UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 18, 2013
 
FALCONSTOR SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
     
Delaware
0-23970
77-0216135
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
     
2 Huntington Quadrangle, Melville, New York
11747
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: 631-777-5188
 
 
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 

 
 
Item 2.02.
Results of Operations and Financial Condition
 
 
On March 18, 2013, the Company issued a press release announcing its results of operations for the full year and the fiscal quarter ended December 31, 2012.

The text of a press release issued by the Company is furnished as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01.
Financial Statements and Exhibits

(c)           Exhibits

 
Exhibit Number
Description
 
 
99.1
Press release of the Company dated March 18, 2013.
 
 
 

 
 
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
FALCONSTOR SOFTWARE, INC.
   
   
Dated: March 18, 2013
By:
/s/ Louis J. Petrucelly
   
Name:
Louis J. Petrucelly
   
Title:
Vice President and Chief Financial Officer

 
 

 


 
Contact:            Joanne Ferrara, Investor Relations
631-773-5813
joanne.ferrara@falconstor.com

FalconStor Software Announces Fourth Quarter and Full Year 2012 Results

MELVILLE, N.Y., March 18, 2013FalconStor Software, Inc. (NASDAQ: FALC), a market leader in disk-based data protection, today announced financial results for its fourth quarter and full year that ended December 31, 2012. FalconStor closed the year with over 30 percent sequential revenue growth in the fourth quarter.

“Though 2012 was a challenging year for FalconStor, our year-long efforts paid off with a strong fourth quarter, international recognition for product innovation and great strides in product development that we expect will come to fruition this year,” said James P. McNiel, president and CEO of FalconStor Software. “With the Company’s major outstanding legal issues resolved, FalconStor is moving forward aggressively with its suite of data protection solutions designed to help businesses modernize backup, automate disaster recovery, migrate data and optimize existing storage resources. We continue to address a lucrative market opportunity with the right products at the right time for an IT industry still adjusting to explosive data growth, virtualization, round-the-clock demand for data center services and the advent of Big Data and the cloud.”

Financial and Business Highlights:
 
·
Fourth quarter total revenue increased more than 30 percent compared with the third quarter of 2012.
 
·
Positive cash flow from operations in the fourth quarter of $4.3 million.
 
·
Full year 2012 support and services revenue increased 2 percent compared with fiscal year 2011.
 
·
Full year 2012 total revenue declined 9 percent over fiscal year 2011.
 
·
The Company announced the settlement of government investigations in June 2012, an agreement to settle a class action lawsuit in January 2013 and the dismissal of a derivative action lawsuit on March 5, 2013.
 
·
Product innovation in 2012 focused on deduplication with enhancements to the FalconStor® Virtual Tape Library (VTL) solution, which was the Backup & Recovery Solution winner in the Network World Asia Information Management Awards.
 
·
Industry recognition for RecoverTrac™ technology as a Best of VMworld 2012 award gold winner in the Business Continuity and Data Protection category demonstrates the importance of automating disaster recovery strategies and testing.
 
·
FalconStor® Network Storage Server (NSS) VS Series HA Appliance received a silver medal in the Best Hardware: Appliance category in the 2012 Windows IT Pro 2012 Editors’ Best Awards, highlighting the product’s strategic importance, value to customers and competitive advantage within the storage virtualization, data migration and data protection markets.
 
 
 

 
 
Financials
For the year ended December 31, 2012, revenues decreased to $75.4 million, compared with $82.9 million for the same period a year ago. GAAP loss from operations for 2012 was $13.7 million, compared with an operating loss of $22.2 million for the same period a year ago. GAAP net loss for 2012 was $15.0 million, or $0.32 per share, compared with $23.4 million, or $0.50 per share, in 2011. The 2012 operating results include a net reduction of $0.3 million of investigation, litigation and settlement costs. The net reduction of $0.3 million resulted from the Company recording a receivable during 2012 for the recovery of $4.9 million of costs, including any settlements associated with the Class Action and Derivative suits and the reversal of previously accrued costs related to the government investigations of $1.7 million. These amounts were partially offset by $5.0 million for the settlement of the Class Action and $1.3 million of overall legal fees not recoverable through insurance. During the same period in 2011, the Company had recorded $10.3 million of costs associated with the then outstanding government investigations and related class actions, which was comprised of $2.8 million of legal fees and an accrual of $7.5 million for certain costs associated with the then outstanding resolution of the investigations.

Non-GAAP loss from operations in 2012 was $8.6 million, compared with a loss from operations of $5.6 million in 2011. Non-GAAP net loss was $9.9 million, or a loss of $0.21 per share, in 2012, compared with a net loss of $6.8 million, or $0.15 per share, in 2011. Non-GAAP results exclude the effects of stock-based compensation, costs associated with the government investigations, litigation and settlement related costs and restructuring cost, when applicable.

Total revenues for the fourth quarter of 2012 were $22.5 million, a decrease of 12 percent compared with $25.4 million in the same period a year ago. GAAP loss from operations for the fourth quarter of 2012 was $1.7 million, compared with an operating loss of $5.5 million for the fourth quarter of 2011. GAAP net loss for the quarter was $2.3 million, or $0.05 per share, compared with a net loss of $6.1 million, or $0.13 per share, for the same period a year ago. Included in the operating results for the fourth quarter of 2012 and 2011 was $1.5 million and $5.9 million, respectively, of investigation, litigation and settlement costs.

Non-GAAP income from operations was $0.8 million in the fourth quarter of 2012, compared with non-GAAP income from operations of $1.9 million for the same period a year ago. Non-GAAP net income was $0.1 million, or breakeven per share, in the fourth quarter of 2012, compared with the non-GAAP net income of $1.2 million, or $0.03 per share, in the fourth quarter of 2011. Non-GAAP results exclude the effects of stock-based compensation and costs associated with the Company’s investigations, litigation and settlement related costs.

The Company closed the year with $29.9 million in cash, cash equivalents and marketable securities. Cash flow from operations for the fourth quarter of 2012 was $4.3 million, and for the full year 2012 cash flow from operations was ($5.3) million. Deferred revenue at December 31, 2012, was $24.1 million, a decrease of 11 percent compared with the same period a year ago.

Conference Call
FalconStor will host a conference call to discuss its financial results today, March 18, 2013, at 4:30 p.m. EDT. To participate in the conference call, please dial 1-877-941-0844 (toll free) or +1-480-629-9835 (international). To view the presentation, visit https://falconstor.webex.com/falconstor/j.php?ED=179176067&RG=1&UID=0 to register for this meeting. Once you have registered for the meeting, you will receive an email message confirming your registration.
 
 
 

 

Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company’s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company’s operating performance. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency into the supplemental information used by management in its financial and operational decision-making. The non-GAAP financial measures exclude (i) costs associated with the Company’s class action and derivative lawsuits, government investigations, and related legal fees, (ii) noncash stock-based compensation charges and any potential tax effects and (iii) restructuring costs, when applicable. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in this release.
 
 
About FalconStor Software
FalconStor Software, Inc. (NASDAQ: FALC) is a market leader in disk-based data protection. The company’s mission is to transform traditional backup and disaster recovery into next-generation service-oriented data protection. Built upon an award-winning platform, FalconStor solutions deliver disk-based backup, continuous data protection, WAN-optimized replication and disaster recovery automation. FalconStor solutions are available through a worldwide network of partners, including solution providers, top-tier strategic partners, and OEMs. Thousands of customers worldwide, from small businesses to Fortune 100 enterprises, entrust their data to FalconStor solutions. FalconStor maintains headquarters in Melville, N.Y., and offices throughout Europe and the Asia Pacific region. For more information, visit www.falconstor.com or call 1-866-NOW-FALC (866-669-3252). 

Follow us on Twitter – Watch us on YouTube – Connect with us on LinkedIn

# # #

This press release includes forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include: delays in product development; market acceptance of FalconStor’s products and services; technological change in the data protection industry; competition in the data protection market; results and costs associated with governmental investigations; intellectual property issues; and other risk factors discussed in FalconStor’s reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission.
FalconStor, FalconStor Software and RecoverTrac are either trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders.

Links to websites or pages controlled by parties other than FalconStor are provided for the reader’s convenience and information only.  FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate.  Use of information obtained by following these links is at the reader’s own risk.
 
 
 

 
 
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
December 31, 2012
   
December 31, 2011
 
Assets
 
(unaudited)
       
Current assets:
           
Cash and cash equivalents
  $ 18,651,468     $ 16,257,694  
Restricted cash
    750,000       -  
Marketable securities
    10,530,942       20,894,328  
Accounts receivable, net
    14,130,302       19,314,789  
Prepaid expenses and other current assets
    2,796,665       1,912,831  
Inventory
    642,819       1,769,007  
Deferred tax assets, net
    464,031       177,798  
                 
Total current assets
    47,966,227       60,326,447  
                 
Property and equipment, net
    3,980,679       4,364,180  
Long-term marketable securities
    -       611,082  
Deferred tax assets, net
    86,465       217,771  
Software development costs, net
    1,161,822       1,001,530  
Other assets, net
    2,185,148       2,183,973  
Goodwill
    4,150,339       4,150,339  
Other intangible assets, net
    174,426       191,572  
                 
Total assets
  $ 59,705,106     $ 73,046,894  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 2,801,372     $ 2,883,844  
Accrued expenses
    16,720,582       17,609,766  
Deferred revenue, net
    17,831,653       19,450,966  
                 
Total current liabilities
    37,353,607       39,944,576  
                 
Other long-term liabilities
    2,618,818       2,587,327  
Deferred tax liabilities, net
    167,875       -  
Deferred revenue, net
    6,311,865       7,698,053  
                 
Total liabilities
    46,452,165       50,229,956  
                 
Commitments and contingencies
               
                 
Total stockholders' equity
    13,252,941       22,816,938  
                 
Total liabilities and stockholders' equity
  $ 59,705,106     $ 73,046,894  

 
 

 

FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Product revenues
  $ 14,309,549     $ 16,425,089     $ 41,358,621     $ 49,470,139  
Support and services revenues
    8,178,134       9,001,853       34,052,348       33,400,463  
Total  revenues
    22,487,683       25,426,942       75,410,969       82,870,602  
                                 
Cost of revenues:
                               
Product
    2,845,121       2,930,678       8,215,152       8,386,864  
Support and service
    2,875,952       3,252,789       12,446,921       13,130,045  
Total cost of revenues
    5,721,073       6,183,467       20,662,073       21,516,909  
                                 
Gross profit
  $ 16,766,610     $ 19,243,475     $ 54,748,896     $ 61,353,693  
                                 
                                 
Operating expenses
                               
Research and development costs
    4,520,940       4,816,498       18,636,328       21,199,816  
Selling and marketing
    8,705,695       10,724,122       36,008,655       39,597,590  
General and administrative
    3,743,566       3,232,750       13,334,475       11,696,512  
Investigation, litigation, and settlement
                               
  related costs
    1,466,960       5,926,090       (326,408 )     10,257,388  
Restructuring costs
    -       -       770,749       822,320  
Total operating expenses
    18,437,161       24,699,460       68,423,799       83,573,626  
 
                               
Operating loss
    (1,670,551 )     (5,455,985 )     (13,674,903 )     (22,219,933 )
                                 
Interest and other (loss) income, net
    (380,206 )     (319,708 )     (523,011 )     59,982  
                                 
Loss before income taxes
    (2,050,757 )     (5,775,693 )     (14,197,914 )     (22,159,951 )
                                 
Provision for income taxes
    295,519       339,111       786,407       1,208,332  
                                 
Net loss
  $ (2,346,276 )   $ (6,114,804 )   $ (14,984,321 )   $ (23,368,283 )
                                 
Basic net loss per share
  $ (0.05 )   $ (0.13 )   $ (0.32 )   $ (0.50 )
                                 
Diluted net loss per share
  $ (0.05 )   $ (0.13 )   $ (0.32 )   $ (0.50 )
                                 
Weighted average basic shares
                               
outstanding
    47,573,019       46,903,896       47,408,995       46,648,928  
                                 
Weighted average diluted shares
                         
outstanding
    47,573,019       46,903,896       47,408,995       46,648,928  
 
 
 

 
 
FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
 
   
Three Months Ended
   
Twelve Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
GAAP loss from operations
  $ (1,670,551 )   $ (5,455,985 )   $ (13,674,903 )   $ (22,219,933 )
Add: Non-cash stock option expense (1)
    1,020,613       1,426,180       4,614,769       5,518,058  
       Legal related costs (3)
    1,466,960       5,926,090       (326,408 )     10,257,388  
       Restructuring costs (4)
    -       -       770,749       822,320  
Non-GAAP income (loss) from operations
    817,022       1,896,285       (8,615,793 )     (5,622,167 )
                                 
                                 
GAAP net loss
  $ (2,346,276 )   $ (6,114,804 )   $ (14,984,321 )   $ (23,368,283 )
Add: Non-cash stock option expense, net of
                               
          income taxes (2)
    1,020,613       1,426,180       4,614,769       5,518,058  
       Legal related costs (3)
    1,466,960       5,926,090       (326,408 )     10,257,388  
       Restructuring costs (4)
    -       -       770,749       822,320  
Non-GAAP net income (loss)
    141,297       1,237,466       (9,925,211 )     (6,770,517 )
                                 
                                 
GAAP gross margin - Product
    80 %     82 %     80 %     83 %
Add: Non-cash stock option expense (1)
    0 %     0 %     0 %     0 %
Non-GAAP gross margin - Product
    80 %     82 %     80 %     83 %
                                 
                                 
GAAP gross margin - Support and Service
    65 %     64 %     63 %     61 %
Add: Non-cash stock option expense (1)
    1 %     1 %     1 %     1 %
Non-GAAP gross margin - Support and Service
    66 %     65 %     64 %     62 %
                                 
                                 
GAAP operating margin
    (7 %)     (21 %)     (18 %)     (27 %)
Add: Non-cash stock option expense (1)
    5 %     6 %     6 %     7 %
       Legal related costs (3)
    7 %     23 %     (0 %)     12 %
       Restructuring costs (4)
    0 %     0 %     1 %     1 %
Non-GAAP operating margin
    4 %     7 %     (11 %)     (7 %)
                                 
                                 
GAAP Basic EPS
  $ (0.05 )   $ (0.13 )   $ (0.32 )   $ (0.50 )
Add: Non-cash stock option expense, net of
                               
          income taxes (2)
    0.02       0.03       0.10       0.12  
       Legal related costs (3)
    0.03       0.13       (0.01 )     0.22  
       Restructuring costs (4)
    -       -       0.02       0.02  
Non-GAAP Basic EPS
    0.00       0.03       (0.21 )     (0.15 )
                                 
                                 
GAAP Diluted EPS
  $ (0.05 )   $ (0.13 )   $ (0.32 )   $ (0.50 )
Add: Non-cash stock option expense, net of
                               
          income taxes (2)
    0.02       0.03       0.10       0.12  
       Legal related costs (3)
    0.03       0.13       (0.01 )     0.22  
       Restructuring costs (4)
    -       -       0.02       0.02  
Non-GAAP Diluted EPS
    0.00       0.03       (0.21 )     (0.15 )
                                 
                                 
Weighted average basic shares
                               
outstanding (GAAP and as adjusted)
    47,573,019       46,903,896       47,408,995       46,648,928  
                                 
Weighted average diluted shares
                         
outstanding (GAAP and as adjusted)
    47,573,019       47,199,799       47,408,995       46,648,928  
 
 
 

 
 
Footnotes:
(1)
Represents non-cash, stock-based compensation charges as follows:
 
   
Three Months Ended
   
Twelve Months Ended
 
   
December 31,
   
December 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Cost of revenues - Product
  $ 50     $ 319     $ 262     $ 2,960  
Cost of revenues - Support and Service
    69,549       76,703       172,707       461,735  
Research and development costs
    155,656       257,936       727,826       1,302,129  
Selling and marketing
    404,646       552,277       1,677,469       2,023,370  
General and administrative
    390,712       538,945       2,036,505       1,727,864  
                                 
Total non-cash stock based
                               
   compensation expense
  $ 1,020,613     $ 1,426,180     $ 4,614,769     $ 5,518,058  
                                 
 
(2)
Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, net of related income tax effects. For the three and twelve months ended December 31, 2012 and 2011, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.

(3)
Legal related costs represent expenses in connection with the Company’s investigations, litigation and settlement related costs for each respective period presented.

(4)
Represents restructuring costs which were incurred during each respective period presented.