Note 1 - Basis of presentation, organization and other matters

Headquartered in Melville, NY, Data Storage Corporation (“DSC” or the “Company”) is a Managed Service Provider that specializes within the IBM community. Our IBM Power and Intel IaaS Cloud ensures enterprise level equipment and support focusing on iSeries, AIX, Power, AS400 and our high-processing power for Intel. Our Disaster Recovery services for both Intel and IBM 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.

DSC maintains equipment for cloud storage and cloud computing in our data centers located in New York and Massachusetts. DSC delivers its solutions over highly reliable, redundant and secure fiber optic networks with separate and diverse routes to the Internet. DSC’s network and geographical diversity is important to clients seeking storage hosting and disaster recovery solutions, ensuring protection of data and continuity of business in the case of a network interruption.

Liquidity

The Company has concluded that the initial conditions which raised substantial doubt regarding the ability to continue as a going concern have been alleviated. As of June 30, 2018, we had cash of $81,976 and a working capital deficiency of $2,412,925. Included in current liabilities are accrued dividends that the Company is not obligated to pay at this point in time, and the Company is in compliance with its preferred shareholder agreement. Further, capitalized lease obligations for our enterprise level infrastructure in our data centers are related to long term contracts with clients, in which clients are represented in the accounts receivable as a month of billing in the current liabilities, whereas, the entire year of lease payments are recorded for future obligations.  Our Enterprise Bank obligation relates to the acquisition of Message Logic of $350,000 is structured so that DSC can be relieved of such obligation without impact. Additionally, deferred revenue, are obligations to perform services for clients, in which these clients have signed long term agreements with cancelation clauses obligating them to pay for such services, even if the client cancels within term.  Capital lease obligations are owed to a company owned by the President of DSC. The Company has on previous occasions been able to renegotiate the leases to relieve pressure on its capital position.

The Company recognized a net loss available to common shareholders of $41,037 for the six months ended June 30, 2018 and generated cash from operations of $123,546. Revenue growth for the quarter had a higher percentage of equipment and software sales and has a result of the mix of product and services overall margin have been impacted. Equipment and software normally have lower margin than subscription services such as IaaS and disaster recovery.

There is no assurance that the conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern will be mitigated by the factors enumerated above. To further alleviate the concern, management has determined that related party capitalized leases can be refinanced. Further, senior management is committed to funding the Company’s operations for growth and expansion for the next 12 months.

The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While we believe in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon our continued sales efforts, the ability to further implement the business plan, generate sufficient revenues and to control operating expenses.