10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

☐  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

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 ☒    No ☐

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 S-T (§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 ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer    ☐	Accelerated Filer                       ☐
Non-Accelerated Filer      ☐ (Do not check if a smaller reporting company)	Smaller Reporting Company    ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☒

As of August 15, 2014, 36,125,845 shares of common stock, par value $0.001 per share, were outstanding.

DATA STORAGE CORPORATION

FORM 10-Q

June 30, 2014

INDEX

			Page
PART I-- FINANCIAL INFORMATION
	Item 1	Financial Statements	3
		Condensed Consolidated Balance Sheets as of  June 30, 2014  (unaudited) and December 31, 2013	3
		Condensed Consolidated Statements of Operations for the three  and six months ended June 30, 2014 and 2013 (unaudited)	4
		Consolidated Statements of Cash Flows for the six  months ended June 30, 2014  and 2013 (unaudited)	5
		Notes to Consolidated Financial Statements	6 - 13
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 - 16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4.	Control and Procedures	17
PART II-- OTHER INFORMATION
	Item 1.	Legal Proceedings	18
	Item 1A.	Risk Factors	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Defaults Upon Senior Securities	18
	Item 4.	Mine Safety Disclosures	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	19

2

PART I

ITEM 1.       Financial Statements

DATA STORAGE CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2014			December 31, 2013
ASSETS	(UNAUDITED)
Current Assets:
Cash and cash equivalents	$	208,110		$	87,675
Accounts receivable (less allowance for doubtful accounts of $15,000 in 2014 and $26,801 in 2013)		284,412			258,567
Prepaid compensation		4,139			9,052
Prepaid expenses and other current assets		38,017			171,584
Total Current Assets		534,678			526,878
Property and Equipment:
Property and equipment		3,889,799			3,859,528
Less—Accumulated depreciation		(2,961,440	)		(2,728,547	)
Net Property and Equipment		928,359			1,130,981
Other Assets:
Goodwill		2,201,828			2,201,828
Investment in joint venture – at equity		19,538			-
Other assets		2,460			3,608
Intangible assets, net		539,003			658,769
Employee loan		56,100			45,730
Total Other Assets		2,818,929			2,909,935
Total Assets		4,281,966			4,567,794
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		888,061			984,866
Revolving credit facility		100,292			100,292
Due to related party		229,712			207,848
Dividend payable		372,521			330,811
Deferred revenue		622,456			703,941
Leases payable		214,042			736,636
Loans payable		-			47,312
Convertible debt – related parties net of discount		698,115			186,215
Contingent collateral obligation		350,000			356,204
Total Current Liabilities		3,475,199			3,654,125
Deferred rental obligation		-			5,187
Due to officer		928,364			801,875
Leases payable long term		680,880			86,180
Convertible debt – related parties		-			500,000
Total Long Term Liabilities		1,609,244			1,393,242
Total Liabilities		5,084,443			5,047,367
Stockholders’ Deficit:
Preferred Stock, $0.001 par value; 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 shares issued and outstanding in each period		36,126			36,126
Additional paid in capital		12,609,646			12,540,018
Accumulated deficit		(13,449,651	)		(13,057,119	)
Total Stockholders' Deficit		(802,477	)		(479,573	)
Total Liabilities and Stockholders' Deficit	$	4,281,966		$	4,567,794

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

3

DATA STORAGE CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Sales	$	1,004,477		$	1,170,364		$	2,052,135		$	2,346,542
Cost of sales		538,663			650,666			1,146,266			1,377,780
Gross Profit		465,814			519,698			905,869			968,762
Selling, general and administrative		631,966			659,942			1,199,997			1,381,336
Loss from Operations		(166,152	)		(140,244	)		(294,128	)		(412,574	)
Other Income (Expense)
Interest income		17			4			25			15
Amortization of debt discount		-			-			-			-
Interest expense		(36,770	)		(32,837	)		(76,256	)		(64,611	)
Net Gain (loss) in equity method investment		19,538			(2,243	)		19,538			(2,243	)
Total Other (Expense)		(17,215	)		(35,076	)		(56,693	)		(66,839	)
Loss before provision for income taxes		(183,367	)		(175,320	)		(350,821	)		(479,413	)
Provision for income taxes		-			-			-			-
Net Loss		(183,367	)		(175,320	)		(350,821	)		(479,413	)
Preferred Stock Dividend		(21,224	)		(12,500	)		(41,710	)		(25,000	)
Net Loss Available to Common Shareholders	$	(204,591	)	$	(187,820	)	$	(392,531	)	$	(504,413	)
Loss per Share – Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted Average Number of Shares - Basic and Diluted		36,125,845			33,165,915			36,125,845			33,165,915

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

4

DATA STORAGE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2014			2013
Cash Flows from Operating Activities:
Net loss	$	(350,821	)	$	(479,413	)
Adjustments to reconcile net loss  to net cash used in operating activities:
Depreciation and amortization		352,660			369,914
Amortization of debt discount		11,901			5,950
Non cash interest expense		63,185			24,795
Deferred compensation		4,913			-
Net (Gain) loss attributable to joint venture		(19,538	)		2,243
Allowance for doubtful accounts		-			3,199
Stock based compensation		69,627			116,251
Changes in Assets and Liabilities:
Accounts receivable		(25,845	)		(53,223	)
Other assets		1,146			(1,948	)
Prepaid expenses and other current assets		133,567			105,071
Employee loan		(10,370	)		(13,300	)
Accounts payable and accrued expenses		(159,990	)		117,096
Deferred revenue		(81,485	)		(112,265	)
Deferred rent		(5,187	)		(4,030	)
Due to related party		21,864			23,241
Net Cash Provided by Operating Activities		5,627			134,477
Cash Flows from Investing Activities:
Capital expenditures		-			(167,655	)
Investment in joint venture		-			(15,800	)
Net Cash Used in Investing Activities		-			(183,455	)
Cash Flows from Financing Activities:
Issuance of convertible debt		-			100,000
Repayments of capital lease obligations		(5,477	)		(89,154	)
Repayments of loan obligations		-			-
Repayment of contingent consideration		(6,204	)		(3,105	)
Advances from officer		126,489			43,685
Net Cash Provided by Financing Activities		114,808			51,426
Increase in Cash and Cash Equivalents		120,435			2,448
Cash and Cash Equivalents, Beginning of Period		87,675			72,756
Cash and Cash Equivalents, End of Period	$	208,110		$	75,204
Cash paid for interest	$	13,071		$	4,559
Cash paid for income taxes	$	-		$	-
Non cash investing and financing  activities:
Accrual of preferred stock dividend	$	-		$	12,500
Warrants issued with convertible debt	$	-		$	17,851
Acquisition of equipment under capital lease	$	30,270		$	-

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

5

DATA STORAGE CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014 AND 2013

Note 1 - Basis of presentation, organization and other matters

Headquartered in Garden City, N.Y., Data Storage Corporation (“DSC” or the “Company”) offers its solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government industries.

DSC derives revenues from long term subscription services and professional services related to implementation of subscription services that provide businesses in the education, government and healthcare industries protection of critical computerized data. In 2009 revenues consisted primarily of offsite data backup, de-duplication, continuous data protection and Cloud Disaster Recovery solutions, protecting information for our clients. In 2010 DSC expanded its solutions based on the asset acquisition of SafeData. In 2012 DSC continued to assimilate organizations, expanded its technology as well as technical group and positioned the new organization for growth.  In October 2012 DSC purchased the email archive and data analytics software and assets of Message Logic. DSC has equipment for cloud storage and cloud computing in our data centers in Illinois, Massachusetts, New Jersey, and New York. DSC delivers its solutions over highly reliable, redundant and secure fiber optic networks with separate and diverse routes to the Internet. The network and geographical diversity is important to clients seeking storage hosting and disaster recovery solutions, ensuring protection of data and continuity of business in the case of a network interruption. 

Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results of operations for the full year. The condensed consolidated balance sheet at December 31, 2013 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

Liquidity

The 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 six months ended June 30, 2014, the Company has generated revenues of $2,052,135 but has incurred a net loss attributed to common shareholders of $392,531. 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. The Company has been funded by the Mr. Charles M. Piluso, the Company’s Chief Executive Officer (“CEO”) and largest shareholder since inception as well as several Directors. It is the intention of Mr. Piluso to continue to fund the Company on an as needed basis.

6

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Data Storage Corporation, a Delaware Corporation.  All significant inter-company transactions and balances have been eliminated in consolidation.

Equity Investments

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investee’s earnings or losses are included in other income in the accompanying Condensed Consolidated Statements of Operations.

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.

Estimated Fair Value of Financial Instruments

The Company's financial instruments include cash, accounts receivable, accounts payable, line of credit and due to related parties. Management believes the estimated fair value of these accounts at June 30, 2014 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 certain of the Company’s notes payable and capital lease obligations approximate their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.

7

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 condensed consolidated financial statements.

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.

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 have an anti-dilutive effect on diluted loss per share and therefore they are not included in the calculation. Potentially dilutive securities at  June 30, 2014 include 5,616,120 options and 133,334 warrants.

8

Note 3 - Property and Equipment

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

	June 30, 2014		December 31, 2013
Storage equipment	$	2,205,243	$	2,205,243
Website and software		622,667		622,667
Furniture and fixtures		22,837		23,861
Computer hardware and software		91,687		91,687
Data Center Equipment		947,365		916,070
		3,889,799		3,859,528
Less: Accumulated depreciation		2,961,440		2,728,547
Net property and equipment	$	928,359	$	1,130,981

Depreciation expense for the six months ended June 30, 2014 and 2013 was $232,895 and $274,419, respectively.

Note 4 - Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

		June 30, 2014
	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		652,539
Non-compete agreements	4		262,147		262,147
Total Intangible Assets			1,453,689		914,686
Total Goodwill and Intangible Assets		$	3,655,517	$	914,686

Scheduled amortization over the next five years as follows:

For The Twelve Months ending June 30,
2014	$	173,254
2015		30,635
2016		30,635
2017		10,211
Total	$	244,735

Amortization expense for the six months ended June 30, 2014 and 2013 was $119,765 and $122,495 respectively.

9

Note 5 – Investment in At Equity

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.

	June 30, 2014
Current assets	$	351,159
Non-current assets	$	31,342
Current liabilities	$	346,188
Members' equity	$	36,313

The investment balance carried on the Company's balance sheet amounts to $19,538 as of June 30, 2014.

	Six Months Ended June 30, 2014
Net sales	$	385,894
Gross profit	$	335,407
Operating expenses	$	328,832
Net ordinary income	$	6,575
Other income	$	32,500
Net income(loss)	$	39,075

The Company's share of the net income from Secure Infrastructure & Services, LLC for the six months ended June 30, 2014 was $19,538.

Note 6 – Capital Lease Obligations

The Company entered into a new lease agreement with Systems Trading, Inc. on May 1, 2014 to refinance all outstanding leases into one capital lease. This lease obligation is payable to Systems Trading, Inc. with monthly installments of $21,826 from June 1, 2014 through May 1, 2018 .This lease is secured with the computer equipment and has been capitalized. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40, Debt Modifications and Extinguishments-Derecognition, the Company determined that modification accounting applied to the refinancing. The new capital lease obligation has an effective interest rate of 7.22%.

Future minimum lease payments under the capital leases are as follows:

As of June 30, 2014	$	1,004,006
Less amount representing interest		(109,084	)
Total obligations under capital leases		894,922
Less current portion of obligations under capital leases		(214,042	)
Long-term obligations under capital leases	$	680,880

Long-term obligations under capital leases at June 30, 2014 mature as follows:

For the twelve months ending June 30,
2015	$	214,042
2016		227,243
2017		241,259
2018		212,378
	$	894,922

10

The assets held under the capital leases are included in property and equipment as follows:

Equipment	$	1,603,461
Less: accumulated depreciation		(1,053,367	)
	$	550,094

Note 7 - Commitments and Contingencies

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 June 30, 2014, and is secured by all assets of the Company and personally guaranteed by the Company’s principal shareholder. As of June 30, 2014, the Company owed $100,292 under this agreement.

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.

Operating Leases

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. This lease was renewed for an additional year through June 30, 2015.

Minimum obligations under these lease agreements are as follows:

For the twelve months ending June 30,
2015	$	27,888
2016		27,888
2017		28,694
2018		29,520
Thereafter		2,460
	$	116,450

Rent expense for the six months ended June 30, 2014 and June 30, 2013 was $57,463 and $73,071 respectively.

11

Note 8 - Related Party Transactions

Due to related party represents rent accrued to a partnership controlled by Mr. Piluso for the New York Data Center in New York. The rent expense for the data center is $1,500 per month plus electric service.

As of June 30, 2014 the Company owed Mr. Piluso $928,364. These advances bear no interest and have no stated terms of repayment.  

Note 9 – 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 $120,685and is in arrears on its interest payments. DSC has accrued interest on this note totaling $13,342.

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. Subsequent to the original maturity date the note was extended through February 28, 2015.

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 $0.15and 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. In 2014 the Company defaulted on this note and is subject to additional interest of 5% per annum as well as the additional 10% warrants for each year in default. DSC has accrued interest on this note totaling $8,932. Subsequent to the original maturity date the note was extended through February 28, 2015.

Note 10 - Stockholders’ Equity

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 Series A Preferred Stock, par value $0.001 per share.

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. From time to time, we may issue awards pursuant to the 2008 Plan.  

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 June 30, 2014.

2010 Incentive Award Plan

The Company has reserved 2,000,000 shares of common stock for issuance under the terms of the Data Storage Corporation 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 Data Storage Corporation 2010 Plan. The 2010 Plan, as amended and restated, has been renamed the “Amended and Restated Data Storage Corporation 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

There are 3,845,146 options outstanding under this plan as of June 30, 2014. There were 1,154,854 shares available for future grants under the plans.

12

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, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Granted		-		-		-
Options Exercised		-		-		-
Options Expired		-		-		-
Options Outstanding at June 30, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Exercisable at June 30, 2014		5,616,120		0.02 - 0.85	$	0.24

Share-based compensation expense for options totaling $74,540 and $116,250 was recognized in our results for the six months ended June 30, 2014 and 2013, respectively is based on awards vested.

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 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.

As of June 30, 2014, there was $206,699 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 1.7 years.

Common Stock Warrants

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

	Number of Shares Under Warrants		Range of Warrants Price Per Share		Weighted Average Exercise Price
Warrants Outstanding at January 1, 2014		133,334	$	0.01 - 0.02	$	0.01
Warrants Granted		-		-		-
Warrants Exercised		-		-		-
Warrants Cancelled		-		-		-
Warrants Outstanding at June 30, 2014		133,334		0.01 - 0.02		0.01
Warrants Exercisable at June 30, 2014		133,334		0.01 - 0.02		0.01

Note 11 - Litigation

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, 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.

13

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

This Quarterly Report on Form 10-Q contains forward looking statements, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

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

Company Overview

DSC 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 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.

14

RESULTS OF OPERATIONS

For the three months ended June 30, 2014 as compared to the three months ended June 30, 2013

Net Sales. Net sales for the three months ended June 30, 2014 were $1,004,477, a decrease of $165,887, or 14.17%, compared to $1,170,364 for the three months ended June 30, 2013. The decrease is attributable to the assignment of certain customers to the joint venture during 2013.

Cost of Sales. For the three months ended June 30, 2014, cost of sales were $538,663, a decrease of $112,003, or 17.2%, compared to $650,666 for the three months ended June 30, 2013. The decrease in cost of sales is the result of lower installation costs for non-recurring sales and lower outsourcing of storage due to the Company’s increased internal storage capacity. DSC's gross margin is 46.4% for the three months ended June 30, 2014 as compared to 44.4% for the three months ended June 30, 2013.

Operating Expenses. For the three months ended June 30, 2014, operating expenses were $631,966, a decrease of $27,976, or 4.23%, as compared to $659,942 for the three months ended June 30, 2013. The majority of the decrease in operating expenses for the three months ended June 30, 2014 is a result of decrease in salaries. Sales salaries decreased $48,116 to $66,422 for the three months ended June 30, 2014, as compared to $114,538 for the three months ended June 30, 2013.

Other Income (expense). Interest income for the three months ended June 30, 2014 increased $13 to $17 from $4 for the three months ended June 30, 2014. Interest expense for the three months ended June 30, 2014 increased $3,933 to $36,770 from $32,837 for the three months ended June 30, 2013. .. Gain on equity method investment increased $21,780 to $19,538 for the three months ended June 30, 2014 from ($2,242) for the three months ended June 30, 2013.

Net Loss. Net loss for the three months ended June 30, 2014 was ($183,367) an increase of $8,047, or 4.5%, as compared to net loss of ($-175,320) for the three months ended June 30, 2013.

For the six months ended June 30, 2014 as compared to the six months ended June 30, 2013

Net Sales. Net sales for the six months ended June 30, 2014 were $2,052,135, a decrease of $294,407, or 12.6%, compared to $2,346,542 for the six months ended June 30, 2013. The decrease is attributable to the assignment of certain customers to the joint venture during 2013-2014.

Cost of Sales. For the six months ended June 30, 2014, cost of sales was $1,114.266, a decrease of $231,514, or 16.8%, compared to $1,377,780 for the six months ended June 30, 2013 The decrease in cost of sales is the result of lower installation costs for non-recurring sales and lower outsourcing of storage due to the Company’s increased internal storage capacity The Company's gross margin is 44.1 % for the six months ended June 30, 2014 as compared to 41.3 % for the six months ended June 30, 2013.

Operating Expenses. For the six months ended June 30, 2014, operating expenses were $1,199,997 a decrease of $181,339, or 28.7%, as compared to $1,381,336 for the six months ended June 30, 2013. The majority of the decrease in operating expenses for the six months ended June 30, 2014 is a result of decrease in salaries. Sales salaries decreased $107,401 to $148,525, as compared to $255,927 for the six months ended June 30, 2013. Officer’s salaries expense decreased $46,947 to $141,119, as compared to $188,066 for the six months ended June 30, 2013. Sales commission expense decreased $15,896 to $15,073, as compared to $30,969 for the six months ended June 30, 2013. Stock based compensation decreased $41,711 to $74,540 for the six months ended June 30, 2014 as compared to $116,251 for the six months ended June 30, 2013.

Other Income (expense). Interest income for the six months ended June 30, 2014 increased $10 to $25 from $15 for the six months ended June 30, 2013. Interest expense and related debt discounts for the six months ended June 30, 2014 increased $11,645 to $76,256 from $64,611 for the six months ended June 30, 2013. Gain on equity method investment increased $21,780 to $19,538 for the six months ended June 30, 2014 from ($2,242) for the six months ended June 30, 2013.

Net Loss. Net loss for the six months ended June 30, 2014 was ($350,821) a decrease of $128,592, or 26.8%, as compared to net loss of ($479,413) for the six months ended June 30, 2013.

15

LIQUIDITY AND CAPITAL RESOURCES

The 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. The Company has been funded by the CEO and largest shareholder combined with private placements of the Company’s stock. The Company 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 the Company on an as needed basis. During 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 and expand our presence in the email archiving marketplace through our acquisition of Message Logic.

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 six months ended June 30, 2014 the Company’s cash increased $120,435 to $208,110, from $87,675 at December 31, 2013. Net cash of $5,627 was provided by the Company’s operating activities and no cash was used in investing activities.. Net cash of $114,808 was provided by the Company’s financing activities, primarily due to the officer and related party advances of $126,489.

The Company's working capital deficiency was $2,940,521at June 30, 2014, decreasing $186,726 or 6.09% from $3,127,247 at December 31, 2013. This is principally due to the restructuring of the Company’s long capital lease obligations.

16

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 six months ended June 30, 2014 and six months ended June 30, 2013, DSC had interest including amortization of debt discounts and expense, net of interest income, of approximately $72,448 and $64,596, 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Report, under the supervision and with the participation of DSC’s management, including its principal executive officer and principal financial officer, DSC conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) 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.

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 June 30, 2014, 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.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

17

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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.

Item 1A. Risk Factors.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

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

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 salary compensation for 2012 and 2013.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the period ended June 30, 2014.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

On February 21, 2014, Richard Rebetti Jr. resigned as Director of the Company due to a conflict with his new position at another employer.  Mr. Rebetti’s resignation was not the result of any disagreements with management.

In addition, on June 24, 2014, Jan Burman resigned as Director of the Company as a result of lack of time to commit to the Company and other Board affiliations.  Ms. Burman’s resignation was not the result of any disagreements with management.

18

Item 6. Exhibits

(a) Exhibits

(b) Exhibits #	Description
3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form SB-2 filed on December 17, 2007 (the “SB-2”)).
3.2	Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on October 24, 2008).
3.3	Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1.1 on Form 8-K filed on January 6, 2009).
3.4	Bylaws (incorporated by reference to Exhibit 3.2 to the SB-2).
3.5	Amended Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on October 24, 2008).
4.1	Share Exchange Agreement, dated October 20, 2008, by and among Euro Trend Inc., Data Storage Corporation and the shareholders of Data Storage Corporation named on the signature page thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 24, 2008).
4.2	Share Exchange Agreement, dated October 20, 2008, by and among, Euro Trend Inc., Data Storage Corporation and the shareholders of Data Storage Corporation named on the signature page thereto (incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on June 29, 2009).
4.3	Registration Rights Agreement, dated November 29, 2011, by and between Data Storage Corporation and Southridge Partners II, LP (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on  December 2, 2011).
4.4	Equity Purchase Agreement, dated November 29, 2011, by and between Data Storage Corporation and Southridge Partners II, LP (incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on December 2, 2011).
4.5	Convertible Promissory Note, dated February 28, 2013, by and between the Company and John F. Coghlan. (incorporated herein by reference to Exhibit 4.1 to Form 10-Q filed on May 20, 2013)
4.6	Warrant to Purchase Common Stock, dated February 28, 2013, by and between the Company and John F. Coghlan(incorporated herein by reference to Exhibit 4.2 to Form 10-Q filed on May 20, 2013)
4.7	Securities Purchase Agreement, dated February 28, 2013, by and between the Company and John F. Coghlan. (incorporated herein by reference to Exhibit 10.1 to Form 10-Q filed on May 20, 2013)
4.8	Securities Purchase Agreement between Charles M. Piluso and the Company dated as of August 9, 2013 (incorporated by reference to Exhibit 2.3 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005-84248)).
4.9	10% Convertible Promissory Note due April 30, 2014 (incorporated by reference to Exhibit 2.4 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005-84248)).
4.10	Warrant to Purchase Common Stock dated as of August 9, 2013  (incorporated by reference to Exhibit 2.5 of Schedule 13D/A No. 1 filed by Charles M. Piluso on August 14, 2013 (File No. 005-84248)).
10.1	Asset Purchase Agreement dated November 10, 2008, by and between Novastor Corporation as Seller and Data Storage Corporation as Purchaser (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 12, 2008).
10.2	Joint Venture – Strategic Alliance Agreement, dated March 2, 2010, by and between Data Storage Corporation and United Telecomp, LLC (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 3, 2010).
10.3	Term Sheet for Acquisition by Data Storage Corporation of 80% of the Equity of e-ternity Business Continuity Consultants, Inc., dated May 16, 2012 (incorporated by reference to Exhibit 99.1 to Form 8-K, filed on May 30, 2012).

10.4	Term Sheet for Acquisition by Data Storage Corporation of Message Logic, Inc., dated August 31, 2012 (incorporated by reference to Exhibit 99.1 to Form 8-K filed on September 4, 2012).
10.5	Asset Purchase Agreement, dated June 17, 2010, between SafeData, LLC and Data Storage Corporation (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 23, 2010).
10.6	Asset Purchase Agreement, dated October 31, 2012, by and between Data Storage Corporation and Message Logic, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on January 30, 2013).
10.7	Stock Purchase Agreement, dated October 31, 2012, by and between Data Storage Corporation and Zojax Group, LLC (incorporated by reference to Exhibit 10. 1 to Form 8-K filed on November 7, 2012).
10.8	Form of Employment Agreement between Peter Briggs and Data Storage Corporation (incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 23, 2010).
10.9	Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 on Form S-8/A filed on October 25, 2010).

19

10.10	Amended and Restated Data Storage Corporation 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 26, 2012).
10.11	Stock Purchase Agreement, dated as of March 1, 2011, by and between Data Storage Corporation and John F. Coghlan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 7, 2011).
10.12	Stock Purchase Agreement, dated September 7, 2012, by and between Data Storage Corporation and John F. Coghlan (incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 13, 2012).
10.13	Stock Purchase Agreement, dated September 7, 2012, by and between Data Storage Corporation and Clifford Stein (incorporated by reference to Exhibit 2.2 to Form 8-K filed on September 13, 2012).
10.14	Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Jan Burman (incorporated by reference to Exhibit 2.1 to Form 8-K filed on September 21, 2012).
10.15	Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Charles M. Piluso (incorporated by reference to Exhibit 2.2 to Form 8-K filed on September 21, 2012).
10.16	Stock Purchase Agreement, dated September 18, 2012, by and between Data Storage Corporation and Piluso Family Associates (incorporated by reference to Exhibit 2.3 to Form 8-K filed on September 21, 2012).
14	Code of Ethics (incorporated by reference to Exhibit 14.1 to Form 10-K filed on June 30, 2009).
21	List of Subsidiaries of Data Storage Corporation (incorporated by reference to Exhibit 21 to the Registration Statement on Form S-1 filed on February 6, 2012).
31.1	Certification of President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Exchange Act.
32.1	Certification of President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board of Directors Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *	XBRL Instance Document
101.SCH *	XBRL Taxonomy Schema
101.CAL *	XBRL Taxonomy Calculation Linkbase
101.DEF *	XBRL Taxonomy Definition Linkbase
101.LAB *	XBRL Taxonomy Label Linkbase
101.PRE *	XBRL Taxonomy Presentation Linkbase

20

SIGNATURES

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

	DATA STORAGE CORPORATION
Date: August 14, 2014	By:	/s/ Charles M. Piluso
		Charles M. Piluso President, Chief Executive Officer Chief Financial Officer (Principal Executive, Financial and Accounting Officer)

21

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

 PURSUANT TO SECTION 302 OF THE  SARBANES-OXLEY ACT OF 2002,

I, Charles M. Piluso, certify that: 

1.	I have reviewed this quarterly report on Form 10-Q of Data Storage Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	As the registrant's certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5.	As the registrant's certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	DATA STORAGE CORPORATION
Date: August 14, 2014	By:	/s/ Charles M. Piluso
		CHARLES M. PILUSO
		Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Data Storage Corporation Inc., for the period ended June 30, 2014, I, Charles M. Piluso, Chief Executive Officer and Chief Financial Officer of Data Storage Corporation Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

1. Such Quarterly Report on Form 10-Q for the period ended June 30, 2014, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in such Quarterly Report on Form 10-Q for the period ended June 30, 2014, fairly represents in all material respects, the financial condition and results of operations of Data Storage Corporation, Inc. 

	DATA STORAGE CORPORATION
Date: August 14, 2014	By:	/s/ Charles M. Piluso
		CHARLES M. PILUSO
		Chief Executive Officer and Chief Financial Officer (Duly Authorized Officer and Principal Executive, Financial and Accounting Officer)

XML

Commitments and Contingencies (Details Textual) (USD $)	1 Months Ended	6 Months Ended
	Jan. 31, 2008	Jun. 30, 2014	Jun. 30, 2013
Commitments and Contingencies (Textual)
Rent expenses per month		$ 1,500
Total debt amount available under revolving credit facility	100,000
Amount owed under credit facility		100,292
Interest rate on revolving credit facility excluding prime rate, Minimum	0.50%
Interest rate on revolving credit facility excluding prime rate, Maximum	3.75%
Rent expense		57,463	73,071
Accrued interest		350,000
Garden City [Member]
Commitments and Contingencies (Textual)
Description of rental payments under operating lease		Monthly payments ranging from $6,056 to $6,617 plus a portion of the operating expenses through June 2014.
Garden City [Member] | Maximum [Member]
Commitments and Contingencies (Textual)
Rent expenses per month		6,617
Garden City [Member] | Minimum [Member]
Commitments and Contingencies (Textual)
Rent expenses per month		6,056
Waltham, MA [Member]
Commitments and Contingencies (Textual)
Rent expenses per month		$ 29,000
Contract lease expiration date		Jun. 30, 2014

XML

Investment in At Equity (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Joint Venture (Textual)
Non-controlling ownership interest	50.00%		50.00%
Investment carried amount to balance sheet	$ 0		$ 0
Net (Gain) in equity method investment	$ 19,538	$ (2,243)	$ 19,538	$ (2,243)

XML

Summary of Significant Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2014
Options [Member]
Summary of Significant Accounting Policies (Textual)
Potentially dilutive securities	5,616,120
Warrants [Member]
Summary of Significant Accounting Policies (Textual)
Potentially dilutive securities	133,334

XML

Stockholders' Equity (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Options [Member]
Summary of option/warrant activity
Outstanding, Beginning	6,921,084
Granted
Exercised
Cancelled
Outstanding, Ending	6,921,084
Exercisable, Shares at March 31, 2014	5,616,120
Weighted Average Exercise Price Outstanding, Beginning	$ 0.24
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Expired/Cancelled
Weighted Average Exercise Price Outstanding, Ending	$ 0.24
Exercisable, Weighted Average Exercise Price at March 31, 2014	$ 0.24
Options [Member] | Maximum [Member]
Summary of option/warrant activity
Range price per share, outstanding, Beginning	$ 0.02
Range price per share, Granted
Range price per share, Exercised
Range price per share, Expired/cancel
Range price per share, outstanding, Ending	$ 0.02
Range price per share, Exercisable at March 31, 2014	$ 0.02
Options [Member] | Minimum [Member]
Summary of option/warrant activity
Range price per share, outstanding, Beginning	$ 0.85
Range price per share, Granted
Range price per share, Exercised
Range price per share, Expired/cancel
Range price per share, outstanding, Ending	$ 0.85
Range price per share, Exercisable at March 31, 2014	$ 0.85
Warrants [Member]
Summary of option/warrant activity
Outstanding, Beginning	133,334
Granted
Exercised
Cancelled
Outstanding, Ending	133,334
Exercisable, Shares at March 31, 2014	133,334
Weighted Average Exercise Price Outstanding, Beginning	$ 0.01
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Expired/Cancelled
Weighted Average Exercise Price Outstanding, Ending	$ 0.01
Exercisable, Weighted Average Exercise Price at March 31, 2014	$ 0.01
Warrants [Member] | Maximum [Member]
Summary of option/warrant activity
Range price per share, outstanding, Beginning	$ 0.02
Range price per share, Granted
Range price per share, Exercised
Range price per share, Expired/cancel
Range price per share, outstanding, Ending	$ 0.02
Range price per share, Exercisable at March 31, 2014	$ 0.02
Warrants [Member] | Minimum [Member]
Summary of option/warrant activity
Range price per share, outstanding, Beginning	$ 0.01
Range price per share, Granted
Range price per share, Exercised
Range price per share, Expired/cancel
Range price per share, outstanding, Ending	$ 0.01
Range price per share, Exercisable at March 31, 2014	$ 0.01

XML

Capital Lease Obligations (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2014
Capital lease obligations (Textual)
Description of related party leasing arrangements	On May 1, 2014
Capital lease combined monthly installments payable to Systems Trading, Inc. and IBM	$ 21,826
Description of related party leasing monthly installment	June 1, 2014 through May 1, 2018
Debt Instrument, Interest Rate During Period	7.22%

XML

Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

Note 4 - Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

		June 30, 2014
	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		652,539
Non-compete agreements	4		262,147		262,147
Total Intangible Assets			1,453,689		914,686
Total Goodwill and Intangible Assets		$	3,655,517	$	914,686

Scheduled amortization over the next five years as follows:

For The Twelve Months ending June 30,
2014	$	173,254
2015		30,635
2016		30,635
2017		10,212
Total	$	244,736

Amortization expense for the six months ended June 30, 2014 and 2013 was $119,765 and $122,495 respectively.

XML

Stockholders' Equity (Details Textual) (USD $)	6 Months Ended			1 Months Ended	6 Months Ended	1 Months Ended		0 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Oct. 31, 2008 2008 Equity Incentive Plan [Member]	Jun. 30, 2014 2008 Equity Incentive Plan [Member]	Dec. 31, 2010 2010 Incentive Award Plan [Member]	Jun. 30, 2014 2010 Incentive Award Plan [Member]	Apr. 23, 2012 Amended and Restated DSC Incentive Award Plan [Member]	Jun. 30, 2014 Warrants [Member]	Dec. 31, 2013 Warrants [Member]
Stockholders' Equity (Textual)
Maximum term of stock option from the date of grant				10 years		10 years
Options outstanding					3,075,938		3,845,146		133,334	133,334
Description of consistency of material terms of options granted					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.
Reserved shares of common stock for issuance						2,000,000
Shares available for future grants							1,154,854
Amount of annual contribution per employee								$ 100,000
Common stock, par value	$ 0.001		$ 0.001
Authorized capital stock, shares	260,000,000
Common stock, shares authorized	250,000,000		250,000,000
Series A, preferred stock, shares authorized	10,000,000		10,000,000
Series A, preferred stock, par value	$ 0.001		$ 0.001
Total unrecognized compensation expense	206,699
Share-based compensation expense for options	$ 74,540	$ 116,250
Weighted average period expected to recognized compensation expense (in years)	1 year 8 months 12 days

XML

Goodwill and Intangible Assets (Details 1) (USD $)	Jun. 30, 2014
Scheduled amortization over next five years
2014	$ 173,254
2015	30,635
2016	30,635
2017	10,212
Total	$ 244,736

XML

Goodwill and Intangible Assets (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Schedule of goodwill and intangible assets
Goodwill, Gross amount	$ 2,201,828
Goodwill, Accumulated Amortization
Intangible assets not subject to amortization
Trademarks, Gross amount	294,268
Trademarks, Accumulated Amortization
Intangible assets subject to amortization
Customer list, Gross amount	897,274
Customer lists, Accumulated Amortization	652,539
Non-compete agreements, Gross amount	262,147
Non-compete agreements, Accumulated Amortization	262,147
Total Intangible Assets, Gross amount	1,453,689
Total Intangible Assets, Accumulated Amortization	914,686
Total Goodwill and Intangible Assets, Gross amount	3,655,517
Total Goodwill and Intangible Assets, Accumulated Amortization	$ 914,686
Goodwill, Estimated life in Years	Indefinite.
Trademarks, Estimated life in Years	Indefinite.
Non-compete agreements [Member]
Intangible assets subject to amortization
Intangible assets subject to amortization, Estimated life in Years	4 years
Minimum [Member] | Customer list [Member]
Intangible assets subject to amortization
Intangible assets subject to amortization, Estimated life in Years	5 years
Maximum [Member] | Customer list [Member]
Intangible assets subject to amortization
Intangible assets subject to amortization, Estimated life in Years	15 years

XML

Litigation (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Litigation [Abstract]
Unpaid wages	$ 67,392

XML

Goodwill and Intangible Assets (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Goodwill and Intangible Assets (Textual)
Amortization expense	$ 119,765	$ 122,495

XML

Investment in At Equity (Details) (Secure Infrastructure & Services, LLC [Member], USD $)	Jun. 30, 2014
Secure Infrastructure & Services, LLC [Member]
Summary of financial information of unconsolidated equity investment
Current assets	$ 351,159
Non-current assets	31,342
Current liabilities	346,188
Members' equity	$ 36,313

XML

Property and Equipment

6 Months Ended

Jun. 30, 2014

Property and Equipment [Abstract]

Property and Equipment

Note 3 - Property and Equipment

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

	June 30,  2014		December 31,  2013
Storage equipment	$	2,205,243	$	2,205,243
Website and software		622,667		622,667
Furniture and fixtures		22,837		23,861
Computer hardware and software		91,687		91,687
Data Center Equipment		947,365		916,070
		3,889,799		3,859,528
Less: Accumulated depreciation		2,961,440		2,728,547
Net property and equipment	$	928,359	$	1,130,981

Depreciation expense for the six months ended June 30, 2014 and 2013 was $232,895 and $274,419, respectively.

XML

Investment in At Equity (Details 1) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Summary of net income or loss of unconsolidated equity investment
Net income(loss)	$ 19,538	$ (2,243)	$ 19,538	$ (2,243)
Secure Infrastructure & Services, LLC [Member]
Summary of net income or loss of unconsolidated equity investment
Net sales			385,894
Gross profit			335,407
Operating expenses			328,832
Net ordinary income			6,575
Other income			32,500
Net income(loss)			$ 39,075

XML

Related Party Transactions (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Related Party Transactions (Textual)
Due to officer	$ 928,364	$ 801,875
Rent expenses per month	1,500
Charles M. Piluso, Cliff Stein, John Coghlan and Jan Burman and their affiliates [Member]
Related Party Transactions (Textual)
Due to officer	$ 928,364

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current Assets:
Cash and cash equivalents	$ 208,110	$ 87,675
Accounts receivable (less allowance for doubtful accounts of $15,000 in 2014 and $26,801 in 2013)	284,412	258,567
Prepaid compensation	4,139	9,052
Prepaid expenses and other current assets	38,017	171,584
Total Current Assets	534,678	526,878
Property and Equipment:
Property and equipment	3,889,799	3,859,528
Less - Accumulated depreciation	(2,961,440)	(2,728,547)
Net Property and Equipment	928,359	1,130,981
Other Assets:
Goodwill	2,201,828	2,201,828
Investment in joint venture - at equity	19,538
Other assets	2,460	3,608
Intangible assets, net	539,003	658,769
Employee loan	56,100	45,730
Total Other Assets	2,818,929	2,909,935
Total Assets	4,281,966	4,567,794
Current Liabilities:
Accounts payable and accrued expenses	888,061	984,866
Revolving credit facility	100,292	100,292
Due to related party	229,712	207,848
Dividend payable	372,521	330,811
Deferred revenue	622,456	703,941
Leases payable	214,042	736,636
Loans payable		47,312
Convertible debt - related parties net of discount	698,115	186,215
Contingent collateral obligation	350,000	356,204
Total Current Liabilities	3,475,199	3,654,125
Deferred rental obligation		5,187
Due to officer	928,364	801,875
Leases payable long term	680,880	86,180
Convertible debt - related parties		500,000
Total Long Term Liabilities	1,609,244	1,393,242
Total Liabilities	5,084,443	5,047,367
Stockholders' Deficit:
Preferred Stock, $0.001 par value; 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 shares issued and outstanding in each period	36,126	36,126
Additional paid in capital	12,609,646	12,540,018
Accumulated deficit	(13,449,651)	(13,057,119)
Total Stockholders' Deficit	(802,477)	(479,573)
Total Liabilities and Stockholders' Deficit	$ 4,281,966	$ 4,567,794

XML

Basis of Presentation, Organization and Other Matters

6 Months Ended

Jun. 30, 2014

Basis of presentation, organization and other matters [Abstract]

Basis of presentation, organization and other matters

Note 1 - Basis of presentation, organization and other matters

Headquartered in Garden City, N.Y., Data Storage Corporation (“DSC” or the “Company”) offers its solutions and services to businesses within the healthcare, banking and finance, distribution services, manufacturing, construction, education, and government industries.

DSC derives revenues from long term subscription services and professional services related to implementation of subscription services that provide businesses in the education, government and healthcare industries protection of critical computerized data. In 2009 revenues consisted primarily of offsite data backup, de-duplication, continuous data protection and Cloud Disaster Recovery solutions, protecting information for our clients. In 2010 DSC expanded its solutions based on the asset acquisition of SafeData. In 2012 DSC continued to assimilate organizations, expanded its technology as well as technical group and positioned the new organization for growth.  In October 2012 DSC purchased the email archive and data analytics software and assets of Message Logic. DSC has equipment for cloud storage and cloud computing in our data centers in Illinois, Massachusetts, New Jersey, and New York. DSC delivers its solutions over highly reliable, redundant and secure fiber optic networks with separate and diverse routes to the Internet. The network and geographical diversity is important to clients seeking storage hosting and disaster recovery solutions, ensuring protection of data and continuity of business in the case of a network interruption. 

Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results of operations for the full year. The condensed consolidated balance sheet at December 31, 2013 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

Liquidity

The 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 six months ended June 30, 2014, the Company has generated revenues of $2,052,135 but has incurred a net loss attributed to common shareholders of $392,351. 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. The Company has been funded by the Mr. Charles M. Piluso, the Company’s Chief Executive Officer (“CEO”) and largest shareholder since inception as well as several Directors. It is the intention of Mr. Piluso to continue to fund the Company on an as needed basis.

XML

Capital Lease Obligations (Details 1) (USD $)	Jun. 30, 2014
Summary of long-term obligations under capital leases
2015	$ 214,042
2016	227,243
2017	241,259
2018	212,378
Total obligations under capital leases	$ 894,922

XML

Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies [Abstract]

Schedule of minimum obligations under operating lease agreements

For the twelve months ending June 30,
2015	$	27,888
2016		27,888
2017		28,694
2018		29,520
Thereafter		2,460
	$	116,450

XML

Capital Lease Obligations (Details 2) (USD $)	Jun. 30, 2014
Summary of assets held under capital leases included in property and equipment
Equipment	$ 1,603,461
Less: accumulated depreciation	(1,053,367)
Total	$ 550,094

XML

Basis of Presentation, Organization and Other Matters (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Basis of presentation, organization and other matters (Textual)
Revenues	$ 1,004,477	$ 1,170,364	$ 2,052,135	$ 2,346,542
Net loss	$ (183,367)	$ (175,320)	$ (350,821)	$ (479,413)

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Summary Of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Data Storage Corporation, a Delaware Corporation.  All significant inter-company transactions and balances have been eliminated in consolidation.

Equity Investments

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investee’s earnings or losses are included in other income in the accompanying Condensed Consolidated Statements of Operations.

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.

Estimated Fair Value of Financial Instruments

The Company's financial instruments include cash, accounts receivable, accounts payable, line of credit and due to related parties. Management believes the estimated fair value of these accounts at June 30, 2014 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 certain of the Company’s notes payable and capital lease obligations approximate their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.

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 condensed consolidated financial statements.

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.

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 have an anti-dilutive effect on diluted loss per share and therefore they are not included in the calculation. Potentially dilutive securities at  June 30, 2014 include 5,616,120 options and 133,334 warrants.

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Balance Sheets [Abstract]
Allowance for doubtful accounts related to accounts receivable	$ 15,000	$ 26,801
Preferred Stock, par value	$ 0.001	$ 0.001
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	1,401,786	1,401,786
Preferred Stock, shares outstanding	1,401,786	1,401,786
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	36,125,845	36,125,845
Common stock, shares outstanding	36,125,845	36,125,845

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Summary Of Significant Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiary, Data Storage Corporation, a Delaware Corporation.  All significant inter-company transactions and balances have been eliminated in consolidation.

Equity Investments

Equity Investments

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investee’s earnings or losses are included in other income in the accompanying Condensed Consolidated Statements of Operations.

Use of Estimates

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.

Estimated Fair Value of Financial Instruments

Estimated Fair Value of Financial Instruments

The Company's financial instruments include cash, accounts receivable, accounts payable, line of credit and due to related parties. Management believes the estimated fair value of these accounts at June 30, 2014 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 certain of the Company’s notes payable and capital lease obligations approximate their fair values based upon a comparison of the interest rate and terms of such debt given the level of risk to the rates and terms of similar debt currently available to the Company in the marketplace.

Goodwill and Other Intangibles

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 condensed consolidated financial statements.

Revenue Recognition

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.

Net Income (Loss) Per Common Share

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 have an anti-dilutive effect on diluted loss per share and therefore they are not included in the calculation. Potentially dilutive securities at  June 30, 2014 include 5,616,120 options and 133,334 warrants.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 15, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Data Storage Corp
Entity Central Index Key	0001419951
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		36,125,845

XML

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property and Equipment [Abstract]

Schedule of property and equipment

	June 30,  2014		December 31,  2013
Storage equipment	$	2,205,243	$	2,205,243
Website and software		622,667		622,667
Furniture and fixtures		22,837		23,861
Computer hardware and software		91,687		91,687
Data Center Equipment		947,365		916,070
		3,889,799		3,859,528
Less: Accumulated depreciation		2,961,440		2,728,547
Net property and equipment	$	928,359	$	1,130,981

XML

Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Statements of Operations [Abstract]
Sales	$ 1,004,477	$ 1,170,364	$ 2,052,135	$ 2,346,542
Cost of sales	538,663	650,666	1,146,266	1,377,780
Gross Profit	465,814	519,698	905,869	968,762
Selling, general and administrative	631,966	659,942	1,199,997	1,381,336
Loss from Operations	(166,152)	(140,244)	(294,128)	(412,574)
Other Income (Expense)
Interest income	17	4	25	15
Amortization of debt discount			(11,901)	(5,950)
Interest expense	(36,770)	(32,837)	(76,256)	(64,611)
Net (Gain) in equity method investment	19,538	(2,243)	19,538	(2,243)
Total Other (Expense)	(17,215)	(35,076)	(56,693)	(66,839)
Loss before provision for income taxes	(183,367)	(175,320)	(350,821)	(479,413)
Provision for income taxes
Net Loss	(183,367)	(175,320)	(350,821)	(479,413)
Preferred Stock Dividend	(21,224)	(12,500)	(41,710)	(25,000)
Net Loss Available to Common Shareholders	$ (204,591)	$ (187,820)	$ (392,531)	$ (504,413)
Loss per Share - Basic and Diluted	$ (0.01)	$ (0.01)	$ (0.01)	$ (0.01)
Weighted Average Number of Shares - Basic and Diluted	36,125,845	33,165,915	36,125,845	33,165,915

XML

Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 7 - Commitments and Contingencies

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 June 30, 2014, and is secured by all assets of the Company and personally guaranteed by the Company’s principal shareholder. As of June 30, 2014, the Company owed $100,292 under this agreement.

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.

Operating Leases

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. This lease was renewed for an additional year through June 30, 2015.

Minimum obligations under these lease agreements are as follows:

For the twelve months ending June 30,
2015	$	27,888
2016		27,888
2017		28,694
2018		29,520
Thereafter		2,460
	$	116,450

Rent expense for the six months ended June 30, 2014 and June 30, 2013 was $57,463 and $73,071 respectively.

XML

Capital Lease Obligations

6 Months Ended

Jun. 30, 2014

Capital Lease Obligations [Abstract]

Capital lease obligations

Note 6 – Capital Lease Obligations

(1) The Company entered into a new lease agreement with Systems Trading, Inc. on May 1, 2014 to refinance all outstanding leases into one capital lease. This lease obligation is payable to Systems Trading, Inc. with monthly installments of $21,826 from June 1, 2014 through May 1, 2018 .This lease is secured with the computer equipment and has been capitalized. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40, Debt Modifications and Extinguishments-Derecognition, the Company determined that modification accounting applied to the refinancing. The new capital lease obligation has an effective interest rate of 7.22%.

Future minimum lease payments under the capital leases are as follows:

As of June 30, 2014	$	1,004,006
Less amount representing interest		(109,084	)
Total obligations under capital leases		894,922
Less current portion of obligations under capital leases		(214,042	)
Long-term obligations under capital leases	$	680,880

Long-term obligations under capital leases at June 30, 2014 mature as follows:

For the twelve months ending June 30,
2015	$	214,042
2016		227,243
2017		241,259
2018		212,378
	$	894,922

The assets held under the capital leases are included in property and equipment as follows:

Equipment	$	1,603,461
Less: accumulated depreciation		(1,053,367	)
	$	550,094

XML

Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2014

Warrants [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary of option/warrant activity

	Number of Shares Under Warrants		Range of Warrants Price Per Share		Weighted Average Exercise Price
Warrants Outstanding at January 1, 2014		133,334	$	0.01 - 0.02	$	0.01
Warrants Granted		-		-		-
Warrants Exercised		-		-		-
Warrants Cancelled		-		-		-
Warrants Outstanding at June 30, 2014		133,334		0.01 - 0.02		0.01
Warrants Exercisable at June 30, 2014		133,334		0.01 - 0.02		0.01

Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Summary of option/warrant activity

	Number of Shares Under Options		Range of Option Price Per Share		Weighted Average Exercise Price
Options Outstanding at January 1, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Granted		-		-		-
Options Exercised		-		-		-
Options Expired		-		-		-
Options Outstanding at June 30, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Exercisable at June 30, 2014		5,616,120		0.02 - 0.85	$	0.24

XML

Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Goodwill and Intangible Assets [Abstract]

Schedule of goodwill and intangible assets

		June 30, 2014
	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		652,539
Non-compete agreements	4			262,147		262,147
Total Intangible Assets				1,453,689		914,686
Total Goodwill and Intangible Assets			$	3,655,517	$	914,686

Scheduled amortization over next five years

For The Twelve Months ending June 30,
2014	$	173,254
2015		30,635
2016		30,635
2017		10,212
Total	$	244,736

XML

Stockholders' Equity

6 Months Ended

Jun. 30, 2014

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 10 - Stockholders’ Equity

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 Series A Preferred Stock, par value $0.001 per share.

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. From time to time, we may issue awards pursuant to the 2008 Plan.  

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 June 30, 2014.

2010 Incentive Award Plan

The Company has reserved 2,000,000 shares of common stock for issuance under the terms of the Data Storage Corporation 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 Data Storage Corporation 2010 Plan. The 2010 Plan, as amended and restated, has been renamed the “Amended and Restated Data Storage Corporation 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

There are 3,845,146 options outstanding under this plan as of June 30, 2014. There were 1,154,854 shares available for future grants under the plans.

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, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Granted		-		-		-
Options Exercised		-		-		-
Options Expired		-		-		-
Options Outstanding at June 30, 2014		6,921,084	$	0.02 - 0.85	$	0.24
Options Exercisable at June 30, 2014		5,616,120		0.02 - 0.85	$	0.24

Share-based compensation expense for options totaling $74,540 and $116,250 was recognized in our results for the six months ended June 30, 2014 and 2013, respectively is based on awards vested.

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 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.

As of June 30, 2014, there was $206,699 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 1.7 years.

Common Stock Warrants

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

	Number of Shares Under Warrants		Range of Warrants Price Per Share		Weighted Average Exercise Price
Warrants Outstanding at January 1, 2014		133,334	$	0.01 - 0.02	$	0.01
Warrants Granted		-		-		-
Warrants Exercised		-		-		-
Warrants Cancelled		-		-		-
Warrants Outstanding at June 30, 2014		133,334		0.01 - 0.02		0.01
Warrants Exercisable at June 30, 2014		133,334		0.01 - 0.02		0.01

XML

Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions

Note 8 - Related Party Transactions

Due to related party represents rent accrued to a partnership controlled by Mr. Piluso for the New York Data Center in New York. The rent expense for the data center is $1,500 per month plus electric service.

As of June 30, 2014 the Company owed Mr. Piluso $928,364. These advances bear no interest and have no stated terms of repayment.

XML

Convertible Debt

6 Months Ended

Jun. 30, 2014

Convertible Debt [Abstract]

Convertible debt

Note 9 – 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 $120,685and is in arrears on its interest payments. DSC has accrued interest on this note totaling $13,342.

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  Subsequent to the original maturity date the note was extended through February 28, 2015.

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 $0.15and 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. In 2014 the Company defaulted on this note and is subject to additional interest of 5% per annum as well as the additional 10% warrants for each year in default. DSC has accrued interest on this note totaling $8,932. Subsequent to the original maturity date the note was extended through February 28, 2015.

XML

Litigation

6 Months Ended

Jun. 30, 2014

Litigation [Abstract]

Litigation

Note 11 - Litigation

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, 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.

XML

Capital Lease Obligations (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Future minimum lease payments under capital
As of June 30, 2014	$ 1,004,006
Less amount representing interest	(109,084)
Total obligations under capital leases	894,922
Less current portion of obligations under capital leases	(214,042)	(736,636)
Long-term obligations under capital leases	$ 680,880	$ 86,180

XML

Capital Lease Obligations (Tables)

6 Months Ended

Jun. 30, 2014

Capital Lease Obligations [Abstract]

Summary of future minimum lease payments under capital leases

As of June 30, 2014	$	1,004,006
Less amount representing interest		(109,084	)
Total obligations under capital leases		894,922
Less current portion of obligations under capital leases		(214,042	)
Long-term obligations under capital leases	$	680,880

Summary of long-term obligations under capital leases

For the twelve months ending June 30,
2015	$	214,042
2016		227,243
2017		241,259
2018		212,378
	$	894,922

Summary of assets held under capital leases included in property and equipment

Equipment	$	1,603,461
Less: accumulated depreciation		(1,053,367	)
	$	550,094

XML

Property and Equipment (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Schedule of property and equipment
Property and equipment	$ 3,889,799	$ 3,859,528
Less - Accumulated depreciation	2,961,440	2,728,547
Net Property and Equipment	928,359	1,130,981
Storage equipment [Member]
Schedule of property and equipment
Property and equipment	2,205,243	2,205,243
Website and software [Member]
Schedule of property and equipment
Property and equipment	622,667	622,667
Furniture and fixtures [Member]
Schedule of property and equipment
Property and equipment	22,837	23,861
Computer hardware and software [Member]
Schedule of property and equipment
Property and equipment	91,687	91,687
Data Center Equipment [Member]
Schedule of property and equipment
Property and equipment	$ 947,365	$ 916,070

XML

Convertible debt (Details) (USD $)	1 Months Ended	6 Months Ended	1 Months Ended		0 Months Ended
	Jan. 31, 2012	Jun. 30, 2014	Feb. 28, 2013 Director [Member]	Jan. 31, 2012 Director [Member]	Aug. 09, 2013 Chief Executive Officer [Member]
Convertible Debt (Textual)
Convertible promissory note			$ 100,000	$ 500,000	$ 100,000
Conversion price			$ 0.15	$ 0.85	$ 0.15
Interest rate on note			10.00%	10.00%	10.00%
Note maturity date			Feb. 28, 2014	Jan. 31, 2015	Apr. 30, 2014
Note maturity date, description			Maturity date has been extended through February 28th 2015		Maturity date has been extended through February 28th 2015
Warrants issued			66,667		66,667
Warrants value recorded as a discount			17,851		17,851
Addtional interest of warrant note		10.00%	10.00%
Addtional interest of note		5.00%	5.00%
Accrued interest on note	$ 13,342	$ 8,932		$ 120,685

XML

Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash Flows from Operating Activities:
Net loss	$ (350,821)	$ (479,413)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	352,660	369,914
Amortization of debt discount	11,901	5,950
Non cash interest expense	63,185	24,795
Deferred compensation	4,913
Net (Gain) loss attributable to joint venture	(19,538)	2,243
Allowance for doubtful accounts		3,199
Stock based compensation	69,627	116,251
Changes in Assets and Liabilities:
Accounts receivable	(25,845)	(53,223)
Other assets	1,146	(1,948)
Prepaid expenses and other current assets	133,567	105,071
Employee loan	(10,370)	(13,300)
Accounts payable and accrued expenses	(159,990)	117,096
Deferred revenue	(81,485)	(112,265)
Deferred rent	(5,187)	(4,030)
Due to related party	21,864	23,241
Net Cash Provided by Operating Activities	5,627	134,477
Cash Flows from Investing Activities:
Capital expenditures		(167,655)
Investment in joint venture		(15,800)
Net Cash Used in Investing Activities		(183,455)
Cash Flows from Financing Activities:
Issuance of convertible debt		100,000
Repayments of capital lease obligations	(5,477)	(89,154)
Repayments of loan obligations
Repayment of contingent consideration	(6,204)	(3,105)
Advances from officer	126,489	43,685
Net Cash Provided by Financing Activities	114,808	51,426
Increase in Cash and Cash Equivalents	120,435	2,448
Cash and Cash Equivalents, Beginning of Period	87,675	72,756
Cash and Cash Equivalents, End of Period	208,110	75,204
Cash paid for interest	13,071	4,559
Cash paid for income taxes
Non cash investing and financing activities:
Accrual of preferred stock dividend		12,500
Warrants issued with convertible debt		17,851
Acquisition of equipment under capital lease	$ 30,270

XML

Investment in At Equity

6 Months Ended

Jun. 30, 2014

Joint Venture [Abstract]

Investment in At Equity

Note 5 – Investment in At Equity

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.

	June 30,  2014
Current assets	$	351,159
Non-current assets	$	31,342
Current liabilities	$	346,188
Members' equity	$	36,313

The investment balance carried on the Company's balance sheet amounts to $0 as of June 30, 2014.

	Six Months  Ended  June 30,  2014
Net sales	$	385,894
Gross profit	$	335,407
Operating expenses	$	328,832
Net ordinary income	$	6,575
Other income	$	32,500
Net income(loss)	$	39,075

The Company's share of the net income from Secure Infrastructure & Services, LLC for the six months ended June 30, 2014 was $19,538.

XML

Property and Equipment (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Property and Equipment (Textual)
Depreciation expense	$ 232,893	$ 274,419

XML

Commitments and Contingencies (Details) (USD $)	Jun. 30, 2014
Schedule of minimum obligations under operating lease agreements
2015	$ 27,888
2016	27,888
2017	28,694
2018	29,520
Thereafter	2,460
Total	$ 116,450

XML

Investment in At Equity (Tables)

6 Months Ended

Jun. 30, 2014

Joint Venture [Abstract]

Summary of financial information of unconsolidated equity investment

	June 30,  2014
Current assets	$	351,159
Non-current assets	$	31,342
Current liabilities	$	346,188
Members' equity	$	36,313

Summary of net income or loss of unconsolidated equity investment

	Six Months  Ended  June 30,  2014
Net sales	$	385,894
Gross profit	$	335,407
Operating expenses	$	328,832
Net ordinary income	$	6,575
Other income	$	32,500
Net income(loss)	$	39,075