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.

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.

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 delivered to the client, depending on shipping terms).

License - granting SSL certificates and other licenses

Performance obligations as it relates to licensing means that 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 IP: (i) a right to access IP; and (ii) a right to use IP. To assist in determining whether a license provides a right to use or a right to access IP, ASC 606 defines two categories of IP: 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 IP 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. Equipment, software and managed services are typically invoiced on net 30 day terms and are non subscription based.

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 the instance where contracts have multiple performance obligations the Company uses judgment to establish a stand-alone price for each performance obligation. The price for each performance obligation is determined by reviewing market data for similar services as well as the Company’s historical pricing of each individual service. The sum of each performance obligation is calculated to determine the aggregate price for the individual services. The proportion of each individual service to the aggregate price is determined. The ratio is applied to the total contract price in order to allocate the transaction price to each performance obligation.

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 $~~189,878~~226,142 and $~~89,731~~316,062 for advertising costs for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively. The Company incurred $416,020 and $405,793 for advertising costs for the six months ended June 30, 2023 and 2022, 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 the employees and consultants at various times as compensation and periodic bonuses. The expense for this stock-based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number of shares awarded. 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 the options issued during the period is the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. Risk-free interest rates are calculated based on continuously compounded risk-free rates for the appropriate term. The 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 (Loss) Per Common Share

Basic income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income 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 and six months ended ~~March 31,~~June 30, 2023, and 2022:

Schedule of Earning per share basic and diluted
Three Months Ended March 31,
2023 2022

Net Income Available to Common Shareholders $ 50,666 $ 156,010

Weighted average number of common shares - basic 6,822,127 6,695,966
Dilutive securities
Options 130,526 256,601
Warrants 1,667 3,333
Weighted average number of common shares - diluted 6,954,320 6,955,900

Earnings per share, basic $ 0.01 $ 0.02
Earnings per share, diluted $ 0.01 $ 0.02

Schedule of Earning per share basic and diluted
	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2023		2022			2023		2022
Net Income (Loss) Available to Common Shareholders	$	226,823	$	(1,139,099	)	$	277,489	$	(983,089	)

Weighted average number of common shares - basic		6,834,627		6,758,238			6,828,446		6,727,108
Dilutive securities
Options		185,981		—			185,981		—
Warrants		1,667		—			1,667		—
Weighted average number of common shares - diluted		7,022,275		6,758,238			7,016,094		6,727,108
Earnings (Loss) per share, basic	$	0.03	$	(0.17	)	$	0.04	$	(0.15	)
Earnings (Loss) per share, diluted	$	0.03	$	(0.17	)	$	0.04	$	(0.15	)

The following table sets forth the number of potential shares of common stock that have been excluded from diluted net income ~~per share net income~~(loss) per share because their effect was anti-dilutive:

Schedule of anti-dilutive income (loss) per share
Three Months ended
March 31,
2023 2022
Options 385,257 37,641
Warrants 2,415,860 1,384,610
2,801,117 1,422,251

Schedule of anti-dilutive income (loss) per share
		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
	Options		393,540		306,243		393,540		306,243
	Warrants		2,415,860		2,419,193		2,415,860		2,419,193
			2,809,400		2,725,436		2,809,400		2,725,436

Note 3 - Prepaids and other current assets

Prepaids and other current assets consist of the following:

Schedule of Prepaids and other current assets
	March 31,		December 31,		June 30,		December 31,
	2023		2022		2023		2022
Prepaid Marketing & Promotion	$	25,273	$	4,465	$	18,391	$	4,465
Prepaid Subscriptions and Licenses		664,596		439,088		581,489		439,088
Prepaid Maintenance		27,305		45,216		39,835		45,216
Prepaid Insurance		89,256		54,564		59,076		54,564
Other		72,030		41,333		37,595		41,333
Total prepaid and other current assets	$	878,460	$	584,666	$	736,386	$	584,666

Note 4- Property and Equipment

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

Schedule of Property and Equipment
	June 30,			December 31,
	2023			2022
Storage equipment	$	60,288		$	60,288
Furniture and fixtures		20,860			20,860
Leasehold improvements		20,983			20,983
Computer hardware and software		112,916			93,062
Data center equipment		7,243,885			6,973,295
Gross Property and equipment		7,458,932			7,168,488
Less: Accumulated depreciation		(4,531,811	)		(4,956,698	)
Net property and equipment	$	2,927,121		$	2,211,790

March 31, December 31,
2023 2022
Storage equipment $ 60,288 $ 60,288
Furniture and fixtures 20,860 20,860
Leasehold improvements 20,983 20,983
Computer hardware and software 100,426 93,062
Data center equipment 7,394,905 6,973,295
Gross Property and equipment 7,597,462 7,168,488
Less: Accumulated depreciation (5,177,980 ) (4,956,698 )
Net property and equipment $ 2,419,482 $ 2,211,790

Depreciation expense for the three months ended ~~March 31,~~June 30, 2023, and 2022 was $~~218,979~~231,415 and $~~281,608~~219,520, respectively. Depreciation expense for the six months ended June 30, 2023, and 2022 was $450,394 and $501,128, respectively.

Note 5 - Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

Schedule of goodwill and intangible assets
	Estimated life in years		Gross amount		December 31, 2022, 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		1,167,075		1,447,024
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		18,650		14,352
Total intangible assets subject to amortization				3,889,248		2,427,872		1,461,376
Total Goodwill and Intangible Assets			$	8,642,187	$	2,427,872	$	6,214,315

	Estimated life in years		Gross amount		June 30, 2023, 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		1,300,647		1,313,452
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		24,344		8,658
Total intangible assets subject to amortization				3,889,248		2,567,138		1,322,110
Total Goodwill and Intangible Assets			$	8,642,187	$	2,567,138	$	6,075,049

Schedule of intangible assets and goodwill
Estimated life in years Gross amount December 31, 2022, 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 1,167,075 1,447,024
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 18,650 14,352
Total intangible assets subject to amortization 3,889,248 2,427,872 1,461,376
Total Goodwill and Intangible Assets $ 8,642,187 $ 2,427,872 $ 6,214,315

Estimated life in years Gross amount March 31, 2023, 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 1,233,861 1,380,238
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 21,594 11,408
Total intangible assets subject to amortization 3,889,248 2,497,602 1,391,646
Total Goodwill and Intangible Assets $ 8,642,187 $ 2,497,602 $ 6,144,585

Scheduled amortization over the next five years are as follows:

Schedule of amortization over the next two years
Twelve months ending March 31,
2024 $ 276,976
2025 268,717
2026 267,143
2027 267,143
2028 200,357
Thereafter 111,310
Total $ 1,391,646

Schedule of amortization over the next two years
Twelve months ending June 30,
	2024	$	275,800
	2025		267,143
	2026		267,143
	2027		267,143
	2028		133,571
	Thereafter		111,310
	Total	$	1,322,110

Amortization expense for the three months ended ~~March 31,~~June 30, 2023, and 2022 was $~~69,731~~ 69,535and $~~69,730~~ 139,461 respectively. Amortization expense for the six months ended June 30, 2023, and 2022 was $139,266 and $139,461respectively.

Note 6-Leases

Operating Leases

The Company currently maintains two leases for office space located in Melville, NY.

The first lease for office space in Melville, NY commenced on September 1, 2019. The term of this lease is for three years and eleven months and runs co-terminus with our existing lease in the same building. The base annual rent is $11,856 payable in equal monthly installments of $988.

A second lease for office space in Melville, NY, was entered into on November 20, 2017, which commenced on April 2, 2018. The term of this lease is five years and three months at $86,268 per year with an escalation of 3% per year and expires on July 31, 2023.

On July 31, 2021, the Company signed a three-year lease for approximately 2,880 square feet of office space at 980 North Federal Highway, Boca Raton, FL. The commencement date of the lease was August 2, 2021. The monthly rent is approximately $~~4,820~~4,965.

The Company leases cages and racks for technical space in Tier 3 data centers in New York, Massachusetts, North Carolina and Florida. These leases are month to month. The monthly rent is approximately $39,000. The Company also leases technical space in Dallas, TX. The lease term is thirteen months and monthly payments are $1,403. The lease term expires on July 31, 2023.

On January 1, 2022, the Company entered into a lease agreement for office space with WeWork in Austin, TX. The lease term is six months and requires monthly payments of $1,470 and ~~expires~~expired on June 30, 2022. Subsequent to June 30, 2022, the ~~company~~Company is on a $3,073 month-to-month lease with WeWork in Austin, TX.

Subsequent to June 30, 2022, and for the six months ended June 30, 2023, the Company leased the space for $3,073 a month under a month-to-month lease.

Finance Lease Obligations

On June 1, 2020, the Company entered into a lease agreement with a finance company to lease technical equipment. The lease obligation is payable in monthly installments of $5,008. The lease carries an interest rate of 7% and is a three-year lease. The term of the lease ~~ends~~ended June 1, 2023.

On June 29, 2020, the Company entered into a lease agreement for technical equipment with a finance company. The lease obligation is payable in monthly installments of $5,050. The lease ~~carries~~carried an interest rate of 7% and is a three-year lease. The term of the lease ~~ends~~ended June 29, 2023.

On July 31, 2020, the Company entered into a lease agreement for technical equipment with a finance company. The lease obligation is payable in monthly installments of $4,524. The lease ~~carries~~carried an interest rate of 7% and is a three-year lease. The term of the lease ends July 31, 2023.

On November 1, 2021, the Company entered into a lease agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $3,152. The lease carries an interest rate of 6% and is a three-year lease. The term of the lease ends November 1, 2024.

On January 1, 2022, the Company entered into a lease agreement with a finance company for technical equipment. The lease obligation is payable in monthly installments of $17,718. The lease carries an interest rate of 5% and is a three-year lease. The term of the lease ends February 1, 2025.

On January 1, 2022, the Company entered into a technical equipment lease with a finance company. The lease obligation is payable in monthly installments of $2,037. The lease carries an interest rate of 6% and is a three-year lease. The term of the lease ends January 1, 2025.

Finance Lease Obligations – Related Party

On January 1, 2019, the Company entered into a lease agreement with Systems Trading. This lease obligation is payable to Systems Trading with monthly installments of $29,592. The lease carries an interest rate of 6.75% and is a five-year lease. The term of the lease ends December 31, 2023.

On January 1, 2020, the Company entered into a lease agreement with Systems Trading to lease equipment. The lease obligation is payable to Systems Trading with monthly installments of $10,534. The lease ~~carries~~carried an interest rate of 6% and is a three-year lease. The term of the lease ~~ends~~ endedDecember 31, 2022.

On March 4, 2021, the Company entered into a lease agreement with Systems Trading effective April 1, 2021. This lease obligation is payable to Systems Trading with monthly installments of $1,567 and expires on ~~March 31,~~June 30, 2024. The lease carries an interest rate of 8%.

On January 1, 2022, the Company entered into a lease agreement with Systems Trading effective January 1, 2022. This lease obligation is payable to Systems Trading with monthly installments of $7,145 and expires on February 1, 2025. The lease carries an interest rate of 8%.

On April 1, 2022, the Company entered into a lease agreement with Systems Trading effective May 1, 2022. This lease obligation is payable to Systems Trading with monthly installments of $6,667 and expires on January 1, 2025. The lease carries an interest rate of 8%.

The Company determines if an arrangement contains a lease at inception. Right of Use “ROU” assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company’s lease term includes options to extend the lease when it is reasonably certain that it will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet, per the election of the practical expedient. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred. A discount rate of 5% was used in preparation of the ROU asset and operating liabilities.

The components of lease expense were as ~~follows:~~follows and included both related party and non-related finance leases combined:

Schedule of components of lease expense
	Three Months Ended March 31, 2023		Three Months Ended June 30, 2022
Finance leases:
Amortization of assets, included in depreciation and amortization expense	$	171,775	$	264,933
Interest on lease liabilities, included in interest expense		24,863		16,199
Operating lease:
Amortization of assets, included in total operating expense		51,912		57,711
Interest on lease liabilities, included in total operating expense		2,456		250
Total net lease cost	$	251,006	$	339,093
Supplemental balance sheet information related to leases was as follows:

Operating Leases:

Operating lease right-of-use asset	$	175,842

Current operating lease liabilities	$	143,480
Noncurrent operating lease liabilities		36,733
Total operating lease liabilities	$	180,213

March 31, 2023
Finance leases:
Property and equipment, at cost $ 5,521,716
Accumulated amortization (3,694,587 )
Property and equipment, net $ 1,827,129

Current obligations of finance leases $ 762,295
Finance leases, net of current obligations 331,951
Total finance lease liabilities $ 1,094,246

	Six Months Ended June 30, 2023
Finance leases:
Amortization of assets, included in depreciation and amortization expense	$	436,708
Interest on lease liabilities, included in interest expense		41,062
Operating lease:
Amortization of assets, included in total operating expense		109,623
Interest on lease liabilities, included in total operating expense		2,706
Total net lease cost	$	590,099
Supplemental balance sheet information related to leases was as follows:

Operating Leases:

Operating lease right-of-use asset	$	124,475

Current operating lease liabilities	$	117,627
Noncurrent operating lease liabilities		9,226
Total operating lease liabilities	$	126,853

	As of June 30, 2023
Finance leases:
Property and equipment, at cost	$	5,521,716
Accumulated amortization		(3,959,520	)
Property and equipment, net	$	1,562,196

Current obligations of finance leases	$	647,894
Finance leases, net of current obligations		225,593
Total finance lease liabilities	$	873,487

Supplemental cash flow and other information related to leases were as ~~follows:~~follows and included both related party and non-related finance leases combined:

Schedule of supplemental cash flow and other information related to leases
	Three Months Ended March 31, 2023			Six Months Ended June 30, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	52,216		$	105,576
Financing cash flows related to finance leases	$	323,728		$	544,487

Weighted average remaining lease term (in years):
Operating leases		1.10			1.01
Finance leases		1.30			2.80

Weighted average discount rate:
Operating leases		4	%		4	%
Finance leases		7	%		7	%

Long-term obligations under the operating and finance leases at ~~March 31,~~June 30, 2023, mature as ~~follows:~~follows and included both related party and non-related finance leases combined:

Schedule of long-term obligations under the operating and finance leases
For the Twelve Months Ended June 30,	Operating Leases			Finance Leases
2023	$	120,238		$	649,356
2024		9,255			263,826
Total lease payments		129,493			913,182
Less: Amounts representing interest		(2,640	)		(39,695	)
Total lease obligations		126,853			873,487
Less: long-term obligations		(9,226	)		(225,593	)
Total current	$	117,627		$	647,894

Schedule of long-term obligations under the operating and finance leases
For the Twelve Months Ended March 31, Operating Leases
Finance
Leases
2023 $ 147,587 $ 632,920
2024 37,020 446,136
2025 — 71,765
Total lease payments 184,607 1,150,821
Less: Amounts representing interest (4,394 ) (56,575 )
Total lease obligations 180,213 1,094,246
Less: long-term obligations (36,733 ) (331,951 )
Total current $ 143,480 $ 762,295

As of ~~March 31,~~June 30, 2023, the Company had no additional significant operating or finance leases that had not yet commenced. Rent expense under all operating leases for the three months ended ~~March 31,~~June 30, 2023, and 2022 was $~~60,572~~74,695 and $~~34,219~~71,026, respectively. Rent expense under all operating leases for the six months ended June 30, 2023, and 2022 was $135,267 and $105,245, respectively.

Note 7 - Commitments and Contingencies

As part of the Flagship acquisition the Company acquired a licensing agreement for marketing related materials with a National Football League team. The Company has approximately $1.3 million in payments over the next 5 years.

Note 8 – Stockholders’ (Deficit)

Capital Stock

The Company has 260,000,000 authorized shares of capital stock, consisting of 250,000,000 shares of Common Stock, par value $0.001, and 10,000,000 shares of Preferred Stock, par value $0.001 per share.

Common Stock Options

On June 2, 2023 the Company registered an additional 700,000 shares of common stock under the 2021 Stock Incentive Plan.

A summary of the Company’s options activity and related information follows:

Schedule of option activity and related information
	Number of						Weighted		Weighted		Number of					Weighted		Weighted
	Shares			Range of			Average		Average		Shares			Range of		Average		Average
	Under			Option Price			Exercise		Contractual		Under			Option Price		Exercise		Contractual
	Options			Per Share			Price		Life		Options			Per Share		Price		Life
Options Outstanding at January 1, 2023		301,391			$	1.48 – 15.76	$	3.46		7.45		301,391		$	15.76-1.48	$	3.46		7.45
Options Granted		243,605				1.52 – 1.96		1.77		10.00		307,343			1.96-1.52		1.83		10.00
Exercised		—				—		—		—		—			—		—		—
Expired/Cancelled		(29,213	)			2.16 – 5.80		3.76		—		(29,213	)		5.80-2.16		3.76		—
Options Outstanding at March 31, 2023		515,783			$	1.48 - 14.00	$	2.65		8.36
Options Outstanding at June 30, 2023												579,521		$	14.00-1.48	$	2.58		8.30

Options Exercisable at March 31, 2023		166,352			$	1.48 - 14.00	$	3.69		5.76
Options Exercisable at June 30, 2023												236,584		$	14.00-1.48	$	3.24		6.76

Share-based compensation expense for options totaling $~~54,433~~75,270 and $~~66,505~~75,320 was recognized in our results for the three months ended ~~March 31,~~June 30, 2023, and 2022, respectively. Share-based compensation expense for options totaling $129,704 and $141,825 was recognized in our results for the six months ended June 30, 2023, and 2022, respectively.

The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including the volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options.

The risk-free interest rate assumption is based upon observed interest rates on zero-coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the options.

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s calculation of estimated volatility is based on historical stock prices of the Company over a period equal to the expected life of the awards.

As of ~~March 31,~~June 30, 2023, there was $~~636,464~~682,611 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share-based compensation plans that is expected to be recognized over a weighted average period of approximately ~~2.48~~2.6 years.

The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the three months ended ~~March 31,~~June 30, 2023, and 2022, are set forth in the table below.

Schedule of weighted average fair value of options granted
	2023			2022			2023			2022
Weighted average fair value of options granted	$	1.77		$	3.30		$	1.69		$	4.45
Risk-free interest rate		3.48% – 4.01	%		1.63% – 2.32	%		3.41%-4.01	%		1.63% – 2.32	%
Volatility		196% – 199	%		212% – 214	%		195%-199	%		204% – 214	%
Expected life (years)		10 years			10 years			10 years			10 years
Dividend yield	$	—	%	$	—	%	$	—	%	$	—	%

Share-based awards, restricted stock award (“RSAs”)

On March 1, 2023, the Company granted certain employees an aggregate of 73,530 RSA’s. Compensation as a group ~~amounts~~ amount to $130,883. The shares vest one third each year for three years after issuance.

On March 28, 2023, the Company granted certain employees an aggregate of 44,942 RSA’s. Compensation as a group ~~amounts~~amount to $72,357. The shares vest one third each year for three years after issuance.

On March 31 2023, the Board resolved that the Company shall issue to Board members an aggregate of 12,500RSA’s Compensation as a group amount of $22,750. The shares vest one year after issuance.

On April 10, 2023, the Company granted certain employees an aggregate of 50,000 RSA’s. Compensation as a group amount to $90,000. The shares vest one third each year for three years after issuance.

On June 30, 2023, the Board resolved that the Company shall pay issue to Board members and aggregate of 12,500 RSAs each member of the Board compensation as a group amount of $~~22,750~~29,125. The shares vest one year after issuance.

A summary of the activity related to ~~RSUs~~RSU’s for the three months ended ~~March 31,~~June 30, 2023, is presented below:

Schedule of non-vested Restricted stock units
Total Grant Date
Restricted Stock Units (RSUs) Shares Fair Value
RSUs non-vested at January 1, 2023 50,000 $ 1.48 - 3.23
RSUs granted 130,972 $ 1.61 – 1.82
RSUs vested (12,500 ) $ 3.23
RSUs forfeited — $ —
RSUs non-vested March 31, 2023 168,472 $ 1.48 – 2.45

Schedule of non-vested Restricted stock units
	Total			Grant Date
Restricted Stock Units (RSU’s)	Shares			Fair Value
RSU’s non-vested at January 1, 2023		50,000		$	1.48-3.23
RSU’s granted		193,472		$	1.61-2.33
RSU’s vested		(25,000	)	$	2.45-3.23
RSU’s forfeited		—		$	—
RSU’s non-vested June 30, 2023		218,472		$	1.48-2.33

Stock-based compensation for RSU’s has been recorded in the consolidated statements of operations and totaled ~~$52,285~~$47,624 and $10,066 for the three months ended ~~March 31, 2023.~~June 30, 2023 and 2022 respectively. Stock-based compensation for RSU’s has been recorded in the consolidated statements of operations and totaled $80,051 and $10,066 for the three months ended June 30, 2023 and 2022 respectively.

Note 9 – Litigation

We are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting DSC, its common stock, any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Note 10 – Related Party Transactions

Nexxis Capital LLC

Charles M. Piluso (Chairman and CEO) and Harold Schwartz (President) collectively own 100% of Nexxis Capital LLC (“Nexxis Capital”). Nexxis Capital was formed to purchase equipment and provide leases to Nexxis Inc.’s customers. The Company received funds of $~~2,756~~15,681 and $~~2,328~~14,036 during the three months ended ~~March 31,~~June 30, 2023, and ~~2021~~2022 respectively.

Note 11 – Segment Information

We operate in three reportable segments: Nexxis, Flagship Solutions Group, and CloudFirst. Our segments were determined based on our internal organizational structure, the manner in which our operations are managed, and the criteria used by our Chief Operating Decision Maker (CODM) to evaluate performance, which is generally the segment’s operating income or losses.

Schedule of segment reporting income or losses
Operations of:		Products and services provided:
~~Nexxis Inc~~		NEXXIS is a single-source solution provider that delivers fully-managed cloud-based voice services, data transport, internet access, and SD-WAN solutions focused on business continuity for today’s modern business environment.

~~Flagship Solutions, LLC~~		Flagship Solutions Group (FSG) is a managed service provider. FSG invoices clients primarily for services that assist the clients’ technical teams. FSG has few technical assets and utilizes the assets or software of other cloud providers, whereby managing 3rd party infrastructure. FSG periodically sells equipment and software.

CloudFirst Technologies Corporation		CloudFirst, provides services from CloudFirst technological assets deployed in six Tier 3 data centers throughout the USA and Canada. This technology has been developed by CloudFirst. Clients are invoiced for cloud infrastructure and disaster recovery on the CloudFirst platform. Services provided to clients are provided on a subscription basis on long term contracts.

Flagship Solutions, LLC		Flagship Solutions Group (FSG) is a managed service provider. FSG invoices clients primarily for services that assist the clients’ technical teams. FSG has few technical assets and utilizes the assets or software of other cloud providers, whereby managing 3rd party infrastructure. FSG has maintains technical assets on one data center. FSG periodically sells equipment and software.

Nexxis Inc.		NEXXIS is a single-source solution provider that delivers fully-managed cloud-based voice services, data transport, internet access, and SD-WAN solutions focused on business continuity for today’s modern business environment.

The following tables present certain financial information related to our reportable segments and Corporate:

Schedule of financial information related to reportable segments
As of March 31, 2023
As of June 30, 2023											As of June 30, 2023

	Nexxis Inc.		Flagship Solutions LLC		CloudFirst Technologies		Corporate		Total			CloudFirst Technologies		Flagship Solutions LLC		Nexxis Inc.		Corporate		Total

Accounts receivable	$	60,019	$	2,895,708	$	715,443	$	—	$	3,671,170		$	559,958	$	1,602,958	$	52,686	$	6,000	$	2,221,602
Prepaid expenses and other current assets		19,503		178,094		505,506		175,357		878,460			466,801		126,839		24,254		118,492		736,386
Net Property and Equipment		737		18,533		2,397,542		2,670		2,419,482			2,897,408		23,879		3,331		2,503		2,927,121
Intangible assets, net		—		1,626,646		279,268		—		1,905,914			279,268		1,557,110		—		—		1,836,378
Goodwill		—		1,222,971		3,015,700		—		4,238,671			3,015,700		1,222,971		—		—		4,238,671
Operating lease right-of-use assets		—		141,933		33,909		—		175,842			8,612		115,863		—		—		124,475
All other assets		—		—		—		11,062,166		11,062,166			—		—		—		10,715,729		10,715,729
Total Assets	$	80,259	$	6,083,885	$	6,947,368	$	11,240,193	$	24,351,705		$	7,227,747	$	4,649,620	$	80,271	$	10,842,724	$	22,800,362

Accounts payable and accrued expenses	$	46,335	$	2,332,956	$	905,137	$	414,818	$	3,699,246		$	1,202,846	$	598,799	$	53,527	$	233,305	$	2,088,477
Deferred revenue		—		155,545		153,728		—		309,273			151,437		162,629		—		—		314,066
Total Finance leases payable		—		—		500,846		—		500,846			404,628		—		—		—		404,628
Total Finance leases payable related party		—		—		593,400		—		593,400			468,859		—		—		—		468,859
Total Operating lease liabilities		—		143,646		36,567		—		180,213			9,274		117,579		—		—		126,853
Total Liabilities	$	46,335	$	2,632,147	$	2,189,678	$	414,818	$	5,282,978		$	2,237,044	$	879,007	$	53,527	$	233,305	$	3,402,883


As of December 31, 2022	As of December 31, 2022											As of December 31, 2022

		Nexxis Inc.		Flagship Solutions LLC		CloudFirst Technologies		Corporate		Total			CloudFirst Technologies		Flagship Solutions LLC		Nexxis Inc.		Corporate		Total

Accounts receivable		$	34,903	$	1,924,184	$	1,543,749	$	—	$	3,502,836		$	1,543,749	$	1,924,184	$	34,903	$	—	$	3,502,836
Prepaid expenses and other current assets			16,799		213,826		285,306		68,735		584,666			285,306		213,826		16,799		68,735		584,666
Net Property and Equipment			—		19,705		2,192,085		—		2,211,790			2,192,085		19,705		—		—		2,211,790
Intangible assets, net			—		1,696,376		279,268		—		1,975,644			279,268		1,696,376		—		—		1,975,644
Goodwill			—		1,222,971		3,015,700		—		4,238,671			3,015,700		1,222,971		—		—		4,238,671
Operating lease right-of-use assets			—		167,761		58,740		—		226,501			58,740		167,761		—		—		226,501
All other assets			—		—		—		11,346,127		11,346,127			—		—		—		11,346,127		11,346,127
Total Assets		$	51,702	$	5,244,823	$	7,374,848	$	11,414,862	$	24,086,235		$	7,374,848	$	5,244,823	$	51,702	$	11,414,862	$	24,086,235

Accounts payable and accrued expenses		$	40,091	$	1,563,408	$	1,069,278	$	534,800	$	3,207,577		$	1,069,278	$	1,563,408	$	40,091	$	534,800	$	3,207,577
Deferred revenue			—		165,725		115,335		—		281,060			115,335		165,725		—		—		281,060
Total Finance leases payable			—		—		641,110		—		641,110			641,110		—		—		—		641,110
Total Finance leases payable related party			—		—		776,864		—		776,864			776,864		—		—		—		776,864
Total Operating lease liabilities			—		169,469		62,960		—		232,429			62,960		169,469		—		—		232,429
Total Liabilities		$	40,091	$	1,898,602	$	2,665,547	$	534,800	$	5,139,040		$	2,665,547	$	1,898,602	$	40,091	$	534,800	$	5,139,040

For the three months ended March 31, 2023

Nexxis Inc. Flagship Solutions LLC CloudFirst Technologies Corporate Total
Sales $ 264,796 $ 3,456,188 $ 3,158,739 $ — $ 6,879,723
Cost of sales 178,121 2,906,212 1,705,645 — 4,789,978
Gross Profit 86,675 549,976 1,453,094 — 2,089,745

Selling, general and administrative 124,750 540,327 606,452 570,520 1,842,049
Depreciation and amortization 71 70,903 217,622 114 288,710
Total operating expenses 124,821 611,230 824,074 570,634 2,130,759

Loss from Operations (38,146 ) (61,254 ) 629,020 (570,634 ) (41,014 )

Interest expense, net — — (27,346 ) 103,423 76,077
Total Other Income (Expense) — — (27,346 ) 103,423 76,077

Income (Loss) before provision for income taxes $ (38,146 ) $ (61,254 ) $ 601,674 $ (467,211 ) $ 35,063


For the Three Months Ended June 30, 2023

	CloudFirst Technologies			Flagship Solutions LLC		Nexxis Inc.			Corporate			Total
Sales	$	3,151,825		$	2,487,485	$	265,081		$	—		$	5,904,391
Cost of sales		1,627,281			1,541,703		156,653			—			3,325,637
Gross Profit		1,524,544			945,782		108,428			—			2,578,754

Selling, general and administrative		744,534			644,178		169,328			613,020			2,171,060
Depreciation and amortization		229,523			71,052		208			167			300,950
Total operating expenses		974,057			715,230		169,536			613,187			2,472,010

Income (Loss) from Operations		550,487			230,552		(61,108	)		(613,187	)		106,744

Interest expense, net		(16,570	)		—		—			115,864			99,294
Other expense		—			—		—			—			—
Total Other Income (Expense)		(16,570	)		—		—			115,864			99,294

Income (Loss) before provision for income taxes		533,917			230,552		(61,108	)		(497,323	)		206,038

For the three months ended March 31, 2022

Nexxis Inc. Flagship Solutions LLC CloudFirst Technologies Corporate Total
Sales $ 211,924 $ 6,043,222 $ 2,402,053 $ — $ 8,657,199
Cost of sales 139,876 4,518,346 1,353,067 $ — 6,011,289
Gross Profit 72,048 1,524,876 1,048,986 — 2,645,910

Selling, general and administrative 97,199 1,087,540 475,116 $ 448,673 2,108,528
Depreciation and amortization — 70,135 281,203 $ — 351,338
Total operating expenses 97,199 1,157,675 756,319 448,673 2,459,866

Loss from Operations (25,151 ) 367,201 292,667 (448,673 ) 186,044

Interest expense, net — (48 ) (41,723 ) $ (889 ) (42,660 )
Total Other Income (Expense) — (48 ) (41,723 ) (889 ) (42,660 )

Income (Loss) before provision for income taxes $ (25,151 ) $ 367,153 $ 250,944 $ (449,562 ) $ 143,384


For the Three Months Ended June 30, 2022

	CloudFirst Technologies			Flagship Solutions LLC			Nexxis Inc.			Corporate			Total
Sales	$	2,822,367		$	1,783,521		$	221,861		$	—		$	4,827,749
Cost of sales		1,411,652			1,717,243			140,292			—			3,269,187
Gross Profit		1,410,715			66,278			81,569			—			1,558,562

Selling, general and administrative		679,868			1,027,693			88,749			507,278			2,303,588
Depreciation and amortization		219,925			70,691			—			—			290,616
Total operating expenses		899,793			1,098,384			88,749			507,278			2,594,204

Income (Loss) from Operations		510,922			(1,032,106	)		(7,180	)		(507,278	)		(1,035,642	)

Interest expense, net		(37,206	)		(75,510	)		—			(948	)		(113,664	)
Loss on disposal of equipment		—			—			—			—			—
Gain on forgiveness of debt		—			—			—			—			—
All other expenses		—			—			—			—			—
Total Other Income (Expense)		(37,206	)		(75,510	)		—			(948	)		(113,664	)

Income (Loss) before provision for income taxes	$	473,716		$	(1,107,616	)	$	(7,180	)	$	(508,226	)	$	(1,149,306	)


For the Six Months Ended June 30, 2023

	CloudFirst Technologies			Flagship Solutions LLC		Nexxis Inc.			Corporate			Total
Sales	$	6,310,564		$	5,943,673	$	529,877		$	—		$	12,784,114
Cost of sales		3,332,926			4,447,915		334,774			—			8,115,615
Gross Profit		2,977,638			1,495,758		195,103			—			4,668,499

Selling, general and administrative		1,350,986			1,184,505		294,078			1,183,540			4,013,109
Depreciation and amortization		447,145			141,955		279.00			281			589,660
Total operating expenses		1,798,131			1,326,460		294,357			1,183,821			4,602,769

Income (Loss) from Operations		1,179,507			169,298		(99,254	)		(1,183,821	)		65,730

Interest expense, net		(43,916	)		—		—			219,287			175,371
Total Other Income (Expense)		(43,916	)		—		—			219,287			175,371

Income (Loss) before provision for income taxes	$	1,135,591		$	169,298	$	(99,254	)	$	(964,534	)	$	241,101


For the Six Months Ended June 30, 2022

	CloudFirst Technologies			Flagship Solutions LLC			Nexxis Inc.			Corporate			Total
Sales	$	5,224,420		$	7,826,743		$	433,785		$	—		$	13,484,948
Cost of sales		2,764,719			6,235,589			280,168			—			9,280,476
Gross Profit		2,459,701			1,591,154			153,617			—			4,204,472

Selling, general and administrative		1,156,349			2,115,233			185,948			955,951			4,413,481
Depreciation and amortization		499,763			140,826			—			—			640,589
Total operating expenses		1,656,112			2,256,059			185,948			955,951			5,054,070

Income (Loss) from Operations		803,589			(664,905	)		(32,331	)		(955,951	)		(849,598	)

Interest expense, net		(78,929	)		(75,558	)		—			(1,837	)		(156,324	)
Loss on disposal of equipment		—			—			—			—			—
Gain on forgiveness of debt		—			—			—			—			—
All other expenses		—			—			—			—			—
Total Other Income (Expense)		(78,929	)		(75,558	)		—			(1,837	)		(156,324	)

Income (Loss) before provision for income taxes	$	724,660		$	(740,463	)	$	(32,331	)	$	(957,788	)	$	(1,005,922	)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed on March 31, 2023 (the “Annual Report”) with the U.S. Securities and Exchange Commission (the “SEC”). This Quarterly Report on Form 10-Q contains forward-looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

In some cases, you can identify forward-looking statements by terminology such as ‘may,’ ‘will,’ ‘should,’ ‘could,’ ‘expects,’ ‘plans,’ ‘intends,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘predicts,’ ‘potential,’ or ‘continue’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this report.

The Industry and Opportunity

Data Storage Corporation provides managed technologies across multiple platforms. ~~The Company’s~~Our technical assets are in geographically diverse, Tier 3 compliant data centers throughout the USA and Canada.

Hybrid and Multi-Cloud have become mainstream technological offerings of the Cloud infrastructure managed services industry as companies have moved away from legacy, on-premises technology solutions. This approach has grown more complex, as companies utilize disparate technical environments, including on-premises equipment and software, multi-clouds interfacing with Software as a Service providers.

Cloud Managed Service Providers assist businesses in achieving their desired cyber security levels, technical cloud infrastructure and financial objectives while optimizing the value of these technologies ensuring business continuity, governance, and operational efficiencies.

One subset and a highly focused segment of ~~the Company~~ours is the Power server, manufactured by IBM. This niche cloud infrastructure subset has a multi-billion-dollar addressable market. The marketplace is global. This addressable marketplace today is not a focus for AWS, Google, or Microsoft. It is estimated that mid and enterprise businesses in USA and Canada are operating over one million virtual IBM Power servers, with few qualified cloud service providers to assist in migration of their infrastructure to the cloud. According to the most recent information received from IBM, the typical industries utilizing IBM Power servers are finance, retail, healthcare, government, and distribution organizations with only 15% utilizing some type of cloud service.

~~The Company,~~We, through ~~its~~our CloudFirst subsidiary, isare a leader in providing cloud infrastructure to this niche marketplace along with disaster recovery and has provided these unique offerings for over 15 years.

~~The Company believes~~We believe businesses are increasingly under pressure to improve the efficiency of their information and storage systems accelerating the migration from self-managed technical equipment and solutions to fully managed multi-cloud technologies to reduce cost, protect capital, ensure disaster recovery, protect the custom applications developed for these systems, and compete effectively. These trends create an opportunity for cloud technology service providers.

The Company’s market opportunity is derived from the demand for fully managed cloud and cybersecurity services across all major operating systems.

The ~~company~~Company operates through three subsidiaries:

CloudFirst’s addressable market in the niche addressable marketplace is approximately ~~$36~~$3.6 billion in annual recurring revenue, if only one virtual infrastructure partition was provided, where most mid and enterprise level organizations run multiple partitions on one server. This unit has technical assets deployed in six Tier 3 data centers, with technical support and a distribution channel.

Our Flagship subsidiary provides business continuity and infrastructure solutions combining on-premises equipment and software with its value-added managed services to mid and enterprise level business customers. Flagship maintains strong partner relationships with some of the largest IT ~~Manufactures,~~manufacturers, such as the IBM Corporation in supplying the technology behind the highly technical designs built for business customers. Flagship’s vision is to expand its multi-cloud infrastructure solutions with more managed services, highlighted by its expanding Cyber Security offerings to capture more of the marketplace outside of the CloudFirst sales and marketing programs.

Our Nexxis subsidiary is a voice and data solution provider that utilizes major nationwide carriers and providers. The subsidiary provides a suite of communications services including Hosted VoIP, Internet Access, Data Transport, and SD-WAN. The complete voice and data solution combines elements of services into a fully managed solution that delivers high reliability and is engineered to further enhance the clients’ business continuity. Nexxis’ goal is to provide a higher level of technology with simplified management and deliver cost savings wherever possible.

According to Fortune Business Insights, the Cloud Managed Services industry in North America was $16.3 billion in 2019 and has been growing at a rate of 13.8% CAGR bringing us to $24 billion by the end of 2022. Disaster Recovery is projected to be a $3.6 billion in the US by the end of 2022 which is 35% of the $10.3 billion globally based on Grandview Research Disaster Recovery Solutions Market Size report. Cyber Security, specifically the MDR segment, is an established market recognized by buyers. Gartner observed a 35% growth in end users’ inquiries on the topic in the last year. Gartner estimates that by 2025, the MDR market will reach $2.15 billion in revenue, up from $1.03 billion in 2021, for a compound annual growth rate (CAGR) of 20.2%. The Company’s VOIP solutions fit well into this steadily growing segment which is expected to reach $90 billion worldwide in 2022 with a CAGR of 3.1% with $17 billion in the US according to Globe Newswire Market Analysis and Insights: Global VoIP Market.

Company Overview

Data Storage Corporation is headquartered in Melville, New York. ~~The~~Our common stock and warrants are traded on the Nasdaq under the ticker ~~symbol is DTST. The company operates~~symbols “DTST” and “DTSTW”. We operate through three subsidiaries; DSC, a Delaware corporation now referred to as CloudFirst Technologies Corporation; Flagship Solutions, LLC; and Nexxis Inc. These subsidiaries provide solutions and services to a broad range of clients in several industries including healthcare, banking and finance, distribution services, manufacturing, construction, education, and government. The subsidiaries maintain business development teams, as well as independent distribution channels.

~~The Company~~

We typically ~~provides~~provide long-term subscription-based disaster recovery, and cloud infrastructure, cyber security, third party cloud management, managed services, dedicated internet access and UCaaS / VoIP services.

During 2022, based on the May 2021 capital raise and the up list to Nasdaq, ~~the Company has~~we accelerated our organic growth strategies by adding distribution, marketing, and technical personnel. Management continues to be focused on building ~~the Company’s~~our sales and marketing strategy and expanding ~~its~~our technology assets throughout its data center network.

~~The Company believes~~We believe businesses are increasingly under pressure to improve the reliability and efficiency of their information and storage systems accelerating the migration from self-managed technical equipment and solutions to fully managed multi-cloud technologies to reduce cost and compete effectively. Further, in today’s environment, capital preservation is an encouragement to move from a capital-intensive, on-premises technology to a pay as you grow, CapEx to OpEx model. These trends create an opportunity for Cloud Technology Service providers.

~~The Company’s~~Our market opportunity is derived from the demand for fully managed cloud and cybersecurity services across all major operating systems.

~~The Company has~~We have designed and built ~~its~~our solutions and services to support demand for cloud-based IBM Power System that support client critical workloads and custom in-house developed applications, manage hybrid cloud deployments and continue to provide solutions that keep data and workloads protected from disasters and security attacks.

~~The Company’s~~Our business offices are located in New York, Florida and Texas. The New York and Florida offices include a technology center and labs adapted to meet the technical requirements of ~~the Company’s~~our clients. ~~The Company maintains its~~We maintain our own infrastructure, storage, and networking equipment required to provide subscription solutions in seven geographically diverse data centers located in New York, Massachusetts, Texas, Florida, North Carolina, and in Canada, Toronto, and Barrie, serving clients in the United States and Canada.

~~The Company’s~~Our disaster recovery and business continuity solutions allow clients to quickly recover from system outages, human and natural disasters, and cyber security attacks, such as Ransomware. ~~The Company’s~~Our managed cloud services begin with migration to the cloud and provide ongoing system support and management that enables its clients to run their software applications and technical workloads in a multi-cloud environment. ~~The Company’s~~Our cyber security offerings include comprehensive consultation and a suite of data security, disaster recovery, and remote monitoring services and technologies that are incorporated into ~~the Company’s~~our cloud solutions or are delivered as a standalone managed security offering covering the client site endpoint devices, users, servers, and equipment.

~~The Company’s~~Our solution architects and business development teams work with organizations identifying and solving critical business problems. ~~The Company~~We carefully ~~plans~~plan and ~~manages~~manage the migration and configuration process, continuing the relationship and advising ~~its~~our clients long after the services have been implemented. Reflecting on client satisfaction, ~~the Company’s~~our renewal rate on client subscription solutions is approximately 94% after their initial contract term expired.

Growth Strategies

~~The Company~~We will continue to drive revenues by expanding distribution channels while expanding digital and direct marketing programs. ~~The Company~~We will accelerate building upon ~~its~~our social and digital lead generation programs. Further, ~~the Company~~we will continue to seek synergetic acquisitions that expand distribution or companies that provide a leading a technology ~~trend, add to its existing technical staff and create economies of scale improving gross profit margins.~~trend.

~~The Company increases~~We increase revenue and ~~drives~~drive growth by developing and managing collaborative solutions as well as joint marketing initiatives. ~~The Company has~~We have a diverse community of distribution partners, ranging from IBM Business Partners, Software Vendors, IT resellers, Managed Service Providers, application support providers, consultants, and other cloud infrastructure providers.

~~The Company believes~~

We believe there is a significant need for ~~its~~our solutions on a global basis and, accordingly, the opportunity for itus to grow ~~its~~our business through international expansion as these markets increase their use of multi-cloud solutions.

~~The Company’s~~Our Core Services: ~~The Company provides~~We provide an array of multi-cloud information technology solutions in highly secure, enterprise-level cloud services for companies using IBM Power Systems, Microsoft Windows, and Linux. Specifically, ~~the Company’s~~our support services cover:

Cyber Security Solutions:

●

ezSecurity™ offers a suite of comprehensive cyber security solutions that can be utilized on systems at the client’s location or on systems hosted ~~in the Company.~~by us. These solutions include fully managed endpoint (PCs and other user devices) security with active threat mitigation, system security assessments, risk analysis, and applications to ensure continuous security. ezSecurity™ contains a specialized offering for protecting and auditing IBM systems including a package designed to protect IBM systems against Ransomware attacks.

Data Protection and Recovery Solutions:

●	ezVault™ solution is at the core of ~~the Company’s~~our data protection services and allows ~~its~~our clients to have their data protected and stored offsite with unlimited data retention in a secure location that uses encrypted, enterprise-grade storage which allows for remote recovery from system outages, human and natural disasters, and cyber security attacks like Ransomware and viruses allowing restoration of data from a known good point in time prior to an attack.

●	ezRecovery™ provides standby systems, networking, and storage in ~~the Company’s~~our cloud infrastructure that allows for faster recovery from client backups stored using ezVault™ at the same cloud based hosted location.

●	ezAvailability™ solution offers reliable real-time data replication for mission-critical applications with Recovery Time Objective under fifteen minutes and near-zero Recovery Point Objective, with optional, fully managed replication services. ~~The Company’s~~Our ezAvailability™ service consists of a full-time enterprise system, storage, and network resources, allowing quick and easily switched production workloads to ~~the Company’s~~our cloud when needed. ~~The Company’s~~Our ezAvailability™ services are backed by a Service-Level Agreement (“SLA”) to help assure performance, availability, and access.

●	ezMirror™ solution provides replication services that mirror the clients’ data at the storage level and allows for similar near-zero Recovery Point Objective as ezAvailability with less application management and Recovery Time Objective under 1 hour.

Cloud Hosted Production Systems: ezHost™ solution provides managed cloud services that removes the burden ~~off~~of system management from its clients and ensures that their software applications and IT workloads are running smoothly. ezHost™ provides full-time, scalable compute, storage, and network infrastructure resources to run clients’ workloads on ~~the Company’s~~our enterprise-class infrastructure. ezHost™ replaces the cost of support, maintenance, system administration, space, electrical power, and cooling of the typical hardware on-premises systems with a predictable monthly expense. ~~The Company’s~~Our ezHost services are backed by an SLA governing performance, availability, and access.

Voice & Data Solutions: Nexxis, our voice and data division, specializes in stand-alone and fully-managed VoIP, Internet Access, and Data Transport solutions that satisfy the requirements of the traditional corporate and modern remote workforce. Nexxis dedicated internet access services with speeds of up to 10 Gbps and data transport circuits are typically delivered over fiber-optic networks while shared internet access is typically delivered via fiber, coaxial, and wireless networks to help businesses stay fully connected from any location. SD-WAN options provide the ability for multi-site companies to prioritize their data traffic from site to site while FailSAFE, a Cloud-first SD-WAN solution, can be used by a single location to gain industry-leading connectivity to cloud services and the internet. Nexxis Hosted VoIP with Unified Communications is a full-featured cloud-based PBX solution with built-in redundancy that provides business continuity and includes the option to integrate with Microsoft Teams.

RESULTS OF OPERATIONS

Three months ended ~~March 31,~~June 30, 2023, as compared to ~~March 31,~~June 30, 2022

Total Revenue. For the three months ended ~~March 31,~~June 30, 2023, total revenue was ~~$6,879,723, a decrease~~$5,904,391, an increase of ~~$1,777,476~~$1,076,642 or ~~21%~~22% compared to ~~$8,657,199~~$4,827,749 for the three months ended ~~March 31,~~June 30, 2022. The ~~decrease~~increase is ~~primarily~~ attributed to ~~a decrease~~an increase in ~~one time equipment sales~~all of our revenue streams during the current period.

Revenue	For the Three Months										For the Three Months
	Ended March 31,										Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change		% Change
Infrastructure & Disaster Recovery/Cloud Service	$	2,189,641	$	1,925,850	$	263,791			14	%	$	2,279,422	$	2,013,806	$	265,616		13	%
Equipment and Software		3,522,559		5,319,459		(1,796,900	)		(34	)%		2,379,822		1,913,208		466,614		24	%
Managed Services		893,767		1,182,810		(289,043	)		(24	)%		965,506		682,397		283,109		41	%
Nexxis VoIP Services		231,772		194,934		36,838			19	%		240,712		188,926		51,786		27	%
Other		41,984		34,146		7,838			23	%		38,929		29,412		9,517		32	%
Total Revenue	$	6,879,723	$	8,657,199	$	(1,777,476	)		(21	)%	$	5,904,391	$	4,827,749	$	1,076,642		22	%

Cost of Sales. For the three months ended ~~March 31,~~June 30, 2023, cost of sales was ~~$4,789,978, a decrease~~$3,325,637, an increase of ~~$1,221,311~~$56,450 or ~~20%~~2% compared to ~~$6,011,289~~$3,269,187 for the three months ended ~~March 31,~~June 30, 2022. The ~~decrease~~increase of ~~20%~~2% was mostly related to ~~a decrease~~an increase in equipment related cost of sales.

Selling, general and administrative expenses. For the three months ended ~~March 31,~~June 30, 2023, selling, general and administrative expenses were ~~$2,130,759,~~$2,472,010, a decrease of ~~$329,107,~~$122,194, or ~~13%~~5%, as compared to ~~$2,459,866~~$2,594,204 for the three months ended ~~March 31,~~June 30, 2022. The net decrease is reflected in the chart below.

Selling, general and administrative expenses	For the Three Months										For the Three Months
	Ended March 31,										Ended June 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Decrease in Salaries	$	1,156,494	$	1,484,944	$	(328,450	)		(22	)%	$	1,240,822	$	1,405,717	$	(164,895	)		(12	)%
Increase in Professional Fees		220,827		187,087		33,740			18	%		287,079		200,542		86,537			43	%
Decrease in Software as a Service Expense		39,975		70,058		(30,083	)		(43	)%		46,459		76,841		(30,382	)		(40	)%
Increase in Advertising Expenses		189,878		90,873		99,005			109	%
Decrease in Commissions Expense		271,967		345,264		(73,297	)		(21	)%
Decrease in Advertising Expenses												226,142		314,920		(88,778	)		(28	)%
Increase in Commissions Expense												379,795		293,829		85,966			29	%
Increase in Amortization and Depreciation Expense		73,772		73,411		361			—	%		74,167		73,536		631			1	%
Increase in Travel And Entertainment		51,247		38,531		12,716			33	%
Increase in Rent and Occupancy		61,808		53,067		8,741			16	%
Decrease in Travel And Entertainment												38,539		77,395		(38,856	)		(50	)%
Decrease in Rent and Occupancy												49,029		55,047		(6,018	)		(11	)%
Increase in Insurance		26,490		25,427		1,063			4	%		30,934		14,431		16,503			114	%
Decrease in all other Expenses		38,301		91,202		(52,901	)		(58	)%
Increase in all other Expenses												99,044		81,946		17,098			21	%
Total Expenses	$	2,130,759	$	2,459,866	$	(329,107	)		(13	)%	$	2,472,010	$	2,594,204	$	(122,194	)		(5	)%

Salaries.Salaries decreased as a result of a reduction in personnel.

Professional fees. Professional fees increased primarily due to business development consulting fees and an increase in legal fees relating to updated employment agreements.

Software as a Service Expense (SaaS). SaaS decreased due to the completion of certain consulting engagements related to one of our CRM platforms.

Advertising Expenses. Advertising Expenses ~~increased~~decreased due to non-renewal of a ~~new~~ marketing ~~plan implemented during 2023.~~program.

Commissions Expense. Commissions expense increased due to an increase in sales.

Travel And Entertainment. Travel And Entertainment expenses decreased due to less travel by executives and reduced number of corporate events.

Other Income (Expense). Other income for the three months ended June 30, 2023, increased $212,958 to $99,294 from $(113,644) for the three months ended June 30, 2022. The increase in other income is primarily attributable to the increase in interest income from investment in marketable securities.

Net Income (loss) before provision for income taxes. Net income before provision for income taxes for the three months ended June 30, 2023 was $206,038, as compared to a net loss of $(1,149,306) for the three months ended June 30, 2022.

Six months ended June 30, 2023, as compared to June 30, 2022

Total Revenue. For the six months ended June 30, 2023, total revenue was $12,784,114, a decrease of $700,834 or 5% compared to $13,484,948 for the six months ended June 30, 2022. The decrease is primarily attributed to a decrease in one-time equipment sales during the current period offset by increases in all other revenue sources.

Revenue	For the Six Months
	Ended June 30,
	2023		2022		$ Change			% Change
Infrastructure & Disaster Recovery/Cloud Service	$	4,469,063	$	3,939,656	$	529,407			13	%
Equipment and Software		5,902,381		7,633,059		(1,730,678	)		(23	)%
Managed Services		1,859,273		1,464,815		394,458			27	%
Nexxis VoIP Services		472,484		383,860		88,624			23	%
Other		80,913		63,558		17,355			27	%
Total Revenue	$	12,784,114	$	13,484,948	$	(700,834	)		(5	%)

Cost of Sales. For the six months ended June 30, 2023, cost of sales was $8,115,615, a decrease of $1,164,861 or 13% compared to $9,280,476 for the six months ended June 30, 2022. The decrease of 13% was mostly related to a decrease in equipment sales.

Selling, general and administrative expenses. For the six months ended June 30, 2023, selling, general and administrative expenses were $4,602,769, a decrease of $451,301, or 9%, as compared to $5,054,070 for the six months ended June 30, 2022. The net decrease is reflected in the chart below.

Selling, general and administrative expenses	For the Six Months
	Ended June 30,
	2023		2022		$ Change			% Change
Decrease in Salaries	$	2,397,316	$	2,890,661	$	(493,345	)		(17	)%
Increase in Professional Fees		507,906		387,629		120,277			31	%
Decrease in Software as a Service Expense		86,434		146,899		(60,465	)		(41	)%
Increase in Advertising Expenses		416,020		405,793		10,227			3	%
Increase in Commissions Expense		651,762		639,093		12,669			2	%
Increase in Amortization and Depreciation Expense		147,939		146,947		992			1	%
Decrease in Travel And Entertainment		89,786		115,926		(26,140	)		(23	)%
Increase in Rent and Occupancy		110,837		108,114		2,723			3	%
Increase in Insurance		57,424		39,858		17,566			44	%
Decrease in all other Expenses		137,345		173,150		(35,805	)		(21	)%
Total Expenses	$	4,602,769	$	5,054,070	$	(451,301	)		(9	)%

Salaries. Salaries decreased as a result of a reduction in personnel and reduced costs relating to stock based compensation.

Professional fees. Professional fees increased primarily due to business development consulting fees and an increase in legal fees relating to updated employment agreements.

Software as a Service Expense (SaaS). SaaS decreased due to the completion of certain consulting engagements related to one ~~time equipment~~of our CRM platforms.

Advertising Expenses. Advertising Expenses decreased due to non-renewal of a marketing program.

Commissions Expense. Commissions expense increased due to an increase in sales.

Travel And Entertainment. Travel And Entertainment expense decreased due to less travel by executives and reduced number of corporate events.

All Other Expenses. Other expenses decreased primarily due to reduction of bad debt expense, tax expense and reductions across all other expenses such as computer, training and dues and subscriptions.

Other Income (Expense). Other income for the ~~three~~six months ended ~~March 31,~~June 30, 2023, increased ~~$118,737~~$331,695 to ~~$76,077~~$175,371 from ~~$(42,660)~~$(156,324) for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The increase in other income is primarily attributable to the increase in interest income from ~~the~~investment in marketable securities.

Net Income before provision for income taxes. Net income before provision for income taxes for the ~~three~~six months ended ~~March 31,~~June 30, 2023 was ~~$50,666,~~$241,101, as compared to a net ~~income~~loss of ~~$156,010~~$(1,005,922) for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

LIQUIDITY AND CAPITAL RESOURCES

The consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable for a going concern, which assumes that ~~the Company~~we will realize ~~its~~our assets and discharge ~~its~~our liabilities in the ordinary course of business.

To the extent ~~the Company is~~we are successful in growing ~~its~~our business, identifying potential acquisition targets, and negotiating the terms of such acquisition, and the purchase price may include a cash component, ~~the Company plans~~we plan to use ~~its~~our working capital and the proceeds of any financing to finance such acquisition costs.

~~The Company’s~~Our opinion concerning ~~its~~our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, ~~The Company~~we may not be able to meet ~~its~~our liquidity needs, which will require a renegotiation of related party capital equipment leases, a reduction in advertising and marketing programs, and/or a reduction in salaries for officers that are major shareholders.

~~The Company has~~We have long-term contracts to supply ~~its~~our subscription-based solutions that are invoiced to clients monthly. ~~The Company believes the total contract value of its subscription contracts with clients based on the actual contracts that it has to date, exceeds $10 million. Further, the Company continues~~We continue to see an uptick in client interest distribution channel expansion and in sales proposals. In 2023, ~~the Company intends~~weintend to continue to work to increase ~~its~~our presence in the IBM “Power I” infrastructure cloud and business continuity marketplace in the niche of IBM “Power” and in the disaster recovery global marketplace utilizing its technical expertise, data centers utilization, assets deployed in the data centers, 24 x 365 monitoring and software.

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, ~~Data Storage’s~~our cash decreased by ~~$404,683~~$849,683 to ~~$1,882,039~~$1,437,039 from $2,286,722 on December 31, 2022. Net cash of ~~$449,139~~$1,079,814 was provided by ~~Data Storage’s~~our operating activities resulting primarily from the changes in assets and liabilities. Net cash of ~~$530,094~~$1,385,010 was used in investing activities from the purchase of equipment and short-term investments. Net cash of ~~$323,728~~$544,487 was used by financing activities resulting primarily from ~~payments~~repayments on capital lease obligations.

The Company’s working capital was ~~$10,631,766~~$10,457,217 on ~~March 31,~~June 30, 2023, decreasing by ~~$223,641~~$398,190 from $10,855,407 at December 31, 2022. The decrease is primarily attributable to a decrease in cash and ~~an increase in~~ accounts ~~payable, accrued expenses and deferred revenue.~~receivable. This was offset by ~~an increase~~a decrease in accounts ~~receivable, prepaid expenses,~~payable and ~~other current assets.~~finance and operating leases.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities”.

Non-GAAP Financial Measures

Adjusted EBITDA

To supplement our consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding our financial results, we consider and are including herein Adjusted EBITDA, a Non-GAAP financial measure. We view Adjusted EBITDA as an operating performance measure and, as such, we believe that the GAAP financial measure most directly comparable to it is net income (loss). We define Adjusted EBITDA as net income adjusted for interest and financing fees, depreciation, amortization, stock-based compensation, and other non-cash income and expenses. We believe that Adjusted EBITDA provides us an important measure of operating performance because it allows management, investors, debtholders and others to evaluate and compare ongoing operating results from period to period by removing the impact of our asset base, any asset disposals or impairments, stock-based compensation and other non-cash income and expense items associated with our reliance on issuing equity-linked debt securities to fund our working capital.

Our use of Adjusted EBITDA has limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP, as the excluded items may have significant effects on our operating results and financial condition. Additionally, our measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA. When evaluating our performance, Adjusted EBITDA should be considered with other financial performance measures, including various cash flow metrics, net income and other GAAP results. In the future, we may disclose different non-GAAP financial measures in order to help our investors and others more meaningfully evaluate and compare our future results of operations to our previously reported results of operations.

The following table shows our reconciliation of net income to adjusted EBITDA for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively:

For the three months ended March 31, 2023
For the Three Months Ended June 30, 2023															For the Three Months Ended June 30, 2023

	Nexxis Inc.			Flagship Solutions LLC			CloudFirst Technologies		Corporate			Total				CloudFirst Technologies		Flagship Solutions LLC		Nexxis Inc.			Corporate			Total

Net income	$	(38,146	)	$	(61,254	)	$	601,674	$	(467,211	)	$	35,063			$	533,917	$	230,552	$	(61,108	)	$	(497,323	)	$	206,038

Non-GAAP adjustments:
Depreciation and amortization		71			70,903			219,924		114			291,012				227,221		71,052		279			167			298,719
Interest and letter of credit fees		—			—			27,346		(103,424	)		(76,078	)			16,570		—		—			(115,863	)		(99,293	)
Stock based compensation		2,181			22,927			16,069		45,291			86,468				18,990		29,691		4,400			71,814			124,895

Adjusted EBITDA	$	(35,894	)	$	32,576		$	865,013	$	(525,230	)	$	336,465			$	796,698	$	331,295	$	(56,429	)	$	(541,205	)	$	530,359

For the Three Months Ended June 30, 2022

	CloudFirst Technologies		Flagship Solutions LLC			Nexxis Inc.			Corporate			Total

Net income	$	473,716	$	(1,107,616	)	$	(7,180	)	$	(508,226	)	$	(1,149,306	)

Non-GAAP adjustments:
Flagship Acquisition Costs		—		—			—			165			165
Depreciation and amortization		218,560		70,691			—			—			289,251
Interest and letter of credit fees		39,043		75,510			—			948			115,501
Stock based compensation		28,117		431,007			1,804			24,459			485,387

Adjusted EBITDA	$	759,436	$	(530,408	)	$	(5,376	)	$	(482,654	)	$	(259,002	)

The following table shows our reconciliation of net income to adjusted EBITDA for the six months ended June 30, 2023 and 2022, respectively:

For the three months ended March 31, 2022
For the Six Months Ended June 30, 2023													For the Six Months Ended June 30, 2023

	Nexxis Inc.			Flagship Solutions LLC		CloudFirst Technologies		Corporate			Total			CloudFirst Technologies		Flagship Solutions LLC		Nexxis Inc.			Corporate			Total

Net income	$	(25,151	)	$	367,153	$	250,944	$	(449,562	)	$	143,384		$	1,135,591	$	169,298	$	(99,254	)	$	(964,534	)	$	241,101

Non-GAAP adjustments:
Depreciation and amortization		—			70,135		281,203		—		$	351,338			447,145		141,955		279			281			589,660
Interest and letter of credit fees		—			48		42,328		889		$	43,265			43,916		—		—			(219,287	)		(175,371	)
Stock based compensation		1,752			28,194		25,685		10,875		$	66,505			35,059		52,618		4,400			117,105			209,182

Adjusted EBITDA	$	(23,399	)	$	465,529	$	600,161	$	(437,799	)	$	604,492		$	1,661,711	$	363,871	$	(94,575	)	$	(1,066,435	)	$	864,572

For the Six Months Ended June 30, 2022

	CloudFirst Technologies		Flagship Solutions LLC			Nexxis Inc.			Corporate			Total

Net income	$	724,660	$	(740,463	)	$	(32,331	)	$	(957,788	)	$	(1,005,922	)

Non-GAAP adjustments:
Flagship Acquisition Costs		—		—			—			770			770
Depreciation and amortization		499,763		140,826			—			—			640,589
Interest and letter of credit fees		80,766		75,558			—			1,837			158,161
Stock based compensation		53,801		459,201			3,556			35,334			551,892

Adjusted EBITDA	$	1,358,990	$	(64,878	)	$	(28,775	)	$	(919,847	)	$	345,490

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company this item is not required.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Report, under the supervision and with the participation of DSC’s management, including its principal executive officer and principal financial officer, DSC conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule ~~13a-15(e)~~13a-15I and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Rule 13a-15(e) under the Exchange Act defines “disclosure controls and procedures” as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to a company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based ~~on this~~upon that evaluation, m~~anagement has determined that, there were no material weaknesses in~~ our ~~internal control over financial reporting~~Chief Executive Officer and ~~management has~~Chief Financial Officer have concluded that ~~as of March 31, 2023,~~our disclosure controls and procedures were effective at the ~~Company maintained effective internal control over financial reporting.~~reasonable assurance level at June 30, 2023.

~~Because~~A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. As set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on the evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~March 31,~~June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II–I - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that, if determined adversely to it, would individually or taken together have a material adverse effect on its business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our most recent Annual Report on Form 10-K for the year ended December 31, 2022, the occurrence of any one of which could have a material adverse effect on our actual results.

There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

There were no unregistered sales of the Company’s equity securities during the period ended ~~March 31,~~June 30, 2023, that were not previously reported in a Current Report on Form 8-K.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the period ended ~~March 31,~~June 30, 2023.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information.

There is no other information required to be disclosed under this item that was not previously disclosed.

Item 6. Exhibits.

Exhibit No.		Description

31.1*		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

31.2*		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

32.1*		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instant Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DATA STORAGE CORPORATION
Date: ~~May 15,~~August 14, 2023
	By:	/s/ Charles M. Piluso
		Charles M. Piluso
		Chief Executive Officer
		(Principal Executive Officer)

Date: ~~May 15,~~August 14, 2023
	By:	/s/ Chris H. Panagiotakos
		Chris H. Panagiotakos
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

2932

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

48 South Service Road Melville, NY		11747
(Address of principal executive offices)		(Zip Code)

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

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

			Page
PART I- FINANCIAL INFORMATION

	Item 1	Financial Statements

		Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2023 (unaudited) and December 31, 2022	2

		Condensed Consolidated Statements of Operations for the three and six months ended ~~March 31,~~June 30, 2023 and 2022 (unaudited)	3

		Condensed Consolidated Statements of Stockholders’ Equity for three and six months ended ~~March 31,~~June 30, 2023 and 2022 (unaudited)	4

		Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022 (unaudited)	56

		Notes to Condensed Consolidated Financial Statements	67

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2123

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2730

	Item 4.	Control and Procedures	2730

PART II- OTHER INFORMATION			2831

	Item 1.	Legal Proceedings	2831

	Item 1A.	Risk Factors	2831

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2831

	Item 3.	Defaults Upon Senior Securities	2831

	Item 4.	Mine Safety Disclosures	2831

	Item 5.	Other Information	2831

	Item 6.	Exhibits	2831


	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,437,039		$	2,286,722
Accounts receivable (less allowance for credit losses of $39,622 and $27,250 in 2023 and 2022, respectively)		2,221,602			3,502,836
Marketable securities		9,230,254			9,010,968
Prepaid expenses and other current assets		736,386			584,666
Total Current Assets		13,625,281			15,385,192

Property and Equipment:
Property and equipment		7,458,932			7,168,488
Less—Accumulated depreciation		(4,531,811	)		(4,956,698	)
Net Property and Equipment		2,927,121			2,211,790

Other Assets:
Goodwill		4,238,671			4,238,671
Operating lease right-of-use assets		124,475			226,501
Other assets		48,436			48,437
Intangible assets, net		1,836,378			1,975,644
Total Other Assets		6,247,960			6,489,253

Total Assets	$	22,800,362		$	24,086,235

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	2,088,477		$	3,207,577
Deferred revenue		314,066			281,060
Finance leases payable		279,461			359,868
Finance leases payable related party		368,433			520,623
Operating lease liabilities short term		117,627			160,657
Total Current Liabilities		3,168,064			4,529,785

Operating lease liabilities		9,226			71,772
Finance leases payable		125,167			281,242
Finance leases payable related party		100,426			256,241
Total Long-Term Liabilities		234,819			609,255

Total Liabilities		3,402,883			5,139,040

Commitments and contingencies (Note 6)		—			—

Stockholders’ Equity:
Preferred stock, Series A par value $.001; 10,000,000 shares authorized; 0 and 0 shares issued and outstanding in 2023 and 2022, respectively		—			—
Common stock, par value $.001; 250,000,000 shares authorized; 6,847,127 and 6,822,127 shares issued and outstanding in 2023 and 2022, respectively		6,847			6,822
Additional paid in capital		39,191,598			38,982,440
Accumulated deficit		(19,609,889	)		(19,887,378	)
Total Data Storage Corp Stockholders’ Equity		19,588,556			19,101,884
Non-controlling interest in consolidated subsidiary		(191,077	)		(154,689	)
Total Stockholder’s Equity		19,397,479			18,947,195
Total Liabilities and Stockholders’ Equity	$	22,800,362		$	24,086,235


	March 31, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,882,039		$	2,286,722
Accounts receivable (less allowance for credit losses of $31,136 and $27,250 in 2023 and 2022, respectively)		3,671,170			3,502,836
Marketable securities		9,114,391			9,010,968
Prepaid expenses and other current assets		878,460			584,666
Total Current Assets		15,546,060			15,385,192

Property and Equipment:
Property and equipment		7,597,462			7,168,488
Less—Accumulated depreciation		(5,177,980	)		(4,956,698	)
Net Property and Equipment		2,419,482			2,211,790

Other Assets:
Goodwill		4,238,671			4,238,671
Operating lease right-of-use assets		175,842			226,501
Other assets		65,736			48,437
Intangible assets, net		1,905,914			1,975,644
Total Other Assets		6,386,163			6,489,253

Total Assets	$	24,351,705		$	24,086,235

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses	$	3,699,246		$	3,207,577
Deferred revenue		309,273			281,060
Finance leases payable		308,180			359,868
Finance leases payable related party		454,115			520,623
Operating lease liabilities short term		143,480			160,657
Total Current Liabilities		4,914,294			4,529,785

Operating lease liabilities		36,733			71,772
Finance leases payable		192,666			281,242
Finance leases payable related party		139,285			256,241
Total Long-Term Liabilities		368,684			609,255

Total Liabilities		5,282,978			5,139,040

Commitments and contingencies (Note 6)		—			—

Stockholders’ Equity:
Preferred stock, Series A par value $.001; 10,000,000 shares authorized; 0 and 0 shares issued and outstanding in 2023 and 2022, respectively		—			—
Common stock, par value $.001; 250,000,000 shares authorized; 6,834,627 and 6,822,127 shares issued and outstanding in 2023 and 2022, respectively		6,835			6,822
Additional paid in capital		39,068,896			38,982,440
Accumulated deficit		(19,836,712	)		(19,887,378	)
Total Data Storage Corp Stockholders' Equity		19,239,019			19,101,884
Non-controlling interest in consolidated subsidiary		(170,292	)		(154,689	)
Total Stockholder’s Equity		19,068,727			18,947,195
Total Liabilities and Stockholders' Equity	$	24,351,705		$	24,086,235


	Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022			2023		2022			2023		2022

Sales	$	6,879,723		$	8,657,199		$	5,904,391	$	4,827,749		$	12,784,114	$	13,484,948

Cost of sales		4,789,978			6,011,289			3,325,637		3,269,187			8,115,615		9,280,476

Gross Profit		2,089,745			2,645,910			2,578,754		1,558,562			4,668,499		4,204,472

Selling, general and administrative		2,130,759			2,459,866			2,472,010		2,594,204			4,602,769		5,054,070

Income (Loss) from Operations		(41,014	)		186,044			106,744		(1,035,642	)		65,730		(849,598	)

Other Income (Expense)
Interest income (expense), net		76,077			(42,660	)		99,294		(113,664	)		175,371		(156,324	)
Total Other Income (Expense)		76,077			(42,660	)		99,294		(113,664	)		175,371		(156,324	)

Income before provision for income taxes		35,063			143,384
Income (Loss) before provision for income taxes								206,038		(1,149,306	)		241,101		(1,005,922	)

Benefit from income taxes		—			—			—		—			—		—

Net Income		35,063			143,384
Net Income (Loss)								206,038		(1,149,306	)		241,101		(1,005,922	)

Non-controlling interest in consolidated subsidiary		15,603			12,626
Loss in Non-controlling interest of consolidated subsidiary								20,785		10,207			36,388		22,833

Net Income Attributable to Common Stockholders	$	50,666		$	156,010
Net Income (Loss) attributable to Data Storage Corp							$	226,823	$	(1,139,099	)	$	277,489	$	(983,089	)

Earnings per Share – Basic	$	0.01		$	0.02		$	0.03	$	(0.17	)	$	0.04	$	(0.15	)
Earnings per Share – Diluted	$	0.01		$	0.02		$	0.03	$	(0.17	)	$	0.04	$	(0.15	)
Weighted Average Number of Shares - Basic		6,822,127			6,695,966			6,834,627		6,758,238			6,828,446		6,727,108
Weighted Average Number of Shares - Diluted		6,954,320			6,955,900			7,022,275		6,758,238			7,016,094		6,727,108


	Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Non-Controlling			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Interest			Equity

Balance April 1, 2022		—	$	—		6,697,127	$	6,697	$	38,314,591	$	(15,374,566	)	$	(115,254	)	$	22,831,468
Stock-based compensation		—		—		125,000		125		485,262		—			—			485,387
Net Income (Loss)		—		—		—		—		—		(1,139,099	)		(10,207	)		(1,149,306	)
Balance June 30, 2022		—	$	—		6,822,127	$	6,822	$	38,799,853	$	(16,513,665	)	$	(125,461	)	$	22,167,549

Balance April 1, 2023		—	$	—		6,834,627	$	6,835	$	39,068,896	$	(19,836,712	)	$	(170,292	)		19,068,727
Stock-based compensation		—		—		12,500		12		122,702		—			—			122,714
Net Income (Loss)		—		—		—		—		—		226,823			(20,785	)		206,038
Balance June 30, 2023		—	$	—		6,847,127	$	6,847	$	39,191,598	$	(19,609,889	)	$	(191,077	)	$	19,397,479


	Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit			Non-Controlling Interest			Total Stockholders’ Equity
	Shares		Amount		Shares		Amount

Balance January 1, 2022		—	$	—		6,693,793	$	6,694	$	38,241,155	$	(15,530,576	)	$	(102,628	)	$	22,614,645
Stock Options Exercise		—		—		3,334		3		6,931		—			—			6,934
Stock-based compensation		—		—		—		—		66,505		—			—			66,505
Net Income (Loss)		—		—		—		—		—		156,010			(12,626	)		143,384
Balance, March 31, 2022		—	$	—		6,697,127	$	6,697	$	38,314,591	$	(15,374,566	)	$	(115,254	)	$	22,831,468

Balance January 1, 2023		—	$	—		6,822,127	$	6,822	$	38,982,440	$	(19,887,378	)	$	(154,689	)	$	18,947,195
Stock-based compensation		—		—		12,500		13		86,456		—			—			86,469
Net Income (Loss)		—		—		—		—		—		50,666			(15,603	)		35,063
Balance, March 31, 2023		—	$	—		6,834,627	$	6,835	$	39,068,896	$	(19,836,712	)	$	(170,292	)	$	19,068,727


Schedule of changes in equity investments
	For the three months ended March 31, 2023		For the Six Months Ended June 30, 2023
	Total		Total
As of January 1, 2023	$	9,010,968	$	9,010,968
Purchase of equity investments		103,423		103,423
As of March 31, 2023	$	9,114,391		9,114,391
Purchase of equity investments				115,863
As of June 30, 2023			$	9,230,254

	United States		International		Total		United States		International		Total
Infrastructure & Disaster Recovery/Cloud Service	$	2,137,317	$	52,324	$	2,189,641	$	2,227,838	$	51,584	$	2,279,422
Equipment and Software		3,522,559		—		3,522,559		2,379,822		—		2,379,822
Managed Services		858,660		35,107		893,767		930,579		34,927		965,506
Nexxis VoIP Services		231,772		—		231,772		240,712		—		240,712
Other		41,984		—		41,984		38,929		—		38,929
Total Revenue	$	6,792,292	$	87,431	$	6,879,723	$	5,817,880	$	86,511	$	5,904,391

For the Three Months
Ended June 30,
Timing of revenue recognition	2023		2022
Products transferred at a point in time	$	2,418,750	$	1,093,916
Products and services transferred over time		3,485,641		3,733,833
Total Revenue	$	5,904,391	$	4,827,749

For the Six Months
Ended June 30, 2023
	United States		International		Total
Infrastructure & Disaster Recovery/Cloud Service	$	4,365,155	$	103,908	$	4,469,063
Equipment and Software		5,902,381		—		5,902,381
Managed Services		1,789,239		70,034		1,859,273
Nexxis VoIP Services		472,484		—		472,484
Other		80,913		—		80,913
Total Revenue	$	12,610,172	$	173,942	$	12,784,114

For the Three Months
Ended March 31,
Timing of revenue recognition	2023		2022
Products transferred at a point in time	$	3,564,543	$	5,402,996
Products and services transferred over time		3,315,180		3,254,203
Total Revenue	$	6,879,723	$	8,657,199

For the Six Months
Ended June 30, 2022
	United States		International		Total
Infrastructure & Disaster Recovery/Cloud Service	$	3,863,367	$	76,289	$	3,939,656
Equipment and Software		7,633,059		—		7,633,059
Managed Services		1,390,777		74,038		1,464,815
Nexxis VoIP Services		383,860		—		383,860
Other		63,558		—		63,558
Total Revenue	$	13,334,621	$	150,327	$	13,484,948

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 a 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 our 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.

Schedule of Earning per share basic and diluted
	Three Months Ended March 31,
	2023		2022

Net Income Available to Common Shareholders	$	50,666	$	156,010

Weighted average number of common shares - basic		6,822,127		6,695,966
Dilutive securities
Options		130,526		256,601
Warrants		1,667		3,333
Weighted average number of common shares - diluted		6,954,320		6,955,900

Earnings per share, basic	$	0.01	$	0.02
Earnings per share, diluted	$	0.01	$	0.02

Schedule of anti-dilutive income (loss) per share
	Three Months ended March 31,
	2023		2022
Options		385,257		37,641
Warrants		2,415,860		1,384,610
		2,801,117		1,422,251


	Estimated life in years		Gross amount		March 31, 2023, 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		1,233,861		1,380,238
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		21,594		11,408
Total intangible assets subject to amortization				3,889,248		2,497,602		1,391,646
Total Goodwill and Intangible Assets			$	8,642,187	$	2,497,602	$	6,144,585

Schedule of amortization over the next two years
Twelve months ending March 31,
2024	$	276,976
2025		268,717
2026		267,143
2027		267,143
2028		200,357
Thereafter		111,310
Total	$	1,391,646

Schedule of long-term obligations under the operating and finance leases
For the Twelve Months Ended March 31,	Operating Leases			Finance Leases
2023	$	147,587		$	632,920
2024		37,020			446,136
2025		—			71,765
Total lease payments		184,607			1,150,821
Less: Amounts representing interest		(4,394	)		(56,575	)
Total lease obligations		180,213			1,094,246
Less: long-term obligations		(36,733	)		(331,951	)
Total current	$	143,480		$	762,295