Good day ladies and gentlemen, and welcome to the Data Storage Corporation Second Quarter 2021 Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host David Waldman of Investor Relations. Sir, the floor is yours.

Thank you, Holly. Good morning, everyone and Welcome to Data Storage Corporation second quarter 2021 business update conference call. On the call with us this morning are Chuck Piluso, Chairman and Chief Executive Officer, and Chris, Panagiotakos, Chief Financial Officer. The company issued a press release this morning containing second quarter 2021 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, I'd like to remind listeners that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended that are intended to be covered by the safe harbor created thereby. Forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by or that otherwise include the words believes, expects, anticipates, intends, projects, estimates, plans, and similar expressions are forward conditional verbs such as will, should, would, may and could are generally forward-looking in nature, not historical facts, although not all forward-looking statements include the foregoing. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to be incorrect. Important factors that could cause actual results to differ materially from the company's expectations include, but are not limited to the company's ability to leverage the scalability and performance of Flagship Solutions. The company's ability to benefit from the IBM cloud migration underway, the company's ability to position itself for future profitability and the company's ability to maintain its NASDAQ listing. These risks should not be construed as exhaustive and should be read together with the other cautionary statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it was initially made. Except as required by law, the company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. I'd now like to turn the call over Chuck Piluso. Please go ahead, Chuck.

Thanks, David. Good morning, everyone. I'm pleased to report that during the second quarter, we made progress financially and operationally. In addition, we have listed to NASDAQ successfully and completed our merger with Flagship. First in terms of our results, we achieved 76% increase in revenue for the three months ended June 30, 2021, compared to the same period last year. Non-EBITDA revenue increased for the reported growth across all product lines, and we expect to maintain strong organic growth going forward. Revenue for Infrastructure & Disaster Recovery, which are our subscription based cloud solutions increased 25%. Revenue for Equipment and Software increased 208%, and revenue for Managed Services increased 269%. Revenue for Nexxis VoIP services increased 19%. We attribute excess to the increase in monthly subscription revenue and additional sales from the Flagship Solutions merger. It's important to note that the second quarter results only reflect the month of June. Since we completed the merger in May 31, 2021. I'd like to highlight that on a pro forma basis for the three months revenue would have been over $7.8 million and our pro forma basis for the full-year of 2020 if we look back the revenue would have been over $18 million. During the call today, I'd like to discuss several items in greater detail. Our accomplishments today. Second, the importance of the Flagship merger. And finally, I'd like to discuss organic growth strategy. I'll start with providing a brief background on the company, some of you may be new to us following the recent NASDAQ up listing. The company overall and since we completed several acquisitions is a 25-year veteran providing business continuity services such as Disaster Recovery, infrastructure as a service, and cyber security. We provide the solutions and services a broad range of customers in several…

Thank you Chuck. Total revenue for the three months ended June 30, 2021 was $3.5 million for an increase of 76%, compared to $2 million during the same period last year. The increase was primarily attributable to additional sales from the Flagship merger and an increase in software and equipment sales and infrastructure and disaster recovery cloud services. Cost of sales for the three months ended June 30, 2021 was $2 million, an increase of 77% compared to $1.1 million for the three months ended June 30, 2020. The increase was mostly related to variable costs incurred to produce and sell our products or services. For the three months ended June 30, 2021, selling, general, and administrative expenses were $1.6 million, an increase of 62% as compared to $1 million for the three months ended June 30, 2020. The increase primarily was attributable to an increase in salaries related to higher headcount, professional fees related to the merger and advertising expenses due to the additional Flagship marketing campaigns last post-merger. Net income before provision for income taxes for the three months ended June 30, 2020, was $135,561 as compared to a net income of $183,259 for the three months ended June 30, 2020. Cash and cash equivalents at June 30, 2021, worth $3.1 million. Subsequent to June 30, 2021, investors exercise 465,390 warrants into 455,390 shares of common stock for $3.4 million. Additionally on July 21, 2021, the company completed an equity offering whereas the company sold 2,375,000 shares of common stock and 1,031,250 warrants for net proceeds of $7.6 million. The warrants have an exercise price of $6.14 and it turned a five and a half years. Thank you. I will now turn the call back over to Chuck.

Thanks, Chris. I believe we can move into the Q&A if we could, David.

Yes. Holly, if you could provide the instructions.

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from [Sam Husker]. Please announce your affiliation, then pose your question.

I'm from [Boulder Capital]. Congratulations on your quarter by the way. My first question is regarding your recent announcements of your agreement with Able-One. Would you be able to walk me through your marketing programs in Canada and any updates you have regarding your business there?

Sure. Thanks for the question. We did have a press release that went out on Able-One is a provider in the Toronto metropolitan area with two data centers in that region. They are considered a channel partner. What we did in this particular case is in their data centers, we placed our model, our equipment that I described earlier in there and so we're able to serve the Able-One clients. So Able-One is a provider of IBM services typically selling equipment and software and providing IBM solutions surrounding the IBM and with that now through the customer base that they've had for many years, had the ability to provide Infrastructure-as-a-Service and disaster recovery off of our platform in Canada. They have a customer base, so for example, for their prospects and their customers, it's either if they're looking to migrate to the Cloud, they're either going to use Able-One or come basically directly to us for that, because this migration is underway right now. So we have a great relationship with Able-One. We fully support them and our tech teams work closely together to be able to assist in the migration.

Okay, thank you. Another question, you mentioned earlier in the call your selling distributors or channel partners, I'd like to get a better idea of how they do their prospecting and selling?

Very, very interesting on that, we believe that the best way to approach this marketplace is by working with companies that sell software, and hardware to the IBM community, IBM i community. So with that, we have marketing programs, templates, basically where we fully support and do programs for them to generate awareness. And then with that falls some programs begin to be able to educate their client base, while the ability finally to be able to move to disaster recovery in the Cloud, or infrastructure and move from off-premise to I'm sorry -- on-premise to off-premise. So when they're ready to refresh their equipment, they know that the option is there for them to be able to refresh. But in the meanwhile, instead of spending 10s of 1000s of dollars just for the software alone for backup and recovery of their information, they're able to move to our solutions, which is subscription based. So they have the customer base. And they have, they're the trusted advisor. So it's been a very successful program for us today.

Okay, thank you for answering my questions. And congrats again on the great quarter.

Thanks.

[Operator Instructions] Your next question is coming from Evan Greenberg. Please announce your affiliation, then pose your question.

LegendCap Opportunity Fund. How are you Chuck?

Good, Evan, how are you?

Good. Two questions. Number one, I saw that the gross margins really started to expand quite a bit. I don't know who is substantial, but I would anticipate as the mix grows, and as you get more recurring revenue, that that gross margin will continue to be incremental. Is that part of the plan?

Yes, first of all, we love equipment sales, frankly it puts cash on the balance sheet. But at the beginning of every month, it's a new life. So we continue to grow subscription based services, but we don't turn away obviously the equipment, but the more of that mix happens, if you went back a few years ago, 65% of our revenue prior to Flagship was equipment, was subscription sales, 35% was equipment, 65% subscription. Now, that mix has changed. And so we were seeing 80% on subscription, 20% on equipment, now with Flagship, actually does a great job. They have very large clients that are not going to necessarily move so fast to off-premise. But there are other data analytics and other programs that they're working with sports franchises and other large customers. And so, that mix, we'll see how that turns out over the course of the remainder of this year and the beginning of next year. But the companies are working together to build more subscription services. But it's according to what happens with that blends in with a client, you're not to mention names and some of the larger ones. But what happens is, is that when a very large sale comes in, it pushes off that margin and takes it down. Typically equipment around a 25% to 28% margin on equipment were subscription, when we priced them out typically around 50% on subscription based services for infrastructure. So it's according to what's going on for that quarter.

The second question I had, had to do with depreciation and amortization. What is your EBITDA is a lot greater than your earnings because of the D&A. So I wanted to understand what the D&A was from and whether that's going to be, it seems like it's a continuing situation for the company though declining as a percentage of sales?

Well, we have capitalized leases, and so it's not going to show the full amount on the depreciation side, as talking about gross profit margin. But overall, prior to we were on OTC offers to the NASDAQ and finally have some great capital on our balance sheets and good cash on our balance sheet. So, most of the earnings that we have are put back into sales and marketing programs. The companies especially in the case of Flagship when you're purchasing a company like Flagship, and that money is being reinvested into the company, into those types of programs. So it's tough to see. Now, for the most part, I believe that the companies are -- I’m going to use the term profitable cash flow profitable, and we'll use the new cash for organic growth strategies. So I think they'll, I believe that there will be a difference now that on the profitability because we don't have to continue to reinvest into the sales and marketing programs.

Great. The final question I was going to ask working with IBM and what they do, are you integrated into their Linux UX business and their Red Hat business and do you do joint sales and presentations with those businesses?

Flagship is very involved with IBM, with us, prior to Flagship, we buy all of our equipment that's all IBM, the latest and the greatest, and have deployed millions in assets into those data centres. And we've assembled a product. In the case of Flagship, they worked very, very closely with co-marketing programs, and solutions. So Flagship is very much engaged with IBM on that different than prior with Data Storage with infrastructure and DR. But yes, they're very much involved with Red Hat and all of that.

Okay, thanks a lot for your time.

Thanks, thanks Evan.

There are no more questions in queue. I would now like to turn the floor back over to management for any closing comments.

Okay, a few closing points. Overall, we believe we’re well positioned in the IBM Power Systems space. To assist companies in the migration, it's clearly underway. Let's also keep in mind that the company also provides our clients the ability to migrate their Windows applications Office 365, all that exists in the Intel Cloud environment, such as disaster recovery, cloud hosting, cybersecurity, data analytics. We do that really on the Windows x86 side with our core, our marketing activities today are based around serving the IBM buying community. As mentioned, our goal for the remainder of 2021 is to increase our presence in the IBM Power Infrastructure cloud and business continuity marketplace and to continue to grow our position as a leader in our market. We continue to be highly encouraged by the activity and the outlook for the business. Just like to thank everyone for joining today. Have a great day.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.