Form: 8-K/A

Current report filing

February 7, 2017

Documents

 

Exhibit 99.5

 

DATA STORAGE CORPORATION AND SUBSIDIARY

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

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

 

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

 

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

 

Introduction to Unaudited Pro Forma Condensed Combined Financial Statements

 

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

 

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

 

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

 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

 

 

 

DATA STORAGE CORPORATION AND SUBSIDIARY

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET

 

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

 

 

 

 

DATA STORAGE CORPORATION AND SUBSIDIARY

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

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

 

 

 

 

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

 

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

 

 

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMETNS

September 30, 2016

 

BACKGROUND

 

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

 

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

 

Basis of presentation

 

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

 

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

 

 

 

 

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

 

PRO FORMA ADJUSTMENTS

 

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

 

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

 

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