Data Storage (DTST) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Data Storage Corporation Item 1. Financial Statements 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 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] - Total liabilities decreased by approximately $0.92 million, mainly driven by a reduction in accounts payable and accrued expenses and the full repayment of finance leases[9] Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, reporting sales, gross profit, and net income or loss Condensed Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | 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 | $(0.12) | -600.0% | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in the company's equity over a period, reflecting impacts from net income, stock transactions, and other comprehensive income Changes in Stockholders' Equity (Six Months Ended June 30, 2025) | Item | Amount ($) | | :--------------------------------- | :--------- | | 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] Condensed Consolidated Statements of Cash Flows 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][144] - 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][145] Notes to Condensed Consolidated Financial Statements 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 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][22] - 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] - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and include normal recurring adjustments[26] Note 2 – Summary of Significant Accounting Policies 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] - 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][30] - 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][54][55] 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 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][112] Note 4 - Property and Equipment 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] - Depreciation expense for the six months ended June 30, 2025, was $580,332, an increase from $497,003 in the prior year period[73] Note 5 - Goodwill and Intangible Assets 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] - Amortization expense for the six months ended June 30, 2025, was $133,571, a slight decrease from $137,507 in the prior year period[76] Note 6 - Leases This note describes the company's operating and finance lease arrangements, including lease-related expenses and the status of lease obligations - The Company's leases consist of operating leases for office space (e.g., corporate headquarters in Melville, NY, expiring October 30, 2029) and finance leases for equipment[77][78] - All outstanding finance lease obligations were paid in full during the three months ended March 31, 2025, resulting in no material finance leases as of June 30, 2025[81] Lease-Related Expenses (Three Months Ended June 30, 2025) | Item | Amount ($) | | :-------------------------------------------- | :--------- | | 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 This note discloses the company's significant contractual commitments and potential contingent liabilities - The Company has approximately $690,885 in remaining payments under a licensing agreement for marketing-related materials with a National Football League team, acquired as part of the Flagship acquisition, through 2027[83] Note 8 - Stockholders' Equity This note details the components of stockholders' equity, including authorized and outstanding shares, stock option, and restricted stock unit activity - The Company has 260,000,000 authorized shares of capital stock, comprising 250,000,000 common shares and 10,000,000 preferred shares[84] - As of June 30, 2025, 7,230,619 common shares were issued and outstanding, while no preferred shares were issued or outstanding[9][97] Stock Option Activity (Six Months Ended June 30, 2025) | Item | Number of Shares Under Options | Weighted Average Exercise Price ($) | | :------------------------ | :----------------------------- | :---------------------------------- | | 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 $214,357 in the prior year[87] Restricted Stock Unit (RSU) Activity (Six Months Ended June 30, 2025) | Item | Shares | Fair Value ($) | | :--------------------------------- | :----- | :------------- | | 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] Note 9 – Litigation 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] Note 10 – Related Party Transactions 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] - 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] Note 11 – Equity Investment This note describes the company's equity investments in other entities and their accounting treatment - On May 21, 2025, DSC invested $100,000 in TG-17, Inc., a privately held Delaware corporation, for Series CF Preferred Stock, representing less than 20% equity and no significant influence[102] - The investment is accounted for at cost using the measurement alternative under ASC 321, with no impairment or remeasurement identified as of June 30, 2025[103][104] Note 12 – Segment Information This note provides financial data for the company's operating segments, allowing for an assessment of their individual performance - The Company operates in three reportable segments: CloudFirst Technologies, CloudFirst Europe Ltd., and Nexxis Inc., with performance evaluated based on operating income or losses[105] Segment Sales (Three Months Ended June 30, 2025) | Segment | Sales ($) | | :----------------------- | :-------- | | 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 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][112] - 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][113] - The Company recorded $838,352 in deferred transaction costs related to this potential divestiture as of June 30, 2025[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - DSC maintains a highly recurring revenue base with over 90% annual subscription renewal rates from over 425 organizations across diverse sectors[116] - 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] Recent Developments 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 $40 million in cash, pending shareholder approval[119][120] - The divestiture represents a strategic shift, with continuing operations to consist solely of the Nexxis subsidiary (VoIP, telecommunications, data access), which historically represented only about 5% of total revenue[119][122] - Post-divestiture, DSC plans to pursue acquisitions in complementary and high-growth technology sectors and grow Nexxis, while evaluating and rationalizing corporate costs[122] Results of Operations This section analyzes the company's financial performance, detailing revenue, gross profit, and operating expenses for the reported periods Three Months Ended June 30, 2025, as Compared to June 30, 2024 This section compares the company's financial results for the three months ended June 30, 2025, against the same period in 2024 Sales Performance (Three Months Ended June 30) | Product Line | 2025 | 2024 | Change ($) | 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 | $236,430 | 4.8% | - Total sales increased by 4.8% due to growth in subscription-based services, particularly Cloud Infrastructure & disaster recovery (6.1%) and Nexxis VoIP services (17.3%), partially offset by a 12.1% decrease in equipment and software sales[123] - Gross profit margin remained stable at 49.3% (2025) vs. 49.0% (2024), benefiting from a favorable revenue mix towards higher-margin cloud infrastructure services[124] Selling, General and Administrative Expenses (Three Months Ended June 30) | Expense Category | 2025 | 2024 | Change ($) | 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] - 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] - Net loss attributable to common stockholders widened to $(733,049) from $(244,240), driven by the increased operating loss and lower other income (due to reduced interest income from marketable securities)[127] Six Months Ended June 30, 2025, as Compared to June 30, 2024 This section compares the company's financial results for the six months ended June 30, 2025, against the same period in 2024 Sales Performance (Six Months Ended June 30) | Product Line | 2025 | 2024 | Change ($) | 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 | $84,439 | 0.6% | - Total sales increased marginally by 0.6%, driven by a 9.8% increase in cloud infrastructure and disaster recovery services and a 14.3% increase in Nexxis VoIP services, largely offset by a 12.6% decrease in equipment and software sales due to non-recurring sales in the prior year[129] - Gross profit margin remained consistent at 40.8% for both periods, as the positive impact from higher-margin cloud and VoIP services was offset by lower margins on equipment and software sales[130] Selling, General and Administrative Expenses (Six Months Ended June 30) | Expense Category | 2025 | 2024 | Change ($) | 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] - 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] - 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] Liquidity and Capital Resources 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][135] - 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] - 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] 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] - 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] - 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] Critical Accounting Estimates 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] - Critical accounting estimates and judgments are consistent with those described in the Company's 2024 Annual Report on Form 10-K[147] Off-Balance Sheet Arrangements 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] Non-GAAP Financial Measures (Adjusted EBITDA) 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] - Management believes Adjusted EBITDA provides insight into operating performance by removing the impact of asset base, disposals, impairments, and non-cash items[149] 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 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] Item 4. Controls and Procedures 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 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][155] - Disclosure controls and procedures are designed to ensure timely recording, processing, summarizing, and reporting of information required under the Exchange Act[154] Changes in Internal Control Over Financial Reporting 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] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] - 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] - 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] - 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] - 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][167] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The Company did not make any issuer purchases of equity securities during the period[179] Item 3. Defaults Upon Senior Securities 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] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable to the Company[181] Item 5. Other Information 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] Item 6. Exhibits 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] - 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]