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Item 8. Financial Statements and Supplementary Data

2026-04-14 compared with 2025-03-31 · 922 added, 864 removed, 270 unchanged (87% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY

to the Consolidated Financial Statements

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID 0089)

Consolidated Balance Sheets as of December 31, 2025, and 2024

Consolidated Statements of Income for the Years Ended December 31, 2024, and 2023

Consolidated Statements of Operations for the Years Ended December 31, 2025, and 2024

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025, and 2024

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, and 2023

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2025, and 2024

Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, and 2024

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

Stockholders of Data Storage Corporation and Subsidiaries

To the Board of Directors and Stockholders of

Data Storage Corporation and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying balance sheets of

Data Storage Corporation and Subsidiaries (the Company) as of December 31, 2024 and 2023, and the related statements of income, comprehensive

income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the financial

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

as of December 31, 2024 and 2023 and the results of its operations and its cash flows for the years then ended, in conformity with accounting

principles generally accepted in the United States of America.

We have audited the accompanying consolidated

balance sheets of Data Storage Corporation and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the

related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each

of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “financial

statements”).

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

Company as of December 31, 2025 and 2024 and the results of its operations and its cash flows for each of the two years in the

period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

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

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

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

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

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

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

We are a public accounting

firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent

with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

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Critical Audit Matters

Critical audit matters

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

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

especially challenging, subjective, or complex judgments.

Critical audit matters are matters arising from the

current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that

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

or complex judgments.

We determined that there were no critical audit matters.

To the Board of Directors and

Stockholders of Data Storage Corporation and Subsidiaries

/s/ Rosenberg Rich Baker Berman, P.A.

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

Somerset, New Jersey

March 31, 2025

New York , New York

April 14, 2026

DATA STORAGE CORPORATION AND SUBSIDIARIES

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Current Assets:

Accounts receivable (less allowance for credit losses of $ 31,472 and $ 7,915 in 2024 and 2023, respectively)

Cash and cash equivalents

Accounts receivable, net of allowance for expected credit losses of $648 and $767 in 2025 and 2024, respectively

Escrow funds receivable

Marketable securities

Prepaid expenses and other current assets

Current assets of discontinued operations

Total current assets

Property and Equipment:

Property and equipment

Less—Accumulated depreciation

Net Property and Equipment

Other Assets:

Operating lease right-of-use assets

Intangible assets, net

Total Other Assets

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Property and equipment, net

Other long-term assets

Non-current assets of discontinued operations

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable and accrued expenses

Deferred revenue

Finance leases payable

Finance leases payable related party

Operating lease liabilities short term

Payable to purchaser of discontinued operations

Income taxes payable

Current liabilities of discontinued operations

Total current liabilities

Operating lease liabilities

Finance leases payable

Finance leases payable related party

Deferred Tax Liability

Deferred tax liability - non-current

Non-current liabilities of discontinued operations

Total long-term liabilities

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10,000,000 shares authorized;

1,401,786 designated as Series A Preferred Stock, par value $ .001 ;

0 shares issued and outstanding on December 31, 2024 and 2023

0 shares issued and outstanding at December 31, 2025 and 2024

Common stock, par value $ 0.001 ;

250,000,000 shares authorized;

7,045,108 and 6,880,460 shares issued and outstanding on December 31, 2024 and 2023, respectively

7,792,267 and 7,045,108 shares issued and outstanding at December 31, 2025 and 2024, respectively

Additional paid-in capital

Accumulated deficit

Retained earnings (accumulated deficit)

( 18,982,589 )

Accumulated other comprehensive loss

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DATA STORAGE CORPORATION AND SUBSIDIARIES

STATEMENTS OF INCOME

Ended December 31,

general and administrative

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

Cost of sales

Selling, general and administrative

Loss from operations

Income (Expense)

Loss on disposal of equipment

Total Other Income

Income before provision for income taxes

for income taxes

in Non-controlling interest in consolidated subsidiary

Income Attributable to Common Stockholders

per Share – Basic

per Share – Diluted

Average Number of Shares – Basic

Average Number of Shares – Diluted

( 3,573,702 )

( 3,313,119 )

Interest income

Loss from continuing operations before income taxes

( 2,723,331 )

( 2,720,300 )

(Benefit) provision for income taxes

( 1,857,136 )

Loss from continuing operations, net of tax

( 2,759,331 )

(Loss) income from discontinued operations, net of tax

Gain on sale of discontinued operation, net of tax

Income from discontinued operations, net of tax

(Income) loss in non-controlling interest of consolidated subsidiary

Net income attributable to common stockholders

Loss per share from continuing operations –

Loss per share from continuing operations – diluted

Earnings per share from discontinued operations – basic

Earnings per share from discontinued operations – diluted

Earnings per share attributable to common stockholders – basic

Earnings per share attributable to common stockholders – diluted

Weighted average number of shares – basic

Weighted average number of shares – diluted

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

DATA STORAGE CORPORATION AND SUBSIDIARIES

Statements of Comprehensive INCOME

ended December 31,

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year ended December 31,

Other comprehensive income (loss):

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Other comprehensive income (loss)

Comprehensive income available to common shareholders

See accompanying notes to consolidated financial statements.

Comprehensive income

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2025, AND 2024

Preferred Stock

Additional Paid-in Capital

Accumulated Deficit

Accumulated other comprehensive loss

Non-Controlling Interest

Total Stockholders’ Equity

Additional Paid-in

Retained Earnings (Accumulated

Accumulated other comprehensive

Non- Controlling

Total Stockholders’

income (loss)

Balance January 1, 2024

$ ( 19,887,378 )

$ ( 154,689 )

Stock options exercised

Stock-based compensation

Other comprehensive loss

Net income (loss)

Balance, December 31, 2024

$ ( 19,505,803 )

$ ( 236,948 )

Stock options exercised

Stock-based compensation

Other comprehensive loss

Net Income (Loss)

Reclassification of warrant to liability

Reclassification of warrant liability to equity

Other comprehensive income

Balance, December 31, 2025

$ ( 18,982,589 )

$ ( 247,090 )

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

The accompanying notes are an integral part of these

consolidated Financial Statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

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Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Loss from continuing operations, net of tax

Net income from discontinued operations, net of tax

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

Gain on sale of discontinued operations, net of tax

Depreciation and amortization

Stock based compensation

Change in expected credit losses

Loss on disposal of equipment

Deferred taxes

Provision for credit losses

Changes in Assets and Liabilities:

Accounts receivable

Prepaid expenses and other current assets

Right of use asset

Prepaid expenses and other assets

Accounts payable and accrued expenses

Deferred revenue

Deferred tax liability

Operating lease liability

Net Cash Provided by Operating Activities

Income taxes payable

Changes in assets and liabilities of discontinued operations

Net cash (used in) provided by operating activities

Cash Flows from Investing Activities:

Capital expenditures

Net proceeds from sale of discontinued operation

Purchase of marketable securities

Sale of marketable securities

Net Cash Used in Investing Activities

Equity investment

Cash used in investing activities of discontinued operations

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities:

Repayments of finance lease obligations related party

Repayments of finance lease obligations

Cash received for the exercise of stock options

Cash settlement of warrants

Costs paid in connection with tender offer and other

Proceeds from stock option exercises

Cash used in financing activities of discontinued operations

Net cash used in financing activities

Effect of exchange rates on cash

Decrease in Cash

Cash, Beginning of Year

Cash, End of Year

Supplemental Disclosures:

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Reconciliation to consolidated balance sheets:

Cash and cash equivalents

Escrow funds receivable

Cash, cash equivalents, and restricted cash

Supplemental cash flow disclosures:

Cash paid for interest

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Non-cash investing and financing activities:

Assets acquired by operating lease

Reclassification of warrants from equity to liability

Tender offer costs included in accounts payable and accrued expenses

Assets acquired by operating lease related to discontinued operations

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

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Note 1 – Basis of Presentation, Organization and Other Matters

Data Storage Corporation (“DSC” or the

“Company”) provides subscription based, long term agreements for disaster recovery solutions, cloud infrastructure, Cyber

Security and Voice and Data solutions.

Headquartered in Melville, NY, DSC offers solutions

and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education,

and government industries.

DSC derives its revenues from subscription services and solutions, managed services, software and maintenance,

equipment and onboarding provisioning.

DSC maintains infrastructure and storage equipment in six technical centers in New York, Massachusetts,

Texas, North Carolina and Canada.

On May 31, 2021, the Company completed a merger of

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

Data Storage FL, LLC.

Flagship is a provider of Hybrid Cloud solutions, managed services and cloud solutions.

On January 1, 2024, Flagship

Solutions, LLC was consolidated into the Company’s wholly-owned subsidiary, CloudFirst Technologies Corporation.

On January 27, 2022, the Company formed Information Technology

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

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

On August 12, 2024, the Company established UK Cloud

Host Technologies Ltd., a corporation organized under the laws of the United Kingdom, to establish an executive presence in London and

to manage the Company’s business operations and affairs throughout Europe.

On December 27, 2024, the name of the entity was changed

to CloudFirst Europe Ltd.

Headquartered in New York, NY, Data Storage Corporation

(“DSC” or the “Company”) is focused on strategic investments and supporting businesses in high-growth technology

sectors, including, but not limited to, GPU IaaS, AI-driven software applications, cybersecurity and telecommunications.

On July 11, 2025, the Company entered into a definitive

agreement to sell its cloud solutions business, comprised of substantially all of the assets held by CloudFirst Technologies Corporation

(the “Cloud Solutions Business”).

The sale was approved by shareholders on September 10, 2025, and the transaction officially

closed on September 11, 2025.

As described in Note 3, the Cloud Solutions Business

has been classified as a discontinued operation.

The Company’s continuing operations consist of the operations of its Nexxis Inc.

(“Nexxis”) subsidiary, which provides voice and data telecommunications solutions.

Unless otherwise noted, the following footnotes

pertain to the Company’s continuing operations.

Note 2 – Summary of Significant Accounting Policies

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The Consolidated Financial Statements include the

accounts of the Company and its wholly-owned subsidiaries, (i) CloudFirst Technologies Corporation, a Delaware corporation (“CloudFirst

Technologies”), (ii) Information Technology Acquisition Corporation, a Delaware corporation, (iii) its majority-owned subsidiary,

Nexxis Inc, a Nevada corporation and (iv) CloudFirst Europe Ltd..

All inter-company transactions and balances have been eliminated in

consolidation.

Reclassifications

Certain prior year amounts in the Consolidated Financial

Statements and the notes thereto have been reclassified where necessary to conform to the current year’s presentation.

These reclassifications

did not affect the prior period’s total assets, total liabilities, stockholders’ equity, net income, or net cash provided

by operating activities.

During the year ended December 31, 2024, the Company reclassified disaggregated revenue and had a change in presentation

on its Consolidated Financial Statements in order to present segments in line with how its Chief Operating Decision Maker (“CODM”)

evaluates performance of each segment.

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

Recently Issued and Newly Adopted Accounting Pronouncements

In March 2023, the FASB issued ASU

2023-01, “Leases (Topic 842):

Common Control Arrangements.” The new accounting rules require that leasehold improvements associated

with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless

of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease.

These leases should

also be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no

longer controls the use of the underlying asset.

The Company adopted ASU 2023-01 and it did not have a material impact to its Consolidated

Financial statements.

In November 2023, the Financial Accounting Standards Board

(“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which enhances

reportable segment disclosure requirements primarily through expanded disclosures around significant segment expenses.

The amendments

are effective for fiscal years beginning after December 15, 2024.

The amendments should be applied retrospectively to all prior periods

presented in the financial statements.

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

or financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

to Income Tax Disclosures, which requires disclosure of specific categories meeting a quantitative threshold within the income tax rate

reconciliation, as well as disaggregation of income taxes paid by jurisdiction.

This ASU, which can be applied either prospectively or

retrospectively, is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently

evaluating the impact of the ASU and expects to include updated income tax disclosures.

On November 2024, the FASB issued Accounting Standards

Update (ASU) No.

2024-03, Income Statement (Topic 220):

Reporting Comprehensive Income - Expense Disaggregation Disclosures,

Disaggregation of Income Statement Expenses , which requires public companies to disclose, in interim and annual reporting periods,

additional information about certain expenses in the financial statements.

The amendments in this pronouncement will be effective for

annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted

and is effective on either a prospective basis or retrospective basis.

The Company is currently assessing the potential impacts of adoption

on its consolidated financial statements and related disclosures.

accounts of the Company and its subsidiaries, consisting of (i) Information Technology Acquisition Corporation, a Delaware corporation;

and (ii) its majority-owned subsidiary, Nexxis Inc., a Nevada corporation.

All intercompany transactions and balances have been eliminated

in consolidation.

On September 11, 2025, the Company completed the

sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies

Corporation and CloudFirst Europe Ltd.

The operating results of these businesses have been reclassified as discontinued operations for

all periods presented.

Segment Reporting

Operating segments are defined as components of an

entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”)

in deciding how to allocate resources to an individual segment and in assessing performance.

In evaluating operating segments, the Company

its internal organizational structure;

the availability of separate financial information;

and the criteria used by the Company’s

CODM, its Chief Executive Officer, to evaluate performance.

The Company has determined that it operates in one operating segment and

one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating

decisions, allocating resources, and evaluating financial performance.

Recently Issued and Newly Adopted Accounting Standards

In December 2023, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income

Tax Disclosures.

ASU 2023-09 requires annual disclosure of specific categories in the tax rate reconciliation and provides additional

information for reconciling items that meet a quantitative threshold.

The new requirements are effective for annual periods beginning

after December 15, 2024.

The guidance has been applied on a prospective basis with the option to apply the standard retrospectively.

Company adopted ASU 2023-09 for the year ended December 31, 2025 on a prospective basis.

The adoption of this guidance did not have a

material impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income

Statement (Topic 220):

Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses,

which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in

the financial statements.

Subsequently, in January 2025, the FASB issued ASU 2025-01, which clarified the effective date of ASU 2024-03.

The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods

beginning after December 15, 2027.

Early adoption is permitted and is effective on either a prospective basis or retrospective basis.

The Company is currently assessing the potential impacts of adoption on its financial statements.

In May 2025, the FASB issued ASU 2025-03, Business

Combinations (Topic 805) and Consolidation (Topic 810):

Determining the Accounting Acquirer in the Acquisition of a Variable Interest

This ASU provides guidance for determining the accounting acquirer in a business combination involving a variable interest entity.

The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements but does not expect it to have a material

impact upon adoption.

In July 2025, the FASB issued ASU 2025-05, Financial

Instruments - Credit Losses (“Topic 326”), which provides all entities with a practical expedient to assume that current conditions

as of the balance sheet date do not change for the remaining life of current accounts receivable and contract assets.

The guidance is

effective for annual periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with

early adoption permitted.

The Company will adopt ASU 2025-05 effective January 1, 2026.

The adoption of this guidance will not have a

material impact on the Company’s consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill

and Other-Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software, which revises the

recognition guidance for internal-use software by eliminating the previous model based on software development stages and introducing

a principles-based approach.

The guidance is effective for annual periods beginning after December 15, 2027 and interim periods within

those annual periods, with early adoption permitted.

The Company is currently evaluating the impact on its consolidated financial statements

and related disclosures.

Use of Estimates

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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, 2024, approximate their carrying value as reflected in the balance sheet due to their short-term nature.

The carrying values of the

Company’s finance lease obligations 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.

Assets and liabilities recognized or disclosed at

fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their

respective fair values.

The fair value measurement disclosures are grouped

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Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)

The Company’s Level 1 assets and liabilities

include cash, accounts receivable, marketable securities, accounts payable, prepaid, and other current assets.

Management believes the

estimated fair value of these accounts at December 31, 2024, approximates their carrying value as reflected in the balance sheets due

to the short-term nature of these instruments.

The Company’s Level 2 assets and liabilities

include the Company’s finance and operating lease assets and liabilities.

The carrying amounts of these leases approximate their

fair values, based on a comparison of the lease terms and the Company’s incremental borrowing rates with those of similar leases

available in the market.

The Company’s Level 3 assets and liabilities use inputs to determine

the fair value are generally unobservable and typically reflect management’s estimates of assumptions that market participants would

use in pricing the asset or liability.

The fair values are therefore discounted cash flow models.

Unobservable inputs used in the models

are significant to the fair values of the assets and liabilities.

The Company’s marketable securities are classified

as within Level 1 of the fair value hierarchy.

Management believes the estimated fair value of these accounts at December 31, 2025, approximates

their carrying value as reflected in the balance sheets due to the short-term nature of these instruments.

Level 3 fair value measurements are derived from valuation

techniques that include significant inputs that are not based on observable market data.

When required, the Company uses discounted and

undiscounted cash flow models to determine the fair value of certain assets and liabilities.

These models rely on unobservable inputs,

which reflect management’s own assumptions about the factors that market participants would use in pricing the asset or liability,

and are significant to the overall fair value measurement.

During the year ended December 31, 2025, the Company recognized a warrant liability

associated with Common Stock Purchase Warrants issued by the Company on July 21, 2021 which were valued using Level 3 inputs (See Note

As of December 31, 2025 and 2024, the Company does

not have assets and liabilities valued using Level 2 or Level 3 inputs.

Assets and Liabilities Measured at Fair Value on

a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a

nonrecurring basis.

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

basis include items such as property, plant and equipment, goodwill, and other intangible assets.

The Company measures property and

equipment at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such assets

are impaired below their recorded cost.

As of December 31, 2025 and 2024, there were no material non-financial assets recorded at fair

Cash and Cash Equivalents

The Company considers all short-term, highly liquid

investments that are readily convertible to known amounts of cash and that are purchased with original maturities of three months or less

to be cash equivalents.

Marketable Securities

Marketable securities that are bought and held principally

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gains and losses recognized in earnings.

The following table sets forth a summary of the changes in equity investments

at cost that are measured at fair value on a non-recurring basis:

The following table sets forth a summary of the changes

in marketable securities:

Schedule of changes in equity investments measured at fair value

the years ended December 31, 2024, and 2023

of January 1, 2023

of equity investments

December 31, 2023

of equity investments

of December 31, 2024

For the years ended December 31, 2025, and 2024

As of January 1, 2024

As of December 31, 2024

( 11,175,518 )

As of December 31, 2025

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments and assets subjecting the Company to concentration of credit

risk consist primarily of cash, short-term investments and trade accounts receivable.

The Company’s cash are maintained at major

Financial instruments and assets subjecting the Company

to concentration of credit risk consist primarily of cash, marketable securities and trade accounts receivable.

The Company’s cash

and marketable securities are maintained at major U.S.

financial institutions.

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

The Company’s customers are primarily concentrated in the United

As of December 31, 2024, DSC had two customers with

an accounts receivable balance representing 16 % and 15 % of total accounts receivable.

As of December 31, 2023, the Company had one

customer with an accounts receivable balance representing 20 % of total accounts receivable.

For the year ended December

31, 2024, the Company had two customers that each individually accounted for 12 % of revenue .

For the year ended December 31, 2023, the Company had two customers that accounted for 12 % and 10 % of revenue.

Accounts Receivable/Allowance for Credit Losses

The Company sells its services to customers on an

open credit basis.

Accounts receivable are uncollateralized, non-interest-bearing customer obligations and are typically due within 30

ASC 326 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable.

also requires the Company to pool assets with similar risk characteristics and consider current economic conditions when estimating losses.

During the years ended December 31, 2024, and 2023, the Company recorded $ 45,394 and $ 119,524 , respectively, of expected credit losses.

Clients invoiced in advance for services are reflected in deferred revenue on the Company’s balance sheet.

Changes in the allowance for expected credit losses

for trade accounts receivable are presented in the table below:

Schedule of Changes in the allowance for expected credit losses

for trade accounts receivable

Deposits in these institutions may exceed the amount of

insurance provided on such deposits.

The Company’s customers are concentrated in the United States.

The Company’s Nexxis subsidiary had four customers

that individually accounted for 25 %, 21 %, 15 %, and 10 % of consolidated accounts receivable at December 31, 2025.

The Company’s Nexxis

Subsidiary had three customers that individually accounted for 18 %, 15 % and 14 % of consolidated accounts receivable at December 31, 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.

Beginning balance

Ending Balance

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recorded and carried at the

original invoiced amount less an allowance for any potential uncollectible amounts.

The allowance is assessed by applying a historical

loss-rate methodology in accordance with ASC Topic 326, Financial Instruments— Credit Losses , adjusted as necessary based

on the Company's review of accounts receivable, specifically reviewing factors including the age of the balances, customer payment history,

creditworthiness, and other factors.

Due to the monthly subscription nature of the services and positive collection history, this allowance

has not been material.

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 for property and equipment are five to seven years.

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.

Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax

bases and operating loss, and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected

to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred

tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

As of December

31, 2024, and 2023, the Company had a net deferred tax liability of $ 39,031 and $ 0 , respectively.

Per FASB ASC 740-10, disclosure is not required of

an uncertain tax position unless it is considered probable that a claim will be asserted and there is a more-likely-than-not possibility

that the outcome will be unfavorable.

Using this guidance, as of December 31, 2024, and 2023, the Company has no uncertain tax

positions that qualify for either recognition or disclosure in the financial statements.

The Company’s 2024, 2023, 2022, and 2021

Federal and State tax returns remain subject to examination by their respective taxing authorities.

None of the Company’s Federal

or State tax returns are currently under examination.

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.

Property and equipment, which consists primarily of

office and computer equipment, are recorded at cost and depreciated over their estimated useful lives using the straight-line method.

The estimated useful lives for this equipment are generally five to seven years.

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.

Deferred Offering Costs

Costs that are directly associated with equity financings

are capitalized until such financings are consummated, at which time such costs are recorded against the gross proceeds or cash payments

of the offering, depending on the nature of the financing.

Should an in-process equity financing be abandoned, the deferred offering costs

are expensed immediately as a charge to operating expenses in the consolidated statements of operations.

Discontinued Operations

The Company reports financial results for discontinued

operations separately from continuing operations on the face of the financial statements and for disclosures in the notes.

operations reporting occurs only when the disposal of a component or a group of components represents a strategic shift that will have

a major effect on the Company’s operations and financial results.

Refer to Note 3, “Discontinued Operations,” for further

information regarding the Company’s discontinued operations.

Deferred tax assets and liabilities are recognized

for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

and their respective tax bases and operating loss, and tax credit carryforwards.

Deferred tax assets and liabilities are measured using

enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes

the enactment date.

As of December 31, 2025, and 2024, the Company had a net deferred tax liability of $ 312,334 and $ 39,031 , respectively.

The Company’s policy is to recognize, when applicable,

interest and penalties on uncertain tax positions as part of income tax expense, and to record unrecognized tax benefits as noncurrent

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

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

Using this guidance, as of December

31, 2025, and 2024, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial

The Company’s 2025, 2024, 2023, and 2022 Federal and State tax returns remain subject to examination by their respective

taxing authorities.

None of the Company’s Federal or State tax returns are currently under examination.

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-premises computing and digital storage to DSC’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 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.

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.

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-going monitoring of client system performance.

Nexxis Voice over Internet and Direct Internet Access

The Company provides Voice over Internet Protocol

(“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 VoIP phones and internet speeds of up to

10Gb delivered over fiber optics.

Disaggregation of revenue

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

In the following table, revenue is disaggregated by

major product line, geography, and timing of revenue recognition.

Schedule of revenue is disaggregated by major product

Ended December 31, 2024

United States

International

Cloud Infrastructure & Disaster Recovery

Equipment and Software

Managed Services

Nexxis VoIP Services

Total Revenue

Ended December 31, 2023

United States

International

Cloud Infrastructure & Disaster Recovery

Equipment and Software

Managed Services

major product category:

Schedule of revenue

Year Ended December 31,

VoIP services

Total Revenue

Ended December 31,

Timing of revenue recognition

Products transferred at a point in time

Products and services transferred over time

Data transport services

Total revenue

Contract receivables are recorded at the invoiced

amount and are uncollateralized, non-interest-bearing client obligations.

Provisions for estimated uncollectible accounts receivable are

made for individual accounts based upon specific facts and circumstances including criteria such as their age, amount, and client standing.

Sales are generally recorded in the month the service is provided.

who are billed on an annual basis, deferred revenue is recorded and amortized over the life of the contract.

During the years ended December

31, 2024, and 2023, the Company recognized $ 233,360 and $ 277,375 in sales that was recorded as deferred revenue as of December 31, 2023

and 2022, respectively.

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 clients’ 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.

Sale of servers and data storage equipment to the client.

Granting SSL certificates and licenses.

Disaster Recovery and Business Continuity Solutions

Subscription services allow clients to access data

or receive services for a predetermined period of time.

As the client obtains access at a point in time and continues to have access for

the remainder of the subscription period, the client is considered to simultaneously receive and consume the benefits provided by the

entity’s performance as the entity performs.

Accordingly, the related performance obligation is considered to be satisfied ratably

over the contract term.

As the performance obligation is satisfied evenly across the term of the contract, revenue is recognized on a

straight-line basis over the contract term.

Initial Set-Up Fees

The Company accounts for set-up fees as a separate

performance obligation.

Set-up services are performed one-time and accordingly the revenue is recognized at the point in time, and is

non-refundable, and the Company is entitled to the payment.

Equipment Sales

The obligation for the equipment sales is such that

the control of the product transfer is at a point in time (i.e., when the goods have been shipped or delivered to the client’s location,

depending on shipping terms).

Noting that the satisfaction of the performance obligation, in this sense, does not occur over time, the

performance obligation is considered to be satisfied at a point in time when the obligation to the client has been fulfilled (i.e., when

the goods have left the shipping facility or have been delivered to the client, depending on shipping terms).

License - Granting SSL Certificates and Other

Performance obligations as it relates to licensing

is when the control of the product transfers, either at a point in time or over time, depending on the nature of the license.

standard identifies two types of licenses of intellectual property:

(i) a right to access intellectual property;

and (ii) a right to use

intellectual property.

To assist in determining whether a license provides a right to use or a right to access intellectual property,

ASC 606 defines two categories of intellectual property:

Functional and Symbolic.

The Company’s license arrangements typically do

not require the Company to make its proprietary content available to the client either through a download or through a direct connection.

Throughout the life of the contract the Company does not continue to provide updates or upgrades to the license granted.

guidance, the Company considers its license offerings to be akin to functional intellectual property and recognizes revenue at the point

in time the license is granted and/or renewed for a new period.

Payment Terms

The typical terms of subscription contracts range

from 12 to 36 months, with auto-renew options extending the contract for an additional term.

The Company invoices clients one month in

advance for its services, in addition to any contractual data overages or for additional services.

The Company offers guaranteed service levels and service

guarantees on some of its contracts.

These warranties are not sold separately and are accounted as “assurance warranties.”

Significant Judgement

In instances where contracts include multiple performance

obligations, the Company exercises judgment in determining the standalone selling price for each obligation.

Standalone prices are established

by evaluating market data for comparable services and considering the Company’s historical pricing practices.

The aggregate standalone

price of all performance obligations is calculated, and each individual obligation’s proportionate share of the total is determined.

This ratio is then applied to the overall contract price to allocate the transaction price among the performance obligations accordingly.

The Company determines whether an arrangement contains

a lease at the inception of the contract.

Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying

asset for the lease term, while lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets and

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

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

The Company has elected the practical expedient to exclude leases with terms of 12 months or less from the balance sheet.

Lease expense

for these short-term leases is recognized on a straight-line basis over the lease term.

Variable lease payments that depend on an index

or rate are initially measured using the index or rate in effect at the lease commencement date.

Other variable payments are recognized

in the period in which the obligation is incurred.

Following the sales of Cloud Solutions Business on September 11, 2025, the Company

has no leases that require the recognition of an ROU asset and lease liability on the Company’s consolidated balance sheets.

Impairment of Long-Lived Assets

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Advertising Costs

The Company expenses the costs associated with

advertising as they are incurred.

The Company incurred $ 749,257 and $ 815,674 for advertising costs for the year ended December

31, 2024, and 2023, respectively.

The Company expenses the costs associated with advertising

as they are incurred.

The Company incurred $ 18,512 and $ 31,744 of advertising costs for the years ended December 31, 2025, and 2024,

respectively.

Stock-Based Compensation

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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.

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.

of assumptions including estimated 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.

Estimated volatility is a measure of the amount by

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

Net Income Per Common Share

Earnings per Share

Basic income (loss) per share is computed by dividing

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Year Ended December 31,

Net Income Available to Common Shareholders

Weighted average number of common shares - basic

Dilutive securities

Restricted stock award

Restricted stock units

Weighted average number of common shares - diluted

Earnings per share, basic

Earnings per share, diluted

The following table sets forth the number of potential

shares of common stock that have been excluded from diluted net income per share because their effect was anti-dilutive:

The Company reported a loss from continuing operations

for the years ended December 31, 2025 and 2024.

Therefore, dilutive common shares are not assumed to have been issued since their effect

is anti-dilutive for these periods.

The following table sets forth the number of potential shares of common stock excluded from net income

per share because their effect was antidilutive:

Schedule of anti-dilutive shares

ended December 31,

Note 3 - Prepaids and other current assets

Prepaids and other current assets consist of the following:

Schedule of prepaids and other current assets

Prepaid marketing & promotion

Prepaid subscriptions and license

Prepaid maintenance

Prepaid insurance

Total prepaids and other current assets

Note 4- Property and Equipment

Property and equipment, at cost, consist of the following:

Schedule of property and equipment

Storage equipment

Furniture and fixtures

Leasehold improvements

Computer hardware and software

Data center equipment

Gross Property and equipment

Accumulated depreciation

Net property and equipment

Depreciation expense for the years ended December

31, 2024, and 2023 was $ 1,079,160 and $ 1,024,034 , respectively, of which $ 1,067,006 and $ 1,008,429 , respectively, was allocated to

general and administrative expenses and $ 12,154 and $ 15,605 respectively, was allocated to cost of goods sold.

Note 5 - Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

Schedule of goodwill and intangible assets

Estimated life in years

December 31, 2024, Accumulated Amortization

Intangible assets not subject to amortization

Total intangible assets not subject to amortization

Intangible assets subject to amortization

Customer lists

ABC acquired contracts

SIAS acquired contracts

Non-compete agreements

Website and Digital Assets

Total intangible assets subject to amortization

Total Goodwill and Intangible Assets

Scheduled amortization over the next four years are as follows:

Schedule of amortization over the next five years

Twelve months ending December 31,

Amortization expense for the years ended December 31, 2024, and 2023 was

$ 271,078 and $ 277,560 , respectively.

Note 6- Leases

Operating Leases

The Company currently maintains two leases for office

space located in Melville, NY and one lease for office space in Austin, TX.

The lease for office space in Melville, NY commenced

on September 1, 2019.

The term of this lease is for three years and eleven months and runs co-terminus with the Company’s existing

lease in the same building.

The base annual rent is $ 11,856 payable in equal monthly installments of $ 988 .

The lease has since expired.

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

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

The commencement

date of the lease was August 2, 2021.

The monthly rent was approximately $ 4,965 .

The lease has since expired.

On January 1, 2022, the Company entered into a lease agreement for office

space with WeWork in Austin, TX.

On September 3, 2024, the Company amended this agreement and is on an eight-month lease agreement with

payments of a $ 1,056 per month.

January 17, 2024, the Company entered into a lease agreement for office space in Melville, NY.

lease commenced on April 1, 2024, and has a term of sixty-seven months.

The lease requires monthly payments of $ 11,931 and

expires on October

Finance Lease Obligations

On November 1, 2021, the Company entered into a lease

agreement with a finance company for technical equipment.

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

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

The term of the lease ended on November 1, 2024.

On January 1, 2022, the Company entered into a lease

agreement with a finance company for technical equipment.

The lease obligation is payable in monthly installments of $ 17,718 .

carried an interest rate of 5 % and is a three-year lease.

The term of the lease ended January 1, 2025.

On January 1, 2022, the Company entered into a technical

equipment lease with a finance company.

The lease obligation is payable in monthly installments of $ 2,037 .

The lease carried an interest

rate of 6 % and is a three-year lease.

The term of the lease ended January 1, 2025.

Finance Lease Obligations – Related Party

On March 4, 2021, the Company entered into a lease

agreement with Systems Trading, Inc.

(“Systems Trading”), a technology leasing company established by Mr.

Schwartz, the Company’s

President where he currently serves as Chief Executive Officer and President, effective April 1, 2021.

This lease obligation is payable

to Systems Trading with monthly installments of $ 1,567 and expired on March 31, 2024 .

The lease carried an interest rate of 8 %.

On January 1, 2022, the Company entered into a lease

agreement with Systems Trading effective January 1, 2022.

This lease obligation is payable to Systems Trading with monthly installments

of $ 7,145 and expires on April 1, 2025 .

The lease carries an interest rate of 8 %.

On April 1, 2022, the Company entered into a lease

agreement with Systems Trading effective May 1, 2022.

This lease obligation is payable to Systems Trading with monthly installments of

$ 6,667 and expired on February 1, 2025 .

The lease carried an interest rate of 8 %.

The Company determines whether an arrangement contains

a lease at the inception of the contract.

Right-of-Use ("ROU") assets represent the Company’s right to use an underlying

asset for the lease term, while lease liabilities represent its obligation to make lease payments arising from the lease.

ROU assets and

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

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

The Company has elected the practical expedient to exclude leases with terms of 12 months or less from the balance sheet.

Lease expense

for these short-term leases is recognized on a straight-line basis over the lease term.

Variable lease payments that depend on an index

or rate are initially measured using the index or rate in effect at the lease commencement date.

Other variable payments are recognized

in the period in which the obligation is incurred.

A discount rate of 9 % was used in the preparation of ROU assets and lease liabilities.

The components of lease expense were as follows:

Schedule of components of lease expense

Year ended December 31,

Finance leases:

Amortization of assets, included in depreciation and amortization expense

Interest on lease liabilities, included in interest expense

Operating lease:

Amortization of assets, included in total operating expense

Interest on lease liabilities, included in total operating expense

Total net lease cost

Supplemental balance sheet information related to leases was as follows:

Operating Leases:

Operating lease right-of-use asset

Current operating lease liabilities

Noncurrent operating lease liabilities

Total operating lease liabilities

Restricted stock units

Note 3 – Discontinued Operations

On September 11, 2025, the Company completed the sale

of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation

and CloudFirst Europe Ltd., for a base purchase price of $ 40,000,000 .

At closing, the proceeds were contractually adjusted for a $ 1,500,000

escrow deposit and $ 431,537 in net adjustments for estimated closing date debt and working capital, resulting in total cash received at

closing of $ 38,068,463 .

The transaction remains subject to final post-closing adjustments, which may be settled from the escrowed funds.

The operating results of these businesses have been reclassified and presented

as “(Loss) income from discontinued operations, net of tax” on the Consolidated Statements of Operations for all periods presented

as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results.

The sale resulted

in the removal of the CloudFirst Technologies Corporation and CloudFirst Europe Ltd.

reportable segments.

The gain on the sale is presented separately in the

Consolidated Statements of Operations, as follows:

of discounted operations

Gross cash proceeds received after working capital adjustment

Amount placed in Escrow

Carrying value of net assets disposed (1)

( 9,869,738 )

Cash transaction and selling costs (2)

( 2,502,020 )

Warrant liability reclassification (3)

Total pre-tax gain on sale

Income tax expense (4)

( 7,294,005 )

Gain on sale of discontinued operation, net of tax

(1) Represents the carrying value (book value)

of the assets and liabilities of the Cloud Solutions Business on the date of sale.

(2) Represents cash selling expenses, including

legal and advisory fees, as shown on the Consolidated Statement of Cash Flows.

(3) Represents the changes in fair value of

the warrant liability as a cost of the transaction (see Note 5).

(4) Represents the provision for federal and state

income taxes on the gain from the sale.

The major classes of assets and liabilities of the

Cloud Solutions Business classified as discontinued operations were as follows:

Schedule of major classes of assets and liabilities

December 31, 2024

Finance leases:

Property and equipment, at cost

Accumulated amortization

Accounts receivable

Prepaid and other assets

Current assets of discontinued operations

Property and equipment, net

Current obligations of finance leases

Finance leases, net of current obligations

Total finance lease liabilities

Supplemental cash flow and other information related to leases were as

Schedule of supplemental cash flow and other information related to leases

Year Ended December 31, 2024

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows related to operating leases

Financing cash flows related to finance leases

Weighted average remaining lease term (in years):

Operating leases

Finance leases

Weighted average discount rate:

Operating leases

Finance leases

Long-term obligations under the operating and finance leases at December

31, 2024, mature as follows:

Schedule of long term obligations operating and finance leases

For the Twelve Months Ended December 31,

Operating Leases

Finance Leases

Total lease payments

Amounts representing interest

Total lease obligations

long-term obligations

Total current

As of December 31, 2024, the Company had no additional

significant operating or finance leases that had not yet commenced.

Rent expense under all operating leases for the year ended December

31, 2024 and 2023 was $ 330,500 and $ 276,676 , respectively.

Note 7 - Commitments and Contingencies

On May 7, 2024, the Company entered into a master

service agreement with a vendor.

The obligation is payable in monthly installments of $ 51,680 .

The master service agreement ends June

On December 18, 2024, the Company entered into a master

service agreement with a vendor.

The obligation is payable in monthly installments of $ 4,410 .

The master service agreement ends December

On January 1, 2025, the Company entered into a master

service agreement with a vendor.

The obligation is payable in monthly installments of $ 3,846 .

The master service agreement ends December

On January 24, 2025, the Company entered into a master

service agreement with a vendor.

The obligation is payable in monthly installments of $ 3,618 .

The master service agreement ends January

As part of the Flagship acquisition the Company acquired

a licensing agreement for marketing related materials with a National Football League team.

The Company has approximately $ 821,118 in

payments over the next 3 years.

Goodwill and intangible assets, net

Right-of-use and other assets

Total assets of discontinued operations

Accounts payable and accrued expenses

Deferred revenue

Finance and operating lease liabilities - current

Current liabilities of discontinued operations

Finance and operating lease liabilities - non-current

Total liabilities of discontinued operations

Operating results for the discontinued operations were as follows:

Schedule of Operating results for the discontinued operations

January 1, 2025 to

Twelve Months Ended

September 11, 2025

December 31, 2024

Cost of sales

Selling, general and administrative

(Loss) income from discontinued operations

Interest and other expense

Benefit from income taxes

(Loss) income from discontinued operations, net of tax

Summary of Significant Accounting Policies of Discontinued Operations

Revenue Recognition

The Cloud Solutions Business derived revenue from

subscription services for cloud infrastructure and disaster recovery, managed services, and the sale of equipment and software.

revenue was recognized ratably over the contract term.

Revenue from equipment and software sales was recognized at a point in time when

control transferred to the customer.

Goodwill and other intangible assets of the Cloud Solutions Business were tested for impairment annually.

Property and equipment, primarily data center assets, were depreciated on a straight-line basis over their estimated useful lives.

Note 4 – Balance Sheet Components

Prepaids and other current assets consist of the following:

Schedule of Prepaid and other current assets

Prepaid subscriptions and licenses

Prepaid insurance

Total prepaids and other current assets

Other long-term assets consist of the following:

Schedule of Other long-term assets

Deferred transaction costs

Total other long-term assets

Note 5 – Stockholders’ Equity

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Stock, par value $ 0.001 per share.

On July 18, 2024, the Company entered into an Equity

Distribution Agreement (the “Agreement”), pursuant to which it may offer and sell, from time to time, shares of its common

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”).

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, 2024.

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

During the year ended December 31, 2023, employees

exercised 833 stock options into shares of Common Stock.

The Company received $ 1,699 for these options.

During the year ended December 31, 2024, employees

exercised 68,988 stock options into 65,832 shares of Common Stock.

The Company received $ 133,005 for these options.

On July 18, 2024, the Company entered into an

Equity Distribution Agreement (the “Agreement”), pursuant to which it may offer and sell, from time to time, shares of

its common stock.

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”).

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, 2024.

The Company did

not make any sales under the Agreement, which expired in July 2025.

The Company recognized deferred offering costs associated with

the Agreement of $ 113,167

at December 31, 2024 which were expensed as a component of selling, general and administrative expenses during the year ended

December 31, 2025.

The Company is in the process of entering into a new equity distribution agreement which is expected to be

executed during the year ended December 31, 2026.

During the years ended December 31, 2025 and 2024,

employees exercised 411,540 and 68,988 stock options, respectively, into shares of Common Stock.

The Company received $ 957,997

and $ 133,005 in proceeds for these option exercises during the years ended December 31, 2025 and 2024, respectively.

Stock Incentive Plans

On March 8, 2021, the Company’s Board and stockholders

owning in excess of 50% of the Company’s outstanding voting securities approved and adopted the 2021 Stock Incentive Plan, as amended and restated (the “2021

The 2021 Plan permits the Company to grant stock options, restricted stock units, and other awards at levels determined

appropriate by the Company’s Board and/or compensation committee.

The 2021 Plan also allows the Company to utilize a broad array

of equity incentives and performance cash incentives to secure and retain the services of its employees, directors, and consultants, and

to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s

stockholders.

An aggregate of 15,000,000 shares of Company common stock may be issued under the 2021 Plan, subject to equitable adjustment

in the event of future stock splits, and other capital changes.

As of December 31, 2025, there were 857,291 shares available for future

grants under the 2021 Plan.

Additionally, there are 6,250 options outstanding

and exercisable under the Data Storage Corporation 2010 Incentive Award Plan (the “2010 Plan”) as of December 31, 2025.

2010 Plan expired on October 21, 2020, and accordingly, there are no shares available for future grants.

On July 1, 2024, the Company registered an additional

111,323 and 1,000,000 shares of common stock under the 2010 Plan and 2021 Plan, respectively.

Common Stock Options

On July 1, 2024, the Company registered an

additional 111,323

and 1,000,000

shares of common stock under the 2010 Stock Incentive Plan and 2021 Stock Incentive Plan, respectively.

A summary of the Company’s stock option activity

11 unchanged sentences

options granted totaled $ 507,018 and $ 188,624 for the years ended December 31, 2025, and 2024, respectively.

As of December 31, 2025,

there was no unrecognized compensation expense related to unvested employee stock options granted under the Company’s share-based

compensation plans as all such options are fully vested.

The intrinsic value of outstanding stock options as

5 unchanged sentences

life of stock options.

The risk-free interest rate assumption is based upon

observed interest rates on zero-coupon U.S.

Treasury bonds whose maturity period is appropriate for the term of the stock options.

Estimated volatility is a measure of the amount by

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

The Company’s calculation

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

As of December 31, 2024, there was $ 642,873 of total

unrecognized compensation expense related to unvested employee stock options granted under the Company’s share-based compensation

plans that is expected to be recognized over a weighted average period of approximately 1.37 years.

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..

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to

fluctuate each year during the expected life of the award.

The Company’s calculation of estimated volatility is based on historical

stock prices of the Company’s stock over a period equal to the expected life of the awards.

The weighted average fair value of options granted,

1 unchanged sentence

Schedule of weighted average fair value of options granted

average fair value of stock options granted

interest rate

Weighted average fair value of stock options granted

Risk-free interest rate

3.84 %- 4.33 %

Share-Based Awards, restricted stock award (“RSAs”)

On March 1, 2023, the Company granted certain employees

an aggregate of 73,530 RSA’s.

Expected life (years)

3.50 - 6.00 years

Dividend yield

Share-based awards, Restricted Stock Units (“RSUs”)

and Restricted Stock Awards (“RSAs”)

On January 2, 2024, the Company granted certain employees

an aggregate of 70,393 RSUs.

Compensation as a group amounted to $ 156,251 .

1 unchanged sentence

after issuance.

On March 28, 2023, the Company granted certain employees

an aggregate of 44,942 RSA’s.

Compensation as a group amounted to $ 72,357 .

The shares vest one third each year for three years after

On March 31, 2023, the Board of Directors resolved

that the Company shall issue to Board members an aggregate of 12,500 RSA’s.

Compensation as a group amounted to $ 22,750 .

vest one year after issuance.

On April 10, 2023, the Company granted certain employees

an aggregate of 50,000 RSA’s.

Compensation as a group amounted to $ 90,000 .

The shares vest one third each year for three years after

On June 30, 2023, the Board of Directors resolved

that the Company shall issue to Board members an aggregate of 12,500 RSAs.

Compensation as a group amounted to $ 29,125 .

The shares vest

one year after issuance.

On September 30, 2023, the Board of Directors resolved

that the Company shall issue to Board members an aggregate of 12,500 RSAs.

On March 31, 2024, the Company granted its Board members

an aggregate of 14,166 RSUs.

Compensation as a group amounted to $ 81,030 .

The shares vest

one year after issuance.

On October 11, 2023, the Company granted certain employees

an aggregate of 687 RSA’s.

The shares vest one year after issuance.

On April 1, 2024, the Company granted a nonemployee

consultant an aggregate of 2,660 RSAs.

Aggregate compensation for the grant was $ 15,002 .

The shares vested on the grant date.

On January 3, 2025, the Company granted certain employees

an aggregate of 11,078 RSUs.

Compensation as a group amounted to $ 54,061 .

The shares vest one third each year for three years after

On December 31, 2023, the Board resolved that the

Company shall issue to Board members an aggregate of 10,000 RSAs Compensation as a group amount of $ 28,751 .

The shares vest one year after

The shares vest one year after issuance.

On January 17, 2025, the Company granted certain employees

an aggregate of 70,393 RSAs.

an aggregate of 19,012 RSUs.

Compensation as a group amounted to $ 79,375 .

1 unchanged sentence

after issuance.

On March 31, 2024, the Board resolved that the Company

shall issue to Board members an aggregate of 14,166 RSAs.

Compensation as a group amounted to $ 81,030 .

The shares vest one year

after issuance.

On April 1, 2024, the Company granted certain employees

an aggregate of 2,660 RSAs.

Compensation as a group amounted to $ 15,002 .

The shares vested on grant.

On June 30, 2024, the Board resolved that the Company

shall issue to Board members an aggregate of 17,500 RSAs.

On January 22, 2025, the Company granted a nonemployee

consultant an aggregate of 1,000 RSAs.

Aggregate compensation for the grant was $ 4,700 .

The shares vested on the grant date.

One June 2, 2025 the Company granted certain employees

and its Board members an aggregate of 93,993 RSUs.

Compensation as a group amounted to $ 356,233 .

The shares vest one year after

A summary of the activity related to RSAs for the year ended December 31,

2024, is presented below:

Schedule of activity related to RSAs

Restricted Stock Awards (RSAs)

A summary of the activity related to share-based awards for the year ended

December 31, 2025, is presented below:

Schedule of activity related to share-based awards

Share-based awards (RSUs and RSAs)

Outstanding non-vested at January 1, 2024

1 unchanged sentence

Outstanding non-vested at December 31, 2025

Stock-based compensation for RSA’s has been

recorded in the consolidated statements of operations and totaled $ 369,658 and $ 190,389 for the years ended December 31, 2024, and 2023,

Stock-based compensation for share-based awards has

been recorded in the consolidated statements of operations and totaled $ 498,812 and $ 310,375 for the years ended December 31, 2025, and

2024, respectively.

As of December 31, 2024,

there was $ 333,225 of total unrecognized compensation expense related to unvested RSUs granted under the Company’s share-based compensation

plans that is expected to be recognized over a weighted average period of approximately 1.1 years .

As a result of the sale of the Company’s Cloud Solutions Business (Note 3) all RSU then-outstanding vested upon

closing of the sale on September 11, 2025, therefore as of December 31, 2025, there was no unrecognized compensation expense related to

unvested RSUs granted under the Company’s share-based compensation plans.

Discontinued Operations

Stock-based compensation related to discontinued

operations totaled $ 590,757 and $ 295,589 for the years ended December 31, 2025, and 2024, respectively.

Common Stock Warrants

3 unchanged sentences

Schedule of warrant activity and related information

Under Options

Exercise Price

Warrant Outstanding at January 1, 2023

Under Warrants

Exercise Price

Warrants Outstanding at January 1, 2024

$ 7.43 - 6.15

Warrant Granted

Warrant Expired

Warrant Outstanding at December 31, 2023

Warrants Outstanding at December 31, 2024

$ 7.43 - 6.15

Warrant Granted

Warrant Expired

Warrant Outstanding at December 31, 2024

Settled for cash (Fundamental Transaction)

Warrants Outstanding at December 31, 2025

$ 7.43 - 6.15

3 unchanged sentences

December 31, 2025 and 2024 was $ 0 .

Description of July 2021 Warrants and Fundamental

Included in warrants outstanding as of December 31,

2024 were 1,031,250

Common Stock Purchase Warrants issued by the Company on July 21, 2021 to

institutional investors (the “July 2021 Warrants”).

The July 2021 Warrants have an exercise price of $6.15 per share, and

contained a “Fundamental Transaction” provision stating that upon a merger, change in control, or sale of all or substantially

all of the Company’s assets, holders of the July 2021 Warrants could, at their option, require the Company to purchase their July

2021 Warrants by paying such holders a cash payment equal to the Black-Scholes Value (as such term is defined in the July 2021 Warrants)

of their July 2021 Warrants (the “Put Right”).

The Put Right is only available to holders of the July 2021 Warrants in cases

where the Fundamental Transaction is within the Company’s control.

In the event a Fundamental Transaction is not within the Company’s

control, including not approved by the Company’s Board of Directors, the holders of the July 2021 Warrants would receive the same

form of consideration the holders of Company Common Stock receive.

On September 11, 2025, the Company completed the sale of its Cloud

Solutions Business, which sale was previously approved by the Company’s Board of Directors (see Note 3, “Discontinued Operations”).

This transaction constituted a Fundamental Transaction within the Company’s control, which triggered the cash-settlement provision

for all outstanding July 2021 Warrants.

Prior to September 11, 2025, the July 2021 Warrants

were classified as equity, as the warrants did not obligate the Company (conditionally or unconditionally) to repurchase the shares underlying

the warrants or issue a variable number of shares, were indexed to the Company’s Common Stock, and met the criteria for classification

in equity as defined in ASC 815.

The triggering of the cash-settlement provision on September 11, 2025, required the July 2021 Warrants

to be reclassified from equity to a liability at their fair value, therefore the Company recognized an initial warrant liability of $2,461,663,

with a corresponding decrease to Additional Paid-in Capital.

The warrant liability was subject to remeasurement

at fair value at each subsequent reporting period, with changes in fair value of $ 215,681 recognized as a component of the Gain on sale

of discontinued operation, net of tax for the year ended December 31, 2025.

During September and October 2025, the Company completed

the final settlement of its outstanding warrant liability.

The full liability was extinguished through two actions:

payments totaling $ 2,049,388

were made to certain holders of July 2021 Warrants to purchase up to 858,750

shares of Common Stock, upon such holders’ exercise of their Put Right and the Company’s purchase of such warrants and cash

payment to such holders equal to the Black Sholes Value of their July 2021 Warrants.

remaining liability balance of $ 196,294

which related to July 2021 Warrants to purchase up to 172,500 shares of

Common Stock was reclassified to Additional Paid-in Capital, as the 30-day period for holders to require the Company to purchase such

July 2021 Warrants at the Black Scholes Value expired on October 11, 2025.

As of December 31, 2025, there was no remaining liability

associated with these warrants.

Fair Value Measurement

The fair value of the warrant liability is measured

using the Black-Scholes-Merton option-pricing model, which requires the use of subjective assumptions.

These inputs are considered Level

3 inputs within the fair value hierarchy.

The key assumptions used in the Black-Scholes-Merton

model to value the outstanding warrant liability as of September 11, 2025, the transaction date, and as of October 11, 2025, the Put Right

expiration date, were as follows:

Schedule of Black-Scholes-Merton

model to value the outstanding warrant liability

September 11,

Exercise Price

Expected Term (in years)

Expected Volatility

Risk-Free Interest Rate

Expected Dividend Yield

The expected term represents the remaining contractual life of the warrants.

The expected volatility is based on the historical volatility of the Company’s

common stock over a period commensurate with the expected term.

For purposes of the September

11, 2025 fair value, the expected volatility represents the calculation of volatility associated

with the Put Right, as defined in the July 2021 Warrant.

Interest Rate:

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.

Expected Dividend Yield:

The Company has not paid, and does not anticipate paying, any cash dividends on its common stock.

Preferred Stock

Liquidation preference

Upon any liquidation, dissolution, or winding up of

the Corporation, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock,

the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation legally available for distribution

to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal

to the Original Issue Price for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A

Preferred Stock as of the date of the Liquidation Event.

No Preferred shares are issued as of December 31, 2024.

The number of shares of Common Stock to which a share

of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series

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

The Conversion

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

Each holder of shares of Series A Preferred Stock

shall be entitled to the number of votes, upon any meeting of the stockholders of the Corporation (or action taken by written consent

in lieu of any such meeting) equal to the number of shares of Class B Common Stock into which such shares of Series A Preferred Stock

could be converted.

Each share of Series A Preferred Stock, in preference

to the holders of all common stock, shall entitle its holder to receive, but only out of funds that are legally available therefore, cash

dividends at the rate of ten percent ( 10 %) per annum from the Original Issue Date on the Original Issue Price for such share of Series

A Preferred Stock, compounding annually unless paid by the Company.

On May 18, 2021, the Company converted 1,401,786 shares

of Series A Preferred Stock into 43,806 shares of common stock.

Accrued dividends at December 31, 2022, were $ 0 .

shares of Series A Preferred Stock outstanding.

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary

or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A Preferred

Stock shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, for each share

of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal to the Original Issue Price (as

such term is defined in the Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation

(the “Series A COD”)) for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series

A Preferred Stock as of the date of the Liquidation Event.

No shares of Series A Preferred Stock are issued as of December 31, 2025.

The number of shares of Common Stock into which a share of Series A Preferred

Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series A Preferred Stock by

the then-effective Conversion Price (as defined in the Series A COD) for such share of Series A Preferred Stock.

The current Conversion

Price for the Series A Preferred Stock is $55.60 and shall be adjusted from time to time.

Each holder of shares of Series A Preferred Stock shall be entitled to the number

of votes, upon any meeting of the stockholders of the Company (or action taken by written consent in lieu of any such meeting) equal to

the number of shares of Common Stock into which such shares of Series A Preferred Stock could be

Each share of Series A Preferred Stock, in preference to the holders of all

Common Stock, shall entitle its holder to receive, but only out of funds that are legally available therefore, cash dividends at the rate

of ten percent (10%) per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding

annually unless paid by the Company.

There are no shares of Series A Preferred Stock outstanding as of December 31, 2025 or 2024.

Note 6 – Income Taxes

The Company adopted ASU 2023-09 for the year ended

December 31, 2025 on a prospective basis.

A reconciliation between the Company’s effective income tax rate and the federal statutory

income tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows:

The components of the Company's (benefit) provision

for income taxes were as follows:

of income tax expense benefit

Year Ended December 31,

$ ( 1,470,003 )

$ ( 2,130,439 )

(Benefit) provision for income tax expense

$ ( 1,857,136 )

of income tax expense benefit

Federal statutory income tax expense

$ ( 571,900 )

State income taxes, net of federal income tax effect (a)

Changes in valuation allowance (b)

( 1,052,870 )

Return to provision adjustments

Income tax benefit

$ ( 1,857,136 )

(a) State taxes in Florida and California made up the majority (greater than 50 percent) of the tax effect in this category.

(b) The taxable gain generated from the sale of the discontinued operation (discussed below) provided a source

of income, allowing for the realization of these deferred tax assets which previously did not meet the “more likely than not”

For comparison purposes, a reconciliation between the Company’s effective

income tax rate and the federal statutory income tax rate for the year ended December 31, 2024 is as follows:

Schedule of expected income tax expense benefit

Federal Statutory Rate

Other permanent and prior period adjustments

Valuation allowance

Income tax provision

Discontinued Operations

For the year ended December 31, 2025, the Company

recorded a pre-tax loss from discontinued operations of $ 69,412 and a related tax benefit of $ 31,624 .

Separately, the Company completed the sale of its

discontinued operations, resulting in a pre-tax gain of $ 27,412,686 for the year ended December 31, 2025.

The Company recorded a provision

for federal and state income taxes on this gain of $ 7,294,005 .

This gain is treated as a significant, discrete item for tax purposes.

The $ 5,131,902 of tax liability is recorded as a component

of the “Gain on sale of discontinued operations, net of tax” in the Consolidated Statements of Operations, with $1,166,315 recognized

as “Income taxes payable” on the Consolidated Balance Sheet at December 31, 2025.

The amount included in Income taxes payable

at December 31, 2025 is net of estimated tax payments of $ 3,965,587 made during the second half of 2025.

The cash paid for income taxes during the year ended December 31, 2025

was as follows:

Schedule of income taxes

State and Local

Tota cash paid for income taxes

The components of deferred taxes are as follows:

2 unchanged sentences

Deferred tax assets:

Net operating loss carry forwards

Net operating loss carryforwards

Operating lease – Right of use asset

2 unchanged sentences

Property and equipment

Right of Use Liability

Lease Liability

Deferred gain

Total deferred tax liabilities

Valuation Allowance

( 1,492,945 )

Net deferred taxes

The Company had federal and state net operating

tax loss carry-forwards of $ 7,526,435 and $ 11,185,137 , respectively

as of December 31, 2024.

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

beginning to expire in 2029 .

During the tax year, the Company claimed a tax credit

related to the amortization of goodwill for US federal income tax purposes.

However, the tax position underlying the credit may not have

the appropriate economic substance to support the claim under current US federal income tax law.

The Company is recognizing a naked credit

associated with goodwill, where the tax deduction has been claimed based on goodwill that may not be associated with a qualifying transaction

as required under income tax provisions.

As of tax year ended December 31, 2024, management has reviewed the relevant

tax laws and believes that the tax positions taken are reasonable.

Given the potential for challenge by tax authorities, the Company may

be exposed to the risk that the credits taken may not be sustained upon examination, which may result in additional tax liabilities and

The amount of any potential tax adjustments to the credits have not been determined at this time.

A reconciliation of the Company’s effective

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

years ended December 31, 2024 and 2023 to the Company’s loss before provision (benefit) for income taxes, is as follows:

Schedule of expected income tax expense benefit

Federal Statutory Rate

Other permanent and prior period adjustments

Valuation allowance

Income tax provision

Note 10 – Litigation

The Company is currently not involved in any litigation

$ ( 312,334 )

The Company had no remaining net operating tax loss

carryforwards as of December 31, 2025.

The Company’s prior deferred tax liabilities

included amounts related to the difference between the book basis and tax basis of goodwill acquired in a taxable business combination,

which is deductible for tax purposes over 15 years.

Because this deferred tax liability, also known as a ‘naked credit’, relates

to an indefinite-lived intangible asset (goodwill) that was not previously expected to reverse in the foreseeable future, it was not considered

a source of taxable income for the purpose of assessing the realization of deferred tax assets.

During the year ended December 31, 2025, following the sale of the Cloud Solutions

Business, the Company conducted a Section 382 study through October 31, 2025 to assess whether a change or changes of control, as defined

in Section 382, have occurred since inception.

The Company has determined that it has undergone two ownership changes which potentially

limit the use of the Company’s tax attributes.

The first ownership change will have no practical impact on the Company since there

were no pre-change loss attributes identified in the Section 382 study.

The second ownership change created an annual limitation for the

2021 tax year and thereafter.

However, the recognition of prior unrealized gains during the year ended December 31, 2025 will substantially

expand the limitation for the 2025 tax year.

The Company expects these net operating losses to be utilized.

Note 7 – Equity Investment

On May 21, 2025, the Company invested $ 100,000

in TG-17, Inc.

(“TG-17”), a privately held Delaware corporation, in exchange for shares of TG-17 Series CF Preferred

The investment represents less than 20% of the outstanding equity of TG-17 and does not convey board representation, control

rights, or any significant influence over the investee’s operating or financial policies.

The investment does not have a readily determinable

fair value, and accordingly, the Company accounts for the investment using the measurement alternative.

Under this method, the investment

is recorded at its original cost and is adjusted for any impairment or for observable price changes in orderly transactions for the identical

or a similar investment of the same issuer.

As of December 31, 2025, the Company has not identified

any events or changes in circumstances that would indicate impairment of the investment, nor has it observed any transactions requiring

a remeasurement of its carrying value.

The investment is classified as a non-current asset as a component of other long-term assets on

the Company’s consolidated balance sheet.

Note 8 – Commitments and Contingencies

The Company is not currently involved in any litigation

that it believes could have a materially adverse effect on its financial condition or results of operations.

1 unchanged sentence

proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending

or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting DSC, its common

stock, any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such,

in which an adverse decision could have a material adverse effect.

or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company,

its Common Stock, any of its subsidiaries or of the Company’s or its subsidiaries’ officers or directors in their capacities

as such, in which an adverse decision could have a material adverse effect.

Note 9 – Related Party Transactions

6 unchanged sentences

2025, and 2024, respectively.

Nexxis Capital was formed to overcome the Nexxis obstacle of supplying financing for Nexxis clients and

the relationship was between Nexxis client and Nexxis capital.

Eisner & Maglione CPA’s LLC

Lawrence Maglione is a partner of Eisner & Maglione

The Company paid his firm $ 31,352 and $ 34,644 for accounting and due diligence services during the year ended December 31, 2024, and 2023, respectively.

The Company paid his firm $ 46,262 and $ 31,352 for accounting and due diligence services during the year ended December

31, 2025, and 2024, respectively.

Systems Trading

On January 1, 2022, the Company entered into a lease

agreement with Systems Trading, Inc.

(“Systems Trading”), a technology leasing company established by Harold Schwartz (President),

where he currently serves as Chief Executive Officer and President, effective January 1, 2022.

This lease obligation was payable to Systems

Trading with monthly installments of $ 7,145 and expired on April 1, 2025.

The lease carried an interest rate of 8%.

On April 1, 2022, the Company entered into a lease

agreement with Systems Trading effective May 1, 2022.

This lease obligation was payable to Systems Trading with monthly installments of

$ 6,667 and expired on February 1, 2025.

The lease carried an interest rate of 8%.

In connection with the vesting of equity awards held

by Harold Schwartz (a Director and President), the Company erroneously remitted $47,479 in tax withholding obligations during the fourth

quarter of the year ended December 31, 2025, which was later determined to be an overpayment.

The related balance reflected in other long-term

assets at December 31, 2025 represents amounts settled on his behalf against vested equity compensation and does not represent a personal

loan or extension of credit.

No such balance existed at December 31, 2024.

Note 10 – Segment Information

The Company operates in three reportable

CloudFirst, CloudFirst Europe and Nexxis.

The Company’s segments were determined based on its internal organizational

structure, the manner in which its operations are managed, and the criteria used by the Company’s CODM’s which is its Chief

Executive Officer and the senior management team, to evaluate performance, which is generally the segment’s operating income or

Operations of:

Products and services provided:

CloudFirst Technologies Corporation

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

This technology has been developed by CloudFirst.

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

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

CloudFirst Europe Ltd.

provides services from CloudFirst technological assets deployed in three Tier 3 data centers throughout the United Kingdom.

This technology has been developed by CloudFirst.

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

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

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

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

The following tables present certain financial information

related to the Company’s reportable segments and Corporate:

Schedule of financial information related to reportable segments

As of December 31, 2024

CloudFirst Technologies

CloudFirst Europe Ltd.

Accounts receivable

Prepaid expenses and other current assets

Net Property and Equipment

Intangible assets, net

Operating lease right-of-use assets

All other assets

Accounts payable and accrued expenses

Deferred revenue

Deferred tax liability

Total Finance leases payable

Total Finance leases payable related party

Total Operating lease liabilities

Total Liabilities

As of December 31, 2023

CloudFirst Technologies

Accounts receivable

Prepaid expenses and other current assets

Net property and equipment

Intangible assets, net

Operating lease right-of-use assets

All other assets

Accounts payable and accrued expenses

Deferred revenue

Finance leases payable

Finance leases payable related party

Operating lease liabilities

Total liabilities

Following the sale of its Cloud

Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst

Europe Ltd., on September 11, 2025 (see Note 3 for details), the Company operates in one reportable segment:

The CloudFirst

Technologies Corporation and CloudFirst Europe Ltd.

reportable segments were removed as a result of the sale of the Cloud Solutions Business.

The Company’s segment

was determined based on its internal organizational structure, the manner in which its operations are managed, and the criteria used by

the Company’s CODM which is its Chief Executive Officer, to evaluate performance, which is generally the segment’s operating

income or losses.

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

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

The following tables present certain financial

information related to the Company ’ s

reportable segment and Corporate:

For the year ended December 31, 2025

CloudFirst Technologies

CloudFirst Europe Ltd.

Cost of sales

4 unchanged sentences

$ ( 3,585,324 )

Interest income

Interest expense

Loss on disposal of equipment

Total Other Income (Expense)

Income (Loss) before provision for income taxes

$ ( 3,573,702 )

$ ( 2,626,786 )

For the year ended December 31, 2024

CloudFirst Technologies

CloudFirst Europe Ltd.

Cost of sales

2 unchanged sentences

Total operating expenses

Income (Loss) from Operations

( 2,639,415 )

Interest income

Interest expense

Total Other Income (Expense)

Income (Loss) before provision for income taxes

Loss from operations

$ ( 3,219,606 )

1 unchanged sentence

Note 11 – Subsequent Events

The Company has evaluated

events that occurred through March 31, 2025, the date that the financial statements were issued, and determined that there have been no

events that have occurred that would require adjustments to the Company’s disclosures in the financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company has evaluated events that occurred through the issuance of these

financial statements, and determined that there have been no events that have occurred that would require adjustments to the Company’s

disclosures in the financial statements other than as set forth below.

On December 8, 2025,

the Company commenced the tender offer (the “Tender Offer”) to purchase up to 6,192,990

shares of Common Stock, representing approximately 83% of its 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, the Company 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 8, 2025.

Following the Company’s purchase of the tendered shares and payment

of the cost of such tendered shares and other related expenses, the Company had 2,167,138

shares of Common Stock outstanding and retained over $10.0 million in cash.

On February 9, 2026, the Company’s Board approved the issuance to Charles

Piluso, the Company’s Chief Executive Officer, of an annual cash bonus for the fiscal year ended December 31, 2025, within the

limits set forth in his then current employment agreement for annual cash bonuses, and a discretionary equity award of 160,600 restricted

stock units pursuant to the 2021 Plan, which will vest in full on May 20, 2026.

On February 13, 2026, the Company entered into an

amendment to the existing employment agreement with Charles M.

Piluso, which was effective as of January 1, 2026 and among other things,

extended the term of the employment agreement for an additional three years.

Upon execution of the amended employment agreement by the

Company and Mr.

Piluso, pursuant to the terms thereof, Mr.

Piluso received one-time equity awards pursuant to the 2021 Plan, consisting

of 250,000 stock options and 60,000 restricted stock units, which stock options and restricted stock units will vest one-third on each

of May 20, 2027, May 20, 2028, and May 20, 2029.

On February 13, 2026, the Company entered into an

amendment to the existing employment agreement with Chris H.

Panagiotakos, the Company’s Chief Financial Officer, which was effective

as of January 1, 2026 and among other things, extended the term of the employment agreement for an additional three years.

13, 2026, the Company’s Board approved the issuance to Chris H.

Panagiotakos, of an annual cash bonus for the fiscal year ended

December 31, 2025 within the limits set forth in his then current employment agreement for annual cash bonuses, and a discretionary equity

award of stock options to purchase up to 125,000 shares of Common Stock and 60,000 restricted stock units pursuant to the 2021 Plan, which

will vest one-third on each of May 20, 2027, May 20, 2028, and May 20, 2029.

Note 12 – Restatement of Quarterly Financial Information

Description of Restatement Adjustments

In connection with the preparation of the Company’s

consolidated financial statements for the year ended December 31, 2025, management identified an error in the prior period's accounting

for the reclassification of the July 2021 Warrants.

On September 11, 2025, the triggering of a cash-settlement provision required these

warrants to be reclassified from equity to a liability at fair value.

Management determined that the initial recognition of the $ 2,461,663

warrant liability was incorrectly recorded as a component of Gain on sale of discontinued operations, net of tax, rather than as a reduction

to Additional Paid-in Capital.

Accordingly, the Company has corrected the prior period financial statements to reflect the initial recognition

as a debit to equity, with subsequent changes in the fair value of the liability recognized in the consolidated statements of operations.

The following tables reflect

the impact of the restatement to the specific line items presented in the Company’s previously reported condensed consolidated financial

statements for the periods ended September 30, 2025.

The amounts in the “As

previously reported” columns are amounts derived from the Company’s previously filed Quarterly Report on Form 10-Q for the

period ended September 30, 2025.

The amounts in the “Adjustments” columns present the reclassification of warrant to liability

impact and related tax effect of the adjustment.

The amounts in the “As restated” columns are the updated amounts including

the impacts from the restatement.

Unaudited Financial Statements

The following table presents

the impact of the financial statement adjustments on the Company’s previously reported Condensed Consolidated Balance Sheet as of

September 30, 2025:

CONDENSED CONSOLIDATED BALANCE

Schedule of financial statement adjustments

September 30, 2025

As previously reported

LIABILITIES AND STOCKHOLDERS EQUITY

Current Liabilities:

Warrant liability

$ ( 182,488 )

Income taxes payable

Total current liabilities

Total liabilities

Stockholders equity:

Additional paid-in capital

( 2,461,663 )

Accumulated deficit

( 2,912,547 )

Total Data Storage Corporation stockholders equity

Total stockholders equity

The following tables present the impact of the financial statement adjustments

on the Company’s previously reported Condensed Consolidated Statements of Operations for the three and nine months ended September

CONDENSED CONSOLIDATED STATEMENTS

OF OPERATIONS

Three Months Ended September 30, 2025

As previously reported

Provision (benefit) for income taxes

$ ( 1,034,683 )

$ ( 1,019,677 )

Loss from continuing operations, net of tax

Gain on sale of discontinued operation, net of tax

Net income of discontinued operations

Income (loss) in non-controlling interest of consolidated subsidiary, net of tax

Net income attributable to common stockholders

Earnings per share from discontinued operations basic

Earnings per share from discontinued operations diluted

Earnings per share attributable to common stockholders basic

Earnings per share attributable to common stockholders diluted

Nine Months Ended September 30, 2025

As previously reported

Provision (benefit) for income taxes

$ ( 1,034,683 )

$ ( 1,019,677 )

Loss from continuing operations, net of tax

( 1,313,172 )

( 1,328,178 )

Gain on sale of discontinued operation, net of tax

Net income of discontinued operations

Income (loss) in non-controlling interest of consolidated subsidiary, net of tax

Net income attributable to common stockholders

Earnings per share from discontinued operations basic

Earnings per share from discontinued operations diluted

Earnings per share attributable to common stockholders basic

Earnings per share attributable to common stockholders diluted

CONDENSED CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY

The following tables present the impact of the financial statement adjustments

on the Company’s previously reported Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and

nine months ended September 30, 2025:

For the Three Months Ended September 30, 2025

As previously reported

Additional Paid-in Capital

Reclassification of warrant to liability

( 2,461,663 )

Balance, September 30, 2025

$ ( 2,461,663 )

Accumulated Deficit

Balance, September 30, 2025

$ ( 2,912,547 )

$ ( 267,640 )

Total Stockholders Equity

Reclassification of warrant to liability

( 2,461,663 )

Balance, September 30, 2025

For the Nine Months Ended September 30, 2025

As previously reported

Additional Paid-in Capital

Reclassification of warrant to liability

( 2,461,663 )

Balance, September 30, 2025

$ ( 2,461,663 )

Accumulated Deficit

Balance, September 30, 2025

$ ( 2,912,547 )

$ ( 267,640 )

Total Stockholders Equity

Reclassification of warrant to liability

( 2,461,663 )

Balance, September 30, 2025

CONDENSED CONSOLIDATED STATEMENT OF CASH

The following table presents the impact of the financial statement adjustments

on the Company’s previously reported Condensed Consolidated Statement of Cash Flows for the nine-month period ended September 30,

Nine Months Ended September 30, 2025

As previously reported

Net income from discontinued operations

Adjustments to reconcile net income to net cash used in operating activities:

Gain on sale of discontinued operations

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data