What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-04-14 compared with 2025-03-31 · 255 added, 320 removed, 89 unchanged (87% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion of our plan of operation

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.

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our plan of operation 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.

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

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 Annual Report.

COMPANY OVERVIEW SUMMARY

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,

Data Storage Corporation (“Data Storage,”

“we,” “us,” “our” and the “Company”) has been a leading provider of multi-cloud hosting,

fully managed cloud services, disaster recovery, cybersecurity, IT automation, and voice & data solutions for more than twenty years.

However, following the sale of our cloud solutions business on September 11, 2025, which consisted of the operations of our subsidiaries,

CloudFirst Technologies Corporation and CloudFirst Europe Ltd., there has been a strategic shift in our operations.

We continue to operate

our subsidiary, Nexxis Inc.

(“Nexxis”), a telecommunications and data solutions access company.

We are focused on managing,

building, expanding or acquiring synergetic technology companies that provide leading edge solutions that assist businesses and institutions

improve our business processes.

We intend to pursue acquisitions of companies in complementary and high-growth technology sectors.

Sale of CloudFirst Business

On September 11, 2025, we closed the sale of the CloudFirst

business, for which we received $38,068,463 in cash.

This amount was based on a contractual base purchase price of $40,000,000, adjusted

at closing for a $1,500,000 escrow deposit and $431,537 in net adjustments for estimated closing date debt and working capital.

From this amount, we paid $6,467,590 for selling expenses,

estimated taxes on the sale, and other transaction costs.

As a result, our Consolidated Statement of Cash Flows for the year ended December

31, 2025, reflects net cash proceeds of $31,600,873 from the sale.

The net proceeds, after accounting for all transaction costs and estimated

taxes, are reflected in the Gain on sale of discontinued operations on the Consolidated Statements of Operations.

On December 8, 2025, we commenced the Tender Offer to purchase up to 6,192,990

shares of Common Stock, representing approximately 83% of our issued and outstanding shares as of December 1, 2025, at the maximum aggregate

purchase price for shares purchased in the Tender Offer of $32,203,548.

The Tender Offer expired on January 12, 2026.

In accordance with the terms and conditions of the

Tender Offer, based on the final count, on January 15, 2026, we accepted for purchase 5,625,129 shares of Common Stock at a purchase price

of $5.20 per share, for an aggregate cost of $29,250,971, excluding fees, any excise taxes, and expenses relating to the Tender Offer.

The shares accepted for purchase represent approximately 72.0% of the total number of shares of Common Stock outstanding as of December

Following payment for the tendered shares, we had 2,167,138 shares of Common Stock outstanding.

After completing the Tender Offer

and related payments, we retained over $10.0 million in cash.

Our Board is actively evaluating multiple strategic

alternatives for the use of the remaining sale proceeds, with the goal of maximizing long-term shareholder value.

Some of the uses for

such remaining cash include, without limitation:

● Targeted Acquisitions

in High-Growth Sectors – We intend to leverage our management’s expertise in technology and pursue acquisitions of companies

in complementary and high-growth technology sectors which may include the following:

Enabled Vertical SaaS, GPU IaaS

o Cybersecurity

solutions and related applications and services, such as SOC.

o Investments

in companies in various sectors

● Sale or Merger of

the Company – Our Board may evaluate potential strategic interest in the public company itself, including a full sale, reverse

merger, or other business combination with a third party that may benefit from our public listing, cash position, 250 million shares authorized

and clean capital structure;

● A Hybrid of the

Above Strategies – We may pursue a combination of the above strategies for the remaining sale proceeds beyond those intended

to be used for the Tender Offer.

The Board has not made a final determination regarding

the use of proceeds received from consummation of the sale of the CloudFirst business in excess of those used for the Tender Offer.

such actions will be subject to further review, market conditions, and, where required, shareholder approval.

We are committed to maximizing

shareholder value while maintaining flexibility to pursue the most advantageous path forward.

RESULTS OF OPERATIONS

Year ended December 31, 2025, as compared to December

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 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.

The cloud infrastructure & disaster

recovery/cloud services are subscription-based.

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 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.

Sales and Gross Profit

Sales from continuing operations were $1,382,929 for the year ended December

31, 2025, an increase of $163,682, or 13.4%, compared to $1,219,247 in the prior year.

The increase was primarily attributable to continued

growth in our Nexxis voice and data solutions business, driven by the addition of new customers and increased spending from existing customers.

Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within

our existing customer base.

In addition, revenue generated from existing customers

increased year over year, reflecting higher utilization of our services and incremental service adoption.

The Company also continued to

diversify its customer base during the year.

As a result, revenue concentration among our largest customers declined, with the top five

customers representing approximately 35.7% of total revenue in 2025 compared to approximately 41.0% in 2024.

No customer accounted for

more than 10% of sales for the year ended December 31, 2025.

One customer accounted for 16% of sales for the year ended December 31, 2024.

Gross profit for the year ended December 31, 2025 was $614,324, an increase of

$87,075, or 16.5%, compared to $527,249 in the prior year.

Our gross profit margin improved to 44.4% from 43.2% in the prior year, driven

by favorable sales mix and operating leverage.

Selling, general and administrative expenses

Ended December 31,

Cloud Infrastructure & Disaster Recovery

Equipment and Software

Managed Services

Nexxis VoIP Services

Total Revenue

Cost of sales.

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, 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 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 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).

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

Advertising Expenses.

Advertising expense

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

Commissions Expense.

Commissions expense

decreased due to lower one-time equipment sales.

Travel and Entertainment.

Software as a service

Depreciation and amortization

Travel and entertainment

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.

Rent and occupancy

Total Operating Expenses

For the year ended December 31, 2025, selling, general and administrative expenses

increased $347,658, or 9.1%, to $4,188,026 from $3,840,368 for the year ended December 31, 2024.

The increase was primarily driven by

a $506,830, or 101.6%, increase in non-cash stock-based compensation primarily related to the accelerated vesting of equity awards in

connection with the sale of the CloudFirst business, which triggered a Fundamental Transaction clause in equity award agreements with

Salaries and director fees increased $165,943, or 9.8%, attributable to annual merit-based salary adjustments and bonuses.

These increases were significantly offset by a $300,932, or 22.8%, decrease in professional fees, primarily related to lower legal and

consulting expenses in the current year.

We expect expenses to decrease for the year ending December 31, 2026 as compared to the year

ended December 31, 2025 because many employees who previously worked for us are now employed by the purchaser of the CloudFirst business

and we also anticipate lower legal and accounting costs.

Loss from continuing operations, net of tax.

Loss from continuing operations, net of tax was $866,195 for the year ended

December 31, 2025, compared to a loss of $2,759,331 in the prior year.

The reduced loss was primarily driven by a tax benefit recorded

in 2025, partially offset by an increase in non-cash stock-based compensation expense.

Interest Income.

Interest income for the year

ended December 31, 2025, was $850,371, compared to $592,819 for the year ended December 31, 2024.

The 43.4% increase was primarily due

to an increase in interest income generated from the investment of the net proceeds from the sale of the CloudFirst business following

the sale in September 2025, partially offset by lower average balances of marketable securities held during the first eight months of

2025 as compared to the prior year.

Income from discontinued operations, net of tax.

For the year ended December 31, 2025, we recognized a net gain on the sale

of discontinued operations of $20,118,681.

This gain is net of tax, transaction costs, and the reclassification of the warrant liability

This gain was partially offset by a pre-tax loss from the operations of the CloudFirst business of $69,412 for the period of

January 1, 2025 through the sale date of September 11, 2025.

LIQUIDITY AND CAPITAL RESOURCES

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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.

If this information proves to be inaccurate, or if circumstances change, the

Company may not be able to meet its liquidity needs, which will require a renegotiation of related party capital equipment leases, a reduction

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 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.

To the extent we are successful

in identifying potential acquisition targets and negotiating the terms of such acquisitions, and where the purchase price may include

a cash component, we expect to use our working capital and the proceeds of any financing we may undertake to fund the related acquisition

Our conclusion concerning

our liquidity is based on current information.

If this information proves to be inaccurate, or if circumstances change, we may not be

able to meet our liquidity needs, which may require reductions in selling, general and administrative expenses, including salaries of

officers who are major shareholders.

The Company’s working

capital was $11,869,914 on December 31, 2024, increasing by $858,507 from $11,011,407 at December 31, 2023.

The increase is primarily

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.

capital related to continuing operations was $41,784,453 at December 31, 2025, increasing by $29,864,384 from $11,920,069 at December

The increase is primarily attributable to the disposition of the CloudFirst business.

The prior year working capital included

the assets and liabilities of the business that was subsequently sold, while the working capital at December 31, 2025 reflects only the

continuing Nexxis operations and the net proceeds from the sale of the CloudFirst business.

Tender Offer and Resulting

Cash Position

On December 8, 2025, we commenced a fixed price tender offer to purchase up

to 6,192,990 shares of our Common Stock at a maximum aggregate purchase price of $32.2 million.

The Tender Offer expired on January 12,

2026, and on January 15, 2026, we accepted for purchase 5,625,129 shares of Common Stock at $5.20 per share, for an aggregate purchase

price of $29.3 million, excluding fees, excise taxes, and expenses.

Following payment for the tendered shares, we had 2,167,138 shares

outstanding and retained over $10.0 million of cash, which we believe provides sufficient liquidity for ongoing operations and strategic

As of April 14, 2026, our cash and cash equivalents were approximately $9.6 million.

Impact on Liquidity, Capital

Allocation, and Future Obligations

The Tender Offer significantly

reduced our outstanding share count and utilized a substantial portion of our cash resources.

● We remained well capitalized following completion of the Tender Offer, with more than $10.0 million in

cash and no material near-term debt maturities.

● We did not incur additional indebtedness to fund the Tender Offer.

● We continue to evaluate capital allocation alternatives, including preservation of liquidity for operations.

We believe our current cash

position and expected cash flows from operations will be sufficient to fund working capital needs, capital expenditures, and operating

commitments for at least the next 12 months.

Working Capital and Cash

Flow Considerations

Our liquidity profile is

primarily driven by cash on hand remaining after the Tender Offer, and careful management of operating and capital expenditures.

actively managing expenses and have reduced corporate spending to align with our smaller portfolio and strategic transition.

We expect that our current

liquidity, together with anticipated cash flows, will support operational needs.

We expect that we may also pursue additional sources

of liquidity, including:

● reductions in selling, general and administrative expenses, and

● potential changes to our investment strategy.

We will continue to monitor

macroeconomic conditions and capital market trends, including impacts on financing availability.

Cash Flows for the year ended December 31, 2025,

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Year Ended December 31,

Cash provided by operating activities

Cash used in investing activities

Cash used in financing activities

Cash (used in) provided by operating activities of continuing operations

$ (1,403,432 )

Cash provided by investing activities of continuing operations

Cash (used in) provided by financing activities of continuing operations

Cash used in discontinued operations

Effect of exchange rate changes on cash

Decrease in cash

Increase (decrease) in cash

Cash, beginning of period

1 unchanged sentence

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.

Cash used in operating activities of continuing operations was $1,403,432 for

the year ended December 31, 2025, compared to cash provided of $999,861 for the prior year.

The cash used in 2025 was primarily driven

by the loss from continuing operations of $866,195, which was largely offset by non-cash stock-based compensation of $1,005,830 and other

non-cash charges.

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.

Cash provided by investing

activities of continuing operations was $7,707,318 for the year ended December 31, 2025, compared to $55,041 for the prior year.

provided in 2025 was primarily driven by net proceeds from the sale of the CloudFirst business of $35,566,460, which were almost entirely

deployed into marketable securities, as reflected in purchases of $38,918,636 and sales of $11,175,518 during the year.

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.

Cash used in financing activities of continuing operations was $1,296,998 for

the year ended December 31, 2025, compared to cash provided of $133,005 for the prior year.

The significant cash use in 2025 reflects

the aggregate cash payment of $2,049,388 to certain holders of warrants issued in a private placement offering consummated in July 2021

(the “July 2021 Warrants”) following the trigger of the Fundamental Transaction provision in the July 2021 Warrants and the

request by such holders that the Company purchase their July 2021 Warrants at the Black Scholes Value (as such term is defined in the

July 2021 Warrants), and $205,608 of costs paid in connection with the Tender Offer and other costs, partially offset by $957,997 in proceeds

from stock option exercises.

Cash flows from discontinued operations

Cash used in discontinued operations was $2,597,581 for the year ended December

31, 2025, compared to $1,543,949 in the prior year.

This represents the net cash flows from the CloudFirst business for the period of

January 1, 2025, through the sale date of September 11, 2025, and $3,965,587 of taxes paid in the fourth quarter of 2025 on the gain on

Off-Balance Sheet Arrangements

3 unchanged sentences

Adjusted EBITDA

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.

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.

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 loss from continuing operations, net of tax.

The Company defines Adjusted EBITDA as loss from continuing

operations, net of tax adjusted for interest and financing fees, depreciation, amortization, stock-based compensation, 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

8 unchanged sentences

The following table shows

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

the Company’s reconciliation of loss from continuing operations, net of tax to Adjusted EBITDA for the years ended December 31,

2025, and 2024:

For the year ended December 31,

CloudFirst Technologies

CloudFirst Europe Ltd.

Net income (loss)

Loss from continuing operations, net of tax

$ (2,759,331 )

1 unchanged sentence

Depreciation and amortization

Sales tax settlement

Interest income

Interest expense

Provision for income tax

(Benefit) provision for income taxes

Stock-based compensation

1 unchanged sentence

$ (2,562,637 )

For the year ended December 31, 2023

CloudFirst Technologies

CloudFirst Europe Ltd.

Net income (loss)

Non-GAAP adjustments:

Depreciation and amortization

Interest income

Interest expense

Stock-based compensation

Adjusted EBITDA

$ (2,812,496 )

CRITICAL ACCOUNTING ESTIMATES

14 unchanged sentences

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, 2024, 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.

cash, accounts receivable, marketable securities, and accounts payable.

Management believes the estimated fair value of these accounts

on December 31, 2025, approximate their carrying value as reflected in the balance sheet due to their short-term nature.

Property and Equipment

6 unchanged sentences

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 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 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

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

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

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.

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

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.

Transaction price allocated to the remaining performance

The Company has the following performance obligations:

Data Vaulting :

Subscription-based cloud service that encrypts and transfers data to a secure Tier 3 data center and further replicates the data to a second Tier 3 DSC technical center where it remains encrypted.

Ensuring client retention schedules for corporate compliance and disaster recovery.

Provides for twenty-four (24) hour or less recovery time and utilizes advanced data reduction, reduplication technology to shorten back-up and restore time.

High Availability :

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

Cloud Infrastructure :

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

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

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 :

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

Equipment sales :

Sale of servers and data storage equipment to the client.

Granting SSL certificates and licenses.

The Company’s continuing operations derive all

revenue from its Nexxis subsidiary, which provides Voice over Internet Protocol (“VoIP”), Internet access, and data transport

Revenue is recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration

the Company expects to be entitled to in exchange for those services.

The Company’s contracts are typically monthly

subscription agreements.

For these contracts, the Company has a single performance obligation:

to provide continuous access to its VoIP,

Internet, and/or data transport services over the contract term.

This performance obligation is satisfied over time because the customer

simultaneously receives and consumes the benefits of the services as they are provided.

Revenue is recognized ratably over the applicable

monthly service period.

The Company’s standard payment terms are monthly, and the transaction price is the fixed monthly subscription

Because the billing cycle corresponds directly to the service period, the Company does not have significant contract assets or contract

liabilities (deferred revenue) at the end of a reporting period.

All revenue from continuing operations is transacted in the United States

Impairment of Long-Lived Assets

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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 Company follows the requirements of FASB ASC 718, Share-Based Payments with

regard 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.

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

The valuation methodology used to determine the fair value of the options issued

during the period is the Black-Scholes option-pricing model.

The Black-Scholes model requires the use of a number of assumptions including

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

The risk-free

interest rate is based on the U.S.

Treasury yield curve in effect at the time of valuation for instruments with a similar expected 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.

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

The Company’s calculation

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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.

In the normal course of business, we evaluate all new accounting standards

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 Item 8 of this Form 10-K 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