ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DELAWARE | 77-0216135 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
2 Huntington Quadrangle, Suite 2S01 | 11747 |
Melville, New York | (Zip code) |
(Address of principal executive offices) |
Name of Each Exchange on Which | |
Title of Each Class | the Securities are Registered |
Common Stock, $.001 par value | NASDAQ Global Market |
Large accelerated filer | ¨ | Accelerated filer | ¨ | |
Non-accelerated filer | ¨ | Smaller Reporting Company | ý |
Page | ||
• | Data Migration |
• | Continuous Availability |
• | Data Protection + Recovery |
• | Optimization |
• | FreeStor® - An integrated software-defined platform that provides, migration, continuity, protection/recovery and optimization for any storage environment through a single management interface which contains analytics from "Edge-to-Core" along with a subscription-based licensing model which is primary instance only. |
• | FalconStor® NSS - Migration, storage virtualization, provisioning and management. |
• | FalconStor® CDP - Bootable snapshots, zero-impact backup, both local and remote disaster recovery. |
• | FalconStor® OBD - Optimized backup, archive to tape, block-based deduplication, file-based deduplication and storage capacity optimization |
• | Seamlessly and non-disruptively move data from the customer premise to the service provider’s hosted environment; |
• | Offers common data services across customer’s environments regardless of underlying hardware or technology; |
• | Allows for the introduction and ability to monetize additional data services they may not have previously been able to offer; |
• | Provides a low-cost growth opportunity due to the flexibility of FreeStor licensing, while eliminating the need to have multiple feature licenses array by array; |
• | Realize reduced storage management complexity and costs within their own infrastructure by eliminating silos, reducing licensing costs and optimizing hardware with FreeStor; |
• | Optimize storage hardware based on price/performance needs of customers; and |
• | Analytics provide the necessary real-time and historical information to achieve SLA's and make economic decisions. |
• | Direct to customers |
• | Through Authorized partners, Value-added resellers (VARs), solution providers, and large system integrators |
• | Direct to Direct Market Resellers (DMRs) and Distributors |
• | Direct to Managed Service Providers (MSPs) and Cloud Service Providers (CSPs) |
• | Direct to Original Equipment Manufacturers (OEMs) |
• | lost revenue or lost end-customers; |
• | increased costs, including warranty expense and costs associated with end-customer support; |
• | delays, cancellations, reductions or rescheduling of orders or shipments; |
• | product returns or discounts; |
• | diversion of management resources; |
• | legal claims for breach of contract, product liability, tort or breach of warranty; and |
• | damage to our reputation and brand. |
• | potential for broader market acceptance of their storage architectures and solutions; |
• | greater name recognition and longer operating histories; |
• | larger sales and marketing and customer support budgets and resources; |
• | broader distribution and established relationships with distribution partners and end-customers; |
• | the ability to bundle storage products with other technology products and services, or offer a broader range of storage solutions to better fit certain customers’ needs; |
• | lower labor and development costs; |
• | larger and more mature intellectual property portfolios; |
• | substantially greater financial, technical and other resources; and |
• | greater resources to make acquisitions. |
• | fluctuations in the economy; |
• | the timing of securing software license contracts and the delivery of software and related revenue recognition; |
• | the seasonality of information technology, including network storage products, spending; |
• | the average unit selling price of our products; |
• | existing or new competitors introducing better products at competitive prices before we do; |
• | our ability to manage successfully the complex and difficult process of qualifying our products with our customers; |
• | new products or enhancements from us or our competitors; |
• | our ability to release new and innovative products; |
• | import or export restrictions on our proprietary technology; and |
• | personnel changes. |
• | delisting from the NASDAQ Capital Market; |
• | actual or anticipated fluctuations in our operating results, including changes in the timing of when we recognize revenue; |
• | failure to meet financial estimates; |
• | changes in market valuations of other technology companies, particularly those in the network storage software market; |
• | the announcement of any strategic alternatives; |
• | announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, strategic alternatives, joint ventures or capital commitments; |
• | loss of one or more key customers; |
• | the issuance of additional shares of the Series A redeemable convertible preferred stock pursuant to dividend rights; and |
• | departures of key personnel. |
• | cease selling our products that use the challenged intellectual property; |
• | obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology or trademark, which license may not be available on reasonable terms, or at all; or |
• | redesign those products that use infringing intellectual property or cease to use an infringing product or trademark. |
2016 | 2015 | |||||||||||||||
High | Low | High | Low | |||||||||||||
Fourth Quarter | $ | 1.03 | $ | 0.45 | $ | 2.07 | $ | 1.80 | ||||||||
Third Quarter | $ | 1.17 | $ | 0.91 | $ | 2.20 | $ | 1.39 | ||||||||
Second Quarter | $ | 1.40 | $ | 1.06 | $ | 1.61 | $ | 1.37 | ||||||||
First Quarter | $ | 1.89 | $ | 1.21 | $ | 1.65 | $ | 1.32 |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights (1) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (1) | ||||
Plan Category | (a) | (b) | (c) | |||
Equity compensation plans approved by security holders | 5,628,290 | $1.97 | 2,159,170 |
(1) | As of December 31, 2016 we had 2,159,170 shares of our common stock reserved for issuance under our stock plans with respect to options (or restricted stock or restricted stock units) that have not been granted. In addition, if, on July 1st of any calendar year in which our 2016 Plan is in effect, the number of shares of stock to which options may be granted is less than five percent (5%) of the number of outstanding shares of stock, then the number of shares of stock available for issuance under the 2016 Plan shall be increased so that the number equals five percent (5%) of the shares of stock outstanding. See Note (10) Share-Based Payment Arrangements to our consolidated financial statements for further information. |
Year ended December 31, | ||||||||
2016 | 2015 | |||||||
Revenue: | ||||||||
Product revenue | $ | 10,116,897 | $ | 24,847,724 | ||||
Support and services revenue | 20,146,449 | 23,723,267 | ||||||
Total Revenue | $ | 30,263,346 | $ | 48,570,991 | ||||
Year-over-year percentage change | ||||||||
Product revenue | (59)% | 40% | ||||||
Support and services revenue | (15)% | (17)% | ||||||
Total percentage change | (38)% | 5% |
Year ended December 31, | ||||||||
2016 | 2015 | |||||||
Cost of revenue: | ||||||||
Product | $ | 932,446 | $ | 1,942,985 | ||||
Support and service | 7,351,857 | 7,739,149 | ||||||
Total cost of revenue | $ | 8,284,303 | $ | 9,682,134 | ||||
Total Gross Profit | $ | 21,979,043 | $ | 38,888,857 | ||||
Gross Margin: | ||||||||
Product | 91% | 92% | ||||||
Support and service | 64% | 67% | ||||||
Total gross margin | 73% | 80% |
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Cash (used in) provided by: | ||||||||
Operating activities | $ | (9,423,496 | ) | $ | (6,323,483 | ) | ||
Investing activities | 7,133,126 | 2,423,907 | ||||||
Financing activities | — | (456,306 | ) | |||||
Effect of exchange rate changes | (331,484 | ) | (504,627 | ) | ||||
Net decrease in cash and cash equivalents | $ | (2,621,854 | ) | $ | (4,860,509 | ) |
2017 | $ | 1,655,155 | |
2018 | 1,398,354 | ||
2019 | 1,402,181 | ||
2020 | 1,444,247 | ||
2021 | 491,020 | ||
Thereafter | — | ||
$ | 6,390,957 |
Index to Consolidated Financial Statements | Page | ||
Report of Independent Registered Public Accounting Firm | 40 | ||
Consolidated Balance Sheets as of December 31, 2016 and 2015 | |||
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015 | |||
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016 and 2015 | |||
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2016 and 2015 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015 | |||
Notes to Consolidated Financial Statements |
December 31, | ||||||||
2016 | 2015 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,391,528 | $ | 6,013,382 | ||||
Marketable securities | — | 7,420,042 | ||||||
Accounts receivable, net of allowances of $260,676 and $191,285, respectively | 5,003,972 | 6,635,262 | ||||||
Prepaid expenses and other current assets | 1,245,085 | 1,742,668 | ||||||
Inventory | 6,181 | 70,534 | ||||||
Deferred tax assets, net | — | 205,816 | ||||||
Total current assets | 9,646,766 | 22,087,704 | ||||||
Property and equipment, net of accumulated depreciation of $18,580,547 and $17,947,675, respectively | 1,174,942 | 1,565,932 | ||||||
Deferred tax assets, net | 577,735 | 110,060 | ||||||
Software development costs, net | 547,558 | 1,116,816 | ||||||
Other assets | 973,949 | 1,139,377 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 209,456 | 256,137 | ||||||
Total assets | $ | 17,280,745 | $ | 30,426,365 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 419,877 | $ | 1,005,944 | ||||
Accrued expenses | 4,471,010 | 6,783,514 | ||||||
Deferred tax liabilities, net | — | 89,343 | ||||||
Deferred revenue, net | 15,236,123 | 16,553,519 | ||||||
Total current liabilities | 20,127,010 | 24,432,320 | ||||||
Other long-term liabilities | 1,170,844 | 735,089 | ||||||
Deferred tax liabilities, net | 254,776 | 27,069 | ||||||
Deferred revenue, net | 8,430,692 | 9,122,289 | ||||||
Total liabilities | 29,983,322 | 34,316,767 | ||||||
Commitments and contingencies (Note 12) | ||||||||
Series A redeemable convertible preferred stock, $.001 par value, 2,000,000 shares authorized, 900,000 shares issued and outstanding, redemption value of $9,000,000 | 9,000,000 | 7,818,554 | ||||||
Stockholders' equity: | ||||||||
Common stock - $.001 par value, 100,000,000 shares authorized, 59,482,989 and 57,194,817 shares issued, respectively and 43,954,919 and 41,666,747 shares outstanding, respectively | 59,483 | 57,195 | ||||||
Additional paid-in capital | 169,091,255 | 167,953,871 | ||||||
Accumulated deficit | (131,982,685 | ) | (120,983,891 | ) | ||||
Common stock held in treasury, at cost (15,528,070 and 15,528,070 shares, respectively) | (57,032,917 | ) | (57,032,917 | ) | ||||
Accumulated other comprehensive loss, net | (1,837,713 | ) | (1,703,214 | ) | ||||
Total stockholders' deficit | (21,702,577 | ) | (11,708,956 | ) | ||||
Total liabilities and stockholders' deficit | $ | 17,280,745 | $ | 30,426,365 |
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Revenue: | ||||||||
Product revenue | $ | 10,116,897 | $ | 24,847,724 | ||||
Support and services revenue | 20,146,449 | 23,723,267 | ||||||
Total revenue | 30,263,346 | 48,570,991 | ||||||
Cost of revenue: | ||||||||
Product | 932,446 | 1,942,985 | ||||||
Support and service | 7,351,857 | 7,739,149 | ||||||
Total cost of revenue | 8,284,303 | 9,682,134 | ||||||
Gross profit | $ | 21,979,043 | $ | 38,888,857 | ||||
Operating expenses: | ||||||||
Research and development costs | 11,702,956 | 12,787,606 | ||||||
Selling and marketing | 13,918,493 | 18,021,989 | ||||||
General and administrative | 6,470,579 | 9,181,289 | ||||||
Investigation, litigation, and settlement related costs | — | 8,842 | ||||||
Restructuring costs | 177,389 | 172,995 | ||||||
Total operating expenses | 32,269,417 | 40,172,721 | ||||||
Operating loss | (10,290,374 | ) | (1,283,864 | ) | ||||
Interest and other loss, net | (121,213 | ) | (269,954 | ) | ||||
Loss before income taxes | (10,411,587 | ) | (1,553,818 | ) | ||||
Provision for income taxes | 587,207 | 375,543 | ||||||
Net loss | $ | (10,998,794 | ) | $ | (1,929,361 | ) | ||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 777,890 | 765,203 | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 1,181,446 | 587,613 | ||||||
Net loss attributable to common stockholders | $ | (12,958,130 | ) | $ | (3,282,177 | ) | ||
Basic net loss per share attributable to common stockholders | $ | (0.30 | ) | $ | (0.08 | ) | ||
Diluted net loss per share attributable to common stockholders | $ | (0.30 | ) | $ | (0.08 | ) | ||
Weighted average basic shares outstanding | 43,091,878 | 41,093,644 | ||||||
Weighted average diluted shares outstanding | 43,091,878 | 41,093,644 |
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Net loss | $ | (10,998,794 | ) | $ | (1,929,361 | ) | ||
Other comprehensive (loss) income, net of applicable taxes: | ||||||||
Foreign currency translation | (139,394 | ) | (190,499 | ) | ||||
Net unrealized gain (loss) on marketable securities | 3,406 | (1,998 | ) | |||||
Net minimum pension liability | 1,489 | 573 | ||||||
Total other comprehensive loss, net of applicable taxes: | (134,499 | ) | (191,924 | ) | ||||
Total comprehensive loss | $ | (11,133,293 | ) | $ | (2,121,285 | ) | ||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 777,890 | 765,203 | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 1,181,446 | 587,613 | ||||||
Total comprehensive loss attributable to common stockholders | $ | (13,092,629 | ) | $ | (3,474,101 | ) |
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss, Net | Total Stockholders' Deficit | |||||||||||||||||||
Balance at December 31, 2014 | $ | 56,360 | $ | 166,933,291 | $ | (119,054,530 | ) | $ | (56,895,059 | ) | $ | (1,511,290 | ) | $ | (10,471,228 | ) | ||||||||
Net loss | — | — | (1,929,361 | ) | — | — | (1,929,361 | ) | ||||||||||||||||
Exercise of stock awards | 354 | 58,888 | — | — | — | 59,242 | ||||||||||||||||||
Shares issued for Series A redeemable convertible preferred stock dividend payment | 227 | 385,385 | — | — | — | 385,612 | ||||||||||||||||||
Share-based compensation to non-employees | 254 | 577,820 | — | — | — | 578,074 | ||||||||||||||||||
Share-based compensation to employees | — | 1,351,303 | — | — | — | 1,351,303 | ||||||||||||||||||
Accretion of Series A redeemable convertible preferred stock | — | (587,613 | ) | — | — | — | (587,613 | ) | ||||||||||||||||
Dividends on Series A redeemable convertible preferred stock | — | (765,203 | ) | — | — | — | (765,203 | ) | ||||||||||||||||
Purchase of shares | — | — | — | (137,858 | ) | — | (137,858 | ) | ||||||||||||||||
Foreign currency translation | — | — | — | — | (190,499 | ) | (190,499 | ) | ||||||||||||||||
Net unrealized loss on marketable securities | — | — | — | — | (1,998 | ) | (1,998 | ) | ||||||||||||||||
Net minimum pension liability | — | — | — | — | 573 | 573 | ||||||||||||||||||
Balance at December 31, 2015 | $ | 57,195 | $ | 167,953,871 | $ | (120,983,891 | ) | $ | (57,032,917 | ) | $ | (1,703,214 | ) | $ | (11,708,956 | ) | ||||||||
Net loss | — | — | (10,998,794 | ) | — | — | (10,998,794 | ) | ||||||||||||||||
Exercise of stock awards | 565 | (565 | ) | — | — | — | — | |||||||||||||||||
Shares issued for Series A redeemable convertible preferred stock dividend payment | 624 | 770,166 | — | — | — | 770,790 | ||||||||||||||||||
Share-based compensation to non-employees | 1,099 | 1,575,783 | — | — | — | 1,576,882 | ||||||||||||||||||
Share-based compensation to employees | — | 751,336 | — | — | — | 751,336 | ||||||||||||||||||
Accretion of Series A redeemable convertible preferred stock | — | (1,181,446 | ) | — | — | — | (1,181,446 | ) | ||||||||||||||||
Dividends on Series A redeemable convertible preferred stock | — | (777,890 | ) | — | — | — | (777,890 | ) | ||||||||||||||||
Foreign currency translation | — | — | — | — | (139,394 | ) | (139,394 | ) | ||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | — | 3,406 | 3,406 | ||||||||||||||||||
Net minimum pension liability | — | — | — | — | 1,489 | 1,489 | ||||||||||||||||||
Balance at December 31, 2016 | $ | 59,483 | $ | 169,091,255 | $ | (131,982,685 | ) | $ | (57,032,917 | ) | $ | (1,837,713 | ) | $ | (21,702,577 | ) |
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (10,998,794 | ) | $ | (1,929,361 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,325,706 | 1,988,924 | ||||||
Share-based payment compensation | 751,336 | 1,351,303 | ||||||
Non-cash professional services expenses | 1,576,882 | 578,074 | ||||||
Loss on disposal of fixed assets | — | 45,578 | ||||||
Provision for (Recovery of) returns and doubtful accounts | 69,391 | (6,745 | ) | |||||
Deferred income tax provision | (120,555 | ) | (126,640 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,381,566 | 2,232,538 | ||||||
Prepaid expenses and other current assets | 416,372 | (202,147 | ) | |||||
Inventory | 64,353 | 281,959 | ||||||
Other assets | 761,053 | 15,978 | ||||||
Accounts payable | (597,173 | ) | (231,598 | ) | ||||
Accrued expenses and other long-term liabilities | (1,993,076 | ) | 378,350 | |||||
Deferred revenue | (2,060,557 | ) | (10,699,696 | ) | ||||
Net cash used in operating activities | (9,423,496 | ) | (6,323,483 | ) | ||||
Cash flows from investing activities: | ||||||||
Sales of marketable securities | 7,566,000 | 15,200,100 | ||||||
Purchases of marketable securities | (150,000 | ) | (11,863,108 | ) | ||||
Purchases of property and equipment | (294,061 | ) | (796,654 | ) | ||||
Proceeds from sale of fixed assets | — | 3,153 | ||||||
Capitalized software development costs | — | (134,100 | ) | |||||
Security deposits | 127,100 | 229,016 | ||||||
Purchase of intangible assets | (115,913 | ) | (214,500 | ) | ||||
Net cash provided by investing activities | 7,133,126 | 2,423,907 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | — | 59,242 | ||||||
Repurchase of common stock | — | (137,858 | ) | |||||
Dividends paid on Series A redeemable convertible preferred stock | — | (377,690 | ) | |||||
Net cash used in financing activities | — | (456,306 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (331,484 | ) | (504,627 | ) | ||||
Net decrease in cash and cash equivalents | (2,621,854 | ) | (4,860,509 | ) | ||||
Cash and cash equivalents, beginning of year | 6,013,382 | 10,873,891 | ||||||
Cash and cash equivalents, end of year | $ | 3,391,528 | $ | 6,013,382 | ||||
Supplemental Disclosures: | ||||||||
Cash paid for income taxes, net | $ | 518,955 | $ | 195,895 | ||||
Non-cash financing activities: | ||||||||
Undistributed Series A redeemable convertible preferred stock dividends | $ | 195,904 | $ | 188,805 | ||||
Shares issued for Series A redeemable convertible preferred stock dividend payment | $ | 770,790 | $ | 385,612 | ||||
The Company did not pay any interest for the two years ended December 31, 2016. |
(a) | The Company and Nature of Operations |
(c) | Principles of Consolidation |
(d) | Use of Estimates |
(e) | Cash Equivalents and Marketable Securities |
(f) | Fair Value of Financial Instruments |
(g) | Derivative Financial Instruments |
(h) | Revenue Recognition |
(i) | Property and Equipment |
(j) | Goodwill and Other Intangible Assets |
December 31, 2016 | December 31, 2015 | |||||||
Goodwill | $ | 4,150,339 | $ | 4,150,339 | ||||
Other intangible assets: | ||||||||
Gross carrying amount | $ | 3,725,437 | $ | 3,609,524 | ||||
Accumulated amortization | (3,515,981 | ) | (3,353,387 | ) | ||||
Net carrying amount | $ | 209,456 | $ | 256,137 |
(k) | Software Development Costs and Purchased Software Technology |
December 31, 2016 | December 31, 2015 | |||||||
Software development costs: | ||||||||
Gross carrying amount | $ | 2,917,215 | $ | 3,037,215 | ||||
Accumulated amortization | (2,369,657 | ) | (1,920,399 | ) | ||||
Software development costs, net | $ | 547,558 | $ | 1,116,816 |
(l) | Income Taxes |
(m) | Long-Lived Assets |
(n) | Share-Based Payments |
(o) | Foreign Currency |
(p) | Earnings Per Share (EPS) |
Year Ended December 31, | ||||||
2016 | 2015 | |||||
Stock options and restricted stock | 5,628,290 | 7,972,341 | ||||
Series A redeemable convertible preferred stock | 8,781,516 | 8,781,516 | ||||
Total anti-dilutive common stock equivalents | 14,409,806 | 16,753,857 |
Year Ended December 31, | ||||||||
2016 | 2015 | |||||||
Numerator: | ||||||||
Net Loss | $ | (10,998,794 | ) | $ | (1,929,361 | ) | ||
Effects of Series A redeemable convertible preferred stock: | ||||||||
Less: Series A redeemable convertible preferred stock dividends | 777,890 | 765,203 | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 1,181,446 | 587,613 | ||||||
Net loss attributable to common stockholders | $ | (12,958,130 | ) | $ | (3,282,177 | ) | ||
Denominator: | ||||||||
Weighted average basic shares outstanding | 43,091,878 | 41,093,644 | ||||||
Effect of dilutive securities: | ||||||||
Stock options and restricted stock | — | — | ||||||
Series A redeemable convertible preferred stock | — | — | ||||||
Weighted average diluted shares outstanding | 43,091,878 | 41,093,644 | ||||||
EPS: | ||||||||
Basic net loss per share attributable to common stockholders | $ | (0.30 | ) | $ | (0.08 | ) | ||
Diluted net loss per share attributable to common stockholders | $ | (0.30 | ) | $ | (0.08 | ) |
(q) | Investments |
(r) | Treasury Stock |
December 31, 2016 | December 31, 2015 | |||||||
Computer hardware and software | $ | 16,913,397 | $ | 16,607,596 | ||||
Furniture and equipment | 911,391 | 961,712 | ||||||
Leasehold improvements | 1,930,701 | 1,931,291 | ||||||
Automobile | — | 13,008 | ||||||
Property and Equipment, Gross | 19,755,489 | 19,513,607 | ||||||
Less accumulated depreciation | (18,580,547 | ) | (17,947,675 | ) | ||||
Property and Equipment, Net | $ | 1,174,942 | $ | 1,565,932 |
• | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities. At December 31, 2016 and 2015, the Level 1 category included money market funds and commercial paper, which are included within “cash and cash equivalents” in the consolidated balance sheets. |
• | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly. The Company had no Level 2 securities at December 31, 2016. At December 31, 2015, the Level 2 category included government securities and corporate debt securities, which are included within “marketable securities” in the consolidated balance sheets. |
• | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. At December 31, 2016 and 2015, the Level 3 category included derivatives, which are included in "other long-term liabilities" in the consolidated balance sheets with the change in fair value from the period included in "interest and other loss, net" in the consolidated statement of operations. The Company did not hold any cash, cash equivalents or marketable securities categorized as Level 3 as of December 31, 2016 or 2015. |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant other Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 1,133,280 | $ | 1,133,280 | $ | — | $ | — | ||||||||
Total cash equivalents | 1,133,280 | 1,133,280 | — | — | ||||||||||||
Marketable securities: | ||||||||||||||||
Corporate debt and government securities | — | — | — | — | ||||||||||||
Total marketable securities | — | — | — | — | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Derivative Instruments | 336,862 | — | — | 336,862 | ||||||||||||
Total derivative liabilities | 336,862 | — | — | 336,862 | ||||||||||||
Total assets and liabilities measured at fair value | $ | 1,470,142 | $ | 1,133,280 | $ | — | $ | 336,862 |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant other Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds and commercial paper | $ | 2,725,094 | $ | 2,725,094 | $ | — | $ | — | ||||||||
Total cash equivalents | 2,725,094 | 2,725,094 | — | — | ||||||||||||
Marketable securities: | ||||||||||||||||
Corporate debt and government securities | 7,420,042 | — | 7,420,042 | — | ||||||||||||
Total marketable securities | 7,420,042 | — | 7,420,042 | — | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Derivative Instruments | 82,024 | — | — | 82,024 | ||||||||||||
Total derivative liabilities | 82,024 | — | — | 82,024 | ||||||||||||
Total assets and liabilities measured at fair value | $ | 10,227,160 | $ | 2,725,094 | $ | 7,420,042 | $ | 82,024 |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Beginning Balance | $ | 82,024 | $ | 137,171 | ||||
Issuance of Derivative Instruments | — | — | ||||||
Total loss (gain) recognized in earnings | 254,838 | (55,147 | ) | |||||
Ending Balance | $ | 336,862 | $ | 82,024 |
Aggregate Fair Value | Cost or Amortized Cost | Net Unrealized Losses | ||||||||||
Government securities | $ | 6,560,303 | $ | 6,562,792 | $ | (2,489 | ) | |||||
Corporate debt securities | 859,739 | 860,656 | (917 | ) | ||||||||
$ | 7,420,042 | $ | 7,423,448 | $ | (3,406 | ) |
December 31, 2016 | December 31, 2015 | |||||||
Accrued compensation | $ | 1,058,671 | $ | 2,236,494 | ||||
Accrued consulting and professional fees | 1,270,568 | 1,561,425 | ||||||
Accrued marketing and promotion | 10,307 | 69,258 | ||||||
Other accrued expenses | 259,567 | 588,746 | ||||||
Accrued income taxes | 129,784 | 106,270 | ||||||
Accrued other taxes | 699,872 | 1,247,596 | ||||||
Accrued hardware purchases | — | 67,280 | ||||||
Accrued restructuring costs | 846,337 | 717,640 | ||||||
Accrued Series A redeemable convertible preferred stock dividends | 195,904 | 188,805 | ||||||
$ | 4,471,010 | $ | 6,783,514 |
December 31, | ||||||||
2016 | 2015 | |||||||
Loss before income taxes: | ||||||||
Domestic loss | $ | (10,998,240 | ) | $ | (2,310,565 | ) | ||
Foreign income | 586,653 | 756,747 | ||||||
Total loss before income taxes: | (10,411,587 | ) | (1,553,818 | ) | ||||
Provision (benefit) for income taxes: | ||||||||
Current: | ||||||||
Federal | $ | (17,626 | ) | $ | 3,939 | |||
State and local | 1,886 | 16,002 | ||||||
Foreign | 723,502 | 482,242 | ||||||
707,762 | 502,183 | |||||||
Deferred: | ||||||||
Federal | $ | 154,641 | $ | (167,634 | ) | |||
State and local | 1,766 | 7,006 | ||||||
Foreign | (276,962 | ) | 33,988 | |||||
(120,555 | ) | (126,640 | ) | |||||
Total provision for income taxes: | $ | 587,207 | $ | 375,543 |
December 31, | ||||||||
2016 | 2015 | |||||||
Deferred Tax Assets: | ||||||||
Allowance for receivables | $ | 100,414 | $ | 72,539 | ||||
Deferred revenue | 3,648,029 | 2,939,462 | ||||||
Share-based compensation | 2,254,428 | 3,095,723 | ||||||
Accrued expenses and other liabilities | 418,483 | 307,565 | ||||||
Domestic net operating loss carryforwards | 30,714,934 | 26,023,318 | ||||||
Foreign net operating loss carryforwards | 9,761 | 99,544 | ||||||
Tax credit carryforwards | 574,997 | 574,997 | ||||||
AMT tax credit carryforwards | 460,607 | 483,285 | ||||||
Capital loss carryforwards | 78,296 | 77,586 | ||||||
Fixed assets | 489,105 | 554,154 | ||||||
Intangibles | 1,435,994 | 1,762,519 | ||||||
Sub-total | 40,185,048 | 35,990,692 | ||||||
Valuation allowance | (38,800,877 | ) | (35,121,608 | ) | ||||
Total Deferred Tax Assets | 1,384,171 | 869,084 | ||||||
Deferred Tax Liabilities: | ||||||||
Deferred state income tax | (923,553 | ) | (541,359 | ) | ||||
Foreign withholding taxes | (137,659 | ) | (128,261 | ) | ||||
Total Deferred Tax Liabilities | (1,061,212 | ) | (669,620 | ) | ||||
Net Deferred Tax Assets | $ | 322,959 | $ | 199,464 |
December 31, | ||||||||
2016 | 2015 | |||||||
Tax at Federal statutory rate | $ | (3,644,056 | ) | $ | (543,836 | ) | ||
Increase (reduction) in income taxes resulting from: | ||||||||
State and local taxes | 2,172 | 3,195 | ||||||
Non-deductible expenses | (28,812 | ) | (31,199 | ) | ||||
Net effect of foreign operations | 232,858 | 235,850 | ||||||
Uncertain tax positions | 12,440 | 26,814 | ||||||
Change in valuation allowance | 4,011,710 | 680,780 | ||||||
Other | 895 | 3,939 | ||||||
$ | 587,207 | $ | 375,543 |
2016 | 2015 | |||||||
Balance at January 1, | $ | 217,289 | $ | 224,637 | ||||
Increases to tax positions taken in prior years | 4,510 | 9,306 | ||||||
Decreases to tax positions taken in prior years | — | — | ||||||
Increase for tax positions taken during the current year | — | — | ||||||
Expiration of statutes of limitation | (3,323 | ) | — | |||||
Translation | (1,015 | ) | (16,654 | ) | ||||
Balance at December 31, | $ | 217,461 | $ | 217,289 |
Foreign Currency Translation | Net Unrealized Losses on Marketable Securities | Net Minimum Pension Liability | Total | |||||||||||||
Accumulated other comprehensive (loss) income at December 31, 2015 | $ | (1,726,994 | ) | $ | (3,406 | ) | $ | 27,186 | $ | (1,703,214 | ) | |||||
Other comprehensive (loss) income | ||||||||||||||||
Other comprehensive loss before reclassifications | (139,394 | ) | — | (3,447 | ) | (142,841 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive (loss) income | — | 3,406 | 4,936 | 8,342 | ||||||||||||
Total other comprehensive (loss) income | (139,394 | ) | 3,406 | 1,489 | (134,499 | ) | ||||||||||
Accumulated other comprehensive (loss) income at December 31, 2016 | $ | (1,866,388 | ) | $ | — | $ | 28,675 | $ | (1,837,713 | ) |
Foreign Currency Translation | Net Unrealized Gains (Losses) on Marketable Securities | Net Minimum Pension Liability | Total | |||||||||||||
Accumulated other comprehensive (loss) income at December 31, 2014 | $ | (1,536,495 | ) | $ | (1,408 | ) | $ | 26,613 | $ | (1,511,290 | ) | |||||
Other comprehensive (loss) income | ||||||||||||||||
Other comprehensive loss before reclassifications | (190,499 | ) | (1,549 | ) | (5,997 | ) | (198,045 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive (loss) income | — | (449 | ) | 6,570 | 6,121 | |||||||||||
Total other comprehensive (loss) income | (190,499 | ) | (1,998 | ) | 573 | (191,924 | ) | |||||||||
Accumulated other comprehensive (loss) income at December 31, 2015 | $ | (1,726,994 | ) | $ | (3,406 | ) | $ | 27,186 | $ | (1,703,214 | ) |
Name of Plan | Shares Authorized | Shares Available for Grant | Shares Outstanding | Last Date for Grant of Shares | ||||
FalconStor Software, Inc., 2016 Incentive Stock Plan | 2,166,606 | 1,779,170 | 220,000 | April 27, 2026 | ||||
FalconStor Software, Inc., 2016 Outside Directors Equity Compensation Plan | 400,000 | 380,000 | 20,000 | April 27, 2019 |
Name of Plan | Shares Available for Grant | Shares Outstanding | ||
FalconStor Software, Inc., 2006 Incentive Stock Plan | — | 5,060,590 | ||
FalconStor Software, Inc., 2013 Outside Directors Equity Compensation Plan | — | 20,200 | ||
FalconStor Software, Inc., 2007 Outside Directors Equity Compensation Plan | — | 160,000 | ||
FalconStor Software, Inc., 2000 Stock Option Plan | — | 147,500 |
Number of Options | Weighted Average Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||||
Options Outstanding at December 31, 2015 | 4,855,941 | $ | 3.53 | 4.76 | $ | 632,581 | |||||||
Granted | 870,000 | $ | 1.27 | ||||||||||
Exercised | — | $ | — | ||||||||||
Forfeited | (1,714,120 | ) | $ | 2.65 | |||||||||
Expired | (520,331 | ) | $ | 5.05 | |||||||||
Options Outstanding at December 31, 2016 | 3,491,490 | $ | 3.18 | 4.83 | $ | — | |||||||
Options Exercisable at December 31, 2016 | 2,671,990 | $ | 3.77 | 3.47 | $ | — | |||||||
Options Expected to Vest after December 31, 2016 (1) | 573,650 | $ | 1.25 | 9.29 | $ | — | |||||||
(1) Options expected to vest after December 31, 2016 reflect an estimated forfeiture rate |
Years ended December 31, | ||||||||
2016 | 2015 | |||||||
Cost of revenue - Product | $ | — | $ | — | ||||
Cost of revenue - Support and Service | 80,903 | 98,776 | ||||||
Research and development costs | 1,653,336 | 806,348 | ||||||
Selling and marketing | 241,481 | 285,787 | ||||||
General and administrative | 352,498 | 738,466 | ||||||
$ | 2,328,218 | $ | 1,929,377 |
Years ended December 31, | ||||||||
2016 | 2015 | |||||||
Directors, officers and employees | $ | 598,549 | $ | 827,055 | ||||
Non-employee consultants | 96,237 | — | ||||||
$ | 694,786 | $ | 827,055 |
Number of Restricted Stock Awards | |||
Non-Vested at December 31, 2015 | 3,116,400 | ||
Granted | 737,436 | ||
Vested | (565,511 | ) | |
Forfeited | (1,151,525 | ) | |
Non-Vested at December 31, 2016 | 2,136,800 |
Years ended December 31, | ||||||||
2016 | 2015 | |||||||
Non-qualified stock options | $ | (5,915 | ) | $ | 73,539 | |||
Restricted stock awards | 96,237 | — | ||||||
$ | 90,322 | $ | 73,539 |
Years ended December 31, | ||||
2016 | 2015 | |||
Expected dividend yield | 0% | 0% | ||
Expected volatility | 55% | 55 - 56% | ||
Risk-free interest rate | 1.29 - 1.36% | 1.35 - 1.67% | ||
Expected term (years) | 5.5 | 5.5 | ||
Discount for post-vesting restrictions | N/A | N/A |
December 31, 2016 | December 31, 2015 | |||||||
Finished systems | $ | 6,181 | $ | 70,534 | ||||
Total Inventory | $ | 6,181 | $ | 70,534 |
2017 | $ | 1,655,155 | |
2018 | 1,398,354 | ||
2019 | 1,402,181 | ||
2020 | 1,444,247 | ||
2021 | 491,020 | ||
Thereafter | — | ||
$ | 6,390,957 |
Severance related costs | Facility and other costs | Total | ||||||||||
Original charge | $ | 3,179,131 | $ | 426,889 | $ | 3,606,020 | ||||||
Utilized/Paid | (2,067,554 | ) | (231,973 | ) | (2,299,527 | ) | ||||||
Balance at December 31, 2013 | $ | 1,111,577 | $ | 194,916 | $ | 1,306,493 | ||||||
Provisions/Additions | 365,174 | 770,136 | 1,135,310 | |||||||||
Utilized/Paid | (653,325 | ) | (759,563 | ) | (1,412,888 | ) | ||||||
Balance at December 31, 2014 | $ | 823,426 | $ | 205,489 | $ | 1,028,915 | ||||||
Provisions/Additions | 55,527 | 117,468 | 172,995 | |||||||||
Utilized/Paid | (161,313 | ) | (307,935 | ) | (469,248 | ) | ||||||
Balance at December 31, 2015 | $ | 717,640 | $ | 15,022 | $ | 732,662 | ||||||
Provisions/Additions | 165,228 | 12,161 | 177,389 | |||||||||
Utilized/Paid | (36,531 | ) | (27,183 | ) | (63,714 | ) | ||||||
Balance at December 31, 2016 | $ | 846,337 | $ | — | $ | 846,337 |
2016 | 2015 | |||||||
Accumulated benefit obligation | $ | 190,186 | $ | 149,932 | ||||
Changes in projected benefit obligation: | ||||||||
Projected benefit obligation at beginning of year | 194,098 | 193,144 | ||||||
Interest cost | 3,471 | 4,348 | ||||||
Actuarial loss | 1,702 | 2,549 | ||||||
Benefits paid | — | — | ||||||
Service cost | — | 1,240 | ||||||
Currency translation | 3,897 | (7,183 | ) | |||||
Projected benefit obligation at end of year | $ | 203,168 | $ | 194,098 | ||||
Changes in plan assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 126,334 | $ | 120,018 | ||||
Actual return on plan assets | 1,180 | 3,129 | ||||||
Benefits paid | — | — | ||||||
Employer contributions | 6,860 | 7,864 | ||||||
Currency translation | 2,528 | (4,677 | ) | |||||
Fair value of plan assets at end of year | $ | 136,902 | $ | 126,334 | ||||
Funded status | $ | 66,266 | $ | 67,764 |
Components of net periodic pension cost: | ||||||||
Interest cost | $ | 3,471 | $ | 4,348 | ||||
Expected return on plan assets | (2,260 | ) | (2,702 | ) | ||||
Amortization of net loss | 3,725 | 3,684 | ||||||
Service cost | — | 1,240 | ||||||
Net periodic pension cost | $ | 4,936 | $ | 6,570 |
Years ended December 31, | ||||||
2016 | 2015 | |||||
Discount rate | 1.50 | % | 1.75 | % | ||
Rate of increase in compensation levels | 1.00 | % | 2.00 | % | ||
Expected long-term rate of return on plan assets | 1.50 | % | 1.75 | % |
Years ended December 31, | ||||||||
2016 | 2015 | |||||||
Revenues: | ||||||||
Americas | $ | 8,827,878 | $ | 23,308,240 | ||||
Asia Pacific | 11,651,487 | 12,934,261 | ||||||
Europe, Middle East, Africa and Other | 9,783,981 | 12,328,490 | ||||||
Total Revenues | $ | 30,263,346 | $ | 48,570,991 | ||||
December 31, | ||||||||
2016 | 2015 | |||||||
Long-lived assets: | ||||||||
Americas | $ | 6,525,612 | $ | 7,519,787 | ||||
Asia Pacific | 890,051 | 650,633 | ||||||
Europe, Middle East, Africa and Other | 218,316 | 168,241 | ||||||
Total long-lived assets | $ | 7,633,979 | $ | 8,338,661 |
Period Ended | Balance at Beginning of Period | Charges / (Benefits) to Revenue | (Increases) Deductions | Balance at End of Period | ||||||||||
December 31, 2016 | $ | 191,285 | 104,228 | 34,837 | $ | 260,676 | ||||||||
December 31, 2015 | $ | 119,530 | (6,745 | ) | (78,500 | ) | $ | 191,285 |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 14. | Principal Accountant Fees and Services |
3.1 | Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-1 (File no. 33-79350), filed on April 28, 1994. |
3.2 | Amended and Restated By-Laws of FalconStor Software, Inc., incorporated herein by reference to Exhibit 3.2 to the Registrant’s annual report on Form 10-K for the year ended December 31, 2010, filed on March 14, 2011. |
3.3 | Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.3 to the Registrant’s annual report on Form 10-K for the year ended December 31, 1998, filed on March 22, 1999. |
3.4 | Certificate of Amendment to the Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.4 to the Registrant’s annual report on Form 10-K for the year ended December 31, 2001, filed on March 27, 2002. |
3.5 | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated herein by reference to Exhibit 4.1 to the Registrant's report on Form 8-K dated September 16, 2013. |
4.1s | 2000 Stock Option Plan, as amended May 14, 2004, incorporated herein by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 16, 2005. |
4.2s | 2007 Outside Directors Equity Compensation Plan, as amended May 8, 2008, incorporated herein by reference to Exhibit 99.2 to the Registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2008, filed on August 11, 2008. |
4.3s | Amended and Restated 2006 Incentive Stock Plan incorporated herein by reference to Exhibit 4.1 to the Registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2007, filed on May 9, 2007. |
4.4s | Form of Restricted Stock Letter Agreement for Executive Officers, incorporated herein by reference to Exhibit 99.1 to the Registrant’s quarterly report on Form 10-Q for the period ended March 31, 2008, filed May 9, 2008. |
4.5s | Form of Restricted Stock Letter Agreement, incorporated herein by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K filed on April 7, 2014. |
4.6s | FalconStor Software Inc., 2013 Outside Directors Equity Compensation Plan, incorporated herein by reference to the Registrant's Proxy Statement on Schedule 14a for the 2013 Annual meeting of Stockholders, filed on March 29, 2013. |
4.7s | FalconStor Software, Inc. 2016 Incentive Stock Plan, incorporated by reference to Exhibit A to the Proxy Statement on Schedule 14A dated March 18, 2016. |
4.8s | FalconStor Software, Inc. 2016 Outside Directors Equity Compensation Plan, incorporated by reference to Exhibit B to the Proxy Statement on Schedule 14A dated March 18, 2016. |
10.1s | Amended and Restated FalconStor Software, Inc., 2005 Key Executive Severance Protection Plan, incorporated herein by reference to Exhibit 99.2 to Registrant’s current report on Form 8-K filed on April 7, 2014. |
10.2s | FalconStor Software, Inc., Director Compensation Deferral Plan, effective January 1, 2011, incorporated herein by reference to Registrant’s annual report on Form 10-K, for the year ended December 31, 2010, filed, on March 14, 2011. |
10.3 | Agreement of Lease between Huntington Quadrangle 2 LLC and FalconStor Software Inc., dated May 30, 2013, with a commencement date of March 1, 2014, incorporated herein by reference to Exhibit 99.1 to the Registrant's quarterly report on Form 10-Q for the period ended September 30, 2013 filed on November 7, 2013. |
10.4s | Employment Agreement dated July 24, 2015 between the Company and Gary Quinn, incorporated herein by reference to Exhibit 10.1 to the Registrant's quarterly report on Form 10-Q dated July 30, 2015. |
10.5 | Preferred Stock Purchase Agreement dated as of September 16, 2013 between the Company and Hale Capital Partners, LP, incorporated herein by reference to Exhibit 10.1 to the Registrant's report on Form 8-K dated September 16, 2013. |
10.6 | Independent Contractor Agreement dated July 24, 2015 between the Company and RFN Prime Marketing Inc., incorporated herein by reference to Exhibit 10.2 to the Registrant's quarterly report on Form 10-Q dated July 30, 2015. |
10.7 | Change in Registrant's Certifying Accountant, Letter of KPMG LLP, incorporated herein by reference to Exhibit 16.1 to the Registrant's report on Form 8-K dated June 16, 2015. |
10.8 | Separation Agreement and General Release between FalconStor Software, Inc. and Louis Petrucelly, dated August 30, 2016, incorporated by reference to Exhibit 10.1 to the Form 8-K dated August 30, 2016. |
10.9s | Key Employee Change in Control Severance Agreement between FalconStor Software, Inc. and Daniel Murale, dated October 5, 2016, incorporated by reference to Exhibit 10.1 to the Form 8-K dated October 11, 2016. |
10.3 | Amendment No. 1 to Independent Contractor Agreement - RFN Prime Marketing, Inc., dated August 15, 2016, incorporated herein by reference to Exhibit 10.3 to the Registrant's quarterly report on Form 10-Q dated November 3, 2016. |
21.1 | Subsidiaries of Registrant – FalconStor, Inc., FalconStor AC, Inc., FalconStor Software (Korea), Inc. |
23.1* | Consent of BDO USA, LLP |
31.1* | Certification of the Chief Executive Officer |
31.2* | Certification of the Chief Financial Officer |
32.1* | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) |
32.2* | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) |
101.1 | The following financial statements from FalconStor Software, Inc’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBLR (eXtensible Business Reporting Language): |
FALCONSTOR SOFTWARE, INC. | |||
By: | /s/ Gary Quinn | March 10, 2017 | |
Gary Quinn, President and Chief Executive Officer of FalconStor Software, Inc. | Date |
By: | /s/ Gary Quinn | March 10, 2017 | |
Gary Quinn, President and Chief Executive Officer and Director (principal executive officer) | Date |
By: | /s/ Daniel Murale | March 10, 2017 | |
Daniel Murale, Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) | Date |
By: | /s/ Martin Hale Jr. | March 10, 2017 | |
Martin Hale Jr., Director | Date |
By: | /s/ Michael Kelly | March 10, 2017 | |
Michael Kelly, Director | Date |
By: | /s/ Barry A. Rudolph | March 10, 2017 | |
Barry A. Rudolph, Director | Date |
By: | /s/ William D. Miller | March 10, 2017 | |
William D. Miller, Director | Date |
1 | I have reviewed this annual report on Form 10-K of FalconStor Software, Inc.; |
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 | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure control and procedures, or caused such disclosure control 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 controls over financial reporting, or caused such internal controls over financial reporting to be designed under our 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 registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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. |
Date: March 10, 2017 | /s/ Gary Quinn |
Gary Quinn President and Chief Executive Officer (principal executive officer) |
1 | I have reviewed this annual report on Form 10-K of FalconStor Software, Inc.; |
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 | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 our 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 registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5 | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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. |
Date: March 10, 2017 | /s/ Daniel Murale |
Daniel Murale Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) |
/s/ Gary Quinn | |
Gary Quinn President and Chief Executive Officer March 10, 2017 |
/s/ Daniel Murale | |
Daniel Murale Executive Vice President, Chief Financial Officer and Treasurer March 10, 2017 |
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Feb. 28, 2017 |
Jun. 30, 2016 |
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Document And Entity Information | |||
Entity Registrant Name | FALCONSTOR SOFTWARE INC | ||
Entity Central Index Key | 0000922521 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 37,522,708 | ||
Entity Common Stock, Shares Outstanding | 44,116,064 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2016 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
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Statement of Financial Position [Abstract] | ||
Allowances on accounts receivable | $ 260,676 | $ 191,285 |
Accumulated depreciation on property and equipment | $ 18,580,547 | $ 17,947,675 |
Series A redeemable convertible preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Series A redeemable convertible preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Series A redeemable convertible preferred stock, shares issued | 900,000 | 900,000 |
Series A redeemable convertible preferred stock, shares outstanding | 900,000 | 900,000 |
Series A redeemable convertible preferred stock, redemption value | $ 9,000,000 | $ 9,000,000 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 59,482,989 | 57,194,817 |
Common stock, shares outstanding | 43,954,919 | 41,666,747 |
Common Stock, held in treasury, shares | 15,528,070 | 15,528,070 |
Consolidated Statements of Comprehensive Loss - USD ($) |
12 Months Ended | |
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Dec. 31, 2016 |
Dec. 31, 2015 |
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Statement of Comprehensive Income [Abstract] | ||
Net loss | $ (10,998,794) | $ (1,929,361) |
Other comprehensive (loss) income, net of applicable taxes: | ||
Foreign currency translation | (139,394) | (190,499) |
Net unrealized gain (loss) on marketable securities | 3,406 | (1,998) |
Net minimum pension liability | 1,489 | 573 |
Total other comprehensive loss, net of applicable taxes: | (134,499) | (191,924) |
Total comprehensive loss | (11,133,293) | (2,121,285) |
Less: Accrual of Series A redeemable convertible preferred stock dividends | 777,890 | 765,203 |
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 1,181,446 | 587,613 |
Total comprehensive loss attributable to common stockholders | $ (13,092,629) | $ (3,474,101) |
Consolidated Statements of Cash Flows (Parenthetical) - USD ($) |
12 Months Ended | |
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Dec. 31, 2016 |
Dec. 31, 2015 |
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Supplemental Cash Flow Elements [Abstract] | ||
Interest Paid | $ 0 | $ 0 |
Summary of Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies
FalconStor Software, Inc., a Delaware Corporation (the "Company"), is a leading software-defined storage company offering a converged data services software platform that is hardware agnostic. The Company develops, manufactures and sells data migration, business continuity, disaster recovery, optimized backup and de-duplication solutions and provides the related maintenance, implementation and engineering services. (b) Going Concern A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, the Company has prepared its consolidated financial statements on a going concern basis. The Company has incurred significant operating losses in the previous eight years and negative cash flow from operations in five of the previous eight years. The Company currently has a working capital deficiency of $10.5 million, which is inclusive of current deferred revenue of $15.2 million, and a stockholders' deficit of $21.7 million. During the year ended December 31, 2016, the Company incurred a net loss of $11.0 million and negative cash flow from operations of $9.4 million. The Company's total cash balance at December 31, 2016 was $3.4 million, a decrease of $10.0 million as compared to December 31, 2015. In addition to these financial metrics, as of December 31, 2016, the Company was not in compliance with the financial covenants of the Series A redeemable convertible preferred stock, which are mutually agreed to annually, for two consecutive quarters. This breach provides the Series A redeemable convertible preferred stockholders with the right to require the Company to redeem any of the Series A redeemable convertible preferred stock at the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price of the Company's common stock as of December 31, 2016. To date, the holders of the Series A redeemable convertible preferred stock have neither exercised nor waived this right and accordingly this right may be exercised at any time. In addition, the holders of the Series A redeemable convertible preferred stock have the right to request a redemption of the Series A redeemable convertible preferred stock on or after August 5, 2017. If the holders request that the Series A redeemable convertible preferred stock be redeemed, the Company may not have sufficient liquidity to undertake the redemption. If the Company does not redeem the Series A redeemable convertible preferred stock, the holders of the Series A redeemable convertible preferred stock can pursue other remedies. Refer to Note (8) Series A Redeemable Convertible Preferred Stock for further discussion regarding these other remedies. The Company's reduced cash balance and history of losses both in and of itself, and in combination with the redemption rights of the holders of the Series A redeemable convertible preferred stock, raise substantial doubt about the Company's ability to continue as a going concern within one year after March 10, 2017 (the date that these financial statements were issued). The Company's ability to continue as a going concern, including in the event of a redemption request by the holder, depends on its ability to execute its business plan, increase revenue and billings and reduce expenditures. During 2016, the Company continued to focus on aligning its expense structure with revenue expectations which included tighter expense controls and overall operational efficiencies which better align the Company's current business plan on a run-rate basis. These efficiencies include among other items, stream-lined personnel related costs and global overhead costs and efficiencies realized on the Company's redesigned go-to-market coverage models. The Company has reduced its worldwide headcount to 166 employees as of December 31, 2016, compared with 226 employees as of December 31, 2015. However, the decline in revenue over the last twelve months combined with the separation costs related to the headcount reductions have reduced the impact of these reductions in operating expenses, thereby not achieving the expected reduction of quarterly cash burn rate. There is no assurance that the Company will be successful in generating sufficient revenue or continue to reduce operating costs. In addition, to the extent that the Company continues to incur losses, the Company may need to seek additional financing and there can be no assurance that the Company will be able to obtain financing or that such financing will be on favorable terms. Any such financing could be dilutive to our shareholders. Failure to generate sufficient revenue, billings, control or reduce expenditures and/or the inability to obtain financing will result in an inability of the Company to continue as a going concern.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. The Company’s significant estimates include those related to revenue recognition, accounts receivable allowances, share-based payment compensation, valuation of derivatives, capitalizable software development costs, valuation of goodwill and other intangible assets, income taxes and management's assessment of going concern. Actual results could differ from those estimates. The financial market volatility, both in the U.S. and in many other countries where the Company operates, has impacted and may continue to impact the Company’s business. Such conditions could have a material impact to the Company’s significant accounting estimates discussed above.
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company records its cash equivalents and marketable securities at fair value in accordance with the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on fair value measurements and disclosures. As of December 31, 2016 and 2015, the Company’s cash equivalents consisted of money market funds and commercial paper. At December 31, 2016 and 2015, the fair value of the Company’s cash equivalents amounted to approximately $1.1 million and $2.7 million, respectively. As of December 31, 2016, the Company had no marketable securities. As of December 31, 2015, the Company’s marketable securities consisted of corporate bonds and government securities with a fair value of approximately and $7.4 million. All of the Company’s marketable securities are classified as available-for-sale, and accordingly, unrealized gains and losses on marketable securities, net of tax, are reflected as a component of accumulated other comprehensive loss in stockholders’ deficit. Any other-than-temporary impairments are recorded within interest and other loss, net in the consolidated statement of operations. See Note (4) Marketable Securities for additional information.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. As of December 31, 2016 and 2015, the fair value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated carrying value due to the short maturity of these instruments. See Note (3) Fair Value Measurements for additional information.
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible preferred stock are reviewed to determine whether or not they contain embedded derivative instruments that are required under FASB ASC 815 “Derivatives and Hedging” (“ASC 815”) to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivatives are required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. See Note (13) Derivative Financial Instruments for additional information.
The Company derives its revenue from sales of its products, support and services. Product revenue consists of the Company’s software integrated with industry standard hardware and sold as complete turn-key integrated solutions, as stand-alone software applications or sold on a subscription or consumption basis. Depending on the nature of the arrangement, revenue related to turn-key solutions and stand-alone software applications are generally recognized upon shipment and delivery of license keys. For certain arrangements revenue is recognized based on usage or ratably over the term of the arrangement. Support and services revenue consists of both maintenance revenues and professional services revenues. Revenue is recorded net of applicable sales taxes. In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery has occurred, and collection of the resulting receivable is deemed probable. Products delivered to a customer on a trial basis are not recognized as revenue until the trial period has ended and acceptance has occurred by the customer. Reseller and distributor customers typically send the Company a purchase order when they have an end user identified. For bundled arrangements that include either maintenance or both maintenance and professional services, the Company uses the residual method to determine the amount of product revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence (“VSOE”) of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as product revenue. If VSOE does not exist for all undelivered elements of an arrangement, the Company recognizes total revenue from the arrangement ratably over the term of the maintenance agreement. The Company's long-term portion of deferred revenue consists of (i) payments received for maintenance contracts with terms in excess of one year as of the balance sheet date, and (ii) payments received for product sales bundled with multiple years of maintenance but for which VSOE did not exist for all undelivered elements of the arrangement. The Company provides an allowance for product returns as a reduction of revenue, based upon historical experience and known or expected trends. When more than one element, such as hardware, software and services are contained in a single arrangement, the Company will first allocate revenue based upon the relative selling price into two categories: (1) non-software components, such as hardware and any hardware-related items, as required system software that functions with the hardware to deliver the essential functionality of the hardware and related post-contract customer support, and software as service subscriptions and (2) software components and applications, such as post-contract customer support and other services. The Company will then allocate revenue within the non-software category to each element based upon their relative selling price using a hierarchy of VSOE, third-party evidence of selling price (“TPE”) or estimated selling prices (“ESP”), if VSOE or TPE does not exist. The Company will allocate revenue within the software category to the undelivered elements based upon their fair value using VSOE with the residual revenue allocated to the delivered elements. If the Company cannot objectively determine the VSOE of the fair value of any undelivered software element, the Company will defer revenue for all software components until all elements are delivered and services have been performed, until fair value can objectively be determined for any remaining undelivered elements, or until software maintenance is the only undelivered element which the Company does not have VSOE for, in which case revenue is recognized over the maintenance term for all software elements. Revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with software implementation and software engineering services are recognized when the services are performed and customer acceptance is received. Costs of providing these services are included in cost of support and services. The Company has entered into various distribution, licensing and joint promotion agreements with OEMs, whereby the Company has provided the OEM a non-exclusive software license to install the Company’s software on certain hardware or to resell the Company’s software in exchange for payments based on the products distributed by these OEMs. Such payments from the OEM or distributor are recognized as revenue in the period reported by the OEM. From time to time the Company will enter into funded software development arrangements. Under such arrangements, revenue recognition will not commence until final delivery and/or acceptance of the product. For arrangements where the Company has VSOE for the undelivered elements, the Company will follow the residual method and recognize product revenue upon final delivery and/or acceptance of the product. For arrangements where the Company does not have VSOE for the undelivered elements, the Company will recognize the entire arrangement fee ratably commencing at the time of final delivery and/or acceptance through the end of the service period in the arrangement. Certain arrangements, for which VSOE of fair value for the undelivered maintenance elements cannot be established, are accounted for as a single unit of account. The revenue recognized from single units of accounting are typically allocated and classified on the consolidated statements of operations as product revenue and support and services revenue. Since VSOE cannot be established, VSOE of similar maintenance offerings provides the basis for the support and services revenue classification, and the remaining residual consideration provides the basis for the product revenue classification. In 2013, the Company entered into a joint development agreement whereby final acceptance of the software delivered under the joint development agreement occurred on November 16, 2014. During 2014, the Company began to recognize the total committed fee as revenue ratably over a twenty-five and a half month period which began on November 16, 2014 and included a contractual twenty-four month maintenance period. During 2015, the customer elected to terminate its maintenance agreement and as such all unrecognized deferred revenue was accelerated and recognized as product revenue during the year. During the years ended December 31, 2016 and 2015, the Company recorded no product revenue and product revenue of approximately $11.3 million, respectively, related to this agreement.
Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets (3 to 7 years). Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases or over their estimated useful lives, whichever is shorter.
Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. The Company has not amortized goodwill related to its acquisitions, but instead tests the balance for impairment. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company’s annual impairment assessment is performed at December 31st of each year, and the Company has determined there to be no impairment for any of the periods presented. Based on the Company’s analysis, the fair value of its reporting unit substantially exceeds the carrying value of its goodwill balances as of December 31, 2016 and 2015. As part of the goodwill impairment test performed at December 31, 2016, the Company determined it was more likely than not that a goodwill impairment exists and the Company proceeded to step two of the goodwill impairment test. The Company engaged a third-party valuation firm to determine the fair value of all long-lived assets other than goodwill and determine the residual goodwill value of the reporting unit. This goodwill impairment test indicated that the fair value of goodwill value exceeded its carrying value by $15.8 million. The Company used multiple valuation techniques, the income and market approaches, and weighted the results to calculate the fair value of its goodwill as of December 31, 2016. Changes in the assumptions used in the goodwill valuation could materially impact the fair value estimates. Significant assumptions to the goodwill fair value estimate include; projected future financial statement results for the Company, discount rate and projected long-term growth rates. Identifiable intangible assets include (i) assets acquired through business combinations, which include customer contracts and intellectual property, and (ii) patents amortized over three years using the straight-line method. The gross carrying amount and accumulated amortization of goodwill and other intangible assets as of December 31, 2016 and 2015 are as follows:
For the years ended December 31, 2016 and 2015, amortization expense was $162,594 and $154,400, respectively. As of December 31, 2016, amortization expense for existing identifiable intangible assets is expected to be $124,712, $66,709 and $18,035 for the years ended December 31, 2017, 2018 and 2019, respectively. Such assets will be fully amortized at December 31, 2019.
In accordance with the authoritative guidance issued by the FASB on costs of software to be sold, leased, or marketed, costs associated with the development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility of the product has been established. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of software development costs is recorded at the greater of the straight-line basis over the product’s estimated life, or the ratio of current period revenue of the related products to total current and anticipated future revenue of these products. The gross carrying amount and accumulated amortization of software development costs as of December 31, 2016 and 2015 are as follows:
During the years ended December 31, 2016 and 2015, the Company recorded $449,258 and $525,801, respectively, of amortization expense related to capitalized software costs. As of December 31, 2016, amortization expense for software development costs is expected to be $268,144, $223,095, $55,174, and $1,145 for the years ended December 31, 2017, 2018, 2019 and 2020, respectively. Such assets will be fully amortized at December 31, 2020.
The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In determining the period in which related tax benefits are realized for financial reporting purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted. The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the FASB on income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return, should be recorded in the financial statements. Pursuant to the authoritative guidance, the Company may recognize the tax benefit from an uncertain tax position only if it meets the “more likely than not” threshold that the position will be sustained on examination by the taxing authority, based on the technical merits of the position or expiration of statutes. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. In addition, the authoritative guidance addresses de-recognition, classification, interest and penalties on income taxes, accounting in interim periods, and also requires increased disclosures. The Company includes interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations. See Note (6) Income Taxes for additional information.
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
The Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of estimated forfeitures. For share-based payment awards that contain performance criteria share-based compensation expense is recorded when the achievement of the performance condition is considered probable of achievement and is recorded straight-line over the requisite service period. If such performance criteria are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model or the Monte Carlo simulation model if a market condition exists. Share-based compensation expense for a share-based payment award with a market condition is recorded straight-line over the longer of the explicit service period or the service period derived from the Monte Carlo simulation. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. All share-based awards are expected to be fulfilled with new shares of common stock. See Note (10) Share-Based Payment Arrangements for additional information.
Assets and liabilities of foreign operations are translated at rates of exchange at the end of the period, while results of operations are translated at average exchange rates in effect for the period. Gains and losses from the translation of foreign assets and liabilities from the functional currency of the Company’s subsidiaries into the U.S. dollar are classified as accumulated other comprehensive loss in stockholders’ deficit. Gains and losses from foreign currency transactions are included in the consolidated statements of operations within interest and other loss, net. During the years ended December 31, 2016 and 2015, foreign currency transactional losses totaled approximately $33,191 and $384,972, respectively.
Basic EPS is computed based on the weighted average number of shares of common stock outstanding. Diluted EPS is computed based on the weighted average number of common shares outstanding increased by dilutive common stock equivalents, attributable to stock option awards, restricted stock awards and Series A redeemable convertible preferred stock outstanding. The following represents the common stock equivalents that were excluded from the computation of diluted shares outstanding because their effect would have been anti-dilutive for the years ended December 31, 2016 and 2015:
The following represents a reconciliation of the numerators and denominators of the basic and diluted EPS computation:
As of December 31, 2016 and 2015, the Company did not have any cost-method investments.
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ deficit. (s) Recently Adopted Accounting Pronouncements In November 2015, the FASB issued new guidance which requires an entity to classify deferred tax liabilities and assets, along with any related valuation allowance, as non-current in its consolidated balance sheet. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, which for the Company will be the annual period ending December 31, 2017. Early adoption, including adoption in an interim period, is permitted. The Company adopted this guidance prospectively for the year ended December 31, 2016. In November 2014, the FASB issued new guidance which requires an entity to determine whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The effects of initially adopting the amendments in this update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, which for the Company was the first quarter of 2016. The adoption of this new accounting guidance by Company has not had any impact on the Company's consolidated financial position, results of operations or cash flows. In August 2014, the FASB issued new guidance which requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable), and to provide related footnote disclosures in certain circumstances. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter, which for the Company is the annual period ending December 31, 2016. The Company's consolidated financial statements include appropriate disclosures in accordance with this guidance. (t) Recently Issued Accounting Pronouncements In January 2017, the FASB issued new guidance on accounting for goodwill to simplify the goodwill impairment test by eliminating Step 2 of the goodwill impairment test. This new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The new standard is effective for the annual period beginning after December 15, 2019, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2020. Early adoption, is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard should be applied on a prospective basis. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In August 2016, the FASB issued new guidance on presentation and classification of eight specific items within the statement of cash flows, including (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. This update is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, which for the Company will be the annual period ending December 31, 2018. Early adoption, including adoption in an interim period, is permitted. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In March 2016, the FASB issued new guidance on accounting for employee share-based payment awards to simplify the accounting related to several aspects of accounting for share-based payment transactions, including income tax consequences of share-based payment transactions, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. The new standard is effective for the annual period beginning after December 15, 2016, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2017. Early adoption, including adoption in an interim period, is permitted. The standard requires the use of several transition methods including a modified retrospective transition method, retrospective method and prospective method. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In February 2016, the FASB issued new guidance on leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This new guidance will replace existing guidance on leases in accounting principles generally accepted in the United States when it becomes effective. The new standard is effective for the annual period beginning after December 15, 2018, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2019. Early application is permitted. The standard requires the use of a modified retrospective transition method; however, certain optional practical expedients may be applied. The Company's preliminary analysis indicates that the Company will recognize a liability for remaining lease payments and a right-of-use asset related the Company's operating lease covering its corporate office facility that expires in April 2021. Currently the Company's additional operating leases related to offices in foreign countries are set to expire prior to adoption of the new guidance. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements. In January 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. The standard (i) requires an entity to measure equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring an entity to perform a qualitative assessment to identify impairment, (iii) changes certain presentation and disclosure requirements related to financial assets and financial liabilities, and (iv) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for the Company will be the annual period ending December 31, 2018. Early adoption, including adoption in an interim period, is not permitted except for certain amendments in this update. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In May 2014, the FASB issued new guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance will replace most existing revenue recognition guidance in Generally Accepted Accounting Principles in the United States when it becomes effective. The new standard is effective for the annual period beginning after December 15, 2017, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2018. Early application as of January 1, 2017 is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that this new guidance will have on its consolidated financial statements and related disclosures. The Company has formed an implementation team to evaluate the standard's effect on the Company's financial statements. The Company has historically deferred revenue for certain deliverables in its multiple-element arrangements due to a lack of VSOE for those deliverables. The Company's preliminary analysis indicates that the Company will recognize revenue for these arrangements earlier under the new standard than under existing guidance due to the elimination of the VSOE requirement. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements and continues to evaluate the available transition methods. |
Property and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and Equipment Property and equipment consist of the following:
During the year ended December 31, 2016, the Company wrote off approximately $113,000 of fixed assets and approximately $110,000 of related accumulated depreciation related to assets that were no longer in use. During the year ended December 31, 2015, the Company wrote off approximately $214,000 of fixed assets and approximately $161,000 of related accumulated depreciation related to assets that were no longer in use. Depreciation expense was $713,854 and $1,308,723 in 2016 and 2015, respectively. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements The Company measures its cash equivalents, marketable securities and derivative instruments at fair value. Fair value is an exit price, representing the amount that would be received on the sale of an asset or that would be paid to transfer a liability in an orderly transaction between market participants. As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. Fair Value Hierarchy The methodology for measuring fair value specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). As a result, observable and unobservable inputs have created the following fair value hierarchy:
Measurement of Fair Value The Company measures fair value as an exit price using the procedures described below for all assets and liabilities measured at fair value. When available, the Company uses unadjusted quoted market prices to measure fair value and classifies such items within Level 1. If quoted market prices are not available, fair value is based upon financial models that use, when possible, current market-based or independently-sourced market parameters such as interest rates and currency rates. Items valued using financial generated models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be inputs that are readily observable. If quoted market prices are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. The fair value of the Company’s investments in corporate debt and government securities have been determined utilizing third party pricing services and reviewed by management. The pricing services use inputs to determine fair value which are derived from observable market sources including reportable trades, benchmark curves, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. These investments are included in Level 2 of the fair value hierarchy. The fair value of the Company’s derivatives were valued using the Black-Scholes pricing model adjusted for probability assumptions, with all significant inputs, except for the probability and volatility assumptions, derived from or corroborated by observable market data such as stock price and interest rates. The probability and volatility assumptions are both significant to the fair value measurement and unobservable. These embedded derivatives are included in Level 3 of the fair value hierarchy. Items Measured at Fair Value on a Recurring Basis The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2016:
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2015:
The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of each of the years ended December 31, 2016 and 2015:
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Marketable Securities |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities | Marketable Securities The Company’s marketable securities consist of available-for-sale securities, which are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. Unrealized gains and losses are computed on the specific identification method. Realized gains, realized losses and declines in value judged to be other-than-temporary, are included in interest and other income (loss), net. The cost of available-for-sale securities sold is based on the specific identification method and interest earned is included in interest and other income. As of December 31, 2016, the Company had no available-for-sale marketable securities. The cost and fair values of the Company’s available-for-sale marketable securities as of December 31, 2015, were as follows:
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Accrued Expenses |
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Accrued Expenses | Accrued Expenses Accrued expenses are comprised of the following:
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Income Taxes |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Information pertaining to the Company’s loss before income taxes and the applicable provision for income taxes is as follows:
During 2016, the Company recorded a tax provision of $587,207 related to state and local and foreign income taxes, inclusive of a tax provision of $122,004 as a result of the Company's change in estimate with respect to the realizability of its AMT credits. During 2015 the Company recorded a tax provision of $375,543 related to state and local and foreign income taxes and is inclusive of a tax benefit of $180,021 related to certain AMT tax credits that became realizable on a more-likely-than-not basis as a result of recent federal tax legislation enacted in December 2015. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During 2015, the Company considered the impact of new legislation regarding potential refunds of its AMT tax credits and determined that there is sufficient positive evidence to conclude that it is more-likely-than-not that AMT credits of $180,021 are realizable which resulted in a reduction to the valuation allowance and a benefit to income tax expense. During 2016, the Company revised its estimate of potential refundable AMT credits and recorded an income tax provision of $122,004. The Company determined its other net domestic deferred tax assets are not realizable on a more-likely-than-not basis. As of December 31, 2016, the Company had federal net operating loss carryforwards of approximately $84.7 million which are set to expire beginning in 2030 through 2036, if not utilized. As of December 31, 2016, the Company had approximately $3.6 million of various tax credit carryforwards, of which, approximately $3.1 million related to research and development tax credit carryforwards which expire at various dates beginning in 2023 through 2028, if not utilized. As of December 31, 2016, the Company had approximately $0.5 million related to AMT credit carryforwards, which may be carried forward indefinitely. As of December 31, 2016, the Company had not provided for the United States income or additional foreign withholding taxes on approximately $4.2 million of undistributed earnings of its subsidiaries operating outside of the United States, with the exception of China. It is the Company’s practice and intention to reinvest those earnings permanently. Generally, such amounts become subject to United States taxation upon remittance of dividends and under certain other circumstances. Determination of the amount of any unrecognized deferred tax liability related to investments in these foreign subsidiaries is not practicable. The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
At December 31, 2016, $328,739 including interest, if recognized, would reduce the Company’s annual effective tax rate. As of December 31, 2016, the Company had approximately $111,278 of accrued interest. The Company believes it is reasonably possible that $96,907 of its unrecognized tax benefits will reverse within the next 12 months. The Company records any interest and penalties related to unrecognized tax benefits in income tax expense. The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2013 through 2016 tax years generally remain subject to examination by federal and most state tax authorities. In addition to the U.S., the Company’s major taxing jurisdictions include China, Taiwan, Japan, France and Germany. |
Accumulated Other Comprehensive Loss |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss The changes in Accumulated Other Comprehensive Loss, net of applicable tax, for December 31, 2016 are as follows:
The changes in Accumulated Other Comprehensive Loss, net of applicable tax, for December 31, 2015 are as follows:
For the year ended December 31, 2016 and 2015, the amounts reclassified to net loss related to the Company’s defined benefit plan and maturities of marketable securities. These amounts are included within “Operating loss" within the consolidated statement of operations. |
Series A Redeemable Convertible Preferred Stock |
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Dec. 31, 2016 | |
Equity [Abstract] | |
Series A Redeemable Convertible Preferred Stock | Series A Redeemable Convertible Preferred Stock On September 16, 2013, the Company issued to Hale Capital Partners, LP (“Hale”) 900,000 shares of the Company’s Series A redeemable convertible preferred stock, par value $0.001 per share, at a price of $10 per share, for an aggregate purchase consideration of $9.0 million, which was subsequently transferred to HCP-FVA LLC. Each share of Series A redeemable convertible preferred stock is convertible into common stock equivalents, at the option of the holder and upon certain mandatory conversion events described below, at a conversion rate of $1.02488 (as adjusted for stock splits, stock dividends, reverse stock splits, stock combinations, reclassifications and similar events). The Company received net proceeds of approximately $8.7 million from the issuance of the redeemable convertible preferred stock in 2013, net of transaction costs. If the volume weighted average price of common stock for each trading day of any 60 consecutive trading days exceeds 250% of the conversion price and exceeds 225% of the conversion price through the conversion date, and certain equity conditions are met such that shares of common stock issued upon conversion can be immediately saleable by the redeemable convertible preferred stockholders, the Company can convert the redeemable convertible preferred stock up to an amount equal to the greater of 25% of the daily trading volume for the 20 consecutive trading days immediately preceding the conversion date or the amount of an identified bona fide block trade at a price reasonably acceptable to the applicable redeemable convertible preferred stockholder, but which price is not less than the arithmetic average of the weighted average prices of the common stock for the five trading days immediately preceding such sale. The holders of the Series A redeemable convertible preferred stock have veto power over certain future financings, and certain rights to participate in any subsequent financing, whether through debt or equity (subject to certain exclusions). In addition, the Company's agreements with the holders of the Series A redeemable convertible preferred stock provide that if, at the time of certain future debt or equity financings, the proceeds of which exceed $5.0 million, the holders of the Series A redeemable convertible preferred stock still have outstanding Series A redeemable convertible preferred stock, then the Company must offer to repurchase their Series A redeemable convertible preferred stock. The holders of the Series A redeemable convertible preferred stock have the right to accept the offer or to retain their Series A redeemable convertible preferred stock. If the Company does a financing, and the holders of the Series A redeemable convertible preferred stock elect to have their Series A redeemable convertible preferred stock repurchased, then the capital raised in excess of $5.0 million will go to repurchase the holders’ Series A redeemable convertible preferred stock, instead of being able to be used for our business. The Company cannot consummate a fundamental sale transaction in which the consideration is stock or a combination of cash and stock without the consent of the holder of the Series A redeemable convertible preferred stock. In addition to the veto rights set forth in the preceding paragraph, upon consummation of a fundamental sale transaction in which the consideration is cash and is not approved by the holder of the Series A redeemable convertible preferred stock, the Series A redeemable convertible preferred stock shall be redeemed at a per share redemption price equal to the greater of (i) 250% of the stated value of the Series A redeemable convertible preferred stock (which is currently equal to $22.5 million or $2.56 per share of common stock held by the holder of the Series A redeemable convertible preferred stock on an as converted basis as of December 31, 2016) and (ii) the price such holder would receive in the transaction on an as converted basis. Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect, failure to achieve minimum financial covenants or failure of the Company to issue shares upon conversion of the Series A redeemable convertible preferred stock in accordance with its obligations, the Series A redeemable convertible preferred stockholders may require the Company to redeem all or some of the Series A redeemable convertible preferred stock at a price equal to the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price as of the occurrence of the triggering event. On or after August 5, 2017, each Series A redeemable convertible preferred stockholder can require the Company to redeem its Series A redeemable convertible preferred stock in cash at a price equal to 100% of the stated value being redeemed plus accrued and unpaid dividends. If the Company does not have the funds necessary to redeem the Series A redeemable convertible preferred stock, the dividends accruing on any outstanding Series A redeemable convertible preferred stock will increase to prime plus 10% (from prime plus 5%). For each six months that the Series A redeemable convertible preferred stock remains unredeemed, the dividend rate increases by 1%, subject to a maximum dividend rate of 19%. In addition, the Company's failure to redeem the Series A redeemable convertible preferred stock would be considered a “Breach Event” under the agreements with the holders of the Series A redeemable convertible preferred stock. If a Breach Event were to occur and the Company is in default under or has breached any provision in respect of its obligations to redeem the Series A redeemable convertible preferred stock, then, under the agreements with the holders of our Series A redeemable convertible preferred stock, the Company's Board of Directors would automatically be increased, with the holders of the Series A redeemable convertible preferred stock having the right to appoint the new directors, so that the holders of the Series A redeemable convertible preferred stock would have appointed a majority of the Board of Directors. This would give the holders of the Series A redeemable convertible preferred stock control of the Company. As of December 31, 2016, the Company was not in compliance with the financial covenants of the Series A redeemable convertible preferred stock for two consecutive quarters, which provides the Series A redeemable convertible preferred stockholders the right to require the Company to redeem any of the Series A redeemable convertible preferred stock at the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price of the Company's common stock as of December 31, 2016. To date, the holders of the Series A redeemable convertible preferred stock have neither exercised nor waived this right and accordingly this right may be exercised at any time. As of December 31, 2016, the Company did not fail any non-financial covenants related to the Company's Series A redeemable convertible preferred stock. Holders of the Series A redeemable convertible preferred stock are entitled to receive quarterly dividends at the Prime Rate (Wall Street Journal Eastern Edition) plus 5% (up to a maximum amount of 10%), payable in cash, provided, that if the Company will not have at least $1.0 million in positive cash flow for any calendar quarter after giving effect to the payment of such dividends, the Company, at its election, can pay such dividends in whole or in part in cash, provided that cash flow from operations is not negative, and the remainder can be accrued or paid in common stock to the extent certain equity conditions are satisfied. During 2016, the Company issued 624,009 shares of the Company's common stock as payment for the fourth quarter 2015 and the first three quarters of 2016 dividends. As of December 31, 2016, due to the lack of sufficient surplus to pay dividends as required by the Delaware General Business Corporation Law, the Company was not permitted to pay the fourth quarter dividend in cash or through the issuance of the Company's common stock and accrued the fourth quarter 2016 dividend. As of December 31, 2016, the Company's liability for dividends to the holders of the Series A redeemable convertible preferred stock totaled $195,904. Each share of redeemable convertible preferred stock has a vote equal to the number of shares of common stock into which the redeemable convertible preferred stock would be convertible as of the record date of September 13, 2013. The Company’s closing stock price on the record date was $1.23 per share which results in voting power of an aggregate of 7,317,073 shares. In addition, holders of a majority of the redeemable convertible preferred stock must approve certain actions, including any amendments to the Company's charter or bylaws that adversely affects the voting powers, preferences or other rights of the redeemable convertible preferred stock; payment of dividends or distributions; any liquidation, capitalization, reorganization or any other fundamental transaction of the Company; issuance of certain equity securities senior to or in parity with the redeemable convertible preferred stock as to dividend rights, redemption rights, liquidation preference and other rights; issuances of equity below the conversion price; any liens or borrowings other than non-convertible indebtedness from standard commercial lenders which does not exceed 80% of the Company’s accounts receivable; and the redemption or purchase of any capital stock of the Company. The Company has classified the Series A redeemable convertible preferred stock as temporary equity in the financial statements as it is subject to redemption at the option of the holder under certain circumstances. As a result of the Company’s analysis of all the embedded conversion and put features within the Series A redeemable convertible preferred stock, the contingent redemption put options in the Series A redeemable convertible preferred stock were determined to not be clearly and closely related to the debt-type host and also did not meet any other scope exceptions for derivative accounting. Therefore the contingent redemption put options are being accounted for as derivative instruments and the fair value of these derivative instruments were bifurcated from the Series A redeemable convertible preferred stock and recorded as a liability. As of December 31, 2016 and 2015 the fair value of these derivative instruments was $336,862 and $82,024, respectively, and were included in "other long-term liabilities" within the consolidated balance sheets. The loss on the change in fair value of these derivative instruments for 2016 of $254,838 and the gain on the change in fair value of these derivative instruments for 2015 of $55,147, were included in “interest and other loss, net” within the consolidated statement of operations. At the time of issuance the Company recorded transaction costs, a beneficial conversion feature and the fair value allocated to the embedded derivatives as discounts to the Series A redeemable convertible preferred stock. These costs are being accreted to the Series A redeemable convertible preferred stock using the effective interest method through the stated redemption date of August 5, 2017, which represents the earliest redemption date of the instrument. The Company included deductions of $1,181,446 and $587,613 as accretion adjustments to net loss attributable to common stockholders on the statement of operations and in determining loss per share for the years ended December 31, 2016 and 2015, respectively. The Company also included deductions of $777,890 and $765,203 as adjustments to net loss attributable to common shareholders on the statement of operations and in determining loss per share for the years ended December 31, 2016 and 2015, respectively, for dividends (including accrued dividends) on the Series A redeemable convertible preferred stock during the period. |
Stockholders' Equity |
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Equity [Abstract] | |
Stockholders' Equity | Stockholders’ Equity Stock Repurchase Activity On April 22, 2015, the Company’s Board of Directors (the "Board") approved a new stock buy-back program (the "Repurchase Program"). The Repurchase Program authorizes management to repurchase in the aggregate up to five million shares of the Company's common stock. Repurchases may be made by the Company from time to time in open-market or privately-negotiated transactions as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Repurchase Program superseded and replaced the Company's prior stock buy-back program. The Repurchase Program does not obligate the Company to make repurchases at any specific time or situation. The Company was required to obtain approvals from the Series A redeemable convertible preferred stockholders for the Repurchase Program. The Repurchase Program does not have an expiration date and may be amended or terminated by the Board at any time without prior notice. During the year ended December 31, 2016, the Company repurchased no shares of its common stock. During the year ended December 31, 2015, the Company repurchased 92,161 shares of its common stock at an aggregate purchase price of $137,858 or $1.50 per share. As of December 31, 2016, the Company had the authorization to repurchase 4,907,839 shares of its common stock based upon its judgment and market conditions. Independent Marketing Agreement On July 24, 2015, the Company entered into an Independent Marketing Agreement with RFN Prime Marketing Inc., to provide among other items, certain sales and marketing deliverables to the Company and originally entitled RFN Prime Marketing Inc., to receive up to 2.55 million shares of restricted Company common stock which will be issued based on certain milestone achievements and/or transactions over a twenty-four month period. The restricted Company common stock will be valued as they are earned, and the resulting value will be recorded as an expense in the period in which the performance milestone is met and the stock is earned. As of December 31, 2016, none of the performance milestones have been met, and therefore no restricted Company common stock has been issued. |
Share-Based Payment Arrangements |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Payment Arrangements | Share-Based Payment Arrangements On April 27, 2016, the Company’s stockholders adopted the FalconStor Software, Inc. 2016 Incentive Stock Plan (the "2016 Plan"). The 2016 Plan is administered by the Compensation Committee and initially provided for the issuance of up to 1,500,000 shares of the Company’s common stock upon the exercise of options or upon the grant of shares with such restrictions as determined by the Compensation Committee to the employees, consultants and non-employee directors of the Company. Exercise prices of the options must be equal to the fair market value of the common stock on the date of grant. Options granted have terms of ten years. Shares of restricted stock have the terms and conditions set by the Board of Directors and are forfeitable until the terms of the grant have been satisfied. The 2016 Plan replaces the Company's 2006 Incentive Stock Plan. On April 27, 2016, the Company’s stockholders adopted the FalconStor Software, Inc. 2016 Outside Directors Equity Compensation Plan (the “2016 Director Plan”). The 2016 Director Plan is administered by the Board of Directors and provides for the issuance of up to 400,000 shares of the Company’s common stock upon the exercise of options or upon the grant of shares with such restrictions as determined by the Board of Directors to the non-employee directors of the Company. Exercise prices of the options must be equal to the fair market value of the common stock on the date of grant. Options granted have terms of ten years. Shares of restricted stock have the terms and conditions set by the Board of Directors and are forfeitable until the terms of the grant have been satisfied. The 2016 Director Plan replaces the 2013 Outside Directors Equity Compensation Plan. The following table summarizes the plans under which the Company granted equity compensation as of December 31, 2016:
On June 30, 2016, the total shares available for issuance under the 2016 Plan totaled 1,500,000. Pursuant to the 2016 Plan, if, on July 1st of any calendar year in which the 2016 Plan is in effect, the number of shares of stock as to which options, restricted shares and restricted stock units may be granted under the 2016 Plan is less than five percent (5%) of the number of outstanding shares of stock, then the number of shares of stock available for issuance under the 2016 Plan is automatically increased so that the number equals five percent (5%) of the shares of stock outstanding. In no event shall the number of shares of stock subject to the 2016 Plan in the aggregate exceed twenty million shares, subject to adjustment as provided in the 2016 Plan. On July 1, 2016, the total number of outstanding shares of the Company’s common stock totaled 43,332,111. Pursuant to the 2016 Plan, the total shares available for issuance under the 2016 Plan thus increased 666,606 to 2,166,606 shares available for issuance as July 1, 2016. The following table summarizes the Company’s equity plans that have expired but that still have equity awards outstanding as of December 31, 2016:
All outstanding options granted under the Company’s equity plans have terms of ten years A summary of the Company’s stock option activity for 2016 is as follows:
Stock option exercises are fulfilled with new shares of common stock. The Company recognized share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the consolidated statement of operations:
The Company did not recognize any tax benefits related to share-based compensation expense during the years ended December 31, 2016 and 2015. The Company has the ability to issue both restricted stock and restricted stock units. The fair value of the restricted stock awards and restricted stock units are expensed at either (i) the fair value per share at date of grant (directors, officers and employees), or (ii) the fair value per share as of each reporting period (non-employee consultants). A summary of the total stock-based compensation expense related to restricted stock awards and restricted stock units, which is included in the Company’s total share-based compensation expense for each respective year, is as follows:
A summary of the Company’s restricted stock activity for 2016 is as follows:
On July 28, 2015 the Company granted 500,000 shares of restricted stock to the President and Chief Executive Officer of the Company. The restricted shares have terms of 10 years. The restrictions of the restricted stock lapse upon the Company's achievement of performance criteria related to the Company's Common Stock closing trading price. The fair value of the common stock price market condition was calculated using the Monte Carlo simulation model resulting in a weighted average fair value of $1.05 per share. Share-based compensation expense for the common stock price market condition is being recorded straight-line over the service period derived from the Monte Carlo simulation since the awards exercisability depends entirely on achieving a market condition. The explicit service period and the service period derived from the Monte Carlo simulation were the same for the grant. Restricted stock and restricted stock units are fulfilled with new shares of common stock. The total intrinsic value of restricted stock for which the restrictions lapsed during the years ended December 31, 2016 and 2015 was $637,404 and $447,777, respectively. Options granted to non-employee consultants have exercise prices equal to the fair market value of the stock on the date of grant and a contractual term of ten years. Restricted stock awards granted to non-employee consultants have a contractual term equal to the lapse of restriction(s) of each specific award. Vesting periods for share-based awards granted to non-employee consultants range from immediate vesting to three years depending on service requirements. A summary of the total stock-based compensation expense related to share-based awards granted to non-employee consultants, which is included in the Company’s total share-based compensation expense for each respective period, is as follows:
On March 7, 2016, the Company issued an aggregate of 507,070 shares of the Company's common stock to Cumulus Logic, LLC, as a milestone payment pursuant to the terms of a Software License and Development Agreement between the Company and Cumulus Logic, LLC. The shares have an aggregate value of $765,000 based on the 30 day trading day average of the Company's common stock immediately prior to July 29, 2015, the date that the License and Development Agreement was executed. The Company recognized share-based compensation expense of $699,757 related to this transaction based on the fair value of the common stock on the date of issue of $1.38. This expense was included in "research and development costs" in the accompanying consolidated statements of operations. On April 1, 2016, the Company issued an aggregate of 591,582 shares of the Company's common stock to Cumulus Logic, LLC, as the final milestone payment pursuant to the terms of a Software License and Development Agreement between the Company and Cumulus Logic, LLC. The shares have an aggregate value of $892,500 based on the 30 day trading day average of the Company's common stock immediately prior to July 29, 2015, the date that the License and Development Agreement was executed. On April 1, 2016, the Company recognized share-based compensation expense of $786,804 related to this transaction based on the fair value of the common stock on the date of issue of $1.33. This expense was included in "research and development costs" in the accompanying consolidated statements of operations. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model. For awards with market conditions the Company utilizes the Monte Carlo simulation model to estimate the fair value. The Company believes that these valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair value of the Company’s share-based payments granted during the years ended December 31, 2016 and 2015. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards. The per share weighted average fair value of share-based payments granted during the years ended December 31, 2016 and 2015 was $0.95 and $1.32, respectively. In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of share-based payment grants in the respective periods are listed in the table below:
Options granted to officers, employees and directors during fiscal 2016 and 2015 have exercise prices equal to the fair market value of the stock on the date of grant, a contractual term of ten years, and a vesting period generally of three years. Based on each respective group’s historical vesting experience and expected trends, the estimated forfeiture rate for officers, employees, and directors, for fiscal years 2016 and 2015 was 30%, 30% and 0%, respectively. The Company estimates expected volatility based primarily on historical daily volatility of the Company’s stock and other factors, if applicable. The risk-free interest rate is based on the United States treasury yield curve in effect at the time of grant. The expected option term is the number of years that the Company estimates that options will be outstanding prior to exercise. The expected term of the awards was determined based upon an estimate of the expected term of “plain vanilla” options as prescribed in SEC Staff Accounting Bulletin (“SAB”) No. 110. As of December 31, 2016, there was approximately $1.4 million total unrecognized compensation cost related to the Company’s unvested stock options, restricted stock and restricted stock unit awards granted under the Company’s stock plans. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.39 years. As of December 31, 2016, the Company had 7,787,460 shares of common stock reserved for issuance upon the exercise or vesting of stock options, restricted stock and restricted stock units. |
Inventories |
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Inventories | Inventories The Company's inventories consist of finished systems. Inventories are stated at the lower of cost (first-in, first-out) or market, not in excess of net realizable value. Inventories are as follows:
As of December 31, 2016 and 2015, the Company had not recorded any reserve for excess and/or obsolete inventories in arriving at estimated net realizable value of its inventory. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies The Company has an operating lease covering its corporate office facility that expires in April 2021. The Company also has several additional operating leases related to offices in foreign countries. The expiration dates for these leases range from 2017 through 2018. The following is a schedule of future minimum lease payments for all operating leases as of December 31, 2016:
These leases require the Company to pay its proportionate share of real estate taxes and other common charges. Total rent expense for operating leases was $2.1 million and $2.4 million for the years ended December 31, 2016 and 2015, respectively. The Company typically provides its customers a warranty on its software products for a period of no more than 90 days. Such warranties are accounted for in accordance with the authoritative guidance issued by the FASB on contingencies. For the year ended December 31, 2016, the Company has not incurred any costs related to warranty obligations. Under the terms of substantially all of its software license agreements, the Company has agreed to indemnify its customers for all costs and damages arising from claims against such customers based on, among other things, allegations that the Company’s software infringes the intellectual property rights of a third party. In most cases, in the event of an infringement claim, the Company retains the right to (i) procure for the customer the right to continue using the software; (ii) replace or modify the software to eliminate the infringement while providing substantially equivalent functionality; or (iii) if neither (i) nor (ii) can be reasonably achieved, the Company may terminate the license agreement and refund to the customer a pro-rata portion of the license fee paid to the Company. Such indemnification provisions are accounted for in accordance with the authoritative guidance issued by the FASB on guarantees. From time to time, in the ordinary course of business, the Company receives claims for indemnification, typically from OEMs. The Company is not currently aware of any material claims for indemnification. Upon certain triggering events, such as bankruptcy, insolvency or a material adverse effect, failure to achieve minimum financial covenants or failure of the Company to issue shares upon conversion of the Series A redeemable convertible preferred stock in accordance with its obligations, the Series A redeemable convertible preferred stockholders may require the Company to redeem all or some of the Series A redeemable convertible preferred stock at a price equal to the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price as of the occurrence of the triggering event. On or after August 5, 2017, each Series A redeemable convertible preferred stockholder can require the Company to redeem its Series A redeemable convertible preferred stock in cash at a price equal to 100% of the stated value being redeemed plus accrued and unpaid dividends. As of December 31, 2016, the Company was not in compliance with the financial covenants of the Series A redeemable convertible preferred stock for two consecutive quarters, which provided the Series A redeemable convertible preferred stockholders the right to require the Company to redeem any of the Series A redeemable convertible preferred stock at the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price of the Company's common stock as of December 31, 2016. To date, the holders of the Series A redeemable convertible preferred stock have neither exercised nor waived this right and accordingly this right may be exercised at any time. As of December 31, 2016, the Company did not fail any non-financial covenants related to the Company's Series A redeemable convertible preferred stock. On July 24, 2015, the Company entered into an Independent Marketing Agreement with RFN Prime Marketing Inc., to provide among other items, certain sales and marketing deliverables to the Company and originally entitled RFN Prime Marketing Inc., to receive up to 2.55 million shares of restricted Company common stock which will be issued based on certain milestone achievements and/or transactions over a twenty-four month period. The restricted Company common stock will be valued as they are earned, and the resulting value will be recorded as an expense in the period in which the performance milestone is met and the stock is earned. As of December 31, 2016, none of the performance milestones have been met, and therefore no restricted Company common stock has been issued. On July 24, 2015, the Company renewed its Employment Agreement (“Quinn Employment Agreement”) with Gary Quinn. Pursuant to the Quinn Employment Agreement, the Company agreed to continue to employ Mr. Quinn as President and Chief Executive Officer of the Company effective July 24, 2015, at an annual salary of $475,000 per annum, which automatically renews every twelve (12) months unless either party gives notice to the other that it will not renew at least sixty (60) days prior to the end of the term. The Quinn employment Agreement automatically renewed on July 24, 2016 for an additional twelve (12) months. Among other items, the Quinn Employment Agreement also provided for the grant of 500,000 restricted shares which vest 50% and 50% based upon the achievement of two predetermined milestones of the Company’s Common Stock closing trading price for ninety (90) consecutive trading days. The 500,000 restricted shares were granted to Mr. Quinn by the Company’s Compensation Committee on July 28, 2015. As of December 31, 2016, neither of the milestones related to this award have been met. From time to time, the Company has undertaken restructuring and expense control measures to support its business performance and to align the Company’s cost structure with its resources. During the third quarter of 2013, the Company adopted a restructuring plan intended to better align the Company’s cost structure with the skills and resources required to more effectively execute the Company’s long-term growth strategy and to support revenue levels the Company expected to achieve on a go forward basis (the "2013 Plan"). In connection with the 2013 Plan, the Company eliminated over 100 positions worldwide, implemented tighter expense controls, ceased non-core activities and closed or downsized several facilities. As of December 31, 2016 the restructuring accrual totaled $0.8 million. The 2013 Plan was substantially completed by December 31, 2014; however, the Company expects the remaining accrued severance related costs to be paid once final settlement litigation is completed, which can be at various times over the next three to twenty-four months. In addition, as of December 31, 2016, our liability for uncertain tax positions totaled $328,739. At this time, the settlement period for the positions, including related accrued interest, cannot be determined. |
Derivative Financial Instruments |
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Dec. 31, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Financial Instruments | Derivative Financial Instruments The Company does not use derivative financial instruments for trading or speculative purposes. As of December 31, 2016 and 2015, the Company had no foreign currency forward contracts outstanding. The Company did not utilize foreign currency forward contracts during the years ended December 31, 2016 and 2015. As a result of the Company’s analysis of all the embedded conversion and put features within its Series A redeemable convertible preferred stock, the contingent redemption put options in the Series A redeemable convertible preferred stock were determined to not be clearly and closely related to the debt-type host and also did not meet any other scope exceptions for derivative accounting. Therefore the contingent redemption put options are being accounted for as derivative instruments and the fair value of these derivative instruments were bifurcated from the Series A redeemable convertible preferred stock and recorded as a liability. At the time of issuance of the Series A redeemable convertible preferred stock the fair value of these derivative instruments were recorded as a reduction to preferred stock. As of December 31, 2016 and 2015, the fair value of these derivative instruments was $336,862 and $82,024, respectively, and were included in "other long-term liabilities" within the consolidated balance sheets. The loss on the change in fair value of these derivative instruments for 2016 of $254,838 and the gain on the change in fair value of these derivative instruments for 2015 of $55,147, were included in “interest and other loss, net” within the consolidated statement of operations. |
Litigation |
12 Months Ended |
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Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Litigation | Litigation In view of the inherent difficulty of predicting the outcome of litigation, particularly where the claimants seek very large or indeterminate damages, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be. In accordance with the authoritative guidance issued by the FASB on contingencies, the Company accrues anticipated costs of settlement, damages and losses for claims to the extent specific losses are probable and estimable. The Company records a receivable for insurance recoveries when such amounts are probable and collectable. In such cases, there may be an exposure to loss in excess of any amounts accrued. If, at the time of evaluation, the loss contingency related to a litigation is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable and, the Company will expense these costs as incurred. If the estimate of a probable loss is a range and no amount within the range is more likely, the Company will accrue the minimum amount of the range. Other Claims The Company is subject to various legal proceedings and claims, asserted or unasserted, which arise in the ordinary course of business. While the outcome of any such matters cannot be predicted with certainty, such matters are not expected to have a material adverse effect on the Company’s financial condition or operating results. The Company continues to assess certain litigation and claims to determine the amounts, if any, that the Company believes may be paid as a result of such claims and litigation and, therefore, additional losses may be accrued and paid in the future, which could materially adversely impact the Company’s financial results, its cash flows and its cash reserves. |
Restructuring Costs |
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Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring Costs | Restructuring Costs From time to time, the Company has undertaken restructuring and expense control measures to support its business performance and to align the Company’s cost structure with its resources. In the third quarter of 2013, the Company adopted the 2013 Plan to better align the Company’s cost structure with the skills and resources required to more effectively execute the Company’s long-term growth strategy and to support revenue levels the Company expected to achieve on a go forward basis. In connection with the 2013 Plan, the Company eliminated over 100 positions worldwide, implemented tighter expense controls, ceased non-core activities and closed or downsized several facilities. The 2013 Plan was substantially completed by December 31, 2014; however, the Company expects the remaining accrued severance related costs to be paid once final settlement litigation is completed, which can be at various times over the next three to twenty-four months. The total amount incurred under the 2013 Plan for the years ended December 31, 2016 and 2015, was $177,389 and $172,995, respectively. Accrued restructuring costs as of December 31, 2016 associated with the 2013 Plan is as follows:
The severance related liabilities and facility and other liabilities are included within “accrued expenses” and "accounts payable" in the accompanying consolidated balance sheets. The expenses under the 2013 Plan are included within “restructuring costs” in the accompanying consolidated statements of operations. |
Employee Benefit Plans |
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Employee Benefit Plans | Employee Benefit Plans Defined Contribution Plan Effective July 2002, the Company established a voluntary savings and defined contribution plan (the “Plan”) under Section 401(k) of the Internal Revenue Code. This Plan covers all U.S. employees meeting certain eligibility requirements and allows participants to contribute a portion of their annual compensation. Employees are 100% vested in their own contributions. For the years ended December 31, 2016 and 2015, the Company did not make any contributions to the Plan. Effective July 1, 2007, the Company, in accordance with the labor pension system in Taiwan, contributes 6% of salaries to individual pension accounts managed by the Bureau of Labor Insurance. The plan covers all Taiwan employees that elect the new pension system and all employees hired after July 1, 2005. For the years ended December 31, 2016 and 2015, the Company contributed approximately $35,000 and $77,000, respectively. Defined Benefit Plan The Company has a defined benefit plan covering employees in Taiwan. The Company accounts for its defined benefit plan in accordance with the authoritative guidance issued by the FASB on retirement benefits, which requires the Company to recognize the funded status of its defined benefit plan in the accompanying consolidated balance sheet, with the corresponding adjustment to accumulated other comprehensive income, net of tax. At December 31, 2016 and 2015, $28,675 and $27,186, respectively, is included in accumulated other comprehensive (loss) income for amounts that have not yet been recognized in net periodic pension cost. These amounts include the following: unrecognized transition obligation of $10,620 and $15,615 at December 31, 2016 and 2015, respectively, and unrecognized actuarial gains of $39,295 and $42,800 at December 31, 2016 and 2015, respectively. During 2016, the total amount recorded in other comprehensive (loss) income related to the pension plan was $1,489 (net of tax), which consisted of an actuarial loss of ($3,830) and the recognition of $5,319 of transition obligations recognized during 2016 as a component of net periodic pension cost. The transition obligation and actuarial gain included in accumulated other comprehensive (loss) income and expected to be recognized in net periodic pension cost for the year ended December 31, 2017, is $5,319 and $1,188 respectively. Pension information for the years ended December 31, 2016 and 2015, is as follows:
The Company makes contributions to the plan so that minimum contribution requirements, as determined by government regulations, are met. Company contributions of approximately $7,000 are expected to be made during 2017. Benefit payments of approximately $221,000 are expected to be paid in 2017 through 2026. The Company utilized the following assumptions in computing the benefit obligation at December 31, 2016 and 2015 as follows:
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Segment Reporting and Concentrations |
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Segment Reporting and Concentrations | Segment Reporting and Concentrations The Company is organized in a single operating segment for purposes of making operating decisions and assessing performance. Revenues from the United States to customers in the following geographical areas for the years ended December 31, 2016 and 2015, and the location of long-lived assets as of December 31, 2016 and 2015, are summarized as follows:
For the year ended December 31, 2016, the Company had one customer, Hitachi Data Systems, that accounted for 11% of total revenue. For the year ended December 31, 2015, the Company had two customers, Violin Memory, Inc., and Hitachi Data Systems, that accounted for 23% and 10% of total revenue, respectively. As of December 31, 2016, the Company had three customers, Datang Telecom International Technology Co., Ltd, Hitachi Data Systems and Huawei Technologies Co., Ltd, that accounted for 15%, 14% and 12% of the gross accounts receivable balance, respectively. As of December 31, 2015, the Company had two customers, Hitachi Data Systems and Datang Telecom International Technology Co., Ltd, that accounted for 12% and 11% of the gross accounts receivable balance, respectively. |
Valuation and Qualifying Accounts Allowance for Returns and Doubtful Accounts |
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Valuation and Qualifying Accounts - Allowance for Returns and Doubtful Accounts | Valuation and Qualifying Accounts – Allowance for Returns and Doubtful Accounts
Note: Charges/benefits to the allowance for doubtful accounts are recorded within “general and administrative expenses” within the consolidated statements of operations. Charges/benefits to the return reserve for product and service are recorded within “product revenue” within the consolidated statements of operations. |
Related Party Transactions Related Party Transactions |
12 Months Ended |
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Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
Related Party Transactions Disclosure [Text Block] | Related Party Transactions William Miller, a member of the Company's Board of Directors, is the Chairman and Chief Executive Officer of X-IO Technologies, Inc. (“X-IO Technologies”), an enterprise storage company. For the year ended December 31, 2016, the Company sold product to X-IO Technologies totaling $141,535. Martin M. Hale, Jr., a member of the Company's Board of Directors, is a general partner of HCP-FVA, the holder of all of the Company’s Series A redeemable convertible preferred stock. The Series A redeemable convertible preferred stock was purchased by Hale Capital Partners, LP, of which Mr. Hale is a general partner, pursuant to a September 16, 2013 stock purchase agreement with the Company at a time when Mr. Hale was not a director of the Company. Hale Capital Partners, LP subsequently assigned all of its rights in the Series A redeemable convertible preferred stock to HCP-FVA. Under the terms of the Certificate of Designations, the holders of the Series A convertible preferred stock are entitled, as a group, to nominate and to elect up to two directors so long as at least 85% of the Company's Series A redeemable convertible preferred stock is outstanding. HCP-FVA, the sole holder of the Series a convertible preferred stock, nominated and elected Mr. Hale in September 2013 and Michael P. Kelly on October 29, 2014, to the Company’s Board of Directors. Seth Oxenhorn, the son of Eli Oxenhorn, the Former Chairman of our Board of Directors, was Vice President of Strategic Alliances for the Company through his resignation on October 1, 2016. This was a non-executive role and Seth Oxenhorn was not an executive officer of the Company. During 2016, Seth Oxenhorn received total compensation of $249,300, inclusive of salary, commissions, severance and equity awards. All of such compensation earned by Seth Oxenhorn was in accordance with the Company’s compensation plan for all personnel in similar positions. |
Summary of Significant Accounting Policies (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations [Text Block] | The Company and Nature of Operations FalconStor Software, Inc., a Delaware Corporation (the "Company"), is a leading software-defined storage company offering a converged data services software platform that is hardware agnostic. The Company develops, manufactures and sells data migration, business continuity, disaster recovery, optimized backup and de-duplication solutions and provides the related maintenance, implementation and engineering services. |
Substantial Doubt about Going Concern [Text Block] | Going Concern A fundamental principle of the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, the Company has prepared its consolidated financial statements on a going concern basis. The Company has incurred significant operating losses in the previous eight years and negative cash flow from operations in five of the previous eight years. The Company currently has a working capital deficiency of $10.5 million, which is inclusive of current deferred revenue of $15.2 million, and a stockholders' deficit of $21.7 million. During the year ended December 31, 2016, the Company incurred a net loss of $11.0 million and negative cash flow from operations of $9.4 million. The Company's total cash balance at December 31, 2016 was $3.4 million, a decrease of $10.0 million as compared to December 31, 2015. In addition to these financial metrics, as of December 31, 2016, the Company was not in compliance with the financial covenants of the Series A redeemable convertible preferred stock, which are mutually agreed to annually, for two consecutive quarters. This breach provides the Series A redeemable convertible preferred stockholders with the right to require the Company to redeem any of the Series A redeemable convertible preferred stock at the greater of 100% of the stated value plus accrued and unpaid dividends or the product of the number of shares of common stock underlying the Series A redeemable convertible preferred stock and the closing price of the Company's common stock as of December 31, 2016. To date, the holders of the Series A redeemable convertible preferred stock have neither exercised nor waived this right and accordingly this right may be exercised at any time. In addition, the holders of the Series A redeemable convertible preferred stock have the right to request a redemption of the Series A redeemable convertible preferred stock on or after August 5, 2017. If the holders request that the Series A redeemable convertible preferred stock be redeemed, the Company may not have sufficient liquidity to undertake the redemption. If the Company does not redeem the Series A redeemable convertible preferred stock, the holders of the Series A redeemable convertible preferred stock can pursue other remedies. Refer to Note (8) Series A Redeemable Convertible Preferred Stock for further discussion regarding these other remedies. The Company's reduced cash balance and history of losses both in and of itself, and in combination with the redemption rights of the holders of the Series A redeemable convertible preferred stock, raise substantial doubt about the Company's ability to continue as a going concern within one year after March 10, 2017 (the date that these financial statements were issued). The Company's ability to continue as a going concern, including in the event of a redemption request by the holder, depends on its ability to execute its business plan, increase revenue and billings and reduce expenditures. During 2016, the Company continued to focus on aligning its expense structure with revenue expectations which included tighter expense controls and overall operational efficiencies which better align the Company's current business plan on a run-rate basis. These efficiencies include among other items, stream-lined personnel related costs and global overhead costs and efficiencies realized on the Company's redesigned go-to-market coverage models. The Company has reduced its worldwide headcount to 166 employees as of December 31, 2016, compared with 226 employees as of December 31, 2015. However, the decline in revenue over the last twelve months combined with the separation costs related to the headcount reductions have reduced the impact of these reductions in operating expenses, thereby not achieving the expected reduction of quarterly cash burn rate. There is no assurance that the Company will be successful in generating sufficient revenue or continue to reduce operating costs. In addition, to the extent that the Company continues to incur losses, the Company may need to seek additional financing and there can be no assurance that the Company will be able to obtain financing or that such financing will be on favorable terms. Any such financing could be dilutive to our shareholders. Failure to generate sufficient revenue, billings, control or reduce expenditures and/or the inability to obtain financing will result in an inability of the Company to continue as a going concern. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. The Company’s significant estimates include those related to revenue recognition, accounts receivable allowances, share-based payment compensation, valuation of derivatives, capitalizable software development costs, valuation of goodwill and other intangible assets, income taxes and management's assessment of going concern. Actual results could differ from those estimates. The financial market volatility, both in the U.S. and in many other countries where the Company operates, has impacted and may continue to impact the Company’s business. Such conditions could have a material impact to the Company’s significant accounting estimates discussed above. |
Cash Equivalents and Marketable Securities | Cash Equivalents and Marketable Securities The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company records its cash equivalents and marketable securities at fair value in accordance with the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on fair value measurements and disclosures. As of December 31, 2016 and 2015, the Company’s cash equivalents consisted of money market funds and commercial paper. At December 31, 2016 and 2015, the fair value of the Company’s cash equivalents amounted to approximately $1.1 million and $2.7 million, respectively. As of December 31, 2016, the Company had no marketable securities. As of December 31, 2015, the Company’s marketable securities consisted of corporate bonds and government securities with a fair value of approximately and $7.4 million. All of the Company’s marketable securities are classified as available-for-sale, and accordingly, unrealized gains and losses on marketable securities, net of tax, are reflected as a component of accumulated other comprehensive loss in stockholders’ deficit. Any other-than-temporary impairments are recorded within interest and other loss, net in the consolidated statement of operations. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. As of December 31, 2016 and 2015, the fair value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated carrying value due to the short maturity of these instruments. |
Derivative Financial Instruments | Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible preferred stock are reviewed to determine whether or not they contain embedded derivative instruments that are required under FASB ASC 815 “Derivatives and Hedging” (“ASC 815”) to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivatives are required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. |
Revenue Recognition | Revenue Recognition The Company derives its revenue from sales of its products, support and services. Product revenue consists of the Company’s software integrated with industry standard hardware and sold as complete turn-key integrated solutions, as stand-alone software applications or sold on a subscription or consumption basis. Depending on the nature of the arrangement, revenue related to turn-key solutions and stand-alone software applications are generally recognized upon shipment and delivery of license keys. For certain arrangements revenue is recognized based on usage or ratably over the term of the arrangement. Support and services revenue consists of both maintenance revenues and professional services revenues. Revenue is recorded net of applicable sales taxes. In accordance with the authoritative guidance issued by the FASB on revenue recognition, the Company recognizes revenue when persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery has occurred, and collection of the resulting receivable is deemed probable. Products delivered to a customer on a trial basis are not recognized as revenue until the trial period has ended and acceptance has occurred by the customer. Reseller and distributor customers typically send the Company a purchase order when they have an end user identified. For bundled arrangements that include either maintenance or both maintenance and professional services, the Company uses the residual method to determine the amount of product revenue to be recognized. Under the residual method, consideration is allocated to the undelivered elements based upon vendor-specific objective evidence (“VSOE”) of the fair value of those elements, with the residual of the arrangement fee allocated to and recognized as product revenue. If VSOE does not exist for all undelivered elements of an arrangement, the Company recognizes total revenue from the arrangement ratably over the term of the maintenance agreement. The Company's long-term portion of deferred revenue consists of (i) payments received for maintenance contracts with terms in excess of one year as of the balance sheet date, and (ii) payments received for product sales bundled with multiple years of maintenance but for which VSOE did not exist for all undelivered elements of the arrangement. The Company provides an allowance for product returns as a reduction of revenue, based upon historical experience and known or expected trends. When more than one element, such as hardware, software and services are contained in a single arrangement, the Company will first allocate revenue based upon the relative selling price into two categories: (1) non-software components, such as hardware and any hardware-related items, as required system software that functions with the hardware to deliver the essential functionality of the hardware and related post-contract customer support, and software as service subscriptions and (2) software components and applications, such as post-contract customer support and other services. The Company will then allocate revenue within the non-software category to each element based upon their relative selling price using a hierarchy of VSOE, third-party evidence of selling price (“TPE”) or estimated selling prices (“ESP”), if VSOE or TPE does not exist. The Company will allocate revenue within the software category to the undelivered elements based upon their fair value using VSOE with the residual revenue allocated to the delivered elements. If the Company cannot objectively determine the VSOE of the fair value of any undelivered software element, the Company will defer revenue for all software components until all elements are delivered and services have been performed, until fair value can objectively be determined for any remaining undelivered elements, or until software maintenance is the only undelivered element which the Company does not have VSOE for, in which case revenue is recognized over the maintenance term for all software elements. Revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with software implementation and software engineering services are recognized when the services are performed and customer acceptance is received. Costs of providing these services are included in cost of support and services. The Company has entered into various distribution, licensing and joint promotion agreements with OEMs, whereby the Company has provided the OEM a non-exclusive software license to install the Company’s software on certain hardware or to resell the Company’s software in exchange for payments based on the products distributed by these OEMs. Such payments from the OEM or distributor are recognized as revenue in the period reported by the OEM. From time to time the Company will enter into funded software development arrangements. Under such arrangements, revenue recognition will not commence until final delivery and/or acceptance of the product. For arrangements where the Company has VSOE for the undelivered elements, the Company will follow the residual method and recognize product revenue upon final delivery and/or acceptance of the product. For arrangements where the Company does not have VSOE for the undelivered elements, the Company will recognize the entire arrangement fee ratably commencing at the time of final delivery and/or acceptance through the end of the service period in the arrangement. Certain arrangements, for which VSOE of fair value for the undelivered maintenance elements cannot be established, are accounted for as a single unit of account. The revenue recognized from single units of accounting are typically allocated and classified on the consolidated statements of operations as product revenue and support and services revenue. Since VSOE cannot be established, VSOE of similar maintenance offerings provides the basis for the support and services revenue classification, and the remaining residual consideration provides the basis for the product revenue classification. In 2013, the Company entered into a joint development agreement whereby final acceptance of the software delivered under the joint development agreement occurred on November 16, 2014. During 2014, the Company began to recognize the total committed fee as revenue ratably over a twenty-five and a half month period which began on November 16, 2014 and included a contractual twenty-four month maintenance period. During 2015, the customer elected to terminate its maintenance agreement and as such all unrecognized deferred revenue was accelerated and recognized as product revenue during the year. During the years ended December 31, 2016 and 2015, the Company recorded no product revenue and product revenue of approximately $11.3 million, respectively, related to this agreement. |
Property and Equipment | Property and Equipment Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets (3 to 7 years). Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases or over their estimated useful lives, whichever is shorter. |
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. The Company has not amortized goodwill related to its acquisitions, but instead tests the balance for impairment. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company’s annual impairment assessment is performed at December 31st of each year, and the Company has determined there to be no impairment for any of the periods presented. Based on the Company’s analysis, the fair value of its reporting unit substantially exceeds the carrying value of its goodwill balances as of December 31, 2016 and 2015. As part of the goodwill impairment test performed at December 31, 2016, the Company determined it was more likely than not that a goodwill impairment exists and the Company proceeded to step two of the goodwill impairment test. The Company engaged a third-party valuation firm to determine the fair value of all long-lived assets other than goodwill and determine the residual goodwill value of the reporting unit. This goodwill impairment test indicated that the fair value of goodwill value exceeded its carrying value by $15.8 million. The Company used multiple valuation techniques, the income and market approaches, and weighted the results to calculate the fair value of its goodwill as of December 31, 2016. Changes in the assumptions used in the goodwill valuation could materially impact the fair value estimates. Significant assumptions to the goodwill fair value estimate include; projected future financial statement results for the Company, discount rate and projected long-term growth rates. Identifiable intangible assets include (i) assets acquired through business combinations, which include customer contracts and intellectual property, and (ii) patents amortized over three years using the straight-line method. |
Software Development Costs and Purchased Software Technology | Software Development Costs and Purchased Software Technology In accordance with the authoritative guidance issued by the FASB on costs of software to be sold, leased, or marketed, costs associated with the development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility of the product has been established. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of software development costs is recorded at the greater of the straight-line basis over the product’s estimated life, or the ratio of current period revenue of the related products to total current and anticipated future revenue of these products. |
Income Taxes | Income Taxes The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In determining the period in which related tax benefits are realized for financial reporting purposes, excess share-based compensation deductions included in net operating losses are realized after regular net operating losses are exhausted. The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the FASB on income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return, should be recorded in the financial statements. Pursuant to the authoritative guidance, the Company may recognize the tax benefit from an uncertain tax position only if it meets the “more likely than not” threshold that the position will be sustained on examination by the taxing authority, based on the technical merits of the position or expiration of statutes. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. In addition, the authoritative guidance addresses de-recognition, classification, interest and penalties on income taxes, accounting in interim periods, and also requires increased disclosures. The Company includes interest and penalties related to its uncertain tax positions as part of income tax expense within its consolidated statement of operations. |
Long-Lived Assets | Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. |
Share-Based Payments | Share-Based Payments The Company accounts for share-based payments in accordance with the authoritative guidance issued by the FASB on share-based compensation, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period), net of estimated forfeitures. For share-based payment awards that contain performance criteria share-based compensation expense is recorded when the achievement of the performance condition is considered probable of achievement and is recorded straight-line over the requisite service period. If such performance criteria are not met, no compensation cost is recognized and any recognized compensation cost is reversed. The Company estimates the fair value of share-based payments using the Black-Scholes option-pricing model or the Monte Carlo simulation model if a market condition exists. Share-based compensation expense for a share-based payment award with a market condition is recorded straight-line over the longer of the explicit service period or the service period derived from the Monte Carlo simulation. The estimation of share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class and historical experience. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. All share-based awards are expected to be fulfilled with new shares of common stock. |
Foreign Currency | Foreign Currency Assets and liabilities of foreign operations are translated at rates of exchange at the end of the period, while results of operations are translated at average exchange rates in effect for the period. Gains and losses from the translation of foreign assets and liabilities from the functional currency of the Company’s subsidiaries into the U.S. dollar are classified as accumulated other comprehensive loss in stockholders’ deficit. Gains and losses from foreign currency transactions are included in the consolidated statements of operations within interest and other loss, net. |
Earnings Per Share (EPS) | Earnings Per Share (EPS) Basic EPS is computed based on the weighted average number of shares of common stock outstanding. Diluted EPS is computed based on the weighted average number of common shares outstanding increased by dilutive common stock equivalents, attributable to stock option awards, restricted stock awards and Series A redeemable convertible preferred stock outstanding. |
Investments | Investments As of December 31, 2016 and 2015, the Company did not have any cost-method investments. |
Treasury Stock | Treasury Stock The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ deficit. |
Recently Issued Accounting Pronouncements | Recently Adopted Accounting Pronouncements In November 2015, the FASB issued new guidance which requires an entity to classify deferred tax liabilities and assets, along with any related valuation allowance, as non-current in its consolidated balance sheet. The amendments in this update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, which for the Company will be the annual period ending December 31, 2017. Early adoption, including adoption in an interim period, is permitted. The Company adopted this guidance prospectively for the year ended December 31, 2016. In November 2014, the FASB issued new guidance which requires an entity to determine whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The effects of initially adopting the amendments in this update should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, which for the Company was the first quarter of 2016. The adoption of this new accounting guidance by Company has not had any impact on the Company's consolidated financial position, results of operations or cash flows. In August 2014, the FASB issued new guidance which requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable), and to provide related footnote disclosures in certain circumstances. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter, which for the Company is the annual period ending December 31, 2016. The Company's consolidated financial statements include appropriate disclosures in accordance with this guidance. (t) Recently Issued Accounting Pronouncements In January 2017, the FASB issued new guidance on accounting for goodwill to simplify the goodwill impairment test by eliminating Step 2 of the goodwill impairment test. This new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The new standard is effective for the annual period beginning after December 15, 2019, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2020. Early adoption, is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The standard should be applied on a prospective basis. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In August 2016, the FASB issued new guidance on presentation and classification of eight specific items within the statement of cash flows, including (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. This update is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, which for the Company will be the annual period ending December 31, 2018. Early adoption, including adoption in an interim period, is permitted. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In March 2016, the FASB issued new guidance on accounting for employee share-based payment awards to simplify the accounting related to several aspects of accounting for share-based payment transactions, including income tax consequences of share-based payment transactions, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. The new standard is effective for the annual period beginning after December 15, 2016, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2017. Early adoption, including adoption in an interim period, is permitted. The standard requires the use of several transition methods including a modified retrospective transition method, retrospective method and prospective method. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In February 2016, the FASB issued new guidance on leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This new guidance will replace existing guidance on leases in accounting principles generally accepted in the United States when it becomes effective. The new standard is effective for the annual period beginning after December 15, 2018, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2019. Early application is permitted. The standard requires the use of a modified retrospective transition method; however, certain optional practical expedients may be applied. The Company's preliminary analysis indicates that the Company will recognize a liability for remaining lease payments and a right-of-use asset related the Company's operating lease covering its corporate office facility that expires in April 2021. Currently the Company's additional operating leases related to offices in foreign countries are set to expire prior to adoption of the new guidance. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements. In January 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. The standard (i) requires an entity to measure equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring an entity to perform a qualitative assessment to identify impairment, (iii) changes certain presentation and disclosure requirements related to financial assets and financial liabilities, and (iv) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, which for the Company will be the annual period ending December 31, 2018. Early adoption, including adoption in an interim period, is not permitted except for certain amendments in this update. The Company has not yet adopted this guidance and currently does not expect the adoption of the new guidance by the Company to have a significant impact on the Company's financial statements and related disclosures. In May 2014, the FASB issued new guidance which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new guidance will replace most existing revenue recognition guidance in Generally Accepted Accounting Principles in the United States when it becomes effective. The new standard is effective for the annual period beginning after December 15, 2017, including interim reporting periods within that period, which for the Company will be the annual period ending December 31, 2018. Early application as of January 1, 2017 is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that this new guidance will have on its consolidated financial statements and related disclosures. The Company has formed an implementation team to evaluate the standard's effect on the Company's financial statements. The Company has historically deferred revenue for certain deliverables in its multiple-element arrangements due to a lack of VSOE for those deliverables. The Company's preliminary analysis indicates that the Company will recognize revenue for these arrangements earlier under the new standard than under existing guidance due to the elimination of the VSOE requirement. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements and continues to evaluate the available transition methods. |
Summary of Significant Accounting Policies (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Intangible Assets and Goodwill | The gross carrying amount and accumulated amortization of goodwill and other intangible assets as of December 31, 2016 and 2015 are as follows:
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Summary of Software Development Costs | The gross carrying amount and accumulated amortization of software development costs as of December 31, 2016 and 2015 are as follows:
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block] | The following represents the common stock equivalents that were excluded from the computation of diluted shares outstanding because their effect would have been anti-dilutive for the years ended December 31, 2016 and 2015:
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Computation of Earnings Per Share | The following represents a reconciliation of the numerators and denominators of the basic and diluted EPS computation:
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Property and Equipment (Tables) |
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Schedule of Property and Equipment | Property and equipment consist of the following:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assets Measured On Recurring Basis | The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2016:
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2015:
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Fair Value Measurements Using Significant Unobservable Inputs | The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of each of the years ended December 31, 2016 and 2015:
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Marketable Securities (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Available-for-sale Securities | As of December 31, 2016, the Company had no available-for-sale marketable securities. The cost and fair values of the Company’s available-for-sale marketable securities as of December 31, 2015, were as follows:
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Accrued Expenses (Tables) |
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Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Expenses | Accrued expenses are comprised of the following:
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Income Taxes (Tables) |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of loss before income taxes | Information pertaining to the Company’s loss before income taxes and the applicable provision for income taxes is as follows:
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Schedule of deferred tax assets and liabilities | Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
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Schedule of effective tax rate reconciliation | The effective tax rate before income taxes varies from the current statutory federal income tax rate as follows:
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Schedule of unrecognized tax benefits | A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
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Accumulated Other Comprehensive Loss (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Income (Loss) | The changes in Accumulated Other Comprehensive Loss, net of applicable tax, for December 31, 2016 are as follows:
The changes in Accumulated Other Comprehensive Loss, net of applicable tax, for December 31, 2015 are as follows:
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Share-Based Payment Arrangements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details of Stock Option Plan | The following table summarizes the plans under which the Company granted equity compensation as of December 31, 2016:
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Schedule of Equity Awards Outstanding | The following table summarizes the Company’s equity plans that have expired but that still have equity awards outstanding as of December 31, 2016:
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Schedule of Stock Option Activity | A summary of the Company’s stock option activity for 2016 is as follows:
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Schedule of Share Based Compensation Recognized | The Company recognized share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the consolidated statement of operations:
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Stock Based Compensation Expense - Restricted Stock | A summary of the total stock-based compensation expense related to restricted stock awards and restricted stock units, which is included in the Company’s total share-based compensation expense for each respective year, is as follows:
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Schedule of Restricted Stock Units Activity | A summary of the Company’s restricted stock activity for 2016 is as follows:
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Schedule of Share-based Compensation, Nonemployee | A summary of the total stock-based compensation expense related to share-based awards granted to non-employee consultants, which is included in the Company’s total share-based compensation expense for each respective period, is as follows:
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Schedule of assumptions used to value share-based compensation | In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of share-based payment grants in the respective periods are listed in the table below:
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Inventories (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory | Inventories are as follows:
|
Commitments and Contingencies (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Payments For Operating Leases | The following is a schedule of future minimum lease payments for all operating leases as of December 31, 2016:
|
Restructuring Costs (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restructuring Costs | Accrued restructuring costs as of December 31, 2016 associated with the 2013 Plan is as follows:
|
Employee Benefit Plans (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Funded Status | Pension information for the years ended December 31, 2016 and 2015, is as follows:
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Schedule of Pension Cost |
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Schedule of Assumptions Used in Computing Benefit Obligations | The Company utilized the following assumptions in computing the benefit obligation at December 31, 2016 and 2015 as follows:
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Segment Reporting and Concentrations (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue And Long Lived Assets By Geographical Areas | Revenues from the United States to customers in the following geographical areas for the years ended December 31, 2016 and 2015, and the location of long-lived assets as of December 31, 2016 and 2015, are summarized as follows:
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Valuation and Qualifying Accounts Allowance for Returns and Doubtful Accounts (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Valuation and Qualifying Accounts [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Valuation Accounts |
|
Summary of Significant Accounting Policies (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Goodwill | $ 4,150,339 | $ 4,150,339 |
Other intangible assets | ||
Gross carrying amount | 3,725,437 | 3,609,524 |
Accumulated amortization | (3,515,981) | (3,353,387) |
Net carrying amount | $ 209,456 | $ 256,137 |
Summary of Significant Accounting Policies (Details 1) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
Gross carrying amount | $ 2,917,215 | $ 3,037,215 |
Accumulated amortization | (2,369,657) | (1,920,399) |
Software development costs, net | $ 547,558 | $ 1,116,816 |
Summary of Significant Accounting Policies (Details 2) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive common stock equivalents | 14,409,806 | 16,753,857 |
Stock option and restricted stock award | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive common stock equivalents | 5,628,290 | 7,972,341 |
Series A redeemable convertible preferred stock | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive common stock equivalents | 8,781,516 | 8,781,516 |
Summary of Significant Accounting Policies (Details 3) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Numerator: | ||
Net loss | $ (10,998,794) | $ (1,929,361) |
Preferred Stock Dividends and Other Adjustments [Abstract] | ||
Less: Series A redeemable convertible preferred stock dividends | 777,890 | 765,203 |
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 1,181,446 | 587,613 |
Net loss attributable to common stockholders | $ (12,958,130) | $ (3,282,177) |
Denominator: | ||
Weighted average basic shares outstanding (in shares) | 43,091,878 | 41,093,644 |
Effect of dilutive securities: | ||
Stock options and restricted stock | 0 | 0 |
Series A redeemable convertible preferred stock | 0 | 0 |
Weighted average diluted shares outstanding (in shares) | 43,091,878 | 41,093,644 |
EPS: | ||
Basic net loss per share attributable to common stockholders (in dollars per share) | $ (0.30) | $ (0.08) |
Diluted net loss per share attributable to common stockholders (in dollars per share) | $ (0.30) | $ (0.08) |
Property and Equipment (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Computer hardware and software | $ 16,913,397 | $ 16,607,596 |
Furniture and equipment | 911,391 | 961,712 |
Leasehold improvements | 1,930,701 | 1,931,291 |
Automobile | 0 | 13,008 |
Gross | 19,755,489 | 19,513,607 |
Less accumulated depreciation | (18,580,547) | (17,947,675) |
Net | $ 1,174,942 | $ 1,565,932 |
Property and Equipment (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Property, Plant and Equipment [Line Items] | ||
Disposals of property and equipment | $ 113,000 | |
Accumulated depreciation on disposals of property and equipment | 110,000 | $ 161,000 |
Write off of fully depreciated assets and related accumulated depreciation | 214,000 | |
Depreciation expense | $ 713,854 | $ 1,308,723 |
Fair Value Measurements (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Beginning Balance | $ 82,024 | $ 137,171 |
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Issuances | 0 | 0 |
Total loss (gain) recognized in earnings | 254,838 | (55,147) |
Ending Balance | $ 336,862 | $ 82,024 |
Fair Value Measurements (Details Narrative) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Derivative Instruments | $ 336,862 | $ 82,024 |
Corporate debt and government securities | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Marketable securities, fair value | $ 0 | $ 7,400,000 |
Marketable Securities (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2016 |
|
Schedule of Available-for-sale Securities [Line Items] | ||
Aggregate Fair Value | $ 7,420,042 | $ 0 |
Cost or Amortized Cost | 7,423,448 | |
Net Unrealized Losses | (3,406) | |
Government securities | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Aggregate Fair Value | 6,560,303 | |
Cost or Amortized Cost | 6,562,792 | |
Net Unrealized Losses | (2,489) | |
Corporate debt securities | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Aggregate Fair Value | 859,739 | |
Cost or Amortized Cost | 860,656 | |
Net Unrealized Losses | $ (917) |
Accrued Expenses (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accrued compensation | $ 1,058,671 | $ 2,236,494 |
Accrued consulting and professional fees | 1,270,568 | 1,561,425 |
Accrued marketing and promotion | 10,307 | 69,258 |
Other accrued expenses | 259,567 | 588,746 |
Accrued income taxes | 129,784 | 106,270 |
Accrued other taxes | 699,872 | 1,247,596 |
Accrued hardware purchases | 0 | 67,280 |
Accrued restructuring costs | 846,337 | 717,640 |
Accrued Series A redeemable convertible preferred stock dividends | 195,904 | 188,805 |
Total accrued expenses | $ 4,471,010 | $ 6,783,514 |
Income Taxes (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Loss before income taxes: | ||
Domestic loss | $ (10,998,240) | $ (2,310,565) |
Foreign income | 586,653 | 756,747 |
Loss before income taxes | (10,411,587) | (1,553,818) |
Provision (benefit) for income taxes: | ||
Federal | (17,626) | 3,939 |
State and local | 1,886 | 16,002 |
Foreign | 723,502 | 482,242 |
Total | 707,762 | 502,183 |
Deferred: | ||
Federal | 154,641 | (167,634) |
State and local | 1,766 | 7,006 |
Foreign | (276,962) | 33,988 |
Total | (120,555) | (126,640) |
Total provision (benefit) for income taxes | $ 587,207 | $ 375,543 |
Income Taxes (Details 1) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred Tax Assets: | ||
Allowance for receivables | $ 100,414 | $ 72,539 |
Deferred revenue | 3,648,029 | 2,939,462 |
Share-based compensation | 2,254,428 | 3,095,723 |
Accrued expenses and other liabilities | 418,483 | 307,565 |
Domestic net operating loss carryforwards | 30,714,934 | 26,023,318 |
Foreign net operating loss carryforwards | 9,761 | 99,544 |
Tax credit carryforwards | 574,997 | 574,997 |
AMT tax credit carryforwards | 460,607 | 483,285 |
Capital loss carryforwards | 78,296 | 77,586 |
Fixed assets | 489,105 | 554,154 |
Intangibles | 1,435,994 | 1,762,519 |
Sub-total | 40,185,048 | 35,990,692 |
Valuation allowance | (38,800,877) | (35,121,608) |
Total Deferred Tax Assets | 1,384,171 | 869,084 |
Deferred Tax Liabilities: | ||
Deferred state income tax | (923,553) | (541,359) |
Foreign withholding taxes | (137,659) | (128,261) |
Total Deferred Tax Liabilities | (1,061,212) | (669,620) |
Net Deferred Tax Assets | $ 322,959 | $ 199,464 |
Income Taxes (Details 2) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Tax Disclosure [Abstract] | ||
Tax at Federal statutory rate | $ (3,644,056) | $ (543,836) |
Increase (reduction) in income taxes resulting from: | ||
State and local taxes | 2,172 | 3,195 |
Non-deductible expenses | (28,812) | (31,199) |
Net effect of foreign operations | 232,858 | 235,850 |
Uncertain tax positions | 12,440 | 26,814 |
Change in valuation allowance | 4,011,710 | 680,780 |
Other | 895 | 3,939 |
Total provision (benefit) for income taxes | $ 587,207 | $ 375,543 |
Income Taxes (Details 3) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward] | ||
Balance at January 1, | $ 217,289 | $ 224,637 |
Increases to tax positions taken in prior years | 4,510 | 9,306 |
Decreases to tax positions taken in prior years | 0 | 0 |
Increase for tax positions taken during the current year | 0 | 0 |
Expiration of statutes of limitation | (3,323) | 0 |
Translation | (1,015) | (16,654) |
Balance at December 31, | $ 217,461 | $ 217,289 |
Income Taxes (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Operating Loss Carryforwards [Line Items] | ||
Provision (benefit) for income taxes | $ 587,207 | $ 375,543 |
Income tax benefit | $ 122,004 | $ 180,021 |
Federal net operating loss carryforwards expire | expire beginning in 2030 through 2036, if not utilized. | |
Tax credit carryforwards | $ 3,600,000 | |
Undistributed earnings of foreign subsidiaries | 4,200,000 | |
Unrecognized tax benefits that would reduce effective tax rate | 328,739 | |
Accrued interest | 111,278 | |
Unrecognized tax benefits expected to reverse, net twelve months | 96,907 | |
Research tax credit carryforward | ||
Operating Loss Carryforwards [Line Items] | ||
Tax credit carryforwards | 3,100,000 | |
Alternative Minimum Tax Credit | ||
Operating Loss Carryforwards [Line Items] | ||
Tax credit carryforwards | 500,000 | |
Domestic tax authority | ||
Operating Loss Carryforwards [Line Items] | ||
Federal net operating loss carryforwards | $ 84,700,000 |
Stockholders' Equity (Details Narrative) - USD ($) |
12 Months Ended | ||||
---|---|---|---|---|---|
Jul. 24, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Apr. 22, 2015 |
Sep. 13, 2013 |
|
Share-based Goods and Nonemployee Services Transaction [Line Items] | |||||
Number of shares authorized for repurchase | 5,000,000 | ||||
Stock repurchased during period, shares | 0 | 92,161 | |||
Stock repurchased during period, value | $ 137,858 | ||||
Share price (in dollars per share) | $ 1.23 | ||||
Stock repurchased during period, average cost per share (in dollars per share) | $ 1.50 | ||||
Remaining number of shares authorized for repurchased | 4,907,839 | ||||
Restricted Common Stock | |||||
Share-based Goods and Nonemployee Services Transaction [Line Items] | |||||
Common Stock, Capital Shares Reserved for Future Issuance | 2,550,000 | ||||
Expected period for shares to be issued | 24 months | ||||
Share Agreement, Shares Issued | 0 |
Share-Based Payment Arrangements (Details) - shares |
12 Months Ended | ||||
---|---|---|---|---|---|
Dec. 31, 2016 |
Jul. 01, 2016 |
Jun. 30, 2016 |
Apr. 27, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Shares Outstanding | 3,491,490 | 4,855,941 | |||
FalconStor Software, Inc., 2016 Incentive Stock Plan | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Shares Authorized | 2,166,606 | 20,000,000 | 1,500,000 | ||
Shares Available for grant | 1,779,170 | 2,166,606 | 1,500,000 | ||
Shares Outstanding | 220,000 | ||||
Last date for grant of shares | Apr. 27, 2026 | ||||
FalconStor Software, Inc., 2016 Outside Directors Equity Compensation Plan | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||
Shares Authorized | 400,000 | 400,000 | |||
Shares Available for grant | 380,000 | ||||
Shares Outstanding | 20,000 | ||||
Last date for grant of shares | Apr. 27, 2019 |
Share-Based Payment Arrangements (Details 4) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation expense | $ 2,328,218 | $ 1,929,377 |
Restricted stock and restricted stock units | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation expense | 694,786 | 827,055 |
Restricted stock and restricted stock units | Directors, officers, and employees | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation expense | 598,549 | 827,055 |
Restricted stock and restricted stock units | Non-employee consultants | ||
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | ||
Share-based compensation expense | $ 96,237 | $ 0 |
Share-Based Payment Arrangements (Details 5) |
12 Months Ended |
---|---|
Dec. 31, 2016
shares
| |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
Number of Restricted Stock Awards/Units Non-Vested, Beginning | 3,116,400 |
Granted | 737,436 |
Vested | (565,511) |
Forfeited | (1,151,525) |
Number of Restricted Stock Awards/Units Non-Vested, Ending | 2,136,800 |
Share-Based Payment Arrangements (Details 6) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | $ 2,328,218 | $ 1,929,377 |
Non-employee consultants | Share-based awards | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | 90,322 | 73,539 |
Non-employee consultants | Non-qualified stock options | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | (5,915) | 73,539 |
Non-employee consultants | Restricted stock awards | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | $ 96,237 | $ 0 |
Share-Based Payment Arrangements (Details 7) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected dividend yield | 0.00% | 0.00% |
Expected volatility Minimum | 55.00% | 55.00% |
Expected volatility Maximum | 55.00% | 56.00% |
Risk-free interest rate Minimum | 1.29% | 1.35% |
Risk-free interest rate Maximum | 1.36% | 1.67% |
Expected term (years) | 5 years 6 months | |
Maximum | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected term (years) | 5 years 6 months |
Inventories (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Finished systems | $ 6,181 | $ 70,534 |
Total Inventory | $ 6,181 | $ 70,534 |
Inventories (Details Narrative) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Reserve for excess and/or obsolete inventories | $ 0 | $ 0 |
Commitments and Contingencies (Details) |
Dec. 31, 2016
USD ($)
|
---|---|
Operating Lease Payment | |
2016 | $ 1,655,155 |
2017 | 1,398,354 |
2018 | 1,402,181 |
2019 | 1,444,247 |
2020 | 491,020 |
Thereafter | 0 |
Total Future Minimum Lease Payments Due | $ 6,390,957 |
Derivative Financial Instruments (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Derivative Instruments, Gain (Loss) [Line Items] | ||
Foreign currency forward contracts outstanding | $ 0 | $ 0 |
Derivative Instruments | 336,862 | 82,024 |
Interest and other income (loss) | ||
Derivative Instruments, Gain (Loss) [Line Items] | ||
Embedded Derivative, Loss on Embedded Derivative | $ 254,838 | |
Gain on derivative | $ 55,147 |
Litigation (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Loss Contingencies [Line Items] | ||
Investigation, litigation and settlement related (benefit) expenses | $ 0 | $ 8,842 |
Restructuring Costs - Schedule of Restructuring Costs (Details) - USD ($) |
12 Months Ended | |||
---|---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Restructuring Reserve [Roll Forward] | ||||
Provisions/Additions | $ 177,389 | $ 172,995 | ||
Restructuring Costs Under the 2013 Plan | ||||
Restructuring Reserve [Roll Forward] | ||||
Beginning Balance | 732,662 | 1,028,915 | $ 1,306,493 | |
Provisions/Additions | 177,389 | 172,995 | 1,135,310 | $ 3,606,020 |
Utilized/Paid | (63,714) | (469,248) | (1,412,888) | (2,299,527) |
Ending Balance | 846,337 | 732,662 | 1,028,915 | 1,306,493 |
Severance related costs | Restructuring Costs Under the 2013 Plan | ||||
Restructuring Reserve [Roll Forward] | ||||
Beginning Balance | 717,640 | 823,426 | 1,111,577 | |
Provisions/Additions | 165,228 | 55,527 | 365,174 | 3,179,131 |
Utilized/Paid | (36,531) | (161,313) | (653,325) | (2,067,554) |
Ending Balance | 846,337 | 717,640 | 823,426 | 1,111,577 |
Facility and other costs | Restructuring Costs Under the 2013 Plan | ||||
Restructuring Reserve [Roll Forward] | ||||
Beginning Balance | 15,022 | 205,489 | 194,916 | |
Provisions/Additions | 12,161 | 117,468 | 770,136 | 426,889 |
Utilized/Paid | (27,183) | (307,935) | (759,563) | (231,973) |
Ending Balance | $ 0 | $ 15,022 | $ 205,489 | $ 194,916 |
Employee Benefit Plans (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Compensation and Retirement Disclosure [Abstract] | ||
Accumulated benefit obligation | $ 190,186 | $ 149,932 |
Defined Benefit Plan, Change in Benefit Obligation [Roll Forward] | ||
Projected benefit obligation at beginning of year | 194,098 | 193,144 |
Interest cost | 3,471 | 4,348 |
Actuarial loss | 1,702 | 2,549 |
Benefits paid | 0 | 0 |
Service cost | 0 | 1,240 |
Currency translation | 3,897 | (7,183) |
Projected benefit obligation at end of year | 203,168 | 194,098 |
Changes in plan assets: | ||
Fair value of plan assets at beginning of year | 126,334 | 120,018 |
Actual return on plan assets | 1,180 | 3,129 |
Benefits paid | 0 | 0 |
Employer contributions | 6,860 | 7,864 |
Currency translation | 2,528 | (4,677) |
Fair value of plan assets at end of year | 136,902 | 126,334 |
Funded status | $ 66,266 | $ 67,764 |
Employee Benefit Plans (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Components of net periodic pension cost: | ||
Interest cost | $ 3,471 | $ 4,348 |
Expected return on plan assets | (2,260) | (2,702) |
Amortization of net loss | 3,725 | 3,684 |
Service cost | 0 | 1,240 |
Net periodic pension cost | $ 4,936 | $ 6,570 |
Employee Benefit Plans (Details 2) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Compensation and Retirement Disclosure [Abstract] | ||
Discount rate | 1.50% | 1.75% |
Rate of increase in compensation levels | 1.00% | 2.00% |
Expected long-term rate of return on plan assets | 1.50% | 1.75% |
Segment Reporting and Concentrations (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Revenues: | ||
Total Revenues | $ 30,263,346 | $ 48,570,991 |
Long-lived assets: | ||
Total long-lived assets | 7,633,979 | 8,338,661 |
Americas | ||
Revenues: | ||
Total Revenues | 8,827,878 | 23,308,240 |
Long-lived assets: | ||
Total long-lived assets | 6,525,612 | 7,519,787 |
Asia Pacific | ||
Revenues: | ||
Total Revenues | 11,651,487 | 12,934,261 |
Long-lived assets: | ||
Total long-lived assets | 890,051 | 650,633 |
Europe, Middle East, Africa and Other | ||
Revenues: | ||
Total Revenues | 9,783,981 | 12,328,490 |
Long-lived assets: | ||
Total long-lived assets | $ 218,316 | $ 168,241 |
Valuation and Qualifying Accounts Allowance for Returns and Doubtful Accounts (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Allowance for Doubtful Accounts Receivable [Roll Forward] | ||
Balance at Beginning of Period | $ 191,285 | $ 119,530 |
Charges (Benefits) to Revenue | 104,228 | (6,745) |
(Increases) Deductions | 34,837 | (78,500) |
Balance at End of Period | $ 260,676 | $ 191,285 |
Related Party Transactions Related Party Transactions (Detail Narrative) |
12 Months Ended |
---|---|
Dec. 31, 2016
USD ($)
| |
Affiliated Entity | |
Related Party Transaction [Line Items] | |
Related Party Transaction, Other Revenues from Transactions with Related Party | $ 141,535 |
Board of Directors Chairman | |
Related Party Transaction [Line Items] | |
Related Party Transaction, Amounts of Transaction | $ 249,300 |
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