UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31 2020, 2022

For the transition period from _____________to____________________________

Commission File No. 000-54579

DATA STORAGE CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (212)564-4922

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes o☐Nox☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 5(d) of the Act. Yes o☐Nox☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx☒No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company and an “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and ‘emerging“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o☐Nox☒

As of June 30, 2020,2022, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of ourthe Company’s voting and non-voting common equity held by non-affiliates of the Registrant was $1,511,806.$9,671,434.

The number of shares of the registrant’s common stock outstanding as of March 31, 202130, 2023, was 128,539,418.6,822,127.

Documents incorporated by reference: None

Data Storage Corporation

Table of Contents

PART I

Forward-Looking Statements

PART I

Forward-Looking Statements

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report in some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements.

You should refer to Item 1A. “Risk Factors” section of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “Data Storage,” “DSC,” “we,” “us,” “our,” and “Company,” refer to Data Storage Corporation and its subsidiaries.

SUMMARY RISK FACTORSITEM 1. BUSINESS

The followingIndustry 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.

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. 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.

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.

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. According to the most recent information received from IBM, the typical industries utilizing IBM Power servers are finance, retail, healthcare, government, and distribution organizations.

The Company, through its CloudFirst subsidiary, is a summaryleader in providing IBM Power cloud infrastructure, disaster recovery and the creation of these unique offerings for over 15 years.

The opportunity for the more significant risks relating toCompany, in the Company. A more detailed description of each of the risks can be found below in Item 1A in Part IIBM Power server portfolio segment is capturing a share of this Annual Reportannual recurring revenue marketplace that is currently under the caption “Risk Factors”.

Risks Relatedmigration to Data Storage’s Business

Risks Related to our Industry

Risks Related to Intellectual Property

Risks Related to the Merger with Flagship Solutions, LLC

Risks Relating to our Common Stock and Securities

ITEM 1. BUSINESS

Overview

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. These trends create an opportunity for cloud technology service providers.

The Company’s market opportunity is a 25-year veteran in Business Continuity services, providing Disaster Recovery as a Service (“DRaaS”), Infrastructure as a Service (“IaaS”), Cyber Security as a Service (“CSaaS”) and Data Analytics as a Service. We provide our clients subscription based, long term agreements for Disaster Recovery as a Service solutions, Infrastructure as a Service products, telecommunications solutions, and high processing on site computing power and software solutions. While a significant portion of our revenue has been subscription based, we also generate revenuederived from the sale ofdemand 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.

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 cybersecurity, data storage, IBM Power systems equipmentbusiness customers. 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 managed service solutions.marketing programs.

HeadquarteredOur Nexxis subsidiary is a voice and data solution provider that utilizes major nationwide carriers and providers. 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. 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. 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. 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%. 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, NY, weNew York. 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 customersclients in several industries including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government. WeThe subsidiaries maintain an internal business development teamteams, as well as a contracted independent distribution channel. DSC’s contracted distributors have the ability to providechannels.

The Company typically provides long-term subscription-based disaster recovery, and hybrid cloud solutionsinfrastructure, cyber security, third party cloud management, managed services, dedicated internet access and IBM and Intel Infrastructure as a Service cloud-based solutions, without having to invest in infrastructure, data centers or telecommunication services or, in specialized technical staff, which substantially lowers the barrier of entry for the distributor to provide our solutions to their client base.UCaaS / VoIP services.

During 2020, we added new distributors, hired additional management2022, 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. Management continues to be focused on building ourthe Company’s sales and marketing distribution,strategy and expanded ourexpanding its technology assets throughout its data center network. 

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. Further, in Dallas, TX. We also recently expanded our offering of cybersecurity solutionstoday’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 remote tele-computing with ezSecurity™, a new 2020 product.Cloud Technology Service providers.

Our target marketplaceThe Company’s market opportunity is derived from the demand for Infrastructure as a Servicefully managed cloud and Disaster Recovery as a Service globally iscybersecurity services across all major operating systems.

CloudFirst alone has an addressable market estimated at over one million Virtual$36 billion in annual recurring revenue in the United States and Canada with limited competition.

The Company has designed and built its solutions and services to support demand for cloud-based IBM Power servers in the finance, retail, healthcare, government,System that support client critical workloads and distribution industriescustom in-house developed applications, manage hybrid cloud deployments and sectors according to the most recent information received from IBM. While Infrastructure as a Service and Disaster Recovery as a Service solutions are our core products, we also continue to provide ancillary solutions in this market.that keep data and workloads protected from disasters and security attacks.

For the past two decades, our mission has been to protect our clients’ data twenty-four hours a day, ensuring

The Company’s business continuity, and assisting in their compliance requirements, while providing better management and control over the clients’ digital information.

Our October 2016 acquisition of the assets of ABC Services, Inc. and ABC Services II, Inc. (collectively, “ABC”), including the remaining 50% of the assets of Secure Infrastructure & Services LLC, accelerated our strategy into cloud based managed services, expanded cybersecurity solutions and our hybrid cloud solutions with the ability to provide equipment and expanded technical support. We intend to continue our strategy of growth through synergistic acquisitions.

Our offices are located in New York, Florida and Texas. The New York and Florida offices include a technology center and lab, which arelabs adapted to meet technology needsthe technical requirements of the Company’s clients. In addition to office staffing, we employ additional remote staff. DSCThe Company maintains its own infrastructure, storage, and networking equipment required to provide our subscription solutions in fourseven geographically diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina.Carolina, and in Canada, Toronto, and Barrie, serving clients in the United States and Canada.

Our Continuing Strategy

DSC derives its revenues from long-term subscriptions, and professional services contracts related to the implementation of solutions that provide protection of mission critical data and equipment. In 2009, DSC’s revenues consisted primarily of data vaulting, de-duplication, continuous data protection and cloud disaster recovery solutions, and protecting information for our clients.

In 2010, we expanded our solutions based on the asset acquisition of SafeData, a provider ofThe Company’s disaster recovery and business continuity for the powerful IBM servers, Power i AS400 / AIX. The Safe Data acquisition provided the ability to provide a solution to a specialized IBM community with limited competition, a higher average revenue per client and a global marketplace.

In August 2012, DSC entered into a Joint Venture Partnership with an IBM partner, ABC Services, Inc. to provide an IBM Infrastructure as a Service (IaaS) offering, marketed under the name Secure Infrastructure & Services LLC (“SIAS”), a New York limited liability company. In October 2016, DSC purchased the assets of ABC, which included the remaining 50% of the assets of SIAS, launching the Company into managed services, Cyber Security, Equipment and Software.

Building on the requirement of our clients for access to cloud services, and with the growing requirement of Voice over Internet Protocol (“VOIP”), on October 19, 2017, we formed a new division, Nexxis, to provide VOIP and carrier services.

Our Differentiation

Focus on delivering strategic outcomes: Clients see value with our focus on solving strategic business problems. Our services are intended tosolutions allow clients to maintain business operationsquickly recover from system outages, human and natural disasters, and cyber security attacks, such as Ransomware. 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 timemulti-cloud environment. The Company’s cyber security offerings include comprehensive consultation and a suite of data security, disaster scale to meet their demandsrecovery, and focus on growing their business.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.

Services that support multicloud: Clients are able to run applications or DRaaS services requiring IBM Power systems in the Data Storage Cloud with seamless connectivity to other cloud partnersThe Company’s solution architects, and providers for their specialized services providing a true multicloud experience.

Service expertise: The expertise and commitment to client support provide by our support and service experts in IBM Power Systems, Storage, Networking, Backup and Recovery, High Availability System replication and Business Continuity. This allows us to maintain a competitive advantage in our industry.

Close client relationships: Beginning early on in the relationship, webusiness development teams work with our clientsorganizations identifying and solving critical business problems. We carry that through with careful planningThe Company carefully plans and management ofmanages the migration and configuration process, continuing the relationship and advising ourits clients long after the services have been implemented. ForReflecting on client satisfaction, the year ended December 31, 2020, we had a Value-Added Reseller with multiple clients accounting for 15% of our revenue andCompany’s renewal rate on client subscription solutions is approximately 94% of client subscriptions renewed their solutions with the Company 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. 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.

Partner relationships: We increase

The Company increases revenue and drivedrives growth for our partners by developing and managing collaborative solutions as well as joint marketing initiatives. We haveThe 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.

Our Growth Strategies

In order to continue to drive growth and capture our large market opportunity, key elements of our growth strategies include: 

Drive sales execution: We plan to continue executing on several sales initiatives that are designed to drive continued growth in our business.

Expand geographic reach: We believeThe Company believes there is a significant need for ourits solutions on a global basis and, accordingly, the opportunity for usit to grow ourits business through international expansion as these markets increase their use of multicloudmulti-cloud solutions.

Leverage and expand our partner ecosystem: We benefit from close relationships with our cloud partners, allowing us to provide comprehensive services to our customers, and providing us with a source of new business opportunities and inputs for future product roadmaps.

Pursue strategic acquisitions: We intend to continue to explore potential transactions that could enhance our capabilities, increase the scope of our technology footprint or expand our geographic reach.

Opportunity and the Industry

We believe businesses are increasingly under pressure to improve the proficiency of their information and storage systems accelerating the migration from self-managed IT solutions to fully managed multicloud technologies in order to reduce cost and compete effectively. These trends create an opportunity for cloud technology service providers. DSC’s market opportunity is derived from the demand for fully managed cloud services across all major operating systems. According to the Gartner Forecast: IT Services, Worldwide, 2018-2024, 2Q20 Update, the managed services and cloud infrastructure services market worldwide is estimated to be $410 billion in 2020 and is expected to grow 7% annually to $502 billion in 2023.

Cloud Services with on-demand availability of computer storage and network resources have revolutionized how companies manage their information technology systems and applications, providing businesses with greater flexibility and lower costs. Over the past several years, businesses have increasingly adopted cloud solutions to drive cost, scale, reliability benefits, increasingly turning to the use of more than one cloud solution at a time (which is referred to as multicloud) to enhance performance, ensure redundancy and resilience and provide for increased security, compliance and governance.

We believe that both modern and legacy technologies require specialized expertise. Many companies lack the in-house resources to navigate the complexity of all this technology or manage multiple cloud instances. We believe this creates an opportunity for a cloud services provider that enables businesses to fully embrace the power of multicloud technologies and, together, deliver incredible customer experiences.

Our Mission: To migrate clients to Infrastructure as a Service, to update clients’ Disaster Recovery as a Service and cyber security, and to provide clients data analytics. We also aim to assist our clients in the migration and continued day to day management, and in leveraging multicloud information technology, while meeting expectations for cyber security support, price and value.

OurThe Company’s Core Services: We provideThe Company provides an array of multicloudmulti-cloud information technology solutions in highly secure, enterprise levelenterprise-level cloud services for companies using IBM Power systems,Systems, Microsoft Windows, and Linux. Specifically, ourthe Company’s support services cover:

Cyber Security Solutions:

Data Protection and Recovery Solutions:

Solutions and ServicesCloud Hosted Production Systems:ezHost™

Disaster Recovery Solutions: We offer a variety of data protection and disaster recovery solutions services designed to meet our clients’ requirements and budgets.

Data Backup and Data Vaulting:Our ezVault™ business-to-business data backup and date vaulting solution consists of high-speed cloud enterprise storage, de-duplication, and compression, backup and restore services which automatically scale in size with data growth. Our ezVault solution is typically accompanied by a service level agreement (“SLA”), such as our ezRecovery™ Disaster Recovery as a Service solution.

Standby Server Services:Our ezRecovery™ (Disaster Recovery as a Service) solution offers organizations that require a faster recovery timeframe data vaults combined with our standby server computing, storage, and network infrastructure resources to help ensure a faster recovery time.

High Availability Services:Our ezAvailability™ solution offers reliable, high availability and business continuity for mission critical applications with Recovery Time Objective under fifteen minutes and near zero Recovery Point Objective, with optional, fully managed real-time replication services. Our ezAvailability service consists of a full-time enterprise system, storage, and network resources, allowing quick and easily switched production workloads to our cloud when needed. Our ezAvailability services are backed by a Service-Level Agreement (“SLA”) to help assure performance, availability, and access.

Data Mirroring Services: Our ezMirror™ solution provides replicationmanaged cloud services that mirrorremoves the clients’ storage systemsburden off system management from its clients and allows for recovery in our cloud.

I-a-a-S – Full Cloud Infrastructure Production Systems:Ourensures that their software applications and IT workloads are running smoothly. ezHost™ solution offers full cloud-based production systems from our data center facilities and a selection of disaster recovery solutions to meet the client’s expectations on their compute power and recovery timeframes. ezHost provides full-time, scalable compute, storage, and network infrastructure resources to run clients’ workloads on our enterprise classthe Company’s enterprise-class infrastructure. ezHostezHost™ 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. OurThe Company’s ezHost services are backed by aan SLA governing performance, availability, and access.

Cybersecurity Solutions: Our ezSecurity™ solution offers a suite of comprehensive cybersecurity products that can be utilized on systems at the client’s location or on systems hosted in the DSC cloud. These offerings include fully managed endpoint security with active threat mitigation, system security assessments, risk analysis and applications to ensure continuous security and auditing for IBM systems.

Voice & Data Solutions: Nexxis, our voice and data division, offersspecializes 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. Nexxis dedicated internet access services with speeds of up to 10 Gbps and data servicestransport circuits are typically delivered over fiber-optic networks while shared internet access is typically delivered via fiber, opticcoaxial, and wireless networks to help keep businesses stay fully connected from any location. Nexxis provides, among other things, top ofSD-WAN options provide the line Polycom VVX color phone systemsability 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 performance of download speeds of upinternet. 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 40 GB.integrate with Microsoft Teams.

Corporate History

On October 20, 2008, DSCthe Company consummated a share exchange transaction with Data Storage Corporation, a Delaware corporation, and DSCEuro Trend Inc. The Company subsequently changed its name from Euro Trend Inc. to Data Storage Corporation.

DSCData Storage Corporation acquired the assets of SafeData, LLC in June 2010, and the assets of Message Logic LLC, (“Message Logic”) in October 2012.

In November 2012, DSCthe Company entered into a Joint Venture Partnershipan agreement with an IBM partner, ABC Services, Inc. to provide an IBM Infrastructure as a Service (IaaS)Power cloud infrastructure offering, marketed under the name Secure Infrastructure & Services LLC (“SIAS”), a New York limited liability company.

In December 2012, DSC was accepted as an IBM Service Provider for cloud solutions.

In October 2016, DSCthe Company purchased the assets of ABC Services, Inc., which included the remaining 50% of the SIAS.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.

The result of these acquisitions, and strategic alliances, combined with DSC’s legacythe Company’s business continuity disaster recovery and business continuityIBM Power cloud infrastructure solutions, positions DSCData Storage Corporation as a potential leader in business-to-business disaster recovery as a service, infrastructure as a service on the IBM Power servers, email compliance with software as a service (“SaaS”). DSC will continue to provide our solutions and our planned industry consolidations.leader.

Competitive Landscape

The markets for the Company’s products and services are competitivecompetitive. 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. Today, the IBM Power community, based on a recent IBM user survey, only 15% of the IBM Power server community utilizes the cloud. Other Company services and solutions, outside of the IBM Power user community face many competitors for cyber security, however, these solutions and services are typically provided by the Company is confronted by competition. Competitors in the United States include IBM, Connectria Corporation, iTech Solutions Group, Skytap Inc., Abacus Group LLCto their existing clients and Source Data Products.distribution companies.

These markets are characterized by frequent product introductions and rapid technological advances. The Company’s financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins. Principal competitive factors important to the Company include price, product features, relative price and performance, product quality and reliability, a 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, as a service and platform as a service, primarily focused on the IBM community. These markets are highly competitive and include several large, well-funded and experienced participants.

The Company’s future financial condition and operating results depend on the Company’s ability to continue to provide a high-quality solution as well as increase distribution of the solutions in each of the markets in which it competes.

Recent Developments

Flagship Solutions, LLCLLC.

On February 4, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Data Storage FL, LLC, a Florida limited liability company and our wholly-owned subsidiary (the “Merger Sub”), Flagship Solutions, LLC (“Flagship”), a Florida limited liability company, and the owners (collectively, the “Equityholders”“Equity holders”) of all of the issued and outstanding limited liability company membership interests in Flagship (collectively, the “Equity Interests”), pursuant to which, upon the Closing (as defined below), we will acquireacquired Flagship through the merger of Merger Sub with and into Flagship (the “Merger”), with Flagship being the surviving company in the Merger and becoming, as a result, our wholly-owned subsidiary. The closing of the Merger (the “Closing”) is expected to take placewas completed on or before May 31, 2021 (the “Outside Closing Date”).June 1, 2021. Flagship is a provider of IBM Equipmentequipment and solutions, managed services and cloud solutions globally that include cloud-based server monitoring and management, 24×7 help desk support, and data center infrastructure management.

Pursuant to the Merger, all of the Equity Interests that are issued and outstanding immediately prior to the effectiveness of the filing of the Articles of Merger by Flagship and Merger Sub with the Secretary of State of the State of Florida, will be converted into the right to receive an aggregate amount equal to up to $10,500,000, consisting of $5,550,000, payable in cash, subject to reduction by the amount of any excluded liabilities assumed by us at Closing and subject to adjustment as set forth below in connection with a net working capital adjustment, and up to $4,950,000, payable in shares of our common stock, subject to reduction by the amount by which the valuation of Flagship (the “Flagship Valuation”), as calculated based on Flagship’s unaudited pro forma 2018 financial statements and audited 2019 and 2020 financial statements (the “2020 Audit”), is less than $10,500,000. In the event that the Flagship Valuation, as calculated based on the 2020 Audit, is less than $10,500,000, then, within fifteen (15) days after completion of the audit of Flagship’s financial statements for its 2019, 2020 and 2021 fiscal years (the “2021 Audit”), we have agreed to pay the Equityholders in shares of our common stock the number of shares to be determined based on the amount by which the Flagship Valuation, as calculated based on the 2021 Audit, exceeds the sum of $5,550,000 and the value of the shares merger consideration paid by us to the Equityholders at Closing. In addition, the cash merger consideration paid by us to the Equityholders at Closing shall be adjusted, on a dollar-for-dollar basis, by the amount by which Flagship’s estimated net working capital at Closing is more or is less than the target working capital amount specified in the Merger Agreement.

The parties have agreed to indemnify each other for any losses that may be incurred by them as a result of their breach of any of their representations, warranties and covenants contained in the Merger Agreement. Our indemnification obligations are capped at 20% of the aggregate merger consideration paid to the Equityholders for any breach of our representations and warranties contained in the Merger Agreement, other than the representations and warranties set forth under Section 4.1 (Existence; Good Standing; Authority; Enforceability), Section 4.2 (No Conflict) and Section 4.4 (Brokers) (herein, “Fundamental Representations”). Our indemnification obligations in respect of any breach by us of the Fundamental Representations or in the event of our willful or intentional breach of the Merger Agreement (or acts of fraud), are not capped.

Concurrently with the Closing, Flagship and Mark Wyllie, Flagship’s Chief Executive Officer, will enterentered into an Employment Agreement (the “Wyllie Employment Agreement”), which will becomebecame effective upon consummation of the Closing, pursuant to which Mr. Wyllie will continue to serve as Chief Executive Officer of Flagship following the Closing on the terms and conditions set forth therein. Flagship’s obligations under the Wyllie Employment Agreement will also be guaranteed by us.the Company. The Wyllie Employment Agreement will containcontains customary salary, bonus, employee benefits, severance and restrictive covenant provisions. In addition, pursuant to the Wyllie Employment Agreement, Mr. Wyllie will bewas appointed to serve as a member of the Board during the term of his employment thereunder. Mr. Wyllie, as of November 11, 2021, became an Officer of the Company.

The Merger Agreement further provides that it may be terminated byMr. Wyllie resigned from all positions he held with Flagship and the Equityholders (a “Flagship Termination”) in the event we have not consummated an underwritten public offeringCompany on October 28, 2022. Thomas Kempster has been appointed President of our securities or listed our shares of common stock on national securities exchange such as the Nasdaq, by the Outside Closing Date as long as such failure was not due to the breach of, or non-compliance with, this Agreement by the Company or any of the Equityholders. In the event of a Flagship Termination, we will be required to pay Flagship and the Equityholders an amount equal to two (2) times their reasonable, documented, out-of-pocket attorneys’ and accountants’ transaction fees and expenses incurred prior to such Flagship Termination in connection with the Merger, up to a maximum aggregate amount of $100,000. On February 12, 2021, we filed a registration statement on Form S-1 in connection with a proposed offering of our securities. We have also applied to list our common stock on the Nasdaq. There can be no assurance that our public offering will be consummated or our uplisting to Nasdaq will be achieved.Solutions Group.

The foregoing information is a summary of each of the agreements involved in the transactions described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which has been filed as an exhibit to thisthe 2021 Annual Report. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.

In the event the Closing is consummated on or before the Outside Closing Date, the shares of common stock to be issued as part of the Merger will be issued pursuant to exemptions from registration provided by Section 4(a)(2) and/or Regulation D of the 1933 Securities Act, as amended.

COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, was reported in Wuhan, China. The World Health Organization determined that the outbreak constituted a “Public Health Emergency of International Concern” and declared a pandemic. The COVID-19 pandemic is disrupting businesses and affecting production and sales across a range of industries, as well as causing volatility in the financial markets. The extent of the impact of the COVID-19 pandemic on our customer demand, sales and financial performance will depend on certain developments, including, among other things, the duration and spread of the outbreak and the impact on our customers and employees, all of which are uncertain and cannot be predicted. See “Risk Factors” for information regarding certain risks associated with the pandemic.

The COVID-19 pandemic has accelerated cloud transformation efforts for new and existing customers and underscored the importance and mission-critical nature of multicloud strategies. Over the last several months, customers have increasingly turned to cloud solutions to pivot to new business models, improved their disaster recovery of mission critical data, migrated to cloud-based solutions and reduced their capital expenditure requirements.

In response to the COVID-19 pandemic, we implemented a number of initiatives to ensure the safety of our employees. Since March 9, 2020, over 90% of our employees work remotely. All of our employees have had the ability to work remotely utilizing solutions the Company provides to their clients and distribution channels. Additionally, our remote, technology-enabled model has enabled minimal disruption to our go-to-market efforts and service delivery organizations.

The effects of the COVID-19 pandemic are rapidly evolving, and the full impact and duration of the virus are unknown. Currently, the COVID-19 pandemic has not had a significant impact on our operations or financial performance; however, the ultimate extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and its impact on our customers, vendors and employees and its impact on our sales cycles as well as industry events, all of which are uncertain and cannot be predicted.

On April 30, 2020, the Company was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the form of a Note dated April 30, 2020, matures on April 30, 2022, and bears interest at a fixed rate of 1.00% per annum, payable monthly to Signature Bank, as the lender, commencing on November 5, 2020. Funds from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments. Management intends to useused the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company intends to apply forreceived forgiveness for the full amount.amount during the year ended December 31, 2021.

Government Regulation

The extent of the impact, if any, will depend on future developments, including actions taken to contain COVID-19. See also “Risk Factors” for more information.

Reverse Stock Split

On March 8, 2021, our Board of Directors and our stockholders that have in excess of 50% of our voting power approved an amendment to our articles of incorporation to effect a reverse stock split with a ratio of between 1:2 to 1:60, to be effected in the discretion of our Board of Directors.

Joint Venture with Able-One Systems

On February 18, 2021, we announced a joint venture agreement with Able-One Systems Inc. (“Able-One”) to provide DSC’s portfolio of enterprise-level IBM cloud infrastructure services to customers in Canada. Able-One has provided technology solutions in Canada for over 30 years. The arrangementCompany is effective immediately. The joint venture between DSC and Able-One is intended to fill a vital need for cloud services in Canada among businesses that run IBM Power Systems on IBM i, AIX and Linux operating systems.

ezSecurity™ Product Launch

Due to the COVID-19 outbreak and the critical need for safe remote collaboration, we recently expanded our offering of cybersecurity solutions for remote tele-computing with our new product, ezSecurity™. We also launched a new remote collaboration program for small and medium-sized businesses. As part of this new program, we are offering free migration services from Microsoft Exchange to Microsoft 365, along with support for comprehensive voice communications (Hosted VoIP, IP Phones, Cloud PBX) and video conferencing. In addition, we have expanded capacity through our new Dallas data center location to accommodate increased demand for our portfolio of ezServices™, including ez-Backup™, ezRecovery™ and ezAvailability™, adding to our existing network of data centers and fiber backbone. 

Government Regulation

We are subject to various federal, state, local and international laws with respect to ourits receipt, storage and processing of personal information and other customer data.

We receive, store,The Company receives, stores, and processprocesses personal information and other customer data. Personal privacy has become a significant issue in the United States and in many other countries where wethe Company may offer ourprovide its offering of solutions. The regulatory framework for privacy issues worldwide is currently complex and evolving, and it is likely to remain uncertain for the foreseeable future. There are numerous federal, state, local, and foreign laws regarding privacy and the storing, sharing, use, processing, disclosure, and protection of personal information and other customer data, the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules. WeThe Company generally seekseeks to comply with industry standards and areis subject to the terms of ourits privacy policies and privacy-related obligations to third parties. We striveThe Company strives to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection to the extent possible. Any failure or perceived failure by usthe Company to comply with ourits privacy policies, ourits privacy-related obligations to customers or other third parties, ourits 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 usthe Company by consumer advocacy groups or others and could cause ourits customers to lose trust in us,it, which could have an adverse effect on ourits reputation and business. Any significant change to applicable laws, regulations, or industry practices regarding the use or disclosure of our customers’the Company’s customer’s data, or regarding the manner in which the express or implied consent of customers for the use and disclosure of such data is obtained, could require usthe Company to modify ourits solutions and features, possibly in a material manner, and may limit ourits ability to develop new services and features that make use of the data that ourits customers voluntarily share with us.the Company.

OurThe Company’s solutions are used by customers in the health care industry, and wethe Company must comply with numerous federal and state laws related to patient privacy in connection with providing ourits solutions to these customers. In particular, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) include privacy standards that protect individual privacy by limiting the uses and disclosures of individually identifiable health information and implementing data security standards. Because ourthe Company’s solutions may backup individually identifiable health information for ourits customers, ourits customers are mandated by HIPAA to enter into written agreements with usthe Company known as business associate agreements that require usit to safeguard individually identifiable health information. Business associate agreements typically include:

Human Capital Resources

We believe that our success depends upon our ability to attract, develop and retain key personnel. As of March 31, 2021,2023, we employed 2645 full-time employees, and 3 part-time employees, of which fivesix are executive management, fiveseven are administration and finance, fivenine are sales staff, several of which are dedicated to support our network of distribution partners, two are marketing staff and 14twenty-one were part of our technical team. The Company also maintains a group of independent contractors to provide service support and installations on a as needed basis. None of our employees are covered by collective bargaining agreements, and management considers relations with our employees to be in good standing. Although we continually seek to add additional talent to our work force, management believes that it has sufficient human capital to operate its business successfully.

OurThe Company’s compensation programs are designed to align the compensation of ourits employees with ourits performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of ourthe Company’s compensation programs balances incentive earnings for both short-term and long-term performance.

The health and safety of ourthe Company’s employees is ourits highest priority, and this is consistent with ourits operating philosophy. Since the onset of the COVID-19 pandemic, employees, including our specialized technical staff, are working from home or in a virtual environment unless they have a requirement to be in the office for short-term tasks and projects.

Corporate Information

The primary mailing address for the Company is 48 South Service Road, Suite 203, Melville, NY 11747. Our telephone number is (212) 564-4922.

Available Information

OurThe Company’s corporate website address is www.datastoragecorp.comwww.dtst.com. All filings we makethe Company makes with the Securities and Exchange Commission (“SEC”), including ourits Annual Report on Form 10-K, ourits Quarterly Reports on Form 10-Q, ourits Current Reports on Form 8-K, ourits 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 ourthe Company’s website as soon as reasonably practicable after they are filed with or furnished to the SEC. The reference to ourthe Company’s website address does not constitute inclusion or incorporation by reference of the information contained on ourthe Company’s website in this Form 10-K or other filings with the SEC, and the information contained on ourthe Company’s website is not part of this document.

ITEM 1A. RISK FACTORS

Investing in ourthe Company’s common stock involves a high degree of risk. You should carefully consider the following risks together with the other information in this Annual Report.

Risks Related to Data Storage’s Business

We haveThe Company has not generated a significant amount of net income and weit may not be able to sustain profitability or positive cash flow in the future.

As reflected in the consolidated financial statements, wethe Company had a net (loss) income (loss) available to shareholders of $55,339$(4,356,802) and $(54,452)$204,161 for the years ended December 31, 20202022, and 2019,2021, respectively. As of December 31, 2020, DSC2022, the Company had cash of $893,598$2,286,722, marketable securities of $9,010,968, and a working capital deficiency of $2,666,448. As a result, these conditions raised substantial doubt regarding our ability to continue as a going concern.

During the year ended December 31, 2020, we generated cash from operations of $1,110,679 with continued revenue growth. We have no commitment from sources for additional capital if needed.$10,855,407.

If we arethe Company is unable to attract new customers to ourits infrastructure and disaster recovery/ cloud subscription services on a cost-effective basis, ourits revenue and operating results would be adversely affected.

We generateThe Company generates the majority of ourits revenue from the sale of subscriptions to ourits infrastructure and disaster recovery/cloud solutions.solutions as well as contracted managed services and software and hardware renewals. In order to grow, wethe Company must continue to attract a large numberreach the many businesses in need of customers,our unique services, many of whom may have not previously used infrastructure as a service and cloud disaster recovery backup solutions. We useThe Company uses and periodically adjustadjusts a diverse mix of advertising and marketing programs to promote ourits solutions. Significant increases in the pricing of one or more of ourthe Company’s advertising channels would increase ourits advertising costs or cause usit to choose less expensive and perhaps lessfewer effective channels. As we addthe Company adds to or changechanges the mix of ourits advertising and marketing strategies, weit may expand into channels with significantly higher costs than ourits current programs, which could adversely affect ourits operating results. WeThe Company may incur advertising and marketing expenses significantly in advance of the time we anticipateit anticipates recognizing any revenue generated by such expenses, and weit may only at a later date, or never, experience an increase in revenue or brand awareness as a result of such expenditures. Additionally, because we recognizethe Company recognizes revenue from customers over the terms of their subscriptions, a large portion of ourits revenue for each quarter reflects deferred revenue from subscriptions entered into during previous quarters, and downturns or upturns in subscription sales or renewals may not be reflected in ourthe Company’s operating results until later periods. We haveIt has made in the past, and may make in the future, significant investments to test new advertising, and there can be no assurance that any such investments will lead to the cost-effective acquisition of additional customers. If we arethe Company is unable to maintain effective advertising programs, ourits ability to attract new customers could be adversely affected, ourits advertising and marketing expenses could increase substantially, and ourits operating results may suffer.

A portion of ourthe Company’s potential customers locate ourits website through search engines, such as Google, Bing, and Yahoo! Our. The Company’s ability to maintain the number of visitors directed to ourits website is not entirely within ourits control. If search engine companies modify their search algorithms in a manner that reduces the prominence of ourthe Company’s listing, or if ourits competitors’ search engine optimization efforts are more successful than ours,the Company’s, fewer potential customers may click through to ourits website. In addition, the cost of purchased listings has increased in the past and may increase in the future. A decrease in website traffic or an increase in search costs could adversely affect ourthe Company’s customer acquisition efforts and ourits operating results.

We expectThe Company expects to continue to acquire or invest in other companies, which may divert ourits management’s attention, result in additional dilution to ourits stockholders, and consume resources that are necessary to sustain ourits business.

In 2016, we acquiredHaving completed the assets of ABC and the remaining 50% of the assets of SIAS. As described in this Annual Report, we also intend to consummate the Mergermerger with Flagship, upon satisfaction of the closing conditions to the Merger. We expectCompany expects to continue to acquire complementary solutions, services, technologies, or businesses in the future. WeThe Company may also, enter into relationships with other businesses to expand ourits portfolio of solutions or ourits ability to provide ourits solutions in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies. Negotiating these transactions can be time-consuming, difficult and expensive, and ourits ability to complete these transactions may often be subject to conditions or approvals that are beyond ourits control. Consequently, these transactions, even if a definitive purchase agreement is executed and announced, may not close.

Acquisitions may also disrupt ourthe Company’s business, divert ourits resources, and require significant management attention that would otherwise be available for the development of ourits business. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized on a timely basis or at all or wethe Company may be exposed to known or unknown liabilities, including litigation against the companies that weit may acquire. In connection with any such transaction, wethe Company may:

Any of these risks could harm ourthe 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. Integration may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating personnel with disparate business backgrounds and accustomed to different corporate cultures. WeThe Company may not be able to retain key employees of an acquired company. Additionally, the process of integrating a new solution or service may require a disproportionate amount of time and attention of ourthe Company’s management and financial and other resources. Any difficulties or problems encountered in the integration of a new solution or service could have a material adverse effect on ourthe Company’s business.

We intendThe Company intends to continue to acquire businesses which we believethat it believes will help achieve ourits business objectives. As a result, ourthe Company’s operating costs will likely continue to grow. The integration of an acquired company may cost more than we anticipate,the Company anticipates, and it is possible that wethe Company will incur significant additional unforeseen costs in connection with such integration, which may negatively impact ourits earnings.

In addition, wethe Company may only be able to conduct limited due diligence on an acquired company’s operations. Following an acquisition, wethe Company may be subject to liabilities arising from an acquired company’s past or present operations, including liabilities related to data security, encryption and privacy of customer data, and these liabilities may be greater than the warranty and indemnity limitations that we negotiate.the Company negotiates. Any liability that is greater than these warranty and indemnity limitations could have a negative impact on ourthe Company’s financial condition.

Even if successfully integrated, there can be no assurance that ourthe Company’s operating performance after an acquisition will be successful or will fulfill management’s objectives.

We haveRisks 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. 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).

Since having completed the merger, however, the Company still faces risks and unknowns associated with the Merger. Ultimately, the Company may not realize the anticipated benefits of the merger with Flagship and integrating and operating Data Storage’s and Flagship’s business may be more difficult, time-consuming, or costly than expected. Additionally, integrating and operating the Flagship business could result in higher capital expenditures than anticipated, which could result in the Company’s need to raise additional capital for its operations.

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 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. 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.

In response to such material weaknesses, management has expended and will continue to expand a substantial amount of effort and resources for the remediation of material weaknesses in internal control over financial reporting. In November of 2022, management and its advisors began evaluating and documenting the design and operating effectiveness of our internal controls,control over financial reporting, and we cannot provide assurances that these weaknesses will be effectively remediated ortheir work is ongoing.

The Company can give no assurance that additional material weaknesses will not occurbe identified in the future.

We have identified material weaknesses in our internal control over financial reporting for the year ended December 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting expertise to provide reasonable assurance that our financial statements and notes thereto are prepared in accordance with generally accepted accounting principles and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation.

We will be required to expend time and resources to further improve our internal controls over financial reporting, including by expanding our staff. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.

We have not yet retained sufficient staff or engaged sufficient outside consultants with appropriate experience in GAAP presentation, especially of complex instruments, to devise and implement effective disclosure controls and procedures, or internal controls. We will be required to expend time and resources hiring and engaging additional staff and outside consultants with the appropriate experience to remedy these weaknesses. We cannot assure you that management will be successful in locating and retaining appropriate candidates; that newly engaged staff or outside consultants will be successful in remedying material weaknesses thus far identified or identifying material weaknesses in the future; or that appropriate candidates will be located and retained prior to these deficiencies resulting in material and adverse effects on our business.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, including increased complexity resulting from our international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. AnyCompany’s failure to implement and maintain effective internal control over financial reporting could also adversely affect the resultsresult in errors in its consolidated financial statements that could result in a restatement of management reportsits financial statements and independent registered public accounting firm auditscould cause it to fail to meet its reporting obligations, any of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reportingwhich could also cause investors to losediminish investor confidence in our reported financialthe Company and other information, which would likely havecause a negative effect ondecline in the market price of ourits common stock.

We areThe Company is controlled by three principal stockholders who serve as ourits executive officers and directors.

As of March 31, 2021,2023, through their aggregate voting power, Messrs. Piluso, Schwartz and Kempster control 78.53%approximately 37% of ourthe Company’s outstanding common stock, giving them the ability to electcontrol a majoritysignificant portion of ourthe votes for the Company’s directors and to control all other matters requiring the approval of ourits stockholders, including the election of all of ourits directors and the approval of thea reverse stock split.

Due to the economic hardships presented by the COVID-19 pandemic, we obtained a loan from the Paycheck Protection Program (“PPP Loan”) from the U.S. Small Business Administration (“SBA”) pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). We may not be entitled to forgiveness under the PPP Loan which would negatively impact our cash flow, and our application for the PPP Loan could damage our reputation.

On April 30, 2020, the Company received the proceeds of a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The Loan, which was in the form of a Note dated April 30, 2020, matures on April 30, 2022 and bears interest at a fixed rate of 1.00% per annum, payable monthly to Signature Bank, as the lender, commencing on November 5, 2020.

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all or a portion of their respective PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of the Loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the maintenance of employee and compensation levels, as defined, following the funding of the PPP Loan. The Company used the proceeds of the PPP Loan for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part. Any amounts that are not forgiven incur interest at 1.0% per annum and monthly repayments of principal and interest are deferred for six months after the date of disbursement. While the PPP Loan currently has a two-year maturity, the amended law permits the borrower to request a five-year maturity from its lender. The Company has applied for forgiveness for the full amount and is waiting for the approval from the bank and the SBA. It is possible that the loan may not be forgiven in full, which could have a negative impact on the Company’s cash flow.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent with the broad objectives of the CARES Act. At the time that we had made such certification, we could not predict with any certainty whether we would be able to obtain the necessary financing to support our operations. The certification described above that we were required to provide in connection with our application for the PPP Loan did not contain any objective criteria and was subject to interpretation. However, on April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the CARES Act has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties, and could be required to repay the PPP Loan in its entirety. In addition, our receipt of the PPP Loan may result in adverse publicity and damage to our reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources.

Risks Related to Ourthe Company’s Industry

The market for cloud solutions is highly competitive, and if we dothe Company does not compete effectively, ourits operating results will be harmed.

The market for ourthe Company’s services is highly competitive, quickly evolving and subject to rapid changes in technology. We expectThe Company expects to continue to face intense competition from ourits existing competitors as well as additional competition from new market entrants in the future as the market for ourits services continues to grow.

We competeThe Company competes with cloud backup and infrastructure providers and providers of traditional hardware-based systems and IBM Power Systems. OurIts current and potential competitors vary by size, service offerings, and geographic region. These competitors may elect to partner with each other or with focused companies to grow their businesses. They include:

Many of these competitors benefit from significant competitive advantages over both of us,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. 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 we do.the Company does. As a result, some of these competitors may be able to:

In addition, demand for ourthe Company’s cloud solutions is sensitive to price. Many factors, including ourthe Company’s customer acquisition, advertising and technology costs, and ourits current and future competitors’ pricing and marketing strategies, can significantly affect ourits pricing strategies. Certain of ourthe Company’s competitors offer, or may in the future offer, lower-priced or free solutions that compete with ourits solutions.

Additionally, consolidation activity through strategic mergers, acquisitions and joint ventures may result in new competitors that can offer a broader range of products and services, may have a greater scale or a lower cost structure. To the extent such consolidation results in the ability of vertically integrated companies to offer more integrated services to customers than wethe Company can, customers may prefer the single-source approach and direct more business to such competitors, thereby impairing ourthe Company’s competitive position. Furthermore, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships or strategic relationships. As we lookthe Company looks to market and sell ourits services to potential customers, wethe Company must convince theirits internal stakeholders that ourthe Company’s services are superior to their current solutions. If we arethe Company is unable to anticipate or react to these competitive challenges, ourits competitive position would weaken, which could adversely affect ourits business, financial condition and results of operations. These combinations may make it more difficult for usthe Company to compete effectively and ourits inability to compete effectively would negatively impact ourits operating results. In addition, there can be no assurance that wethe Company will not be forced to engage in price-cutting initiatives, or to increase ourits advertising and other expenses to attract and retain customers in response to competitive pressures, either of which could have a material adverse effect on ourthe Company’s revenue and operating results.

If a cyber-attackcyberattack was able to breach ourthe Company’s security protocols and disrupt ourits data protection platform and solutions, and any such disruption could increase ourits expenses, damage ourits reputation, harm ourits business and adversely affect ourits stock price.

We have

The Company has implemented various protocols and are regularly monitor ourmonitors its systems via security software and otherwise to reduce any security vulnerabilities. WeThe Company also relyrelies on third-party providers for a number of critical aspects of ourits infrastructure cloud and disaster recovery business continuity services, and consequently, we doit does not maintain direct control over the security or stability of those associated systems. Furthermore, the firmware, software, [and/and/or open-source software]software that ourits data protection solutions may utilize could be susceptible to hacking or misuse. In the event of the discovery of a significant security vulnerability, wethe Company would incur additional substantial expenses and ourits business would be harmed.

The process of developing new technologies is complex and uncertain, and if we failthe Company fails to accurately predict customers’ changing needs and emerging technological trends or if we failthe Company fails to achieve the benefits expected from ourits investments, ourits business could be harmed. We believeThe Company believes that weit must continue to dedicate a significant amount of resources to ourits research and development efforts to maintain ourits competitive position and weit must commit significant resources to developingdevelop new solutions before knowing whether ourits investments will result in solutions the market will accept. OurThe Company’s new solutions or solution enhancements could fail to attain sufficient market acceptance or harm ourits business for many reasons, including:

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 ourthe Company’s business and reputation.

Any significant disruption in service, on our websites, in ourthe Company’s computer systems, or caused by our third partyits third-party storage and system providers could damage ourits reputation and result in a loss of customers, which would harm ourits business, financial condition, and operating results.

Our brand,The Company’s reputation, and ability to attract, retain and serve ourits customers areis dependent upon the reliable performance of our websites,its network infrastructure and payment systems, and ourits customers’ ability to readily access their stored files. We haveThe Company has experienced interruptions in these systems in the past, including server failures that temporarily slowed down our websites’ performance and ourits customers’ ability to access their stored files, or made our websites andthe Company’s infrastructure inaccessible, and weit may experience interruptions or outages in the future.

In addition, while wethe Company both operateoperates and maintainmaintains elements of our websites and network infrastructure, some elements of this complex system are operated by third parties that we dothe Company does not control and that would require significant time to replace. We expectThe Company expects this dependence on third parties to increase. In particular, we utilizethe Company utilizes IBM and Intel to provide equipment and support. All of these third-party systems are located in data center facilities operated by third parties. While these data centers are of the highest level, Tier 3, there can be no assurance that they will not experience disruptions that will adversely impact ourthe Company’s ability to service ourits customers. OurThe Company’s data center leases expire at various times between 20202021 and 2023 with rights of extension. If we arethe Company were unable to renew these agreements on commercially reasonable terms, weit may be required to transfer that portion of ourits computing and storage capacity to new data center facilities, and weit may incur significant costs and possible service interruption in connection with doing so.

We

The Company also relyrelies upon third partythird-party colocation providers to host ourits main servers. If these providers are unable to handle current or higher volumes of use, experience any interruption in operations or cease operations for any reason or if we arethe Company is unable to agree on satisfactory terms for continued hosting relationships, wethe Company would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves.itself. If we arethe Company is forced to switch data center facilities, which in itself is a competitive industry, weit may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. Weitself. The Company may also be limited in ourits remedies against these providers in the event of a failure of service.

Interruptions, outages and/or failures in ourthe Company’s own systems, the third-party systems and facilities on which we rely, or the use of ourits data center facilities, whether due to system failures, computer viruses, cybersecurity attacks, physical or electronic break-ins, damage or interruption from human error, power losses, natural disasters or terrorist attacks, hardware failures, systems failures, telecommunications failures or other factors, could affect the security or availability of our websites and infrastructure, prevent usthe Company from being able to continuously back up ourits customers’ data or ourits customers from accessing their stored data, and may damage or delete ourits customers’ stored files. If this were to occur, ourthe Company’s reputation could be compromised, and weit could be subject to liability to the customers that were affected.

Any financial difficulties, such as bankruptcy, faced by ourthe Company’s third-party data center operators, ourits third-party colocation providers, or any of the service providers with whom wethe Company or they contract, may have negative effects on ourits business, the nature and extent of which are difficult to predict. Moreover, if ourits third-party data center providers or ourits third-party colocation providers are unable to keep up with ourthe Company’s growing needs for capacity, this could have an adverse effect on ourthe Company’s business. Interruptions in ourthe Company’s services might reduce ourits revenue, cause usit to issue credits or refunds to customers, subject usit to potential liability, or harm ourits renewal rates. In addition, prolonged delays or unforeseen difficulties in connection with adding storage capacity or upgrading ourits network architecture when required may cause ourthe Company’s service quality to suffer. Problems with the reliability or security of ourthe Company’s systems could harm ourits reputation, and the cost of remedying these problems could negatively affect ourthe Company’s business, financial condition, and operating results.

Security vulnerabilities, data protection breaches and cyber-attackscyberattacks could disrupt ourthe Company’s data protection platform and solutions, and any such disruption could increase ourits expenses, damage ourits reputation, harm ourits business, and adversely affect ourits stock price.

We relyThe Company relies on third-party providers for a number of critical aspects of ourits infrastructure cloud and disaster recovery business continuity services, and consequently, we doit does not maintain direct control over the security or stability of the associated systems. Furthermore, the firmware, software and/or open-source software that ourits data protection solutions may utilize could be susceptible to hacking or misuse. In the event of the discovery of a significant security vulnerability, wethe Company would incur additional substantial expenses and ourits business would be harmed.

OurThe Company’s customers rely on ourits solutions for production, replication, and storage of digital copies of their files, including financial records, business information, photos, and other personally meaningful content. WeThe Company also storestores credit card information and other personal information about ourits customers. An actual or perceived breach of ourthe Company’s network security and systems or other cybersecurity related events that cause the loss or public disclosure of, or access by third parties to, ourits customers’ stored files could have serious negative consequences for ourits business, including possible fines, penalties and damages, reduced demand for ourits solutions, an unwillingness of customers to provide usthe Company with their credit card or payment information, an unwillingness of ourits customers to use ourits solutions, harm to ourits reputation and brand, loss of ourits ability to accept and process customer credit card orders, and time-consuming and expensive litigation. If this occurs, ourthe Company’s business and operating results could be adversely affected. Third parties may be able to circumvent ourthe Company’s security by deploying viruses, worms, and other malicious software programs that are designed to attack or attempt to infiltrate ourits systems and networks and weit may not immediately discover these attacks or attempted infiltrations. Further, outside parties may attempt to fraudulently induce ourthe Company’s employees, consultants, or affiliates to disclose sensitive information in order to gain access to ourits information or ourits customers’ information. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated or remote areas around the world. As a result, wethe Company may be unable to proactively address these techniques or to implement adequate preventative or reactionary measures. In addition, employee or consultant error, malfeasance, or other errors in the storage, use, or transmission of personal information could result in a breach of customer or employee privacy. We maintainThe Company maintains insurance coverage to mitigate the potential financial impact of these risks; however, ourits insurance may not cover all such events or may be insufficient to compensate usit for the potentially significant losses, including the potential damage to the future growth of ourits business, that may result from the breach of customer or employee privacy. If wethe Company or ourits third-party providers are unable to successfully prevent breaches of security relating to ourits solutions or customer private information, it could result in litigation and potential liability for us,the Company, cause damage to ourits brand and reputation, or otherwise harm ourits business and ourits stock price.

Many states have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause ourthe Company’s customers to lose confidence in the effectiveness of ourits data security measures. Any security breach, whether successful or not, would harm ourthe Company’s reputation and could cause the loss of customers. Similarly, if a publicized breach of data security at any other cloud backup service provider or other major consumer website were to occur, there could be a general public loss of confidence in the use of the internet for cloud backup services or commercial transactions generally. Any of these events could have material adverse effects on ourthe Company’s business, financial condition, and operating results.

The extent to which the COVID-19 pandemic could disrupt or adversely impact our future business, financial condition and results of operations is highly uncertain and cannot be predicted.

The COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption. While the COVID-19 pandemic has not significantly affected our business operations to date, no assurance can be given that we will not suffer in the future business interruptions due to the COVID-19 pandemic that could significantly disrupt our operations and could have a material adverse impact on us. The extent to which COVID-19 will adversely impact our business, financial condition and results of operations is dependent upon numerous factors, many of which are highly uncertain, rapidly changing and uncontrollable. These factors include, but are not limited to: (i) the duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; (vi) increased cybersecurity risks as a result of pervasive remote working conditions; and (vii) our ability to effectively carry out our operations due to any adverse impacts on the health and safety of our employees and their families.

Under NYS Executive Order 202.6, “Essential Business,” DSC is an “Essential Business” based on the following in the Executive order number 2: Essential infrastructure including telecommunications and data centers; and, number 12: Vendors that provide essential services or products, including logistics and technology support. Further, as a result of the pandemic, all employees, including our specialized technical staff, are working remotely or in a virtual environment. DSC always maintains the ability for team members to work virtual and we will continue to stay virtual, until the State and or the Federal government indicate the environment is safe to return to work. The significant increase in remote working, particularly for an extended period of time, could exacerbate certain risks to our business, including an increased risk of cybersecurity events and improper dissemination of personal or confidential information, though we do not believe these circumstances have, or will, materially adversely impact our internal controls or financial reporting systems. If the COVID-19 pandemic should worsen, we may experience disruptions to our business including, but not limited to equipment, to our workforce, or to our business relationships with other third parties. The extent to which COVID-19 impacts our operations or those of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. Any such disruptions or losses we incur could have a material adverse effect on our financial results and our ability to conduct business as expected.

OurCompany’s ability to provide services to ourits customers depends on ourits customers’ continued high-speed access to the internet and the continued reliability of the internet infrastructure.

OurThe Company’s business depends on ourits customers’ continued high-speed access to the internet, as well as the continued maintenance and development of the internet infrastructure. While wethe Company also provideprovides broadband internet services, many of ourits clients depend on third-party internet service providers to expand high-speed internet access, to maintain a reliable network with the necessary speed, data capacity, and security, and to develop complementary solutions and services, including high-speed solutions, for providing reliable and timely internet access and services. All of these factors are out of ourthe Company’s control. To the extent that the internet continues to experience an increased number of users, frequency of use, or bandwidth requirements, the internet may become congested and be unable to support the demands placed on it, and its performance or reliability may decline. Any internet outages or delays could adversely affect ourthe Company’s ability to provide services to ourits 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. In the absence of government regulation, these providers could take measures that affect their customers’ ability to use ourthe Company’s products and services, such as attempting to charge their customers more for using ourthe Company’s products and services. To the extent that internet service providers implement usage-based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks, wethe Company could incur greater operating expenses and customer acquisition and retention could be negatively impacted. Furthermore, to the extent network operators were to create tiers of internet access service and either charge usthe Company for or prohibit ourthe Company’s services from being available to ourits customers through these tiers, ourits business could be negatively impacted. Some of these providers also offer products and services that directly compete with ourthe Company’s own offerings, which could potentially give them a competitive advantage.

If we arethe Company is unable to retain ourits existing customers, ourits business, financial condition, and operating results would be adversely affected.

If ourthe Company’s efforts to satisfy ourits existing customers are not successful, weit may not be able to retain them, and as a result, ourits revenue and ability to grow would be adversely affected. WeThe Company may not be able to accurately predict future trends in customer renewals. Customers choose not to renew their subscriptions for many reasons, including if customer service issues are not satisfactorily resolved, a desire to reduce discretionary spending, or a perception that they do not use the service sufficiently, that the solution is a poor value, or that competitive services provide a better value or experience. If our approximatelythe Company’s approximate 94% retention rate significantly decreases, weit may need to increase the rate at which we addit adds new customers in order to maintain and grow ourits revenue, which may require usit to incur significantly higher advertising and marketing expenses than weit currently anticipate,anticipates, or ourits revenue may decline. A significant decrease in ourthe Company’s retention rate would therefore have an adverse effect on ourits business, financial condition, and operating results. OurThe Company’s estimates of the number of employees we retainit retains and advertising costs are based to a large extent upon ourits subscription contracts, which may be terminated by customers typically upon 90 daysdays’ notice prior to the ending term of their contract for servicesservices.

A decline in demand for ourthe Company’s cyber security, disaster recovery, and/or infrastructure solutions, in general, would cause ourits revenue to decline.

We derive,The Company derives, and expectexpects to continue to derive, a significant portion of ourits revenue from subscription services for business continuity, such as data protection solutions including ourits disaster recovery backup, replication, archive, and infrastructure as a service offering. Some of the potential factors that could affect interest in and demand for cloud solutions include:

In addition, substantially all of ourthe Company’s revenue is currently derived from customers in the U.S. Consequently, a decrease of interest in and demand for ourthe Company’s solutions in the U.S. could have a disproportionately greater impact on usit than if ourits geographic mix of revenue was less concentrated.

We dependThe Company primarily depends upon third party distributorsthird-party distribution companies to generate new customers. OurThe Company’s relationships with ourits partners and distributors may be terminated or may not continue to be beneficial in generating new customers, which could adversely affect ourits ability to increase ourits customer base.

We maintainThe Company maintains a network of distributors, which refer customers to usit through links on their websites or promotion to their customers. The number of customers that we arethe Company is able to add through these relationships is dependent on the marketing efforts of distributors, over which we haveit has little control. If we arethe Company is unable to maintain ourits relationships, or renew contracts on favorable terms, with existing partners and distributors or establish new contractual relationships with potential partners and distributors, weit may experience delays and increased costs in adding customers, which could have a material adverse effect on us. Ourthe Company. The Company’s distributors also provide services to other third parties and therefore may not devote their full time and attention to promote ourthe Company’s products and services.

If we arethe Company is unable to expand ourits base of business customers, ourits future growth and operating results could be adversely affected.

We haveThe Company has committed and continuecontinues to commit substantial resources to the expansion and increased marketing of ourits business solutions. If we arethe Company is unable to market and sell ourits solutions to businesses with competitive pricing and in a cost-effective manner ourits ability to grow ourits revenue and achieve profitability may be harmed.

If we arethe Company is unable to sustain market recognition of and loyalty to ourits brand, or if ourits reputation were to be harmed, weit could lose customers or fail to increase the number of ourits customers, which could harm ourits business, financial condition, and operating results.

Given ourthe Company’s market focus, maintaining and enhancing ourits brand is critical to ourits success. We believeThe Company believes that the importance of brand recognition and loyalty will increase in light of the increasing competition in ourits markets. We planThe Company plans to continue investing substantial resources to promote ourits brand, both domestically and internationally, but there is no guarantee that ourits brand development strategies will enhance the recognition of ourits brand. Some of ourthe Company’s existing and potential competitors have well-established brands with greater recognition than we have. If ourthe Company’s efforts to promote and maintain ourthe Company’s brand are not successful, ourthe Company’s operating results and ourits ability to attract and retain customers may be adversely affected. In addition, even if ourthe Company’s brand recognition and loyalty increases, thisincrease, it may not result in increased use of ourits solutions or higher revenue.

OurThe Company’s solutions, as well as those of ourits competitors, are regularly reviewed in computer and business publications. Negative reviews, or reviews in which ourthe Company’s competitors’ solutions and services are rated more highly than ourits solutions, could negatively affect ourits brand and reputation. From time-to-time, ourtime to time, the Company’s customers express dissatisfaction with ourits solutions, including, among other things, dissatisfaction with ourits customer support, ourits billing policies, and the way ourits solutions operate. If we dothe Company does not handle customer complaints effectively, ourits brand and reputation may suffer, weit may lose ourits customers’ confidence, and they may choose not to renew their subscriptions. In addition, many of ourthe Company’s customers participate in online blogs about computers and internet services, including ourthe Company’s solutions, and ourits success depends in part on ourits ability to generate positive customer feedback through such online channels where consumers seek and share information. If actions that we takethe Company takes or changes that we makeit makes to ourits solutions upset these customers, their blogging could negatively affect ourits brand and reputation. Complaints or negative publicity about ourthe Company’s solutions or billing practices could adversely impact ourits ability to attract and retain customers and ourits business, financial condition, and operating results.

We areThe 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 ourits business.

We receive, store,The Company receives, stores, and processprocesses personal information and other customer data and maintainmaintains specific protocols and procedures to help safeguard the privacy of that personal information and customer data. Personal privacy has become a significant issue in the United States and in many other countries where wethe Company may offer ourits offering of solutions. The regulatory framework for privacy issues worldwide is currently complex and evolving, and it is likely to remain uncertain for the foreseeable future. There are numerous federal, state, local, and foreign laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other customer data, the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules. WeThe Company generally seekseeks to comply with industry standards and areis subject to the terms of ourits privacy policies and privacy-related obligations to third parties. We striveThe Company strives to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or ourthe Company’s practices. Any failure or perceived failure by usthe Company to comply with ourits privacy policies, ourits privacy-related obligations to customers or other third parties, ourits 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 usthe Company by consumer advocacy groups or others and could cause ourits customers to lose trust in us, which could have an adverse effect on ourthe Company’s reputation and business. Our

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 ourits systems are not secure against third-party access. Additionally, if third parties that we workthe Company works with, such as vendors or developers, violate applicable laws or ourits policies, such violations may also put ourits customers’ information at risk and could in turn have an adverse effect on ourits business. Any significant change to applicable laws, regulations, or industry practices regarding the use or disclosure of ourthe Company’s customers’ data, or regarding the manner in which the express or implied consent of customers for the use and disclosure of such data is obtained, could require usit to modify ourits solutions and features, possibly in a material manner, and may limit ourits ability to develop new services and features that make use of the data that ourits customers voluntarily share with us.the Company.

OurThe Company’s solutions are used by customers in the health care industry, and weit must comply with numerous federal and state laws related to patient privacy in connection with providing ourits solutions to these customers.

OurThe Company’s solutions are used by customers in the health care industry, and weit must comply with numerous federal and state laws related to patient privacy in connection with providing ourits solutions to these customers. In particular, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and the Health Information Technology for Economic and Clinical Health Act (“HITECH”) include privacy standards that protect individual privacy by limiting the uses and disclosures of individually identifiable health information and implementing data security standards. Because ourthe Company’s solutions may backup individually identifiable health information for ourits customers, ourits customers are mandated by HIPAA to enter into written agreements with us known as business associate agreements that require usthe Company to safeguard individually identifiable health information. Business associate agreements typically include:

WeThe Company may not be able to adequately address the business risks created by HIPAA or HITECH implementation or comply with ourits obligations under ourits business associate agreements. Furthermore, we arethe Company is unable to predict what changes to HIPAA, HITECH or other laws or regulations might be made in the future or how those changes could affect ourits business or the costs of compliance. Failure by usthe Company to comply with any of the federal and state standards regarding patient privacy may subject usthe Company to penalties, including civil monetary penalties and, in some circumstances, criminal penalties, which could have an adverse effect on ourits business, financial condition, and operating results.

Errors, failures, bugs in or unavailability of ourthe Company’s solutions released by usit could result in negative publicity, damage to ourits brand, returns, loss of or delay in market acceptance of ourits solutions, loss of competitive position, or claims by customers or othersothers.

We offerThe Company offers solutions that operate in a wide variety of environments, systems, applications, and configurations, that are often installed and used in large-scale computing environments with different operating systems, system management software, and equipment and networking configurations. OurThe Company’s customers’ computing environments are often characterized by a wide variety of standard and non-standard configurations that can make pre-release testing for programming or compatibility errors very difficult and time-consuming. In addition, despite testing by usthe Company and others, errors, failures, or bugs may not be found in new solutions or releases until after distribution. In the past, when we havethe Company has discovered any software errors, failures or bugs in certain of ourits solution offerings after their introduction or when new versions are released, we,it, in some cases, havehas experienced delayed or lost revenues as a result of these errors. In addition, we relythe Company relies on hardware purchased or leased and software licensed from third parties to offer ourits solutions, and any defects in, or unavailability of, ourits third-party software or hardware could cause interruptions to the availability of ourits solutions.

Errors, failures, bugs in or unavailability of ourthe Company’s solutions released by usit could result in negative publicity, damage to ourits brand, returns, loss of or delay in market acceptance of ourits solutions, loss of competitive position, or claims by customers or others. Many of ourthe Company’s end-user customers use ourits solutions in applications that are critical to their businessesbusiness and may have a greater sensitivity to defects in ourits solutions than to defects in other, less critical, software solutions. In addition, if an actual or perceived breach of information integrity or availability occurs in one of ourits end-user customer’s systems, regardless of whether the breach is attributable to ourits solutions, the market perception of the effectiveness of ourits solutions could be harmed. Alleviating any of these problems could require significant expenditures of ourthe Company’s capital and other resources and could cause interruptions, delays, or cessation of ourits solution licensing, which could cause usit to lose existing or potential customers and could adversely affect ourits operating results.

We faceThe Company faces many risks associated with ourits growth and plans to expand, which could harm ourits business, financial condition, and operating results.

We continueThe Company continues to experience sales growth in ourits business. This growth has placed, and may continue to place, significant demands on ourits management and ourits operational and financial infrastructure. As ourthe Company’s operations grow in size, scope, and complexity, weit will need to improve and upgrade ourits systems and infrastructure to attract, service, and retain an increasing number of customers. The expansion of ourits systems and infrastructure will require usthe Company to commit substantial financial, operational, and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. Any such additional capital investments will increase ourthe Company’s cost base. Continued growth could also strain ourthe Company’s ability to maintain reliable service levels for ourits customers, develop and improve ourits operational, financial, and management controls, enhance ourits reporting systems and procedures, and recruit, train, and retain highly skilled personnel. If we failthe Company fails to achieve the necessary level of efficiency in ourits organization as we grow, ourit grows, its business, financial condition, and operating results could be harmed.

We haveThe Company has office locations in New York and Rhode Island,Florida, and data centers in New York, Massachusetts, North Carolina, Florida, and Texas. If we arethe Company is unable to effectively manage a large and geographically dispersed group of employees and contractors or to anticipate ourits future growth and personnel needs, ourits business may be adversely affected. As we expand ourthe Company expands its business, we addit adds complexity to ourits organization and must expand and adapt ourits operational infrastructure and effectively coordinate throughout ourits organization. As a result, we havethe Company has incurred and expectexpects to continue to incur additional expenseexpenses related to ourits continued growth.

WeThe Company also anticipateanticipates that ourits efforts to expand internationally will entail the marketing and advertising of ourits services and brand and the development of localized websites. We doThe Company does not have substantial experience in selling ourits solutions in international markets or in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets, and weit must invest significant resources in order to do so. WeThe Company may not succeed in these efforts or achieve ourits customer acquisition or other goals. For some international markets, customer preferences and buying behaviors may be different, and wethe Company may use business or pricing models that are different from ourits traditional subscription model to provide cloud backup and related services to customers. OurThe Company’s revenue from new foreign markets may not exceed the costs of establishing, marketing, and maintaining ourits international solutions, and therefore may not be profitable on a sustained basis, if at all.

OurThe Company’s intended international expansion will subject usit to risks typically encountered when operating internationally.

We intendThe Company intends to expand internationally which subjects usit to new risks that we haveit has not generally faced in the U.S.United States. These risks include:

Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

OurThe 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. Any failure on ourthe Company’s part to comply with encryption or other applicable export control requirements could result in financial penalties or other sanctions under the U.S. export regulations, including restrictions on future export activities, which could harm ourits business and operating results. Regulatory restrictions could impair ourthe Company’s access to technologies that we seekit seeks for improving ourits solutions and may also limit or reduce the demand for ourits solutions outside of the U.S.

The loss of ourthe Company’s key personnel, or ourits failure to attract, integrate, and retain other highly qualified personnel, could harm ourits business and growth prospects.

We dependThe Company depends on the continued service and performance of ourits key personnel. We do not have long-term employment agreements with any of our executive officers. In addition, many of ourthe Company’s key technologies and systems are custom-made for ourits business by ourits personnel. The loss of key personnel, including key members of ourthe Company’s management team, as well as certain of ourits key marketing, sales, product development, or technology personnel, could disrupt ourits operations and have an adverse effect on ourits ability to grow ourits business. In addition, several of ourthe Company’s key personnel have only recently been employed by us,it, and we arethe Company is still in the process of integrating these personnel into ourits operations. OurThe Company’s failure to successfully integrate these key employees into ourits business could adversely affect ourits business.

To execute ourthe Company’s growth plan, weit must attract and retain highly qualified personnel. Competition for these employees is intense, and wethe Company may not be successful in attracting and retaining qualified personnel. We haveThe Company has from time to time in the past experienced, and we expectit expects to continue to experience, difficulty in hiring and retaining highly skilledhighly-skilled employees with appropriate qualifications. New hires require significant training and, in most cases, take significant time before they achieve full productivity. OurThe Company’s recent hires and planned hires may not become as productive as we expect,it expects, and weit may be unable to hire or retain sufficient numbers of qualified individuals. Many of the companies with which we competeit competes for experienced personnel have greater resources than we have.it has. In addition, in making employment decisions, particularly in the internet and high-technology industries, job candidates often consider the value of the equity that they are to receive in connection with their employment. In addition, employees may be more likely to voluntarily exit the Company if the shares underlying their vested and unvested options, as well as unvested restricted stock units, have significantly depreciated in value resulting in the options they are holding beingis significantly above the market price of ourthe Company’s common stock and the value of the restricted stock units decreasing. If we failthe Company fails to attract new personnel, or fail to retain and motivate ourits current personnel, ourits business and growth prospects could be severely harmed.

Risks Related to Intellectual Property

Assertions by a third party that ourthe Company’s solutions infringe its intellectual property, whether or not correct, could subject usthe Company to costly and time-consuming litigation or expensive licenses.

There is frequent litigation in the software and technology industries based on allegations of infringement or other violations of intellectual property rights. Any such claims or litigation may be time-consuming and costly, divert management resources, require usthe Company to change ourits services, require usit to credit or refund subscription fees, or have other adverse effects on ourits business. Many companies are devoting significant resources to obtaining patents that could affect many aspects of ourthe Company’s business. Third parties may claim that ourthe Company’s technologies or solutions infringe or otherwise violate their patents or other intellectual property rights.

If we arethe Company is forced to defend ourselvesitself against intellectual property infringement claims, whether they have merit or are determined in ourits favor, weit may face costly litigation, diversion of technical and management personnel, limitations on ourits ability to use ourits current websites and technologies, and an inability to market or provide ourits solutions. As a result of any such claim, wethe Company may have to develop or acquire non-infringing technologies, pay damages, enter into royalty or licensing agreements, cease providing certain services, adjust ourits marketing and advertising activities, or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us,the Company, or at all.

Furthermore, we havethe Company has licensed proprietary technologies from third parties that we useit uses in ourits technologies and business, and weit cannot be certain that the owners’ rights in their technologies will not be challenged, invalidated, or circumvented. In addition to the general risks described above associated with intellectual property and other proprietary rights, we arethe Company is subject to the additional risk that the seller of such technologies may not have appropriately created, maintained, or enforced their rights in such technology.

We relyThe Company relies on third-party software to develop and provide ourits solutions, including server software and licenses from third parties to use patented intellectual property.

We relyThe Company relies on software licensed from third parties to develop and offer ourits solutions. In addition, wethe Company may need to obtain future licenses from third parties to use intellectual property associated with the development of ourits solutions, which might not be available to usthe Company on acceptable terms, or at all. Any loss of the right to use any software required for the development and maintenance of ourthe Company solutions could result in delays in the provision of ourits solutions until equivalent technology is either developed by us,the Company, or, if available from others, is identified, obtained, and integrated, which delay could harm ourits business. Any errors or defects in third-party software could result in errors or a failure of ourits solutions, which could harm ourits business.

If we arethe Company is unable to protect ourits domain names, ourits reputation, brand, customer base, and revenue, as well as ourits business and operating results, could be adversely affected.

We haveThe Company has registered domain names for websites (“URLs”) that we useit uses in ourits business, such as www.datastoragecorp.com. If we arethe Company is unable to maintain ourits rights in these domain names, ourits competitors or other third parties could capitalize on ourthe Company’s brand recognition by using these domain names for their own benefit. In addition, although we ownthe Company owns the Company’s domain name under various global top leveltop-level domains such as .com and ..net,.net, as well as under various country-specific domains, weit might not be able to, or may choose not to, acquire or maintain other country-specific versions of the Company’s domain name or other potentially similar URLs. Domain names similar to oursthe Company have already been registered in the U.S. and elsewhere, and ourits competitors or other third parties could capitalize on ourits brand recognition by using domain names similar to ours.the Company’s. The regulation of domain names in the U.S. and elsewhere is generally conducted by internet regulatory bodies and is subject to change. If we losethe Company loses the ability to use a domain name in a particular country, weit may be forced to either incur significant additional expenses to market ourits solutions within that country, including the development of a new brand and the creation of new promotional materials, or elect not to sell ourits solutions in that country. Either result could substantially harm ourits business and operating results. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, wethe 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. Further, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights varies among jurisdictions and is unclear in some jurisdictions. WeThe Company may be unable to prevent third parties from acquiring and using domain names that infringe, are similar to, or otherwise decrease the value of, ourits brand or ourits trademarks. Protecting and enforcing ourthe Company’s rights in ourits domain names and determining the rights of others may require litigation, which could result in substantial costs, divert management attention, and not be decided favorably to us.the Company.

Risks RelatedRelating to the Merger

Failure to complete the Merger could negatively impact the stock priceCompany’s Common Stock and the future business and financial results of Data Storage.

The parties’ respective obligations to complete the Merger, which we intend to effect through the merger of the Merger Sub with and into Flagship pursuant to the Merger Agreement, with Flagship being the surviving company of such Merger and thereby becoming a wholly-owned subsidiary of Data Storage, are subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement, including the Company obtaining sufficient financing in order to consummate the Merger, and the listing of the Company’s common stock on Nasdaq. There can be no assurance that the conditions to completion of the Merger will be satisfied or waived or that the Merger will be completed. If the Merger is not completed for any reason, the ongoing business of Data Storage may be materially and adversely affected and, without realizing any of the benefits of having completed the Merger, Data Storage would be subject to a number of risks, including the following:

In addition, Data Storage could be subject to litigation related to any failure to complete the Merger or related to any proceeding to specifically enforce Data Storage’s obligations under the Merger Agreement.

If any of these risks materialize, they may materially and adversely affect Data Storage business, financial condition, financial results and common stock prices.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied, the Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed. In addition, the parties to the Merger Agreement have the right to terminate the Merger Agreement under other specified circumstances, in which case the Merger would not be completed.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied or waived (to the extent permitted by law), the Merger will not be completed. These conditions include, among others: (i) the absence of certain legal impediments, (ii) obtaining all governmental authorizations, (iii) the approval of the Merger Agreement and the Merger by Flagship’s equityholders, (v) Data Storage’s consummating an underwritten public offering, and (vi) Data Storage’s common stock being listed on the Nasdaq. In addition, the obligation of each party to the Merger Agreement to complete the Merger is subject to the accuracy of the other party’s representations and warranties in the Merger Agreement and the other party’s compliance, in all material respects, with their respective covenants and agreements in the Merger Agreement. Although we have applied to list our common stock on the Nasdaq and filed a registration statement with the SEC to conduct an underwritten public offering, there can be no assurance that the uplisting will be achieved or public offering will be consummated.

The conditions to the closing may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by May 31, 2021, Flagship may choose not to proceed with the Merger and require Data Storage to pay Flagship an amount equal to two times its transaction-related expenses incurred in connection with the Merger (up to a cap of $100,000). Moreover, the parties to the Merger Agreement can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger. In addition, if the Merger Agreement is terminated, Data Storage may incur substantial transaction-related expenses in connection with termination of the Merger Agreement and will not realize the anticipated benefits of the Merger.

The Merger Agreement requires Data Storage to make a closing cash payment of $5,550,000 to the former Flagship equityholders, and to issue up to $4,950,000 of Data Storage common stock to the former Flagship equityholders upon completion of and subject to adjustment based upon the 2020 and 2021 audit of Flagship’s financial statements. Such post-closing issuance of shares of Data Storage common stock to the former Flagship equityholders may result in dilution to the Data Storage stockholders.

 To the extent that Data Storage’s cash on hand and profits, if any, are not sufficient to fund such closing cash payment, Data Storage would need to raise additional capital. All statements herein concerning future operations of the combined Data Storage-Flagship company are forward-looking statements and involve risks and Financing may not be available on acceptable terms, in a timely manner or at all. If Data Storage is unable to secure financing, the Merger may be delayed or not be completed.

The combined Data Storage-Flagship company may need to raise additional capital to fund its operations

If the combined Data Storage-Flagship company needs to raise additional capital to fund its operations, it will likely seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to Data Storage’s stockholders and certain of those securities may have rights senior to those of the holders of Data Storage common stock. If the combined Data Storage-Flagship company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict its operations, fund raising capabilities or otherwise. The source, timing and availability of any future financing will depend principally upon market conditions, and may not be available when needed, at all, or on terms acceptable to the combined Data Storage-Flagship company. Lack of necessary funds may require the combined Data Storage-Flagship company to, among other things delay, scale back or eliminate some or all of the combined Data Storage-Flagship company’s planned actions and could result in Data Storage breaching the terms of the Merger Agreement relating to the post-closing cash payments to the former Flagship equityholders.Securities

The parties to the Merger Agreement may not realize the anticipated benefits of the Merger.

While Data Storage and Flagship will continue to operate independently until the completion of the Merger, the success of the Merger will depend, in part, on Data Storage’s and Flagship’s ability to realize the anticipated benefits and cost savings from combining Data Storage’s and Flagship’s respective businesses. The ability of the parties to the Merger Agreement to realize these anticipated benefits and cost savings is subject to certain risks, including, among others:

Covenants contained in the Merger Agreement requiring Data Storage to maintain the Flagship business as a stand-alone business separate from the Data Storage business during Flagship’s 2021 fiscal year, which relate to the post-closing earnout payments to be made to the former Flagship equityholders, may limit Data Storage’s ability to combine and integrate the Data Storage and Flagship businesses and realize the benefits discussed above.

If Data Storage is not able to successfully integrate the Data Storage and Flagship businesses within the anticipated time frame, or at all, the anticipated cost savings, synergies operational efficiencies and other benefits of the Merger may not be realized fully or may take longer to realize than expected, and the combined Data Storage-Flagship company may not perform as expected.

Integrating Data Storage’s and Flagship’s businesses may be more difficult, time-consuming or costly than expected.

Data Storage and Flagship have operated and, until completion of the Merger will continue to operate, independently, and there can be no assurances that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s or both companies’ ongoing businesses or unexpected integration issues, such as higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed in integrating the operations of Data Storage and Flagship in order to realize the anticipated benefits of the Merger, so the combined business performs as expected include, among others:

In addition, at times, the attention of certain members of each company’s management and each company’s resources may be focused on completion of the Merger and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and, consequently, the business of the combined company.

There may be significant dilution upon consummation of the Merger since a portion of the consideration is to be paid in equity of Data Storage, the number of shares of which cannot be determined at this time.

A portion of the Merger consideration consist of shares of our common stock having a value $4,950,000, subject to reduction by the amount by which the valuation of Flagship. In addition, upon consummation of the Merger, it is anticipated that the Series A Preferred Stock will convert into 1,752,233 shares of common stock.

Data Storage and Flagship will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees, vendors and customers may have an adverse effect on Data Storage or Flagship and consequently on the combined Data Storage-Flagship company after the closing of the Merger. These uncertainties may impair Data Storage’s and Flagship’s ability to retain and motivate key personnel and could cause customers and others that deal with Data Storage and Flagship, as applicable, to defer or decline entering into contracts with Data Storage or Flagship, as applicable, or making other decisions concerning Data Storage or Flagship, as applicable, or seek to change existing business relationships with Data Storage or Flagship, as applicable. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the Merger, Data Storage’s and Flagship’s businesses could be harmed. Furthermore, the Merger Agreement places certain restrictions on the operation of Flagship’s business prior to the closing of the Merger, which may delay or prevent Data Storage and Flagship from undertaking certain actions or business opportunities that may arise prior to the consummation of the Merger, and requires Data Storage to maintain the Flagship business as a stand-alone business separate from the Data Storage business during Flagship’s 2021 fiscal year, relating to the post-closing earnout payments to be made to the former Flagship equityholders, which may limit Data Storage’s ability to combine and integrate the Data Storage and Flagship businesses after consummation of the Merger.

Third parties may terminate or alter existing contracts or relationships with Flagship.

Flagship has contracts with customers, vendors and other business partners which may require it to obtain consents from those other parties in connection with the Merger. If those consents cannot be obtained, the counterparties to these contracts and other third parties with which Flagship currently has relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with Flagship in anticipation of the Merger, or with the combined Data Storage-Flagship company following the Merger. The pursuit of such rights may result in the combined Data Storage-Flagship company suffering a loss of potential future revenue, incurring liabilities in connection with a breach of such agreements or losing rights that are material to its business. Any such --disruptions could limit the combined Data Storage-Flagship company’s ability to achieve the anticipated benefits of the Merger. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Merger or the termination of the Merger.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied, the Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed. In addition, the parties to the Merger Agreement have the right to terminate the Merger Agreement under other specified circumstances, in which case the Merger would not be completed.

The Merger is subject to a number of closing conditions and, if these conditions are not satisfied or waived (to the extent permitted by law), the Merger will not be completed. These conditions include, among others: (i) the absence of certain legal impediments, (ii) obtaining all governmental authorizations, (iii) the approval of the Merger Agreement and the Merger by Flagship’s equityholders, (v) Data Storage’s receipt of sufficient financing in order to consummate the Merger, and (vi) Data Storage’s common stock being listed on the Nasdaq. In addition, the obligation of each party to the Merger Agreement to complete the Merger is subject to the accuracy of the other party’s representations and warranties in the Merger Agreement and the other party’s compliance, in all material respects, with their respective covenants and agreements in the Merger Agreement.

The conditions to the Closing may not be fulfilled and, accordingly, the Merger may not be completed. In addition, if the Merger is not completed by May 31, 2021, Flagship may choose not to proceed with the Merger and require Data Storage to pay Flagship an amount equal to two times its transaction-related expenses incurred in connection with the Merger (up to a cap of $100,000). Moreover, the parties to the Merger Agreement can mutually decide to terminate the Merger Agreement at any time prior to the consummation of the Merger. In addition, if the Merger Agreement is terminated, Data Storage may incur substantial transaction-related expenses in connection with termination of the Merger Agreement and will not realize the anticipated benefits of the Merger.

The projections and forecasts concerning the combined Data Storage-Flagship company utilized by Data Storage management in connection with the Merger may not be realized, which may adversely affect the market price of Data Storage Common Stock following the completion of the Merger.

None of the projections or forecasts concerning the combined Data Storage-Flagship company utilized by Data Storage management in connection with the Merger were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, U.S. generally accepted accounting principles (“GAAP”) or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts. These projections and forecasts are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. These projections and forecasts are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Data Storage. There can be no assurance that the financial condition of the combined Data Storage-Flagship company, including its cash flows or results of operations, will be consistent with those set forth in such projections and forecasts, which could have an adverse impact on the market price of Data Storage Common Stock or the financial position of Data Storage following the Merger.

Executive officers and directors of Data Storage and Flagship may have interests in the Merger that are different from, or in addition to, the rights of their respective stockholders and equityholders.

Executive officers of Data Storage and Flagship negotiated the terms of the Merger Agreement and Board and the Flagship managers each approved the Merger Agreement and the Merger and Flagship recommended that each of its equityholders vote in favor of the Merger. These executive officers, directors and managers may have interests in the Merger that are different from, or in addition to, those of the Data Storage stockholders or the Flagship equityholders. These interests include the continued employment of certain executive officers of Flagship by Data Storage following the Merger, an executive officer of Flagship joining the Board, and the indemnification of Data Storage and Flagship executive officers and directors.

We will incur significant transaction and Merger-related transition costs in connection with the Merger.

Data Storage and Flagship expect that they will incur significant, non-recurring costs in connection with consummating the Merger and integrating the operations of the two companies post-closing of the Merger. Data Storage and/or Flagship may each incur additional costs to retain key executives and other employees after the Merger, which could materially and adversely affect the combined Data Storage-Flagship company’s cash flow and results of operations. Data Storage and/or Flagship will also incur significant fees and expenses relating to financing arrangements and legal (including any fees, expenses and settlement costs that Data Storage may incur in defending against any potential class action lawsuits and derivative lawsuits in connection with the Merger, if any such proceedings are brought against it), accounting and other transaction fees and expenses associated with consummating the Merger. Some of these transaction fees and expenses are payable regardless of whether the Merger is completed. In addition, Data Storage may be required to pay Flagship’s transaction fees and expenses (up to a cap of $100,000) if the Merger does not close by May 31, 2021 under certain circumstances specified in the Merger Agreement. Though Data Storage will continue to assess the magnitude of these costs, additional unanticipated costs may be incurred in the Merger and the integration of the businesses of Data Storage and Flagship.

We may be the target of securities class action and derivative lawsuits in connection with the Merger, which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Data Storage’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may adversely affect Data Storage’s or, if the Merger is completed but delayed, the combined Data Storage-Flagship company’s business, financial position and results of operations. As of the date of this Annual Report, no such lawsuits have been filed in connection with the Merger and we cannot predict whether any will be filed.

The lack of a public market for Flagship equity interests makes it difficult to determine the fair market value of the Flagship equity interest, and so Data Storage may pay more than the fair market value of the Flagship equity interests.

Flagship is a privately-held company and its equity interests are not traded in any public market. The lack of a public market makes it difficult to determine Flagship’s fair market value. Because the percentage of Data Storage’s outstanding common stock to be issued to Flagship equityholders in connection with the Merger was determined based on negotiations between the parties to the Merger Agreement and will not change based upon the value of Data Storage’s common stock. Data Storage may pay more than fair market value for Flagship.

The post-Merger market price for shares of Data Storage Common Stock may be affected by factors different from those affecting the market price for shares of Data Storage Common Stock prior to the Merger.

Upon completion of the Merger, the shares of Data Storage common stock will reflect both the Data Storage and Flagship businesses and results of operations. Data Storage’s and Flagship’s respective business differ, and accordingly the results of operations of the combined Data Storage/Flagship company, and the post-Merger market price of Data Storage common stock, will be affected by factors different from the pre-Merger results of operations of Data Storage and the pre-Merger market price of Data Storage common stock.

The market price for our shares of Common Stock may decline as a result of the Merger, including as a result of some Data Storage stockholders adjusting their portfolios.

The market value of Data Storage common stock at the time of consummation of the Merger may vary significantly from the price of Data Storage common stock on the date the Merger Agreement was executed and the date of this Annual Report. Following consummation of the Merger, the market price of Data Storage common stock may decline if, among other things, the operational cost savings estimates in connection with the integration of Data Storage’s and Flagship’s respective businesses are not realized, or if the costs related to the Merger are greater than expected, or if the financing related to the Merger is on unfavorable terms. The market price also may decline if the combined Data Storage-Flagship company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the Merger on the financial position, results of operations or cash flows of the combined Data Storage-Flagship company is not consistent with the expectations of financial or industry analysts.

In addition, sales of Data Storage common stock by Data Storage’s stockholders after the completion of the Merger may cause the market price of Data Storage common stock to decrease.

Any of these events may make it more difficult for Data Storage to sell equity or equity-related securities, dilute your ownership interest in Data Storage and have an adverse impact on the price of Data Storage common stock.

Data Storage does not expect to declare any cash dividends in the foreseeable future.

After the completion of the Merger, Data Storage does not anticipate declaring any cash dividends to holders of Data Storage common stock in the foreseeable future. Consequently, investors 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.

The Merger may not be accretive, and may be dilutive, to the combined Data Storage-Flagship company’s earnings per share, which may negatively affect the market price of shares of Data Storage common stock.

Data Storage currently believes that the Merger will result in a number of benefits, including cost savings, operating efficiencies, and stronger demand for the products and services of the combined Data Storage-Flagship company, and that the Merger will be accretive to the combined Data Storage-Flagship company’s earnings. This belief is based, in part, on preliminary current estimates that may materially change. In addition, future events and conditions, including adverse changes in market conditions, additional transaction and integration-related costs and other factors such as the failure to realize some or all of the anticipated benefits of the Merger, could decrease or delay the accretion that is currently anticipated or could result in dilution. Any dilution of, or decrease in or delay of any accretion to, the combined Data Storage-Flagship company’s earnings per share could cause the price of shares of Data Storage common stock to decline or grow at a reduced rate.

Any failure by Flagship to comply with the terms of its outstanding indebtedness following the Merger could result in a default under the terms of such indebtedness that, if uncured, it could result in a foreclosure action against the pledged assets and legal action against the Company, as guarantor of that indebtedness.

Flagship currently has outstanding approximately $525,000 in principal under its line of credit with Bank United, N.A. (the “Bank United Indebtedness”), as well as approximately $499,900 in principal under its Economic Injury Disaster Loan from the U.S. Small Business Administration (the “EIDL Indebtedness” and, together with the Bank United Indebtedness, the “Flagship Indebtedness”), both of which will remain outstanding following the Merger. In addition to pledge of Flagship’s assets, the Flagship Indebtedness is currently secured by personal guarantees provided by certain Flagship equityholders who are also senior executives of Flagship. In connection with consummation of the Merger, those personal guarantees will be replaced by a parent guarantee from the Company, resulting in the Flagship Indebtedness effectively becoming an obligation of the Company upon consummation of the Merger. If Flagship fails to repay the Flagship Indebtedness or otherwise does not comply with the terms of the Flagship Indebtedness following consummation of the Merger, the applicable lender could declare a default under the loan documents for such Flagship Indebtedness, foreclose on the assets pledged to secure such Flagship Indebtedness, and enforce the parent guarantee of the Flagship Indebtedness provided by the Company. Any such action would have a serious disruptive effect on the operations of Flagship and the Company.

Risks Relating to our Common Stock and Securities

OurCompany’s stock price has fluctuated in the past has recently been volatile and may be volatile in the future, and as a result, investors in ourits common stock could incur substantial losses.

OurThe Company’s stock price has fluctuated in the past, has recently been volatile, and may be volatile in the future. By way of example, on February 11, 2021,May 16, 2022, the reported low sale price of ourthe Company’s common stock was $0.42,$3.10, and the reported high sales price was $0.97.$3.80. For comparison purposes, on October 1, 2020,May 9, 2022, the price of ourthe Company’s common stock closed at $0.14$2.14 per share, while on February 11, 2021, ourMay 16, 2022, its stock price closed at $0.76$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 companyCompany or third parties. Weparties (other than the filing of the Quarterly Report on Form 10-Q). The Company may incur rapid and substantial decreases in ourits stock price in the foreseeable future that are unrelated to ourits operating performance or prospects. In addition, the recent outbreak of the novel strain of coronavirus (COVID-19)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. As a result of this volatility, investors may experience losses on their investment in ourthe Company’s common stock. The market price for ourthe Company’s common stock may be influenced by many factors, including the following:

These broad market and industry factors may seriously harm the market price of ourthe Company’s common stock, regardless of ourits operating performance. Since the stock price of ourits common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in ourits common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us,the Company, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect ourits business, financial condition, results of operations and growth prospects. There can be no guarantee that ourthe Company’s stock price will remain at current prices or that future sales of ourits common stock will not be at prices lower than those sold to investors.

Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due to short sellers of shares of common stock, known as a “short squeeze.” These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks havehas abated. While we havethe Company has no reason to believe ourits shares would be the target of a short squeeze, there can be no assurance that weit won’t be in the future, and you may lose a significant portion or all of your investment if you purchase ourthe Company’s shares at a rate that is significantly disconnected from ourits underlying value.

Even if the Board approves a reverse stock split of our common stock at a ratio that currently achieves the requisite increase in the market price of our common stock for listing of our common stock on Nasdaq, we cannot assure you that the market price of our common stock will remain high enough for such reverse split to have the intended effect of complying with The Nasdaq Capital Market’s minimum bid price requirement; and if we effect a reverse stock split, we cannot assure you that we will meet The Nasdaq Capital Market’s minimum requirements or standards.

In the Fall of 2019, we publicly disclosed that we were seeking to list our common stock on the Nasdaq. In order to be listed, we must meet certain rules relating to our stock price which at current levels we do not meet and as a result we anticipate effecting a reverse stock split, at a range of between a 1-2 and a 1-60 reverse split, to meet the minimum price requirement. Even if the reverse stock split achieves the requisite increase in the market price of our common stock to be in compliance with the minimum price of Nasdaq, there can be no assurance that (i) the market price of our common stock following the reverse stock split will remain at the level required for continuing compliance with that requirement, or (ii) if we effect a reverse stock split, we will meet Nasdaq’s minimum requirements or standards. It is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the effectuation of the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain the Nasdaq’s minimum bid price requirement.

If we are unable to satisfy these requirements or standards, we would not be able to meet Nasdaq’s initial listing standards. We can provide no assurance that any such action taken by us would allow our common stock to be listed, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.

Even if the reverse stock split increases the market price of our common stock and we meet Nasdaq’s initial listing requirements, there can be no assurance that we will be able to comply with Nasdaq’s continued listing standards, a failure of which could result in a de-listing of our common stock.

Our common stock is currently quoted on the OTCQB. We have applied to list our common stock on Nasdaq. There is no assurance that our common stock will ever be listed on Nasdaq or that we will be able to comply with such applicable listing standards. Should our common stock be listed on Nasdaq, in order to maintain that listing, Nasdaq requires that the trading price of a company’s listed stock on Nasdaq remain above one dollar in order for such stock to remain listed. If a listed stock trades below one dollar for more than 30 consecutive trading days, then it is subject to delisting from Nasdaq. In addition, to maintain a listing on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting, which would have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.

The reverse stock split may decrease the liquidity of the shares of our common stock.

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of shareholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such shareholders to experience an increase in the cost of selling their shares of common stock and greater difficulty effecting such sales.

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

There is no assurance that once listed on Nasdaq we will not continue to experience volatility in our share price.

The OTCQB, where our common stock is currently quoted, is an inter-dealer, over-the-counter market that provides significantly less liquidity than Nasdaq. Our common stock is thinly traded due to the limited number of shares available for trading on the OTCQB thus causing large swings in price. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and holders of our common stock may be unable to resell their securities at or near their original purchase price or at any price. If an active market for our common stock develops and continues, our common stock price may nevertheless be volatile. If our common stock experiences volatility as it has in the past, investors may not be able to sell their common stock at or above their original purchase price or at any price. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our common stock price may decline substantially in a short period of time. As a result, our shareholders could suffer losses or be unable to liquidate their holdings. No assurance can be given that the price of our common stock will become less volatile when listed on Nasdaq.

If an active public market for our common stock develops, trading will be limited under the SEC’s penny stock regulations, which will adversely affect the liquidity of our common stock.

The trading price of our common stock is less than $5.00 per share and, as a result, our common stock is considered a “penny stock,” and trading in our common stock is currently subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. Generally, the broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

The trading price of our common stock is less than $5.00 per share and, as a result, our common stock is considered a “penny stock,” and trading in our common stock would be subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. Generally, the broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market. An active and liquid market in our common stock may never develop due to these factors.

Upon exercise of ourthe Company’s outstanding options or warrants, and upon conversion of our convertible Series A Preferred Stock, weit will be obligated to issue a substantial number of additional shares of common stock which will dilute ourits present shareholders.

We areThe Company is obligated to issue additional shares of ourits common stock in connection with ourany exercise or conversion, as applicable, of its outstanding options, warrants, and shares of ourits convertible preferred stock. As of MarchDecember 31, 2021,2022, there were options and warrants and sharesoutstanding into an aggregate of convertible preferred stock outstanding, convertible into 10,191,5522,720,584 shares of common stock, respectively.stock. The exercise conversion or exchange of warrants or convertible securities, including for other securities,options will cause usthe Company to issue additional shares of ourits common stock and will dilute the percentage ownership of ourits shareholders. In addition, we havethe 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.

Offers or availability for sale of a substantial number of shares of ourthe Company’s common stock may cause the price of ourits common stock to decline.

Sales of large blocks of ourthe Company’s common stock could depress the price of ourits common stock. The existence of these shares and shares of common stock that may be issuable upon conversion or exercise, as applicable, of outstanding shares of convertible preferred stock, warrants and options create a circumstance commonly referred to as an “overhang” which can act as a depressant to ourthe Company’s common stock price. The existence of an overhang, whether or not sales have occurred or are occurring, also could make ourthe 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. If ourthe Company’s existing shareholders and investors seek to convert or exercise such securities or sell a substantial number of shares of ourits common stock, such selling efforts may cause significant declines in the market price of ourits common stock. In addition, the shares of the Company’s common stock included in the Units and underlying warrants sold in the offering will be freely tradable without restriction or further registration under the Securities Act. As a result, a substantial number of shares of the Company’s common stock may be sold in the public market following this offering. If there are significantly more shares of common stock offered for sale than buyers are willing to purchase, then the market price of the Company’s common stock may decline to a market price at which buyers are willing to purchase the offered common stock and sellers remain willing to sell its common stock.

We doThe Company does not expect to declare any common stock cash dividends in the foreseeable future.

We doThe Company does not anticipate declaring any cash dividends to holders of Data Storage common stock in the foreseeable future. Consequently, common stockholders may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Because wethe Company may issue preferred stock without the approval of ourits shareholders and have other anti-takeover defenses, it may be more difficult for a third party to acquire usthe Company and could depress ourits stock price.

In general, ourthe Company’s Board may issue, without a vote of ourits shareholders, one or more additional series of preferred stock that havehas more than one vote per share, although the Company’s ability to designate and issue preferred stock is currently restricted by covenants under our agreements with prior investors.share. Without these restrictions, ourthe Company’s Board could issue preferred stock to investors who support usit and ourits management and give effective control of ourits business to ourits management. Additionally, the issuance of preferred stock could block an acquisition resulting in both a drop in ourthe Company’s stock price and a decline in interest of ourits common stock. This could make it more difficult for shareholders to sell their common stock. This could also cause the market price of ourthe Company’s common stock shares to drop significantly, even if ourits business is performing well.

Provisions of Nevada law could delay or prevent an acquisition of Data Storage, even if the acquisition would be beneficial to its stockholders and could make it more difficult for stockholders to change Data Storage’s management.

Data Storage Corporation is subject to anti-takeover provisions under Nevada law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for ourthe Company’s securities. 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. For more information, please see the section entitled “NevadaDescription of Our Securities That We Are Offering-Nevada Anti-Takeover Statutes.”

ITEM 1B. UNRESOLVED STAFF COMMENTS

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

ITEM 2. PROPERTIES

WeThe Company currently havehas three leases for office space, with two offices located in Melville, NY, and one office in Warwick, RI. OurBoca Raton, FL. The Company’s principal offices are located at 48 South Service Road, Suite 203, Melville, NY 11747. We also maintain offices located at 535 Centerville Road, Warwick, RI 02886, and980 North Federal Highway, Suite 302, Boca Raton, FL 33432. The Company’s data centers are in New York, Massachusetts, North Carolina, Florida, and Texas. Our corporate telephone number is (212) 564-4922. We believe ourThe 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, N.Y.NY for monthly payments of $8,382. Upon 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 ourthe Company’s existing lease in the same building. The base annual rent is $10,764$11,856 payable in equal monthly installments of $897.$988.

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.

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 monthly rent is approximately $4,820.

The lease for office space in Warwick, RI, callscalled 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. We extended this lease until January 31, 2020, and this lease was further extended until January 31, 2021. The annual base rent shall bewas $31,176 payable in equal monthly installments of $2,598. We have satisfied the terms of the lease and no longer occupy this premise.

We also lease rackThe Company leases technical space in New York, Massachusetts, North Carolina, and North Carolina.Florida. These leases are month to month and the monthly rent is approximately $25,000.$43,650.

In 2020, wethe Company entered into a new racktechnical space lease agreement in Dallas, TX. The lease term is 13 months and requires monthly payments of $1,905.$1,403 and expires on July 31, 2023.

ITEM 3. LEGAL PROCEEDINGS

From time to time, wethe Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of ourits business. We areThe Company is not presently a party to any legal proceedings that, if determined adversely to us,it, would individually or taken together have a material adverse effect on ourits business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on usthe Company because of defense and settlement costs, diversion of management resources and other factors.

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

OurThe Company’s common stock trades on the OTC MarketsThe NASDAQ Capital Market under the symbol “DTST”.

Holders of Ourthe Company’s Common Stock

As of March 31, 2021,30, 2023, we had [41]33 shareholders of record of ourthe Company’s common stock, one of which was Cede & Co., a nominee for Depository Trust Company (“DTC”). All of the shares of ourthe Company’s common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held or recordrecorded by Cede & co.Co. as one stockholder.

Dividend Policy

DSCThe Company has not declared or paid dividends on common stock since its formation and does not anticipate paying dividends in the foreseeable future. The declaration or payment of dividends, if any, in the future, will be at the discretion of DSC’sData Storage’s Board of Directors (the “Board of Directors” or the “Board”) and will depend on the thenthen- current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board. Each share of Series A Preferred Stock entitles its holder to receive cash dividends at a rate of ten percent (10%) per annum on the original issue price, compounding annually, in preference to holders of common stock. Preferred dividends are accrued quarterly. No Preferred shares are outstanding and no dividends have been paid to date.date since retiring in May 2021 one shareholder.

Recent Sales of Unregistered Securities

WeThe Company did not sell any equity securities during the fiscal year ended December 31, 20202022, that were not registered under the Securities Act, other than as previously disclosed in ourits filings with the SEC.

Issuer Purchases of Equity Securities

There were no issuer purchases of equity securities during the year ended December 31, 2020.2022.

Equity Compensation Plan Information

See Part II–ItemII-Item 12 under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—EquityMatters-Equity Compensation Plan Information” of this Annual Report on Form 10-K for equity compensation plan information.

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion of our plan of operation and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.

COMPANY OVERVIEW

COMPANY OVERVIEWData 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. 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. 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.

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. The offices include a technology center and lab, adapted to meet the technical requirements of the Company’s clients. The Company is a 25-year veteranmaintains 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.

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. The Company’s Cyber Security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services providing Disaster Recovery, Infrastructureand technologies that can be incorporated into the Company’s cloud solutions or be delivered as a Service, Cyber Securitystandalone managed security offering covering the client site endpoint devices, users, servers, and Data Analytics. We provideequipment.

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. As of this filing the Company provides our clients subscription based, long termsubscription-based, long-term agreements for Disaster Recovery as a Service solutions, Infrastructure as a Service product,cloud disaster recovery, cloud infrastructure, telecommunications solutions, and high processing on siteon-site computing power and software solutions. While a significant portion of our revenue has been subscription based,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.

Headquartered in Melville, NY, we

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. 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. The Company also believes the Merger will provide the combined entities a comprehensive one-stop provider to cross-sell solutions and services to a broad range of customers in several industries, including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government. We maintain an internal business development teamacross each organization’s respective enterprise, as well as middle-market customers. Key offerings for the combined companies are expected to include a contracted independent distribution channel. DSC’s contracted distributors have the ability to provide disaster recoverywide array of multi-cloud information technology solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and hybrid cloud solutions and IBM and IntelLinux, including: Infrastructure as a Service cloud-based(IaaS), Disaster Recovery of digital information (DRaaS), and Cyber Security as a Service (CSaaS).

Flagship focuses on the IBM user community with solutions without havingand services such as, equipment, software, cyber security, and managed cloud solutions globally. 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 invest in infrastructure, data centers or telecommunication services or, in specialized technical staff, which substantially lowers the barrier of entrycross-sell solutions across each organization’s respective enterprise, as well as middle-market customers. Key offerings for the distributorcombined companies are expected to provide ourinclude a wide array of multi-cloud information technology solutions to their client base.

During 2020, we added new distributors, hired additional management focused on building our salesin highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and marketing distribution, and expanded our technology assets in Dallas, TX. We also recently expanded our offering of cybersecurity solutions for remote tele-computing with ezSecurity™, a new 2020 product.

Our target marketplace forLinux, including: cloud Infrastructure as a Service, and Disaster Recovery of digital information, and Cyber Security as a Service globally is estimated at over one million Virtual IBM Power servers in the finance, retail, healthcare, government, and distribution industries and sectors according to the most recent information received from IBM. While Infrastructure as a Service and Disaster Recovery as a Service solutions are our core products, we also continue to provide ancillary solutions in this market.

For the past two decades, our mission has been to protect our clients’ data twenty-four hours a day, ensuring business continuity, and assisting in their compliance requirements, while providing better management and control over the clients’ digital information.

Our October 2016 acquisition of the assets of ABC Services, Inc. and ABC Services II, Inc. (collectively, “ABC”), including the remaining 50% of the assets of Secure Infrastructure & Services LLC, accelerated our strategy into cloud based managed services, expanded cybersecurity solutions and our hybrid cloud solutions with the ability to provide equipment and expanded technical support. We intendService. The Company intends to continue ourits strategy of growth through synergistic acquisitions.

Our

The Company’s offices are in New York include aand Florida including technology center and lab,centers, which are adapted to meet technology needsthe requirements of ourits clients. In addition to office staffing, we employthe Company employs additional remote staff. DSCThe Company maintains its infrastructure, storage and networking equipment required to provide our subscription solutions in fourseven geographically diverse data centers located in New York, Massachusetts, Texas, Florida, North Carolina and North Carolina.Canada.

RESULTS OF OPERATIONS

Year ended December 31, 20202022, as compared to December 31, 20192021

Revenue

Sales for the year ended December 31, 20202022, increased by approximately 10%60% to $9,320,933$23,870,837 as compared to sales for the year ended December 31,201931, 2021, or $8,483,608. We derive our$14,876,227. 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 / recovery/cloud services are subscription-based. We also provide equipment and software and actively participate in collaboration with IBM to provide innovative business solutions to clients. The professional services are providing the client IaaScloud infrastructure and or Disaster Recovery implementation services as well as time and materials billing. Substantially all of ourthe Company’s sales were to customers in the United States, with less than 2% of ourits sales to international customers.

The following chart details the changes in ourthe Company’s sales for the years ended December 31, 20202022, and 2019,2021, respectively.

Expenses

The increase is primarily attributable to an increase in our infrastructure & disaster recovery/ cloud subscription services due to a higher demand for IBM Power systems cloud hosting. Additionally, during the year ended December 31, 2020, existing clients subscribed to increase their data storage and add new schedules onto their agreements

The increase in equipment and software sales is a result of upgrading to newer technology “on premise” client equipment and software.

Expenses

Cost of Sales. For the year ended December 31, 2020,2022, cost of sales was $5,425,205,$15,787,544, an increase of $678,904$7,328,427 or 14%87% compared to $4,746,031$8,459,117 for the year ended December 31, 2019.2021. The increase is primarily attributable to expenses associated with the data centers for infrastructure and disaster recovery cloud services including new IBM systems, storage and network equipment for the Raleigh, NC expansion and new Dallas data center location. There were also additional costsof $7,328,427 was mostly related to the Nexxis VOIP services division, 80% owned subsidiaryincrease in overall sales and the increase in sales which resulted from the Flagship merger.

Impairment of goodwill . During the year ended December 31, 2022, the Company and equipment purchases for sale.recorded an Impairment of goodwill of $2,322,000 regarding its Flagship segment.

Operating Expenses. Selling, general and administrative expenses. For the year ended December 31, 2020, operating2022, selling, general and administrative expenses were $3,896,791,$9,837,308, an increase of $365,738,$2,653,126, or 13%37%, as compared to $3,531,053$7,184,182 for the year ended December 31, 2019.2021. The net increase [increase/decrease]is reflected in the chart below.

Salaries. Salaries increased as a result of the increased staff due to new hires during 2020, employee raises,the Flagship merger, the hiring of our Chief Financial Officer and increasedthe increase in stock-based compensation from options issued to employees under our stock incentive program.

Officer’s Salaries increased due to raises granted to senior management.compensation.

Professional feesfees. decreasedProfessional fees increased primarily due to a reduction of services needed fromnew investor relations firm, an investment banking firmincrease in legal fees, and investor relationship firms.

Software as a Service Expense (SaaS) increased due to additional costs paid to existing vendors to make improvementsan increase in Salesforce and purchases of new user licenses.fees associated with being on NASDAQ.

Advertising Expenses. Advertising Expenses increased primarily due to additional marketing campaigns for Data Storage, which was offset by a decrease in marketing campaigns for Nexxis.the Flagship merger and the company sponsoring American mixed martial arts events.

Commissions Expense. varyCommissions expenses increased due to different contractual agreementsthe Flagship merger and the sales associated with both the contracted distributors and employees.Flagship.

All Other ExpensesTravel And Entertainment.  decreasedTravel And Entertainment increased primarily due to the reductionFlagship mergerand the lifting of travelCovid-19 restrictions.

Rent and costs associated with the employees working from homeOccupancy. Rent and Occupancy increased primarily due to the pandemic. In addition,Flagship merger and the expenses related to our office spaceWeWork in Melville, New York and insurance were reduced comparedAustin, TX that started in January 2022.

All Other Expenses. Increased primarily due to the prior period.Flagship merger.

Other Income (Expense)

Interest expense for the year ended December 31, 2020 decreased $1,849 to $175,602 from $177,451 for the year ended December 31, 2019.

Gain on contingent liability was $350,000 for the year ended December 31, 2020 as compared to $0 for the year ended December 31, 2019. In connection with our October 2012 acquisition of certain assets (the “ML Assets”) of Message Logic, Inc. (“Message Logic”), we maintained ownership of the ML Assets subject to a security interest in the ML Assets held by a third party banking institution (the “Bank”) in connection with a secured loan made by the Bank to Message Logic in June 2012 in the amount of $350,000 (the “ML Loan”). During 2020, we made a strategic decision to cease utilizing the ML Assets in its operations and advised the Bank of such information. The Bank did not seek repayment of the ML Loan and DSC was not obligated under the agreement. In connection with this and as a result, we recorded a gain on contingent liability in the amount of $350,000.

Net Income

Net Other income for the year ended December 31, 2020 was $173,359, as compared2022, decreased $960,210 to a net income of $29,323$(332,848) from $627,362 for the year ended December 31, 2019.2021. 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.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.

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 DSCthe Company will realize its assets and discharge its liabilities in the ordinary course of business.

To the extent we arethe Company is successful in growing ourits business, both organicallyidentifying potential acquisition targets, and throughnegotiating the terms of such acquisition, we continueand the purchase price may include a cash component, the Company plans to plan ouruse its working capital and the proceeds of any financing to finance such acquisition costs.

Our

The Company’s opinion concerning ourits liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, weThe Company may not be able to meet ourits liquidity needs, which maywill require a renegotiation of related party capital equipment leases, a reduction in advertising and marketing programs, renegotiation of our arrangement with Nexxis and/or a reduction in salaries for officers that are major shareholders.

We have long termThe Company has long-term contracts to supply ourits subscription-based solutions that are invoiced to clients monthly. We believe ourThe Company believes its total contract value of ourits subscription contracts with clients based on the actual contracts that we haveit has to date, exceeds $10 million. Further, we continuethe Company continues to see an uptick in client interest distribution channel expansion and in sales proposals. In 2021, we intend2023, the Company intends to continue to work to increase ourits presence in the IBM “Power I” infrastructure cloud and business continuity marketplace in the niche of IBM “Power ”“Power” and in the disaster recovery global marketplace utilizing ourits technical expertise, data centers utilization, assets deployed in the data centers, 24 x 365 monitoring and software.

IfDuring the Merger is consummated, we will require additional fundingyear 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. 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 consideration andreceived for the Merger Agreement provides for a right of terminationexercised options.

The Company’s working capital was $10,855,407 on December 31, 2022, decreasing by us and the Flagship Equityholders if we have not consummated an underwritten public offering by May$1,229,408 from $12,084,815 at December 31, 2021. There can be no assurance that we can completeThe decrease is primarily attributable to a decrease in cash, deferred revenue, and leases payable related party. This was offset by an underwritten public offering by May 31, 2021 or that such offering will resultincrease in adequate funding to finance the Merger. We currently doshort-term investments, accounts receivables, prepaids and other current assets, accounts payable, and leases payable.

Off-Balance Sheet Arrangements

The Company does not have any committed sourcesoff-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”.

Non-GAAP Financial Measures

Adjusted EBITDA

To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we consider and are including herein Adjusted EBITDA, a Non-GAAP financial measure. We view Adjusted EBITDA as an operating performance measure and, as such, we believe that the GAAP financial measure most directly comparable to it is net income (loss). We define Adjusted EBITDA as net income adjusted for interest and financing fees, depreciation, amortization, stock-based compensation, and other non-cash income and expenses. We believe that Adjusted EBITDA provides us an important measure of outside financing.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.

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. Additionally, our measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA. When evaluating our performance, Adjusted EBITDA should be considered with other financial performance measures, including various cash flow metrics, net income and other GAAP results. In the future, 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.

The following table shows our reconciliation of net income to adjusted EBITDA for the year ended December 31, 2022, and 2021, respectively:

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. 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. The carrying values of certain of the Company’s notes payable and capital lease obligations approximate their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives or the term of the lease using the straight-line method for financial statement purposes. Estimated useful lives in years for depreciation are five to seven years for property and equipment. Additions, betterments and replacements are capitalized, while expenditures for repairs and maintenance are charged to operations when incurred. As units of property are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income.

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. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to other income and expenses in the consolidated statement of operations. In accordance with this policy, for the years ended December 31, 2022, and 2021, the Company expensed financing costs of $127,343 and $0, respectively.

Goodwill and Other Intangibles

The Company tests goodwill and other intangible assets for impairment on at least an annual basis. Impairment exists if the carrying value of a reporting unit exceeds its estimated fair value. 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.

The Company tests goodwill for impairment on an annual basis on December 31, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. The Company has four reporting units. The Company uses an income-based approach to determine the fair value of the reporting units. This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash flows as measures of fair value of our reporting units.

During the year ended December 31, 2020, DSC’s cash increased $567,037 to $893,598 from $326,5612022, and 2021, 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. 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. 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 yearyears ended December 31, 2019. Net cash2022, and 2021, respectively.

Revenue Recognition

Nature of $1,110,679 wasgoods 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:

 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. 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.

 Clients can subscribe to an array of disaster recovery solutions without subscribing to cloud infrastructure. Product offerings provided by DSC’sdirectly 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.

These services are performed at the inception of a contract. The Company provides professional assistance to its clients during the implementation processes. On-boarding and set-up services ensure that the solution or software is installed properly and function as designed to provide clients with the best solutions. In addition, clients that are managed service clients have a requirement for DSC to offer time and material billing supplementing the client’s staff.

The Company also derives both one-time and subscription-based revenue, from providing support, management and renewal of software, hardware, third party maintenance contracts and third-party cloud services to clients. The managed services include help desk, remote access, operating activities resulting primarily from depreciationsystem and amortization expense of $1,032,566. Net of PPP loan borrowings, $362,570 was used in financing activities resulting primarily from payments on lease obligationssoftware patch management, annual recovery tests and manufacturer support for equipment leases, including $718,690and on-gong monitoring of lease paymentsclient system performance.

The Company provides equipment and software and actively participates in collaboration with IBM to related parties.provide innovative business solutions to clients. The Company is a partner of IBM and the various software, infrastructure and hybrid cloud solutions provided to clients.

The Company provides VoIP, Internet access and data transport services to ensure businesses are fully connected to the internet from any location, remote and on premise. The company provides Hosted VoIP solutions with equipment options for IP phones and internet speeds of up to 10Gb delivered over fiber optics.

DSC’s working capital deficit was $2,666,448 at December 31, 2020, increasing by $84,790 from $2,571,583 at December 31, 2019.Transaction price allocated to the remaining performance obligations

Share Based CompensationThe Company has the following performance obligations:

Impairment of Long-Lived Assets

DSCThe 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.

Stock-Based Compensation

The Company follows the requirements of FASB ASC 718-10-10, Share BasedShare-Based Paymentswith regards to stock-based compensation issued to employees. DSCemployees and non-employees. The Company has agreements and arrangements that call for stock to be awarded to the employees and consultants at various times as compensation and periodic bonuses. The expense for this stock-based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number of shares awarded. The Company has a relatively low forfeiture rate of stock-based compensation and forfeitures are recognized as they occur.