DTST filing — read by section

UNITED
STATES 

 SECURITIES
AND EXCHANGE COMMISSION 

 WASHINGTON,
D.C. 20549 

 FORM
 10-Q/A 

 (Mark One)

 ☒ 
 QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For the quarterly period ended June 30, 2022 

 ☐ 
 TRANSITION
 REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 For the transition period from ___________ to ___________

 Commission File Number: 001-35384 

 DATA STORAGE CORPORATION 

 (Exact name of registrant as specified in its
charter)

 Nevada 
 
 98-0530147 

 (State or other jurisdiction
 of

 incorporation or organization) 
 
 (I.R.S. Employer

 Identification No.) 

 48 South Service Road 

 Melville , NY 
 
 11747 

 (Address of principal executive
 offices) 
 
 (Zip Code) 

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

 Securities registered pursuant to Section 12(b) of the Act: None

 Title
 of each class 
 
 Trading
 Symbol(s) 
 
 Name
 of each exchange on which registered 

 Common
 Stock, par value $0.001 per share 
 
 DTST 
 
 The Nasdaq Capital Market 

 Warrants
 to purchase shares of Common Stock, par value $0.001 per share 
 
 DTSTW 
 
 The Nasdaq Capital Market 

 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.

 Yes ☒ 
No ☐ 

 Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 Yes ☒ 
No ☐ 

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

 Large Accelerated Filer ☐ 
 Accelerated Filer ☐ 

 Non-Accelerated Filer ☒ 
 Smaller Reporting Company ☒ 

 Emerging Growth Company ☐ 

 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. ☐ 

 Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ☐ 
 No ☒ 

 The number of shares of the registrant’s common
stock, $0.001 par value per share, outstanding as of August 10, 2022, was 6,822,127 .

 EXPLANATORY
NOTE 

 Data
Storage Corporation (the “Company,” “we”, “our” or “us”) is filing this Amendment
No. 1 to its Quarterly Report on Form 10-Q (the “Amendment”), to amend and restate certain items noted below in its
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, originally filed with the Securities and Exchange
Commission (the “SEC”) on August 12, 2022 (the “Original Filing”). This Amendment amends the Original
Filing to restate our financial statements for the quarterly period ended June 30, 2022 related to errors identified with contractual
obligation from certain consideration received from a vendor for equipment. 

 Pursuant
to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment
also contains new certifications by our principal executive officer and principal financial officer as exhibits (in Exhibits 31.1,
31.2, 32.1 and 32.2). 

 Background of Restatement 

 As reported in the Company’s Current Report on Form 8-K filed with the
SEC on November 14, 2022, in connection with the preparation of the Company’s financial statements for the quarterly period ended
September 30, 2022, the Company’s management identified an error in our accounting for certain consideration received from a vendor
and determined that the Company failed to recognize the deferral of the credit to future periods in connection with the vendor contract,
which requires an adjustment to the Company’s financial statements as of and for the quarterly period ended June 30, 2022.

 On November 11,
2022, the audit committee of the Company’s board of directors (the “Audit Committee”), concluded, after discussion
with the Company’s management, that the Company’s financial statements as of and for the quarterly period ended June
30, 2022 included in its Quarterly Report on Form 10-Q filed with the SEC on August 12, 2022 (“2022Q2 10-Q”) should
no longer be relied upon and should be restated as a result of such error. This Amendment includes the restatement of the unaudited
quarterly financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 (the “Restated
Periods”).

 The financial
information that had been previously filed or otherwise reported related to the Restated Periods are superseded by the information
in this Amendment, and the financial statements and related financial information contained in the Original Filing should no longer
be relied upon.

 Internal Control Considerations 

 In connection with the restatement, the Company identified a material weakness
in the Company’s internal control over financial reporting related to accuracy and completeness of accounting for deferrals of consideration
received by a vendor, in accordance with the contract. As such, the Company’s management has concluded that the Company’s
disclosure controls and procedures were not effective. The Company’s remediation plan with respect to such material weakness is
described in more detail in Part I, Item 4 of this report.

 Items Impacted by This Amendment 

 For the convenience
of the reader, this Amendment sets forth the Original Filing in its entirety, as amended to reflect the restatement. No attempt
has been made in this Amendment to update other disclosures presented in the Original Filing, except as required to reflect the
effects of the restatement. The following items have been amended as a result of the restatement:

 Part I, Item 1
- Financial Statements

 Part I, Item 2
- Management’s Discussion and Analysis of Financial Condition and Results of Operations

 Part I, Item 4
- Controls and Procedures

 Part II, Item
1 - Legal Proceedings

 Part II, Item
1A - Risk Factors

 Part II, Item
6 – Exhibits

 Except as described
above, no other information included in the Original Filing is being amended or updated by this Amendment and, other than as described
herein, this Amendment does not purport to reflect any information or events subsequent to the Original Filing. This Amendment
continues to describe the conditions as of the date of the Original Filing and, except as expressly contained herein, we have
not updated, modified or supplemented the disclosures contained in the Original Filing. Accordingly, this Amendment should be
read in conjunction with the Original Filing and with our filings with the SEC subsequent to the Original Filing.

 DATA STORAGE CORPORATION 

 FORM 10-Q 

 INDEX 

 Page 

 PART I- FINANCIAL INFORMATION 
 
 Item 1 
 Financial Statements 
 
 Condensed Consolidated
 Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 (as restated) 
 3 

 Condensed Consolidated
 Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited) (as restated) 
 4 

 Condensed Consolidated
 Statements of Stockholders’ Equity for three and six months ended June 30, 2022 and 2021 (unaudited) (as restated) 
 5 

 Condensed Consolidated
 Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) (as restated) 
 7 

 Notes to Condensed Consolidated Financial
 Statements (as restated) 
 8 

 Item 2. 
 Management’s Discussion and Analysis
 of Financial Condition and Results of Operations 
 25 

 Item 3. 
 Quantitative and Qualitative Disclosures About
 Market Risk 
 32 

 Item 4. 
 Control and Procedures 
 32 

 PART II- OTHER INFORMATION 
 33 

 Item 1. 
 Legal Proceedings 
 33 

 Item 1A. 
 Risk Factors 
 33 

 Item 2. 
 Unregistered Sales of Equity Securities and
 Use of Proceeds 
 33 

 Item 3. 
 Defaults Upon Senior Securities 
 34 

 Item 4. 
 Mine Safety Disclosures 
 34 

 Item 5. 
 Other Information 
 34 

 Item 6. 
 Exhibits 
 34 

 2 

 DATA STORAGE CORPORATION AND SUBSIDIARIES 

 CONDENSED CONSOLIDATED BALANCE SHEETS 

 June
 30,

 2022
 
 December 31,
 2021 

 (Unaudited)

(as restated) 
 
 ASSETS 
 
 Current Assets: 
 
 Cash and cash equivalents 
 $ 11,214,436 
 $ 12,135,803 

 Accounts receivable (less allowance for credit losses of
 $ 28,355 and $ 30,000 in 2022
 and 2021, respectively) 
 2,484,857 
 2,384,367 

 Prepaid expenses and other current assets 
 974,845 
 536,401 

 Total Current Assets 
 14,674,138 
 15,056,571 

 Property and Equipment: 
 
 Property and equipment 
 7,092,451 
 6,595,236 

 Less—Accumulated depreciation 
 ( 4,510,837 ) 
 ( 4,657,765 ) 

 Net Property and Equipment 
 2,581,614 
 1,937,471 

 Other Assets: 
 
 Goodwill 
 6,560,671 
 6,560,671 

 Operating lease right-of-use assets 
 325,745 
 422,318 

 Other assets 
 103,436 
 103,226 

 Intangible assets, net 
 2,115,105 
 2,254,566 

 Total Other Assets 
 9,104,957 
 9,340,781 

 Total Assets 
 $ 26,360,709 
 $ 26,334,823 

 LIABILITIES AND STOCKHOLDERS’ DEFICIT 
 
 Current Liabilities: 
 
 Accounts payable and accrued expenses 
 $ 1,604,442 
 $ 1,343,391 

 Deferred revenue 
 249,482 
 366,859 

 Finance leases payable 
 424,603 
 216,299 

 Finance leases payable related party 
 706,001 
 839,793 

 Operating lease liabilities short term 
 207,062 
 205,414 

 Total Current Liabilities 
 3,191,590 
 2,971,756 

 Operating lease liabilities 
 128,952 
 226,344 

 Finance leases payable 
 421,648 
 157,424 

 Finance leases payable related party 
 450,970 
 364,654 

 Total Long-Term Liabilities 
 1,001,570 
 748,422 

 Total Liabilities 
 4,193,160 
 3,720,178 

 Commitments and contingencies (Note 8) 
 
 Stockholders’ Equity: 
 
 Preferred stock, Series A par value $ .001 ; 10,000,000 
 shares authorized; 0 and 0 
 shares issued and outstanding in 2022 and 2021, respectively 
 — 
 — 

 Common stock, par value $ .001 ; 250,000,000 
 shares authorized; 6,822,127 and 6,693,793 
 shares issued and outstanding in 2022 and 2021, respectively 
 6,822 
 6,694 

 Additional paid in capital 
 38,799,853 
 38,241,155 

 Accumulated deficit 
 ( 16,513,665 ) 
 ( 15,530,576 ) 

 Total Data Storage Corp Stockholders’ Equity 
 22,293,010 
 22,717,273 

 Non-controlling interest in consolidated subsidiary 
 ( 125,461 ) 
 ( 102,628 ) 

 Total Stockholder’s Equity 
 22,167,549 
 22,614,645 

 Total Liabilities and Stockholders’ Equity 
 $ 26,360,709 
 $ 26,334,823 

 The
accompanying notes are an integral part of these condensed consolidated Financial Statements. 

 3 

 DATA
STORAGE CORPORATION AND SUBSIDIARIES 

 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS 

 (Unaudited) 

 Three Months Ended June 30, 
 
 Six Months Ended June 30, 

 2022 
 
 2021 
 
 2022 
 
 2021 

 (as restated) 
 
 (as restated) 
 
 Sales 
 
 $ 
 4,827,749 
 
 $ 
 3,528,249 
 
 $ 
 13,484,948 
 
 $ 
 6,102,940 
 
 Cost of sales 
 
 3,269,187 
 
 2,021,324 
 
 9,280,476 
 
 3,442,223 
 
 Gross Profit 
 
 1,558,562 
 
 1,506,925 
 
 4,204,472 
 
 2,660,717 
 
 Selling, general and administrative 
 
 2,594,204 
 
 1,602,311 
 
 5,054,070 
 
 2,720,718 
 
 Loss from Operations 
 
 ( 1,035,642 
 ) 
 
 ( 95,386 
 ) 
 
 ( 849,598 
 ) 
 
 ( 60,001 
 ) 

 Other Income (Expense) 
 
 Interest expense, net 
 
 ( 113,664 
 ) 
 
 ( 46,621 
 ) 
 
 ( 156,324 
 ) 
 
 ( 81,666 
 ) 

 Loss on disposal of equipment 
 
 — 
 
 ( 29,732 
 ) 
 
 — 
 
 ( 29,732 
 ) 

 Gain on forgiveness of debt 
 
 — 
 
 307,300 
 
 — 
 
 307,300 
 
 Total Other Income (Expense) 
 
 ( 113,664 
 ) 
 
 230,947 
 
 ( 156,324 
 ) 
 
 195,902 
 
 Income (Loss) before provision for income taxes 
 
 ( 1,149,306 
 ) 
 
 135,561 
 
 ( 1,005,922 
 ) 
 
 135,901 
 
 Provision for income taxes 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Net Income (Loss) 
 
 ( 1,149,306 
 ) 
 
 135,561 
 
 ( 1,005,922 
 ) 
 
 135,901 
 
 Non-controlling interest in consolidated subsidiary 
 
 10,207 
 
 3,552 
 
 22,833 
 
 5,311 
 
 Net Income (Loss) attributable to Data Storage Corp 
 
 ( 1,139,099 
 ) 
 
 139,113 
 
 ( 983,089 
 ) 
 
 141,212 
 
 Preferred Stock Dividends 
 
 — 
 
 ( 24,800 
 ) 
 
 — 
 
 ( 63,683 
 ) 

 Net Income (Loss) Attributable to Common Stockholders 
 
 $ 
 ( 1,139,099 
 ) 
 
 $ 
 114,313 
 
 $ 
 ( 983,089 
 ) 
 
 $ 
 77,529 
 
 Earnings (Loss) per Share – Basic 
 
 $ 
 ( 0.17 
 ) 
 
 $ 
 0.03 
 
 $ 
 ( 0.15 
 ) 
 
 $ 
 0.02 
 
 Earnings (Loss) pers Share – Diluted 
 
 $ 
 ( 0.17 
 ) 
 
 $ 
 0.03 
 
 $ 
 ( 0.15 
 ) 
 
 $ 
 0.02 
 
 Weighted Average Number of Shares - Basic 
 
 6,758,238 
 
 3,981,402 
 
 6,727,108 
 
 3,607,909 
 
 Weighted Average Number of Shares - Diluted 
 
 6,758,238 
 
 4,118,989 
 
 6,758,238 
 
 3,611,242 
 
 The
accompanying notes are an integral part of these condensed consolidated Financial Statements. 

 4 

 DATA STORAGE CORPORATION AND SUBSIDIARIES 

 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 

 FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2022 

 (Unaudited) 

 Preferred
Stock 
 
 Common
Stock 
 
 Additional
Paid-in 
 
 Accumulated 
 
 Non-Controlling 
 
 Total
Stockholders’ 

 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 Capital 
 
 Deficit 
 
 Interest 
 
 Equity 

 Balance
April 1, 2021 
 
 1,401,786 
 
 $ 
 1,402 
 
 3,213,486 
 
 $ 
 3,213 
 
 $ 
 17,787,956 
 
 $ 
 ( 15,771,521 
 ) 
 
 $ 
 ( 96,464 
 ) 
 
 $ 
 1,924,586 
 
 Conversion
of preferred series to common stock 
 
 ( 1,401,786 
 ) 
 
 ( 1,402 
 ) 
 
 43,806 
 
 44 
 
 1,358 
 
 — 
 
 — 
 
 — 
 
 Proceeds
from issuance of common stock and warrants 
 
 — 
 
 — 
 
 1,600,000 
 
 1,600 
 
 9,453,294 
 
 — 
 
 — 
 
 9,454,894 
 
 Stock-based compensation 
 
 — 
 
 — 
 
 5,060 
 
 5 
 
 ( 5 
 ) 
 
 — 
 
 — 
 
 — 
 
 Stock-based
compensation 
 
 — 
 
 — 
 
 — 
 
 — 
 
 34,050 
 
 — 
 
 — 
 
 34,050 
 
 Net
Income (Loss) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 139,113 
 
 ( 3,552 
 ) 
 
 135,561 
 
 Preferred
stock dividends 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 24,800 
 ) 
 
 — 
 
 ( 24,800 
 ) 

 Balance,
June 30, 2021 
 
 — 
 
 $ 
 — 
 
 4,862,352 
 
 $ 
 4,862 
 
 $ 
 27,276,653 
 
 $ 
 ( 15,657,208 
 ) 
 
 $ 
 ( 100,016 
 ) 
 
 $ 
 11,524,291 
 
 Balance
April 1, 2022 
 
 — 
 
 $ 
 — 
 
 6,697,127 
 
 $ 
 6,697 
 
 $ 
 38,314,591 
 
 $ 
 ( 15,374,566 
 ) 
 
 $ 
 ( 115,254 
 ) 
 
 $ 
 22,831,468 
 
 Stock-based
compensation 
 
 — 
 
 — 
 
 125,000 
 
 125 
 
 485,262 
 
 — 
 
 — 
 
 485,387 
 
 Net
(Loss) (as restated) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 1,139,099 
 ) 
 
 ( 10,207 
 ) 
 
 ( 1,149,306 
 ) 

 Balance,
June 30, 2022 (as restated) 
 
 — 
 
 $ 
 — 
 
 6,822,127 
 
 $ 
 6,822 
 
 $ 
 38,799,853 
 
 $ 
 ( 16,513,665 
 ) 
 
 $ 
 ( 125,461 
 ) 
 
 $ 
 22,167,549 
 
 The
accompanying notes are an integral part of these condensed consolidated Financial Statements 

 5 

 DATA STORAGE CORPORATION AND SUBSIDIARIES 

 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 

 FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 

 (Unaudited) 

 Preferred Stock 
 
 Common Stock 
 
 Additional Paid-in 
 
 Accumulated 
 
 Non-Controlling 
 
 Total Stockholders’ 

 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 Capital 
 
 Deficit 
 
 Interest 
 
 Equity 

 Balance

 January 1, 2021
 
 1,401,786 
 
 $ 
 1,402 
 
 3,213,486 
 
 $ 
 3,213 
 
 $ 
 17,745,785 
 
 $ 
 ( 15,734,737 
 ) 
 
 $ 
 ( 94,705 
 ) 
 
 $ 
 1,920,958 
 
 Conversion of preferred series to stock 
 
 ( 1,401,786 
 ) 
 
 ( 1,402 
 ) 
 
 43,806 
 
 44 
 
 1,358 
 
 — 
 
 — 
 
 — 
 
 Proceeds from issuance of common stock and warrants 
 
 — 
 
 — 
 
 1,600,000 
 
 1,600 
 
 9,453,294 
 
 — 
 
 — 
 
 9,454,894 
 
 Stock Options Exercise 
 
 — 
 
 — 
 
 5,060 
 
 5 
 
 ( 5 
 ) 
 
 — 
 
 — 
 
 — 
 
 Stock-based compensation 
 
 — 
 
 — 
 
 — 
 
 — 
 
 76,221 
 
 — 
 
 — 
 
 76,221 
 
 Net Income (Loss) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 141,212 
 
 ( 5,311 
 ) 
 
 135,901 
 
 Preferred stock dividends 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 63,683 
 ) 
 
 — 
 
 ( 63,683 
 ) 

 Balance, June 30, 2021 
 
 — 
 
 $ 
 — 
 
 4,862,352 
 
 $ 
 4,862 
 
 $ 
 27,276,653 
 
 $ 
 ( 15,657,208 
 ) 
 
 $ 
 ( 100,016 
 ) 
 
 $ 
 11,524,291 
 
 Balance

 January 1, 2021
 
 — 
 
 $ 
 — 
 
 6,693,793 
 
 $ 
 6,694 
 
 $ 
 38,241,155 
 
 $ 
 ( 15,530,576 
 ) 
 
 $ 
 ( 102,628 
 ) 
 
 $ 
 22,614,645 
 
 Stock options exercise 
 
 — 
 
 — 
 
 3,334 
 
 3 
 
 6,931 
 
 — 
 
 — 
 
 6,934 
 
 Stock-based compensation 
 
 — 
 
 — 
 
 125,000 
 
 125 
 
 551,767 
 
 — 
 
 — 
 
 551,892 
 
 Net (Loss) (as restated) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 983,089 
 ) 
 
 ( 22,833 
 ) 
 
 ( 1,005,922 
 ) 

 Balance, June 30, 2022 (as restated) 
 
 — 
 
 $ 
 — 
 
 6,822,127 
 
 $ 
 6,822 
 
 $ 
 38,799,853 
 
 $ 
 ( 16,513,665 
 ) 
 
 $ 
 ( 125,461 
 ) 
 
 $ 
 22,167,549 
 
 The
accompanying notes are an integral part of these condensed consolidated Financial Statements 

 6 

 DATA STORAGE CORPORATION AND SUBSIDIARIES 

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

 (Unaudited) 

 Six Months Ended June 30, 

 2022 
 
 2021 

 Cash Flows from Operating Activities: 
 
 (as restated) 
 
 Net Income 
 
 $ 
 ( 1,005,922 
 ) 
 
 $ 
 135,901 
 
 Adjustments to reconcile net income to net cash provided by operating activities: 
 
 Depreciation and amortization 
 
 640,589 
 
 577,044 
 
 Stock based compensation 
 
 551,892 
 
 76,221 
 
 Gain on contingent liability 
 
 — 
 
 ( 307,300 
 ) 

 Loss on disposal of equipment 
 
 — 
 
 29,732 
 
 Changes in Assets and Liabilities: 
 
 Accounts receivable 
 
 ( 100,490 
 ) 
 
 385,134 
 
 Other assets 
 
 ( 211 
 ) 
 
 ( 344 
 ) 

 Prepaid expenses and other current assets 
 
 ( 438,444 
 ) 
 
 ( 25,443 
 ) 

 Right of use asset 
 
 96,573 
 
 43,362 
 
 Accounts payable and accrued expenses 
 
 261,052 
 
 53,857 
 
 Deferred revenue 
 
 ( 117,377 
 ) 
 
 ( 99,582 
 ) 

 Operating lease liability 
 
 ( 95,744 
 ) 
 
 ( 43,565 
 ) 

 Net Cash (Used in) Provided by Operating Activities 
 
 ( 208,082 
 ) 
 
 825,017 
 
 Cash Flows from Investing Activities: 
 
 Capital expenditures 
 
 ( 51,220 
 ) 
 
 ( 303,228 
 ) 

 Cash consideration for business acquisition 
 
 — 
 
 ( 5,937,275 
 ) 

 Net Cash Used in Investing Activities 
 
 ( 51,220 
 ) 
 
 ( 6,240,503 
 ) 

 Cash Flows from Financing Activities: 
 
 Repayments of finance lease obligations related party 
 
 ( 487,403 
 ) 
 
 ( 603,495 
 ) 

 Repayments of finance lease obligations 
 
 ( 181,597 
 ) 
 
 ( 74,010 
 ) 

 Proceeds from issuance of common stock and warrants 
 
 — 
 
 9,454,894 
 
 Cash received for the exercised of options 
 
 6,935 
 
 — 
 
 Repayments of Dividend payable 
 
 — 
 
 ( 1,179,357 
 ) 

 Repayment of line of credit 
 
 — 
 
 ( 24 
 ) 

 Net Cash (Used in) Provided by Financing Activities 
 
 ( 662,065 
 ) 
 
 7,598,008 
 
 Increase (decrease) in Cash and Cash Equivalents 
 
 ( 921,367 
 ) 
 
 2,182,522 
 
 Cash and Cash Equivalents, Beginning of Period 
 
 12,135,803 
 
 893,598 
 
 Cash and Cash Equivalents, End of Period 
 
 $ 
 11,214,436 
 
 $ 
 3,076,120 
 
 Supplemental Disclosures: 
 
 Cash paid for interest 
 
 $ 
 76,874 
 
 $ 
 78,136 
 
 Cash paid for income taxes 
 
 $ 
 — 
 
 $ 
 — 
 
 Non-cash investing and financing activities: 
 
 Accrual of preferred stock dividend 
 
 $ 
 — 
 
 $ 
 63,683 
 
 Assets acquired by finance lease 
 
 $ 
 1,094,051 
 
 $ 
 50,000 
 
 The
accompanying notes are an integral part of these condensed consolidated Financial Statements. 

 7 

 DATA STORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 

 (Unaudited) 

 Note 1 - Basis of Presentation, Organization and Other Matters 

 Data Storage Corporation (“DSC” or the “Company”)
provides subscription based, long term agreements for disaster recovery solutions, cloud infrastructure, Cyber Security and Voice and
Data solutions.

 Headquartered in Melville, NY, DSC offers solutions
and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education,
and government industries. DSC derives its revenues from subscription services and solutions, managed services, software and maintenance,
equipment and onboarding provisioning. DSC maintains infrastructure and storage equipment in seven technical centers in New York, Massachusetts,
Texas, Florida, North Carolina and Canada.

 On May 31, 2021, the Company completed a merger of
Flagship Solutions, LLC (“Flagship”) (a Florida limited liability company) and the Company’s wholly-owned subsidiary,
Data Storage FL, LLC. Flagship is a provider of Hybrid Cloud solutions, managed services and cloud solutions.

 Note 2
- Restatement Of Previously Issued Financial Statements 

 Management identified
errors made in its historical financial statements for the accounting of contractual obligation from certain vendor consideration
received.

 The following tables
summarize the effect of the restatement on each financial statement line item as of the dates, and for the periods, indicated:

 Schedule of financial statement 
 
 As previously reported 
 Adjustments 
 As restated 

 Balance Sheet – June 30, 2022 
 
 Accounts payable and accrued expenses 
 $ 1,312,387 
 $ ( 292,055 ) 
 $ 1,604,442 

 Total current liabilities 
 2,899,535 
 ( 292,055 ) 
 3,191,590 

 Total liabilities 
 3,901,105 
 ( 292,055 ) 
 4,193,160 

 Accumulated deficit 
 ( 16,221,610 ) 
 292,055 
 ( 16,513,665 ) 

 Total Data Storage Corp Stockholders' Equity 
 22,585,065 
 292,055 
 22,293,010 

 Total shareholders’ deficit 
 $ 22,459,604 
 $ 292,055 
 $ 22,167,549 

 As Previously

 Reported 
 Adjustments 
 As restated 

 Statement of Operations – For the
 Three Months ended June 30, 2022 
 
 Cost of sales 
 $ 2,977,132 
 292,055 
 $ 3,269,187 

 Gross Profit 
 1,850,617 
 ( 292,055 ) 
 1,558,562 

 Loss from Operations 
 ( 743,587 ) 
 ( 292,055 ) 
 ( 1,035,642 ) 

 Net Income (Loss) 
 ( 857,251 ) 
 ( 292,055 ) 
 ( 1,149,306 ) 

 Net Income (Loss) attributable to Data
 Storage Corp 
 ( 847,044 ) 
 ( 292,055 ) 
 ( 1,139,099 ) 

 Net Income (Loss) Attributable to Common
 Stockholders 
 $ ( 847,044 ) 
 $ ( 292,055 ) 
 $ ( 1,139,099 ) 

 Earnings per Share – Basic and Diluted 
 $ ( 0.13 ) 
 $ ( 0.04 ) 
 $ ( 0.17 ) 

 8 

 As Previously

 Reported 
 Adjustments 
 As restated 

 Statement of Operations – For the
 Six Months ended June 30, 2022 
 
 Cost of sales 
 $ 8,988,421 
 292,055 
 $ 9,280,476 

 Gross Profit 
 4,496,527 
 ( 292,055 ) 
 4,204,472 

 Loss from Operations 
 ( 557,543 ) 
 ( 292,055 ) 
 ( 849,598 ) 

 Net Income (Loss) 
 ( 713,867 ) 
 ( 292,055 ) 
 ( 1,005,922 ) 

 Net Income (Loss) attributable to Data
 Storage Corp 
 ( 691,034 ) 
 ( 292,055 ) 
 ( 983,089 ) 

 Net Income (Loss) Attributable to Common
 Stockholders 
 $ ( 691,034 ) 
 $ ( 292,055 ) 
 $ ( 983,089 ) 

 Earnings per Share – Basic and Diluted 
 $ ( 0.10 ) 
 $ ( 0.05 ) 
 $ ( 0.15 ) 

 Note 3 - Summary of Significant Accounting Policies 

 Principles of Consolidation 

 The Condensed Consolidated Financial statements include the accounts of
(i) the Company, (ii) its wholly-owned subsidiaries, Data Storage Corporation, a Delaware corporation, and Data Storage FL, LLC, a Florida
limited liability company, (iii) Flagship Solutions, LLC, a Florida limited liability company, and (iv) its majority-owned subsidiary,
Nexxis Inc, a Nevada corporation. All inter-company transactions and balances have been eliminated in consolidation.

 Basis of Presentation 

 The Condensed Consolidated Financial Statements of the Company are prepared
in accordance with accounting principles generally accepted in the United States of America (US GAAP).

 Certain information and note disclosures normally
included in the financial statements prepared in accordance with US GAAP have been condensed. As such, the information included in these
financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021,
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as
filed on March 31, 2022. In the opinion of the Company’s management, these condensed consolidated financial statements include all
adjustments, which are of only a normal and recurring nature, necessary for a fair presentation of the statement of financial position
of the Company as of June 30, 2022, statement of cash flows for the six months ended June 30, 2022 and 2021 and
t he results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 2022.

 Recently Issued and Newly Adopted Accounting Pronouncements 

 In June 2016, the FASB issued ASU
No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU-2016-13”).
ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the contractual right to receive
cash. The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial assets. ASU 2016-13 is
effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects
that there would be no material impact on the Company’s consolidated financial statements upon the adoption of this ASU. 

 9 

 In July 2021,
the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify
a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”)
as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year
beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material
impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU. 

 In November 2021, the FASB issued ASU No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued by the
Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract assets and contract liabilities acquired
in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally
result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately
before the acquisition date rather than at fair value. The adoption of ASU 2021-08 did not have a material impact on the consolidated
financial statements.

 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
June 30, 2022, approximate their carrying value as reflected in the balance sheet due to the short-term nature of these instruments or
the use of market interest rates for debt instruments. 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.

 Cash and Cash Equivalents 

 The Company considers all highly liquid investments
with an original maturity or remaining maturity at the time of purchase, of three months or less to be cash equivalents.

 Concentration of Credit Risk and Other Risks and Uncertainties 

 Financial instruments and assets subjecting the Company
to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable.
The Company’s cash and cash equivalents are maintained at major U.S. financial institutions. Deposits in these institutions may
exceed the amount of insurance provided on such deposits.

 The Company’s customers are primarily concentrated in the United
States.

 The Company provides credit in the normal course of
business. The Company maintains allowances for doubtful accounts on factors surrounding the credit risk of specific customers, historical
trends, and other information.

 As of June 30, 2022, DSC had two customers with
an accounts receivable balance representing 20 % and
 14 % of total accounts receivable. As of December 31, 2021, the Company had one customer with an accounts receivable balance
representing 16 %
of total accounts receivable

 For the three months ended June 30, 2022, the Company
had two customers that accounted for 12 %
and 11 %
of revenue. For the six months ended June 30, 2021, the Company had one customer that accounted for 13 %
of revenue.

 For the six months ended June 30, 2022, the
Company had two customers that accounted for 24 % 
and 17 % of revenue. For the six months ended June 30, 2021, the Company had one customer that accounted for 15 % 
of revenue.

 10 

 Accounts Receivable/Allowance for Credit Losses 

 The Company sells its services to customers on an
open credit basis. Accounts receivables are uncollateralized, non-interest-bearing customer obligations. Accounts receivables are typically
due within 30 days. The allowance for credit losses reflects the estimated accounts receivable that will not be collected due to credit
losses. Provisions for estimated uncollectible accounts receivable are made for individual accounts based upon specific facts and circumstances
including criteria such as their age, amount, and customer standing. Provisions are also made for other accounts receivable not specifically
reviewed based upon historical experience. Clients are invoiced in advance for services as reflected in deferred revenue on the Company’s
balance sheet.

 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 5 five to 7 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.

 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.

 Revenue Recognition 

 Nature of goods and services 

 The following is a description of the products and
services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant
payment terms for each:

 1) 
 Cloud
 Infrastructure and Disaster Recovery Revenue 

 Cloud Infrastructure provides clients the ability to migrate their on-premise
computing and digital storage to DSC’s enterprise-level technical compute and digital storage assets located in Tier 3 data centers.
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 directly from DSC are High Availability, Data Vaulting and retention solutions,
including standby servers which allows clients to centralize and streamline their mission-critical digital information and technical environment
while ensuring business continuity if they experience a cyber-attack or natural disaster Client’s data is vaulted, at two data centers
with the maintenance of retention schedules for corporate governances and regulations all to meet their back to work objective in a disaster.

 2) 
 Managed Services 

 These services are performed at the inception of a
contract. 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 system and software patch management, annual recovery
tests and manufacturer support for equipment and on-gong monitoring of client system performance.

 11 

 3) 
 Equipment and Software
 
 The Company provides equipment and software and actively
participate in collaboration with IBM to 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.

 4) 
 Nexxis Voice over
 Internet and Direct Internet Access 

 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, highly reliable
Hosted VoIP solutions with equipment options for IP phones and internet speeds of up to 10Gb delivered over fiber optics.

 Disaggregation of revenue 

 In the following table, revenue is disaggregated by
major product line, geography, and timing of revenue recognition.

 Schedule of revenue is disaggregated by major product 
 
 For the Three Months 

 Ended June 30, 2022 

 United States 
 International 
 Total 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 1,974,980 
 $ 38,826 
 $ 2,013,806 

 Equipment and Software 
 968,490 
 — 
 968,490 

 Managed Services 
 1,586,384 
 40,731 
 1,627,115 

 Nexxis VoIP Services 
 188,926 
 — 
 188,926 

 Other 
 29,412 
 — 
 29,412 

 Total Revenue 
 $ 4,748,192 
 $ 79,557 
 $ 4,827,749 

 For the Three Months 

 Ended June 30, 2021 

 United States 
 International 
 Total 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 1,685,951 
 $ 39,212 
 $ 1,725,163 

 Equipment and Software 
 760,451 
 — 
 760,451 

 Managed Services 
 809,487 
 — 
 809,487 

 Nexxis VoIP Services 
 183,118 
 — 
 183,118 

 Other 
 50,030 
 — 
 50,030 

 Total Revenue 
 $ 3,489,037 
 $ 39,212 
 $ 3,528,249 

 For the Three Months 

 Ended June 30, 

 Timing of revenue recognition 
 2022 
 2021 

 Products transferred at a point in time 
 $ 1,093,916 
 $ 937,178 

 Products and services transferred over time 
 3,733,833 
 2,591,071 

 Total Revenue 
 $ 4,827,749 
 $ 3,528,249 

 12 

 For the Six Months 

 Ended June 30, 2022 

 United States 
 International 
 Total 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 3,863,367 
 $ 76,289 
 $ 3,939,656 

 Equipment and Software 
 6,287,949 
 — 
 6,287,949 

 Managed Services 
 2,735,887 
 74,038 
 2,809,925 

 Nexxis VoIP Services 
 383,860 
 — 
 383,860 

 Other 
 63,558 
 — 
 63,558 

 Total Revenue 
 $ 13,334,621 
 $ 150,327 
 $ 13,484,948 

 For the Six Months 

 Ended June 30, 2021 

 United States 
 International 
 Total 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 3,315,724 
 $ 69,787 
 $ 3,385,511 

 Equipment and Software 
 1,225,334 
 — 
 1,225,334 

 Managed Services 
 1,036,254 
 — 
 1,036,254 

 Nexxis VoIP Services 
 378,444 
 — 
 378,444 

 Other 
 77,397 
 — 
 77,397 

 Total Revenue 
 $ 6,033,153 
 $ 69,787 
 $ 6,102,940 

 For the Six Months 

 Ended June 30, 

 Timing of revenue recognition 
 2022 
 2021 

 Products transferred at a point in time 
 $ 6,383,582 
 $ 1,511,751 

 Products and services transferred over time 
 7,101,366 
 4,591,189 

 Total Revenue 
 $ 13,484,948 
 $ 6,102,940 

 Contract receivables are recorded at the
invoiced amount and are uncollateralized, non-interest-bearing client obligations. Provisions for estimated uncollectible accounts
receivable are made for individual accounts based upon specific facts and circumstances including criteria such as their age,
amount, and client standing.

 Sales are generally recorded in the month the service
is provided. For clients who are billed on an annual basis, deferred revenue is recorded and amortized over the life of the contract.

 Transaction price allocated to the remaining performance
obligations 

 The Company has the following performance obligations:

 1) 
 Data Vaulting : Subscription-based cloud service that encrypts and transfers data to a secure Tier 3 data center and further replicates the data to a second Tier 3 DSC technical center where it remains encrypted. Ensuring client retention schedules for corporate compliance and disaster recovery. Provides for twenty-four (24) hour or less recovery time and utilizes advanced data reduction, reduplication technology to shorten back-up and restore time. 

 2) 
 High Availability : A managed cloud subscription-based service that provides cost-effective mirroring software replication technology and provides one (1) hour or less recovery time for a client to be back in business. . 

 3) 
 Cloud Infrastructure : subscription-based cloud service provides for “capacity on-demand” for IBM Power and X86 Intel server systems. 

 4) 
 Internet : Subscription-based service, offering continuous internet connection combined with FailSAFE which provides disaster recovery for both a clients’ voice and data environments. 

 5) 
 Support and Maintenance : Subscription based service offers support for clients on their servers, firewalls, desktops or software. Services are provided 24x7x365 to our clients. 

 6) 
 Implementation / Set-Up Fees : Onboarding and set-up for cloud infrastructure and disaster recovery as well as Cyber Security. 

 7) 
 Equipment sales : Sale of servers and data storage equipment to the client. 

 9) 
 License : Granting SSL certificates and licenses. 

 13 

 Disaster Recovery and Business Continuity Solutions 

 Subscription services allow clients to access data
or receive services for a predetermined period of time. As the client obtains access at a point in time and continues to have access for
the remainder of the subscription period, the client is considered to simultaneously receive and consume the benefits provided by the
entity’s performance as the entity performs. Accordingly, the related performance obligation is considered to be satisfied ratably
over the contract term. As the performance obligation is satisfied evenly across the term of the contract, revenue is recognized on a
straight-line basis over the contract term.

 Initial Set-Up Fees 

 The Company accounts for set-up fees as a separate
performance obligation. Set-up services are performed one time and accordingly the revenue is recognized at the point in time, and is
non-refundable, and the Company is entitled to the payment.

 Equipment Sales 

 The obligation for the equipment sales is such the
control of the product transfer is at a point in time (i.e., when the goods have been shipped or delivered to the client’s location,
depending on shipping terms). Noting that the satisfaction of the performance obligation, in this sense, does not occur over time, the
performance obligation is considered to be satisfied at a point in time when the obligation to the client has been fulfilled (i.e., when
the goods have left the shipping facility or delivered to the client, depending on shipping terms).

 License - granting SSL certificates and other
licenses 

 Performance obligations as it relates to licensing
is that the control of the product transfers, either at a point in time or over time, depending on the nature of the license. The revenue
standard identifies two types of licenses of IP: (i) a right to access IP; and, (ii) a right to use IP. To assist in determining whether
a license provides a right to use or a right to access IP, ASC 606 defines two categories of IP: Functional and Symbolic. The Company’s
license arrangements typically do not require the Company to make its proprietary content available to the client either through a download
or through a direct connection. Throughout the life of the contract the Company does not continue to provide updates or upgrades to the
license granted. Based on the guidance, the Company considers its license offerings to be akin to functional IP and recognizes revenue
at the point in time the license is granted and/or renewed for a new period.

 Payment
 Terms 

 The typical terms of subscription contracts range
from 12 to 36 months, with auto-renew options extending the contract for an additional term. The Company invoices clients one month in
advance for its services, in addition to any contractual data overages or for additional services.

 Warranties 

 The Company offers guaranteed service levels and service
guarantees on some of its contracts. These warranties are not sold separately are accounted as “assurance warranties”.

 Significant
 Judgement 

 In the instance’s contracts have multiple performance
obligations, the Company uses judgment to establish a stand-alone price for each performance obligation. The price for each performance
obligation is determined by reviewing market data for similar services as well as the Company’s historical pricing of each individual
service. The sum of each performance obligation is calculated to determine the aggregate price for the individual services. The proportion
of each individual service to the aggregate price is determined. The ratio is applied to the total contract price in order to allocate
the transaction price to each performance obligation.

 14 

 Impairment
 of Long-Lived Assets 

 The Company reviews its long-lived assets for impairment
whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured
as the amount by which the carrying value exceeds the fair value is recognized if the carrying amount exceeds estimated un-discounted
future cash flows.

 Advertising
 Costs 

 The Company expenses the costs associated with
advertising as they are incurred. The Company incurred $ 316,062 and $ 156,510 for advertising costs for the three months ended June
30, 2022 and 2021, respectively. The Company incurred $ 405,793 
and $ 252,286 
for advertising costs for the six months ended June 30, 2022 and 2021, respectively.

 Stock-Based
 Compensation 

 DSC follows the requirements of FASB ASC
718-10-10, Share-Based Payments with regards to stock-based compensation issued to employees and non-employees. DSC 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. 

 The valuation methodology used to determine the fair
value of the options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a
number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected
life of the options. Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term.
The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not
intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s
best assessment.

 Estimated volatility is a measure of the amount by
which DSC’s stock price is expected to fluctuate each year during the expected life of the award. DSC’s calculation of estimated
volatility is based on historical stock prices over a period equal to the expected life of the awards.

 Net
 Income (Loss) Per Common Share 

 Basic income (loss) per share is computed by dividing
net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is
computed by dividing net income (loss) adjusted for income or loss that would result from the assumed conversion of potential common shares
from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents
and potentially dilutive securities outstanding during each period.

 The following table sets forth the information needed
to compute basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021:

 15 

 For the Three Months Ended 
 
 For the Six Months Ended 

 June 30, 
 
 June 30, 

 2022 
 
 2021 
 
 2022 
 
 2021 

 (as restated) 
 
 (as restated) 
 
 Net Income (Loss) Available to Common Shareholders 
 
 $ 
 ( 1,139,099 
 ) 
 
 $ 
 114,313 
 
 $ 
 ( 983,089 
 ) 
 
 $ 
 77,529 
 
 Weighted average number of common shares - basic 
 
 6,758,238 
 
 3,981,402 
 
 6,727,108 
 
 3,607,909 
 
 Dilutive securities 
 
 Options 
 
 — 
 
 134,254 
 
 — 
 
 — 
 
 Warrants 
 
 — 
 
 3,333 
 
 — 
 
 3,333 
 
 Weighted average number of common shares - diluted 
 
 6,758,238 
 
 4,118,989 
 
 6,727,108 
 
 3,611,242 
 
 Earnings (Loss) per share, basic 
 
 $ 
 ( 0.17 
 ) 
 
 $ 
 0.03 
 
 $ 
 ( 0.15 
 ) 
 
 $ 
 0.02 
 
 Earnings (Loss) per share, diluted 
 
 $ 
 ( 0.17 
 ) 
 
 $ 
 0.03 
 
 $ 
 ( 0.15 
 ) 
 
 $ 
 0.02 
 
 The following table sets forth the number of potential
shares of common stock that have been excluded from diluted net income (loss) per share net income (loss) per share because their effect
was anti-dilutive:

 Schedule of anti-dilutive income (loss) per share 
 
 Three Months ended June 30, 
 Six Months ended June 30, 

 2022 
 2021 
 2022 
 2021 

 Options 
 306,243 
 66,901 
 306,243 
 201,155 

 Warrants 
 2,419,193 
 1,840,000 
 2,419,193 
 1,840,000 

 2,725,436 
 1,906,901 
 2,725,436 
 2,041,155 

 Note
4 - Prepaids and other current assets 

 Prepaids
and other current assets consist of the following: 

 Schedule of prepaids
and other current assets 
 June 30, 
 December 31, 

 2022 
 2021 

 Prepaid Marketing & Promotion 
 $ 387,721 
 $  

 Prepaid Subscriptions and license 
 337,154 
 409,985 

 Prepaid Maintenance 
 129,920 
 80,227 

 Other 
 120,050 
 46,189 

 Total prepaids and other current assets 
 $ 974,845 
 $ 536,401 

 Note 5- Property and Equipment 

 Property and equipment, at cost, consist of the following:

 Schedule of property and equipment 
 
 June 30, 
 December 31, 

 2022 
 2021 

 Storage equipment 
 $ 60,288 
 $ 476,887 

 Furniture and fixtures 
 20,860 
 19,491 

 Leasehold improvements 
 20,983 
 20,983 

 Computer hardware and software 
 89,618 
 317,729 

 Data center equipment 
 6,900,702 
 5,760,146 

 Gross Property and equipment 
 7,092,451 
 6,595,236 

 Less: Accumulated depreciation 
 ( 4,510,837 ) 
 ( 4,657,765 ) 

 Net property and equipment 
 $ 2,581,614 
 $ 1,937,471 

 Depreciation expense for the three months ended June 30, 2022 and 2021 was $ 219,520 and $ 261,079 , respectively. 

 Depreciation expense for the six months ended June 30, 2022 and 2021 was
$ 501,128 and $ 479,768 , respectively.

 16 

 Note
 6 - Goodwill and Intangible Assets 

 Goodwill and intangible assets consisted of the following:

 Schedule of goodwill and intangible assets 
 
 June 30, 2022 
 
 Estimated life 
 
 Accumulated 
 
 in years 
 Gross amount 
 Amortization 
 Net 

 Intangible assets not subject to amortization 
 
 Goodwill 
 Indefinite 
 $ 6,560,671 
 $ — 
 $ 6,560,671 

 Trademarks 
 Indefinite 
 514,268 
 — 
 514,268 

 Total intangible assets not subject to amortization 
 
 7,074,939 
 — 
 7,074,939 

 Intangible assets subject to amortization 
 
 Customer lists 
 7 
 2,614,099 
 1,033,503 
 1,580,596 

 ABC acquired contracts 
 5 
 310,000 
 310,000 
 — 

 SIAS acquired contracts 
 5 
 660,000 
 660,000 
 — 

 Non-compete agreements 
 4 
 272,147 
 272,147 
 — 

 Website and Digital Assets 
 3 
 33,002 
 12,761 
 20,241 

 Total intangible assets subject to amortization 
 
 3,889,248 
 2,288,411 
 1,600,837 

 Total Goodwill and Intangible Assets 
 
 $ 10,964,187 
 $ 2,288,411 
 $ 8,675,776 

 Scheduled amortization over the next five years are as follows:

 Schedule of amortization over the next two years 
 
 Twelve months ending June 30, 
 
 2023 
 $ 278,727 

 2024 
 275,800 

 2025 
 267,143 

 2026 
 267,143 

 2027 
 267,143 

 Thereafter 
 244,881 

 Total 
 $ 1,600,837 

 Amortization expense for the six months ended June 30, 2022 and 2021 were
$ 139,461 
 and $ 98,667 
 respectively.

 Note
 7 - Leases 

 Operating
Leases 

 The Company
currently maintains two leases for office space located in Melville, NY. 

 The first
lease for office space in Melville, NY commenced on September 1, 2019. The term of this lease is for three years and eleven months
and runs co-terminus with our existing lease in the same building. The base annual rent is $ 10,764 payable
in equal monthly installments of $ 897 . 

 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 and expires on July
31, 2023 . 

 17 

 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, Boca Raton, FL. The commencement
date of the lease was August
2, 2021 . The monthly rent is $ 4,500 .

 The Company leases cages and racks for technical
space in Tier 3 data centers in New York, Massachusetts, North Carolina and Florida. These leases are month to month. The monthly rent
is approximately $ 39,000 .
The Company also leases technical space in Dallas, TX. The lease term is thirteen months and monthly payments are $ 1,403 . The lease term
expires on July 31, 2023.

 On January 1, 2022, the Company entered into a lease
agreement for office space with WeWork in Austin, TX. The lease term is six months and requires monthly payments of $ 1,470 and
expires on June
30, 2022 . Subsequent to June 30, 2022, the company is on a month-to-month lease with WeWork in Austin, TX.

 Finance Lease Obligations 

 On June 1, 2020, the Company entered into a lease
agreement with a finance company to lease technical equipment. The lease obligation is payable in monthly installments of $ 5,008 .
The lease carries an interest rate of 7 % and is a three-year lease. The term of the lease ends June 1, 2023 .

 On June 29, 2020, the Company entered into a lease
agreement for technical equipment with a finance company. The lease obligation is payable in monthly installments of $ 5,050 .
The lease carries an interest rate of 7 % and is a three-year lease. The term of the lease ends June 29, 2023 .

 On July 31, 2020, the Company entered into a lease
agreement for technical equipment with a finance company. The lease obligation is payable in monthly installments of $ 4,524 . The lease
carries an interest rate of 7 % and is a three-year lease. The term of the lease ends July 31, 2023 .

 On November 1, 2021, the Company entered into a lease
agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $ 3,152 . The lease
carries an interest rate of 6 % and is a three-year lease. The term of the lease ends September 21, 2024 .

 On January 1, 2022, the Company entered into a lease
agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $ 17,718 . The lease
carries an interest rate of 5 % and is a three-year lease. The term of the lease ends January 1, 2025 .

 On January 1, 2022, the Company entered into a technical
equipment lease with a finance company . The lease obligation is payable in monthly installments of $ 2,037 . The lease carries an interest
rate of 6 % and is a three-year lease. The term of the lease ends January 1, 2025 .

 Finance Lease Obligations – Related Party 

 On April 1, 2018, the Company entered into a lease
agreement with Systems Trading Inc. (“Systems Trading”) to refinance all equipment leases into one lease. This lease obligation
is payable to Systems Trading with bi-monthly installments of $ 23,475 . The lease carries an interest rate of 5 % and is a four-year
lease. The term of the lease ends April 16, 2022 . Systems Trading is owned and operated by the Company’s President, Harold
Schwartz.

 On January 1, 2019, the Company entered into a lease
agreement with Systems Trading. This lease obligation is payable to Systems Trading with monthly installments of $ 29,592 . The lease
carries an interest rate of 6.75 % and is a five-year lease. The term of the lease ends December 31, 2023 .

 On April 1, 2019, the Company entered into two
lease agreements with Systems Trading to add data center equipment. The first lease calls for monthly installments of $ 1,328 and
expires on March
1, 2022 . It carries an interest rate of 7 % .
The second lease calls for monthly installments of $ 461 and
expires on March
1, 2022 . It carries an interest rate of 6.7 % .

 18 

 On January 1, 2020, the Company entered into a lease agreement with Systems Trading to lease equipment. The lease obligation is payable to Systems Trading with monthly installments
of $ 10,534 . The lease carries an interest rate of 6 % and is a three-year lease. The term of the lease ends January 1, 2023 .

 On March 4,
2021, the Company entered into a lease agreement with Systems Trading effective April 1, 2021. This lease obligation is payable to
Systems Trading with monthly installments of $ 1,567 and expires on March 31, 2024 . The lease carries an interest rate of 8 % . 

 On January 1,
2022, the Company entered into a lease agreement with Systems Trading effective January 1, 2022. This lease obligation is payable
to Systems Trading with monthly installments of $ 7,145 and expires on April 1, 2025 . The lease carries an interest rate of 8 % . 

 On April 1,
2022, the Company entered into a lease agreement with Systems Trading effective May 1, 2022. This lease obligation is payable to Systems
Trading with monthly installments of $ 6,667 and expires on February 1, 2025 . The lease carries an interest rate of 8 % . 

 The Company determines if an arrangement contains
a lease at inception. Right of Use “ROU” assets represent the Company’s right to use an underlying asset for the lease
term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized
at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company’s lease term
includes options to extend the lease when it is reasonably certain that it will exercise that option. Leases with a term of 12 months
or less are not recorded on the balance sheet, per the election of the practical expedient. ROU assets and liabilities are recognized
at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company recognizes lease
expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in
which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured
using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred. A discount
rate of 5 % was used in preparation of the ROU asset and operating liabilities.

 The components of lease expense were as follows:

 Schedule Of Components of lease expense 
 
 Six Months Ended
 June 30, 2022 

 Finance leases: 
 
 Amortization of assets, included in depreciation and amortization expense 
 $ 668,770 

 Interest on lease liabilities, included in interest expense 
 134,939 

 Operating lease: 
 
 Amortization of assets, included in total operating expense 
 102,466 

 Interest on lease liabilities, included in total operating expense 
 9,657 

 Total net lease cost 
 $ 915,832 

 Supplemental balance sheet information related to leases was as follows: 
 
 Operating Leases: 
 
 Operating lease right-of-use asset 
 $ 325,745 

 Current operating lease liabilities 
 $ 207,062 

 Noncurrent operating lease liabilities 
 128,952 

 Total operating lease liabilities 
 $ 336,014 

 June 30, 2022 

 Finance leases: 
 
 Property and equipment, at cost 
 $ 5,471,716 

 Accumulated amortization 
 ( 3,248,858 ) 

 Property and equipment, net 
 $ 2,222,858 

 Current obligations of finance leases 
 $ 1,130,604 
 
 Finance leases, net of current obligations 
 872,618 
 
 Total finance lease liabilities 
 $ 2,003,222 

 Supplemental cash flow and other information related to leases were as
follows:

 19 

 Supplemental
 balance sheet information related to leases 
 
 Six Months Ended June 30, 2022 

 Cash paid for amounts included in the measurement of lease liabilities: 
 
 Operating cash flows related to operating leases 
 $ 95,744 

 Financing cash flows related to finance leases 
 $ 669,000 

 Weighted average remaining lease term (in years): 
 
 Operating leases 
 1.71 

 Finance leases 
 1.30 

 Weighted average discount rate: 
 
 Operating leases 
 5 % 

 Finance leases 
 7 % 

 Long-term obligations under the operating and finance leases at June 30,
2022 mature as follows: 

 Schedule
Of Long-term obligations under the operating and Finance leases 
 
 For the Twelve Months Ended June 30, 
 
 Operating Leases 
 Finance Leases 

 2023 
 $ 223,433 
 $ 1,234,126 

 2024 
 117,191 
 649,735 

 2025 
 9,226 
 265,235 

 2026 
 — 
 — 

 2027 
 — 
 — 

 Thereafter 
 — 
 — 

 Total lease payments 
 349,850 
 2,149,096 

 Less: Amounts representing interest 
 ( 13,836 ) 
 ( 145,874 ) 

 Total lease obligations 
 336,014 
 2,003,222 

 Less: Current 
 ( 207,062 ) 
 ( 1,130,604 ) 

 $ 128,952 
 $ 872,618 

 As of June 30, 2022, the Company had no additional
significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the six months ended
June 30, 2022 and 2021 was $ 105,245 
 and $ 41,894 ,
respectively.

 Note
 8 - Commitments and Contingencies 

 Management did not identify any other commitments
and contingencies. 

 20 

 Note
 9 - Stockholders’ (Deficit) 

 Capital Stock 

 The Company has 260,000,000 authorized shares of capital
stock, consisting of 250,000,000 shares of common stock, par value $0 .001 , and 10,000,000 shares of Preferred Stock, par value $0 .001 
per share.

 On May 1, 2022, the Company issued 125,000 shares
of its restricted common stock to employees in exchange for services at a fair value of $ 400,000 .

 During the six months ended June 30, 2022, employees
exercised 3,334 options into shares of common stock. The Company received $ 6,934 for these options.

 Common Stock Options 

 A summary of the Company’s options activity
and related information follows:

 Schedule
 of option activity and related information 
 
 Number of
 Shares
 Under Options 
 Range of
 Option Price
 Per Share 
 Weighted
 Average
 Exercise Price 
 Weighted
 Average
 Contractual
 Life 

 Options Outstanding at December 31, 2021 
 267,467 
 $ 2.00 – 16.00 
 $ 5.19 
 6.94 

 Options Granted 
 76,928 
 5.87 – 2.87 
 3.30 
 10 

 Exercised 
 ( 3,334 ) 
 2.00 – 2.16 
 2.08 
 — 

 Expired/Cancelled 
 ( 34,817 ) 
 — 
 — 
 — 

 Options Outstanding at June 30, 2022 
 306,243 
 $ 2.00 – 16.00 
 $ 2.66 
 7.71 

 Options Exercisable at June 30, 2022 
 132,556 
 $ 2.00 – 16.00 
 $ 2.40 
 5.68 

 21 

 Share-based compensation expense for options totaling $ 75,320 and $ 24,334 was recognized in our results for the three
months ended June 30, 2022 and 2021, respectively. Share-based compensation expense for options totaling
$ 141,825 and $ 66,505 was recognized in our results for the six months ended June 30, 2022 and 2021, respectively.

 The valuation methodology used to determine the fair
value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a
number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected
life of the options.

 The risk-free interest rate assumption is based upon
observed interest rates on zero-coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.

 Estimated volatility is a measure of the amount by
which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation
of estimated volatility is based on historical stock prices of the Company over a period equal to the expected life of the awards.

 As of June 30, 2022, there was $ 524,576 of total unrecognized
compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected
to be recognized over a weighted average period of approximately 2.51 years.

 The weighted average fair value of options granted,
and the assumptions used in the Black-Scholes model during the six months ended June 30, 2022, are set forth in the table below.

 Schedule of weighted average fair value of options granted 
 
 2022 

 Weighted average fair value of options granted 
 $ 4.45 

 Risk-free interest rate 
 1.63 % – 2.32 % 

 Volatility 
 204 % – 214 % 

 Expected life (years) 
 10 years 

 Dividend yield 
 — 

 Share-based
awards, restricted stock award (“RSAs”) 

 On March 31,
2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 40,375 . The shares
vest one year after issuance. 

 On June 30,
2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 6,175 . The shares
vest one year after issuance. 

 A summary of
the activity related to RSAs for the six months ended June 30, 2022, is presented below: 

 Schedule of non-vested restricted stock units 
 
 Restricted stock award (RSAs) 
 Total
 shares 
 Grant date
 fair value 

 RSAs non-vested at January 1, 2022 
 — 
 $ — 

 RSAs granted 
 25,000 
 $ 2.45 – 3.23 

 RSAs vested 
 — 
 $ — 

 RSAs forfeited 
 — 
 $ — 

 RSAs non-vested June 30, 2022 
 25,000 
 $ 2.45 – 3.23 

 Stock-based
compensation for RSA’s has been recorded in the consolidated statements of operations and totaled $ 10,066 
 for the three and six months ended June 30, 2021. 

 Note
 10 - Litigation 

 We are currently not involved in any litigation that
we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting DSC, its common stock,
any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which
an adverse decision could have a material adverse effect.

 22 

 Note 11 - Related Party Transactions 

 Finance Lease Obligations - Related Party 

 During the six months ended June 30, 2022, the Company entered into two
related party finance lease obligations. See Note 5 for details.

 Nexxis Capital LLC 

 Charles M. Piluso (Chairman and CEO) and Harold Schwartz
(President) collectively own 100% of Nexxis Capital LLC (“Nexxis Capital”). Nexxis Capital was formed to purchase equipment
and provide leases to Nexxis Inc.’s customers. The Company received funds of $ 14,036 and $ 3,968 during the six months ended June
30, 2022 and 2021 respectively.

 Note 12 - Merger 

 Flagship
Solutions, LLC 

 On
February 4, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Data Storage FL,
LLC, a Florida limited liability company and the Company’s wholly-owned subsidiary (the “Merger Sub”), Flagship Solutions,
LLC (“Flagship”), a Florida limited liability company, and the owners (collectively, the “Equityholders”) of all
of the issued and outstanding limited liability company membership interests in Flagship (collectively, the “Equity Interests”).
The Company acquired Flagship on May 31, 2021, and became its wholly-owned subsidiary. The purchase price was $5.5 million. 

 In addition, the cash merger consideration
paid by the Company to the Equityholders at Closing shall be adjusted, on a dollar-for-dollar basis, by the amount by which Flagship’s
net working capital at Closing is more or is less than the target working capital amount specified in the Merger Agreement. 

 Concurrently with the Closing, Flagship
and Mark Wyllie, Flagship’s Chief Executive Officer, entered into an Employment Agreement, which was 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
the Company. The Wyllie Employment Agreement provides for: (i) an annual base salary of $170,000, (ii) management bonuses comprised of
twenty-five percent (25%) of Flagship’s net income available in free cash flow as determined in accordance with GAAP for each calendar
quarter during the term, (iii) an agreement to issue him stock options of the Company, subject to approval by the Board, commensurate
with his position and performance and reflective of the executive compensation plans that the Company has in place with its other subsidiaries
of similar size to Flagship, (iv) life insurance benefits in the amount of $400,000, and (v) four weeks paid vacation. In the event Mr.
Wyllie’s employment is terminated by him for good reason (as defined in the Wyllie Employment Agreement) or by Flagship without
cause, he will be entitled to receive his annual base salary through the expiration of the initial three-year employment term and an amount
equal to his last annual bonus paid, payable quarterly. Pursuant to the Wyllie Employment Agreement, we have agreed to elect Mr. Wyllie
to the Board and the board of directors of Flagship to serve so long as he continues to be employed by the Company. The employment agreement
contains customary non-competition provisions that apply during its term and for a period of two years after the term expires. In addition,
pursuant to the Wyllie Employment Agreement, Mr. Wyllie will be appointed to serve as a member of the Company’s Board of Directors and
the board of directors of Flagship to serve so long as he continues to be employed by us. 

 Following
the closing of the transaction, Flagship’s financial statements as of the Closing were consolidated with the Consolidated Financial
Statements of the Company. 

 23 

 The following
sets forth the components of the purchase price: 

 Schedule of Purchase price 
 
 Purchase price: 
 
 Cash paid to the seller 
 $ 6,149,343 

 Total purchase price 
 6,149,343 

 Tangible Assets Acquired: 
 
 Cash 
 212,068 

 Accounts Receivable 
 1,389,263 

 Prepaid Expenses 
 127,574 

 Fixed Assets 
 4,986 

 Website and Digital Assets 
 33,002 

 Security Deposits 
 22,500 

 Total Tangible Assets Acquired 
 1,789,393 

 Tangible Liabilities Assumed: 
 
 Accounts Payable and Accrued Expenses 
 514,354 

 Deferred Revenue 
 68,736 

 Deferred Tax Liability 
 399,631 

 PPP Loan Payable 
 307,300 

 Total Tangible Liabilities Assumed 
 1,290,021 

 Net Tangible Assets Acquired 
 499,372 

 Excess Purchase Price 
 $ 5,649,971 

 The following
table shows the allocation of the excess purchase price. 

 Schedule of allocation of the excess purchase price 
 
 Customer Relationships 
 $ 1,870,000 

 Trade Names 
 235,000 

 Assembled Workforce 
 287,000 

 Goodwill 
 3,257,971 

 Excess Purchase Price 
 $ 5,649,971 

 The intangible
assets acquired include the trade names, customer relationships, assembled workforce, and goodwill. The deferred tax liability represents
the tax effected timing differences relating to the acquired intangible assets to the extent they are not offset by acquired deferred
tax assets. 

 The goodwill
represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. No portion of
the goodwill is deductible for tax purposes. 

 The following
presents the unaudited pro-forma combined results of operations of the Company with Flagship Solutions as if the entities were combined
on January 1, 2021. 

 Schedule of unaudited pro-forma 
 
 Three Months Ended 

 June 30,
 2021 

 Revenues 
 $ 7,759,779 

 Net income attributable to common shareholders 
 $ 1,288,367 

 Net income per share 
 $ 0.41 

 Weighted average number of shares outstanding 
 3,751,825 

 Six Months Ended 

 June 30,
 2021 

 Revenues 
 $ 14,270,565 

 Net income attributable to common shareholders 
 $ 1,202,704 

 Net income per share 
 $ 0.32 

 Weighted average number of shares outstanding 
 3,751,825 
 
 Note 13 - Subsequent Events 

 Management did not identify any subsequent Events.

 24 

 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION 

 The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto
included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year
ended December 31, 2021, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on March 31, 2022
(the “Annual Report”) with the U.S. Securities and Exchange Commission (the “SEC”). This Quarterly Report on Form
10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations,
intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including
without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time
at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other
risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

 In some cases, you can identify forward-looking statements
by terminology such as ‘ may, ’ ‘ will, ’ ‘ should, ’ ‘ could, ’
‘ expects, ’ ‘ plans, ’ ‘ intends, ’ ‘ anticipates, ’ ‘ believes, ’
‘ estimates, ’ ‘ predicts, ’ ‘ potential, ’ or ‘ continue ’
 or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking
statements after the date of this report.

 Restatement and Revision of Previously
Issued Financial Statements 

 In this Amendment
No. 1 to our Quarterly Report on Form 10-Q, we have restated our unaudited quarterly financial statements as of June 30, 2022
and for the three and six months ended June 30, 2022 (the “Restated Periods”).

 In addition, we
have restated certain previously reported financial information in the Restated Periods in this Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.

 See the Explanatory
Note and Note 2 Restatement of Previously Issued Financial Statements in Item 1. Financial Statements, for additional information
related to the restatement.

 The Industry Overview 

 Hybrid and Multi-Cloud have
become mainstream technological offerings of the Cloud Managed Services industry as companies have moved away from legacy, on-premise
technology solutions. This approach is growing more complex, as companies utilize disparate technical environments, including on-premises
equipment and software, multi-clouds interfacing with Software as a Service providers. Cloud Managed Service Providers assist businesses
manage their cloud infrastructure and meet their security requirements and financial objectives while optimizing the value of these technologies
and cloud resources through multi-cloud management, ensuring business continuity, governance, and operational efficiencies.

 This is a $500 billion-industry.
One subset of this $500 billion industry is IBM Power cloud infrastructure and disaster recovery. Globally estimated at over one million
virtual IBM Power servers. The Company has a core competency as a cloud service provider and is a leader in this segment. According to
the most recent information received from IBM, typical industries utilizing IBM Power servers are finance, retail, healthcare, government,
and distribution organizations.

 25 

 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 the number 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. According to 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 end of 2022 and based on the Big Data Business Analytics market share report posted on statista.com
the US has 51% of that growth.

 Company Overview 

 Data Storage Corporation, headquartered in Melville, New York, with three
subsidiaries, DSC now referred to as CloudFirst, Flagship Solutions and Nexxis provide solutions and services to a broad range of
clients in several industries including healthcare, banking and finance, distribution services, manufacturing, construction, education,
and government. The subsidiaries maintain business development teams, as well as independent distribution companies. The Company’s
contracted, non-employee, distribution channels provide long-term subscription-based disaster recovery and cloud infrastructure typically
into their client base.

 During 2021, based on the
May capital raise and the up list to Nasdaq, the Company accelerated organic growth strategies by adding 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.

 DSC is a leader in providing
IBM Power cloud infrastructure, disaster recovery and the creation of unique offering.

 The opportunity, for the
Company, in the IBM Power server portfolio segment is to capture a share of this annual recurring revenue marketplace that is currently
under migration to cloud infrastructure. Today there is limited competition in this IBM segment, whereas non-IBM type servers, X86 et.al.
are over-crowded with companies such as Amazon, Google and Microsoft holding a large share of that marketplace.

 The Company believes businesses
are increasingly under pressure to improve the proficiency 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 today’s
environment, capital preservation is an encouragement to move from a capital-intensive on-premise technology to a pay as you grow, CapEx
to OpEx model. These trends create an opportunity for cloud technology service providers.

 DSC’s market opportunity
is derived from the demand for fully managed cloud and cybersecurity services across all major operating systems.

 The Company’s addressable
market is estimated at $48 billion in annual recurring revenue in the United States and Canada.

 The Company has designed
and built its solutions and services to support demand for Cloud based IBM Power System that support client critical workloads and custom
in house developed applications, manage hybrid cloud deployments and continue to provide solutions that keep data and workloads protected
from disasters and security attacks.

 The Company’s business
offices are located in New York and Florida. The offices include a technology center and lab adapted to meet the technical requirements
of the Company’s clients. The Company maintains its own infrastructure, storage, and networking equipment required to provide subscription
solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina, and in Canada,
Toronto, and Barrie, serving clients in the United States and Canada.

 26 

 The Company’s disaster
recovery and business continuity solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber
security attacks, such as Ransomware. The Company’s managed cloud services begin with migration to the cloud and provide ongoing
system support and management that enables its clients to run their software applications and technical workloads in a multi-cloud environment.
The Company’s cyber security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote
monitoring services and technologies that is incorporated into the Company’s cloud solutions or be delivered as a standalone managed
security offering covering the client site endpoint devices, users, servers, and equipment.

 The Company’s solution
architects and business development teams work with organizations identifying and solving critical business problems. The Company carefully
plans and manages the migration and configuration process, continuing the relationship and advising its clients long after the services
have been implemented. Reflecting on client satisfaction, the Company’s renewal rate on client subscription solutions is approximately
94% after their initial contract term expired.

 The Company provides its
clients subscription-based, long-term agreements for managed cloud disaster recovery, managed cloud infrastructure, cyber security, telecommunications
solutions, and high processing on-site computing power and software solutions. While a significant portion of the Company’s revenue
has been subscription-based, it also generates revenue from the sale of equipment and software for cybersecurity, data storage, IBM Power
systems equipment and contracted managed service solutions.

 The Company’s focus
is to continue to build on annual recurring revenue, (ARR). DSC entered 2022 with a baseline ARR of over $12 million.

 The Company’s Core
Services : The Company provides an array of multi-cloud information technology solutions in highly secure, enterprise-level cloud services
for companies using IBM Power Systems, Microsoft Windows, and Linux. Specifically, the Company’s support services cover:

 Cyber Security Solutions: 

 ● 
 ezSecurity™ offers a suite of comprehensive cyber security solutions that can be utilized on systems at the client’s location or on systems hosted in the Company. These solutions include fully managed endpoint (PCs and other user devices) security with active threat mitigation, system security assessments, risk analysis, and applications to ensure continuous security. ezSecurity™ contains a specialized offering for protecting and auditing IBM systems including a package designed to protect IBM systems against Ransomware attacks. 

 Data Protection and
Recovery Solutions: 

 ● 
 ezVault™ solution is at the core of the Company’s data protection services and allows its clients to have their data protected and stored offsite with unlimited data retention in a secure location that uses encrypted, enterprise-grade storage which allows for remote recovery from system outages, human and natural disasters, and cyber security attacks like Ransomware and viruses allowing restoration of data from a known good point in time prior to an attack. 

 ● 
 ezRecovery™ provides standby systems, networking, and storage in the Company’s cloud infrastructure that allows for faster recovery from client backups stored using ezVault™ at the same cloud based hosted location. 

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

 ● 
 ezMirror™ solution provides replication services that mirror the clients’ data at the storage level and allows for similar near-zero Recovery Point Objective as ezAvailability with less application management and Recovery Time Objective under 1 hour. 

 27 

 Cloud Hosted Production
Systems: ezHost™ solution provides managed cloud services
that removes the burden off system management from its clients and ensures that their software applications and IT workloads are running
smoothly. ezHost™ provides full-time, scalable compute, storage, and network infrastructure resources to run clients’ workloads
on the Company’s enterprise-class infrastructure. ezHost™ replaces the cost of support, maintenance, system administration,
space, electrical power, and cooling of the typical hardware on-premises systems with a predictable monthly expense. The Company’s
ezHost services are backed by an SLA governing performance, availability, and access. 

 Voice & Data Solutions: 
Nexxis, our voice and data division, specializes in fully-managed VoIP, Internet Access, and Data Transport solutions that satisfy the
requirements of corporate and remote workforce. Services are delivered over fiber optic, coaxial, and wireless networks to assist businesses
fully connected from any location. Nexxis provides dedicated internet access with speeds of up to 10 Gbps, FailSAFE, a cloud-first SD-WAN
solution, that delivers industry-leading connectivity to cloud services, cloud-based Hosted VoIP and Unified Communications that provide
business continuity and integration with Microsoft Teams.

 RESULTS OF OPERATIONS 

 Three months
ended June 30, 2022 (as restated), as compared to June 30, 2021 

 Total Revenue. For the three months ended June 30,
2022, total revenue was $4,827,749 an increase of $1,299,500 or 37% compared to $3,528,249 for the three months ended June 30, 2021.
The increase is primarily attributed to the additional sales from the Flagship merger and an increase in monthly subscription revenue.

 Revenue 
 For the Three Months 
 
 Ended June 30, 
 
 2022 
 2021 
 $ Change 
 % Change 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 2,013,806 
 $ 1,725,163 
 $ 288,643 
 17 % 

 Equipment and Software 
 968,490 
 760,451 
 208,039 
 27 % 

 Managed Services 
 1,627,115 
 809,487 
 817,628 
 101 % 

 Nexxis VoIP Services 
 188,926 
 183,118 
 5,808 
 3 % 

 Other 
 29,412 
 50,030 
 (20,618 ) 
 (41 )% 

 Total Revenue 
 $ 4,827,749 
 $ 3,528,249 
 $ 1,299,500 
 37 % 

 Cost of Sales. For the three months ended
June 30, 2022, cost of sales was $3,269,187, an increase of $1,247,863 or 62% compared to $2,021,324 for the three months ended
June 30, 2021. The increase of $1,247,863 was mostly related to the Flagship merger and the variable nature of costs incurred
to produce and sell our products or services.

 Selling, general and administrative expenses. For
the three months ended June 30, 2022, selling, general and administrative expenses were $2,594,204, an increase of $ $991,893, or 62%,
as compared to $1,602,311 for the three months ended June 30, 2021. The net increase is reflected in the chart below.

 Selling, general and administrative
 expenses 
 For the Three Months 
 
 Ended June 30, 
 
 2022 
 2021 
 $ Change 
 % Change 

 Increase in Salaries 
 $ 1,405,717 
 $ 645,000 
 $ 760,717 
 118 % 

 Decrease in Professional Fees 
 200,542 
 225,727 
 (25,185 ) 
 (11 )% 

 Increase in Software as a Service Expense 
 76,841 
 53,318 
 23,523 
 44 % 

 Increase in Advertising Expenses 
 314,920 
 156,510 
 158,410 
 101 % 

 Decrease in Commissions Expense 
 293,829 
 298,909 
 (5,080 ) 
 (2 )% 

 Increase in Amortization and Depreciation expense 
 73,536 
 52,195 
 21,341 
 41 % 

 Increase in Travel and Entertainment 
 77,395 
 49,609 
 27,786 
 56 % 

 Increase in Rent and Occupancy 
 55,047 
 24,593 
 30,454 
 124 % 

 Increase in all other Expenses 
 96,377 
 96,450 
 (73 ) 
  % 

 Total Expenses 
 $ 2,594,204 
 $ 1,602,311 
 $ 991,893 
 62 % 

 28 

 Salaries. Salaries increased as a result of
the increased staff due to the Flagship merger and the hiring of our Chief Financial Officer.

 Professional fees. Professional fees
decreased primarily due to the reduction in acquisition costs for the Flagship merger and the reduction of legal fees since the
Company changed corporate lawyers. These decreases were offset by an increase in accounting and audit, investor relations, and
consulting for government lobbyists.

 S oftware as a Service Expense (SaaS). SaaS
increased due to additional costs paid to existing vendors to improve to our customer relationship management software and sales quoting
process.

 Advertising Expenses. Advertising Expenses
increased primarily due to the Flagship merger.

 Amortization and Depreciation expense .
 Amortization and Depreciation expense increased due to the increases in Finance leases payable
and the increase in the intangible assets acquired with flagship. 

 Travel And Entertainment. Travel And Entertainment
increased primarily due to the Flagship merger .

 Other Income (Expense) . Other income (expenses)
for the three months ended June 30, 2022, decreased $(344,611) to $(113,644) from $230,947 for the three months ended June 30, 2021. The
increase in other expense is primarily attributable to the increase interest expense for the three months ended June 30, 2022, and the
reduction of from the gain on forgiveness of debt from the prior period.

 Net Income before provision for income
taxes. Net income before provision for income taxes for the three months ended June 30, 2022 was $(1,149,306), as compared
to a net income of $135,561 for the three months ended June 30, 2021.

 Six months
ended June 30, 2022 (as restated), as compared to June 30, 2021 

 Total Revenue. For the six months ended June
30, 2022, total revenue was $13,484,948 an increase of $7,382,008 or 121% compared to $6,102,940 for the six months ended June 30, 2021.
The increase is primarily attributed to the additional sales from the Flagship merger and an increase in monthly subscription revenue.

 Revenue 
 For the Six Months 
 
 Ended June 30, 
 
 2022 
 2021 
 $ Change 
 % Change 

 Infrastructure & Disaster Recovery/Cloud Service 
 $ 3,939,656 
 $ 3,385,643 
 $ 554,013 
 16 % 

 Equipment and Software 
 6,287,949 
 1,225,334 
 5,062,615 
 413 % 

 Managed Services 
 2,809,925 
 1,036,254 
 1,773,671 
 171 % 

 Nexxis VoIP Services 
 383,860 
 378,444 
 5,416 
 1 % 

 Other 
 63,558 
 77,265 
 (13,707 ) 
 (18 )% 

 Total Revenue 
 $ 13,484,948 
 $ 6,102,940 
 $ 7,382,008 
 121 % 

 Cost of Sales. For the six
months ended June 30, 2022, cost of sales was $9,280,476, an increase of $5,838,253 or 170% compared to $3,442,223 for the six
months ended June 30, 2021. The increase of $5,838,253 was mostly related to the Flagship merger and the variable nature of costs
incurred to produce and sell our products or services.

 Selling, general and administrative expenses. 
For the six months ended June 30, 2022, selling, general and administrative expenses were $5,054,070, an increase of $2,333,352, or 86%,
as compared to $2,720,718 for the six months ended June 30, 2021. The net increase is reflected in the chart below.

 29 

 Selling, general and administrative expenses 
 For the Six Months 
 
 Ended June 30, 
 
 2022 
 2021 
 $ Change 
 % Change 

 Increase in Salaries 
 $ 2,890,661 
 $ 1,153,710 
 $ 1,736,951 
 151 % 

 Increase in Professional Fees 
 387,629 
 350,628 
 37,001 
 11 % 

 Increase in Software as a Service Expense 
 146,899 
 105,461 
 41,438 
 39 % 

 Increase in Advertising Expenses 
 405,793 
 252,286 
 153,507 
 61 % 

 Increase in Commissions Expense 
 639,093 
 512,163 
 126,930 
 25 % 

 Increase in Amortization and Depreciation expense 
 146,947 
 104,026 
 42,921 
 41 % 

 Increase in Travel and Entertainment 
 115,926 
 55,674 
 60,252 
 108 % 

 Increase in Rent and Occupancy 
 108,114 
 41,894 
 66,220 
 158 % 

 Increase in all other Expenses 
 213,008 
 144,876 
 68,132 
 47 % 

 Total Expenses 
 $ 5,054,070 
 $ 2,720,718 
 $ 2,333,352 
 86 % 

 Salaries. Salaries increased as a result of
the increased staff due to the Flagship merger and the hiring of our Chief Financial Officer.

 Professional fees. Professional fees increased
primarily due to a new investor relations firm, and an increase in fees associated with being on NASDAQ.

 S oftware as a Service Expense (SaaS). SaaS
increased due to additional costs paid to existing vendors to improve to our customer relationship management software and sales quoting
process.

 Advertising Expenses. Advertising
Expenses increased primarily due to the Flagship merger. 

 Commissions Expense. Commissions expenses increased
due to the Flagship merger and the sales associated with Flagship.

 Amortization and Depreciation expense. Amortization
and Depreciation expense increased due to the increases in Finance leases payable and the increase in the intangible assets acquired with
flagship.

 Travel And Entertainment. Travel And Entertainment
increased primarily due to the Flagship merger.

 All Other Expenses. Other expenses increased
primarily due to the Flagship merger. 

 Other Income (Expense) . Other income (expenses)
for the six months ended June 30, 2022, decreased $(352,226) to $(156,324) from $195,902 for the six months ended June 30, 2021. The decrease
in other expense is primarily attributable to the increase interest expense for the six months ended June 30, 2022, and the reduction of
from the gain on forgiveness of debt from the prior period.

 Net Income before provision for income
taxes. Net income before provision for income taxes for the six months ended June 30, 2022, was $(1,005,922), as compared
to a net income of $135,901 for the six months ended June 30, 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 DSC will realize its assets and discharge its liabilities in the ordinary course of business.

 To the extent we are successful in growing our business,
identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component,
we plan to use our working capital and the proceeds of any financing to finance such acquisition costs.

 Our opinion concerning our liquidity is based on current
information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs,
which will 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-term contracts to supply our subscription-based
solutions that are invoiced to clients monthly. We believe the total contract value of our subscription contracts with clients based on
the actual contracts that we have to date, exceeds $10 million . Further, we continue to see an uptick in client interest distribution
channel expansion and in sales proposals. In 2021, we intend to continue to work to increase our presence in the IBM “Power I”
infrastructure cloud and business continuity marketplace in the niche of IBM “Power “and in the disaster recovery global marketplace
utilizing our technical expertise, data centers utilization, assets deployed in the data centers, 24 x 365 monitoring and software.

 During the six months ended June 30, 2022, DSC’s
cash decreased by $(921,367) to $11,214,436 from $12,135,803 on December 31, 2021. Net cash of $208,082 was used in DSC’s operating
activities resulting primarily from the changes in assets and liabilities. Net cash of $51,220 was used in investing activities from the
purchase of equipment. Net cash of $662,065 was used by financing activities resulting primarily from payments on capital lease obligations.
This was offset by the cash received for the exercised options.

 30 

 DSC’s working capital was $11,482,548
on June 30, 2022, decreasing by $602,267 from $12,084,815 at December 31, 2021. The decrease is primarily attributable to a decrease
in cash. This was offset by an increase in accounts receivable, prepaids, other current assets, accounts payable and leases payable.

 Off-Balance Sheet Arrangements 

 DSC does not have any off-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 operating performance because it allows management, investors, debtholders
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 (loss) to adjusted EBITDA for the three and six months ended June 30, 2022 and 2021, respectively:

 For the Three Months Ended 
 For the Six Months Ended 

 June 30, 
 June 30, 
 June 30, 
 June 30, 

 2022 
 2021 
 2022 
 2021 

 (as
 restated) 
 
 (as
 restated) 
 
 Net income (loss) 
 $ (1,149,306 ) 
 $ 135,561 
 $ (1,005,922 ) 
 $ 135,901 

 Non-GAAP adjustments: 
 
 Depreciation and amortization 
 289,251 
 309,855 
 640,589 
 577,044 

 Interest income and expense 
 115,501 
 46,621 
 158,161 
 81,666 

 Flagship acquisition costs 
 165
 
  
 770 
  

 Loss on disposal of equipment 
  
 29,732 
  
 29,732 

 Gain on forgiveness of debt 
  
 (307,300 ) 
  
 (307,300 ) 

 Stock based compensation 
 485,387 
 34,050 
 551,892 
 76,221 

 Adjusted EBITDA 
 $ (260,839
 ) 
 $ 248,519 
 $ 343,488
 
 $ 593,264 

 31 

 Item 3. Quantitative and Qualitative Disclosures
About Market Risk. 

 As a smaller reporting company this item is not required.

 Item 4. Controls and Procedures. 

 Evaluation of Disclosure Controls and Procedures .

 As
of the end of the period covered by this Report, under the supervision and with the participation of DSC’s management, including
its principal executive officer, DSC conducted an evaluation of its disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls were not effective as of September 30, 2022, based on the material weaknesses identified below. 

 Material
Weaknesses in Internal Control over Financial Reporting 

 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 annual or interim financial statements will not be prevented or
detected on a timely basis. This material weakness 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. 

 Remediation Plan for the Material Weaknesses 

 In
response to the aforementioned 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 are evaluating and documenting the design and operating effectiveness of our internal control over
financial reporting, and their work is ongoing. Our plan also includes advisors looking over all material agreements monthly to
determine accounting treatment for complex transactions. The material weaknesses will be considered remediated once management
completes the design and implementation of the measures described above and the controls operate for a sufficient period of time,
and management has concluded, through testing, that these controls are effective. 

 32 

 Changes
in Internal Control over Financial Reporting 

 As
described above, there were changes in our internal control over financial reporting during the three months ended September 30,
2022, that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial
reporting. 

 PART II - OTHER INFORMATION 

 Item 1. Legal Proceedings. 

 We are currently not involved in any litigation that
we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting DSC, its common stock,
any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which
an adverse decision could have a material adverse effect.

 Item 1A. Risk Factors. 

 Our business, financial condition,
results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set
forth in our most recent Annual Report on Form 10-K for the year ended December 31, 2021, the occurrence of any one of which could have
a material adverse effect on our actual results.

 There have been no material
changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

 Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds. 

 Other than as set forth below, there were no unregistered
sales of the Company’s equity securities during the period ended June 30, 2022, that were not previously reported in a Current Report
on Form 8-K.

 During the six months ended June 30, 2022, employees exercised 3,334 options,
into 3,334 shares of common stock. The Company received $6,934 for the exercise of these options.

 33 

 Item 3. Defaults Upon Senior Securities. 

 There were no defaults upon senior securities during
the period ended June 30, 2022.

 Item 4. Mine Safety Disclosures 

 Not Applicable.

 Item 5. Other Information. 

 There is no other information required to be disclosed
under this item that was not previously disclosed.

 Item 6. Exhibits. 

 Exhibit No. 
 
 Description 

 31.1* 
 
 Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 

 31.2* 
 
 Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 

 32.1* 
 
 Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

 32.2* 
 
 Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 

 101.INS 
 
 XBRL Instant Document 

 101.SCH 
 
 XBRL Taxonomy Extension Schema Document 

 101.CAL 
 
 XBRL Taxonomy Extension Calculation Linkbase Document 

 101.DEF* 
 
 XBRL Taxonomy Extension Definition Linkbase Document 

 101.LAB* 
 
 XBRL Taxonomy Extension Label Linkbase Document 

 101.PRE* 
 
 XBRL Taxonomy Extension Presentation Linkbase Document 

 104 
 
 Cover Page Interactive Data File (embedded within the Inline XBRL document). 

 * Filed herewith.

 # Indicates management contract or compensatory plan.

 34 

 SIGNATURES 

 Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 DATA STORAGE CORPORATION 

 Date: November 14, 2022 
 
 By: 
 /s/ Charles M. Piluso 

 Charles M. Piluso 

 Chief Executive Officer 

 (Principal Executive Officer) 

 Date: November 14, 2022 
 
 By: 
 /s/ Chris H. Panagiotakos 

 Chris H. Panagiotakos 

 Chief Financial Officer 

 (Principal Financial Officer) 

 35
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
Data Storage Corp 10-Q/A
