FALCONSTOR SOFTWARE, INC. | ||
(Exact name of registrant as specified in its charter) | ||
Delaware | 000-23970 | 77-0216135 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
2 Huntington Quadrangle, Melville, New York | 11747 | |
(Address of principal executive offices) | (Zip Code) |
N/A |
(Former name or former address, if changed since last report.) |
Item 2.02. | Results of Operations and Financial Condition |
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits | |||
Exhibit Number | Description | |||
99.1 | Press release of the Company dated February 12, 2015. |
FALCONSTOR SOFTWARE, INC. | |||
Date: February 12, 2015 | By: | /s/ Louis J. Petrucelly | |
Name: | Louis J. Petrucelly | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer |
• | REVENUES: |
◦ | Q4 2014 total revenues totaled $11.8 million compared with $11.2 million in Q3 2014 and $14.7 million in Q4 2013. |
• | BOOKINGS: |
◦ | Q4 2014 bookings totaled $13.6 million compared with $8.9 million in Q3 2014 and $16.3 million in Q4 2013. |
• | DEFERRED REVENUE: |
◦ | Deferred revenue as of December 31, 2014 totaled $36.5 million, an increase of 23% compared with December 31, 2013, and an increase of 7% compared with September 30, 2014. |
• | CASH: |
◦ | The Company generated $0.5 million of positive cash flow from operations for the year ended December 31, 2014, compared with cash used in operations of $11.1 million for the year ended December 31, 2013; |
◦ | Closed the quarter with $21.8 million of cash, cash equivalents and marketable securities, compared with $26.6 million at September 30, 2014; |
◦ | During the fourth quarter of 2014; |
▪ | The Company made $4.7 million in payments associated with the repurchasing of 4,298,533 shares of its common stock; |
▪ | The Company received $3.0 million upon completion of our joint development agreement, which has been recorded in deferred revenue; |
▪ | The Company made $0.2 million in payments associated with the “rebalancing” program from 2013; and |
▪ | The Company made $0.2 million in payments related to the Series A redeemable convertible preferred stock dividends accrued for at September 30, 2014. |
• | Non-GAAP EXPENSES and MARGINS: |
◦ | Non-GAAP expenses totaled $14.0 million in Q4 2014, compared with non-GAAP expenses of $13.1 million in Q3 2014 and non-GAAP expenses of $13.8 million in Q4 2013; |
◦ | Non-GAAP gross margins were 78% in Q4 2014, compared with non-GAAP gross margins of 77% in Q3 2014 and non-GAAP gross margins of 78% in Q4 2013. |
• | OTHER ITEMS |
◦ | Final acceptance of the final deliverables under our joint development agreement with Violin Memory software occurred on November 16, 2014. The Company has completed all of the required milestones deliveries and has collected the entire $12.0 million due under the joint development agreement over the past two fiscal years. |
◦ | During the fourth quarter of 2014 the Company entered into a purchase agreement to acquire 4,298,533 shares of the Company's common stock held by the Estate of ReiJane Huai for $4.7 million and the shares were transferred to the Company's treasury account. |
December 31, 2014 | December 31, 2013 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,873,891 | $ | 19,288,340 | ||||
Restricted cash | — | 750,000 | ||||||
Marketable securities | 10,900,722 | 8,073,108 | ||||||
Accounts receivable, net | 8,898,680 | 11,150,323 | ||||||
Prepaid expenses and other current assets | 1,596,916 | 1,636,891 | ||||||
Inventory | 352,493 | 919,390 | ||||||
Deferred tax assets, net | 316,586 | 358,092 | ||||||
Total current assets | 32,939,288 | 42,176,144 | ||||||
Property and equipment, net | 2,147,188 | 3,317,344 | ||||||
Deferred tax assets, net | 7,503 | 49,651 | ||||||
Software development costs, net | 1,508,517 | 1,796,075 | ||||||
Other assets, net | 1,373,964 | 1,549,255 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 196,037 | 179,596 | ||||||
Total assets | $ | 42,322,836 | $ | 53,218,404 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,266,504 | $ | 1,024,180 | ||||
Accrued expenses | 6,939,198 | 8,658,863 | ||||||
Deferred tax liabilities, net | 23,307 | 18,005 | ||||||
Deferred revenue, net | 23,380,012 | 18,148,268 | ||||||
Total current liabilities | 31,609,021 | 27,849,316 | ||||||
Other long-term liabilities | 630,444 | 617,300 | ||||||
Deferred tax liabilities, net | 226,443 | 193,705 | ||||||
Deferred revenue, net | 13,097,215 | 11,602,177 | ||||||
Total liabilities | 45,563,123 | 40,262,498 | ||||||
Commitments and contingencies | ||||||||
Series A redeemable convertible preferred stock | 7,230,941 | 6,737,578 | ||||||
Total stockholders' (deficit) equity | (10,471,228 | ) | 6,218,328 | |||||
Total liabilities and stockholders' (deficit) equity | $ | 42,322,836 | $ | 53,218,404 |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: | ||||||||||||||||
Product revenues | $ | 4,566,976 | $ | 6,451,796 | $ | 17,723,000 | $ | 27,338,557 | ||||||||
Support and services revenues | 7,226,933 | 8,195,714 | 28,550,515 | 31,297,947 | ||||||||||||
Total revenues | 11,793,909 | 14,647,510 | 46,273,515 | 58,636,504 | ||||||||||||
Cost of revenues: | ||||||||||||||||
Product | 683,976 | 690,168 | 2,791,950 | 4,155,413 | ||||||||||||
Support and service | 1,972,358 | 2,563,535 | 7,838,766 | 11,000,401 | ||||||||||||
Total cost of revenues | 2,656,334 | 3,253,703 | 10,630,716 | 15,155,814 | ||||||||||||
Gross profit | $ | 9,137,575 | $ | 11,393,807 | $ | 35,642,799 | $ | 43,480,690 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development costs | 2,965,359 | 2,923,828 | 12,452,528 | 15,613,543 | ||||||||||||
Selling and marketing | 6,409,467 | 5,432,371 | 24,426,438 | 25,222,954 | ||||||||||||
General and administrative | 2,209,295 | 2,637,999 | 9,105,545 | 12,265,038 | ||||||||||||
Investigation, litigation, and settlement related costs | (231,214 | ) | 97,845 | (5,417,925 | ) | 373,619 | ||||||||||
Restructuring costs | 89,746 | 1,315,189 | 1,135,310 | 3,606,020 | ||||||||||||
Total operating expenses | 11,442,653 | 12,407,232 | 41,701,896 | 57,081,174 | ||||||||||||
Operating loss | (2,305,078 | ) | (1,013,425 | ) | (6,059,097 | ) | (13,600,484 | ) | ||||||||
Interest and other (loss) income, net | (157,635 | ) | 1,915,304 | (642,633 | ) | 1,094,126 | ||||||||||
(Loss) income before income taxes | (2,462,713 | ) | 901,879 | (6,701,730 | ) | (12,506,358 | ) | |||||||||
Provision (benefit) for income taxes | 45,858 | 27,068 | 510,091 | (1,573,768 | ) | |||||||||||
Net (loss) income | $ | (2,508,571 | ) | $ | 874,811 | $ | (7,211,821 | ) | $ | (10,932,590 | ) | |||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 186,904 | 187,504 | 747,616 | 216,379 | ||||||||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 131,541 | 110,443 | 493,363 | 127,504 | ||||||||||||
Net (loss) income attributable to common stockholders | $ | (2,827,016 | ) | $ | 576,864 | $ | (8,452,800 | ) | $ | (11,276,473 | ) | |||||
Basic net (loss) income per share attributable to common stockholders | $ | (0.06 | ) | $ | 0.01 | $ | (0.18 | ) | $ | (0.24 | ) | |||||
Diluted net (loss) income per share attributable to common stockholders | $ | (0.06 | ) | $ | 0.01 | $ | (0.18 | ) | $ | (0.24 | ) | |||||
Weighted average basic shares outstanding | 44,008,043 | 48,031,737 | 46,265,225 | 47,979,467 | ||||||||||||
Weighted average diluted shares outstanding | 44,008,043 | 48,224,082 | 46,265,225 | 47,979,467 |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
GAAP loss from operations | $ | (2,305,078 | ) | $ | (1,013,425 | ) | $ | (6,059,097 | ) | $ | (13,600,484 | ) | ||||
Non-cash stock option expense (1) | 260,410 | 410,487 | 1,466,183 | 1,705,429 | ||||||||||||
Legal related costs (3) | (231,214 | ) | 97,845 | (5,417,925 | ) | 373,619 | ||||||||||
Restructuring costs (4) | 89,746 | 1,315,189 | 1,135,310 | 3,606,020 | ||||||||||||
Non-GAAP (loss) income from operations | $ | (2,186,136 | ) | $ | 810,096 | $ | (8,875,529 | ) | $ | (7,915,416 | ) | |||||
GAAP net (loss) income attributable to common stockholders | $ | (2,827,016 | ) | $ | 576,864 | $ | (8,452,800 | ) | $ | (11,276,473 | ) | |||||
Non-cash stock option expense, net of income taxes (2) | 260,410 | 410,487 | 1,466,183 | 1,705,429 | ||||||||||||
Legal related costs (3) | (231,214 | ) | 97,845 | (5,417,925 | ) | 373,619 | ||||||||||
Restructuring costs (4) | 89,746 | 1,315,189 | 1,135,310 | 3,606,020 | ||||||||||||
Income Taxes (5) | — | (240,697 | ) | — | (2,332,270 | ) | ||||||||||
Gain on Sale of cost method investment (6) | — | (1,886,728 | ) | — | (1,886,728 | ) | ||||||||||
Effects of Series A redeemable convertible preferred stock (7) | 318,445 | 297,947 | 1,240,979 | 343,883 | ||||||||||||
Non-GAAP net (loss) income | $ | (2,389,629 | ) | $ | 570,907 | $ | (10,028,253 | ) | $ | (9,466,520 | ) | |||||
GAAP gross margin | 77 | % | 78 | % | 77 | % | 74 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin | 78 | % | 78 | % | 77 | % | 74 | % | ||||||||
GAAP gross margin - Product | 85 | % | 89 | % | 84 | % | 85 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Product | 85 | % | 89 | % | 84 | % | 85 | % | ||||||||
GAAP gross margin - Support and Service | 73 | % | 69 | % | 73 | % | 65 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | — | % | ||||||||
Non-GAAP gross margin - Support and Service | 73 | % | 69 | % | 73 | % | 65 | % | ||||||||
GAAP operating margin | (20 | %) | (7 | %) | (13 | %) | (23 | %) | ||||||||
Non-cash stock option expense (1) | 2 | % | 3 | % | 3 | % | 3 | % | ||||||||
Legal related costs (3) | (2 | %) | 1 | % | (12 | %) | 1 | % | ||||||||
Restructuring costs (4) | 1 | % | 9 | % | 2 | % | 6 | % | ||||||||
Non-GAAP operating margin | (19 | %) | 6 | % | (19 | %) | (13 | %) | ||||||||
GAAP Basic EPS | $ | (0.06 | ) | $ | 0.01 | $ | (0.18 | ) | $ | (0.24 | ) | |||||
Non-cash stock option expense, net of income taxes (2) | 0.01 | 0.01 | 0.03 | 0.04 | ||||||||||||
Legal related costs (3) | (0.01 | ) | 0.00 | (0.12 | ) | 0.01 | ||||||||||
Restructuring costs (4) | 0.00 | 0.03 | 0.02 | 0.08 | ||||||||||||
Income Taxes (5) | 0.00 | (0.01 | ) | 0.00 | (0.05 | ) | ||||||||||
Gain on Sale of cost method investment (6) | 0.00 | (0.04 | ) | 0.00 | (0.04 | ) | ||||||||||
Effects of Series A redeemable convertible preferred stock (6) | 0.01 | 0.01 | 0.03 | 0.01 | ||||||||||||
Non-GAAP Basic EPS | $ | (0.05 | ) | $ | 0.01 | $ | (0.22 | ) | $ | (0.20 | ) | |||||
GAAP Diluted EPS | $ | (0.06 | ) | $ | 0.01 | $ | (0.18 | ) | $ | (0.24 | ) | |||||
Non-cash stock option expense, net of income taxes (2) | 0.01 | 0.01 | 0.03 | 0.04 | ||||||||||||
Legal related costs (3) | (0.01 | ) | 0.00 | (0.12 | ) | 0.01 | ||||||||||
Restructuring costs (4) | 0.00 | 0.03 | 0.02 | 0.08 | ||||||||||||
Income Taxes (5) | 0.00 | 0.00 | 0.00 | (0.05 | ) | |||||||||||
Gain on Sale of cost method investment (6) | 0.00 | (0.04 | ) | 0.00 | (0.04 | ) | ||||||||||
Effects of Series A redeemable convertible preferred stock (6) | 0.01 | 0.01 | 0.03 | 0.01 | ||||||||||||
Non-GAAP Diluted EPS | $ | (0.05 | ) | $ | 0.01 | $ | (0.22 | ) | $ | (0.20 | ) | |||||
Weighted average basic shares outstanding (GAAP and as adjusted) | 44,008,043 | 48,031,737 | 46,265,225 | 47,979,467 | ||||||||||||
Weighted average diluted shares outstanding (GAAP) | 44,008,043 | 48,224,082 | 46,265,225 | 47,979,467 | ||||||||||||
Weighted average diluted shares outstanding (as adjusted) (8) | 44,008,043 | 57,005,598 | 46,265,225 | 47,979,467 |
(1) | Represents non-cash, stock-based compensation charges as follows: |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Cost of revenues - Product | $ | — | $ | — | $ | — | $ | 181 | ||||||||
Cost of revenues - Support and Service | 16,297 | 24,793 | 91,197 | 136,975 | ||||||||||||
Research and development costs | 59,924 | 71,816 | 282,416 | 363,296 | ||||||||||||
Selling and marketing | 47,506 | 182,615 | 327,694 | 397,967 | ||||||||||||
General and administrative | 136,683 | 131,263 | 764,876 | 807,010 | ||||||||||||
Total non-cash stock based compensation expense | $ | 260,410 | $ | 410,487 | $ | 1,466,183 | $ | 1,705,429 |
(2) | Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, net of related income tax effects. For the three and twelve months ended December 31, 2014 and 2013, the tax expense for both GAAP and Non-GAAP basis approximate the same amount. |
(3) | Legal related costs represent expenses/gains in connection with the Company’s investigations, litigation and settlement related costs for each respective period presented. |
(4) | Represents restructuring costs which were incurred during each respective period presented. |
(5) | Represents the reversal of uncertain tax positions due to the expiration of applicable statutes of limitation. |
(6) | Represents the gain recorded on the sale of our interest in Blue Whale, net of taxes. |
(7) | Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and accrual of Series A redeemable convertible preferred stock dividends. |
(8) | Weighted average diluted shares outstanding as adjusted assumes conversion of the Series A preferred stock as of the beginning of the period. |
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