UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-35384

DATA STORAGE CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		98-0530147
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

225 Broadhollow Road, Suite 307 Melville, NY		11747
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 564-4922

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	DTST	The Nasdaq Capital Market

Warrants to purchase shares of Common Stock, par value $0.001 per share	DTSTW	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☒	Smaller Reporting Company ☒
	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 14, 2025, was 7,139,893.

DATA STORAGE CORPORATION

FORM 10-Q

INDEX

		Page
PART I- FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024	2

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2025 and 2024 (unaudited)	3

	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2025, and 2024 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for three months ended March 31, 2025 and 2024 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Control and Procedures	28

PART II- OTHER INFORMATION		29

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2025 (Unaudited)			December 31, 2024
ASSETS
Current Assets:
Cash	$	705,557		$	1,070,097
Accounts receivable (less allowance for credit losses of $17,121 and $31,472 as of March 31, 2025, and December 31, 2024, respectively)		5,413,282			2,225,458
Marketable securities		10,406,912			11,261,006
Prepaid expenses and other current assets		858,490			859,502
Total Current Assets		17,384,241			15,416,063

Property and Equipment:
Property and equipment		9,684,825			9,598,963
Less—Accumulated depreciation		(6,456,000	)		(6,159,307	)
Net Property and Equipment		3,228,825			3,439,656

Other Assets:
Goodwill		4,238,671			4,238,671
Operating lease right-of-use assets		550,653			575,380
Other assets		168,120			183,439
Intangible assets, net		1,360,220			1,427,006
Total Other Assets		6,317,664			6,424,496

Total Assets	$	26,930,730		$	25,280,215

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable and accrued expenses	$	4,550,524		$	3,183,379
Deferred revenue		290,827			212,390
Finance leases payable		—			17,641
Finance leases payable related party		—			33,879
Operating lease liabilities short term		102,246			98,860
Total Current Liabilities		4,943,597			3,546,149

Operating lease liabilities		496,691			523,070
Deferred Tax Liability		39,031			39,031
Total Long-Term Liabilities		535,722			562,101

Total Liabilities		5,479,319			4,108,250

Commitments and contingencies (Note 7)

Stockholders’ Equity:
Preferred stock, par value $.001; 10,000,000 shares authorized; 1,401,786 designated as Series A Preferred Stock, par value $.001; 0 shares issued and outstanding at March 31,2025 and December 31, 2024		—			—
Common stock, par value $.001; 250,000,000 shares authorized; 7,123,227 and 7,045,108 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively		7,123			7,045
Additional paid in capital		40,644,000			40,417,813
Accumulated deficit		(18,958,511	)		(18,982,589	)
Accumulated other comprehensive income (loss)		3,579			(23,214	)
Total Data Storage Corporation Stockholders’ Equity		21,696,191			21,419,055
Non-controlling interest in consolidated subsidiary		(244,780	)		(247,090	)
Total Stockholders’ Equity		21,451,411			21,171,965
Total Liabilities and Stockholders’ Equity	$	26,930,730		$	25,280,215

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

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended March 31,
	2025			2024

Sales	$	8,083,756		$	8,235,747

Cost of sales		5,223,860			5,269,275

Gross Profit		2,859,896			2,966,472

Selling, general and administrative		2,952,405			2,752,677

Income (loss) from Operations		(92,509	)		213,795

Other Income (Expense)
Interest income		120,906			143,369
Interest expense		(2,009	)		(11,260	)
Total Other Income		118,897			132,109

Income before provision for income taxes		26,388			345,904

Provision for income taxes		—			—

Net Income		26,388			345,904

Gain (loss) in Non-controlling interest in consolidated subsidiary		(2,310	)		11,198

Net Income Attributable to Common Stockholders	$	24,078		$	357,102

Earnings per Share – Basic	$	—		$	0.05
Earnings per Share – Diluted	$	—		$	0.05
Weighted Average Number of Shares – Basic		7,077,913			7,090,389
Weighted Average Number of Shares – Diluted		7,405,672			7,259,472

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

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED Consolidated Statements of Comprehensive INCOME (UNAUDITED)


	Three Months Ended March 31,
	2025			2024
Net Income Attributable to Common Stockholders	$	24,078		$	357,102
Other comprehensive loss:
Foreign currency translation adjustment		(26,793	)		—
Other comprehensive loss		(26,793	)		—
Comprehensive income (loss) available to Common Stockholders	$	(2,715	)	$	357,102

See accompanying notes to condensed consolidated financial statements.

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2025, AND 2024

(UNAUDITED)


	Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit			Accumulated other comprehensive loss			Non-Controlling Interest			Total Stockholders’ Equity

	Shares		Amount		Shares		Amount

Balance January 1, 2024		—	$	—		6,880,460	$	6,881	$	39,490,285	$	(19,505,803	)	$	—		$	(236,948	)	$	19,754,415
Stock-based compensation		—		—		49,490		49		171,276		—			—			—			171,325
Net Income (Loss)		—		—		—		—		—		357,102			—			(11,198	)		345,904
Balance, March 31, 2024		—	$	—		6,929,950	$	6,930	$	39,661,561	$	(19,148,701	)	$	—		$	(248,146	)	$	20,271,644

Balance, January 1, 2025		—	$	—		7,045,108	$	7,045	$	40,417,813	$	(18,982,589	)	$	(23,214	)	$	(247,090	)	$	21,171,965
Stock-based compensation		—		—		78,119		78		226,187		—			—			—			226,265
Other comprehensive loss		—		—		—		—		—		—			26,793			—			26,793
Net Income		—		—		—		—		—		24,078			—			2,310			26,388
Balance, March 31, 2025		—	$	—		7,123,227	$	7,123	$	40,644,000	$	(18,958,511	)	$	3,579		$	(244,780	)	$	21,451,411

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

DATA STORAGE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2025			2024
Cash Flows from Operating Activities:
Net income	$	26,388		$	345,904
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		363,379			295,198
Stock based compensation		226,265			171,325
Change in expected credit losses		(6,995	)		—

Changes in Assets and Liabilities:
Accounts receivable		(3,180,822	)		(3,177,694	)
Other assets		15,319			—
Prepaid expenses and other current assets		2,936			(153,782	)
Right of use asset		24,727			26,821
Accounts payable and accrued expenses		1,373,552			2,226,932
Deferred revenue		78,437			(26,078	)
Operating lease liability		(22,993	)		(27,250	)
Net Cash Used in Operating Activities		(1,099,807	)		(318,624	)
Cash Flows from Investing Activities:
Capital expenditures		(67,519	)		(358,637	)
Purchase of marketable securities		(120,906	)		(143,369	)
Sale of marketable securities		975,000			200,000
Net Cash Provided by (Used in) Investing Activities		786,575			(302,006	)
Cash Flows from Financing Activities:
Repayments of finance lease obligations related party		(33,879	)		(66,280	)
Repayments of finance lease obligations		(17,641	)		(101,078	)
Net Cash Used in Financing Activities		(51,520	)		(167,358	)

Effect of exchange rates on cash		212			—

Net decrease in Cash		(364,540	)		(787,988	)

Cash, Beginning of Period		1,070,097			1,428,730

Cash, End of Period	$	705,557		$	640,742
Supplemental Disclosures:
Cash paid for interest	$	489		$	8,855
Cash paid for income taxes	$	—		$	—
Non-cash investing and financing activities:

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

DATA STORAGE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2025

(Unaudited)

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 ten technical centers in New York, Massachusetts, Texas, North Carolina, Illinois, Canada, England and Scotland.

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 or entities.

On August 12, 2024, the Company established UK Cloud Host Technologies Ltd., a corporation organized under the laws of the United Kingdom, to establish a corporate presence in London and manage the Company’s business operations and affairs throughout Europe. On December 27, 2024, the entity’s name was changed to CloudFirst Europe Ltd.

Note 2 – Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, consisting of (i) CloudFirst Technologies Corporation, a Delaware corporation (“CloudFirst”); (ii) Information Technology Acquisition Corporation, a Delaware corporation; (iii) its majority-owned subsidiary, Nexxis Inc., a Nevada corporation; and (iv) CloudFirst Europe Ltd. (“CloudFirst Europe”). All intercompany transactions and balances have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2024.

Recently Issued and Newly Adopted Accounting Pronouncements

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 Company adopted ASU 2023-07 and it did not have a material impact to its Consolidated Financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements 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. The Company adopted ASU 2023-09 and it did not have a material impact to its Consolidated Financial statements.

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 Condensed Consolidated Financial Statements and related disclosures.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Fair Value Measurement

The Company’s financial instruments include cash, accounts receivable, accounts payable and operating lease commitments. Management believes that the estimated fair values of cash, accounts receivable, and accounts payable as of March 31, 2025, approximate their carrying values due to the short-term nature of these instruments. The carrying values of the Company’s finance lease obligations and capital lease obligations, which may include both short-term and long-term components, approximate their fair values based on comparisons of the applicable interest rates and terms with those currently available to the Company for similar instruments with comparable maturities and credit risk profiles.

The fair value measurement disclosures are grouped into three levels based on valuation factors:

●

Level 1 – quoted prices in active markets for identical investments

●

Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs)

●

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 March 31, 2025, 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.

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.

Investments

Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized 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:


	For the three months ended March 31, 2025

As of January 1, 2025	$	11,261,006
Purchase of equity investments		120,906
Sales of equity investments		(975,000	)
As of March 31, 2025	$	$10,406,912

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 is maintained at major U.S. and U.K. 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 States.

As of March 31, 2025, DSC had two customers with an accounts receivable balance representing 48% and 13% of total accounts receivable. As of December 31, 2024, the Company had two customers with an accounts receivable balance representing 16% and 15% of total accounts receivable.

For the three months ended March 31, 2025, the Company had one customer that individually accounted for approximately 30% of total revenue. The same customer accounted for approximately 32% of total revenue for the three months ended March 31, 2024.

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 days. ASC 326 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also requires the Company to pool assets with similar risk characteristics and consider current economic conditions when estimating losses. During the three months ended March 31, 2025, and 2024, the Company recorded an adjustment of $(6,995) and $54,136, 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:


	Three months ended March 31,
	2025			2024
Beginning balance	$	31,472		$	7,915
Provision (benefit)		(6,995	)		54,136
Write-offs		7,356			—
Ending Balance	$	17,121		$	62,051

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. Estimated 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.

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.

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 contract. 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. In addition, clients that are managed service clients have a requirement for DSC to offer time and material billing supplementing the client’s staff.

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

In the following table, revenue is disaggregated by major product line, geography, and timing of revenue recognition.


For the Three Months
Ended March 31, 2025
	United States		International		Total
Cloud Infrastructure & Disaster Recovery	$	3,138,841	$	220,237	$	3,359,078
Equipment and Software		3,564,919		—		3,564,919
Managed Services		811,906		—		811,906
Nexxis VoIP Services		307,816		—		307,816
Other		40,037		—		40,037
Total Revenue	$	7,863,519	$	220,237	$	8,083,756

For the Three Months
Ended March 31, 2024
	United States		International		Total
Cloud Infrastructure & Disaster Recovery	$	2,853,249	$	99,646	$	2,952,895
Equipment and Software		4,084,647		—		4,084,647
Managed Services		843,407		—		843,407
Nexxis VoIP Services		276,467		—		276,467
Other		67,893		10,438		78,331
Total Revenue	$	8,125,663	$	110,084	$	8,235,747

For the Three Months
Ended March 31,
Timing of revenue recognition	2025		2024
Products transferred at a point in time	$	3,604,956	$	1,045,977
Products and services transferred over time		4,478,800		7,189,770
Total Revenue	$	8,083,756	$	8,235,747

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. For clients who are billed on an annual basis, deferred revenue is recorded and amortized over the life of the contract. During the three months ended March 31, 2025, and 2024, the Company recognized $63,529 and $44,310 in sales that was recorded as deferred revenue as of December 31, 2024 and 2023, respectively.

Transaction price allocated to the remaining performance obligations

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.

2)	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.

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

4)	Internet: Subscription-based service, offering continuous internet connection combined with FailSAFE which provides disaster recovery for both clients’ voice and data environments.

5)	Support and Maintenance: Subscription based service offers support for clients on their servers, firewalls, desktops or software. Services are provided 24x7x365 to the Company’s clients.

6)	Implementation / Set-Up Fees: Onboarding and set-up for cloud infrastructure and disaster recovery as well as Cyber Security.

7)	Equipment Sales: Sale of servers and data storage equipment to the client.

9)	License: 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 Licenses

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. The revenue 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. Based on the 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.

Warranties

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.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated un-discounted future cash flows.

Advertising Costs

The Company expenses the costs associated with advertising as they are incurred. The Company incurred $215,242 and $232,240 for advertising costs for the three months ended March 31, 2025, and 2024, respectively.

Stock-Based Compensation

The Company follows the requirements of FASB ASC 718-10-10, Share-Based Payments with regards to stock-based compensation issued to employees and non-employees. The Company has agreements and arrangements that call for stock to be awarded to employees and consultants at various times as compensation and periodic bonuses. The expense for this stock-based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number of shares awarded. The Company has a relatively low forfeiture rate of stock-based compensation, and forfeitures are recognized as they occur.

The valuation methodology used to determine the fair value of options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term. The dividend yield is assumed to be zero as the Company has never paid or declared any cash dividends on its Common Stock and does not intend to pay dividends on its Common Stock in the foreseeable future. The expected forfeiture rate is estimated based on management’s best assessment.

Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation 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

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.

The following table sets forth the information needed to compute basic and diluted earnings per share for the three months ended March 31, 2025, and 2024:


	Three Months Ended March 31,
	2025		2024

Net Income Available to Common Shareholders	$	24,078	$	357,102

Weighted average number of common shares - basic		7,077,913		7,090,389
Dilutive securities
Options		160,669		169,083
Restricted stock units		167,090		—
Weighted average number of common shares - diluted		7,405,672		7,259,472

Earnings per share, basic	$	—	$	0.05
Earnings per share, diluted	$	—	$	0.05

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:

Schedule of anti-dilutive shares
	Three Months Ended March 31,
	2025		2024
Options		541,724		560,071
Warrants		2,495,860		2,415,860
		3,037,584		2,975,931

Note 3 - Prepaids and other current assets

Prepaids and other current assets consist of the following:


	March 31,		December 31,
	2025		2024
Prepaid marketing & promotion	$	43,021	$	47,045
Prepaid subscriptions and licenses		452,709		483,170
Prepaid maintenance		169,373		191,552
Prepaid insurance		88,868		67,373
Other		104,519		70,362
Total prepaids and other current assets	$	858,490	$	859,502

Note 4- Property and Equipment

Property and equipment, consist of the following:

Schedule of property and equipment
	March 31,			December 31,
	2025			2024
Storage equipment	$	60,288		$	60,288
Furniture and fixtures		30,305			30,305
Computer hardware and software		144,636			140,288
Data center equipment		9,449,596			9,368,082
Gross Property and equipment		9,684,825			9,598,963
Less: Accumulated depreciation		(6,456,000	)		(6,159,307	)
Net property and equipment	$	3,228,825		$	3,439,656

Depreciation expense for the three months ended March 31, 2025, and 2024 was $296,593 and $226,051, respectively, of which $4,034 and $2,981, respectively, was allocated to general and administrative expenses and $263,324 and $223,070 respectively, was allocated to cost of goods sold.

Note 5 - Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:


	Estimated life in years		Gross amount		March 31, 2025, Accumulated Amortization		Net
Intangible assets not subject to amortization
Goodwill		Indefinite	$	4,238,671	$	—	$	4,238,671
Trademarks		Indefinite		514,268		—		514,268
						—
Total intangible assets not subject to amortization				4,752,939		—		4,752,939
Intangible assets subject to amortization
Customer lists		7		2,614,099		1,701,361		845,952
ABC acquired contracts		5		310,000		310,000		—
SIAS acquired contracts		5		660,000		660,000		—
Non-compete agreements		4		272,147		272,147		—
Website and digital assets		3		33,002		33,002		—
Total intangible assets subject to amortization				3,889,248		2,976,510		845,952
Total Goodwill and Intangible Assets			$	8,642,187	$	2,976,510	$	5,598,891

Scheduled amortization over the next four years are as follows:


Twelve months ending March 31,
2026	$	267,143
2027		267,143
2028		267,143
2029		44,523
Total	$	845,952

Amortization expense for the three months ended March 31, 2025, and 2024 was $66,786 and $69,731, respectively.

Note 6-Leases

Operating Leases

The Company currently maintains four leases for office spaces located in Melville, NY, Austin, TX, Miami FL and London UK.

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 $1,056 per month.

On January 17, 2024, the Company entered into a lease agreement for office space in Melville, NY. The 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 30, 2029.

In November 2024, the Company entered into an Office Service Agreement with Regus Management Group, LLC for office space located in, Miami, Florida. The lease commenced on December 1, 2024, and has a defined term ending on November 30, 2025. The lease requires monthly payments of $1,000. The space is utilized primarily as a satellite office to support regional operations.

On November 15, 2024, the Company entered into a Service Agreement with IW Group Services (UK) Limited for office space located in London, United Kingdom. The lease commenced on January 1, 2025, and is set to expire on December 31, 2025. The agreement provides workspace and includes monthly lease payments of approximately $1,041.

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 term. 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
	Three Months Ended March 31, 2025
Finance leases:
Amortization of assets, included in depreciation and amortization expense	$	121,923
Interest on lease liabilities, included in interest expense		489
Operating lease:
Amortization of assets, included in total operating expense		37,528
Interest on lease liabilities, included in total operating expense		—
Total net lease cost	$	159,940
Supplemental balance sheet information related to leases was as follows:

Operating Leases:

Operating lease right-of-use asset	$	550,653

Current operating lease liabilities	$	102,246
Noncurrent operating lease liabilities		496,691
Total operating lease liabilities	$	598,937

Supplemental cash flow and other information related to leases were as follows:


	Three Months Ended March 31, 2025
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	22,993
Financing cash flows related to finance leases	$	51,520

Weighted average remaining lease term (in years):
Operating leases		4.6

Weighted average discount rate:
Operating leases		9	%

Long-term obligations under the operating and finance leases at March 31, 2025, mature as follows:


For the Twelve Months Ended March 31,

SEC Form 10-Q filed by Data Storage Corporation