FalconStor's Mixed Bag

Revenues and losses are up; so are OEM agreements

October 24, 2001

2 Min Read
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Storage software maker FalconStor Software Inc. (Nasdaq: FALC) announced its first quarterly results as a public company yesterday (see FalconStor Closes First Public Quarter). And investors are still mulling them over.

"I'm supposed to talk to them later today, I'll call you back," said one Wall Street analyst, who attended the conference call and participated in the question and answer session afterward.

It's not surprising he needs more help. FalconStor, which specializes in storage virtualization software, is still ramping up after going public in a "reverse IPO" this August (see FalconStor Completes Merger, Joins Nasdaq). And the company's numbers scream "transition period."

Net revenues this quarter were $2.5 million, up substantially from $43,000 the quarter before. Net loss for the quarter was $1.4 million, a 68 percent drop sequentially -- but nearly 200 percent over the net loss at the same time last year.

FalconStor posted a diluted loss per share of $0.04, compared with $0.02 per share one year ago.The yearly performance shows losses too: For the nine months so far recorded in 2001, the company has shown a net loss of $8.8 million ($0.40 per share) on revenues of $2.6 million.

Among the positive signs cited by FalconStor execs, including CEO ReiJane Huai and CFO Jacob Ferng, are the company's $64 million in cash, cash equivalents, and marketable securities, which Huai says will be used for strategic licensing, acquisitions, and other means of promoting the company and its technology.

Management also claims it's a positive that they've been able to keep the company run rate at an average $4 million to $5 million per quarter, despite increases in business activity.

All told, the execs say they're on track. "We are pleased with the industry recognition of our state-of-the-art network storage infrastructure software by OEM and channel partners worldwide," Huai said in a prepared statement.

OEMs (original equipment manufacturers) are key to future success for FalconStor, which Huai says has no direct end-user sales prospects. So far, he says, 10 OEMs have signed as strategic partners. Several of these account for more than 10 percent of the company's revenues apiece, including: Asahi Electronics Co. Ltd. (AEC); ADTX; and Dot Hill Systems Corp.

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