What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-31 · 314 added, 246 removed, 85 unchanged (87% of the section changed)

12 unchanged sentences

COMPANY OVERVIEW

Data Storage Corporation, headquartered

in Melville, New York, together with its three subsidiaries, DSC, Flagship Solutions LLC and Nexxis, Inc.

provides solutions and services

to a broad range of clients in several industries, including healthcare, banking and finance, distribution services, manufacturing, construction,

education, and government.

The subsidiaries maintain business development teams, as well as independent distribution companies.

example, the Company’s distribution channel of companies provides long-term subscription-based disaster recovery and cloud infrastructure

without investing in the infrastructure, data centers, telecommunications or specialized technical staff, which substantially lowers their

barrier of entry in providing these solutions to their client base.

The distribution company has typically provided equipment and software.

However, a client’s awareness in 2021 of the ability to migrate to an IBM Power cloud infrastructure and disaster recovery affords

the distributor the ability to maintain the client and create an annuity year after year.

To further support that awareness, over 55,000

visitors arrived at the Company’s website in 2021.

During 2021, based on the May

capital raise and the up list to Nasdaq, the Company added distribution, business development representatives, marketing, and technical

Management continues to be focused on building the Company’s sales and marketing strategy and expanding its technology

assets throughout its data center network.

The Company’s business

offices are in New York and Florida.

The offices include a technology center and lab, adapted to meet the technical requirements of the

Company’s clients.

The Company 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.

The Company’s Business

Continuity Solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such

as Ransomware.

The Company’s Managed Cloud Services starts with migration to the cloud and provides ongoing system support and management

that enables its clients to run their software applications and technical workloads in a multi-cloud environment.

The Company’s

Cyber Security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services

and technologies that can be 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.

architects and the Company’s business development teams work with organizations identifying and solving critical business problems.

The Company carefully plans and manages the migration and configuration process, continuing the relationship and advising its clients

long after the services have been implemented.

As of this filing the Company has proposals outstanding of approximately $14 million in

total contract value;

and, total proposals outstanding including equipment and software of approximately $20 million.

Reflecting on client

satisfaction, the Company’s renewal rate on client subscription solutions is approximately 94% after their initial contract term

The Company provides our clients subscription-based,

long-term agreements for cloud disaster recovery, cloud infrastructure, telecommunications solutions, and high processing on-site computing

power and software solutions.

While a significant portion of our revenue has been subscription-based, we also generate revenue from the

sale of equipment and software for cybersecurity, data storage, IBM Power systems equipment and managed service solutions.

filing the company has a backlog of over $500,000 in Annual Recurring Revenue (ARR) and equipment and software of approximately $2 million.

Data Storage Corporation,

headquartered in Melville, New York, together with its three subsidiaries, DSC now CloudFirst Technologies, Flagship Solutions LLC and

provides solutions and services to a broad range of clients in several industries, including healthcare, banking and finance,

distribution services, manufacturing, construction, education, and government.

The subsidiaries maintain business development teams, as

well as independent distribution companies.

As an example, the Company’s distribution channel of companies provides long-term subscription-based

disaster recovery and cloud infrastructure without investing in the infrastructure, data centers, telecommunications or specialized technical

staff, which substantially lowers their barrier of entry in providing these solutions to their client base.

The distribution company has

typically provided equipment and software.

However, a client’s awareness in 2022 of the ability to migrate to an IBM Power cloud

infrastructure and disaster recovery affords the distributor the ability to maintain the client and create an annuity year after year.

To further support that awareness, over 90,000 visitors arrived at the Company’s websites in 2022.

During 2021, based on the May capital raise and the

up list to Nasdaq, the Company added distribution, business development representatives, marketing, and technical personnel.

continues to be focused on building the Company’s sales and marketing strategy and expanding its technology assets throughout its

data center network.

The Company’s business offices are in New York

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.

The Company’s Business Continuity Solutions

allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such as Ransomware.

Company’s Managed Cloud Services starts with migration to the cloud and provides ongoing system support and management that enables

its clients to run their software applications and technical workloads in a multi-cloud environment.

The Company’s Cyber Security

offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services and technologies

that can be 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.

Solution architects and the

Company’s business development teams work with organizations identifying and solving critical business problems.

The Company carefully

plans and manages the migration and configuration process, continuing the relationship and advising its clients long after the services

have been implemented.

As of this filing the Company provides our clients subscription-based, long-term agreements for cloud disaster

recovery, cloud infrastructure, telecommunications solutions, and high processing on-site computing power and software solutions.

a significant portion of our revenue has been subscription-based, we also generate revenue from the sale of equipment and software for

cybersecurity, data storage, IBM Power systems equipment and managed service solutions.

2022 Business Update

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FL, LLC, a Florida limited liability company.

Flagship is a provider of IBM solutions, managed services, data analytics, cyber security

and cloud solutions.

The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM business

and anticipates meaningful operation efficiency of the two organizations.

The Company also believes the Merger will provide the combined

entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as

middle-market customers.

Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology

solutions in highly secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux,

Infrastructure as a Service (IaaS), Disaster Recovery of digital information (DRaaS), Cyber Security as a Service (CSaaS),

and Data Analytics as a Service.

Flagship is a provider of IBM solutions, managed services, cyber security and cloud solutions.

The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM business and anticipates

meaningful operation efficiency of the two organizations.

The Company also believes the Merger will provide the combined entities a comprehensive

one-stop provider to cross-sell solutions across each organization’s respective enterprise, as well as middle-market customers.

Key offerings for the combined companies are expected to include a wide array of multi-cloud information technology solutions in highly

secure, reliable enterprise level cloud services for companies using IBM Power systems, Microsoft Windows and Linux, including:

Infrastructure

as a Service (IaaS), Disaster Recovery of digital information (DRaaS), and Cyber Security as a Service (CSaaS).

Flagship focuses on the IBM

user community with solutions and services such as, equipment, software, cyber security, data analytics, managed cloud solutions globally.

The Company expects that Flagship’s business will be synergistic with the Company’s existing IBM user community focus and

anticipates meaningful operation efficiency through the integration the organizations.

The Company also believes the Merger will also

provide the combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise,

as well as middle-market customers.

user community with solutions and services such as, equipment, software, cyber security, and managed cloud solutions globally.

expects that Flagship’s business will be synergistic with the Company’s existing IBM user community focus and anticipates

meaningful operation efficiency through the integration the organizations.

The Company also believes the Merger will also provide the

combined entities a comprehensive one-stop provider to cross-sell solutions across each organization’s respective enterprise, as

well as middle-market customers.

Key offerings for the combined companies are expected to include a wide array of multi-cloud information

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and Linux, including:

cloud Infrastructure as a Service, Disaster Recovery of digital information, Cyber Security as a Service, and Data

The Company intends to continue its strategy of growth through synergistic acquisitions.

cloud Infrastructure as a Service, Disaster Recovery of digital information, and Cyber Security as a Service.

Company intends to continue its strategy of growth through synergistic acquisitions.

The Company’s offices

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Year ended December 31, 2022, as compared to December

Sales for the year ended December 31, 2021, increased

by approximately 60% to $14,876,227 as compared to sales for the year ended December 31, 2020, or $9,320,933.

The increase is primarily

attributed to the additional sales from the Flagship merger and an increase in monthly subscription revenue.

The Company derives its sales

from five types of services that we provide:

infrastructure & disaster recovery / cloud services which is the largest source of our

sales, followed by equipment and software sales, managed services, professional fees, and Nexxis, VOIP and internet access services.

cloud infrastructure & disaster recovery/cloud services are subscription-based.

We also provide equipment and software and actively

participate in collaboration with IBM to provide innovative business solutions to clients.

The professional services are providing the

client cloud infrastructure and or Disaster Recovery implementation services as well as time and materials billing.

Substantially all

of the Company’s sales were to customers in the United States, with less than 1% of its sales to international customers.

Sales for the year ended

December 31, 2022, increased by approximately 60% to $23,870,837 as compared to sales for the year ended December 31, 2021, or $14,876,227.

The Company derives its sales from five types of services that we provide:

infrastructure & disaster recovery / cloud services which

is the largest source of our sales, followed by equipment and software sales, managed services, professional fees, and Nexxis, VOIP and

internet access services.

The cloud infrastructure & disaster recovery/cloud services are subscription-based.

We also provide equipment

and software and actively participate in collaboration with IBM to provide innovative business solutions to clients.

The professional

services are providing the client cloud infrastructure and or Disaster Recovery implementation services as well as time and materials

Substantially all of the Company’s sales were to customers in the United States, with less than 2% of its sales to international

The following chart details the changes in the Company’s

sales for the years ended December 31, 2022, and 2021, respectively.

Cloud Infrastructure & Disaster Recovery

Cloud Infrastructure

& Disaster Recovery

Equipment and Software

Managed Services

Nexxis Services

VoIP Services

Cost of Sales.

For the year ended December

31, 2021, cost of sales was $8,459,117, an increase of $3,033,912 or 56% compared to $5,425,205 for the year ended December 31, 2020.

The increase of $3,033,912 was mostly related to variable cost incurred to produce and sell the Company’s products or services.

Selling, general and

administrative expenses .

the year ended December 31, 2022, cost of sales was $15,787,544, an increase of $7,328,427 or 87% compared to $8,459,117 for the

year ended December 31, 2021.

The increase of $7,328,427 was mostly related to the increase in overall sales and the increase in

sales which resulted from the Flagship merger.

Impairment of goodwill .

During the year ended

December 31, 2022, the Company recorded an Impairment of goodwill of $2,322,000 regarding its Flagship segment .

general and administrative expenses .

For the year ended December 31, 2022, selling, general and administrative expenses were $9,837,308,

an increase of $2,653,126, or 37%, as compared to $7,184,182 for the year ended December 31, 2021.

The net increase is reflected in the

Selling, general and administrative expenses

Ended December 31,

Increase in Salaries

Increase in Professional Fees

Increase in Software as a Service Expense

Increase in Advertising Expenses

Increase in Commissions Expense

Increase in all other Expenses

Total Expenses

increased as a result of the increased staff due to the Flagship merger, and the hiring of additional employees, and raises granted

to employees.

The net [increase/decrease] is

reflected in the chart below.

general and administrative expenses

in Professional Fees

in Software as a Service Expense

in Advertising Expenses

in Commissions Expense

in Amortization and Depreciation Expense

in Travel and Entertainment Expense

in Rent and Occupancy Expense

in Insurance Expense

in all other Expenses

increased as a result of the increased staff due to the Flagship merger, the hiring of our Chief Financial Officer and the increase in

stock-based compensation.

Professional fees.

fees increased primarily due to fees incurred for the Flagship merger, two new investor relations firms, 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 make improvements to the Company’s customer

relationship management software and purchases of new user licenses.

Advertising Expense.

expense increased primarily due to additional marketing campaigns for the Flagship merger and an increase in existing advertising campaigns.

fees increased primarily due to a new investor relations firm, an increase in legal fees, and an increase in fees associated with being

Advertising Expenses.

Expenses increased primarily due to the Flagship merger and the company sponsoring American mixed martial arts events.

Commissions Expense.

expense increased due to the increase in new revenues.

Commission expense varies due to different contractual agreements with both contracted

distributors and employees.

All Other Expenses .

expenses increased primarily due to a combination of an increase in online training and continuing education, increase in travel after

the Flagship merger, and an increase in bad debt expense.

This was partially offset by a reduction in costs associated with employees

working from home due to the pandemic as well as a reduction in expenses related to the Company’s office space in Melville, New

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

And Entertainment.

Travel And Entertainment increased primarily due to the Flagship merger and

the lifting of Covid-19 restrictions.

and Occupancy.

Rent and Occupancy increased primarily due to the Flagship merger and the WeWork in Austin, TX that started in

January 2022.

Other Expenses .

Increased primarily due to the Flagship merger.

Other Income (Expense).

Other income for

the year ended December 31, 2021, increased $452,940 to $627,362 from $174,422 for the year ended December 31, 2020.

The increase in other

income is primarily attributable to the gain on forgiveness of debt from the PPP loans and a decrease in interest expense.

This was offset

by the gain on contingent liability recorded in the prior year and the loss on disposal of assets recorded during the year.

Net Income (Loss) before provision for income taxes .

(loss) before provision for income taxes for the year ended December 31, 2021, was $(105,543), as compared to a net income of $173,359

for the year ended December 31, 2020.

Other income for the

year ended December 31, 2022, decreased $960,210 to $(332,848) from $627,362 for the year ended December 31, 2021.

The decrease in other

income is primarily attributable to the increase in interest expense, the increase in impairment of deferred offering costs, and the decrease

from the gain on forgiveness of debt from the PPP loan.

(Net Loss) before provision for income taxes .

loss before provision for income taxes for the year ended December 31, 2022, was $4,408,863, as compared to a net loss of $139,710 for

the year ended December 31, 2021.

LIQUIDITY AND CAPITAL RESOURCES

The consolidated

financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”)

applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course

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

To the extent the Company

18 unchanged sentences

During the year ended December

31, 2021, Data Storage’s cash increased $11,242,205 to $12,135,803 from $893,598 December 31, 2020.

31, 2022, Data Storage’s cash decreased $9,849,081 to $2,286,722 from $12,135,803 December 31, 2021.

Net cash of $663,801 was provided

by Data Storage’s operating activities resulting primarily from changes in assets and liabilities.

Net cash of $9,138,225 was used

by Data Storage’s operating activities resulting primarily from the changes in assets and liabilities.

Net cash of $6,418,110 was

used in investing activities primarily from the purchase of Flagship.

Net cash of $18,021,005 was provided by financing activities resulting

primarily from the sale of common stock and warrants.

This was offset by the repayment of principle and accrued dividends as well

as finance lease obligations.

in investing activities from the purchase of short-term investments and capital expenditures.

Net cash of $1,374,657 was used in financing

activities resulting primarily in payments on finance lease obligations and payments for deferred offering costs.

This was offset by the

cash received for the exercised options.

The Company’s working

capital was $12,084,815 on December 31, 2021, increasing by $14,751,263 from $(2,666,448) at December 31, 2020.

The increase is primarily

attributable to an increase in cash, accounts receivable, and a decrease in dividend payable.

This was offset by an increase in accounts

payable and lease payables.

capital was $10,855,407 on December 31, 2022, decreasing by $1,229,408 from $12,084,815 at December 31, 2021.

The decrease is primarily

attributable to a decrease in cash, deferred revenue, and leases payable related party.

This was offset by an increase in short-term investments,

accounts receivables, prepaids and other current assets, accounts payable, and leases payable.

Off-Balance Sheet Arrangements

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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, debt holders and others to evaluate and compare ongoing operating

results from period to period by removing the impact of our asset base, any asset disposals or impairments, stock-based compensation

and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our

working capital.

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, debt holders and others to evaluate and compare ongoing operating results from period to period by removing the impact of our

asset base, any asset disposals or impairments, stock-based compensation and other non-cash income and expense items associated with our

reliance on issuing equity-linked debt securities to fund our working capital.

Our use of Adjusted EBITDA

9 unchanged sentences

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

For the Year Ended

Non-GAAP adjustments:

Depreciation and amortization

Benefit from income taxes

Flagship acquisition costs

Interest income and expense

Gain on contingent liability

Loss on disposal of assets

Gain on forgiveness of debt

Stock-based compensation

Adjusted EBITDA

the Year Ended

(Loss) Income

$ (4,408,863 )

and amortization

from income taxes

acquisition costs

income and expense

Impairment of goodwill

on disposal of assets

on forgiveness of debt

CRITICAL ACCOUNTING POLICIES

The Company’s financial statements and related

public financial information are based on the application of GAAP.

GAAP requires the use of estimates;

assumptions, judgments and subjective

interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported.

estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies,

risk and financial condition.

The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently

The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under

the circumstances.

Actual results may differ materially from these estimates under different assumptions or conditions.

The Company continues

to monitor significant estimates made during the preparation of our financial statements.

The Company’s significant accounting policies

are summarized in Note 2 of its financial statements.

While all these significant accounting policies impact the Company’s financial

condition and results of operations, it views certain of these policies as critical.

Policies determined to be critical are those policies

that have the most significant impact on the Company’s financial statements and require management to use a greater degree of judgment

and estimates.

Actual results may differ from those estimates.

The Company’s management believes that given current facts and circumstances,

it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on its consolidated results of

operations, financial position or liquidity for the periods presented in this report.

We believe that the following accounting policies

are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial

Condition and Results of Operation.”

Use of Estimates

The preparation

of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts

of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenue and expenses during the reporting period.

Actual results could differ from these estimates.

Estimated Fair Value of Financial

The Company’s

financial instruments include cash, accounts receivable, accounts payable and, lease commitments.

Management believes the estimated fair

value of these accounts on December 31 ,2022, approximate their carrying value as reflected in the balance sheet due to the short-term

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.

and Equipment

equipment are recorded at cost and depreciated over their estimated useful lives or the term of the lease using the straight-line method

for financial statement purposes.

Estimated useful lives in years for depreciation are five to seven years for property and

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.

Offering Costs

capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings

as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded

in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering.

Should the planned

equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to other income and expenses in the

consolidated statement of operations.

In accordance with this policy, for the years ended December 31, 2022, and 2021, the Company expensed

financing costs of $127,343 and $0, respectively.

and Other Intangibles

tests goodwill and other intangible assets for impairment on at least an annual basis.

Impairment exists if the carrying value of a reporting

unit exceeds its estimated fair value.

To determine the fair value of goodwill and intangible assets, the Company uses many assumptions

and estimates using a market participant approach that directly impact the results of the testing.

In making these assumptions and estimates,

the Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management.

The Company tests goodwill for impairment on an annual

basis on December 31, or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be

below its carrying amount.

The Company has four reporting units.

The Company uses an income-based approach to determine the fair value

of the reporting units.

This approach uses a discounted cash flow methodology and the ability of our reporting units to generate cash

flows as measures of fair value of our reporting units.

During the year ended December 31, 2022, and 2021,

the Company completed its annual impairment tests of goodwill.

The Company performed the qualitative assessment as permitted by ASC 350-20

and determined for three of its reporting units that the fair value of those reporting units was more likely than not greater than their

carrying value, including Goodwill.

However, based on this qualitative assessment, the Company determined that the carrying value of the

Flagship reporting units was more likely than not greater than its carrying value, including Goodwill.

Based on the completion of the

annual impairment test, the Company recorded an impairment charge of $2,322,000 and $0 for goodwill for the years ended December

31, 2022, and 2021, respectively.

Revenue Recognition

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:

Cloud Infrastructure and Disaster Recovery Revenue

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

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.

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.

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

Equipment and Software

provides equipment and software and actively participates 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.

Nexxis Voice over Internet and Direct Internet Access

provides VoIP, Internet access and data transport services to ensure businesses are fully connected to the internet from any location,

remote and on premise.

The company provides Hosted VoIP solutions with equipment options for IP phones and internet speeds of up to 10Gb

delivered over fiber optics.

price allocated to the remaining performance obligations

has the following performance obligations:

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.

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.

Cloud Infrastructure :

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

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

Support and Maintenance :

Subscription based service offers support for clients on their servers, firewalls, desktops or software.

Services are provided 24x7x365 to our clients.

Implementation / Set-Up Fees :

Onboarding and set-up for cloud infrastructure and disaster recovery as well as Cyber Security.

Equipment sales :

Sale of servers and data storage equipment to the client.

Granting SSL certificates and licenses.

of Long-Lived Assets

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.

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

to employees and non-employees.

The Company has agreements and arrangements that call for stock to be awarded to the employees and consultants

at various times as compensation and periodic bonuses.

The expense for this stock-based compensation is equal to the fair value of the

stock price on the day the stock was awarded multiplied by the number of shares awarded.

The Company has a relatively low forfeiture

rate of stock-based compensation and forfeitures are recognized as they occur.

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.

The Company’s calculation of estimated volatility is based on historical stock prices over a period equal to the expected life of

RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS

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.

October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other than Inventory”,

which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of

assets other than inventory until the asset has been sold to an outside party.

The updated guidance is effective for annual periods beginning

after December 15, 2019, including interim periods within those fiscal years.

Early adoption of the update is permitted.

of ASU 2016-16 did not have a material impact on the consolidated financial statements.

January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”):

Simplifying the Accounting for Goodwill

Impairment (“ASU 2017-04”).

ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill

impairment test.

In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair

value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure

that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Instead, under

ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with

its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting

unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit

when measuring the goodwill impairment loss, if applicable.

ASU 2017-04 is effective for annual or any interim goodwill impairment tests

for fiscal years beginning after December 15, 2019.

The adoption of ASU 2017-04 did not have a material impact on the consolidated financial

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

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

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

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 Company expects that there would be no material impact on the Company’s

condensed consolidated financial statements upon the adoption of this ASU.

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.

OFF-BALANCE SHEET TRANSACTIONS

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What changed 10-K

Item 7. Management’s Discussion and Analysis