Data Recovery Island Park 2

(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion? (ii) our plans and results of operations will be affected by our ability to manage growth? and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as 'may,' 'will,' 'should,' 'could,' 'expects,' 'plans,' 'intends,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'continue' or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this report.

Company Overview

Data Storage Corporation ("DSC" or the "Company") provides subscription based, long term agreements for disaster recovery solutions, Infrastructure as a Service (IaaS) and VoIP and carrier type solutions. Over 35% of our revenue is derived from equipment sales for cyber security, storage, IBM Power i systems and managed service solutions.

Our mission is to protect our client's data, ensuring business continuity, assisting in their compliance requirements and providing better control over their digital information. The Company's October 2016 acquisition of the assets of ABC Services, Inc. and ABC Services II, Inc. (collectively, "ABC") and its acquisition of the remaining 50% of the assets of Secure Infrastructure and Services LLC supports the Company's acquisition strategy. These acquisitions accelerated our strategy into cloud based managed services, expanded cyber security solutions and our hybrid cloud solutions with the ability to provide equipment and expanded technical support.

The Company provides its solutions through its business development team and contracted distribution channels. DSC owns intellectual property with our proprietary email archival and data analytics software, Message Logic. DSC is marketing Message Logic on the DSC website. DSC's contracted, approved distributors have the ability to provide Recovery and Hybrid Cloud solutions, IBM and Intel IaaS cloud-based solutions without the distributor investing in infrastructure, data centers and telecommunications services as well as specialized technical staff whereby lowering their barrier of entry for them to provide these solutions to their client base.

DSC is an 18-year veteran in cloud storage and cloud computing providing disaster recovery, business continuity and compliance solutions that assist organizations in protecting their data, minimizing downtime while ensuring regulatory compliance. Serving the business continuity market, DSC's clients save time and money, gain more control and better access to data and enable a high level of security for their data. Solutions include: Infrastructure as a Service specializing in IBM Power; data backup recovery and restore, high availability data replication; email archival and compliance; and eDiscovery; continuous data protection; data de- duplication; and, virtualized system recovery. DSC has forged significant relationships with leading organizations creating valuable partnerships.

Our IBM Power and Intel IaaS Cloud ensures enterprise level equipment and support, focusing on iSeries, AIX, Power, AS400 and our high-processing power for Intel. Our Disaster Recovery services for both Intel and IBM 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 owns intellectual property in connection with our proprietary email archival and data analytics software, Message Logic. DSC is marketing Message Logic on the DSC website. DSC's contracted approved distributors have the ability to provide our Recovery and IaaS 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 technical centers in New York, Massachusetts and North Carolina.

DSC services clients from its staffed technical offices in New York and Rhode Island, which consist of modern offices and a technology suite adapted to meet the needs of a technology-based business.

DSC varies its use of resources, technology and work processes to meet the changing opportunities and challenges presented by the market and the internal customer requirements. The Company supports clients twenty-four hours a day, 365 days a year.

RESULTS OF OPERATIONS

For the three months ended March 31, 2019 as compared to the three months ended March 31, 2018

Net Sales. Net sales for the three months ended March 31, 2019 were $2,001,281, an increase of $51,757 or 2.7% compared to $1,949,524 for the three months ended March 31, 2018. Infrastructure services increased $153,397 to $1,258,602 for the three months ended March 31, 2019 as compared to $1,105,205 for the three months ended March 31, 2018. Manages Services increased $164,581 to $463,949 for the three months ended March 31, 2019 as compared to $299,368 three months ended March 31, 2018. Professional services decreased $57,357 to $0 for the three months ended March 31, 2019 as compared to $57,357 for three months ended March 31, 2018 and other miscellaneous services decreased $201,523 to $0 for the three months ended March 31, 2019 as compared to $201,523 for three months ended March 31, 2018.

Cost of Sales. For the three months ended March 31, 2019, cost of sales were $1,076,543, a decrease of $99,211 or 8.4% compared to $1,175,754 for the three months ended March 31, 2018. The decrease is attributable to the decrease in managed support and service of $81,255. Infrastructure services decreased $33,923 to $143,427 for the three months ended March 31, 2019 as compared to $177,350 three months ended March 31, 2018. Equipment and software decreased $30,806 to $153,649 for the three months ended March 31, 2019 as compared to $184,455 for the three months ended March 31, 2018.

Operating Expenses. For the three months ended March 31, 2019, operating expenses were $822,868, an increase of $78,406, or 10.5%, as compared to $744,462 for the three months ended March 31, 2018. The net increase is reflected in the chart below.

 Change Decrease in salaries $ (54,518 ) Increase in officer's salaries 101,599 Increase in commissions 80,396 Decrease in professional fees (11,889 ) All other (37,182 ) Net increase $ 78,406 

Salaries decreased by $54,518 due to reduction of staff as part of the company's plans.

Officer's Salaries increased $101,599 as compared to previous periods based on a Board of Directors 2019 compensation plan for senior management. The plan reduces the bi-weekly salary and establishes a monthly payroll incentive tied to performance in key financial indices.

Commissions increased $80,396 based on increased partner sales.

Professional fees decreased $11,889 due to cancelation of an outside contracted services.

Other Income (Expense). Interest expense for the three months ended March 31, 2019 increased $36,746 to $50,621 from $13,876 for the three months ended March 31, 2018. This increase is a result of the Company purchasing new leased equipment under finance leases.

Net Income (loss). Net income for the three months ended March 31, 2019 was $52,538 an increase of 225%, as compared to a net income of $16,148 for the three months ended March 31, 2018. The Company recognized $18,890 in income from the adoption of ASU 842. The Company also had an increase in sales and expense reductions in cost of sales that also attributed to the increase.

LIQUIDITY AND CAPITAL RESOURCES

The consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America ("GAAP") applicable for a going concern, which assumes that DSC will realize its assets and discharge its liabilities in the ordinary course of business. In 2019, we intend to continue to work to increase our presence in the cloud and business continuity marketplace specializing in IBM Power i and disaster recovery / business continuity marketplace utilizing our technical expertise, software and our capacity in our data centers.

To the extent we are successful in growing our business, identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition costs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs, which will require a renegotiation of related party capital equipment leases and / or major shareholders, such as senior management, entering into financing or stock purchase arrangements.

During the three months ended March 31, 2019 the Company's cash increased $26,605 to $255,395 from $228,790 at December 31, 2018. Net cash of $227,765 was provided by the Company's operating activities. Net cash of $201,160 was used in the Company's investing and financing activities, primarily due to purchases of fixed assets and payments of capital lease obligations

DSC's working capital deficit was $2,507,705 at March 31, 2019, increasing $305,474 or 13.9% from $2,202,231 at December 31, 2018. The increase is attributable to the refinancing and consolidation of all previous related party leases and notes into one new lease.

May 20, 2019

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Source : https://www.marketwatch.com/press-release/10-q-data-storage-corp-2019-05-20

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