FalconStor: Fiscal 4Q17 Financial Results

FalconStor Software, Inc. announced financial results for its fourth quarter and fiscal year ended December 31, 2017.

“Q4 continues the return to profitability first delivered in Q3 2017, and powered the company to an annual profit for 2017, the first since 2008. This performance further demonstrates the stability our strategic restructuring is creating,” stated Todd Brooks, CEO. “In addition to the improved operating performance, the increased engagement we experienced in Q4 with our global partner and end-user base has been encouraging, and has created momentum to support our growth and product innovation efforts.“

He added: “Despite  the improved operating results, the company’s cash position continued to deteriorate in 2017. Accordingly to facilitate the ability of the company to continue in operations and implement its turn-around strategy, the company closed on the previously announced commitment with Hale Capital.“

He further noted “that the implementation of the turn-around strategy is further enhanced by the June 30, 2021 maturity date for the commitment and the agreement of Hale Capital Partners as part of the commitment to postpone the fixed date for mandatory redemption requests on the company’s series A redeemable preferred stock to July 30, 2021.”

For the three months ended December 31, 2017 the company delivered net GAAP operating income of $1.4 million on revenues of $6.3 million.

Included in operating results above for the three months ended December 31, 2017 and 2016 were $0.1 million and $(0.1) million of share-based compensation expense, respectively, and $0.2 million and $0.3 million of severance expense, respectively.

For the twelve months ended December 31, 2017 the firm delivered GAAP net operating income of $1.0 million as compared to a net operating loss of $10.3 million for the same period last year. Included in operating results above for the twelve months ended December 31, 2017 and 2016 were $0.4 million and $2.3 million of share-based compensation expense, respectively, and $1.2 million and $1.7 million of severance expense, respectively. Included in net income (loss) for the twelve months ended December 31, 2017 and 2016 was an income tax provision of $0.0 million and $0.6 million, respectively. Due to cost reduction initiatives during 2017 we improved net income by $12.1 million for the twelve months ended December 31, 2017 as compared to the prior year period.

Deferred revenue at December 31, 2017 was $18.4 million, compared with $23.7 million at December 31, 2016.

Cash balance at December 31, 2017 was $1.0 million, compared with $3.4 million at December 31, 2016.

• In June 2017, the board of directors, approved a comprehensive plan to increase operating performance. This plan has resulted in a realignment and reduction in workforce and a change in the leadership of the company. It is substantially complete and the firm ended the quarter with 81 employees worldwide. In connection with this plan, the company has incurred severance expense of $1.2 million. In making these changes, it prioritized customer support and development while consolidating operations and streamlining direct sales resources, therefore allowing to focus on its install base and develop more efficient market channels.
• During 2017, the company continued to innovate and further enhance our products.

Closing Commitment
As previously announced, In February 2018, the company and HCP-FVA, LLC entered into the Amended and Restated Loan Agreement and closed on a previously announced commitment whereby HCP-FVA agreed to provide an aggregate of $3,000,000 of financing (inclusive of the Bridge Loan described below) to the company. As part of the commitment, the company issued HCP-FVA additional Backstop Warrants to purchase 41,577,382 shares of common stock at a nominal exercise price and financing warrants to purchase 366,990,000 shares of common stock at a nominal exercise. The company previously issued 13,859,128 Backstop Warrants to HCP-FVA in connection with a $500,000 Bridge Loan provided by HCP-FVA in November 2017.

The company intends to offer to FalconStor stockholders as of November 17, 2017 who are accredited investors the opportunity to purchase units consisting of financing warrants, senior secured debt and series A redeemable convertible preferred stock held by HCP-FVA. 

Company HQs
The company has been transitioning the movement of its principal executive officers to 823 Congress Avenue, Suite 1300, Austin, TX 78701. This transition has been completed and going forward the company’s public filings will reflect this new address as the company’s principal executive officers. The company continues to retain its officers in Melville, NY, and is actively seeking to sublet a significant portion of its Melville office space.