Filed 2025-03-31 · Period ending 2024-12-31 · 46,036 words · SEC EDGAR
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# Data Storage Corp (DTST) — 10-K
**Filed:** 2025-03-31
**Period ending:** 2024-12-31
**Accession:** 0001731122-25-000484
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1419951/000173112225000484/)
**Origin leaf:** 3e7251a380c8a8bff99b9325671e2b01518376e2f1044dfd1f4064d520a11e29
**Words:** 46,036
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**
UNITED STATES**
**SECURITIES AND EXCHANGE
COMMISSION**
**WASHINGTON, D.C.
20549**
**FORM 10-K**
(Mark One)
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
**For the fiscal year ended December 31, 2024**
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____________to____________________________
**Commission File No. 000-54579**
**DATA STORAGE CORPORATION**
(Exact name of registrant as specified in its charter)
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Nevada |
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98-0530147 | |
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(State
or other jurisdiction of
incorporation or organization) |
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(I.R.S.
Employer
Identification No.) | |
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225 Broadhollow Road, Suite 307
Melville, NY |
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11747 | |
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(Address
of principal executive offices) |
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(Zip
Code) | |
Registrants telephone number, including area
code: **(212) 564-4922**
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered | |
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Common Stock, par value $0.001 per share |
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DTST |
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The Nasdaq Capital Market | |
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Warrants to purchase shares of Common Stock, par value $0.001 per share |
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DTSTW |
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The Nasdaq Capital Market | |
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001 per share
(Title of class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes
No
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 5(d) of the Act. Yes
No
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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes No
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, a smaller reporting company and an emerging growth company. See the definitions of large
accelerated filer, accelerated filer smaller reporting company and emerging growth company
in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer |
Accelerated
filer | |
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Non-accelerated filer |
Smaller
reporting company | |
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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 has filed a report on and attestation to its managements assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
If securities are
registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued statements.
Indicate by check
mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrants executive officers during the relevant recovery period pursuant to Section 240.10D-1(b).
Indicate by check
mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
No
As of June 28, 2024, the last business day of the
Registrants most recently completed second fiscal quarter, the aggregate market value of the Companys voting and non-voting
common equity held by non-affiliates of the Registrant was $26,955,729.
The number of shares of the registrants common
stock outstanding as of March 27, 2025, was 7,094,081.
Documents incorporated by reference: Portions of the
registrants definitive proxy statement relating to the 2025 annual meeting of stockholders are incorporated by reference into Part
III of this Annual Report on Form 10-K where indicated. Such definitive proxy statement will be filed with the Securities and Exchange
Commission within 120 days after the end of the registrants fiscal year ended December 31, 2024 (the 2025 Proxy Statement).
2
**Data Storage Corporation**
**Table of Contents**
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PART I |
4 | |
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ITEM 1. BUSINESS |
6 | |
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ITEM 1A. RISK FACTORS |
9 | |
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ITEM 1B. UNRESOLVED STAFF COMMENTS |
27 | |
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ITEM 1C. CYBERSECURITY |
27 | |
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ITEM 2. PROPERTIES |
28 | |
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ITEM 3. LEGAL PROCEEDINGS |
28 | |
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ITEM 4. MINE SAFETY DISCLOSURES |
28 | |
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PART II |
29 | |
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ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
29 | |
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ITEM 6. RESERVED |
30 | |
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
30 | |
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
38 | |
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
38 | |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
39 | |
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ITEM 9A. CONTROLS AND PROCEDURES |
39 | |
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ITEM 9B. OTHER INFORMATION |
39 | |
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
39 | |
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PART III |
40 | |
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
40 | |
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ITEM 11. EXECUTIVE COMPENSATION |
40 | |
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
40 | |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION, AND DIRECTOR INDEPENDENCE |
41 | |
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
41 | |
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PART IV |
41 | |
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
41 | |
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ITEM 16. FORM 10-K SUMMARY |
42 | |
3
**PART I**
**Forward-Looking Statements**
*This Annual Report on Form 10-K (this Annual
Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities
Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that involve substantial
risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. Business, Part I, Item
1A. Risk Factors, and Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations, but are also contained elsewhere in this Annual Report and in some cases you can identify forward-looking statements
by terminology such as may, should, potential, continue, expects,
anticipates, intends, plans, believes, estimates, and similar expressions.
These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties,
many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those
expressed, projected or implied in or by the forward-looking statements.*
**
*You should refer to Item 1A. Risk Factors
section of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those
expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements
in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy
may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements
as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or
at all. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references
to DSC, we, us, our, and Company, refer to Data Storage Corporation
and its subsidiaries.*
**
**Summary Risk Factors**
**Risks Related to the Companys
Business**
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The Company has not generated a significant amount of net income and it may not be able to sustain profitability in the future. | |
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If the Company is unable to attract new customers to its infrastructure and disaster recovery/cloud subscription services on a cost-effective basis, its revenue and operating results would be adversely affected. | |
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The Company expects to continue to acquire or invest in other companies, which may divert its managements attention, result in additional dilution to its stockholders, and consume resources that are necessary to sustain its business. | |
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Integration of an acquired companys operations may present challenges. | |
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The Company may fail to maintain an effective system of internal controls, which may result in material misstatements of its consolidated financial statements or cause it to fail to meet its periodic reporting obligations. | |
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The Company is controlled by three principal stockholders who serve as its executive officers and directors. | |
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To date, a substantial portion of the Companys revenues have come from a limited number of customers. | |
**Risks Related to the Companys
Industry**
****
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The market for cloud solutions is highly competitive, and if the Company does not compete effectively, its operating results will be harmed. | |
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If a cyberattack was able to breach the Companys security protocols
and disrupt its data protection platform and solutions, such disruption could increase the Companys expenses, damage its reputation,
harm its business and adversely affect its stock price. | |
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Any significant disruption in service, in the Companys computer
systems, or caused by its third-party storage and system providers could damage the Companys reputation and result in a loss of
customers, which would harm the Companys business, financial condition, and operating results. | |
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Security vulnerabilities, data protection breaches and cyberattacks could disrupt the Companys data protection platform and solutions. | |
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The Companys ability to provide services to its customers depends on its customers continued high-speed access to the internet and the continued reliability of the internet infrastructure. | |
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If the Company is unable to retain its existing customers, its business, financial
condition, and operating results will be adversely affected. | |
4
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A decline in demand for the Companys cyber security, disaster recovery, and/or infrastructure solutions, in general, would cause its revenue to decline. | |
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The Company primarily depends upon third-party distribution companies to
generate new customers. The Companys relationships with its partners and distributors may be terminated or may not continue to
be successful in generating new customers, which could adversely affect its ability to increase its customer base. | |
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If the Company is unable to expand its base of business customers, its future growth and operating results could be adversely affected. | |
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If the Company is unable to sustain market recognition of and loyalty to its brand, or if its reputation were to be harmed, it could lose customers or fail to increase the number of its customers, which could harm its business, financial condition, and operating results. | |
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The Company is subject to government regulation and other legal obligations
related to privacy, and any actual or perceived failure to comply with such obligations would harm its business. | |
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The Companys solutions are used by customers in the health care industry, and it must comply with numerous federal and state laws related to patient privacy in connection with providing its solutions to these customers. | |
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Errors, failures, bugs in or unavailability of the Companys solutions released by it could result in negative publicity, damage to its brand, returns, loss of or delay in market acceptance of its solutions, loss of competitive position, or claims by customers or others. | |
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The Company faces many risks associated with its growth and plans to expand, which could harm its business, financial condition, and operating results. | |
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The Companys international expansion will subject it to risks typically encountered when operating internationally,
including economic and political instability, fluctuations in currency exchange rates, differing legal and regulatory environments, challenges
in managing a geographically dispersed workforce, and cultural differences. | |
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The loss of the Companys key personnel, or
its failure to attract, integrate, and retain other highly qualified personnel, could harm its business and growth prospects. | |
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Declining general economic or business conditions and changes to trade policy, including tariff and customs regulations, may have a negative impact on the Companys business. | |
**Risks Related to Intellectual
Property**
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Assertions by a third party that the Companys solutions infringe
its intellectual property, whether or not correct, could subject the Company to costly and time-consuming litigation or expensive licenses. | |
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The Company relies on third-party software to develop and provide its solutions, including server software and licenses from third parties to use patented intellectual property. | |
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If the Company is unable to protect its domain names, its reputation, brand,
customer base, and revenue, as well as its business and operating results, it could be adversely affected. | |
**Risks Related to the Companys
Common Stock and Securities**
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The Companys stock price has fluctuated in the past and may be volatile in the future, and as a result, investors in its common stock could incur substantial losses. | |
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We cannot be assured that we will be able to maintain our listing on the Nasdaq Capital Market. | |
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Upon exercise of the Companys outstanding options or warrants, it will be obligated to issue a substantial number of additional shares of common stock which will dilute its present shareholders. | |
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Offers or availability for sale of a substantial number of shares of the Companys common stock may cause the price of its common stock to decline. | |
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The Company does not expect to declare any common stock cash dividends in the foreseeable future. | |
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Because the Company may issue preferred stock without the approval of its shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire the Company and could depress its stock price. | |
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Provisions of Nevada law could delay or prevent an acquisition of DSC, even if the acquisition would be beneficial to its stockholders and could make it more difficult for stockholders to change DSCs management. | |
5
**ITEM 1. BUSINESS**
**Corporate Overview**
The Company is a leading provider of enterprise cloud
and business continuity solutions, specializing in fully managed cloud hosting, disaster recovery, cybersecurity, and IT automation services.
DSC leverages its expertise through its subsidiaries: CloudFirst Technologies Corporation (CloudFirst Technologies), CloudFirst
Europe Ltd. (CloudFirst Europe and, together with CloudFirst Technologies, CloudFirst), and Nexxis
Inc. (Nexxis). Through its CloudFirst platform built on IBM Power Systems infrastructure DSC delivers high-performance
cloud solutions tailored for IBM i and AIX workloads. This niche focus on IBM Power environments distinguishes CloudFirst in the market:
none of the major public cloud providers (AWS, Microsoft Azure, or Google Cloud) natively support IBM i/AIX workload, giving DSC a distinct
competitive edge in serving clients with these mission-critical systems. The Company leverages long-term subscription contracts for its
cloud and disaster-recovery services, yielding a highly recurring revenue base and strong customer retention (historically over 90% annual
subscription renewal rates). DSCs client base exceeds 425 organizations across diverse sectors including government, healthcare,
education, manufacturing, and Fortune 500 enterprises reflecting broad market demand for its multi-cloud hosting and business
continuity solutions. In recent years, DSC has undertaken strategic expansions (organically and via acquisitions) to reinforce its position
as an emerging growth leader in the multi-billion-dollar cloud hosting and business continuity market. Notably, the integration of Flagship
Solutions, LLC (Flagship) (which became a subsidiary of DSC in 2021) into CloudFirst was completed in January 2024, unlocking
operational synergies and enabling cross-selling of the full CloudFirst suite to Flagships established customer base. This integration,
combined with enhanced distribution and marketing capabilities post-2021 Nasdaq uplisting, has bolstered DSCs growth trajectory
and technical expertise.
**Solutions and Services**
DSC provides a comprehensive portfolio of solutions
to ensure clients critical IT systems remain operational, secure, and resilient:
*Cloud Infrastructure Services (IaaS)*
CloudFirst offers fully managed cloud hosting for IBM Power systems (IBM i and AIX) as well as x86 environments. Clients can migrate
on-premises IBM workloads to DSCs owned and operated cloud and run them on enterprise-grade IBM Power infrastructure, with interoperability
to public clouds like AWS, Azure, and Google for hybrid deployments. DSCs cloud solutions include comprehensive migration services
to ensure seamless transfer of data and applications from legacy systems to the cloud with minimal downtime.
*Disaster Recovery & Business Continuity*
DSC delivers robust disaster-recovery-as-a-service and business continuity solutions to protect organizations from downtime and
data loss. CloudFirsts recovery services provide off-site data replication, rapid failover for IBM i/AIX and Windows/Linux systems,
and cloud-based backup to meet stringent recovery time objectives. These services ensure that clients can quickly restore critical applications
in the event of cyberattacks, hardware failures, or natural disasters, thereby minimizing operational disruption.
*Cybersecurity Solutions* Through
its security suite, DSC offers comprehensive cybersecurity and compliance services. This includes endpoint protection, network security,
data encryption, ransomware defense, vulnerability assessments, and IBM i security monitoring. By integrating cybersecurity into its cloud
and DR offerings, DSC provides a layered defense to safeguard client data and systems across on-premise and cloud environments.
*Managed IT Services and Support*
DSC augments its core cloud offerings with managed services such as systems monitoring, IT automation, and voice & data communications
solutions. For example, through its Nexxis subsidiary, DSC provides Voice over Internet Protocol (VoIP)/Unified Communications
and dedicated internet connectivity as part of its one-stop solution set. These ancillary services enable clients to rely on a single
provider for a broad range of IT infrastructure needs.
This integrated solutions portfolio positions DSC
as a single-source provider for cloud infrastructure, disaster recovery, cybersecurity, and connectivity. From initial cloud migration
through ongoing management and support, the Company ensures clients workloads run securely and efficiently in a multi-cloud environment.
DSCs value proposition is underscored by its high service reliability (Tier III data centers with 99.999% uptime SLAs) and a consultative
approach by in-house solution architects to meet each clients unique requirements.
**Competitive Positioning and CloudFirst Strategy**
CloudFirst occupies a distinct competitive niche as
a premier cloud solution for IBM Power Systems, an area with high barriers to entry and limited competition. Because IBM i and AIX workloads
cannot be easily re-platformed to standard x86 cloud environments, hyperscale cloud providers (Amazon, Microsoft, Google) generally do
not compete in this segment. DSC has capitalized on this gap by building a cloud platform specialized for IBM Power complete with
the necessary hardware, OS expertise, and tools to support mission-critical IBM environments. This focus, combined with DSCs deep
IBM technical know-how, allows the Company to address complex legacy modernization and disaster recovery needs that others cannot readily
fulfill. At the same time, CloudFirst is designed for interoperability with mainstream clouds: the platform integrates via high-bandwidth,
low-latency connections to AWS, Azure, Google, and IBM Cloud, enabling clients to run IBM i/AIX systems in parallel with their other cloud-native
workloads. This multi-cloud capability gives enterprises the best of both worlds they can maintain essential IBM
systems, whereby protecting their applications designed for the IBM operating platform on CloudFirst, while interfacing seamlessly with
applications hosted on public clouds.
6
Security and compliance are core to CloudFirsts value proposition. DSCs
data centers meet Tier III standards and SOC 2 Type II compliance, offering the highest levels of reliability and data protection. CloudFirsts
infrastructure and processes are aligned with stringent regulatory requirements in the United States, Canada, and the United Kingdom,
which is crucial for clients in regulated industries (financial services, government, healthcare, etc.). Additionally, DSCs cloud
services adhere to data sovereignty laws by enabling clients to keep data within country borders (e.g., Canadian data in Canada, UK data
in UK data centers). By prioritizing security certifications and regional compliance, CloudFirst provides enterprise customers with confidence
that their critical systems are hosted in an environment that meets national security standards and privacy laws. This commitment to security,
combined with 24x7 managed support, has solidified DSCs reputation as a trusted partner for business continuity. Industry recognition
of this niche leadership is evident DSC is viewed as an emerging growth leader in cloud infrastructure and the migration of data
to the cloud for IBM Power workloads.
**Global Footprint and Infrastructure**
DSC has established a global cloud infrastructure footprint to serve its clients
multi-national needs. The Company operates and leverages a network of Tier III data center facilities across North America and Europe,
including five in the United States, which includes one new data center facility in Chicago, two in Canada, and three in the United Kingdom
(Scotland and England). This expansive footprint was built through strategic investments and partnerships: historically, DSC operated
out of seven primary data centers across the U.S. and Canada, and in 2024 it expanded into Europe by partnering with leading regional
data center providers (e.g., Brightsolid in Scotland and Pulsant in England). By early 2025, CloudFirsts platform spanned three
countries and served over 400 clients globally.
Having infrastructure in multiple geographies allows DSC to deliver cloud infrastructure
and recovery services from a single source across continents, a capability few competitors offer. Clients with international operations
can rely on CloudFirst to host and protect data in-region for performance and compliance, while managing everything through one provider.
For example, a U.S.-based enterprise with subsidiaries in Canada and the UK can run IBM i production in DSCs U.S. cloud, have disaster
recovery in Canada, and extend certain workloads or backups to the UK all under CloudFirsts management. This one-stop,
multi-country service model is highly differentiated in the mid-market enterprise segment, where companies often struggle to find integrated
solutions for IBM Power workloads across regions. DSCs data centers are inter-connected and built with full redundancy (power,
cooling, network) and round-the-clock operations support, ensuring consistent service levels worldwide. The geographic diversity of these
sites also adds resiliency (e.g., data can be replicated to a different country for added protection). Management believes this global
infrastructure approach for cross-border cloud services provides DSC with a competitive advantage in winning customers seeking a single
vendor for all their cloud hosting and business continuity needs.
**Growth Strategy and Cross-Selling Opportunities**
DSCs
growth strategy is centered on expanding its cloud footprint and cross-selling its full suite of solutions to meet the evolving needs
of its clients. A key pillar of this strategy is capitalizing on cross-sell opportunities that arise from the Companys multi-country
presence and broadened solution set. As the Companyenters
new regions like Europe, DSC can target existing North American clients who have overseas operations, offering to migrate or protect
those international workloads via CloudFirsts new UK facilities. Similarly, partnerships with local providers (such as Pulsant
in the UK) open access to new customer bases that DSC can serve with its IBM expertise including European organizations and U.S.
multinationals operating abroad. Management has structured these partnerships to maximize customer engagement across different industry
verticals and regions, thereby creating access to a much broader addressable market. Early success of this approach is evidenced by growing
demand in the UK/EU for IBM cloud services, which CloudFirst is now positioned to fulfill as one of the few specialized providers in
that area.
In North America, DSC continues to deepen penetration in high-value verticals
such as finance, healthcare, and insurance that require the reliable continuity solutions DSC provides. The Companys unified sales
team now markets an expanded portfolio for instance, a disaster recovery customer can be upsold to production hosting on CloudFirst,
cybersecurity services, and even voice/data connectivity, all through one relationship. Internally, the consolidation of Flagship into
the CloudFirst brand has enhanced this cross-selling: Flagships legacy customers (who may have originally engaged for IBM hardware
or software solutions) are being introduced to DSCs cloud and DR services, driving incremental recurring revenue. To support these
efforts, DSC is investing in its distribution channels, including IBM Business Partners, Managed Service Providers (MSPs), and
resellers, to refer and resell CloudFirst services globally. The Company is also pursuing selective acquisitions and alliances to broaden
its technical capabilities and customer reach.
In 2024, DSC reported
$25.4 million in total revenue, with greater than 80% stemming from recurring sources, including cloud-based hosting and disaster recovery
solutions, infrastructure-as-a-service hosting, managed services, cyber security and maintenance subscriptions. This base of annual recurring
revenue reflects the effectiveness of the Companys subscription-focused model. The remaining contract value for cloud services
totals approximately $39.2 million, providing revenue visibility and supporting future growth expectations. The Company ended the year
with a $21.5 million Annual Recurring Revenue (ARR) run rate. With a contract renewal rate exceeding 90%, DSC is positioned to
maintain and expand its customer base. DSC operates with no debt and continues to improve operating margins as it scales its cloud solutions
and service offerings. Looking forward, the Company is advancing its strategy, expanding its company owned and managed IBM Power platform
into new markets, including a recent entry into Europe. Management believes that there is a global migration of IBM power systems and
disaster recovery to cloud based solutions. DSC is uniquely positioned to capitalize on these trends, driving sustained revenue growth
and long-term shareholder value.
7
Overall, DSCs integrated approach a unique IBM-focused cloud
platform, compliance-driven global data center presence, and a broad suite of continuity and security solutions positions the
Company as a comprehensive one-stop provider for enterprises undergoing digital transformation and cloud migration. By emphasizing its
CloudFirst differentiators and executing on cross-sell opportunities, DSC aims to strengthen its market position as a trusted partner
for cloud infrastructure and business continuity worldwide.
**Government Regulation**
DSC operates within a complex and evolving regulatory
landscape, governed by a multitude of federal, state, local, and international privacy laws. These laws regulate the Companys handling
of personal and customer data, reflecting the growing importance of privacy in the digital age. Compliance with these regulations is critical,
as failure to do so could result in legal action, loss of customer trust, and negative impacts on the Companys reputation and operations.
**Key Regulatory Frameworks:**
****
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General
Compliance: The Company is committed to adhering to industry standards and the various
privacy policies and obligations it holds towards third parties. This includes compliance
with laws and regulations related to the protection and handling of personal information
and customer data. | |
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Healthcare
Sector Compliance: Particularly significant is the Companys compliance with health-related privacy laws such as the
Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Health Information Technology for Economic and Clinical
Health Act (HITECH). These regulations mandate strict controls over the handling of health information to protect patient privacy. | |
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Business
Associate Agreements (BAAs): For healthcare clients,
the Company enters into BAAs that outline the permissible uses of health information, ensure the protection of this data through
appropriate safeguards, and require notification of any unauthorized use or disclosure. | |
**Compliance Measures Include:**
****
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Ensuring that the use or disclosure of personal health information aligns with the restrictions and permissions defined in BAAs. | |
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Implementing robust administrative, physical, and technical safeguards to protect personal information. | |
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Obligating the Company to report any unauthorized information use or disclosure to the client. | |
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Permitting termination of the service by clients if the Company breaches BAA terms and cannot rectify the breach. | |
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Mandating the return or destruction of all personal health information upon the termination of a clients subscription. | |
The regulatory environment for DSC is marked by rapid
changes and requires continuous vigilance to ensure compliance. As privacy regulations evolve, the Company may need to adjust its services
and practices to remain compliant, thereby safeguarding its reputation and facilitating the development of new and innovative services
that respect customer privacy.
**Human Capital Resources**
DSC attributes its success to the skill and dedication of its workforce, consisting
of fifty-three full-time and two part-time employees as of March 15, 2025. The team is diverse, with roles across executive management,
administration, finance, sales, marketing, and a robust technical team, complemented by independent contractors for service support and
installations as needed. The Company has no collective bargaining agreements in place and maintains a positive relationship with its employees.
8
Key aspects of the Companys human capital management
include:
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Employee Composition: The workforce includes eight in executive management, five in administration and finance, eleven in sales, three in marketing, and twenty-eight in technical roles. | |
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Compensation
Strategy: Compensation programs are performance-aligned
to incentivize both short-term and long-term achievements, aiming to attract, retain, and motivate talent. | |
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Health
and Safety: Employee health and safety are paramount,
underscoring the Companys commitment to its staff and operational philosophy. | |
**Corporate Information**
****
Data Storage Corporation, a Delaware corporation founded in 2001, became a subsidiary
of the Company, a Nevada corporation (DSC), in 2008. DSC was initially incorporated as Euro Trend Inc. on March 27, 2007, and consummated
a share exchange transaction in October 2008. The Company underwent a name change to its current identity post-acquisition.
On May 31, 2021, the
Company completed a merger of Flagship, a Florida limited liability company, and the Companys wholly-owned subsidiary, Data Storage
FL, LLC, a Florida limited liability company. Flagship is a provider of Hybrid Cloud solutions, managed services and cloud solutions.
On January 1, 2024, Flagship Solutions, LLC was consolidated into the Companys wholly-owned subsidiary, CloudFirst Technologies
Corporation, a Delaware corporation incorporated in 2001.
On January 27, 2022, we formed Information Technology
Acquisition Corporationa special purpose acquisition companyfor the purpose of entering into a merger, capital stock exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses
or entities.
On August 12, 2024, the Company
formed UK Cloud Host Technologies Ltd.,a company formed
under the laws of the United Kingdom, for the purpose of establishing an executive presence in London, United Kingdom and managing the
business and affairs of the Company within Europe.On December 27, 2024, the name of the entity was changed to CloudFirst Europe
Ltd.
****
**Facilities**
The Companys corporate headquarters are located
at 225 Broadhollow Road, Suite 307, Melville, New York 11747, which are leased pursuant to a lease agreement, dated January 17, 2024.
The lease commenced on April 1, 2024, and has a term of sixty-seven months. The monthly rent is $11,931 and the lease expires on October
30, 2029. The Companybelieves that these headquarters are adequate for its current operations and needs.
**Available Information**
Official filings with the SEC, including the Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and any amendments, are accessible
for free on the Companys website (www.dtst.com) under the Investor Relations section following their SEC submission. The content
on the Companys website is not incorporated by reference into this Annual Report or any other SEC filings.
**ITEM 1A. RISK FACTORS**
Investing in the Companys common stock involves a high degree of
risk. *Investors should carefully consider the risks described below before deciding whether to invest in our securities. If any of
the following risks actually occur, our business, financial condition or results of operations could be adversely affected. In such case,
the trading price of our Common Stock could decline and you could lose all or part of your investment. Our actual results could differ
materially from those anticipated in the forward-looking statements made throughout this Annual Report as result of different factors,
including the risks we face described below.*
**Risks Related to the Companys
Business**
**The Company has not
generated a significant amount of net income and it may not be able to sustain profitability in the future.**
As reflected in the consolidated financial statements, the Company had net
income attributable to common shareholders of $523,214 and $381,575 for the years ended December 31, 2024, and 2023, respectively As of
December 31, 2024, the Company had cash of $1,070,097, marketable securities of $11,261,006, and working capital of $11,869,914. There
can be no assurance that the Company will continue to generate income in the future or that the income will be significant.
**If the Company is unable
to attract new customers to its infrastructure and disaster recovery/cloud subscription services on a cost-effective basis, its revenue
and operating results would be adversely affected.**
The Company generates the majority of its revenue from the sale of subscriptions
to its infrastructure and disaster recovery/cloud solutions as well as contracted managed services and software and hardware renewals.
In order to grow, the Company must continue to reach the many businesses in need of its unique services, many of whom may have not previously
used infrastructure as a service and cloud disaster recovery backup solutions. The Company uses and periodically adjusts a diverse mix
of advertising and marketing programs to promote its solutions. Significant increases in the pricing of one or more of the Companys
advertising channels would increase its advertising costs or cause it to choose less expensive and perhaps fewer effective channels. As
the Company adds to or changes the mix of its advertising and marketing strategies, it may expand into channels with significantly higher
costs than its current programs, which could adversely affect its operating results. The Company may incur advertising and marketing expenses
significantly in advance of the time it anticipates recognizing any revenue generated by such expenses, and it may only at a later date,
or never, experience an increase in revenue or brand awareness as a result of such expenditures. Additionally, because the Company recognizes
revenue from customers over the terms of their subscriptions, a sizeable portion of its revenue for each quarter reflects deferred revenue
from subscriptions entered into during previous quarters, and downturns or upturns in subscription sales or renewals may not be reflected
in the Companys operating results until later periods. It has made in the past, and may make, in the future, significant investments
to test new advertising, and there can be no assurance that any such investments will lead to the cost-effective acquisition of additional
customers. If the Company is unable to maintain effective advertising programs, its ability to attract new customers could be adversely
affected, its advertising and marketing expenses could increase substantially, and its operating results may suffer.
9
A portion of the Companys
potential customers locate its website through search engines, such as Google, Bing, and Yahoo!. The Companys ability to maintain
the number of visitors directed to its website is not entirely within its control. If search engine companies modify their search algorithms
in a manner that reduces the prominence of the Companys listing, or if its competitors search engine optimization efforts
are more successful than the Companys, fewer potential customers may click through to its website. In addition, the cost of purchased
listings has increased in the past and may increase in the future. A decrease in website traffic or an increase in search costs could
adversely affect the Companys customer acquisition efforts and its operating results.
**The Company expects
to continue to acquire or invest in other companies, which may divert its managements attention, result in additional dilution
to its stockholders, and consume resources that are necessary to sustain its business.**
The Company expects to continue
to acquire complementary solutions, services, technologies, or businesses in the future. The Company may also enter into relationships
with other businesses to expand its portfolio of solutions or its ability to provide its solutions in foreign jurisdictions, which could
involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating
these transactions can be time-consuming, difficult, and expensive, and its ability to complete these transactions may often be subject
to conditions or approvals that are beyond its control. Consequently, these transactions, even if a definitive purchase agreement is executed
and announced, may not close.
Acquisitions may also disrupt
the Companys business, divert its resources, and require significant management attention that would otherwise be available for
the development of its business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be
realized on a timely basis or at all or the Company may be exposed to known or unknown liabilities, including litigation against the companies
that it may acquire. In connection with any such transaction, the Company may:
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issue additional equity securities that would dilute its stockholders; | |
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use cash that the Company may need in the future to operate its business; | |
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incur debt on terms unfavorable to the Company, that it may be unable to repay, or that may place burdensome restrictions on its operations; | |
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incur large charges or substantial liabilities; or | |
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become subject to adverse tax consequences or substantial depreciation, deferred compensation, or other acquisition-related accounting charges. | |
Any of these risks could
harm the Companys business and operating results.
**Integration of an acquired
companys operations may present challenges.**
The integration of an acquired
company requires, among other things, coordination of administrative, sales and marketing, accounting and finance functions, and expansion
of information and management systems. Integration may prove to be difficult due to the necessity of coordinating geographically separate
organizations and integrating personnel with disparate business backgrounds and accustomed to different corporate cultures. The Company
may not be able to retain key employees of an acquired company. Additionally, the process of integrating a new solution or service may
require a disproportionate amount of time and attention of the Companys management and financial and other resources. Any difficulties
or problems encountered in the integration of a new solution or service could have a material adverse effect on the Companys business.
The Company intends to continue
to acquire businesses that it believes will help achieve its business objectives. As a result, the Companys operating costs will
likely continue to grow. The integration of an acquired company may cost more than the Company anticipates, and it is possible that the
Company will incur significant additional unforeseen costs in connection with such integration, which may negatively impact its earnings.
10
In addition, the Company
may only be able to conduct limited due diligence on an acquired companys operations. Following an acquisition, the Company may
be subject to liabilities arising from an acquired companys past or present operations, including liabilities related to data security,
encryption and privacy of customer data, and these liabilities may be greater than the warranty and indemnity limitations that the Company
negotiates. Any liability that is greater than these warranty and indemnity limitations could have a negative impact on the Companys
financial condition.
Even if successfully integrated,
there can be no assurance that the Companys operating performance after an acquisition will be successful or will fulfill managements
objectives.
**The Company may fail
to maintain an effective system of internal controls, which may result in material misstatements of its consolidated financial statements
or cause it to fail to meet its periodic reporting obligations.**
As a public company, The
Company is required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.
Section 404 requires an annual management assessment of the effectiveness of the Companys internal control over financial reporting.
The rules governing the standards that must be met for management to assess the Companys internal control over financial reporting
are complex and require significant documentation, testing, and possible remediation.
The Company can give no assurance
that additional material weaknesses will not be identified in the future. The Companys failure to implement and maintain effective
internal controls over financial reporting could result in errors in its consolidated financial statements that could result in a restatement
of its financial statements and could cause it to fail to meet its reporting obligations, any of which could diminish investor confidence
in the Company and cause a decline in the price of its common stock.
11
**The Company is controlled
by three principal stockholders who serve as its executive officers and directors.**
As of March 27, 2025, through their aggregate voting power, Messrs. Piluso,
Schwartz and Kempster control approximately 36% of the Companys outstanding common stock, giving them the ability to control a
significant portion of the votes for the Companys directors and all other matters requiring the approval of its stockholders, including
the election of all its directors and the approval of a reverse stock split.
**To date, a substantial
portion of the Companys revenues have come from a limited number of customers, making it dependent on those few customers.**
Though the Company continues to expand its customer base, the Company remains
dependent on a limited number of customers for a substantial portion of its revenues. For the year ended December 31, 2024, the Company
had two customers that each, individually, accounted for 12%of revenue. For the year ended December 31, 2023, the Company had two
customers that accounted for 12% and 10% of revenue. The loss of, or a significant reduction of business from, any of the Companys
primary customers could have a material adverse effect on its business, financial condition, and results of operations unless it is able
to replace such customers with other primary customers.
**Risks Related to the
Companys Industry**
**The market for cloud
solutions is highly competitive, and if the Company does not compete effectively, its operating results will be harmed.**
The market for the Companys
services is highly competitive, quickly evolving and subject to rapid changes in technology. The Company expects to continue to face intense
competition from its existing competitors as well as additional competition from new market entrants in the future as the market for its
services continues to grow.
The Company competes with
cloud backup and infrastructure providers and providers of traditional hardware-based systems and IBM Power Systems. Its current and potential
competitors vary by size, service offerings, and geographic region. These competitors may elect to partner with each other or with focused
companies to grow their businesses. They include:
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in-house IT departments of its customers and potential customers; | |
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traditional global infrastructure providers, including, but not limited to, large multi-national providers, such as IBM, Microsoft, Google, and Amazon Web Services (AWS); | |
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cloud and software service providers and digital systems integrators; | |
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regional managed services providers; and | |
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colocation solutions providers, such as Equinix, Rackspace and TierPoint. | |
Many of these competitors
benefit from significant competitive advantages over the Company, given their desire to enter this niche marketplace, such as greater
name recognition, longer operating histories, more varied services, and larger marketing budgets, as well as greater financial, technical,
and other resources. In addition, many of these competitors have established marketing relationships and major distribution agreements
with computer manufacturers, internet service providers, and resellers, giving them access to larger customer bases. Some of these competitors
may make acquisitions or enter strategic relationships to offer a more comprehensive service than the Company does. As a result, some
of these competitors may be able to:
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develop superior products or services, gain greater market acceptance, and expand their service offerings more efficiently or more rapidly; | |
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adapt to new or emerging technologies and changes in customer requirements more quickly; | |
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bundle their offerings, including hosting services with other services they provide at reduced prices; | |
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streamline their operational structure, obtain better pricing, or secure more favorable contractual terms, allowing them to deliver services and products at a lower cost; | |
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take advantage of acquisition, joint ventures, and other opportunities more readily; | |
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adopt more aggressive pricing policies and devote greater resources to the promotion, marketing, and sales of their services, which could cause us to have to lower prices for certain services to remain competitive in the market; and | |
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devote greater resources to the research and development of their products and services. | |
12
In addition, demand for the
Companys cloud solutions is sensitive to price. Many factors, including the Companys customer acquisition, advertising and
technology costs, and its current and future competitors pricing and marketing strategies, can significantly affect its pricing
strategies. Certain of the Companys competitors offer, or may in the future offer, lower-priced or free solutions that compete
with its solutions.
Additionally, consolidation
activity through strategic mergers, acquisitions and joint ventures may result in new competitors that can offer a broader range of products
and services that, may have a greater scale or a lower cost structure. To the extent such consolidation results in the ability of vertically
integrated companies to offer more integrated services to customers than the Company can, customers may prefer the single-source approach
and direct more business to such competitors, thereby impairing the Companys competitive position. Furthermore, new entrants not
currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. As the Company
looks to market and sell its services to potential customers, the Company must convince its internal stakeholders that the Companys
services are superior to their current solutions. If the Company is unable to anticipate or react to these competitive challenges, its
competitive position would weaken, which could adversely affect its business, financial condition, and results of operations. These combinations
may make it more difficult for the Company to compete effectively and its inability to compete effectively would negatively impact its
operating results. In addition, there can be no assurance that the Company will not be forced to engage in price-cutting initiatives,
or to increase its advertising and other expenses to attract and retain customers in response to competitive pressures, either of which
could have a material adverse effect on the Companys revenue and operating results.
**If a cyberattack was
able to breach the Companys security protocols and disrupt its data protection platform and solutions, any such disruption could
increase its expenses, damage its reputation, harm its business and adversely affect its stock price.**
The Company has implemented
various protocols and regularly monitors its systems via security software to reduce any security vulnerabilities. The Company also relies
on third-party providers for several critical aspects of its infrastructure cloud and disaster recovery business continuity services,
and consequently, it does not maintain direct control over the security or stability of those associated systems. Furthermore, the firmware,
software, and/or open-source software that its data protection solutions may utilize could be susceptible to hacking or misuse. In the
event of the discovery of a significant security vulnerability, the Company would incur additional substantial expenses and its business
would be harmed.
The process of developing
new technologies is complex and uncertain, and if the Company fails to accurately predict customers changing needs and emerging
technological trends or if the Company fails to achieve the benefits expected from its investments, its business could be harmed. The
Company believes that it must continue to dedicate a significant amount of resources to its research and development efforts to maintain
its competitive position and it must commit significant resources to develop new solutions before knowing whether its investments will
result in solutions the market will accept. The Companys new solutions or solution enhancements could fail to attain sufficient
market acceptance or harm its business for many reasons, including:
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delays in releasing its new solutions or enhancements to the market; | |
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failure to accurately predict market demand or customer demands; | |
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inability to protect against new types of attacks or techniques used by hackers; | |
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difficulties with software development, design, or marketing that could delay or prevent its development, introduction, or implementation of new solutions and enhancements; | |
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defects, errors or failures in its design or performance; | |
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negative publicity about its performance or effectiveness; | |
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introduction or anticipated introduction of competing solutions by its competitors; | |
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poor business conditions for its customers, causing them to delay information technology purchases; | |
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the perceived value of its solutions or enhancements relative to their cost; and | |
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easing of regulatory requirements around security or storage. | |
13
In addition, new technologies
have the risk of defects that may not be discovered until after the product launches, resulting in adverse publicity, loss of revenue
or harm to the Companys business and reputation.
**Any significant disruption
in service in the Companys computer systems, or caused by its third-party storage and system providers, could damage its reputation
and result in a loss of customers, which would harm its business, financial condition, and operating results.**
The Companys reputation, and ability to attract, retain and serve its
customers is dependent upon the reliable performance of its network infrastructure and payment systems, and its customers ability
to readily access their stored files. The Company has experienced interruptions in these systems in the past, including server failures
that temporarily slowed down its customers ability to access their stored files, or made the Companys infrastructure inaccessible
and it may experience interruptions or outages in the future.
In addition, while the Company both operates and maintains elements of network
infrastructure, some elements of this complex system are operated by third parties that the Company does not control and that would require
considerable time to replace. The Company expects this dependence on third parties to increase. In particular, the Company utilizes IBM
and Intel to provide equipment and support. All of these third-party systems are located in data center facilities operated by third parties.
While these data centers are of the highest level, Tier 3, there can be no assurance that they will not experience disruptions that will
adversely impact the Companys ability to service its customers. The Companys data center agreements expire at various times
between 2027 and 2029 with rights of extension. If the Company were unable to renew these agreements on commercially reasonable terms,
it may be required to transfer that portion of its computing and storage capacity to new data center facilities, and it may incur significant
costs and possible service interruption in connection with doing so.
The Company also relies upon
third-party colocation providers to host its main servers. If these providers are unable to handle current or higher volumes of use, experience
any interruption in operations or cease operations for any reason or if the Company is unable to agree on satisfactory terms for continued
hosting relationships, the Company would be forced to enter into a relationship with other service providers or assume hosting responsibilities
itself. If the Company is forced to switch data center facilities, which in itself is a competitive industry, it may not be successful
in finding an alternative service provider on acceptable terms or in hosting the computer servers itself. The Company may also be limited
in its remedies against these providers in the event of a failure of service.
Interruptions, outages and/or
failures in the Companys own systems, the third-party systems and facilities on which we rely, or the use of its data center facilities,
whether due to system failures, computer viruses, cybersecurity attacks, physical or electronic break-ins, damage or interruption from
human error, power losses, natural disasters or terrorist attacks, hardware failures, systems failures, telecommunications failures or
other factors, could affect the security or availability of infrastructure, prevent the Company from being able to continuously back up
its customers data or its customers from accessing their stored data, and may damage or delete its customers stored files.
If this were to occur, the Companys reputation could be compromised, and it could be subject to liability to the customers that
were affected.
Any financial difficulties, such as bankruptcy, faced by the Companys
third-party data center operators, its third-party colocation providers, or any of the service providers with whom the Company or they
contract, may have negative effects on its business, the nature and extent of which are difficult to predict. Moreover, if its third-party
data center providers or its third-party colocation providers are unable to keep up with the Companys growing capacity needs, this
could have an adverse effect on the Companys business. Interruptions in the Companys services might reduce its revenue,
cause it to issue credits or refunds to customers, subject it to potential liability, or harm its renewal rates. In addition, prolonged
delays or unforeseen difficulties in connection with adding storage capacity or upgrading its network architecture when required may cause
the Companys service quality to suffer. Problems with the reliability or security of the Companys systems could harm its
reputation, and the cost of remedying these problems could negatively affect the Companys business, financial condition, and operating
results.
14
**Security vulnerabilities,
data protection breaches and cyberattacks could disrupt the Companys data protection platform and solutions, and any such disruption
could increase its expenses, damage its reputation, harm its business, and adversely affect its stock price.**
The Company relies on third-party
providers for several critical aspects of its infrastructure cloud and disaster recovery business continuity services, and consequently,
it does not maintain direct control over the security or stability of the associated systems. Furthermore, the firmware, software and/or
open-source software that its data protection solutions may utilize could be susceptible to hacking or misuse. In the event of the discovery
of a significant security vulnerability, the Company would incur additional substantial expenses and its business would be harmed.
The Companys customers
rely on its solutions for production, replication, and storage of digital copies of their files, including financial records, business
information, photos, and other personally meaningful content. The Company also stores credit card information and other personal information
about its customers. An actual or perceived breach of the Companys network security and systems or other cybersecurity related
events that cause the loss or public disclosure of, or access by third parties to, its customers stored files could have serious
negative consequences for its business, including possible fines, penalties and damages, reduced demand for its solutions, an unwillingness
of customers to provide the Company with their credit card or payment information, an unwillingness of its customers to use its solutions,
harm to its reputation and brand, loss of its ability to accept and process customer credit card orders, and time-consuming and expensive
litigation. If this occurs, the Companys business and operating results could be adversely affected. Third parties may be able
to circumvent the Companys security by deploying viruses, worms, and other malicious software programs that are designed to attack
or attempt to infiltrate its systems and networks and it may not immediately discover these attacks or attempted infiltrations. Further,
outside parties may attempt to fraudulently induce the Companys employees, consultants, or affiliates to disclose sensitive information
in order to gain access to its information or its customers information. The techniques used to obtain unauthorized access, disable
or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate
from less regulated or remote areas around the world. As a result, the Company may be unable to proactively address these techniques or
to implement adequate preventative or reactionary measures. In addition, employee or consultant error, malfeasance, or other errors in
the storage, use, or transmission of personal information could result in a breach of customer or employee privacy. The Company maintains
insurance coverage to mitigate the potential financial impact of these risks; however, its insurance may not cover all such events or
may be insufficient to compensate it for the potentially significant losses, including the potential damage to the future growth of its
business, that may result from the breach of customer or employee privacy. If the Company or its third-party providers are unable to successfully
prevent breaches of security relating to its solutions or customer private information, it could result in litigation and potential liability
for the Company, cause damage to its brand and reputation, or otherwise harm its business and its stock price.
Many states have enacted
laws requiring companies to notify consumers of data security breaches involving their personal data. In addition, the SEC now also requires
disclosure of material data security breaches. These mandatory disclosures regarding a security breach often lead to widespread negative
publicity, which may cause the Companys customers to lose confidence in the effectiveness of its data security measures. Any security
breach, whether successful or not, would harm the Companys reputation and could cause the loss of customers. Similarly, if a publicized
breach of data security at any other cloud backup service provider or other major consumer website were to occur, there could be a general
public loss of confidence in the use of the internet for cloud backup services or commercial transactions generally. Any of these events
could have material adverse effects on the Companys business, financial condition, and operating results.
**The Companys
ability to provide services to its customers depends on its customers continued high-speed access to the internet and the continued
reliability of the internet infrastructure.**
The Companys business
depends on its customers continued high-speed access to the internet, as well as the continued maintenance and development of the
internet infrastructure. While the Company also provides broadband internet services, many of its clients depend on third-party internet
service providers to expand high-speed internet access, to maintain a reliable network with the necessary speed, data capacity, and security,
and to develop complementary solutions and services, including high-speed solutions, for providing reliable and timely internet access
and services. All of these factors are out of the Companys control. To the extent that the internet continues to experience an
increased number of users, frequency of use, or bandwidth requirements, the internet may become congested and be unable to support the
demands placed on it, and its performance or reliability may decline. Any internet outages or delays could adversely affect the Companys
ability to provide services to its customers.
15
Currently, internet access
is provided by telecommunications companies and internet access service providers that have significant and increasing market power in
the broadband and internet access marketplace. In the absence of government regulation, these providers could take measures that affect
their customers ability to use the Companys products and services, such as attempting to charge their customers more for
using the Companys products and services. To the extent that internet service providers implement usage-based pricing, including
meaningful bandwidth caps, or otherwise try to monetize access to their networks, the Company could incur greater operating expenses and
customer acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to create tiers of
internet access service and either charge the Company for or prohibit the Companys services from being available to its customers
through these tiers, its business could be negatively impacted. Some of these providers also offer products and services that directly
compete with the Companys own offerings, which could potentially give them a competitive advantage.
**If the Company is unable
to retain its existing customers, its business, financial condition, and operating results would be adversely affected.**
If the Companys efforts
to satisfy its existing customers are not successful, it may not be able to retain them, and as a result, its revenue and ability to grow
would be adversely affected. The Company may not be able to accurately predict future trends in customer renewals. Customers choose not
to renew their subscriptions for many reasons, including if customer service issues are not satisfactorily resolved, a desire to reduce
discretionary spending, or a perception that they do not use the service sufficiently, that the solution is a poor value, or that competitive
services provide a better value or experience. If the Companys retention rate significantly decreases, it may need
to increase the rate at which it adds new customers in order to maintain and grow its revenue, which may require it to incur significantly
higher advertising and marketing expenses than it currently anticipates, or its revenue may decline. A significant decrease in the Companys
retention rate would therefore have an adverse effect on its business, financial condition, and operating results. The Companys
estimates of the number of employees it retains, and advertising costs are based to a large extent upon its subscription contracts, which
may be terminated by customers typically upon 90 days notice prior to the ending term of their contract for services.
**A decline in demand
for the Companys cyber security, disaster recovery, and/or infrastructure solutions, in general, would cause its revenue to decline.**
The Company derives, and
expects to continue to derive, a significant portion of its revenue from subscription services for business continuity, such as data protection
solutions including its disaster recovery backup, replication, archive, and infrastructure as a service offering. Some of the potential
factors that could affect interest in and demand for cloud solutions include:
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awareness of the Companys brand and the cloud solutions category generally; | |
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the appeal and reliability of the Companys solutions; | |
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the price, performance, features, and availability of competing solutions and services; | |
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public concern regarding privacy and data security; | |
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the Companys ability to maintain high levels of customer satisfaction; and | |
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the rate of growth in cloud solutions generally. | |
In addition, substantially
all of the Companys revenue is currently derived from customers in the U.S. Consequently, a decrease of interest in and demand
for the Companys solutions in the U.S. could have a disproportionately greater impact on it than if its geographic mix of revenue
was less concentrated.
16
**The Company primarily
depends upon third-party distribution companies to generate new customers. The Companys relationships with its partners and distributors
may be terminated or may not continue to be beneficial in generating new customers, which could adversely affect its ability to increase
its customer base.**
The Company maintains a network
of distributors, which refer customers to it through links on their websites or promotion to their customers. The number of customers
that the Company can add through these relationships is dependent on the marketing efforts of distributors, over which it has little control.
If the Company is unable to maintain its relationships, or renew contracts on favorable terms, with existing partners and distributors
or establish new contractual relationships with potential partners and distributors, it may experience delays and increased costs in adding
customers, which could have a material adverse effect on the Company. The Companys distributors also provide services to other
third parties and therefore may not devote their full time and attention to promoting the Companys products and services.
**If the Company is unable
to expand its base of business customers, its future growth and operating results could be adversely affected.**
The Company has committed
and continues to commit substantial resources to the expansion and increased marketing of its business solutions. If the Company is unable
to market and sell its solutions to businesses with competitive pricing and in a cost-effective manner its ability to grow its revenue
and achieve profitability may be harmed.
**If the Company is unable
to sustain market recognition of and loyalty to its brand, or if its reputation were to be harmed, it could lose customers or fail to
increase the number of its customers, which could harm its business, financial condition, and operating results.**
Given the Companys
market focus, maintaining and enhancing its brand is critical to its success. The Company believes that the importance of brand recognition
and loyalty will increase in light of the increasing competition in its markets. The Company plans to continue investing substantial resources
to promote its brand, both domestically and internationally, but there is no guarantee that its brand development strategies will enhance
the recognition of its brand. Some of the Companys existing and potential competitors have well-established brands with greater
recognition than it has. If the Companys efforts to promote and maintain the Companys brand are not successful, the Companys
operating results and its ability to attract and retain customers may be adversely affected. In addition, even if the Companys
brand recognition and loyalty increase, it may not result in increased use of its solutions or higher revenue.
The Companys solutions,
as well as those of its competitors, are regularly reviewed in computer and business publications. Negative reviews, or reviews in which
the Companys competitors solutions and services are rated more highly than its solutions, could negatively affect its brand
and reputation. From time to time, the Companys customers express dissatisfaction with its solutions, including, among other things,
dissatisfaction with its customer support, its billing policies, and the way its solutions operate. If the Company does not handle customer
complaints effectively, its brand and reputation may suffer, it may lose its customers confidence, and they may choose not to renew
their subscriptions. In addition, many of the Companys customers participate in online blogs about computers and internet services,
including the Companys solutions, and its success depends in part on its ability to generate positive customer feedback through
such online channels where consumers seek and share information. If actions that the Company takes or changes that it makes to its solutions
upset these customers, their blogging could negatively affect its brand and reputation. Complaints or negative publicity about the Companys
solutions or billing practices could adversely impact its ability to attract and retain customers and its business, financial condition,
and operating results.
17
**The Company is subject
to governmental regulation and other legal obligations related to privacy, and any actual or perceived failure to comply with such obligations
would harm its business.**
The Company receives, stores,
and processes personal information and other customer data and maintains specific protocols and procedures to help safeguard the privacy
of that personal information and customer data. Personal privacy has become a significant issue in the United States and in many other
countries where the Company may offer its offering of solutions. The regulatory framework for privacy issues worldwide is currently complex
and evolving, and it is likely to remain uncertain for the foreseeable future. There are numerous federal, state, local, and foreign laws
regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other customer data,
the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other
rules. The Company generally seeks to comply with industry standards and is subject to the terms of its privacy policies and privacy-related
obligations to third parties. The Company strives to comply with all applicable laws, policies, legal obligations, and industry codes
of conduct relating to privacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted
and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or the Companys
practices. Any failure or perceived failure by the Company to comply with its privacy policies, its privacy-related obligations to customers
or other third parties, its privacy-related legal obligations, or any compromise of security that results in the unauthorized release
or transfer of personally identifiable information or other customer data, may result in governmental enforcement actions, litigation,
or public statements against the Company by consumer advocacy groups or others and could cause its customers to lose trust in the Company,
which could have an adverse effect on the Companys reputation and business.
The Companys customers
may also accidentally disclose their passwords or store them on a mobile device that is lost or stolen, creating the perception that its
systems are not secure against third-party access. Additionally, if third parties that the Company works with, such as vendors or developers,
violate applicable laws or its policies, such violations may also put its customers information at risk and could in turn have
an adverse effect on its business. Any significant change to applicable laws, regulations, or industry practices regarding the use or
disclosure of the Companys customers data, or regarding the manner in which the express or implied consent of customers
for the use and disclosure of such data is obtained, could require it to modify its solutions and features, possibly in a material manner,
and may limit its ability to develop new services and features that make use of the data that its customers voluntarily share with the
Company.
**The Companys
solutions are used by customers in the health care industry, and it must comply with numerous federal and state laws related to patient
privacy in connection with providing its solutions to these customers.**
The Companys solutions
are used by customers in the health care industry, and it must comply with numerous federal and state laws related to patient privacy
in connection with providing its solutions to these customers. In particular, the Health Insurance Portability and Accountability Act
of 1996 (HIPAA), and the Health Information Technology for Economic and Clinical Health Act (HITECH) include
privacy standards that protect individual privacy by limiting the uses and disclosures of individually identifiable health information
and implementing data security standards. Because the Companys solutions may backup individually identifiable health information
for its customers, its customers are mandated by HIPAA to enter into written agreements with us known as business associate agreements
that require the Company to safeguard individually identifiable health information. Business associate agreements typically include:
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a description of the Companys permitted uses of individually identifiable health information; | |
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a covenant not to disclose that information except as permitted under the agreement and to make the Companys subcontractors, if any, subject to the same restrictions; | |
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assurances that appropriate administrative, physical, and technical safeguards are in place to prevent misuse of that information; | |
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an obligation to report to the Companys customers any use or disclosure of that information other than as provided for in the agreement; | |
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a prohibition against the Companys use or disclosure of that information if a similar use or disclosure by its customers would violate the HIPAA standards; | |
18
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the ability of the Companys customers to terminate their subscription to its solution if the Company breaches a material term of the business associate agreement and are unable to cure the breach; | |
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the requirement to return or destroy all individually identifiable health information at the end of the customers subscription; and | |
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access by the Department of Health and Human Services to the Companys internal practices, books, and records to validate that we are safeguarding individually identifiable health information. | |
The Company may not be able
to adequately address the business risks created by HIPAA or HITECH implementation or comply with its obligations under its business associate
agreements. Furthermore, the Company is unable to predict what changes to HIPAA, HITECH or other laws or regulations might be made in
the future or how those changes could affect its business or the costs of compliance. Failure by the Company to comply with any of the
federal and state standards regarding patient privacy may subject the Company to penalties, including civil monetary penalties and, in
some circumstances, criminal penalties, which could have an adverse effect on its business, financial condition, and operating results.
**Errors, failures, bugs
in or unavailability of the Companys solutions released by it could result in negative publicity, damage to its brand, returns,
loss of or delay in market acceptance of its solutions, loss of competitive position, or claims by customers or others.**
The Company offers solutions
that operate in a wide variety of environments, systems, applications, and configurations, that are often installed and used in large-scale
computing environments with different operating systems, system management software, and equipment and networking configurations. The
Companys customers computing environments are often characterized by a wide variety of standard and non-standard configurations
that can make pre-release testing for programming or compatibility errors very difficult and time-consuming. In addition, despite testing
by the Company and others, errors, failures, or bugs may not be found in new solutions or releases until after distribution. In the past,
when the Company has discovered any software errors, failures or bugs in certain of its solution offerings after their introduction or
when new versions are released, it, in some cases, has experienced delayed or lost revenues as a result of these errors. In addition,
the Company relies on hardware purchased or leased and software licensed from third parties to offer its solutions, and any defects in,
or unavailability of, its third-party software or hardware could cause interruptions to the availability of its solutions.
Errors, failures, bugs in
or unavailability of the Companys solutions released by it could result in negative publicity, damage to its brand, returns, loss
of or delay in market acceptance of its solutions, loss of competitive position, or claims by customers or others. Many of the Companys
end-user customers use its solutions in applications that are critical to their business and may have a greater sensitivity to defects
in its solutions than to defects in other, less critical, software solutions. In addition, if an actual or perceived breach of information
integrity or availability occurs in one of its end-user customers systems, regardless of whether the breach is attributable to
its solutions, the market perception of the effectiveness of its solutions could be harmed. Alleviating any of these problems could require
significant expenditures of the Companys capital and other resources and could cause interruptions, delays, or cessation of its
solution licensing, which could cause it to lose existing or potential customers and could adversely affect its operating results.
**The Company faces many
risks associated with its growth and plans to expand, which could harm its business, financial condition, and operating results.**
The Company continues to
experience sales growth in its business. This growth has placed, and may continue to place, significant demands on its management and
its operational and financial infrastructure. As the Companys operations grow in size, scope, and complexity, it will need to improve
and upgrade its systems and infrastructure to attract, service, and retain an increasing number of customers. The expansion of its systems
and infrastructure will require the Company to commit substantial financial, operational, and technical resources in advance of an increase
in the volume of business, with no assurance that the volume of business will increase. Any such additional capital investments will increase
the Companys cost base. Continued growth could also strain the Companys ability to maintain reliable service levels for
its customers, develop and improve its operational, financial, and management controls, enhance its reporting systems and procedures,
and recruit, train, and retain highly skilled personnel. If the Company fails to achieve the necessary level of efficiency in its organization
as it grows, its business, financial condition, and operating results could be harmed.
19
The Company has office locations
in New York, Florida, Texas and the United Kingdom, and data centers in New York, Massachusetts, North Carolina, Texas, Canada and the
United Kingdom. If the Company is unable to effectively manage a large and geographically dispersed group of employees and contractors
or to anticipate its future growth and personnel needs, its business may be adversely affected. As the Company expands its business, it
adds complexity to its organization and must expand and adapt its operational infrastructure and effectively coordinate throughout its
organization. As a result, the Company has incurred and expects to continue to incur additional expenses related to its continued growth.
The Company also anticipates
that its ongoing efforts to continue to expand internationally will entail the marketing and advertising of its services and brand and
the development of localized websites. The Company does not have substantial experience in selling its solutions in international markets
or in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets, and it must invest
significant resources in order to do so. The Company may not succeed in these efforts or achieve its customer acquisition or other goals.
For some international markets, customer preferences and buying behaviors may be different, and the Company may use business or pricing
models that are different from its traditional subscription model to provide cloud backup and related services to customers. The Companys
revenue from new foreign markets may not exceed the costs of establishing, marketing, and maintaining its international solutions, and
therefore may not be profitable on a sustained basis, if at all.
**The
Companys international expansion will subject it to risks typically encountered when operating internationally including economic
and political instability, fluctuations in currency exchange rates, differing legal and regulatory environments, challenges in managing
a geographically dispersed workforce, and cultural differences.**
International
operations are subject to numerous political and economic factors, including changes in foreign national priorities, foreign government
budgets, global economic conditions, and fluctuations in foreign currency exchange rates, the possibility of trade sanctions and other
government actions, regulatory requirements, significant competition, taxation, and other risks associated with doing business outside
the United States. Competition for international sales is intense.
As
a result of the Companys international expansion into Europe, it will be exposed to risks inherent in foreign operations. These
risks, which can vary substantially by market, include:
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1. | higher
costs and difficulties inherent in managing cross-border business operations and complying
with different commercial and legal requirements of overseas markets; | |
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2. | political
instability, corruption, and social and ethnic unrest; | |
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3. | changes
in economic conditions (including wage and commodity inflation, consumer spending and unemployment
levels); | |
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4. | the
regulatory environment; | |
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5. | compliance
with tax, trade, environmental and other foreign laws and regulations, including legal limitations
on ownership in some foreign countries and inadequate or inconsistent enforcement of regulations; | |
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6. | actions
by local regulatory bodies, including setting rates and tariffs that may be earned by or
charged to our businesses; | |
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7. | adverse
rulings by foreign courts or tribunals; challenges obtaining, maintaining and complying with
permits or approvals; difficulty enforcing contractual and property rights; and differing
legal standards; | |
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8. | cultural
differences; | |
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9. | consumer
preferences ; | |
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10. | changes
in the laws and policies that govern foreign investment in countries where our business is
operated; | |
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11. | crime,
strikes, riots, civil disturbances, terrorist attacks, natural disasters and wars; | |
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12. | deterioration
of political relations with the United States; and | |
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13. | Government
appropriations of assets. | |
In
addition, the Company may experience gains and losses resulting from fluctuations in foreign currency exchange rates. To date, the majority
of the Companys revenues and costs are denominated in U.S. dollars; however, the majority of revenues and costs in its international
operations [are/will be] denominated in foreign currencies. Where the Companys prices are denominated in U.S. dollars, its sales
could be adversely affected by declines in foreign currencies relative to the U.S. dollar, thereby making its products and services more
expensive in local currencies. The Company is also exposed to risks resulting from fluctuations in foreign currency exchange rates in
connection with its international expansion. To the extent the Company pay contractors in foreign currencies, international expansions
could cost more than anticipated as a result of declines in the U.S dollar relative to foreign currencies. In addition, fluctuating foreign
currency exchange rates have a direct impact on how the Companys international results of operations translate into U.S. dollars,
which may adversely affect reported earnings.
Even
if the Company may decide in the future to undertake foreign exchange hedging transactions to reduce foreign currency transaction exposure,
it does not currently intend to eliminate all foreign currency transaction exposure. Therefore, any weakness of the U.S. dollar may have
a positive impact on the Companys consolidated results of operations because the currencies in the foreign countries in which it
operates may translate into more U.S. dollars. However, if the U.S. dollar strengthens relative to the currencies of the foreign countries
in which the Company operates its consolidated financial position and results of operations may be negatively impacted as amounts in foreign
currencies will generally translate into fewer U.S. dollars. There can be no assurance as to the future effect of any such changes on
our results of operations, financial condition or cash flows.
The
Companys international business involves sales directly to international customers which are subject to U.S. and foreign laws and
regulations, technology transfer restrictions, investments, taxation, repatriation of earnings, exchange controls, the Foreign Corrupt
Practices Act and other anti-corruption laws and regulations, and the anti-boycott provisions of the U.S. Export Control Reform Act of
2018. While the Company has policies in place to comply with such laws and regulations, failure by the Company, its employees or others
working on its behalf to comply with these laws and regulations could result in administrative, civil, or criminal liabilities, which
could have a material adverse effect on the Company.
Additionally,
international procurement and local country rules and regulations, contract laws and judicial systems differ from those in the U.S. and,
in some cases, may be less predictable than those in the U.S., which could impair our ability to enforce contracts and increase the risk
of adverse or unpredictable outcomes, including the possibility that certain matters that would be considered civil matters in the U.S.
are treated as criminal matters in other countries.
We
may not be able to adequately address these additional risks. If we were unable to do so, our operations might suffer, which may adversely
impact our results of operations and financial condition.
21
The Companys software
contains encryption technologies, certain types of which are subject to U.S. and foreign export control regulations and, in some foreign
countries, restrictions on importation and/or use. Any failure on the Companys part to comply with encryption or other applicable
export control requirements could result in financial penalties or other sanctions under the U.S. export regulations, including restrictions
on future export activities, which could harm its business and operating results. Regulatory restrictions could impair the Companys
access to technologies that it seeks for improving its solutions and may also limit or reduce the demand for its solutions outside of
the U.S.
**The loss of the Companys
key personnel, or its failure to attract, integrate, and retain other highly qualified personnel, could harm its business and growth prospects.**
The Company depends on the
continued service and performance of its key personnel. In addition, many of the Companys key technologies and systems are custom-made
for its business by its personnel. The loss of key personnel, including key members of the Companys management team, as well as
certain of its key marketing, sales, product development, or technology personnel, could disrupt its operations and have an adverse effect
on its ability to grow its business. In addition, several of the Companys key personnel have only recently been employed by it,
and the Company is still in the process of integrating these personnel into its operations. The Companys failure to successfully
integrate these key employees into its business could adversely affect its business.
To execute the Companys
growth plan, it must attract and retain highly qualified personnel. Competition for these employees is intense, and the Company may not
be successful in attracting and retaining qualified personnel. The Company, from time to time in the past, experienced, and expects
to continue to experience, difficulty in hiring and retaining highly-skilled employees with appropriate qualifications. New hires require
significant training and, in most cases, take significant time before they achieve full productivity. The Companys recent hires
and planned hires may not become as productive as it expects, and it may be unable to hire or retain sufficient numbers of qualified individuals.
Many of the companies with which it competes for experienced personnel have greater resources than it has. In addition, in making employment
decisions, particularly in the internet and high-technology industries, job candidates often consider the value of the equity that they
are to receive in connection with their employment. In addition, employees may be more likely to voluntarily exit the Company if the shares
underlying their vested and unvested options, as well as unvested restricted stock units, have significantly depreciated in value resulting
in the options they are holding potentially being significantly above the market price of the Companys common stock and the value
of the restricted stock units decreasing. If the Company fails to attract new personnel, or fails to retain and motivate its current personnel,
its business and growth prospects could be severely harmed.
**Declining general economic
or business conditions and changes to trade policy, including tariff and customs regulations, may have a negative impact on the Companys
business.**
****
Continuing concerns over U.S. health care reform legislation
and energy costs, geopolitical issues, including those in Eastern Europe, the availability and cost of credit and government stimulus
programs in the United States and other countries have contributed to increased volatility and diminished expectations for the global
economy. These factors, combined with low business and consumer confidence and high unemployment, precipitated an economic slowdown and
recession and stagnant economy for more than a decade. Additionally, political changes in the U.S. and elsewhere in the world have created
a level of uncertainty in the markets. If the economic climate does not improve or deteriorate, our business, as well as the financial
condition of our suppliers and our third-party payors, could be adversely affected, resulting in a negative impact on our business, financial
condition and results of operations.
Changes in U.S. or international social, political,
regulatory and economic conditions or in laws and policies governing trade, manufacturing, development and investment in the countries
where the Company currently conduct its business could adversely affect its business, reputation, financial condition and results of operations.
Changes or proposed changes in U.S. or other countries trade policies may result in restrictions and economic disincentives on
international trade. The U.S. government has recently imposed, or is currently considering imposing, tariffs on certain trade partners.
Tariffs, economic sanctions and other changes in U.S. trade policy have in the past and could in the future trigger retaliatory actions
by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S.
goods. Further, any emerging protectionist or nationalist trends (whether regulatory- or consumer-driven) either in the United States
or in other countries could affect the trade environment. Our business, like many other corporations, would be impacted by changes to
the trade policies of the United States and foreign countries (including governmental action related to tariffs, international trade agreements,
or economic sanctions). Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, the global economy,
and the Companys industry, and as a result, could have a material adverse effect on its business, financial condition and results
of operations.
In addition, the global macroeconomic
environment could be negatively affected by, among other things, COVID-19 or other pandemics or epidemics, instability in global economic
markets, instability in the global credit markets, supply chain weaknesses, instability in the geopolitical environment as a result of
the withdrawal of the United Kingdom from the European Union, the Russian invasion of Ukraine, the war in the Middle East and other political
tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty and instability
in local economies and in global financial markets.
**Risks Related to Intellectual
Property**
****
**Assertions by a third
party that the Companys solutions infringe its intellectual property, whether or not correct, could subject the Company to costly
and time-consuming litigation or expensive licenses.**
****
There is frequent litigation
in the software and technology industries based on allegations of infringement or other violations of intellectual property rights. Any
such claims or litigation may be time-consuming and costly, divert management resources, require the Company to change its services, require
it to credit or refund subscription fees, or have other adverse effects on its business. Many companies are devoting significant resources
to obtaining patents that could affect many aspects of the Companys business. Third parties may claim that the Companys
technologies or solutions infringe or otherwise violate their patents or other intellectual property rights.
If the Company is forced
to defend itself against intellectual property infringement claims, whether they have merit or are determined in its favor, it may face
costly litigation, diversion of technical and management personnel, limitations on its ability to use its current websites and technologies,
and an inability to market or provide its solutions. As a result of any such claim, the Company may have to develop or acquire non-infringing
technologies, pay damages, enter into royalty or licensing agreements, cease providing certain services, adjust its marketing and advertising
activities, or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable
to the Company, or at all.
Furthermore, the Company
has licensed proprietary technologies from third parties that it uses in its technologies and business, and it cannot be certain that
the owners rights in their technologies will not be challenged, invalidated, or circumvented. In addition to the general risks
described above associated with intellectual property and other proprietary rights, the Company is subject to the additional risk that
the seller of such technologies may not have appropriately created, maintained, or enforced their rights in such technology.
22
**The Company relies
on third-party software to develop and provide its solutions, including server software and licenses from third parties to use patented
intellectual property.**
The Company relies on software
licensed from third parties to develop and offer its solutions. In addition, the Company may need to obtain future licenses from third
parties to use intellectual property associated with the development of its solutions, which might not be available to the Company on
acceptable terms, or at all. Any loss of the right to use any software required for the development and maintenance of the Companys
solutions could result in delays in the provision of its solutions until equivalent technology is either developed by the Company, or,
if available from others, is identified, obtained, and integrated, which delay could harm its business. Any errors or defects in third-party
software could result in errors or a failure of its solutions, which could harm its business.
**If the Company is unable
to protect its domain names, its reputation, brand, customer base, and revenue, as well as its business and operating results, it could be
adversely affected.**
The Company has registered
domain names for websites (URLs) that it uses in its business, such as www.datastoragecorp.com. If the Company is unable
to maintain its rights in these domain names, its competitors or other third parties could capitalize on the Companys brand recognition
by using these domain names for their own benefit. In addition, although the Company owns the Companys domain name under various
global top-level domains such as .com and .net, as well as under various country-specific domains, it might not be able to, or may choose
not to, acquire or maintain other country-specific versions of the Companys domain name or other potentially similar URLs. Domain
names similar to the Company have already been registered in the U.S. and elsewhere, and its competitors or other third parties could
capitalize on its brand recognition by using domain names similar to the Companys. The regulation of domain names in the U.S. and
elsewhere is generally conducted by internet regulatory bodies and is subject to change. If the Company loses the ability to use a domain
name in a particular country, it may be forced to either incur significant additional expenses to market its solutions within that country,
including the development of a new brand and the creation of new promotional materials, or elect not to sell its solutions in that country.
Either result could substantially harm its business and operating results. Regulatory bodies could establish additional top-level domains,
appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, the Company may not be able
to acquire or maintain the domain names that utilize the Companys name in all of the countries in which it currently conducts or
intends to conduct business. Further, the relationship between regulations governing domain names and laws protecting trademarks and similar
proprietary rights varies among jurisdictions and is unclear in some jurisdictions. The Company may be unable to prevent third parties
from acquiring and using domain names that infringe, are similar to, or otherwise decrease the value of, its brand or its trademarks.
Protecting and enforcing the Companys rights in its domain names and determining the rights of others may require litigation, which
could result in substantial costs, divert management attention, and not be decided favorably to the Company.
**Risks Related to the Companys
Common Stock and Securities**
**The Companys
stock price has fluctuated in the past and may be volatile in the future, and as a result, investors in its common stock could incur substantial
losses.**
The
Companys stock price has fluctuated in the past, has recently been volatile, and may be volatile in the future. By way of example,
on March 28, 2024, the reported low sale price of the Companys common stock was $5.52, and the reported high sales price was $7.02.
For comparison purposes, on May 29, 2024, the last closing price of the Companys common stock was $7.81 while the last closing
price on September 6, 2024, was $3.32. The Company may incur rapid and substantial decreases in its stock price in the foreseeable future
that are unrelated to its operating performance or prospects. The stock market has experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their
investment in the Companys common stock. The market price for the Companys common stock may be influenced by many factors,
including the following:
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investor reaction to the Companys business strategy; | |
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the success of competitive products or technologies; | |
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regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to the Companys products; | |
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variations in the Companys financial results or those of companies that are perceived to be similar to the Company; | |
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the Companys ability or inability to raise additional capital and the terms on which it raises it; | |
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declines in the market prices of stocks generally; | |
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the Companys public disclosure of the terms of any financing which it consummates in the future; | |
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an announcement that the Company has effected a reverse split of the Companys common stock and treasury stock; | |
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the Companys failure to be profitable; | |
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the Companys failure to raise working capital; | |
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any acquisitions we may consummate; | |
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announcements by the Company or its competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments; | |
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cancellation of key contracts; | |
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the Companys failure to meet financial forecasts it publicly discloses; | |
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trading volume of the Companys common stock; | |
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sales of the Companys common stock by it or its stockholders; | |
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general economic, industry and market conditions; and | |
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other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the COVID-19 pandemic, and natural disasters such as hurricanes, floods, fires, earthquakes, tornadoes or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt the Companys operations, disrupt the operations of its suppliers or result in political or economic instability. | |
These broad market and industry
factors may seriously harm the market price of the Companys common stock, regardless of its operating performance. Since the stock
price of its common stock has fluctuated in the past, has been volatile recently and may be volatile in the future, investors in its common
stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has
often been instituted against companies. Such litigation, if instituted against the Company, could result in substantial costs and diversion
of managements attention and resources, which could materially and adversely affect its business, financial condition, results
of operations and growth prospects. There can be no guarantee that the Companys stock price will remain at current prices or that
future sales of its common stock will not be at prices lower than those sold to investors.
Additionally, recently, securities
of certain companies have experienced significant and extreme volatility in stock price due to short sellers of shares of common stock,
known as a short squeeze. These short squeezes have caused extreme volatility in those companies and in the market and have
led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value
of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant
portion of their original investment as the price per share has declined steadily as interest in those stocks has abated. While the Company
has no reason to believe its shares would be the target of a short squeeze, there can be no assurance that it wont be in the future,
and investors may lose a significant portion or all of their investment if they purchase the Companys shares at a rate that is
significantly disconnected from its underlying value.
**The
Company cannot be assured that it will be able to maintain its listing on the Nasdaq Capital Market.**
******
The Companys
securities are listed on The Nasdaq Capital Market, a national securities exchange. The Company cannot be assured that it will continue
to comply with the rules, regulations or requirements governing the listing of its common stock on The Nasdaq Capital Market or that its
securities will continue to be listed on Nasdaq Capital Market in the future. If Nasdaq should determine at any time that the Company
failed to meet Nasdaq requirements, it may be subject to a delisting action by Nasdaq.
24
On January
18, 2024, Nasdaq notified the Company that due to the passing of Mr. Hoffman, a member of the Companys Board of Directors and member
of the Audit Committee, the Company was no longer compliant with Nasdaqs audit committee requirements as set forth in Rule 5605(c)(2)(A)
of the Nasdaq listing standards.
On April
2, 2024, the Company received a letter (the Notification Letter) from Nasdaq stating that, based on the information regarding
the appointment of Nancy M. Stallone, CPA to the Companys Board of Directors and Audit Committee, Nasdaq has determined that the
Company complies with the Audit Committee requirement for continued listing on The Nasdaq Capital Market set forth in Listing Rules 5605(c)(2),
which requires that the Company maintain an audit committee of at least three members, each of whom must meet specified criteria, including
certain independence criteria. Accordingly, the Nasdaq staff has determined that the Company has regained compliance with Nasdaq Listing
Rule 5605(c)(2) and has indicated that the matter is now closed.
If Nasdaq
delists the Companys securities from trading on its exchange at some future date, the Company could face significant material adverse
consequences, including:
|
| a limited availability of market quotations for its securities; | |
|
| reduced liquidity with respect to its securities; | |
|
| a determination that the Companys common stock is
a penny stock which will require brokers trading in the Companys common stock to adhere to more stringent rules,
possibly resulting in a reduced level of trading activity in the secondary trading market for the Companys common stock; | |
|
| a limited amount of news and analyst coverage for the Company;
and | |
|
| a decreased ability to issue additional securities or obtain additional financing in the future. | |
**Upon exercising the
Companys outstanding options or warrants, it will be obligated to issue a substantial number of additional shares of common stock
which will dilute its present shareholders.**
The Company is obligated
to issue additional shares of its common stock in connection with any exercise or conversion, as applicable, of its outstanding options,
warrants, and shares of its convertible preferred stock. As of December 31, 2024, there were options and warrants outstanding convertible
into an aggregate of 3,174,162 shares of common stock. The exercise of warrants or options will cause the Company
to issue additional shares of its common stock and will dilute the percentage ownership of its shareholders. In addition, the Company
has in the past, and may in the future, exchange outstanding securities for other securities on terms that are dilutive to the securities
held by other shareholders not participating in such an exchange.
**Offers or availability
for sale of a substantial number of shares of the Companys common stock may cause the price of its common stock to decline**.
Sales of large blocks of
the Companys common stock could depress the price of its common stock. The existence of these shares and shares of common stock
that may be issuable upon conversion or exercise, as applicable, of outstanding shares of convertible preferred stock, warrants and options
create a circumstance commonly referred to as an overhang which can act as a depressant to the Companys common stock
price. The existence of an overhang, whether or not sales have occurred or are occurring, also could make the Companys ability
to raise additional financing through the sale of equity or equity-linked securities more difficult in the future at a time and price
that the Company deems reasonable or appropriate. If the Companys existing shareholders and investors seek to convert or exercise
such securities or sell a substantial number of shares of its common stock, such selling efforts may cause significant declines in the
market price of its common stock. In addition, the shares of the Companys common stock included in the Units and underlying warrants
sold in the offering will be freely tradable without restriction or further registration under the Securities Act. As a result, a substantial
number of shares of the Companys common stock may be sold in the public market following this offering. If there are significantly
more shares of common stock offered for sale than buyers are willing to purchase, then the market price of the Companys common
stock may decline to a market price at which buyers are willing to purchase the offered common stock and sellers remain willing to sell
its common stock.
25
**The Company does not
expect to declare any common stock cash dividends in the foreseeable future.**
****
The Company does not anticipate
declaring any cash dividends to holders of its common stock in the foreseeable future. Consequently, common stockholders may need to rely
on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
**Because the Company
may issue preferred stock without the approval of its shareholders and have other anti-takeover defenses, it may be more difficult for
a third party to acquire the Company and could depress its stock price.**
In general, the Companys
Board may issue, without a vote of its shareholders, one or more additional series of preferred stock that has more than one vote per
share. Without these restrictions, the Companys Board could issue preferred stock to investors who support it and its management
and give effective control of its business to its management. Additionally, the issuance of preferred stock could block an acquisition
resulting in both a drop in the Companys stock price and a decline in interest of its common stock. This could make it more difficult
for shareholders to sell their common stock. This could also cause the market price of the Companys common stock shares to drop
significantly, even if its business is performing well.
******
**Provisions of Nevada
law could delay or prevent an acquisition of DSC, even if the acquisition would be beneficial to its stockholders and could make it more
difficult for stockholders to change DSCs management.**
DSC is subject to anti-takeover
provisions under Nevada law, which could delay or prevent a change of control. Together, these provisions may make more difficult the
removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices
for the Companys securities. These provisions include: limitations on the ability to engage in any combination with
an interested stockholder (each, as defined in the Nevada Revised Statutes (NRS)) for two years from the date
the person first becomes an interested stockholder; being subject to Sections 78.378 to 78.3793 of the NRS and allowing
an acquiring person to obtain voting rights in control shares without shareholder approval; the ability of
the Board to issue shares of currently undesignated and unissued preferred stock without prior stockholder approval; limitations on the
ability of stockholders to call special meetings; and the ability of the Board to amend its amended Bylaws without stockholder approval.
****
26
**ITEM 1B. UNRESOLVED STAFF COMMENTS**
Not Applicable.
**ITEM 1C. CYBERSECURITY**
The Company maintains a cyber risk management program
designed to identify, assess, manage, mitigate, and respond to cybersecurity threats.
The Companys cyber risk management programs
underlying processes and controls incorporate recognized best practices and standards for cybersecurity and information technology. We
conduct annual risk assessments to identify risks related to company assets and business processes, assess the risks likelihood
and potential consequences to the organization, and document any mitigating controls that are in place. Risks that are either highly likely
to occur or whose impact on the organization is high are addressed through risk treatment, including risk acceptance, mitigation, transfer,
or avoidance. The Company documents risk treatments and corresponding action items and tracks progress quarterly through an information
security steering committee.
The Company maintains a comprehensive set of policies,
standards, processes, and other documentation per the ISO 27001:2013 standards requirements, the most widely industry-accepted
standard for managing organizational information and data security risks, for implementing an Information Security Management System (ISMS).
Documentation addresses overall information security, access management, asset management, encryption, data retention and disposal, vulnerability
management, and more. Together, these documents form the foundation of the Companys ISMS and ensure organizational assets and processes
for information security are managed, governed, and are operating effectively.
The Companys management team oversees and administers its risk management
program and informs senior management, the Cyber Security & Risk Committee of the Companys Board of Directors (the Board
or the Board of Directors), and other relevant stakeholders regarding the prevention, detection, mitigation, and remediation
of cybersecurity incidents. The Cyber Security & Risk Committee of the Board of Directors consists of Matthew Grover and Uwayne A.
Mitchell. The Companys ISMS Steering Committee also oversees risks from cybersecurity threats. In addition, the Company also contracts
with a third-party consultant to ensure the ISMS and information security controls comply with applicable standards and requirements.
The Companys management team possesses extensive experience in selecting,
deploying, and overseeing cybersecurity technologies, initiatives, and processes, and relies on threat intelligence and other information
obtained from governmental, public, and private sources to guide its approach. Matthew Grover brings over 15 years of experience in enterprise
IT governance and has held senior leadership positions overseeing global information security operations. Uwayne A. Mitchell holds certifications
such as CISSP and CISM and has a background in regulatory compliance and incident response within highly regulated industries. The ISMS
Steering Committee includes members with technical and strategic expertise in cybersecurity risk assessment, data protection, and ISO/IEC
27001 implementation, providing the Company with robust oversight capabilities.
27
The ISMS Steering Committee is specifically responsible
for reviewing the adequacy of the Companys information security controls. The committee, including member(s) of management assigned
with cybersecurity oversight responsibility and/or third-party consultants providing cyber risk services, reviews vulnerabilities identified
through the risk management process, the effectiveness of the Companys cyber risk management program, and the emerging threat landscape
and new cyber risks on a quarterly basis. This includes updates on the Companys processes to prevent, detect, and mitigate cybersecurity
incidents. In addition, cybersecurity risks are reviewed by the Cyber Security and Risk Committee at least annually as part of the Companys
corporate risk oversight processes. The Company also undergoes annual internal and external ISO 27001:2013 audits to proactively identify
nonconformity issues within the ISMS and demonstrate ongoing compliance with the standard.
As part of its review of the adequacy of the Companys
system of internal controls over financial reporting and disclosure controls and procedures, the Cyber Security & Risk Committee of
the Board of Directors, comprised of independent directors, is specifically responsible for reviewing the adequacy of the Companys
computerized information system controls and security related thereof, the Companys cybersecurity threat landscape, risks and the
Companys management and mitigation of cybersecurity risks and potential breach incidents.
The Company faces risks from cybersecurity threats
that could adversely affect its business, financial condition, results of operations, cash flows, or reputation. The Company acknowledges
that the risk of cyber incidents is prevalent in the current threat landscape and that a future cyber incident may occur in the normal
course of its business. To date, the Company has not experienced a cybersecurity incident. The Company proactively seeks to detect and
investigate unauthorized attempts and attacks against its IT assets, data, and services and to prevent their occurrence and recurrence
where practicable through changes or updates to internal processes and tools and changes or updates to service delivery; however, potential
vulnerabilities to known or unknown threats will remain. Further, there is increasing regulation regarding responses to cybersecurity
incidents, including reporting to regulators, investors, and additional stakeholders, which could subject the Company to additional liability
and reputational harm. See Item 1A. Risk Factors for more information on cybersecurity risks.
**ITEM 2. PROPERTIES**
The Company currently maintains two leases for office
space located in Melville, NY, and one lease for office space in Austin, TX.
On July 31, 2021, the Company signed a three-year
lease for approximately 2,880 square feet of office space at 980 North Federal Highway, Boca Raton, FL. The commencement date of the lease
was August 2, 2021. The monthly rent is approximately $4,965. The lease has since expired.
On January 1, 2022, the Company entered into a lease
agreement for office space with WeWork in Austin, TX. On September 3, 2024, the Company amended this agreement and is on an eight month
lease agreement with payments of a $1,056 per month.
On January 17, 2024, the Company entered into a lease
agreement for office space in Melville, NY. The lease commenced on April 1, 2024, and has a term of sixty-seven months. The lease requires
monthly payments of $11,931 and expires on October 30, 2029.
**ITEM 3. LEGAL PROCEEDINGS**
From time to time, the Company may become involved
in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company is not presently a party to any
legal proceedings that, if determined adversely to it, would individually or taken together have a material adverse effect on its business,
operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company
because of defense and settlement costs, diversion of management resources and other factors.
|
ITEM 4. MINE SAFETY DISCLOSURES | |
****
****
Not applicable.
28
**PART II**
**ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**
**Market Information**
The Companys common stock trades on The Nasdaq
Capital Market under the symbol DTST.
**Holders of the Companys Common Stock**
As of March 27, 2025, we had 31 shareholders of record
of the Companys common stock, one of which was Cede & Co., a nominee for Depository Trust Company (DTC). All
the shares of the Companys common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial
owners are deposited into participant accounts at DTC and are therefore considered to be held or recorded by Cede & Co. as one stockholder.
**Dividend Policy**
The Company has not declared or paid dividends on
common stock since its formation and does not anticipate paying dividends in the foreseeable future. The declaration or payment of dividends,
if any, in the future, will be at the discretion of DSCs Board of Directors and will depend on the then- current financial condition,
results of operations, capital requirements and other factors deemed relevant by the Board. Each share of Series A Preferred Stock entitles
its holder to receive cash dividends at a rate of ten percent (10%) per annum on the original issue price, compounding annually, in preference
to holders of common stock. Preferred dividends are accrued quarterly. No shares of Series A Preferred Stock are outstanding, and no dividends
have been paid to date since May 2021 when all of the then outstanding shares of Series A Preferred Stock were converted into shares of
the Companys common stock.
**Recent Sales of Unregistered Securities**
The Company did not sell any equity securities during
the three months ended, or the fiscal year ended, December 31, 2024, that were not registered under the Securities Act, other than as previously
disclosed in its filings with the Securities and Exchange Commission (the SEC).
**Issuer Purchases of Equity Securities**
****
There were no issuer purchases of equity securities
during the year ended, December 31, 2024.
**Securities Authorized for Issuance Under Equity Compensation Plans**
The following table contains information about the
Companys equity compensation plans as of December 31, 2024:
****
29
****
**Equity Compensation Plan Information**
|
|
|
Number of securities to be issued upon exercise of outstanding options and warrants |
|
Weighted- average exercise price of outstanding options, warrants and rights |
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |
|
Plan Category |
|
(a) |
|
(b) |
|
(c) | |
|
|
|
|
|
|
|
| |
|
Equity compensation plans approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
| |
|
2010 Plan |
|
|
129,152 |
|
|
$ |
3.41 |
|
|
|
|
| |
|
2021 Plan |
|
|
466,195 |
|
|
$ |
2.25 |
|
|
|
479,653 |
| |
|
Equity compensation plans not approved by stockholders |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
| |
|
Total |
|
|
595,347 |
|
|
$ |
2.48 |
|
|
|
479,653 |
| |
**ITEM 6. RESERVED**
**ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION**
*The following discussion of our plan of operation
and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that relate
to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors
include, among others, those listed under Forward-Looking Statements and Risk Factors and those included elsewhere
in this report.*
**
30
**COMPANY OVERVIEW SUMMARY**
DSC is a leading provider of enterprise cloud and
business continuity solutions, specializing in fully managed cloud hosting, disaster recovery, cybersecurity, and IT automation services.
DSC leverages its expertise through its three subsidiaries: CloudFirst Technologies, CloudFirst Europe and Nexxis. Through its CloudFirst
platform built on IBM Power Systems infrastructure DSC delivers high-performance cloud solutions tailored for IBM i and
AIX workloads This niche focus on IBM Power environments distinguishes CloudFirst in the market: none of the major public cloud providers
(AWS, Microsoft Azure, or Google Cloud) natively support IBM i/AIX workload, giving DSC a distinct competitive edge in serving clients
with these mission-critical systems. The Company leverages long-term subscription contracts for its cloud and disaster-recovery services,
yielding a highly recurring revenue base and strong customer retention (historically over 90% annual subscription renewal rates) DSCs
client base exceeds 425 organizations across diverse sectors including government, healthcare, education, manufacturing, and Fortune
500 enterprises reflecting broad market demand for its multi-cloud hosting and business continuity solutions. In recent years,
DSC has undertaken strategic expansions (organically and via acquisitions) to reinforce its position as an emerging growth leader in the
multi-billion-dollar cloud hosting and business continuity market. Notably, the integration of Flagship (acquired 2021) into CloudFirst
was completed in January 2024, unlocking operational synergies and enabling cross-selling of the full CloudFirst suite to Flagships
established customer base. This integration, combined with enhanced distribution and marketing capabilities post-2021 Nasdaq uplisting,
has bolstered DSCs growth trajectory and technical expertise.
**Recent
Developments**
On July 18,
2024, the Company entered into an Equity Distribution Agreement (the Agreement), with Maxim Group LLC (Maxim),
pursuant to which it may offer and sell, from time to time, through Maxim, as sales agent or principal, shares of the Companys
common stock. Subject to the terms and conditions of the Agreement, Maxim will use commercially reasonable efforts consistent with its
normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of the Nasdaq Capital Market
to sell shares from time to time based upon the Companys instructions, including any price, time or size limits specified by us.
Under the Agreement, Maxim may sell shares by any method deemed to be an at the market offering as defined in Rule 415 under
the Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions. Maxims
obligations to sell shares under the Agreement are subject to satisfaction of certain conditions, including customary closing conditions
for transactions of this nature. The Company will pay Maxim a commission of 2.5% of the aggregate gross proceeds from each sale of shares
and have agreed to provide Maxim with customary indemnification and contribution rights. The Company also agreed to reimburse Maxim for
certain specified expenses of up to $50,000. Sales of shares of common stock under the Agreement will be made pursuant to the Companys
registration statement on Form S-3 (File No. 333-280881) (the Registration Statement) and a related prospectus supplement
(the ATM Prospectus), both of which were filed with the SEC on July 18, 2024. The ATM Prospectus relates to the offering
of up to $10,600,000 shares of the Companys common stock. The issuance and sale, if any, of common stock under the Agreement is
subject to the Company maintaining an effective registration statement. The Registration Statement was declared effective on July 26,
2024.
**RESULTS OF OPERATIONS**
**Year ended December 31, 2024, as compared to December
31, 2023**
**Revenue**
Revenue for the year ended December 31, 2024, increased by approximately 2% to
$25,371,303 as compared to sales for the year ended December 31, 2023, of $24,959,576. The Company derives its sales from four types of
services that it provides: infrastructure & disaster recovery/cloud services which is the largest source of its sales, followed by
managed services, equipment and software sales, and Nexxis VoIP and internet access services. The cloud infrastructure & disaster
recovery/cloud services are subscription-based. The Company also provides equipment and software and actively participates in collaboration
with IBM to provide innovative business solutions to clients. The professional services are providing the client cloud infrastructure
and or disaster recovery implementation services as well as time and materials billing. Substantially all of the Companys sales
were to customers in the United States, with 2% of its sales to international customers.During the year ended December 31, 2024,
the Company derived approximately 31% of revenue from equipment and software sales, 51% of revenue from infrastructure & disaster
recovery/cloud services, 12% of revenue from managed services, 5% of revenue from Nexxis VoIP services. During the year ended December
31, 2023, the Company derived approximately 41% of our revenue from equipment and software sales, 40% of its revenue from infrastructure
& disaster recovery/cloud services, 13% of revenue from managed services, and 4% of revenue from Nexxis VoIP services.
31
The following chart details
the changes in the Companys sales for the years ended December 31, 2024, and 2023, respectively.
|
| |
For the Year | |
| |
| |
|
| |
Ended December 31, | |
| |
| |
|
| |
2024 | |
2023 | |
$ Change | |
% Change | |
|
Cloud Infrastructure & Disaster Recovery | |
$ | 12,898,192 | | |
$ | 10,154,930 | | |
$ | 2,743,262 | | |
| 27 | % | |
|
Equipment and Software | |
| 7,962,998 | | |
| 10,344,976 | | |
| (2,381,978 | ) | |
| (23 | )% | |
|
Managed Services | |
| 3,155,359 | | |
| 3,293,034 | | |
| (137,675 | ) | |
| (4 | )% | |
|
Nexxis VoIP Services | |
| 1,146,174 | | |
| 1,012,193 | | |
| 133,981 | | |
| 13 | % | |
|
Other | |
| 208,580 | | |
| 154,443 | | |
| 54,137 | | |
| 35 | % | |
|
Total Revenue | |
$ | 25,371,303 | | |
$ | 24,959,576 | | |
$ | 411,727 | | |
| 2 | % | |
**Expenses**
*Cost of sales.* For the year ended December
31, 2024, cost of sales was $14,267,936, a decrease of $1,115,315, or 7%, compared to $15,383,251 for the year ended December 31, 2023.
The decrease of $1,115,315 was mostly related to the decrease in one-time equipment and managed services related cost of sales.
*Selling, general and administrative
expenses*. For the year ended December 31, 2024, selling, general and administrative expenses were $11,023,476, an increase of $1,278,740,
or 13%, as compared to $9,744,736 for the year ended December 31, 2023. The increaseis reflected in the chart below.
|
Selling,
general and administrative expenses |
|
For
the Year |
|
|
|
| |
|
|
|
Ended
December 31, |
|
|
|
| |
|
|
|
2024 |
|
2023 |
|
$
Change |
|
%
Change | |
|
Salaries and Director Fees |
|
$ |
4,790,489 |
|
|
$ |
4,529,833 |
|
|
$ |
260,656 |
|
|
|
6 |
% | |
|
Stock
Based Compensation |
|
|
794,687 |
|
|
|
506,205 |
|
|
|
288,482 |
|
|
|
57 |
% | |
|
Professional
Fees |
|
|
1,591,181 |
|
|
|
1,143,700 |
|
|
|
447,481 |
|
|
|
39 |
% | |
|
Software
as a Service Expense |
|
|
235,379 |
|
|
|
182,765 |
|
|
|
52,614 |
|
|
|
29 |
% | |
|
Advertising
Expenses |
|
|
749,257 |
|
|
|
815,674 |
|
|
|
(66,417 |
) |
|
|
(8 |
)% | |
|
Commissions
Expense |
|
|
1,323,818 |
|
|
|
1,420,492 |
|
|
|
(96,674 |
) |
|
|
(7 |
)% | |
|
Amortization
and Depreciation Expense |
|
|
285,381 |
|
|
|
293,166 |
|
|
|
(7,785 |
) |
|
|
(3 |
)% | |
|
Travel
and Entertainment Expense |
|
|
404,811 |
|
|
|
202,051 |
|
|
|
202,760 |
|
|
|
100 |
% | |
|
Rent
and Occupancy Expense |
|
|
242,747 |
|
|
|
225,466 |
|
|
|
17,281 |
|
|
|
8 |
% | |
|
Insurance
Expense |
|
|
128,746 |
|
|
|
119,472 |
|
|
|
9,274 |
|
|
|
8 |
% | |
|
All
Other Expenses |
|
|
476,980 |
|
|
|
305,912 |
|
|
|
171,068 |
|
|
|
56 |
% | |
|
Total
Expenses |
|
$ |
11,023,476 |
|
|
$ |
9,744,736 |
|
|
$ |
1,278,740 |
|
|
|
13 |
% | |
**
*Salaries and Director Fees.*Salaries and
director fees increased as a result of an increase in headcount, an increase in the number of Board Membersand an increase due to
annual employee performance reviews.
*Stock Based Compensation.*Stock Based Compensation
increased primarily due to an increase in the number of RSUs granted and higher fair value per share for both RSUs and stock
options.
*Professional Fees.*Professional fees increased
primarily due to business development consulting fees, an increase in legal and accounting fees related to the filing of certain registration
statements, and an increase in recruiting fees.
*Software as a Service Expense (SaaS).*SaaS
increased due to new projects for improvement initiatives for one of the Companys customer relationship management systems.
*Advertising Expenses.*Advertising expense
decreased due to the Companys strategy to offset stadium expense by re-selling the suite for certain events.
32
*Commissions Expense.*Commissions expense
decreased due to lower one-time equipment sales.
*Travel and Entertainment.*Travel and entertainment
expenses increased due to international expansion efforts in addition to travel related to domestic customer expansion efforts.
*All Other
Expenses.*All other expenses increased primarily due to the Company receiving communications from the New York State Department
of Taxation and Finance regarding sales and use tax matters. On July 31, 2024, the Company received additional correspondence and
entered into discussions with the agency concerning an audit of its sales and use tax filings. On February 4, 2025, the Company
received a Statement of Proposed Audit Change from the Department, proposing a total liability of $219,352. The proposed liability
related to the audit period from December 1, 2018 through May 31, 2023, and included $142,021 in tax and $77,331 in interest, with
no penalties assessed. As of September 30, 2024, the Company recorded an initial accrual of $89,000 based on the information
available at the time. Upon receipt of the proposed assessment and completion of its evaluation, the Company recorded the remaining
liability of $53,021 in other expenses and $77,331 in interest expense as of December 31, 2024, bringing the total accrual to
$219,352. The Company subsequently paid the full amount to the New York State Department of Taxation and Finance in February
2025.
*Income before provision for income taxes.*Income
before provision for income taxes for the years ended December 31, 2024, and 2023 was $552,103, and $299,316 respectively, primarily attributable
to the items discussed above.
**LIQUIDITY AND CAPITAL RESOURCES**
The consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP)
applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course
of business.
To the extent the Company
is successful in growing its business, identifying potential acquisition targets, and negotiating the terms of such acquisitions, and
where the purchase price may include a cash component, the Company expects to use its working capital and the proceeds of any financing
to finance such acquisition costs.
The Companys conclusion
concerning its liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, the
Company may not be able to meet its liquidity needs, which will require a renegotiation of related party capital equipment leases, a reduction
in advertising and marketing programs, and/or a reduction in salaries for officers that are major shareholders.
The Company has long-term contracts to supply its
subscription-based solutions that are invoiced to clients monthly. The Company believes its total contract value of its subscription contracts
with clients based on the actual contracts that it has to date exceeds $10 million. Further, the Company continues to see an uptick in
client interest in distribution channel expansion and in sales proposals. In 2025, the Company intends to continue to work to increase
its presence in the IBM Power I infrastructure cloud and business continuity marketplace in the niche of IBM Power
and in the disaster recovery global marketplace utilizing its technical expertise, data centers utilization, assets deployed in the data
centers, 24 x 365 monitoring and software.
On July 18, 2024, the Company
entered into the Agreement with Maxim, discussed under Recent Developments above, pursuant to which the Company may offer
and sell, from time to time, through Maxim, as sales agent or principal, shares of its common stock. There can be no guarantee that the
Company will be able to raise capital from sales under the Agreement. To date, the Company has not made any sales under the Agreement.
The Companys working
capital was $11,869,914 on December 31, 2024, increasing by $858,507 from $11,011,407 at December 31, 2023. The increase is primarily
attributable to an increase in accounts receivable and prepaid expenses and other current assets which was offset, in part, by an increase
in accounts payable.
**Cash Flows for the year ended December 31, 2024,
as compared to December 31, 2023**
The following table summarizes
the Companys cash flows:
|
| |
Year Ended December 31, | |
|
| |
2024 | |
2023 | |
|
Cash provided by operating activities | |
$ | 1,740,089 | | |
$ | 3,873,047 | | |
|
Cash used in investing activities | |
| (1,743,174 | ) | |
| (3,852,245 | ) | |
|
Cash used in financing activities | |
| (352,957 | ) | |
| (878,794 | ) | |
|
Effect of exchange rate changes on cash | |
| (2,591 | ) | |
| | | |
|
Decrease in cash | |
| (358,633 | ) | |
| (857,992 | ) | |
|
Cash, beginning of period | |
| 1,428,730 | | |
| 2,286,722 | | |
|
Cash, end of period | |
$ | 1,070,097 | | |
$ | 1,428,730 | | |
33
**Operating activities**
For the year ended December
31, 2024, cash provided by operating activities was $1,740,089, compared to $3,873,047 for the year ended December 31, 2023. The decrease
is primarily due to an increase in accounts receivable of $1,010,880 for the year ended December 31, 2024, as compared to a decrease in
accounts receivable for the year ended December 31, 2023 of $2,242,864.
**Investing activities**
During the year ended December
31, 2024, net cash used in investing activities totaled $1,743,174, compared to $3,852,245 during the year ended December 31, 2023. The
decrease of $2,109,071 was primarily due to a net decrease in the purchases of marketable securities.
**Financing activities**
During the year ended December
31, 2024, net cash used in financing activities totaled $352,957, compared to $878,794 during the year ended December 31, 2023. The decrease
of $525,837 was primarily due to lower repayments of finance lease obligations.
**Off-Balance Sheet Arrangements**
The Company does not have any off-balance sheet arrangements,
financings, or other relationships with unconsolidated entities or other persons, also known as special purpose entities.
**Non-GAAP Financial Measures**
*Adjusted EBITDA*
To supplement the Companys consolidated financial statements presented
in accordance with GAAP and to provide investors with additional information regarding the Companys financial results, the Company
considers and is including herein Adjusted EBITDA, a Non-GAAP financial measure. The Company views Adjusted EBITDA as an operating performance
measure and, as such, the Company believes that the GAAP financial measure most directly comparable to it is net income (loss). The Company
defines Adjusted EBITDA as net income adjusted for interest and financing fees, depreciation, amortization, stock-based compensation,
sales tax settlement, and other non-cash income and expenses. The Company believes that Adjusted EBITDA provides an important measure
of operating performance because it allows management, investors, debt holders and others to evaluate and compare ongoing operating results
from period to period by removing the impact of the Companys asset base, any asset disposals or impairments, stock-based compensation
and other non-cash income and expense items associated with its reliance on issuing equity-linked debt securities to fund its working capital.
The Companys use of
Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an
analysis of its results as reported under GAAP, as the excluded items may have significant effects on its operating results and financial
condition. Additionally, the Companys measure of Adjusted EBITDA may differ from other companies measure of Adjusted EBITDA.
When evaluating the Companys performance, Adjusted EBITDA should be considered with other financial performance measures, including
various cash flow metrics, net income and other GAAP results. In the future, the Company may disclose different non-GAAP financial measures
in order to help its investors and others more meaningfully evaluate and compare the Companys future results of operations to its
previously reported results of operations.
34
The following table shows
the Companys reconciliation of net income (loss) to adjusted EBITDA for the years ended December 31, 2024, and 2023:
|
For the year ended December 31, 2024 | |
|
| |
| |
| |
| |
| |
| |
|
| |
CloudFirst Technologies | |
CloudFirst Europe Ltd. | |
Nexxis Inc. | |
Corporate | |
Total | |
|
| |
| |
| |
| |
| |
| |
|
Net income (loss) | |
$ | 3,562,622 | | |
$ | (290,219 | ) | |
$ | (93,514 | ) | |
$ | (2,665,817 | ) | |
$ | 513,072 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Non-GAAP adjustments: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Depreciation and amortization | |
| 1,348,534 | | |
| 79 | | |
| 850 | | |
| 775 | | |
| 1,350,238 | | |
|
Sales tax settlement | |
| 142,021 | | |
| | | |
| | | |
| | | |
| 142,021 | | |
|
Interest income | |
| | | |
| | | |
| | | |
| (592,819 | ) | |
| (592,819 | ) | |
|
Interest expense | |
| 119,008 | | |
| | | |
| | | |
| | | |
| 119,008 | | |
|
Provision for income tax | |
| | | |
| | | |
| | | |
| 39,031 | | |
| 39,031 | | |
|
Stock-based compensation | |
| 295,688 | | |
| | | |
| 25,991 | | |
| 473,008 | | |
| 794,687 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Adjusted EBITDA | |
$ | 5,467,873 | | |
$ | (290,140 | ) | |
$ | (66,673 | ) | |
$ | (2,745,822 | ) | |
$ | 2,365,238 | | |
|
For the year ended December 31, 2023 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
CloudFirst Technologies |
|
CloudFirst Europe Ltd. |
|
Nexxis Inc. |
|
Corporate |
|
Total | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net income (loss) |
|
$ |
2,625,879 |
|
|
$ |
|
|
|
$ |
(229,377 |
) |
|
$ |
(2,097,186 |
) |
|
$ |
299,316 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization |
|
|
1,300,237 |
|
|
|
|
|
|
|
705 |
|
|
|
652 |
|
|
|
1,301,594 |
| |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(542,229 |
) |
|
|
(542,229 |
) | |
|
Interest expense |
|
|
74,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,502 |
| |
|
Stock-based compensation |
|
|
162,004 |
|
|
|
|
|
|
|
17,603 |
|
|
|
326,598 |
|
|
|
506,205 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Adjusted EBITDA |
|
$ |
4,162,622 |
|
|
$ |
|
|
|
$ |
(211,069 |
) |
|
$ |
(2,312,165 |
) |
|
$ |
1,639,388 |
| |
**CRITICAL ACCOUNTING ESTIMATES**
*Use of Estimates*
The preparation of financial statements in conformity
with US GAAP 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. The Company believes that the accounting estimates employed are appropriate
and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results may differ from the
original estimates, requiring adjustments to these balances in future periods. There are accounting policies, each of which requires significant
judgments and estimates on the part of management, that the Company believes are significant to the presentation of its consolidated financial
statements. The most significant accounting estimates are set forth below.
*Estimated Fair Value of Financial Instruments*
The Companys financial instruments include
cash, accounts receivable, accounts payable and lease commitments. Management believes the estimated fair value of these accounts on December
31, 2024, approximate their carrying value as reflected in the balance sheet due to the short-term nature. The carrying values of certain
of the Companys 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.
35
*Property and Equipment*
Property and equipment are 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 arefive toseven 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.
*Goodwill and Other Intangibles*
The Company assesses goodwill for impairment on an
annual basis on December 31, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill
may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair
value of the reporting units. This approach uses a discounted cash flow methodology and the ability of the Companys reporting units
to generate cash flows as measures of fair value of its reporting units. The Company performs a qualitative analysis of goodwill and other
intangible assets for impairment indicators on at least an annual basis. If this assessment shows impairment indicators the Company will
perform an impairment test to determine if the carrying value of a reporting unit exceeds its estimated fair value.
For the year ended December
31, 2024, the Company was not required to perform an impairment test of goodwill since the qualitative analysis did not show any impairment
indicators and no triggering events were identified. To determine the fair value of goodwill and intangible assets, the Company uses many
assumptions and estimates using a market participant approach that directly impacts the testing results. 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.
For the year ended December 31, 2023, the Company
was required to complete its annual impairment tests of goodwill since the Company combined two reporting units. The Company performed
the quantitative assessment and determined that the fair value of the reporting units was more likely than not greater than their carrying
value, including goodwill at December 31, 2023. Based on the completion of the annual impairment test on December 31, 2023, the Company
did not record an impairment charge.
*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) |
Cloud Infrastructure and Disaster Recovery Revenue | |
Cloud Infrastructure provides clients with the
ability to migrate their on-premise computing and digital storage to CloudFirsts enterprise-level technical compute and
digital storage assets located in Tier 3 data centers. DSC owns the assets and provides a turnkey solution whereby achieving
reliable and cost-effective, multi-tenant IBM Power compute, x86/intel, flash digital storage, while providing disaster recovery and
cyber security while eliminating client capital expenditures. The client pays a monthly fee and can increase capacity as
required.
Clients can subscribe to an array of disaster recovery
solutions without subscribing to cloud infrastructure. Product offerings provided directly from DSC are High Availability, Data Vaulting
and retention solutions, including standby servers which allows clients to centralize and streamline their mission-critical digital information
and technical environment while ensuring business continuity if they experience a cyber-attack or natural disaster. Clients data
is vaulted, at two data centers with the maintenance of retention schedules for corporate governances and regulations all to meet their
back to work objective in a disaster.
|
|
2) |
Managed Services | |
These services are performed at the inception of a
contract. The Company provides professional assistance to its clients during the implementation 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 supplementing the clients
staff.
36
The Company also derives both one-time and subscription-based
revenue from providing support, management and renewal of software, hardware, third party maintenance contracts and third-party cloud
services to clients. The managed services include help desk, remote access, operating system and software patch management, annual recovery
tests and manufacturer support for equipment and on-gong monitoring of client system performance.
|
|
3) |
Equipment and Software | |
The Company provides equipment and software and actively participates in collaboration
with IBM to provide innovative business solutions to clients. The Company is a partner of IBM and the various software, infrastructure
and hybrid cloud solutions are provided to clients.
|
|
4) |
Nexxis Voice over Internet and Direct Internet Access | |
The Company provides VoIP, Internet access and data
transport services to ensure businesses are fully connected to the internet from any location, remote and on premise. The Company provides
Hosted VoIP solutions with equipment options for IP phones and internet speeds of up to 10Gb delivered over fiber optics.
**Transaction price allocated to the remaining performance
obligations**
The Company has the following performance obligations:
|
1) |
Data Vaulting: Subscription-based cloud service that encrypts and transfers data to a secure Tier 3 data center and further replicates the data to a second Tier 3 DSC technical center where it remains encrypted. Ensuring client retention schedules for corporate compliance and disaster recovery. Provides for twenty-four (24) hour or less recovery time and utilizes advanced data reduction, reduplication technology to shorten back-up and restore time. | |
|
2) |
High Availability: A managed cloud subscription-based service that provides cost-effective mirroring software replication technology and provides one (1) hour or less recovery time for a client to be back in business. | |
|
|
| |
|
3) |
Cloud Infrastructure: subscription-based cloud service provides for capacity on-demand for IBM Power and X86 Intel server systems. | |
|
|
| |
|
4) |
Internet: Subscription-based service, offering continuous internet connection combined with FailSAFE which provides disaster recovery for both a clients voice and data environments. | |
|
|
| |
|
5) |
Support and
Maintenance: Subscription based service offers support for clients on their servers,
firewalls, desktops or software. Services are provided 24x7x365 to the Companys clients. | |
|
|
| |
|
6) |
Implementation / Set-Up Fees: Onboarding and set-up for cloud infrastructure and disaster recovery as well as Cyber Security. | |
|
|
| |
|
7) |
Equipment sales: Sale of servers and data storage equipment to the client. | |
|
|
| |
|
9) |
License: Granting SSL certificates andlicenses. | |
*Impairment of Long-Lived Assets*
The Company reviews its 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 un-discounted
future cash flows.
37
*Stock-Based Compensation*
The Company follows the requirements of FASB ASC 718-10-10,*Share-Based
Payments*with regards to stock-based compensation issued to employees and non-employees. The Company 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 Company has a relatively low forfeiture rate of stock-based compensation, and forfeitures are recognized as
they occur.
The valuation methodology used to determine the fair
value of the options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a
number of assumptions including the 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 managements
best assessment.
Estimated volatility is a measure of the amount by
which DSCs stock price is expected to fluctuate each year during the expected life of the award. The Companys calculation
of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.
**Impact of Recently Issued Accounting Standards**
****
In the normal course of business, we evaluate all
new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they
may have on the Companys Consolidated Financial Statements. See Note 2 Summary of Significant Accounting Policies
of the notes to the Companys consolidated financial statements in this Annual Report for additional information about these recently
issued accounting standards and their potential impact on the Companys financial condition or results of operations.
**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK**
As a smaller reporting company, this item is not required.
**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.**
38
|
Index
to the Consolidated Financial Statements |
Page | |
|
|
| |
|
Report of Independent Registered Public Accounting Firm(PCAOB Firm ID 0089) |
F-2 | |
|
|
| |
|
Consolidated Balance Sheets as of December 31, 2024, and 2023 |
F-4 | |
|
|
| |
|
Consolidated Statements of Income for the Years Ended December 31, 2024, and 2023 |
F-5 | |
|
|
| |
|
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2024, and 2023 |
F-6 | |
|
|
| |
|
Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2024, and 2023 |
F-7 | |
|
|
| |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, and 2023 |
F-8 | |
|
|
| |
|
Notes to Consolidated Financial Statements |
F-9 | |
F-1
**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM**
****
To the Board of Directors and
Stockholders of Data Storage Corporation and Subsidiaries
**Opinion on the Financial Statements**
We have audited the accompanying balance sheets of
Data Storage Corporation and Subsidiaries (the Company) as of December 31, 2024 and 2023, and the related statements of income, comprehensive
income, stockholders equity, and cash flows for the years then ended, and the related notes (collectively referred to as the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2024 and 2023 and the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
**Basis for Opinion**
These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
**Critical Audit Matters**
Critical audit matters
are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to
the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.
F-2
To the Board of Directors and
Stockholders of Data Storage Corporation and Subsidiaries
/s/Rosenberg Rich Baker Berman, P.A.
We have served as the Companys auditor since 2008.
Somerset, New Jersey
March 31, 2025
89
F-3
|
DATA STORAGE CORPORATION AND SUBSIDIARIES | |
|
CONSOLIDATED BALANCE SHEETS | |
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, 2024 |
|
December 31, 2023 | |
|
ASSETS |
|
|
|
|
|
|
|
| |
|
Current Assets: |
|
|
|
|
|
|
|
| |
|
Cash |
|
$ |
1,070,097 |
|
|
$ |
1,428,730 |
| |
|
Accounts receivable (less allowance for credit losses of $31,472 and $7,915 in 2024 and 2023, respectively) |
|
|
2,225,458 |
|
|
|
1,259,972 |
| |
|
Marketable securities |
|
|
11,261,006 |
|
|
|
11,318,196 |
| |
|
Prepaid expenses and other current assets |
|
|
859,502 |
|
|
|
513,175 |
| |
|
Total Current Assets |
|
|
15,416,063 |
|
|
|
14,520,073 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Property and Equipment: |
|
|
|
|
|
|
|
| |
|
Property and equipment |
|
|
9,598,963 |
|
|
|
7,838,225 |
| |
|
LessAccumulated depreciation |
|
|
(6,159,307 |
) |
|
|
(5,105,451 |
) | |
|
Net Property and Equipment |
|
|
3,439,656 |
|
|
|
2,732,774 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Other Assets: |
|
|
|
|
|
|
|
| |
|
Goodwill |
|
|
4,238,671 |
|
|
|
4,238,671 |
| |
|
Operating lease right-of-use assets |
|
|
575,380 |
|
|
|
62,981 |
| |
|
Other assets |
|
|
183,439 |
|
|
|
48,436 |
| |
|
Intangible assets, net |
|
|
1,427,006 |
|
|
|
1,698,084 |
| |
|
Total Other Assets |
|
|
6,424,496 |
|
|
|
6,048,172 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Assets |
|
$ |
25,280,215 |
|
|
$ |
23,301,019 |
| |
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
| |
|
Current Liabilities: |
|
|
|
|
|
|
|
| |
|
Accounts payable and accrued expenses |
|
$ |
3,183,379 |
|
|
$ |
2,608,938 |
| |
|
Deferred revenue |
|
|
212,390 |
|
|
|
336,201 |
| |
|
Finance leases payable |
|
|
17,641 |
|
|
|
263,600 |
| |
|
Finance leases payable related party |
|
|
33,879 |
|
|
|
235,944 |
| |
|
Operating lease liabilities short term |
|
|
98,860 |
|
|
|
63,983 |
| |
|
Total Current Liabilities |
|
|
3,546,149 |
|
|
|
3,508,666 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Operating lease liabilities |
|
|
523,070 |
|
|
|
|
| |
|
Finance leases payable |
|
|
|
|
|
|
17,641 |
| |
|
Finance leases payable related party |
|
|
|
|
|
|
20,297 |
| |
|
Deferred Tax Liability |
|
|
39,031 |
|
|
|
|
| |
|
Total Long-Term Liabilities |
|
|
562,101 |
|
|
|
37,938 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total Liabilities |
|
|
4,108,250 |
|
|
|
3,546,604 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Stockholders Equity: |
|
|
|
|
|
|
|
| |
|
Preferred stock, par value $.001; 10,000,000 shares authorized; 1,401,786 designated as Series A Preferred Stock, par value $.001; 0 shares issued and outstanding on December 31, 2024 and 2023 |
|
|
|
|
|
|
|
| |
|
Common stock, par value $.001; 250,000,000 shares authorized; 7,045,108 and 6,880,460 shares issued and outstanding on December 31, 2024 and 2023, respectively |
|
|
7,045 |
|
|
|
6,881 |
| |
|
Additional paid in capital |
|
|
40,417,813 |
|
|
|
39,490,285 |
| |
|
Accumulated deficit |
|
|
(18,982,589 |
) |
|
|
(19,505,803 |
) | |
|
Accumulated other comprehensive loss |
|
|
(23,214 |
) |
|
|
|
| |
|
Total Data Storage Corporation Stockholders Equity |
|
|
21,419,055 |
|
|
|
19,991,363 |
| |
|
Non-controlling interest in consolidated subsidiary |
|
|
(247,090 |
) |
|
|
(236,948 |
) | |
|
Total Stockholders Equity |
|
|
21,171,965 |
|
|
|
19,754,415 |
| |
|
Total Liabilities and Stockholders Equity |
|
$ |
25,280,215 |
|
|
$ |
23,301,019 |
| |
|
The accompanying notes are an integral part of these consolidated Financial Statements. | |
F-4
|
DATA STORAGE CORPORATION AND SUBSIDIARIES | |
|
CONSOLIDATED
STATEMENTS OF INCOME | |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Year
EndedDecember 31, | |
|
|
|
2024 |
|
2023 | |
|
|
|
|
|
| |
|
Sales |
|
$ |
25,371,303 |
|
|
$ |
24,959,576 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Cost
of sales |
|
|
14,267,936 |
|
|
|
15,383,251 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Gross
Profit |
|
|
11,103,367 |
|
|
|
9,576,325 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Selling,
general and administrative |
|
|
11,023,476 |
|
|
|
9,744,736 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Income
(loss) from Operations |
|
|
79,891 |
|
|
|
(168,411 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
Other
Income (Expense) |
|
|
|
|
|
|
|
| |
|
Interest
income |
|
|
592,819 |
|
|
|
542,229 |
| |
|
Interest
expense |
|
|
(119,008 |
) |
|
|
(74,502 |
) | |
|
Loss on disposal of equipment |
|
|
(1,599 |
) |
|
|
|
| |
|
Total Other Income |
|
|
472,212 |
|
|
|
467,727 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Income before provision for income taxes |
|
|
552,103 |
|
|
|
299,316 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Provision
for income taxes |
|
|
(39,031 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Net Income |
|
|
513,072 |
|
|
|
299,316 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Loss
in Non-controlling interest in consolidated subsidiary |
|
|
10,142 |
|
|
|
82,259 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Net
Income Attributable to Common Stockholders |
|
$ |
523,214 |
|
|
$ |
381,575 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Earnings
per Share Basic |
|
$ |
0.08 |
|
|
$ |
0.06 |
| |
|
Earnings
per Share Diluted |
|
$ |
0.07 |
|
|
$ |
0.05 |
| |
|
Weighted
Average Number of Shares Basic |
|
|
6,931,399 |
|
|
|
6,841,094 |
| |
|
Weighted
Average Number of Shares Diluted |
|
|
7,347,779 |
|
|
|
7,424,228 |
| |
|
The accompanying notes are an integral part of these consolidated Financial Statements. | |
F-5
**DATA STORAGE CORPORATION AND SUBSIDIARIES**
****
**Consolidated
Statements of Comprehensive INCOME**
****
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years
ended December 31, | |
|
|
|
2024 |
|
2023 | |
|
Net income |
|
$ |
513,072 |
|
|
$ |
299,316 |
| |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
| |
|
Foreign currency translation adjustment |
|
|
(23,214 |
) |
|
|
|
| |
|
Other comprehensive income (loss) |
|
|
(23,214 |
) |
|
|
|
| |
|
Comprehensive income availableto common shareholders |
|
$ |
489,858 |
|
$ |
299,316 |
| |
See accompanying notes to consolidated financial statements.
F-6
|
DATA STORAGE CORPORATION AND SUBSIDIARIES | |
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY | |
|
FOR THE YEARS ENDED DECEMBER 31, 2024, AND 2023 | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
Preferred Stock | |
Common Stock | |
Additional Paid-in Capital | |
Accumulated Deficit | |
Accumulated other comprehensive loss | |
Non-Controlling Interest | |
Total Stockholders Equity | |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
Shares | |
Amount | |
Shares | |
Amount | |
| |
| |
| |
| |
| |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
Balance January 1, 2023 | |
| | | |
$ | | | |
| 6,822,127 | | |
$ | 6,822 | | |
| 38,982,440 | | |
$ | (19,887,378 | ) | |
$ | | | |
$ | (154,689 | ) | |
$ | 18,947,195 | | |
|
Stock options exercised | |
| | | |
| | | |
| 833 | | |
| 1 | | |
| 1,698 | | |
| | | |
| | | |
| | | |
| 1,699 | | |
|
Stock-based compensation | |
| | | |
| | | |
| 57,500 | | |
| 58 | | |
| 506,147 | | |
| | | |
| | | |
| | | |
| 506,205 | | |
|
Net Income (Loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 381,575 | | |
| | | |
| (82,259 | ) | |
| 299,316 | | |
|
Balance, December 31, 2023 | |
| | | |
$ | | | |
| 6,880,460 | | |
$ | 6,881 | | |
$ | 39,490,285 | | |
$ | (19,505,803 | ) | |
| | | |
$ | (236,948 | ) | |
$ | 19,754,415 | | |
|
Stock options exercised | |
| | | |
| | | |
| 65,832 | | |
| 65 | | |
| 132,940 | | |
| | | |
| | | |
| | | |
| 133,005 | | |
|
Stock-based compensation | |
| | | |
| | | |
| 98,816 | | |
| 99 | | |
| 794,588 | | |
| | | |
| | | |
| | | |
| 794,687 | | |
|
Other comprehensive loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (23,214 | ) | |
| | | |
| (23,214 | ) | |
|
Net Income (Loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 523,214 | | |
| | | |
| (10,142 | ) | |
| 513,072 | | |
|
Balance, December 31, 2024 | |
| | | |
| | | |
| 7,045,108 | | |
$ | 7,045 | | |
$ | 40,417,813 | | |
$ | (18,982,589 | ) | |
$ | (23,214 | ) | |
$ | (247,090 | ) | |
$ | 21,171,965 | | |
|
The accompanying notes are an integral part of these consolidated Financial Statements. | |
F-7
|
DATA STORAGE CORPORATION AND SUBSIDIARIES | |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS | |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Year Ended December 31, | |
|
|
|
2024 |
|
2023 | |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
| |
|
Net income |
|
$ |
513,072 |
|
|
$ |
299,316 |
| |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| |
|
Depreciation and amortization |
|
|
1,350,238 |
|
|
|
1,301,594 |
| |
|
Stock based compensation |
|
|
794,687 |
|
|
|
506,205 |
| |
|
Change in expected credit losses |
|
|
45,394 |
|
|
|
119,524 |
| |
|
Loss on disposal of equipment |
|
|
1,599 |
|
|
|
|
| |
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
| |
|
Accounts receivable |
|
|
(1,010,880 |
) |
|
|
2,123,340 |
| |
|
Other assets |
|
|
(135,003 |
) |
|
|
|
| |
|
Prepaid expenses and other current assets |
|
|
(347,717 |
) |
|
|
71,491 |
| |
|
Right of use asset |
|
|
135,559 |
|
|
|
163,520 |
| |
|
Accounts payable and accrued expenses |
|
|
567,930 |
|
|
|
(598,638 |
) | |
|
Deferred revenue |
|
|
(123,811 |
) |
|
|
55,141 |
| |
|
Deferred tax liability |
|
|
39,031 |
|
|
|
|
| |
|
Operating lease liability |
|
|
(90,010 |
) |
|
|
(168,446 |
) | |
|
Net Cash Provided by Operating Activities |
|
|
1,740,089 |
|
|
|
3,873,047 |
| |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
| |
|
Capital expenditures |
|
|
(1,800,364 |
) |
|
|
(1,545,017 |
) | |
|
Purchase of marketable securities |
|
|
(842,810 |
) |
|
|
(2,307,228 |
) | |
|
Sale of marketable securities |
|
|
900,000 |
|
|
|
|
| |
|
Net Cash Used in Investing Activities |
|
|
(1,743,174 |
) |
|
|
(3,852,245 |
) | |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
| |
|
Repayments of finance lease obligations related party |
|
|
(222,362 |
) |
|
|
(520,624 |
) | |
|
Repayments of finance lease obligations |
|
|
(263,600 |
) |
|
|
(359,869 |
) | |
|
Cash received for the exercise of stock options |
|
|
133,005 |
|
|
|
1,699 |
| |
|
Net Cash Used in Financing Activities |
|
|
(352,957 |
) |
|
|
(878,794 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
Effect of exchange rates on cash |
|
|
(2,591 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Decrease in Cash |
|
|
(358,633 |
) |
|
|
(857,992 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
Cash, Beginning of Year |
|
|
1,428,730 |
|
|
|
2,286,722 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Cash, End of Year |
|
$ |
1,070,097 |
|
|
$ |
1,428,730 |
| |
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
| |
|
Cash paid for interest |
|
$ |
23,549 |
|
|
$ |
65,057 |
| |
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
| |
|
Non-cash investing and financingactivities: |
|
|
|
|
|
|
|
| |
|
Assets acquired by operating lease |
|
$ |
647,958 |
|
|
$ |
|
| |
|
The accompanying notes are an integral part of these consolidated Financial Statements. | |
F-8
**DATA STORAGE CORPORATION
AND SUBSIDIARIES**
**NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2024**
**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, cloud infrastructure, Cyber
Security and Voice and Data solutions.
Headquartered in Melville, NY, 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 six technical centers in New York, Massachusetts,
Texas, North Carolina and Canada.
On May 31, 2021, the Company completed a merger of
Flagship Solutions, LLC (Flagship) (a Florida limited liability company) and the Companys wholly-owned subsidiary,
Data Storage FL, LLC. Flagship is a provider of Hybrid Cloud solutions, managed services and cloud solutions. On January 1, 2024, Flagship
Solutions, LLC was consolidated into the Companys wholly-owned subsidiary, CloudFirst Technologies Corporation.
On January 27, 2022, the Company formed Information Technology
Acquisition Corporationa special purpose acquisition companyfor the purpose of entering into a merger, capital stock exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses
or entities.
On August 12, 2024, the Company established UK Cloud
Host Technologies Ltd., a corporation organized under the laws of the United Kingdom, to establish an executive presence in London and
to manage the Companys business operations and affairs throughout Europe. On December 27, 2024, the name of the entity was changed
to CloudFirst Europe Ltd.
**Note 2 Summary of Significant Accounting Policies**
*Principles of Consolidation*
**
The Consolidated Financial Statements include the
accounts of the Company and its wholly-owned subsidiaries, (i) CloudFirst Technologies Corporation, a Delaware corporation (CloudFirst
Technologies), (ii) Information Technology Acquisition Corporation, a Delaware corporation, (iii) its majority-owned subsidiary,
Nexxis Inc, a Nevada corporation and (iv) CloudFirst Europe Ltd.. All inter-company transactions and balances have been eliminated in
consolidation.
*Reclassifications*
Certain prior year amounts in the Consolidated Financial
Statements and the notes thereto have been reclassified where necessary to conform to the current years presentation. These reclassifications
did not affect the prior periods total assets, total liabilities, stockholders equity, net income, or net cash provided
by operating activities. During the year ended December 31, 2024, the Company reclassified disaggregated revenue and had a change in presentation
on its Consolidated Financial Statements in order to present segments in line with how its Chief Operating Decision Maker (CODM)
evaluates performance of each segment. Prior periods have been revised to reflect this change in the presentation.
*Recently Issued and Newly Adopted Accounting Pronouncements*
In March 2023, the FASB issued ASU
2023-01, Leases (Topic 842): Common Control Arrangements. The new accounting rules require that leasehold improvements associated
with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless
of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease. These leases should
also be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no
longer controls the use of the underlying asset. The Company adopted ASU 2023-01 and it did not have a material impact to its Consolidated
Financial statements.
In November 2023, the Financial Accounting Standards Board
(FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances
reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses. The amendments
are effective for fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods
presented in the financial statements. The Company determined that this change does not have a material impact to the financial statements
or financial statement disclosures.
F-9
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements
to Income Tax Disclosures, which requires disclosure of specific categories meeting a quantitative threshold within the income tax rate
reconciliation, as well as disaggregation of income taxes paid by jurisdiction. This ASU, which can be applied either prospectively or
retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently
evaluating the impact of the ASU and expects to include updated income tax disclosures.
On November 2024, the FASB issuedAccountingStandards
Update (ASU) No.2024-03,*Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures,
Disaggregation of Income Statement Expenses*, which requires public companies to disclose, in interim and annual reporting periods,
additional information about certain expenses in the financial statements. The amendments in this pronouncement will be effective for
annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted
and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption
on its consolidated financial statements and related disclosures.
*Use of Estimates*
The preparation of financial statements in conformity
with U.S. GAAP 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 Companys financial instruments include
cash, accounts receivable, accounts payable and lease commitments. Management believes the estimated fair value of these accounts on December
31, 2024, approximate their carrying value as reflected in the balance sheet due to their short-term nature. The carrying values of the
Companys finance lease obligations 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.
The fair value measurement disclosures are grouped
into three levels based on valuation factors:
|
|
|
Level 1 quoted prices in active markets for identical investments | |
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) | |
|
|
|
Level 3 significant unobservable inputs (including the Companys own assumptions in determining the fair value of investments) | |
The Companys Level 1 assets and liabilities
include cash, accounts receivable, marketable securities, accounts payable, prepaid, and other current assets. Management believes the
estimated fair value of these accounts at December 31, 2024, approximates their carrying value as reflected in the balance sheets due
to the short-term nature of these instruments.
The Companys Level 2 assets and liabilities
include the Companys finance and operating lease assets and liabilities. The carrying amounts of these leases approximate their
fair values, based on a comparison of the lease terms and the Companys incremental borrowing rates with those of similar leases
available in the market.
The Companys Level 3 assets and liabilities use inputs to determine
the fair value are generally unobservable and typically reflect managements estimates of assumptions that market participants would
use in pricing the asset or liability. The fair values are therefore discounted cash flow models. Unobservable inputs used in the models
are significant to the fair values of the assets and liabilities.
*Assets and Liabilities Measured at Fair Value on
a Nonrecurring Basis*
Certain assets and liabilities are measured at fair value on a
nonrecurring basis. Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring
basis include items such as property, plant and equipment, goodwill, and other intangible assets.
*Investments*
Marketable securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized
gains and losses recognized in earnings.
F-10
The following table sets forth a summary of the changes in equity investments
at cost that are measured at fair value on a non-recurring basis:
|
Schedule of changes in equity investments measured at fair value | |
| | | |
|
| |
For
the years ended December 31, 2024, and 2023 | |
|
| |
| |
|
As
of January 1, 2023 | |
$ | 9,010,968 | | |
|
Purchase
of equity investments | |
| 2,307,228 | | |
|
Unrealized
gains | |
| | | |
|
As of
December 31, 2023 | |
| 11,318,196 | | |
|
Purchase
of equity investments | |
| 842,810 | | |
|
Sales
of equity investments | |
| (900,000 | ) | |
|
Unrealized
gains | |
| | | |
|
As
of December 31, 2024 | |
$ | 11,261,006 | | |
*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, short-term investments and trade accounts receivable. The Companys cash are maintained at major
U.S. financial institutions. Deposits in these institutions may exceed the amount of insurance provided on such deposits.
The Companys customers are primarily concentrated in the United
States.
As of December 31, 2024, DSC had two customers with
an accounts receivable balance representing 16% and 15%of total accounts receivable. As of December 31, 2023, the Company had one
customer with an accounts receivable balance representing20% of total accountsreceivable.
For the year ended December
31, 2024, the Company had two customers that each individually accounted for 12%of revenue.
For the year ended December 31, 2023, the Company had two customers that accounted for 12% and 10% of revenue.
*Accounts Receivable/Allowance for Credit Losses*
**
The Company sells its services to customers on an
open credit basis. Accounts receivable are uncollateralized, non-interest-bearing customer obligations and are typically due within 30
days. ASC 326 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance
also requires the Company to pool assets with similar risk characteristics and consider current economic conditions when estimating losses.
During the years ended December 31, 2024, and 2023, the Company recorded $45,394 and $119,524, respectively, of expected credit losses.
Clients invoiced in advance for services are reflected in deferred revenue on the Companys balance sheet.
Changes in the allowance for expected credit losses
for trade accounts receivable are presented in the table below:
|
Schedule of Changes in the allowance for expected credit losses
for trade accounts receivable | |
| |
| |
|
| |
Year ended December, | |
|
| |
2024 | |
2023 | |
|
Beginning balance | |
$ | 7,915 | | |
| 27,249 | | |
|
Provision | |
| 45,394 | | |
| 119,524 | | |
|
Write-offs | |
| (21,837 | ) | |
| (138,858 | ) | |
|
Ending Balance | |
$ | 31,472 | | |
| 7,915 | | |
*Property and Equipment*
Property and equipment are 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 for property and equipment arefive toseven years. 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. As of December
31, 2024, and 2023, the Company had a net deferred tax liability of $39,031 and $0,respectively.
F-11
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, 2024, and 2023, the Company hasnouncertain tax
positions that qualify for either recognition or disclosure in the financial statements. The Companys 2024, 2023, 2022, and 2021
Federal and State tax returns remain subject to examination by their respective taxing authorities. None of the Companys Federal
or State tax returns are currently under examination.
*Goodwill and Other Intangibles*
The Company assesses goodwill for impairment on an
annual basis on December 31, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill
may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair
value of the reporting units. This approach uses a discounted cash flow methodology and the ability of the Companys reporting units
to generate cash flows as measures of fair value of its reporting units. The Company performs a qualitative analysis of goodwill and other
intangible assets for impairment indicators on at least an annual basis. If this assessment shows impairment indicators the Company will
perform an impairment test to determine if the carrying value of a reporting unit exceeds its estimated fair value.
For the year ended December
31, 2024, the Company was not required to perform an impairment test of goodwill since the qualitative analysis did not show any impairment
indicators and no triggering events were identified. To determine the fair value of goodwill and intangible assets, the Company uses many
assumptions and estimates using a market participant approach that directly impacts the testing results. 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.
For the year ended December 31, 2023, the Company
was required to complete its annual impairment tests of goodwill since the Company combined two reporting units. The Company performed
the quantitative assessment and determined that the fair value of the reporting units was more likely than not greater than their carrying
value, including goodwill at December 31, 2023. Based on the completion of the annual impairment test on December 31, 2023, the Company
did not record an impairment charge.
*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) |
Cloud Infrastructure and Disaster Recovery Revenue | |
Cloud Infrastructure provides clients with the ability
to migrate their on-premises computing and digital storage to DSCs enterprise-level technical compute and digital storage assets
located in Tier 3 data centers. DSC owns the assets and provides a turnkey solution whereby achieving reliable and cost-effective, multi-tenant
IBM Power compute, x86/Intel, flash digital storage, while providing disaster recovery and cyber security while eliminating client capital
expenditures. The client pays a monthly fee and can increase capacity as required.
Clients can subscribe to an array of disaster recovery
solutions without subscribing to cloud infrastructure. Product offerings provided directly from DSC are High Availability, Data Vaulting
and retention solutions, including standby servers which allows clients to centralize and streamline their mission-critical digital information
and technical environment while ensuring business continuity if they experience a cyber-attack or natural disaster. Clients data
is vaulted at two data centers with the maintenance of retention schedules for corporate governances and regulations all to meet their
back to work objective in a disaster.
|
|
2) |
Equipment and Software | |
The Company provides equipment and software and actively participates in collaboration
with IBM to provide innovative business solutions to clients. The Company is a partner of IBM and the various software, infrastructure
and hybrid cloud solutions are provided to clients.
|
|
3) |
Managed Services | |
These services are performed at the inception of a
contract. The Company provides professional assistance to its clients during the implementation 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 supplementing the clients
staff.
F-12
The Company also derives both one-time and subscription-based
revenue from providing support, management and renewal of software, hardware, third party maintenance contracts and third-party cloud
services to clients. The managed services include help desk, remote access, operating system and software patch management, annual recovery
tests and manufacturer support for equipment and on-going monitoring of client system performance.
|
|
4) |
Nexxis Voice over Internet and Direct Internet Access | |
The Company provides Voice over Internet Protocol
(VoIP), Internet access and data transport services to ensure businesses are fully connected to the internet from any location,
remote and on premise. The Company provides Hosted VoIP solutions with equipment options for VoIP phones and internet speeds of up to
10Gb delivered over fiber optics.
**Disaggregation of revenue**
In the following table, revenue is disaggregated by
major product line, geography, and timing of revenue recognition.
|
Schedule of revenue is disaggregated by major product |
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year | |
|
Ended December 31, 2024 | |
|
|
|
United States |
|
International |
|
Total | |
|
Cloud Infrastructure & Disaster Recovery |
|
$ |
12,294,669 |
|
|
$ |
603,523 |
|
|
$ |
12,898,192 |
| |
|
Equipment and Software |
|
|
7,962,998 |
|
|
|
|
|
|
|
7,962,998 |
| |
|
Managed Services |
|
|
3,155,359 |
|
|
|
|
|
|
|
3,155,359 |
| |
|
Nexxis VoIP Services |
|
|
1,146,174 |
|
|
|
|
|
|
|
1,146,174 |
| |
|
Other |
|
|
187,252 |
|
|
|
21,328 |
|
|
|
208,580 |
| |
|
Total Revenue |
|
$ |
24,746,452 |
|
|
$ |
624,851 |
|
|
$ |
25,371,303 |
| |
|
For the Year | |
|
Ended December 31, 2023 | |
|
|
|
United States |
|
International |
|
Total | |
|
Cloud Infrastructure &Disaster Recovery |
|
$ |
9,809,777 |
|
|
$ |
345,153 |
|
|
$ |
10,154,930 |
| |
|
Equipment and Software |
|
|
10,344,976 |
|
|
|
|
|
|
|
10,344,976 |
| |
|
Managed Services |
|
|
3,293,034 |
|
|
|
|
|
|
|
3,293,034 |
| |
|
Nexxis
VoIP Services |
|
|
1,012,193 |
|
|
|
|
|
|
|
1,012,193 |
| |
|
Other |
|
|
150,950 |
|
|
|
3,493 |
|
|
|
154,443 |
| |
|
TotalRevenue |
|
$ |
24,610,930 |
|
|
$ |
348,646 |
|
|
$ |
24,959,576 |
| |
|
For the Year | |
|
Ended December 31, | |
|
Timing of revenue recognition |
|
2024 |
|
2023 | |
|
Products transferred at a point in time |
|
$ |
8,171,579 |
|
|
$ |
6,211,166 |
| |
|
Products and services transferred over time |
|
|
17,199,724 |
|
|
|
18,748,410 |
| |
|
Total Revenue |
|
$ |
25,371,303 |
|
|
$ |
24,959,576 |
| |
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.
F-13
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. During the years ended December
31, 2024, and 2023, the Company recognized $233,360 and $277,375 in sales that was recorded as deferred revenue as of December 31, 2023
and 2022, respectively.
**Transaction price allocated to the remaining performance
obligations**
The Company has the following performance obligations:
|
1) |
Data Vaulting: Subscription-based cloud service that encrypts and transfers data to a secure Tier 3 data center and further replicates the data to a second Tier 3 DSC technical center where it remains encrypted. Ensuring client retention schedules for corporate compliance and disaster recovery. Provides for twenty-four (24) hour or less recovery time and utilizes advanced data reduction, reduplication technology to shorten back-up and restore time. | |
|
2) |
High Availability: A managed cloud subscription-based service that provides cost-effective mirroring software replication technology and provides one (1) hour or less recovery time for a client to be back in business. | |
|
|
| |
|
3) |
Cloud Infrastructure: subscription-based cloud service provides for capacity on-demand for IBM Power and X86 Intel server systems. | |
|
|
| |
|
4) |
Internet:
Subscription-based service, offering continuous internet connection combined with FailSAFE
which provides disaster recovery for both clients voice and data environments. | |
|
|
| |
|
5) |
Support and
Maintenance: Subscription based service offers support for clients on their servers,
firewalls, desktops or software. Services are provided 24x7x365 to the Companys clients. | |
|
|
| |
|
6) |
Implementation / Set-Up Fees: Onboarding and set-up for cloud infrastructure and disaster recovery as well as Cyber Security. | |
|
|
| |
|
7) |
Equipment
Sales: Sale of servers and data storage equipment to the client. | |
|
|
| |
|
9) |
License: Granting SSL certificates andlicenses. | |
*Disaster Recovery and Business Continuity Solutions*
Subscription services allow clients to access data
or receive services for a predetermined period of time. As the client obtains access at a point in time and 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
entitys 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 is recognized on a
straight-line basis over the contract term.
*Initial Set-Up Fees*
The Company accounts for set-up fees as a separate
performance obligation. Set-up services are performed one-time and accordingly the revenue is recognized at the point in time, and is
non-refundable, and the Company is entitled to the payment.
*Equipment Sales*
The obligation for the equipment sales is such that
the control of the product transfer is at a point in time (i.e., when the goods have been shipped or delivered to the clients location,
depending on shipping terms). Noting that the satisfaction of the performance obligation, in this sense, does not occur over time, the
performance obligation is considered to be satisfied at a point in time when the obligation to the client has been fulfilled (i.e., when
the goods have left the shipping facility or have been delivered to the client, depending on shipping terms).
F-14
*License - Granting SSL Certificates and Other
Licenses*
Performance obligations as it relates to licensing
is when the control of the product transfers, either at a point in time or over time, depending on the nature of the license. The revenue
standard identifies two types of licenses of intellectual property: (i) a right to access intellectual property; and (ii) a right to use
intellectual property. To assist in determining whether a license provides a right to use or a right to access intellectual property,
ASC 606 defines two categories of intellectual property: Functional and Symbolic. The Companys 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 intellectual property and recognizes revenue at the point
in time the license is granted and/or renewed for a new period.
*Payment Terms*
The typical terms of subscription contracts range
from 12 to 36 months, with auto-renew options extending the contract for an additional term. The Company invoices clients one month in
advance for its services, in addition to any contractual data overages or for additional services.
*Warranties*
The Company offers guaranteed service levels and service
guarantees on some of its contracts. These warranties are not sold separately and are accounted as assurance warranties.
*Significant Judgement*
In instances where contracts include multiple performance
obligations, the Company exercises judgment in determining the standalone selling price for each obligation. Standalone prices are established
by evaluating market data for comparable services and considering the Companys historical pricing practices. The aggregate standalone
price of all performance obligations is calculated, and each individual obligations proportionate share of the total is determined.
This ratio is then applied to the overall contract price to allocate the transaction price among the performance obligations accordingly.
*Impairment of Long-Lived Assets*
The Company reviews its 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 un-discounted
future cash flows.
*Advertising Costs*
The Company expenses the costs associated with
advertising as they are incurred. The Company incurred $749,257 and $815,674for advertising costs for the year ended December
31, 2024, and 2023, respectively.
*Stock-Based Compensation*
The Company follows the requirements of FASB ASC 718-10-10,*Share-Based
Payments*with regards to stock-based compensation issued to employees and non-employees. The Company has agreements and arrangements
that call for stock to be awarded to 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 Company has a relatively low forfeiture rate of stock-based compensation, and forfeitures are recognized as
they occur.
F-15
The valuation methodology used to determine the fair
value of options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number
of assumptions including the 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 managements
best assessment.
Estimated volatility is a measure of the amount by
which DSCs stock price is expected to fluctuate each year during the expected life of the award. The Companys calculation
of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.
*Net Income Per Common 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 years ended December 31, 2024, and 2023:
|
Schedule of earning per share basic and diluted |
|
|
|
|
|
|
|
| |
|
|
|
Year EndedDecember 31, | |
|
|
|
2024 |
|
2023 | |
|
|
|
|
|
| |
|
Net Income Available to Common Shareholders |
|
$ |
523,214 |
|
|
$ |
381,575 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Weighted average number of common shares - basic |
|
|
6,931,399 |
|
|
|
6,841,094 |
| |
|
Dilutive securities |
|
|
|
|
|
|
|
| |
|
Options |
|
|
202,005 |
|
|
|
373,975 |
| |
|
Restricted stock award |
|
|
214,375 |
|
|
|
209,159 |
| |
|
Weighted average number of common shares - diluted |
|
|
7,347,779 |
|
|
|
7,424,228 |
| |
|
|
|
|
|
|
|
|
|
| |
|
Earnings per share, basic |
|
$ |
0.08 |
|
|
$ |
0.06 |
| |
|
Earnings per share, diluted |
|
$ |
0.07 |
|
|
$ |
0.05 |
| |
The following table sets forth the number of potential
shares of common stock that have been excluded from diluted net income per share because their effect was anti-dilutive:
|
Schedule of anti-dilutive shares | | |
| | | |
| | | |
|
| |
Year
ended December 31, | |
|
| |
2024 | |
2023 | |
|
Options | | |
| 476,297 | | |
| 221,372 | | |
|
Warrants | | |
| 2,495,860 | | |
| 2,415,860 | | |
|
| | |
| 2,972,157 | | |
| 2,637,232 | | |
F-16
**Note 3 -Prepaids and other current assets**
Prepaids and other current assets consist of the following:
|
Schedule of prepaids and other current assets |
|
|
|
|
|
|
|
| |
|
|
|
December 31, |
|
December 31, | |
|
|
|
2024 |
|
2023 | |
|
Prepaid marketing & promotion |
|
$ |
47,045 |
|
|
$ |
13,525 |
| |
|
Prepaid subscriptions and license |
|
|
483,170 |
|
|
|
362,760 |
| |
|
Prepaid maintenance |
|
|
191,552 |
|
|
|
31,311 |
| |
|
Prepaid insurance |
|
|
67,373 |
|
|
|
63,247 |
| |
|
Other |
|
|
70,362 |
|
|
|
42,332 |
| |
|
Total prepaids and other current assets |
|
$ |
859,502 |
|
|
$ |
513,175 |
| |
**Note 4-Property and Equipment**
Property and equipment, at cost, consist of the following:
|
Schedule of property and equipment |
|
|
|
|
|
|
|
| |
|
|
|
December 31, |
|
December 31, | |
|
|
|
2024 |
|
2023 | |
|
Storage equipment |
|
$ |
60,288 |
|
|
$ |
60,288 |
| |
|
Furniture and fixtures |
|
|
30,305 |
|
|
|
21,625 |
| |
|
Leasehold improvements |
|
|
573,117 |
|
|
|
20,983 |
| |
|
Computer hardware and software |
|
|
140,288 |
|
|
|
117,379 |
| |
|
Data center equipment |
|
|
8,794,965 |
|
|
|
7,617,950 |
| |
|
Gross Property and equipment |
|
|
9,598,963 |
|
|
|
7,838,225 |
| |
|
Less: Accumulated depreciation |
|
|
(6,159,307 |
) |
|
|
(5,105,451 |
) | |
|
Net property and equipment |
|
$ |
3,439,656 |
|
|
$ |
2,732,774 |
| |
Depreciation expense for the years ended December
31, 2024, and 2023 was $1,079,160 and $1,024,034, respectively, of which $1,067,006and $1,008,429, respectively, was allocated to
general and administrative expenses and $12,154and $15,605 respectively, was allocated to cost of goods sold.
**Note 5 -Goodwill and Intangible Assets**
Goodwill and intangible assets consisted of the following:
|
Schedule of goodwill and intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Estimated life in years |
|
Gross amount |
|
December 31, 2024, Accumulated Amortization |
|
Net | |
|
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Goodwill |
|
|
Indefinite |
|
|
$ |
4,238,671 |
|
|
$ |
|
|
|
$ |
4,238,671 |
| |
|
Trademarks |
|
|
Indefinite |
|
|
|
514,268 |
|
|
|
|
|
|
|
514,268 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total intangible assets not subject to amortization |
|
|
|
|
|
|
4,752,939 |
|
|
|
|
|
|
|
4,752,939 |
| |
|
Intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Customer lists |
|
|
7 |
|
|
|
2,614,099 |
|
|
|
1,701,361 |
|
|
|
912,738 |
| |
|
ABC acquired contracts |
|
|
5 |
|
|
|
310,000 |
|
|
|
310,000 |
|
|
|
|
| |
|
SIAS acquired contracts |
|
|
5 |
|
|
|
660,000 |
|
|
|
660,000 |
|
|
|
|
| |
|
Non-compete agreements |
|
|
4 |
|
|
|
272,147 |
|
|
|
272,147 |
|
|
|
|
| |
|
Website and Digital Assets |
|
|
3 |
|
|
|
33,002 |
|
|
|
33,002 |
|
|
|
|
| |
|
Total intangible assets subject to amortization |
|
|
|
|
|
|
3,889,248 |
|
|
|
2,976,510 |
|
|
|
912,738 |
| |
|
Total Goodwill and Intangible Assets |
|
|
|
|
|
$ |
8,642,187 |
|
|
$ |
2,976,510 |
|
|
$ |
5,665,677 |
| |
F-17
Scheduled amortization over the next four years are as follows:
|
Schedule of amortization over the next five years | | |
| | | |
|
Twelve months ending December 31, | |
| |
|
2025 | | |
$ | 267,143 | | |
|
2026 | | |
| 267,143 | | |
|
2027 | | |
| 267,143 | | |
|
2028 | | |
| 111,309 | | |
|
Total | | |
$ | 912,738 | | |
Amortization expense for the years ended December 31, 2024, and 2023 was
$271,078 and $277,560, respectively.
**Note 6-Leases**
*Operating Leases*
The Company currently maintains two leases for office
space located in Melville, NY and one lease for office space in Austin, TX.
The lease for office space in Melville, NY commenced
on September 1, 2019. The term of this lease is for three years and eleven months and runs co-terminus with the Companys existing
lease in the same building. The base annual rent is $11,856 payable in equal monthly installments of $988. The lease has since expired.
On July 31, 2021, the Company signed athree-year
lease for approximately2,880square feet of office space at 980 North Federal Highway, Boca Raton, FL. Thecommencement
date of theleasewasAugust 2, 2021.The monthly rent was approximately $4,965. The lease has since expired.
On January 1, 2022, the Company entered into a lease agreement for office
space with WeWork in Austin, TX. On September 3, 2024, the Company amended this agreement and is on an eight-month lease agreement with
payments of a $1,056per month.
On
January 17, 2024, the Company entered into a lease agreement for office space in Melville, NY. The
lease commenced on April 1, 2024, and has a term of sixty-seven months. The lease requires monthly payments of $11,931and
expires onOctober
30, 2029.
*Finance Lease Obligations*
On November 1, 2021, the Company entered into a lease
agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $3,152. The lease
carried an interest rate of 6% and is a three-year lease. The term of the lease ended on November 1, 2024.
On January 1, 2022, the Company entered into a lease
agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $17,718. The lease
carried an interest rate of 5% and is a three-year lease. The term of the lease ended January 1, 2025.
On January 1, 2022, the Company entered into a technical
equipment lease with a finance company. The lease obligation is payable in monthly installments of $2,037. The lease carried an interest
rate of 6% and is a three-year lease. The term of the lease ended January 1, 2025.
*Finance Lease Obligations Related Party*
On March 4, 2021, the Company entered into a lease
agreement with Systems Trading, Inc. (Systems Trading), a technology leasing company established by Mr. Schwartz, the Companys
President where he currently serves as Chief Executive Officer and President, effective April 1, 2021. This lease obligation is payable
to Systems Trading with monthly installments of $1,567and expired onMarch 31, 2024. The lease carried an interest rate of8%.
F-18
On January 1, 2022, the Company entered into a lease
agreement with Systems Trading effective January 1, 2022. This lease obligation is payable to Systems Trading with monthly installments
of $7,145and expires onApril 1, 2025. The lease carries an interest rate of8%.
On April 1, 2022, the Company entered into a lease
agreement with Systems Trading effective May 1, 2022. This lease obligation is payable to Systems Trading with monthly installments of
$6,667and expired onFebruary 1, 2025. The lease carried an interest rate of8%.
The Company determines whether an arrangement contains
a lease at the inception of the contract. Right-of-Use ("ROU") assets represent the Companys right to use an underlying
asset for the lease term, while lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and
lease liabilities are recognized at the lease commencement date, based on the present value of estimated lease payments over the lease
term. The lease term includes options to extend the lease when it is reasonably certain that the Company will exercise those options.
The Company has elected the practical expedient to exclude leases with terms of 12 months or less from the balance sheet. Lease expense
for these short-term leases is recognized on a straight-line basis over the lease term. Variable lease payments that depend on an index
or rate are initially measured using the index or rate in effect at the lease commencement date. Other variable payments are recognized
in the period in which the obligation is incurred. A discount rate of 9% was used in the preparation of ROU assets and lease liabilities.
The components of lease expense were as follows:
|
Schedule of components of lease expense |
|
|
|
| |
|
|
|
Year Ended December 31, 2024 | |
|
Finance leases: |
|
|
|
| |
|
Amortization of assets, included in depreciation and amortization expense |
|
$ |
418,700 |
| |
|
Interest on lease liabilities, included in interest expense |
|
|
23,549 |
| |
|
Operating lease: |
|
|
|
| |
|
Amortization of assets, included in total operating expense |
|
|
91,425 |
| |
|
Interest on lease liabilities, included in total operating expense |
|
|
773 |
| |
|
Total net lease cost |
|
$ |
534,447 |
| |
|
Supplemental balance sheet information related to leases was as follows: |
|
|
|
| |
|
|
|
|
|
| |
|
Operating Leases: |
|
|
|
| |
|
|
|
|
|
| |
|
Operating lease right-of-use asset |
|
$ |
575,380 |
| |
|
|
|
|
|
| |
|
Current operating lease liabilities |
|
$ |
98,860 |
| |
|
Noncurrent operating lease liabilities |
|
|
523,070 |
| |
|
Total operating lease liabilities |
|
$ |
621,930 |
| |
|
|
|
December 31, 2024 | |
|
Finance leases: |
|
|
|
| |
|
Property and equipment, at cost |
|
$ |
5,521,716 |
| |
|
Accumulated amortization |
|
|
(5,008,846 |
) | |
|
Property and equipment, net |
|
$ |
512,870 |
| |
|
|
|
|
|
| |
|
Current obligations of finance leases |
|
$ |
51,520 |
| |
|
Finance leases, net of current obligations |
|
|
|
| |
|
Total finance lease liabilities |
|
$ |
51,520 |
| |
F-19
Supplemental cash flow and other information related to leases were as
follows:
|
Schedule of supplemental cash flow and other information related to leases |
|
|
|
| |
|
|
|
Year Ended December 31, 2024 | |
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
| |
|
Operating cash flows related to operating leases |
|
$ |
90,010 |
| |
|
Financing cash flows related to finance leases |
|
$ |
485,962 |
| |
|
|
|
|
|
| |
|
Weighted average remaining lease term (in years): |
|
|
|
| |
|
Operating leases |
|
|
4.83 |
| |
|
Finance leases |
|
|
0.11 |
| |
|
|
|
|
|
| |
|
Weighted average discount rate: |
|
|
|
| |
|
Operating leases |
|
|
9 |
% | |
|
Finance leases |
|
|
7 |
% | |
Long-term obligations under the operating and finance leases at December
31, 2024, mature as follows:
|
Schedule of long term obligations operating and finance leases | | |
| | | |
| | | |
|
For the Twelve Months Ended December 31, | |
Operating Leases | |
Finance Leases | |
|
2025 | | |
$ | 146,931 | | |
$ | 52,009 | | |
|
2026 | | |
| 152,074 | | |
| | | |
|
2027 | | |
| 157,396 | | |
| | | |
|
2028 | | |
| 162,905 | | |
| | | |
|
2029 | | |
| 140,266 | | |
| | | |
|
Total lease payments | | |
| 759,572 | | |
| 52,009 | | |
|
Less: Amounts representing interest | | |
| (137,642 | ) | |
| (489 | ) | |
|
Total lease obligations | | |
| 621,930 | | |
| 51,520 | | |
|
Less: long-term obligations | | |
| (523,070 | ) | |
| | | |
|
Total current | | |
$ | 98,860 | | |
$ | 51,520 | | |
As of December 31, 2024, the Company had no additional
significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the year ended December
31, 2024 and 2023 was $330,500 and $276,676, respectively.
**Note 7 -Commitments and Contingencies**
On May 7, 2024, the Company entered into a master
service agreement with a vendor. The obligation is payable in monthly installments of $51,680. The master service agreement endsJune
1, 2029.
On December 18, 2024, the Company entered into a master
service agreement with a vendor. The obligation is payable in monthly installments of $4,410. The master service agreement endsDecember
17, 2027.
On January 1, 2025, the Company entered into a master
service agreement with a vendor. The obligation is payable in monthly installments of $3,846. The master service agreement endsDecember
31, 2027.
On January 24, 2025, the Company entered into a master
service agreement with a vendor. The obligation is payable in monthly installments of $3,618. The master service agreement endsJanuary
23, 2028.
As part of the Flagship acquisition the Company acquired
a licensing agreement for marketing related materials with a National Football League team. The Company has approximately $821,118 in
payments over the next3years.
**Note 8 -Stockholders Equity**
*Capital Stock*
The Company has260,000,000authorized shares
of capital stock, consisting of250,000,000shares of Common Stock, par value $0.001, and10,000,000shares of Preferred
Stock, par value $0.001per share.
On July 18, 2024, the Company entered into an Equity
Distribution Agreement (the Agreement), pursuant to which it may offer and sell, from time to time, shares of its common
stock. Sales of shares of common stock under the Agreement will be made pursuant to the Companys registration statement on Form
S-3 (File No. 333-280881) (the Registration Statement) and a related prospectus supplement (the ATM Prospectus).
The ATM Prospectus relates to the offering of up to $10,600,000shares of the Companys common stock. The issuance and sale,
if any, of common stock under the Agreement is subject to the Company maintaining an effective registration statement. The Registration
Statement was declared effective on July 26, 2024. To date, the Company has not made any sales under the Agreement.
During the year ended December 31, 2023, employees
exercised833stock options into shares of Common Stock. The Company received $1,699for these options.
F-20
During the year ended December 31, 2024, employees
exercised68,988 stock options into 65,832 shares of Common Stock. The Company received $133,005 for these options.
*Common Stock Options*
On July 1, 2024, the Company registered an
additional 111,323
and 1,000,000
shares of common stock under the 2010 Stock Incentive Planand 2021 Stock Incentive Plan, respectively.
A summary of the Companys stock option activity
and related information follows:
|
Schedule of options activity and related information |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Number of |
|
Weighted |
|
Weighted | |
|
|
|
Shares |
|
Average |
|
Average | |
|
|
|
Under |
|
Exercise |
|
Contractual | |
|
|
|
Options |
|
Price |
|
Life | |
|
Options Outstanding at January 1, 2023 |
|
|
301,391 |
|
|
$ |
3.46 |
|
|
|
7.45 |
| |
|
Options Granted |
|
|
354,685 |
|
|
|
1.93 |
|
|
|
10 |
| |
|
Exercised |
|
|
(833 |
) |
|
|
2.04 |
|
|
|
|
| |
|
Expired/Cancelled |
|
|
(59,896 |
) |
|
|
4.14 |
|
|
|
|
| |
|
Options Outstanding at December 31, 2023 |
|
|
595,347 |
|
|
|
2.48 |
|
|
|
6.87 |
| |
|
Options Granted |
|
|
163,755 |
|
|
|
3.69 |
|
|
|
5.20 |
| |
|
Exercised |
|
|
(68,988 |
) |
|
|
2.22 |
|
|
|
|
| |
|
Expired/Cancelled |
|
|
(11,812 |
) |
|
|
6.24 |
|
|
|
|
| |
|
Options Outstanding at December 31, 2024 |
|
|
678,302 |
|
|
|
2.79 |
|
|
|
6.42 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Exercisable at December 31, 2024 |
|
|
271,650 |
|
|
|
2.99 |
|
|
|
5.79 |
| |
Share-based compensation expense recognized for stock
options granted totaled $425,029 and $315,815 for the years ended December 31, 2024, and 2023, respectively.
The intrinsic value of outstanding stock options as
of December 31, 2024, and 2023 was $1,171,313 and $391,283, respectively.
The valuation methodology used to determine the fair
value of stock 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 the volatility of the stock price, the average risk-free interest rate, and the weighted average expected
life of stock 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 stock options.
Estimated volatility is a measure of the amount by
which the Companys stock price is expected to fluctuate each year during the expected life of the award. The Companys calculation
of estimated volatility is based on historical stock prices of the Companys stock over a period equal to the expected life of the
awards.
As of December 31, 2024, there was $642,873 of total
unrecognized compensation expense related to unvested employee stock options granted under the Companys share-based compensation
plans that is expected to be recognized over a weighted average period of approximately 1.37years.
The weighted average fair value of options granted,
and the assumptions used in the Black-Scholes model during the years ended December 31, 2024, and 2023, are set forth in the table below.
|
Schedule of weighted average fair value of options granted | |
| | |
|
| | | |
|
| |
2024 | |
2023 | |
|
Weighted
average fair value of stock options granted | |
$ | 3.69 | |
|
$ | 1.74 | |
|
|
Risk-free
interest rate | |
| 3.84%-4.33 | % |
|
| 3.48%
- 4.59 | % |
|
|
Volatility | |
| 122%-159 | % |
|
| 133
- 199 | % |
|
|
Expected
life (years) | |
| 3.50-6.00
years | |
|
| 5
10 years | |
|
|
Dividend
yield | |
| | % |
|
| | % |
|
F-21
**
*Share-Based Awards, restricted stock award (RSAs)*
On March 1, 2023, the Company granted certain employees
an aggregate of 73,530 RSAs. Compensation as a group amounted to $130,883. The shares vest one third each year for three years
after issuance.
On March 28, 2023, the Company granted certain employees
an aggregate of 44,942 RSAs. Compensation as a group amounted to $72,357. The shares vest one third each year for three years after
issuance.
On March 31, 2023, the Board of Directors resolved
that the Company shall issue to Board members an aggregate of 12,500 RSAs. Compensation as a group amounted to $22,750. The shares
vest one year after issuance.
On April 10, 2023, the Company granted certain employees
an aggregate of 50,000 RSAs. Compensation as a group amounted to $90,000. The shares vest one third each year for three years after
issuance.
On June 30, 2023, the Board of Directors resolved
that the Company shall issue to Board members an aggregate of 12,500 RSAs. Compensation as a group amounted to $29,125. The shares vest
one year after issuance.
On September 30, 2023, the Board of Directors resolved
that the Company shall issue to Board members an aggregate of 12,500 RSAs. Compensation as a group amounted to $38,875. The shares vest
one year after issuance.
On October 11, 2023, the Company granted certain employees
an aggregate of 687 RSAs. Compensation as a group amounted to $2,497. The shares vest one third each year for three years after
issuance.
On December 31, 2023, the Board resolved that the
Company shall issue to Board members an aggregate of 10,000 RSAs Compensation as a group amount of $28,751. The shares vest one year after
issuance.
On January 2, 2024, the Company granted certain employees
an aggregate of70,393RSAs. Compensation as a group amounted to $156,251. The shares vest one third each year for three years
after issuance.
On March 31, 2024, the Board resolved that the Company
shall issue to Board members an aggregate of14,166RSAs. Compensation as a group amounted to $81,030. The shares vest one year
after issuance.
On April 1, 2024, the Company granted certain employees
an aggregate of2,660RSAs. Compensation as a group amounted to $15,002. The shares vested on grant.
On June 30, 2024, the Board resolved that the Company
shall issue to Board members an aggregate of 17,500 RSAs. Compensation as a group amounted to $114,800. The shares vest one year after
issuance.
A summary of the activity related to RSAs for the year ended December 31,
2024, is presented below:
|
Schedule of activity related to RSAs |
|
|
|
|
|
|
|
| |
|
Restricted Stock Awards (RSAs) |
|
Shares |
|
Fair Value | |
|
Outstanding non-vested at January 1, 2023 |
|
|
50,000 |
|
|
$ |
1.89 |
| |
|
Granted |
|
|
216,659 |
|
|
|
|
| |
|
Vested |
|
|
(57,500 |
) |
|
|
|
| |
|
Forfeited |
|
|
|
|
|
|
|
| |
|
Outstanding non-vested at December 31, 2023 |
|
|
209,159 |
|
|
|
|
| |
|
Granted |
|
|
104,719 |
|
|
$ |
3.98 |
| |
|
Vested |
|
|
(98,816 |
) |
|
$ |
2.18 |
| |
|
Forfeited |
|
|
(687 |
) |
|
|
|
| |
|
Outstanding non-vested at December 31, 2024 |
|
|
214,375 |
|
|
$ |
2.79 |
| |
Stock-based compensation for RSAs has been
recorded in the consolidated statements of operations and totaled $369,658 and $190,389 for the years ended December 31, 2024, and 2023,
respectively.
F-22
As of December 31, 2024,
there was $333,225 of total unrecognized compensation expense related to unvested RSUs granted under the Companys share-based compensation
plans that is expected to be recognized over a weighted average period of approximately 1.1 years.
*Common Stock Warrants*
A summary of the Companys warrant activity
and related information follows:
Schedule of warrant activity and related information
|
Schedule of warrant activity and related information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
Number of |
|
Range of |
|
Weighted |
|
Average | |
|
|
|
Shares |
|
Option Price |
|
Average |
|
Contractual | |
|
|
|
Under Options |
|
Per Share |
|
Exercise Price |
|
Life | |
|
Warrant Outstanding at January 1, 2023 |
|
|
2,419,193 |
|
|
|
$7.43-0.40 |
|
|
$ |
6.87 |
|
|
$ |
3.67 |
| |
|
Warrant Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Warrant Expired |
|
|
(3,333 |
) |
|
|
0.40 |
|
|
|
0.40 |
|
|
|
|
| |
|
Warrant Outstanding at December 31, 2023 |
|
|
2,415,860 |
|
|
|
$7.43-6.15 |
|
|
$ |
6.88 |
|
|
$ |
2.67 |
| |
|
Warrant Granted |
|
|
80,000 |
|
|
|
7.43 |
|
|
|
7.43 |
|
|
|
5.00 |
| |
|
Warrant Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Warrant Outstanding at December 31, 2024 |
|
|
2,495,860 |
|
|
|
$7.43-6.15 |
|
|
$ |
6.90 |
|
|
$ |
1.66 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Warrant Exercisable at December 31, 2024 |
|
|
2,495,860 |
|
|
|
$7.43-6.15 |
|
|
$ |
6.90 |
|
|
$ |
1.66 |
| |
The intrinsic value of outstanding warrants as of
December 31, 2024 and 2023 was $0.
*Preferred Stock*
Liquidation preference
Upon any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock,
the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution
to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal
to the Original Issue Price for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A
Preferred Stock as of the date of the Liquidation Event. No Preferred shares are issued as of December 31, 2024.
Conversion
The number of shares of Common Stock to which a share
of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series
A Preferred Stock by the then-effective Conversion Price (as defined herein) for such share of Series A Preferred Stock. The Conversion
Price for the Series A Preferred Stock shall initially be equal to $0.02 and shall be adjusted from time to time.
Voting
Each holder of shares of Series A Preferred Stock
shall be entitled to the number of votes, upon any meeting of the stockholders of the Corporation (or action taken by written consent
in lieu of any such meeting) equal to the number of shares of Class B Common Stock into which such shares of Series A Preferred Stock
could be converted.
Dividends
Each share of Series A Preferred Stock, in preference
to the holders of all common stock, 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 Company. On May 18, 2021, the Company converted1,401,786shares
of Series A Preferred Stock into43,806shares of common stock. Accrued dividends at December 31, 2022, were $0. There are no
shares of Series A Preferred Stock outstanding.
F-23
**Note 9 -Income Taxes**
The components of deferred taxes are as follows:
|
Schedule of components of deferred taxes |
|
|
|
|
|
|
|
| |
|
|
|
YearEndedDecember 31, | |
|
|
|
2024 |
|
2023 | |
|
Deferred tax assets: |
|
|
|
|
|
|
|
| |
|
Net operating loss carry forwards |
|
$ |
2,277,000 |
|
|
$ |
2,444,000 |
| |
|
Operating Lease Right of Use Asset |
|
|
172,496 |
|
|
|
|
| |
|
Other |
|
|
|
|
|
|
195,000 |
| |
|
Total deferred tax assets |
|
|
2,449,496 |
|
|
|
2,639,000 |
| |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
| |
|
Property and equipment |
|
|
(521,358 |
) |
|
|
|
| |
|
Intangibles |
|
|
(120,123 |
) |
|
|
(225,000 |
) | |
|
Goodwill |
|
|
(195,154 |
) |
|
|
|
| |
|
Right of Use Liability |
|
|
(158,947 |
) |
|
|
|
| |
|
Other |
|
|
|
|
|
|
(65,000 |
) | |
|
Total deferred tax liabilities |
|
|
(995,582 |
) |
|
|
(290,000 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
Valuation Allowance |
|
|
(1,492,945 |
) |
|
|
(2,349,000 |
) | |
|
|
|
|
|
|
|
|
|
| |
|
Net deferred taxes |
|
$ |
(39,031 |
) |
|
$ |
|
| |
The Company had federal and state net operating
tax loss carry-forwards of $7,526,435 and $11,185,137, respectively
as of December 31, 2024. The tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards
beginning to expire in 2029.
During the tax year, the Company claimed a tax credit
related to the amortization of goodwill for US federal income tax purposes. However, the tax position underlying the credit may not have
the appropriate economic substance to support the claim under current US federal income tax law. The Company is recognizing a naked credit
associated with goodwill, where the tax deduction has been claimed based on goodwill that may not be associated with a qualifying transaction
as required under income tax provisions.
As of tax year ended December 31, 2024, management has reviewed the relevant
tax laws and believes that the tax positions taken are reasonable. Given the potential for challenge by tax authorities, the Company may
be exposed to the risk that the credits taken may not be sustained upon examination, which may result in additional tax liabilities and
penalties. The amount of any potential tax adjustments to the credits have not been determined at this time.
A reconciliation of the Companys effective
income tax rate to the expected income tax rate, computed by applying the federal statutory income tax rate of 21.0% for each of the
years ended December 31, 2024 and 2023 to the Companys loss before provision (benefit) for income taxes, is as follows:
|
Schedule of expected income tax expense benefit |
|
|
|
|
|
|
|
| |
|
|
|
2024 |
|
2023 | |
|
U.S. Federal Statutory Rate |
|
|
21.0 |
% |
|
|
21.0 |
% | |
|
State Taxes |
|
|
6.9 |
% |
|
|
7.3 |
% | |
|
|
|
|
|
|
|
|
|
| |
|
Other permanent and prior period adjustments |
|
|
5.7 |
% |
|
|
9.1 |
% | |
|
Valuation allowance |
|
|
(37.0 |
)% |
|
|
(37.4 |
)% | |
|
Income tax provision |
|
|
|
% |
|
|
|
% | |
**Note 10 Litigation**
The Company is currently not involved in any litigation
that it believes could have a materially adverse effect on its 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 the Company or any of its subsidiaries, threatened against or affecting DSC, its common
stock, any of its subsidiaries or of DSCs or DSCs subsidiaries officers or directors in their capacities as such,
in which an adverse decision could have a material adverse effect.
**Note 11 Related Party Transactions**
F-24
*Nexxis Capital LLC*
Charles M. Piluso (Chairman and CEO) and Harold Schwartz
(President) 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 received funds of $7,348and $32,283 during the year ended December
31, 2024, and 2023, respectively.
*Eisner & Maglione CPAs LLC*
Lawrence Maglione is a partner of Eisner & Maglione
CPAs LLC. The Company paid his firm $31,352 and $34,644 for accounting and due diligence services during the year ended December 31, 2024, and 2023, respectively.
**Note 12 Segment Information**
The Company operates inthreereportable
segments: CloudFirst, CloudFirst Europe and Nexxis. The Companys segments were determined based on its internal organizational
structure, the manner in which its operations are managed, and the criteria used by the Companys CODMs which is its Chief
Executive Officer and the senior management team, to evaluate performance, which is generally the segments operating income or
losses.
|
Operations of: |
|
Products and services provided: | |
|
|
|
| |
|
CloudFirst Technologies Corporation |
|
CloudFirst provides services from CloudFirst technological assets deployed in six Tier 3 data centers throughout the USA and Canada. This technology has been developed by CloudFirst. Clients are invoiced for cloud infrastructure and disaster recovery on the CloudFirst platforms. Services provided to clients are provided on a subscription basis on long term contracts. | |
|
CloudFirst Europe Ltd. |
|
CloudFirst Europe Ltd. provides services from CloudFirst technological assets deployed in three Tier 3 data centers throughout the United Kingdom. This technology has been developed by CloudFirst. Clients are invoiced for cloud infrastructure and disaster recovery on the CloudFirst UK platforms. Services provided to clients are provided on a subscription basis on long term contracts. | |
|
Nexxis Inc. |
|
Nexxis
is a single-source solution provider that delivers fully-managed cloud-based voice over internet services, data transport, internet access,
and SD-WAN solutions focused on business continuity for todays modern business environment. | |
The following tables present certain financial information
related to the Companys reportable segments and Corporate:
|
Schedule of financial information related to reportable segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, 2024 | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
CloudFirst Technologies |
|
CloudFirst Europe Ltd. |
|
Nexxis Inc. |
|
Corporate |
|
Total | |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable |
|
$ |
2,166,440 |
|
|
$ |
|
|
|
|
59,018 |
|
|
$ |
|
|
|
$ |
2,225,458 |
| |
|
Prepaid expenses and other current assets |
|
|
678,123 |
|
|
|
62,842 |
|
|
|
25,056 |
|
|
|
93,481 |
|
|
|
859,502 |
| |
|
Net Property and Equipment |
|
|
2,858,664 |
|
|
|
574,919 |
|
|
|
2,056 |
|
|
|
4,017 |
|
|
|
3,439,656 |
| |
|
Intangible assets, net |
|
|
1,427,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,427,006 |
| |
|
Goodwill |
|
|
4,238,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,238,671 |
| |
|
Operating lease right-of-use assets |
|
|
575,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575,380 |
| |
|
All other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,514,542 |
|
|
|
12,514,542 |
| |
|
Total Assets |
|
$ |
11,944,284 |
|
|
$ |
637,761 |
|
|
$ |
86,130 |
|
|
$ |
12,612,040 |
|
|
$ |
25,280,215 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts payable and accrued expenses |
|
$ |
2,514,439 |
|
|
$ |
80,348 |
|
|
$ |
78,654 |
|
|
$ |
509,938 |
|
|
$ |
3,183,379 |
| |
|
Deferred revenue |
|
|
212,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212,390 |
| |
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,031 |
|
|
|
39,031 |
| |
|
Total Finance leases payable |
|
|
17,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,641 |
| |
|
Total Finance leases payable related party |
|
|
33,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,879 |
| |
|
TotalOperating lease liabilities |
|
|
621,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
621,930 |
| |
|
Total Liabilities |
|
$ |
3,400,279 |
|
|
$ |
80,348 |
|
|
$ |
78,654 |
|
|
$ |
548,969 |
|
|
$ |
4,108,250 |
| |
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, 2023 | |
|
| |
|
|
|
CloudFirst Technologies |
|
Nexxis Inc. |
|
Corporate |
|
Total | |
|
|
|
|
|
|
|
|
|
| |
|
Accounts receivable |
|
$ |
1,229,820 |
|
|
$ |
30,152 |
|
|
$ |
|
|
|
$ |
1,259,972 |
| |
|
Prepaid expenses and other current assets |
|
|
419,254 |
|
|
|
18,157 |
|
|
|
75,764 |
|
|
|
513,175 |
| |
|
Net property and equipment |
|
|
2,727,225 |
|
|
|
2,905 |
|
|
|
2,644 |
|
|
|
2,732,774 |
| |
|
Intangible assets, net |
|
|
1,698,084 |
|
|
|
|
|
|
|
|
|
|
|
1,698,084 |
| |
|
Goodwill |
|
|
4,238,671 |
|
|
|
|
|
|
|
|
|
|
|
4,238,671 |
| |
|
Operating lease right-of-use assets |
|
|
62,981 |
|
|
|
|
|
|
|
|
|
|
|
62,981 |
| |
|
All other assets |
|
|
|
|
|
|
|
|
|
|
12,795,362 |
|
|
|
12,795,362 |
| |
|
Total assets |
|
$ |
10,376,035 |
|
|
$ |
51,214 |
|
|
$ |
12,873,770 |
|
|
$ |
23,301,019 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Accounts payable and accrued expenses |
|
$ |
2,020,963 |
|
|
$ |
65,161 |
|
|
$ |
522,814 |
|
|
$ |
2,608,938 |
| |
|
Deferred revenue |
|
|
336,201 |
|
|
|
|
|
|
|
|
|
|
|
336,201 |
| |
|
Finance leases payable |
|
|
281,241 |
|
|
|
|
|
|
|
|
|
|
|
281,241 |
| |
|
Finance leases payable related party |
|
|
256,241 |
|
|
|
|
|
|
|
|
|
|
|
256,241 |
| |
|
Operating lease liabilities |
|
|
63,983 |
|
|
|
|
|
|
|
|
|
|
|
63,983 |
| |
|
Total liabilities |
|
$ |
2,958,629 |
|
|
$ |
65,161 |
|
|
$ |
522,814 |
|
|
$ |
3,546,604 |
| |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
For the year ended December 31, 2024 | |
|
| |
| |
| |
| |
| |
| |
|
| |
CloudFirst Technologies | |
CloudFirst Europe Ltd. | |
Nexxis Inc. | |
Corporate | |
Total | |
|
Revenue | |
$ | 24,152,056 | | |
$ | | | |
$ | 1,219,247 | | |
$ | | | |
$ | 25,371,303 | | |
|
Cost of sales | |
| 13,575,937 | | |
| | | |
| 691,999 | | |
| | | |
| 14,267,936 | | |
|
Gross Profit | |
| 10,576,119 | | |
| | | |
| 527,248 | | |
| | | |
| 11,103,367 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Selling, general and administrative | |
| 5,544,276 | | |
| 290,219 | | |
| 619,912 | | |
| 3,218,831 | | |
| 9,673,238 | | |
|
Depreciation and amortization | |
| 1,348,614 | | |
| | | |
| 850 | | |
| 774 | | |
| 1,350,238 | | |
|
Total operating expenses | |
| 6,892,890 | | |
| 290,219 | | |
| 620,762 | | |
| 3,219,605 | | |
| 11,023,476 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Income (Loss) from Operations | |
| 3,683,229 | | |
| (290,219 | ) | |
| (93,514 | ) | |
| (3,219,605 | ) | |
| 79,891 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Interest income | |
| | | |
| | | |
| | | |
| 592,819 | | |
| 592,819 | | |
|
Interest expense | |
| (119,008 | ) | |
| | | |
| | | |
| | | |
| (119,008 | ) | |
|
Loss on disposal of equipment | |
| (1,599 | ) | |
| | | |
| | | |
| | | |
| (1,599 | ) | |
|
Total Other Income (Expense) | |
| (120,607 | ) | |
| | | |
| | | |
| 592,819 | | |
| 472,212 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Income (Loss) before provision for income taxes | |
$ | 3,562,622 | | |
$ | (290,219 | ) | |
$ | (93,514 | ) | |
$ | (2,626,786 | ) | |
$ | 552,103 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
For the year ended December 31, 2023 | |
|
| |
| |
| |
| |
| |
| |
|
| |
CloudFirst Technologies | |
CloudFirst Europe Ltd. | |
Nexxis Inc. | |
Corporate | |
Total | |
|
Revenue | |
$ | 23,862,649 | | |
$ | | | |
$ | 1,096,927 | | |
$ | | | |
$ | 24,959,576 | | |
|
Cost of sales | |
| 14,749,837 | | |
| | | |
| 633,414 | | |
| | | |
| 15,383,251 | | |
|
Gross Profit | |
| 9,112,812 | | |
| | | |
| 463,513 | | |
| | | |
| 9,576,325 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Selling, general and administrative | |
| 5,112,193 | | |
| | | |
| 692,185 | | |
| 2,638,764 | | |
| 8,443,142 | | |
|
Depreciation and amortization | |
| 1,300,238 | | |
| | | |
| 705 | | |
| 651 | | |
| 1,301,594 | | |
|
Total operating expenses | |
| 6,412,431 | | |
| | | |
| 692,890 | | |
| 2,639,415 | | |
| 9,744,736 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Income (Loss) from Operations | |
| 2,700,381 | | |
| | | |
| (229,377 | ) | |
| (2,639,415 | ) | |
| (168,411 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Interest income | |
| | | |
| | | |
| | | |
| 542,229 | | |
| 542,229 | | |
|
Interest expense | |
| (74,502 | ) | |
| | | |
| | | |
| | | |
| (74,502 | ) | |
|
Total Other Income (Expense) | |
| (74,502 | ) | |
| | | |
| | | |
| 542,229 | | |
| 467,727 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Income (Loss) before provision for income taxes | |
$ | 2,625,879 | | |
$ | | | |
$ | (229,377 | ) | |
$ | (2,097,186 | ) | |
$ | 299,316 | | |
****
**Note 13 -Subsequent Events**
The Company has evaluated
events that occurred through March 31, 2025, the date that the financial statements were issued, and determined that there have been no
events that have occurred that would require adjustments to the Companys disclosures in the financial statements.
F-26
**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**
None.
**ITEM 9A. CONTROLS AND PROCEDURES**
**Evaluation of Disclosure
Controls and Procedures.**
As of the end of the period
covered by this Annual Report, under the supervision and with the participation of DSCs 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).
Rule 13a-15(e) under the Exchange Act defines disclosure controls and procedures as controls and other procedures of a company
that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to a companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures were effective at the reasonable
assurance level at December 31, 2024.
A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Due to 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.
Accordingly, the Companys disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the
objectives of its disclosure control system are met. As set forth above, the Companys Chief Executive Officer and Chief Financial
Officer have concluded, based on the evaluation as of the end of the period covered by this Report, that the Companys disclosure
controls and procedures were effective to provide reasonable assurance that the objectives of its disclosure control system were met.
**Managements Annual Report on Internal
Control Over Financial Reporting**
The Companys management is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Internal control
over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed to provide reasonable
assurance to the Companys management and Board of Directors regarding the preparation and fair presentation of published financial
statements. Management conducted an assessment of the Companys internal control over financial reporting as of December 31, 2024,
based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (2013). Based on the assessment, management concluded that, as of December 31, 2024, the Companys internal control over
financial reporting is effective.
**Changes in Internal Control
over Financial Reporting**
As described above, there
were no changes in the Companys internal control over financial reporting during the three months ended December 31, 2024, which
would affect, or are reasonably likely to materially affect, its internal control over financial reporting.
**ITEM 9B. OTHER INFORMATION**
During the three months ended December 31, 2024, no
director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or nonRule 10b5-1 trading
arrangement, as each term is defined in Item 408(a) of Regulation S-K.
**Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS**
Not Applicable
39
**PART III**
**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE**
The information required by this item of this Annual
Report will be included under the headings Corporate Governance and Committees of the Board of Directors in
our 2025 Proxy Statement, and is incorporated by reference herein.
**ITEM 11. EXECUTIVE COMPENSATION**
The information required by this item of this Annual
Report will be included under the headings Executive Compensation and Director Compensation in the Companys
2025 Proxy Statement, and is incorporated by reference herein.
**ITEM 12.****SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS**
The information required by this item of this Annual
Report will be included under the heading Security Ownership of Certain Beneficial Owners and Management in the Companys
2025 Proxy Statement and is incorporated by reference herein.
40
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE**
The information required by this item of this Annual
Report will be included under the heading Certain Relationships and Related Party Transactions and Director Independence
in the Companys 2025 Proxy Statement and is incorporated by reference herein.
**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
The information required by this item of this Annual
Report will be included under the heading Principal Accounting Fees and Services in the Companys 2025 Proxy Statement
and is incorporated by reference herein.
**PART IV**
**ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.**
|
(a)(1) |
The following financial statements are included in this Annual Report for
the fiscal years ended December 31, 2024, and 2023: | |
|
|
|
| |
|
|
1. |
Report of Independent Registered Public Accounting Firm. | |
|
|
|
| |
|
|
2. |
Consolidated Balance Sheets as of December 31, 2024, and 2023. | |
|
|
|
| |
|
|
3. |
Consolidated Statements of Operations for the years ended December 31, 2024, and 2023. | |
|
|
|
| |
|
|
4. |
Consolidated Statements of Cash Flows for the years ended December 31, 2024, and 2023. | |
|
|
|
| |
|
|
5. |
Consolidated Statements of Stockholders Equity for the years ended December 31, 2024, and 2023. | |
|
|
|
| |
|
|
6. |
Notes to Consolidated Financial Statements. | |
|
|
| |
|
(a)(2) |
All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes. | |
|
|
| |
|
(a)(3) |
The exhibits set forth in the accompanying
exhibit index on the page preceding the signature page are either filed as part of this report or are incorporated herein by reference: | |
41
**ITEM 16. FORM 10-K SUMMARY**
Not applicable.
**EXHIBIT INDEX**
|
Exhibit
No. |
|
Description | |
|
|
|
| |
|
3.1 |
|
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants Registration Statement on Form SB-2 (File No. 333-148167) filed on December 19, 2007). | |
|
|
|
| |
|
3.2 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 333-148167) filed on October 24, 2008). | |
|
|
|
| |
|
3.3 |
|
Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 on Form 8-K (File No. 333-148167) filed on January 9, 2009). | |
|
|
|
| |
|
3.4 |
|
Bylaws (incorporated by reference to Exhibit 3.2 to the Registrants Registration Statement on Form SB-2 (File No. 333-148167) filed on December 19, 2007). | |
|
|
|
| |
|
3.5 |
|
Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K (File No. 333-148167) filed on October 24, 2008). | |
|
|
|
| |
|
3.6 |
|
Form of Certificate of Amendment to the Articles of Incorporation (incorporated by reference to Appendix A to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.7 |
|
Form of Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated October 7, 2008 (incorporated by reference to Appendix C to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.8 |
|
Form of Certificate of Validation and Ratification of the Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated October 7, 2008 (incorporated by reference to Appendix C to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.9 |
|
Form of Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated October 16, 2008 (incorporated by reference to Appendix D to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.10 |
|
Form of Certificate of Validation and Ratification of the Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated October 16, 2008 (incorporated by reference to Appendix D to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.11 |
|
Form of Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated January 6, 2009 (incorporated by reference to Appendix E to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.12 |
|
Form of Certificate of Validation and Ratification of the Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated January 6, 2009 (incorporated by reference to Appendix E to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
3.13 |
|
Form of Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated June 24, 2009 (incorporated by reference to Appendix F to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
|
|
|
| |
|
3.14 |
|
Form of Certificate of Validation and Ratification of the Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation dated June 24, 2009 (incorporated by reference to Appendix F to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
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3.15 |
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Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation (incorporated by reference to Appendix F to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
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3.16 |
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Amendment to Bylaws (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 001-35384) filed May 6, 2024). | |
42
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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/A (File No. 333-148167) filed on June 29, 2009). | |
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4.2 |
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Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 on Form S-8/A (File No. 333-169042) filed on October 25, 2010). | |
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| |
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4.3 |
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Amended and Restated Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed on April 26, 2012). | |
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4.4 |
|
Data Storage Corporation 2021 Stock Incentive Plan (incorporated by reference to Appendix B to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
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4.5 |
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Representatives Warrant dated May 18, 2021 (incorporated by reference to Exhibit 4.1 to Form 8-K (File No. 001-35384) filed on May 18, 2021). | |
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4.6 |
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Form of Common Stock Warrant (incorporated by reference to Exhibit 4.2 to Form 8-K (File No. 001-35384) filed on May 18, 2021). | |
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| |
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4.7 |
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Warrant Agency Agreement, dated May 18, 2021, by and between the Company and VStock Transfer LLC (incorporated by reference to Exhibit 4.3 to Form 8-K (File No. 001-35384) filed on May 18, 2021). | |
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4.8 |
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Form of Warrant (incorporated by reference to Exhibit 4.1 to Form 8-K (File No. 001-35384) filed on July 20, 2021). | |
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4.9 |
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Description of Securities (incorporated by reference to Exhibit 4.10 to Annual Report on Form 10-K (File No. 001-35384) filed on March 31, 2023). | |
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10.1 |
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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 (File No. 001-35384) filed on October 31, 2016). | |
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| |
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10.2 |
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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 (File No. 001-35384) filed on October 31, 2016). | |
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10.3 |
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Form of Stockholders Agreement by and between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017 (incorporated by reference to Exhibit 10.22 to Form 10Q (File No. 001-35384) filled November 19, 2018). | |
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10.4 |
|
Form of Employment Agreement between Data Storage Corporation, Nexxis Inc., and John Camello dated November 13, 2017 (incorporated by reference to Exhibit 10.23 to Form 10-Q (File No. 001-35384) filed November 19, 2018). | |
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10.5 |
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Buyout Lease Agreement between Data Storage Corporation and Systems Trading, Inc. dated March 15, 2018 (incorporated by reference to Exhibit 10.6 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.6 |
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FMV Lease Agreement between Data Storage Corporation and Systems Trading, Inc. dated September 14, 2018 (incorporated by reference to Exhibit 10.7 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.7 |
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Buyout Lease Agreement DSC003 between Data Storage Corporation and Systems Trading, Inc. dated December 18, 2018 (incorporated by reference to Exhibit 10.8 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.8 |
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Buyout Lease Agreement DSC004 between Data Storage Corporation and Systems Trading, Inc. dated December 18, 2018 (incorporated by reference to Exhibit 10.9 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.9 |
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Addendum 1 to Lease DSC003 between Data Storage Corporation and Systems Trading, Inc. dated March 20, 2019 (incorporated by reference to Exhibit 10.10 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.10 |
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Addendum 1 to Lease DSC004 between Data Storage Corporation and Systems Trading, Inc. dated March 20, 2019 (incorporated by reference to Exhibit 10.11 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
43
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10.11 |
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Buyout
Lease Agreement DSC006 between Data Storage Corporation and Systems Trading, Inc. dated November 12, 2019 (incorporated by reference
to Exhibit 10.12 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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10.12 |
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Agreement
and Plan of Merger by and between Data Storage Corporation and Flagship Solutions, LLC dated February 4, 2021 (incorporated by reference
to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed on February 10, 2021). | |
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10.13 |
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Amendment,
dated February 12, 2021, to the Agreement and Plan of Merger by and between Data Storage Corporation, Data Storage FL, LLC, Flagship
Solutions, LLC, and the owners of Equity Interests (as defined therein) dated February 4, 2021 (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K (File No. 001-35384) filed on February 16, 2021). | |
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| |
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10.14 |
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Buyout
Lease Agreement DSC007 between Data Storage Corporation and Systems Trading, Inc. dated March 4, 2021 (incorporated by reference
to Exhibit 10.15 to Form 10-K (File No. 001-35384) filed March 31, 2021). | |
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| |
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10.15 |
|
Form
of Securities Purchase Agreement dated July 19, 2021 between Data Storage Corporation and certain purchasers (incorporated by reference
to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed on July 20, 2021). | |
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10.16# |
|
Form
of Employment Agreement between Data Storage Corporation and Charles M. Piluso dated March 28, 2023 (incorporated by reference to
Exhibit 10.1 to Form 8-K (File No. 001-35384) filed March 31, 2023). | |
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10.17# |
|
Form
of Employment Agreement between Data Storage Corporation and Chris H. Panagiotakos dated March 28, 2023 (incorporated by reference
to Exhibit 10.2 to Form 8-K (File No. 001-35384) filed March 31, 2023). | |
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| |
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10.18 |
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Sublease
between Sentinel Benefits Group, LLC and Sentinel Benefits Group, Inc. and Data Storage Corporation, dated as of January 17, 2024
(incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed March 27, 2024) | |
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| |
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10.19# |
|
Employment
Agreement Amendment between Data Storage Corporation and Charles M. Piluso (incorporated
by reference to Exhibit 10.20 to Form 10-K (File No. 001-35384) filed March 31, 2024). | |
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| |
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10.20# |
|
Employment
Agreement Amendment between Data Storage Corporation and Chris H. Panagiotakos (incorporated
by reference to Exhibit 10.21 to Form 10-K (File No. 001-35384) filed March 31, 2024). | |
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10.21# |
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Amendment No. 1 to the Data Storage Corporation 2021 Stock Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 001-35384) filed June 24, 2024). | |
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10.22 |
|
Equity Distribution Agreement, dated July 18, 2024, by and between Data Storage Corporation and Maxim Group LLC (Incorporated by reference to Exhibit 1.1 to Registration Statement on Form S-3 (File No. 333-280881) filed July 18, 2024) | |
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19.1* |
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Second Amended and Restated Insider Trading Policy | |
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21.1* |
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List of Subsidiaries of Data Storage Corporation | |
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23.1* |
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Consent of Rosenberg Rich Baker Berman P.A., Independent Registered Accounting Firm | |
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24.1* |
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Power of Attorney Signature Page | |
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31.1* |
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Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a), As adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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31.2* |
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Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a), As adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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32.1* |
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Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 | |
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32.2* |
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Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 | |
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97.1 |
|
Clawback Policy (incorporated by reference to Exhibit 97.1 to Form 10-K (File No. 001-35384) filed March 31, 2024). | |
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* |
|
Filed herewith | |
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| |
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# |
|
Indicates management contract or compensatory plan. | |
44
**SIGNATURES**
Pursuant to the requirements
of Section13 or 15(d)of the Securities Exchange Act of 1934, the registrant has duly caused this to this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 31st day of March, 2025.
|
|
DATA STORAGE
CORPORATION | |
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| |
|
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By: |
/s/
Charles M. Piluso | |
|
|
Name: Charles
M. Piluso | |
|
|
Chief Executive
Officer and Chairman of the Board | |
|
|
(Principal
Executive Officer) | |
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|
Date: March
31, 2025 | |
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| |
|
|
By: |
/s/
Chris H. Panagiotakos | |
|
|
Name: Chris
H. Panagiotakos | |
|
|
Title: Chief
Financial Officer | |
|
|
(Principal
Financial and Principal Accounting Officer) | |
|
|
Date: March
31, 2025 | |
**POWER OF ATTORNEY**
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Charles M. Piluso, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments
to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there
unto duly authorized.
|
Signature |
|
Title |
|
Date | |
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|
| |
|
/s/
Charles M. Piluso |
|
Chief Executive Officer |
|
March
31, 2025 | |
|
Charles
M. Piluso |
|
(Principal Executive Officer) |
|
| |
|
|
|
|
|
| |
|
/s/ Chris H. Panagiotakos |
|
Chief Financial Officer
(Principal Financial Officer |
|
March
31, 2025 | |
|
Chris
H. Panagiotakos |
|
and Principal Accounting
Officer) |
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| |
|
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|
| |
|
/s/
Harold J. Schwartz |
|
President, Director |
|
March
31, 2025 | |
|
Harold
Schwartz |
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| |
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|
| |
|
/s/
Thomas C. Kempster |
|
Executive
Vice President of Strategic Development, Director |
|
March
31, 2025 | |
|
Thomas
Kempster |
|
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|
| |
|
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|
| |
|
/s/
John Argen |
|
Director |
|
March
31, 2025 | |
|
John
Argen |
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|
| |
|
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|
|
| |
|
/s/
Lawrence A. Maglione, Jr. |
|
Director |
|
March
31, 2025 | |
|
Lawrence
Maglione |
|
|
|
| |
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|
|
| |
|
/s/
Matthew Grover |
|
Director |
|
March
31, 2025 | |
|
Matthew
Grover |
|
|
|
| |
|
|
|
|
|
| |
|
/s/
Todd A. Correll |
|
Director |
|
March
31, 2025 | |
|
Todd
Correll |
|
|
|
| |
|
/s/
Clifford Stein |
|
Director |
|
March
31, 2025 | |
|
Clifford
Stein |
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|
|
| |
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|
| |
|
/s/
Nancy M. Stallone |
|
Director |
|
March
31, 2025 | |
|
Nancy
M. Stallone |
|
|
|
| |
|
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|
|
| |
|
/s/Uwayne
A. Mitchell |
|
Director |
|
March
31, 2025 | |
|
Uwayne
A. Mitchell |
|
|
|
| |
45