02)
Weighted Average Number of Shares - Basic  3,213,485   3,212,152 
Weighted Average Number of Shares - Diluted  3,213,485   3,212,152 

The accompanying notes are an integral part of these condensed consolidated Financial Statements.


DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2021

(Unaudited)

  Preferred Stock Common Stock Additional Paid-in Accumulated Non-Controlling Total Stockholders’
  Shares Amount Shares Amount
(1)
 Capital
(1)
 Deficit Interest Equity
                 
Balance, January 1, 2020  1,401,786  $1,402   3,210,985  $3,211  $17,581,659  $(15,790,076) $(68,048) $1,728,148 
                                 
Stock-based Compensation              33,048         33,048 
                                 
Stock Options Exercise        2,500   3   5,397         5,400 
                                 
Net Loss                 (34,410)  (6,063)  (40,473)
                                 
Preferred Stock                 (34,186)     (34,186)
                                 
Balance, March 31, 2020  1,401,786  $1,402   3,213,485  $3,214  $17,620,104  $(15,858,672) $(74,111) $1,691,937 
                                 
Balance, January 1, 2021  1,401,786  $1,402   3,213,485  $3,213  $17,745,785  $(15,734,737)  (94,705) $1,920,958 
                                 
Stock-based Compensation              42,171         42,171 
Net Income                 2,099   (1,759)  340 
                                 
Preferred Stock                 (38,883)     (17,278)
                                 
Balance, March 31, 2021  1,401,786  $1,402   3,213,485  $3,213  $17,787,956  $(15,771,521) $(96,464) $1,924,586 

(1)    Amounts have been retroactively restated for all periods to reflect the one-for-forty reverse split of common stock on May 14, 2021

The accompanying notes are an integral part of these condensed consolidated Financial Statements.


DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  Three Months Ended March 31,
  2020 2019
     
Sales $2,098,710  $2,001,281 
         
Cost of sales  1,216,117   1,076,543 
         
Gross Profit  882,593   924,738 
         
Selling, general and administrative  876,626   822,868 
         
Income from Operations  5,967   101,870 
         
Other Income (Expense)        
Interest income  20   87 
Interest expense  (46,460)  (49,419)
Total Other Income (Expense)  (46,440)  (49,332)
         
Income (Loss) before provision for income taxes  (40,473)  52,538 
         
Provision for income taxes  —     —   
         
Net Income (Loss)  (40,473)  52,538 
         
Non-controlling interest in consolidated subsidiary  6,063   10,323 
         
Net Income (Loss) attributable to Data Storage Corp  (34,410)  62,861 
         
Preferred Stock Dividends  (34,186)  (31,078)
         
Net Income (Loss) Attributable to Common Stockholders $(68,596) $31,783 
         
Earning (Loss) per Share – Basic $0.00  $0.00 
Earning (Loss) per Share – Diluted $0.00  $0.00 
Weighted Average Number of Shares - Basic  128,486,085   128,139,418 
Weighted Average Number of Shares - Diluted  128,486,085   131,939,979 
  Three Months Ended March 31,
  2021 2020
Cash Flows from Operating Activities:        
Net Income (Loss) $340  $(40,473)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization  267,189   241,658 
Stock based compensation  42,171   33,048 
Changes in Assets and Liabilities:        
Accounts receivable  (170,096)  (145,521)
Other assets  (345)   
Prepaid expenses and other current assets  (290,018)  (29,657)
Right of use asset  21,492   20,067 
Accounts payable and accrued expenses  558,679   123,890 
Deferred revenue  (59,489)  113,901 
Operating lease liability  (21,364)  (19,193)
Net Cash Provided by Operating Activities  348,559   297,720 
         
Cash Flows from Investing Activities:        
 Capital expenditures  (257,238)  (56,812)
Net Cash Used in Investing Activities  (257,238)  (56,812)
         
Cash Flows from Financing Activities:        
Repayments of capital lease obligations     (169,711)
Repayments of finance lease obligations related party  (313,925)   
Repayments of finance lease obligations  (36,682)   
Cash received for the exercised of options     5,400 
Repayment of Credit Line     (74,976)
Net Cash Used in Financing Activities  (350,607)  (239,287)
         
Net change in in Cash and Cash Equivalents  (259,286)  1,621 
         
Cash and Cash Equivalents, Beginning of Period  893,598   326,561 
         
Cash and Cash Equivalents, End of Period $634,312  $328,182 
         
Supplemental Disclosures:        
Cash paid for interest $31,971  $177,451 
Cash paid for income taxes $  $ 
         
Non-cash investing and financing activities:        
Accrual of preferred stock dividend $38,883  $34,186 
Assets acquired by finance lease $50,000  $336,165 

   

The accompanying notes are an integral part of these condensed consolidated Financial Statements.

 

4


DATA STORAGE CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND FOR THE THREE MONTHS ENDED MARCH 31, 2020

(Unaudited)

  Preferred Stock Common Stock Additional Paid-in Accumulated Non-Controlling Total Stockholders’
  Shares Amount Shares Amount Capital Deficit Interest Equity
                 
Balance, January 1, 2019  1,401,786  $1,402   128,139,418  $128,139  $17,409,989  $(15,735,624) $(27,511) $1,776,395 
                                 
Stock-based compensation  —     —     —     —     2,175   —     —     2,175 
                                 
Net Income  —     —     —     —     —     62,861   (10,323 )  52,538 
                                 
Preferred Stock  —     —     —     —     —     (31,078)  —     (31,078)
                                 
Balance March 31, 2019  1,401,786  $1,401,786   128,139,418  $128,139  $17,412,164  $(15,703,841) $(37,834)  1,800,030 
                                 
Balance January 1, 2020  1,401,786   1,402   128,439,418   128,439   17,456,431   (15,790,076)  (68,048)  1,728,148 
                                 
Stock Options Issued as Compensation  —     —     —     —     33,048   —     —     33,048 
                                 
Stock Options Exercise  —     —     100,000   100   5,300   —     —     5,400 
                                 
Net Loss  —     —     —     —     —     (34,410)  (6,063)  (40,473)
                                 
Preferred Stock  —     —     —     —     —     (34,186)  —     (34,186)
                                 
Balance, March 31, 2020  1,401,786  $1,402   128,539,418  $128,539  $17,494,779  $(15,858,672) $(74,111) $1,691,937 

The accompanying notes are an integral part of these condensed consolidated Financial Statements. 

5

DATA STORAGE CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

  Three Months Ended March 31,
  2020 2019
Cash Flows from Operating Activities:        
Net Income (Loss) $(40,473) $52,538 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  241,658   224,806 
Stock based compensation  33,048   2,175 
Changes in Assets and Liabilities:        
Accounts receivable  (145,521)  49,257 
Prepaid expenses and other current assets  (29,657)  87,626 
Right of use asset  20,067   (340,522)
Accounts payable and accrued expenses  123,890   (172,651)
Deferred revenue  113,901   (3,016)
Operating lease liability  (19,193)  327,552 
Net Cash Provided by Operating Activities  297,720   227,765 
         
Cash Flows from Investing Activities:        
          Capital expenditures  (56,812  (17,570)
Net Cash Used in Investing Activities  (56,812)  (17,570)
         
Cash Flows from Financing Activities:        
Repayments of capital lease obligations  (169,711  (183,590)
Cash received for the exercised of options  5,400    —   
Repayment of line of credit  (74,976)  —   
Net Cash Used in Financing Activities  (239,287  (183,590)
         
Increase in Cash and Cash Equivalents  1,621   26,605 
         
Cash and Cash Equivalents, Beginning of Period  326,561   228,790 
         
Cash and Cash Equivalents, End of Period $328,182  $255,395 
         
Supplemental Disclosures:        
Cash paid for interest $177,451  $50,621 
Cash paid for income taxes —    $—   
         
Non-cash investing and financing activities:        
Accrual of preferred stock dividend $34,186  $31,078 
Assets acquired by finance lease $336,165  $1,502,844 

The accompanying notes are an integral part of these condensed consolidated Financial Statements. 

6

DATA STORAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 20202021

 

Note 1 - Basis of Presentation, Organization and Other Matters

 

Data Storage Corporation ("DSC"(“DSC” or the "Company"“Company”) provides subscription based, long term agreements for disaster recovery solutions, Infrastructure as a Service (IaaS) and VoIP type 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, New Jersey, Massachusetts, Texas and North Carolina.

Going Concern Analysis

Under ASU 2014-15 Presentation of Financial Statements-Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.

As reflected in the Condensed Consolidated Financial statements, the Company had a net income (loss) availableloss attributable to common shareholders of $(68,596)$(36,784) and $31,783$(68,596) for the three months ended March 31, 20202021 and 2019,2020, respectively. As of March 31, 2020,2021, DSC had cash and cash equivalents of $328,182$634,312 and a working capital deficiency of $2,763,533.$3,040,836. As a result, these conditions initially raised substantial doubt regarding our ability to continue as a going concern.

During the three months ended March 31, 2020,2021, the Company provided cash from operations of $297,720$348,559 with continued revenue growth of subscription solutions. Further, the Company has no capital expenditure commitments and the company’sCompany’s offices have been consolidated and fully staffed and with sufficient room for growth.

If necessary, management also determined that it is probable that related party sources of debt financing and capitalized leases can be renegotiated based on management’s history of being able to raise and refinance debt through related parties.

As a result of the foregoing and current favorable trends of improving cash flow, and after further analysis, the Company concluded that the initial conditions which raised substantial doubt regarding the ability to continue as a going concern has been mitigated.  alleviated.

Note 2 - Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The Condensed Consolidated Financial statements include the accounts of (i) the Company, (ii) its wholly-owned subsidiary,subsidiaries, Data Storage Corporation, a Delaware corporation, and Data Storage FL, LLC, a Florida limited liability company and (iii) its majority-owned subsidiary, Nexxis Inc, a Nevada corporation. All significant inter-company transactions and balances have been eliminated in consolidation.

 

Basis of Presentation

The Condensed Consolidated Financial Statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).

Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed. As such, the information included in these financial statements should be read in conjunction with the audited financial statements as of and for the years ended December 31, 2020 and 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”), as filed on March 31, 2021. In the opinion of the Company’s management, these condensed consolidated financial statements include all adjustments, which are of only a normal and recurring nature, necessary for a fair presentation of the statement of financial position of the Company as of March 31, 2021 and its results of operations and cash flows for the three months ended March 31, 2021 and 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021.


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.

 

Reclassifications

Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year presentation. These reclassifications did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities.

Recently Issued and Newly Adopted Accounting Pronouncements

In January 2017,June 2016, the FASB issued ASU 2017-04 Intangibles-Goodwill and OtherNo. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”ASU-2016-13”). ASU 2017-04 simplifies2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have 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,contractual right to receive cash. The ASU requires 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, underrecognize expected credit losses rather than incurred losses for financial assets. 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 2017-042016-13 is effective for annual or any interim goodwill impairment tests forthe fiscal yearsyear beginning after December 15, 2019 and an entity should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for2022, including interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.periods within that fiscal year. The adoption of ASU 2017-04 did not have aCompany expects that there would be no material impact on itsthe Company’s condensed consolidated financial statements. statements upon the adoption of this ASU.

 

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In August 2018,On November 15, 2019, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820)2019-10, which (1) provides a framework to stagger effective dates for future major accounting standards and (2) amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 changes some effective dates for certain new standards on the following topics in the FASB Accounting Standards Codification (ASC). As a smaller reporting company, the effective date for the Company is noted next to each major standard.


Derivatives and Hedging (ASC 8152) – January 1, 2021
Leases (ASC 842) – January 1, 2021
Financial Instruments — Credit Losses (ASC 326) – January 1, 2023
Intangibles — Goodwill and Other (ASC 350) – January 1, 2023

The updated guidance improves the disclosure requirements for fair value measurements. We do not believe the updated guidance, which is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The adoption of ASU 2018-13 did not have aCompany expects that there would be no material impact on itsthe Company’s condensed consolidated financial statements. statements upon the adoption of these ASU’s.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This guidance requires companies to apply the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to implementation costs incurred in a hosting arrangement that is a service contract to determine whether to capitalize certain implementation costs or expense them as incurred. We do not believe the new guidance, which is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-153 did not have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its Condensed Consolidated Financial statements.

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principlesUS 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 due to related parties.lease commitments. Management believes the estimated fair value of these accounts at March 31, 20202021 approximate their carrying value as reflected in the balance sheetssheet 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 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.

 

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 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 three months ended March 31, 2021, DSC had two customers with an accounts receivable balance representing 58% of total accounts receivable. For the three months ended March 31, 2020, DSC had two customers with an accounts receivable balance representing 30% of total accounts receivable. For the three months ended March 31, 2019, DSC had two customers with an accounts receivable balance representing 38% of total accounts receivable.

 

For the three months ended March 31, 20202021 the companyCompany had one clienttwo customers that accounted for 14%36% of revenue. For the three months ended March 31, 20192020 the Company had two clientsone customer that accounted for 21%14% of revenue.

Accounts Receivable/Allowance for Doubtful AccountsCredit Losses

 

The Company sells its services to customers on an open credit basis. Accounts receivable are uncollateralized, non-interest-bearing customer obligations. Accounts receivables are typically due within 30 days. The allowance for doubtful accountscredit losses reflects the estimated accounts receivable that will not be collected due to credit losses and allowances.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 isare 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.

 


Deferred Offering Costs

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The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of equity financings, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financings be abandoned, the deferred offering costs are expensed immediately as a charge to other income (expense) in the consolidated statement of operations. For the three months ended March 31, 2021, the Company recorded deferred offering costs of $273,423, which are included in prepaid expenses.

 

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 March 31, 20202021 and December 31, 2019,2020, 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, 20192020 and 2018,2019, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2019, 2018 2017 and 20162017 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.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision.

Goodwill and Other Intangibles

 

In accordance with GAAP, the Company tests goodwill and other intangible assets for impairment on at least an annual basis. Goodwill impairmentImpairment exists if the net bookcarrying 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 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 thesegoodwill 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

 

Subscription services such as Infrastructure as a Service, Platform as a Service and Disaster Recovery, High Availability, Data Vault Services and DRaaS type solutions (cloud) allows clients to centralize and streamline their technical and mission critical digital information and technical environment. Client’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) assist clients to achieve reliable and cost-effective computing and high availability solutions while eliminating or supplementing Capex.capital expenditures.

 

 2)Managed Services

 

These services are performed at the inception of a contract. The Company offers professional assistance to its clients during the installation 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 DSC to offer time and material billing.

 

The Company also derives revenues in the arearevenue from providing support and management of its software to clients. The managed services include help desk, remote access, 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 companyCompany is a partner of IBM and the various software solutions provided to clients.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by major product line, geography, and timing of revenue recognition (in thousands of USD).recognition.


For the Three Months
Ended March 31, 2021
  United States International Total
Infrastructure & Disaster Recovery/Cloud Service $1,629,773  $30,575  $1,660,348 
Equipment and Software  464,883      464,883 
Managed Services  226,767      226,767 
Nexxis VoIP Services  195,326      195,326 
Other  27,367      27,367 
Total Revenue $2,544,116  $30,575  $2,574,691 

 

For the Three Months
Ended March 31, 2020
  United States International Total
Infrastructure & Disaster Recovery/Cloud Service $1,359,921  $33,799  $1,393,720 
Equipment and Software  328,733      328,733 
Managed Services  220,475      220,475 
Nexxis VoIP Services  153,197      153,197 
Other  2,585      2,585 
Total Revenue $2,064,911  $33,799  $2,098,710 

 

For the Three Months
Ended March 31, 2019
  United States International Total
Infrastructure & Disaster Recovery/Cloud Service $1,236,447  $30,600  $ 1,267,047 
Equipment and Software   428,511   —      428,511 
Managed Services   213,925   —      213,925 
Nexxis VoIP Services   90,703   —      90,703 
Other   1,095   —      1,095 
Total Revenue $1,970,681  $30,600  $2,001,281 

For the Three MonthsFor the Three MonthsFor the Three Months
Ended March 31,Ended March 31,Ended March 31,
Timing of revenue recognition 2020 2019 2021 2020
Products transferred at a point in time $ 328,733  $ 428,511  $687,576  $328,733 
Products and services transferred over time   1,769,977   1,572,770   1,887,115   1,769,977 
Total Revenue $ 2,098,710 $ 2,001,281  $2,574,691  $2,098,710 

 

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.

 

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Transaction price allocated to the remaining performance obligations

 

The Company has the following performance obligations:

 

 1)Disaster Recovery (“DR”): subscription-based service that instantly encryptedencrypts and transfers data to secure location further replicates the data to a second DSC data center where it remains encrypted. Provides 10ten (10) hour or less recovery time

 

 2)Data Vaulting: subscription-based cloud backup solution that uses advanced data reduction technology to shorten restore time

 

 3)High Availability (“HA”): subscription-based service which offers cost-effective mirroring replication technology and provides one (1) hour or less recovery time

 

 4)Infrastructure as a Service (“IaaS”): subscription-based service offers “capacity on-demand” for IBM Power and Intel server systems

 

 5)Message Logic: subscription-based service offers cost effective email archiving, data analytics, compliance monitoring and retrieval of email messages which cannot be deleted

 

 6)Internet: subscription-based service offers continuous internet connection in the event of outages

 

 7)Support and Maintenance: subscription-based service offers support for servers, firewalls, desktops or software and ad hoc support and help desk

 

 8)Initial Set-Up Fees: on boarding and set-up services

 

 9)Equipment sales: sale of servers to the end user

 

 10)License: granting SSL certificates and other licenses

 

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 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 should beis 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 beis 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 Licensinglicensing 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 will recognizerecognizes revenue at the point in time the license is granted and/or renewed for a new period.

 

Payment terms

 

The terms of the contracts typical 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 provided.provided in the previous month.

 

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 contractcontracts have multiple performance obligation,obligations, 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 ourthe 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.

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Advertising Costs

 

The Company expenses the costs associated with advertising as they are incurred. The Company incurred a net impact of $65,380$95,776 and $33,963$65,380 for advertising costs for the three months ended March 31, 20202021 and 2019,2020, respectively.

 

Stock Based Compensation

 

DSC follows the requirements of FASB ASC 718-10-10,Share Based Paymentswith regards to stock-based compensation issued to employees.employees and non-employees. DSC 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 year wasperiod 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- freerisk-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 stockStock and does not intend to pay dividends on its Common stockStock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best estimate.assessment.

 

Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. DSC’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. DSC uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.

 

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 three months ended March 31, 2020 and 2019:

  March 31,
  2020 2019
     
Net Income (Loss) Available to Common Shareholders $(68,596 $31,783 
         
Weighted average number of common shares - basic  128,486,085   128,139,418 
Dilutive securities        
  Options  -   3,667,227 
  Warrants  -   133,334 
Weighted average number of common shares - diluted  128,486,085   131,939,979 
         
Earnings (Loss) per share, basic $0.00  $0.00 
Earnings (Loss) per share, diluted $ 0.00  $ 0.00 

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:

 

 March 31,  March 31,
 2020 2019  2021 2020
Options  8,325,824   2,098,292    207,650   208,146 
Warrants  133,334  -      3,333   3,333 
  8,459,158  2,098,292    210,983   211,479 

Note 3 - Property and Equipment

 

Property and equipment, at cost, consist of the following:

  

 March 31, December 31, March 31, December 31,
 2020 2019 2021 2020
Storage equipment $756,236  $756,236  $756,236  $756,236 
Website and software 533,417 533,417   533,417   533,417 
Furniture and fixtures 27,131 27,131   27,131   17,441 
Leasehold improvements 16,846 16,846   20,983   20,983 
Computer hardware and software 1,218,464 1,218,464   1,228,520   1,236,329 
Data center equipment  4,734,970  4,341,993   5,586,374   5,281,017 
 7,287,064 6,894,087   8,152,661   7,845,423 
Less: Accumulated depreciation  (4,898,414  (4,705,256  (5,762,511)  (5,543,822)
Net property and equipment $2,388,650 $2,188,831  $2,390,150  $2,301,601 

 

Depreciation expense for the three months ended March 31, 2021 and 2020 was $218,689 and 2019 was $193,158, and $175,472, respectively.

 

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Note 4 - Goodwill and Intangible Assets

 

Goodwill and intangible assets consisted of the following:

 

   March 31, 2020   March 31, 2021
 Estimated life Gross amount Accumulated Net Estimated life   Accumulated  
in yearsAmortization in years Gross amount Amortization Net
Intangible assets not subject to amortization                        
Goodwill  Indefinite  $3,015,700 $—    $3,015,700  Indefinite  $3,015,700  $  $3,015,700 
Trademarks  Indefinite   294,268  —    294,268  Indefinite   294,268      294,268 
Total intangible assets not subject to amortization    3,309,968  —    3,309,968      3,309,968      3,309,968 
Intangible assets subject to amortization                        
Customer lists  5-15  897,274 897,274                -     5-15   897,274   897,274    
ABC acquired contracts  5  310,000 211,833 98,167  5   310,000   273,833   36,167 
SIAS acquired contracts  5  660,000 451,000 209,000  5   660,000   583,000   77,000 
Non-compete agreements  4   272,147  272,147                 -     4   272,147   272,147    
Total intangible assets subject to amortization    2,139,421  1,832,254  307,167      2,139,421   2,026,254   113,167 
Total Goodwill and Intangible Assets   $5,449,389 $1,832,254 $3,617,135     $5,449,389  $2,026,254  $3,423,135 

 

Scheduled amortization over the next two yearsyear is as follows:

 

Twelve months ending March 31,    
2020  $194,000 
2021   113,167 
Total  $307,167 
Twelve months ending March 31,  
2022  $113,167 

   

Amortization expense for the yearsthree months ended March 31, 20202021 and 20192020 were $48,500 and $49,334$48,500 respectively.

 

Note 5 –Leases

Operating Leases

 

The Company currently has threetwo leases for office space with two offices located in Melville, NY.

The first lease for office space in Melville, NY, was assumed as part of the Company’s acquisition of ABC in 2016 and one officecalled for monthly payments of $8,382 and expiring August 31, 2019. Upon termination of the lease in Warwick, RI.August 2019, the Company entered into a new lease for a technology lab in a smaller space commencing 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 with an ending date ofand expires on July 31, 2023.

The Company entered into a lease agreement for a technology lab in Melville, NY that commenced on September 1, 2019. The term of this lease is for three years and 11 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.

 

The lease for office space in Warwick, RI, callscalled for monthly payments of $2,324 which commencedbeginning 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 shall bewas $31,176 payable in equal monthly installments of $2,598. The Company satisfied the terms of the lease and no longer occupies this premise.

  

The Company leases rack space in New York, Massachusetts and North Carolina. These leases are month to month and the monthly rent is approximately $25,000.

In 2020, the Company entered into a new rack space lease agreement in Dallas, TX. The lease term is 13 months and requires monthly payments of $1,905.

 

Finance Lease Obligations

On June 1, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $5,008. The lease carries an interest rate of 7% and is a three-year lease. The term of the lease ends June 1, 2023.


On June 29, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $5,050. The lease carries an interest rate of 7% and is a three-year lease. The term of the lease ends June 29, 2023.

On July 31, 2020, the Company entered into a lease agreement with Arrow Capital Solutions, Inc. to lease equipment under a finance lease. The lease obligation is payable to Arrow Capital Solutions with monthly installments of $4,524. The lease carries an interest rate of 7% and is a three-year lease.

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 four -yearfour-year lease. The term of the lease ends April 16, 2022. Systems Trading is owned and operated by the Company’s President, HalHarold 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 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 paymentsinstallments of $1,328 and expires on March 1, 2022. It carries an interest rate of 7%. The second lease calls for monthly paymentsinstallments 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 Inc. 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 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%.

12


 

We determineThe Company determines if an arrangement contains a lease at inception. ROURight of Use “ROU” assets represent ourthe Company’s right to use an underlying asset for the lease term and lease liabilities represent ourits 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. OurThe Company’s lease term includes options to extend the lease when it is reasonably certain that weit 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 noted above. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We recognizeThe Company recognizes lease expense for these leases on a straight-line basis over the lease term. We recognizeThe 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 7% was used in preparation of the ROU asset and operating liabilities.

 

The components of lease expense were as follows:

 

 Three Months Ended
March 31, 2020
 Three Months Ended
March 31, 2021
Finance lease:   
Finance leases:    
Amortization of assets, included in depreciation and amortization expense $24,905  $350,607 
Interest on lease liabilities, included in interest expense 5,713   26,941 
Operating lease:       
Amortization of assets, included in total operating expense 223,845   25,652 
Interest on lease liabilities, included in total operating expense  42,381   4,287 
Total net lease cost $296,844  $407,487 

  

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset $304,200  $220,419 
       
Current operating lease liabilities 102,251   105,319 
Noncurrent operating lease liabilities  211,373   125,391 
Total operating lease liabilities $313,624  $230,710 

 

 March 31, 2020 March 31, 2021
Finance leases:       
Property and equipment, at cost $3,596,400  $4,416,665 
Accumulated amortization  (1,549,457)  (2,305,689)
Property and equipment, net  2,046,943   2,110,976 
       
Current obligations of finance leases $1,004,149  $1,273,587 
Finance leases, net of current obligations,  1,708,575 
Finance leases, net of current obligations  965,768 
Total finance lease liabilities $2,712,724  $2,239,355 

  

Supplemental cash flow and other information related to leases was as follows:

 

 Three Months Ended March 31, 2020 Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:       
Operating cash flows related to operating leases $19,193  $21,364 
Financing cash flows related to finance leases $169,711  $350,607 
       
Weighted average remaining lease term (in years):       
Operating leases 2.22   1.47 
Finance leases 2.17   2.07 
       
Weighted average discount rate:       
Operating leases 7%  7%
Finance leases 6%  6%

 

Long-term obligations under the operating and finance leases at March 31, 20202021 mature as follows:

 

For the Twelve Months Ended March 31, Operating Leases Finance Leases Operating Leases Finance Leases
2021 $ 102,251   888,652 
2022  105,319 1,066,382  $105,319  $1,260,160 
2023  108,535 674,434   108,534   773,155 
2024  37,046 355,104   37,120   377,276 
2025  -  - 
Total lease payments 353,151 2,984,572   250,973   2,410,591 
Less: Amounts representing interest  (39,527)  (271,848)  (20,263)  (171,236)
Total lease obligations 313,624 2,712,724   230,710   2,239,355 
Less: Current  (102,251)  (1,004,149)  (105,319)  (1,273,587)
 $211,373  1,708,575  $125,391  $965,768 

 

As of March 31, 2020, we2021, the Company had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the three months ended March 31, 2021 and 2020 was $20,263 and 2019 was $24,905, and $42,337, respectively.

13

 

Note 6 - Commitments and Contingencies

COVID 19 Disclosure

 

Business interruptions,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 any interruptions resulting from COVID-19, could significantly disrupt our operationstravel restrictions, quarantines, social distancing, work-from-home and could have a material adverseshelter-in-place orders and shut-downs; (iii) the impact on DSC ifU.S. and global economies and the situation continues. 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,” DSC 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 ourthe Company’s specialized technical staff, are working from homeremotely or in a virtual environment. DSC always maintains the ability for team members to work virtualvirtually and wethe Company will continue to stay virtual, until the State and or the Federal government indicate the environment is safe to return to work.

The ongoing coronavirus outbreak which begansignificant increase in China atremote working, particularly for an extended period of time, could exacerbate certain risks to the beginningCompany’s business, including an increased risk of 2020 has impacted various businesses throughoutcybersecurity events and improper dissemination of personal or confidential information, though the world, including travel restrictions and the extended shutdown of certain businesses in impacted geographic regions.Company does not believe these circumstances have, or will, materially adversely impact its internal controls or financial reporting systems. If the coronavirus outbreak situationCOVID-19 pandemic should worsen, wethe Company may experience disruptions to our business including, but not limited toto: equipment, to ourits workforce, or to ourits business relationships with other third parties.

The extent to which COVID-19 impacts the coronavirus impacts ourCompany’s operations or those of ourits 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 the coronavirusCOVID-19 and the actions to contain the coronavirusCOVID-19 or treat its impact, among others. Any such disruptions or losses we incur could have a material adverse effect on ourthe 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 March 31, 20202021 and December 31, 20192020 the balance was $24 and $75,000$24 respectively.

 

Note 7 – Long Term Debt

 

Note Payable

In connection with the 2012 acquisition of Message Logic, LLC,On April 30, 2020, the Company acquired software subject towas granted a UCC filingloan from a banking institution, in the principal amount of $350,000 plus accrued interest. On September 5, 2014$481,977 (the “Loan”), pursuant to the Company entered into an agreement wherebyPaycheck Protection Program (the “PPP”) under Division A, Title I of the Company paid all arrears interest over 7 months at $3,910 per month. In addition,Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the Company agreed to make monthly interest payments at $1,553 per month with the principal balanceform of $350,000 payablea Note dated April 30, 2020, matures on April 30, 2016.2022 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. The Company stopped making interest only payments on October 25, 2018. There has been no default notice fromapplied for the bank. The Company is in the process of negotiating a final settlement.loan forgiveness. 

 

As of March 31, 2021, if not forgiven, remaining scheduled principal payments due on notes payable are as follows:

For the twelve months ending March 31,  
2022  $455,200 
2023   26,777 
   $481,977 


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 March 8, 2021 the Company’s shareholders approved an amendment to the Company’s articles of incorporation, as amended, to effect a reverse stock split of the Company’s issued and outstanding shares of common stock, at a ratio to be determined at the discretion of the Board of Directors within a range of one (1) share of common stock for every two (2) to sixty (60) shares of common stock, such amendment to be effected only in the event the Board of Directors still deems it advisable. See Note 12 – Subsequent Events.

On May 6, 2021 the Company filed with the Securities and Exchange Commission Amendment No. 4 to Form S-1 - Registration Statement Under the Securities Act of 1993 to offer 1,162,790 Units (Each Unit Consisting of One Share of Common Stock and One Warrant to Purchase One Share of Common Stock).

 

During the three months ended March 31, 2020,2021, the Company received cash of $5,400 from the exercise of 100,0002,500 options.

 

Common Stock Options

A summary of the Company’s option activity and related information follows:

 

  Number of
Shares
Under Options
  Range of
Option Price
Per Share
  Weighted
Average
Exercise Price
 
Options Outstanding at December 31, 2019  8,425,824  $0.05 – 0.65  $0.17 
Options Granted   250,000   0.13   0.13 
Exercised   (100,000)  0.54   0.54 
Expire/Cancelled   (250,000)  0.36   0.36 
Options Outstanding at March 31, 2020   8,325,824  $0.05 – 0.65  $0.20 
             
Options Exercisable at March 31, 2020  4,441,433  $0.05 – 0.65  $0.20 
  Number of
Shares
Under Options
 Range of
Option Price
Per Share
 Weighted
Average
Exercise Price
 Weighted
Average
Contractual
Life
Options Outstanding at December 31, 2020  207,650  $2.0-15.6  $5.2   6.6 
Options Granted             
Exercised             
Expired/Cancelled             
Options Outstanding at March 31, 2021  207,650  $2.0-15.6  $5.2   6.38 
                 
Options Exercisable at March 31, 2021  139,541  $2.0-15.6  $6.4   5.50 

  

Share-based compensation expense for options totaling $42,171 and $33,048 was recognized in our results for the three months ended March 31, 2021 and 2020, based on awards vested.

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 these peer entities over a period equal to the expected life of the awards. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.

 

As of March 31, 2020,2021, there was $377,797$221,939 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 3 year.1.5 years.


Preferred Stock

 

14

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the three months ended March 31, 2020 are set forth in the table below.Dividends

 

  2020
Weighted average fair value of options granted $0.13 
Risk-free interest rate  0.83%
Volatility  223%
Expected life (years)  10 
Dividend yield  0.00%


Dividends

Each share of Series A Preferred Stock, in preference to the holders of all Common Stock (as defined below),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 Corporation.Company. Accrued dividends at March 31, 20202021 were $1,005,183. $1,154,556.

Note 9 - 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 DSC, its common stock, any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Note 10 - Related Party Transactions

 

Finance Lease Obligations – Related Party

 

During the three months ended March 31, 20202021 the Company entered into one related party finance lease obligations. See Note 5 for details.

 

Nexxis Capital LLC

Charles 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.

 

The Company did not receive anyreceived funds from Nexxis Capitalof $3,968 and $0 during the three months ended March 31, 2021 and 2020 respectively. 

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”), pursuant to which, upon the Closing (as defined below), the Company will acquire Flagship through the merger of Merger Sub with and into Flagship (the “Merger”), with Flagship being the surviving company in the Merger and becoming as a result its wholly-owned subsidiary. The closing of the Merger (the “Closing”) is expected to take place on or before May 31, 2021 (the “Outside Closing Date”).

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, will be 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 and subject to adjustment as set forth below in connection with a net working capital adjustment, 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 2019.2021 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 estimated net working capital at Closing is more or is less than the target working capital amount specified in the Merger Agreement.


The parties have agreed to indemnify each other for any losses that may be incurred by them as a result of their breach of any of their representations, warranties and covenants contained in the Merger Agreement. The Company’s indemnification obligations are capped at 20% of the aggregate merger consideration paid to the Equityholders for any breach of our representations and warranties contained in the Merger Agreement, other than the representations and warranties set forth under Section 4.1 (Existence; Good Standing; Authority; Enforceability), Section 4.2 (No Conflict) and Section 4.4 (Brokers) (herein, “Fundamental Representations”). The Company’s indemnification obligations in respect of any breach by the Company of the Fundamental Representations or in the event of our willful or intentional breach of the Merger Agreement (or acts of fraud), are not capped.

Concurrently with the Closing, Flagship and Mark Wyllie, Flagship’s Chief Executive Officer, will enter into an Employment Agreement (the “Wyllie Employment Agreement”), which will become 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.

The Merger Agreement further provides that it may be terminated by Flagship and the Equityholders (a “Flagship Termination”) in the event the Company has not consummated an underwritten public offering of its securities or listed its shares of common stock on national securities exchange such as the Nasdaq, by the Outside Closing Date, as long as such failure was not due to the breach of, or non-compliance with, the Merger Agreement by the Company or any of the Equityholders. In the event of a Flagship Termination, the Company will be required to pay Flagship and the Equityholders an amount equal to two (2) times their reasonable, documented, out-of-pocket attorneys’ and accountants’ transaction fees and expenses incurred prior to such Flagship Termination in connection with the Merger, up to a maximum aggregate amount of $100,000.

 

Note 11 - Subsequent12 -Subsequent Events

 

On April 2, 2020May 13, 2021, the Company’s registration statement on Form S-1 (File No. 333-23506) was declared effective (the “S-1 Registration Statement”). On May 13, 2021, the Company entered intofiled a new lease agreementregistration statement on Form S-1 (File No. 333-256111) with Arrow Capital Solutions, Inc.the “Securities and Exchange Commission pursuant to lease equipment. The lease obligation is payableRule 462(b) of the Securities Act of 1933, as amended to Arrow Capital Solutions with monthly installments of $5,008. The lease carries an interest rate of 6% and is a three-year lease.register additional securities which was immediately declared effective.

 

On May 14, 2020,2021, the Company was grantedeffected a loan from Signature bank,1-for-40 reverse stock split. As a result, all share information in the principal amountaccompanying condensed financial statements has been adjusted as if the reverse stock split happened on the earliest date presented.

On May 13, 2021, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC, as representative of $481,977the several underwriters named therein (the “Loan”“Representative”), for an underwritten public offering (the “Offering”) of an aggregate of 1,600,000 units (the “Units), each consisting of one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), together with one warrant to purchase one share of Common Stock (each a “Warrant” and collectively, the “Warrants”) 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 an 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, if any.  On May 15, 2021, the Representative partially exercised the over-allotment option to purchase an additional 240,000 Warrants to purchase 240,000 shares of Common Stock. The gross proceeds from the Offering are estimated to be $10.8 million, or approximately $12.4 million if the Representative exercises in full its over-allotment option, before deducting underwriting discounts and commissions and other Offering expenses.

Pursuant to the Underwriting Agreement, the Company agreed to issue to the Representative, as a portion of the underwriting compensation payable to the Representative, warrants to purchase up to a total of 80,000 shares of Common Stock (the “Representative’s Warrants”). The Representative’s Warrants are exercisable at $7.425 per share, are initially exercisable 180 days from the commencement of sales of the securities issued in connection with the Offering, or November 14, 2021, and have a term of five years from their initial issuance date, or May 18, 2026. Pursuant to FINRA rules, the Representative’s Warrants are subject to a lock-up agreement pursuant to which the Paycheck Protection Program (the “PPP”) under Division A, Title IRepresentative will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was inwarrants or the formunderlying securities for a period 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.  Funds180 days from the loan may only be usedbeginning on the date of commencement of sales of the securities issued in connection with this offering.

The Underwriting Agreement contains customary representations, warranties, and covenants by the Company and customary conditions to retain workersclosing, obligations of the parties and maintain payroll or make mortgage payments, lease payments and utility payments. Management intends to use the entire Loan amount for qualifying expenses. Undertermination provisions. Additionally, under the terms of the PPP,Underwriting Agreement, the Company has agreed to indemnify the underwriters for losses, expenses and damages arising out of or in connection with the Offering, including for liabilities under the Securities Act, or contribute to payments the underwriters may be required to make with respect to these liabilities.

Pursuant to the Underwriting Agreement, subject to certain amountsexceptions, each director and executive officer of the Loan may be forgiven ifCompany and certain of its stockholders have agreed to a 180-day “lock-up” from the date of the closing of the Offering of shares of Common Stock that they are used for qualifying expenses as described inbeneficially own, and the CARES Act.

Company agreed to a 120-day lock-up, not to offer, sell, contract to sell, pledge or otherwise dispose of any shares of Common Stock or securities convertible into Common Stock, without first obtaining the consent of the Representative.

15

 

ITEM 2.ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on March 31, 2021 (the “Annual Report”) with the U.S. Securities and Exchange Commission (the “SEC”). 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

 

The Company is a 25-year veteran in providing Business Continuity services, such as Disaster Recovery, Infrastructure as a Service, Cyber Security and Data Storage Corporation (“DSC” or the “Company”) providesAnalytics. We provide our clients subscription based, long term agreements ranging from 12 to 60 months. Services are provided from Tier 3 data centers geographically diverse in the USA. 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.

Headquartered in Melville, NY, we provide solutions and services to a broad range of customers in several industries, including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government. We maintain an internal business development team as well as a contracted independent distribution channel. DSC’s contracted distributors have the ability to provide disaster recovery and hybrid cloud solutions and IBM and Intel Infrastructure as a Service (IaaS)cloud-based solutions, without having to invest in infrastructure, data centers or telecommunication services or, in specialized technical staff, which substantially lowers the barrier of entry to provide our solutions to their client base.

During 2020, we added new distributors, hired additional management focused on building our sales and VoIPmarketing distribution, and carrier type solutions. Approximately 16%expanded our technology assets in Dallas, TX. We also recently expanded our offering of our revenue is derived from equipment salescybersecurity solutions for cyber security, storage, IBM Power i systems and managed service solutions.

remote tele-computing with ezSecurity™, a new 2020 product.

 

Our target marketplace for Infrastructure as a Service and Disaster Recovery as a Service globally is estimated at over one million Virtual IBM Power servers in the finance, retail, healthcare, government, and distribution industries and sectors according to the most recent information received from IBM. While Infrastructure as a Service and Disaster Recovery as a Service solutions are our core products, we also continue to provide ancillary solutions in this market.

For the past two decades, our mission ishas been to protect our client’sclients’ data twenty-four hours a day, ensuring business continuity, and assisting in their compliance requirements, andwhile providing better management and control over theirthe clients’ digital information. The Company’s

Our October 2016 acquisition of the assets of ABC Services, Inc. and ABC Services II, Inc. (collectively, “ABC”), and its acquisition ofincluding 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 securitycybersecurity solutions and our hybrid cloud solutions with the ability to provide equipment and expanded technical support.

The Company provides its solutions We intend to continue our strategy of growth 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 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.synergistic acquisitions.

 

Our IBM Poweroffices in New York include a technology center and Intel IaaS Cloud ensures enterprise levellab, which are adapted to meet technology needs of our clients. In addition to office staffing, we employ additional remote staff. DSC maintains its infrastructure, storage and networking 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 abilityrequired to provide our Recovery and IaaSsubscription solutions without capital investment thereby lowering their barrier of entry in providing these cloud solutions to their client base.

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 technicalfour geographically diverse data centers located in New York, Massachusetts, Texas 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. 

16


RESULTS OF OPERATIONS

Three months ended March 31, 20202021 as compared to March 31, 20192020

 

Total RevenueFor the three months ended March 31, 2020 increase2021 increased by $97,429.$475,981 or 23%. 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 additionalan increase in monthly subscription 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%

Revenue For the Three Months    
  Ended March 31,    
  2021 2020 $ Change % Change
Infrastructure & Disaster Recovery/Cloud Service $1,660,348  $1,393,720  $266,628   19%
Equipment and Software  464,883   328,733   136,150   41%
Managed Services  226,767   220,475   6,292   3%
Nexxis VoIP Services  195,326   153,197   42,129   27%
Other  27,367   2,585   24,782   N/M 
Total Revenue $2,574,691  $2,098,710  $475,981   23%

 

Cost of Sales.For the three months ended March 31, 2020,2021, cost of sales was $1,216,117,$1,420,899, an increase of $139,574$204,782 or 13%17% compared to $1,076,543$1,216,117 for the three months ended March 31, 2019.2020. The increase is primarily attributable to expenses associated with the data centers for infrastructure and disaster recovery cloud services.an increase in revenue.

 

Operating Expenses.Selling, general and administrative expenses.For the three months ended March 31, 2020, operating2021, selling, general and administrative expenses were $876,626,$1,118,407, an increase of $53,758,$241,781, or 7%28%, as compared to $822,868$876,626 for the three months ended March 31, 2019.2020. The net increase is reflected in the chart below.

 

Selling, general and administrative expenses For the Three Months    
  Ended March 31,    
  2021 2020 $ Change % Change
Increase in Salaries $503,672  $442,732  $60,940   14%
Increase in Professional Fees  135,278   46,342   88,936   192%
Increase in Software as a Service Expense  52,143   34,768   17,375   50%
Increase in Advertising Expenses  95,776   65,380   30,396   46%
Increase in Commissions Expense  213,254   185,868   27,386   15%
Increase in all other Expenses  118,284   101,536   16,748   16%
Total Expenses $1,118,407  $876,626  $241,781   28%

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 administrativeraises granted to senior management.

Professional fees increased primarily due to fees incurred for services provided by a migration specialist, 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 employeeinvestment banking firm and investor relations firm.

 

Software as a Service Expense (SaaS)increased by$32,773. This is attributeddue to the expanding data gathering so management canadditional costs paid to existing vendors to make more informed decisions.improvements in Salesforce and purchases of new user licenses.

Advertising ExpensesExpense increased primarily due to additional marketing campaigns for both Data Storage Corporation and their subsidiary Nexxis.campaigns.

Professional feesCommissions Expense decreased primarilyincreased due to the company hiring a consultant as an employeeincrease in revenues. Commission expense varies due to different contractual agreements with both contracted distributors and relying less on consultants for accounting services.employees.

All Other Expenses decreasedincreased primarily due to thea combination of an increase in online training and continuing education, partially offset by a reduction of training expenses in the amount of approximately $12,700, rent expense in the amount of approximately $7,400travel and costs associated with employees working from home due to the company downsizingpandemic as well as a reduction in expenses related to our office space bad debt recovery of about approximately $10,000 and office supplies in the amount of approximately $4,700.Melville, New York.

Other Income (Expense).Interest income (expense) for the three months ended March 31, 2020 increased $2,8922021 decreased $11,393 to $46,440$35,047 from $49,332$46,440 for the three months ended March 31, 2019.2020.

 

Net Income (Loss).before provision for income taxes.Net lossincome before provision for income taxes for the three months ended March 31, 2020 was $40,473,$42,511, as compared to a net incomeloss of $52,538$40,473 for the three months ended March 31, 2019. 

2020.

 

17


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 2020, 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, a reduction in advertising and / marketing programs, renegotiation of our arrangement with Nexxis and/or a reduction in salaries for officers that are major shareholders, such as senior management, entering into financing or stock purchase arrangements.shareholders.


We have long term contracts to supply our subscription-based solutions that are invoiced to clients monthly. We believe our total contract value of our subscription contracts with clients based on the actual contracts that we have to date, exceeds $10 million. Further, we continue to see an uptick in client interest, distribution channel expansion and in sales proposals. In 2021, we intend to continue to work to increase our 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 our technical expertise, data centers utilization, assets deployed in the data centers, 24 x 365 monitoring and software.

 

 If the Merger is consummated, we will require additional funding to finance the cash consideration and the Merger Agreement provides for a right of termination by us and the Flagship Equityholders if we have not consummated an underwritten public offering by May 31, 2021. There can be no assurance that we can complete an underwritten public offering by May 31, 2021 or that such offering will result in adequate funding to finance the Merger. We currently do not have any committed sources of outside financing.

During the three months ended March 31, 2020,2021, DSC’s cash increased $1,621decreased $259,286 to $328,182$634,312 from $326,561 March$893,598 December 31, 2019.2020. Net cash of $ 297,720$348,559 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$350,607 was used in financing activities resulting primarily from payments on capital lease obligations.

 

DSC’s working capital deficit was $2,763,533 at$3,040,836 on March 31, 2020,2021, increasing by $191,950$374,388 from $2,571,583$2,666,448 at December 31, 2019.2020. The increase is primarily attributable to an increase of accounts payable, dividend payable and, related party financing notesa decrease 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.cash.

 

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”.

 

18

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

 

Interest due on the Company’s loansAs a smaller reporting company this item is based upon the applicable stated fixed contractual rate with the lender. Interest earned on DSC bank accounts is linked to the applicable base interest rate. For the three months ended March 31, 2020 and 2019, the Company had interest expense of $46,460 and $49,419 respectively. The Company believes that its results of operations are not materially affected by changes in interest rates.required.

DSC’s exposure to market risk is confined to its cash and cash equivalents, all of which have maturities of less than three months and bear and pay interest in U.S. dollars. Since the Company invests in highly liquid, relatively low yield investments, we do not believe interest rate changes would have a material impact on us.

DSC does not hold any derivative instruments and does not engage in any hedging activities.

Item 4.Controls and Procedures

 

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

 

As of the end of the period covered by this Report, under the supervision and with the participation of DSC’s management, including its principal executive officer andwho also serves as its principal financial officer, DSC conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, DSC’s principal executive officer andwho also serves as its principal financial officers have concluded that DSC’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by DSC in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules based on the material weakness described below.

 

The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting expertise to provide reasonable assurance that our financial statements and notes thereto are prepared in accordance with GAAP and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation. In light of these material weaknesses, management has concluded that, as of March 31, 2020, DSC did not maintain effective internal control over financial reporting. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. In order to ensure the effectiveness of DSC’s disclosure controls in the future DSC intends on adding financial staff resources to our internal accounting and finance department.department and has executed an offer letter with an individual to serve as chief financial officer, subject to the consummation of its planned public offering and uplisting to the Nasdaq Stock market.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

19


PART II - OTHER INFORMATION

Item 1.Legal Proceedings.

Item 1.    Legal Proceedings.

 

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 DSC, its common stock, any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A.Risk Factors.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in the Annual Report. Except as disclosed below, there have been no material changes from the risk factors disclosed in the Annual Report.

We have not generated a significant amount of net income and we may not be able to sustain profitability or positive cash flow in the future.

 

As reflected in the consolidated audited financial statements for the years ended December 31, 2020 and 2019, we had a smallernet income (loss) attributable to shareholders of $55,339 and $(54,452) for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, DSC had cash and cash equivalents of $893,598 and a working capital deficiency of $2,666,448. As reflected in the consolidated unaudited financial statements for the quarter ended March 31, 2021, we had a net income of $340 and a net income (loss) attributable to shareholders of ($36,784). As of March 31, 2020, DSC had cash and cash equivalents of $634,312 and a working capital deficiency of $3,040,836.

We have identified weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future.

We have identified material weaknesses in our internal control over financial reporting company, wefor the year ended December 31, 2020. At March 31, 2021, our principal executive and financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules based on the material weakness described below A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting expertise to provide disclosure pursuantreasonable assurance that our financial statements and notes thereto are prepared in accordance with generally accepted accounting principles and (ii) a lack of segregation of duties to this item.ensure adequate review of financial statement preparation.

 

We will be required to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.

We have not yet retained sufficient staff or engaged sufficient outside consultants with appropriate experience in GAAP presentation, especially of complex instruments, to devise and implement effective disclosure controls and procedures, or internal controls. We will be required to expend time and resources hiring and engaging additional staff and outside consultants with the appropriate experience to remedy these weaknesses. We cannot assure you that management will be successful in locating and retaining appropriate candidates; that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future; or that appropriate candidates will be located and retained prior to these deficiencies resulting in material and adverse effects on our business.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our common stock. 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

Item 3.Defaults Upon Senior Securities.

Item 3.    Defaults Upon Senior Securities.

 

There were no defaults upon senior securities during the period ended March 31, 2020.2021.

Item 4.Mine Safety Disclosures

Item 4.    Mine Safety Disclosures

 

Not applicable.

Item 5.Other Information.

 

NoneItem 5.    Other Information.

 

20

None.

 


Item 6.Exhibits

Item 6.    Exhibits

Exhibit No. Description
   
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form SB-2 (File No. 333-148167) filed on December 17, 2007 (the “SB-2”))19, 2007).
   
3.2 Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 333-148167) filed on October 24, 2008).
   
3.3 Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1.13.1 on Form 8-K (File No. 333-148167) filed on January 6,9, 2009).
   
3.4 Bylaws (incorporated by reference to Exhibit 3.2 to the SB-2)to the Registrant’s Registration Statement on Form SB-2 (File No. 333-148167) filed on December 19, 2007).
   
3.5 Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K (File No. 333-148167) filed on October 24, 2008).
   
4.13.6 ShareCertificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation (incorporated by reference to Appendix F to the Information Statement on Schedule 14C filed with the Securities and Exchange Commission on March 8, 2021 (File No. 001-35384)).
3.7Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Secretary of State on October 7, 2008, dated April 19, 2021 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-35384) filed on April 20, 2021).
3.8Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Secretary of State on October 16, 2008, dated April 19, 2021 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K (File No. 001-35384) filed on April 20, 2021).
3.9Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Secretary of State on January 6, 2009, dated April 19, 2021 (incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K (File No. 001-35384) filed on April 20, 2021).
3.10Certificate of Correction and Certificate of Validation to the Certificate of Designation to the Articles of Incorporation filed with the Secretary of State on June 24, 2009, dated April 19, 2021 (incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K (File No. 001-35384) filed on April 20, 2021).
4.1#Data Storage Corporation 2021 Stock Incentive Plan (incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14C (File No. 001-35384) filed on March 18, 2021).
10.1Agreement dated October 20, 2008,and Plan of Merger by and among Euro Trend Inc.,between Data Storage Corporation and the shareholders of Data Storage Corporation named on the signature page theretoFlagship Solutions, LLC dated February 4, 2021 (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed on October 24, 2008)February 10, 2021).
   
4.210.2 Share ExchangeAmendment, dated February 12, 2021, to the Agreement dated October 20, 2008,and Plan of Merger by and among, Euro Trend Inc.,between Data Storage Corporation, Data Storage FL, LLC, Flagship Solutions, LLC, and the shareholdersowners of Data Storage Corporation named on the signature page theretoEquity Interests (as defined therein) dated February 4, 2021 (incorporated by reference to Exhibit 10.110.2 to the Current Report on Form 8-K/A8-K (File No. 001-35384) filed on June 29, 2009)February 16, 2021).
   
4.3 10.3 Registration RightsBuyout Lease Agreement dated November 29, 2011, by andDSC007 between Data Storage Corporation and Southridge Partners II, LPSystems Trading, Inc. dated March 4, 2021 (incorporated herein by reference to Exhibit 10.210.15 to the Annual Report on Form 8-K10-K (File No. 001-35384) filed on December 2, 2011)March 31, 2021).
   
4.4Equity Purchase Agreement, dated November 29, 2011, by and between Data Storage Corporation and Southridge Partners II, LP (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on December 2, 2011).
4.5Convertible Promissory Note, dated February 28, 2013, by and between the Company and John F. Coghlan. (incorporated herein by reference to Exhibit 4.1 to Form 10-Q filed on May 20, 2013)
4.6Warrant to Purchase Common Stock, dated February 28, 2013, by and between the Company and John F. Coghlan (incorporated herein by reference to Exhibit 4.2 to Form 10-Q filed on May 20, 2013)
4.7Securities Purchase Agreement, dated February 28, 2013, by and between the Company and John F. Coghlan. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on May 20, 2013)
4.8Securities Purchase Agreement between Charles M. Piluso and the Company dated as of August 9, 2013 (incorporated by reference to Exhibit 2.3 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005- 84248)).
4.910% Convertible Promissory Note due April 30, 2016 (incorporated by reference to Exhibit 2.4 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005-84248)).
4.10Warrant to Purchase Common Stock dated as of August 9, 2013, (incorporated by reference to Exhibit 2.5 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005-84248)).
10.1Asset Purchase Agreement dated November 10, 2008, by and between Novastor Corporation as Seller and Data Storage Corporation as Purchaser (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 12, 2008).
10.2Joint Venture – Strategic Alliance Agreement, dated March 2, 2010, by and between Data Storage Corporation and United Telecomp, LLC (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 3, 2010).
10.3Term Sheet for Acquisition by Data Storage Corporation of 80% of the Equity of e-ternity Business Continuity Consultants, Inc., dated May 16, 2012 (incorporated by reference to Exhibit 99.1 to Form 8-K, filed on May 30, 2012).
10.4Term Sheet for Acquisition by Data Storage Corporation of Message Logic, Inc., dated August 31, 2012 (incorporated by reference to Exhibit 99.1 to Form 8-K filed on September 4, 2012).
10.5Asset Purchase Agreement, dated June 17, 2010, between SafeData, LLC and Data Storage Corporation (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 23, 2010).
10.6Asset Purchase Agreement, dated October 31, 2012, by and between Data Storage Corporation and Message Logic, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on January 30, 2013).
10.7Stock Purchase Agreement, dated October 31, 2012, by and between Data Storage Corporation and Zojax Group, LLC (incorporated by reference to Exhibit 10. 1 to Form 8-K filed on November 7, 2012).
10.8Form of Employment Agreement between Peter Briggs and Data Storage Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 23, 2010).
10.9Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 on Form S-8/A filed on October 25, 2010).

21

10.10Amended and Restated Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 26, 2012).
10.11Stock Purchase Agreement, dated as of March 1, 2011, by and between Data Storage Corporation and John F. Coghlan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 7, 2011).
10.12Stock Purchase Agreement, dated September 7, 2012, by and between Data Storage Corporation and John F. Coghlan (incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 13, 2012).
10.13Stock Purchase Agreement, dated September 7, 2012, by and between Data Storage Corporation and Clifford Stein (incorporated by reference to Exhibit 2.2 to Form 8-K filed on September 13, 2012).
10.14Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Jan Burman (incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 21, 2012).
10.15Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Charles M. Piluso (incorporated by reference to Exhibit 2.2 to Form 8-K filed on September 21, 2012).
10.16Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Piluso Family Associates (incorporated by reference to Exhibit 2.3 to Form 8-K filed on September 21, 2012).
10.17Asset Purchase Agreement by and between ABC Services Inc., and Data Storage Corporation as of October 25, 2016 (incorporated by reference to Exhibit 10.1 to Form 8K filed on October 31, 2016) Asset Purchase Agreement by and between ABC Services II Inc., and Data Storage Corporation as of October 25, 2016 (incorporated by reference to Exhibit 10.2 to Form 8K filed on October 31, 2016) Conversion Agreement by and between Data Storage Corporation and Charles M. Piluso dated October 25, 2016
10.18(incorporated by reference to Exhibit 10.3 to Form 8K filed on October 31, 2016) Conversion Agreement by and between Data Storage Corporation and John F. Coghlan dated October 25, 2016
10.19(incorporated by reference to Exhibit 10.4 to Form 8K filed on October 31, 2016)
10.20Conversion Agreement by and between Data Storage Corporation and Clifford Stein dated October 25, 2016(incorporated by reference to Exhibit 10.5 to Form 8K filed on October 31, 2016).
10.21Conversion Agreement by and between Data Storage Corporation and Clifford Stein dated October 25, 2016 (incorporated by reference to Exhibit 10.5 to Form 8K filed on October 31, 2016).
10.22Form of Stockholders Agreement by and between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017.
10.23Form of Employment Agreement between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017.
14Code of Ethics (incorporated by reference to Exhibit 14.1 to Form 10-K filed on September 30, 2009).
21List of Subsidiaries of Data Storage Corporation (incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 filed on February 6, 2012).
31.131.1* Certification of President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Exchange Act.
   
32.132.1* Certification of President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1Press Release dated November 1, 2017 (incorporated by reference to Exhibit 99.1 to Form 8K filed on November 9, 2017)

 

* Filed herewith.

# Indicates management contract or compensatory plan.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 DATA STORAGE CORPORATION
Date: May 20, 202017, 2021 
 By:/s/Charles M. Piluso
  Charles M. Piluso
  Chief Executive Officer
  Chief Financial Officer
  (Principal Executive, Financial and Accounting Officer)

 

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