DTST

Business Context and Reporting Period

Data Storage Corporation (DTST) is a provider of enterprise cloud, disaster recovery, and business continuity solutions, operating through three primary segments: CloudFirst Technologies (US/Canada), CloudFirst Europe Ltd., and Nexxis Inc. (VoIP/Telecom). The company reported for the quarterly period ended June 30, 2025. As of August 14, 2025, there were 7,262,436 shares of common stock outstanding.

Key Financial Metrics

Note: The company reported a net loss for the six months ended June 30, 2025, compared to net income of $112,862 for the same period in 2024.

Material Changes vs. Prior Period

• Revenue Growth: Total sales increased 4.8% quarter-over-quarter (QoQ) and 0.6% year-over-year (YoY) for the six-month period. Growth was driven by Cloud Infrastructure & Disaster Recovery (+6.1% QoQ) and Nexxis VoIP services (+17.3% QoQ), offset by a decline in Equipment and Software sales (-12.1% QoQ) due to a strategic shift toward subscription models.
• Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 19.2% QoQ and 13.3% YoY (six months). This was primarily due to a 23.1% increase in salaries/director fees and a 98.5% increase in stock-based compensation.
• Operating Loss: The operating loss widened to $(795,667) for the quarter and $(888,176) for the six months, compared to $(388,786) and $(174,991) in the prior year periods, respectively.
• Cash Flow: Net cash used in operating activities was $(727,487) for the six months ended June 30, 2025, a reversal from the $354,791 provided in the prior year period. This was driven by the net loss and an increase in working capital, specifically $838,352 in deferred transaction costs related to a pending divestiture.

Guidance, Outlook, and Material Events

Pending Divestiture: On July 11, 2025 (subsequent to the reporting period), the Company entered into a definitive agreement to sell its CloudFirst Technologies and CloudFirst Europe Ltd. operations (the "Divestiture") for approximately $40 million in cash. The transaction is subject to shareholder approval, expected at the annual meeting in September 2025. If consummated, the Company expects net proceeds of approximately $24 million after transaction costs and taxes.

Strategic Shift: The Divestiture represents a fundamental change in operations. Post-transaction, the Company's continuing operations will consist primarily of the Nexxis subsidiary (VoIP and telecommunications). Management intends to use proceeds to return capital to shareholders and pursue acquisitions in complementary technology sectors.

Risks and Contingencies:

• Transaction Risk: The Divestiture is subject to customary closing conditions, including shareholder approval and employee retention. Failure to close could result in significant costs and a decline in stock price.
• Liquidity: While current cash and marketable securities are sufficient for operations, the Company's liquidity outlook is heavily dependent on the successful consummation of the Divestiture.
• Customer Concentration: For the six months ended June 30, 2025, one customer accounted for approximately 20% of total consolidated revenue.

Investor Verification Checklist

• Divestiture Approval: Verify the outcome of the shareholder vote scheduled for September 10, 2025, regarding the sale of the CloudFirst business.
• Transaction Costs: Monitor the impact of the $838,352 in deferred transaction costs already recorded and potential additional fees if the deal closes or terminates.
• Continuing Operations: Assess the standalone financial viability of the Nexxis subsidiary, which will represent the Company's primary revenue source post-divestiture.
• Warrant Obligations: Review the terms of outstanding warrants (2,415,860 as of June 30, 2025), specifically the "Fundamental Transaction" provisions that may trigger cash payments to warrant holders upon the closing of the Divestiture.
• Customer Concentration: Evaluate the risk associated with the top customer representing 20% of revenue in the first half of 2025.