FALCONSTOR SOFTWARE, INC. | ||
(Exact name of registrant as specified in its charter) | ||
Delaware | 000-23970 | 77-0216135 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
823 Congress Ave, Suite 1300, Austin, Texas | 78701 | |
(Address of principal executive offices) | (Zip Code) |
N/A |
(Former name or former address, if changed since last report.) |
Item 2.02. | Results of Operations and Financial Condition |
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits | |||
Exhibit Number | Description | |||
99.1 |
FALCONSTOR SOFTWARE, INC. | |||
Date: March 22, 2018 | By: | /s/ Patrick McClain | |
Name: | Patrick McClain | ||
Title: | Executive Vice President, Chief Financial Officer and Treasurer |
Three Months Ended December 31, | Change Period to Period | |||||||||||||||||||
(in millions except per share data) | 2017 | 2016 | ||||||||||||||||||
Total revenue | $ | 6.3 | 100 | % | $ | 7.4 | 100 | % | $ | (1.2 | ) | (16 | )% | |||||||
Total cost of revenue | $ | 1.1 | 17 | % | $ | 1.9 | 26 | % | $ | (0.8 | ) | (43 | )% | |||||||
Total operating expenses | $ | 3.8 | 61 | % | $ | 6.1 | 82 | % | $ | (2.3 | ) | (38 | )% | |||||||
Operating income (loss) (GAAP) | $ | 1.4 | 22 | % | $ | (0.6 | ) | (8 | )% | $ | 2.0 | * | ||||||||
Net income (loss) (GAAP) | $ | 1.4 | 22 | % | $ | (1.2 | ) | (16 | )% | $ | 2.7 | * | ||||||||
Diluted EPS GAAP | $ | 0.02 | $ | (0.05 | ) | $ | 0.07 |
Twelve Months Ended December 31, 2017 | Change Period to Period | |||||||||||||||||||
(in millions except per share data) | 2017 | 2016 | ||||||||||||||||||
Total revenue | $ | 25.2 | 100 | % | $ | 30.3 | 100 | % | $ | (5.1 | ) | (17 | )% | |||||||
Total cost of revenue | $ | 5.5 | 22 | % | $ | 8.3 | 27 | % | $ | (2.7 | ) | (33 | )% | |||||||
Total operating expenses | $ | 18.6 | 74 | % | $ | 32.3 | 107 | % | $ | (13.7 | ) | (42 | )% | |||||||
Operating income (loss) (GAAP) | $ | 1.0 | 4 | % | $ | (10.3 | ) | (34 | )% | $ | 11.3 | * | ||||||||
Net income (loss) (GAAP) | $ | 1.1 | 4 | % | $ | (11.0 | ) | (36 | )% | $ | 12.1 | * | ||||||||
Diluted EPS GAAP | $ | — | $ | (0.30 | ) | $ | 0.30 |
Three Months Ended, | |||||||||||
(in millions except per share data) | December 31, 2017 | September 30, 2017 | December 31, 2016 | ||||||||
Revenue | $ | 6.3 | $ | 6.1 | $ | 7.4 | |||||
Bookings | $ | 5.7 | $ | 3.5 | $ | 8.4 | |||||
Non-GAAP Expenses | $ | 4.7 | $ | 5.0 | $ | 8.1 | |||||
Non-GAAP Gross Margin | 83 | % | 80 | % | 74 | % | |||||
Non-GAAP Operating Income (Loss) | $ | 1.5 | $ | 1.1 | $ | (0.7 | ) | ||||
Non-GAAP Net Income (Loss) | $ | 1.5 | $ | 1.2 | $ | (1.3 | ) | ||||
Non-GAAP Diluted EPS | $ | 0.03 | $ | 0.02 | $ | 0.03 | |||||
Cash (used in) provided by operations | $ | (1.0 | ) | $ | 0.1 | $ | (9.4 | ) |
• | In June 2017, our Board of Directors, approved a comprehensive plan to increase operating performance (the “2017 Plan”). The 2017 Plan has resulted in a realignment and reduction in workforce and a change in the leadership of the Company. The 2017 Plan is substantially complete and we ended the quarter with 81 employees worldwide. In connection with the 2017 Plan, the Company has incurred severance expense of $1.2 million. In making these changes, we prioritized customer support and development while consolidating operations and streamlining direct sales resources, therefore allowing us to focus on our install base and develop more efficient market channels. |
• | During 2017, we continued to innovate and further enhance our products. |
December 31, 2017 | December 31, 2016 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,011,472 | $ | 3,391,528 | ||||
Accounts receivable, net | 4,168,015 | 5,003,972 | ||||||
Prepaid expenses and other current assets | 1,244,494 | 1,245,085 | ||||||
Inventory | — | 6,181 | ||||||
Total current assets | 6,423,981 | 9,646,766 | ||||||
Property and equipment, net | 636,112 | 1,174,942 | ||||||
Deferred tax assets, net | 590,977 | 577,735 | ||||||
Software development costs, net | 279,414 | 547,558 | ||||||
Other assets, net | 992,760 | 973,949 | ||||||
Goodwill | 4,150,339 | 4,150,339 | ||||||
Other intangible assets, net | 141,631 | 209,456 | ||||||
Total assets | $ | 13,215,214 | $ | 17,280,745 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,092,864 | $ | 419,877 | ||||
Accrued expenses | 4,376,235 | 4,471,010 | ||||||
Short-term loan, net of debt issuance costs and discounts | 370,151 | — | ||||||
Deferred revenue, net | 11,760,327 | 15,236,123 | ||||||
Total current liabilities | 17,599,577 | 20,127,010 | ||||||
Other long-term liabilities | 1,154,512 | 1,170,844 | ||||||
Deferred tax liabilities, net | 85,559 | 254,776 | ||||||
Deferred revenue, net | 6,600,363 | 8,430,692 | ||||||
Total liabilities | 25,440,011 | 29,983,322 | ||||||
Commitments and contingencies | ||||||||
Series A redeemable convertible preferred stock | 9,000,000 | 9,000,000 | ||||||
Total stockholders' deficit | (21,224,797 | ) | (21,702,577 | ) | ||||
Total liabilities and stockholders' deficit | $ | 13,215,214 | $ | 17,280,745 |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue: | ||||||||||||||||
Product revenue | $ | 2,422,280 | $ | 2,650,901 | $ | 8,972,112 | $ | 10,116,897 | ||||||||
Support and services revenue | 3,859,409 | 4,785,353 | 16,188,451 | 20,146,449 | ||||||||||||
Total revenue | 6,281,689 | 7,436,254 | 25,160,563 | 30,263,346 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Product | 115,971 | 222,213 | 785,535 | 932,446 | ||||||||||||
Support and service | 967,182 | 1,676,129 | 4,755,464 | 7,351,857 | ||||||||||||
Total cost of revenue | 1,083,153 | 1,898,342 | 5,540,999 | 8,284,303 | ||||||||||||
Gross profit | $ | 5,198,536 | $ | 5,537,912 | $ | 19,619,564 | $ | 21,979,043 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development costs | 980,392 | 2,227,278 | 6,517,050 | 11,702,956 | ||||||||||||
Selling and marketing | 831,664 | 2,533,442 | 6,120,655 | 13,918,493 | ||||||||||||
General and administrative | 1,988,943 | 1,369,840 | 6,119,513 | 6,470,579 | ||||||||||||
Restructuring costs (benefit) | — | — | (159,597 | ) | 177,389 | |||||||||||
Total operating expenses | 3,800,999 | 6,130,560 | 18,597,621 | 32,269,417 | ||||||||||||
Operating income (loss) | 1,397,537 | (592,648 | ) | 1,021,943 | (10,290,374 | ) | ||||||||||
Interest and other (loss) income, net | (222,057 | ) | (386,610 | ) | 38,064 | (121,213 | ) | |||||||||
Income (loss) before income taxes | 1,175,480 | (979,258 | ) | 1,060,007 | (10,411,587 | ) | ||||||||||
Provision (benefit) for income taxes | (199,746 | ) | 211,869 | 7,606 | 587,207 | |||||||||||
Net income (loss) | $ | 1,375,226 | $ | (1,191,127 | ) | $ | 1,052,401 | $ | (10,998,794 | ) | ||||||
Less: Accrual of Series A redeemable convertible preferred stock dividends | 238,379 | 195,904 | 873,043 | 777,890 | ||||||||||||
Less: Accretion to redemption value of Series A redeemable convertible preferred stock | — | 668,177 | — | 1,181,446 | ||||||||||||
Net income (loss) attributable to common stockholders | $ | 1,136,847 | $ | (2,055,208 | ) | $ | 179,358 | $ | (12,958,130 | ) | ||||||
Basic net income (loss) per share attributable to common stockholders | $ | 0.03 | $ | (0.05 | ) | $ | — | $ | (0.30 | ) | ||||||
Diluted net income (loss) per share attributable to common stockholders | $ | 0.02 | $ | (0.05 | ) | $ | — | $ | (0.30 | ) | ||||||
Weighted average basic shares outstanding | 44,563,490 | 43,818,413 | 44,413,061 | 43,091,878 | ||||||||||||
Weighted average diluted shares outstanding | 51,938,922 | 43,818,413 | 49,194,706 | 43,091,878 |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
GAAP income (loss) from operations | $ | 1,397,537 | $ | (592,648 | ) | $ | 1,021,943 | $ | (10,290,374 | ) | ||||||
Non-cash stock option expense (1) | 140,961 | (63,944 | ) | 422,953 | 2,328,218 | |||||||||||
Restructuring costs (3) | — | — | (159,597 | ) | 177,389 | |||||||||||
Non-GAAP (loss) income from operations | $ | 1,538,498 | $ | (656,592 | ) | $ | 1,285,299 | $ | (7,784,767 | ) | ||||||
GAAP net loss attributable to common stockholders | $ | 1,136,847 | $ | (2,055,208 | ) | $ | 179,358 | $ | (12,958,130 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 140,961 | (63,944 | ) | 422,953 | 2,328,218 | |||||||||||
Restructuring costs (3) | — | — | (159,597 | ) | 177,389 | |||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 238,379 | 864,081 | 873,043 | 1,959,336 | ||||||||||||
Non-GAAP net (loss) income | $ | 1,516,187 | $ | (1,255,071 | ) | $ | 1,315,757 | $ | (8,493,187 | ) | ||||||
GAAP gross margin | 83 | % | 74 | % | 78 | % | 73 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin | 83 | % | 74 | % | 78 | % | 73 | % | ||||||||
GAAP gross margin - Product | 95 | % | 92 | % | 91 | % | 91 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Product | 95 | % | 92 | % | 91 | % | 91 | % | ||||||||
GAAP gross margin - Support and Service | 75 | % | 65 | % | 71 | % | 64 | % | ||||||||
Non-cash stock option expense (1) | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
Non-GAAP gross margin - Support and Service | 75 | % | 65 | % | 71 | % | 64 | % | ||||||||
GAAP operating margin | (8 | %) | (8 | %) | 4 | % | (34 | %) | ||||||||
Non-cash stock option expense (1) | 2 | % | (1 | %) | 2 | % | 8 | % | ||||||||
Restructuring costs (3) | 0 | % | 0 | % | (1 | %) | 1 | % | ||||||||
Non-GAAP operating margin | (6 | %) | (9 | %) | 5 | % | (26 | %) | ||||||||
GAAP Basic EPS | $ | 0.03 | $ | (0.05 | ) | $ | 0.00 | $ | (0.30 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.00 | 0.01 | 0.05 | ||||||||||||
Restructuring costs (3) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 0.00 | 0.02 | 0.02 | 0.05 | ||||||||||||
Non-GAAP Basic EPS | $ | 0.03 | $ | (0.03 | ) | $ | 0.03 | $ | (0.20 | ) | ||||||
GAAP Diluted EPS | $ | 0.02 | $ | (0.05 | ) | $ | 0.00 | $ | (0.30 | ) | ||||||
Non-cash stock option expense, net of income taxes (2) | 0.00 | 0.00 | 0.01 | 0.05 | ||||||||||||
Restructuring costs (3) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
Effects of Series A redeemable convertible preferred stock (4) | 0.01 | 0.02 | 0.02 | 0.05 | ||||||||||||
Non-GAAP Diluted EPS | $ | 0.03 | $ | (0.03 | ) | $ | 0.03 | $ | (0.20 | ) | ||||||
Weighted average basic shares outstanding (GAAP and as adjusted) | 44,563,490 | 43,818,413 | 44,413,061 | 43,091,878 | ||||||||||||
Weighted average diluted shares outstanding (GAAP and as adjusted) | 51,938,922 | 43,818,413 | 49,194,706 | 43,091,878 |
(1) | Represents non-cash, stock-based compensation charges as follows: |
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Cost of revenues - Support and Service | 8,894 | (4,618 | ) | 64,427 | 80,903 | |||||||||||
Research and development costs | 21,045 | 1,229 | 233,955 | 1,653,336 | ||||||||||||
Selling and marketing | 8,108 | 9,502 | 48,286 | 241,481 | ||||||||||||
General and administrative | 102,914 | (70,057 | ) | 76,285 | 352,498 | |||||||||||
Total non-cash stock based compensation expense | $ | 140,961 | $ | (63,944 | ) | $ | 422,953 | $ | 2,328,218 |
(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, 2017 and 2016, the tax expense for both GAAP and Non-GAAP basis approximate the same amount. Included in share-based compensation expense for the twelve months ended December 31, 2017 and 2016 was $0.0 million and $1.5 million, respectively, related to costs associated with our exclusive source code license and development agreement which were paid through the issuance of our common stock. |
(3) | Represents restructuring costs which were incurred during each respective period presented. |
(4) | Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock and accrual of Series A redeemable convertible preferred stock dividends. |
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