0001731122-20-001195.txt : 20201117 0001731122-20-001195.hdr.sgml : 20201117 20201117172759 ACCESSION NUMBER: 0001731122-20-001195 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201117 DATE AS OF CHANGE: 20201117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Data Storage Corp CENTRAL INDEX KEY: 0001419951 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 980530147 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35384 FILM NUMBER: 201322143 BUSINESS ADDRESS: STREET 1: 48 SOUTH SERVICE ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 212-564-4922 MAIL ADDRESS: STREET 1: 48 SOUTH SERVICE ROAD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: Euro Trend Inc. DATE OF NAME CHANGE: 20071130 10-Q 1 e2225_10q.htm FORM 10-Q

 

 

 

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 September 30, 2020

 

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

 

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 filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer Accelerated 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 class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

  

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of November 16, 2020, was 128,539,418

 

 

 

 

 

 

  

DATA STORAGE CORPORATION 

FORM 10-Q 

INDEX

 

  Page
PART I— FINANCIAL INFORMATION  
       
  Item 1 Financial Statements
       
    Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 1
       
    Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited) 2
       
    Condensed Consolidated Statements of Stockholders’ Equity for three and nine months September 30, 2020 and 2019 (unaudited) 3-4
       
    Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited) 5
       
    Notes to Condensed Consolidated Financial Statements 6
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
       
  Item 4. Control and Procedures 19
       
PART II— OTHER INFORMATION  
   
  Item 1. Legal Proceedings 19
       
  Item 1A. Risk Factors 19
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
       
  Item 3. Defaults Upon Senior Securities 19
       
  Item 4. Mine Safety Disclosures 19
       
  Item 5. Other Information 19
       
  Item 6. Exhibits 20

 

i

 

  

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,
2020
   December 31,
2019
 
   (Unaudited)     
ASSETS        
Current Assets:        
Cash and cash equivalents  $604,763   $326,561 
Accounts receivable (less allowance for doubtful accounts of $30,000 in 2020 and 2019)   933,111    691,436 
Prepaid expenses and other current assets   206,214    80,728 
Total Current Assets   1,744,088    1,098,725 
           
Property and Equipment:          
Property and equipment   7,829,148    6,894,087 
Less—Accumulated depreciation   (5,313,999)   (4,705,256)
Net Property and Equipment   2,515,149    2,188,831 
           
Other Assets:          
Goodwill   3,015,700    3,015,700 
Operating lease right-of-use assets   263,034    324,267 
Other assets   49,308    65,433 
Intangible assets, net   504,435    649,934 
Total Other Assets   3,832,477    4,055,334 
           
Total Assets  $8,091,714   $7,342,890 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities:          
Accounts payable and accrued expenses  $1,187,649   $906,716 
Dividend payable   1,076,874    970,997 
Deferred revenue   494,629    432,942 
Line of credit   24    75,000 
Finance leases payable   161,144     
Finance leases payable related party   978,683    833,148 
Operating lease liabilities short term   103,780    101,505 
Note payable   294,541    350,000 
Total Current Liabilities   4,297,324    3,670,308 
           
Note payable long term   187,436     
Operating lease liabilities long term   168,390    231,312 
Finance leases payable, long term   286,633     
Finance leases payable related party, long term   1,222,982    1,713,122 
Total Long Term Liabilities   1,865,441    1,944,434 
           
Total Liabilities   6,162,765    5,614,742 
           
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 
Additional paid in capital   17,578,288    17,456,431 
Accumulated deficit   (15,693,399)   (15,790,076)
Total Data Storage Corp Stockholders’ Equity   2,014,830    1,796,196 
Non-controlling interest in consolidated subsidiary   (85,881)   (68,048)
Total Stockholder’s Equity   1,928,949    1,728,148 
Total Liabilities and Stockholders’ Equity  $8,091,714   $7,342,890 

 

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

 

1

 

 

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2020   2019   2020   2019 
                 
Sales  $2,723,532   $2,013,662   $6,827,867   $6,046,531 
                     
Cost of sales   1,621,008    1,232,633    3,977,546    3,410,835 
                     
Gross Profit   1,102,524    781,029    2,850,321    2,635,696 
                     
Selling, general and administrative   1,017,863    884,650    2,882,755    2,565,252 
                     
Income (loss) from Operations   84,661    (103,621)   (32,434)   70,444 
                     
Other Income (Expense)                    
Interest income   1        21    220 
Interest expense   (42,727)   (41,120)   (132,866)   (137,425)
Gain on contingent liability           350,000     

Other income

       11,453        23,054 
Total Other Income (Expense)   (42,726)   (29,667)   217,155    (114,151)
                     
Income (loss) before provision for income taxes   41,935    (133,288)   184,721    (43,707)
                     
Provision for income taxes                
                     
Net Income   41,935    (133,288)   184,721    (43,707)
                     
Non-controlling interest in consolidated subsidiary   4,283    11,693    17,833    33,282 
                     
Net Income attributable to Data Storage Corp   46,218    (121,595)   202,554    (10,425)
                     
Preferred Stock Dividends   (36,650)   (31,078)   (105,877)   (93,234)
                     
Net Income (Loss) Attributable to Common Stockholders  $9,568   $(152,683)  $96,677   $(103,659)
                     
Earning (Loss) per Share – Basic  $0.00   $0.00   $0.00   $0.00 
Earning (Loss) per Share – Diluted  $0.00   $0.00   $0.00   $0.00 
Weighted Average Number of Shares - Basic   128,539,418    128,139,418    128,512,836    128,139,418 
Weighted Average Number of Shares - Diluted   135,339,979    128,139,418    134,635,987    128,139,418 

 

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

 

2

 

 

DATA STORAGE CORPORATION AND SUBSIDIARIES    

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2020

(Unaudited)

 

   Preferred Stock   Common Stock   Additional Paid-in   Accumulated   Non-Controlling   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Interest   Equity 
Balance July 1, 2019   1,401,786   $1,402    128,139,418   $128,139   $17,414,339   $(15,686,608)  $(49,100)  $1,808,172 
Stock-based compensation                   2,175            2,175 
Net Income (Loss)                       (121,597)   (11,693)   (133,290)
Preferred Stock                       (31,078)       (31,078)
Balance, September 30, 2019   1,401,786   $1,402    128,139,418   $128,139   $17,416,514   $(15,839,283)  $(60,793)  $1,645,979 
                                         
Balance July 1, 2020   1,401,786   $1,402    128,539,418   $128,539   $17,536,117   $(15,702,967)  $(81,598)  $1,881,493 
Stock-based compensation                   42,171            42,171 
Net Income (Loss)                       46,218    (4,283)   41,935 
Preferred Stock                       (36,650)       (36,650)
Balance, September 30, 2020   1,401,786   $1,402    128,539,418   $128,539   $17,578,288   $(15,693,399)  $(85,881)  $1,928,949 

 

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

 

3

 

 

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 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                   6,525            6,525 
Net Income (Loss)                       (10,425)   (33,282)   (43,707)
Preferred Stock                       (93,234)       (93,324)
Balance, September 30, 2019   1,401,786   $1,402    128,139,418   $128,139   $17,416,514   $(15,839,283)  $(60,793)  $1,645,979 
                                         
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-based compensation                   116,557            116,557 
Stock Options Exercise           100,000    100    5,300            5,400 
Net Income (Loss)                       202,554    (17,833)   184,721 
Preferred Stock                       (105,877)       (105,877)
Balance, September 30, 2020   1,401,786   $1,402    128,539,418   $128,539   $17,578,288   $(15,693,399)  $(85,881)  $1,928,949 

 

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

 

4

 

 

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended September 30, 
   2020   2019 
Cash Flows from Operating Activities:          
Net Income  $184,721   $(43,707)
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   754,243    678,927 
Stock-based compensation   116,557    6,525 
Gain on contingent liability   (350,000)    —  
Changes in Assets and Liabilities:          
Accounts receivable   (241,675)   2,248 
Other assets   16,125     
Prepaid expenses and other current assets   (98,874)   76,116 
Right of use asset   61,233    (344,716)
Accounts payable and accrued expenses   252,717    (137,683)
Deferred revenue   61,687    63,260 
Deferred rent    —     (18,890)
Operating lease liability   (60,647)   352,348 
Net Cash Provided by Operating Activities   696,087    634,428 
Cash Flows from Investing Activities:          
Capital expenditures   (164,796)   (33,354)
Net Cash Used in Investing Activities   (164,796)   (33,354)
Cash Flows from Financing Activities:          
Proceeds from issuance of note payable   481,977     —  
Repayments of finance lease obligations related party   (641,170)   (546,182)
Repayments of finance lease obligations   (24,320)    —  
Cash received for the exercised of options   5,400     —  
Repayment of line of credit   (74,976)    —  

Net Cash Used in Financing Activities

   (253,089)   (546,182)
           
Increase in Cash and Cash Equivalents   278,202    54,892 
           
Cash and Cash Equivalents, Beginning of Period   326,561    228,790 
           
Cash and Cash Equivalents, End of Period  $604,763   $283,682 
Supplemental Disclosures:          
Cash paid for interest  $124,297   $137,425 
Cash paid for income taxes  $   $ 
Non-cash investing and financing activities:          
Accrual of preferred stock dividend  $105,877   $93,234 
Assets acquired by finance lease  $808,261   $1,560,021 

 

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

 

5

 

 

DATA STORAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020

 

Note 1 - Basis of Presentation, Organization and Other Matters

 

Data Storage Corporation (“DSC” or the “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 available to shareholders of $96,677 and ($103,659) for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, DSC had cash of $604,763 and a working capital deficiency of $2,553,236. As a result, these conditions raised substantial doubt regarding our ability to continue as a going concern.

 

During the nine months ended September 30, 2020, the Company provided cash from operations of $696,087 with continued revenue growth of subscription solutions. Further, the Company has no capital expenditure commitments and the Company’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 current favorable trends of improving cash flow, the Company concluded that the initial conditions which raised substantial doubt regarding the ability to continue as a going concern has been mitigated.  

 

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, Data Storage Corporation, a Delaware corporation, and (iii) its majority-owned subsidiary, Nexxis Inc, a Nevada corporation. All significant inter-company transactions and balances have been eliminated in consolidation.

   

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 income or net cash used in operating activities.

 

6

 

 

Recently Issued and Newly Adopted Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies 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, 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, under 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 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019 and an entity should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 did not have a material impact on its condensed consolidated financial statements.  

  

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. The new guidance, is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-15 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 principles 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 and due to related parties. Management believes the estimated fair value of these accounts at September 30, 2020 approximate their carrying value as reflected in the balance sheets 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, 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.

 

As of September 30, 2020, DSC had four customers with an accounts receivable balance representing 65% of total accounts receivable. One of the clients is a Valued Added Reseller (VAR) with multiple clients under the DSC VAR partnership. As of December 31, 2019, DSC had three customers with an accounts receivable balance representing 38% of total accounts receivable.

 

During the nine months ended September 30, 2020 the Company had the above-mentioned Value-Added Reseller with multiple clients accounting for 10% of revenue. During the nine months ended September 30, 2019 that specific VAR had accounted for 31% of revenue.

 

Accounts Receivable/Allowance for Doubtful Accounts

 

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 accounts reflects the estimated accounts receivable that will not be collected due to credit losses and allowances. 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 is 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 five to seven 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. 

 

7

 

 

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 September 30, 2020 and December 31, 2019, 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, 2019 and 2018, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2018, 2017 and 2016 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 impairment exists if the net book 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 these 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.

 

  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 area 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 Company is a partner of IBM and the various software solutions provided to clients.

 

8

 

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by major product line, geography, and timing of revenue recognition.

 

For the Three Months
Ended September 30, 2020
   United States   International   Total 
Infrastructure & Disaster Recovery/Cloud Service  $1,416,847   $20,551   $1,437,398 
Equipment and Software   936,344        936,344 
Managed Services   169,565        169,565 
Nexxis VoIP Services   180,225        180,225 
Total Revenue  $2,702,981   $20,551   $2,723,532 

 

For the Three Months
Ended September 30, 2019
   United States   International   Total 
Infrastructure & Disaster Recovery/Cloud Service  $1,273,147   $63,201   $1,336,348 
Equipment and Software   350,339        350,339 
Managed Services   195,847        195,847 
Nexxis VoIP Services   131,128        131,129 
Total Revenue  $1,950,461   $63,201   $2,013,662 

  

For the Three Months
Ended September 30,
Timing of revenue recognition  2020   2019 
Products transferred at a point in time  $936,344   $410,238 
Products and services transferred over time   1,787,188    1,603,424 
Total Revenue  $2,723,532   $2,013,662 

  

For the Nine Months
Ended September 30, 2020
   United States   International   Total 
Infrastructure & Disaster Recovery/Cloud Service  $4,133,213   $107,583   $4,240,796 
Equipment and Software   1,544,786        1,544,786 
Managed Services   557,515        557,515 
Nexxis VoIP Services   484,770        484,770 
Total Revenue  $6,720,284   $107,583   $6,827,867 

 

For the Nine Months
Ended September 30, 2019
   United States   International   Total 
Infrastructure & Disaster Recovery/Cloud Service  $3,849,252   $111,214   $3,960,466 
Equipment and Software   1,285,297        1,285,297 
Managed Services   322,133        322,133 
Nexxis VoIP Services   478,635        478,635 
Total Revenue  $5,935,317   $111,214   $6,046,531 

 

For the Nine Months
Ended September 30,
Timing of revenue recognition  2020   2019 
Products transferred at a point in time  $1,544,786   $1,285,297 
Products and services transferred over time   5,283,081    4,761,234 
Total Revenue  $6,827,867   $6,046,531 

 

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.  

 

Transaction price allocated to the remaining performance obligations

 

The Company has the following performance obligations:

 

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

 

9

 

 

 

  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 be 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 be 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 Licensing 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 recognize 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.

 

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 contract have multiple performance obligation, 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 our 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. 

 

Advertising Costs

 

The Company expenses the costs associated with advertising as they are incurred. The Company incurred a net impact of $234,565 and $188,249 for advertising costs for the nine months ended September 30, 2020 and 2019, respectively.

 

10

 

 

Stock-Based Compensation

 

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

 

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 and nine months ended September 30, 2020 and 2019:

 

   For the Three Months
Ended
   For the Nine Months
Ended
 
   September 30,   September 30, 
   2020   2019   2020   2019 
                 
Net Income (Loss) Available to Common Shareholders  $9,568    (152,673)  $96,677   $(103,659)
                     
Weighted average number of common shares - basic   128,539,418    128,139,418    128,521,836    128,139,418 
Dilutive securities                    
Options   6,667,227        5,980,817     
Warrants   133,334        133,334     
Weighted average number of common shares - diluted   135,339,979    128,139,418    134,635,987    128,139,418 
                     
Earnings (Loss) per share, basic  $0.00   $0.00   $0.00   $0.00 
Earnings (Loss) per share, diluted  $0.00   $0.00   $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:

 

   Three Months ended
September 30,
   Nine Months ended
September 30,
 
   2020   2019   2020   2019 
Options   1,758,597    6,015,518    2,445,007    6,015,518 
Warrants       133,334        133,334 
    1,758,597    6,148,852    2,445,007    6,148,852 

  

Note 3 - Property and Equipment

 

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

 

   September 30,   December 31, 
   2020   2019 
Storage equipment  $756,236   $756,236 
Website and software   533,417    533,417 
Furniture and fixtures   27,131    27,131 
Leasehold improvements   20,983    16,846 
Computer hardware and software   1,224,591    1,218,464 
Data center equipment   5,266,790    4,341,993 
    7,829,148    6,894,087 
Less: Accumulated depreciation   (5,313,999)   (4,705,256)
Net property and equipment  $2,515,149   $2,188,831 

 

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $608,743 and $530,927, respectively.

 

11

 

 

Note 4 - Goodwill and Intangible Assets

 

Goodwill and intangible assets consisted of the following:

 

   Estimated  September 30, 2020 
   life
in years
  Gross amount   Accumulated Amortization   Net 
Intangible assets not subject to amortization                  
Goodwill  Indefinite  $3,015,700   $   $3,015,700 
Trademarks  Indefinite   294,268        294,268 
Total intangible assets not subject to amortization      3,309,968        3,309,968 
Intangible assets subject to amortization                  
Customer lists  5-15   897,274    897,274     
ABC acquired contracts  5   310,000    242,833    67,167 
SIAS acquired contracts  5   660,000    517,000    143,000 
Non-compete agreements  4   272,147    272,147     
Total intangible assets subject to amortization      2,139,421    1,929,254    210,167 
Total Goodwill and Intangible Assets     $5,449,389   $1,929,254   $3,520,135 

 

Scheduled amortization over the next two years as follows:

 

Twelve months ending September 30,    
2021  $194,000 
2022   16,167 
Total  $210,167 

 

Amortization expense for the nine months ended September 30, 2020 and 2019 were $145,500 and $148,000 respectively. 

 

Note 5 –Leases

  

Operating Leases

 

The Company currently has three leases for office space, with two offices located in Melville, NY, and one office in Warwick, RI.

 

A 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 of 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, was extended until January 31, 2021. The annual base rent shall be $31,176 payable in equal monthly installments of $2,598.

 

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

 

 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 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 -year lease. The term of the lease ends April 16, 2022. Systems Trading is owned and operated by the Company’s President, Hal Schwartz.

 

12

 

 

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 payments of $1,328 and expires on March 1, 2022. It carries an interest rate of 7%. The second lease calls for monthly payments 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. 

 

We determine if an arrangement contains a lease at inception. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our 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. Our lease term includes options to extend the lease when it is reasonably certain that we 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 recognize lease expense for these leases on a straight-line basis over the lease term. We recognize 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:

 

   Nine Months Ended
September 30,
2020
 
Finance lease:     
Amortization of assets, included in depreciation and amortization expense  $608,743 
Interest on lease liabilities, included in interest expense   124,300 
Operating lease:     
Amortization of assets, included in total operating expense   57,709 
Interest on lease liabilities, included in total operating expense   16,106 
Total net lease cost  $806,858 

 

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset  $263,034 
      
Current operating lease liabilities   103,780 
Noncurrent operating lease liabilities   168,390 
Total operating lease liabilities  $272,170 

 

   September 30,
2020
 
Finance leases:     
Property and equipment, at cost  $4,366,665 
Accumulated amortization   (3,172,342)
Property and equipment, net   1,194,323 
      
Current obligations of finance leases  $1,139,828 
Finance leases, net of current obligations,   1,509,614 
Total finance lease liabilities  $2,649,441 

 

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

 

   Nine Months Ended
September 30,
2020
 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows related to operating leases  $75,852 
Financing cash flows related to finance leases  $829,391 
      
Weighted average remaining lease term (in years):     
Operating leases   1.72 
Finance leases   2.33 
      
Weighted average discount rate:     
Operating leases   7%
Finance leases   6%

  

Long-term obligations under the operating and finance leases at September 30, 2020 mature as follows:

 

For the Twelve Months Ended September 30,  Operating Leases   Finance Leases 
2021  $103,780    348,440 
2022   106,901    1,241,361 
2023   90,696    849,426 
2024   -    441,725 
Total lease payments   301,377    2,880,952 
Less: Amounts representing interest   (29,207)   (231,509)
Total lease obligations   272,170    2,649,443 
Less: Current   (103,780)   (1,139,828)
   $168,390    1,509,615 

  

13

 

 

As of September 30, 2020, we had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the nine months ended September 30, 2020 and 2019 was $127,268 and $191,377, respectively. 

 

Note 6 - Commitments and Contingencies

 

COVID 19 Disclosure

 

Business interruptions, including any interruptions resulting from COVID-19, could significantly disrupt our operations and could have a material adverse impact on DSC if the situation continues. 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, all employees, including our specialized technical staff, are working from home or in a virtual environment. DSC always maintains the ability for team members to work virtual and we 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 began in China at the beginning of 2020 has impacted various businesses throughout the world, including travel restrictions and the extended shutdown of certain businesses in impacted geographic regions. If the coronavirus outbreak situation should worsen, we may experience disruptions to our business including, but not limited to equipment, to our workforce, or to our business relationships with other third parties.

 

The extent to which the coronavirus impacts our operations or those of our 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 coronavirus and the actions to contain the coronavirus or treat its impact, among others. Any such disruptions or losses we incur could have a material adverse effect on our 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 September 30, 2020 and December 31, 2019 the balance was $24 and $75,000 respectively.

 

Note 7 – Long Term Debt

 

Note Payable

 

In connection with the Company’s October 2012 acquisition of certain assets (the “ML Assets”) of Message Logic, Inc. (“Message Logic”), the Company maintains ownership of the ML Assets subject to a security interest in the ML Assets held by a third party banking institution (the “Bank”) in connection with a secured loan made by the Bank to Message Logic in June 2012 in the amount of $350,000 (the “ML Loan”). The Bank filed a UCC-1 Financing Statement with the Secretary of State of Delaware perfecting its interest in the ML Assets (the “UCC-1 Filing”). On September 5, 2014, the Company entered into an agreement with Message Logic and the Bank pursuant to which the Company paid to the Bank the outstanding interest amount due on the ML Loan over seven months at $3,910 per month. In addition, the Company agreed to continue to make monthly interest-only payments to the Bank at $1,553 per month. The Company assumed these liabilities as part of its option to pay off the ML Loan, terminate the UCC-1 Filing and own the ML Assets free of all liens and encumbrances. The Company stopped making interest-only payments on October 25, 2018. During the nine months ended September 30, 2020, the Company made a strategic decision to cease utilizing the ML Assets in its operations and advised the Bank of such information. In connection with this and as a result, the Company recorded a gain on contingent liability in the amount of $350,000 on the condensed consolidated statements of operations.

 

On April 30, 2020, the Company was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the form 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.  Funds from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Management intends to use 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.

 

As of September 30, 2020, remaining scheduled principal payments due on notes payable are as follows: 

 

Twelve months ended September 30,    
2021  $294,541 
2022   187,436 
   $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. 

 

During the nine months ended September 30, 2020, the Company received cash of $5,400 from the exercise of 100,000 options.

 

14

 

 

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     350,000       0.13       0.13  
Exercised     (100,000 )     0.05       0.05  
Expire/Cancelled     (250,000 )     0.36       0.36  
Options Outstanding at September 30, 2020     8,425,824     $ 0.05 – 0.65     $ 0.13  
                         
Options Exercisable at September 30, 2020     4,869,403     $ 0.05 – 0.65     $ 0.19  

 

Share-based compensation expense for options totaling $116,559 was recognized in our results for the nine months ended September 30, 2020 based on awards vested.

 

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 September 30, 2020, there was $306,282 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 2.25 year.

 

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2020 are set forth in the table below.

 

   2020
Weighted average fair value of options granted  $0.13
Risk-free interest rate  0.66% - 0.83%
Volatility  221% - 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), 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. Accrued dividends at September 30, 2020 and December 31, 2019 were $1,076,874 and $970,997 respectively.

 

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 nine months ended September 30, 2020, the Company entered into one related party finance lease obligations. See Note 5 for details.

 

Nexxis Capital LLC

 

Charles Piluso and Harold Schwartz 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 any funds from Nexxis Capital during the nine months ended September 30, 2020 and 2019.

 

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

 

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 ‘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 (Cloud - IaaS), telecommunications solutions; and, providing high processing on site computing power and software equipment to our clients. Approximately 22 percent of our revenue is derived from equipment sales for cyber security, storage, IBM Power i systems and managed service solutions.

 

In the first nine months of 2020 the Company added new distributors, additional management focused on building sales and marketing distribution, and expanded our technology in Dallas. As we move into the fourth quarter of 2020 the Company has pending installations of over $58,000 in new monthly recurring billing. Additionally, in the fourth quarter we have received sales orders pending delivery of equipment for $420,000. During the first nine months of 2020 we have added thirty new distributors, bringing the total active distribution to fifty-one. Although the Company has experienced higher equipment and software sales in 2020, several of our large long-term clients have submitted only a portion of a planned expansion and upgrades on their on-premise requirements. We have also seen an increase in revenue from our IBM Power Infrastructure as a Service (IaaS - cloud) and Disaster Recovery solution proposals. We believe the increase in sales is due to the awareness and demand of DSC's IaaS and DR that provide high processing compute power systems in the cloud, both of which are highly specialized storage solutions. We have also expanded our services into the cyber security space with our ezSecurity solution. We believe of the estimated 80,000 USA IBM Power servers in finance, retail, healthcare, government and distribution will continue to move forward toward migration to the cloud for these special systems. We believe the Company has carved a niche as one of the few leaders providing this service.

 

As always and for the past two decades, 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’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 to provide these solutions to their client base.

 

DSC is a 20-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; 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. 

  

Headquartered in Melville, NY, 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.

 

The Company 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. In addition to office staffing, the Company has a remote employee workforce

 

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. 

 

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RESULTS OF OPERATIONS

 

Three months ended September 30, 2020 as compared to September 30, 2019

 

Total Revenue for the three months ended September 30, 2020, increased by $709,870. The increase is primarily attributed to increased equipment sales in 2020. During the third quarter of 2020, the Company recorded increased equipment sales that were delayed due to Covid 19. 

 

Revenue  For the Three Months         
   Ended September 30,         
   2020   2019   $ Change   % Change 
Infrastructure & Disaster Recovery/Cloud Service  $1,437,398   $1,336,348   $101,050    7%
Equipment and Software   936,344    350,339    586,005    167%
Managed and Other Professional Services   169,565    195,847    (26,282)   (13)%
Nexxis VoIP Services - Telecom   180,225    131,128    49,097    37%
Total Revenue  $2,723,532   $2,013,662   $709,870    35%

 

Cost of Sales. For the three months ended September 30, 2020, cost of sales was $1,621,008, an increase of $388,375 or 32% compared to $1,232,633 for the three months ended September 30, 2019. The increase is primarily attributable to additional expenses for equipment purchased for sale for our new and existing customers as well as additional costs for hardware maintenance, manufacturer support, and salaries. Additional Data and VoIP services are related to the Nexxis division, which increased due to additional sales in the quarter.

  

Operating Expenses. For the three months ended September 30, 2020, operating expenses were $1,017,863, an increase of $133,213, or 15%, as compared to $884,650 for the three months ended September 30, 2019. The net increase is reflected in the chart below.

 

Operating Expenses  For the Three Months         
   Ended September 30,         
   2020   2019   $ Change   % Change 
Increase in Salaries  $293,240   $181,587   $111,653    61%
Increase in Officer Salaries   203,075    139,408    63,667    46%
Decrease in Professional Fees   31,749    74,231    (42,482)   (57)%
Increase in Advertising Expenses   96,634    69,642    26,992    39%
Increase in Commissions Expense   258,022    224,329    33,693    15%
Decrease in all other Expenses   135,143    195,453    (60,310)   (31)%
Total Expenses  $1,017,863   $884,650   $133,213    15%

 

Salaries increased due to new hires during 2020, employee raises, and increased stock-based compensation from options issued to employees under the Company’s stock incentive program.

  

Officer salaries increased due to raises granted to senior management.

 

Professional fees decreased primarily due to a reduction of services needed from an investment banking firm.

 

Advertising Expenses increased primarily due to changes in vendors and new marketing programs.

 

Commission expense vary due to different contractual agreements with both the contracted distributors and employees.

 

All Other Expenses decreased primarily due to the reduction of travel and costs associated with the employees working from home due to the pandemic. In addition, the expenses related to our office space in Melville, New York and insurance were reduced compared to the prior period.

 

Other Income (Expense) for the three months ended September 30, 2020, increased $13,059 to $42,726 from $29,667 for the three months ended September 30, 2019. The increase is primarily attributed to the decrease in other income compared to the prior period.

 

Net Income (Loss). Net income for the three months ended September 30, 2020, was $41,935, as compared to a net loss of $133,288 for the three months ended September 30, 2019.  

 

Nine months ended September 30, 2020 as compared to September 30, 2019

 

Total Revenue for the nine months ended September 30, 2020, increase by $781,336. The increase is primarily attributable to the increased equipment sales as well as additional Data and VoIP services that are related to the Nexxis division.

 

Revenue  For the Nine Months         
   Ended September 30,         
   2020   2019   $ Change   % Change 
Infrastructure & Disaster Recovery/Cloud Service  $4,240,796   $3,960,466   $280,330    7%
Equipment and Software   1,544,786    1,285,297    259,489    20%
Managed and Other Professional Services   557,515    465,231    92,284    20%
Nexxis VoIP Services   484,770    335,537    149,233    44%
Total Revenue  $6,827,867   $6,046,531   $781,336    13%

 

Cost of Sales. For the nine months ended September 30, 2020, cost of sales was $3,977,546, an increase of $566,711 or 17% compared to $3,410,835 for the nine months ended September 30, 2019. The increase is primarily attributable to expenses associated with the data centers for infrastructure and disaster recovery cloud services as well as additional costs related to the Nexxis division, and equipment purchases for sale.

 

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Operating Expenses. For the nine months ended September 30, 2020, operating expenses were $2,882,755, an increase of $317,503, or 12%, as compared to $2,565,252 for the nine months ended September 30, 2019. The net increase is reflected in the chart below.

 

Operating Expenses  For the Nine Months         
   Ended September 30,         
   2020   2019   $ Change   % Change 
Increase in Salaries  $863,576   $534,090   $329,486    62%
Increase in Officer Salaries   619,124    468,250    150,874    32%
Decrease in Professional Fees   115,984    206,673    (90,689)   (44)%
Increase in Advertising Expenses   234,564    188,249    46,315    25%
Increase in Commissions Expense   686,970    630,822    56,148    9%
Decrease in all other Expenses   362,537    537,168    (174,631)   (33)%
Total Expenses  $2,882,755   $2,565,252   $317,503    12%

 

Salaries increased due to new hires during 2020, raises granted to employees increased stock-based compensation from options issued to employees under the Company’s stock incentive program.

  

Officer salaries due to raises granted to senior management.

  

Professional fees decreased primarily due to reduced services from investment banking and investor relations firms.

  

Advertising Expenses increased primarily due to additional marketing campaigns for Data Storage Corporation, which was offset by a decrease in marketing campaigns for Nexxis.

 

Commission expense vary due to different contractual agreements with both the contracted distributors and employees.

 

All Other Expenses decreased primarily due to the reduction of travel and costs associated with the employees working from home due to the pandemic. In addition, the expenses related to our office space in Melville, New York and insurance were reduced compared to the prior period.

 

Other Income (Expense) for the nine months ended September 30, 2020 increased $331,306 to $217,155 from $(114,151) for the nine months ended September 30, 2019. The increase is attributed to the gain on contingent liability in the amount of $350,000 during the nine months ended September 30, 2020.

 

Net Income (Loss). Net income for the nine months ended September 30, 2020 was $184,721, as compared to a net loss of $43,707 for the nine months ended September 30, 2019. 

  

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 IaaS / DR and business continuity marketplace continuing in 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 both organically and through acquisition, we continue to plan 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. The company has long term contracts to supply IaaS and DR solutions invoiced to clients monthly. We believe our total contract value of our sales contracts with clients exceeds 10 million dollars. Further, the company continues to see an uptick in client interest, distribution channel expansion and in sales proposals.

 

During the nine months ended September 30, 2020, DSC’s cash increased $278,202 to $604,763 from $326,561 December 31, 2019. Net cash of $696,087 was provided by DSC’s operating activities resulting primarily from net income from operations and the following adjustments for non-cash items $754,243 for depreciation and amortization, $116,557 for stock based compensation, and $(350,000) gain on contingent liability. Net cash of $164,796 was used in investing activities resulting from payments on capital expenditures. Net cash of $253,089 was used in financing activities resulting primarily from the repayment of capital lease obligations and the line of credit, which was offset by the proceeds from the issuance of note payable.

 

DSC’s working capital deficit was $2,553,236 at September 30, 2020, decreasing by $18,347 from $2,571,583 at December 31, 2019. The decrease is primarily attributable to an increase in cash, accounts receivable, and prepaid expense along with a decrease of notes payable and a decrease of the line of credit. This was offset by an increase in accounts payable and dividend payable, deferred revenue, and finance lease obligations.

 

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”.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Sensitivity

 

Interest due on the Company’s loans 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 nine months ended September 30, 2020 and 2019, the Company had interest expense of $132,866 and $137,425 respectively. The Company believes that its results of operations are not materially affected by changes in interest rates.

 

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.

 

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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 and 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 and 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 September 30, 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.

 

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 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   

 

 

PART II - OTHER INFORMATION

 

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, officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this item.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

There were no defaults upon senior securities during the period ended September 30, 2020.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None

 

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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 filed on December 17, 2007 (the “SB-2”)).
     
3.2   Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on October 24, 2008).
     
3.3   Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1.1 on Form 8-K filed on January 6, 2009).
     
3.4   Bylaws (incorporated by reference to Exhibit 3.2 to the SB-2).
     
3.5   Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on October 24, 2008).
     
4.1   Share Exchange Agreement, dated October 20, 2008, by and among Euro Trend Inc., Data Storage Corporation and the shareholders of Data Storage Corporation named on the signature page thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 24, 2008).
     
4.2   Share Exchange Agreement, dated October 20, 2008, by and among, Euro Trend Inc., Data Storage Corporation and the shareholders of Data Storage Corporation named on the signature page thereto (incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on June 29, 2009).
     
4.3   Registration Rights 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).
     
4.4   Equity 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).
     
4.5   Convertible 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)
     
4.6   Warrant 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)
     
4.7   Securities 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)
     
4.8   Securities 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)).
     
4.9   10% 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)).
     
4.10   Warrant 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)).
     
10.1   Asset 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).
     
10.2   Joint 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).
     
10.3   Term 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).
     
10.4   Term 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).
     
10.5   Asset 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).
     
10.6   Asset 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).
     
10.7   Stock 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).
     
10.8   Form 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).
     
10.9   Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 on Form S-8/A filed on October 25, 2010).

 

20

 

 

 

10.10   Amended 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).
     
10.11   Stock 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).
     
10.12   Stock 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).
     
10.13   Stock 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).
     
10.14   Stock 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).
     
10.15   Stock 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).
     
10.16   Stock 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).
     
10.17   Asset 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)
     
10.20   Conversion 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).
     
10.21   Conversion 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).
     
10.22   Form of Stockholders Agreement by and between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017.
     
10.23   Form of Employment Agreement between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017.
     
14   Code of Ethics (incorporated by reference to Exhibit 14.1 to Form 10-K filed on September 30, 2009).
     
21   List 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).
     
31.1   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.
     
32.1   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.
     
99.1   Press Release dated November 1, 2017 (incorporated by reference to Exhibit 99.1 to Form 8K filed on November 9, 2017)

 

21

 

 

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: November 17, 2020  
  By: /s/ Charles M. Piluso
    Charles M. Piluso
    Chief Executive Officer
    Chief Financial Officer
    (Principal Executive, Financial and Accounting Officer)

 

22

 

 

 

 

EX-31.1 2 e2225_31-1.htm EXHIBIT 31.1

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED 

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002,

 

I, Charles M. Piluso, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Data Storage Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

  5. As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

    Data Storage Corporation
     
 Date: November 17, 2020   /s/Charles M. Piluso
    Charles M. Piluso
    Chief Executive Officer and Chief Financial Officer
    (Principal Executive, Financial and Accounting Officer)

  

EX-32.1 3 e2225_32-1.htm EXHIBIT 31.2

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the accompanying Quarterly Report on Form 10-Q of Data Storage Corporation, for the period ended September 30, 2020, I, Charles M. Piluso, Chief Executive Officer and Chief Financial Officer of Data Storage Corporation, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

 

1.   Such Quarterly Report on Form 10-Q for the period ended September 30, 2020, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.   The information contained in such Quarterly Report on Form 10-Q for the period ended September 30, 2020, fairly represents in all material respects, the financial condition and results of operations of Data Storage Corporation.

 

    Data Storage Corporation
     
 Date: November 17, 2020   /s/Charles M. Piluso
    Charles M. Piluso
    Chief Executive Officer and Chief Financial Officer
    (Principal Executive, Financial and Accounting Officer)

 

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Schedule of Maturities of Long-term Debt Schedule of option activity and related information Schedule of fair value of options by using Black-Scholes model Net loss attributable to common shareholders Working capital deficiency Net Cash Provided by Operating Activities Disaggregation of Revenue [Table] Disaggregation of Revenue [Line Items] Total Revenue Net Income (Loss) Available to Common Shareholders Weighted average number of common shares - basic Dilutive securities Options Warrants Weighted average number of common shares - diluted Earnings (Loss) per share, basic Earnings (Loss) per share, diluted Antidilutive Securities [Axis] Long-Lived Tangible Asset [Axis] Statistical Measurement [Axis] Potentially dilutive securities Concentration risk Accounts receivables due Useful lives Advertising costs Property, Plant and Equipment [Table] Property, Plant and Equipment [Line Items] Gross Property and equipment Less: Accumulated depreciation Net property and equipment Depreciation expense Schedule of Finite-Lived Intangible Assets [Table] Finite-Lived Intangible Assets [Line Items] Finite-Lived Intangible Assets by Major Class [Axis] Intangible assets not subject to amortization Total intangible assets not subject to amortization, Gross amount Total intangible assets not subject to amortization, Accumulated Amortization Total intangible assets not subject to amortization, Net Intangible assets subject to amortization Total Intangible Assets, Gross amount Total Intangible Assets, Accumulated Amortization Total Intangible Assets, Net amount Total Goodwill and Intangible Assets, Gross amount Total Goodwill and Intangible Assets, Accumulated Amortization Total Goodwill and Intangible Assets, Net Estimated life in years Intangible assets subject to amortization, Estimated life in years Scheduled amortization over next five years 2021 2022 Total Amortization expense Finance lease: Amortization of assets, included in depreciation and amortization expense Interest on lease liabilities, included in interest expense Operating lease: Amortization of assets, included in total operating expense Interest on lease liabilities, included in total operating expense Total net lease cost Operating Leases Operating lease ROU asset Current operating lease liabilities Noncurrent operating lease liabilities Total operating lease liabilities Finance leases: Property and equipment, at cost Accumulated amortization Property and equipment, net Current obligations of finance leases Finance leases, net of current obligations Total finance lease liabilities Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows related to operating leases Financing cash flows related to finance leases Weighted average remaining lease term operating leases (in years) Weighted average remaining lease term finance leases (in years) Weighted average discount rate operating leases Weighted average discount rate finance leases Summary of minimum obligations under operating lease agreements 2021 2022 2023 2024 Total lease payments Less: Amounts representing interest Total operating lease liabilities Less: Current operating lease liabilities Summary of obligations under Finance leases 2021 2022 2023 2024 Total lease payments Less: Amounts representing interest Less: Current Finance lease liabilities Noncurrent Finance lease liabilities Schedule of Operating Leased Assets [Table] Operating Leased Assets [Line Items] Website And Software [Member] Lease expiration date Operating leases, rent expense Lease Term Operating leases, rent expense, net Discount rate Interest rate Fiance leases contingent monthly rental payments Annual base rent Interest rate on debt under revolving credit facility excluding prime rate Total debt amount available under revolving credit facility Revolving Credit Facility 2021 2022 Long-term debt, payments due Note Payable description Proceeds from loan Schedule of Share-based Compensation Arrangements by Share-based Payment Award [Table] Share-based Compensation Arrangement by Share-based Payment Award [Line Items] Summary of option/warrant activity Outstanding, beginning Granted Exercised Expired/Cancelled Outstanding, ending Exercisable, ending Range of option/warrant price per share, outstanding, beginning Range of option/warrant price per share, Granted Option Exercised Range of option/warrant price per share, Expire/Cancelled Range of option/warrant price per share, outstanding, ending Range of option/warrant price per share, Exercisable ending Weighted Average Exercise Price Outstanding, beginning Weighted Average Exercise Price, Granted Weighted Average Exercise Price, Exercised Weighted Average Exercise Price, Expire/Cancelled Weighted Average Exercise Price Outstanding, ending Exercisable, ending Weighted average fair value of options granted Risk-free interest rate Volatility Expected life (years) Dividend yield Capital stock authorized Number of option exercised Proceeds from exercise of Option Share-based compensation expense Unrecognized compensation expense Weighted average period expected to recognized compensation expense (in years) Series A Preferred Stock Dividend Rate Accrued dividends Proceeds from related party Information by major type or class of finite-lived intangible assets. Accounts receivables due. Refers the amount of accrual of preferred stock dividend in noncash investing and financing activities. Its represents capital expenditures. Computer hardware and software. Data Center equipment. An arrangement whereby an employee is entitled to receive in the future, subject to vesting and other restrictions, a number of shares in the entity at a specified price, as defined in the agreement. Although there are variations, normally, after vesting, when an option is exercised, the employee-holder pays the strike value in cash to the issuing employer-entity and receives equity shares. The equity shares can be sold into the market for cash at the current market price without restriction. Options may be used to attract, retain and incentivize employees, in addition to their regular salary and other benefits. Information by products and services. Finite lived and Indefinite lived intangible assets Gross. Goodwill and Intangible Assets. Goodwill and Intangible Assets Accumulated Amortization. Interest rate on debt under revolving credit facility excluding prime rate. Information by group of related lease arrangements. For example, but not limited to, leases grouped by facility or contractual terms. Information by group of related lease arrangements. For example, but not limited to, leases grouped by facility or contractual terms. Information by major type or class of finite-lived intangible assets. Share-based compensation, shares authorized under stock option plans, exercise price, cancel. Share Based Compensation Shares Authorized Under Stock Option Plans Shares Exercisable Exercise Price. Share-based compensation, shares authorized under stock option plans, exercise price range, granted. This member stand for system trading. Security that gives the holder the right to purchase shares of stock in accordance with the terms of the instrument, usually upon payment of a specified amount. Custom Element. 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Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Nov. 16, 2020
Document And Entity Information    
Entity Registrant Name Data Storage Corp  
Entity Central Index Key 0001419951  
Document Type 10-Q  
Document Period End Date Sep. 30, 2020  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell Company false  
Entity File Number 001-35384  
Entity Incorporation, State or Country Code NV  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding   128,539,418
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
XML 11 R2.htm IDEA: XBRL DOCUMENT v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 604,763 $ 326,561
Accounts receivable (less allowance for doubtful accounts of $30,000 in 2020 and 2019) 933,111 691,436
Prepaid expenses and other current assets 206,214 80,728
Total Current Assets 1,744,088 1,098,725
Property and Equipment:    
Property and equipment 7,829,148 6,894,087
Less-Accumulated depreciation (5,313,999) (4,705,256)
Net Property and Equipment 2,515,149 2,188,831
Other Assets:    
Goodwill 3,015,700 3,015,700
Operating lease right-of-use assets 263,034 324,267
Other assets 49,308 65,433
Intangible assets, net 504,435 649,934
Total Other Assets 3,832,477 4,055,334
Total Assets 8,091,714 7,342,890
Current Liabilities:    
Accounts payable and accrued expenses 1,187,649 906,716
Dividend payable 1,076,874 970,997
Deferred revenue 494,629 432,942
Line of credit 24 75,000
Finance leases payable 161,144
Finance leases payable related party 978,683 833,148
Operating lease liabilities short term 103,780 101,505
Note payable 294,541 350,000
Total Current Liabilities 4,297,324 3,670,308
Note payable long term 187,436
Operating lease liabilities long term 168,390 231,312
Finance leases payable, long term 286,633
Finance leases payable related party, long term 1,222,982 1,713,122
Total Long-Term Liabilities 1,865,441 1,944,434
Total Liabilities 6,162,765 5,614,742
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
Additional paid in capital 17,578,288 17,456,431
Accumulated deficit (15,693,399) (15,790,076)
Total Data Storage Corp Stockholders' Equity 2,014,830 1,796,196
Non-controlling interest in consolidated subsidiary (85,881) (68,048)
Total Stockholder's Equity 1,928,949 1,728,148
Total Liabilities and Stockholders' Equity $ 8,091,714 $ 7,342,890
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowance for doubtful accounts related to accounts receivable $ 30,000 $ 30,000
Preferred stock, par value (in dollars per share) $ 0.001 $ 0.001
Preferred stock, authorized 10,000,000 10,000,000
Preferred stock, issued 1,401,786 1,401,786
Preferred stock, outstanding 1,401,786 1,401,786
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized 250,000,000 250,000,000
Common stock, issued 128,539,418 128,439,418
Common stock, outstanding 128,539,418 128,439,418
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Income Statement [Abstract]        
Sales $ 2,723,532 $ 2,013,662 $ 6,827,867 $ 6,046,531
Cost of Sales 1,621,008 1,232,633 3,977,546 3,410,835
Gross Profit 1,102,524 781,029 2,850,321 2,635,696
Selling, General and Administrative 1,017,863 884,650 2,882,755 2,565,252
Income (loss) from Operations 84,661 (103,621) (32,434) 70,444
Other Income (Expense)        
Interest income 1 21 220
Interest expense (42,727) (41,120) (132,866) (137,425)
Gain on contingent liability 350,000
Other income 11,453 23,054
Total Other Income (Expense) (42,726) (29,667) 217,155 (114,151)
Income (loss) before provision for income taxes 41,935 (133,288) 184,721 (43,707)
Provision for Income Taxes
Net Income 41,935 (133,288) 184,721 (43,707)
Non-controlling interest in consoldiated subsidiary 4,283 11,693 17,833 33,282
Net Income attributable to Data Storage Corp 46,218 (121,595) 202,554 (10,425)
Preferred Stock Dividend (36,650) (31,078) (105,877) (93,234)
Net Income (Loss) Attributable to Common Stockholders $ 9,568 $ (152,673) $ 96,677 $ (103,659)
Earning (Loss) per Share - Basic $ 0 $ 0 $ 0 $ 0
Earning (Loss) per Share - Diluted $ 0 $ 0 $ 0 $ 0
Weighted Average Number of Shares - Basic 128,539,418 128,139,418 128,521,836 128,139,418
Weighted Average Number of Shares - Diluted 135,339,979 128,139,418 134,635,987 128,139,418
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)
Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Noncontrolling Interest
Total
Balance at beginning at Dec. 31, 2018 $ 1,402 $ 128,139 $ 17,409,989 $ (15,735,624) $ (27,511) $ 1,776,395
Balance at beginning (in shares) at Dec. 31, 2018 1,401,786 128,139,418        
Stock based compensation 6,525 6,525
Net Income (Loss) (10,425) (33,282) (43,707)
Preferred stock (93,234) (93,324)
Balance at end at Sep. 30, 2019 $ 1,402 $ 128,139 17,416,514 (15,839,283) (60,793) 1,645,979
Balance at end (in shares) at Sep. 30, 2019 1,401,786 128,139,418        
Balance at beginning at Jun. 30, 2019 $ 1,402 $ 128,139 17,414,339 (15,686,608) (49,100) 1,808,172
Stock based compensation 2,175 2,175
Net Income (Loss) (121,597) (11,693) (133,290)
Preferred stock (31,078) (31,078)
Balance at end at Sep. 30, 2019 $ 1,402 $ 128,139 17,416,514 (15,839,283) (60,793) 1,645,979
Balance at end (in shares) at Sep. 30, 2019 1,401,786 128,139,418        
Balance at beginning at Dec. 31, 2019 $ 1,402 $ 128,439 17,456,431 (15,790,076) (68,048) 1,728,148
Balance at beginning (in shares) at Dec. 31, 2019 1,401,786 128,439,418        
Stock based compensation 116,557 116,557
Stock Options Exercise 100 5,300 $ 5,400
Stock Options Exercise (in shares)           100,000
Net Income (Loss) 202,554 (17,833) $ 184,721
Preferred stock (105,877) (105,877)
Balance at end at Sep. 30, 2020 $ 1,402 $ 128,539 17,578,288 (15,693,399) (85,881) 1,928,949
Balance at end (in shares) at Sep. 30, 2020 1,401,786 128,539,418        
Balance at beginning at Jun. 30, 2020 $ 1,402 $ 128,539 17,536,117 (15,702,967) (81,598) 1,881,493
Balance at beginning (in shares) at Jun. 30, 2020 1,401,786 128,539,418        
Stock based compensation 42,171 42,171
Net Income (Loss) 46,218 (4,283) 41,935
Preferred stock (36,650) (36,650)
Balance at end at Sep. 30, 2020 $ 1,402 $ 128,539 $ 17,578,288 $ (15,693,399) $ (85,881) $ 1,928,949
Balance at end (in shares) at Sep. 30, 2020 1,401,786 128,539,418        
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Cash Flows from Operating Activities:    
Net Income (Loss) $ 184,721 $ (43,707)
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 754,243 678,927
Stock-based compensation 116,557 6,525
Gain on contingent liability (350,000)
Changes in Assets and Liabilities:    
Accounts receivable (241,675) 2,248
Other assets 16,125
Prepaid expenses and other current assets (98,874) 76,116
Right of use asset 61,233 (344,716)
Accounts payable and accrued expenses 252,717 (137,683)
Deferred revenue 61,687 63,260
Deferred rent (18,890)
Operating lease liability (60,647) 352,348
Net Cash Provided by Operating Activities 696,087 634,428
Cash Flows from Investing Activities:    
Capital expenditures (164,796) (33,354)
Net Cash Used in Investing Activities (164,796) (33,354)
Cash Flows from Financing Activities:    
Proceeds from issuance of note payable 481,977
Repayments of finance lease obligations related party (641,170) (546,182)
Repayments of finance lease obligations (24,320)
Cash received for the exercised of options 5,400
Repayment of line of credit (74,976)
Net Cash Provided by (Used) in Financing Activities (253,089) (546,182)
Increase in Cash and Cash Equivalents 278,202 54,892
Cash and Cash Equivalents, Beginning of Period 326,561 228,790
Cash and Cash Equivalents, End of Period 604,763 283,682
Supplemental Disclosures:    
Cash paid for interest 124,297 137,425
Cash paid for income taxes
Non-cash investing and financing activities:    
Accrual of preferred stock dividend 105,877 93,234
Assets acquired by finance lease $ 808,261 $ 1,560,021
XML 16 R7.htm IDEA: XBRL DOCUMENT v3.20.2
Basis of Presentation, Organization and Other Matters
9 Months Ended
Sep. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation, Organization and Other Matters

Note 1 - Basis of Presentation, Organization and Other Matters

 

Data Storage Corporation (“DSC” or the “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 available to shareholders of $96,677 and ($103,659) for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, DSC had cash of $604,763 and a working capital deficiency of $2,553,236. As a result, these conditions raised substantial doubt regarding our ability to continue as a going concern.

 

During the nine months ended September 30, 2020, the Company provided cash from operations of $696,087 with continued revenue growth of subscription solutions. Further, the Company has no capital expenditure commitments and the Company’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 current favorable trends of improving cash flow, the Company concluded that the initial conditions which raised substantial doubt regarding the ability to continue as a going concern has been mitigated. 

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

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, Data Storage Corporation, a Delaware corporation, and (iii) its majority-owned subsidiary, Nexxis Inc, a Nevada corporation. All significant inter-company transactions and balances have been eliminated in consolidation.

   

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 income or net cash used in operating activities.

 

Recently Issued and Newly Adopted Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies 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, 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, under 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 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019 and an entity should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 did not have a material impact on its condensed consolidated financial statements.  

  

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. The new guidance, is effective for fiscal years beginning after December 15, 2019. The adoption of ASU 2018-15 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 principles 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 and due to related parties. Management believes the estimated fair value of these accounts at September 30, 2020 approximate their carrying value as reflected in the balance sheets 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, 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.

 

As of September 30, 2020, DSC had four customers with an accounts receivable balance representing 65% of total accounts receivable. One of the clients is a Valued Added Reseller (VAR) with multiple clients under the DSC VAR partnership. As of December 31, 2019, DSC had three customers with an accounts receivable balance representing 38% of total accounts receivable.

 

During the nine months ended September 30, 2020 the Company had the above-mentioned Value-Added Reseller with multiple clients accounting for 10% of revenue. During the nine months ended September 30, 2019 that specific VAR had accounted for 31% of revenue.

 

Accounts Receivable/Allowance for Doubtful Accounts

 

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 accounts reflects the estimated accounts receivable that will not be collected due to credit losses and allowances. 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 is 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 five to seven 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. 

 

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 September 30, 2020 and December 31, 2019, 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, 2019 and 2018, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2018, 2017 and 2016 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 impairment exists if the net book 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 these 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.

 

  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 area 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 Company 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.

 

For the Three Months
Ended September 30, 2020
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 1,416,847     $ 20,551     $ 1,437,398  
Equipment and Software     936,344             936,344  
Managed Services     169,565             169,565  
Nexxis VoIP Services     180,225             180,225  
Total Revenue   $ 2,702,981     $ 20,551     $ 2,723,532  

 

For the Three Months
Ended September 30, 2019
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 1,273,147     $ 63,201     $ 1,336,348  
Equipment and Software     350,339             350,339  
Managed Services     195,847             195,847  
Nexxis VoIP Services     131,128             131,129  
Total Revenue   $ 1,950,461     $ 63,201     $ 2,013,662  

  

For the Three Months
Ended September 30,
Timing of revenue recognition   2020     2019  
Products transferred at a point in time   $ 936,344     $ 410,238  
Products and services transferred over time     1,787,188       1,603,424  
Total Revenue   $ 2,723,532     $ 2,013,662  

  

For the Nine Months
Ended September 30, 2020
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 4,133,213     $ 107,583     $ 4,240,796  
Equipment and Software     1,544,786             1,544,786  
Managed Services     557,515             557,515  
Nexxis VoIP Services     484,770             484,770  
Total Revenue   $ 6,720,284     $ 107,583     $ 6,827,867  

 

For the Nine Months
Ended September 30, 2019
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 3,849,252     $ 111,214     $ 3,960,466  
Equipment and Software     1,285,297             1,285,297  
Managed Services     322,133             322,133  
Nexxis VoIP Services     478,635             478,635  
Total Revenue   $ 5,935,317     $ 111,214     $ 6,046,531  

 

For the Nine Months
Ended September 30,
Timing of revenue recognition   2020     2019  
Products transferred at a point in time   $ 1,544,786     $ 1,285,297  
Products and services transferred over time     5,283,081       4,761,234  
Total Revenue   $ 6,827,867     $ 6,046,531  

 

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.  

 

Transaction price allocated to the remaining performance obligations

 

The Company has the following performance obligations:

 

  1) Disaster Recovery (“DR”): subscription-based service that instantly encrypted and transfers data to secure location further replicates the data to a second DSC data center where it remains encrypted. Provides 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 be 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 be 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 Licensing 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 recognize 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.

 

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 contract have multiple performance obligation, 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 our 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. 

 

Advertising Costs

 

The Company expenses the costs associated with advertising as they are incurred. The Company incurred a net impact of $234,565 and $188,249 for advertising costs for the nine months ended September 30, 2020 and 2019, respectively.

 

Stock-Based Compensation

 

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

 

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 and nine months ended September 30, 2020 and 2019:

 

    For the Three Months
Ended
    For the Nine Months
Ended
 
    September 30,     September 30,  
    2020     2019     2020     2019  
                         
Net Income (Loss) Available to Common Shareholders   $ 9,568       (152,673 )   $ 96,677     $ (103,659 )
                                 
Weighted average number of common shares - basic     128,539,418       128,139,418       128,521,836       128,139,418  
Dilutive securities                                
Options     6,667,227             5,980,817        
Warrants     133,334             133,334        
Weighted average number of common shares - diluted     135,339,979       128,139,418       134,635,987       128,139,418  
                                 
Earnings (Loss) per share, basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Earnings (Loss) per share, diluted   $ 0.00     $ 0.00     $ 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:

 

    Three Months ended
September 30,
    Nine Months ended
September 30,
 
    2020     2019     2020     2019  
Options     1,758,597       6,015,518       2,445,007       6,015,518  
Warrants           133,334             133,334  
      1,758,597       6,148,852       2,445,007       6,148,852  
XML 18 R9.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment
9 Months Ended
Sep. 30, 2020
Property, Plant and Equipment [Abstract]  
Property and Equipment

Note 3 - Property and Equipment

 

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

 

    September 30,   December 31,
    2020   2019
Storage equipment   $ 756,236     $ 756,236  
Website and software     533,417       533,417  
Furniture and fixtures     27,131       27,131  
Leasehold improvements     20,983       16,846  
Computer hardware and software     1,224,591       1,218,464  
Data center equipment     5,266,790       4,341,993  
      7,829,148       6,894,087  
Less: Accumulated depreciation     (5,313,999 )     (4,705,256 )
Net property and equipment   $ 2,515,149     $ 2,188,831  

 

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $608,743 and $530,927, respectively.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.20.2
Goodwill and Intangible Assets
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets

Note 4 - Goodwill and Intangible Assets

 

Goodwill and intangible assets consisted of the following:

 

    Estimated   September 30, 2020
    life
in years
  Gross amount   Accumulated Amortization   Net
Intangible assets not subject to amortization                                
Goodwill     Indefinite     $ 3,015,700     $ —       $ 3,015,700  
Trademarks     Indefinite       294,268       —         294,268  
Total intangible assets not subject to amortization             3,309,968       —         3,309,968  
Intangible assets subject to amortization                                
Customer lists     5-15       897,274       897,274       —    
ABC acquired contracts     5       310,000       242,833       67,167  
SIAS acquired contracts     5       660,000       517,000       143,000  
Non-compete agreements     4       272,147       272,147       —    
Total intangible assets subject to amortization             2,139,421       1,929,254       210,167  
Total Goodwill and Intangible Assets           $ 5,449,389     $ 1,929,254     $ 3,520,135  

 

Scheduled amortization over the next two years as follows:

 

Twelve months ending September 30,      
2021   $ 194,000  
2022     16,167  
Total   $ 210,167  

 

Amortization expense for the nine months ended September 30, 2020 and 2019 were $145,500 and $148,000 respectively. 

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Leases

Note 5 –Leases

  

Operating Leases

 

The Company currently has three leases for office space, with two offices located in Melville, NY, and one office in Warwick, RI.

 

A 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 of 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, was extended until January 31, 2021. The annual base rent shall be $31,176 payable in equal monthly installments of $2,598.

 

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

 

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

 

We determine if an arrangement contains a lease at inception. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our 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. Our lease term includes options to extend the lease when it is reasonably certain that we 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 recognize lease expense for these leases on a straight-line basis over the lease term. We recognize 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:

 

    Nine Months Ended
September 30,
2020
 
Finance lease:        
Amortization of assets, included in depreciation and amortization expense   $ 608,743  
Interest on lease liabilities, included in interest expense     124,300  
Operating lease:        
Amortization of assets, included in total operating expense     57,709  
Interest on lease liabilities, included in total operating expense     16,106  
Total net lease cost   $ 806,858  

 

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset   $ 263,034  
         
Current operating lease liabilities     103,780  
Noncurrent operating lease liabilities     168,390  
Total operating lease liabilities   $ 272,170  

 

    September 30,
2020
 
Finance leases:        
Property and equipment, at cost   $ 4,366,665  
Accumulated amortization     (3,172,342 )
Property and equipment, net     1,194,323  
         
Current obligations of finance leases   $ 1,139,828  
Finance leases, net of current obligations,     1,509,614  
Total finance lease liabilities   $ 2,649,441  

 

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

 

    Nine Months Ended
September 30,
2020
 
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows related to operating leases   $ 75,852  
Financing cash flows related to finance leases   $ 829,391  
         
Weighted average remaining lease term (in years):        
Operating leases     1.72  
Finance leases     2.33  
         
Weighted average discount rate:        
Operating leases     7 %
Finance leases     6 %

  

Long-term obligations under the operating and finance leases at September 30, 2020 mature as follows:

 

For the Twelve Months Ended September 30,   Operating Leases     Finance Leases  
2021   $ 103,780       348,440  
2022     106,901       1,241,361  
2023     90,696       849,426  
2024     -       441,725  
Total lease payments     301,377       2,880,952  
Less: Amounts representing interest     (29,207 )     (231,509 )
Total lease obligations     272,170       2,649,443  
Less: Current     (103,780 )     (1,139,828 )
    $ 168,390       1,509,615  

 

As of September 30, 2020, we had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the nine months ended September 30, 2020 and 2019 was $127,268 and $191,377, respectively. 

XML 21 R12.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 6 - Commitments and Contingencies

 

COVID 19 Disclosure

 

Business interruptions, including any interruptions resulting from COVID-19, could significantly disrupt our operations and could have a material adverse impact on DSC if the situation continues. 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, all employees, including our specialized technical staff, are working from home or in a virtual environment. DSC always maintains the ability for team members to work virtual and we 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 began in China at the beginning of 2020 has impacted various businesses throughout the world, including travel restrictions and the extended shutdown of certain businesses in impacted geographic regions. If the coronavirus outbreak situation should worsen, we may experience disruptions to our business including, but not limited to equipment, to our workforce, or to our business relationships with other third parties.

 

The extent to which the coronavirus impacts our operations or those of our 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 coronavirus and the actions to contain the coronavirus or treat its impact, among others. Any such disruptions or losses we incur could have a material adverse effect on our 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 September 30, 2020 and December 31, 2019 the balance was $24 and $75,000 respectively.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.20.2
Long Term Debt
9 Months Ended
Sep. 30, 2020
Long-term Debt, Unclassified [Abstract]  
Long Term Debt

Note 7 – Long Term Debt

 

Note Payable

 

In connection with the Company’s October 2012 acquisition of certain assets (the “ML Assets”) of Message Logic, Inc. (“Message Logic”), the Company maintains ownership of the ML Assets subject to a security interest in the ML Assets held by a third party banking institution (the “Bank”) in connection with a secured loan made by the Bank to Message Logic in June 2012 in the amount of $350,000 (the “ML Loan”). The Bank filed a UCC-1 Financing Statement with the Secretary of State of Delaware perfecting its interest in the ML Assets (the “UCC-1 Filing”). On September 5, 2014, the Company entered into an agreement with Message Logic and the Bank pursuant to which the Company paid to the Bank the outstanding interest amount due on the ML Loan over seven months at $3,910 per month. In addition, the Company agreed to continue to make monthly interest-only payments to the Bank at $1,553 per month. The Company assumed these liabilities as part of its option to pay off the ML Loan, terminate the UCC-1 Filing and own the ML Assets free of all liens and encumbrances. The Company stopped making interest-only payments on October 25, 2018. During the nine months ended September 30, 2020, the Company made a strategic decision to cease utilizing the ML Assets in its operations and advised the Bank of such information. In connection with this and as a result, the Company recorded a gain on contingent liability in the amount of $350,000 on the condensed consolidated statements of operations.

 

On April 30, 2020, the Company was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the form 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.  Funds from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Management intends to use 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.

 

As of September 30, 2020, remaining scheduled principal payments due on notes payable are as follows: 

 

Twelve months ended September 30,      
2021   $ 294,541  
2022     187,436  
    $ 481,977  
XML 23 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' (Deficit)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Stockholders' (Deficit)

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. 

 

During the nine months ended September 30, 2020, the Company received cash of $5,400 from the exercise of 100,000 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     350,000       0.13       0.13  
Exercised     (100,000 )     0.05       0.05  
Expire/Cancelled     (250,000 )     0.36       0.36  
Options Outstanding at September 30, 2020     8,425,824     $ 0.05 – 0.65     $ 0.13  
                         
Options Exercisable at September 30, 2020     4,869,403     $ 0.05 – 0.65     $ 0.19  

 

Share-based compensation expense for options totaling $116,559 was recognized in our results for the nine months ended September 30, 2020 based on awards vested.

 

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 September 30, 2020, there was $306,282 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 2.25 year.

 

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2020 are set forth in the table below.

 

    2020
Weighted average fair value of options granted   $0.13
Risk-free interest rate   0.66% - 0.83%
Volatility   221% - 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), 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. Accrued dividends at September 30, 2020 and December 31, 2019 were $1,076,874 and $970,997 respectively.

 

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Litigation
9 Months Ended
Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Litigation

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.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions
9 Months Ended
Sep. 30, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

Note 10 – Related Party Transactions

 

Finance Lease Obligations – Related Party

 

During the nine months ended September 30, 2020, the Company entered into one related party finance lease obligations. See Note 5 for details.

 

Nexxis Capital LLC

 

Charles Piluso and Harold Schwartz 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 any funds from Nexxis Capital during the nine months ended September 30, 2020 and 2019.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2020
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

 

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

Business combinations

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

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 income or net cash used in operating activities.

Recently Issued and Newly Adopted Accounting Pronouncements

Recently Issued and Newly Adopted Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies 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, 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, under 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 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019 and an entity should apply the amendments of ASU 2017-04 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 did not have a material impact on its condensed consolidated financial statements.  

  

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. The new guidance, 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

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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

Estimated Fair Value of Financial Instruments

 

The Company’s financial instruments include cash, accounts receivable, accounts payable, line of credit and due to related parties. Management believes the estimated fair value of these accounts at September 30, 2020 approximate their carrying value as reflected in the balance sheets 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, Cash Equivalents and Short-Term Investments

Cash, 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

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.

 

As of September 30, 2020, DSC had four customers with an accounts receivable balance representing 65% of total accounts receivable. One of the clients is a Valued Added Reseller (VAR) with multiple clients under the DSC VAR partnership. As of December 31, 2019, DSC had three customers with an accounts receivable balance representing 38% of total accounts receivable.

 

During the nine months ended September 30, 2020 the Company had the above-mentioned Value-Added Reseller with multiple clients accounting for 10% of revenue. During the nine months ended September 30, 2019 that specific VAR had accounted for 31% of revenue.

Accounts Receivable/Allowance for Doubtful Accounts

Accounts Receivable/Allowance for Doubtful Accounts

 

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 accounts reflects the estimated accounts receivable that will not be collected due to credit losses and allowances. 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

 

Property and equipment is 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 five to seven 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. 

Income Taxes

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 September 30, 2020 and December 31, 2019, 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, 2019 and 2018, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company’s 2018, 2017 and 2016 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

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 impairment exists if the net book 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 these 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

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.

 

  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 area 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 Company 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.

 

For the Three Months
Ended September 30, 2020
    United States   International   Total
Infrastructure & Disaster Recovery/Cloud Service   $ 1,416,847     $ 20,551     $ 1,437,398  
Equipment and Software     936,344       —         936,344  
Managed Services     170       —         169.565  
Nexxis VoIP Services     180,226       —         180,226  
Total Revenue   $ 2,533,587     $ 20,551     $ 2,723,532  

 

For the Three Months
Ended September 30, 2019
    United States   International   Total
Infrastructure & Disaster Recovery/Cloud Service   $ 1,273,147     $ 63,201     $ 1,336,348  
Equipment and Software     350,339       —         350,339  
Managed Services     195,847       —         195,847  
Nexxis VoIP Services     131,128       —         131,129  
Total Revenue   $ 1,950,461     $ 63,201     $ 2,013,662  

  

For the Three Months
Ended September 30,
Timing of revenue recognition   2020   2019
Products transferred at a point in time   $ 936,344     $ 410,238  
Products and services transferred over time     1,787,188       1,603,424  
Total Revenue   $ 2,723,532     $ 2,013,662  

  

For the Nine Months
Ended September 30, 2020
    United States   International   Total
Infrastructure & Disaster Recovery/Cloud Service   $ 4,133,213     $ 107,583     $ 4,240,796  
Equipment and Software     1,544,786       —         1,544,786  
Managed Services     557,515       —         557,515  
Nexxis VoIP Services     484,770       —         484,770  
Total Revenue   $ 6,720,284     $ 107,583     $ 6,827,867  

 

For the Nine Months
Ended September 30, 2019
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 3,849,252     $ 111,214     $ 3,960,466  
Equipment and Software     1,285,297             1,285,297  
Managed Services     322,133             322,133  
Nexxis VoIP Services     478,635             478,635  
Total Revenue   $ 5,935,317     $ 111,214     $ 6,046,531  

 

For the Nine Months
Ended September 30,
Timing of revenue recognition   2020   2019
Products transferred at a point in time   $ 1,544,786     $ 1,285,297  
Products and services transferred over time     5,283,081       4,761,234  
Total Revenue   $ 6,827,867     $ 6,046,531  

 

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.  

 

Transaction price allocated to the remaining performance obligations

 

The Company has the following performance obligations:

 

  1) Disaster Recovery (“DR”): subscription-based service that instantly encrypted and transfers data to secure location further replicates the data to a second DSC data center where it remains encrypted. Provides 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 be 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 be 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 Licensing 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 recognize revenue at the point in time the license is granted and/or renewed for a new period. 

Payment terms

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.

Warranties

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

Significant judgement

 

In the instances that contract have multiple performance obligation, 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

Impairment of Long-Lived Assets

 

In accordance with FASB ASC 360-10-35, we review our 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. 

Advertising Costs

Advertising Costs

 

The Company expenses the costs associated with advertising as they are incurred. The Company incurred a net impact of $234,565 and $188,249 for advertising costs for the nine months ended September 30, 2020 and 2019, respectively.

Stock-Based Compensation

Stock-Based Compensation

 

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

 

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

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 and nine months ended September 30, 2020 and 2019:

 

    For the Three Months Ended   For the Nine Months Ended
    September 30,   September 30,
    2020   2019   2020   2019
                 
Net Income (Loss) Available to Common Shareholders   $ 9,568       (152,673 )   $ 96,677     $ (103,659 )
                                 
Weighted average number of common shares - basic     128,539,418       128,139,418       128,521,836       128,139,418  
Dilutive securities                                
Options     6,667,227       —         5,980,817       —    
Warrants     133,334       —         133,334       —    
Weighted average number of common shares - diluted     135,339,979       128,139,418       134,635,987       128,139,418  
                                 
Earnings (Loss) per share, basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Earnings (Loss) per share, diluted   $ 0.00     $ 0.00     $ 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:

 

    Three Months ended September 30,   Nine Months ended September 30,
    2020   2019   2020   2019
Options     1,758,597       6,015,518       2,445,007       6,015,518  
Warrants     —         133,334       —         133,334  
      1,758,597       6,148,852       2,445,007       6,148,852  
XML 27 R18.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Tables)
9 Months Ended
Sep. 30, 2020
Summary Of Significant Accounting Policies  
Schedule of revenue is disaggregated by major product

In the following table, revenue is disaggregated by major product line, geography, and timing of revenue recognition.

 

For the Three Months
Ended September 30, 2020
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 1,416,847     $ 20,551     $ 1,437,398  
Equipment and Software     936,344             936,344  
Managed Services     169,565             169,565  
Nexxis VoIP Services     180,225             180,225  
Total Revenue   $ 2,702,981     $ 20,551     $ 2,723,532  

 

For the Three Months
Ended September 30, 2019
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 1,273,147     $ 63,201     $ 1,336,348  
Equipment and Software     350,339             350,339  
Managed Services     195,847             195,847  
Nexxis VoIP Services     131,128             131,129  
Total Revenue   $ 1,950,461     $ 63,201     $ 2,013,662  

  

For the Three Months
Ended September 30,
Timing of revenue recognition   2020     2019  
Products transferred at a point in time   $ 936,344     $ 410,238  
Products and services transferred over time     1,787,188       1,603,424  
Total Revenue   $ 2,723,532     $ 2,013,662  

  

For the Nine Months
Ended September 30, 2020
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 4,133,213     $ 107,583     $ 4,240,796  
Equipment and Software     1,544,786             1,544,786  
Managed Services     557,515             557,515  
Nexxis VoIP Services     484,770             484,770  
Total Revenue   $ 6,720,284     $ 107,583     $ 6,827,867  

 

For the Nine Months
Ended September 30, 2019
    United States     International     Total  
Infrastructure & Disaster Recovery/Cloud Service   $ 3,849,252     $ 111,214     $ 3,960,466  
Equipment and Software     1,285,297             1,285,297  
Managed Services     322,133             322,133  
Nexxis VoIP Services     478,635             478,635  
Total Revenue   $ 5,935,317     $ 111,214     $ 6,046,531  

 

For the Nine Months
Ended September 30,
Timing of revenue recognition   2020     2019  
Products transferred at a point in time   $ 1,544,786     $ 1,285,297  
Products and services transferred over time     5,283,081       4,761,234  
Total Revenue   $ 6,827,867     $ 6,046,531  
Schedule of Earnings Per Share, Basic and Diluted

The following table sets forth the information needed to compute basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019:

 

    For the Three Months Ended   For the Nine Months Ended
    September 30,   September 30,
    2020   2019   2020   2019
                 
Net Income (Loss) Available to Common Shareholders   $ 9,568       (152,673 )   $ 96,677     $ (103,659 )
                                 
Weighted average number of common shares - basic     128,539,418       128,139,418       128,521,836       128,139,418  
Dilutive securities                                
Options     6,667,227       —         5,980,817       —    
Warrants     133,334       —         133,334       —    
Weighted average number of common shares - diluted     135,339,979       128,139,418       134,635,987       128,139,418  
                                 
Earnings (Loss) per share, basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Earnings (Loss) per share, diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Schedule of anti-dilutive income (loss) per share

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:

 

    Three Months ended September 30,   Nine Months ended September 30,
    2020   2019   2020   2019
Options     1,758,597       6,015,518       2,445,007       6,015,518  
Warrants     —         133,334       —         133,334  
      1,758,597       6,148,852       2,445,007       6,148,852  
XML 28 R19.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Tables)
9 Months Ended
Sep. 30, 2020
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment

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

 

    September 30,   December 31,
    2020   2019
Storage equipment   $ 756,236     $ 756,236  
Website and software     533,417       533,417  
Furniture and fixtures     27,131       27,131  
Leasehold improvements     20,983       16,846  
Computer hardware and software     1,224,591       1,218,464  
Data center equipment     5,266,790       4,341,993  
      7,829,148       6,894,087  
Less: Accumulated depreciation     (5,313,999 )     (4,705,256 )
Net property and equipment   $ 2,515,149     $ 2,188,831  
XML 29 R20.htm IDEA: XBRL DOCUMENT v3.20.2
Goodwill and Intangible Assets (Tables)
9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of goodwill and intangible assets

Goodwill and intangible assets consisted of the following:

 

    Estimated   September 30, 2020
    life
in years
  Gross amount   Accumulated Amortization   Net
Intangible assets not subject to amortization                                
Goodwill     Indefinite     $ 3,015,700     $ —       $ 3,015,700  
Trademarks     Indefinite       294,268       —         294,268  
Total intangible assets not subject to amortization             3,309,968       —         3,309,968  
Intangible assets subject to amortization                                
Customer lists     5-15       897,274       897,274       —    
ABC acquired contracts     5       310,000       242,833       67,167  
SIAS acquired contracts     5       660,000       517,000       143,000  
Non-compete agreements     4       272,147       272,147       —    
Total intangible assets subject to amortization             2,139,421       1,929,254       210,167  
Total Goodwill and Intangible Assets           $ 5,449,389     $ 1,929,254     $ 3,520,135  
Schedule of amortization over the next two years

Scheduled amortization over the next two years as follows:

 

Twelve months ending September 30,      
2021   $ 194,000  
2022     16,167  
Total   $ 210,167  
XML 30 R21.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Tables)
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Components of lease expense

The components of lease expense were as follows:

 

    Nine Months Ended
September 30, 2020
Finance lease:        
Amortization of assets, included in depreciation and amortization expense   $ 608,743  
Interest on lease liabilities, included in interest expense     124,300  
Operating lease:        
Amortization of assets, included in total operating expense     57,709  
Interest on lease liabilities, included in total operating expense     16,106  
Total net lease cost   $ 806,858  
Supplemental balance sheet information related to leases

Supplemental balance sheet information related to leases was as follows

 

Operating Leases

 

Operating lease ROU asset   $ 263,034  
         
Current operating lease liabilities     103,780  
Noncurrent operating lease liabilities     168,390  
Total operating lease liabilities   $ 272,170  

 

    September 30, 2020
Finance leases:        
Property and equipment, at cost   $ 4,366,665  
Accumulated amortization     (3,172,342 )
Property and equipment, net     1,194,323  
         
Current obligations of finance leases   $ 1,139,828  
Finance leases, net of current obligations,     1,509,614  
Total finance lease liabilities   $ 2,649,441  
Supplemental cash flow and other information related to leases

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

 

    Nine Months Ended
September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows related to operating leases   $ 75,852  
Financing cash flows related to finance leases   $ 829,391  
         
Weighted average remaining lease term (in years):        
Operating leases     1.72  
Finance leases     2.33  
         
Weighted average discount rate:        
Operating leases     7 %
Finance leases     6 %
Long-term obligations under the operating and Finance leases

Long-term obligations under the operating and finance leases at September 30, 2020 mature as follows:

 

For the Twelve Months Ended September 30,   Operating Leases     Finance Leases  
2021   $ 103,780       348,440  
2022     106,901       1,241,361  
2023     90,696       849,426  
2024     -       441,725  
Total lease payments     301,377       2,880,952  
Less: Amounts representing interest     (29,207 )     (231,509 )
Total lease obligations     272,170       2,649,443  
Less: Current     (103,780 )     (1,139,828 )
    $ 168,390       1,509,615  
XML 31 R22.htm IDEA: XBRL DOCUMENT v3.20.2
Long Term Debt (Tables)
9 Months Ended
Sep. 30, 2020
Long-term Debt, Unclassified [Abstract]  
Schedule of Maturities of Long-term Debt

As of September 30, 2020, remaining scheduled principal payments due on notes payable are as follows: 

 

Twelve months ended September 30,      
2021   $ 294,541  
2022     187,436  
    $ 481,977  
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' (Deficit) (Tables)
9 Months Ended
Sep. 30, 2020
Equity [Abstract]  
Schedule of option activity and related information

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     350,000       0.13       0.13  
Exercised     (100,000 )     0.05       0.05  
Expire/Cancelled     (250,000 )     0.36       0.36  
Options Outstanding at September 30, 2020     8,425,824     $ 0.05 – 0.65     $ 0.13  
                         
Options Exercisable at September 30, 2020     4,869,403     $ 0.05 – 0.65     $ 0.19  
Schedule of fair value of options by using Black-Scholes model

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the nine months ended September 30, 2020 are set forth in the table below.

 

    2020
Weighted average fair value of options granted   $0.13
Risk-free interest rate   0.66% - 0.83%
Volatility   221% - 223%
Expected life (years)   10
Dividend yield   0.00%
XML 33 R24.htm IDEA: XBRL DOCUMENT v3.20.2
Basis of Presentation, Organization and Other Matters (Details Narrative) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]            
Net loss attributable to common shareholders $ 9,568 $ (152,673) $ 96,677 $ (103,659)    
Cash and cash equivalents 604,763 $ 283,682 604,763 283,682 $ 326,561 $ 228,790
Working capital deficiency $ (2,553,236)   (2,553,236)      
Net Cash Provided by Operating Activities     $ 696,087 $ 634,428    
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Details) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Disaggregation of Revenue [Line Items]        
Total Revenue $ 2,723,532 $ 2,013,662 $ 6,827,867 $ 6,046,531
Products Transferred at a Point in Time [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 936,344 410,238 1,544,786 1,285,297
Products and Services Transferred Over Time [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 1,787,188 1,603,424 5,283,081 4,761,234
Infrastructure & Disaster Recovery/Cloud Service [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 1,437,398 1,336,348 4,240,796 3,960,466
Equipment and Software [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 936,344 350,339 1,544,786 1,285,297
Managed Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 169,565 195,847 557,515 322,133
Nexxis Voip Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 180,225 131,129 484,770 478,635
UNITED STATES        
Disaggregation of Revenue [Line Items]        
Total Revenue 2,702,981 1,950,461 6,720,284 5,935,317
UNITED STATES | Infrastructure & Disaster Recovery/Cloud Service [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 1,416,847 1,273,147 4,133,213 3,849,252
UNITED STATES | Equipment and Software [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 936,344 350,339 1,544,786 1,285,297
UNITED STATES | Managed Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 169,565 195,847 557,515 322,133
UNITED STATES | Nexxis Voip Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 180,225 131,128 484,770 478,635
International        
Disaggregation of Revenue [Line Items]        
Total Revenue 20,551 63,201 107,583 111,214
International | Infrastructure & Disaster Recovery/Cloud Service [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 20,551 63,201 107,583 111,214
International | Equipment and Software [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue
International | Managed Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue
International | Nexxis Voip Services [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Details1) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Accounting Policies [Abstract]        
Net Income (Loss) Available to Common Shareholders $ 9,568 $ (152,673) $ 96,677 $ (103,659)
Weighted average number of common shares - basic 128,539,418 128,139,418 128,521,836 128,139,418
Dilutive securities        
Options 6,667,227 5,980,817
Warrants 133,334 133,334
Weighted average number of common shares - diluted 135,339,979 128,139,418 134,635,987 128,139,418
Earnings (Loss) per share, basic $ 0 $ 0 $ 0 $ 0
Earnings (Loss) per share, diluted $ 0 $ 0 $ 0 $ 0
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Details 2) - USD ($)
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Potentially dilutive securities $ 1,758,597 $ 6,148,852 $ 2,445,007 $ 6,148,852
Option [Member]        
Potentially dilutive securities 1,758,597 6,015,518 2,445,007 6,015,518
Warrant [Member]        
Potentially dilutive securities $ 133,334 $ 133,334
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.20.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Accounts receivables due 30 days    
Advertising costs $ 234,565 $ 188,249  
Customer Concentration Risk [Member] | Accounts Receivable [Member]      
Concentration risk 65.00%   38.00%
Customer Concentration Risk [Member] | Revenue Benchmark [Member]      
Concentration risk 10.00% 31.00%  
Property And Equipment [Member] | Minimum [Member]      
Useful lives P5Y    
Property And Equipment [Member] | Maximum [Member]      
Useful lives P7Y    
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Details) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Property, Plant and Equipment [Line Items]    
Gross Property and equipment $ 7,829,148 $ 6,894,087
Less: Accumulated depreciation (5,313,999) (4,705,256)
Net property and equipment 2,515,149 2,188,831
Storage Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment 756,236 756,236
Website And Software [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment 533,417 533,417
Furniture and Fixtures [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment 27,131 27,131
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment 20,983 16,846
Computer Hardware and Software [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment 1,224,591 1,218,464
Data Center Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Gross Property and equipment $ 5,266,790 $ 4,341,993
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.20.2
Property and Equipment (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Property, Plant and Equipment [Abstract]    
Depreciation expense $ 608,743 $ 530,927
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.20.2
Goodwill and Intangible Assets (Details)
9 Months Ended
Sep. 30, 2020
USD ($)
Intangible assets not subject to amortization  
Total intangible assets not subject to amortization, Gross amount $ 3,015,700
Total intangible assets not subject to amortization, Accumulated Amortization 294,268
Total intangible assets not subject to amortization, Net 3,309,968
Intangible assets subject to amortization  
Total Intangible Assets, Gross amount 2,139,421
Total Intangible Assets, Accumulated Amortization 1,929,254
Total Intangible Assets, Net amount 210,167
Total Goodwill and Intangible Assets, Gross amount 5,449,389
Total Goodwill and Intangible Assets, Accumulated Amortization 1,929,254
Total Goodwill and Intangible Assets, Net 3,520,135
Goodwill [Member]  
Intangible assets not subject to amortization  
Total intangible assets not subject to amortization, Gross amount 3,015,700
Total intangible assets not subject to amortization, Accumulated Amortization 294,268
Total intangible assets not subject to amortization, Net $ 3,309,968
Intangible assets subject to amortization  
Estimated life in years Indefinite
Trademark [Member]  
Intangible assets not subject to amortization  
Total intangible assets not subject to amortization, Gross amount
Total intangible assets not subject to amortization, Accumulated Amortization
Total intangible assets not subject to amortization, Net
Intangible assets subject to amortization  
Estimated life in years Indefinite
Customer Lists [Member]  
Intangible assets subject to amortization  
Total Intangible Assets, Gross amount $ 897,274
Total Intangible Assets, Accumulated Amortization 897,274
Total Intangible Assets, Net amount
Customer Lists [Member] | Minimum [Member]  
Intangible assets subject to amortization  
Intangible assets subject to amortization, Estimated life in years 5 years
Customer Lists [Member] | Maximum [Member]  
Intangible assets subject to amortization  
Intangible assets subject to amortization, Estimated life in years 15 years
ABC Acquired Contracts [Member]  
Intangible assets subject to amortization  
Total Intangible Assets, Gross amount $ 310,000
Total Intangible Assets, Accumulated Amortization 242,833
Total Intangible Assets, Net amount $ 67,167
Intangible assets subject to amortization, Estimated life in years 5 years
SIAS Acquired Contracts [Member]  
Intangible assets subject to amortization  
Total Intangible Assets, Gross amount $ 660,000
Total Intangible Assets, Accumulated Amortization 517,000
Total Intangible Assets, Net amount $ 143,000
Intangible assets subject to amortization, Estimated life in years 5 years
Non-compete Agreements [Member]  
Intangible assets subject to amortization  
Total Intangible Assets, Gross amount $ 272,147
Total Intangible Assets, Accumulated Amortization 272,147
Total Intangible Assets, Net amount
Intangible assets subject to amortization, Estimated life in years 4 years
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.20.2
Goodwill and Intangible Assets (Details 1)
Sep. 30, 2020
USD ($)
Scheduled amortization over next five years  
2021 $ 194,000
2022 16,167
Total $ 210,167
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.20.2
Goodwill and Intangible Assets (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]    
Amortization expense $ 145,500 $ 148,000
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Details)
9 Months Ended
Sep. 30, 2020
USD ($)
Finance lease:  
Amortization of assets, included in depreciation and amortization expense $ 608,743
Interest on lease liabilities, included in interest expense 124,300
Operating lease:  
Amortization of assets, included in total operating expense 57,709
Interest on lease liabilities, included in total operating expense 16,106
Total net lease cost $ 806,858
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Details 1) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Operating Leases    
Operating lease ROU asset $ 263,034 $ 324,267
Current operating lease liabilities 103,780 101,505
Noncurrent operating lease liabilities 168,390 $ 231,312
Total operating lease liabilities 272,170  
Finance leases:    
Property and equipment, at cost 4,366,665  
Accumulated amortization (3,172,342)  
Property and equipment, net 1,194,323  
Current obligations of finance leases 1,139,828  
Finance leases, net of current obligations 1,509,615  
Total finance lease liabilities $ 2,649,443  
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Details 2)
9 Months Ended
Sep. 30, 2020
USD ($)
Leases [Abstract]  
Operating cash flows related to operating leases $ 75,852
Financing cash flows related to finance leases $ 829,391
Weighted average remaining lease term operating leases (in years) 1 year 8 months 19 days
Weighted average remaining lease term finance leases (in years) 2 years 3 months 29 days
Weighted average discount rate operating leases 7.00%
Weighted average discount rate finance leases 6.00%
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Details 3) - USD ($)
Sep. 30, 2020
Dec. 31, 2019
Summary of minimum obligations under operating lease agreements    
2021 $ 103,780  
2022 106,901  
2023 90,696  
2024  
Total lease payments 301,377  
Less: Amounts representing interest (29,207)  
Total operating lease liabilities 272,170  
Less: Current operating lease liabilities (103,780) $ (101,505)
Noncurrent operating lease liabilities 168,390 $ 231,312
Summary of obligations under Finance leases    
2021 348,440  
2022 1,241,361  
2023 849,426  
2024 441,725  
Total lease payments 2,880,952  
Less: Amounts representing interest (231,509)  
Total finance lease liabilities 2,649,443  
Less: Current Finance lease liabilities (1,139,828)  
Noncurrent Finance lease liabilities $ 1,509,615  
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.20.2
Lease (Details Narrative) - USD ($)
1 Months Ended 9 Months Ended
Jun. 01, 2020
Apr. 02, 2019
Jan. 02, 2019
Apr. 02, 2018
Jul. 31, 2020
Jun. 29, 2020
Jan. 31, 2020
Sep. 30, 2020
Sep. 30, 2019
Apr. 01, 2018
Operating Leased Assets [Line Items]                    
Operating leases, rent expense, net               $ 127,268 $ 191,377  
Discount rate               7.00%    
Melville [Member]                    
Operating Leased Assets [Line Items]                    
Lease expiration date               Jul. 31, 2023    
Operating leases, rent expense               $ 86,268    
Lease Term               5 years 3 months    
Melville [Member]                    
Operating Leased Assets [Line Items]                    
Operating leases, rent expense               $ 897    
Annual base rent               $ 10,764    
Warwick, RI [Member]                    
Operating Leased Assets [Line Items]                    
Lease expiration date               Jan. 31, 2020    
Operating leases, rent expense               $ 2,598    
Annual base rent               $ 31,176    
Systems Trading                    
Operating Leased Assets [Line Items]                    
Lease expiration date     Dec. 31, 2023 Apr. 16, 2022     Jan. 01, 2023      
Operating leases, rent expense             $ 10,534      
Lease Term     5 years       3 years     4 years
Interest rate     6.75% 5.00%     6.00%      
Fiance leases contingent monthly rental payments     $ 29,592 $ 23,475            
Systems Trading | Second Lease                    
Operating Leased Assets [Line Items]                    
Lease expiration date   Mar. 01, 2022                
Interest rate   7.00%                
Fiance leases contingent monthly rental payments   $ 461                
Systems Trading | First Lease                    
Operating Leased Assets [Line Items]                    
Lease expiration date   Mar. 01, 2022                
Interest rate   6.70%                
Fiance leases contingent monthly rental payments   $ 1,328                
Arrow Capital Solutions | Lease                    
Operating Leased Assets [Line Items]                    
Lease expiration date May 31, 2023         Jun. 29, 2023        
Operating leases, rent expense $ 5,008       $ 4,524 $ 5,050        
Lease Term 3 years       3 years 3 years        
Interest rate 7.00%       7.00% 7.00%        
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.20.2
Commitments and Contingencies (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]    
Interest rate on debt under revolving credit facility excluding prime rate 0.50%  
Total debt amount available under revolving credit facility $ 100,000  
Revolving Credit Facility $ 24 $ 75,000
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.20.2
Long Term Debt (Details)
Sep. 30, 2020
USD ($)
Long-term Debt, Unclassified [Abstract]  
2021 $ 294,541
2022 187,436
Long-term debt, payments due $ 481,977
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.20.2
Long Term Debt (Details Narrative) - USD ($)
1 Months Ended 3 Months Ended 9 Months Ended
Apr. 30, 2020
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
Note Payable description       In connection with the 2012 asset acquisition of Message Logic, LLC the Company had a use of the Message Logic software subject to a UCC filing on the software in the amount of $350,000. On September 5, 2014 the Company entered into an agreement whereby the Company paid all arrears interest over 7 months at $3,910 per month. In addition, the Company agreed to make monthly interest payments at $1,553 per month. The company assumed this liability as part of the option to pay and lift the UCC and own the software lien free.  
Gain on contingent liability   $ 350,000
Signature Bank          
Interest rate 1.00%        
Proceeds from loan $ 481,977        
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' (Deficit) (Details)
9 Months Ended
Sep. 30, 2020
$ / shares
shares
Summary of option/warrant activity  
Exercised | shares (100,000)
Employee Stock Option [Member]  
Summary of option/warrant activity  
Outstanding, beginning | shares 8,425,824
Granted | shares 350,000
Exercised | shares (100,000)
Expired/Cancelled | shares (250,000)
Outstanding, ending | shares 8,425,824
Exercisable, ending | shares 4,869,403
Range of option/warrant price per share, Granted $ 0.13
Option Exercised 0.05
Range of option/warrant price per share, Expire/Cancelled 0.36
Weighted Average Exercise Price Outstanding, beginning 0.17
Weighted Average Exercise Price, Granted 0.13
Weighted Average Exercise Price, Exercised 0.05
Weighted Average Exercise Price, Expire/Cancelled 0.36
Weighted Average Exercise Price Outstanding, ending 0.13
Exercisable, ending 0.19
Employee Stock Option [Member] | Minimum [Member]  
Summary of option/warrant activity  
Range of option/warrant price per share, outstanding, beginning $ 0.05
Range of option/warrant price per share, outstanding, ending | shares 0.05
Range of option/warrant price per share, Exercisable ending $ 0.05
Employee Stock Option [Member] | Maximum [Member]  
Summary of option/warrant activity  
Range of option/warrant price per share, outstanding, beginning $ 0.65
Range of option/warrant price per share, outstanding, ending | shares 0.65
Range of option/warrant price per share, Exercisable ending $ 0.65
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' (Deficit) (Details 1)
9 Months Ended
Sep. 30, 2020
$ / shares
Weighted average fair value of options granted $ 0.13
Expected life (years) 10 years
Dividend yield 0.00%
Minimum [Member]  
Risk-free interest rate 0.66%
Volatility 221.00%
Maximum [Member]  
Risk-free interest rate 0.83%
Volatility 223.00%
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.20.2
Stockholders' Deficit (Details Narrative) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Dec. 31, 2019
Equity [Abstract]      
Capital stock authorized 260,000,000    
Common stock, authorized 250,000,000   250,000,000
Common stock, par value (in dollars per share) $ 0.001   $ 0.001
Preferred stock, authorized 10,000,000   10,000,000
Preferred stock, par value (in dollars per share) $ 0.001   $ 0.001
Number of option exercised 100,000    
Proceeds from exercise of Option $ 5,400  
Share-based compensation expense 116,559    
Unrecognized compensation expense $ 306,282    
Weighted average period expected to recognized compensation expense (in years) 2 years 2 months 30 days    
Series A Preferred Stock Dividend Rate 10.00%    
Accrued dividends $ 1,076,874   $ 970,997
XML 54 R45.htm IDEA: XBRL DOCUMENT v3.20.2
Related Party Transactions (Details Narrative) - USD ($)
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
NexxisCapital    
Proceeds from related party $ 0 $ 0
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