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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-31 compared with 2022-03-31 · 944 added, 883 removed, 252 unchanged (88% of the section changed)

1 unchanged sentence

ABOUT MARKET RISK

As a smaller reporting company,

this item is not required

As a smaller reporting company, this item is not required.

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY

Index to the Consolidated Financial Statements

to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 00 89 )

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Consolidated Statements of Operations for the Years Ended December 31, 2022, and 2021

Statements of Stockholders’ Equity for the Years Ended December 31, 2022 , and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, and 2021

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Report of Independent Registered

Public Accounting Firm

the Board of Directors and

of Data Storage Corporation and Subsidiaries

on the Financial Statements

have audited the accompanying balance sheets of Data Storage Corporation and Subsidiaries (the Company) as of December 31, 2021 and 2020,

and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes

(collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects,

the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for the years

then ended, in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company's internal control over financial reporting.

to Consolidated Financial Statements

Report of Independent Registered Public Accounting

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

Stockholders of Data Storage Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying balance sheets of

Data Storage Corporation and Subsidiaries (the Company) as of December 31, 2022 and 2021, and the related statements of operations, stockholders’

equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2022 and 2021 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

described in Note 12 to the consolidated financial statements, the Company accounted for Flagship Solutions LLC acquisition during 2021

as a business combination and allocated the purchase price among the tangible and intangible assets acquired and liabilities assumed.

The acquisition resulted in intangible assets totaling $5,250,340 consisting primarily of customer relationships and goodwill.

determination of the future cash flows of the goodwill and intangible assets requires management to make significant estimates and assumptions

related to forecasts of future revenues, operating margins and discount rates.

The Company utilized a valuation specialist to assist

in the performance of the purchase price allocation.

identified the valuation of intangible assets recorded in connection with the acquisition as a critical audit matter.

The fair value

estimates were based on underlying assumptions about future performance of the acquired business which involves significant estimation

the Critical Matter Was Addressed in the Audit

primary procedures we performed to address this critical audit matter included:

management’s purchase price allocation detailing fair value assigned to the acquired

tangible and intangible assets.

valuation reports prepared by valuation specialists engaged by management to assist in the

purchase price allocations, including determination of fair values assigned to acquired intangible

assets, and examined valuation methods used and qualifications of specialist.

auditor valuation specialist to assist audit engagement team in its review of management

valuation specialist’s reports including review of valuation methods, assumptions and

the completeness and accuracy of the underlying data supporting the significant assumptions

and estimates used in the valuation reports, including historical and projected financial

the clerical accuracy of the models.

Rosenberg Rich Baker Berman, P.A.

have served as the Company’s auditor since 2008.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are

matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the

audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially

challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the

financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

To the Board of Directors and

Stockholders of Data Storage Corporation and Subsidiaries

The Company’s evaluation of goodwill for impairment

involves the comparison of the fair value of each reporting unit to its carrying value.

The Company uses the discounted cash flow model

to estimate the fair value of each reporting unit, which requires management to make subjective estimates and assumptions related to forecasts

of cash flows such as revenue growth rates and estimates of the weighted average cost of capital rate.

Changes in these assumptions could

have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

Management determined that

the carrying value of its Flagship reporting unit exceeded the fair value as of the measurement date and as a result, an impairment of

$2.3 million was recognized in the fourth quarter.

Given the significant judgments made by management

to estimate the fair value of the Flagship reporting unit, performing audit procedures to evaluate the reasonableness of management’s

estimates and assumptions related to the forecasts of cash flows, such as revenue growth rates, and estimates of the weighted average

cost of capital rate, required a high degree of auditor judgment.

How the Critical Matter Was Addressed in the Audit

The primary procedures we performed to address

this critical audit matter included:

Obtaining valuation reports

prepared by valuation specialists engaged by management to assist in the determination of fair value of goodwill.

Examining the completeness

and accuracy of the underlying data supporting the significant assumptions and estimates used in the valuation reports, including historical

and projected financial information.

Utilizing personnel with specialized

skills and knowledge in valuation to assist in:

(i) evaluating the appropriateness of the valuation models, and (ii) assessing the reasonableness

of the assumptions used in the determination of fair values.

/s/ Rosenberg

Rich Baker Berman, P.A.

We have served as the Company’s auditor since 2008.

Somerset, New Jersey

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2023

STORAGE CORPORATION AND SUBSIDIARIES

BALANCE SHEETS

and cash equivalents

receivable (less allowance for credit losses of $50,375 and $30,000 in 2021 and 2020, respectively)

receivable (less allowance for credit losses of $ 27,250

in 2022 and 2021, respectively)

expenses and other current assets

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Less—Accumulated

( 4,657,765 )

( 5,543,822 )

Property and Equipment

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Current Liabilities

payable long term

lease liabilities

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leases payable related party

Long-Term Liabilities

Total Long-Term Liabilities

and contingencies (Note 7)

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shares authorized;

and 1,401,786

shares issued and outstanding in 2022 and 2021,

2020, respectively

stock, par value $ .001 ;

250,000,000 shares

shares authorized;

and 6,693,793

shares issued and outstanding in 2021 and 2020, respectively

shares issued and outstanding in 2022 and 2021,

paid in capital

( 15,530,576 )

( 15,734,737 )

Data Storage Corp Stockholders’ Equity

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Liabilities and Stockholders’ Equity

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Ended December 31,

general and administrative

from Operations

Income (Expense)

Interest income

on contingent liability

Loss on disposal of assets

on forgiveness of debt

(loss) before provision for income taxes

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

STORAGE CORPORATION AND SUBSIDIARIES

STATEMENTS OF OPERATIONS

Year Ended December 31,

Cost of sales

Impairment of goodwill

Selling, general and administrative

Loss from Operations

Other Income (Expense)

Interest expense, net

Impairment of deferred offering costs and financing costs associated with canceled financing efforts

Other Expense

Loss on disposal of equipment

Gain on forgiveness of debt

Total Other Income (Expense)

Income (Loss) before provision for income taxes

Benefit from income taxes

Non-controlling

interest in consolidated subsidiary

Net Income attributable to Data Storage Corp

Stock Dividends

Net Income Attributable to Common Stockholders

per Share – Basic

per Share – Diluted

Average Number of Shares - Basic

Average Number of Shares - Diluted

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

Net Income (Loss)

Non-controlling interest in consolidated subsidiary

Net Income (Loss) attributable to Data Storage Corp

Preferred Stock Dividends

Net Income (Loss) Attributable to Common Stockholders

Earnings per Share – Basic

Earning pers Share – Diluted

Weighted Average Number of Shares – Basic

Weighted Average Number of Shares – Diluted

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

STORAGE CORPORATION AND SUBSIDIARIES

STATEMENTS OF STOCKHOLDERS’ EQUITY

THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Paid-in Capital

Non-Controlling

Stockholders’

Stockholders’ Equity

January 1, 2021

$ ( 15,734,737 )

options exercise

Income (Loss)

stock dividends

December 31, 2020

( 15,734,737 )

of preferred series to stock

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$ ( 102,628 )

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

Stock based compensation

Gain on forgiveness of debt

Gain on contingent liability

options exercise

December 31, 2022

$ ( 19,887,378

$ ( 154,689 )

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

STORAGE CORPORATION AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

Ended December 31,

Flows from Operating Activities:

(loss) income

to reconcile net income to net cash provided by (used in) operating activities:

and amortization

based compensation

on forgiveness of debt

of deferred offering costs and financing costs associated with canceled financing efforts

on disposal of equipment

income taxes, release of valuation allowance

Loss on disposal of assets

Changes in Assets and Liabilities:

Accounts receivable

Prepaid expenses and other current assets

Right of use asset

Accounts payable and accrued expenses

Deferred revenue

Operating lease liability

Net Cash Provided by (Used in) Operating Activities

Cash Flows from Investing Activities:

Capital expenditures

Cash acquired in business acquisition

Cash consideration for business acquisition

Net Cash Used in Investing Activities

Cash Flows from Financing Activities:

Proceeds from issuance of note payable

Proceeds from line of credit

Repayments of finance lease obligations related party

Repayments of finance lease obligations

Proceeds from issuance of common stock and warrants

Cash received for the exercised of Warrants

Cash received for the exercised of options

Repayments of Dividend payable

Repayment of line of credit

Net Cash Provided by (Used) in Financing Activities

Increase in Cash and Cash Equivalents

Cash and Cash Equivalents, Beginning of Year

Cash and Cash Equivalents, End of Year

Supplemental Disclosures:

Cash paid for interest

Cash paid for income taxes

Non-cash investing and financing activities:

Accrual of preferred stock dividend

Assets acquired by finance lease

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

in Assets and Liabilities:

expenses and other current assets

payable and accrued expenses

lease liability

Cash Provided by (Used in) Operating Activities

Flows from Investing Activities:

of marketable securities

acquired in business acquisition

consideration for business acquisition

Cash Used in Investing Activities

Flows from Financing Activities:

Proceeds from

line of credit

of finance lease obligations related party

of finance lease obligations

for deferred offering costs

from issuance of common stock and warrants

received for the exercise of Warrants

received for the exercise of options

of Dividend payable

of line of credit

Cash (Used in) Provided by Financing Activities

(decrease) in Cash and Cash Equivalents

and Cash Equivalents, Beginning of Period

and Cash Equivalents, End of Period

paid for interest

paid for income taxes

investing and financing activities:

of preferred stock dividend

acquired by finance lease

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

DATA STORAGE CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2022

Note 1 - Basis of Presentation, Organization and Other Matters

Data Storage Corporation (the “Company”)

provides subscription-based, long-term agreements for disaster recovery solutions, Infrastructure as a Service (IaaS), Cyber Security

and Voice and Data solutions.

Headquartered in Melville, NY,

the Company offers solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing,

Note 1 – Basis of Presentation,

Organization and Other Matters

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.

The Company derives its revenues from subscription services and solutions, managed

services, software and maintenance, equipment and onboarding provisioning.

The Company maintains infrastructure and storage equipment

in several technical centers in New York, Massachusetts, Texas, Florida and North Carolina.

On May 31, 2021, the Company completed

a merger (the “Merger”) under an Agreement and Plan of Merger (the “Merger Agreement”) with Flagship Solutions,

LLC (“Flagship”) (a Florida limited liability company) and the Company’s wholly-owned subsidiary, Data Storage FL, LLC,

a Florida limited liability company, a Florida limited liability company.

Flagship is a provider of IBM solutions, managed services 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 through the integration 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), Cyber Security as

a Service (CSaaS), and Data Analytics as a Service.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The 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 significant inter-company transactions and balances have been

eliminated in consolidation.

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.

On January 27, 2022, we formed Information Technology

Acquisition Corporation a special purpose acquisition company for the purpose of entering into a merger, capital stock exchange,

asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses

Note 2 – Summary of Significant

Accounting Policies

of Consolidation

The Consolidated Financial statements include the accounts of the Company and its wholly-owned subsidiaries, (i) CloudFirst Technologies Corporation,

a Delaware corporation, (ii) Data Storage FL, LLC, a Florida limited liability company, (iii) Flagship Solutions, LLC, a Florida limited

liability company, (iv) Information Technology Acquisition Corporation, a Delaware Corporation, and (v) its majority-owned subsidiary,

Nexxis Inc, a Nevada corporation.

All inter-company transactions and balances have been eliminated in consolidation.

combinations.

account for business combinations under the acquisition method of accounting, which requires us to recognize separately from goodwill,

the assets acquired, and the liabilities assumed at their acquisition date fair values.

While we use our best estimates and assumptions

to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable,

our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year

from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever

comes first, any subsequent adjustments are recognized in our consolidated statements of operations.

for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including

We account for

business combinations under the acquisition method of accounting, which requires us to recognize separately from goodwill, the assets

acquired, and the liabilities assumed at their acquisition date fair values.

While we use our best estimates and assumptions to accurately

value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates

are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition

date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion

of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent

adjustments are recognized in our consolidated statements of operations.

Accounting for

business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including

our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent

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events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Reclassifications

Certain prior

period amounts in the consolidated financial statements thereto have been reclassified where necessary to conform to the current year’s

presentation.

These reclassifications did not affect the prior period’s total assets, total liabilities, stockholders’ deficit,

net loss or net cash used in operating activities.

During the year ended December 31, 2022, we adopted a change in presentation on our

consolidated statements of operations in order to present technician salaries in cost of sales, the presentation of which is consistent

with our peers.

Prior periods have been revised to reflect this change in presentation.

Issued and Newly Adopted Accounting Pronouncements

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The Company expects that there would be no material impact on the Company’s consolidated financial statements upon the adoption

In 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.

The adoption of ASU 2016-16 did not have a material impact on the consolidated

financial statements.

In January 2017, the FASB issued ASU 2017-04

Intangibles-Goodwill and Other (“ASC 350”):

Simplifying the Accounting for Goodwill Impairment (“ASU

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

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.

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 statements.

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.

2021, the FASB issued ASU No.

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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.

The adoption of ASU 2021-08 did not

have a material impact on the consolidated financial statements.

Use of Estimates

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.

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

Company’s financial instruments include cash, accounts receivable, accounts payable, line of credit, notes payable and lease commitments.

Management believes the estimated fair value of these accounts at December 31, 2021 approximates 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.

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.

Estimated Fair Value of Financial

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 nature.

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 Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair

value on a nonrecurring basis.

Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on

a nonrecurring basis include items such as property, plant and equipment, operating lease right-of-use assets, goodwill and other intangible

These assets are measured using Level 3 inputs, if determined to be impaired.

Cash and Cash Equivalents

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.

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.

Marketable securities that are

bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at

fair value, with unrealized gains and losses recognized in earnings.

The following table sets forth a summary of the changes

in equity investments, at cost that are measured at fair value on a non-recurring basis:

Schedule of changes

in equity investments measured at fair value

the year ended December 31, 2022

of January 1, 2022

of equity investments

of December 31, 2022

Concentration of Credit Risk and

Other Risks and Uncertainties

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.

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.

in these institutions may exceed the amount of insurance provided on such deposits.

The Company’s customers are

primarily concentrated in the United States.

provides credit in the normal course of business.

The Company maintains allowances for credit losses on factors surrounding the credit

risk of specific customers, historical trends, and other information.

of December 31, 2021, the Company had one customer with an accounts receivable balance representing 16 %

of total accounts receivable.

As of December 31, 2020, the Company had one customer with an accounts receivable balance

representing 33 %

of total accounts receivable.

the year ended December 31, 2021, the Company had one customer that accounted for 14 %

For the year ended December 31, 2020, the Company had one customer that accounted for 14 %

As of December

30, 2022, DSC had two customers with an accounts receivable balance representing 23 % and 14 % of total accounts receivable.

of December 31, 2021, the Company had one customer with an accounts receivable balance representing 16 % of total accounts receivable.

ended December 31, 2022, the Company had two customers that accounted for 18 % and 11 % of revenue.

For the year ended December

31, 2021, the Company had one customer that accounted for 14 % of revenue.

Accounts Receivable/Allowance

for Credit Losses

Company sells its services to customers on an open credit basis.

Accounts receivables are uncollateralized, non-interest-bearing customer

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.

and Equipment

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

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.

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.

During the year ended December 31, 2021, the Company recorded a loss

on disposal of equipment of $ 29,732 .

tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement

carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

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 financing

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.

assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying

amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

differences are expected to be recovered or settled.

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allowance against its deferred tax assets.

FASB ASC 740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted

and there is a more-likely-than-not possibility that the outcome will be unfavorable.

Using this guidance, as of December 31, 2021 and

2020, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

The Company’s 2021, 2020, and 2019 Federal and State tax returns remain subject to examination by their respective taxing authorities.

Neither of the Company’s Federal or State tax returns are currently under examination.

740-10, disclosure is not required of an uncertain tax position unless it is considered probable that a claim will be asserted and there

is a more-likely-than-not possibility that the outcome will be unfavorable.

Using this guidance, as of December 31, 2022, and 2021, the

Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

The Company’s

2022, 2021, 2020, and 2019 Federal and State tax returns remain subject to examination by their respective taxing authorities.

of the Company’s Federal or State tax returns are currently under examination.

and Other Intangibles

accordance with GAAP, 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.

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.

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

following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction

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:

Infrastructure as a Service (IaaS) and Disaster Recovery Revenue

Infrastructure

as a Service (IaaS) provides clients

the ability to migrate compute and store on DSC enterprise-level technical assets in Tier 3 data centers.

The Company provides a turnkey

solution whereby achieving reliable and cost-effective, multi-tenant IBM Power compute, flash storage, disaster recovery and cyber security

while eliminating client capital expenditures .

can subscribe to disaster recovery

solutions without subscribing to IaaS.

Product offerings provided directly from the Company are High Availability, Data Vaulting and DRaaS

type solutions, including standby servers which allow clients to centralize and streamline their mission-critical digital information

and technical environment.

Client’s data is vaulted, maintenance of retention schedules for corporate governances and regulations

to meet their back to work objective in a disaster .

Cloud Infrastructure and Disaster Recovery Revenue

Infrastructure provides clients the ability to migrate their on-premises 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

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

services are performed at the inception

of a contract.

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 the Company to offer time and material billing .

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.

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 performance.

and Software Revenue

Company provides equipment and software and actively participate in collaboration with IBM to provide innovative business solutions to

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 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.

VoIP and Data Services

Company provides VoIP, Internet access and data transport services to ensure businesses maintain connectivity from any location nationwide.

The Company provides, a highly reliable Hosted VoIP solution with equipment options for IP phones and internet speeds of up to 10Gb delivered

over fiber optics, and Cloud-First SD-WAN solutions that improves connectivity to cloud services.

Disaggregation of revenue

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

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.

Disaggregation

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

December 31, 2022

Internationa l

Cloud Infrastructure & Disaster Recovery

International

Infrastructure

& Disaster Recovery/Cloud Service

Equipment and Software

Managed Services

Nexxis Services

Nexxis VoIP Services

December 31, 2021

International

Infrastructure

& Disaster Recovery/Cloud Service

Cloud Infrastructure

& Disaster Recovery

Equipment and Software

Managed Services

Nexxis Services

Total Revenue

of revenue recognition

Products transferred at a

point in time

Products and services

transferred over time

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.

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.

Products transferred

at a point in time

and services transferred over time

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.

price allocated to the remaining performance obligations

Company has the following performance obligations:

has the following performance obligations:

Data Vaulting :

subscription-based service that encrypts and transfers data to secure location further

replicates the data to a second Company technical center where it remains encrypted.

Ensuring retention schedules for corporate compliance.

Provides for twenty-four (24) hour or less recovery time and uses advanced data reduction reduplication technology to shorten restore

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 subscription-based service that offers cost-effective

mirroring software replication technology and provides one (1) hour or less recovery time.

Infrastructure as a Service:

a cloud subscription-based service offers

“capacity-on-demand” for IBM Power and Intel server systems.

subscription-based service offers continuous internet connection along with FailSAFE providing disaster recovery.

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 servers, firewalls, desktops or software and ad hoc support and help desk.

Implementation/Set-Up Fees:

onboarding and set-up IaaS and DRaaS and Cyber

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

Services are provided 24x7x365

to our clients.

Implementation / Set-Up

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 other licenses.

VoIP services and Direct Internet Access:

subscription-based business

Hosted VoIP, SIP Trunk and Toll-Free solutions.

Recovery with Stand-By Servers, High Availability, Data Vaulting, IaaS, Message Logic, Support and Maintenance and Internet

services such as the above allow clients to access a set of data or receive services for a predetermined period of time.

client obtains access at a point in time but 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

Company accounts for set-up fees as separate performance obligation.

Set-up services are performed one time and accordingly, the

revenue is recognized at the point in time that the service is performed, and the Company is entitled to the payment.

the Equipment sales performance obligation, the control of the product transfers 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 as defined within ASC 606-10-25-27 through 29, the performance obligation

is considered to be satisfied at a point in time (ASC 606-10-25-30) 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).

SSL certificates and licenses.

Recovery and Business Continuity Solutions

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.

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.

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).

- granting SSL certificates and other licenses

the case of licensing performance obligation, the control of the product transfers either at point in time or over time depending

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:

a right to access IP and a right to

(i) a right to access IP;

and, (ii) a right

To assist in determining whether a license provides a right to use or a right to access IP, ASC 606 defines two categories

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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.

terms of the contracts typically range from 12 to 36 months with auto-renew options.

The Company invoices clients one month in advance

for its services plus any overages or additional services.

Company offers guaranteed service levels and service guarantees on some of its contracts.

These warranties are not sold separately

and according to ASC 606-10-50-12(a) are accounted as “assurance warranties.”

the instances that contracts have multiple performance obligations, the Company uses judgment to a establish stand-alone price for

each performance obligation separately.

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

was calculated to determine the aggregate price for the individual services.

Next, the proportion of each individual service to

the aggregate price was determined.

That ratio was applied to the total contract price in order to allocate the transaction price

to each performance obligation.

of Long-Lived Assets

accordance with FASB ASC 360-10-35, 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 undiscounted future cash flows.

Company expenses the costs associated with advertising as they are incurred.

The Company incurred $ 396,303 and $ 309,003 for

advertising costs for the year ended December 31, 2021 and 2020, respectively.

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.

terms of subscription contracts range from 12 to 36 months, with auto-renew options extending the contract for an additional term.

Company invoices clients one month in advance for its services, in addition to any contractual data overages or for additional services.

offers guaranteed service levels and service guarantees on some of its contracts.

These warranties are not sold separately and are accounted

as “assurance warranties”.

In the instance

where contracts have multiple performance obligations the Company uses judgment to establish a stand-alone price for each performance

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.

Impairment 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.

Advertising Costs

expenses the costs associated with advertising as they are incurred.

The Company incurred $ 966,268 and $ 396,303 for advertising costs

for the year ended December 31, 2022, and 2021, respectively.

Stock-Based Compensation

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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

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The Black-Scholes

model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the

weighted average expected life of the options.

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

5 unchanged sentences

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

The Company’s calculation of estimated volatility is based on historical stock prices of these entities over a period equal

to the expected life of the awards.

(Loss) Per Common Share

accordance with FASB ASC 260-10-5 Earnings Per 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.

following table sets forth the information needed to compute basic and diluted earnings per share for the year ended December

31, 2021 and 2020:

Schedule of Earning per share basic and dilute

the Year Ended December 31,

Net Income Available to Common Shareholders

Weighted average number of common shares – basic

Dilutive securities

Weighted average number of common shares

Earnings per share, basic

Earnings per share, diluted

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:

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

Net Income (Loss) Per Common

(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during

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 years ended December 31, 2022, and 2021:

Schedule of Earning per share basic and diluted

Ended December 31,

Income (Loss) Available to Common Shareholders

$ ( 4,356,802

Weighted average number

of common shares - basic

average number of common shares - diluted

(Loss) per share, basic

(Loss) per share, diluted

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

Year ended December 31,

ended December 31,

Note 3 - Prepaids and other

current assets

Prepaids and other current assets

consist of the following:

of Prepaids and other current assets

Prepaid Marketing

Prepaid Subscriptions and

Prepaid Maintenance

Prepaid Insurance

prepaids and other current assets

Note 4- Property and Equipment

Property and equipment, at cost,

consist of the following:

Property and equipment

and equipment, at cost, consist of the following:

Schedule of property and equipment

Storage equipment

Website and software

Furniture and fixtures

1 unchanged sentence

Computer hardware and software

Data center equipment

center equipment

Property and equipment

Accumulated depreciation

Net property and equipment

( 4,956,698 )

( 4,657,765 )

property and equipment

expense for the year ended December 31, 2022, and 2021 was $ 946,989 and $ 959,974 , respectively.

4 - Goodwill and Intangible Assets

and intangible assets consisted of the following:

Schedule of goodwill and intangible assets

December 31, 2021

Estimated life

Note 5 - Goodwill and Intangible

Goodwill and intangible assets consisted

of the following:

Schedule of intangible assets and goodwill

life in years

31, 2022, Accumulated Amortization

assets not subject to amortization

intangible assets not subject to amortization

Total intangible assets not subject to amortization

assets subject to amortization

acquired contracts

and Digital Assets

intangible assets subject to amortization

Customer lists

ABC acquired contracts

SIAS acquired contracts

Non-compete agreements

Website and Digital Assets

Total intangible assets subject to amortization

Total Goodwill and Intangible Assets

amortization over the next five years are as follows:

Goodwill and Intangible Assets

Scheduled amortization over the next

five years are as follows:

Schedule of amortization over the next two years

Twelve months ending December 31,

expense for the year ended December 31, 2021 and 2020 were $ 324,371 and

$ 194,000 respectively.

During the year ended December 31, 2021, the Company recorded a loss on disposal of assets of $ 15,000 related

to trademarks.

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

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 .

second lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018.

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

lease for office space in Warwick, RI, called for monthly payments of $ 2,324 beginning February 1, 2015, which escalated to

$ 2,460 on February 1, 2017.

This lease commenced on February 1, 2015, and expired on January 31, 2019 .

The Company extended

this lease until January 31, 2020.

This lease was further extended until January 31, 2021 .

The annual base rent was $ 31,176 payable

in equal monthly installments of $ 2,598 .

The Company satisfied the terms of the lease and no longer occupies this premise.

July 31, 2021, the Company signed a 3 three-year

lease for approximately 2,880 square feet of office space at 980 North Federal Highway, Boca Raton, FL.

months ending December 31,

Amortization expense for the year

ended December 31, 2022, and 2021 was $ 278,922 and $ 324,371 respectively.

Note 6- Leases

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 $ 11,856 payable in equal monthly installments of

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 .

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

The monthly rent is approximately $ 4,820 .

Company leases technical space in New York, Massachusetts, North Carolina and Florida.

These leases are month to month and the

monthly rent is approximately $ 39,000 .

2020, the Company entered into a new technical space lease agreement in Dallas, TX.

The lease term is 13 months

and requires monthly payments of $ 1,403 and 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

and expires on June

Lease Obligations

June 1, 2020, the Company entered into a lease agreement with a finance company to lease equipment.

The lease obligation is

payable in monthly installments of $ 5,008 .

The lease carries an interest rate of 7 %

and is a 3 three-year lease.

leases cages and racks for technical space in Tier 3 data centers in New York, Massachusetts, North Carolina and Florida.

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 $ 3,073 month-to-month

lease with WeWork in Austin, TX.

Finance Lease

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

June 29, 2020, the Company entered into a lease agreement with a finance company to lease equipment.

The lease obligation is

payable in monthly installments of $ 5,050 .

The lease carries an interest rate of 7 %

and is a 3 three-year lease.

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

July 31, 2020, the Company entered into a lease agreement with a finance company to lease equipment under a finance lease.

obligation is payable in monthly installments of $ 4,524 .

The lease carries an interest rate of 7 %

and is a 3 three-year lease.

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

November 1, 2021, the Company entered into a lease agreement with a finance company to lease equipment under a finance lease.

lease obligation is payable in monthly installments of $ 3,152 .

The lease carries an interest rate of 6 %

and is a 3 three-year lease.

The term of the lease ends September 21, 2024.

Finance Lease

Obligations – Related Party

April 1, 2018, the Company entered into a lease agreement with Systems Trading Inc.

(“Systems Trading”) to refinance all

equipment leases into one lease.

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

On January 1,

2022, the Company entered into a technical equipment lease with a finance company.

The lease obligation is payable in monthly installments

The lease carries an interest rate of 6 % and is a three-year lease.

The term of the lease ends January

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 4 four-year lease.

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.

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 5 five-year lease.

Systems Trading is owned and operated by Harold Schwartz the president of CloudFirst.

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

April 1, 2019, the Company entered into two lease agreements with Systems Trading to add new data center equipment.

lease calls for monthly installments of $ 1,328 and expires on March 1, 2022 .

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 .

The second lease calls for monthly

installments of $ 461 and expires on March 1, 2022 .

It carries an interest rate of 6.7 %.

January 1, 2020, the Company entered into a new lease agreement with Systems Trading to lease equipment.

The lease obligation is

payable to Systems Trading with monthly installments of $ 10,534 .

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 .

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 %.

and is a 3 three-year lease.

The term of the lease ends January

March 4, 2021, the Company entered into a new 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 %.

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

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:

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 %.

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 %.

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

The Company’s lease term includes options to extend the lease when it is reasonably certain that it will exercise that

Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient.

assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease

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

Schedule of components of lease expense

Components of lease expense

December 31, 2021

Finance leases:

Amortization of assets, included in depreciation and amortization expense

Interest on lease liabilities, included in interest expense

of assets, included in depreciation and amortization expense

on lease liabilities, included in interest expense

Operating lease:

Amortization of assets, included in total operating expense

Interest on lease liabilities, included in total operating expense

Total net lease cost

Supplemental balance sheet information related to leases was as follows

of assets, included in total operating expense

on lease liabilities, included in total operating expense

net lease cost

Supplemental balance sheet

information related to leases was as follows:

Operating Leases:

Operating lease right-of-use asset

lease right-of-use asset

Current operating lease liabilities

Noncurrent operating lease liabilities

Total operating lease liabilities

December 31, 2021

operating lease liabilities

Finance leases:

Property and equipment, at cost

Accumulated amortization

Property and equipment,

( 3,431,562 )

Property and equipment, net

Current obligations of finance leases

Finance leases, net of current obligations

Total finance lease liabilities

cash flow and other information related to leases was as follows:

Supplemental balance sheet information related to leases

and equipment, net

Current obligations of finance

leases, net of current obligations

finance lease liabilities

Supplemental cash flow and other

information related to leases were as follows:

Schedule of supplemental cash flow and other

information related to leases

Ended December 31, 2022

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flows related

to operating leases

Financing cash flows related to finance

Weighted average remaining lease term

Cash paid for amounts included

in the measurement of lease liabilities:

Operating cash

flows related to operating leases

Financing cash flows related

to finance leases

Weighted average remaining

lease term (in years):

Operating leases

3 unchanged sentences

Finance leases

obligations under the operating and finance leases at December 31, 2021 mature as follows:

Schedule Of Long-term obligations under the operating and Finance leases

Long-term obligations under the operating

and finance leases at December 31, 2022, mature as follows:

Schedule of long-term obligations under the operating

and finance leases

the Twelve Months Ended December 31,

Total lease payments

lease payments

Amounts representing interest

Total lease obligations

( 1,056,092 )

of December 31, 2021, the Company had no additional significant operating or finance leases that had not yet commenced.

under all operating leases for the year ended December 31, 2021 and 2020 was $ 184,131 and $ 169,716 , respectively.

6 - Commitments and Contingencies

COVID-19 pandemic has created significant worldwide uncertainty, volatility and economic disruption.

The extent to which COVID-19

will adversely impact the Company’s business, financial condition and results of operations is dependent upon numerous factors,

many of which are highly uncertain, rapidly changing and uncontrollable.

These factors include, but are not limited to:

duration and scope of the pandemic;

(ii) governmental, business and individual actions that have been and continue to be taken

in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place

orders and shut-downs;

(iii) the impact on U.S.

and global economies and the timing and rate of economic recovery;

(iv) potential

adverse effects on the financial markets and access to capital;

(v) potential goodwill or other impairment charges;

(vi) increased

cybersecurity risks as a result of pervasive remote working conditions;

and (vii) the Company’s ability to effectively carry

out its operations due to any adverse impacts on the health and safety of its employees and their families.

NYS Executive Order 202.6, “Essential Business,” Data Storage Corporation is an “Essential Business” based on

the following in the Executive order number 2:

Essential infrastructure including telecommunications and data centers;

and, number 12:

Vendors that provide essential services or products, including logistics and technology support.

Further, as a result of the pandemic,

all employees, including the Company’s specialized technical staff, are working remotely or in a virtual environment.

always maintains the ability for team members to work virtually and the Company will continue to stay virtual, until the State and or

the Federal government indicate the environment is safe to return to work.

The significant increase in remote working, particularly for

an extended period of time, could exacerbate certain risks to the Company’s business, including an increased risk of cybersecurity

events and improper dissemination of personal or confidential information, though the Company does not believe these circumstances have,

or will, materially adversely impact its internal controls or financial reporting systems.

If the COVID-19 pandemic should worsen, the

Company may experience disruptions to our business including, but not limited to:

equipment, its workforce, or to its business relationships

with other third parties.

The extent to which COVID-19 impacts the Company’s operations or those of its third-party partners will

depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak,

new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Any such disruptions or losses we incur could have a material adverse effect on the Company’s financial results and our ability

to conduct business as expected.

Credit Facility

January 31, 2008, the Company entered into a revolving credit line with a bank.

The credit facility provides for $ 100,000 at

prime plus 0.5 %

and is secured by all assets of the Company and personally guaranteed by the Company’s CEO.

As of December 31, 2021, and 2020

the balance was $ 0 and

lease obligations

long-term obligations

December 31, 2022, the Company had no additional significant operating or finance leases that had not yet commenced.

under all operating leases for the year ended December 31, 2022, and 2021 was $ 212,948 and

respectively.

During the year ended December 31, 2021, the Company terminated the revolving credit line.

March 24, 2017, Flagship entered into a revolving demand note with a bank for an amount not to exceed $ 750,000 .

The line of credit

may be cancelled by either party at any time for any reason by written notice to the other and is collateralized by all of Flagship’s

assets and the personal guarantee of two members of the Company.

The stated interest rate is adjustable with interest equal to

the Prime Rate plus four percent per annum.

Repayment terms consist of interest only due monthly with all principal and remaining

interest due on demand.

The line of credit balance outstanding as of December 31, 2021, was $ 0 .

During the year ended December

31, 2021, the Company terminated the revolving credit line.

7 – Note payable

On April 30, 2020, the Company

was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant to the Paycheck

Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES

Act”), which was enacted on March 27, 2020.

The Loan, which was in the form of a Note dated April 30, 2020, matures on April

30, 2022 , and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November 5, 2020.

from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.

Note 7 - Commitments

and Contingencies

As part of the

Flagship acquisition the Company acquired a licensing agreement for marketing related materials with a National Football League team.

The Company has approximately $ 1.3 million in payments over the next 5 years.

Note 8 – Note

2020, the Company was granted a loan from a banking institution, in the principal amount of $481,977 (the “Loan”), pursuant

to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security

Act (the “CARES Act”), which was enacted on March 27, 2020.

The Loan, which was in the form of a Note dated April 30, 2020,

matures on April 30, 2022 , and bears interest at a fixed rate of 1.00% per annum, payable monthly commencing on November

Funds from the loan may only be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility

Management used the entire Loan amount for qualifying expenses.

Under the terms of the PPP, certain amounts of the Loan may be forgiven

if they are used for qualifying expenses as described in the CARES Act.

During the year ended December 31, 2021, the Company recorded

interest of $6,140.

During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven and the Company recorded

a gain on forgiveness of debt on the Consolidated Statements of Operations.

On June 1, 2021, the Company

assumed the PPP loan of Flagship Solutions, LLC in the amount of $307,300.

During the year ended December 31, 2021, the Company recorded

interest of $3,423.

During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven and the Company recorded

a gain on forgiveness of debt on the Consolidated Statements of Operations.

8 - Stockholders’ (Deficit)

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.

May 13, 2021, the Company entered into an underwritten public offering of an aggregate of 1,600,000 units, each consisting of one share of

the Company’s common stock, par value $ 0.001 per share , together with one warrant

to purchase one share of Common Stock at an exercise

price equal to $ 7.425 per share of Common Stock.

public offering price was $ 6.75 per Unit and the underwriters agreed to purchase 1,600,000 Units at a 7.5 % discount

to the public offering price.

The Company granted the representative a 45-day option to purchase an additional 240,000 shares

of Common Stock and/or an additional 240,000 Warrants, in any combination thereof, to cover over-allotments.

On May 15, 2021,

the representative exercised the over-allotment option to purchase an additional 240,000 Warrants to purchase 240,000 shares of

Common Stock.

The net proceeds from the offering were $ 9.5 million.

Under the terms of the PPP, certain amounts of the Loan may

be forgiven if they are used for qualifying expenses as described in the CARES Act.

During the year ended December 31, 2021, the Company

recorded interest of $6,140.

During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven and the Company

recorded a gain on forgiveness of debt on the Consolidated Statements of Operations.

June 1, 2021, the Company assumed the PPP loan of Flagship Solutions, LLC in the amount of $307,300.

During the year ended December 31,

2021, the Company recorded interest of $3,423.

During the year ended December 31, 2021, the PPP loan and accrued interest were forgiven

and the Company recorded a gain on forgiveness of debt on the Consolidated Statements of Operations.

Note 9 - Stockholders’

Capital Stock

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 13, 2021, the Company

entered into an underwritten public offering of an aggregate of 1,600,000 units, each consisting of one share of the Company’s

Common Stock, par value $0 .001 per share, together with one warrant to purchase one share of Common Stock at an exercise price equal

to $ 7.425 per share of Common Stock.

The public offering price

was $ 6.75 per Unit and the underwriters agreed to purchase 1,600,000 Units at a 7.5 % discount to the public offering

The Company granted the representative a 45-day option to purchase an additional 240,000 shares of Common Stock and/or

an additional 240,000 Warrants, in any combination thereof, to cover over-allotments.

On May 15, 2021, the representative exercised

the over-allotment option to purchase an additional 240,000 Warrants to purchase 240,000 shares of Common Stock.

proceeds from the offering were $ 9.5 million.

On May 14, 2021,

the Company effected a 1-for-40 reverse stock split.

As a result, all share information in the accompanying condensed financial statements

As a result, all share information in the accompanying financial statements

has been adjusted as if the reverse stock split happened on the earliest date presented.

July 21, 2021, the Company entered into a securities purchase agreement with certain accredited institutional investors resulting

in the raise of $ 8,305,000 in gross proceeds to the Company.

Pursuant to the terms of the purchase agreement, the Company

agreed to sell, (i) an aggregate of 1,375,000 shares of the Company’s common stock, par value $0 .001 per

share and (ii) warrants to purchase an aggregate of 1,031,250 shares of the Company’s Common Stock at an exercise

price of $ 6.15 per share, subject to adjustment.

The placement agent was entitled to a cash fee of 6.5 % of the gross proceeds of the Offering and the reimbursement for certain

out-of-pocket expenses up to $ 50,000 .

The net proceeds from the offering

were $7.5 million.

the year ended December 31, 2021, employees exercised 6,592 options via cashless exercise, into 5,060 shares

of common stock.

the year ended December 31, 2021, warrant holders exercised 455,390 warrants into common stock.

The Company received

$ 3,381,271 for these warrants.

Stock Options

A summary of the

Company’s option activity and related information follows:

Schedule of option activity and related information

Under Options

Exercise Price

Options Outstanding at January 1, 2020

Options Granted

On July 21, 2021, the

Company entered into a securities purchase agreement with certain accredited institutional investors resulting in the raise of

$ 8,305,000 in

gross proceeds to the Company.

Pursuant to the terms of the purchase agreement, the Company agreed to sell, (i) an aggregate

of 1,375,000 shares

of the Company’s Common Stock, par value $0 .001 per

share and (ii) Warrants to purchase an aggregate of 1,031,250 shares

of the Company’s Common Stock at an exercise price of $ 6.15 per

share, subject to adjustment.

The placement agent

was entitled to a cash fee of 6.5 % of the gross proceeds of the Offering and the reimbursement for certain out-of-pocket expenses

up to $ 50,000 .

The net proceeds from the offering were $7.5 million.

During the year

ended December 31, 2021, employees exercised 6,592 options via cashless exercise, into 5,060 shares of common stock.

During the year

ended December 31, 2021, warrant holders exercised 455,390 Warrants into Common Stock .

The Company received $ 3,381,271 for

these Warrants .

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 year

ended December 31, 2022, employees exercised 3,334 options into shares of Common Stock .

The Company received $ 6,934 for

these options.

the Company’s options activity and related information follows:

of option activity and related information

Outstanding at January 1, 2020

Expired/Cancelled

Outstanding at December 31, 2021

$ 2.00 - 16.00

Options Outstanding at December 31, 2020

Options Granted

Expire/Cancelled

Options Outstanding at December 31, 2021

Options Exercisable at December 31, 2021

compensation expense for options totaling $ 171,798 and $ 158,728 was recognized in our results for the year ended December 31,

Expired/Cancelled

Outstanding at December 31, 2022

Exercisable at December 31, 2022

compensation expense for options totaling $ 282,193 and $ 171,798 was recognized in our results for the years ended December 31, 2022,

and 2021, respectively.

valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing

The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average

risk-free interest rate, and the weighted average expected life of the options.

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.

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.

of December 31, 2021, there was $ 432,296 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 2.66 years.

The weighted average fair value of options granted,

and the assumptions used in the Black-Scholes model during the year ended December 31, 2021 and 2020 are set forth in the table below.

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

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 December

31, 2022, there was $ 335,272 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 2.03 years.

weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the years ended December

31, 2022, and 2021, are set forth in the table below.

Schedule of weighted average fair value of options granted

Weighted average fair value

of options granted

Weighted average fair value of options granted

Risk-free interest rate

1.63 % – 3.83

1.31 % – 1.62

Expected life (years)

Dividend yield

Stock Warrant

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

Schedule of warrant activity and related information

Under Options

Exercise Price

Warrants Outstanding at January 1, 2020

Warrants Granted

Warrant Outstanding at December 31, 2020

Warrant Granted

awards, restricted stock award (“RSAs”)

2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 40,375 .

vest one year after issuance.

2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 30,625 .

vest one year after issuance.

30, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 25,000 .

shares vest one year after issuance.

31, 2022, the Board resolved that, the Company shall pay each member of the Board, compensation as a group amount to $ 18,500 .

shares vest one year after issuance.

the activity related to RSUs for the year ended December 31, 2022, is presented below:

of non-vested Restricted stock units

Stock Units (RSUs)

non-vested at January 1, 2022

non-vested December 31, 2022

$ 1.48 - 3.23

compensation for RSU’s has been recorded in the consolidated statements of operations and totaled $52,285 for the year ended

December 31, 2022.

the Company’s warrant activity and related information follows:

of warrant activity and related information

Outstanding at January 1, 2021

Expired/Cancelled

Warrant Outstanding at December 31, 2021

Outstanding at December 31, 2021

Outstanding at December 31, 2022

$ 7.43 - 0.40

Warrant Exercisable at December 31, 2021

Exercisable at December 31, 2022

$ 7.43 - 0.40

Preferred Stock

Liquidation preference

6 unchanged sentences

No Preferred shares are issued as of December 31, 2021.

number of shares of Common Stock to which a share of Series A Preferred Stock may be converted shall be the product obtained by

dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined

herein) for such share of Series A Preferred Stock.

The Conversion Price for the Series A Preferred Stock shall initially be equal

to $0.02 and shall be adjusted from time to time.

holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of

the Corporation (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B Common

Stock into which such shares of Series A Preferred Stock could be converted.

share of Series A Preferred Stock, in preference to the holders of all common stock, shall entitle its holder to receive, but only

out of funds that are legally available therefore, cash dividends at the rate of ten percent ( 10 %)

The number of

shares of Common Stock to which a share of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original

Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined herein) for such share of Series

A Preferred Stock.

The Conversion Price for the Series A Preferred Stock shall initially be equal to $0.02 and shall be adjusted from

time to time.

of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of the Corporation

(or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B Common Stock into which such

shares of Series A Preferred Stock could be converted.

of Series A Preferred Stock, in preference to the holders of all common stock, shall entitle its holder to receive, but only out of

funds that are legally available therefore, cash dividends at the rate of ten percent ( 10 %)

per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually

4 unchanged sentences

accrued and unpaid dividends.

Accrued dividends at December 31, 2021 and 2020 were $ 0

and $ 1,115,674 ,

respectively .

Accrued dividends at December 31, 2021, were $ 0 .

Note 10 - Income Taxes

1 unchanged sentence

are as follows:

Schedule of components of deferred taxes

Ended December 31,

Year Ended December

operating loss carry forwards

deferred tax assets

Net operating loss carry

Stock based compensation

Property and equipment

Total deferred tax assets

tax liabilities:

and equipment

deferred tax liabilities

Total deferred tax liabilities

Valuation Allowance

Net deferred tax liabilities

Company had federal and state net operating tax loss carry-forwards of $ 5,935,000 and $ 5,605,000 , respectively as of December

The tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards

beginning to expire in 2028.

In 2021 and 2020, net deferred tax assets did not

change due to the full allowance.

The gross amount of the asset is entirely due to the net operating loss carry-forward.

The realization

of the tax benefits is subject to the sufficiency of taxable income in future years.

The combined deferred tax assets represent the amounts

expected to be realized before expiration.

Company periodically assesses the likelihood that it will be able to recover its deferred tax assets.

The Company considers all

available evidence, both positive and negative, including historical levels of income, expectations and risks associated with

estimates of future taxable income and ongoing prudent and feasible profits.

As a result of this analysis of all available evidence,

both positive and negative, the Company concluded that it is more likely than not that its net deferred tax assets will ultimately

not be recovered and, accordingly, a valuation allowance was recorded as of December 31, 2021 and 2020.

A reconciliation of the Company’s effective

income tax rate to the expected income tax rate, computed by applying the federal statutory income tax rate of 21.0% for each of the years

ended December 31, 2021 and 2020 to the Company’s loss before provision (benefit) for income taxes, is as follows:

deferred tax liabilities

had federal and state net operating tax loss carry-forwards of $ 7,841,000 and $ 7,511,000 , respectively as of December 31, 2022.

tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards beginning to expire in

2021, net deferred tax assets did not change due to the full allowance.

The gross amount of the asset is predominantly due to the net

operating loss carry-forward.

The realization of the tax benefits is subject to the sufficiency of taxable income in future years.

combined deferred tax assets represent the amounts expected to be realized before expiration.

periodically assesses the likelihood that it will be able to recover its deferred tax assets.

The Company considers all available evidence,

both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable

income and ongoing prudent and feasible profits.

As a result of this analysis of all available evidence, both positive and negative,

the Company concluded that it is more likely than not that its net deferred tax assets will ultimately not be recovered and, accordingly,

a valuation allowance was recorded as of December 31, 2022, and 2021.

A reconciliation

of the Company’s effective income tax rate to the expected income tax rate, computed by applying the federal statutory income tax

rate of 21.0% for each of the years ended December 31, 2022, and 2021 to the Company’s loss before provision (benefit) for income

taxes, is as follows:

Schedule of expected income tax expense (benefit)

Federal Statutory Rate

Valuation allowance

Income tax provision

10 - Litigation

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 the Company, its common stock, any of its subsidiaries or of Data Storage’s or Data Storage’s

subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

11 - Related Party Transactions

Lease Obligations – Related Party

the year ended December 31, 2021, the Company entered into one related party finance lease obligations.

tax provision

Note 11 – 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.

Note 12 – Related

Party Transactions

Finance Lease

Obligations – Related Party

During the year

ended December 31, 2022, the Company entered into two related party finance lease obligations.

See Note 6 for details.

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.

No lease obligations exist between

the Company and Nexxis Capital.

The Company received funds of $14,209 and $37,954 during the year

ended December 31, 2021 and 2020 respectively.

Nexxis Capital

(Chairman and CEO) and Harold Schwartz (President) collectively own 100% of Nexxis Capital LLC (“Nexxis Capital”).

Capital was formed to purchase equipment and provide leases to Nexxis Inc.’s customers.

The Company received funds of $ 39,172 and

$ 14,209 during the year ended December 31, 2022, and 2021 respectively.

Note 13 – Merger

Solutions, LLC

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

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 “Equity holders”) 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.

Pursuant to the Merger, all of the Equity Interests that are issued and

outstanding immediately prior to the effectiveness of the filing of the Articles of Merger by Flagship and Merger Sub with the Secretary

of State of the State of Florida, was converted into the right to receive an aggregate amount equal to up to $10,500,000, consisting of

$5,550,000, payable in cash, subject to reduction by the amount of any excluded liabilities assumed by the Company at Closing totaling

$110,684, and subject to adjustment as set forth below in connection with a networking capital adjustment totaling $307,300, and the Company

paid the broker fess of $402,727, and up to $4,950,000, payable in shares of the Company’s common stock, subject to reduction by

the amount by which the valuation of Flagship (the “Flagship Valuation”), as calculated based on Flagship’s unaudited

pro forma 2018 financial statements and audited 2019 and 2020 financial statements (the “2020 Audit”), is less than $10,500,000.

In the event that the Flagship Valuation, as calculated based on the 2020 Audit, is less than $10,500,000, then, within fifteen (15)

days after completion of the audit of Flagship’s financial statements for its 2019, 2020 and 2021 fiscal years (the “2021

Audit”), the Company has agreed to pay the Equityholders, in shares of the Company’s common stock, the amount by which the

Flagship Valuation, as calculated based on the 2021 Audit, exceeds the sum of $5,550,000 and the value of the shares merger consideration

paid by us to the Equityholders at Closing, subject to a cap of $4,950,000.

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.

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 purchase price was $5.5 million.

addition, the cash merger consideration paid by the Company to the Equity holders 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.

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.

(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.

to the Board and the board of directors of Flagship to serve so long as he continues to be employed by the Company.

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 agreed to elect

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

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.

the closing of the transaction, Flagship’s financial statements as of the Closing were consolidated with the Consolidated

Financial Statements of the Company.

These amounts are provisional and may be adjusted during the measurement period.

Wyllie was 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.

On October 28, 2022, Mark

Wyllie resigned from his position as Chief Executive Officer of Flagship.

Additionally, in connection with the res ignation,

Wyllie will no longer serve as the Executive Vice President of the Company or a member of the Company’s Board of Directors.

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

Statements of the Company.

The following

2 unchanged sentences

Purchase price:

Cash paid to the seller

paid to the seller

Total purchase price

3 unchanged sentences

Website and Digital Assets

Security Deposits

Total Tangible Assets Acquired

Tangible Assets Acquired

Tangible Liabilities Assumed:

Accounts Payable and Accrued Expenses

Accounts Payable and Accrued

Deferred Revenue

Deferred Tax Liability

PPP Loan Payable

Total Tangible Liabilities Assumed

Net Tangible Assets Acquired

Tangible Liabilities Assumed

Assets Acquired

Excess Purchase Price

The excess purchase

price amounts are provisional and may be adjusted during the one-year measurement period as required by U.S.

The following

table provides a summary of the allocation of the excess purchase price.

Schedule of unaudited pro-forma

Customer Relationships

Assembled Workforce

Excess Purchase Price

table shows the allocation of the excess purchase price.

of the allocation of the excess purchase price

Relationships

Purchase Price

The intangible

1 unchanged sentence

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

the tax affected timing differences relating to the acquired intangible assets to the extent they are not offset by acquired deferred

represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition.

1 unchanged sentence

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

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.

Net income attributable to common shareholders

Schedule of unaudited pro-forma

Net income attributable to

common shareholders

Net income per share

Weighted average number of shares outstanding

Net loss attributable to common shareholders

Net loss per share

Weighted average number of shares outstanding

Segment Information

We operate in three reportable segments:

Nexxis, Flagship Solutions Group, and CloudFirst.

Our segments were determined based on our internal organizational structure, the manner

in which our operations are managed, and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which

is generally the segment’s operating income or losses.

Schedule of segment reporting income or losses

and services provided:

is a single-source solution provider that delivers fully-managed cloud-based voice services, data transport, internet access, and

SD-WAN solutions focused on business continuity for today’s modern business environment.

Flagship Solutions, LLC

Flagship Solutions Group (FSG) is a managed service provider.

clients primarily for services that assist the clients’ technical teams.

FSG has few technical assets and utilizes the assets or

software of other cloud providers, whereby managing 3rd party infrastructure.

FSG periodically sells equipment and software.

CloudFirst Technologies Corporation

CloudFirst, provides services

from CloudFirst technological assets deployed in six Tier 3 data centers throughout the USA and Canada.

This technology

has been developed by CloudFirst.

Clients are invoiced for cloud infrastructure and disaster recovery on the CloudFirst platform.

provided to clients are provided on a subscription basis on long term contracts.

The following tables present certain financial information

related to our reportable segments and Corporate:

Schedule of financial information related to reportable segments

of December 31, 2022

Solutions LLC

expenses and other current assets

Property and Equipment

lease right-of-use assets

payable and accrued expenses

Finance leases payable

Finance leases payable related party

Total Operating

lease liabilities

As of December

Solutions LLC

expenses and other current assets

and Equipment

lease right-of-use assets

payable and accrued expenses

Finance leases payable

Finance leases payable related party

Total Operating

lease liabilities

ended December 31, 2022

Flagship Solutions

CloudFirst Technologies

general and administrative

Impairment of goodwill

and amortization

operating expenses

from Operations

of deferred offering costs

Other Income (Expense)

(Loss) before provision for income taxes

year ended December 31, 2021

Solutions LLC

general and administrative

and amortization

operating expenses

from Operations

other expenses

Other Income (Expense)

(Loss) before provision for income taxes

$ ( 307,296 )

$ ( 840,602 )

$ ( 139,710 )

15 - Subsequent Events

Subsequent to December 31, 2021, the Company

issued 38,300 options

Subsequent to December 31, 2022, the Company issued 132,354 options

to employees through the 2021 Stock Incentive Plan.

These options vest over three years and have exercise prices ranging from $ 1.61 –

Subsequent to December 31, 2021, options

were exercised to obtain 3,334 shares of common stock.

These options were exercised for $ 6,935 .

CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Subsequent to December 31, 2022, the Company issued 132,354 restricted

stock units to employees through the 2021 Stock Incentive Plan.

These RSUs vest over three years and do not have an expiration date.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk