FalconStor struggles on as antsy backers whine 'C'mon, let's sell'
New investor on board, new Violin deal – don't write them off yet
Recovering money from former CEO's estate – what?
There was an amazing issue raised in the earnings call's Q & A session about FalconStor recovering money from a former CEO's estate, presumably that of ReiJane Huai. John Aniblo Zaro of Bourgeon Capital Management said:
You guys were discussing and telling all of us that we were going to recover money from the former CEO's estate and that it would bring cash or reduce the size of the shares outstanding. … don't we still have that out there hanging of whether we need money or not, or is this -- you just think you need the money so quickly that you'd rather have it on the balance sheet?
Garry Quinn responded: "I can tell you that we are making available – any remedies that we have or options we have to recover what we can. But that is something that was – is not concluded and is still outstanding."
Seth R Horowitz, the company's legal exec veep, said: "In terms of the estate, as I said, we don't comment about any particular actions that we might or might not take, but we are aware of all the money that we can recover, and we're going to take all the means to recover those monies."
In other words, yes we are trying to claw money (shares?) back but don't count on it any time soon. There is no declared litigation against the dead former CEO's estate.
Quinn said that IBM was going to ship a FalconStor product later this month. There is also a deal with HP: “The Hewlett-Packard agreement is the opportunity for FalconStor to provide a virtualisation layer with its NSS technology for those customers that Hewlett-Packard is entertaining into their cloud matrix offering that are not utilising Hewlett-Packard storage and servers."
Is FalconStor for sale?
Is the company for sale? It doesn't sound like it.
Quinn, who at the time of writing is not listed as a board member, said: "As a public company, we remain prepared for any options that may be presented to the company and its Board of Directors. But at this time, we'd prefer to digest these above alternatives and focus our company around moving ahead."
He refused to say whether FalconStor had received any purchase offers for the company in the recent past.
Investor Ross DeMont of Midwood Capital Management, LLC, pursued the for-sale point:
The stocks are at 20-year lows. The go-it-alone strategy has not served us particularly well, and our competitors are orders and orders of magnitude larger than we are. So to me, what you come up with is not enough to change this company in the eyes of all of its customers and shareholders. I hope we – I hope the stock recovers a little bit here, but I think most people would have hoped you just sell the whole company and recognise that being this size, competing in this space is probably not a good strategy.
Quinn replied: "We are public, and if someone would come forward, we are more than willing to entertain any options that are presented to us."
Nobody El Reg can think of would want to buy FalconStor. It has to go it alone, for now, and that means the Violin Memory deal is crucial in product development terms.
The refinancing assures the immediate future. That gives Quinn and his team time to refocus the product portfolio and examine the profitability of its sales presence in various geographies. Duff territories will probably see some kind of FalconStor withdrawal and retreat to a distributor-led presence.
Quinn said: "We're looking to put a distribution model in place that makes the most sense for the company, whether that's FalconStor representatives on the ground distributing product on their own, working directly with a partner or a 2-tier distribution model."
Some territorial retreat to distribution should help costs.
The CEO wants FalconStor to be cash-flow positive by the end of the year and "to achieve a break-even operating income by the end of this calendar year on a run rate basis."
That probably means FalconStor will be a smaller company but it will, hopefully, be making profits in 2014. Quinn might even become a proper CEO, insofar as he gets invited to join the board. ®