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DATA STORAGE CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

The next dialogue and evaluation of our monetary situation and outcomes of
operations ought to be learn along with our unaudited consolidated
monetary statements and notes thereto included in Half I, Merchandise 1 of this
Quarterly Report on Type 10-Q and with our audited monetary statements and
notes thereto for the 12 months ended December 31, 2021, included in our Annual
Report on Type 10-Okay for the fiscal 12 months ended December 31, 2021 filed on March
31, 2022 (the "Annual Report") with the U.S. Securities and Alternate Fee
(the "SEC"). This Quarterly Report on Type 10-Q incorporates forward-looking
statements, together with with out limitation, statements associated to our plans,
methods, aims, expectations, intentions and adequacy of sources.
Buyers are cautioned that such forward-looking statements contain dangers and
uncertainties together with with out limitation the next: (i) our plans,
methods, aims, expectations and intentions are topic to alter at any
time at our discretion? (ii) our plans and outcomes of operations might be
affected by our means to handle development? and (iii) different dangers and
uncertainties indicated every so often in our filings with the Securities and
Alternate Fee.



In some instances, you may determine forward-looking statements by terminology such
as 'could,' 'will,' 'ought to,' 'might,' 'expects,' 'plans,' 'intends,'
'anticipates,' 'believes,' 'estimates,' 'predicts,' 'potential,' or 'proceed'
or the destructive of such phrases or different comparable terminology. Though we
consider that the expectations mirrored within the forward-looking statements are
cheap, we can't assure future outcomes, ranges of exercise, efficiency,
or achievements. Furthermore, neither we nor every other individual assumes
accountability for the accuracy and completeness of such statements. Readers are
cautioned to not place undue reliance on these forward-looking statements, which
communicate solely as of the date hereof. We're underneath no obligation to replace any of the
forward-looking statements after the date of this report.



The Business Overview



Hybrid and Multi-Cloud have turn into mainstream technological choices of the
Cloud Managed Companies {industry} as firms have moved away from legacy,
on-premise know-how options. This method is rising extra complicated, as
firms make the most of disparate technical environments, together with on-premises
gear and software program, multi-clouds interfacing with Software program as a Service
suppliers. Cloud Managed Service Suppliers help companies handle their cloud
infrastructure and meet their safety necessities and monetary aims
whereas optimizing the worth of those applied sciences and cloud sources by
multi-cloud administration, guaranteeing enterprise continuity, governance, and
operational efficiencies.



It is a $500 billion-industry. One subset of this $500 billion {industry} is IBM
Energy cloud infrastructure and catastrophe restoration. Globally estimated at over one
million digital IBM Energy servers. The Firm has a core competency as a cloud
service supplier and is a frontrunner on this section. In keeping with the newest
info obtained from IBM, typical industries using IBM Energy servers
are finance, retail, healthcare, authorities, and distribution organizations.



In keeping with Fortune Enterprise Insights, the Cloud Managed Companies {industry} in
North America was $16.3 billion in 2019 and has been rising at a price of 13.8%
CAGR bringing the quantity to $24 billion by the tip of 2022. Catastrophe Restoration is
projected to be a $3.6 billion within the US by the tip of 2022 which is 35% of the
$10.3 billion globally primarily based on Grandview Analysis Catastrophe Restoration Options
Market Dimension report. Cyber Safety, particularly the MDR section, is an
established market acknowledged by patrons. Gartner noticed a 35% development in finish
customers' inquiries on the subject within the final 12 months. Gartner estimates that by 2025,
the MDR market will attain $2.15 billion in income, up from $1.03 billion in
2021, for a compound annual development price (CAGR) of 20.2%. The Firm's VOIP
options match properly into this steadily rising section which is anticipated to succeed in
$90 billion worldwide in 2022 with a CAGR of three.1% with $17 billion within the US
in accordance with Globe Newswire Market Evaluation and Insights. In keeping with Globe
Newswire, this market was valued at $198 billion in 2020 and with a projected
13.5% CAGR. Gartner sees this hitting $263 billion by the tip of 2022 and primarily based
on the Massive Information Enterprise Analytics market share report posted on statista.com
the US has 51% of that development.



Firm Overview



Information Storage Company, headquartered in Melville, New York, with three
subsidiaries, DSC now known as CloudFirst, Flagship Options and Nexxis
present options and providers to a broad vary of shoppers in a number of industries
together with healthcare, banking and finance, distribution providers, manufacturing,
development, schooling, and authorities. The subsidiaries keep enterprise
growth groups, in addition to impartial distribution firms. The Firm's
contracted, non-employee, distribution channels present long-term
subscription-based catastrophe restoration and cloud infrastructure usually into
their shopper base.


Throughout 2021, primarily based on the Could capital elevate and the up record to Nasdaq, the
Firm accelerated natural development methods by including distribution, enterprise
growth representatives, advertising and marketing, and technical personnel. Administration
continues to be targeted on constructing the Firm's gross sales and advertising and marketing technique
and increasing its know-how belongings all through its knowledge heart community.



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DSC is a frontrunner in offering IBM Energy cloud infrastructure, catastrophe restoration and creating a singular providing.

The chance, for the Firm, within the IBM Energy server portfolio section is
to seize a share of this annual recurring income market that's
presently underneath migration to cloud infrastructure. Immediately there's restricted
competitors on this IBM section, whereas non-IBM sort servers, X86 et.al. are
over-crowded with firms comparable to Amazon, Google and Microsoft holding a
giant
share of that market.


The Firm believes companies are more and more underneath stress to enhance the
proficiency of their info and storage methods accelerating the migration
from self-managed technical gear and options to completely managed multi-cloud
applied sciences to cut back price and compete successfully. Additional, in right this moment's
setting, capital preservation is an encouragement to maneuver from a
capital-intensive on-premise know-how to a pay as you develop, CapEx to OpEx
mannequin. These tendencies create a possibility for cloud know-how service
suppliers.



The DSC market alternative stems from the demand for absolutely managed cloud and cybersecurity providers throughout all main working methods.

The Firm’s addressable market is estimated at $48 billion annual recurring income in United States and Canada.

The corporate has designed and constructed its options and providers to fulfill the demand for cloud-based IBM Energy System that helps vital buyer workloads and customized purposes developed in-house, manages hybrid cloud deployments and continues to ship options that defend knowledge and workloads from disasters. and safety assaults.

The Firm's enterprise places of work are positioned in New York, Florida and Texas. The
places of work embody a know-how heart and lab tailored to fulfill the technical
necessities of the Firm's shoppers. The Firm maintains its personal
infrastructure, storage, and networking gear required to supply
subscription options in seven geographically various knowledge facilities positioned in
New York, Massachusetts, Texas, Florida and North Carolina, and in Canada,
Toronto, and Barrie, serving shoppers in the USA and Canada.



The Firm's catastrophe restoration and enterprise continuity options permit shoppers
to shortly get well from system outages, human and pure disasters, and cyber
safety assaults, comparable to Ransomware. The Firm's managed cloud providers start
with migration to the cloud and supply ongoing system help and administration
that permits its shoppers to run their software program purposes and technical
workloads in a multi-cloud setting. The Firm's cyber safety choices
embody complete session and a set of information safety, catastrophe
restoration, and distant monitoring providers and applied sciences which can be included
into the Firm's cloud options or are delivered as a standalone managed
safety providing overlaying the shopper web site endpoint gadgets, customers, servers, and
gear.


The Firm's answer architects and enterprise growth groups work with
organizations figuring out and fixing vital enterprise issues. The Firm
rigorously plans and manages the migration and configuration course of, persevering with
the connection and advising its shoppers lengthy after the providers have been
carried out. Reflecting on shopper satisfaction, the Firm's renewal price on
shopper subscription options is roughly 94% after their preliminary contract
time period expired.



The Firm offers its shoppers subscription-based, long-term agreements for
managed cloud catastrophe restoration, managed cloud infrastructure, cyber safety,
telecommunications options, and excessive processing on-site computing energy and
software program options. Whereas a good portion of the Firm's income has
been subscription-based, it additionally generates income from the sale of apparatus
and software program for cybersecurity, knowledge storage, IBM Energy methods gear and
contracted managed service options.



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The corporate’s aim is to proceed to leverage annual recurring income (ARR). DSC entered 2022 with a baseline ARR of over $12 million.

Firm Core Companies: The Firm offers a variety of multi-cloud info know-how options in extremely safe enterprise-level cloud providers for companies utilizing IBM energy methods, Microsoft Home windows and Linux. Particularly, the Firm’s help providers cowl:


Cyber Safety Options:


? ezSecurity™ affords a set of complete cybersecurity options that

can be utilized on customer-premises or hosted methods

within the society. These options embody absolutely managed terminals (PC and

different person gadgets) safety with lively menace mitigation, system

security assessments, threat evaluation and purposes to make sure a

Safety. ezSecurity™ incorporates a specialised provide for the safety and

IBM methods audit, together with a bundle designed to guard IBM methods

       towards Ransomware assaults.



Information safety and restoration options:

? The ezVault™ answer is on the coronary heart of the corporate’s knowledge safety providers

and permits its prospects to have their knowledge protected and saved offsite

with limitless retention of information in a safe location that makes use of encryption,

enterprise-grade storage that enables distant retrieval from the system

       outages, human and pure disasters, and cyber safety assaults like
       Ransomware and viruses permitting restoration of information from a recognized good
       time limit previous to an assault.

?      ezRecovery™ offers standby methods, networking, and storage within the

The corporate’s cloud infrastructure that permits sooner buyer restoration

backups saved utilizing ezVault™ in the identical cloud-hosted location.

? The ezAvailability™ answer offers dependable real-time knowledge replication for

vital purposes with a restoration time goal of lower than fifteen

minutes and near-zero restoration level goal, with optionally available, absolutely

managed replication providers. The corporate’s ezAvailability™ service

consists of a full-time enterprise system, storage and community sources,

permitting manufacturing workloads to be moved shortly and simply to the enterprise

cloud when wanted. The Firm’s ezAvailability™ providers are backed by a

Service Stage Settlement (“SLA”) to assist guarantee efficiency, availability,

and entry.

? The ezMirror™ answer offers replication providers that mirror prospects

storage-level knowledge and allows comparable near-zero restoration level

Purpose like ezAvailability with much less utility administration and restoration

       Time Goal underneath 1 hour.



Cloud Hosted Manufacturing Methods: ezHost™ answer offers managed cloud
providers that removes the burden off system administration from its shoppers and
ensures that their software program purposes and IT workloads are operating easily.
ezHost™ offers full-time, scalable compute, storage, and community
infrastructure sources to run shoppers' workloads on the Firm's
enterprise-class infrastructure. ezHost™ replaces the price of help,
upkeep, system administration, area, electrical energy, and cooling of the
typical {hardware} on-premises methods with a predictable month-to-month expense. The
Firm's ezHost providers are backed by an SLA governing efficiency,
availability, and entry.



Voice & Information Options: Nexxis, our voice and knowledge division, focuses on
fully-managed VoIP, Web Entry, and Information Transport options that fulfill
the necessities of company and distant workforce. Companies are delivered over
fiber optic, coaxial, and wi-fi networks to help companies absolutely linked
from any location. Nexxis offers devoted web entry with speeds of up
to 10 Gbps, FailSAFE, a cloud-first SD-WAN answer, that delivers
industry-leading connectivity to cloud providers, cloud-based Hosted VoIP and
Unified Communications that present enterprise continuity and integration with
Microsoft Groups.



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RESULTS OF OPERATIONS


Three months accomplished September 30, 2022in comparison with September 30, 2021

Whole Income. For the three months ended September 30, 2022, whole income was
$4,419,285, a rise of $559,027 or 14% in comparison with $3,860,258 for the three
months ended September 30, 2021. The rise is primarily attributed to the
enhance in gear and software program gross sales. This was offset by a lower in
managed providers for the three months ended September 30, 2022.



Income                                  For the Three Months
                                         Ended September 30,
                                        2022             2021           $ Change         % Change
Infrastructure & Catastrophe
Restoration/Cloud Service              $ 2,167,631      $ 1,827,055      $  340,576               19 %
Tools and Software program                1,021,451          316,107         705,344              223 %
Managed Companies                        999,653        1,472,261        (472,608 )            (32 )%
Nexxis VoIP Companies                    203,191          210,445          (7,254 )             (3 )%
Different                                    27,359           34,390          (7,031 )            (20 %
Whole Income                       $ 4,419,285      $ 3,860,258      $  559,027               14 %



Value of Gross sales.For the three months ended September 30, 2022, price of gross sales was
$2,566,984, a rise of $249,316 or 11% in comparison with $2,317,668 for the three
months ended September 30, 2021. The rise of $541,371 was largely associated to
the rise in income.



Promoting, common and administrative bills.For the three months ended
September 30, 2022, promoting, common and administrative bills have been
$2,075,525, a rise of $201,267, or 11%, as in comparison with $1,874,258 for the
three months ended September 30, 2021. The web enhance is mirrored within the
chart beneath.



      Promoting, common and
    administrative bills              For the Three Months
                                         Ended September 30,
                                        2022             2021           $ Change         % Change
Enhance in Salaries                $ 1,028,084      $   951,402      $   76,682                8 %
Enhance in Skilled Charges           203,032          179,258          23,774               13 %
Lower in Software program as a
Service Expense*                         42,744           49,932          (7,188 )            (14 )%

Enhance in promoting expenditure 263,485 119,275 144,210

              121 %
Lower in Commissions Expense         279,789          308,319         (28,530 )             (9 )%
Lower in Amortization and
Depreciation expense                     73,747          146,851         (73,104 )            (50 )%
Enhance in Journey and
Leisure*                           44,739           34,223          10,516               31 %
Enhance in Hire and Occupancy*          55,851           43,389          12,462               29 %
Enhance in Insurance coverage expense*           33,860           26,408           7,452               28 %
Lower in all different Bills           50,194           15,202          34,992              230 %
Whole Bills                      $ 2,075,525      $ 1,874,258      $  201,267               11 %



Not mentioned beneath as a result of de minimis change

Wages. Salaries elevated as a result of a rise in stock-based compensation and regular annual worker will increase.

Skilled charges. Skilled charges elevated primarily as a result of a brand new investor relations agency.

Promoting bills. Promoting prices elevated primarily as a result of firm’s sponsorship of American combined martial arts occasions.



25

Fee charges. Fee bills decreased primarily as a result of C-level executives producing gross sales for which the corporate doesn’t pay a fee.

Amortization and depreciation costs. Depreciation and amortization costs decreased as a result of three leases expiring within the third quarter of 2022.



Different Revenue (Expense). Different earnings (expense) for the three months ended
September 30, 2022 decreased $(495,990) to $(29,739) from $466,251 for the three
months ended September 30, 2021. The lower in different earnings is primarily
attributable to the lower in acquire on forgiveness of debt for the three months
ended September 30, 2022.


All different bills. Different bills elevated primarily as a result of larger coaching and utility bills. Web earnings (loss). Web revenue (loss) for the three months ended September 30, 2022 has been($252,963) in comparison with a internet earnings of $134,583 for the three months endedSeptember 30, 2021

. Finish of 9 monthsSeptember 30, 2022 in comparison with

Whole Income. For the 9 months ended September 30, 2022, whole income was
$17,904,233 a rise of $7,941,035 or 80%. The rise is primarily
attributed to the extra gross sales from the Flagship merger and a rise
in
month-to-month subscription income.



Income                                   For the 9 Months
                                          Ended September 30,
                                         2022             2021           $ Change          % Change
Infrastructure & Catastrophe
Restoration/Cloud Service              $  6,107,287      $ 5,212,566      $   894,721               17 %
Tools and Software program                 7,309,400        1,541,441        5,767,959              374 %
Managed Companies                       3,809,578        2,508,515        1,301,063               52 %
Nexxis VoIP Companies                     587,051          588,889           (1,838 )              - %
Different                                     90,917          111,787          (20,870 )            (19 )%
Whole Income                       $ 17,904,233      $ 9,963,198      $ 7,941,035               80 %




Value of Gross sales.For the 9 months ended September 30, 2022, price of gross sales was
$11,847,460, a rise of $6,042,092 or 104% in comparison with $5,805,368 for the
9 months ended September 30, 2021. The rise of $5,775,243 was largely
associated to variable price incurred to provide and promote our services or products.



Promoting, common and administrative bills.For the 9 months ended September
30, 2022, promoting, common and administrative bills have been $7,129,595, an
enhance of $2,580,096 or 57%, as in comparison with $4,549,499 for the 9 months
ended September 30, 2021. The web enhance is mirrored within the chart beneath.

      Promoting, common and
    administrative bills              For the 9 Months
                                         Ended September 30,
                                        2022             2021           $ Change          % Change
Enhance in Salaries                $ 3,918,745      $ 2,059,635      $ 1,859,110               90 %
Enhance in Skilled Charges           590,661          529,886           60,775               11 %
Enhance in Software program as a
Service Expense*                        189,643          155,393           34,250               22 %

September 30, 2021

               80 %
Enhance in Commissions Expense         918,882          820,482           98,400               12 %
Lower in Amortization and
Depreciation expense*                   220,694          250,877          (30,183 )            (12 )%
Enhance in Journey and
Leisure                           160,665           89,897           70,768               79 %
Enhance in Hire and Occupancy          163,965           85,283           78,682               92 %
Enhance in Insurance coverage expense*           94,251           66,266           27,985               42 %
Enhance in all different Bills          202,811          120,220           82,591               69 %
Whole Bills                      $ 7,129,595      $ 4,549,499      $ 2,580,096               57 %




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(*)  Not mentioned beneath as a result of de minimis change




Enhance in promoting bills 669 278 371 561 297 717

Wages. Salaries have elevated as a result of elevated employees as a result of Flagship merger, the hiring of our Chief Monetary Officer and elevated stock-based compensation.

Skilled charges. Skilled charges elevated primarily as a result of a brand new investor relations agency and a rise in charges related to NASDAQ itemizing.

Promoting bills. Advert spend elevated primarily as a result of merger of Flagship and the corporate that sponsors US combined martial arts occasions.

Fee charges. Fee bills elevated as a result of Flagship merger and gross sales related to Flagship.

Journey and leisure. Journey and leisure elevated primarily as a result of Flagship merger and the lifting of Covid-19 restrictions. Hire and Occupancy. Hire and occupancy elevated primarily as a result of merger of Flagship and WeWork in Austin, TX which began inJanuary 2022

.



Different Revenue (Expense). Different earnings for the 9 months ended September 30,
2022, decreased $(848,216) to $(186,063) from $662,153 for the 9 months ended
September 30, 2021. The lower in different expense is primarily attributable to
the rise curiosity expense for the 9 months ended September 30, 2022, and
the discount of from the acquire on forgiveness of debt from the PPP mortgage in
the
prior interval.


Web Revenue (loss). Web earnings (loss) earlier than provision for earnings taxes for the
9 months ended September 30, 2022, was $(1,258,885), as in comparison with a internet
earnings of $270,484 for the 9 months ended September 30, 2021.



All different bills. Different bills elevated primarily as a result of Flagship merger.

CASH AND CAPITAL RESOURCES The consolidated monetary statements have been ready in accordance with usually accepted accounting ideas. The USA of America



To the extent we're profitable in rising our enterprise, figuring out potential
acquisition targets and negotiating the phrases of such acquisition, and the
buy worth features a money part, we plan to make use of our working capital and
the proceeds of any financing to finance such acquisition prices.



Our opinion regarding our liquidity is predicated on present info. If this
info proves to be inaccurate, or if circumstances change, we will not be
in a position to meet our liquidity wants, which would require a renegotiation of associated
celebration capital gear leases, a discount in promoting and advertising and marketing
applications, renegotiation of our association with Nexxis and/or a discount in
salaries for officers which can be main shareholders.



We have now long-term contracts to produce our subscription-based options which can be
invoiced to shoppers month-to-month. We consider the full contract worth of our
subscription contracts with shoppers primarily based on the precise contracts that we have now
thus far, exceeds $10 million. Additional, we proceed to see an uptick in shopper
curiosity in distribution channel enlargement and in gross sales proposals. In 2021, we
intend to proceed to work to extend our presence within the IBM "Energy I"
infrastructure cloud and enterprise continuity market within the area of interest of IBM
"Energy I" and within the catastrophe restoration world market using our
technical experience, knowledge facilities utilization, belongings deployed within the knowledge
facilities, 24 x 365 monitoring and software program.



27







Throughout the 9 months ended September 30, 2022, DSC's money decreased $854,100
to $11,281,703 from $11,311,922 at December 31, 2021. Web money of $145,692 was
supplied by DSC's working actions ensuing primarily from modifications in
belongings and liabilities. Web money of $62,564 was utilized in investing actions
primarily from the acquisition of apparatus. Web money of $937,228 was utilized in
financing actions ensuing primarily in funds on finance lease
obligations. This was offset by the money obtained for the exercised choices.



(“GAAP”) relevant to a going concern, which assumes that DSC will notice its belongings and discharge its liabilities within the regular course of enterprise. DSC’s working capital was $11,578,771 onSeptember 30, 2022
reducing by $772,893 of $12,084,815 atDecember 31, 2021

. The lower is especially as a result of a lower in money, accounts receivable, accounts payable, deferred income and associated celebration leases payable. This was offset by a rise in pay as you go bills and different present belongings, in addition to hire payable.

Off-balance sheet preparations



Non-GAAP Monetary Measures



Adjusted EBITDA


To complement our consolidated monetary statements introduced in accordance with
GAAP and to supply buyers with further info concerning our
monetary outcomes, we think about and are together with herein Adjusted EBITDA, a
Non-GAAP monetary measure. We view Adjusted EBITDA as an working efficiency
measure and, as such, we consider that the GAAP monetary measure most straight
akin to it's internet earnings (loss). We outline Adjusted EBITDA as internet earnings
adjusted for curiosity and financing charges, depreciation, amortization,
stock-based compensation, and different non-cash earnings and bills. We consider
that Adjusted EBITDA offers us an vital measure of working efficiency
as a result of it permits administration, buyers, debtholders and others to judge and
evaluate ongoing working outcomes from interval to interval by eradicating the affect
of our asset base, any asset disposals or impairments, stock-based compensation
and different non-cash earnings and expense gadgets related to our reliance on
issuing equity-linked debt securities to fund our working capital.



Our use of Adjusted EBITDA has limitations as an analytical instrument, and this
measure shouldn't be thought-about in isolation or as an alternative choice to an evaluation
of our outcomes as reported underneath GAAP, because the excluded gadgets could have
vital results on our working outcomes and monetary situation.
Moreover, our measure of Adjusted EBITDA could differ from different firms'
measure of Adjusted EBITDA. When evaluating our efficiency, Adjusted EBITDA
ought to be thought-about with different monetary efficiency measures, together with
varied money move metrics, internet earnings and different GAAP outcomes. Sooner or later, we
could disclose totally different non-GAAP monetary measures in an effort to assist our
buyers and others extra meaningfully consider and evaluate our future outcomes
of operations to our beforehand reported outcomes of operations.



DSC doesn’t have any preparations, financings or different off-balance sheet relationships with unconsolidated entities or different individuals, also referred to as “particular goal entities”. The next desk presents our reconciliation of internet earnings and adjusted EBITDA for the three and 9 months ended September 30, 2022



                                         For the Three Months Ended              For the 9 Months Ended
                                     September 30,       September 30,       September 30,       September 30,
                                          2022                2021                2022                2021

Web earnings                          $    (252,963 )     $      134,583      $   (1,258,885 )    $      270,484

Non-GAAP changes:
Depreciation and amortization             291,739              370,625             932,328             947,669
Flagship acquisition prices                      -               21,998                 770             125,537
Curiosity earnings and expense                31,576               15,726             186,063              97,392
Acquire on contingent legal responsibility                                         -                   -                   -
Loss on disposal of apparatus                                        -                   -              29,732
Acquire on forgiveness of debt                                   (481,977 )   
             -            (789,277 )
Inventory primarily based compensation                   92,038               44,030             643,930             120,252

Adjusted EBITDA                     $     162,390       $      104,985      $      504,206      $      801,789




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