Item 1. Business
ITEM 1. BUSINESS
Corporate Overview
The Company is a leading provider of enterprise cloud
and business continuity solutions, specializing in fully managed cloud hosting, disaster recovery, cybersecurity, and IT automation services.
DSC leverages its expertise through its subsidiaries: CloudFirst Technologies Corporation (“CloudFirst Technologies”), CloudFirst
Europe Ltd. (“CloudFirst Europe” and, together with CloudFirst Technologies, “CloudFirst”) , and Nexxis
Inc. (“Nexxis”). Through its CloudFirst platform – built on IBM Power Systems infrastructure – DSC delivers high-performance
cloud solutions tailored for IBM i and AIX workloads. This niche focus on IBM Power environments distinguishes CloudFirst in the market:
none of the major public cloud providers (AWS, Microsoft Azure, or Google Cloud) natively support IBM i/AIX workload, giving DSC a distinct
competitive edge in serving clients with these mission-critical systems. The Company leverages long-term subscription contracts for its
cloud and disaster-recovery services, yielding a highly recurring revenue base and strong customer retention (historically over 90% annual
subscription renewal rates). DSC’s client base exceeds 425 organizations across diverse sectors – including government, healthcare,
education, manufacturing, and Fortune 500 enterprises – reflecting broad market demand for its multi-cloud hosting and business
continuity solutions. In recent years, DSC has undertaken strategic expansions (organically and via acquisitions) to reinforce its position
as an emerging growth leader in the multi-billion-dollar cloud hosting and business continuity market. Notably, the integration of Flagship
Solutions, LLC (“Flagship”) (which became a subsidiary of DSC in 2021) into CloudFirst was completed in January 2024, unlocking
operational synergies and enabling cross-selling of the full CloudFirst suite to Flagship’s established customer base. This integration,
combined with enhanced distribution and marketing capabilities post-2021 Nasdaq uplisting, has bolstered DSC’s growth trajectory
and technical expertise.
Solutions and Services
DSC provides a comprehensive portfolio of solutions
to ensure clients’ critical IT systems remain operational, secure, and resilient:
• Cloud Infrastructure Services (IaaS)
– CloudFirst offers fully managed cloud hosting for IBM Power systems (IBM i and AIX) as well as x86 environments. Clients can migrate
on-premises IBM workloads to DSC’s owned and operated cloud and run them on enterprise-grade IBM Power infrastructure, with interoperability
to public clouds like AWS, Azure, and Google for hybrid deployments. DSC’s cloud solutions include comprehensive migration services
to ensure seamless transfer of data and applications from legacy systems to the cloud with minimal downtime.
• Disaster Recovery & Business Continuity
– DSC delivers robust disaster-recovery-as-a-service and business continuity solutions to protect organizations from downtime and
data loss. CloudFirst’s recovery services provide off-site data replication, rapid failover for IBM i/AIX and Windows/Linux systems,
and cloud-based backup to meet stringent recovery time objectives. These services ensure that clients can quickly restore critical applications
in the event of cyberattacks, hardware failures, or natural disasters, thereby minimizing operational disruption.
• Cybersecurity Solutions – Through
its security suite, DSC offers comprehensive cybersecurity and compliance services. This includes endpoint protection, network security,
data encryption, ransomware defense, vulnerability assessments, and IBM i security monitoring. By integrating cybersecurity into its cloud
and DR offerings, DSC provides a layered defense to safeguard client data and systems across on-premise and cloud environments.
• Managed IT Services and Support –
DSC augments its core cloud offerings with managed services such as systems monitoring, IT automation, and voice & data communications
solutions. For example, through its Nexxis subsidiary, DSC provides Voice over Internet Protocol (“VoIP”)/Unified Communications
and dedicated internet connectivity as part of its one-stop solution set. These ancillary services enable clients to rely on a single
provider for a broad range of IT infrastructure needs.
This integrated solutions portfolio positions DSC
as a single-source provider for cloud infrastructure, disaster recovery, cybersecurity, and connectivity. From initial cloud migration
through ongoing management and support, the Company ensures clients’ workloads run securely and efficiently in a multi-cloud environment.
DSC’s value proposition is underscored by its high service reliability (Tier III data centers with 99.999% uptime SLAs) and a consultative
approach by in-house solution architects to meet each client’s unique requirements.
Competitive Positioning and CloudFirst Strategy
CloudFirst occupies a distinct competitive niche as
a premier cloud solution for IBM Power Systems, an area with high barriers to entry and limited competition. Because IBM i and AIX workloads
cannot be easily re-platformed to standard x86 cloud environments, hyperscale cloud providers (Amazon, Microsoft, Google) generally do
not compete in this segment. DSC has capitalized on this gap by building a cloud platform specialized for IBM Power – complete with
the necessary hardware, OS expertise, and tools to support mission-critical IBM environments. This focus, combined with DSC’s deep
IBM technical know-how, allows the Company to address complex legacy modernization and disaster recovery needs that others cannot readily
fulfill. At the same time, CloudFirst is designed for interoperability with mainstream clouds: the platform integrates via high-bandwidth,
low-latency connections to AWS, Azure, Google, and IBM Cloud, enabling clients to run IBM i/AIX systems in parallel with their other cloud-native
workloads. This multi-cloud capability gives enterprises the “best of both worlds” – they can maintain essential IBM
systems, whereby protecting their applications designed for the IBM operating platform on CloudFirst, while interfacing seamlessly with
applications hosted on public clouds.
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Security and compliance are core to CloudFirst’s value proposition. DSC’s
data centers meet Tier III standards and SOC 2 Type II compliance, offering the highest levels of reliability and data protection. CloudFirst’s
infrastructure and processes are aligned with stringent regulatory requirements in the United States, Canada, and the United Kingdom,
which is crucial for clients in regulated industries (financial services, government, healthcare, etc.). Additionally, DSC’s cloud
services adhere to data sovereignty laws by enabling clients to keep data within country borders (e.g., Canadian data in Canada, UK data
in UK data centers). By prioritizing security certifications and regional compliance, CloudFirst provides enterprise customers with confidence
that their critical systems are hosted in an environment that meets national security standards and privacy laws. This commitment to security,
combined with 24x7 managed support, has solidified DSC’s reputation as a trusted partner for business continuity. Industry recognition
of this niche leadership is evident – DSC is viewed as an emerging growth leader in cloud infrastructure and the migration of data
to the cloud for IBM Power workloads.
Global Footprint and Infrastructure
DSC has established a global cloud infrastructure footprint to serve its clients’
multi-national needs. The Company operates and leverages a network of Tier III data center facilities across North America and Europe,
including five in the United States, which includes one new data center facility in Chicago, two in Canada, and three in the United Kingdom
(Scotland and England). This expansive footprint was built through strategic investments and partnerships: historically, DSC operated
out of seven primary data centers across the U.S. and Canada, and in 2024 it expanded into Europe by partnering with leading regional
data center providers (e.g., Brightsolid in Scotland and Pulsant in England). By early 2025, CloudFirst’s platform spanned three
countries and served over 400 clients globally.
Having infrastructure in multiple geographies allows DSC to deliver cloud infrastructure
and recovery services from a single source across continents, a capability few competitors offer. Clients with international operations
can rely on CloudFirst to host and protect data in-region for performance and compliance, while managing everything through one provider.
For example, a U.S.-based enterprise with subsidiaries in Canada and the UK can run IBM i production in DSC’s U.S. cloud, have disaster
recovery in Canada, and extend certain workloads or backups to the UK – all under CloudFirst’s management. This one-stop,
multi-country service model is highly differentiated in the mid-market enterprise segment, where companies often struggle to find integrated
solutions for IBM Power workloads across regions. DSC’s data centers are inter-connected and built with full redundancy (power,
cooling, network) and round-the-clock operations support, ensuring consistent service levels worldwide. The geographic diversity of these
sites also adds resiliency (e.g., data can be replicated to a different country for added protection). Management believes this global
infrastructure approach for cross-border cloud services provides DSC with a competitive advantage in winning customers seeking a single
vendor for all their cloud hosting and business continuity needs.
Growth Strategy and Cross-Selling Opportunities
DSC’s
growth strategy is centered on expanding its cloud footprint and cross-selling its full suite of solutions to meet the evolving needs
of its clients. A key pillar of this strategy is capitalizing on cross-sell opportunities that arise from the Company’s multi-country
presence and broadened solution set. As the Company enters
new regions like Europe, DSC can target existing North American clients who have overseas operations, offering to migrate or protect
those international workloads via CloudFirst’s new UK facilities. Similarly, partnerships with local providers (such as Pulsant
in the UK) open access to new customer bases that DSC can serve with its IBM expertise – including European organizations and U.S.
multinationals operating abroad. Management has structured these partnerships to maximize customer engagement across different industry
verticals and regions, thereby creating access to a much broader addressable market. Early success of this approach is evidenced by growing
demand in the UK/EU for IBM cloud services, which CloudFirst is now positioned to fulfill as one of the few specialized providers in
that area.
In North America, DSC continues to deepen penetration in high-value verticals
such as finance, healthcare, and insurance that require the reliable continuity solutions DSC provides. The Company’s unified sales
team now markets an expanded portfolio – for instance, a disaster recovery customer can be upsold to production hosting on CloudFirst,
cybersecurity services, and even voice/data connectivity, all through one relationship. Internally, the consolidation of Flagship into
the CloudFirst brand has enhanced this cross-selling: Flagship’s legacy customers (who may have originally engaged for IBM hardware
or software solutions) are being introduced to DSC’s cloud and DR services, driving incremental recurring revenue. To support these
efforts, DSC is investing in its distribution channels, including IBM Business Partners, Managed Service Provider’s (MSPs), and
resellers, to refer and resell CloudFirst services globally. The Company is also pursuing selective acquisitions and alliances to broaden
its technical capabilities and customer reach.
In 2024, DSC reported
$25.4 million in total revenue, with greater than 80% stemming from recurring sources, including cloud-based hosting and disaster recovery
solutions, infrastructure-as-a-service hosting, managed services, cyber security and maintenance subscriptions. This base of annual recurring
revenue reflects the effectiveness of the Company’s subscription-focused model. The remaining contract value for cloud services
totals approximately $39.2 million, providing revenue visibility and supporting future growth expectations. The Company ended the year
with a $21.5 million Annual Recurring Revenue (ARR) run rate. With a contract renewal rate exceeding 90%, DSC is positioned to
maintain and expand its customer base. DSC operates with no debt and continues to improve operating margins as it scales its cloud solutions
and service offerings. Looking forward, the Company is advancing its strategy, expanding its company owned and managed IBM Power platform
into new markets, including a recent entry into Europe. Management believes that there is a global migration of IBM power systems and
disaster recovery to cloud based solutions. DSC is uniquely positioned to capitalize on these trends, driving sustained revenue growth
and long-term shareholder value.
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Overall, DSC’s integrated approach – a unique IBM-focused cloud
platform, compliance-driven global data center presence, and a broad suite of continuity and security solutions – positions the
Company as a comprehensive one-stop provider for enterprises undergoing digital transformation and cloud migration. By emphasizing its
CloudFirst differentiators and executing on cross-sell opportunities, DSC aims to strengthen its market position as a trusted partner
for cloud infrastructure and business continuity worldwide.
Government Regulation
DSC operates within a complex and evolving regulatory
landscape, governed by a multitude of federal, state, local, and international privacy laws. These laws regulate the Company’s handling
of personal and customer data, reflecting the growing importance of privacy in the digital age. Compliance with these regulations is critical,
as failure to do so could result in legal action, loss of customer trust, and negative impacts on the Company’s reputation and operations.
Key Regulatory Frameworks:
●
General
Compliance: The Company is committed to adhering to industry standards and the various
privacy policies and obligations it holds towards third parties. This includes compliance
with laws and regulations related to the protection and handling of personal information
and customer data.
●
Healthcare
Sector Compliance: Particularly significant is the Company’s compliance with health-related privacy laws such as the
Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Health Information Technology for Economic and Clinical
Health Act (HITECH). These regulations mandate strict controls over the handling of health information to protect patient privacy.
●
Business
Associate Agreements (BAAs): For healthcare clients,
the Company enters into BAAs that outline the permissible uses of health information, ensure the protection of this data through
appropriate safeguards, and require notification of any unauthorized use or disclosure.
Compliance Measures Include:
●
Ensuring that the use or disclosure of personal health information aligns with the restrictions and permissions defined in BAAs.
●
Implementing robust administrative, physical, and technical safeguards to protect personal information.
●
Obligating the Company to report any unauthorized information use or disclosure to the client.
●
Permitting termination of the service by clients if the Company breaches BAA terms and cannot rectify the breach.
●
Mandating the return or destruction of all personal health information upon the termination of a client’s subscription.
The regulatory environment for DSC is marked by rapid
changes and requires continuous vigilance to ensure compliance. As privacy regulations evolve, the Company may need to adjust its services
and practices to remain compliant, thereby safeguarding its reputation and facilitating the development of new and innovative services
that respect customer privacy.
Human Capital Resources
DSC attributes its success to the skill and dedication of its workforce, consisting
of fifty-three full-time and two part-time employees as of March 15, 2025. The team is diverse, with roles across executive management,
administration, finance, sales, marketing, and a robust technical team, complemented by independent contractors for service support and
installations as needed. The Company has no collective bargaining agreements in place and maintains a positive relationship with its employees.
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Key aspects of the Company’s human capital management
include:
●
Employee Composition: The workforce includes eight in executive management, five in administration and finance, eleven in sales, three in marketing, and twenty-eight in technical roles .
●
Compensation
Strategy: Compensation programs are performance-aligned
to incentivize both short-term and long-term achievements, aiming to attract, retain, and motivate talent.
●
Health
and Safety: Employee health and safety are paramount,
underscoring the Company’s commitment to its staff and operational philosophy.
Corporate Information
Data Storage Corporation, a Delaware corporation founded in 2001, became a subsidiary
of the Company, a Nevada corporation (DSC), in 2008. DSC was initially incorporated as Euro Trend Inc. on March 27, 2007, and consummated
a share exchange transaction in October 2008. The Company underwent a name change to its current identity post-acquisition.
On May 31, 2021, the
Company completed a merger of Flagship, a Florida limited liability company, and the Company’s wholly-owned subsidiary, Data Storage
FL, LLC, a Florida limited liability company. Flagship is a provider of Hybrid Cloud solutions, managed services and cloud solutions.
On January 1, 2024, Flagship Solutions, LLC was consolidated into the Company’s wholly-owned subsidiary, CloudFirst Technologies
Corporation, a Delaware corporation incorporated in 2001.
On January 27, 2022, we formed Information Technology
Acquisition Corporation a special purpose acquisition company for the purpose of entering into a merger, capital stock exchange,
asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses
or entities.
On August 12, 2024, the Company
formed UK Cloud Host Technologies Ltd., a company formed
under the laws of the United Kingdom, for the purpose of establishing an executive presence in London, United Kingdom and managing the
business and affairs of the Company within Europe. On December 27, 2024, the name of the entity was changed to CloudFirst Europe
Ltd .
Facilities
The Company’s corporate headquarters are located
at 225 Broadhollow Road, Suite 307, Melville, New York 11747, which are leased pursuant to a lease agreement, dated January 17, 2024.
The lease commenced on April 1, 2024, and has a term of sixty-seven months. The monthly rent is $11,931 and the lease expires on October
30, 2029. The Company believes that these headquarters are adequate for its current operations and needs.
Available Information
Official filings with the SEC, including the Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and any amendments, are accessible
for free on the Company’s website (www.dtst.com) under the Investor Relations section following their SEC submission. The content
on the Company’s website is not incorporated by reference into this Annual Report or any other SEC filings.