What changed in Data Storage Corp's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Data Storage Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+199 added−239 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-31)
Top changes in Data Storage Corp's 2023 10-K
199 paragraphs added · 239 removed · 123 edited across 6 sections
- Item 1. Business+31 / −80 · 3 edited
- Item 1A. Risk Factors+90 / −81 · 71 edited
- Item 7. Management's Discussion & Analysis+64 / −66 · 39 edited
- Item 2. Properties+7 / −7 · 5 edited
- Item 5. Market for Registrant's Common Equity+6 / −4 · 4 edited
Item 1. Business
Business — how the company describes what it does
3 edited+28 added−77 removed0 unchanged
Item 1. Business
Business — how the company describes what it does
3 edited+28 added−77 removed0 unchanged
2022 filing
2023 filing
Biggest changeAll filings the Company makes with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its Current Reports on Form 8-K, its proxy statements and any amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available for free in the Investor Relations section of the Company’s website as soon as reasonably practicable after they are filed with or furnished to the SEC.
Biggest changeAvailable 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 Company’s website (www.dtst.com) under the Investor Relations section following their SEC submission.
Principal competitive factors important to the Company include price, product features, relative price and performance, product quality and reliability, strong third-party software, marketing and distribution capability, service and support and corporate reputation. The Company is focused on expanding its market opportunities globally related to disaster recovery and cloud infrastructure, primarily focused on the IBM community.
Key competitive factors include pricing, product features, performance, quality, reliability, software partnerships, marketing and distribution capabilities, and the Company’s reputation. Data Storage Corporation focuses on expanding its market reach globally, especially within the disaster recovery and cloud infrastructure sectors, primarily catering to the IBM end user community.
The reference to the Company’s website address does not constitute inclusion or incorporation by reference of the information contained on the Company’s website in this Form 10-K or other filings with the SEC, and the information contained on the Company’s website is not part of this document.
The content on the Company’s website is not incorporated by reference into this Annual Report or any other SEC filings.
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ITEM 1. BUSINESS The Industry and Opportunity Data Storage Corporation provides Cloud Managed Services and technologies across multiple platforms. The Company’s technical assets are in geographically diverse, Tier 3 compliant data centers throughout the USA and Canada.
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ITEM 1. BUSINESS Company Overview Data Storage Corporation (“DSC,” “Data Storage” or the “Company”), based in Melville, New York, leverages its expertise through its three subsidiaries: CloudFirst Technologies Corporation (formerly DSC), Flagship Solutions, LLC, and Nexxis Inc.
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Hybrid and Multi-Cloud have become mainstream technological offerings of the Cloud infrastructure managed services industry as companies have moved away from legacy, on-premises technology solutions.
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Catering to diverse sectors such as healthcare, banking, manufacturing, and government, DSC delivers a suite of IT services, including disaster recovery, cloud infrastructure, cybersecurity, managed services and dedicated internet access and UCaaS / Voice over Internet Protocol (VoIP) services. The Company’s approach involves long-term subscription models, robust business development, and expansive distribution networks.
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This approach has grown more complex, as companies utilize disparate technical environments, including on-premises equipment and software, multi-clouds interfacing with Software as a Service providers, Amazon AWS and others while focusing on the remote employee or a contractor for higher levels of security, driving growth in managed cloud services.
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In 2023, following a capital infusion and its Nasdaq listing in May 2021, DSC embarked on a growth trajectory, enhancing its distribution, marketing capabilities, and technological infrastructure. This strategic expansion is aimed at reinforcing the Company’s position in the evolving IT landscape, where there’s a marked shift towards multi-cloud technologies and cybersecurity solutions.
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Cloud Managed Service Providers assist businesses in achieving their desired security levels, technical cloud infrastructure and financial objectives while optimizing the value of these technologies and cloud resources through multi-cloud management, ensuring business continuity, governance, and operational efficiencies.
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Market Opportunity and Strategic Focus Recognizing the urgent need for reliable and efficient IT solutions, DSC is tapping into the growing demand for managed cloud and cybersecurity services. With CloudFirst Technologies positioned in a $36 billion annual recurring revenue market in the U.S. and Canada, the Company is at the forefront of addressing critical IT challenges with limited competition.
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One subset of this five hundred-billion-dollar industry and a highly-focused segment of the Company is the IBM Power server; of which AWS, Google and Microsoft are not competitors. It’s estimated that businesses in USA and Canada are operating over one million virtual IBM Power servers, known as LPAR’s.
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DSC’s offerings are designed to support a spectrum of needs from cloud-based IBM Power System deployments for critical workloads to comprehensive disaster recovery and cybersecurity protections.
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According to the most recent information received from IBM, the typical industries utilizing IBM Power servers are finance, retail, healthcare, government, and distribution organizations. 1 The Company, through its CloudFirst subsidiary, is a leader in providing IBM Power cloud infrastructure, disaster recovery and the creation of these unique offerings for over 15 years.
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The focus is on hybrid cloud deployments, ensuring data and workloads remain secure against various threats. 6 Operational Footprint DSC operates from key locations in New York, Florida, and Texas, with technology centers and labs designed to meet sophisticated client requirements.
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The opportunity for the Company, in the IBM Power server portfolio segment is capturing a share of this annual recurring revenue marketplace that is currently under migration to cloud infrastructure.
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The Company boasts a network of six geographically diverse data centers across the U.S. and Canada, ensuring resilient and scalable IT solutions. Solutions and Services The Company’s core offerings include disaster recovery and business continuity, managed cloud services, and a comprehensive suite of cybersecurity solutions.
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The Company believes businesses are increasingly under pressure to improve the efficiency of their information and storage systems accelerating the migration from self-managed technical equipment and solutions to fully managed multi-cloud technologies to reduce cost, protect capital, ensure disaster recovery, protect the custom applications developed for these systems, and compete effectively.
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From initial cloud migration to ongoing management, DSC ensures seamless operation of client applications and workloads in a multi-cloud environment. The Company’s success is underscored by a client subscription renewal rate. Growth and Innovation Driven by a commitment to innovation and client satisfaction, DSC continues to refine its service offerings and expand its market reach.
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These trends create an opportunity for cloud technology service providers. The Company’s market opportunity is derived from the demand for fully managed cloud and cybersecurity services across all major operating systems. CloudFirst’s addressable market is approximately $36 billion in the United States and Canada with limited competition today.
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The Company’s strategic growth is supported by a team of solution architects and business development professionals dedicated to solving complex business challenges and fostering long-term client relationships. Through a blend of organic growth strategies and targeted expansion efforts, DSC is poised to capitalize on the opportunities presented by the dynamic IT landscape.
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Our Flagship subsidiary provides business continuity and infrastructure solutions combining on-premises equipment and software with its value-added managed services to business customers. Flagship maintains strong partner relationships with some of the largest IT Manufactures such as the IBM Corporation in supplying the technology behind the highly technical designs built for business customers.
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Growth Strategies and Core Services Growth Strategies Data Storage Corporation aims to enhance revenue streams and market presence by: ● Broadening distribution channels and bolstering digital and direct marketing efforts. ● Leveraging social and digital platforms for lead generation. ● Pursuing synergistic acquisitions to expand distribution, innovate technology trends, augment the technical team, and achieve economies of scale to improve gross profit margins. ● Fostering a diverse network of distribution partners, including IBM Business Partners, Software Vendors, IT Resellers, Managed Service Providers, and other cloud infrastructure providers, to create collaborative solutions and marketing initiatives. ● Targeting global expansion to tap into the increasing demand for multi-cloud solutions worldwide. 7 Core Services Data Storage Corporation provides a comprehensive suite of multi-cloud IT solutions, ensuring high security and enterprise-level services for clients using IBM Power Systems, Microsoft Windows, and Linux.
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Flagship’s vision is to expand its multi-cloud infrastructure solutions with more managed services, highlighted by its expanding Cyber Security offerings to capture more of the marketplace outside of the CloudFirst sales and marketing programs. Our Nexxis subsidiary is a voice and data solution provider that utilizes major nationwide carriers and providers.
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Key service areas include: ● Cyber Security Solutions: ezSecurity™, offering comprehensive security solutions for endpoint security, system assessments, risk analysis, and IBM system protection, including Ransomware defense. ● Data Protection and Recovery Solutions: ezVault™ for offsite data protection, ezRecovery™ for fast data recovery, ezAvailability™ for real-time data replication with minimal recovery objectives, and ezMirror™ for data mirroring at the storage level. ● Cloud Hosted Production Systems: ezHost™ delivers managed cloud services, providing scalable resources for smooth operation of client workloads with predictable costs. ● Voice & Data Solutions: Nexxis specializes in VoIP, Internet Access, and Data Transport solutions, including dedicated internet services, SD-WAN options, and a cloud-based PBX solution integrated with Microsoft Teams for business continuity.
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The subsidiary provides a suite of communications services including Hosted VoIP, Internet Access, Data Transport, and SD-WAN. The Nexxis complete voice and data solution combines elements of these services into a fully managed option that delivers high reliability and is engineered to further enhance business continuity.
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These strategies and services position Data Storage Corporation for sustained growth by meeting the evolving needs of its clients and capitalizing on market opportunities. Corporate History Summary Data Storage Corporation, a Delaware corporation, founded in 2001, became a subsidiary of Data Storage Corporation, a Nevada Corporation (“Data Storage Corporation Nevada”), in 2008.
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Nexxis’s goal is to provide a higher level of technology yet simplify management and combine cost savings for our clients wherever possible. According to Fortune Business Insights, the Cloud Managed Services industry in North America was $16.3 billion in 2019 and has been growing at a rate of 13.8% CAGR bringing us to $24 billion by the end of 2022.
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Data Storage Corporation Nevada, initially known as Euro Trend Inc., was founded on October 20, 2008, marking its start with a share exchange transaction. The Company underwent a name change to its current identity post-acquisition.
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Disaster Recovery is projected to be a $3.6 billion in the US by the end of 2022 which is 35% of the $10.3 billion globally based on Grandview Research Disaster Recovery Solutions Market Size report. Cyber Security, specifically the MDR segment, is an established market recognized by buyers .
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Key Milestones: ● June 2010: Acquired SafeData, LLC, expanding its disaster recovery and data protection services. ● October 2012: Acquired Message Logic LLC, enhancing its data management and analytics capabilities. ● November 2012: Partnered with ABC Services, Inc. to launch Secure Infrastructure & Services LLC (SIAS), offering for the first time IBM Power multi-tenant cloud infrastructure services. ● October 2016: Completed the acquisition of the remaining shares of ABC Services, Inc., fully integrating the SIAS offerings. ● June 1, 2021: Merged with Flagship Solutions, LLC, an IBM Gold Business Partner, further expanding its service offerings and solidifying its market leadership in business continuity, disaster recovery, and IBM Power cloud infrastructure solutions.
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Gartner observed a 35% growth in end users’ inquiries on the topic in the last year. Gartner estimates that by 2025, the MDR market will reach $2.15 billion in revenue, up from $1.03 billion in 2021, for a compound annual growth rate (CAGR) of 20.2%.
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These strategic acquisitions and partnerships have established Data Storage Corporation as a key player in cloud infrastructure and disaster recovery sectors, offering a comprehensive suite of solutions to meet the evolving needs of its clients. 8 Competitive Landscape and Corporate Developments Summary Competitive Landscape Data Storage Corporation operates in a competitive market dominated by giants like Amazon Web Services (AWS), Google, and Microsoft, which control approximately 51% of the X86 cloud infrastructure and disaster recovery platforms.
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The Company’s VOIP solutions fit well into this steadily growing segment which is expected to reach $90 billion worldwide in 2022 with a CAGR of 3.1% with $17 billion in the US according to Globe Newswire Market Analysis and Insights: Global VoIP Market. Company Overview Data Storage Corporation, is headquartered in Melville, New York.
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Despite the fierce competition, the Company finds a niche market within the IBM Power community, where an estimated 15% have transitioned to cloud solutions, offering significant growth opportunities. The Company’s cybersecurity solutions, while facing numerous competitors, are distinctively tailored for existing clients and distribution networks.
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DTST operates through three subsidiaries; DSC, a Delaware corporation now referred to as CloudFirst Technologies Corporation; Flagship Solutions, LLC; and Nexxis Inc. These subsidiaries provide solutions and services to a broad range of clients in several industries including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government.
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For the fiscal year ended December 31, 2023, approximately 22% of our revenue was derived from two customers. Corporate Developments ● Flagship Solutions, LLC Merger: On June 1, 2021, the Company finalized the merger with Flagship Solutions, LLC, enhancing its offerings in IBM equipment, managed services, and cloud solutions.
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The subsidiaries maintain business development teams, as well as independent distribution channels. The Company typically provides long-term subscription-based disaster recovery, and cloud infrastructure, cyber security, third party cloud management, managed services, dedicated internet access and UCaaS / VoIP services.
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This strategic move bolsters the Company’s position in server monitoring, management, and data center infrastructure management. ● Leadership Changes: Post-merger, Mark Wyllie was appointed as CEO of Flagship Solutions, LLC, with an agreement guaranteeing his obligations by Data Storage Corporation. Thomas Kempster succeeded Mark Wyllie as President of Flagship Solutions Group following Mark Wyllie’s resignation on October 28, 2022.
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During 2022, based on the May 2021 capital raise and the up list to Nasdaq, the Company has accelerated organic growth strategies by adding distribution, marketing, and technical personnel.
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These developments highlight Data Storage Corporation’s strategic efforts to strengthen its market position, expand its service offerings, and navigate through competitive and financial challenges successfully. Government Regulation Summary Data Storage Corporation operates within a complex and evolving regulatory landscape, governed by a multitude of federal, state, local, and international privacy laws.
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Management continues to be focused on building the Company’s sales and marketing strategy and expanding its technology assets throughout its data center network. 2 The Company believes businesses are increasingly under pressure to improve the reliability and efficiency of their information and storage systems accelerating the migration from self-managed technical equipment and solutions to fully managed multi-cloud technologies to reduce cost and compete effectively.
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These laws regulate the Company’s handling of personal and customer data, reflecting the growing importance of privacy in the digital age.
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Further, in today’s environment, capital preservation is an encouragement to move from a capital-intensive, on-premises technology, to a pay as you grow, CapEx to OpEx model. These trends create an opportunity for Cloud Technology Service providers. The Company’s market opportunity is derived from the demand for fully managed cloud and cybersecurity services across all major operating systems.
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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 Company’s reputation and operations. 9 Key Regulatory Frameworks: ● General Compliance: The Company is committed to adhering to industry standards and the various privacy policies and obligations it holds towards third parties.
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CloudFirst alone has an addressable market estimated at $36 billion in annual recurring revenue in the United States and Canada with limited competition.
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This includes compliance with laws and regulations related to the protection and handling of personal information and customer data. ● Healthcare Sector Compliance: Particularly significant is the Company’s 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).
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The Company has designed and built its solutions and services to support demand for cloud-based IBM Power System that support client critical workloads and custom in-house developed applications, manage hybrid cloud deployments and continue to provide solutions that keep data and workloads protected from disasters and security attacks. The Company’s business offices are located in New York, Florida and Texas.
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These regulations mandate strict controls over the handling of health information to protect patient privacy. ● 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.
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The New York and Florida offices include a technology center and labs adapted to meet the technical requirements of the Company’s clients.
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Compliance Measures Include: ● Ensuring that the use or disclosure of personal health information aligns with the restrictions and permissions defined in BAAs. ● Implementing robust administrative, physical, and technical safeguards to protect personal information. ● Obligating the Company to report any unauthorized information use or disclosure to the client. ● Permitting termination of the service by clients if the Company breaches BAA terms and cannot rectify the breach. ● Mandating the return or destruction of all personal health information upon the termination of a client’s subscription.
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The Company maintains its own infrastructure, storage, and networking equipment required to provide subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina, and in Canada, Toronto, and Barrie, serving clients in the United States and Canada.
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The regulatory environment for Data Storage Corporation 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.
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The Company’s disaster recovery and business continuity solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such as Ransomware.
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Human Capital Resources Summary Data Storage Corporation attributes its success to the skill and dedication of its workforce, consisting of 51 full-time and one part-time employees as of March 27, 2024. 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.
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The Company’s managed cloud services begin with migration to the cloud and provide ongoing system support and management that enables its clients to run their software applications and technical workloads in a multi-cloud environment.
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The Company has no collective bargaining agreements in place and maintains a positive relationship with its employees.
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The Company’s cyber security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services and technologies that are incorporated into the Company’s cloud solutions or are delivered as a standalone managed security offering covering the client site endpoint devices, users, servers, and equipment.
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Key aspects of our human capital management include: ● Employee Composition: The workforce includes six in executive management, six in administration and finance, nine in sales, four in marketing, and twenty-seven in technical roles. ● Compensation Strategy: Compensation programs are performance-aligned to incentivize both short-term and long-term achievements, aiming to attract, retain, and motivate talent. ● Health and Safety: Employee health and safety are paramount, underscoring the Company’s commitment to its staff and operational philosophy. 10 Corporate Information Office Location: The Company is based at 48 South Service Road, Suite 203, Melville, NY 11747.
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The Company’s solution architects, and business development teams work with organizations identifying and solving critical business problems. The Company carefully plans and manages the migration and configuration process, continuing the relationship and advising its clients long after the services have been implemented.
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Reflecting on client satisfaction, the Company’s renewal rate on client subscription solutions is approximately 94% after their initial contract term expired. Growth Strategies The Company will continue to drive revenues by expanding distribution channels while expanding digital and direct marketing programs. The Company will accelerate building upon its social and digital lead generation programs.
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Further, the Company will continue to seek synergetic acquisitions that expand distribution, leading a technology trend, add to its existing technical staff and create economies of scale improving gross profit margins. 3 The Company increases revenue and drives growth by developing and managing collaborative solutions as well as joint marketing initiatives.
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The Company has a diverse community of distribution partners, ranging from IBM Business Partners, Software Vendors, IT resellers, Managed Service Providers, application support providers, consultants, and other cloud infrastructure providers.
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The Company believes there is a significant need for its solutions on a global basis and, accordingly, the opportunity for it to grow its business through international expansion as these markets increase their use of multi-cloud solutions.
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The Company’s Core Services : The Company provides an array of multi-cloud information technology solutions in highly secure, enterprise-level cloud services for companies using IBM Power Systems, Microsoft Windows, and Linux.
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Specifically, the Company’s support services cover: Cyber Security Solutions: ● ezSecurity™ offers a suite of comprehensive cyber security solutions that can be utilized on systems at the client’s location or on systems hosted in the Company.
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These solutions include fully managed endpoint (PCs and other user devices) security with active threat mitigation, system security assessments, risk analysis, and applications to ensure continuous security. ezSecurity™ contains a specialized offering for protecting and auditing IBM systems including a package designed to protect IBM systems against Ransomware attacks.
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Data Protection and Recovery Solutions: ● ezVault™ solution is at the core of the Company’s data protection services and allows its clients to have their data protected and stored offsite with unlimited data retention in a secure location that uses encrypted, enterprise-grade storage which allows for remote recovery from system outages, human and natural disasters, and cyber security attacks like Ransomware and viruses allowing restoration of data from a known good point in time prior to an attack. ● ezRecovery™ provides standby systems, networking, and storage in the Company’s cloud infrastructure that allows for faster recovery from client backups stored using ezVault™ at the same cloud based hosted location. ● ezAvailability™ solution offers reliable real-time data replication for mission-critical applications with Recovery Time Objective under fifteen minutes and near-zero Recovery Point Objective, with optional, fully managed replication services.
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The Company’s ezAvailability™ service consists of a full-time enterprise system, storage, and network resources, allowing quick and easily switched production workloads to the Company’s cloud when needed.
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The Company’s ezAvailability™ services are backed by a Service-Level Agreement (“SLA”) to help assure performance, availability, and access. ● ezMirror™ solution provides replication services that mirror the clients’ data at the storage level and allows for similar near-zero Recovery Point Objective as ezAvailability with less application management and Recovery Time Objective under 1 hour.
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Cloud Hosted Production Systems: ezHost™ solution provides managed cloud services that removes the burden off system management from its clients and ensures that their software applications and IT workloads are running smoothly. ezHost™ provides full-time, scalable compute, storage, and network infrastructure resources to run clients’ workloads on the Company’s enterprise-class infrastructure. ezHost™ replaces the cost of support, maintenance, system administration, space, electrical power, and cooling of the typical hardware on-premises systems with a predictable monthly expense.
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The Company’s ezHost services are backed by an SLA governing performance, availability, and access. Voice & Data Solutions: Nexxis, our voice and data division, specializes in stand-alone and fully-managed VoIP, Internet Access, and Data Transport solutions that satisfy the requirements of the traditional corporate and modern remote workforce.
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Nexxis dedicated internet access services with speeds of up to 10 Gbps and data transport circuits are typically delivered over fiber-optic networks while shared internet access is typically delivered via fiber, coaxial, and wireless networks to help businesses stay fully connected from any location.
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SD-WAN options provide the ability for multi-site companies to prioritize their data traffic from site to site while FailSAFE, a Cloud-first SD-WAN solution, can be used by a single location to gain industry-leading connectivity to cloud services and the internet.
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Nexxis Hosted VoIP with Unified Communications is a full-featured cloud-based PBX solution with built-in redundancy that provides business continuity and includes the option to integrate with Microsoft Teams. 4 Corporate History On October 20, 2008, the Company consummated a share exchange transaction with Euro Trend Inc. The Company subsequently changed its name from Euro Trend Inc. to Data Storage Corporation.
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Data Storage Corporation acquired the assets of SafeData, LLC in June 2010, and the assets of Message Logic LLC, (“Message Logic”) in October 2012.
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In November 2012, the Company entered into an agreement with an IBM partner, ABC Services, Inc. to provide an IBM Power cloud infrastructure offering, marketed under the name Secure Infrastructure & Services LLC (“SIAS”), a New York limited liability company.
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In October 2016, the Company purchased the assets of ABC Services, Inc., which included the remaining 50% of the SIAS company. On June 1, 2021, the Company merged its Florida company with Flagship Solutions, LLC. This transaction with an IBM Gold Business Partner was synergetic to the Company’s services and added new solutions.
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The result of these acquisitions, combined with the Company’s business continuity disaster recovery and IBM Power cloud infrastructure solutions, positions Data Storage Corporation as a leader. Competitive Landscape The markets for the Company’s products and services are competitive.
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However, competition is limited, in the CloudFirst subsidiary for this $36 billion marketplace, compared to the limitless competitors, competing against Amazon Web Services (AWS), Google, and Microsoft today which hold an estimated 51% of the marketplace for X86 cloud infrastructure and X86 disaster recovery platforms.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
71 edited+19 added−10 removed134 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
71 edited+19 added−10 removed134 unchanged
2022 filing
2023 filing
Biggest changeThe 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.
Biggest changeComplaints or negative publicity about the Company’s solutions or billing practices could adversely impact its ability to attract and retain customers and its business, financial condition, and operating results. 19 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.
Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux, including Infrastructure as a Service (IaaS), Disaster Recovery of digital information (DRaaS), and Cyber Security as a Service (CSaaS).
Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows, and Linux, including Infrastructure as a Service (IaaS), Disaster Recovery of digital information as a Service (DRaaS), and Cyber Security as a Service (CSaaS).
If a cyberattack was able to breach the Company’s security protocols and disrupt its 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 has implemented various protocols and regularly monitors its systems via security software to reduce any security vulnerabilities.
If a cyberattack was able to breach the Company’s 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’s 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 Company’s 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.
These broad market and industry factors may seriously harm the market price of the Company’s common stock, regardless of its operating performance. Since the stock price of its common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in its common stock could incur substantial losses.
These broad market and industry factors may seriously harm the market price of the Company’s 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.
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. 13 The Company also relies upon third-party colocation providers to host its main servers.
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.
As a result, some of these competitors may be able to: ● develop superior products or services, gain greater market acceptance, and expand their service offerings more efficiently or more rapidly; ● adapt to new or emerging technologies and changes in customer requirements more quickly; ● bundle their offerings, including hosting services with other services they provide at reduced prices; ● streamline their operational structure, obtain better pricing, or secure more favorable contractual terms, allowing them to deliver services and products at a lower cost; ● take advantage of acquisition, joint venture and other opportunities more readily; ● 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 ● devote greater resources to the research and development of their products and services.
As a result, some of these competitors may be able to: ● develop superior products or services, gain greater market acceptance, and expand their service offerings more efficiently or more rapidly; ● adapt to new or emerging technologies and changes in customer requirements more quickly; ● bundle their offerings, including hosting services with other services they provide at reduced prices; ● streamline their operational structure, obtain better pricing, or secure more favorable contractual terms, allowing them to deliver services and products at a lower cost; ● take advantage of acquisition, joint ventures, and other opportunities more readily; ● 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 ● devote greater resources to the research and development of their products and services.
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. A portion of the Company’s potential customers locate its website through search engines, such as Google, Bing, and Yahoo!.
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. 11 A portion of the Company’s potential customers locate its website through search engines, such as Google, Bing, and Yahoo!.
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. In addition, the Company may only be able to conduct limited due diligence on an acquired company’s operations.
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. 12 In addition, the Company may only be able to conduct limited due diligence on an acquired company’s operations.
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 into strategic relationships to offer a more comprehensive service than the Company does.
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.
Some of these providers also offer products and services that directly compete with the Company’s own offerings, which could potentially give them a competitive advantage. 15 If the Company is unable to retain its existing customers, its business, financial condition, and operating results would be adversely affected.
Some of these providers also offer products and services that directly compete with the Company’s 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 Company fails to attract new personnel, or fail to retain and motivate its current personnel, its business and growth prospects could be severely harmed. Risks Related to Intellectual Property Assertions by a third party that the Company’s solutions infringe its intellectual property, whether correct, could subject the Company to costly and time-consuming litigation or expensive licenses.
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. Risks Related to Intellectual Property Assertions by a third party that the Company’s solutions infringe its intellectual property, whether correct, could subject the Company to costly and time-consuming litigation or expensive licenses.
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.
These actions, if required, may be costly or unavailable on terms acceptable to the Company, or at all. 23 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.
The Company’s 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. 19 The Company’s intended international expansion will subject it to risks typically encountered when operating internationally .
The Company’s 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 Company’s intended international expansion will subject it to risks typically encountered when operating internationally .
Any loss of the right to use any software required for the development and maintenance of the Company 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 loss of the right to use any software required for the development and maintenance of the Company’s 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. 21 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, could be adversely affected.
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, could be adversely affected.
In November of 2022, management and its advisors began evaluating and documenting the design and operating effectiveness of our internal control over financial reporting, and their work is ongoing. 10 The Company can give no assurance that additional material weaknesses will not be identified in the future.
In November of 2022, management and its advisors began evaluating and documenting the design and operating effectiveness of our internal control over financial reporting, and their work is ongoing. The Company can give no assurance that additional material weaknesses will not be identified in the future.
Any internet outages or delays could adversely affect the Company’s ability to provide services to its customers. 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.
Any internet outages or delays could adversely affect the Company’s ability to provide services to its customers. 17 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.
Business associate agreements typically include: ● a description of the Company’s permitted uses of individually identifiable health information; ● a covenant not to disclose that information except as permitted under the agreement and to make the Company’s subcontractors, if any, subject to the same restrictions; ● assurances that appropriate administrative, physical, and technical safeguards are in place to prevent misuse of that information; ● an obligation to report to the Company’s customers any use or disclosure of that information other than as provided for in the agreement; ● a prohibition against the Company’s use or disclosure of that information if a similar use or disclosure by its customers would violate the HIPAA standards; ● the ability of the Company’s customers to terminate their subscription to its solution if we breach a material term of the business associate agreement and are unable to cure the breach; ● the requirement to return or destroy all individually identifiable health information at the end of the customer’s subscription; and ● access by the Department of Health and Human Services to the Company’s internal practices, books, and records to validate that we are safeguarding individually identifiable health information.
Business associate agreements typically include: ● a description of the Company’s permitted uses of individually identifiable health information; ● a covenant not to disclose that information except as permitted under the agreement and to make the Company’s subcontractors, if any, subject to the same restrictions; ● assurances that appropriate administrative, physical, and technical safeguards are in place to prevent misuse of that information; ● an obligation to report to the Company’s customers any use or disclosure of that information other than as provided for in the agreement; 20 ● a prohibition against the Company’s use or disclosure of that information if a similar use or disclosure by its customers would violate the HIPAA standards; ● the ability of the Company’s 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; ● the requirement to return or destroy all individually identifiable health information at the end of the customer’s subscription; and ● access by the Department of Health and Human Services to the Company’s internal practices, books, and records to validate that we are safeguarding individually identifiable health information.
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 Company’s ability to service its customers. The Company’s data center leases expire at various times between 2021 and 2023 with rights of extension.
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 Company’s ability to service its customers. The Company’s data center leases expire at various times between 2023 and 2024 with rights of extension.
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. The Company has office locations in New York and Florida, and data centers in New York, Massachusetts, North Carolina, Florida, and Texas.
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. 21 The Company has office locations in New York, Florida, and Texas, and data centers in New York, Massachusetts, North Carolina, Texas, and Canada.
The Company relies on third-party providers for a number of 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.
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.
These provisions include: limitations on the ability to engage in any “combination” with an “interested stockholder” (each, as defined in the 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.
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.
Risks Relating to the Company’s Common Stock and Securities The Company’s 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 Company’s stock price has fluctuated in the past, has recently been volatile, and may be volatile in the future.
Risks Related to the Company’s Common Stock and Securities The Company’s 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 Company’s stock price has fluctuated in the past, has recently been volatile, and may be volatile in the future.
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 is significantly above the market price of the Company’s common stock and the value of the restricted stock units decreasing.
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 Company’s common stock and the value of the restricted stock units decreasing.
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 Company’s existing and potential competitors have well-established brands with greater recognition than we have.
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 Company’s existing and potential competitors have well-established brands with greater recognition than it has.
The Company’s distributors also provide services to other third parties and therefore may not devote their full time and attention to promote the Company’s products and services. 16 If the Company is unable to expand its base of business customers, its future growth and operating results could be adversely affected.
The Company’s distributors also provide services to other third parties and therefore may not devote their full time and attention to promoting the Company’s 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.
These risks include: ● localization of the Company’s solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements; ● lack of experience in other geographic markets; ● strong local competitors; ● cost and burden of complying with, lack of familiarity with, and unexpected changes in foreign legal and regulatory requirements, including consumer and data privacy laws; ● difficulties in managing and staffing international operations; ● potentially adverse tax consequences, including the complexities of transfer pricing, foreign value added or other tax systems, double taxation, and restrictions, and/or taxes on the repatriation of earnings; ● dependence on third parties, including channel partners with whom we do not have extensive experience; ● compliance with the Foreign Corrupt Practices Act, economic sanction laws and regulations, export controls, and other U.S. laws and regulations regarding international business operations; ● increased financial accounting and reporting burdens and complexities; ● political, social, and economic instability abroad, terrorist attacks, and security concerns in general; and ● reduced or varied protection for intellectual property rights in some countries.
These risks in clude: ● localization of the Company’s solutions, including translation into foreign languages and adaptation for local practices and regulatory requirements; ● lack of experience in other geographic markets; ● strong local competitors; ● cost and burden of complying with, lack of familiarity with, and unexpected changes in foreign legal and regulatory requirements, including consumer and data privacy laws; ● difficulties in managing and staffing international operations; ● potentially adverse tax consequences, including the complexities of transfer pricing, foreign value added or other tax systems, double taxation, and restrictions, and/or taxes on the repatriation of earnings; ● dependence on third parties, including channel partners with whom we do not have extensive experience; ● compliance with the Foreign Corrupt Practices Act, economic sanction laws and regulations, export controls, and other U.S. laws and regulations regarding international business operations; ● increased financial accounting and reporting burdens and complexities; ● political, social, and economic instability abroad, terrorist attacks, and security concerns in general; and ● reduced or varied protection for intellectual property rights in some countries. 22 Operating in international markets also requires significant management attention and financial resources.
The existence of an overhang, whether or not sales have occurred or are occurring, also could make the Company’s 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 we deem reasonable or appropriate.
The existence of an overhang, whether or not sales have occurred or are occurring, also could make the Company’s 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.
The market price for the Company’s common stock may be influenced by many factors, including the following: ● investor reaction to the Company’s business strategy; ● the success of competitive products or technologies; ● regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to the Company’s products; ● variations in the Company’s financial results or those of companies that are perceived to be similar to us; ● the Company’s ability or inability to raise additional capital and the terms on which it raises it; ● declines in the market prices of stocks generally; 22 ● the Company’s public disclosure of the terms of any financing which it consummates in the future; ● an announcement that we have effected a reverse split of the Company’s common stock and treasury stock; ● the Company’s failure to become profitable; ● the Company’s failure to raise working capital; ● any acquisitions we may consummate, including, but not limited to, the Merger; ● announcements by the Company or its competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments; ● cancellation of key contracts; ● the Company’s failure to meet financial forecasts we publicly disclose; ● trading volume of the Company’s common stock; ● sales of the Company’s common stock by it or its stockholders; ● general economic, industry and market conditions; and ● 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 recent outbreak of the COVID-19 pandemic, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt the Company’s operations, disrupt the operations of its suppliers or result in political or economic instability.
The market price for the Company’s common stock may be influenced by many factors, including the following: 24 ● investor reaction to the Company’s business strategy; ● the success of competitive products or technologies; ● regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to the Company’s products; ● variations in the Company’s financial results or those of companies that are perceived to be similar to the Company; ● the Company’s ability or inability to raise additional capital and the terms on which it raises it; ● declines in the market prices of stocks generally; ● the Company’s public disclosure of the terms of any financing which it consummates in the future; ● an announcement that the Company has effected a reverse split of the Company’s common stock and treasury stock; ● the Company’s failure to be profitable; ● the Company’s failure to raise working capital; ● any acquisitions we may consummate, including, but not limited to, the Merger; ● announcements by the Company or its competitors of significant contracts, new services, acquisitions, commercial relationships, joint ventures or capital commitments; ● cancellation of key contracts; ● the Company’s failure to meet financial forecasts it publicly discloses; ● trading volume of the Company’s common stock; ● sales of the Company’s common stock by it or its stockholders; ● general economic, industry and market conditions; and ● 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 Company’s operations, disrupt the operations of its suppliers or result in political or economic instability.
The Company has identified material weaknesses in its internal control over financial reporting, concluding that its disclosure controls were not effective as of December 31, 2022, based on material weaknesses which ultimately contributed to the Company not designing and maintaining formal controls to analyze, account for, and disclose complex transactions, including the accounting for certain consideration received from a vendor.
The Company previously identified material weaknesses in its internal control over financial reporting, concluding that its disclosure controls were not effective, based on material weaknesses which ultimately contributed to the Company not designing and maintaining formal controls to analyze, account for, and disclose complex transactions, including the accounting for certain consideration received from a vendor.
The Company is controlled by three principal stockholders who serve as its executive officers and directors. As of March 31, 2023, through their aggregate voting power, Messrs.
The Company is controlled by three principal stockholders who serve as its executive officers and directors. As of March 27, 2024, through their aggregate voting power, Messrs.
As a result, the Company may not be able to acquire or maintain the domain names that utilize the Company’s name in all of the countries in which we currently conduct or intend to conduct business.
As a result, the Company may not be able to acquire or maintain the domain names that utilize the Company’s name in all of the countries in which it currently conducts or intends to conduct business.
Risks Related to the Merger with Flagship On May 31, 2021, the Company completed the Merger. The Company expects that Flagship’s business will be synergistic with its existing IBM business and anticipates meaningful operation efficiency and that the Merger will provide a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as middle-market customers.
The Company expects that Flagship’s business will be synergistic with its existing IBM business and anticipates meaningful operation efficiency and that the Merger will provide a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as middle-market customers.
The Company’s new solutions or solution enhancements could fail to attain sufficient market acceptance or harm its business for many reasons, including: ● delays in releasing its new solutions or enhancements to the market; ● failure to accurately predict market demand or customer demands; ● inability to protect against new types of attacks or techniques used by hackers; ● difficulties with software development, design, or marketing that could delay or prevent its development, introduction, or implementation of new solutions and enhancements; ● defects, errors or failures in its design or performance; ● negative publicity about its performance or effectiveness; ● introduction or anticipated introduction of competing solutions by its competitors; ● poor business conditions for its customers, causing them to delay information technology purchases; ● the perceived value of its solutions or enhancements relative to their cost; and ● easing of regulatory requirements around security or storage.
The Company’s new solutions or solution enhancements could fail to attain sufficient market acceptance or harm its business for many reasons, including: ● delays in releasing its new solutions or enhancements to the market; ● failure to accurately predict market demand or customer demands; ● inability to protect against new types of attacks or techniques used by hackers; ● difficulties with software development, design, or marketing that could delay or prevent its development, introduction, or implementation of new solutions and enhancements; ● defects, errors or failures in its design or performance; ● negative publicity about its performance or effectiveness; ● introduction or anticipated introduction of competing solutions by its competitors; ● poor business conditions for its customers, causing them to delay information technology purchases; ● the perceived value of its solutions or enhancements relative to their cost; and ● easing of regulatory requirements around security or storage. 15 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 Company’s business and reputation.
These material weaknesses resulted in the restatement of the Company’s previously filed quarterly condensed consolidated financial information for the periods ended June 30, 2022, related to accrued expenses, cost of goods sold, gross profit, loss from operations, net loss, earnings per share and the related disclosures.
These material weaknesses resulted in the restatement of the Company’s previously filed quarterly condensed consolidated financial information for the period ended June 30, 2022, related to accrued expenses, cost of goods sold, gross profit, loss from operations, net loss, earnings per share and the related disclosures. As of March 31, 2023, the material weaknesses has been remediated.
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, 2022, there were options and warrants outstanding into an aggregate of 2,720,584 shares of common stock.
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, 2023, there were options and warrants outstanding convertible into an aggregate of 3,011,207 shares of common stock.
In connection with any such transaction, the Company may: ● issue additional equity securities that would dilute its stockholders; ● use cash that the Company may need in the future to operate its business; ● incur debt on terms unfavorable to the Company, that it’s unable to repay, or that may place burdensome restrictions on its operations; ● incur large charges or substantial liabilities; or ● become subject to adverse tax consequences or substantial depreciation, deferred compensation, or other acquisition-related accounting charges. 9 Any of these risks could harm the Company’s business and operating results.
In connection with any such transaction, the Company may: ● issue additional equity securities that would dilute its stockholders; ● use cash that the Company may need in the future to operate its business; ● incur debt on terms unfavorable to the Company, that it may be unable to repay, or that may place burdensome restrictions on its operations; ● incur large charges or substantial liabilities; or ● become subject to adverse tax consequences or substantial depreciation, deferred compensation, or other acquisition-related accounting charges.
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. In addition, the recent COVID-19 pandemic has caused broad stock market and industry fluctuations. The stock market has experienced extreme volatility that has often been unrelated to the operating performance of particular companies.
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.
Integration of an acquired company’s 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.
Any of these risks could harm the Company’s business and operating results. Integration of an acquired company’s 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.
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, may have a greater scale or a lower cost structure.
Certain of the Company’s competitors offer, or may in the future offer, lower-priced or free solutions that compete with its solutions. 14 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, may have a greater scale or a lower cost structure.
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. 14 Many states have enacted laws requiring companies to notify consumers of data security breaches involving their personal data.
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.
In addition, several of the Company’s key personnel have only recently been employed by it, and the Company is still in the process of integrating these personnel into its operations.
In addition, several of the Company’s 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 Company’s failure to successfully integrate these key employees into its business could adversely affect its business.
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 us, which could have an adverse effect on the Company’s reputation and business. 17 The Company’s 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.
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 Company’s reputation and business.
In addition, demand for the Company’s cloud solutions is sensitive to price. Many factors, including the Company’s 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 Company’s competitors offer, or may in the future offer, lower-priced or free solutions that compete with its solutions.
In addition, demand for the Company’s cloud solutions is sensitive to price. Many factors, including the Company’s customer acquisition, advertising and technology costs, and its current and future competitors’ pricing and marketing strategies, can significantly affect its pricing strategies.
In the event of the discovery of a significant security vulnerability, the Company would incur additional substantial expenses and its business would be harmed. 12 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 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.
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.
There can be no guarantee that the Company’s 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. 25 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.
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.
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, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.
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.
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.
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. 8 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.
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.
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.
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.
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 is able to add through these relationships is dependent on the marketing efforts of distributors, over which it has little control.
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.
Security vulnerabilities, data protection breaches and cyberattacks could disrupt the Company’s 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.
Problems with the reliability or security of the Company’s systems could harm its reputation, and the cost of remedying these problems could negatively affect the Company’s business, financial condition, and operating results. 16 Security vulnerabilities, data protection breaches and cyberattacks could disrupt the Company’s 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.
By way of example, on May 16, 2022, the reported low sale price of the Company’s common stock was $3.10, and the reported high sales price was $3.80.
By way of example, on September 1, 2023, the reported low sale price of the Company’s common stock was $3.21, and the reported high sales price was $3.75.
For comparison purposes, on May 9, 2022, the price of the Company’s common stock closed at $2.14 per share, on May 16, 2022, its stock price closed at $3.45 per share, and on June 21, 2022, its stock price closed at $2.48 per share with no discernable announcements or developments by the Company or third parties (other than the filing of the Quarterly Report on Form 10-Q).
For comparison purposes, on January 12, 2023, the price of the Company’s common stock closed at $1.61 per share, on October 17, 2023, its stock price closed at $3.49 per share, and on August 11, 2023, its stock price closed at $2.59 per share with no discernable announcements or developments by the Company or third parties (other than the filing of the Quarterly Report on Form 10-Q).
The Company also relies on third-party providers for a number of 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.
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.
The Company’s 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.
The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability. The Company’s 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.
In addition, substantially all of the Company’s revenue is currently derived from customers in the U.S. Consequently, a decrease of interest in and demand for the Company’s solutions in the U.S. could have a disproportionately greater impact on it than if its geographic mix of revenue was less concentrated.
Consequently, a decrease of interest in and demand for the Company’s solutions in the U.S. could have a disproportionately greater impact on it than if its geographic mix of revenue was less concentrated. 18 The Company primarily depends upon third-party distribution companies to generate new customers.
Piluso, Schwartz and Kempster control approximately 37% of the Company’s outstanding common stock, giving them the ability to control a significant portion of the votes for the Company’s directors and all other matters requiring the approval of its stockholders, including the election of all of its directors and the approval of a reverse stock split.
Piluso, Schwartz and Kempster control approximately 37% of the Company’s outstanding common stock, giving them the ability to control a significant portion of the votes for the Company’s 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. 13 Risks Related to the Company’s Industry The market for cloud solutions is highly competitive, and if the Company does not compete effectively, its operating results will be harmed.
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. 18 Errors, failures, bugs in or unavailability of the Company’s 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.
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.
The Company primarily depends upon third-party distribution companies to generate new customers. The Company’s 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’s 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.
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 exchange. 23 Offers or availability for sale of a substantial number of shares of the Company’s common stock may cause the price of its common stock to decline .
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.
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 Company’s solutions or billing practices could adversely impact its ability to attract and retain customers and its business, financial condition, and operating results.
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.
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.
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. 26 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.
They include: ● in-house IT departments of its customers and potential customers; ● traditional global infrastructure providers, including, but not limited to, large multi-national providers, such as IBM, Microsoft, Google, and Amazon Web Services (AWS); ● cloud and software service providers and digital systems integrators; ● regional managed services providers; and ● colocation solutions providers, such as Equinix, Rackspace and TierPoint. 11 Many of these competitors benefit from significant competitive advantages over the Company, given their desire to enter into 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.
They include: ● in-house IT departments of its customers and potential customers; ● traditional global infrastructure providers, including, but not limited to, large multi-national providers, such as IBM, Microsoft, Google, and Amazon Web Services (AWS); ● cloud and software service providers and digital systems integrators; ● regional managed services providers; and ● colocation solutions providers, such as Equinix, Rackspace and TierPoint.
Risks Related to Data Storage’s 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 a net (loss) income available to shareholders of $(4,356,802) and $204,161 for the years ended December 31, 2022, and 2021, respectively.
Risks Related to Data Storage’s Business The Company has not generated a significant amount of net income and it may not be able to sustain profitability in the future.
The Company’s failure to successfully integrate these key employees into its business could adversely affect its business. 20 To execute the Company’s 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.
To execute the Company’s 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 it expects to continue to experience, difficulty in hiring and retaining highly-skilled employees with appropriate qualifications.
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.
The market for the Company’s 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.
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.
The regulatory framework for privacy issues worldwide is currently complex and evolving, and it is likely to remain uncertain for the foreseeable future.
Sales of large blocks of the Company’s common stock could depress the price of its common stock.
Offers or availability for sale of a substantial number of shares of the Company’s common stock may cause the price of its common stock to decline . Sales of large blocks of the Company’s common stock could depress the price of its common stock.
The Company’s 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.
New hires require significant training and, in most cases, take significant time before they achieve full productivity. The Company’s 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.
Removed
As of December 31, 2022, the Company had cash of $2,286,722, marketable securities of $9,010,968, and working capital of $10,855,407.
Added
As reflected in the consolidated financial statements, the Company had net income attributable to common shareholders of $381,575 for the year ended December 31, 2023 and a net loss attributable to common shareholders of $4,356,802 for the year ended December 31, 2022.
Removed
Risks Related to the Company’s 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 Company’s services is highly competitive, quickly evolving and subject to rapid changes in technology.
Added
As of December 31, 2023, the Company had cash of $1,428,730, marketable securities of $11,318,196, and working capital of $11,011,407. There can be no assurance that the Company will continue to generate income in the future.
Removed
Furthermore, the firmware, software, and/or open-source software that its data protection solutions may utilize could be susceptible to hacking or misuse.
Added
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.
Removed
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 Company’s business and reputation.
Added
We may not realize the anticipated benefits of the merger with Flagship or successfully integrate our businesses On May 31, 2021, the Company completed the Merger.
Removed
Problems with the reliability or security of the Company’s systems could harm its reputation, and the cost of remedying these problems could negatively affect the Company’s business, financial condition, and operating results.
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Item 2. Properties
Properties — owned and leased real estate
5 edited+2 added−2 removed1 unchanged
Item 2. Properties
Properties — owned and leased real estate
5 edited+2 added−2 removed1 unchanged
2022 filing
2023 filing
Biggest changeUpon termination of the lease in August 2019, we entered into a new lease for a technology lab in a smaller space commencing on September 1, 2019. The term of this lease is for three years and 11 months and runs co-terminus with the Company’s existing lease in the same building.
Biggest changeThe term of this lease is for three years and 11 months and runs co-terminus with the Company’s existing lease in the same building. The base annual rent is $11,856 payable in equal monthly installments of $988. The lease was subsequently renewed for a one-year period commencing on August 1, 2023. The monthly rent is approximately $1,010.
The term of this lease is five years and three months at $86,268 per year with an escalation of 3% per year with an ending date of July 31, 2023. 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, Suite 302, Boca Raton, Florida.
The lease was subsequently renewed for a one-year period commencing on August 1, 2023. The monthly rent is approximately $8,334. 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, Suite 302, Boca Raton, Florida. The commencement date of the lease is August 1, 2021.
The Company’s data centers are in New York, Massachusetts, North Carolina, Florida, and Texas. The Company believes that its current offices and facilities are adequate for the near future. From 2016 until August 31, 2019, we leased office space in Melville, NY for monthly payments of $8,382.
The Company’s data centers are in New York, Massachusetts, North Carolina, and Texas. The Company believes that its current offices and facilities are adequate for the near future. In August 2019, we entered into a new lease for a technology lab located in Melville, NY commencing on September 1, 2019.
These leases are month to month and the monthly rent is approximately $43,650. In 2020, the Company entered into a new technical space lease agreement in Dallas, TX. The lease term is 13 months and requires monthly payments of $1,403 and expires on July 31, 2023.
The lease term is 13 months and requires monthly payments of $1,403 and expired on July 31, 2023. The Company is now on a month to month basis with monthly payments of $4,729.
The base annual rent is $11,856 payable in equal monthly installments of $988. A second lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018.
A second lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018. The term of this lease is five years and three months at $86,268 per year with an escalation of 3% per year with an ending date of July 31, 2023.
Removed
The commencement date of the lease is August 1, 2021. The monthly rent is approximately $4,820. The lease for office space in Warwick, RI, called for monthly payments of $2,324 beginning February 1, 2015, which escalated to $2,460 on February 1, 2017. This lease commenced on February 1, 2015, and originally expired on January 31, 2019.
Added
The monthly rent is approximately $4,820. On January 1, 2022, the Company entered into a lease agreement for office space with WeWork in Austin, TX. The lease term is six months and requires monthly payments of $1,470 and expired on June 30, 2022.
Removed
We extended this lease until January 31, 2020, and this lease was further extended until January 31, 2021. The annual base rent was $31,176 payable in equal monthly installments of $2,598. We have satisfied the terms of the lease and no longer occupy this premise. The Company leases technical space in New York, Massachusetts, North Carolina, and Florida.
Added
Subsequent to June 30, 2022, the Company is on a $3,073 month-to-month lease with WeWork in Austin, TX. The Company leases technical space in New York, Massachusetts, and North Carolina. These leases are month to month and the monthly rent is approximately $40,442. In 2020, the Company entered into a new technical space lease agreement in Dallas, TX.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed2 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeRegardless 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. PART II
Biggest changeRegardless 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 Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+2 added−0 removed3 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+2 added−0 removed3 unchanged
2022 filing
2023 filing
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock trades on The NASDAQ Capital Market under the symbol “DTST”. 25 Holders of the Company’s Common Stock As of March 30, 2023, we had 33 shareholders of record of the Company’s common stock, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”).
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock trades on The Nasdaq Capital Market under the symbol “DTST”.
Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the year ended December 31, 2022. Equity Compensation Plan Information See Part II-Item 12 under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information” of this Annual Report on Form 10-K for equity compensation plan information.
Issuer Purchases of Equity Securities There were no issuer purchases of equity securities during the year ended December 31, 2023. Equity Compensation Plan Information See Part II-Item 12 under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information” of this Annual Report on Form 10-K for equity compensation plan information. ITEM 6.
The declaration or payment of dividends, if any, in the future, will be at the discretion of Data Storage’s Board of Directors (the “Board of Directors” or the “Board”) and will depend on the then- current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board.
The declaration or payment of dividends, if any, in the future, will be at the discretion of Data Storage’s 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.
No Preferred shares are outstanding and no dividends have been paid to date since retiring in May 2021 one shareholder. Recent Sales of Unregistered Securities The Company did not sell any equity securities during the fiscal year ended December 31, 2022, that were not registered under the Securities Act, other than as previously disclosed in its filings with the SEC.
Recent Sales of Unregistered Securities The Company did not sell any equity securities during the fiscal year ended December 31, 2023 that were not registered under the Securities Act, other than as previously disclosed in its filings with the Securities and Exchange Commission (the “SEC”).
Added
Holders of the Company’s Common Stock As of March 27, 2024, we had 35 shareholders of record of the Company’s common stock, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”).
Added
No Preferred shares are outstanding, and no dividends have been paid to date since retiring in May 2021 one shareholder.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
39 edited+25 added−27 removed19 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
39 edited+25 added−27 removed19 unchanged
2022 filing
2023 filing
Biggest changeIn the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully evaluate and compare our future results of operations to our previously reported results of operations. 30 The following table shows our reconciliation of net income to adjusted EBITDA for the year ended December 31, 2022, and 2021, respectively: For the Year Ended December 31, December 31, 2022 2021 Net (Loss) Income $ (4,408,863 ) $ 259,921 Non-GAAP adjustments: Depreciation and amortization 1,225,911 1,284,345 Benefit from income taxes — (399,631 ) Flagship acquisition costs 770 135,512 Interest income and expense 130,087 126,746 Impairment of goodwill 2,322,000 — Loss on disposal of assets — 44,732 Gain on forgiveness of debt — (798,840 ) Stock-based compensation 734,479 171,798 Adjusted EBITDA $ 4,384 $ 824,58 3 CRITICAL ACCOUNTING POLICIES We believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” 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.
Biggest changeCorporate Total Net income $ 933,789 $ (4,916,934 ) $ (292,731 ) $ (132,987 ) $ (4,408,863 ) Non-GAAP adjustments: Flagship acquisition costs 770 770 Depreciation and amortization 943,224 282,687 1,225,911 Interest and letter of credit fees 138,365 319 (8,598 ) 130,086 Impairment of goodwill 2,322,000 2,322,000 Stock-based compensation 101,522 513,320 7,204 112,433 734,479 Adjusted EBITDA $ 2,116,900 $ (1,798,608 ) $ (285,527 ) $ (28,382 ) $ 4,383 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.
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.
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 client’s voice and data environments. 5) Support and Maintenance : Subscription based service offers support for clients on their servers, firewalls, desktops or software.
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 the ability to migrate their on-premise computing and digital storage to DSC’s enterprise-level technical compute and digital storage assets located in Tier 3 data centers.
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 the ability to migrate their on-premise computing and digital storage to CloudFirst’s enterprise-level technical compute and digital storage assets located in Tier 3 data centers.
To determine the fair value of goodwill and intangible assets, the Company uses many assumptions and estimates using a market participant approach that directly impact the results of the testing. In making these assumptions and estimates, the Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management.
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 results of the testing. In making these assumptions and estimates, the Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management.
In 2023, 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.
In 2024, 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.
The Company derives its sales from five types of services that we provide: infrastructure & disaster recovery / cloud services which is the largest source of our sales, followed by equipment and software sales, managed services, professional fees, and Nexxis, VOIP and internet access services. The cloud infrastructure & disaster recovery/cloud services are subscription-based.
The Company derives its sales from four types of services that we provide: infrastructure & disaster recovery/cloud services which is the largest source of our 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.
This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units. During the year ended December 31, 2022, and 2021, the Company completed its annual impairment tests of goodwill.
This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units. For the year ended December 31, 2023, and 2022, the Company completed its annual impairment tests of goodwill.
The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their carrying value, including Goodwill.
The Company performed the qualitative assessment as permitted by ASC 350-20 and determined for three of its reporting units that the fair value of its reporting units was more likely than not greater than their carrying value, including Goodwill at December 31, 2023.
The expected forfeiture rate is estimated based on management’s best assessment. Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.
Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.
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 client’s staff.
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 client’s staff.
Data Storage Corporation 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.
Data Storage Corporation 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.
However, based on this qualitative assessment, the Company determined that the carrying value of the Flagship reporting units was more likely than not greater than its carrying value, including Goodwill.
However, based on this qualitative assessment on December 31, 2022 the Company determined that the carrying value of the Flagship reporting unit was more likely than not greater than its fair, including Goodwill.
Based on the completion of the annual impairment test, the Company recorded an impairment charge of $2,322,000 and $0 for goodwill for the years ended December 31, 2022, and 2021, respectively.
Based on the completion of the annual impairment test on December 31, 2022, the Company recorded an impairment charge of $2,322,000 for goodwill for the year ended December 31, 2022 .
To the extent the Company is successful in growing its business, identifying potential acquisition targets, and negotiating the terms of such acquisition, and the purchase price may include a cash component, the Company plans to use its working capital and the proceeds of any financing to finance such acquisition costs. 29 The Company’s opinion concerning its liquidity is based on current information.
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.
We believe that Adjusted EBITDA provides us 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 our asset base, any asset disposals or impairments, stock-based compensation and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our working capital.
We believe that Adjusted EBITDA provides us 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 our asset base, any asset disposals or impairments, stock-based compensation and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our working capital. 33 Our 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 our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition.
RESULTS OF OPERATIONS Year ended December 31, 2022, as compared to December 31, 2021 Revenue Sales for the year ended December 31, 2022, increased by approximately 60% to $23,870,837 as compared to sales for the year ended December 31, 2021, or $14,876,227.
RESULTS OF OPERATIONS Year ended December 31, 2023, as compared to December 31, 2022 Revenue Sales for the year ended December 31, 2023, increased by approximately 5% to $24,959,576 as compared to sales for the year ended December 31, 2022, of $23,870,837.
Services are provided 24x7x365 to our 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 and licenses.
Services are provided 24x7x365 to our 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 and licenses. 36 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.
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”.
This was offset by an increase in short-term investments and deferred revenue. 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”.
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 dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best assessment.
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 Client’s 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.
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.
Actual results could differ from these estimates. Estimated Fair Value of Financial Instruments The Company’s financial instruments include cash, accounts receivable, accounts payable and, lease commitments. Management believes the estimated fair value of these accounts on December 31 ,2022, approximate their carrying value as reflected in the balance sheet due to the short-term nature.
Management believes the estimated fair value of these accounts on December 31, 2023, approximate their carrying value as reflected in the balance sheet due to the short-term nature.
Substantially all of the Company’s sales were to customers in the United States, with less than 2% of its sales to international customers. The following chart details the changes in the Company’s sales for the years ended December 31, 2022, and 2021, respectively.
Substantially all of the Company’s sales were to customers in the United States, with less than 2% of its sales to international customers.
LIQUIDITY AND CAPITAL RESOURCES The consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business.
Net income before provision for income taxes for the year ended December 31, 2023, was $299,316, as compared to a loss before provision for income taxes of $4,408,863 for the year ended December 31, 2022, primarily attributable to the items discussed above. 32 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.
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 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.
Clients can subscribe to an array of disaster recovery solutions without subscribing to cloud infrastructure.
The client pays a monthly fee and can increase capacity as required. 35 Clients can subscribe to an array of disaster recovery solutions without subscribing to cloud infrastructure.
These risks and other factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report. 26 COMPANY OVERVIEW Data Storage Corporation, headquartered in Melville, New York, together with its three subsidiaries, DSC now CloudFirst Technologies, Flagship Solutions LLC and Nexxis, Inc. provides solutions and services to a broad range of clients in several industries, including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government.
These risks and other factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report. 29 COMPANY OVERVIEW SUMMARY Data Storage Corporation, based in Melville, New York, is a leading provider of data management and cloud solutions across multiple industries including healthcare, finance, manufacturing, and government.
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.
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.
During the year ended December 31, 2022, Data Storage’s cash decreased $9,849,081 to $2,286,722 from $12,135,803 December 31, 2021. Net cash of $663,801 was provided by Data Storage’s operating activities resulting primarily from changes in assets and liabilities. Net cash of $9,138,225 was used in investing activities from the purchase of short-term investments and capital expenditures.
During the year ended December 31, 2023, Data Storage’s cash decreased $857,992 to $1,428,730 from $2,286,722 on December 31, 2022.For the year ended December 31, 2023, net cash of $3,873,047 was provided by Data Storage’s operating activities resulting primarily from changes in net working capital requirements.
The decrease in other income is primarily attributable to the increase in interest expense, the increase in impairment of deferred offering costs, and the decrease from the gain on forgiveness of debt from the PPP loan. (Net Loss) before provision for income taxes .
Other income (expense) for the year ended December 31, 2023, increased $800,576 to $467,727 from $(332,848) for the year ended December 31, 2022. The increase in other income (expense) is primarily attributable to net interest income for the year ended December 31, 2023 from marketable securities and a decrease in impairment of deferred offering costs.
RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”). ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive cash.
RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023.
For the Year Ended December 31, 2022 2021 $ Change % Change Cloud Infrastructure & Disaster Recovery $ 8,300,378 $ 7,203,246 $ 1,097,132 15 % Equipment and Software 6,194,634 2,080,463 4,114,171 198 % Managed Services 8,445,455 4,661,777 3,783,678 81 % Nexxis VoIP Services 799,675 772,344 27,331 4 % Other 130,695 158,397 (27,702 ) (17 )% Total Sales $ 23,870,837 $ 14,876,227 $ 8,994,610 60 % Expenses Cost of Sales.
For the Year Ended December 31, 2023 2022 $ Change % Change Cloud Infrastructure & Disaster Recovery $ 9,695,833 $ 8,300,378 $ 1,395,455 17 % Equipment and Software 6,056,723 6,194,634 (137,911 ) (2 )% Managed Services 8,040,384 8,445,455 (405,071 ) (5 )% Nexxis VoIP Services 1,012,193 799,675 212,518 27 % Other 154,443 130,695 23,748 18 % Total Sales $ 24,959,576 $ 23,870,837 $ 1,088,739 5 % Expenses Cost of sales.
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.
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. 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 decrease is primarily attributable to a decrease in cash, deferred revenue, and leases payable related party. This was offset by an increase in short-term investments, accounts receivables, prepaids and other current assets, accounts payable, and leases payable.
This was primarily offset by cash received in connection with the exercise of stock options. The Company’s working capital was $11,011,407 on December 31, 2023, increasing by $156,000 from $10,855,407 at December 31, 2022. The increase is primarily attributable to a decrease in cash, accounts receivable, prepaids and other current assets, accounts payable and leases payable related party.
During the year ended December 31, 2022, the Company recorded an Impairment of goodwill of $2,322,000 regarding its Flagship segment . Selling, general and administrative expenses . For the year ended December 31, 2022, selling, general and administrative expenses were $9,837,308, an increase of $2,653,126, or 37%, as compared to $7,184,182 for the year ended December 31, 2021.
There were no goodwill impairment charges during the year ended December 31, 2023. Selling, general and administrative expenses . For the year ended December 31, 2023, selling, general and administrative expenses were $9,744,736, a decrease of $92,572, or 1%, as compared to $9,837,308 for the year ended December 31, 2022. The decrease is reflected in the chart below.
The net [increase/decrease] is reflected in the chart below. 28 Selling, general and administrative expenses For the Year Ended December 31, 2022 2021 $ Change % Change Increase in Salaries $ 5,199,513 $ 3,768,804 $ 1,430,709 38 % Increase in Professional Fees 927,441 804,755 122,686 15 % Increase in Software as a Service Expense 230,725 228,119 2,606 1 % Increase in Advertising Expenses 966,248 541,788 424,460 78 % Increase in Commissions Expense 1,301,949 968,415 333,534 34 % Decrease in Amortization and Depreciation Expense 294,477 342,516 (48,039 ) (14 )% Increase in Travel and Entertainment Expense 280,763 127,676 153,087 120 % Increase in Rent and Occupancy Expense 219,545 130,835 88,710 68 % Increase in Insurance Expense 111,294 75,270 36,024 48 % Increase in all other Expenses 305,353 196,004 109,349 56 % Total Expenses $ 9,837,308 $ 7,184,182 $ 2,653,126 37 % Salaries.
Selling, general and administrative expenses For the Year Ended December 31, 2023 2022 $ Change % Change Salaries $ 5,036,038 $ 5,199,513 $ (163,475 ) (3 )% Professional Fees 1,143,700 927,441 216,259 23 % Software as a Service Expense 182,765 230,725 (47,960 ) (21 )% Advertising Expenses 815,674 966,248 (150,574 ) (16 )% Commissions Expense 1,420,492 1,301,949 118,543 9 % Amortization and Depreciation Expense 293,166 294,477 (1,311 ) 0 % Travel and Entertainment Expense 202,051 280,763 (78,712 ) (28 )% Rent and Occupancy Expense 225,466 219,545 5,921 3 % Insurance Expense 119,472 111,294 8,178 7 % All Other Expenses 305,912 305,353 559 0 % Total Expenses $ 9,744,736 $ 9,837,308 $ (92,572 ) (1 )% Salaries.
Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux, including: Infrastructure as a Service (IaaS), Disaster Recovery of digital information (DRaaS), and Cyber Security as a Service (CSaaS). 27 Flagship focuses on the IBM user community with solutions and services such as, equipment, software, cyber security, and managed cloud solutions globally.
Key Merger Highlights: ● Synergistic Integration: The merger with Flagship is expected to create a unified platform that leverages both entities’ strengths in IBM solutions, managed services, and cloud-based security, promising enhanced operational efficiency. ● Expanded Offerings: The combined expertise of Data Storage Corporation and Flagship Solutions is set to offer a comprehensive range of multi-cloud IT solutions, including Infrastructure as a Service (IaaS), Disaster Recovery as a Service (DRaaS), and Cyber Security as a Service (CSaaS), targeting both enterprise and mid-market customers. ● Strategic Growth: Post-merger, the focus remains on harnessing this strategic integration to extend the range of high-security, reliable cloud services for IBM Power systems, Microsoft Windows, and Linux platforms.
Salaries increased as a result of the increased staff due to the Flagship merger, the hiring of our Chief Financial Officer and the increase in stock-based compensation. Professional fees. Professional fees increased primarily due to a new investor relations firm, an increase in legal fees, and an increase in fees associated with being on NASDAQ. Advertising Expenses.
Salaries decreased as a result of a reduction in stock-based compensation at Flagship , offset by an increase in employee benefits due to the addition of a new employee benefit program in 2023. Professional Fees. Professional fees increased primarily due to an increase in legal fees relating to employment matters and other corporate projects. Software as a Service Expense (SaaS).
The Company’s Business Continuity Solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such as Ransomware. The Company’s Managed Cloud Services starts with migration to the cloud and provides ongoing system support and management that enables its clients to run their software applications and technical workloads in a multi-cloud environment.
Core Services: ● Business Continuity Solutions: Offers rapid recovery from system outages and disasters, ensuring minimal operational disruption. ● Managed Cloud Infrastructure Services: Facilitates cloud migration and provides ongoing support for software applications and technical workloads in a multi-cloud environment. ● Cyber Security: Delivers comprehensive security consultation, data protection, disaster recovery, and remote monitoring services, either integrated into cloud solutions or as standalone offerings.
For the year ended December 31, 2022, cost of sales was $15,787,544, an increase of $7,328,427 or 87% compared to $8,459,117 for the year ended December 31, 2021. The increase of $7,328,427 was mostly related to the increase in overall sales and the increase in sales which resulted from the Flagship merger. Impairment of goodwill .
For the year ended December 31, 2023, cost of sales was $15,383,251, a decrease of $404,293, or 3%, compared to $15,787,544 for the year ended December 31, 2022.
Removed
The subsidiaries maintain business development teams, as well as independent distribution companies. As an example, the Company’s distribution channel of companies provides long-term subscription-based disaster recovery and cloud infrastructure without investing in the infrastructure, data centers, telecommunications or specialized technical staff, which substantially lowers their barrier of entry in providing these solutions to their client base.
Added
Through its subsidiaries, CloudFirst Technologies, Flagship Solutions LLC, and Nexxis, Inc., the Company offers a comprehensive suite of services designed to enhance operational resilience and data integrity for its clients.
Removed
The distribution company has typically provided equipment and software. However, a client’s awareness in 2022 of the ability to migrate to an IBM Power cloud infrastructure and disaster recovery affords the distributor the ability to maintain the client and create an annuity year after year. To further support that awareness, over 90,000 visitors arrived at the Company’s websites in 2022.
Added
Strategic Growth and Infrastructure: In response to a capital raise and Nasdaq uplisting in 2021, the Company expanded its distribution networks and bolstered its team, focusing on enhancing its sales, marketing, and technological capabilities. Data Storage Corporation operates six geographically diverse data centers across the U.S. and Canada, supporting its commitment to providing secure and reliable subscription-based services.
Removed
During 2021, based on the May capital raise and the up list to Nasdaq, the Company added distribution, business development representatives, marketing, and technical personnel. Management continues to be focused on building the Company’s sales and marketing strategy and expanding its technology assets throughout its data center network. The Company’s business offices are in New York and Florida.
Added
Client Engagement and Revenue Generation: The Company engages with clients through direct business development efforts and a broad distribution network, offering solutions that lower barriers to entry for disaster recovery and cloud infrastructure services.
Removed
The offices include a technology center and lab, adapted to meet the technical requirements of the Company’s clients.
Added
While subscription-based services constitute a significant portion of its revenue, Data Storage Corporation also generates income from the sale of equipment and software, emphasizing cybersecurity, data storage, and IBM Power systems solutions.
Removed
The Company maintains its own infrastructure, storage, and networking equipment required to provide subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina, and in Canada, Toronto, and Barrie, serving clients in the United States and Canada.
Added
This overview highlights Data Storage Corporation’s strategic approach to leveraging technology and expertise to meet the complex needs of its diverse client base, ensuring business continuity and security in an increasingly digital world.
Removed
The Company’s Cyber Security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services and technologies that can be incorporated into the Company’s cloud solutions or be delivered as a standalone managed security offering covering the client site endpoint devices, users, servers, and equipment.
Added
The Company is committed to continuing its growth through further synergistic acquisitions. As of January 1, 2024 CloudFirst Technologies and Flagship Solutions LLC have merged. 30 Operational Footprint: Data Storage Corporation operates from offices in New York, Florida and Texas, equipped with technology centers designed to meet client requirements effectively.
Removed
Solution architects and the Company’s business development teams work with organizations identifying and solving critical business problems. The Company carefully plans and manages the migration and configuration process, continuing the relationship and advising its clients long after the services have been implemented.
Added
The Company also employs remote staff to complement its office teams and manages a robust infrastructure across six geographically diverse data centers in the United States and Canada, supporting its comprehensive subscription-based solutions.
Removed
As of this filing the Company provides our clients subscription-based, long-term agreements for cloud disaster recovery, cloud infrastructure, telecommunications solutions, and high processing on-site computing power and software solutions.
Added
This merger represents a pivotal step in Data Storage Corporation’s strategy to expand its service offerings and enhance its competitive edge in the rapidly evolving cloud services and IT solutions market.
Removed
While a significant portion of our revenue has been subscription-based, we also generate revenue from the sale of equipment and software for cybersecurity, data storage, IBM Power systems equipment and managed service solutions. 2022 Business Update On May 31, 2021, the Company completed a merger (the “Merger”) under an Agreement and Plan of Merger (the “Merger Agreement”) with Flagship Solutions, LLC (“Flagship”) (a Florida limited liability company) and the Company’s wholly-owned subsidiary, Data Storage FL, LLC, a Florida limited liability company.
Added
During the year ended December 31, 2023, the Company derived approximately 24% of our revenue from equipment and software sales, 39% of our revenue from infrastructure & disaster recovery/cloud services, 32% of our revenue from managed services, 4% of our revenue from Nexxis VoIP services.
Removed
Flagship is a provider of IBM solutions, managed services, cyber security and cloud solutions. The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM business and anticipates meaningful operation efficiency of the two organizations.
Added
During the year ended December 31, 2022, we derived approximately 26% of our revenue from equipment and software sales, 34% of our revenue from infrastructure & disaster recovery/cloud services, 35% of our revenue from managed services, and 3% of our revenue from Nexxis VoIP services.
Removed
The Company also believes the Merger will provide the combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as middle-market customers.
Added
The following chart details the changes in the Company’s sales for the years ended December 31, 2023 and 2022, respectively.
Removed
The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM user community focus and anticipates meaningful operation efficiency through the integration the organizations. The Company also believes the Merger will also provide the combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as middle-market customers.
Added
The decrease of $404,293 was mostly related to new, negotiated pricing at Flagship, offset by an increase in cost of sales at CloudFirst and Nexxis due to the increase in revenue. 31 Impairment of goodwill. During the year ended December 31, 2022, the Company recorded a goodwill impairment charge of $2,322,000 regarding its Flagship segment .
Removed
Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux, including: cloud Infrastructure as a Service, Disaster Recovery of digital information, and Cyber Security as a Service.
Added
SaaS decreased due to the completion of certain consulting engagements related to one of our customer relationship management platforms. Advertising Expenses. Advertising Expenses decreased due to non-renewal of a marketing program at Flagship. Commissions Expense. Commissions expense increased due to an increase in sales at CloudFirst and Nexxis. Travel and Entertainment.
Removed
The Company intends to continue its strategy of growth through synergistic acquisitions. The Company’s offices are in New York and Florida including technology centers, which are adapted to meet the requirements of its clients. In addition to office staffing, the Company employs additional remote staff.
Added
Travel and Entertainment expense decreased due to less travel by executives and reduced corporate events. Rent and Occupancy. Rent and Occupancy increased primarily due to contractual increases in rent for office space. All Other Expenses. Increased primarily due to an increase in bad debt expense offset by a reduction in all other expenses. Other Income (Expense).
Removed
The Company maintains its infrastructure, storage and networking equipment required to provide our subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida, North Carolina and Canada.
Added
The Company’s conclusion concerning its liquidity is based on current information.
Removed
Advertising Expenses increased primarily due to the Flagship merger and the company sponsoring American mixed martial arts events. Commissions Expense. Commissions expenses increased due to the Flagship merger and the sales associated with Flagship. Travel And Entertainment. Travel And Entertainment increased primarily due to the Flagship merger and the lifting of Covid-19 restrictions. Rent and Occupancy.
Added
Net cash of $3,852,245 was used in investing activities for the year ended December 31, 2023, primarily related to the purchase of short-term investments and capital expenditures. Net cash of $878,794 was used in financing activities for the year ended December 31, 2023, primarily related to payments in connection with finance lease obligations and payments for deferred offering costs.
Removed
Rent and Occupancy increased primarily due to the Flagship merger and the WeWork in Austin, TX that started in January 2022. All Other Expenses . Increased primarily due to the Flagship merger. Other Income (Expense). Other income for the year ended December 31, 2022, decreased $960,210 to $(332,848) from $627,362 for the year ended December 31, 2021.
Added
In the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully evaluate and compare our future results of operations to our previously reported results of operations.
Removed
Net loss before provision for income taxes for the year ended December 31, 2022, was $4,408,863, as compared to a net loss of $139,710 for the year ended December 31, 2021.
Added
The following table shows our reconciliation of net income (loss) to adjusted EBITDA for the years ended December 31, 2023, and 2022, respectively: For the year ended December 31, 2023 CloudFirst Technologies Flagship Solutions LLC Nexxis Inc.
Removed
Net cash of $1,374,657 was used in financing activities resulting primarily in payments on finance lease obligations and payments for deferred offering costs. This was offset by the cash received for the exercised options. The Company’s working capital was $10,855,407 on December 31, 2022, decreasing by $1,229,408 from $12,084,815 at December 31, 2021.
Added
Corporate Total Net income (loss) $ 2,598,026 $ 27,853 $ (229,377 ) $ (2,097,186 ) $ 299,316 Non-GAAP adjustments: Depreciation and amortization 1,016,900 283,337 705 652 1,301,594 Interest and letter of credit fees 74,502 (542,229 ) (467,227 ) Stock-based compensation 64,184 97,820 17,603 326,598 506,205 Adjusted EBITDA $ 3,753,612 $ 409,010 $ (211,069 ) $ (2,312,165 ) $ 1,639,388 For the year ended December 31, 2022 CloudFirst Technologies Flagship Solutions LLC Nexxis Inc.
Removed
Our 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 our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition.
Added
Actual results could differ from these estimates. We believe 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.
Removed
Deferred Offering Costs The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering.
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