Data Storage Corp (OTCMKTS:DTST) Gets Pumped

Today, we need to profile the infrastructure and software as a service company Data Storage Corp (OTCMKTS:DTST). The company's share price has spiked up from below $0.1 and touched the one-year highs of $0.6. The stock returns, of course, are unbelievable, and most market participants will be interested in the stock, but we need to be very careful. In this piece, we will explain why. Company Logo - Data Storage Corp OTCMKTS:DTSTBefore we provide more details about this company, check the following stock chart. Please remember to remark a vast number of shares that changed hands recently. The volume was larger than 2 million some days, which is also a new one-year record. We believe that many market participants would have appreciated reading this article before dealing with these shares. 2 month chart for DTSTData Storage CorporationDTST was founded in 2001 and is headquartered in Melville, New York. The company provides several services that include infrastructure as a service, disaster recovery as a service, and email archival and compliance solutions. The company's mission is protecting its client’s data, ensuring business continuity, assisting in their compliance requirements, and providing better control over their digital information.The market participants doing superficial research may have been seduced by the company's long history. It has been operating for 16 years in the same industry. This is a useful feature of DTST. Additionally, the recent acquisition of assets in 2016 from ABC Services, Inc. and ABC Services II, Inc. showed that the company is ready to expand into managed services, cybersecurity solutions, and hybrid cloud solutions.Financial Accounts - The Goodwill is largeThe first warning that we found in DTST is a significant amount of goodwill standing on the balance sheet; 3.985 million. As of December 31, 2016, the total amount of assets was equal to $5.842 million, which means that 68% of the total amount of assets is only Goodwill. We also dislike that 3.985 million are not patents, but goodwill obtained from the acquisition of other companies.Have a look at the following image taken from the company materials: Goodwill - Data Storage Corp OTCMKTS:DTSTA big part of this goodwill was obtained when DIST acquired ABC Services Inc. on October 25, 2016. We don't appreciate that the large part of the target's valuation was represented as goodwill. Check the following image as well: Acquisition And Goodwill - Data Storage Corp OTCMKTS:DTSTDTST has acquired and exchanged shares with other companies. We could read in the company materials about a share exchange with Euro Trend Inc, which was executed in 2008, an asset acquisition of SafeData, LLC, closed in 2010, and an asset acquisition of Message Logic LLC in 2012.The income statement does not look better. The company showed revenues above $3.9 million in the last four years, but the income statement has always been negative. The net income has always been below ($0.7 million). To sum up, shareholders don't look to be making money here even after 16 years in the industry.The promotion of the stockThere is another very significant warning about this company. Stock promoters are sending emails to tout the stock. Check the following text from an email that we found:Please remark that the promoter noted that the company was profitable, whereas it has never reported a positive annual net income in the last three years. It is critical to understand that the email shows the quarterly earnings’ figures instead of using the yearly net income.Also, it is also interesting to note that the email was written by a promoter, who gets paid for sending stock promotions:

"This report/release/profile is a commercial advertisement and is for general information purposes only. We are engaged in the business of marketing and advertising companies for monetary compensation unless otherwise stated below. The paying party may own shares and may liquidate them during the promotional period."

Stock DilutionFinally, we need to note that affiliates of the company converted in 2016 a lot of convertible securities receiving 26,781,242 shares of common stock of the company. It is not a small number taking into account that there were 128,139,418 shares outstanding as of January 2, 2017.Check the following chart and note that the stock dilution in this company has been very significant. In 8 years, the amount of shares has been multiplied by ten: Total Amount of Shares - Data Storage Corp OTCMKTS:DTSTFor the market participants interested, the list of potentially dilutive securities, on December 31, 2016, included 6,741,660 options, and 133,334 warrants. These securities could increase stock dilution and could reduce the market price of the shares.ConclusionCurrently trading with a market cap of $74 million, DTST shows an interesting profile if we do brief company research. But, if we take some time reviewing the company materials, we can see many warnings.The fact that the net asset per share keeps declining is the most remarkable. Additionally, the fact that the balance sheet does not contain remarkable patents, but a lot of goodwill from the acquisition of other companies, is also worrying. Finally, the cash on hand is too little, only $0.25 million, which does not make much sense, as the company is said to be making $4.3 million in revenues. To sum, we encourage readers to do further research on DTST before thinking about dealing with its shares. We will be updating our subscribers as soon as we know more. For the latest updates on DTST, sign up below!Disclosure: We have no position in DTST and have not been compensated for this article.Image courtesy of Owen Parrish via Flickr