FALCONSTOR SOFTWARE, INC. | |
(Exact name of registrant as specified in its charter) | |
DELAWARE | 77-0216135 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
823 Congress Ave, Suite 1300, Austin, TX | 78701 |
(Address of principal executive offices) | (Zip Code) |
631-777-5188 | |
(Registrant’s telephone number, including area code) | |
(Former name, former address and former fiscal year, if changed since last report) | |
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Emerging growth company o | |
Page | ||
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,563,260 | $ | 1,011,472 | ||||
Accounts receivable, net of allowances of $292,490 and $354,542, respectively | 3,118,556 | 4,168,015 | ||||||
Prepaid expenses and other current assets | 1,415,950 | 1,244,494 | ||||||
Contract assets, net | 1,624,533 | — | ||||||
Total current assets | 10,722,299 | 6,423,981 | ||||||
Property and equipment, net of accumulated depreciation of $18,033,288 and $17,926,959, respectively | 557,799 | 636,112 | ||||||
Deferred tax assets, net | 618,078 | 590,977 | ||||||
Software development costs, net | 236,991 | 279,414 | ||||||
Other assets | 966,867 | 992,760 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 134,628 | 141,631 | ||||||
Contract assets, net | 1,786,369 | — | ||||||
Total assets | $ | 19,173,370 | $ | 13,215,214 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,271,429 | $ | 1,092,864 | ||||
Accrued expenses | 2,622,150 | 4,376,235 | ||||||
Short-term loan, net of debt issuance costs and discounts | — | 370,151 | ||||||
Deferred revenue, net | 7,391,371 | 11,760,327 | ||||||
Total current liabilities | 11,284,950 | 17,599,577 | ||||||
Other long-term liabilities | 1,140,671 | 1,154,512 | ||||||
Notes payable, net | 2,468,696 | — | ||||||
Warrant liability | 4,143,000 | — | ||||||
Deferred tax liabilities, net | 85,559 | 85,559 | ||||||
Deferred revenue, net | 5,748,448 | 6,600,363 | ||||||
Total liabilities | 24,871,324 | 25,440,011 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Series A redeemable convertible preferred stock, $.001 par value, 2,000,000 shares authorized, 900,000 shares issued and outstanding, redemption value of $10,312,112 and $9,000,000, respectively | 8,747,789 | 9,000,000 | ||||||
Stockholders' deficit: | ||||||||
Common stock - $.001 par value, 100,000,000 shares authorized, 60,094,960 and 60,091,560 shares issued, respectively and 44,566,890 and 44,563,490 shares outstanding, respectively | 60,090 | 60,090 | ||||||
Additional paid-in capital | 166,063,948 | 168,637,157 | ||||||
Accumulated deficit | (121,492,776 | ) | (130,930,284 | ) | ||||
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 | (2,044,088 | ) | (1,958,843 | ) | ||||
Total stockholders' deficit | (14,445,743 | ) | (21,224,797 | ) | ||||
Total liabilities and stockholders' deficit | $ | 19,173,370 | $ | 13,215,214 | ||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenue: | ||||||||
Product revenue | $ | 1,933,944 | $ | 1,921,052 | ||||
Support and services revenue | 3,060,005 | 4,118,063 | ||||||
Total revenue | 4,993,949 | 6,039,115 | ||||||
Cost of revenue: | ||||||||
Product | 26,150 | 198,715 | ||||||
Support and service | 728,888 | 1,253,916 | ||||||
Total cost of revenue | 755,038 | 1,452,631 | ||||||
Gross profit | 4,238,911 | 4,586,484 | ||||||
Operating expenses: | ||||||||
Research and development costs | 1,004,698 | 2,294,863 | ||||||
Selling and marketing | 1,193,550 | 2,050,542 | ||||||
General and administrative | 1,654,940 | 1,621,551 | ||||||
Restructuring costs (benefit) | (173,263 | ) | (236,302 | ) | ||||
Total operating expenses | 3,679,925 | 5,730,654 | ||||||
Operating income (loss) | 558,986 | (1,144,170 | ) | |||||
Interest and other income, net | 10,330 | 154,921 | ||||||
Income (Loss) before income taxes | 569,316 | (989,249 | ) | |||||
Provision for income taxes | 62,439 | 122,948 | ||||||
Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 | ||||||
Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | — | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | — | ||||||
Net loss attributable to common stockholders | $ | (2,043,437 | ) | $ | (1,316,772 | ) | ||
Basic net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
Diluted net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
Weighted average basic shares outstanding | 44,564,094 | 44,088,352 | ||||||
Weighted average diluted shares outstanding | 44,564,094 | 44,088,352 | ||||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
Other comprehensive income (loss), net of applicable taxes: | ||||||||
Foreign currency translation | (85,244 | ) | (185,529 | ) | ||||
Total other comprehensive income (loss), net of applicable taxes: | (85,244 | ) | (185,529 | ) | ||||
Total comprehensive income (loss) | $ | 421,633 | $ | (1,297,726 | ) | |||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 | ||||||
Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | — | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | — | ||||||
Total comprehensive loss attributable to common stockholders | $ | (2,128,681 | ) | $ | (1,502,301 | ) | ||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 179,755 | 316,241 | ||||||
Share-based payment compensation | (22,895 | ) | 397,152 | |||||
Non-cash professional services expenses | — | 48,262 | ||||||
Loss on disposal of fixed assets | — | 63,774 | ||||||
Provision (benefit) for returns and doubtful accounts | (62,052 | ) | 29,651 | |||||
Deferred income taxes (benefit) | — | 23,936 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,143,932 | 1,453,723 | ||||||
Prepaid expenses and other current assets | 280,266 | 12,379 | ||||||
Contract assets | (253,648 | ) | — | |||||
Other assets | 7,610 | (23,484 | ) | |||||
Accounts payable | 81,789 | 352,657 | ||||||
Accrued expenses and other long-term liabilities | (697,070 | ) | (1,139,133 | ) | ||||
Deferred revenue | 47,785 | (289,341 | ) | |||||
Net cash provided by operating activities | 1,212,349 | 133,620 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,809 | ) | (44,123 | ) | ||||
Capitalized software development costs | (16,185 | ) | — | |||||
Security deposits | 17,472 | (23,536 | ) | |||||
Purchase of intangible assets | (27,276 | ) | (40,310 | ) | ||||
Net cash used in investing activities | (27,798 | ) | (107,969 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments for tax withholding for share-based compensation | — | (9,308 | ) | |||||
Proceeds from issuance of long-term debt, net of issuance costs | 2,358,627 | — | ||||||
Net cash provided by (used in) financing activities | 2,358,627 | (9,308 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 8,610 | 23,892 | ||||||
Net increase in cash and cash equivalents | 3,551,788 | 40,235 | ||||||
Cash and cash equivalents, beginning of period | 1,011,472 | 3,391,528 | ||||||
Cash and cash equivalents, end of period | $ | 4,563,260 | $ | 3,431,763 | ||||
Supplemental disclosures: | ||||||||
Cash paid for interest | $ | 7,101 | $ | — | ||||
Cash paid for income taxes, net | $ | — | $ | 47,411 | ||||
Non-cash investing and financing activities: | ||||||||
Undistributed Series A redeemable convertible preferred stock dividends | $ | 243,167 | $ | 204,575 | ||||
Warrant liability | $ | 4,143,000 | $ | — | ||||
Deemed dividend | $ | 2,269,042 | $ | — | ||||
Discount on preferred stock | $ | 1,602,428 | $ | — | ||||
Discount on notes payable | $ | 288,504 | $ | — | ||||
Statements of Operations | Under Previous Guidance | New Revenue Standard Adjustment | Under Current Accounting Guidance | ||||||
Three Months Ended March 31, 2018 | |||||||||
Product revenue | $ | 1,667,484 | $ | 266,460 | $ | 1,933,944 | |||
Support and services revenue | 3,247,123 | (187,118 | ) | 3,060,005 | |||||
Selling and marketing | 1,158,721 | 34,829 | 1,193,550 | ||||||
Provision for income taxes | 62,439 | — | 62,439 | ||||||
Net income | 392,706 | 114,171 | 506,877 | ||||||
Net income attributable to common stockholders | (2,157,608 | ) | 114,171 | (2,043,437 | ) | ||||
Basic net income per share attributable to common stockholders | (0.05 | ) | — | (0.05 | ) | ||||
Diluted net income per share attributable to common stockholders | (0.05 | ) | — | (0.05 | ) | ||||
Balance Sheets | Under Previous Guidance | New Revenue Standard Adjustment | Under Current Accounting Guidance | ||||||
March 31, 2018 | |||||||||
Prepaid expenses and other current assets | 1,036,979 | 378,971 | 1,415,950 | ||||||
Contract assets, net, current | $ | — | $ | 1,624,533 | $ | 1,624,533 | |||
Contract assets, net, long-term | $ | — | $ | 1,786,369 | $ | 1,786,369 | |||
Deferred revenue, net, current | 12,407,725 | (5,016,354 | ) | 7,391,371 | |||||
Deferred tax liabilities, net | 85,559 | — | 85,559 | ||||||
Deferred revenue, net, long-term | 6,106,637 | (358,189 | ) | 5,748,448 | |||||
Accumulated deficit | (130,657,192 | ) | 9,164,416 | (121,492,776 | ) | ||||
Three Months Ended March 31, 2018 | |||
Balance at December 31, 2017 | $ | 18,360,690 | |
Cumulative effect of applying ASC 606 under the modified retrospective method* | (5,359,579 | ) | |
Deferral of revenue | 3,947,409 | ||
Recognition of revenue | (3,800,547 | ) | |
Change in reserves | (8,154 | ) | |
Balance at March 31, 2018 | $ | 13,139,819 | |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Stock options, warrants and restricted stock | 424,492,410 | 6,653,115 | ||||
Series A redeemable convertible preferred stock | 8,781,516 | 8,781,516 | ||||
Total anti-dilutive common stock equivalents | 433,273,926 | 15,434,631 | ||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Numerator | ||||||||
Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
Effects of Series A redeemable convertible preferred stock: | ||||||||
Less: Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 | ||||||
Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | — | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | — | ||||||
Net loss attributable to common stockholders | $ | (2,043,437 | ) | $ | (1,316,772 | ) | ||
Denominator | ||||||||
Weighted average basic shares outstanding | 44,564,094 | 44,088,352 | ||||||
Effect of dilutive securities: | ||||||||
Stock options, warrants and restricted stock | — | — | ||||||
Series A redeemable convertible preferred stock | — | — | ||||||
Weighted average diluted shares outstanding | 44,564,094 | 44,088,352 | ||||||
EPS | ||||||||
Basic net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
Diluted net loss per share attributable to common stockholders | $ | (0.05 | ) | $ | (0.03 | ) | ||
March 31, 2018 | December 31, 2017 | |||||||
Property and Equipment: | ||||||||
Gross carrying amount | $ | 18,591,087 | $ | 18,563,071 | ||||
Accumulated depreciation | (18,033,288 | ) | (17,926,959 | ) | ||||
Property and Equipment, net | $ | 557,799 | $ | 636,112 | ||||
March 31, 2018 | December 31, 2017 | |||||||
Software development costs: | ||||||||
Gross carrying amount | $ | 2,933,398 | $ | 2,917,215 | ||||
Accumulated amortization | (2,696,407 | ) | (2,637,801 | ) | ||||
Software development costs, net | $ | 236,991 | $ | 279,414 | ||||
March 31, 2018 | December 31, 2017 | |||||||
Goodwill | $ | 4,150,339 | $ | 4,150,339 | ||||
Other intangible assets: | ||||||||
Gross carrying amount | $ | 3,843,678 | $ | 3,816,402 | ||||
Accumulated amortization | (3,709,050 | ) | (3,674,771 | ) | ||||
Net carrying amount | $ | 134,628 | $ | 141,631 | ||||
Shares | Shares Available | Shares | Last Date for Grant | |||||
Name of Plan | Authorized | for Grant | Outstanding | of Shares | ||||
FalconStor Software, Inc., 2016 Incentive Stock Plan | 4,247,686 | 3,191,300 | 535,000 | April 27, 2026 | ||||
FalconStor Software, Inc., 2016 Outside Directors Equity Compensation Plan | 1,000,000 | 993,400 | — | April 27, 2019 | ||||
Name of Plan | Shares Available for Grant | Shares Outstanding | ||
FalconStor Software, Inc., 2006 Incentive Stock Plan | — | 1,446,000 | ||
FalconStor Software, Inc., 2013 Outside Directors Equity Compensation Plan | — | 3,400 | ||
FalconStor Software, Inc., 2000 Stock Option Plan | — | 81,500 | ||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Cost of revenue - Product | $ | — | $ | — | ||||
Cost of revenue - Support and Service | 8,700 | 56,451 | ||||||
Research and development costs | 22,606 | 129,715 | ||||||
Selling and marketing | 7,932 | 56,540 | ||||||
General and administrative | (62,133 | ) | 202,708 | |||||
$ | (22,895 | ) | $ | 445,414 | ||||
i. | $0.10 in senior secured debt (for a total of $4 million of senior secured debt assuming full subscription of the Financing), secured by all of the assets of the Company and guaranteed by each of the Company’s domestic subsidiaries, having an interest rate of prime plus 0.75% and a maturity date of June 30, 2021 (the “Term Loan”); |
ii. | warrants to purchase 12.223 shares of the Company’s common stock for a nominal exercise price (for a total of 489.32 million shares assuming full subscription of the Financing) (the “Financing Warrants”); and |
iii. | 0.0225 shares of Series A Preferred Stock at a per Unit price of $0.2643 (subject to increase to take into account accretion of the Series A Preferred Stock after June 30, 2018), all such shares to be acquired directly from their current holder, HCP-FVA. |
At Inception | February 23, 2018 | |||||
Basis | Fair Value | |||||
Series A redeemable convertible preferred stock, net | $ | 10,312,113 | $ | 8,709,684 | ||
Notes payable, net | 2,728,778 | 2,457,249 | ||||
Warrant liability | — | 4,143,000 | ||||
Total | $ | 13,040,891 | $ | 15,309,933 | ||
Deemed dividend | $ | 2,269,042 | ||
Series A redeemable convertible preferred stock principal balance | 9,000,000 | |
Accrued dividends | 1,312,112 | |
Discount | (1,602,428 | ) |
Total Series A redeemable convertible preferred stock, net at inception on February 23, 2018 | 8,709,684 | |
Accretion of preferred stock | 38,105 | |
Total Series A redeemable convertible preferred stock, net at March 31, 2018 | 8,747,789 | |
Notes payable principal balance | 3,000,000 | |
Deferred issuance costs | (254,247 | ) |
Discount | (288,504 | ) |
Total notes payable, net at inception on February 23, 2018 | 2,457,249 | |
Accretion of discount | 11,447 | |
Total notes payable, net at March 31, 2018 | 2,468,696 | |
• | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities. At March 31, 2018 the Company did not have any Level 1 category assets included in the condensed consolidated balance sheets. At December 31, 2017, the Level 1 category included money market funds, which are included within cash and cash equivalents in the condensed 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. At March 31, 2018 and December 31, 2017, the Company did not have any Level 2 category assets included in the condensed consolidated balance sheets. |
• | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. At March 31, 2018 and December 31, 2017, the Level 3 category included derivatives, which are included within other long-term liabilities in the condensed consolidated balance sheets. The Company did not hold any cash, cash equivalents categorized as Level 3 as of March 31, 2018 or December 31, 2017. |
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 | $ | — | $ | — | $ | — | $ | — | ||||||||
Total cash equivalents | — | — | — | — | ||||||||||||
Derivative liabilities: | ||||||||||||||||
Derivative Instruments | 445,838 | — | — | 445,838 | ||||||||||||
Total derivative liabilities | 445,838 | — | — | 445,838 | ||||||||||||
Total assets and liabilities measured at fair value | $ | 445,838 | $ | — | $ | — | $ | 445,838 | ||||||||
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) | |||||||||||||
Derivative liabilities: | ||||||||||||||||
Derivative Instruments | 445,838 | — | — | 445,838 | ||||||||||||
Total derivative liabilities | 445,838 | — | — | 445,838 | ||||||||||||
Total assets and liabilities measured at fair value | $ | 445,838 | $ | — | $ | — | $ | 445,838 | ||||||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Beginning Balance | $ | 445,838 | $ | 336,862 | ||||
Total loss recognized in earnings | — | 18,750 | ||||||
Ending Balance | $ | 445,838 | $ | 355,612 | ||||
2018 | 1,522,635 | ||
2019 | 1,614,843 | ||
2020 | 1,444,247 | ||
2021 | 491,020 | ||
Thereafter | — | ||
$ | 5,072,745 | ||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Beginning Balance | $ | 445,838 | $ | 336,862 | ||||
Total loss recognized in earnings | — | 18,750 | ||||||
Ending Balance | $ | 445,838 | $ | 355,612 | ||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Net income (loss) | $ | 506,877 | $ | (1,112,197 | ) | |||
Effects of Series A redeemable convertible preferred stock: | ||||||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 | ||||||
Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | — | ||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | — | ||||||
Net loss attributable to common stockholders | $ | (2,043,437 | ) | $ | (1,316,772 | ) | ||
Foreign Currency Translation | Net Unrealized Gains (Losses) on Marketable Securities | Net Minimum Pension Liability | Total | |||||||||||||
Accumulated other comprehensive income (loss) at December 31, 2017 | $ | (1,980,940 | ) | $ | — | $ | 22,097 | $ | (1,958,843 | ) | ||||||
Other comprehensive income (loss) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications | (85,245 | ) | — | — | (85,245 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | — | — | ||||||||||||
Total other comprehensive income (loss) | (85,245 | ) | — | — | (85,245 | ) | ||||||||||
Accumulated other comprehensive income (loss) at March 31, 2018 | $ | (2,066,185 | ) | $ | — | $ | 22,097 | $ | (2,044,088 | ) | ||||||
Foreign Currency Translation | Net Unrealized Gains (Losses) on Marketable Securities | Net Minimum Pension Liability | Total | |||||||||||||
Accumulated other comprehensive income (loss) at December 31, 2016 | $ | (1,866,388 | ) | $ | — | $ | 28,675 | $ | (1,837,713 | ) | ||||||
Other comprehensive income (loss) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications | (185,529 | ) | — | — | (185,529 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | — | — | ||||||||||||
Total other comprehensive income (loss) | (185,529 | ) | — | — | (185,529 | ) | ||||||||||
Accumulated other comprehensive income (loss) at March 31, 2017 | $ | (2,051,917 | ) | $ | — | $ | 28,675 | $ | (2,023,242 | ) | ||||||
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Revenue: | ||||||||
Americas | $ | 1,131,649 | $ | 1,601,247 | ||||
Asia Pacific | 1,948,424 | 2,251,077 | ||||||
Europe, Middle East, Africa and Other | 1,913,876 | 2,186,791 | ||||||
Total Revenue | $ | 4,993,949 | $ | 6,039,115 | ||||
March 31, 2018 | December 31, 2017 | |||||||
Long-lived assets: | ||||||||
Americas | $ | 7,555,287 | $ | 5,754,977 | ||||
Asia Pacific | 807,017 | 822,885 | ||||||
Europe, Middle East, Africa and Other | 88,767 | 213,371 | ||||||
Total long-lived assets | $ | 8,451,071 | $ | 6,791,233 | ||||
Severance related costs | ||||
Balance at December 31, 2017 | $ | 648,399 | ||
Additions (Reductions) | (173,263 | ) | ||
Utilized/Paid | (13,774 | ) | ||
Balance at March 31, 2018 | $ | 461,362 | ||
Three Months Ended March 31, | Change Period to Period | |||||||||||||||||||
2018 | 2017 | |||||||||||||||||||
Revenue: | ||||||||||||||||||||
Product revenue | $ | 1,933,944 | 39 | % | $ | 1,921,052 | 32 | % | $ | 12,892 | 1 | % | ||||||||
Support and services revenue | 3,060,005 | 61 | % | 4,118,063 | 68 | % | (1,058,058 | ) | (26 | )% | ||||||||||
Total revenue | 4,993,949 | 100 | % | 6,039,115 | 100 | % | (1,045,166 | ) | (17 | )% | ||||||||||
Cost of revenue: | ||||||||||||||||||||
Product | 26,150 | 1 | % | 198,715 | 3 | % | (172,565 | ) | (87 | )% | ||||||||||
Support and service | 728,888 | 15 | % | 1,253,916 | 21 | % | (525,028 | ) | (42 | )% | ||||||||||
Total cost of revenue | 755,038 | 15 | % | 1,452,631 | 24 | % | (697,593 | ) | (48 | )% | ||||||||||
Gross profit | 4,238,911 | 85 | % | 4,586,484 | 76 | % | (347,573 | ) | (8 | )% | ||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development costs | 1,004,698 | 20 | % | 2,294,863 | 38 | % | (1,290,165 | ) | (56 | )% | ||||||||||
Selling and marketing | 1,193,550 | 24 | % | 2,050,542 | 34 | % | (856,992 | ) | (42 | )% | ||||||||||
General and administrative | 1,654,940 | 33 | % | 1,621,551 | 27 | % | 33,389 | 2 | % | |||||||||||
Restructuring costs (benefit) | (173,263 | ) | (3 | )% | (236,302 | ) | (4 | )% | 63,039 | (27 | )% | |||||||||
Total operating expenses | 3,679,925 | 74 | % | 5,730,654 | 95 | % | (2,050,729 | ) | (36 | )% | ||||||||||
Operating income (loss) | 558,986 | 11 | % | (1,144,170 | ) | (19 | )% | 1,703,156 | * | |||||||||||
Interest and other income, net | 10,330 | — | % | 154,921 | 3 | % | (144,591 | ) | (93 | )% | ||||||||||
Income (Loss) before income taxes | 569,316 | 11 | % | (989,249 | ) | (16 | )% | 1,558,565 | * | |||||||||||
Provision for income taxes | 62,439 | 1 | % | 122,948 | 2 | % | (60,509 | ) | (49 | )% | ||||||||||
Net income (loss) | $ | 506,877 | 10 | % | $ | (1,112,197 | ) | (18 | )% | $ | 1,619,074 | * | ||||||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 5 | % | 204,575 | 3 | % | 38,592 | 19 | % | |||||||||||
Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | 45 | % | — | — | % | 2,269,042 | — | % | |||||||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | 1 | % | — | — | % | 38,105 | — | % | |||||||||||
Net loss attributable to common stockholders | $ | (2,043,437 | ) | (41 | )% | $ | (1,316,772 | ) | (22 | )% | $ | (726,665 | ) | 55 | % | |||||
i. | $0.10 in senior secured debt (for a total of $4 million of senior secured debt assuming full subscription of the Financing), secured by all of the assets of the Company and guaranteed by each of the Company’s domestic subsidiaries, having an interest rate of prime plus 0.75% and a maturity date of June 30, 2021 (the “Term Loan”); |
ii. | warrants to purchase 12.223 shares of the Company’s common stock for a nominal exercise price (for a total of 489.32 million shares assuming full subscription of the Financing) (the “Financing Warrants”); and |
iii. | 0.0225 shares of Series A Preferred Stock at a per Unit price of $0.2643 (subject to increase to take into account accretion of the Series A Preferred Stock after June 30, 2018), all such shares to be acquired directly from their current holder, HCP-FVA. |
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Cash (used in) provided by: | ||||||||
Operating activities | 1,212,349 | 133,620 | ||||||
Investing activities | (27,798 | ) | (107,969 | ) | ||||
Financing activities | 2,358,627 | (9,308 | ) | |||||
Effect of exchange rate changes | 8,610 | 23,892 | ||||||
Net increase in cash and cash equivalents | $ | 3,551,788 | $ | 40,235 | ||||
Operating Leases | Note Payable (c) | Interest Payments (a) (c) | Long-Term Income Tax Payable | Dividends on Series A Preferred Stock | |||||||||||
2018 | $ | 1,522,635 | $ | — | $ | — | $ | — | $ | — | |||||
2019 | 1,614,843 | — | — | — | — | ||||||||||
2020 | 1,444,247 | — | — | — | — | ||||||||||
2021 | 491,020 | 3,000,000 | 511,875 | — | 1,312,113 | ||||||||||
Other (b) | — | — | — | 266,244 | — | ||||||||||
$ | 5,072,745 | $ | 3,000,000 | $ | 511,875 | $ | 266,244 | $ | 1,312,113 | ||||||
10.1 | |
10.2 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.1 | The following financial statements from FalconStor Software, Inc’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): |
(i) | unaudited Condensed Consolidated Balance Sheets – March 31, 2018 and December 31, 2017. | |
(ii) | unaudited Condensed Consolidated Statement of Operations – Three Months Ended March 31, 2018 and 2017. | |
(iii) | unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) – Three Months Ended March 31, 2018 and 2017. | |
(iv) | unaudited Condensed Consolidated Statement of Cash Flows – Three Months Ended March 31, 2018 and 2017. | |
(v) | Notes to unaudited Condensed Consolidated Financial Statements – March 31, 2018. | |
FALCONSTOR SOFTWARE, INC. | |
(Registrant) | |
/s/ Brad Wolfe | |
Brad Wolfe | |
Executive Vice President, Chief Financial Officer and Treasurer | |
(principal financial and accounting officer) | |
/s/ Todd Brooks | |
Todd Brooks | |
President & Chief Executive Officer | |
May 17, 2018 | (principal executive officer) |
1 | I have reviewed this quarterly report on Form 10-Q 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: May 17, 2018 | /s/ Todd Brooks |
Todd Brooks | |
President and Chief Executive Officer | |
(principal executive officer) | |
1 | I have reviewed this quarterly report on Form 10-Q 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: May 17, 2018 | /s/ Brad Wolfe |
Brad Wolfe | |
Executive Vice President, Chief Financial Officer and Treasurer | |
(principal financial and accounting officer) | |
(i) | the Form 10-Q fully complies, in all material respects, with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and |
(ii) | the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Todd Brooks | |
Todd Brooks | |
President and Chief Executive Officer | |
(principal executive officer) | |
Date: May 17, 2018 | |
/s/ Brad Wolfe | |
Brad Wolfe | |
Executive Vice President, Chief Financial Officer and Treasurer | |
(principal financial and accounting officer) | |
Date: May 17, 2018 | |
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Apr. 30, 2018 |
|
| Document And Entity Information | ||
| Entity Registrant Name | FALCONSTOR SOFTWARE INC | |
| Entity Central Index Key | 0000922521 | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2018 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Well-known Seasoned Issuer | No | |
| Entity Current Reporting Status | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 97,937,491 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2018 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Net income (loss) | $ 506,877 | $ (1,112,197) |
| Other comprehensive income (loss), net of applicable taxes: | ||
| Foreign currency translation | (85,244) | (185,529) |
| Total other comprehensive income (loss), net of applicable taxes: | (85,244) | (185,529) |
| Total comprehensive income (loss) | 421,633 | (1,297,726) |
| Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 |
| Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | 0 |
| Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | 0 |
| Total comprehensive loss attributable to common stockholders | $ (2,128,681) | $ (1,502,301) |
Basis of Presentation |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | (a) The Company and Nature of Operations FalconStor Software, Inc., a Delaware Corporation (the "Company"), is a leading storage software 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) Liquidity As of March 31, 2018, we had a working capital deficiency of $0.6 million, which is inclusive of current deferred revenue of $7.4 million, and a stockholders' deficit of $14.4 million. During the three months ended March 31, 2018, we had net income of $0.5 million and positive cash flow from operations of $1.2 million. Our cash and cash equivalents at March 31, 2018 was $4.6 million, an increase of $3.6 million as compared to December 31, 2017. In June 2017, the Board approved a comprehensive plan to increase operating performance (the “2017 Plan”). The 2017 Plan resulted in a realignment in workforce. The 2017 Plan was substantially completed by the end of the Company’s fiscal year ended December 31, 2017, and when combined with previous workforce reductions in the second quarter of Fiscal 2017 reduced the Company’s workforce to approximately 81 employees at December 31, 2017. On November 17, 2017, HCP-FVA, LLC (the “Lender” or "HCP-FVA") provided a commitment letter to the Company agreeing to finance up to $3 million to the Company (the “Commitment”) on the terms, and subject to the conditions, set forth in that certain commitment letter. As part of that Commitment, on November 17, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Lender and certain other loan parties named therein, pursuant to which the Lender made a short term loan to the Company in the principal amount of $500,000 (the “Short Term Loan”). On February 23, 2018, the Company closed on the Commitment and the Lender subscribed for the full $3 million of Units in the Commitment by payment of $2.5 million in cash and the conversion of the $500,000 Short Term Loan. The $3 million term loan has an interest rate of prime plus 0.75% and a maturity date of June 30, 2021. The Lender is an affiliate of Hale Capital Partners, LP (together, "Hale Capital") and the Company's largest shareholder through its ownership of Series A redeemable preferred stock ("Series A Preferred Stock"), and an affiliate of Martin Hale, a Director of the Company. As part of the Commitment, Hale Capital also agreed to postpone the date of the optional redemption of the Series A Preferred Stock from August 5, 2017 to July 30, 2021, and to waive prior breaches of the terms of the Series A Preferred Stock which had triggered a redemption right. See Note (9) Notes Payable and Stock Warrants for further information. We believe that our cash flows from operations and existing cash on hand are sufficient to conduct our planned operations and meet our contractual requirements. (c) 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. (d) Use of Estimates The preparation of financial statements in conformity with GAAP 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 and income taxes. During the first quarter of 2018, the Company also had significant estimates in the determination of the fair value of Series A Preferred Stock, notes payable and warrants issued. Actual results could differ from those estimates. The financial market volatility in many countries where the Company operates has impacted and may continue to impact the Company’s business. Such conditions could have a material impact on the Company’s significant accounting estimates discussed above. (e) Unaudited Interim Financial Information The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 31, 2018, and the results of its operations for the three months ended March 31, 2018 and 2017. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K"). (f) Recently Adopted Accounting Pronouncements Revenue from Contracts with Customers 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 replaces most existing revenue recognition guidance in GAAP in the United States and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted the new guidance as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous revenue guidance. The most significant impact of the standard relates to our accounting for our term license revenue. Specifically, for Freestor software subscription licenses, revenue is now recognized at the time of delivery rather than ratably over the subscription period. The adoption of the standard resulted in an increase to the opening balance of accumulated deficit of $8.9 million, related to the cumulative effect of a decrease in deferred revenue of $5.4 million, an increase in contract assets of $3.1 million from the upfront recognition of term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price, and an increase of $0.4 million in prepaid expenses and other current assets. Following is a summary of the impact to the Company’s current financial results from adopting the new revenue recognition standard:
Adoption of the revenue recognition standard had no impact to cash from or used in operating, financing, or investing on our condensed consolidated statements of cash flows. See Note (2) Summary of Significant Accounting Policies for further details. Statements of Cash Flows 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. The Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. Employee Benefit Plans In March 2017, the FASB issued new guidance on retirement benefits, which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The income statement guidance requires application on a retrospective basis. This update is effective for public entities for annual periods beginning after December 15, 2017, including interim periods, with early adoption permitted, which for the Company will be the annual period ending December 31, 2018. The Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. Financial Assets and Financial Liabilities 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 Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. (g) Recently Issued Accounting Pronouncements 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 to 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. |
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Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | The Company's significant accounting policies were described in Note (1) Summary of Significant Accounting Policies of the 2017 Form 10-K. There have been no significant changes in the Company's significant accounting policies since December 31, 2017, other than those noted below. For a description of the Company's other significant accounting policies refer to the 2017 Form 10-K. Revenue from Contracts with Customers and Associated Balances Nature of Products and Services Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. Revenue allocated to software maintenance and support services is recognized ratably over the contractual support period. Hardware products consist primarily of servers and associated components and function independently of the software products and as such as accounted for as separate performance obligations. Revenue allocated to hardware maintenance and support services is recognized ratably over the contractual support period. Professional services are primarily related to software implementation services and associated revenue is recognized upon customer acceptance. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a contract asset or receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For perpetual licenses with multi-year product maintenance agreements, the Company generally invoices customers at the beginning of the coverage period. For multi-year subscription licenses, the Company generally invoices customers annually at the beginning of each annual coverage period. The Company records a contract asset related to revenue recognized for multi-year on-premises licenses as its right to payment is conditioned upon providing product support and services in future years. The opening balance of accounts receivable, net of allowance for doubtful accounts, was $4.2 million as of January 1, 2018. There was no adjustment needed to accounts receivable for the cumulative effect of applying ASC 606 under the modified retrospective method. The opening balance of short and long-term contract assets, net of allowance for doubtful accounts, and adjusted for the cumulative effect of applying ASC 606 under the modified retrospective method, was $3.1 million as of January 1, 2018. As of March 31, 2018 and December 31, 2017, accounts receivable, net of allowance for doubtful accounts, was $3.1 million and $4.2 million, respectively. As of March 31, 2018 and December 31, 2017, short and long-term contract assets, net of allowance for doubtful accounts, was $3.4 million and $0.0 million, respectively. The allowances for doubtful accounts reflect the Company’s best estimates of probable losses inherent in the accounts receivable and contract assets’ balances. The Company determines the allowances based on known troubled accounts, historical experience, and other currently available evidence. Write-offs in the accounts receivable and contract assets allowance accounts for the three months ended March 31, 2018 were $0.4 million and $0.0 million, respectively. Deferred revenue is comprised mainly of unearned revenue related maintenance and technical support on term and perpetual licenses. Maintenance and technical support revenue is recognized ratably over the coverage period. Deferred revenue also includes contracts for professional services to be performed in the future for which have been executed in advance and earn the revenue when the company transfers control of the product or service. Changes in deferred revenue were as follows:
*See Note (1) Basis of Presentation to our unaudited condensed consolidated financial statements for further information. Deferred revenue includes invoiced revenue allocated to remaining performance obligations that has not yet been recognized and will be recognized as revenue in future periods. Deferred revenue was $13.1 million as of March 31, 2018, of which the Company expects to recognize approximately 56% of the revenue over the next 12 months and the remainder thereafter. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its products and services, not to receive financing from our customers or to provide customers with financing. Examples include invoicing at the beginning of a subscription term with maintenance and support revenue recognized ratably over the contract period, and multi-year on-premises licenses that are invoiced annually with product revenue recognized upfront. Significant Judgments The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. For products and services aside from maintenance and support, the Company estimates SSP by adjusting the list price by historical discount percentages. SSP for software and hardware maintenance and support fees is based on the stated percentages of the fees charged for the respective products. The Company’s perpetual and term software licenses have significant standalone functionality and therefore revenue allocated to these performance obligations are recognized at a point in time upon electronic delivery of the download link and the license keys. Product maintenance and support services are satisfied over time as they are stand-ready obligations throughout the support period. As a result, revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with professional services are recognized at a point in time upon customer acceptance. Assets Recognized from Costs to Obtain a Contract with a Customer The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that its sales commission program meets the requirements for cost capitalization. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets on our consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share | Earnings Per Share Basic earnings per share ("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, warrants and the Series A 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 three months ended March 31, 2018 and 2017:
The following represents a reconciliation of the numerators and denominators of the basic and diluted EPS computation:
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Property and Equipment |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | Property and Equipment The gross carrying amount and accumulated depreciation of property and equipment as of March 31, 2018 and December 31, 2017 are as follows:
For the three months ended March 31, 2018 and 2017, depreciation expense was $86,869 and $186,085, respectively. |
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Software Development Costs |
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| Research and Development [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software Development Costs | Software Development Costs The gross carrying amount and accumulated amortization of software development costs as of March 31, 2018 and December 31, 2017 are as follows:
During the three months ended March 31, 2018 and 2017, the Company recorded $58,607 and $89,241, respectively, of amortization expense related to capitalized software costs. |
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Goodwill and Other Intangible Assets |
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| Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets The gross carrying amount and accumulated amortization of goodwill and other intangible assets as of March 31, 2018 and December 31, 2017 are as follows:
For the three months ended March 31, 2018 and 2017, amortization expense was $34,279 and $40,915, respectively. |
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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 March 31, 2018, the shares available for issuance under the FalconStor Software, Inc. 2016 Incentive Stock Plan (the "2016 Plan") totaled 3,191,300. 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, 2017, the total number of outstanding shares of the Company’s common stock totaled 44,525,990. Pursuant to the 2016 Plan, the total shares available for issuance under the 2016 Plan thus increased 2,081,080 to 2,226,300 shares available for issuance as of July 1, 2017. In April 2018, the Board of Directors terminated the 2016 Plan. The following table summarizes the plans under which the Company was able to grant equity compensation as of March 31, 2018:
The following table summarizes the Company’s equity plans that have expired but that still have equity awards outstanding as of March 31, 2018:
Related to the aforementioned 2016 Plan, many share-based compensation awards were forfeited and the related expense reversed accordingly, resulting in negative expense in the period. The following table summarizes the share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017:
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Income Taxes |
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| Income Tax Disclosure [Abstract] | |
| Income Taxes | Income Taxes The Company’s provision for income taxes consists principally of state and local, and foreign taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. For the three months ended March 31, 2018 and 2017, the Company recorded an income tax provision of $62,439. The effective tax rate for the three months ended March 31, 2018 was 11.0%. The effective tax differs from the statutory rate of 21% primarily related to the mix of foreign and domestic earnings as no tax expense or benefit is being recognized on domestic earnings or losses. As of March 31, 2018, the Company’s conclusion did not change with respect to the realizability of its domestic deferred tax assets and therefore, the Company has not recorded any income tax expense as such amounts are fully offset with a valuation allowance. For the three months ended March 31, 2017, the Company recorded an income tax provision of $122,948. The effective tax rate for the three months ended March 31, 2017 was (12.4%). The effective tax rate differs from the statutory rate of 35% primarily related to the mix of foreign and domestic earnings as no tax expense or benefit is being recognized on domestic earnings or losses. The Company’s total unrecognized tax benefits, excluding interest, at March 31, 2018 and December 31, 2017 were $180,202. As of March 31, 2018 and December 31, 2017, the Company had $86,041 and $82,508, respectively, of accrued interest. On December 22, 2017 the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 118, which provides guidance on accounting for the tax effects of TCJA. The purpose of SAB No. 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the reporting period in which the TCJA was enacted. SAB No. 118 addresses situations where the accounting is incomplete for certain income tax effects of the TJCA upon issuance of a company’s financial statements for the reporting period that includes the enactment date. SAB No. 118 allows for a provisional amount to be recorded if it is a reasonable estimate of the impact of the TCJA. Additionally, SAB No. 118 allows for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment. The Company’s accounting for the certain elements of the 2017 Tax Cuts and Jobs Act was incomplete as of the period ended December 31, 2017, and remains incomplete as of March 31, 2018. However, the Company was able to make reasonable estimates of the effects and, therefore, recorded provisional estimates for these items at December 31, 2017. |
Notes Payable and Stock Warrants |
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| Notes Payable and Stock Warrants | Notes Payable and Stock Warrants On November 17, 2017, HCP-FVA provided a commitment letter to the Company agreeing to finance up to $3 million to the Company on the terms, and subject to the conditions, set forth in that certain commitment letter, as further described below. As part of that Commitment, on November 17, 2017, the Company entered into a Loan Agreement with Lender and certain other loan parties named therein, pursuant to which the Lender made the Short Term Loan to the Company in the principal amount of $500,000. Pursuant to the terms of the Loan Agreement, the Short Term Loan was secured by all of the assets of the Company and guaranteed by each of the Company’s domestic subsidiaries. The Short Term Loan beared interest at a rate equal to the prime rate plus 0.75%. The Short Term Loan was due and payable on May 17, 2018, unless prepaid or satisfied through the issuance by the Company of units in a proposed private placement which will be offered to certain eligible stockholders existing on the date of the Loan Agreement. Such units would consist of senior secured debt in the aggregate principal amount of the Short Term Loan and nominal warrants to purchase approximately 61,165,134 shares of the Company’s common stock, as further described below. In consideration for making the Short Term Loan and Commitment, the Company issued a warrant to purchase 13,859,128 shares of common stock at an exercise price of $0.001 per share, which warrant has customary terms and conditions and permits cashless exercises (the “Initial Backstop Warrant”). Upon the funding of all or any portion of the Commitment, the Company will issue an additional warrant (the “Additional Backstop Warrant” and, together with the Initial Backstop Warrant, the “Backstop Warrants”) to purchase 41,577,382 shares of common stock at an exercise price of $0.001 per share, which warrant shall be in substantially the same form as the Initial Backstop Warrant. Fifty percent (50%) of the Backstop Warrants (or the shares of common stock issuable upon exercise thereof on a post-cashless exercise basis) are subject to cancellation in the event that more than half of the units in the Proposed Offering are purchased by eligible stockholders (other than Hale Capital). The Backstop Warrants are in addition to the Financing Warrants described below. On February 23, 2018, the Company closed on its previously-announced Commitment from HCP-FVA to purchase up to $3 million of Units (as defined below) from the Company to backstop a proposed private placement of Units to certain eligible stockholders of the Company (the “Financing”). HCP-FVA subscribed for the full $3 million of Units (at the Company’s election) in the Commitment by payment of $2.5 million in cash and the conversion of a $500,000 Short-Term Loan into Units. In the Financing, the Company intends to offer to FalconStor stockholders as of November 17, 2017 who are accredited investors the opportunity to purchase up to a total of 40 million Units (inclusive of subscriptions by HCP-FVA). The Financing is expected to close on or before September 23, 2018, and documentation relating to the Financing will be provided to prospective investors subsequent to the Company's Annual Meeting of Stockholders which is currently scheduled to be held on June 22, 2018. Each Unit consists of the following (each, a “Unit”):
The closing of the Commitment effectively constitutes HCP-FVA’s purchase of 30 million Units in the Financing. As a result, the maximum additional funds that the Company may receive in the Financing is $1 million through the purchase of 10 million Units by other eligible stockholders. If other eligible stockholders subscribe for more than 10 million Units, they will purchase those additional Units consisting of senior secured debt and Series A Preferred Stock directly from HCP-FVA (with the associated Financing Warrants to be issued by the Company directly to the eligible stockholders, and HCP-FVA’s Financing Warrants associated with those additional Units sold to the eligible stockholders to be cancelled in accordance with the terms of such Financing Warrants), subject to HCP-FVA maintaining at least 25% of the total Units to be issued in the Financing. HCP-FVA has agreed to subscribe for more than its pro rata portion of the Units available for purchase in the Financing (based on common stock ownership on an as-converted basis as of November 17, 2017), and if other eligible stockholders elect to subscribe for more than their pro rata share, the remaining Units shall be allocated among such stockholders (including HCP-FVA) in such manner as the Company, Hale Capital and the participating eligible stockholders shall agree. On February 23, 2018, in connection with HCP-FVA’s subscription in the Financing, the Company entered into an Amended and Restated Term Loan Credit Agreement, dated as of the same date (the “Amended and Restated Loan Agreement”), with HCP-FVA and certain other loan parties named therein setting forth the terms of the Term Loan. The Amended and Restated Loan Agreement amends and restates the Loan Agreement. Under the Amended and Restated Loan Agreement, in the event the Term Loan is prepaid for any reason, such prepayment will be subject to the payment of a premium in an amount equal to 5% of the principal amount prepaid. The Term Loan is required to be prepaid upon the occurrence of certain events, including but not limited to certain assets dispositions, the incurrence of additional indebtedness, the receipt of insurance proceeds, and a change of control, subject to certain exceptions. The Amended and Restated Loan Agreement has customary representations, warranties and affirmative and negative covenants. The negative covenants include financial covenants by the Company to (i) maintain minimum cash denominated in U.S. dollars plus accounts receivable outstanding for less than 90 days of $2 million, and (ii) until the consummation of the Financing with eligible stockholders (other than HCP-FVA), not permit a variance of more than 10% of net cash flow from the amounts set forth in a rolling weekly detailed budget through the second fiscal quarter of 2018, agreed upon at the signing of the Amended and Restated Loan Agreement. The Amended and Restated Loan Agreement also contains customary events of default, including but not limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants, bankruptcy events and a change of control. In the case of an event of default, as administrative agent under the Loan Agreement, HCP-FVA may (and upon the written request of lenders holding in excess of 50% of the Term Loan, which must include HCP-FVA, is required to accelerate payment of all obligations under the Loan Agreement, and seek other available remedies). Under the Amended and Restated Loan Agreement, the Company also agreed to use its commercially reasonable efforts to obtain, as soon as practicable, the approval of its stockholders to amend the Company’s Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of the Company’s common stock in order to permit the exercise of the Financing Warrants issuable in the Financing (the “Stockholder Approval”). HCP-FVA agreed that, prior to the record date for any Company stockholders meeting held in connection with the Stockholder Approval, HCP-FVA will exercise any Financing Warrants and any Backstop Warrants (as defined below) for which the Company has sufficient authorized capital and will vote the common stock it receives upon such exercise in favor of the Stockholder Approval. As part of the Commitment, Hale Capital also agreed to postpone the date of the redemption of the Series A Preferred Stock from August 5, 2017 to July 30, 2021, and to waive prior breaches of the terms of the Series A Preferred Stock which had also triggered a redemption right. In exchange for serving as the backstop for the Financing, upon the closing of the Commitment, HCP-FVA received Additional Backstop Warrants, Initial Warrants to purchase 41,577,382 shares of the Company’s common stock for a nominal exercise price, in addition to the 13,859,128 Backstop Warrants issued to HCP-FVA in connection with the making of the Short Term Loan. If eligible stockholders (other than HCP-FVA) subscribe for and purchase more than fifty percent (50%) of the Units in the Financing on the terms and conditions set forth in Section 10.13 of the Amended and Restated Loan Agreement and Schedule 10.13 thereto, then 66.66% of the number of shares of common stock issued to HCP-FVA in respect of the Backstop Warrants issued upon the closing of the Commitment (or, if the Backstop Warrants issued upon the closing of the Commitment have not then been exercised, issuable to HCP-FVA) upon exercise of such Backstop Warrants, as determined on a post-cashless exercise basis, shall be cancelled (and, if such Backstop Warrants have been exercised on a non-cashless exercise basis, the Company shall reimburse HCP-FVA for the cash exercise price paid in respect of the cancelled warrant shares). In consideration for HCP-FVA’s subscription of 3 million of Units, HCP-FVA was issued Financing Warrants to purchase 366,990,000 shares of the Company’s common stock for a nominal exercise price. The Financing Warrants are not exercisable until receipt of Stockholder Approval. On April 23, 2018, HCP-FVA exercised most of its Backstop Warrants on a cash-less basis and was issued 53,370,601 shares of the Company's common stock. The issuance of the Financing Warrants and the Backstop Warrants in connection with the Commitment and the Financing will have a substantial dilutive effect on all existing stockholders of the Company. For example, if HCP-FVA is the only subscriber in the Financing, Hale Capital will beneficially own, when combined with Hale Capital’s current ownership and shares set aside for management, approximately 73% of the common stock of the Company on an as-converted basis. If the Financing is fully subscribed and HCP-FVA’s subscription amounts to 25% of the total number of Units issued in the Financing, Hale Capital will beneficially own, when combined with Hale Capital’s current ownership and shares set aside for management, approximately 22% of the common stock of the Company on an as-converted basis. The Commitment and the Financing were approved by the Company’s Board of Directors, based on a recommendation of a special committee of independent directors, with Mr. Hale recusing himself. As previously disclosed in the Company’s filings with the Securities and Exchange Commission, the Company was actively seeking financing in order to meet the Company’s operating cash flow needs. During FY 2017 and Q1 2018, FalconStor was unable to make its Series A Preferred Stock quarterly dividend payments, and was subject to mandatory redemption under the Series A Preferred Stock purchase agreement. In conjunction with the Long- Term Loan Commitment, Hale Capital agreed to postpone the date of the mandatory redemption of the Series A Preferred Stock from August 5, 2017 to July 30, 2021, and to waive prior breaches of the terms of the Series A Preferred Stock which had also triggered a mandatory redemption right (“Series A Mandatory Redemption Extension”). Accordingly, as a result of these changes, for accounting purposes, the Series A Preferred Stock is considered new Series A Preferred Stock. As a result, the Company assessed whether the transaction was a troubled debt restructuring. Although the Company meets the criteria of a debtor experiencing financial difficulties as described above in Accounting Standards Code ("ASC") 470-60-55-8, Hale Capital has not granted a concession as defined in ASC 470-60-55-10 as the effective interest rate for both the Series A Preferred Stock and the Original Loan is higher following the restructuring of Series A Preferred Stock and Long-Term Debt compared to the interest rate immediately before the restructuring. Since no concession was granted, Troubled Debt Restructuring accounting guidance does not apply. As part of the analysis, the present value of the cash flows under the terms of the new Series A Preferred Stock and loans are greater than 10% different than the present value of the old Series A Preferred Stock and loans cash flows, as such extinguishment treatment applies. There is no beneficial conversion feature associated with the revised Series A Preferred Stock. When preferred stock is extinguished, the issuer should include the gain or loss on extinguishment in its net income attributable to common shareholders used to calculate earnings per share, as described in ASC 260-10-S99-2. When multiple instruments are issued in a single transaction, the total proceeds from the transaction should be allocated among the individual freestanding instruments identified. Since Hale Capital currently holds all of the debt and Series A Preferred, the restructuring is considered to be a capital transaction. As such the gain or loss is recorded in equity. ASC 470-20-25-2 requires that debt or stock with detachable warrants issued in a bundled transaction with debt and equity proceeds be accounted for separately, based on the relative fair values of each instrument. The proceeds allocated to the Backstop Warrants and Financing Warrants are valued at $4,143,000. Derivative treatment does not apply to the warrants issued in association with the restructuring based upon the warrants being penny warrants (pre-paid stock). Warrants should be considered outstanding in earnings per share calculation if the Company is profitable to common shareholders; otherwise, warrants should be excluded as the effect would be antidilutive. The Company has insufficient shares outstanding to accommodate the exercise of the Financing Warrants granted as detailed in the Background section above. ASC 480 "Distinguishing Liabilities from Equity" is referenced below to determine whether such warrants need to be recorded as liabilities or equity. Warrant grants that do not have associated outstanding common shares, will be recorded as liabilities as the Company would be required to settle such obligations using cash settlement (deficient by 368,533,620 shares). Changes in the fair value of the liability from period to period should be reflected within earnings. When authorized shares are available, fair value of these warrants will be reclassified to equity. The Company’s warrant agreements contain standard antidilution language; therefore, they do not prevent a freestanding instrument from being considered indexed to the issuer’s own stock. The initial transaction was recorded as follows:
The Series A Preferred Stock consists of the following:
The notes payable balance consists of the following:
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Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements | Fair Value Measurements The Company measures its cash equivalents 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. 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:
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2018:
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2017:
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. The fair value of the Company's Series A Preferred Stock is based on its future cash flows discounted at 15% yield. The fair value of the Company's note payable is based on its future cash flows discounted at 12%. The fair value of the warrant liabilities is based on the enterprise value of the Company calculated by a third party appraiser less the preferred stock and preferred stock accrued dividends that have a preference over common stock. The number of shares of common stock outstanding was increased for the Initial Backstop Warrants and Additional Backstop Warrants totaling approximately 424 million new shares. These warrants were then valued based on a Black Scholes value using volatility of 60% and resulted in a fair value of approximately $0.01 per share. The following table presents a reconciliation of the beginning and ending balances of the Company's liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2018 and March 31, 2017:
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Commitments and Contingencies The Company’s headquarters are located in Austin, Texas. The Company has an operating lease covering its Melville, N.Y. 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 2018 through 2021. The following is a schedule of future minimum lease payments for all operating leases as of March 31, 2018:
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 three months ended March 31, 2018, the Company has not incurred any costs related to warranty obligations. Under the terms of substantially all of its software license agreements, the Company indemnifies 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 Preferred Stock in accordance with its obligations, the Series A Preferred Stockholders may require the Company to redeem all or some of the Series A 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 Preferred Stock and the closing price as of the occurrence of the triggering event. Commencing after July 30, 2021, each Series A Preferred Stockholder can require the Company to redeem its Series A 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 Preferred Stock for two consecutive quarters, which provides the Series A Preferred Stockholders the right to require the Company to redeem any of the Series A 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 Preferred Stock and the closing price of the Company's common stock as of December 31, 2016. The holder of the Series A Preferred Stock did not exercise this right as the holder of the Series A Preferred Stock subsequently agreed to waive these breaches. As of March 31, 2018, the Company did not fail any non-financial covenants related to the Company's Series A Preferred Stock. As of August 14, 2017, the Board appointed Todd Brooks as Chief Executive Officer effective August 14, 2017. In connection with Mr. Brooks’ appointment as Chief Executive Officer, the Board approved an offer letter to Mr. Brooks (the “Brooks Agreement”), which was executed on August 14, 2017. The Brooks Offer Letter provides that Mr. Brooks is entitled to receive an annualized base salary of $350,000, payable in regular installments in accordance with the Company’s general payroll practices. Mr. Brooks will also be eligible for a cash bonus of $17,500 for any quarter that is free cash flow positive on an operating basis and additional incentive compensation of an annual bonus of up to $200,000, subject to attainment of performance objectives to be mutually agreed upon and established. Pursuant to the Brooks Agreement, it is the intention of the Company to create an equity plan for all employees subject to stockholder approval, for up to 15% of the equity of the Company on a fully diluted basis, plus potentially two additional tranches of 2.5% of the equity of the Company on a fully diluted basis, at the time the equity plan is adopted following stockholder approval. Vesting of the equity issued under the plan would occur only upon a sale of the Company’s assets or capital stock at a premium to the valuation of the Company at the time the equity plan is adopted. Mr. Brooks’ employment can be terminated at will. If Mr. Brooks’ employment is terminated by the Company other than for cause he is entitled to receive severance equal to twelve (12) months of his base salary if (i) he has been employed by the Company for at least twelve (12) months at the time of termination or (ii) a change of control has occurred within six (6) months of Mr. Brooks’ employment. Except as set forth in the preceding sentence, Mr. Brooks is entitled to receive severance equal to six (6) months of his base salary if he has been employed by the Company for less than six (6) months and his employment was terminated by the Company without cause. Mr. Brooks is also entitled to vacation and other employee benefits in accordance with the Company’s policies as well as reimbursement for an apartment. 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 March 31, 2018, the restructuring accrual totaled $461,362. The 2013 Plan was substantially completed by December 31, 2014; however, the Company expects the majority of the remaining accrued severance related costs to be paid once final settlement litigation is completed, which can be at various times over the next nine months. In addition, as of March 31, 2018, the Company's liability for uncertain tax positions totaled $266,244. At this time, the settlement period for the positions, including related accrued interest, cannot be determined. |
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Series A Redeemable Convertible Preferred Stock |
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| 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 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 Preferred Stock is convertible into common stock equivalents, at the option of the holder and upon certain 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 Series A 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 Series A Preferred Stockholders, the Company can convert the Series A 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 Series A 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 holder of the Series A Preferred Stock has 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 agreement with the holder of the Series A Preferred Stock provide that if, at the time of certain future debt or equity financings, the proceeds of which exceed $5.0 million, the holder of the Series A Preferred Stock still have outstanding Series A Preferred Stock, then the Company must offer to repurchase their Series A Preferred Stock. The holder of the Series A Preferred Stock has the right to accept the offer or to retain their Series A Preferred Stock. If the Company does a financing, and the holder of the Series A Preferred Stock elect to have their Series A Preferred Stock repurchased, then the capital raised in excess of $5.0 million will go to repurchase the holders’ Series A 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 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 Preferred Stock, the Series A 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 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 Preferred Stock on an as converted basis as of March 31, 2018) and (ii) the price such holder would receive in the transaction on an as converted basis. In addition in the event of the liquidation of the Company or a Fundamental Transaction of the Company (which includes a merger or sale of the Company), the holders of the Series A Preferred Stock shall be entitled to receive from the proceeds of the transaction, prior to the holders of the Common Stock, an amount equal to 100% of the stated value plus accrued and unpaid dividends. The stated value and accrued and unpaid dividends of the Series A Preferred Stock at March 31, 2018 is $10.3 million. 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 Preferred Stock in accordance with its obligations, the Series A Preferred Stockholder may require the Company to redeem all or some of the Series A 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 Preferred Stock and the closing price as of the occurrence of the triggering event. On or after July 30, 2021, each Series A Preferred Stockholder can require the Company to redeem its Series A 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 Preferred Stock, the dividends accruing on any outstanding Series A Preferred Stock will increase to prime plus 10% (from prime plus 5%). For each six months that the Series A 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 Preferred Stock would be considered a “Breach Event” under the agreements with the holders of the Series A 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 Preferred Stock, then, under the agreements with the holders of our Series A Preferred Stock, the Company's Board of Directors would automatically be increased, with the holders of the Series A Preferred Stock having the right to appoint the new directors, so that the holders of the Series A Preferred stock would have appointed a majority of the Board of Directors. This would give the holders of the Series A 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 Preferred Stock for two consecutive quarters, which provides the Series A Preferred Stockholders the right to require the Company to redeem any of the Series A 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 Preferred Sock and the closing price of the Company's common stock as of December 31, 2016. As part of the Amended Restated Loan Agreement, the holder of the Series A Preferred Stock agreed to waive these breaches. As of March 31, 2018, the Company did not fail any non-financial covenants related to the Company's Series A Preferred Stock. The holders of the Series A 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. As of December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017 and December 31, 2017, due to the lack of sufficient surplus to pay dividends as required by the Deleware General Corporation Law, the Company was not permitted to pay the fourth quarter 2016 and first, second, third and fourth quarter 2017 dividends in cash or through the issuance of the Company's common stock and accrued the aforementioned dividends. As of March 31, 2018, the Company's liability for dividends to the holder of the Series A Preferred Stock totaled $1,350,218. Each share of Series A Preferred Stock has a vote equal to the number of shares of common stock into which the Series A 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, holder of the Series A 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 Series A Preferred Stock; payment of dividends or distributions; any liquidation, capitalization, reorganization or any other fundamental transaction of the Company, other than that set forth above; issuance of certain equity securities senior to or in parity with the Series A 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 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 Preferred Stock, the contingent redemption put options in the Series A 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 was bifurcated from the Series A Preferred Stock and recorded as a liability. As of March 31, 2018 and December 31, 2017 the fair value of these derivative instruments was $445,838 and $445,838, 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 the three months ended March 31, 2018 and March 31, 2017 of $0 and $18,750, respectively, were included in “interest and other loss, net” within the consolidated statement of operations. The fair value of these derivative instruments and the loss recorded on the change in the fair value of these derivative instruments, which was included in “Interest and other income, net” within the condensed consolidated statement of operations, for the three months ended March 31, 2018 and 2017, were as follows:
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 Preferred Stock. These costs were being accreted to the Series A 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. This accretion was accelerated as of December 31, 2016 due to the failure of the financial covenants and the redemption right of the holders at that time. The Company included deductions of $243,167 and $204,575 as adjustments to net loss attributable to common shareholders on the statement of operations and in determining loss per share for the three months ended March 31, 2018 and 2017, respectively, for dividends (including accrued dividends) on the Series A Preferred Stock during the period. The following represents a reconciliation of net loss attributable to common stockholders for the three months ended March 31, 2018 and 2017, respectively:
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Accumulated Other Comprehensive Loss |
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| Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss The changes in Accumulated Other Comprehensive Loss, net of tax, for the three months ended March 31, 2018 are as follows:
The changes in Accumulated Other Comprehensive Loss, net of tax, for the three months ended March 31, 2017 are as follows:
For the three months ended March 31, 2018, the amounts reclassified to net income (loss) related to the Company’s defined benefit plan and maturity of marketable securities. These amounts are included within “Operating income (loss)” within the condensed consolidated statements of operations. |
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Stockholders' Equity |
3 Months Ended |
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Mar. 31, 2018 | |
| 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 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 three months ended March 31, 2018 and 2017, the Company did not repurchase any shares of its common stock. As of March 31, 2018, the Company had the authorization to repurchase 4,907,839 shares of its common stock based upon its judgment and market conditions. |
Litigation |
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Mar. 31, 2018 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| 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. |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting | Segment Reporting and Concentrations The Company is organized in a single operating segment for purposes of making operating decisions and assessing performance. Revenue from the United States to customers in the following geographical areas for the three months ended March 31, 2018 and 2017, and the location of long-lived assets as of March 31, 2018 and December 31, 2017, are summarized as follows:
For the three months ended March 31, 2018, the Company had no customers that accounted for 10% or more of total revenue. For the three months ended March 31, 2017, the Company had one customer that accounted for 10% of total revenue. As of March 31, 2018, the Company had no customers that accounted for 10% or more of the gross accounts receivable balance. As of December 31, 2017, the Company had one customer that accounted for 23% of the gross accounts receivable balance. |
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Restructuring Costs |
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| Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||
| Restructuring Costs | 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, we expect the majority of the remaining severance related costs to be paid once final settlement litigation is completed, which can be at various times over the next nine months. The following table summarizes the activity during 2017 related to restructuring liabilities recorded in connection with the 2013 Plan:
In June 2017, the Board approved a comprehensive plan to increase operating performance (the “2017 Plan”). The 2017 Plan resulted in a realignment and reduction in workforce. The 2017 Plan was substantially completed by the end of the Company’s fiscal year ended December 31, 2017, and when combined with previous workforce reductions in the second quarter of Fiscal 2017 reduced the Company’s workforce to approximately 78 employees. In connection with the 2017 Plan, the Company incurred severance expense of $1.2 million for the fiscal year ended December 31, 2017. In making these changes, the Company prioritized customer support and development while consolidating operations and streamlining direct sales resources allowing the company to focus on the install base and develop alternate channels to the market. The severance related liabilities are included within “accrued expenses” in the accompanying condensed consolidated balance sheets. The expenses under the 2013 Plan are included within “restructuring costs” in the accompanying condensed consolidated statements of operations. |
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Subsequent Events (Notes) |
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| Subsequent Events [Abstract] | |
| Subsequent Events | Subsequent Events Resignation of Patrick McClain as Executive Vice President, Chief Financial Officer, and Treasurer In April 2018, the Board accepted the resignation of Patrick McClain from his positions as Executive Vice President, Chief Financial Officer and Treasurer of the Company effective April 9, 2018. Mr. McClain will assist in the transition of the Chief Financial Officer role and will transition into a senior advisor role in the Company. Mr. McClain’s resignation was not the result of any disagreement related to any matter involving the Company’s operations, policies or practices. In connection with Mr. McClain’s departure, on April 11, 2018 the Company and Mr. McClain entered into a Separation and Transition Agreement and General Release (the “McClain Separation Agreement”). Under the terms of the McClain Separation Agreement, the Company will, among other things, pay Mr. McClain his current salary until August 31, 2018 and any COBRA expenses until December 31, 2018 to the extent that Mr. McClain’s health insurance is not covered by the health insurance plan of another entity. Appointment of Brad Wolfe as Executive Vice President, Chief Financial Officer and Treasurer On April 5, 2018, the Company announced the appointment of Brad Wolfe to serve as the Company’s Executive Vice President, Chief Financial Officer and Treasurer, effective April 9, 2018. Mr. Wolfe shall also assume the roles of principal financial officer and principal accounting officer of the Company. In connection with Mr. Wolfe’s appointment as Chief Financial Officer, the Board approved an offer letter to Mr. Wolfe (the “Wolfe Offer Letter”), which was executed on April 4, 2018. The Wolfe Offer Letter provides that Mr. Wolfe is entitled to receive an annualized base salary of $240,000, payable in regular installments in accordance with the Company’s general payroll practices. Mr. Wolfe will also be eligible for a cash bonus of $10,000 for any quarter that has net working capital – cash in excess of $27,500 and additional incentive compensation of an annual bonus of up to $70,000, subject to attainment of performance objectives to be mutually agreed upon and established. Mr. Wolfe’s employment can be terminated at will. If Mr. Wolfe’s employment is terminated by the Company other than for cause he is entitled to receive severance equal to (i) six (6) months of his base salary if he has been employed by the Company for at least twelve (12) months at the time of termination or (ii) three (3) months of his base salary if he has been employed by the Company for less than twelve (12) months at the time of termination. Mr. Wolfe is also entitled to vacation and other employee benefits in accordance with the Company’s policies. Unregistered Sales of Equity Securities As of April 23, 2018, the Company issued HCP-FVA, an entity affiliated with Martin Hale, a Director of the Company, 53,370,601 shares of Common Stock, $.001 par value (the “Common Stock”) pursuant to the cashless exercise of Backstop Warrants held by HCP. The Backstop Warrants were acquired by HCP in connection with HCP agreeing to backstop a previously disclosed financing of the Company. The Backstop Warrants were exercised on a cashless basis in accordance with their terms. The shares of Common Stock were issued pursuant to the exemption contained in Section 4(2) of the Securities Act of 1933, as amended. |
Basis of Presentation (Policies) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Company and Nature of Operations | The Company and Nature of Operations FalconStor Software, Inc., a Delaware Corporation (the "Company"), is a leading storage software 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. |
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| 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. |
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| Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP 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 and income taxes. During the first quarter of 2018, the Company also had significant estimates in the determination of the fair value of Series A Preferred Stock, notes payable and warrants issued. Actual results could differ from those estimates. The financial market volatility in many countries where the Company operates has impacted and may continue to impact the Company’s business. Such conditions could have a material impact on the Company’s significant accounting estimates discussed above. |
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| Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 31, 2018, and the results of its operations for the three months ended March 31, 2018 and 2017. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K"). |
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| Recently Adopted and Issued Accounting Pronouncements | Recently Adopted Accounting Pronouncements Revenue from Contracts with Customers 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 replaces most existing revenue recognition guidance in GAAP in the United States and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We adopted the new guidance as of January 1, 2018 using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous revenue guidance. The most significant impact of the standard relates to our accounting for our term license revenue. Specifically, for Freestor software subscription licenses, revenue is now recognized at the time of delivery rather than ratably over the subscription period. The adoption of the standard resulted in an increase to the opening balance of accumulated deficit of $8.9 million, related to the cumulative effect of a decrease in deferred revenue of $5.4 million, an increase in contract assets of $3.1 million from the upfront recognition of term licenses and the general requirement to allocate the transaction price on a relative stand-alone selling price, and an increase of $0.4 million in prepaid expenses and other current assets. Following is a summary of the impact to the Company’s current financial results from adopting the new revenue recognition standard:
Adoption of the revenue recognition standard had no impact to cash from or used in operating, financing, or investing on our condensed consolidated statements of cash flows. See Note (2) Summary of Significant Accounting Policies for further details. Statements of Cash Flows 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. The Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. Employee Benefit Plans In March 2017, the FASB issued new guidance on retirement benefits, which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. The income statement guidance requires application on a retrospective basis. This update is effective for public entities for annual periods beginning after December 15, 2017, including interim periods, with early adoption permitted, which for the Company will be the annual period ending December 31, 2018. The Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. Financial Assets and Financial Liabilities 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 Company has adopted this guidance and it did not have a significant impact on the Company's financial statements and related disclosures. (g) Recently Issued Accounting Pronouncements 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 to 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. |
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| Revenue from Contracts with Customers and Associated Balances | Nature of Products and Services Licenses for on-premises software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. Revenue allocated to software maintenance and support services is recognized ratably over the contractual support period. Hardware products consist primarily of servers and associated components and function independently of the software products and as such as accounted for as separate performance obligations. Revenue allocated to hardware maintenance and support services is recognized ratably over the contractual support period. Professional services are primarily related to software implementation services and associated revenue is recognized upon customer acceptance. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a contract asset or receivable when revenue is recognized prior to invoicing, or unearned revenue when revenue is recognized subsequent to invoicing. For perpetual licenses with multi-year product maintenance agreements, the Company generally invoices customers at the beginning of the coverage period. For multi-year subscription licenses, the Company generally invoices customers annually at the beginning of each annual coverage period. The Company records a contract asset related to revenue recognized for multi-year on-premises licenses as its right to payment is conditioned upon providing product support and services in future years. Significant Judgments The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. For products and services aside from maintenance and support, the Company estimates SSP by adjusting the list price by historical discount percentages. SSP for software and hardware maintenance and support fees is based on the stated percentages of the fees charged for the respective products. The Company’s perpetual and term software licenses have significant standalone functionality and therefore revenue allocated to these performance obligations are recognized at a point in time upon electronic delivery of the download link and the license keys. Product maintenance and support services are satisfied over time as they are stand-ready obligations throughout the support period. As a result, revenues associated with maintenance services are deferred and recognized as revenue ratably over the term of the contract. Revenues associated with professional services are recognized at a point in time upon customer acceptance. Assets Recognized from Costs to Obtain a Contract with a Customer The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that its sales commission program meets the requirements for cost capitalization. Total capitalized costs to obtain a contract were immaterial during the periods presented and are included in other current and long-term assets on our consolidated balance sheets. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. |
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Basis of Presentation (Tables) |
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| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Impact on Financial Results from Adopting Revenue Recognition Standard | Following is a summary of the impact to the Company’s current financial results from adopting the new revenue recognition standard:
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Changes in Deferred Revenue | Changes in deferred revenue were as follows:
*See Note (1) Basis of Presentation to our unaudited condensed consolidated financial statements for further information. |
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Earnings Per Share (Tables) |
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | 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 three months ended March 31, 2018 and 2017:
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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 | The gross carrying amount and accumulated depreciation of property and equipment as of March 31, 2018 and December 31, 2017 are as follows:
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Software Development Costs (Tables) |
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| Summary of Software Development Costs | The gross carrying amount and accumulated amortization of software development costs as of March 31, 2018 and December 31, 2017 are as follows:
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Goodwill and Other Intangible Assets (Tables) |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets and Goodwill | The gross carrying amount and accumulated amortization of goodwill and other intangible assets as of March 31, 2018 and December 31, 2017 are as follows:
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Share-Based Payment Arrangements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Details of Stock Option Plan | The following table summarizes the plans under which the Company was able to grant equity compensation as of March 31, 2018:
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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 March 31, 2018:
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| Schedule Of Share Based Compensation Recognized | The following table summarizes the share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017:
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Notes Payable and Stock Warrants (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Initial Transaction Recorded | The initial transaction was recorded as follows:
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| Schedule of Components of Series A Preferred Stock | The Series A Preferred Stock consists of the following:
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| Schedule of Notes Payable | The notes payable balance consists of the following:
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Fair Value Measurements (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 March 31, 2018:
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2017:
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| Fair Value Measurements using Significant Unobservable Inputs | The following table presents a reconciliation of the beginning and ending balances of the Company's liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2018 and March 31, 2017:
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||
| Schedule of Future Minimum Payments for Operating Leases |
|
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Series A Redeemable Convertible Preferred Stock (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Embedded Derivative Instruments Rollforward | The fair value of these derivative instruments and the loss recorded on the change in the fair value of these derivative instruments, which was included in “Interest and other income, net” within the condensed consolidated statement of operations, for the three months ended March 31, 2018 and 2017, were as follows:
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| Reconciliation of net (loss) income attributable to common stockholders | The following represents a reconciliation of net loss attributable to common stockholders for the three months ended March 31, 2018 and 2017, respectively:
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Accumulated Other Comprehensive Loss (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accumulated other comprehensive loss | The changes in Accumulated Other Comprehensive Loss, net of tax, for the three months ended March 31, 2018 are as follows:
The changes in Accumulated Other Comprehensive Loss, net of tax, for the three months ended March 31, 2017 are as follows:
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Segment Reporting (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenues And Long Lived Assets By Geographical Areas | The Company is organized in a single operating segment for purposes of making operating decisions and assessing performance. Revenue from the United States to customers in the following geographical areas for the three months ended March 31, 2018 and 2017, and the location of long-lived assets as of March 31, 2018 and December 31, 2017, are summarized as follows:
|
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Restructuring Costs (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||
| Restructuring and Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||
| Schedule Of Restructuring Costs | The following table summarizes the activity during 2017 related to restructuring liabilities recorded in connection with the 2013 Plan:
|
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Summary of Significant Accounting Policies - Additional Information (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Jan. 01, 2018 |
Dec. 31, 2017 |
|
| Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||
| Accounts receivable, net of allowances | $ 3,118,556 | $ 4,168,015 | |
| Contract assets | 3,400,000 | 0 | |
| Contract assets, net | 1,786,369 | 0 | |
| Write-offs in accounts receivable | 400,000 | ||
| Write-offs in contract assets account | 0 | ||
| Deferred revenue | $ 13,139,819 | $ 18,360,690 | |
| Revenue expected to be recognized during next 12 months | 56.00% | ||
| Accounting Standards Update 2014-09 | Difference between Revenue Guidance in Effect before and after Topic 606 | |||
| Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||
| Contract assets | $ 3,100,000 | ||
| Contract assets, net | $ 1,786,369 | ||
| Deferred revenue | $ (5,400,000) |
Summary of Significant Accounting Policies - Changes in Deferred Revenue (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2018
USD ($)
| |
| Movement in Deferred Revenue [Roll Forward] | |
| Balance at December 31, 2017 | $ 18,360,690 |
| Cumulative effect of applying ASC 606 under the modified retrospective method | (5,359,579) |
| Deferral of revenue | 3,947,409 |
| Recognition of revenue | (3,800,547) |
| Change in reserves | (8,154) |
| Balance at March 31, 2018 | $ 13,139,819 |
Earnings Per Share (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive common stock equivalents | 433,273,926 | 15,434,631 |
| Stock options, warrants and restricted stock | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive common stock equivalents | 424,492,410 | 6,653,115 |
| 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 |
Earnings Per Share (Details 1) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Numerator | ||
| Net income (loss) | $ 506,877 | $ (1,112,197) |
| Effects of Series A redeemable convertible preferred stock: | ||
| Less: Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 |
| Redeemable Preferred Stock Dividends | 2,269,042 | 0 |
| Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | 0 |
| Net loss attributable to common stockholders | $ (2,043,437) | $ (1,316,772) |
| Denominator | ||
| Weighted average basic shares outstanding (in shares) | 44,564,094 | 44,088,352 |
| Effect of dilutive securities: | ||
| Stock options, warrants and restricted stock | 0 | 0 |
| Series A redeemable convertible preferred stock | 0 | 0 |
| Weighted average diluted shares outstanding (in shares) | 44,564,094 | 44,088,352 |
| Basic net loss per share attributable to common stockholders (in dollars per share) | $ (0.05) | $ (0.03) |
| Diluted net loss per share attributable to common stockholders (in dollars per share) | $ (0.05) | $ (0.03) |
Property and Equipment (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
| Property, Plant and Equipment [Abstract] | |||
| Gross carrying amount | $ 18,591,087 | $ 18,563,071 | |
| Accumulated depreciation | (18,033,288) | (17,926,959) | |
| Property and Equipment, net | 557,799 | $ 636,112 | |
| Depreciation expense | $ 86,869 | $ 186,085 | |
Software Development Costs (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
| Research and Development [Abstract] | |||
| Gross carrying amount | $ 2,933,398 | $ 2,917,215 | |
| Accumulated amortization | (2,696,407) | (2,637,801) | |
| Software development costs, net | 236,991 | $ 279,414 | |
| Capitalized computer software amortization | $ 58,607 | $ 89,241 | |
Goodwill and Other Intangible Assets (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | |||
| Goodwill | $ 4,150,339 | $ 4,150,339 | |
| Other intangible assets: | |||
| Gross carrying amount | 3,843,678 | 3,816,402 | |
| Accumulated amortization | (3,709,050) | (3,674,771) | |
| Net carrying amount | 134,628 | $ 141,631 | |
| Amortization of intangible assets | $ 34,279 | $ 40,915 | |
Share-Based Payment Arrangements (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Jul. 01, 2017 |
|
| FalconStor Software, Inc., 2016 Incentive Stock Plan | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Shares Authorized | 4,247,686 | 20,000,000 |
| Shares Available for Grant | 3,191,300 | 2,226,300 |
| Shares Outstanding | 535,000 | |
| 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 | 1,000,000 | |
| Shares Available for Grant | 993,400 | |
| Shares Outstanding | 0 | |
| Last date for grant of shares | Apr. 27, 2019 |
Income Taxes (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
| Income Tax Disclosure [Abstract] | |||
| Income tax provision | $ 62,439 | $ 122,948 | |
| Effective income tax rate | 11.00% | (12.40%) | |
| Unrecognized tax benefits | $ 180,202 | $ 180,202 | |
| Unrecognized tax benefits, interest on income taxes accrued | $ 86,041 | $ 82,508 | |
Notes Payable and Stock Warrants - Initial Transaction As Recorded (Details) - USD ($) |
Mar. 31, 2018 |
Feb. 23, 2018 |
Dec. 31, 2017 |
|---|---|---|---|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Notes payable, net | $ 2,468,696 | $ 2,457,249 | |
| Warrant liability | 4,143,000 | $ 0 | |
| Deemed dividend | $ 1,350,218 | ||
| Reported Value Measurement [Member] | |||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Series A redeemable convertible preferred stock, net | 10,312,113 | ||
| Notes payable, net | 2,728,778 | ||
| Warrant liability | 0 | ||
| Total | 13,040,891 | ||
| Estimate of Fair Value Measurement [Member] | |||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
| Series A redeemable convertible preferred stock, net | 8,709,684 | ||
| Notes payable, net | 2,457,249 | ||
| Warrant liability | 4,143,000 | ||
| Total | 15,309,933 | ||
| Deemed dividend | $ 2,269,042 |
Notes Payable and Stock Warrants - Components of Preferred Stock (Details) - USD ($) |
1 Months Ended | 2 Months Ended |
|---|---|---|
Mar. 31, 2018 |
Feb. 23, 2018 |
|
| Movement In Preferred Stock [Roll Forward] | ||
| Series A redeemable convertible preferred stock principal balance | $ 9,000,000 | |
| Total Series A redeemable convertible preferred stock, net at inception on February 23, 2018 | $ 10,312,112 | 9,000,000 |
| Total Series A redeemable convertible preferred stock, net at March 31, 2018 | 10,312,112 | |
| Redeemable Preferred Stock [Member] | ||
| Movement In Preferred Stock [Roll Forward] | ||
| Series A redeemable convertible preferred stock principal balance | 8,709,684 | 9,000,000 |
| Accrued dividends | 1,312,112 | |
| Discount | (1,602,428) | |
| Total Series A redeemable convertible preferred stock, net at inception on February 23, 2018 | 8,747,789 | 9,000,000 |
| Accretion of preferred stock | (38,105) | |
| Total Series A redeemable convertible preferred stock, net at March 31, 2018 | $ 8,747,789 | $ 8,709,684 |
Notes Payable and Stock Warrants - Components of Notes Payable (Details) - USD ($) |
1 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Feb. 23, 2018 |
|
| Payables and Accruals [Abstract] | ||
| Notes payable principal balance | $ 3,000,000 | |
| Deferred issuance costs | (254,247) | |
| Discount | $ (288,504) | |
| Movement In Notes Payable [Roll Forward] | ||
| Total notes payable, net at inception on February 23, 2018 | $ 2,457,249 | |
| Accretion of discount | 11,447 | |
| Total notes payable, net at March 31, 2018 | $ 2,468,696 |
Fair Value Measurements (Details1) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
| Beginning Balance | $ 336,862 | |
| Total loss recognized in earnings | 18,750 | |
| Ending Balance | $ 445,838 | $ 355,612 |
Fair Value Measurements Fair Value Measurements (Narrative) (Details) - $ / shares shares in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Sep. 13, 2013 |
|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Volatility rate to value warrants | 60.00% | |
| Fair value per share (in dollars per share) | $ 0.01 | $ 1.23 |
| Initial Backstop And Additional Backstop Warrants | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Common stock issued for warrants (in shares) | 424 | |
| Preferred Stock | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value discount yield | 15.00% | |
| Notes Payable | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Fair value discount yield | 12.00% |
Commitments and Contingencies (Details) |
Mar. 31, 2018
USD ($)
|
|---|---|
| Operating Lease Payment | |
| 2018 | $ 1,522,635 |
| 2019 | 1,614,843 |
| 2020 | 1,444,247 |
| 2021 | 491,020 |
| Thereafter | 0 |
| Total Future Minimum Lease Payments Due | $ 5,072,745 |
Series A Redeemable Convertible Preferred Stock (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Equity [Abstract] | ||
| Beginning Balance | $ 336,862 | |
| Total loss recognized in earnings | 18,750 | |
| Ending Balance | $ 445,838 | $ 355,612 |
Series A Redeemable Convertible Preferred Stock (Details 1) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Equity [Abstract] | ||
| Net income (loss) | $ 506,877 | $ (1,112,197) |
| Less: Accrual of Series A redeemable convertible preferred stock dividends | 243,167 | 204,575 |
| Less: Deemed dividend on Series A redeemable convertible preferred stock | 2,269,042 | 0 |
| Less: Accretion to redemption value of Series A redeemable convertible preferred stock | 38,105 | 0 |
| Net loss attributable to common stockholders | $ (2,043,437) | $ (1,316,772) |
Stockholders' Equity (Details Narrative) - shares |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Apr. 22, 2015 |
|
| Equity [Abstract] | |||
| Number of shares authorized for repurchase | 5,000,000 | ||
| Stock repurchased during period, shares | 0 | 0 | |
| Remaining number of shares authorized for repurchased | 4,907,839 | ||
Segment Reporting - Schedule Of Segment Reporting By Geographical Areas (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
| Revenue: | |||
| Total revenue | $ 4,993,949 | $ 6,039,115 | |
| Long-lived assets: | |||
| Total long-lived assets | 8,451,071 | $ 6,791,233 | |
| Americas | |||
| Revenue: | |||
| Total revenue | 1,131,649 | 1,601,247 | |
| Long-lived assets: | |||
| Total long-lived assets | 7,555,287 | 5,754,977 | |
| Asia Pacific | |||
| Revenue: | |||
| Total revenue | 1,948,424 | 2,251,077 | |
| Long-lived assets: | |||
| Total long-lived assets | 807,017 | 822,885 | |
| Europe, Middle East, Africa and Other | |||
| Revenue: | |||
| Total revenue | 1,913,876 | $ 2,186,791 | |
| Long-lived assets: | |||
| Total long-lived assets | $ 88,767 | $ 213,371 | |
Segment Reporting (Details Narrative) |
12 Months Ended |
|---|---|
Dec. 31, 2017 | |
| Customer concentration risk | Accounts receivable | |
| Revenue, Major Customer [Line Items] | |
| Percentage accounted for by one customer | 23.00% |
Restructuring Costs (Details Narrative) $ in Millions |
12 Months Ended | 18 Months Ended | |
|---|---|---|---|
|
Dec. 31, 2017
USD ($)
|
Dec. 31, 2014
position
|
Mar. 31, 2018 |
|
| Restructuring Cost and Reserve [Line Items] | |||
| Entity number of employees | 81 | ||
| Restructuring Costs Under the 2013 Plan | |||
| Restructuring Cost and Reserve [Line Items] | |||
| Number of positions eliminated, worldwide (over 100) | position | 100 | ||
| 2017 Plan | |||
| Restructuring Cost and Reserve [Line Items] | |||
| Entity number of employees | 78 | ||
| Severance expense | $ | $ 1.2 |
Restructuring Costs - Schedule Of Restructuring Costs (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
| Restructuring Reserve [Roll Forward] | ||
| Beginning Balance | $ 648,399 | |
| Provisions/Additions | (173,263) | $ (236,302) |
| Utilized/Paid | (13,774) | |
| Ending Balance | $ 461,362 | |
Subsequent Events (Details) - USD ($) |
Apr. 23, 2018 |
Apr. 05, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
|---|---|---|---|---|
| Short-term Debt [Line Items] | ||||
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | ||
| Chief Financial Officer | Subsequent Event | ||||
| Short-term Debt [Line Items] | ||||
| Compensation | $ 240,000 | |||
| Accrued bonuses | 10,000 | |||
| Working capital in excess | $ 27,500 | |||
| Severance payment period | 3 months | |||
| Award requisite period | 12 months | |||
| Deferred Bonus | Chief Financial Officer | Subsequent Event | ||||
| Short-term Debt [Line Items] | ||||
| Accrued bonuses | $ 70,000 | |||
| Upon Termination | Chief Financial Officer | Subsequent Event | ||||
| Short-term Debt [Line Items] | ||||
| Severance payment period | 6 months | |||
| Award requisite period | 12 months | |||
| HCP-FVA, LLC | Director | Subsequent Event | ||||
| Short-term Debt [Line Items] | ||||
| Common stock issued (in shares) | 53,370,601 | |||
| Common stock, par value (in dollars per share) | $ 0.001 |