Data Storage Corp

Previous wording

For the Three Months Ended September 30, 2024

Current wording

Sales for the three months ended March 31, 2025, decreased by approximately 2% to $8,083,756 as compared to sales for the three months ended March 31, 2024, of $8,235,747. The Company derives its sales from four types of services that it provides: cloud infrastructure & disaster recovery/cloud services which is the largest source of its sales, followed by managed services, equipment and software sales, and Nexxis, VoIP and internet access services. The cloud infrastructure & disaster recovery/cloud services are subscription-based. The Company also provides equipment and software and actively participates in collaboration with IBM to provide innovative business solutions to clients. The professional services are providing the client cloud infrastructure and or Disaster Recovery implementation services as well as time and materials billing. Substantially all of the Company’s sales were to customers in the United States, with 3% of its sales to international customers. During the three months ended March 31, 2025, the Company derived approximately 44% of revenue from equipment and software sales, 42% of revenue from infrastructure & disaster recovery/cloud services, 10% of revenue from managed services, 4% of revenue from Nexxis VoIP services. During the three months ended March 31, 2024, the Company derived approximately 50% of our revenue from equipment and software sales, 36% of its revenue from infrastructure & disaster recovery/cloud services, 10% of revenue from Managed Services, and 3% of revenue from Nexxis VoIP services.

Previous wording

Cost of Sales. For the three months ended September 30, 2024, cost of sales was $3,297,164, a decrease of $359,107 or 10% compared to $3,656,271 for the three months ended September 30, 2023. The decrease was mostly related to the decrease in one-time equipment and managed services related cost of sales.

Current wording

Cost of sales. For the three months ended March 31, 2025, cost of sales was $5,223,860, a decrease of $45,415, or 1%, compared to $5,269,275 for the three months ended March 31, 2024. The decrease of $45,415 was mostly related to the decrease in one-time equipment and software sales.

Previous wording

Selling, general and administrative expenses. For the three months ended September 30, 2024, selling, general and administrative expenses were $2,537,501, an increase of $221,288 or 10%, as compared to $2,316,213 for the three months ended September 30, 2023. The net increase is reflected in the chart below.

Current wording

Selling, general and administrative expenses. For the three months ended March 31, 2025, selling, general and administrative expenses were $2,952,405, an increase of $199,728, or 2%, as compared to $2,752,677 for the three months ended March 31, 2024. The increase is reflected in the chart below and was primarily related to an increase in professional fees, stock based compensation, software and salaries and director fees, offset by a decrease in rent and occupancy expenses, all other expenses and commissions.

Previous wording

Salaries. Salaries increased as a result of an increase in stock-based compensation in addition to an increase in salaries due to annual employee performance reviews.

Current wording

*Salaries and Director Fees.*Salaries and director fees increased as a result of an increase in headcount which resulted from the Company’s international expansion efforts, an increase in the number of Board Members and an increase due to annual employee performance reviews.

Previous wording

Professional Fees. Professional fees increased primarily due to business development consulting fees and an increase in legal and accounting fees related to the filing of certain registration statements.

Current wording

*Professional Fees.*Professional fees increased primarily due to business development consulting fees which resulted from the Company’s international expansion efforts, an increase in recruiting fees, and an increase in investor relation fees.

Previous wording

Software as a Service Expense (SaaS). SaaS increased due to a new customer relationship management platform at one of the company’s divisions.

Current wording

*Software as a Service Expense (SaaS).*SaaS increased due to new projects for improvement initiatives for one of the Company’s customer relationship management systems.

Previous wording

Commissions Expense. Commissions expense decreased due to the decrease in one-time equipment sales.

Current wording

*Commissions Expense.*Commissions expense decreased due to lower one-time equipment sales.

Previous wording

Income (loss) before provision for income taxes. Income before provision for income taxes for the three months ended September 30, 2024, was $123,526, as compared to income of $157,738 for the three months ended September 30, 2023.

Current wording

Income before provision for income taxes. Income before provision for income taxes for the three months ended March 31, 2025, and 2024 was $26,388, and $345,904 respectively, primarily attributable to the items discussed above.

Previous wording

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 we will realize our assets and discharge our liabilities in the ordinary course of business.

Current wording

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

Previous wording

To the extent we are successful in growing our business, identifying potential acquisition targets, and negotiating the terms of such acquisition, and in the event the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition and related costs.

Current wording

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

Previous wording

Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs, which will likely 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.

Current wording

The Company’s conclusion concerning its liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, the Company may not be able to meet its 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.

Previous wording

We have long-term contracts to supply our subscription-based solutions that are invoiced to clients monthly. We continue to see an uptick in client interest distribution channel expansion and in sales proposals. In 2024, we have and intend to continue to work to increase 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.

Current wording

The Company has long-term contracts to supply its subscription-based solutions that are invoiced to clients monthly. The Company believes its 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 to see an uptick in client interest in distribution channel expansion and in sales proposals. In 2025, the Company intends to continue to work to increase its 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.

Previous wording

On July 18, 2024, we entered into the Agreement with Maxim pursuant to which we may offer and sell, from time to time, through Maxim, as sales agent or principal, shares of our common stock. There can be no guarantee that we will be able to raise capital from sales under the Agreement. To date, we have not made any sales under the Agreement,

Current wording

On July 18, 2024, the Company entered into the Agreement with Maxim, discussed in Note 8 to the financial statements above, pursuant to which the Company may offer and sell, from time to time, through Maxim, as sales agent or principal, shares of its common stock. There can be no guarantee that the Company will be able to raise capital from sales under the Agreement. To date, the Company has not made any sales under the Agreement.

Previous wording

The Company’s working capital was $11,583,279 on September 30, 2024, increasing by $571,872 from $11,011,407 at December 31, 2023. The increase is primarily attributable to an increase in accounts receivable and other current assets and a decrease in deferred revenue and finance leases. This was offset by a decrease in cash and an increase in accounts payable.

Current wording

The Company’s working capital was $12,440,644 on March 31, 2025, increasing by $570,730 from $11,869,914 at December 31, 2024. The increase is primarily attributable to an increase in accounts receivable which was offset, in part, by an increase in accounts payable and a decrease in cash and marketable securities.

Previous wording

During the nine months ended September 30, 2024, net cash used in investing activities totaled $1,172,581, compared to $2,767,949 during the nine months ended September 30, 2023. The decrease of $1,595,368 was primarily due to a net decrease in the purchases of marketable securities.

Current wording

During the three months ended March 31, 2025, net cash provided by investing activities totaled $786,575, compared to net cash used in investing activities of $302,006 during the three months ended March 31, 2024. The increase of $1,088,581 was primarily due to a net increase in sales of marketable securities offset by a decrease in capital expenditures.

Previous wording

During the nine months ended September 30, 2024, net cash used in financing activities totaled $295,021, compared to $686,809 during the nine months ended September 30, 2023. The decrease of $391,788 was primarily due to lower repayments of finance lease obligations to a related party.

Current wording

During the three months ended March 31, 2025, net cash used in financing activities totaled $51,520, compared to $167,358 during the three months ended March 31, 2024. The decrease in cash used in financing activities of $115,838 was primarily due to lower finance lease obligation payments.

Previous wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods. There are accounting policies, each of which requires significant judgments and estimates on the part of management, that we believe are significant to the presentation of our consolidated financial statements. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of the 2023 Annual Report.

Current wording

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results may differ from the original estimates, requiring adjustments to these balances in future periods. There are accounting policies, each of which requires significant judgments and estimates on the part of management, that we believe are significant to the presentation of our condensed consolidated financial statements. The critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of the 2024 Annual Report.

Previous wording

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.

Current wording

To supplement the Company’s condensed consolidated financial statements presented in accordance with GAAP and to provide investors with additional information regarding the Company’s financial results, the Company considers and is including herein Adjusted EBITDA, a Non-GAAP financial measure. The Company views Adjusted EBITDA as an operating performance measure and, as such, the Company believes that the GAAP financial measure most directly comparable to it is net income (loss). The Company defines Adjusted EBITDA as net income adjusted for interest, depreciation, amortization, and stock-based compensation. The Company believes that Adjusted EBITDA provides an important measure of operating performance because it allows management, investors, debt holders and others to evaluate and compare ongoing operating results from period to period by removing the impact of the Company’s asset base, any asset disposals or impairments, stock-based compensation and other non-cash income and expense items associated with its reliance on issuing equity-linked debt securities to fund its working capital.

Previous wording

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.

Current wording

The Company’s 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 its results as reported under GAAP, as the excluded items may have significant effects on its operating results and financial condition. Additionally, the Company’s measure of Adjusted EBITDA may differ from other companies’ measure of Adjusted EBITDA. When evaluating the Company’s 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, the Company may disclose different non-GAAP financial measures in order to help its investors and others more meaningfully evaluate and compare the Company’s future results of operations to its previously reported results of operations.

Previous wording

The following table shows our reconciliation of net income to adjusted EBITDA for the three months ended September 30, 2024, and 2023, respectively:

Current wording

The following table shows the Company’s reconciliation of net income (loss) to adjusted EBITDA for the months ended March 31, 2025, and 2024: