What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-28 · 252 added, 239 removed, 157 unchanged (76% of the section changed)

2 unchanged sentences

The following discussion of our plan of operation

and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included

elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that relate to future events or our

future financial performance.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual

results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance

or achievements expressed or implied by these forward-looking statements.

These risks and other factors include, among others, those listed

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

and results of operations should be read in conjunction with the consolidated financial statements and related notes to the consolidated

financial statements included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that relate

to future events or our future financial performance.

These statements involve known and unknown risks, uncertainties and other factors

that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results,

levels of activity, performance or achievements expressed or implied by these forward-looking statements.

These risks and other factors

include, among others, those listed under “Forward-Looking Statements” and “Risk Factors” and those included elsewhere

in this report.

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.

DSC is a leading provider of enterprise cloud and

business continuity solutions, specializing in fully managed cloud hosting, disaster recovery, cybersecurity, and IT automation services.

DSC leverages its expertise through its three subsidiaries:

CloudFirst Technologies, CloudFirst Europe and Nexxis.

Through its CloudFirst

platform – built on IBM Power Systems infrastructure – DSC delivers high-performance cloud solutions tailored for IBM i and

AIX workloads This niche focus on IBM Power environments distinguishes CloudFirst in the market:

none of the major public cloud providers

(AWS, Microsoft Azure, or Google Cloud) natively support IBM i/AIX workload, giving DSC a distinct competitive edge in serving clients

with these mission-critical systems.

The Company leverages long-term subscription contracts for its cloud and disaster-recovery services,

yielding a highly recurring revenue base and strong customer retention (historically over 90% annual subscription renewal rates) DSC’s

client base exceeds 425 organizations across diverse sectors – including government, healthcare, education, manufacturing, and Fortune

500 enterprises – reflecting broad market demand for its multi-cloud hosting and business continuity solutions.

In recent years,

DSC has undertaken strategic expansions (organically and via acquisitions) to reinforce its position as an emerging growth leader in the

multi-billion-dollar cloud hosting and business continuity market.

Notably, the integration of Flagship (acquired 2021) into CloudFirst

was completed in January 2024, unlocking operational synergies and enabling cross-selling of the full CloudFirst suite to Flagship’s

established customer base.

This integration, combined with enhanced distribution and marketing capabilities post-2021 Nasdaq uplisting,

has bolstered DSC’s growth trajectory and technical expertise.

2024, the Company entered into an Equity Distribution Agreement (the “Agreement”), with Maxim Group LLC (“Maxim”),

pursuant to which it may offer and sell, from time to time, through Maxim, as sales agent or principal, shares of the Company’s

common stock.

Subject to the terms and conditions of the Agreement, Maxim will use commercially reasonable efforts consistent with its

normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of the Nasdaq Capital Market

to sell shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by us.

Under the Agreement, Maxim may sell shares by any method deemed to be an “at the market” offering as defined in Rule 415 under

the Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions.

obligations to sell shares under the Agreement are subject to satisfaction of certain conditions, including customary closing conditions

for transactions of this nature.

The Company will pay Maxim a commission of 2.5% of the aggregate gross proceeds from each sale of shares

and have agreed to provide Maxim with customary indemnification and contribution rights.

The Company also agreed to reimburse Maxim for

certain specified expenses of up to $50,000.

Sales of shares of common stock under the Agreement will be made pursuant to the Company’s

registration statement on Form S-3 (File No.

333-280881) (the “Registration Statement”) and a related prospectus supplement

(the “ATM Prospectus”), both of which were filed with the SEC on July 18, 2024.

The ATM Prospectus relates to the offering

of up to $10,600,000 shares of the Company’s common stock.

The issuance and sale, if any, of common stock under the Agreement is

subject to the Company maintaining an effective registration statement.

The Registration Statement was declared effective on July 26,

RESULTS OF OPERATIONS

Year ended December 31, 2024, as compared to December

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

Revenue for the year ended December 31, 2024, increased by approximately 2% to

$25,371,303 as compared to sales for the year ended December 31, 2023, of $24,959,576.

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

services that it provides:

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

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

1 unchanged sentence

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.

The Company also provides equipment and software and actively participates 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 2% of its sales to international customers.

During the year ended December 31, 2024,

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.

the Company derived approximately 31% of revenue from equipment and software sales, 51% of revenue from infrastructure & disaster

recovery/cloud services, 12% of revenue from managed services, 5% of revenue from Nexxis VoIP services.

During the year ended December

31, 2023, the Company derived approximately 41% of our revenue from equipment and software sales, 40% of its revenue from infrastructure

& disaster recovery/cloud services, 13% of revenue from managed services, and 4% of revenue from Nexxis VoIP services.

The following chart details

the changes in the Company’s sales for the years ended December 31, 2024, and 2023, respectively.

Ended December 31,

3 unchanged sentences

Nexxis VoIP Services

Total Revenue

Cost of sales.

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 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.

For the year ended December

31, 2024, cost of sales was $14,267,936, a decrease of $1,115,315, or 7%, compared to $15,383,251 for the year ended December 31, 2023.

The decrease of $1,115,315 was mostly related to the decrease in one-time equipment and managed services related cost of sales.

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,

For the year ended December 31, 2024, selling, general and administrative expenses were $11,023,476, an increase of $1,278,740,

or 13%, as compared to $9,744,736 for the year ended December 31, 2023.

The decrease is reflected in the chart below.

Selling, general and administrative expenses

Ended December 31,

Professional Fees

Software as a Service Expense

Advertising Expenses

Commissions Expense

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.

The increase is reflected in the chart below.

general and administrative expenses

Salaries and Director Fees

Based Compensation

as a Service Expense

and Depreciation Expense

and Entertainment Expense

and Occupancy Expense

Other Expenses

Salaries and Director Fees.

director fees increased as a result of an increase in headcount, an increase in the number of Board Members and an increase due to

annual employee performance reviews.

Stock Based Compensation.

Stock Based Compensation

increased primarily due to an increase in the number of RSU’s granted and higher fair value per share for both RSU’s and stock

Professional Fees.

Professional fees increased

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

primarily due to business development consulting fees, an increase in legal and accounting fees related to the filing of certain registration

statements, and an increase in recruiting fees.

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.

increased due to new projects for improvement initiatives for one of the Company’s customer relationship management systems.

Advertising Expenses.

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

Advertising expense

decreased due to the Company’s strategy to offset stadium expense by re-selling the suite for certain events.

Commissions Expense.

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

Commissions expense

decreased due to lower one-time equipment sales.

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 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

expenses increased due to international expansion efforts in addition to travel related to domestic customer expansion efforts.

All other expenses increased primarily due to the Company receiving communications from the New York State Department

of Taxation and Finance regarding sales and use tax matters.

On July 31, 2024, the Company received additional correspondence and

entered into discussions with the agency concerning an audit of its sales and use tax filings.

On February 4, 2025, the Company

received a Statement of Proposed Audit Change from the Department, proposing a total liability of $219,352.

The proposed liability

related to the audit period from December 1, 2018 through May 31, 2023, and included $142,021 in tax and $77,331 in interest, with

no penalties assessed.

As of September 30, 2024, the Company recorded an initial accrual of $89,000 based on the information

available at the time.

Upon receipt of the proposed assessment and completion of its evaluation, the Company recorded the remaining

liability of $53,021 in other expenses and $77,331 in interest expense as of December 31, 2024, bringing the total accrual to

The Company subsequently paid the full amount to the New York State Department of Taxation and Finance in February

Income before provision for income taxes.

before provision for income taxes for the years ended December 31, 2024, and 2023 was $552,103, and $299,316 respectively, primarily attributable

to the items discussed above.

3 unchanged sentences

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.

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

3 unchanged sentences

in advertising and marketing programs, and/or a reduction in salaries for officers that are major shareholders.

The Company has long-term

contracts to supply its subscription-based solutions that are invoiced to clients monthly.

The Company believes its total contract value

of its subscription contracts with clients based on the actual contracts that it has to date, exceeds $10 million.

Further, the Company

continues to see an uptick in client interest distribution channel expansion and in sales proposals.

In 2024, the Company intends to continue

to work to increase its presence in the IBM “Power I” infrastructure cloud and business continuity marketplace in the niche

of IBM “Power” and in the disaster recovery global marketplace utilizing its technical expertise, data centers utilization,

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

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 has long-term contracts to supply its

subscription-based solutions that are invoiced to clients monthly.

The Company believes its total contract value of its subscription contracts

with clients based on the actual contracts that it has to date exceeds $10 million.

Further, the Company continues to see an uptick in

client interest in distribution channel expansion and in sales proposals.

In 2025, the Company intends to continue to work to increase

its presence in the IBM “Power I” infrastructure cloud and business continuity marketplace in the niche of IBM “Power”

and in the disaster recovery global marketplace utilizing its technical expertise, data centers utilization, assets deployed in the data

centers, 24 x 365 monitoring and software.

On July 18, 2024, the Company

entered into the Agreement with Maxim, discussed under “Recent Developments” above, pursuant to which the Company may offer

and sell, from time to time, through Maxim, as sales agent or principal, shares of its common stock.

There can be no guarantee that the

Company will be able to raise capital from sales under the Agreement.

To date, the Company has not made any sales under the Agreement.

The Company’s working

1 unchanged sentence

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.

attributable to an increase in accounts receivable and prepaid expenses and other current assets which was offset, in part, by an increase

in accounts payable.

Cash Flows for the year ended December 31, 2024,

as compared to December 31, 2023

The following table summarizes

the Company’s cash flows:

Year Ended December 31,

Cash provided by operating activities

Cash used in investing activities

Cash used in financing activities

Effect of exchange rate changes on cash

Decrease in cash

Cash, beginning of period

Cash, end of period

Operating activities

For the year ended December

31, 2024, cash provided by operating activities was $1,740,089, compared to $3,873,047 for the year ended December 31, 2023.

is primarily due to an increase in accounts receivable of $1,010,880 for the year ended December 31, 2024, as compared to a decrease in

accounts receivable for the year ended December 31, 2023 of $2,242,864.

Investing activities

During the year ended December

31, 2024, net cash used in investing activities totaled $1,743,174, compared to $3,852,245 during the year ended December 31, 2023.

decrease of $2,109,071 was primarily due to a net decrease in the purchases of marketable securities.

Financing activities

During the year ended December

31, 2024, net cash used in financing activities totaled $352,957, compared to $878,794 during the year ended December 31, 2023.

of $525,837 was primarily due to lower repayments of finance lease obligations.

Off-Balance Sheet Arrangements

3 unchanged sentences

Adjusted EBITDA

To supplement our consolidated

financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results,

we consider and are including herein Adjusted EBITDA, a Non-GAAP financial measure.

We view Adjusted EBITDA as an operating performance

measure and, as such, we believe that the GAAP financial measure most directly comparable to it is net income (loss).

We define Adjusted

EBITDA as net income adjusted for interest and financing fees, depreciation, amortization, stock-based compensation, and other non-cash

income and expenses.

We believe that Adjusted EBITDA provides us an important measure of operating performance because it allows management,

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

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

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

Our use of Adjusted EBITDA

has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an analysis of our

results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition.

Additionally,

our measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA.

When evaluating our performance, Adjusted

EBITDA should be considered with other financial performance measures, including various cash flow metrics, net income and other GAAP

In the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully

evaluate and compare our future results of operations to our previously reported results of operations.

To supplement the Company’s consolidated financial statements presented

in accordance with GAAP and to provide investors with additional information regarding the Company’s financial results, the Company

considers and is including herein Adjusted EBITDA, a Non-GAAP financial measure.

The Company views Adjusted EBITDA as an operating performance

measure and, as such, the Company believes that the GAAP financial measure most directly comparable to it is net income (loss).

defines Adjusted EBITDA as net income adjusted for interest and financing fees, depreciation, amortization, stock-based compensation,

sales tax settlement, and other non-cash income and expenses.

The Company believes that Adjusted EBITDA provides an important measure

of operating performance because it allows management, investors, debt holders and others to evaluate and compare ongoing operating results

from period to period by removing the impact of the Company’s asset base, any asset disposals or impairments, stock-based compensation

and other non-cash income and expense items associated with its reliance on issuing equity-linked debt securities to fund its working capital.

The Company’s use of

Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an

analysis of its results as reported under GAAP, as the excluded items may have significant effects on its operating results and financial

Additionally, the Company’s measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA.

When evaluating the Company’s performance, Adjusted EBITDA should be considered with other financial performance measures, including

various cash flow metrics, net income and other GAAP results.

In the future, the Company may disclose different non-GAAP financial measures

in order to help its investors and others more meaningfully evaluate and compare the Company’s future results of operations to its

previously reported results of operations.

The following table shows

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

the Company’s reconciliation of net income (loss) to adjusted EBITDA for the years ended December 31, 2024, and 2023:

For the year ended December 31, 2024

CloudFirst Technologies

Flagship Solutions LLC

CloudFirst Europe Ltd.

Net income (loss)

2 unchanged sentences

Depreciation and amortization

Interest and letter of credit fees

Sales tax settlement

Interest income

Interest expense

Provision for income tax

Stock-based compensation

3 unchanged sentences

CloudFirst Technologies

Flagship Solutions LLC

$ (4,916,934 )

$ (4,408,863 )

CloudFirst Europe Ltd.

Net income (loss)

Non-GAAP adjustments:

Flagship acquisition costs

Depreciation and amortization

Interest and letter of credit fees

Impairment of goodwill

Interest income

Interest expense

Stock-based compensation

Adjusted EBITDA

$ (1,798,608 )

CRITICAL ACCOUNTING ESTIMATES

5 unchanged sentences

Actual results could differ from these estimates.

We believe that the accounting estimates employed are appropriate

The Company believes that the accounting estimates employed are appropriate

and resulting balances are reasonable;

2 unchanged sentences

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.

judgments and estimates on the part of management, that the Company believes are significant to the presentation of its consolidated financial

The most significant accounting estimates are set forth below.

16 unchanged sentences

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

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 assesses 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.

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

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 the Company’s reporting units

to generate cash flows as measures of fair value of its reporting units.

The Company performs a qualitative analysis of goodwill and other

intangible assets for impairment indicators on at least an annual basis.

If this assessment shows impairment indicators the Company will

perform an impairment test to determine if the carrying value of a reporting unit exceeds its estimated fair value.

For the year ended December

31, 2024, the Company was not required to perform an impairment test of goodwill since the qualitative analysis did not show any impairment

indicators and no triggering events were identified.

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 testing results.

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.

For the year ended December 31, 2023, the Company

was required to complete its annual impairment tests of goodwill since the Company combined two reporting units.

The Company performed

the quantitative assessment and determined that the fair value of the reporting units was more likely than not greater than their carrying

value, including goodwill at December 31, 2023.

Based on the completion of the annual impairment test on December 31, 2023, the Company

did not record an impairment charge.

Revenue Recognition

4 unchanged sentences

Cloud Infrastructure and Disaster Recovery Revenue

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.

Cloud Infrastructure provides clients with 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 centers.

DSC 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

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

10 unchanged sentences

Equipment and Software

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.

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 are provided to clients.

Nexxis Voice over Internet and Direct Internet Access

The Company provides VoIP, Internet access

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

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

fiber optics.

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

9 unchanged sentences

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 :

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

Services are provided 24x7x365 to our clients.

Subscription based service offers support for clients on their servers,

firewalls, desktops or software.

Services are provided 24x7x365 to the Company’s clients.

Implementation / Set-Up Fees :

31 unchanged sentences

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 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.

Impact of Recently Issued Accounting Standards

In the normal course of business, we evaluate all

new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they

may have on the Company’s Consolidated Financial Statements.

See Note 2 “Summary of Significant Accounting Policies”

of the notes to the Company’s consolidated financial statements in this Annual Report for additional information about these recently

issued accounting standards and their potential impact on the Company’s financial condition or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

2 unchanged sentences

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