Note 1 - Basis of Presentation, Organization and Other Matters

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

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

DSC derives its revenues from subscription-based services and solutions, managed services, software and maintenance, equipment and onboarding provisioning. DSC maintains infrastructure and storage equipment in several technical centers in New York, Massachusetts and North Carolina.

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or any other interim period or for any other future year. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Company’s 2018 Annual Report on Form 10-K filed with the SEC. The balance sheet as of December 31, 2018 has been derived from audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

Liquidity

The Company had net loss of $43,707 for the nine months ended September 30, 2019. As of September 30, 2019, DSC had cash of $283,682 and a working capital deficiency of $2,554,333. As a result, these conditions raised substantial doubt regarding our ability to continue as a going concern. During the nine months ended September 30, 2019, the Company generated cash from operations of $634,428. The Company continues to invest in sales staff both direct and indirect as well as marketing programs, while investing in technology and sales automation. Based on this continued planned investment to gain additional subscription contracts, we incurred a net loss for the nine months ended September 30, 2019. Gross profit margins for the nine months has increased from 39% to 44% based on fewer equipment sales and additional subscription contracts. Equipment sales carry a lower margin and are one-time events.

The Company’s cash resources, along with the ability to reduce sales and marketing expenses, as well as the opportunities contained herein, leads management to conclude that it is probable it will be sufficient to meet the Company’s cash requirements through November 2020. If necessary, management in addition determined that it is possible that related party sources of debt financing could be obtained based on management’s history of being able to raise capital and refinance equipment leases through related parties. As a result of both management’s plans and current favorable trends in improving cash flow, the Company concluded that the initial conditions which raised substantial doubt regarding the ability to continue as a going concern have been alleviated. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. 

The condensed 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 the ability to further implement the business plan, generate sufficient revenues and to control operating expenses.