Exhibit 99.5

 

DATA STORAGE CORPORATION AND SUBSIDIARY

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

 

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effects of the acquisition of ABC Services Inc. ("ABC I"), a New York corporation, and ABC Services II Inc. ("ABC II" and collectively with ABC I, "ABC"), which closed on October 25, 2016. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are directly attributable to the acquisition, factually supportable and, with respect to the statements of operations, expected to have a continuing impact on the results of operations.

 

The unaudited pro forma condensed combined balance sheet is based on the individual historical balance sheet of Data Storage Corporation (DSC) and ABC, as of September 30, 2016, and has been prepared to reflect the effects of the ABC acquisition as if it occurred on September 30, 2016. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 combine the historical results and operations of DSC and ABC giving effect to the acquisition as if it had occurred on January 1, 2015.

 

The unaudited pro forma condensed combined statements of operations do not reflect future events that may occur after the completion of the acquisition, connection with the acquisition, including, but not limited to, costs in connection with integrating the operations of ABC.

 

These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date or for the periods presented, or which may be realized in the future. including, but not limited to, the anticipated realization of ongoing savings from operating synergies and certain one-time charges DSC expects to incur in connection with the acquisition, including, but not limited to, costs in connection with integrating the operations of ABC. These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date or for the periods presented, or which may be realized in the future.

 

The following unaudited pro forma condensed combined financial statements are presented to illustrate the pro forma effects of our having entered into and closed a Share Exchange Agreement with ABC I and ABC II, hence consummation of the asset acquisition. We have derived our historical financial data for the nine months ended September 30, 2016 and for the year ended December 31, 2015 from our financial statements contained on Form 10-Q and Form 10-K, respectively, as filed with the Securities and Exchange Commission.   We have derived ABC I and ABC II historical financial statements as of September 30, 2016, and for the nine months ended September 30, 2016 from the interim reviewed financial statements for those entities. We have derived ABC I and ABC II historical financial statements for the year ended December 31, 2015 from ABC I and ABC II’s audited financial statements for the year then ended.

 

The unaudited pro forma condensed combined balance sheet as of September 30, 2016 assumes the asset acquisition consummated at the end of the period. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2016 and for the year ended December 31, 2015 assume that the asset acquisition and distribution of certain assets and liabilities consummated at the beginning of the periods presented.

 

The information presented in the unaudited pro forma condensed combined financial statements does not purport to represent what our financial position or results of operations would have been had the Share Exchange Agreement and distribution of assets and liabilities, nor is it indicative of our future financial position or results of operations for any period. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the Share Exchange Agreement.

 

 

 

 

The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. These unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes and assumptions and the historical financial statements and related notes of the Company, ABC I and ABC II.

 

The foregoing information is a summary of each of the agreements involved in the transactions described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Current Report on Form 8-K. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.

 

The following unaudited pro forma adjustments are incorporated into the unaudited pro forma condensed combined balance sheet as of September 30, 2016, the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2016 and for the year ended December 31, 2015.

 

Introduction to Unaudited Pro Forma Condensed Combined Financial Statements

 

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2016

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2016

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2015

 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

 

 

 

DATA STORAGE CORPORATION AND SUBSIDIARY

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

 

   Data
Storage
Corporation
and
Subsidiary
   ABC
Services,
Inc.
   ABC
Services
II, Inc.
   Pro Forma Adjustments     
   September
30, 2016
   September
30, 2016
   September
30, 2016
   DR   CR   Pro Forma
Balances
 
ASSETS                              
Cash and cash equivalents  $105,471   $69,562   $75,031   $-   $-   $250,064 
Accounts receivable (less allowance for doubtful accounts of $15,000 in 2015 and $15,000 in 2014)   103,633    518,222    146,544    -    (127,095)(1)   641,304 
Accounts Receivable Related Parties   -    10,348    -    -    -    10,348 
Due from Shareholders   -    18,000    -    -    -    18,000 
Prepaid expenses and other current assets   275,408    2,340                   277,748 
Total Current Assets   484,512    618,472    221,575    0    (127,095)   1,197,464 
                               
Property and Equipment:                              
Property and equipment   3,375,958    51,763    110,000    -    -    3,537,721 
Less—Accumulated depreciation   (3,198,587)   (31,979)   (54,167)             (3,284,733)
Net Property and Equipment   177,371    19,784    55,833    0    0    252,988 
                               
Other Assets:                              
Goodwill   2,201,828    -    -    1,909,902    -(3)   4,111,730 
Other assets   15,156    -    -    -    -    15,156 
Intangible assets, net   327,457    -    -    10,000    -(3)   337,457 
Investment in joint venture – at equity   17,545                   (17,545)(2)    0 
Total Other Assets   2,561,986    0    0    1,919,902    (17,545)   4,466,343 
                               
Total Assets  $3,223,869   $638,256   $277,408   $1,919,902   $(144,640)  $5,914,795 
                               
LIABILITIES AND STOCKHOLDERS' DEFICIT                              
Current Liabilities:                              
Accounts payable and accrued expenses  $1,619,016   $361,987   $270,250   $(691,722)  $- (1),(4)  $1,559,531 
Revolving credit facility   99,292    -    50,412    -    -    149,704 
Due to related party   -    24,316    26,396    -    -    50712 
Dividend payable   591,623    -    -    -    -    591,623 
Deferred revenue   342,506    278,274    -    -    -    620,780 
Due from Officer   0    -    -    -    -    0 
Leases payable   252,841    -    -    -    -    252,841 
         -    62,589    -    -    62,589 
Note payable – Enterprise Bank   350,000    -    -    -    -    350,000 
Convertible debt – related parties net of discount   901,924              (901,924)    (4)   0 
Total Current Liabilities   4,157,202    664,577    409,647    (1,593,646)   0    3,637,780 
                               
Deferred rental obligation   1,741    -         -    -    1,741 
Note Payable – related  party   12,000    -    15,254    -    -    27,254 
Leases payable long term   155,574    -    -    -    -    155,574 
Convertible debt – related parties   1,199,439              (1,199,439)    (4)   0 
Total Long Term Liabilities   1,368,754    0    15,254    (1,199,439)   0    184,569 
                               
Total Liabilities   5,525,956    664,577    424,901    (2,793,085)   0    3,822,349 
                               
Stockholders’ Deficit:                              
Preferred Stock, $.001 par value; 10,000,000 shares authorized; 1,401,786 shares issued and outstanding in each period   1,402    -    -    -    -    1,402 
Common stock, par value $0.001; 250,000,000 shares authorized; 36,588,240 shares issued and outstanding in each period   36,588    1,000    1,000    (2,000)   91,451(3),(4)   128,039 
Additional paid in capital   12,841,752    -    -    -    4,288,177(2)(3),(4)   17,129,929 
Accumulated deficit   (15,181,829)   (27,321)   (148,493)   -    190,719(2),(3)   (15,166,924)
Total Stockholders' (Deficit) Equity   (2,302,087)   (26,321)   (147,493)   (27,006)   4,597,353    2,092,446 
Total Liabilities and Stockholders' (Deficit)  $3,223,869   $638,256   $277,408   $(2,820,091)  $4,597,353   $5,914,795 

 

 

 

 

DATA STORAGE CORPORATION AND SUBSIDIARY

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

   Data Storage
Corporation and
Subsidiary
   ABC Services,
Inc.
   ABC Services
II, Inc.
   Pro Forma Adjustments     
   For the Nine
Months Ended
September 30,
2016
   For the Nine
Months Ended
September 30,
2016
   For the Nine
Months Ended
September 30,
2016
   DR   CR   Pro Forma
Balances
 
                         
Sales  $2,912,152   $2,792,116   $1,476,033   $430,943   $(1)  $6,749,358 
Cost of sales   1,861,148    2,112,816    535,848    -    430,943(1)   4,078,869 
Gross Profit   1,051,004    679,300    940,185    430,943    (430,943)   2,670,489 
                               
Selling, general and administrative   1,354,785    561,088    985,780    -    -    2,901,653 
Income (loss) before other income (expense)   (303,781)   118,212    (45,595)   430,943    (430,943)   (231,164)
Other Income (Expense):                              
Commissions   -    24,832    3,767    -    -    28,599 
Other Income   -    27,250    -    -    -    27,250 
Bad debt recovery   1,508    -    -    -    -    1,508 
Net loss on equity method investment   (2,572)   -    -    -    2,572(2)   - 
Interest expense   (204,466)        (6,680)   -    157,676    (53,470)
Total Other (Expense)   (205,530)   52,082    (2,913)   -    160,248    3,887 
                               
Net income before controlling interests in equity   (509,311)   170,294    (48,508)   430,943    (270,695)   (227,277)
Net loss attributable to non-controlling interests in equity   -    (4,889)   -    -    4,889(2)   - 
                               
Net Income (Loss) before provision for income taxes   (509,311)   165,405    (48,508)   430,943    (265,806)   (227,277)
Provision for income taxes   -    -    -    -    -    - 
Net Loss   (509,311)   165,405    (48,508)   430,943    (265,806)   (227,277)
Preferred Stock Dividend   (78,550)   -    -    -    -    (78,550)
                               
Net Loss Attributable to Common Shareholders  $(587,861)  $165,405   $(48,508)  $430,943   $(265,806)  $(305,827)
                               
NET LOSS PER COMMON SHARE                              
Basic and diluted  $(0.01)                      $(0.00)
                               
WEIGHTED AVERAGE SHARES OUTSTANDING                              
Basic and diluted   36,588,240                        124,368,500 

 

 

 

 

DATA STORAGE CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

   Data Storage
Corporation
and Subsidiary
   ABC
Services, Inc.
   ABC
Services II,
Inc.
   Pro Forma
Adjustments
     
   For the Year
Ended
December 31,
2015
   For the Year
Ended
December
31, 2015
   For the
Year
Ended
December
31, 2015
   DR   CR   Pro Forma
Balances
 
                         
Sales  $3,991,351   $2,850,562   $1,725,262   $(423,608)  $-(1)  $8,143,567 
Cost of sales   2,502,524    2,239,787    472,254    -    (423,608)(1)   4,790,957 
                               
Gross Profit   1,488,827    610,775    1,253,008    (423,608)   423,608    3,352,610 
                               
Selling, general and administrative   1,881,097    753,225    1,392,577    -    -    4,026,899 
                               
Income (loss) before other income (expense)   (392,270)   (142,450)   (139,569)   (423,608)   423,608    (674,289)
                               
Other Income (Expense)                              
Interest income   2    -    -    -    -    2 
Commissions   -    72,689    97,568    -    -    170,257 
Loss on sale of abandoned equipment   (6,338)   -    -    -    -    (6,338)
Other expense - litigation settlement   (12,500)   -    -    -    -    (12,500)
Net gain on equity method investment   4,418    -    -         (4,418)(2)   - 
                               
Interest expense   (287,652)   -    (13,306)   -    209,416    (91,542)
Total Other (Expense)   (302,070)   72,689    84,262    -    204,998    59,879 
Net Income (Loss) before provision non-controlling interest in equity   (694,340)   (69,761)   (55,307)   (423,608)   628,606    (614,410)
                               
Net loss attributable to non-controlling interests in equity   -    (20,168)   -         20,168(2)   - 
                               
Net Income (loss) before provision for income taxes   (694,340)   (69,761)   (55,307)   (423,608)   648,774    (614,410)
                               
Provision for income taxes   -    -    -              - 
                               
                               
Net Loss   (694,340)   (69,761)   (55,307)   (423,608)   648,774    (614,410)
                               
Preferred Stock Dividend   (96,013)                       (96,013)
                               
Net Loss Attributable to Common Shareholders  $(790,353)  $(69,761)  $(55,307)  $(423,608)  $648,774   $(710,423)
                               
NET LOSS PER COMMON SHARE                              
Basic and diluted  $(0.01)                      $(0.01)
                               
WEIGHTED AVERAGE SHARES OUTSTANDING                              
Basic and diluted   36,588,240                        124,368,500 

 

 

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMETNS

September 30, 2016

 

BACKGROUND

 

On October 25, 2016, Data Storage Corporation (the "Company"), through its wholly-owned subsidiary (the "Subsidiary"), entered into and closed two Asset Purchase Agreements (collectively, the "Purchase Agreements") with ABC Services Inc. ("ABC I"), a New York corporation, and ABC Services II Inc. ("ABC II" and collectively with ABC I, "ABC"), a New York Corporation, pursuant to which the Subsidiary purchased certain assets from ABC, including tangible assets and service agreements, in consideration of an aggregate 64,669,936 shares of common stock of the Company (the "Shares"). The Closing occurred on October 25, 2016. In the event that the audits of ABC I or ABC II for the fiscal year ended December 31, 2015 provide that either ABC I or ABC II have generated less than $2,000,000 in revenue, then such entity's respective Shares will be reduced by the proportionate amount of such shortfall.

 

On October 25, 2016. the Company entered into three Conversion Agreements with three affiliates (collectively, the "Affiliates") of the Company pursuant to which the Company and the Affiliates agreed to convert an aggregate of $2,678,124.28 in debt owed by the Company to the Affiliates into shares of common stock of the Company at a conversion price of $0.10 per share (the "Conversion Price") resulting in the issuance of an aggregate of 26,781,242 shares of common stock of the Company to the Affiliates. Specifically, the Company and Charles Piluso converted $1,802,521.08 into 18,025,210, the Company and John Coghlan converted $138,822 into 1,388,220 shares of common stock of the Company and the Company and Clifford Stein converted $736,781.20 into 7,367,812 shares of common stock of the Company. At the end of the 90 day period following the Effective Date, if the average closing price during any ten (10) day period during the 90 day period is greater than $0.10 per share (the "Adjusted Conversion Price"), then the Conversion Price will be adjusted to equal the Adjusted Conversion Price; provided, however, that the Adjusted Conversion Price will have a ceiling of $0.20 per share, whereby if the 10 day average closing price is greater than $0.20 per share during the 90 day period, then the Conversion Price will be adjusted to equal $0.20 per share. There will only be one adjustment.

 

Basis of presentation

 

The unaudited pro forma condensed combined financial statements have been prepared in order to present combined financial position and results of operations of the Company, ABC I and ABC II as if the asset acquisition had occurred as of September 30, 2016 for the unaudited pro forma condensed combined balance sheet, and to give effect to the acquisition of ABC I and ABC II, as if the transaction had taken place at January 1, 2015 for the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015, and for the nine months ended September 30, 2016.

 

The condensed financial statements of the Company as of September 30, 2016, for the nine months ended September 30, 2016 and for the year ended December 31, 2015 were derived from the financial statements contained on Form 10-Q and 10-K, respectively, as filed with the Securities and Exchange Commission.

 

 

 

 

The condensed financial statements of ABC I and ABC II as of September 30, 2016, for the nine months ended September 30, 2016 and for year ended December 31, 2015 were derived from the financial statements for those entities contained elsewhere in this Form 8-K/A.

 

PRO FORMA ADJUSTMENTS

 

(1)Accounts Payable, Accounts Receivable, Sales and Revenue – Prior to the acquisition of the assets of ABC, DSC and ABC provided services to each other on an arms-length basis. These adjustments represent the elimination of the revenue, expense and relate accounts receivable and payables.
   
(2)Investment in Joint Venture at equity and Net Loss attributable to non-controlling interests in equity– prior to the acquisition of the assets of ABC, DSC and ABC operated a joint venture. DSC reported the Joint Venture under the equity method of accounting while ABC reported the controlling interest. This entry represents the elimination of the equity method investment and the related equity gain or loss and income (loss) from the non-controlling interest.
   
(3)Purchase accounting - Adjustment reflects the preliminary purchase price allocation based on fair value of the shares issued, and the net assets (liabilities) and identifiable intangible assets acquired in the acquisition.

 

Excess purchase price over net assets (liabilities) acquired  $1,919,902 
Value assigned to certain intangibles  $(10,000)
Pro forma adjustment – Goodwill  $1,909,902 

 

(4)This entry represents the conversion of this convertible debt of Affiliates as of January 1, 2015, as described above, assuming no subsequent adjustment to the conversion price and reducing the pro forma shares issued related to conversions of interest accrued after that date. Any gain on the transaction is treated as additional paid-in capital due to the affiliate nature of the debt.