Data Storage Corp (NASDAQ: DTST) grows Nexxis revenue but posts wider H1 2026 loss
Data Storage Corporation reported small but growing continuing revenues from its Nexxis telecom subsidiary after divesting its cloud solutions business in 2025. Sales from continuing operations were $358,530 for the quarter and $705,237 for the first half of 2026, up 9.3% and 10.1% year over year, with gross margin improving to 47.0% for the quarter and 50.3% for the half.
Despite better margins, the company remains loss‑making. Loss from continuing operations, net of tax, was $1.18 million for the quarter and $1.94 million year‑to‑date, driven largely by a sharp increase in non‑cash stock‑based compensation and higher professional fees. Net loss attributable to common stockholders was $1.23 million for the quarter and $1.86 million for the half, or basic and diluted losses of $0.55 and $0.69 per share, respectively.
Following the $40.0 million sale of the CloudFirst business and a January 2026 tender offer that repurchased 5,625,129 shares for $29.25 million, total assets declined to $11.1 million, with $10.0 million of stockholders’ equity and no long‑term debt. Cash, escrow funds, and marketable securities totaled about $10.3 million of working capital, and management states this should cover at least 12 months of needs. A previously reported material weakness in controls related to complex transactions was remediated by June 30, 2026.
Positive
- Gross margin on continuing operations improved from 43.5% to 50.3% for the six‑month period, indicating more profitable revenue mix and better operating leverage.
- The company maintains a debt‑free balance sheet with $10.26 million of working capital and $9.01 million in marketable securities as of June 30, 2026.
- The CloudFirst divestiture generated a contractual base purchase price of $40.0 million and net proceeds of approximately $31.6 million, plus $225,937 of additional consideration.
- A previously disclosed material weakness in internal control over accounting for complex transactions was fully remediated and deemed effective as of June 30, 2026.
- The January 2026 tender offer repurchased 5,625,129 shares (about 72% of prior outstanding shares) for $29.25 million, significantly reducing the share count.
Negative
- Loss from continuing operations, net of tax, increased to $1.94 million for the first half of 2026 from $1.44 million a year earlier, despite higher revenue.
- Non‑cash stock‑based compensation rose sharply to $1.22 million for the first half of 2026, up 160.9% from the prior‑year period, materially pressuring earnings.
- Net cash used in operating activities was $2.64 million for the first half of 2026, compared with cash provided of $0.22 million in the prior‑year period, largely due to losses and $1.71 million of tax payments.
- Continuing operations are now limited to the small Nexxis segment, with first‑half revenue of only $705,237, following the sale of the much larger CloudFirst business.
- Customer concentration is elevated: two Nexxis customers represented 45% and 12% of consolidated accounts receivable at June 30, 2026, increasing exposure to individual counterparties.
Filing Explained
The $10,600,000 ATM is only capacity: no shares were sold by June 30, while awards and warrants preserve conditional future issuance potential.
As a quarterly report, this Form 10-Q updates interim financial and liquidity disclosures; its new structural item is an equity-issuance facility rather than a completed financing.
The company may offer up to
Separately, 608,656 options were outstanding at June 30, 2026, including 385,000 granted during 2026, and 223,000 restricted stock units remained unvested. If these awards are ultimately issued, they would increase the share count and reduce existing holders’ percentage ownership; the filing also reports 172,500 exercisable warrants remaining at
The relevant follow-up items are any later filing reporting ATM sales and the scheduled vesting of portions of the options and restricted stock units beginning
Key Figures
Key Terms
discontinued operations financial
tender offer financial
at-the-market offering financial
warrant liability financial
Adjusted EBITDA financial
Earnings Snapshot
FAQ
How did Data Storage Corporation (DTST) perform financially in Q2 2026?
What is Data Storage Corporation’s revenue and loss for the first half of 2026?
How much did DTST receive from selling its CloudFirst business?
What were the key details of Data Storage Corporation’s 2026 tender offer?
What is DTST’s current liquidity position after the tender offer?
Did Data Storage Corporation remediate its previously reported material weakness?
What was DTST’s Adjusted EBITDA for the first half of 2026?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area
code:
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller Reporting Company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares of the registrant’s common
stock, $0.001 par value per share, outstanding as of August 13, 2026, was
DATA STORAGE CORPORATION
FORM 10-Q
INDEX
| Page | ||
| PART I- FINANCIAL INFORMATION | ||
| Item 1 | Financial Statements | |
| Condensed Consolidated Balance Sheets as of June 30, 2026 (unaudited), and December 31, 2025 | 1 | |
| Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2026, and 2025 (unaudited) | 2 | |
| Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2026, and 2025 (unaudited) | 3 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2026, and 2025 (unaudited) | 4 | |
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026, and 2025 (unaudited) | 6 | |
| Notes to Condensed Consolidated Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
| Item 4. | Controls and Procedures | 26 |
| PART II- OTHER INFORMATION | 28 | |
| Item 1. | Legal Proceedings | 28 |
| Item 1A. | Risk Factors | 28 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 |
| Item 3. | Defaults Upon Senior Securities | 29 |
| Item 4. | Mine Safety Disclosures | 29 |
| Item 5. | Other Information | 29 |
| Item 6. | Exhibits | 30 |
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| June 30, 2026 (Unaudited) | December 31, 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for expected credit losses of $ | ||||||||
| Escrow funds receivable | ||||||||
| Marketable securities | ||||||||
| Income taxes receivable | — | |||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Payable to purchaser of discontinued operations | — | |||||||
| Excise taxes payable | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability - non-current | — | |||||||
| Total long-term liabilities | — | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value $ | — | — | ||||||
| Common stock, par value $ | ||||||||
| Treasury stock, at cost; | ( | ) | — | |||||
| Additional paid-in capital | ||||||||
| (Accumulated deficit) retained earnings | ( | ) | ||||||
| Accumulated other comprehensive loss | — | ( | ) | |||||
| Total Data Storage Corporation stockholders’ equity | ||||||||
| Non-controlling interest in consolidated subsidiary | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| The accompanying notes are an integral part of these condensed consolidated Financial Statements. |
1
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other (expense) income | ( | ) | — | — | ||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Benefit from income taxes | ( | ) | — | ( | ) | — | ||||||||||
| Loss from continuing operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from discontinued operations, net of tax | ||||||||||||||||
| (Loss) gain on sale of discontinued operations, net of tax | ( | ) | — | — | ||||||||||||
| (Loss) income from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net income attributable to non-controlling interest of consolidated subsidiary | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share from continuing operations – basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share from continuing operations – diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (Loss) earnings per share from discontinued operations – basic | $ | ( | ) | $ | $ | $ | ||||||||||
| (Loss) earnings per share from discontinued operations – diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Loss per share attributable to common stockholders – basic (1) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share attributable to common stockholders – diluted (1) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares – basic | ||||||||||||||||
| Weighted average number of shares – diluted | ||||||||||||||||
(1) Totals may not sum due to rounding. Figures are calculated based upon the respective underlying non-rounded data.
| The accompanying notes are an integral part of these condensed consolidated Financial Statements. |
2
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| (Unaudited) |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||
| Other comprehensive income | — | |||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| The accompanying notes are an integral part of these condensed consolidated Financial Statements. |
3
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| FOR THE THREE MONTHS ENDED JUNE 30, 2026, AND 2025 |
| (Unaudited) |
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | (Accumulated Deficit) | Accumulated other comprehensive | Non-Controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Retained Earnings | income (loss) | Interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance April 1, 2025 | — | $ | — | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | — | $ | — | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Balance April 1, 2026 | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | |||||||||||||||||||||||||||
| The accompanying notes are an integral part of these condensed consolidated Financial Statements |
4
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| FOR THE SIX MONTHS ENDED JUNE 30, 2026, AND 2025 |
| (Unaudited) |
| Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in | (Accumulated Deficit) Retained | Accumulated other comprehensive | Non-Controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | income (loss) | Interest | Equity | ||||||||||||||||||||||||||||||||||
| Balance January 1, 2025 | — | $ | — | $ | — | $ | — | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||
| Stock options exercised | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | — | $ | — | $ | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Balance January 1, 2026 | — | $ | — | $ | — | $ | — | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Tender Offer | — | — | — | — | ( | ) | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Reclassification of warrant to liability | — | — | — | — | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||||||||||||
| Reclassification of warrant liability to equity | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | — | — | ( | ) | — | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | — | $ | — | $ | $ | ( | ) | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | |||||||||||||||||||||||||||
| The accompanying notes are an integral part of these condensed consolidated Financial Statements |
5
| DATA STORAGE CORPORATION AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Loss from continuing operations, net of tax | $ | ( | ) | $ | ( | ) | ||
| Income from discontinued operations, net of tax | ||||||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Change in fair value of warrant liability | ( | ) | — | |||||
| Change in fair value of investment | — | |||||||
| Deferred taxes | ( | ) | — | |||||
| Provision for credit losses | — | |||||||
| Changes in Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Income taxes receivable | ( | ) | — | |||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Income taxes payable | ( | ) | — | |||||
| Changes in assets and liabilities of discontinued operations | — | ( | ) | |||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Capital expenditures | — | ( | ) | |||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Sale of marketable securities | ||||||||
| Cash used in investing activities of discontinued operations | — | ( | ) | |||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Share repurchases in connection with Tender Offer | ( | ) | — | |||||
| Costs paid in connection with at-the-market offering | ( | ) | — | |||||
| Other | — | |||||||
| Proceeds from stock option exercises | — | |||||||
| Cash used in financing activities of discontinued operations | — | ( | ) | |||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rates on cash | — | |||||||
| Decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents, and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | ||||||
| Reconciliation to consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Escrow funds receivable | — | |||||||
| Cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for interest | $ | — | $ | |||||
| Cash paid for income taxes | $ | $ | — | |||||
| Non-cash investing and financing activities: | ||||||||
| Reclassification of warrants from equity to liability | $ | $ | — | |||||
| Tender offer costs included in excise taxes payable | $ | $ | — | |||||
| The accompanying notes are an integral part of these condensed consolidated Financial Statements. |
6
DATA STORAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation, Organization and Other Matters
Headquartered in New York, NY, Data Storage Corporation (“DSC” or the “Company”) is focused on strategic investments and is actively evaluating how to build long-term shareholder value. The alternatives under study include: (i) the acquisition of one or more revenue-generating businesses, including potentially by means of a merger in which the Company’s public listing and balance sheet serve as the platform for a combined enterprise; and (ii) the study of new organic initiatives. These initiatives remain under study; no acquisition or merger agreement has been entered into, no transaction or new business initiative has been agreed or approved, and there can be no assurance that any will be completed or pursued.
On July 11, 2025, the Company entered into a definitive agreement to sell its cloud solutions business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., including substantially all of the assets held by CloudFirst Technologies Corporation (the “Cloud Solutions Business”). The sale was approved by the Company’s shareholders on September 10, 2025, and the transaction officially closed on September 11, 2025.
As described in Note 3, the operating results of the Cloud Solutions Business have been classified as discontinued operations. The Company’s continuing operations consist of the operations of the Company’s Nexxis Inc. (“Nexxis”) subsidiary, which provides voice and data telecommunications solutions. Unless otherwise noted, the following footnotes pertain to the Company’s continuing operations.
These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods presented. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on April 14, 2026.
Note 2 – Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, consisting of (i) Information Technology Acquisition Corporation, a Delaware corporation; and (ii) its majority-owned subsidiary, Nexxis Inc., a Nevada corporation. All intercompany transactions and balances have been eliminated in consolidation.
On September 11, 2025, the Company completed the sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd. The operating results of these businesses have been reclassified as discontinued operations for all periods presented.
Segment Reporting
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. In evaluating operating segments, the Company considers: its internal organizational structure; the availability of separate financial information; and the criteria used by the Company’s CODM, its Chief Executive Officer, to evaluate performance. The Company has determined that it operates in one operating segment and one reportable segment: Nexxis, Inc.
7
Recently Issued and Newly Adopted Accounting Standards
In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements. Subsequently, in January 2025, the FASB issued ASU 2025-01, which clarified the effective date of ASU 2024-03. The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption on its financial statements.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. This ASU provides guidance for determining the accounting acquirer in a business combination involving a variable interest entity. The amendments are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU on its financial statements but does not expect it to have a material impact upon adoption.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (“Topic 326”), which provides all entities with a practical expedient to assume that current conditions as of the balance sheet date do not change for the remaining life of current accounts receivable and contract assets. The guidance is effective for annual periods beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted ASU 2025-05 effective January 1, 2026. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which revises the recognition guidance for internal-use software by eliminating the previous model based on software development stages and introducing a principles-based approach. The guidance is effective for annual periods beginning after December 15, 2027 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact on its financial statements and related disclosures.
Use of Estimates
The preparation of financial statements in conformity with 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.
Estimated Fair Value of Financial Instruments
Assets and liabilities recognized or disclosed at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their respective fair values.
The fair value measurement disclosures are grouped into three levels based on valuation factors:
| ● | Level 1 – quoted prices in active markets for identical investments |
| ● | Level 2 – other significant observable inputs (including quoted prices for similar investments and market corroborated inputs) |
| ● | Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments) |
8
The Company’s marketable securities are classified as within Level 1 of the fair value hierarchy. Management believes the estimated fair value of these accounts at June 30, 2026, approximates their carrying value as reflected in the condensed consolidated balance sheets due to the short-term nature of these instruments. Additionally, the Company has an investment in common stock of a public company which is valued using Level 1 inputs (see Note 7).
Level 3 fair value measurements are derived from valuation techniques that include significant inputs that are not based on observable market data. When required, the Company uses discounted and undiscounted cash flow models to determine the fair value of certain assets and liabilities. These models rely on unobservable inputs, which reflect management’s own assumptions about the factors that market participants would use in pricing the asset or liability, and are significant to the overall fair value measurement. During the six months ended June 30, 2026, the Company recognized a warrant liability associated with Common Stock Purchase Warrants issued by the Company on July 21, 2021, which were valued using Level 3 inputs (See Note 5). The warrant liability was fully remeasured and reclassified to equity during the first quarter of 2026 (see Note 5). As of June 30, 2026, the Company had no assets or liabilities measured at fair value using Level 3 inputs.
As of June 30, 2026, the Company does not have assets and liabilities valued using Level 2 inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company measures property and equipment at fair value on a non-recurring basis in periods after initial measurement in circumstances when the fair value of such assets are impaired below their recorded cost. As of June 30, 2026, there were no material non-financial assets recorded at fair value.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments that are readily convertible to known amounts of cash and that are purchased with original maturities of three months or less to be cash equivalents.
Marketable Securities
Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings.
The following table sets forth a summary of the changes in marketable securities:
| Schedule of changes in equity investments measured at fair value | |||||
| For the six months ended June 30, 2026 | |||||
| As of January 1, 2026 | $ | ||||
| Purchases | |||||
| Sales | ( | ) | |||
| As of June 30, 2026 | $ | ||||
During the six months ended June 30, 2026, the Company
utilized $
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments and assets subjecting the Company to concentration of credit risk consist primarily of cash, marketable securities and trade accounts receivable. The Company’s cash and marketable securities are maintained at major U.S. financial institutions. Deposits in these institutions may exceed the amount of insurance provided on such deposits.
9
The Company’s customers are concentrated in the United States.
The Company’s Nexxis subsidiary had two customers
that individually accounted for
No customer accounted for more than 10% of sales for the three or six months ended June 30, 2026. For the three and six months ended June 30, 2025, one customer accounted for approximately 10% and 11% of total consolidated sales, respectively.
Treasury Stock
The Company recognizes repurchases of outstanding shares of its common stock at cost. Upon their repurchase, these shares are classified as treasury stock, which is a reduction of stockholders’ equity. Repurchased common shares are held as treasury stock until they are retired or re-issued. Treasury stock is included in shares authorized and issued but excluded from shares outstanding.
Revenue Recognition
The Company’s continuing operations derive all revenue from its Nexxis subsidiary, which provides Voice over Internet Protocol (“VoIP”), Internet access, and data transport services. Revenue is recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
The Company’s contracts are typically monthly subscription agreements. For these contracts, the Company has a single performance obligation: to provide continuous access to its VoIP, Internet, and/or data transport services over the contract term. This performance obligation is satisfied over time because the customer simultaneously receives and consumes the benefits of the services as they are provided.
Revenue is recognized ratably over the applicable monthly service period. The Company’s standard payment terms are monthly, and the transaction price is the fixed monthly subscription fee. Because the billing cycle corresponds directly to the service period, the Company does not have significant contract assets or contract liabilities (deferred revenue) at the end of a reporting period. All revenue from continuing operations is transacted in the United States in U.S. dollars.
In the following table, revenue is disaggregated by major product category:
| Schedule of revenue | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| VoIP services | $ | $ | $ | $ | ||||||||||||
| Data transport services | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Advertising Costs
The Company expenses the costs associated with advertising
as they are incurred. The Company incurred $
10
Earnings per Share
The following table sets forth the information needed to compute basic and diluted earnings per share for the three and six months ended June 30, 2026, and 2025:
| Schedule of earning per share basic and diluted | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Weighted average number of common shares - basic | ||||||||||||||||
| Dilutive securities: | ||||||||||||||||
| Options | — | — | — | — | ||||||||||||
| Restricted stock units | — | — | — | — | ||||||||||||
| Weighted average number of common shares - diluted | ||||||||||||||||
The Company reported a loss from continuing operations for the three and six months ended June 30, 2026, and 2025. Therefore, dilutive common shares are not assumed to have been issued since their effect is anti-dilutive for these periods. The following table sets forth the number of potential shares of common stock excluded from net income (loss) per share because their effect was antidilutive:
| Schedule of anti-dilutive shares | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Options | ||||||||||||||||
| Warrants | ||||||||||||||||
| Restricted stock units | ||||||||||||||||
Note 3 – Discontinued Operations
On September 11, 2025, the Company completed the sale
of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation
and CloudFirst Europe Ltd., for a base purchase price of $
The operating results of these businesses have been reclassified and presented as “Income from discontinued operations, net of tax” on the Condensed Consolidated Statements of Operations for all periods presented as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results. The sale resulted in the removal of the CloudFirst Technologies Corporation and CloudFirst Europe Ltd. reportable segments, and the Company has no significant continuing involvement with the divested businesses.
During the three and six months ended June 30, 2026,
the Company recognized a pre-tax loss of $
11
Operating results for the discontinued operations were as follows:
| Schedule of Operating results for the discontinued operations | ||||||||
| Three Months Ended | Six Months Ended | |||||||
| June 30, 2025 | June 30, 2025 | |||||||
| Sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative | ||||||||
| Income from discontinued operations | ||||||||
| Interest and other expense | ( | ) | ( | ) | ||||
| Benefit from income taxes | — | — | ||||||
| Income from discontinued operations, net of tax | $ | $ | ||||||
Note 4 – Balance Sheet Components
Prepaids and other current assets consist of the following:
| Schedule of Prepaid and other current assets | ||||||||
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Prepaid subscriptions and licenses | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Prepaid listing fee | — | |||||||
| Other | ||||||||
| Total prepaids and other current assets | $ | $ | ||||||
Other long-term assets consist of the following:
| Schedule of Other long-term assets | ||||||||
| June 30, | December 31, | |||||||
| 2026 | 2025 | |||||||
| Deferred transaction costs | $ | $ | ||||||
| Investments | ||||||||
| Other | ||||||||
| Total other long-term assets | $ | $ | ||||||
Note 5 – Stockholders’ Equity
Capital Stock
The Company has
Stock Incentive Plans
On March 8, 2021, the Company’s Board and stockholders owning in excess of 50% of the Company’s outstanding voting securities approved and adopted the 2021 Stock Incentive Plan (the “2021 Plan”). The 2021 Plan permits the Company to grant stock options, restricted stock units, and other awards at levels determined appropriate by the Company’s Board and/or compensation committee. The 2021 Plan also allows the Company to utilize a broad array of equity incentives and performance cash incentives to secure and retain the services of its employees, directors, and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of the Company’s stockholders. An aggregate of 2,450,000 shares of the Company’s common stock may be issued under the 2021 Plan, subject to equitable adjustment in the event of future stock splits, and other capital changes. As of June 30, 2026, there were 78,691 shares available for future grants under the 2021 Plan.
12
Additionally, there are 6,250 options outstanding and exercisable under the Data Storage Corporation 2010 Incentive Award Plan (the “2010 Plan”) as of June 30, 2026. The 2010 Plan expired on October 21, 2020, and accordingly, there are no shares available for future grants under the 2010 Plan.
Common Stock Options
A summary of the Company’s stock option activity and related information follows:
| Schedule of options activity and related information | |||||||||||||
| Number of | Weighted | Weighted | |||||||||||
| Shares | Average | Average | |||||||||||
| Under | Exercise | Contractual | |||||||||||
| Options | Price | Life | |||||||||||
| Options Outstanding at January 1, 2026 | $ | ||||||||||||
| Granted | $ | ||||||||||||
| Exercised | — | ||||||||||||
| Expired/Cancelled | — | ||||||||||||
| Options Outstanding at June 30, 2026 | $ | ||||||||||||
| Options Exercisable at June 30, 2026 | $ | ||||||||||||
On February 13, 2026, the Company granted stock options
to purchase up to
On April 13, 2026, the Company granted stock options
to purchase up to
Stock-based compensation expense recognized for stock
options granted totaled $
The intrinsic value of outstanding stock options as
of June 30, 2026, and 2025 was $
The valuation methodology used to determine the fair value of stock 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 stock options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation for instruments with a similar expected term. 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’s stock over a period equal to the expected life of the awards.
The weighted average fair value of options granted, and the assumptions used in the Black-Scholes model during the six months ended June 30, 2026, and 2025, are set forth in the table below:
| Schedule of weighted average fair value of options granted | ||||||||
| 2026 | 2025 | |||||||
| Weighted average fair value of stock options granted | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Volatility | % | % | ||||||
| Expected life (years) | ||||||||
| Dividend yield | % | % | ||||||
13
Share-based awards, Restricted Stock Units (“RSUs”)
A summary of the activity related to share-based awards for the six months ended June 30, 2026, is presented below:
| Schedule of activity related to RSUs | ||||||||
| Share-based awards (RSUs) | Shares | Fair Value | ||||||
| Outstanding non-vested at January 1, 2026 | — | — | ||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | — | — | ||||||
| Outstanding non-vested at June 30, 2026 | $ | |||||||
On January 29, 2026, the Company granted its Board
members an aggregate of
On January 29, 2026, the Company granted
On February 9, 2026, the Company granted a discretionary equity award of
On February 13, 2026, the Company granted
On April 1, 2026, the Company granted an aggregate
of
On April 13, 2026, the Company granted
Stock-based compensation for share-based awards has
been recorded in the condensed consolidated statements of operations and totaled $
Common Stock Warrants
A summary of the Company’s warrant activity and related information follows:
| Schedule of warrant activity and related information | |||||||||||||||||
| Weighted | |||||||||||||||||
| Number of | Range of | Weighted | Average | ||||||||||||||
| Shares Under | Exercise Price | Average | Contractual | ||||||||||||||
| Warrants | Per Share | Exercise Price | Life | ||||||||||||||
| Warrants Outstanding at January 1, 2026 | $ | $ | |||||||||||||||
| Expired | ( | ) | $ | $ | |||||||||||||
| Warrants Outstanding at June 30, 2026 | $ | $ | |||||||||||||||
| Warrants Exercisable at June 30, 2026 | $ | $ | |||||||||||||||
On May 18, 2026, warrants to purchase up to
14
Description of July 2021 Warrants and Fundamental Transaction
Included in warrants outstanding as of January 1,
2026 were Common Stock Purchase Warrants to purchase up to
As of December 31, 2025, the July 2021 Warrants were
classified as equity, since the warrants did not obligate the Company (conditionally or unconditionally) to repurchase the shares underlying
the warrants or issue a variable number of shares, were indexed to the Company’s Common Stock, and met the criteria for classification
in equity as defined in ASC 815. The triggering of the cash-settlement provision on January 15, 2026, required the outstanding July 2021
Warrants to be reclassified from equity to a liability at their fair value, therefore the Company recognized an initial warrant liability
of $
As of June 30, 2026 and December 31, 2025, there was no liability associated with these warrants.
The fair value of the warrant liability is measured using the Black-Scholes-Merton option-pricing model, which requires the use of subjective assumptions. These inputs are considered Level 3 inputs within the fair value hierarchy.
The key assumptions used in the Black-Scholes-Merton model to value the liability were as follows:
| Schedule of Black-Scholes-Merton model to value the outstanding warrant liability | ||||
| Assumption | 2026 | |||
| Stock Price | ||||
| Exercise Price | $ | |||
| Expected Term (in years) | ||||
| Expected Volatility | % | |||
| Risk-Free Interest Rate | % | |||
| Expected Dividend Yield | % | |||
Treasury Stock
On December 8, 2025, the
Company commenced a tender offer (the “Tender Offer”) to repurchase up to
In accordance with the terms
and conditions of the Tender Offer, based on the final count, on January 15, 2026, the Company accepted for purchase
15
At-The-Market (ATM) Offering
On May 26, 2026, the Company entered into an Amended
and Restated Equity Distribution Agreement (the “Amended Agreement”), with Maxim Group LLC (“Maxim”), pursuant
to which the Company may offer and sell, from time to time, through Maxim, as sales agent or principal, shares of the Company’s
common stock, $0.001 par value per share (the “Common Stock”). The terms and conditions of the Amended Agreement are substantially
the same as the Equity Distribution Agreement, dated July 18, 2024, by and between the Company and Maxim. Offers and sales of shares of
Common Stock by the Company, if any, under the Amended Agreement, will be made through a prospectus supplement, dated July 26, 2024 and
an accompanying base prospectus, dated July 26, 2024, contained therein (the “ATM Prospectus”), which ATM Prospectus forms
a part of our shelf registration statement on Form S-3 (File 333-280881), initially filed with the SEC on July 18, 2024 and declared effective
by the SEC on July 26, 2024. The ATM Prospectus relates to the offering of up to $
As of June 30, 2026, there have been no offers or sales of shares of Common Stock by the Company under the ATM.
Note 6 – Income Taxes
The Company’s provision for income taxes is determined using an estimated annual effective tax rate, adjusted for discrete items that arise during the period.
Continuing Operations: For the six months ended
June 30, 2026, the Company recorded an income tax benefit of $
Discontinued Operations: For the six months
ended June 30, 2026, the Company recorded a pre-tax gain from discontinued operations of $
The cash paid for income taxes was as follows:
| Schedule of income taxes | ||||
Six months ended June 30, 2026 | ||||
| Federal | $ | — | ||
| State and Local | ||||
| Total cash paid for income taxes | $ | |||
Note 7 – Equity Investment
On May 21, 2025, the Company invested $
Effective upon Our Bond’s listing on the Nasdaq,
the fair value of the Company’s investment in Our Bond’s common stock is based on the publicly listed trading price of Our
Bond’s common shares, a Level 1 measurement, with unrealized gains or losses recognized as a component of other (expense) income
in the statement of operations. As of June 30, 2026, the Company recognized an unrealized loss on its investment of $
16
Note 8 – Commitments and Contingencies
Litigation
The Company is not currently involved in any litigation that it believes could have a materially adverse effect on its 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 the Company or any of its subsidiaries, threatened against or affecting the Company, its Common Stock, any of its subsidiaries or of the Company’s or its subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Note 9 – Related Party Transactions
Nexxis Capital LLC
Charles M. Piluso (Chairman and CEO) and Harold Schwartz
(a Director and former 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 $
Eisner & Maglione CPAs LLC
Lawrence Maglione, a member of the Board of Directors,
is a partner of Eisner & Maglione CPAs LLC. The Company paid his firm $
Matthew Grover
The Company paid consulting fees of $
Systems Trading
On January 1, 2022, the Company entered into a lease agreement with Systems Trading, Inc. (“Systems Trading”), a technology leasing company established by Harold Schwartz (a Director and former President), where he currently serves as Chief Executive Officer and President, effective January 1, 2022. This lease obligation was payable to Systems Trading with monthly installments of $7,145 and expired on April 1, 2025. The lease carried 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 was payable to Systems Trading with monthly installments of
$
Other
In connection with the vesting of equity awards held
by Harold Schwartz (a Director and former President), the Company erroneously remitted $
17
Note 10 – Segment Information
Following the sale of its Cloud Solutions Business, which consisted of the operations of the Company’s subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., on September 11, 2025 (Note 3), the Company operates in one reportable segment: Nexxis, Inc. The CloudFirst Technologies Corporation and CloudFirst Europe Ltd. reportable segments were removed as a result of the sale of the Cloud Solutions Business.
The Company’s segment was determined based on its internal organizational structure, the manner in which its operations are managed, and the criteria used by the Company’s CODM, which is its Chief Executive Officer, to evaluate performance, which is generally the segment’s operating income or losses.
Nexxis, Inc. is a single-source solution provider that delivers fully-managed cloud-based voice over internet 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 the Company’s reportable segment and Corporate:
| Schedule of financial information related to reportable segments | ||||||||||||||||||||||||
| For the three months ended June 30, 2026 | For the six months ended June 30, 2026 | |||||||||||||||||||||||
| Nexxis Inc. | Corporate | Total | Nexxis Inc. | Corporate | Total | |||||||||||||||||||
| Revenue | $ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||
| Cost of sales | — | — | ||||||||||||||||||||||
| Gross profit | — | — | ||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||
| For the three months ended June 30, 2025 | For the six months ended June 30, 2025 | |||||||||||||||||||||||
| Nexxis Inc. | Corporate | Total | Nexxis Inc. | Corporate | Total | |||||||||||||||||||
| Revenue | $ | $ | — | $ | $ | $ | — | $ | ||||||||||||||||
| Cost of sales | — | — | ||||||||||||||||||||||
| Gross profit | — | — | ||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Total assets by segment are not regularly provided to or reviewed by the CODM for use in assessing performance and allocating resources, and as a result, the Company does not disclose assets by reportable segment.
Note 11 – Subsequent Events
The Company has evaluated events that occurred through the issuance of these financial statements and determined that there have been no events that have occurred that would require adjustments to the Company’s disclosures in the financial statements.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2025, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 14, 2026 (the “2025 Annual Report”). 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 SEC.
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, except as required by law.
Overview
Data Storage Corporation (“Data Storage,” “we,” “us,” “our” and the “Company”) has been a leading provider of multi-cloud hosting, fully managed cloud services, disaster recovery, cybersecurity, IT automation, and voice & data solutions for more than twenty years. Following the sale of our cloud solutions business on September 11, 2025, which consisted of the operations of our subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., there has been a strategic shift in our operations. We continue to operate our subsidiary, Nexxis Inc. (“Nexxis”), a telecommunications and data solutions access company. We are currently focused on strategic investments and are actively evaluating how to build long-term shareholder value. The alternatives under study include: (i) the acquisition of one or more revenue-generating businesses, including potentially by means of a merger in which our public listing and balance sheet serve as the platform for a combined enterprise; and (ii) the study of new organic initiatives. These initiatives remain under study. No acquisition or merger agreement has been entered into, no transaction or new business initiative has been agreed or approved, and there can be no assurance that any will be completed or pursued.
Nexxis is a provider of fully managed business voice, internet, data transport, and SD-WAN communication solutions engineered for enterprise-grade reliability, cloud performance, and simplified operations. It delivers integrated technology services designed to support modern, cloud-centric work environments with continuous uptime, superior quality of service, and a single point of management for complex connectivity needs. Nexxis operates nationwide, serving businesses across multiple verticals including healthcare, professional services, financial services, manufacturing, and distributed enterprise environments. Nexxis positions itself as a cloud-first communications provider delivering high-availability voice and data services with a simplified operational model. Nexxis differentiates itself through integrated voice and internet architecture, proactive monitoring, enterprise-grade performance, and a white-glove customer experience. The solutions offered by Nexxis are particularly well-suited for distributed enterprises, hybrid workforces, cloud-dependent organizations, and businesses requiring high uptime and performance guarantees.
The unified service agreement offered by Nexxis to its customers provides fully managed, integrated connectivity services that combine advanced voice communications with high-performance internet and WAN infrastructure. Nexxis’ business model emphasizes operational simplicity, performance optimization, and vendor consolidation. Key value drivers include:
19
● Fully Managed 24×7 monitoring and support;
● Multi-carrier redundancy and intelligent SD-WAN routing;
● Single invoice and unified service management;
● Reduced downtime and improved business continuity; and
● Lower total cost of ownership compared to legacy multi-vendor environments.
Sale of CloudFirst Business
On September 11, 2025, we closed the sale of our cloud solutions business, which consisted of the operations of our subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., including substantially all of the assets held by CloudFirst Technologies Corporation (the “CloudFirst Business”), for which we received $38,068,463 in cash. This amount was based on a contractual base purchase price of $40,000,000, adjusted at closing for a $1,500,000 escrow deposit and $431,537 in net adjustments for estimated closing date debt and working capital. After taking into account selling expenses, estimated taxes on the sale, and other transaction costs, our net proceeds from the sale were $31,600,873. On May 7, 2026, we finalized the post-closing adjustments with the purchaser of the Cloud Solutions Business, and as a result, we recorded $225,937 in additional consideration.
Recent Developments
ATM Offering
On May 26, 2026, we entered into an Equity Distribution Agreement (the “Agreement”), with Maxim Group LLC (“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, $0.001 par value per share (the “Common Stock”). The terms and conditions of the Agreement are substantially the same as the Equity Distribution Agreement, dated July 18, 2024, by and between the Company and Maxim (the “Original Agreement”).
Subject to the terms and conditions of the Agreement, Maxim will use commercially reasonable efforts consistent with its normal trading and sales practices, applicable state and federal law, rules and regulations and the rules of the Nasdaq Capital Market to sell shares from time to time based upon the Company’s instructions, including any price, time or size limits specified by the Company. Under the Agreement, Maxim may sell shares by any method deemed to be an “at the market” offering as defined in Rule 415 under the U.S. Securities Act of 1933, as amended, or any other method permitted by law, including in privately negotiated transactions. Maxim’s obligations to sell shares under the Agreement are subject to satisfaction of certain conditions, including the effectiveness of the Registration Statement and other customary closing conditions for transactions of this nature. The Company will pay Maxim a commission of 2.5% of the aggregate gross proceeds from each sale of shares and has agreed to provide Maxim with customary indemnification and contribution rights. The Company also agreed to reimburse Maxim for certain specified expenses in connection with entering into the Agreement in an amount not to exceed $25,000, in addition to $2,500 for Maxim’s legal fees on each Bringdown Date (as such term is defined in the Agreement).
The Company is not obligated to make any sales of Common Stock under the Agreement and no assurance can be given that the Company will sell any shares under the Agreement, or, if it does, as to the price or amount of shares that the Company will sell, or the dates on which any such sales will take place. The Agreement will terminate upon the earlier of: (i) the sale of all shares pursuant to the Agreement, or (ii) termination of the Agreement as provided therein.
Offers and sales of shares of Common Stock by the Company, if any, under the Agreement, will be made through a prospectus, dated July 26, 2024 and an accompanying base prospectus, dated July 26, 2024, contained therein (the “ATM Prospectus”), which ATM Prospectus forms a part of the Company’s shelf registration statement on Form S-3 (File 333-280881), initially filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on July 18, 2024 (the “Registration Statement”) and declared effective by the SEC on July 26, 2024. The ATM Prospectus relates to the offering of up to $10,600,000 of shares of the Company’s Common Stock. The Company makes no assurances as to the continued effectiveness of the Registration Statement.
20
Tender Offer
As part of our strategy to return value to our shareholders following the sale of the CloudFirst Business, our Board of Directors (the “Board”) determined to engage in a tender offer (the “Tender Offer”) to repurchase from our shareholders up to 85% of our outstanding shares of Common Stock, using 85% of our cash on hand on the date of commencement of the Tender Offer, inclusive of the net sale proceeds received in connection with the sale of the CloudFirst Business, net of certain expenses and taxes.
On December 8, 2025, we commenced the Tender Offer to repurchase up to 6,192,990 shares of Common Stock, representing approximately 83% of our issued and outstanding shares as of December 1, 2025, at the maximum aggregate purchase price for shares purchased in the Tender Offer of $32,203,548. The Tender Offer expired on January 12, 2026.
In accordance with the terms and conditions of the Tender Offer, based on the final count, on January 15, 2026, we accepted for repurchase 5,625,129 shares of Common Stock at a purchase price of $5.20 per share, for an aggregate cost of $29,250,671, excluding fees, excise taxes, and expenses relating to the Tender Offer. The shares accepted for repurchase represent approximately 72.0% of the total number of shares of Common Stock outstanding as of December 8, 2025. Following payment for, and our repurchase of, the tendered shares, we had 2,167,138 shares of Common Stock outstanding. Included in the tendered shares were an aggregate of 895,876 shares of Common Stock tendered by our directors and officers.
RESULTS OF OPERATIONS
Following the sale of our cloud solutions business on September 11, 2025, which consisted of the operations of our subsidiaries, CloudFirst Technologies Corporation and CloudFirst Europe Ltd., our continuing operations consist solely of our Nexxis subsidiary. The historical operations of the divested business have been reclassified and are presented as “Income from discontinued operations, net of tax” in our Condensed Consolidated Statements of Operations.
Accordingly, the following discussion and analysis of our results of operations focuses on our continuing operations (Nexxis) for the periods presented.
Three months ended June 30, 2026, as compared to June 30, 2025
Sales from continuing operations were $358,530 for the three months ended June 30, 2026, an increase of $30,579, or 9.3%, compared to $327,951 in the prior year period. The increase was primarily attributable to continued growth in our Nexxis voice and data solutions business, driven by the addition of new customers and increased spending from existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base.
In addition, revenue generated from existing customers increased during the three months ended June 30, 2026 compared to the three months ended June 30, 2025, reflecting higher utilization of our services and incremental service adoption. The Company also continued to diversify its customer base during the three months ended June 30, 2026.
Gross profit for the three months ended June 30, 2026 was $168,481, an increase of $30,299, or 21.9%, compared to $138,182 in the prior period. Our gross profit margin improved to 47.0% from 42.1% in the prior period, driven by favorable sales mix and operating leverage.
Selling, general and administrative expenses
| For the Three Months | ||||||||||||||||
| Ended June 30, | ||||||||||||||||
| 2026 | 2025 | $ Inc (Dec) | % Inc (Dec) | |||||||||||||
| Salaries and director fees | $ | 443,736 | $ | 470,049 | $ | (26,313 | ) | (5.6 | )% | |||||||
| Stock based compensation | 659,841 | 331,412 | 328,429 | 99.1 | % | |||||||||||
| Professional fees | 280,335 | 222,083 | 58,252 | 26.2 | % | |||||||||||
| Software as a service | 8,751 | 2,442 | 6,309 | 258.4 | % | |||||||||||
| Advertising | 2,214 | 4,785 | (2,571 | ) | (53.7 | )% | ||||||||||
| Commissions | 6,288 | 19,455 | (13,167 | ) | (67.7 | )% | ||||||||||
| Depreciation and amortization | 880 | 568 | 312 | 54.9 | % | |||||||||||
| Travel and entertainment | 4,360 | 15,091 | (10,731 | ) | (71.1 | )% | ||||||||||
| Rent and occupancy | 10,048 | 4,476 | 5,572 | 124.5 | % | |||||||||||
| Insurance | 24,449 | 3,087 | 21,362 | 692.0 | % | |||||||||||
| Other | 9,649 | 15,496 | (5,847 | ) | (37.7 | )% | ||||||||||
| Total Operating Expenses | $ | 1,450,551 | $ | 1,088,944 | $ | 361,607 | 33.2 | % | ||||||||
21
For the three months ended June 30, 2026, selling, general and administrative expenses increased $361,607, or 33.2%, to $1,450,551 from $1,088,944 for the three months ended June 30, 2025. The increase was primarily driven by a $328,429, or 99.1%, increase in non-cash stock-based compensation as a result of grants to certain executives and employees during the first quarter of 2026. Professional fees increased $58,252, or 26.2%, attributable to higher fees paid relating to legal and consulting services during the period.
Loss from continuing operations, net of tax. Loss from continuing operations, net of tax was $1,175,376 for the three months ended June 30, 2026, compared to a loss of $847,495 in the prior year period. The higher loss was primarily driven by an increase in non-cash stock-based compensation expense.
Interest income. Interest income for the three months ended June 30, 2026, was $81,415, compared to $103,267 for the three months ended June 30, 2025.
Other (expense) income. Other (expense) income was expense of $38,358 for the three months ended June 30, 2026, which represents the non-cash adjustment related to the change in fair value of equity investment during the period.
(Loss) income from discontinued operations, net of tax. For the three months ended June 30, 2026, the Company recognized a pre-tax loss of $72,493 ($49,684, net of a $22,809 tax benefit) related to the sale of its Cloud Solutions Business. The activity during the three months consisted of incremental taxes and fees incurred during the period directly related to the sale. For the three months ended June 30, 2025, income from the operations of the CloudFirst Business, net of tax, was $115,532.
Six months ended June 30, 2026, as compared to June 30, 2025
Sales from continuing operations were $705,237 for the six months ended June 30, 2026, an increase of $64,542, or 10.1%, compared to $640,695 in the prior year period. The increase was primarily attributable to continued growth in our Nexxis voice and data solutions business, driven by the addition of new customers and increased spending from existing customers. Revenue growth during the period reflects continued demand for our voice and data connectivity solutions and expansion of services within our existing customer base.
In addition, revenue generated from existing customers increased during the six months ended June 30, 2026 compared to the six months ended June 30, 2025, reflecting higher utilization of our services and incremental service adoption. The Company also continued to diversify its customer base during the six months ended June 30, 2026.
Gross profit for the six months ended June 30, 2026 was $354,500, an increase of $75,541, or 27.1%, compared to $278,959 in the prior period. Our gross profit margin improved to 50.3% from 43.5% in the prior period, driven by favorable sales mix and operating leverage.
Selling, general and administrative expenses
| For the Six Months | ||||||||||||||||
| Ended June 30, | ||||||||||||||||
| 2026 | 2025 | $ Inc (Dec) | % Inc (Dec) | |||||||||||||
| Salaries and director fees | $ | 953,683 | $ | 942,363 | $ | 11,320 | 1.2 | % | ||||||||
| Stock based compensation | 1,221,249 | 468,012 | 753,237 | 160.9 | % | |||||||||||
| Professional fees | 598,100 | 405,115 | 192,985 | 47.6 | % | |||||||||||
| Software as a service | 16,374 | 3,109 | 13,265 | 426.7 | % | |||||||||||
| Advertising | 10,562 | 6,518 | 4,044 | 62.0 | % | |||||||||||
| Commissions | 12,616 | 33,834 | (21,218 | ) | (62.7) | % | ||||||||||
| Depreciation and amortization | 1,434 | 1,098 | 336 | 30.6 | % | |||||||||||
| Travel and entertainment | 16,741 | 31,530 | (14,789 | ) | (46.9) | % | ||||||||||
| Rent and occupancy | 19,768 | 8,700 | 11,068 | 127.2 | % | |||||||||||
| Insurance | 51,182 | 6,747 | 44,435 | 658.6 | % | |||||||||||
| Other | 20,955 | 38,833 | (17,878 | ) | (46.0) | % | ||||||||||
| Total Operating Expenses | $ | 2,922,664 | $ | 1,945,859 | $ | 976,805 | 50.2 | % | ||||||||
22
For the six months ended June 30, 2026, selling, general and administrative expenses increased $976,805, or 50.2%, to $2,922,664 from $1,945,859 for the six months ended June 30, 2025. The increase was primarily driven by a $753,237, or 160.9%, increase in non-cash stock-based compensation as a result of grants to certain executives and employees during first quarter of 2026. Professional fees increased $192,985, or 47.6%, attributable to higher fees paid relating to legal and consulting services during the period.
Loss from continuing operations, net of tax. Loss from continuing operations, net of tax was $1,943,634 for the six months ended June 30, 2026, compared to a loss of $1,442,727 in the prior year period. The higher loss was primarily driven by an increase in non-cash stock-based compensation expense.
Interest income. Interest income for the six months ended June 30, 2026, was $199,800, compared to $224,173 for the six months ended June 30, 2025.
Other (expense) income. Other (expense) income was income of $80,857 for the six months ended June 30, 2026, which represents the non-cash adjustments related to the change in fair value of the warrant liability partially offset by the change in fair value of equity investment during the period.
(Loss) income from discontinued operations, net of tax. For the six months ended June 30, 2026, the Company recognized a pre-tax gain of $130,845 ($99,307, net of a $31,538 tax provision) related to the sale of its Cloud Solutions Business. The activity during the three months consisted of incremental taxes and fees incurred during the period directly related to the sale, offset by the final post-closing adjustments of $225,937. For the six months ended June 30, 2025, income from the operations of the CloudFirst Business, net of tax, was $737,152.
LIQUIDITY AND CAPITAL RESOURCES
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.
To the extent we are successful in identifying potential acquisition targets and negotiating the terms of such acquisitions, and where the purchase price may include a cash component, we expect to use our working capital and the proceeds of any financing we may engage in to finance such acquisition costs.
Our conclusion 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 may require a reduction in selling general and administrative expenses, including salaries for officers that are major shareholders.
The Company’s working capital (excluding the amounts payable to the purchaser of the CloudFirst Business included as discontinued operations and excise taxes payable) in the Company’s continuing operations was $10,261,306 on June 30, 2026, decreasing by $31,523,147 from $41,784,453 at December 31, 2025. The decrease was primarily driven by the sale of marketable securities during the period of $30,205,420, which was largely used for the purchase of shares and payment of costs totaling $29,528,957 in connection with the Tender Offer. The marketable securities utilized for the Tender Offer were originally purchased using net proceeds from the sale of the CloudFirst Business in the second half of the year ended December 31, 2025.
Tender Offer and Resulting Cash Position
On December 8, 2025, we commenced a fixed price tender offer to repurchase up to 6,192,990 shares of our Common Stock at a maximum aggregate purchase price of $32.2 million. The Tender Offer expired on January 12, 2026, and on January 15, 2026, we accepted for repurchase 5,625,129 shares of Common Stock at $5.20 per share, for an aggregate purchase price of $29,250,671, excluding fees, excise taxes, and expenses relating to the Tender Offer. Following payment for, and our repurchase of, the tendered shares, we had 2,167,138 shares outstanding and retained over $10.0 million in cash.
23
Impact on Liquidity, Capital Allocation, and Future Obligations
The Tender Offer significantly reduced our outstanding share count and utilized a substantial portion of our cash resources. However:
| ● | We remained well capitalized following completion of the Tender Offer, with more than $10.0 million in cash and marketable securities and no material near-term debt maturities. |
| ● | We did not incur additional indebtedness to fund the Tender Offer. |
| ● | We continue to evaluate capital allocation alternatives, including preservation of liquidity for operations. |
As of June 30, 2026, we had cash of $1,270,691 (including escrow funds receivable), marketable securities of $9,008,914, and working capital of $10,261,306 (excluding excise taxes payable). We believe our current cash position of approximately $9.0 million (including escrowed funds), as of August 13, 2026, proceeds from the sale of marketable securities, and our expected cash flows from operations will be sufficient to fund working capital needs, capital expenditures, and operating commitments for at least the next 12 months from the date of the filing of this Quarterly Report on Form 10-Q.
Working Capital and Cash Flow Considerations
Our liquidity profile is primarily driven by cash on hand remaining after the Tender Offer, and careful management of operating and capital expenditures. We are actively managing expenses and have reduced corporate spending to align with our smaller portfolio and strategic transition.
Outlook
We expect that our current liquidity, together with anticipated cash flows, will support operational needs. We expect that we may also pursue additional sources of liquidity, including:
| ● | reductions in selling, general and administrative expenses, and |
| ● | potential changes in our investment strategy. |
We will continue to monitor macroeconomic conditions and capital market trends, including impacts on financing availability.
Cash Flows for the six months ended June 30, 2026, as compared to June 30, 2025
The following table summarizes the Company’s cash flows:
| Six Months Ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Cash (used in) provided by operating activities of continuing operations | $ | (2,644,827 | ) | $ | 224,386 | |||
| Cash provided by investing activities of continuing operations | 29,995,210 | 749,671 | ||||||
| Cash (used in) provided by financing activities of continuing operations | (29,569,046 | ) | 38,267 | |||||
| Cash used in discontinued operations | — | (1,481,048 | ) | |||||
| Effect of exchange rate changes on cash | — | 9,950 | ||||||
| Decrease in cash and restricted cash | (2,218,663 | ) | (458,774 | ) | ||||
| Cash and restricted cash, beginning of period | 3,489,354 | 1,070,097 | ||||||
| Cash and restricted cash, end of period | $ | 1,270,691 | $ | 611,323 | ||||
24
Operating Activities
Cash used in operating activities of continuing operations was $2,644,827 for the six months ended June 30, 2026, compared to cash provided by operating activities of $224,386 for the prior year period. The cash used in 2026 was primarily driven by the loss from continuing operations, net of tax, of $1,943,634 and cash paid for income taxes of $1,711,787 primarily related to the sale of the CloudFirst Business during the year ended December 31, 2025.
Investing Activities
Cash provided by investing activities of continuing operations was $29,995,210 for the six months ended June 30, 2026, compared to $749,671 for the prior year period. The cash provided in 2026 was driven by marketable securities, as reflected in purchases of $210,210 and sales of $30,205,420, originally purchased using proceeds from the sale of the CloudFirst Business in 2025, during the period.
Financing Activities
Cash used in financing activities of continuing operations was $29,569,046 for the six months ended June 30, 2026, compared to cash provided by financing activities of $38,267 for the prior year period. The significant cash use in 2026 represents our purchase, on January 15, 2026, of 5,625,129 shares of Common Stock in the Tender Offer, at a purchase price of $5.20 per share, for an aggregate cost of $29,250,671, excluding fees, excise taxes, and expenses relating to the Tender Offer, using funds from sales of marketable securities. The repurchased shares are now held as treasury stock, as reflected in our unaudited financial statements attached to this Quarterly Report on Form 10-Q.
Cash Flows from Discontinued Operations
Cash used in discontinued operations was $1,481,048 for the six months ended June 30, 2025, which represents the net cash flows from the CloudFirst Business. There was no cash used in discontinued operations for the six months ended June 30, 2026.
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 the Company’s 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 loss from continuing operations, net of tax. The Company defines Adjusted EBITDA as loss from continuing operations, net of tax adjusted for income taxes, interest, depreciation, amortization, stock-based compensation, and other non-cash income and expenses. 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.
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.
25
The following table shows the Company’s reconciliation of loss from continuing operations, net of tax to Adjusted EBITDA for the three and six months ended June 30, 2026, and 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Loss from continuing operations, net of tax | $ | (1,175,376 | ) | $ | (847,495 | ) | $ | (1,943,634 | ) | $ | (1,442,727 | ) | ||||
| Non-GAAP adjustments: | ||||||||||||||||
| Depreciation and amortization | 880 | 568 | 1,434 | 1,098 | ||||||||||||
| Interest income | (81,415 | ) | (103,267 | ) | (199,800 | ) | (224,173 | ) | ||||||||
| Other expense (income) | 38,358 | — | (80,857 | ) | — | |||||||||||
| Benefit from income taxes | (63,637 | ) | — | (343,873 | ) | — | ||||||||||
| Stock-based compensation | 659,841 | 331,412 | 1,221,249 | 468,012 | ||||||||||||
| Adjusted EBITDA | $ | (621,349 | ) | $ | (618,782 | ) | $ | (1,345,481 | ) | $ | (1,197,790 | ) | ||||
Critical Accounting Estimates
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. The Company believes 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 the Company believes are significant to the presentation of its 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 2025 Annual Report.
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 Quarterly Report on Form 10-Q, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) 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 our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2026.
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 Quarterly Report on Form 10-Q, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
26
Remediation of Previously Reported Material Weakness
In connection with the preparation of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2025, management identified a material weakness in our internal control over financial reporting. The material weakness related to the design and operating effectiveness of controls over the accounting and disclosure of significant and unusual transactions—specifically, those arising from the divestiture of a material portion of our business. Our controls were not effectively designed to ensure a complete and accurate technical review of the complex accounting and tax elements associated with this transaction.
This deficiency identified during the third quarter of 2025 resulted in an error related to the income tax implications of the divestiture of the CloudFirst Business. Subsequently, in connection with the preparation of the 2025 Annual Report, we identified an additional error stemming from the same material weakness regarding the treatment of certain warrants impacted by the divestiture. Specifically, on September 11, 2025, the closing of the divestiture of the CloudFirst Business triggered a cash-settlement provision within our Common Stock Purchase Warrants issued by us on July 21, 2021 to institutional investors (the “July 2021 Warrants”), requiring them to be reclassified from equity to a liability at fair value. We determined that the initial recognition of the $2,461,663 warrant liability was incorrectly recorded in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 as a component of Gain on sale of discontinued operations, net of tax, rather than as a reduction to Additional Paid-in Capital.
Accordingly, within the 2025 Annual Report, we restated certain financial statements previously included in the Quarterly Report on Form 10-Q for the period ended September 30, 2025, to reflect the initial recognition of the July 2021 warrant liability as a debit to equity, with subsequent changes in fair value of the warrant liability recognized in the consolidated statements of operations.
In 2026, we identified and implemented several steps to remediate these material weaknesses in order to comply with the rules and regulations of the SEC regarding compliance with Section 404(a) of the Sarbanes-Oxley Act. We prepared remediation plans for the material weakness and trained process owners, developed new controls, enhanced existing controls, evaluated process adoption, and monitored such results. These remediation measures included the following:
| ● | Enhancing internal review procedures to ensure that significant and unusual transactions are identified, analyzed, and reviewed with appropriate rigor each quarter, including adding a formalized agenda to a monthly committee meeting, including executives and an external advisor, to review such transactions to ensure proper accounting thereon. |
| ● | Engaging appropriate internal and external resources to support the evaluation of complex transactions, including associated accounting and disclosure requirements, where specialized expertise is required. |
| ● | Formal preparation and review of a disclosure checklist prior to filing Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. |
Our management completed its documentation, testing and evaluation of the enhanced control activities and determined that, as of June 30, 2026, these control activities have been appropriately designed and implemented, and have operated effectively for a sufficient period of time to conclude that the previously identified material weakness has been remediated.
Changes in Internal Control over Financial Reporting
Other than as set forth above, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
PART II - 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.
Introduction and Certain Cautionary Statements
As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, references to the “Company,” “we,” “us,” and “our” refer to Data Storage Corporation and its subsidiaries. The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and schedules included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements for the year ended December 31, 2025 and 2024 and the accompanying notes, which are included in the 2025 Annual Report. This discussion, particularly information with respect to our future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and the 2025 Annual Report for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Statements contained in this Quarterly Report on Form 10-Q may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “would,” “estimates,” “may,” “might,” “plan,” “expect,” “intend,” “should,” “will,” or other variations on these terms or their negatives. All statements other than statements of historical facts are statements that could potentially be forward-looking. We caution that forward-looking statements involve risks and uncertainties, and actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate or prediction is realized. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, those discussed in the section titled “Risk Factors” included under Part II, Item 1A below and those discussed in the section titled “Risk Factors” included under Part I, Item 1A in the 2025 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statement.
Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the objectives and plans of ours will be achieved. Investors are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date on which such statements are made. Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake to update any forward-looking statement that may be made from time to time on our behalf.
28
We have not generated a significant amount of net income and we may not be able to sustain profitability in the future.
As reflected in the condensed consolidated financial statements, we had a net loss attributable to common stockholders of $1,856,787 for the six months ended June 30, 2026. As of June 30, 2026, we had cash of $1,270,691 (including escrow funds receivable), marketable securities of $9,008,914, and working capital of $10,261,306 (excluding excise taxes payable). There can be no assurance that we will continue to generate income in the future or that the income will be significant.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Unregistered Sales of Equity Securities
There were no unregistered sales of the Company’s equity securities during the three months ended June 30, 2026, that were not previously reported in its filings with the SEC.
(b) Use of Proceeds
Not applicable.
(c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities.
There were no defaults upon senior securities during the three months ended June 30, 2026.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information.
29
Item 6. Exhibits.
| Exhibit No. | Description | |
| 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form SB-2 (File No. 333-148167) filed with the Securities and Exchange Commission on December 19, 2007). | |
| 3.2 | Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form SB-2 (File No. 333- 148167) filed with the Securities and Exchange Commission on December 19, 2007). | |
| 3.3 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 333-148167) filed with the Securities and Exchange Commission on October 17, 2008). | |
| 3.4 | Certificate of Amendment (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 333-148167) filed with the Securities and Exchange Commission on October 24, 2008) | |
| 3.5 | Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K (File No. 333-148167) filed on October 24, 2008). | |
| 3.6 | Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 333-148167) filed with the Securities and Exchange Commission on January 9, 2009). | |
| 3.7 | Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation (incorporated by reference to Appendix F to the Information Statement on Schedule 14C (File No. 001-35384) filed with the Securities and Exchange Commission on March 8, 2021). | |
| 3.8 | Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State on April 19, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on April 20, 2021). | |
| 3.9 | Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State on April 19, 2021 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35384000-54579) filed with the Securities and Exchange Commission on April 20, 2021). | |
| 3.10 | Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State on April 19, 2021 (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on April 20, 2021). | |
| 3.11 | Certificate of Correction and Certificate of Validation to the Certificate of Amendment to the Articles of Incorporation filed with the Nevada Secretary of State on April 19, 2021 (incorporated by reference to Exhibit 3.4 to the Registrant’s Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on April 20, 2021). | |
| 3.12 | Certificate of Change filed with the Nevada Secretary of State on May 7, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on May 13, 2021). | |
| 3.13 | Amendment to Bylaws (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on May 6, 2024). | |
| 10.1 | Equity Distribution Agreement, dated May 26, 2026, by and between Data Storage Corporation and Maxim Group LLC (incorporated by reference to Exhibit 5.1 to Current Report on Form 8-K (File No. 001-35384) filed with the Securities and Exchange Commission on May 26, 2026) | |
| 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 | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover page Interactive Data File (embedded within the Inline XBRL document) | |
* Furnished herewith.
| # | Indicates management contract or compensatory plan. |
30
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: August 14, 2026 | ||
| By: | /s/ Charles M. Piluso | |
| Charles M. Piluso | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2026 | ||
| By: | /s/ Chris H. Panagiotakos | |
| Chris H. Panagiotakos | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
31