Financial Performance - For Q3 2025, sales increased to $416,956, a 28.1% rise from $325,299 in Q3 2024[12] - Gross profit for Q3 2025 was $198,499, representing a 37.4% increase compared to $144,467 in Q3 2024[12] - The net income attributable to common stockholders for Q3 2025 was $16,778,276, compared to $122,397 in Q3 2024, marking a substantial increase[12] - The company reported a loss from operations of $1,098,475 for Q3 2025, compared to a loss of $839,632 in Q3 2024[12] - Loss from continuing operations decreased to $(1,313,172) in 2025 from $(2,016,109) in 2024, showing an improvement[14] - Net income from discontinued operations increased significantly to $17,385,939 in 2025 compared to $2,238,934 in 2024[14] Assets and Liabilities - The total assets as of September 30, 2025, were $47,677,690, up from $25,280,215 as of December 31, 2024[10] - Current liabilities increased to $8,414,058 as of September 30, 2025, compared to $3,546,149 at the end of 2024[10] Cash Flow and Investments - Net cash provided by (used in) operating activities was $(555,823) in 2025, a decline from $552,590 in 2024[14] - Cash and cash equivalents at the end of the period decreased to $284,714 in 2025 from $513,718 in 2024[14] - Capital expenditures were minimal at $(128) in 2025, compared to $(2,149) in 2024[14] - Cash used in investing activities of discontinued operations was $(787,129) in 2025, down from $(1,113,859) in 2024[14] Strategic Initiatives - The company plans to strategically invest in high-growth areas such as GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, and cybersecurity[6] - The Nexxis subsidiary continues to perform well, providing a stable, recurring revenue base that supports broader strategic objectives[3] - The company aims to leverage its expertise and financial strength to identify opportunities that align with its core competencies for sustainable results[3] Discontinued Operations - Net proceeds from the sale of discontinued operations amounted to $35,634,291 in 2025, with no comparable figure in 2024[14] - The company reported a significant gain on the sale of discontinued operations of $(17,471,290) in 2025, with no prior year figure[14] Other Financial Metrics - Stock-based compensation increased to $1,005,830 in 2025 from $564,800 in 2024, indicating higher employee incentives[14] - The effect of exchange rate changes on cash resulted in an increase of $9,950 in 2025, with no prior year figure reported[14]

Financial Performance - Sales from continuing operations for the three months ended September 30, 2025, were $416,956, an increase of $91,657, or 28.2%, from $325,299 in the same period last year [107]. - Gross profit for the third quarter of 2025 was $198,499, an increase of $54,032, or 37.4%, compared to $144,467 in the third quarter of 2024, with a gross profit margin improvement to 47.6% from 44.4% [108]. - Income from continuing operations for the three months ended September 30, 2025, was $129,555, compared to a loss of $678,862 in the prior year period [112]. - Sales from continuing operations for the nine months ended September 30, 2025, were $1,057,651, an increase of $158,516, or 17.6%, from $899,135 in the same period last year [114]. - Gross profit for the nine months ended September 30, 2025, was $477,458, an increase of $83,007, or 21.0%, compared to $394,451 in the prior-year period, with a gross profit margin improvement to 45.1% from 43.9% [115]. - Loss from continuing operations, net of tax, was $1,313,172 for the nine months ended September 30, 2025, compared to a loss of $2,016,109 in the prior year period [117]. Expenses - Selling, general and administrative expenses increased by $312,875, or 31.8%, to $1,296,974 for the three months ended September 30, 2025, primarily due to a $429,483, or 396.4%, increase in non-cash stock-based compensation [111]. - Selling, general and administrative expenses for the nine months ended September 30, 2025, increased by $375,693, or 13.1%, to $3,242,833 from $2,867,140 for the same period last year [116]. Cash Flow - Cash used in operating activities of continuing operations was $1,145,839 for the nine months ended September 30, 2025, compared to $1,637,378 in the prior-year period [128]. - Cash provided by investing activities of continuing operations was $1,423,190 for the nine months ended September 30, 2025, compared to cash used of $58,722 in the same period of the prior year, driven by $35,634,291 in net cash received from the sale of the CloudFirst business [129]. - Cash used in financing activities of continuing operations was $824,051 for the nine months ended September 30, 2025, compared to cash provided of $88,732 in the prior-year period, primarily due to a $1,236,825 cash settlement of warrants [130]. - Cash used in discontinued operations was $248,633 for the nine months ended September 30, 2025, compared to cash provided of $692,356 in the prior-year period [131]. Strategic Actions - The company recognized a gain on the sale of discontinued operations of $17,846,470 for the nine months ended September 30, 2025, net of transaction costs [119]. - The company received net cash proceeds of approximately $38.1 million, net of $1.5 million placed in escrow and a working capital adjustment [121]. - Working capital increased to $46,749,512 as of September 30, 2025, up by $34,829,443 from $11,920,069 at December 31, 2024, primarily due to the divestiture of the CloudFirst business [127]. - The company plans to use the remaining proceeds from the tender offer for strategic investments and acquisitions in high-growth technology sectors, including GPU IaaS, AI-driven software, and cybersecurity [122]. Tax and Liquidity - The company has accrued $4.4 million in estimated income taxes payable related to the divestiture [121]. - The company’s liquidity assessment is based on current information, and any inaccuracies may require a reduction in selling, general, and administrative expenses [125]. - The company has not made any sales under the Equity Distribution Agreement with Maxim as of the report date [126]. Interest Income - Interest income for the three months ended September 30, 2025, was $193,347, a 20.3% increase from $160,770 in the same period last year [113].

Core Insights - Data Storage Corporation has completed the sale of its CloudFirst subsidiary, which is seen as a transformative milestone that unlocks significant shareholder value and provides a solid financial foundation for future growth [3][6] - The company aims to refocus its operations on high-growth areas such as GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications [3][6] - The management emphasizes a disciplined approach to capital allocation and operational execution to create lasting value for shareholders [3][6] Financial Performance - For the three months ended September 30, 2025, the company reported sales of $416.96 million, an increase from $325.30 million in the same period of 2024, representing a growth of approximately 28% [12] - Gross profit for the same period was $198.50 million, compared to $144.47 million in 2024, indicating a significant improvement in profitability [12] - The net income attributable to common stockholders for the three months ended September 30, 2025, was $16.78 million, a substantial increase from $123.53 thousand in the prior year [13] Strategic Outlook - The company plans to leverage its expertise and financial strength to identify opportunities that align with its core competencies, focusing on sustainable results and long-term shareholder value [3][6] - The Nexxis subsidiary is highlighted as a stable source of recurring revenue that supports the broader strategic objectives of the company [3][6] - Management is committed to maintaining financial discipline while pursuing growth in high-potential markets [3][6]

Core Points - Data Storage Corporation (Nasdaq: DTST) has rescheduled its 2025 third quarter business update conference call to November 19, 2025, at 10:00 a.m. Eastern Time [1] - The conference call will be accessible via telephone and webcast, with specific dialing instructions provided for both U.S. and international callers [2] - A replay of the conference call will be available on the company's website until May 19, 2026, and a telephone replay will be accessible until November 26, 2025 [3] Company Overview - Data Storage Corporation plans to invest in various sectors, including GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications [4] - The company's mission focuses on building sustainable, recurring revenue streams while maintaining financial discipline and strategic focus [4]

Core Points - Data Storage Corporation has postponed its 2025 third quarter business update conference call originally scheduled for November 14, 2025, due to necessary accounting adjustments related to the sale of its CloudFirst subsidiary [1][2] - The company is actively working to finalize these accounting adjustments and will announce a new date and time for the conference call once available [2] - Data Storage Corporation plans to invest in various sectors including GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications, aiming to build sustainable, recurring revenue streams while maintaining financial discipline [3]

Core Points - Data Storage Corporation (DSC) plans to host a business update conference call on November 14, 2025, to discuss the sale of its CloudFirst subsidiary and its strategic business outlook [1] - The conference call will be accessible via telephone and webcast, with specific dialing instructions provided for both U.S. and international callers [2] - A replay of the conference call will be available on the company's website and through telephone access for a limited time following the call [3] Company Overview - Data Storage Corporation (Nasdaq: DTST) aims to invest in and support various businesses, including GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications [4] - The company's mission focuses on building sustainable, recurring revenue streams while maintaining financial discipline and strategic focus [4]

Core Points - Data Storage Corporation has completed the repurchase of substantially all outstanding warrants originally issued in July 2021, paying a total of $2,049,388 for warrants exercisable for 858,750 shares of common stock [1][2] - The repurchase was triggered by the closing of the sale of the Company's CloudFirst subsidiary on September 11, 2025, and the repurchase period closed on October 13, 2025, leaving only 172,500 warrants outstanding [2][3] - The CEO stated that this transaction improves the capital structure and aligns with the goal of delivering long-term shareholder value, with plans for a tender offer to be announced soon [4] Financial Impact - The total amount paid for the warrant repurchase was $2,049,388, which simplifies the capital structure and eliminates a potential source of future dilution [2][3] - The repurchase involved warrants that could have been exercised for a total of 858,750 shares, significantly reducing the number of outstanding warrants to 172,500 [2][3] Strategic Initiatives - Following the warrant repurchase, the Company plans to focus on growth and capital return, with a tender offer expected to be initiated in the near future [4] - The Company aims to invest in GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications to build sustainable revenue streams [5]

Group 1 - Maxim Group downgraded Data Storage Corporation from Buy to Hold due to limited visibility into management's new strategic direction after the sale of its CloudFirst subsidiary [1] - The divestiture of CloudFirst was completed on September 11, generating net proceeds of approximately $24 million, with up to 85% allocated for a tender offer and the remainder for acquisitions and investments in AI-enabled software, GPU technologies, or cybersecurity [2] - The remaining VoIP segment contributes around $1.2 million in annual revenue post-sale [2] Group 2 - Maxim lowered its revenue estimates for 2025 and 2026 to account for the loss of CloudFirst, which had been the primary revenue source for Data Storage Corporation, highlighting uncertainty regarding future acquisitions and business pivot efforts [3]

Core Viewpoint - Data Storage Corporation has completed the sale of its CloudFirst business, generating approximately $40 million in gross proceeds and $24 million in net proceeds, which will be used for strategic investments and acquisitions in technology sectors [1][2][3] Group 1: Transaction Details - The sale of CloudFirst was approved by shareholders on September 10, 2025, and closed on September 11, 2025 [1] - The transaction generated approximately $40 million in gross proceeds, with estimated net proceeds of $24 million after fees, taxes, and adjustments [1][2] Group 2: Future Plans - The company plans to use the proceeds to support targeted acquisitions and investments in digital infrastructure, including AI-enabled software, GPU technologies, and cybersecurity [2] - The company will continue operating its telecommunications subsidiary, Nexxis, Inc., while remaining open to opportunities that offer recurring revenue and long-term shareholder value [2][3] Group 3: Management Commentary - The CEO of Data Storage Corporation stated that the completion of the CloudFirst transaction positions the company to evaluate and execute targeted acquisitions with a disciplined approach [3] - The CloudFirst brand, leadership team, and service model will remain intact under Performive, with no expected changes to client relationships, staffing, or service delivery [3][5] Group 4: Company Focus - Data Storage Corporation focuses on investing in GPU Infrastructure-as-a-Service (IaaS), AI-driven software applications, cybersecurity, and voice/data telecommunications [4] - The company's goal is to build recurring revenue streams while maintaining operational discipline [4]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Data Storage Corporation [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, with detailed accounting notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total current assets | $14,761,707 | $15,416,063 | | Total assets | $24,421,146 | $25,280,215 | | Total current liabilities | $2,682,953 | $3,546,149 | | Total liabilities | $3,190,416 | $4,108,250 | | Total stockholders' equity | $21,230,730 | $21,171,965 | - Total assets decreased by approximately **$0.86 million** from December 31, 2024, to June 30, 2025, primarily due to decreases in cash and cash equivalents, accounts receivable, and marketable securities[9](index=9&type=chunk) - Total liabilities decreased by approximately **$0.92 million**, mainly driven by a reduction in accounts payable and accrued expenses and the full repayment of finance leases[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, reporting sales, gross profit, and net income or loss Condensed Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------- | :------------ | :------------ | :------------ | :--------- | | Sales | $5,146,922 | $4,910,492 | $236,430 | 4.8% | | Gross profit | $2,536,754 | $2,407,893 | $128,861 | 5.3% | | Loss from operations | $(795,667) | $(388,786) | $(406,881) | 104.6% | | Net income (loss) | $(731,963) | $(246,605) | $(485,358) | 196.8% | | EPS – basic | $(0.10) | $(0.04) | $(0.06) | 150.0% | Condensed Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :------------------------- | :------------ | :------------ | :------------ | :--------- | | Sales | $13,230,678 | $13,146,239 | $84,439 | 0.6% | | Gross profit | $5,396,650 | $5,374,365 | $22,285 | 0.4% | | Loss from operations | $(888,176) | $(174,991) | $(713,185) | 407.6% | | Net income (loss) | $(705,575) | $99,299 | $(804,874) | -810.6% | | EPS – basic | $(0.10) | $0.02 | $(0.12) | -600.0% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This section outlines the changes in the company's equity over a period, reflecting impacts from net income, stock transactions, and other comprehensive income Changes in Stockholders' Equity (Six Months Ended June 30, 2025) | Item | Amount ($) | | :--------------------------------- | :--------- | | Balance January 1, 2025 | 21,171,965 | | Stock options exercised | 38,267 | | Stock-based compensation | 638,844 | | Gain on foreign currency translation | 87,229 | | Net income (loss) | (705,575) | | Balance June 30, 2025 | 21,230,730 | - Total stockholders' equity increased slightly from **$21,171,965** at January 1, 2025, to **$21,230,730** at June 30, 2025, despite a net loss, primarily due to stock-based compensation and a gain on foreign currency translation[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :--------------------------------- | :------------ | :------------ | | Operating activities | $(727,487) | $354,791 | | Investing activities | $272,016 | $(798,381) | | Financing activities | $(13,253) | $(205,154) | | Decrease in cash and cash equivalents | $(458,774) | $(648,744) | | Cash and cash equivalents, end of period | $611,323 | $779,986 | - Net cash used in operating activities significantly increased to **$(727,487)** in 2025 from cash provided of **$354,791** in 2024, primarily due to a net loss and increased working capital related to deferred transaction fees for the divestiture[19](index=19&type=chunk)[144](index=144&type=chunk) - Cash provided by investing activities improved to **$272,016** in 2025 from cash used of **$(798,381)** in 2024, driven by net sales of marketable securities to fund operations and lower capital expenditures[19](index=19&type=chunk)[145](index=145&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, including accounting policies and specific line item breakdowns [Note 1 – Basis of Presentation, Organization and Other Matters](index=10&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation,%20Organization%20and%20Other%20Matters) This note describes the company's business, its organizational structure, and the basis for preparing the interim financial statements - Data Storage Corporation (DSC) provides subscription-based disaster recovery, cloud infrastructure, cybersecurity, and Voice and Data solutions, primarily to healthcare, banking, finance, and government industries[21](index=21&type=chunk)[22](index=22&type=chunk) - DSC expanded internationally by establishing CloudFirst Europe Ltd. in the UK on August 12, 2024 (name changed December 27, 2024), to manage European operations[25](index=25&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and include normal recurring adjustments[26](index=26&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=10&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including consolidation, revenue recognition, and new accounting standards - The consolidated financial statements include DSC and its subsidiaries: CloudFirst Technologies Corporation, Information Technology Acquisition Corporation, Nexxis Inc., and CloudFirst Europe Ltd[27](index=27&type=chunk) - New accounting standards ASU 2024-03 (Income Statement Expense Disaggregation) and ASU 2025-03 (Business Combinations) are effective for fiscal years beginning after December 15, 2026, and 2027, respectively; DSC is assessing their impact[29](index=29&type=chunk)[30](index=30&type=chunk) - Revenue is disaggregated by major product line (Cloud infrastructure & disaster recovery, Equipment and software, Managed services, Nexxis VoIP services), geography (United States, International), and timing of recognition (point in time vs. over time)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) Revenue Disaggregation by Timing of Recognition (Three & Six Months Ended June 30) | Timing of Revenue Recognition | 3 Months 2025 | 3 Months 2024 | 6 Months 2025 | 6 Months 2024 | | :---------------------------------- | :------------ | :------------ | :------------ | :------------ | | Products transferred at a point in time | $660,104 | $3,943,429 | $4,265,060 | $4,989,406 | | Products and services transferred over time | $4,486,818 | $967,063 | $8,965,618 | $8,156,833 | | Total Sales | $5,146,922 | $4,910,492 | $13,230,678 | $13,146,239 | [Note 3 - Prepaids and other current assets](index=18&type=section&id=Note%203%20-%20Prepaids%20and%20other%20current%20assets) This note details the composition and changes in prepaid expenses and other current assets, including deferred transaction costs Prepaids and Other Current Assets (June 30, 2025 vs. December 31, 2024) | Item | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Prepaid marketing & promotion | $169,768 | $47,045 | | Prepaid subscriptions and licenses | $577,473 | $483,170 | | Prepaid maintenance | $162,763 | $191,552 | | Prepaid insurance | $58,363 | $67,373 | | Deferred transaction costs | $838,352 | — | | Other | $106,375 | $70,362 | | Total | $1,913,094 | $859,502 | - Prepaid and other current assets significantly increased by **$1,053,592**, primarily due to **$838,352** in deferred transaction costs related to the potential divestiture of the cloud solutions business[72](index=72&type=chunk)[112](index=112&type=chunk) [Note 4 - Property and Equipment](index=18&type=section&id=Note%204-%20Property%20and%20Equipment) This note provides a breakdown of the company's property and equipment, including data center assets, and related depreciation expenses Property and Equipment, Net (June 30, 2025 vs. December 31, 2024) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Data center equipment | $9,833,486 | $9,368,082 | | Total property and equipment | $10,078,502 | $9,598,963 | | Less: Accumulated depreciation | $(6,740,363) | $(6,159,307) | | Net property and equipment | $3,338,139 | $3,439,656 | - Net property and equipment decreased slightly by **$101,517**, with an increase in data center equipment offset by higher accumulated depreciation[73](index=73&type=chunk) - Depreciation expense for the six months ended June 30, 2025, was **$580,332**, an increase from **$497,003** in the prior year period[73](index=73&type=chunk) [Note 5 - Goodwill and Intangible Assets](index=18&type=section&id=Note%205%20-%20Goodwill%20and%20Intangible%20Assets) This note details the company's goodwill and other intangible assets, their amortization policies, and related expenses Goodwill and Intangible Assets (June 30, 2025) | Asset Type | Gross Amount | Accumulated Amortization | Net Amount | | :--------------------------------------- | :----------- | :----------------------- | :--------- | | Goodwill (Indefinite life) | $4,238,671 | — | $4,238,671 | | Trademarks (Indefinite life) | $514,268 | — | $514,268 | | Customer lists (7 years) | $2,614,099 | $1,834,932 | $779,167 | | ABC acquired contracts (5 years) | $310,000 | $310,000 | — | | SIAS acquired contracts (5 years) | $660,000 | $660,000 | — | | Non-compete agreements (4 years) | $272,147 | $272,147 | — | | Website and digital assets (3 years) | $33,002 | $33,002 | — | | Total Goodwill and Intangible Assets | $8,642,187 | $3,110,081 | $5,532,106 | - Goodwill and trademarks are not subject to amortization, while other intangible assets like customer lists, acquired contracts, non-compete agreements, and website/digital assets are amortized over their estimated useful lives[75](index=75&type=chunk) - Amortization expense for the six months ended June 30, 2025, was **$133,571**, a slight decrease from **$137,507** in the prior year period[76](index=76&type=chunk) [Note 6 - Leases](index=19&type=section&id=Note%206-Leases) This note describes the company's operating and finance lease arrangements, including lease-related expenses and the status of lease obligations - The Company's leases consist of operating leases for office space (e.g., corporate headquarters in Melville, NY, expiring October 30, 2029) and finance leases for equipment[77](index=77&type=chunk)[78](index=78&type=chunk) - All outstanding finance lease obligations were paid in full during the three months ended March 31, 2025, resulting in no material finance leases as of June 30, 2025[81](index=81&type=chunk) Lease-Related Expenses (Three Months Ended June 30, 2025) | Item | Amount ($) | | :-------------------------------------------- | :--------- | | Amortization of finance lease assets | $121,923 | | Interest on finance lease liabilities | $489 | | Amortization of operating lease assets | $37,528 | | Total net lease cost | $159,940 | [Note 7 - Commitments and Contingencies](index=20&type=section&id=Note%207%20-%20Commitments%20and%20Contingencies) This note discloses the company's significant contractual commitments and potential contingent liabilities - The Company has approximately **$690,885** in remaining payments under a licensing agreement for marketing-related materials with a National Football League team, acquired as part of the Flagship acquisition, through 2027[83](index=83&type=chunk) [Note 8 - Stockholders' Equity](index=20&type=section&id=Note%208%20-%20Stockholders'%20Equity) This note details the components of stockholders' equity, including authorized and outstanding shares, stock option, and restricted stock unit activity - The Company has **260,000,000** authorized shares of capital stock, comprising **250,000,000** common shares and **10,000,000** preferred shares[84](index=84&type=chunk) - As of June 30, 2025, **7,230,619** common shares were issued and outstanding, while no preferred shares were issued or outstanding[9](index=9&type=chunk)[97](index=97&type=chunk) Stock Option Activity (Six Months Ended June 30, 2025) | Item | Number of Shares Under Options | Weighted Average Exercise Price ($) | | :------------------------ | :----------------------------- | :---------------------------------- | | Options Outstanding at Jan 1, 2025 | 678,302 | 2.79 | | Options Granted | 52,420 | 4.36 | | Exercised | (17,821) | 2.15 | | Expired/Cancelled | (23,900) | 2.96 | | Options Outstanding at Jun 30, 2025 | 689,001 | 2.91 | - Stock-based compensation expense for options totaled **$294,116** for the six months ended June 30, 2025, an increase from **$214,357** in the prior year[87](index=87&type=chunk) Restricted Stock Unit (RSU) Activity (Six Months Ended June 30, 2025) | Item | Shares | Fair Value ($) | | :--------------------------------- | :----- | :------------- | | Outstanding non-vested at Jan 1, 2025 | 214,375 | 2.79 | | Granted | 125,083 | 3.95 | | Vested | (167,690) | 3.44 | | Forfeited | (796) | 4.88 | | Outstanding non-vested at Jun 30, 2025 | 170,972 | 2.99 | - Stock-based compensation for RSUs totaled **$344,728** for the six months ended June 30, 2025, up from **$164,692** in the prior year[92](index=92&type=chunk) [Note 9 – Litigation](index=23&type=section&id=Note%209%20%E2%80%93%20Litigation) This note discloses the company's involvement in any legal proceedings and their potential financial impact - The Company is not currently involved in any litigation that is believed to have a materially adverse effect on its financial condition or results of operations[99](index=99&type=chunk) [Note 10 – Related Party Transactions](index=23&type=section&id=Note%2010%20%E2%80%93%20Related%20Party%20Transactions) This note details transactions between the company and its related parties, including management and board members - The Company received **$3,257** from Nexxis Capital LLC (owned by CEO and President) for the six months ended June 30, 2025, a significant decrease from **$77,348** in the prior year[100](index=100&type=chunk) - Payments to Eisner & Maglione CPA's LLC (where a Board member is a partner) for accounting and consulting services increased to **$27,739** for the six months ended June 30, 2025, from **$15,083** in the prior year[101](index=101&type=chunk) [Note 11 – Equity Investment](index=23&type=section&id=Note%2011%20%E2%80%93%20Equity%20Investment) This note describes the company's equity investments in other entities and their accounting treatment - On May 21, 2025, DSC invested **$100,000** in TG-17, Inc., a privately held Delaware corporation, for Series CF Preferred Stock, representing less than **20%** equity and no significant influence[102](index=102&type=chunk) - The investment is accounted for at cost using the measurement alternative under ASC 321, with no impairment or remeasurement identified as of June 30, 2025[103](index=103&type=chunk)[104](index=104&type=chunk) [Note 12 – Segment Information](index=23&type=section&id=Note%2012%20%E2%80%93%20Segment%20Information) This note provides financial data for the company's operating segments, allowing for an assessment of their individual performance - The Company operates in three reportable segments: CloudFirst Technologies, CloudFirst Europe Ltd., and Nexxis Inc., with performance evaluated based on operating income or losses[105](index=105&type=chunk) Segment Sales (Three Months Ended June 30, 2025) | Segment | Sales ($) | | :----------------------- | :-------- | | CloudFirst Technologies | 4,815,516 | | CloudFirst Europe Ltd. | — | | Nexxis Inc. | 331,406 | | Corporate | — | | Total Sales | 5,146,922 | Segment Income (Loss) from Operations (Six Months Ended June 30, 2025) | Segment | Income (Loss) from Operations ($) | | :----------------------- | :-------------------------------- | | CloudFirst Technologies | 1,675,376 | | CloudFirst Europe Ltd. | (900,106) | | Nexxis Inc. | (17,426) | | Corporate | (1,646,020) | | Total | (888,176) | [Note 13 – Subsequent Events](index=26&type=section&id=Note%2013%20-%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On July 11, 2025, the Company entered an agreement to sell its cloud solutions business (CloudFirst Technologies and CloudFirst Europe) for approximately **$40 million** in cash, subject to shareholder approval and other adjustments[111](index=111&type=chunk)[112](index=112&type=chunk) - The transaction represents a strategic shift, but as of June 30, 2025, it did not meet held-for-sale classification criteria due to pending shareholder approval[111](index=111&type=chunk)[113](index=113&type=chunk) - The Company recorded **$838,352** in deferred transaction costs related to this potential divestiture as of June 30, 2025[112](index=112&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, and strategic developments, including the impact of the planned cloud solutions business divestiture [Company Overview Summary](index=27&type=section&id=COMPANY%20OVERVIEW%20SUMMARY) This section provides a high-level overview of Data Storage Corporation's business, its core offerings, and competitive advantages - Data Storage Corporation (DSC) is a leading provider of enterprise cloud and business continuity solutions, specializing in fully managed cloud hosting, disaster recovery, cybersecurity, and IT automation services through its subsidiaries: CloudFirst Technologies, CloudFirst Europe, and Nexxis Inc[116](index=116&type=chunk) - CloudFirst focuses on high-performance cloud solutions for IBM i and AIX workloads, a niche not natively supported by major public cloud providers, providing a competitive edge[116](index=116&type=chunk) - DSC maintains a highly recurring revenue base with over **90%** annual subscription renewal rates from over **425** organizations across diverse sectors[116](index=116&type=chunk) - DSC expanded into the UK and European markets in October 2024 via CloudFirst Europe Ltd., investing in operations, personnel, and partner recruitment to support international growth[117](index=117&type=chunk) [Recent Developments](index=28&type=section&id=Recent%20Developments) This section highlights significant recent events, including the planned divestiture of the cloud solutions business and its strategic implications - On July 11, 2025, DSC agreed to sell its cloud solutions business (CloudFirst Technologies and CloudFirst Europe) for approximately **$40 million** in cash, pending shareholder approval[119](index=119&type=chunk)[120](index=120&type=chunk) - The divestiture represents a strategic shift, with continuing operations to consist solely of the Nexxis subsidiary (VoIP, telecommunications, data access), which historically represented only about **5%** of total revenue[119](index=119&type=chunk)[122](index=122&type=chunk) - Post-divestiture, DSC plans to pursue acquisitions in complementary and high-growth technology sectors and grow Nexxis, while evaluating and rationalizing corporate costs[122](index=122&type=chunk) [Results of Operations](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, detailing revenue, gross profit, and operating expenses for the reported periods [Three Months Ended June 30, 2025, as Compared to June 30, 2024](index=28&type=section&id=Three%20months%20ended%20June%2030,%202025,%20as%20compared%20to%20June%2030,%202024) This section compares the company's financial results for the three months ended June 30, 2025, against the same period in 2024 Sales Performance (Three Months Ended June 30) | Product Line | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :------------ | :------------ | :--------- | | Cloud infrastructure & disaster recovery | $3,358,941 | $3,165,716 | $193,225 | 6.1% | | Equipment and software | $687,321 | $782,303 | $(94,982) | (12.1)% | | Managed services | $738,860 | $642,518 | $96,342 | 15.0% | | Nexxis VoIP services | $323,620 | $275,830 | $47,790 | 17.3% | | Total Sales | $5,146,922 | $4,910,492 | $236,430 | 4.8% | - Total sales increased by **4.8%** due to growth in subscription-based services, particularly Cloud Infrastructure & disaster recovery (**6.1%**) and Nexxis VoIP services (**17.3%**), partially offset by a **12.1%** decrease in equipment and software sales[123](index=123&type=chunk) - Gross profit margin remained stable at **49.3%** (2025) vs. **49.0%** (2024), benefiting from a favorable revenue mix towards higher-margin cloud infrastructure services[124](index=124&type=chunk) Selling, General and Administrative Expenses (Three Months Ended June 30) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------- | :------------ | :------------ | :------------ | :--------- | | Salaries and director fees | $1,368,479 | $1,111,414 | $257,065 | 23.1% | | Stock based compensation | $412,580 | $207,847 | $204,733 | 98.5% | | Advertising | $308,901 | $249,147 | $59,754 | 24.0% | | Commissions | $382,069 | $298,970 | $83,099 | 27.8% | | Total SG&A Expenses | $3,332,421 | $2,796,679 | $535,742 | 19.2% | - Selling, general and administrative expenses increased by **19.2%**, primarily due to higher salaries and director fees (**23.1%** increase from headcount and merit adjustments) and a significant rise in non-cash stock-based compensation (**98.5%** increase from new equity awards)[125](index=125&type=chunk) - Loss from operations increased to **$(795,667)** from **$(388,786)** in the prior year, mainly due to increased SG&A expenses, including costs for the newly established U.K. entity[126](index=126&type=chunk) - Net loss attributable to common stockholders widened to **$(733,049)** from **$(244,240)**, driven by the increased operating loss and lower other income (due to reduced interest income from marketable securities)[127](index=127&type=chunk) [Six Months Ended June 30, 2025, as Compared to June 30, 2024](index=29&type=section&id=Six%20months%20ended%20June%2030,%202025,%20as%20compared%20to%20June%2030,%202024) This section compares the company's financial results for the six months ended June 30, 2025, against the same period in 2024 Sales Performance (Six Months Ended June 30) | Product Line | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :------------ | :------------ | :--------- | | Cloud Infrastructure & disaster recovery | $6,718,019 | $6,118,611 | $599,408 | 9.8% | | Equipment and software | $4,252,240 | $4,866,950 | $(614,710) | (12.6)% | | Managed services | $1,550,766 | $1,485,925 | $64,841 | 4.4% | | Nexxis VoIP services | $631,436 | $552,297 | $79,139 | 14.3% | | Total Sales | $13,230,678 | $13,146,239 | $84,439 | 0.6% | - Total sales increased marginally by **0.6%**, driven by a **9.8%** increase in cloud infrastructure and disaster recovery services and a **14.3%** increase in Nexxis VoIP services, largely offset by a **12.6%** decrease in equipment and software sales due to non-recurring sales in the prior year[129](index=129&type=chunk) - Gross profit margin remained consistent at **40.8%** for both periods, as the positive impact from higher-margin cloud and VoIP services was offset by lower margins on equipment and software sales[130](index=130&type=chunk) Selling, General and Administrative Expenses (Six Months Ended June 30) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------- | :------------ | :------------ | :------------ | :--------- | | Salaries and director fees | $2,816,411 | $2,296,477 | $519,934 | 22.6% | | Stock based compensation | $638,844 | $379,172 | $259,672 | 68.5% | | Advertising | $524,142 | $481,387 | $42,755 | 8.9% | | Rent and occupancy | $68,839 | $144,523 | $(75,684) | (52.4)% | | Total SG&A Expenses | $6,284,826 | $5,549,356 | $735,470 | 13.3% | - Selling, general and administrative expenses increased by **13.3%**, primarily due to a **22.6%** rise in salaries and director fees (due to headcount and merit adjustments) and a **68.5%** increase in non-cash stock-based compensation (new awards and accelerated recognition)[131](index=131&type=chunk) - Loss from operations significantly increased to **$(888,176)** from **$(174,991)** in the prior year, mainly due to the substantial increase in SG&A expenses, including ramp-up costs for the U.K. entity[132](index=132&type=chunk) - Net loss attributable to common stockholders was **$(708,971)** compared to net income of **$112,862** in the prior year, driven by the increased operating loss and lower interest income[133](index=133&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section assesses the company's ability to meet its short-term and long-term financial obligations, including cash flow and capital management strategies - The Company plans to sell its CloudFirst and CloudFirst UK segments for approximately **$40 million**, expecting net cash proceeds of about **$24 million** after transaction costs and taxes, which will significantly alter its liquidity[134](index=134&type=chunk)[135](index=135&type=chunk) - Management intends to use a substantial portion of the divestiture proceeds to return capital to shareholders, with the remainder for strategic investments in continuing operations and other corporate purposes[135](index=135&type=chunk) - Working capital decreased by **$629,512** to **$11,240,402** at June 30, 2025, primarily due to decreases in cash, marketable securities, and accounts receivable, partially offset by increased prepaid expenses (including divestiture transaction costs) and lower accounts payable[141](index=141&type=chunk) Cash Flow Summary (Six Months Ended June 30) | Cash Flow Summary | 2025 | 2024 | | :-------------------------------- | :------------ | :------------ | | Cash provided by (used in) operating activities | $(727,487) | $354,791 | | Cash used in investing activities | $272,016 | $(798,381) | | Cash used in financing activities | $(13,253) | $(205,154) | | Decrease in cash | $(458,774) | $(648,744) | | Cash, end of period | $611,323 | $779,986 | - Operating cash flow shifted from a **$354,791** inflow in 2024 to a **$727,487** outflow in 2025, mainly due to the net loss and an increase in working capital from deferred transaction fees[144](index=144&type=chunk) - Investing activities provided **$272,016** in 2025 (vs. **$798,381** used in 2024) due to net sales of marketable securities and reduced capital expenditures[145](index=145&type=chunk) - Financing activities used less cash (**$13,253** in 2025 vs. **$205,154** in 2024) due to lower repayments of finance lease obligations, as all finance leases were paid in full[146](index=146&type=chunk) [Critical Accounting Estimates](index=32&type=section&id=Critical%20Accounting%20Estimates) This section discusses the significant judgments and assumptions management makes in preparing financial statements, which could impact reported results - The preparation of financial statements requires management to make significant estimates and assumptions, which, if actual results differ, could necessitate adjustments in future periods[147](index=147&type=chunk) - Critical accounting estimates and judgments are consistent with those described in the Company's 2024 Annual Report on Form 10-K[147](index=147&type=chunk) [Off-Balance Sheet Arrangements](index=32&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements that could materially affect the company's financial position - The Company does not have any off-balance sheet arrangements, financings, or relationships with unconsolidated entities or special purpose entities[148](index=148&type=chunk) [Non-GAAP Financial Measures (Adjusted EBITDA)](index=33&type=section&id=Non-GAAP%20Financial%20Measures) This section presents Adjusted EBITDA as a non-GAAP measure, reconciling it to GAAP net income and explaining its utility for assessing operating performance - Adjusted EBITDA is presented as a non-GAAP financial measure to supplement GAAP results, defined as net income adjusted for interest, depreciation, amortization, and stock-based compensation[149](index=149&type=chunk) - Management believes Adjusted EBITDA provides insight into operating performance by removing the impact of asset base, disposals, impairments, and non-cash items[149](index=149&type=chunk) Adjusted EBITDA Reconciliation (Three Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------- | :------------ | :------------ | | Income (loss) before income taxes | $(731,963) | $(246,605) | | Depreciation and amortization | $350,521 | $339,522 | | Interest income | $(103,267) | $(152,441) | | Interest expense | $16,236 | $10,260 | | Stock based compensation | $412,579 | $212,857 | | Adjusted EBITDA | $(32,567) | $163,593 | Adjusted EBITDA Reconciliation (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------- | :------------ | :------------ | | Income (loss) before income taxes | $(705,575) | $99,299 | | Depreciation and amortization | $713,899 | $634,509 | | Interest income | $(224,173) | $(295,810) | | Interest expense | $18,245 | $21,520 | | Stock based compensation | $638,844 | $377,511 | | Adjusted EBITDA | $464,567 | $837,029 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Data Storage Corporation is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Control%20and%20Procedures) This section details the Company's evaluation of its disclosure controls and procedures and internal control over financial reporting, concluding on their effectiveness and reporting any changes [Evaluation of Disclosure Controls and Procedures](index=34&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures.) This section reports on the effectiveness of the company's disclosure controls and procedures as evaluated by management - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level[154](index=154&type=chunk)[155](index=155&type=chunk) - Disclosure controls and procedures are designed to ensure timely recording, processing, summarizing, and reporting of information required under the Exchange Act[154](index=154&type=chunk) [Changes in Internal Control Over Financial Reporting](index=35&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting.) This section reports any material changes in the company's internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[156](index=156&type=chunk) [PART II - OTHER INFORMATION](index=35&type=section&id=PART%20II-%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is not currently involved in any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows - The Company is not a party to any legal proceedings that, if determined adversely, would have a material adverse effect on its business, operating results, financial condition, or cash flows[158](index=158&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors from the Company's 2024 Annual Report, emphasizing new risks related to the planned divestiture of its cloud solutions business, potential inability to sustain profitability, and risks associated with maintaining Nasdaq listing - The Company has not generated significant net income, reporting a net loss of **$708,971** for the six months ended June 30, 2025, and there is no assurance of future profitability[160](index=160&type=chunk) - The pendency of the CloudFirst divestiture may adversely affect DSC's business, financial condition, and results of operations, regardless of completion, due to uncertainties for employees, customers, and management diversion[168](index=168&type=chunk) - Failure to complete the divestiture could have a material adverse impact, as consummation is subject to conditions like shareholder approval and absence of material adverse effects[169](index=169&type=chunk) - The Purchase Agreement limits DSC's ability to pursue alternative acquisition transactions due to non-solicitation provisions and a potential **$1,200,000** termination fee for a 'superior proposal'[171](index=171&type=chunk) - The divestiture may trigger a payment requirement for certain outstanding warrants (July 2021 Warrants), obligating DSC to purchase them at their Black Scholes Value if the divestiture is deemed a Fundamental Transaction[177](index=177&type=chunk) - The Company cannot assure continued compliance with Nasdaq listing requirements, and delisting could lead to reduced liquidity, limited market quotations, and decreased ability to raise financing[162](index=162&type=chunk)[167](index=167&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms that there were no unregistered sales of equity securities or issuer purchases of equity securities during the period ended June 30, 2025 - There were no unregistered sales of the Company's equity securities during the period ended June 30, 2025[178](index=178&type=chunk) - The Company did not make any issuer purchases of equity securities during the period[179](index=179&type=chunk) [Item 3. Defaults Upon Senior Securities](index=40&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the period ended June 30, 2025 - There were no defaults upon senior securities during the period ended June 30, 2025[180](index=180&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable to the Company[181](index=181&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) This section reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[182](index=182&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including articles of incorporation, bylaws, certifications, and XBRL documents - The exhibits include various corporate governance documents such as Articles of Incorporation and Bylaws, along with certifications by the Principal Executive Officer and Principal Financial Officer[183](index=183&type=chunk) - XBRL (eXtensible Business Reporting Language) documents are also filed, including the Instant Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase[183](index=183&type=chunk)