What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-31 · 293 added, 296 removed, 103 unchanged (85% of the section changed)

11 unchanged sentences

under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.

COMPANY OVERVIEW

Data Storage Corporation,

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

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

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

The subsidiaries maintain business development teams, as

well as independent distribution companies.

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

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

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

The distribution company has

typically provided equipment and software.

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

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

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

During 2021, based on the May capital raise and the

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

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

data center network.

The Company’s business offices are in New York

The offices include a technology center and lab, adapted to meet the technical requirements of the Company’s clients.

The Company maintains its own infrastructure, storage, and networking equipment required to provide subscription solutions in seven geographically

diverse data centers located in New York, Massachusetts, Texas, Florida and North Carolina, and in Canada, Toronto, and Barrie, serving

clients in the United States and Canada.

The Company’s Business Continuity Solutions

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

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

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

The Company’s Cyber Security

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

that can be incorporated into the Company’s cloud solutions or be delivered as a standalone managed security offering covering

the client site endpoint devices, users, servers, and equipment.

Solution architects and the

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

The Company carefully

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

have been implemented.

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

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

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

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

2022 Business Update

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.

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

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

meaningful operation efficiency of the two organizations.

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

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

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

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

Infrastructure

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

Flagship focuses on the IBM

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

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

meaningful operation efficiency through the integration the organizations.

The Company also believes the Merger will also provide the

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

well as middle-market customers.

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

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

and Linux, including:

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

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

The Company’s offices

are in New York and Florida including technology centers, which are adapted to meet the requirements of its clients.

In addition to office

staffing, the Company employs additional remote staff.

The Company maintains its infrastructure, storage and networking equipment required

to provide our subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida,

North Carolina and Canada.

COMPANY OVERVIEW SUMMARY

Data Storage Corporation, based in Melville, New York, is a leading provider

of data management and cloud solutions across multiple industries including healthcare, finance, manufacturing, and government.

its subsidiaries, CloudFirst Technologies, Flagship Solutions LLC, and Nexxis, Inc., the Company offers a comprehensive suite of services

designed to enhance operational resilience and data integrity for its clients.

Strategic Growth and Infrastructure:

to a capital raise and Nasdaq uplisting in 2021, the Company expanded its distribution networks and bolstered its team, focusing on enhancing

its sales, marketing, and technological capabilities.

Data Storage Corporation operates six geographically diverse data centers across

and Canada, supporting its commitment to providing secure and reliable subscription-based services.

Core Services:

● Business Continuity Solutions:

Offers rapid recovery from system outages and disasters, ensuring

minimal operational disruption.

● Managed Cloud Infrastructure Services:

Facilitates cloud migration and provides ongoing support

for software applications and technical workloads in a multi-cloud environment.

● Cyber Security:

Delivers comprehensive security consultation, data protection, disaster recovery,

and remote monitoring services, either integrated into cloud solutions or as standalone offerings.

Client Engagement and Revenue Generation:

The Company engages with clients through direct business development efforts and a broad distribution network, offering solutions

that lower barriers to entry for disaster recovery and cloud infrastructure services.

While subscription-based services constitute

a significant portion of its revenue, Data Storage Corporation also generates income from the sale of equipment and software, emphasizing

cybersecurity, data storage, and IBM Power systems solutions.

This overview highlights Data Storage Corporation’s

strategic approach to leveraging technology and expertise to meet the complex needs of its diverse client base, ensuring business continuity

and security in an increasingly digital world.

Key Merger Highlights:

● Synergistic Integration:

The merger with Flagship is expected to create a unified platform that

leverages both entities’ strengths in IBM solutions, managed services, and cloud-based security, promising enhanced operational

● Expanded Offerings:

The combined expertise of Data Storage Corporation and Flagship Solutions is

set to offer a comprehensive range of multi-cloud IT solutions, including Infrastructure as a Service (IaaS), Disaster Recovery as a Service

(DRaaS), and Cyber Security as a Service (CSaaS), targeting both enterprise and mid-market customers.

Post-merger, the focus remains

on harnessing this strategic

integration to extend the

range of high-security, reliable

cloud services for IBM Power

systems, Microsoft Windows,

and Linux platforms.

Company is committed to continuing

its growth through further

synergistic acquisitions.

As of January 1, 2024 CloudFirst

Technologies and Flagship

Solutions LLC have merged.

Data Storage Corporation operates from offices

in New York, Florida and Texas, equipped with technology centers designed to meet client requirements effectively.

also employs remote staff to complement its office teams and manages a robust infrastructure across six geographically diverse

data centers in the United States and Canada, supporting its comprehensive subscription-based solutions.

This merger represents a pivotal step in Data Storage

Corporation’s strategy to expand its service offerings and enhance its competitive edge in the rapidly evolving cloud services and

IT solutions market.

RESULTS OF OPERATIONS

Year ended December 31, 2023, as compared to December

Sales for the year ended

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

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

infrastructure & disaster recovery / cloud services which

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

internet access services.

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

We also provide equipment

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

The professional

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

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

The following chart details the changes in the Company’s

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

Cloud Infrastructure

& Disaster Recovery

for the year ended December 31, 2023, increased by approximately 5% to

$24,959,576 as compared to sales for the year ended December 31, 2022, of $23,870,837.

The Company derives its sales from four types of

services that we provide:

infrastructure & disaster recovery/cloud services which is the largest source of our sales, followed by

managed services, equipment and software sales, and Nexxis, VoIP and internet access services.

The cloud infrastructure & disaster

recovery/cloud services are subscription-based.

We also provide equipment and software and actively participate in collaboration with

IBM to provide innovative business solutions to clients.

The professional services are providing the client cloud infrastructure and or

Disaster Recovery implementation services as well as time and materials billing.

Substantially all of the Company’s sales were to

customers in the United States, with less than 2% of its sales to international customers.

During the year ended December 31, 2023,

the Company derived approximately 24% of our revenue from equipment and software sales, 39% of our revenue from infrastructure & disaster

recovery/cloud services, 32% of our revenue from managed services, 4% of our revenue from Nexxis VoIP services.

During the year ended

December 31, 2022, we derived approximately 26% of our revenue from equipment and software sales, 34% of our revenue from infrastructure

& disaster recovery/cloud services, 35% of our revenue from managed services, and 3% of our revenue from Nexxis VoIP services.

following chart details the changes in the Company’s sales for the years ended December 31, 2023 and 2022, respectively.

Ended December 31,

Cloud Infrastructure & Disaster Recovery

Equipment and Software

Managed Services

VoIP Services

Nexxis VoIP Services

Cost of sales.

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

year ended December 31, 2021.

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

sales which resulted from the Flagship merger.

the year ended December 31, 2023, cost of sales was $15,383,251, a decrease of $404,293, or 3%, compared to $15,787,544 for the year ended

December 31, 2022.

The decrease of $404,293 was mostly related to new, negotiated pricing at Flagship, offset by an increase in cost of

sales at CloudFirst and Nexxis due to the increase in revenue.

Impairment of goodwill.

During the year ended

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

general and administrative expenses .

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

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

The net [increase/decrease] is

reflected in the chart below.

general and administrative expenses

in Professional Fees

in Software as a Service Expense

in Advertising Expenses

in Commissions Expense

in Amortization and Depreciation Expense

in Travel and Entertainment Expense

in Rent and Occupancy Expense

in Insurance Expense

in all other Expenses

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

stock-based compensation.

December 31, 2022, the Company recorded a goodwill impairment charge of $2,322,000 regarding its Flagship segment .

There were no

goodwill impairment charges during the year ended December 31, 2023.

Selling, general and administrative

For the year ended December 31, 2023, selling, general and administrative expenses were $9,744,736, a decrease of $92,572,

or 1%, as compared to $9,837,308 for the year ended December 31, 2022.

The decrease is reflected in the chart below.

Selling, general and administrative expenses

Ended December 31,

Professional Fees

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

Software as a Service Expense

Advertising Expenses

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

Commissions Expense

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

And Entertainment.

Travel And Entertainment increased primarily due to the Flagship merger and

the lifting of Covid-19 restrictions.

and Occupancy.

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

January 2022.

Amortization and Depreciation Expense

Travel and Entertainment Expense

Rent and Occupancy Expense

Insurance Expense

All Other Expenses

Total Expenses

decreased as a result of a reduction in stock-based compensation at Flagship ,

offset by an increase in employee benefits due to the addition of a new employee benefit program in 2023.

Professional Fees.

Professional fees increased

primarily due to an increase in legal fees relating to employment matters and other corporate projects.

Software as a Service Expense (SaaS).

decreased due to the completion of certain consulting engagements related to one of our customer relationship management platforms.

Advertising Expenses.

Advertising Expenses

decreased due to non-renewal of a marketing program at Flagship.

Commissions Expense.

expense increased due to an increase in sales at CloudFirst and Nexxis.

Travel and Entertainment.

Travel and Entertainment

expense decreased due to less travel by executives and reduced corporate events.

Rent and Occupancy.

Rent and Occupancy

increased primarily due to contractual increases in rent for office space.

Other Expenses.

Increased primarily due to the Flagship merger.

Other Income (Expense).

Other income for the

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

The decrease in other

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

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

(Net Loss) before provision for income taxes .

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

Increased primarily due to an increase in bad debt expense offset by a reduction

in all other expenses.

Income (Expense).

Other income (expense) for the year ended December 31, 2023, increased $800,576 to $467,727 from $(332,848) for

the year ended December 31, 2022.

The increase in other income (expense) is primarily attributable to net interest income for the year

ended December 31, 2023 from marketable securities and a decrease in impairment of deferred offering costs.

(Loss) before provision for income taxes.

Net income before provision for income taxes for the year ended December 31, 2023,

was $299,316, as compared to a loss before provision for income taxes of $4,408,863 for the year ended December 31, 2022, primarily attributable

to the items discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The consolidated financial

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

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

To the extent the Company

is successful in growing its business, identifying potential acquisition targets, and negotiating the terms of such acquisition, and the

purchase price may include a cash component, the Company plans to use its working capital and the proceeds of any financing to finance

such acquisition costs.

The Company’s opinion

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

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

To the extent the Company is successful in growing its business, identifying

potential acquisition targets, and negotiating the terms of such acquisitions, and where the purchase price may include a cash component,

the Company expects to use its working capital and the proceeds of any financing to finance such acquisition costs.

The Company’s conclusion

concerning its liquidity is based on current information.

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assets deployed in the data centers, 24 x 365 monitoring and software.

During the year ended December

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

Net cash of $663,801 was provided

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

Net cash of $9,138,225 was used

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

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

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

This was offset by the

cash received for the exercised options.

During the year ended December 31, 2023, Data Storage’s cash decreased $857,992

to $1,428,730 from $2,286,722 on December 31, 2022.For the year ended December 31, 2023, net cash of $3,873,047 was provided by Data Storage’s

operating activities resulting primarily from changes in net working capital requirements.

Net cash of $3,852,245 was used in investing

activities for the year ended December 31, 2023, primarily related to the purchase of short-term investments and capital expenditures.

Net cash of $878,794 was used in financing activities for the year ended December 31, 2023, primarily related to payments in connection

with finance lease obligations and payments for deferred offering costs.

This was primarily offset by cash received in connection with

the exercise of stock options.

The Company’s working

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

The decrease is primarily

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

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

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

capital was $11,011,407 on December 31, 2023, increasing by $156,000 from $10,855,407 at December 31, 2022.

The increase is primarily

attributable to a decrease in cash, accounts receivable, prepaids and other current assets, accounts payable and leases payable related

This was offset by an increase in short-term investments and deferred revenue.

Off-Balance Sheet Arrangements

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The following table shows

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

the Year Ended

(Loss) Income

our reconciliation of net income (loss) to adjusted EBITDA for the years ended December 31, 2023, and 2022, respectively:

For the year ended December 31, 2023

CloudFirst Technologies

Flagship Solutions LLC

Net income (loss)

$ (2,097,186 )

and amortization

from income taxes

acquisition costs

income and expense

Non-GAAP adjustments:

Depreciation and amortization

Interest and letter of credit fees

Stock-based compensation

Adjusted EBITDA

$ (2,312,165 )

For the year ended December 31, 2022

CloudFirst Technologies

Flagship Solutions LLC

$ (4,916,934 )

$ (4,408,863 )

Non-GAAP adjustments:

Flagship acquisition costs

Depreciation and amortization

Interest and letter of credit fees

Impairment of goodwill

on disposal of assets

on forgiveness of debt

CRITICAL ACCOUNTING POLICIES

We believe that the following accounting policies

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

Condition and Results of Operation.”

Stock-based compensation

Adjusted EBITDA

$ (1,798,608 )

CRITICAL ACCOUNTING ESTIMATES

Use of Estimates

The preparation

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

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

amounts of revenue and expenses during the reporting period.

The preparation of financial statements in conformity

with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the

reporting period.

Actual results could differ from these estimates.

Estimated Fair Value of Financial

The Company’s

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

Management believes the estimated fair

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

The carrying values of certain of the Company’s notes payable and capital lease obligations approximate their fair values

based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently

available to the Company in the marketplace.

and Equipment

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

for financial statement purposes.

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

Additions, betterments and replacements are capitalized, while expenditures for repairs and maintenance are charged to operations

when incurred.

As units of property are sold or retired, the related cost and accumulated depreciation are removed from the accounts,

and any resulting gain or loss is recognized in income.

Offering Costs

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

as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded

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

Should the planned

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

consolidated statement of operations.

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

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

and Other Intangibles

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

Impairment exists if the carrying value of a reporting

unit exceeds its estimated fair value.

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

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

In making these assumptions and estimates,

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

We believe that the accounting estimates employed are appropriate

and resulting balances are reasonable;

however, due to inherent uncertainties in making estimates, actual results may differ from the

original estimates, requiring adjustments to these balances in future periods.

There are accounting policies, each of which requires significant

judgments and estimates on the part of management, that we believe are significant to the presentation of our consolidated financial statements.

The most significant accounting estimates are set forth below.

Estimated Fair Value of Financial Instruments

The Company’s financial instruments include

cash, accounts receivable, accounts payable and lease commitments.

Management believes the estimated fair value of these accounts on December

31, 2023, 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.

Property and Equipment

Property and equipment are recorded at cost and depreciated

over their estimated useful lives or the term of the lease using the straight-line method for financial statement purposes.

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

Additions, betterments and replacements

are capitalized, while expenditures for repairs and maintenance are charged to operations when incurred.

As units of property are sold

or retired, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized

Goodwill and Other Intangibles

The Company tests goodwill and other intangible assets

for impairment on at least an annual basis.

Impairment exists if the carrying value of a reporting unit exceeds its estimated fair value.

To determine the fair value of goodwill and intangible assets, the Company uses many assumptions and estimates using a market participant

approach that directly impacts 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

6 unchanged sentences

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.

For the year ended December 31, 2023, and 2022, 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 its reporting units was more likely than not greater than their carrying value, including Goodwill

at December 31, 2023.

However, based on this qualitative assessment on December 31, 2022 the Company determined that the carrying value

of the Flagship reporting unit was more likely than not greater than its fair, including Goodwill.

Based on the completion of the annual

impairment test on December 31, 2022, the Company recorded an impairment charge of $2,322,000 for goodwill for the year ended December

Revenue Recognition

goods and services

The following

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

of performance obligations, and significant payment terms for each:

Nature of goods and services

The following is a description of the products and

services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant

payment terms for each:

Cloud Infrastructure and Disaster Recovery Revenue

Infrastructure provides clients the ability to migrate their on-premise computing and digital storage to DSC’s enterprise-level

technical compute and digital storage assets located in Tier 3 data centers.

Data Storage Corporation owns the assets and provides a turnkey

solution whereby achieving reliable and cost-effective, multi-tenant IBM Power compute, x86/intel, flash digital storage, while providing

disaster recovery and cyber security while eliminating client capital expenditures.

The client pays a monthly fee and can increase capacity

can subscribe to an array of disaster recovery solutions without subscribing to cloud infrastructure.

Product offerings provided directly

from DSC are High Availability, Data Vaulting and retention solutions, including standby servers which allows clients to centralize and

streamline their mission-critical digital information and technical environment while ensuring business continuity if they experience

a cyber-attack or natural disaster Client’s data is vaulted, at two data centers with the maintenance of retention schedules for

corporate governances and regulations all to meet their back to work objective in a disaster.

Cloud Infrastructure provides clients the ability to migrate their on-premise

computing and digital storage to CloudFirst’s enterprise-level technical compute and digital storage assets located in Tier 3 data

Data Storage Corporation owns the assets and provides a turnkey solution whereby achieving reliable and cost-effective, multi-tenant

IBM Power compute, x86/intel, flash digital storage, while providing disaster recovery and cyber security while eliminating client capital

expenditures.

The client pays a monthly fee and can increase capacity as required.

Clients can subscribe to an array of disaster recovery solutions without subscribing

to cloud infrastructure.

Product offerings provided directly from DSC are High Availability, Data Vaulting and retention solutions, including

standby servers which allows clients to centralize and streamline their mission-critical digital information and technical environment

while ensuring business continuity if they experience a cyber-attack or natural disaster.

Client’s data is vaulted, at two data

centers with the maintenance of retention schedules for corporate governances and regulations all to meet their back to work objective

in a disaster.

Managed Services

These services

are performed at the inception of a contract.

These services are performed at the inception of a

The Company provides professional assistance to its clients during the implementation processes.

On-boarding and set-up services ensure that the solution or software is installed properly and function as designed to provide clients

with the best solutions.

In addition, clients that are managed service clients have a requirement for DSC to offer time and material billing

supplementing the client’s staff.

also derives both one-time and subscription-based revenue, from providing support, management and renewal of software, hardware, third

party maintenance contracts and third-party cloud services to clients.

The managed services include help desk, remote access, operating

system and software patch management, annual recovery tests and manufacturer support for equipment and on-gong monitoring of client system

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.

clients that are managed service clients have a requirement for DSC to offer time and material billing supplementing the client’s

The Company also derives both one-time and subscription-based

revenue from providing support, management and renewal of software, hardware, third party maintenance contracts and third-party cloud

services to clients.

The managed services include help desk, remote access, operating system and software patch management, annual recovery

tests and manufacturer support for equipment and on-gong monitoring of client system performance.

Equipment and Software

provides equipment and software and actively participates in collaboration with IBM to provide innovative business solutions to clients.

The Company is a partner of IBM and the various software, infrastructure and hybrid cloud solutions provided to clients.

The Company provides equipment and software and actively

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

The Company is a partner of IBM and the various

software, infrastructure and hybrid cloud solutions provided to clients.

Nexxis Voice over Internet and Direct Internet Access

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

remote and on premise.

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

delivered over fiber optics.

price allocated to the remaining performance obligations

has the following performance obligations:

The Company provides VoIP, Internet access

and data transport services to ensure businesses are fully connected to the internet from any location, remote and on premise.

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

fiber optics.

Transaction price allocated to the remaining performance

The Company has the following performance obligations:

Data Vaulting :

6 unchanged sentences

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.

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

Support and Maintenance :

6 unchanged sentences

Granting SSL certificates and licenses.

of Long-Lived Assets

reviews its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not

be recoverable.

An impairment loss, measured as the amount by which the carrying value exceeds the fair value is recognized if the carrying

amount exceeds estimated un-discounted future cash flows.

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

to employees and non-employees.

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

at various times as compensation and periodic bonuses.

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

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

The Company has a relatively low forfeiture

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

valuation methodology used to determine the fair value of the options issued during the period is the Black-Scholes option-pricing model.

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

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

Risk-free interest rates are calculated based on continuously compounded

risk-free rates for the appropriate term.

The dividend yield is assumed to be zero as the Company has never paid or declared any cash

dividends on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future.

The expected forfeiture

rate is estimated based on management’s best assessment.

Estimated volatility

is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award.

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

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment

whenever events and circumstances indicate that the carrying value of an asset might not be recoverable.

An impairment loss, measured

as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated un-discounted

future cash flows.

Stock-Based Compensation

The Company follows the requirements of FASB ASC 718-10-10, Share-Based

Payments with regards to stock-based compensation issued to employees and non-employees.

The Company has agreements and arrangements

that call for stock to be awarded to the employees and consultants at various times as compensation and periodic bonuses.

for this stock-based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number

of shares awarded.

The Company has a relatively low forfeiture rate of stock-based compensation, and forfeitures are recognized as

The valuation methodology used to determine the fair

value of the options issued during the period is the Black-Scholes option-pricing model.

The Black-Scholes model requires the use of a

number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected

life of the options.

Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term.

The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not

intend to pay dividends on its Common Stock in the foreseeable future.

The expected forfeiture rate is estimated based on management’s

best assessment.

Estimated volatility is a measure of the amount by

which DSC’s stock price is expected to fluctuate each year during the expected life of the award.

The Company’s calculation

of estimated volatility is based on historical stock prices over a period equal to the expected life of the awards.

RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In June 2016,

the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

(“ASU-2016-13”).

ASU 2016-13 affects loans, debt securities, trade receivables, and any other financial assets that have the

contractual right to receive cash.

The ASU requires an entity to recognize expected credit losses rather than incurred losses for financial

ASU 2016-13 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year.

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

November 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities

from Contracts with Customers, issued by the Financial Accounting Standards Board.

This ASU requires entities to recognize and measure

contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with

Customers (Topic 606).

The update will generally result in the recognition of contract assets and contract liabilities at amounts consistent

with those recorded by the acquiree immediately before the acquisition date rather than at fair value.

The adoption of ASU 2021-08 did

not have a material impact on the consolidated financial statements.

OFF-BALANCE SHEET TRANSACTIONS

The Company has no off-balance sheet arrangements.

In June 2016, the Financial Accounting Standards Board

(“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic

Measurement of Credit Losses on Financial Instruments.

The FASB subsequently issued amendments to ASU 2016-13, which have the same

effective date and transition date of January 1, 2023.

These standards replace the existing incurred loss impairment model with an expected

credit loss model and requires a financial asset measure at amortized cost to be presented at the net amount expected to be collected.

The Company determined that this change does not have a material impact to the financial statements or financial statement disclosures.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

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

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 7. Management’s Discussion and Analysis