0001213900-14-002424.txt : 20140415 0001213900-14-002424.hdr.sgml : 20140415 20140415125313 ACCESSION NUMBER: 0001213900-14-002424 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20131231 FILED AS OF DATE: 20140415 DATE AS OF CHANGE: 20140415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Data Storage Corp CENTRAL INDEX KEY: 0001419951 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 980530147 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-35384 FILM NUMBER: 14764366 BUSINESS ADDRESS: STREET 1: 401 FRANKLIN AVENUE CITY: GARDEN CITY STATE: NY ZIP: 11530 BUSINESS PHONE: 212-564-4922 MAIL ADDRESS: STREET 1: 401 FRANKLIN AVENUE CITY: GARDEN CITY STATE: NY ZIP: 11530 FORMER COMPANY: FORMER CONFORMED NAME: Euro Trend Inc. DATE OF NAME CHANGE: 20071130 10-K 1 f10k2013_datastoragecorp.htm ANNUAL REPORT f10k2013_datastoragecorp.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-K
 

 
(Mark One)
x     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
 
o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
 
Commission File No. 001-35384
 
DATA STORAGE CORPORATION
(Exact name of registrant as specified in its charter)
 
NEVADA
 
98-0530147
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S.  Employer
Identification No.)
 
401 Franklin Avenue
   
Garden City, N.Y
 
11530
(Address of principal executive offices)
 
 
(Zip Code)
Registrant’s telephone number, including area code:   (212) 564-4922

Securities registered under Section 12(b) of the Exchange Act:
None
 
Securities registered under Section 12(g) of the Exchange Act:
 
Title of each class registered:
Name of each exchange on which registered:
Common Stock , par value $.001 per share
OTC.BB
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes o    No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o    No  x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x    No o
  
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o    No x
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of S-K (§229.405)  is contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No o
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o     Do not check if a smaller reporting company
Smaller reporting company
x
 
The aggregate market value of the 6,135,654 shares of common stock held by non-affiliates of the registrant as of June 30, 2013, was $306,783.
 
The number of shares of the registrant’s common stock outstanding as of April 15, 2014 was 36,125,845.
 


 
 

 
 
Data Storage Corporation
Table of Contents
 
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1

 
 
 
 
Overview
 
OVERVIEW OF DATA STORAGE CORPORATION & INDUSTRY:  

Data Storage Corporation (“DSC” or “the Company”) is a different company in many ways from our 2001 commencement.  From the very beginning we focused on assisting businesses in their disaster recovery to business continuity plans.  Each year we continue to pivot, but with our same mission.  Protecting our client’s data, ensuring business continuity, assisting in their compliance requirements and giving our clients better control over their information.  We continue to stay on top of this dynamic industry with new solutions and services.  Today, the Company owns intellectual property with our email archival and data analysis software, Message Logic.  We provide Recovery Clouds for Managed Service Providers, so that these companies can enter the industry of providing Disaster Recovery and Business Continuity solutions at a lower entry point. Our IBM solutions continue to grow with our legacy solutions and our newly formed joint venture, Secure Infrastructure and Services LLC, leading the way for Infrastructure as a Service on IBM’s Power i systems.

DSC, is a 13 year veteran in cloud storage and cloud computing, providing data protection, disaster recovery, business continuity and compliance solutions that assist organizations in protecting their data, minimizing downtime and ensuring regulatory compliance. Serving the rapidly emerging business continuity market, DSC’s clients save time and money, gain more control and better access to data and enable high level of security for that data. Solutions include: Infrastructure-as-a-Service, data backup, recovery and restore, high availability data replication services; email archive and compliance solutions for e-discovery; continuous data protection; data de-duplication; and virtualized system recovery.  DSC has forged relationships with leading organizations for distribution such as Dell, Amazon, Nasdaq, and IBM and many others.
 
Headquartered in Garden City, NY, DSC offers its solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government industries.

Our Continuing Strategy set forth in 2013
 
DSC derives revenues from long term subscription and professional services contracts related to the implementation of solutions that provide protection of critical computerized data. In 2009 revenues consisted primarily of offsite data backup, de-duplication, continuous data protection, Cloud Disaster Recovery solutions and Electronic Medical Records, protecting information for our clients. In 2010, we expanded our solutions based on the asset acquisition of SafeData. In 2012, we continued to assimilate organizations, expanded our technology, as well as our technical group and positioned the new organization for growth.  In October 2012, we purchased the software and assets of Message Logic. We deliver our solutions over highly reliable, redundant and secure fiber optic networks with separate and diverse routes to the internet.
 
 
2

 
 
DSC is positioned to leverage our infrastructure, data center, equipment capacity and leadership team to grow revenue to significant levels. Positioned for organic growth, our strategy will be to grow through acquisition of synergistic solutions. DSC believes opportunities exist to acquire service providers to enhance our products and services portfolio, increase our distribution channels, expand our management and increase our cash flow.
 
Our objective with acquisitions is to reduce costs through economies of scale while increasing market share and consolidating efforts. We believe that through a strategy of partnership program, as well as acquisition of synergistic service providers we can create significant value. 
 
We believe that the opportunity exists today to acquire and consolidate synergetic companies in this fragmented industry. This strategy will enable DSC to create an international presence, and a recognizable premiere brand. The roll up of these technical consulting companies and system integrators will also form a powerful distribution channel for both our current and future service offerings.
 
DESCRIPTION OF SERVICES AND SOLUTIONS
 
DSC’s core competencies are the following: Email Archival and Data Analysis, Data Vaulting, Virtual Disaster Recovery and High Availability.
 
BUSINESS CONTINUTY SOLUTION: The Recovery Cloud:  

DSC offers a fully automated service designed to reduce the overall costs associated with backup and recovery of application and file servers that enables organizations to centralize and streamline their data protection process. Business-critical data can be backed up any time, while servers are up and running.

The essence of data backup is simply the scheduled movement of “point-in-time” snapshots of data across a network to a remote location.  DSC’s disk-to-disk backup and recovery solution is reliable and easy-to-use.  As part of this service, DSC offers Continuous Data Protection (“CDP”), delta block processing, data de-duplication and large volume protection.

Significant advantages over traditional backup software:
 
immediate off-site backup
reduced backup windows
elimination of tape management issues
minimized costs associated with distributed backups
elimination of human intervention
encryption of all backed up data
optimized bandwidth
 
BENEFITS AND FEATURES OF THE RECOVERY CLOUD:
 
Data Archiving – Lifecycle Management

Backup data must be managed throughout its lifecycle to provide the best data protection, meet compliance regulations and to improve recovery time objectives (“RTO”). DSC offers policy-based file archiving and manages archiving and restoration of data from backup sessions, reducing the cost of inactive files on-line. DSC creates restorable point-in-time copies of backup sets for historical reference to meet compliance objectives and creates Certificates of Destruction.  All of an enterprise's data can be placed into one of two categories. Critical information is that which is needed for day-to-day operations and resides in the system's primary storage for fast access. Important information is the historical, legal and regulatory information that can safely be archived to secondary storage, lower cost disk or tapes stored offsite.

Continuous Data Protection (“CDP”)

What if a database is corrupted in the middle of the workday?  As data continually mounts in today’s fast paced business environment, organizations need to protect their systems on an ongoing basis, or risk losing mission-critical data, information, and transactions, as well as associated business revenue. CDP solutions employ sophisticated I/O, CPU, and network throttling to achieve efficiency and reliability. Moreover, to protect against connectivity failures and interruptions, CDP features an auto resume mechanism that sustains replication and adapts according to the environment to achieve optimal and predictable performance.

Our technology will identify and propagate only that sector of data to the disaster recovery site, effectively reducing bandwidth and storage consumption.  CDP also employs data compression and encryption to maximize network bandwidth utilization and ensure end-to-end security between the primary and DR site.

 
3

 
 
Microsoft Exchange

Ensure business-critical e-mail data is protected against application or hardware-based corruption or loss, user error, or a natural disaster with our solution.  Designed with ease of use in mind, our solution provides Exchange Server 2000/2003/2007 complete protection down to the individual mailbox or even an individual mail message.

BUSINESS CONTINUTY SOLUTION:  Disaster Recovery WITH STAND BY SERVERS:   A data recovery solution leveraging electronic vaulting technology and standby servers for businesses with recovery time objectives of 10 hours or less operating on Intel or IBM system i platforms.

Disaster Recovery for Windows and IBM I Series

Organizations may not require real-time recovery.  For those with recovery time objectives of 10 hours or less, DSC’s DR Standby Server subscription-based service is a viable option requiring little or no initial capital expenditure.

Available for the IBM System iSeries, UNIX, AIX and Windows operating systems.  Instantly transfers data off-site to one of DSC’s secure data centers.  All data is encrypted prior to transmission and remains encrypted “in-flight” and “at rest” to ensure protection and to meet today’s compliance standards.
 
Benefits of DR include:

fast recovery times (in hours, not days)
no tapes to get lost or damaged
virtual recovery that fully protects your server investment
eliminate data recovery burden on IT resources
 
High Availability / Replication for both Windows and IBM I Series
 
Our cloud-based HA services provide businesses with cost-effective access to best-in-class replication technologies for organizations of all sizes, operating in Windows, IBM iSeries/AS400, MS Windows, UNIX, Linux and AIX environments. For those companies that have recovery time objectives of 1 hour or less, DSC’s HA solution meets the high availability demands of their business. DSC’s HA solution is a subscription-based high availability offering.  For a monthly subscription fee and long-term contract, DSC creates and maintains a mirror of its clients’ mission-critical systems and data at a secure off-site data center ensuring their business is “switch ready.”  During either planned or unplanned downtime, DSC’s HA solution ensures the business will continue to operate, by providing an essential Infrastructure-as-a-service (IaaS), switchable “mirror” of a client’s data and applications.
 
In the event of an outage, the DSC system becomes the client’s production system.  When the client’s production system is again operational, the DSC server updates the client’s system with any new data.  When downtime is planned, the customer can switch to the DSC server and run its production applications.

Benefits of DSC’s HA include:
 
data and application availability in one hour or less
cost-effective
easy to implement and manage
reliable backup and recovery
 
Cloud Based IBM Power i IaaS:  

A fully managed service, offering “capacity on demand” for IBM Power Systems (AS400/IBM i, AIX) and Windows based applications. This infrastructure as a service is secure and reliable solution for enterprises. IBM iSeries infrastructure is provided through our venture with Joint Venture called Secure Infrastructure and Services, LLC.  IBM iSeries servers turned up in hours instead of weeks and on demand.  Distributed through a partnership network.

 
4

 

Message Logic

Email Archival & Analytics*: Services designed to keep email and message content safe, secure and accessible with powerful, cost-efficient email and IM archiving, monitoring and retrieval that is flexible, scalable and dependable.

Our MLArchiver has taken email archiving to a new level by combining archiving with advanced analytics. We deliver our technology as the only certified VMware Ready software, and cloud enabled software with partners such as Amazon Web Services, Windows Azure and NASDAQ OMX. We turn all emails into searchable records to meet regulatory and legal search needs and work with companies in all industries including K12, local government, finance and healthcare which have strict regulatory requirements to archive and produce emails when requested. Our combined analytic engine also identifies potential problems and concerns for management and can alert them and the sender of a possible issue. This has become a major advantage for businesses who deal with personal and confidential information such as social security numbers or for dealing with HR concerns. Emails are introduced as evidence in nearly all court cases and are very often cited in the media. Having a system to manage emails as records with integrity has become a critical function for all organizations.

Benefit of MLArchiver
 
Ease of Use, Affordable
 
 
Intuitive design for easy to use; yet the features are advanced and powerful.
 
Records Management
 
 
Good record keeping is essential for any organization.  MLArchiver captures all emails, full-text indexes the message and attachment, applies retention policies and turns emails into non-alterable records.
 
Regulatory & Litigation Process
 
 
MLArchiver make responding to regulatory or litigation search requests quick and easy. We meet the Federal Rules of Civil Procedure process for legal discovery and have advanced searching, dynamic folders, tagging, legal hold management and exporting options.
 
Compliant
 
 
Nearly all industries have one or more regulations which require them to treat emails as corporate records and produce them when requested.  ML is a fully compliant solution.
 
Analytics
 
 
50 custom and standard analytics to let management “Know what is being archived” with real-time alerts. Identify and report on business critical information.
 
Employee Access & Email Storage Cost
 
 
Emails older than 6 months are infrequently accessed.  MLArchiver provides tools for employee access via web interface or Outlook.  Archive storage is lower cost storage for cost reductions.

 
5

 
 
COMPETITION
 
Many of the companies we  compete with have substantially greater name recognition and financial resources than we have, which may limit our opportunity within the market place from a customer standpoint as well as from an acquisition standpoint.
 
High Availability and Virtual Disaster Recovery Services

The following vendors compete with DSC within the HA and virtual DR services sector: HP Services, IBM Business Continuity and Recovery Services, and SunGard.  Recently these companies have expanded into data vaulting to target smaller clients.

Email Archival and Data Analytics:

Email Archival and Data Analytics:
Today there are fewer than 10 competitors in North America.  Message Logic offers Software, a cloud managed service and an appliance as options for our customers:

Software competitors:  GFI, Mimecast, Symantec Enterprise Vault
Cloud Managed Service:  Sonian, Smarsh, Global Relay
Appliance: Barracuda Networks, ArcMail, Jatheon

Data Vaulting
 
Information Management and Protection Vendors: Vendors include EMC, i365, Symantec and CommVault.
   
Specialized Vendors: Venyu, which focuses on SMBs in the US.
   
Technology Providers / Service providers.  OEM-focused vendors may or may not be service providers, but they have access to a large business based on licensing their technology to other vendors.  This includes vendors such as CommVault and i365.  Symantec acquired online backup provider SwapDrive. i365, A Seagate Company, acquired EVault in January 2007, renaming it i365.  Connected Backup has an established enterprise customer base.  IBM Global Technology Services acquired Arsenal Digital Solutions in 2007, adding a range of Online backup services to its portfolio and rebranding it IBM Information Protection Services to Managed Data Vault.   Venyu offers two online backup and recovery services: AmeriVault-AV and AmeriVault-EV.  Its services protect PCs and servers, and while it focuses mostly on SMBs, it can also support Enterprises.
 
CORPORATE HISTORY
 
To date, DSC consummated (i) a share exchange with Euro Trend Inc. in October 20, 2008, (ii) an asset acquisition of SafeData, LLC (“SafeData”) in June 2010, and (iii) an asset acquisition of Message Logic LLC, (“Message Logic”) in October 2012.
 
On October 20, 2008 we completed a share exchange agreement whereby we acquired all of the outstanding capital stock and ownership interests of DSC. In exchange we issued 13,357,143 shares of our common stock to the shareholders.  This transaction was accounted for as a reverse merger for accounting purposes. Accordingly, DSC, the accounting acquirer, is regarded as the predecessor entity.

On June 17, 2010 we entered into an asset purchase agreement with SafeData, a provider of Cloud Storage and Cloud Computing mostly to IBM’s mid-range equipment users, under which we acquired all right, title and interest in the end user customer base of SafeData and all related current and fixed assets and contracts including the transfer of all of SafeData’s current liabilities arising out of the business or the assets acquired. Pursuant to the Agreement, we paid an aggregate purchase price equal to $3,000,000. Giving effect to certain holdback and contingency clauses as defined in the agreement, we paid $1,229,952 in cash and $850,000 in shares of our common stock as well as assumption of SafeData accounts payable and receivables.  In June of 2011 we made a final payment net of holdback of $482,308 and we issued the remaining balance of $150,000 in Common Stock.  The final settlement resulted in a gain of $176,497.

On October 31, 2012, DSC purchased the assets of Message Logic including email compliance software all source code to Message Logic’s email archival and data analytics software and select fixed assets.  In exchange for the assets, at closing, DSC gave 725,960 shares of it’s common stock and assumed liabilities of $102,109.  The contingent purchase price provides for up to 769,290 additional shares of DSC common stock and $800,000.  This contingent purchase price is based upon the achievement of certain metrics at the end of the 7th, 13th 19th and 25th months as defined in the asset purchase agreement dated October 31, 2012.

 
6

 
 
In November 2012, DSC entered into a joint venture partnership with an IBM partner, ABC Services Inc. to provide an IBM Infrastructure as a service (“IaaS”) offering, marketed under the name Secure Infrastructure & Services, a New York limited liability company.  The Company is required to convert ABC Services Inc.’s interest in the joint venture into shares of common stock of the Company upon the Company (i) raising $10 million in financing through a private placement or secondary offering of stock and (ii) the market capitalization of the Company exceeding or equaling $25 million.  The value of the membership interest that is converted shall be equal to 200% of the Company’s prior fiscal year GAAP gross revenue, net of sales tax, plus the fair market value of additional assets, as determined by an independent appraiser.  The Company shall be required to pay off all amounts owed to the joint venture for services prior to the conversion.

In November 2012, DSC also entered into agreements with Amazon AWS to offer its Message Logic email archiving software through the AWS marketplace and to offer stand-by-server and storage solutions.

In November 2012, DSC also entered into an agreement with Dell for distribution of its Message Logic email archiving solution.
 
In December 2012, DSC was accepted as an IBM Service provider for cloud solutions.
 
The result of these acquisitions, joint venture and strategic alliances combined with DSC’s legacy disaster recovery and business continuity solutions positions DSC as a potential leader in business to business cloud storage and cloud computing sector specializing in email compliance Software as a Service (SaaS), Windows Infrastructure as a Service (IaaS) and IBM iSeries Platform as a Service (PaaS).  DSC will continue to provide our solutions and continue our planned industry consolidations.
 
 
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
 
 
As a smaller reporting company, we are not required to provide disclosure pursuant to this item.
 
ITEM 2.        PROPERTIES
 
Our principal office is located at 401 Franklin Avenue, Garden City, NY 11530.  This property is partly owned by a director of the Company.  Our other properties include data centers located at 875 Merrick Avenue, Westbury, NY 11590, which is owned by our CEO; 115 Second Avenue Waltham, MA 02451 and office space located at 535 Centerville Rd, Warwick RI.  Our corporate telephone number is (212) 564-4922.
 
 
Except as set forth below we are currently not involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting DSC, its common stock, any of its subsidiaries or of DSC’s or DSC’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
The Company has been named as a defendant in a lawsuit filed in New York State Supreme Court,  Nassau County, by Richard Rebetti, the Company's former Chief Operating Officer.  In the lawsuit, Rebetti v. Data Storage Corp. and Charles M. Piluso, Index No. 14-2504, Rebetti asserts claims for unpaid wages in the amount of $67,392 plus statutory damages and counsel fees.  The Company intends to vigorously defend against this action and believes that it has counterclaims against Rebetti, and intends to interpose same in the action.
 
 
Not applicable.
 
 
7

 
 
  
 
LIMITED PUBLIC MARKET FOR COMMON STOCK

A symbol was assigned for our securities so that our securities may be quoted for trading on the OTCBB under symbol "DTST". Minimal trading occurred through the date of this Annual Report based on a limited float. There can be no assurance that a liquid market for our securities will ever develop. Transfer of our common stock may also be restricted under the securities or blue-sky laws of various states and foreign jurisdictions. Consequently, investors may not be able to liquidate their investments and should be prepared to hold the common stock for an indefinite period of time.
 
Quarterly ended
 
Low Price
   
High Price
 
March 31, 2012
 
$
0.40
   
$
0.83
 
June 30, 2012
 
$
0.12
   
$
0.50
 
September 30, 2012
 
$
0.15
   
$
0.39
 
December 31, 2012
 
$
0.05
   
$
0.15
 
March 31, 2013
 
$
0.04
   
$
0.10
 
June 30, 2013
 
$
0.05
   
$
0.10
 
September 30, 2013
 
$
0.04
   
$
0.09
 
December 31, 2013
 
$
0.07
   
$
0.09
 
 
HOLDERS OF OUR COMMON STOCK

As April 15, 2014, we had 41 shareholders of record of our Common Stock.

DIVIDEND POLICY
 
DSC has not declared or paid dividends on common stock since its formation, and do not anticipate paying dividends in the foreseeable future. The declaration or payment of dividends, if any, in the future, will be at the discretion of DSC’S Board and will depend on the then current financial condition, results of operations, capital requirements and other factors deemed relevant by the Board. There are no contractual restrictions on our ability to declare or pay dividends.  Preferred dividends are accrued quarterly.  No Preferred dividends have been paid to date.
 
EQUITY COMPENSATION PLAN INFORMATION
 
See “Executive Compensation—“2008 Equity Incentive Plan” and “2010 Incentive Award Plan”” on page 44 for DSC’s equity compensation plan information.
 

Not applicable.
 
 
8

 
 

COMPANY OVERVIEW

Data Storage Corporation is a different company in many ways from our 2001 commencement.  From the very beginning we focused on assisting businesses in their disaster recovery to business continuity plans.  Each year we continue to pivot, but with our same mission.  Protecting our client’s data, ensuring business continuity, assisting in their compliance requirements and giving our clients better control over their information.  We continue to stay on top of this dynamic industry with new solutions and services.  Today, the Company owns intellectual property with our email archival and data analysis software, Message Logic.  We provide Recovery Clouds for Managed Service Providers, so that these companies can enter the industry of providing Disaster Recovery and Business Continuity solutions at a lower entry point. Our IBM solutions continue to grow with our legacy solutions and our newly formed joint venture, Secure Infrastructure and Services LLC, leading the way for Infrastructure as a Service on IBM’s Power i systems.

DSC, is a 13 year veteran in cloud storage and cloud computing, providing data protection, disaster recovery, business continuity and compliance solutions that assist organizations in protecting their data, minimizing downtime and ensuring regulatory compliance. Serving the rapidly emerging business continuity market, DSC’s clients save time and money, gain more control and better access to data and enable high level of security for that data. Solutions include: Infrastructure-as-a-Service, data backup, recovery and restore, high availability data replication services; email archive and compliance solutions for e-discovery; continuous data protection; data de-duplication; and virtualized system recovery.  DSC has forged relationships with leading organizations for distribution such as Dell, Amazon, NASDAQ, and IBM and many others.
 
Headquartered in Garden City, NY, DSC offers its solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government.

DSC derives its revenues from the sale and subscription of services and solutions DSC has equipment in several technical centers: New York Metro, Boston, Chicago and New Jersey.
 
DSC services clients from its staffed technical offices in New York and Rhode Island, which consist of modern offices and a technology suite adapted to meet the needs of a technology based business. DSC’s mission is to provide a high level of service to organizations that need to ensure that their data is intact and available upon demand.

DSC varies its use of resource, technology and work processes to meet the changing opportunities and challenges presented by the market and the internal customer requirements.   

RESULTS OF OPERATIONS

Year ended December 31, 2013 as compared to December 31, 2012.
 
Net Sales.   Net sales for the year ended December 31, 2013 were $4,576,298 an increase of $557,947 or 13.9%, compared to $4,018,351 for the year ended December 31, 2012. The increase in sales is the result of an increase in recurring sales revenues of $628,668 to $4,422,277 for the year ended December 31, 2013 from $3,793,609 for the year ended December 31, 2012, offset by a decrease of non-recurring revenue of $70,721 to $154,021 for the year ended December 31, 2012 from $224,742 for the year ended December 31, 2012.  Non recurring revenue declined due to a reduced level of equipment sales for the year ended December 31, 2013.
 
Cost of Sales. For the year ended December 31, 2013, cost of sales were $2,584,161 a decrease of $130,899 from $2,715,060 for the year ended December 31, 2012.  The decrease in cost of sales is directly attributable DSC eliminating non essential employees based on previous acquisitions, using its own internal storage rather than relying on third party external storage, reduced usage of subcontractors and reduced payroll.  These costs were offset by increased utility costs. Further the data center in Providence RI was eliminated in December 2013 whereby further reducing cost for 2013 and on to 2014.  DSC's gross margin is 43.53% for the year ended December 31, 2013 as compared to 32.4% for the year ended December 31, 2012.
 
Operating Expenses.   For the year ended December 31, 2013, operating expenses were $2,802,961 a decrease of $665,462 as compared to $3,468,423 for the year ended December 31, 2012. The majority of the decrease in operating expenses for the year ended December 31, 2013 is a result of decreased salaries. Sales salaries decreased $334,896 to $415,277 for the year ended December 31, 2013, as compared to $750,174 for the year ended December 31, 2012. Executive salaries expense decreased $103,235 to $404,421, as compared to $507,656 for the year ended December 31, 2013 and 2012. Employee sales commission expense decreased $38,254 to $70,801, as compared to $109,055 for the year ended December 31, 2013 and 2012.  This is a result of more new sales being generated by outside distribution channels such as independent contractors called channel partners who are paid by commission as opposed to new sales by salaried employees.
 
Other Expenses. Amortization of debt discount for the year ended December 31, 2013 increased $21,917 to $21,917 from $0 for the year ended December 31, 2012, due to the issuance of convertible debt during 2013. Amortization of deferred financing fees for the year ended December 31, 2013 decreased $74 to $0 from $74 for the year ended December 31, 2012.   Loss on equity method investment increased to $32,450 for the year ended December 31, 2013 from -0- for the year ended December 31, 2012.  Interest Expense for the year ended December 31, 2013 decreased $23,422 to $119,584 from $143,005 for the year ended December 31, 2012.
 
Net Loss.   Net loss for the year ended December 31, 2013 was ($984,759) a decrease of $1,323,286 as compared to net loss of ($2,308,045) for the year ended December 31, 2012.  DSC through consolidation of their acquisition of Safe Data is complete with the assimilation and as a result DSC’s net losses have improved.
 
 
9

 
 
LIQUIDITY AND CAPITAL RESOURCES
 
The consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America (“GAAP”) applicable for a going concern, which assumes that DSC will realize its assets and discharge its liabilities in the ordinary course of business.  DSC has been funded by Mr. Charles M Piluso, DSC’s Chief Executive Officer and largest shareholder combined with private placements of DSC’s common stock. DSC has been successful in raising money as needed.  Further it is the intention of management to continue to raise money through stock issuances and to fund DSC on an as needed basis.  In 2014, we intend to continue to work to increase our presence in the IBM marketplace utilizing our increased technical expertise, capacity for data storage and managed services with our asset acquisition of SafeData.
 
To the extent we are successful in growing our business, identifying potential acquisition targets and negotiating the terms of such acquisition, and the purchase price includes a cash component, we plan to use our working capital and the proceeds of any financing to finance such acquisition costs. Our opinion concerning our liquidity is based on current information. If this information proves to be inaccurate, or if circumstances change, we may not be able to meet our liquidity needs.
 
During the year ended December 31, 2013 DSC’s cash increased $14,919 to $87,675 from $72,756 at December 31, 2012. Net cash of $68,808 was provided by DSC’s operating activities and cash of $40,875  was used in investing activities, primarily funding the investment in the joint venture. Net cash of $(13,014) was used in DSC’s financing activities.  This is the result of a $200,000 convertible debt issuances a $500,000 and $43,555 in advances from a company shareholder offset by $274,850 in capital lease payments.
 
DSC's working capital deficit was ($3,127,247) at December 31, 2013, increasing $63,040 from ($3,064,207) at December 31, 2012. The increase is primarily due to the issuance of $200,000 in convertible debt.
 
Share Based Compensation
 
DSC follows the requirements of FASB ASC 718-10-10, Share Based Payments with regard to stock-based compensation issued to employees. DSC has agreements and arrangements that call for stock to be awarded to the employees and consultants at various times as compensation and periodic bonuses. The expense for this stock based compensation is equal to the fair value of the stock price on the day the stock was awarded multiplied by the number of shares awarded.

The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the options. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.

Estimated volatility is a measure of the amount by which DSC’s stock price is expected to fluctuate each year during the expected life of the award. DSC’s estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available. DSC’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards. DSC uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
 
Off-Balance Sheet Arrangements
 
DSC does not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (“SPE”s).
 
 
10

 
 
CRITICAL ACCOUNTING POLICIES

DSC's financial statements and related public financial information are based on the application of GAAP. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
 
Our significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 
On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, except as follows. The unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets to the extent (a) a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (b) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax assets for such purpose. The amendments in ASU 2013-11 are effective prospectively for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on our financial position, results of operations or cash flows.
 
 In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment, an entity concludes that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 did not have a material impact on DSC’s financial position or results of operations.
 
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities ” (“ASU 2011-11”).  ASU 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared on the basis of U.S. GAAP and financial statements prepared on the basis of IFRS. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 did not have a material impact on DSC’s financial position or results of operations.
 
 
11

 
 
Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
 
OFF BALANCE SHEET TRANSACTIONS

DSC has no off-balance sheet arrangements.
 
 
Interest Rate Sensitivity
 
Interest due on DSC’s loans is based upon the applicable stated fixed contractual rate with the lender. Interest earned on DSC’s bank accounts is linked to the applicable base interest rate. For the years ended December 31, 2013 and 2012, DSC had interest expense, net of interest income, of $119,568 and $142,839, respectively. DSC believes that its results of operations are not materially affected by changes in interest rates.
 
DSC’s exposure to market risk is confined to its cash and cash equivalents, all of which have maturities of less than three months and bear and pay interest in U.S. dollars. Since DSC invests in highly liquid, relatively low yield investments, we do not believe interest rate changes would have a material impact on us.
 
DSC does not hold any derivative instruments and does not engage in any hedging activities.
 
 
12

 
 
ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 
 
 
 
13

 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and
Stockholders of Data Storage Corporation
 
We have audited the accompanying balance sheets of Data Storage Corporation as of December 31, 2013 and 2012, and the related statements of income, stockholders’ equity, and cash flows for each of the years then ended. Data Storage Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Data Storage Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Rosenberg Rich Baker Berman & Company
   
Somerset, New Jersey
April 15, 2014
 
   

 
 
 
14

 
 
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
December 31,
 
   
2013
   
2012
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
 
$
87,675
   
$
72,756
 
Accounts receivable (less allowance for doubtful accounts of $15,000 in 2013 and $26,801 in 2012)
   
258,567
     
201,483
 
Prepaid compensation
   
9,052
     
17,562
 
Prepaid expenses and other current assets
   
171,584
     
184,752
 
Total Current Assets
   
526,878
     
476,553
 
                 
Property and Equipment:
               
Property and equipment
   
3,859,528
     
3,851,104
 
Less—Accumulated depreciation
   
(2,728,547
)
   
(2,189,024
)
Net Property and Equipment
   
1,130,981
     
1,662,080
 
                 
Other Assets:
               
Goodwill
   
2,201,828
     
2,201,828
 
Deferred compensation
   
-
     
9,052
 
Other assets
   
49,338
     
65,923
 
Intangible Assets, net
   
658,769
     
903,761
 
Investment in unconsolidated subsidiarires – at equity
   
-
     
-
 
Total Other Assets
   
2,909,935
     
3,180,564
 
                 
Total Assets
   
4,567,794
     
5,319,197
 
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
               
Current Liabilities:
               
Accounts payable and accrued expenses
   
984,866
     
1,214,580
 
Revolving credit facility
   
100,292
     
100,292
 
Due to related party
   
207,848
     
162,804
 
Dividend payable
   
330,811
     
212,500
 
Deferred revenue
   
703,941
     
722,658
 
Leases payable
   
736,636
     
715,095
 
Loans payable
   
47,312
     
47,312
 
Convertible debt – related parties, net of discount
   
186,215
     
-
 
Contingent collateral obligation
   
356,204
     
365,519
 
Total Current Liabilities
   
3,654,125
     
3,540,760
 
                 
Deferred rental obligation
   
5,187
     
14,403
 
Due to officer
   
801,875
     
758,320
 
Leases payable long term
   
86,180
     
382,572
 
Convertible debt - related parties
   
500,000
     
500,000
 
Total Long Term Liabilities
   
1,393,242
     
1,655,295
 
                 
Total Liabilities
   
5,047,367
     
5,196,055
 
                 
Commitments and contingencies
   
-
     
-
 
                 
Stockholders’ (Deficit):
               
Preferred stock, Series A par value $.001; 10,000,000 shares authorized; 1,401,786 shares issued and outstanding in each period
   
1,402
     
1,402
 
Common stock, par value $0.001; 250,000,000 shares authorized; 36,125,845 and 33,165,915 shares issued and outstanding, respectively
   
36,126
     
33,166
 
Additional paid in capital
   
12,540,018
     
12,042,623
 
Accumulated deficit
   
(13,057,119
)
   
(11,954,049
)
Total Stockholders' (Deficit) Equity
   
(479,573
)
   
123,142
 
Total Liabilities and Stockholders' (Deficit)
 
$
4,567,794
   
$
5,319,197
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
15

 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Years Ended
 
   
December 31,
 
   
2013
   
2012
 
             
Sales
 
$
4,576,298
   
$
4,018,351
 
                 
Cost of sales
   
2,584,161
     
2,715,060
 
                 
Gross Profit
   
1,992,137
     
1,303,291
 
                 
Selling, general and administrative
   
2,802,961
     
3,468,423
 
                 
Loss from Operations
   
(810,824
)
   
(2,165.132
)
                 
Other Income (Expense)
               
Interest income
   
15
     
166
 
Amortization of debt discount
   
(21,917
)
   
-
 
Amortization of deferred financing fees
   
-
     
(74
)
Loss on equity method investment
   
(32,450
)
   
-
 
Interest expense
   
(119,583
)
   
(143,005
)
Total Other (Expense)
   
(173,935
)
   
(142,913
)
                 
Loss before provision for income taxes
   
(984,759
   
(2,308,045
)
                 
Provision for income taxes
   
-
     
-
 
                 
Net Loss
   
(984,759
)
   
(2,308,045
)
                 
Preferred Stock Dividend
   
(118,311
)
   
(50,000
)
                 
Net Loss Available to Common Shareholders
 
$
(1,103,070
)
 
$
(2,358,045
)
                 
Loss per Share – Basic and Diluted
 
$
(0.03
)
 
$
(0.08
)
Weighted Average Number of Shares - Basic and Diluted
   
33,319,994
     
30,194,221
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
16

 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Years Ended
 
   
December 31,
 
   
2013
   
2012
 
             
Net loss
 
$
(984,759
)
 
$
(2,308,045
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
   
 
         
Depreciation and amortization
   
784,514
     
728,001
 
Amortization of debt discount
   
21,917
     
-
 
Non cash interest expense
   
62,356
     
45,890
 
Loss on equity method investment
   
32,450
     
-
 
Deferred compensation
   
8,510
     
19,480
 
Allowance for doubtful accounts
   
(11,801
)
   
(21,199
)
Stock based compensation
   
490,386
     
300,266
 
Changes in Assets and Liabilities:
   
 
         
Accounts receivable
   
(45,282
)
   
114,021
 
Other assets
   
8,040
     
12,144
 
Prepaid expenses and other current assets
   
13,168
     
33,923
 
Employee loan
   
(35,730
)
   
(10,000
)
Accounts payable and accrued expenses
   
(292,072
)
   
245,450
 
Deferred revenue
   
(18,717
)
   
2,219
 
Deferred rent
   
(9,216
)
   
(6,938
)
Due to related party
   
45,044
     
38,051
 
Net Cash Provided by (used in) Operating Activities
   
68,808
 
   
(806,737
)
                 
Cash Flows from Investing Activities:
               
Capital expenditures
   
(8,425
)
   
(106,053
)
Investment in joint venture
 
 
(32,450
)
 
 
 -
 
Net Cash Used in Investing Activities
   
(40,875
)
   
(106,053
)
                 
Cash Flows from Financing Activities:
               
Proceeds from the issuance of common stock
   
27,596
     
500,000
 
Issuance of convertible debt
   
200,000
     
500,000
 
Repayments of capital lease obligations
   
(274,850
)
   
(220,584
)
Repayments of loan obligations
   
-
 
   
92,757
 
Repayment of contingent consideration
   
(9,315
)
   
(3,105
)
Advances from shareholder
   
43,555
     
133,502
 
Net Cash Provided by (used in) Financing Activities
   
(13,014
)
   
817,056
 
                 
Increase (Decrease) in Cash and Cash Equivalents
   
14,919
 
   
(95,734
)
                 
Cash and Cash Equivalents, Beginning of Year
   
72,756
     
168,490
 
                 
Cash and Cash Equivalents, End of Year
 
$
87,675
   
$
72,756
 
                 
Cash paid for interest
 
$
 39,065
   
$
50,012
 
Cash paid for income taxes
 
$
8,824
   
$
-
 
                 
Non cash investing and financing activities:
               
Stock issued in connection with Message Logic
 
$
 -
   
$
108,894
 
Accrual of preferred stock dividend
 
$
 118,311
   
$
50,000
 
Warrants issued with convertible debt
 
$
35,702
   
$
-
 
Fixed assets acquired under capital leases
 
$
-
   
$
309,297
 
Stock issued for financing fees
 
 -
   
$
42,500
 
Stock issued for compensation
 
$
263,433
   
$
443,664
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
17

 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

   
Preferred Stock
   
Common Stock
   
Additional
Paid in
   
Accumulated
       
Description
 
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
   
 
         
 
         
 
   
 
   
 
 
Balance January 1, 2012
    1,401,786     $ 1,402       28,912,712     $ 28,913     $ 10,705,470     $ (9,596,004 )   $ 1,139,781  
                                                         
Stock based compensation
    -       -       -       -       282,704       -       282,704  
                                                         
Stock options issued in settlement of accrued compensation
    -       -       -       -       443,664       -       443,664  
                                                         
Common stock issued in equity financing
    -       -       50,000       50       6,094       -       6,144  
                                                         
Warrants exercised
    -       -       143,910       144       (144 )     -       -  
                                                         
Stock issued Message Logic
    -       -       725,960       726       108,168       -       108,894  
                                                         
Common stock issued in private placement
    -       -       3,333,333       3,333       496,667       -       500,000  
                                                         
Net loss
    -       -       -       -       -       (2,308,045 )     (2,308,045 )
                                                         
Preferred stock dividend
    -       -       -       -       -       (50,000 )     (50,000 )
                                                         
Balance December 31, 2012
    1,401,786       1,402       33,165,915       33,166       12,042,623       (11,954,049 )     123,142  
                                                         
Stock based compensation
    -       -       -       -       214,940       -       214,940  
                                                         
Stock grant to corporate officer
    -       -       2,959,930       2,960      
291,029
      -      
293,989
 
                                                         
Warrants issued with convertible debt
    -       -       -       -       35,702       -       35,702  
                                                         
Amortization of financing fees
    -       -       -       -       (44,276 )     -       (44,276 )
                                                         
Net loss
    -       -       -       -       -      
(984,759
)    
(984,759
)
                                                         
Preferred stock dividend
    -       -       -       -       -       (118,311 )     (118,311 )
                                                         
Balance December 31, 2013
    1,401,786     $ 1,402       36,125,845     $ 36,126     $
12,540,018
    $
(13,057,119
)   $
(479,573

The accompanying notes are an integral part of these consolidated financial statements
 
 
18

 
 
DATA STORAGE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012
  
Note 1 – Description of Business, Organization and Other Matters

Description of Business                                                       
 
Data Storage Corporation, (“DSC”) is the result of several consolidations and is strategically positioned to continue its consolidation strategy.  To date, DSC consummated (i) a share exchange with Euro Trend Inc. on October 20, 2008 (ii) an asset acquisition of SafeData, LLC (“SafeData”) in June 2010 and (iii) an asset acquisition of Message Logic LLC, (“Message Logic”) in October 2012.
 
On October 20, 2008 we completed a Share Exchange Agreement whereby we acquired all of the outstanding capital stock and ownership interests of DSC. In exchange we issued 13,357,143 shares of our common stock to the DSC’s Shareholders.  This transaction was accounted for as a reverse merger for accounting purposes. Accordingly, DSC, the accounting acquirer, is regarded as the predecessor entity.
 
On June 17, 2010 we entered into an Asset Purchase Agreement with SafeData, a provider of Cloud Storage and Cloud Computing mostly to IBM’s Mid-Range Equipment users, under which we acquired all right, title and interest in the end user customer base of SafeData and all related current and fixed assets and contracts including the transfer of all of Safe Data’s current liabilities arising out of the business or the assets acquired. Pursuant to the Agreement, we paid an aggregate purchase price equal to $3,000,000. Giving effect to certain holdback and contingency clauses as defined in the agreement, we paid $1,229,952 in cash and $850,000 in shares of our common stock as well as assumption of SafeData Accounts Payable and Receivables.  In June of 2011 DSC made a final payment net of holdback of $482,308 and we issued the remaining balance of $150,000 in common stock.  The final settlement resulted in a gain of $176,497.
 
On October 31, 2012 DSC purchased the assets of Message Logic, LLC including email compliance software all source code to Message Logic’s email archival and data analytics software and select fixed assets.  In exchange for the assets, at closing, DSC gave 725,960 shares of its common stock and assumed liabilities of $102,109.  The contingent purchase price provides for up to 769,230 additional shares of DSC common stock and $800,000.  This contingent purchase price is based upon the achievement of certain metrics at the end of the 7th, 13th, 19th and 25th months as defined in the Asset Purchase Agreement dated October 31, 2012.
 
Further, on August 2012 DSC entered into a Joint Venture Partnership with an IBM partner, ABC Solutions to provide an IBM Infrastructure as a service (IaaS) offering, marketed under the name SIAS, a New York LLC.
 
 
19

 
 
Liquidity
 
The consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America applicable for a going concern, which assumes that the Company will realize its assets and discharge its liabilities in the ordinary course of business. For the year ended December 31, 2013, DSC has generated revenues of $4,576,298 but has incurred a net loss of $984,759. Its ability to continue as a going concern is dependent upon achieving sales growth, reduction of operation expenses and ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due, and upon profitable operations.  DSC has been funded by Mr. Charles M. Piluso, DSC’s Chief Executive Officer and largest shareholder since inception as well as several Directors.  It is the intention of Charles Piluso to continue to fund DSC on an as needed basis.
 
Note 2 - Summary of Significant Accounting Policies
 
Stock Based Compensation
 
The Company follows the requirements of FASB ASC 718-10-10, Share Based Payments with regard to stock-based compensation issued to employees.  The Company has various employment agreements and consulting arrangements that call for stock to be awarded to the employees and consultants at various times as compensation and periodic bonuses. The expense for this stock based compensation is equal to the fair value of the stock that was determined by using closing price on the day the stock was awarded multiplied by the number of shares awarded.  The Company records its options at fair value using the Black-Scholes valuation model.

Recently Issued and Newly Adopted Accounting Pronouncements
 
On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 states that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, except as follows. The unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets to the extent (a) a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (b) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax assets for such purpose. The amendments in ASU 2013-11 are effective prospectively for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on our financial position, results of operations or cash flows.
 
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The adoption of ASU 2012-02 did not have a material impact on the Company’s financial position or results of operations.
 
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities,” and in January 2013 issued ASU No. 2013-01, “Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities.” These standards create new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its derivative instruments, repurchase agreements, and securities lending transactions. Certain disclosures of the amounts of certain instruments subject to enforceable master netting arrangements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial positions. ASU 2011-11 and ASU 2013-01 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of ASU 2011-11 did not have a material impact on the Company’s financial position or results of operations.
 
 
20

 
 
Management does not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.
 
Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, DSC, a Delaware Corporation.  All significant inter-company transactions and balances have been eliminated in consolidation.
 
Cash, cash equivalents and short-term investments
 
The Company considers all highly liquid investments with an original maturity or remaining maturity at the time of purchase, of three months or less to be cash equivalents.
 
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 and cash equivalents, short-term investments and trade accounts receivable. The Company's cash and cash equivalents are maintained at major U.S. financial institutions. Deposits in these institutions may exceed the amount of insurance provided on such deposits.
 
The Company's customers are primarily concentrated in the United States.
 
The Company provides credit in the normal course of business.  The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts on factors surrounding the credit risk of specific customers, historical trends, and other information.
 
For the years ended December 31, 2013 and 2012 DSC did not have any customer concentrations.
 
Accounts Receivable/Allowance for Doubtful Accounts
 
The Company sells its services to customers on an open credit basis. Accounts receivable are uncollateralized, non-interest-bearing customer obligations. Accounts receivables are due within 30 days. The allowance for doubtful accounts reflects the estimated accounts receivable that will not be collected due to credit losses and allowances. Provisions for estimated uncollectible accounts receivable are made for individual accounts based upon specific facts and circumstances including criteria such as their age, amount, and customer standing. Provisions are also made for other accounts receivable not specifically reviewed based upon historical experience.  Clients are invoiced in advance for services as reflected in deferred revenue on the Company’s balance sheet.
 
 
21

 
 
Property and Equipment
 
Property and equipment is recorded at cost and depreciated over their estimated useful lives or the term of the lease using the straight-line method for financial statement purposes. Estimated useful lives in years for depreciation are 5 to 7 years for property and equipment. Additions, betterments and replacements are capitalized, while expenditures for repairs and maintenance are charged to operations when incurred. As units of property are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income. 
 
Income Taxes                                                                                                     
 
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. At December 31, 2013, the Company had a full valuation allowance against its deferred tax assets.
 
Estimated Fair Value of Financial Instruments
 
The Company's financial instruments include cash, accounts receivable and accounts payable, line of credit and due to related parties. Management believes the estimated fair value of these accounts at December 31, 2013 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments.  The carrying values of the company’s long-term debt approximates their fair values based upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.
 
Revenue Recognition
 
The Company’s revenues consist principally of cloud storage and cloud computing revenues, SaaS and IaaS. Storage revenues consist of monthly charges related to the storage of materials or data (generally on a per unit basis).  Sales are generally recorded in the month the service is provided.  For customers who are billed on an annual basis, deferred revenue is recorded and amortized over the life of the contract. Set up fees charged in connection with storage contracts are deferred and recognized on a straight line basis over the life of the contract.
 
Goodwill and Other Intangibles
 
In accordance with GAAP, the Company tests goodwill and other intangible assets for impairment on at least an annual basis.  Goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value.  The impairment testing is performed in two steps: (i) the Company determines impairment by comparing the fair value of a reporting unit with its carrying value, and (ii) if there is an impairment, the Company measures the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.  To determine the fair value of these intangible assets, the Company uses many assumptions and estimates using a market participant approach that directly impact the results of the testing.  In making these assumptions and estimates, the Company uses industry accepted valuation models and set criteria that are reviewed and approved by various levels of management. 
 
In September 2011, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2011-08, "Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment", to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The Company adopted ASU 2011-08 in fiscal 2013 and thus performed a qualitative assessment. This adoption did not have a material impact on the Company's consolidated financial statements.
 
Impairment of Long-Lived Assets.
 
In accordance with FASB ASC 360-10-35, we review our long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.
 
Advertising Costs
 
The Company expenses the costs associated with advertising as they are incurred.  The Company incurred $86,768 and $127,756 for advertising costs for the years ended December 31, 2013 and 2012, respectively.

Net Income (Loss) per Common Share
 
In accordance with FASB ASC 260-10-5 Earnings per Share, basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The inclusion of the potential common shares to be issued has an anti-dilutive effect on diluted loss per share and therefore they are not included in the calculation. The inclusion of the potential common shares to be issued has an anti-dilutive effect on diluted loss per share and therefore they are not included in the calculation. Potentially dilutive securities at December 31, 2013 include 6,921,084 options and 133,334 warrants.  Potentially dilutive securities at December 31, 2012 include 6,232,992 options and 28,642 warrants.
 
 
22

 
 
Note 3 - Property and Equipment
 
Property and equipment, at cost, consist of the following:
 
  
December 31,
 
 
2013
   
2012
 
Storage equipment
  $ 2,205,243     $ 2,205,243  
Website and software
    622,667       622,667  
Furniture and fixtures
    23,861       22,837  
Computer hardware and software
    91,687       91,687  
Data Center Equipment
    916,070       908,670  
      3,859,528       3,851,104  
Less: Accumulated depreciation
    2,728,547       2,189,024  
Net property and equipment
  $ 1,130,981     $ 1,662,080  
 
Depreciation expense for the years ended December 31, 2013 and 2012 was $539,522 and $508,539, respectively.
 
Note 4 - Goodwill and Intangible Assets
 
Goodwill and Intangible assets consisted of the following:
 
       
December 31, 2013
 
   
Estimated life
in years
 
Gross amount
   
Accumulated
Amortization
 
                 
Goodwill
 
Indefinite
 
$
2,201,828
     
-
 
Intangible Assets                    
     Intangible assets not subject to amortization
                   
     Trademarks
 
Indefinite
   
294,268
     
-
 
     Intangible assets subject to amortization
                   
     Customer list
 
5 - 15
   
897,274
     
562,811
 
     Non-compete agreements
 
4
   
262,147
     
232,109
 
                     
Total Intangible Assets
       
1,453,689
     
794,920
 
                     
Total Goodwill and Intangible Assets
     
$
3,655,517
   
$
794,920
 
 
 
23

 
 
Scheduled amortization over the next five years as follows:

Years ending December 31,
     
2014
 
$
209,492
 
2015
   
98,844
 
2016
   
30,635
 
2017
   
25,530
 
Total
 
$
364,501
 

Amortization expense for the years ended December 31, 2013 and 2012 were $244,992 and $219,462 respectively.
 
Note 5 – Joint Venture
 
The Company has a 50% non-controlling ownership interest in Secure Infrastructure & Services, LLC who provides infrastructure-as-a-Service (IaaS) for IBM iSeries and AIX v7 systems, Power HA services and network infrastructure hardware and services as needed to support the IaaS and PowerHA implementation and ongoing needs for customers and services sold under the Company.. ASC 810 requires the Company to evaluate non-consolidated entities periodically and as circumstances change to determine if an implied controlling interest exists. During Fiscal 2013, the Company evaluated this equity investment and concluded that this is a variable interest entity and the Company is not the primary beneficiary. Secure Infrastructure & Services, LLC's fiscal year end is December 31.
 
The following presents unaudited summary financial information for Secure Infrastructure & Services, LLC. Such summary financial information has been provided herein based upon the individual significance of this unconsolidated equity investment to the consolidated financial information of the Company.
 
   
Year Ended 
December 31,
2013
 
       
Current assets
  $ 100,308  
Non-current assets
  $ 38,013  
Current liabilities
  $ 141,083  
Members' deficit
  $ (2,762 )
 
The equity balance carried on the Company's balance sheet amounts to $-0- for the year ended December 31, 2013.
 
   
Year Ended 
December 31,
2013
 
       
Net sales
  $ 87,828  
Gross profit
  $ 36,218  
Operating expenses
  $ 109,430  
Net income(loss)
  $ (73,212 )
 
The Company's share of the net loss from Secure Infrastructure & Services, LLC for the nine months ended December 31, 2013 was $36,606, because the Company accounts for this investment under the equity method of accounting the loss recognized was limited to the Company’s investment of $32,450.
 
Note 6 – Capital Lease Obligations
 
The Company acquired capital leases in the acquisition of SafeData. The economic substance of the leases is that the Company is financing the acquisitions through the leases and accordingly, they are recorded in the Company’s assets and liabilities. The leases are payable to Systems Trading, Inc. and IBM with combined monthly installments of $56,136. The leases are secured with the computer equipment.  Interest rates on capitalized leases vary from 6%-12% and are imputed based on the lower of the Company’s incremental borrowing rate at the inception of each lease or the lessor’s implicit rate of return.
 
Future minimum lease payments under the capital leases are as follows:
 
       
As of December 31, 2013
 
$
889,685
 
Less amount representing interest
   
(66,869
)
Total obligations under capital leases
   
822,816
 
Less current portion of obligations under capital leases
   
(736,636
)
Long-term obligations under capital leases
 
$
86,180
 
 
 
24

 
 
Long-term obligations under capital leases at December 31, 2013 mature as follows:
 
       
Year ending December 31,
     
2014
 
$
736,636
 
2015
   
86,180
 
        
       
         
   
$
822,816
 
 
The assets held under the capital leases are included in property and equipment as follows:
 
       
Equipment
 
$
1,571,784
 
Less: accumulated depreciation
   
727,965
 
         
   
$
843,819
 
 
Note 7 - Revolving Credit Facility
 
On January 31, 2008 the Company entered into a revolving credit line with a bank. The credit facility provides for $100,000 at prime plus .5%, 3.75% at December 31, 2013, and is secured by all assets of the Company and personally guaranteed by the Company’s principal shareholder. As of December 31, 2013, the Company owed $100,292 under this agreement.
 
Note 8 – Loan Payable
 
On August 4, 2010, the Company entered into a note payable with Systems Trading, LLC in settlement of past due balances owed to SafeData related to certain capital leases. The note bears interest at 4%, and is due in 24 equal installments of $11,927 commencing February 4, 2011 through January 4, 2013. The note payable is in arrears and has a balance as of December 31, 2013 is $47,312.
 
Note 9 – Contingent Collateral Obligation

In connection with the 2012 acquisition of Message Logic, LLC, the Company acquired software subject to a UCC filing in the amount of $350,000 plus accrued interest.  The company believes that it will pay this lien regardless of whether they are required to pay any of the contingent purchase price and accordingly the liability has been recorded on the Company’s balance sheet.
 
 
25

 
 
Note 10 – Convertible debt

Related Party
 
On January 31, 2012 the Company entered into a $500,000 convertible promissory note with a director of the company.  The note is convertible into the Company’s common stock at $0.85 per share and carries interest at 10%.  Interest is payable quarterly through the maturity date of January 31, 2015.  DSC has accrued interest on this note totaling $45,890 and is in arrears on its interest payments.
  
On February 28, 2013 the Company entered into a $100,000 convertible promissory note with a director of the company carries interest at 10%.  Interest is payable quarterly through the maturity date of February 28, 2014.  The Company issued 66,667 warrants valued at of $17,851 which was recorded as a discount to the convertible promissory note. The note is convertible into common stock at $0.15 per share.  In 2014, the Company defaulted on this note and is subject to additional interest of 5% per annum as well as additional 10% warrants for each year in default.
 
On August 9, 2013 the Company entered into a $100,000 convertible promissory note with the CEO of the Company. The convertible promissory note is convertible at $0.15 and carries interest at 10%.  Interest is payable quarterly through the maturity date of April 30, 2014.  The Company issued 66,667 warrants valued at $17,851 in connection with this agreement, which was recorded as a discount to the convertible promissory notes based on its relative fair value with an offset to additional paid-in capital.
   
Note 11 - Stockholders’ (Deficit)
 
Capital Stock
 
The Company has 260,000,000 shares of capital stock authorized, consisting of 250,000,000 shares of Common Stock, par value $0.001, 10,000,000 shares of Preferred Stock, par value $0.001 per share.
 
 
26

 
 
Common Stock Options
 
2008 Equity Incentive Plan

In October 2008, the Company’s board of directors (the “Board”) adopted, the 2008 Equity Incentive Plan (the “2008 Plan).  Under the 2008 Plan, we may grant options (including incentive stock options) to purchase our common stock or restricted stock awards to our employees, consultants or non-employee directors. The 2008 Plan is administered by the Board. Awards may be granted pursuant to the 2008 Plan for 10 years from the date the Board approved the 2008 Plan. Any grant under the 2008 Plan may be repriced, replaced or regranted at the discretion of the Board.
 
The material terms of options granted under the 2008 Plan (all of which have been nonqualified stock options) are consistent with the terms described in the footnotes to the "Outstanding Equity Awards at Fiscal Year-End December 31, 2011”, including 5 year graded vesting schedules and exercise prices equal to the fair market value of our common stock on the date of grant.  Stock grants made under the 2008 Plan have not been subject to vesting requirements. The 2008 Plan was terminated with respect to the issuance of new awards as of February 3, 2012.  There are 3,075,938 options outstanding under this plan as of December 31, 2013.  During the year ended December 31, 2013 DSC issued no shares under the 2008 Plan.
 
2010 Incentive Award Plan

The Company has reserved 5,000,000 shares of common stock for issuance under the terms of the DSC 2010 Incentive Award Plan (the “2010 Plan”). The 2010 Plan is intended to promote the interests of the Company by attracting and retaining exceptional employees, consultants, directors, officers and independent contractors (collectively referred to as the “Participants”), and enabling such Participants to participate in the long-term growth and financial success of the Company. Under the 2010 Plan, the Company may grant stock options, which are intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, stock appreciation rights and restricted stock awards, which are restricted shares of common stock (collectively referred to as “Incentive Awards”). Incentive Awards may be granted pursuant to the 2010 Plan for 10 years from the Effective Date.  From time to time, we may issue Incentive Awards pursuant to the 2010 Plan.  Each of the awards will be evidenced by and issued under a written agreement.  

On April 23, 2012, the Board of Directors of the Company amended and restated the DSC 2010 Plan. The 2010 Plan, as amended and restated, has been renamed the “Amended and Restated DSC Incentive Award Plan”.  The new plan provides for flexibility in vesting periods and includes a limit of $100,000 per employee per year for incentive stock options.
 
A summary of the Company's option activity and related information follows:
 
   
Number of
Shares
 Under Options
   
Range of
Option Price
 Per Share
   
Weighted
 Average
 Exercise Price
 
Options Outstanding at January 1, 2012
   
2,563,115
   
$
0.02 - 0.36
   
$
0.14
 
   Options Granted
   
3,706,656
     
0.41 - 0.85
     
0.24
 
   Options Exercised
   
-
             
-
 
   Options Cancelled
   
(36,779
)
   
0.32
     
0.85
 
Options Outstanding at December 31, 2012
   
6,232,992
   
0.02 - 0.85
   
0.26
 
   Options Granted
   
828,568
     
0.15
     
0.15
 
   Options Exercised
   
-
     
-
     
-
 
   Options Cancelled
   
(140,477
)
   
0.35
     
0.35
 
Options Outstanding at December 31, 2013
   
6,921,084
   
0.02 - 0.85
   
0.24
 
                         
Options Exercisable at December 31, 2013
   
5,267,762
   
0.02 - 0.85
   
0.24
 
 
Share-based compensation expense for options totaling $232,501 was recognized in our results for the year ended December 31, 2013 is based on awards vested. The options were valued at the grant date at $62,028.
 
The valuation methodology used to determine the fair value of the options issued during the year was the Black-Scholes option-pricing model, an acceptable model in accordance with FASB ASC 718-10-10 Share Based Payments. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrants.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.
 
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 estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available.  The Company’s calculation of estimated volatility is based on historical stock prices of these peer entities over a period equal to the expected life of the awards.  The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
 
 
27

 
 
The weighted average fair value of options granted and the assumptions used in the Black-Scholes model during the year ended December 31, 2013 and 2012 are set forth in the table below.
 
   
2013
   
2012
 
Weighted average fair value of options granted
 
$
0.08
   
$
0.26
 
Risk-free interest rate
   
2.88
%
   
 1.59
%
Volatility
   
98.0
%
   
98.0
%
Expected life (years)
   
10
     
10
 
Dividend yield
   
0.00
%
   
0.00
%
 
As of December 31, 2013, there was approximately $273,727 of total unrecognized compensation expense related to unvested employee options granted under the Company’s share based compensation plans that is expected to be recognized over a weighted average period of approximately 1.6 years.
 
Common Stock Warrants
 
   
Number of
Shares Under
Warrants
   
Range of
Warrants
Price
Per Share
   
Weighted
Average
Exercise Price
 
Warrants Outstanding at January 1, 2012
   
173,427
   
$
0.02
   
$
0.02
 
   Warrants Granted
   
-0-
     
-0-
     
-0-
 
   Warrants Exercised
   
144,785
     
0.01
     
0.01
 
   Warrants Cancelled
   
-0-
     
-0-
     
-0-
 
Warrants Outstanding at December 31, 2012
   
28,642
   
$
0.02
   
$
0.02
 
   Warrants Granted
   
133,334
     
0.01
     
0.01
 
   Warrants Exercised
   
-0-
     
-0-
     
-0-
 
   Warrants Expired
   
28,642
     
0.02
     
0.02
 
Warrants Outstanding at December 31, 2013
   
133,334
   
0.01
   
0.01
 
                         
Warrants exercisable at December 31, 2013
   
133,334
   
0.01
   
0.01
 
 
During the year ended December 31, 2013, 28,642 warrants expired.  During the year ended December 31, 2013 133,334 warrants were issued in connection with the issuances of convertible debt. The warrants were valued at the grant date at $35,702 and were recorded as a debt discount based on their relative fair value. 
 
The weighted average fair value of warrants granted and the assumptions used in the Black-Scholes model during the year ended December 31, 2013 are set forth in the table below.
 
 
2013
Weighted average fair value of warrants granted
$0.15
Risk free rate
1.59-1.89%
Volatility
98%
Expected life (years)
10
Dividend yield
$0.00
 
 
28

 
 
Preferred Stock
 
Liquidation preference
 
Upon any liquidation, dissolution, or winding up of the Corporation, 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 Corporation 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 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.

Conversion
 
The number of shares of Common Stock to 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 herein) for such share of Series A Preferred Stock. The Conversion Price for the Series A Preferred Stock shall initially be equal to $0.02 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 Corporation (or action taken by written consent in lieu of any such meeting) equal to the number of shares of Class B 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 (as defined below), 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 Corporation.  Accrued dividends at December 31, 2013 and 2012 were $330,811 and $212,500, respectively.

Stock Issuances
 
During the year ended December 31, 2013 the Company issued 2,959,930 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock) at a price of $0.09 for an aggregate of  $293,990.  The shares were issued to Charles M. Piluso, Chief Executive Officer in lieu of accrued compensation. The Company recognized a gain of $27,596 as a result of this transaction.
 
During the year ended December 31, 2012 the Company issued 4,109,293 shares of its common stock; 3,333,333 were issued for $500,000, 50,000 shares were issued in connection with the equity line from Southridge Partners II, LP, 725,960 shares were issued in connection with the acquisition of Message Logic, LLC, and 143,910 under a cashless warrant exercise.

In 2012 convertible debt holders exercised their rights which included the conversion of stock and warrant exercise for a total of 5,523,728 shares of common stock.  In addition the holders received an inducement of 253,393 shares to convert and accept shares in lieu of past due interest payments.  Shares issued for past due interest payments totaled 145,404.  The transaction resulted in the recognition of a loss on extinguishment of debt of $142,925.
 
 
29

 
 
Note 12 - Related Party Transactions
 
On January 31, 2012 the Company entered into a $500,000 convertible promissory note with a director of the company.  The note is convertible into the Company’s common stock at $0.85 per share and carries interest at 10%.  Interest is payable quarterly through the maturity date of January 31, 2015.  DSC has accrued interest on this note totaling $45,890 and is in arrears on its interest payments.
  
On February 28, 2013 the Company entered into a $100,000 convertible promissory note with a director of the company carries interest at 10%.  Interest is payable quarterly through the maturity date of February 28, 2014.  The Company issued warrants values at of $17,851 which was recorded as a discount to the convertible promissory note with an offset to additional paid-in capital. The note is convertible into common stock at $0.15 per share.
 
On August 9, 2013 the Company entered into a $100,000 convertible promissory note with the CEO of the Company. The convertible promissory note is convertible at $0.15 and carries interest at 10%.  Interest is payable quarterly through the maturity date of April 30, 2014.  The Company issued 66,667 warrants valued at $17,851 in connection with this agreement, which was recorded as a discount to the convertible promissory notes with an offset to additional paid-in capital. In 2014, the Company defaulted on this note and is subject to additional interest of 5% per annum as well as additional 10% warrants for each year in default.
 
During the year ended December 31, 2013 the Company issued 2,959,930 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock) at a price of $0.09 for an aggregate of  $266,393.  The shares were issued to Charles M. Piluso, Chief Executive Officer in lieu of accrued compensation. The Company recognized a gain of $27,596 as a result of this transaction.
 
Due to related party represents rent accrued to a partnership controlled by the Chief Executive Officer of the Company for the New York Data Center.  The rent expense for the data center is $1,500 per month.  As of December 31, 2013, DSC owed $207,848 under this agreement.
 
As of December 31, 2013 the Company owed the Chief Executive Officer $801,875. These advances bear no interest and have no stated terms of repayment.
 
Note 13 - Commitments and Contingencies

The Company currently leases office space in Garden City, NY,  and Warwick, RI and data centers in Westbury, NY and Waltham, MA.

The Company leases a data center in Westbury, NY on a month to month basis.  Monthly rent is $1,500, plus utilities and the lease is with the Chairman of the Company.

The Company leases space in a data center in Waltham, MA.  The lease calls for monthly payments under an annually renewable contract for space and services.  The payments are approximately $29,000 per month depending upon services used and the current contract expires June 30, 2014.
 
The lease for office space in Garden City, NY calls for escalating monthly payments ranging from $6,056 to $6,617 plus a portion of the operating expenses through June 2014.
 
Minimum obligations under these lease agreements are as follows:

For the year Ending December 31,:
     
2014
 
$
65,272
 
2015
   
27,888
 
2016
   
27,888
 
2017
   
29,384
 
2018
   
29,520
 
Thereafter
   
2,460
 
   
$
182,412
 
 
Rent expense for the years ended December 31, 2013 and December 31, 2012 was $151,693 and $188,721 respectively.
 
 
30

 
 
Note 14 - Income Taxes
 
The components of the provision (benefit) for income taxes are as follows:
 
  
 
Years Ended December 31,
 
   
2013
   
2012
 
CURRENT
           
Federal
 
$
-0-
   
$
-0-
 
State
   
-0-
     
-0-
 
Total current tax provision
   
-0-
     
-0-
 
                 
DEFERRED
               
Federal
   
-0-
     
-0-
 
State
   
-0-
     
-0-
 
Total deferred tax provision
   
-0-
     
-0-
 
Total tax provision (benefit)
 
$
-0-
   
$
-0-
 
 
The Components of deferred taxes consists of the following:
 
Deferred Tax Assets:
               
                 
Net operating loss carry-forward
 
$
  (1,683,764
 
$
(1,338,407
)
Less: valuation allowance
   
(1,683,764
   
(1,338,407
)
Deferred tax assets
   
-0-
     
-0-
 
Deferred tax liabilities
   
-0-
     
-0-
 
                 
Net deferred tax asset
 
$
-0-
   
$
-0-
 
 
The Company had federal and state net operating tax loss carry-forwards of $4,348,696 and $3,365,381, respectively as of December 31, 2013.  The tax loss carry-forwards are available to offset future taxable income with the federal and state carry-forwards beginning to expire in 2028.
 
In 2013, net deferred tax assets did not change due to the full allowance.  The gross amount of the asset is entirely due to the Net operating loss carry forward.  The realization of the tax benefits is subject to the sufficiency of taxable income in future years.  The combined deferred tax assets represent the amounts expected to be realized before expiration.
 
The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets.  The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits.  As a result of this analysis of all available evidence, both positive and negative, the Company concluded that it is more likely than not that its net deferred tax assets will ultimately not be recovered and, accordingly, a valuation allowance was recorded as of December 31, 2013 and 2012.

The difference between the expected income tax expense (benefit) and the actual tax expense (benefit) computed by using the Federal statutory rate of 34% is as follows:
 
   
Year Ended December 31,
 
   
2013
   
2012
 
             
Expected income tax benefit (loss) at statutory rate of 34%
 
$
226,964
   
$
657,132
 
State and local tax benefit, net of federal
   
47,395
     
137,225
 
Change in valuation account
   
(274,359
)
   
(794,357
                 
Income tax expense (benefit)
 
$
-0-
   
$
-0-
 
 
 
31

 
 
Note 15 - Acquisition

On October 31, 2012, our wholly owned subsidiary DSC, a Delaware corporation (“Data Storage DE”) and Message Logic, INC, a Delaware Corporation (“MessageLogic”) entered into an Asset Purchase Agreement (the “Agreement”); setting forth the acquisition of MessageLogic’s assets. Data Storage DE and its parent Data Storage Corporation is hereinafter referred to as the “Company” or “Data Storage.”

As described above, on October 31, 2012, MessageLogic agreed to sell, transfer, assign, and deliver to the Company all right, title and interest in the end user customer base, software and source code of MessageLogic (the “Business”) and all related current and fixed assets and contracts related to the Business.  These assets include, but not limited to, all of MessageLogic’s intellectual property, customers, customer contracts, software and other assets (collectively, but excluding the Excluded Assets (as hereinafter defined), the Message Logic Assets).  Additionally, MessageLogic transferred to the Company their current liabilities to the extent arising out of the business or the assets totaling $102,109.

Pursuant to the Agreement, the Company paid $211,003 through the issuance of 725,960 shares of its common stock and the assumption of $102,109 of MessageLogic’s liabilities.  The contingent purchase price provides for up to $800,000 in cash and an additional 769,230 of Data Storage common stock.  The first contingent payment was April 30, 2013 and required that sales of Message Logic archival software be at least $325,000.  If that benchmark was achieved the Company would  make a payment of $25,000.  The second contingent payment was October 31, 2013 and required sales of Message logic archival software be at least $1,000,000.  If that benchmark was achieved the Company would make a payment of $375,000.  The Company has not achieved either of the first two benchmarks.  The third contingent payment becomes due on April 30, 2014 if sales of Message Logic archival software are at least $2,000,000.  If that benchmark is met the company will have to make a payment of $150,000.  The fourth and final contingent payment becomes due on October 31, 2014 if Message Logic sales are at least $3,000,000.  If the last benchmark is met the company will make a payment of $250,000.  All benchmark related payments shall be made on a pro-rate basis and may be made if the benchmark is still achieved before the end of the next succeeding measurement period provided that a minimum achievement level of 50% of the benchmark is achieved. Payment of any contingent purchase price payment would first be paid against the outstanding contingent collateral obligation.
 
The following sets forth the components of the purchase price:

Purchase price:
     
Stock issued to seller at closing
 
$
80,764
 
Stock issued to creditor of seller at closing
   
28,130
 
Assumption of liabilities of seller
   
102,109
 
Contingent collateral obligation
   
368,624
 
Total purchase price
   
579,627
 
         
Assets acquired:
       
Trade Name/Trade Mark
   
15,000
 
Customer Agreements
   
153,175
 
Software and Source Code
   
406,581
 
Fixed Assets
   
4,870
 
Total assets acquired
 
$
579,627
 
         
Liabilities assumed:
       
Accounts payable
 
$
23,051
 
Deferred Revenue
   
79,058
 
Total liabilities assumed
   
102,109
 
         
Net assets acquired
   
477,518
 
         
Excess purchase price
 
$
-
 
 
The intangible assets subject to amortization have been assigned useful lives as follows:

Customer list
5 years
Non-compete agreements
4 years
 
Note 16 - Subsequent Events

The Company has been named as a defendant in a lawsuit filed in New York State Supreme Court,  Nassau County, by Richard Rebetti, the Company's former Chief Operating Officer.  In the lawsuit, Rebetti v. Data Storage Corp. and Charles M. Piluso, Index No. 14-2504, Rebetti asserts claims for unpaid wages in the amount of $67,392 plus statutory damages and counsel fees.  The Company intends to vigorously defend against this action and believes that it has counterclaims against Rebetti, and intends to interpose same in the action.
 
 
32

 
 

Not applicable.
 
 
Evaluation of Disclosure Controls and Procedures  

As of the end of the period covered by this Annual Report, under the supervision and with the participation of DSC’s management, including its principal executive officer and principal financial officer, DSC conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, DSC’s principal executive officer and principal financial officers have concluded that DSC’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by DSC in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules based on the material weakness described below.
 
Management's Report on Internal Control Over Financial Reporting
 
DSC’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.  DSC’s internal control over financial reporting is designed to provide reasonable assurance to DSC’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with United States’ generally accepted accounting principles (“GAAP”), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of DSC, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of DSC’s management and directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of DSC’s assets that could have a material effect on the financial statements.
 
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.  Management’s assessment included an evaluation of the design of DSC’s internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting.  Based on this evaluation, management has determined that as of December 31, 2012, there were material weaknesses in our internal control over financial reporting.  The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting expertise to provide reasonable assurance that our financial statements and notes thereto are prepared in accordance with GAAP and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation.  In light of these material weaknesses, management has concluded that, as of December 31, 2012, DSC did not maintain effective internal control over financial reporting.  As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected.  In order to ensure the effectiveness of DSC’s disclosure controls in the future DSC intends on adding financial staff resources to our accounting and finance department. 
 
Because of 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.
 
This Annual Report does not include an attestation report of DSC’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by DSC’s registered public accounting firm pursuant to rules of the SEC that permit DSC to provide only management’s report in this Annual Report.
 
Changes in Internal Control over Financial Reporting

There have been no significant changes in DSC’s internal control over financial reporting during the most recently completed fiscal quarter ended December 31, 2013 that have materially affected, or is reasonably likely to materially affect, DSC’s internal control over financial reporting.


None.
 
 
33

 
 
 
 
The following table sets forth the names, ages, and positions of DSC’s executive officers and directors as of the December 31, 2013. Executive officers are elected annually by DSC’s Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.
 
Name
 
Age
 
Position
Charles M. Piluso
 
60
 
President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board
Richard Rebetti Jr.   (1)
 
48
 
Director, Chief Operating Officer and Treasurer
Peter Briggs      (2)
 
55
 
Officer and Vice President
Matthew Grosso
 
50
 
Secretary and Vice President
Stephen Catanzano
 
48
 
Vice President
John Argen
 
59
 
Director
Jan Burman
 
61
 
Director
Biagio Civale
 
78
 
Director
Joseph B. Hoffman
 
56
 
Director
Lawrence M. Maglione Jr.
 
51
 
Director
Cliff Stein
 
56
 
Director
John Coghlan
 
58
 
Director
 

(1)
R. Rebetti, COO, resigned his position on February 14, 2014.
 
(2)
P. Briggs, EVP employed as part of the SafeData Acquisition under a three year employment contract which ended on June 30th 2013. P. Briggs is under contract as an independent contractor of DSC to sell DSC and SIAS services.

Charles M. Piluso, President. Mr. Piluso is DSC’s President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board. Prior to founding DSC in 2001, Mr. Piluso founded North American Telecommunication Corporation a facilities based Competitive Local Exchange Carrier licensed by the Public Service Commission in ten states, serving as the company's Chairman and President from 1997 to 2000.
 
Between 1990 and 1997, Mr. Piluso served as  Chairman & Founder of International Telecommunications Corporation (“ITC”), a facilities-based international carrier licensed by the Federal Communications Commission. Mr. Piluso founded ITC in 1990 and grew it from two employees to 135 employees with $170 million in revenues in 1997. ITC participated in a roll up strategy that went public in 1997 for 800 million dollars. ITC had operations and agreements in countries including Russia, Israel, Ukraine, United Kingdom, Dominican Republic, Chile and Canada. During his tenure as president, Mr. Piluso grew the company to the fifth largest international facilities based carrier in the USA. Mr. Piluso's career in the telecommunications industry began in 1978 when he joined ITT Corporation (“ITT”).  Over the years, Mr. Piluso was promoted from an entry level sales position to Sales Management, Marketing and Business Development in ITT’s Long Distance Division until 1984. He left ITT to become the General Manager of the New York region for United Technologies Communications Corporation. In that position, Mr. Piluso managed union technicians, sales, installation and customer service.  Mr. Piluso holds a Bachelor’s degree, a Master of Arts in Political Science and Public Administration, and a Masters of Business Administration, all from St. John’s University. He was also an Instructor Professor at St. John’s University, College of Business from 1986 through 1988. From 2001 to 2012, Mr. Piluso served on the Board of Trustees of Molloy College.  Currently, Mr. Piluso serves on the Board of Governors at St. John’s University and the Board of Advisors for the Nassau County Police Department Foundation.
 
Richard Rebetti.   Mr. Rebetti served as DSC’s Chief Operating Officer and Treasurer from April 2012 though February 2014 where he was responsible for managing DSC’s day-to-day operations, as well as overseeing its marketing and information systems functions. Mr. Rebetti has more than 20 years of operational management experience at technology and telecommunications organizations. Prior to joining DSC, Mr. Rebetti was the chief technology officer for STi Prepaid, LLC, an over $300 million division of Leucadia National Corp. and also held the position of COO for Telco Group Inc. /STi Prepaid, Inc. During Mr. Rebetti’s nine years at STi he was part of a team that coordinated the integration of corporate acquisitions and was responsible for the launch of the company’s prepaid wireless division.  From 1997 to 2001, Mr. Rebetti was a co-founder of North American Telecommunications Corporation along with Mr. Piluso, a competitive local exchange carrier offering local, long distance and data services to small and medium size businesses. In this role, Mr. Rebetti was responsible for Systems and Technology, which included information systems, Internet services, service delivery, and operational support systems.  Before co-founding North American Telecommunications, Mr. Rebetti worked for RSL COM, U.S.A., Inc., formally International Telecommunications Corporation (“ITC”), which he co-founded with Mr. Piluso in 1990. During his first five years at ITC, he was responsible for setting up and managing the accounting, billing and M.I.S. departments. During his last 18 months at RSL COM, U.S.A., Inc., he coordinated the implementation of corporate acquisitions held the position of president of RSL Com PrimeCall, Inc., which was the enhanced services division of RSL COM, U.S.A., Inc. During his tenure as president of PrimeCall, annual revenue increased from $4,000,000 to $40,000,000.  Mr. Rebetti has a Bachelor of Science degree in finance and an Advanced Professional Certificate in accounting from St. John's University in New York, as well as a Master of Business Administration in management from City University of New York, Baruch College.  Mr. Rebetti resigned as COO on February 14, 2014.
 
 
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Peter Briggs.   Mr. Briggs has served as DSC’s Executive Vice President, Business Development since 2010.  Prior to joining DSC, Mr. Briggs founded SafeData in 2005 realizing the growing HA need for replication and data recovery solutions for mid-sized businesses and experienced continual growth in both revenues and its customer base during its first five years. Prior to SafeData, Mr. Briggs was president and CEO of ADS, a company he founded and managed. With more than 20 years’ experience in the IBM mid-market, he led ADS to become one of the largest distributors of AS/400 servers in the New England market. Prior to ADS, Mr. Briggs held various sales and sales management roles for several IBM business partners where he had significant revenue responsibility.  Mr. Briggs earned a B.S. degree in business administration from the C.W. Post Campus of Long Island University. He has been awarded the Top Contributor Partner award from IBM and Partner of the Year from Lakeview Technology. He is also a member of the New England Disaster Recovery Exchange and Greater Providence Chamber of Commerce.
 
Matthew P. Grosso.   Mr. Grosso has served as DSC’s Executive Vice President and Chief Technology Officer since 2009 where he is responsible for leading the Technical Operations Management team (including all Data Center Facilities), Product Management & Development, and Corporate Technical Marketing.   Mr. Grosso has been a Managing Partner, VP, General Manager, Practice Manager and Sales Director for companies focused on technology consulting, systems integration and value-added product solutions. His 24 year professional career started with Blue-Chip AT&T and has been balanced between Technology, Business Development, Sales and Management. As an Executive VP at a Technology Consulting Startup, he successfully managed the Sales Channel and Vendor Partnership programs with Cisco and AT&T (among others) and, led the sales teams to consistent year-over-year growth. His company was the first international partner to obtain the contract rights with India Partner, Data Access, to offer VoIP phone service between India and the USA in 2002.   Some of Mr. Grosso’s notable achievements have been the support and leadership on the service activation of many AT&T-lead Undersea Fiber Optic Cable systems in use today (TAT-9, TAT-10, TAT-11, Haw-5/PacRimEast, Taino-Caribe, etc.) as well as the Sales leadership and joint project management of the 1996 Centennial Olympic Games in Atlanta, where his AT&T team provided worldwide TV broadcast and News Media data transmission.   Mr. Grosso has built and managed sales and consultant teams focusing on Telecommunications, Data Communications and Network Hardware Integration, winning many awards for Sales Excellence and Channel Partner Leadership. He brings his diverse business, technical and leadership skills to DSC. As Executive VP, Corporate Secretary & Treasurer, he leads the Technical Operations Management team (including all Data Center Facilities), Product Management & Development, and, Corporate Technical Marketing. Mr. Grosso holds a Bachelors of Science in Electrical Engineering from Manhattan College, specializing in Digital Systems Design. Mr. Grosso also holds the following certifications: Cisco Certified Sales Expert, specializing in Unified Communications, Wireless and Security; EMC Proven Professional, Storage, Backup and Recovery; and AT&T Sales, Marketing and Business Management (AT&T National Sales University).
 
John Argen.    Mr. Argen has been a Director since 2008.   Mr. Argen is a Business Consultant and Developer specializing in the information technology, telecommunications and construction industries. He is a seasoned professional that brings 30 years of experience and entrepreneurial success from working with small business owners to Fortune 500 firms.  From 1992 to 2003, Mr. Argen was the CEO and founder of DCC Systems, a privately held nationwide Technology Design / Build Construction Development and Consulting Solutions firm. Mr. Argen built DCC Systems from the ground up, re-engineering the firm several times to meet the needs of its clientele and enabled DCC Systems to produce gross revenues exceeding 100 million dollars in 2000.  Mr. Argen has been a guest speaker at numerous corporate seminars and industry shows. He has been featured on NBC's "Business Now" which accredited his Technology Construction Management methodology as an innovative process for implementing high tech projects on time and within budget.  Prior to DCC Systems Mr. Argen held senior management positions at ITT/Metromedia (15 years) and was VP of Engineering & Operations at DataNet, a Wilcox & Gibbs company (2 years). Throughout his corporate tenure he has worked in Operations, Marketing, Systems Engineering, Telecommunications and Information Technology. In a career that spans 30 years he has had full responsibility for technology related and construction projects worth over a billion dollars.  Mr. Argen graduated Pace University with a BPS in Finance. His commitment to continued education is reflected in his completion to over 2000 hours of corporate sponsored courses. Mr. Argen also holds a Federal Communication Commission (FCC) Radio Telephone 1st Class License.
 
Jan Burman.   Mr. Burman has been a Director since 2009.  Since 1978, Jan Burman has brought a unique style and personal sensitivity to the business of real estate development. He has an insight for spotting hidden opportunities that lesser-trained eyes overlook. This adds up to consistent results: value for partners, dividends for investors, and outstanding properties for tenants and buyers.  Among his successes: a divestiture of nearly $140 million in holdings to First Industrial Realty Trust; he conceived and developed LI’s largest independent “golden age” community to date, The Meadows; he co-developed The Bristal, a growing family of prestigious Assisted Living communities; and, over the years, he has collaborated on the purchase and/or development of over 15 million square feet of property, from Canada to Florida.  Jan, also a CPA, is the founder, past president and chairman of ABLI, the Association for a Better Long Island, which is an aggressive multi-focus lobby created to protect the economic needs of Nassau and Suffolk Counties. He is also a member of the Corporate Advisory Council for the School of Management at Syracuse University, from where he received his MBA.
 
 
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Biagio "Gino" Civale.   Mr. Civale has been a Director since 2008.  Mr. Civale has a long, successful career in Telecommunications and as a distinguished Arbitrator with both NASD Regulations, Inc. and the American Arbitration Association. As an Arbitrator over the past 32 years, he has dealt with issues surrounding the performance of and adherence to contracts and relationships and responsibilities between and among Clients and Stockbrokers.  As Vice President of Business Development for North American Telecom, Mr. Civale created new business opportunities and alliances around the globe. As Regional Vice President for RSLCOM, he planned and implemented an international Telecommunications network inter-connecting 22 countries on four continents. And, as VP of International Business Development for International Telecommunications Corporation, he was directly responsible for obtaining operating agreements with 24 countries and reached 5th internationally.  Prior to International Telecommunications Corporation, Mr. Civale held various General Management positions with a number of International Business Concerns. Mr. Civale is fluent in 5 languages, has a degree from the University of Pisa and has studied Law at the University of Florence. Mr. Civale is also a member of the DSC Board of Directors.
 
Joseph B. Hoffman.   Mr. Hoffman has been a Director since 2008.  Mr. Hoffman is a partner at Kelley Drye & Warren LLP in the firm’s Washington, D.C. office. His commercial practice focuses on real estate and corporate transactions cutting across a wide range of industries. Mr. Hoffman’s real estate practice involves developers, borrowers, lenders, buyers, sellers, landlords and tenants. Mr. Hoffman’s corporate experience includes the purchase and sale of assets and companies as well as venture capital, equipment leasing and institutional financing transactions. Mr. Hoffman represents telecommunications companies, real estate developers, lenders, venture capital funds, emerging growth companies, thoroughbred horse industry interests and high-net-worth individuals.  Mr. Hoffman received his Bachelors’ of Science, cum laude, from the University of Maryland and his Juris Doctor degree, with honors, from the George Washington University Law School.
 
Lawrence A. Maglione.   Mr. Maglione has been a Director since 2008.  Mr. Maglione is a partner in the accounting firm Eisner & Maglione CPAs, LLC.  Mr. Maglione, a co-founder of DSC, LLC, is a financial management veteran with more than 30 years of experience. Prior to joining DSC, LLC Mr. Maglione was a co-founder of North American Telecommunications Corporation, a local phone service provider which provides local and long distance telephone services and data connectivity to small and medium sized businesses.  At North American Telecommunications Corporation Mr. Maglione was Chief Financial Officer, Executive Vice President and was responsible for all finance, legal and administration. During his tenor (September 1997-January 2001) Mr. Maglione successfully raised over $100 million in debt and equity funding for North American Telecommunications Corporation.  Prior to North American Telecommunications Corporation Mr. Maglione spent over 14 years in public accounting and he brings a broad range of experience related to companies in the technology, retail services and manufacturing industries.  Mr. Maglione is a member of the New York State Society of CPAs. He holds a Bachelor of Science degree in Accountancy; a Master’s of Science in Taxation and is a Certified Public Accountant.
 
Cliff Stein.   Mr. Stein has been a Director since 2010.  Mr. Stein founded Savitar in 1988 as a real estate advisory company providing assistance to beleaguered lenders and financial institutions on their nonperforming real estate assets.  Mr. Stein has acted as an expert witness in countless litigation matters involving real estate transactions and has been appointed as a Receiver, Examiner, and Trustee in State and Federal Courts.  Mr. Stein is an attorney and a member of the Florida Bar Association since 1982. He received his Juris Doctor Degree from the University of Miami. He was graduated with honors by American University with Bachelor of Science Degrees in finance and accounting. From September 1982 through 1984, he served as a law clerk to the Honorable Joseph A. Gassen, U.S. Bankruptcy Judge for the Southern District of Florida. In 1988, Mr. Stein formed Savitar Realty Advisors, as a real estate advisory and management organization, whose clients were primarily financial institutions and government agencies. Savitar (or Cliff Stein) has been appointed Receiver, Examiner, or Trustee in numerous foreclosures or bankruptcies and has been retained as advisor to financial institutions in connection with their troubled assets or their intended acquisition of portfolios of troubled assets. Mr. Stein currently serves as Chairman and Chief Executive Officer of Savitar.  Mr. Stein served as a member of the Board of Directors of Cenvill Development, formerly a $500 million, publicly-traded real estate concern, having been appointed to the Board by the FDIC to represent its interest as the single-largest shareholder.  Mr. Stein was appointed in 1993 by the Governor of Florida to serve as a Commissioner on the Florida Real Estate Commission, which appointment was subsequently ratified by the Florida Senate. In January 1996, Mr. Stein was elected to be the Chairman of the Commission. Mr. Stein recently concluded his second and final term.
 
 
36