Note 5 – Stockholders’ Equity

Capital Stock

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

On July 18, 2024, the Company entered into an Equity Distribution Agreement (the “Agreement”), pursuant to which it may offer and sell, from time to time, shares of its common stock. Sales of shares of common stock under the Agreement will be made pursuant to the Company’s registration statement on Form S-3 (File No. 333-280881) (the “Registration Statement”) and a related prospectus supplement (the “ATM Prospectus”). The ATM Prospectus relates to the offering of up to $10,600,000 shares of the Company’s common stock. The issuance and sale, if any, of common stock under the Agreement is subject to the Company maintaining an effective registration statement. The Registration Statement was declared effective on July 26, 2024. The Company did not make any sales under the Agreement, which expired in July 2025. The Company recognized deferred offering costs associated with the Agreement of $113,167 at December 31, 2024 which were expensed as a component of selling, general and administrative expenses during the year ended December 31, 2025. The Company is in the process of entering into a new equity distribution agreement which is expected to be executed during the year ended December 31, 2026.

During the years ended December 31, 2025 and 2024, employees exercised 411,540 and 68,988 stock options, respectively, into shares of Common Stock. The Company received $957,997 and $133,005 in proceeds for these option exercises during the years ended December 31, 2025 and 2024, respectively.

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, as amended and restated (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 15,000,000 shares of Company 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 December 31, 2025, there were 857,291 shares available for future grants under the 2021 Plan.

Additionally, there are 6,250 options outstanding and exercisable under the Data Storage Corporation 2010 Incentive Award Plan (the “2010 Plan”) as of December 31, 2025. The 2010 Plan expired on October 21, 2020, and accordingly, there are no shares available for future grants.

On July 1, 2024, the Company registered an additional 111,323 and 1,000,000 shares of common stock under the 2010 Plan and 2021 Plan, respectively.

Common Stock Options

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

Share-based compensation expense recognized for stock options granted totaled $507,018 and $188,624 for the years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, there was no unrecognized compensation expense related to unvested employee stock options granted under the Company’s share-based compensation plans as all such options are fully vested.

The intrinsic value of outstanding stock options as of December 31, 2025, and 2024 was $464,820 and $1,171,313, respectively.

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 years ended December 31, 2025, and 2024, are set forth in the table below:

Share-based awards, Restricted Stock Units (“RSUs”) and Restricted Stock Awards (“RSAs”)

On January 2, 2024, the Company granted certain employees an aggregate of 70,393 RSUs. Compensation as a group amounted to $156,251. The shares vest one third each year for three years after issuance.

On March 31, 2024, the Company granted its Board members an aggregate of 14,166 RSUs. Compensation as a group amounted to $81,030. The shares vest one year after issuance.

On April 1, 2024, the Company granted a nonemployee consultant an aggregate of 2,660 RSAs. Aggregate compensation for the grant was $15,002. The shares vested on the grant date.

On January 3, 2025, the Company granted certain employees an aggregate of 11,078 RSUs. Compensation as a group amounted to $54,061. The shares vest one year after issuance.

On January 17, 2025, the Company granted certain employees an aggregate of 19,012 RSUs. Compensation as a group amounted to $79,375. The shares vest one third each year for three years after issuance.

On January 22, 2025, the Company granted a nonemployee consultant an aggregate of 1,000 RSAs. Aggregate compensation for the grant was $4,700. The shares vested on the grant date.

One June 2, 2025 the Company granted certain employees and its Board members an aggregate of 93,993 RSUs. Compensation as a group amounted to $356,233. The shares vest one year after issuance.

A summary of the activity related to share-based awards for the year ended December 31, 2025, is presented below:

Stock-based compensation for share-based awards has been recorded in the consolidated statements of operations and totaled $498,812 and $310,375 for the years ended December 31, 2025, and 2024, respectively. As a result of the sale of the Company’s Cloud Solutions Business (Note 3) all RSU then-outstanding vested upon closing of the sale on September 11, 2025, therefore as of December 31, 2025, there was no unrecognized compensation expense related to unvested RSUs granted under the Company’s share-based compensation plans.

Discontinued Operations

Stock-based compensation related to discontinued operations totaled $590,757 and $295,589 for the years ended December 31, 2025, and 2024, respectively. 

Common Stock Warrants

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

Schedule of warrant activity and related information

The intrinsic value of outstanding warrants as of December 31, 2025 and 2024 was $0.

Description of July 2021 Warrants and Fundamental Transaction

Included in warrants outstanding as of December 31, 2024 were 1,031,250 Common Stock Purchase Warrants issued by the Company on July 21, 2021 to institutional investors (the “July 2021 Warrants”). The July 2021 Warrants have an exercise price of $6.15 per share, and contained a “Fundamental Transaction” provision stating that upon a merger, change in control, or sale of all or substantially all of the Company’s assets, holders of the July 2021 Warrants could, at their option, require the Company to purchase their July 2021 Warrants by paying such holders a cash payment equal to the Black-Scholes Value (as such term is defined in the July 2021 Warrants) of their July 2021 Warrants (the “Put Right”). The Put Right is only available to holders of the July 2021 Warrants in cases where the Fundamental Transaction is within the Company’s control. In the event a Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, the holders of the July 2021 Warrants would receive the same form of consideration the holders of Company Common Stock receive. On September 11, 2025, the Company completed the sale of its Cloud Solutions Business, which sale was previously approved by the Company’s Board of Directors (see Note 3, “Discontinued Operations”). This transaction constituted a Fundamental Transaction within the Company’s control, which triggered the cash-settlement provision for all outstanding July 2021 Warrants.

Prior to September 11, 2025, the July 2021 Warrants were classified as equity, as 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 September 11, 2025, required the July 2021 Warrants to be reclassified from equity to a liability at their fair value, therefore the Company recognized an initial warrant liability of $2,461,663, with a corresponding decrease to Additional Paid-in Capital.

The warrant liability was subject to remeasurement at fair value at each subsequent reporting period, with changes in fair value of $215,681 recognized as a component of the Gain on sale of discontinued operation, net of tax for the year ended December 31, 2025. During September and October 2025, the Company completed the final settlement of its outstanding warrant liability. The full liability was extinguished through two actions:

●       Cash payments totaling $2,049,388 were made to certain holders of July 2021 Warrants to purchase up to 858,750 shares of Common Stock, upon such holders’ exercise of their Put Right and the Company’s purchase of such warrants and cash payment to such holders equal to the Black Sholes Value of their July 2021 Warrants.

●       The remaining liability balance of $196,294 which related to July 2021 Warrants to purchase up to 172,500 shares of Common Stock was reclassified to Additional Paid-in Capital, as the 30-day period for holders to require the Company to purchase such July 2021 Warrants at the Black Scholes Value expired on October 11, 2025.

As of December 31, 2025, there was no remaining liability associated with these warrants.

Fair Value Measurement

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 outstanding warrant liability as of September 11, 2025, the transaction date, and as of October 11, 2025, the Put Right expiration date, were as follows:

Preferred Stock

Liquidation preference

Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Common Stock, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of the Company legally available for distribution to stockholders, for each share of Series A Preferred Stock held by such holder, an amount per share of Series A Preferred Stock equal to the Original Issue Price (as such term is defined in the Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Data Storage Corporation (the “Series A COD”)) for such share of Series A Preferred Stock plus all accrued and unpaid dividends on such share of Series A Preferred Stock as of the date of the Liquidation Event. No shares of Series A Preferred Stock are issued as of December 31, 2025.

Conversion

The number of shares of Common Stock into which a share of Series A Preferred Stock may be converted shall be the product obtained by dividing the Original Issue Price of such share of Series A Preferred Stock by the then-effective Conversion Price (as defined in the Series A COD) for such share of Series A Preferred Stock. The current Conversion Price for the Series A Preferred Stock is $55.60 and shall be adjusted from time to time.

Voting

Each holder of shares of Series A Preferred Stock shall be entitled to the number of votes, upon any meeting of the stockholders of the Company (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Common Stock into which such shares of Series A Preferred Stock could be converted.

Dividends

Each share of Series A Preferred Stock, in preference to the holders of all Common Stock, shall entitle its holder to receive, but only out of funds that are legally available therefore, cash dividends at the rate of ten percent (10%) per annum from the Original Issue Date on the Original Issue Price for such share of Series A Preferred Stock, compounding annually unless paid by the Company. There are no shares of Series A Preferred Stock outstanding as of December 31, 2025 or 2024.