FalconStor Software's (FALC) CEO Gary Quinn on Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: FalconStor Software, (FALC)

FalconStor Software, Inc. (NASDAQ:FALC)

Q2 2014 Results Earnings Conference Call

July 30, 2014, 04:30 PM ET

Executives

Gary Quinn – President & CEO

Lou Petrucelly – EVP & CFO

Analysts

John Zaro – Bourgeon Capital

Operator

Good afternoon and thank you for joining us to discuss FalconStor Software's Q2 2014 Earnings.

Gary Quinn, FalconStor's Chief Executive Officer; and Louis Petrucelly, Executive Vice President and Chief Financial Officer will discuss the company's results and activities and will then open the call to your questions.

The company would like to advise all participants that today's discussion may contain what some consider forward-looking statements. These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. These statements and uncertainties are discussed in FalconStor's reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission, and in the company's press release issued today.

During today's call, there will be discussions that include non-GAAP results. A reconciliation of the non-GAAP results to GAAP has been posted on FalconStor's website at www.falconstor.com under Investor Relations. After the close of business today, FalconStor released its Q2 2014 earnings. Copies of the earnings release and supplemental financial information are available on FalconStor's website, at www.falconstor.com.

I'm now pleased to turn the call over to Gary Quinn.

Gary Quinn

Thank you, operator, and good afternoon ladies and gentlemen.

Over the past 12 months, the FalconStor team has accomplished many milestones and build solid momentum for the future. We launched a bold new brand identity and messaging with the power to be free campaign, the new concise messaging is resonating with the marketplace through reports from industry analyst, journalist, partners and customers.

We delivered new technology for our joint development initiative for the flash memory market segment on time and against the current milestones. As of today both the NSS and FDS technologies are in the office status with only first customer ship to be delivered, which is primarily additional quality assurance and packing work, the optimized technology to address virtualization, migration, replication and deduplication for the flash memory platform.

Engineering work is now complete and FalconStor future deliverables for flash memory and cloud computing are the number one focus for the FalconStor engineering teams.

We have been able to work on a number of strategic corporate alliance partners to obtain increased commitments in the form of go-to-market strategies, closer ties with engineering and marketing resource is to provide better solutions and messaging as well as targeted improvements to our current business expectations.

We put in place a focused FalconStor Corporate alliance team that will provide the necessary company to company bridging at the executive marketing, engineering and filed levels. The team is comprised of one of FalconStor most experienced employees along with some technical staff and myself.

We believe that these relationships have experienced a knowledgeable FalconStor partners, will be able to drive revenue growth, the fastest way for the company and bring more awareness to our brand because of their reach in the market place.

Another one of milestones is that we launched a FalconStor Federal Division with a partner Acolyst who has a long tenure in working with the U.S. Federal Government to increase our visibility of FalconStor products to that market place. The U.S. Federal Government is a very large buyer in the U.S. market and FalconStor believes with its technology and Acolyst experience and working with the federal government as well as the U.S. Federal Government's initiatives around data migration and datacenter consolidation we can provide the necessary cost savings that the U.S. Federal Government is looking for, going into their new fiscal year in 2014 and 2015.

As you can see from our acquired filings, our employee population has stabilized over the last 12 months and we believe that our staff understand and are committed to the FalconStor mission as we complete 2014 and look forward to 2015.

The Company is aligning nicely going into the second half of 2014. Also from our required filings and from Lou's presentation, you will see that we have solidified our customer base with maintenance renewals increasing in all parts of the world including Asia, which has historically been a weaker region for us.

As part of the customer base stabilizing, we are also seeing customers not only renew their FalconStor Technology, but existing customers are beginning to upgrade to the new releases we have provided over the last 12 months and they have added capacity to their existing installations.

We've been able to stabilize the company, the employees, our most strategic partners and our existing install base over the last 12 months. We believe that foundation will be a recipe for success as we move forward in 2014 and further into 2015. There is nothing better than using an existing happy customer and the value they are receiving from FalconStor for new prospects.

When I turn the call over the Lou, he will review our financials, which are all pointing in the right direction or have been stabilized. We recognize that the company must generate more opportunities that will result in more new customer sales, which will drive more topline revenue.

We have a number of big initiatives underway now. Our corporate marketing messaging is gaining traction, our products are coming out on time and with quality and our employees and partners have an improved understanding of the direction and commitment of FalconStor to the future.

All of these milestones are establishing a better foundation for FalconStor, its future and a future of its employees, customers, partners, and shareholders and I am still optimistic as we move ahead.

Now I would like to turn the call over the Lou for a review of the numbers in detail. Lou.

Lou Petrucelly

Thank you, Gary and good evening, everyone. As we pointed out during our past several calls we believe it is most appropriate to measure our results on a sequential basis, which will better highlight the progress we are making during this transition period of stabilizing our business, which commenced during the second half of last year.

Our earnings release distributed earlier today contains our year-over-year results and all the applicable discloser in accordance with GAAP. As we've discussed on previous calls, as we navigate through the transition period, we continue to anticipate that our quarters maybe lumpy and revenues may lag from a GAAP perspective depending on the mix of business we transact as we continue to offer our customers flexibility in their purchasing habits.

We have now completed the first six months of offering customers the option of a flexible purchasing model and our sales team are continuing to focus on bookings achievements versus our historical upfront model as part of our effort to grow our customer base. Our near term objective will continue to focus on driving stability within the business, growing our bookings and increasing deferred revenues and cash flows on a sequential basis.

Now I would like to provide you with a brief update on some of the key matrix we used to measure the progress we've made during the quarter.

For the second quarter of 2014, GAAP revenues totaled $11.3 million compared with $12 million in the previous quarter. As we have discussed previously it will be more competitive if we use a flexible business model, which provides our customers the ability to structure their purchases in a manner, which best fits their IT budgets.

As we move more and more to the effects of transactions the timing of our revenue recognition may lag behind our bookings and will differ from historical upfront method. During the quarter our bookings from Asia Pacific regions were below our internal expectations and the previous quarter's performance, which was the main drive behind our sight decline in the sequential GAAP revenue in the previous quarter.

Additionally, the overall lackluster spending in the IT sector continues to adverse impact topline performance. However, we continue to believe that the flexible business model will ultimately provide us with more opportunities in securing deals and growing our market share moving forward. Our focus will continue to be on driving topline stability, predictability and opening growth as we fully transition through our realignment process.

From a bookings perspective, our Q2 booking totaled $13.3 million compared with $14.4 million in the previous quarter. As we've discussed over the past few calls beginning of 2014, our sales force and our internal targets are based upon bookings achievements to better align our objectives and securing more deals and growing the market share.

Geographically our Americans region increase bookings by 16% compared with Q1 while the Asia Pacific bookings were down by 24% and our EMEA bookings were off by 14% sequentially. The differences in our sequential bookings are probably reflective of some of the softness in new customer acquisitions and installed-based expansions.

Our Asia Pacific region contributed 31% of our total Q2 bookings, EMEA contributed 26% and the Americans contributed 43% of our total Q2 bookings. Overall, approximately 14% of Q2 bookings were derived from new customers.

Finally we were pleased we exceeded our internal booking targets for Americans and EMEA during the quarter and anticipate that we may experience some bumps along the way as we continue to work closely with each local region, partner and customers through the transition period in the efforts of building more robust and predictable pipeline within each region.

Next, I would like turn to our non-GAAP expenses, which exclude restructuring charges, legal cost and stock-based compensation. As part of our rebalancing efforts, we reduced our overhead to a level commensurate with the company’s size and we aligned our operating expenses to the company’s capital resources.

We are pleased that we have maintained our core structure and during the quarter our Q2 non-GAAP expenses totaled $14.1 million compared with $13.9 million in the previous quarter. Our non-GAAP gross margins were 76% compared with 78% in the previous quarter and we closed the quarter with 277 employees worldwide compared with 279 employees in Q1.

Our operating expenses increased 2%, which reflected major investments we made during Q1 and Q2 specifically around our corporate rebranding and marketing efforts and a newly formed federal division we recently announced with our partner Acolyst. This investment is approximately $0.5 million of incremental expenses over the prior quarter.

As we previously indicated during the first half 2014, we thought to strategically reinvest back into our business both from a sales and marketing and product development perspectives. We anticipate that we may recognize incremental expenses increases in the coming quarters in support of our near-term objectives. However, we will continue to monitor our expense structure closely and continue to drive a bottom-line culture across the entire company.

Turning to our balance sheet, as of June 30, we had $28.8 million in cash, cash equivalents and marketable securities, compared with $27.9 million in the previous quarter. Our Q2 2014 cash balance includes a $1.5 million milestone payment we received from our joint development activities as well as $200,000 worth of payments associated with our restructuring efforts.

During the previous quarter, we did not receive any milestone payments from our joint development activities and we made approximately $600,000 of payments related to these restructuring efforts. As of June 30, our deferred revenue totaled $33.1 million compared with $31.9 million at March 31, an increase of 4%.

As I previously mentioned, during the quarter we added $1.5 million of deferred revenue related to our joint development activities. If we exclude the current quarter's milestone payment, our deferred revenue remains essentially flat as compared with the previous quarter.

It should be noted that over the past several years and as results of the historical seasonality within our business, which was skewed towards the fourth quarter our deferred revenue balances were typically the greatest in Q4 and Q1.

We are pleased that we have been able to maintain our deferred revenue balance sequentially and attribute this to our focus on securing bookings, which in some cases utilizes our new flexible model and our focus on maintenance and support renewals.

As of June 30, approximately 13% of our deferred revenue balances was related to product revenues compared with 12% in the prior quarter. For the quarter, we generated positive cash flow from operations of $1.1 million compared with positive cash flow from operations of $300,000 in the previous quarter.

On an adjusted non-GAAP basis for the quarter cash used in operations totaled $200,000 compared with cash flow from operations on an adjusted non-GAAP basis of $900,000 in the previous quarter. The adjusted non-GAAP cash flow from operations exclude payments in connection with our restructuring efforts and proceeds were received from our joint development activities as applicable.

Finally as you are aware on June 12, we announced we reached a settlement with the State of AJY whereby we recovered approximately 3.1 million shares from the state or $5.25 million in value. Effective June 27, we retired 3.1 million shares, which represented approximately 7% of our shares outstanding as of June 30, and our total shares reduced to approximately $45 million.

To summaries, we are encouraged with the progress we are making and we remain fully committed to the execution of our turnaround strategy. Many of our internal metrics were positive for the quarter including certain booking achievements, preserving cash, generating positive cash flow from operations and going up our deferred revenues.

Our new overhead structure shows our commitment to align our cost with activities directly supportive our topline growth. While we remain committed to our goal in 2014 of breaking even on a non-GAAP basis on a full year basis, we do realize there is some ground to make up from the shortfall in the first half, which may be challenging.

As I mentioned earlier, some of our course maybe lumpy depending on the mix of flexible business we transact and our revenues may lag behind our booking achievements in the near term.

Our focus will be on driving stability within the business, capitalizing on areas where we can reinvest, support of growth imitative and growing up deferred revenues of bookings on a sequentially basis. We are full committed on driving the business towards possibility and this remains at the forefront of our near-term objectives.

We believe we are the correct path to execute our plan and there is more work -- while there is more work to be done over the next several quarters we are excited and focused on executing on our objectives and Gary and I look forward to updating you all on our progress on our next call.

And I’ll turn the call back over to the operator to open lines of questions. Operator.

Question-and-Answer Session

Operator

(Operator instructions) And first we'll go to [David Cohn with MHL] (ph).

Unidentified Analyst

Hey guys, thanks for taking my question. I have three or four. I will just ask them and you guys can respond and I will get back in the queue.

First of all did you internally anticipate that Q2 would have lower bookings? Second question is did have any sales that were delayed in the quarter in anticipation of the new product releases? The third question with respect to the Asia Pacific region, does that mean you did not receive any additional Huawei orders in this quarter? I know you had some reasonably good business from then in Q1 and then my last question was what is the remaining royalty payment due on the Violin Memory transactions?

Gary Quinn

All right David, so I got those four written down. Let me go from here. Okay, all right so your first question was that did we anticipate lower bookings in this quarter before we entered or maybe when we finished it and in reality we were -- basically the targets that we had set for us internally, we felt were achievable and on a bookings level, we were actually very close to those goals. We were off by a little bit.

Last quarter, I think you heard us that we overachieved on that goal. This quarter we were a little bit short and the reason behind that was a couple of things and then I feel it will come into the other questions that you asked.

So as far delaying deals I think everybody that you speak to in the industry will tell you that the other price level, a number of customers are delaying purchases, reevaluating purposes, making commitments and then backing off of those and FalconStor is no different, all right? So in a number of transactions, either new customer transactions or existing customers that are looking to expand, when they buy and when they say they’re going to buy and when they actually do buy, seems to always get pushed off.

Nobody has surprised us with a deal that was supposed to say happening in Q3 and came in at Q2. If anything, business has fallen over from Q2 into Q3 and I am proud to say that we actually have closed most if not all of those deals already in July. So that’s a good sign that we didn’t lose the deals or they didn’t just go away entirely with no purchase decision at all. So that was a good thing for us.

I am still actually pleased with the amount of bookings that we’ve performed. It is a difficult environment, but I think that we are on the right track there.

I will tell you that our maintenance renewals to the existing installed base are at an all time high across the entire globe including APAC. We’re in the upper 80 percentile range for both Americas and AMEA now, which I think is an attribution to customers knowing that FalconStor is still in business, is still producing good technology and they’re looking to make additional commitments as well as expansions on those existing commitments.

The APAC territory traditionally has been something that’s been weaker for us. As Lou mentioned we’re traditionally in the 25% to 30% range. We’re now upwards and close to 70% last quarter. So that was a good positive there and once again I think that’s a testament to existing customers liking what they are seeing from FalconStor seeing the message resonate, what their roadmap is delivering, getting new products, getting tech refreshes and expanding.

The difficult time that we’re having and I think everybody will say this that’s out there is that we are not winning enough new customer deals and I think if we were doing some more of that, we have some more pipeline generation work and a little execution in the field, then I think you would see our topline revenue move a little bit because the overall percentage of our revenue that is ratable that came through right Lou is in the range of about 20%.

So it’s not like all of our business is going ratable. It’s that the amount of business that is upfront that we thought was going to be higher in our original predictions has not actually turned out that way. The mix of our business from ratable to upfront is not coming the way that we thought it was going to come in.

So with that being said, we still have more work to do. I know everybody is most interested in us growing the top line. You can see that expenses are stabilized. We don’t really believe we need to do much more there other than some fine tuning and it’s all about getting the field sales engine running and driving more business. So I think that answers your first two questions.

The third question which was the APAC bookings were down quarter-over-quarter, which I’ll give you a little color on that and then what is actually happening with Huawei.

So last quarter in APAC, as we mentioned we had some changes in management there, which we actually think are for the better in the long run. We also made some changes in Japan, which we have had some challenges there. I have been in and out of Japan three to four times last quarter. In reality, we actually booked more business in Japan in Q2 than we did in Q1.

Now I am not saying that’s indicative over the immediate turnaround but we were able to execute better there and I have another trip scheduled there to basically work with the partners to see what the long term opportunity for FalconStor is Japan. Korea, quarter-over-quarter was better.

When we moved across to China, the difference there was is that we had taken down a couple of very large maintenance contracts in Q1 from some customers that had come off of some three and five year transactions out there that we had in Q1. So that kind of made that number a bit higher. We did not have an additional one or two transactions to back bill that from Q1 and the second one is that we had a very strong performance in Q1 from Huawei.

Huawei had a performance in Q2 that was above budget for us but it was less than Q1. So that’s really where the difference is, there’s a couple of large maintenance renewals and Huawei not as strong in Q2 as in Q1. I also will tell you that I was -- I had met Huawei a couple of times last quarter and we put together a new program for them to address some of the aggressiveness going on in the marketplace around EMC and HP and they’ve basically made some commitments to us to basically able to drive more business against those two suppliers in the space that they typically feel.

So the market’s very, very competitive globally. I think we’re on top of it a lot more than we were in the past and we’re making adjustments on the Fly and Huawei has already bounced back in July with a number of orders immediately that they were able to fulfill I guess based upon pipeline and adjustments in pricing from FalconStor out to Huawei and their customers.

So we feel good about Huawei, actually very good about Huawei for the long haul. I think the relationship is back on track. They’ve been able to do something with us surrounding some new product releases and also looking into some other geographies to jointly go to market and that’s part of our corporate alliance program that I put together with the top ten partners for FalconStor worldwide that have global reach, that I have basically personally adopted them with one of our senior members here and a few technical folks along with engineering to drive more business with the people who are not only going to market with us but are also customizing product and need engineering support and wanted to drive business.

So we feel good about Huawei and the last question was -- is what’s remaining from Violin so as I mentioned we received a payment in Q2 for $1.5 million for delivering the NSS component of the Violin statement of work, the FDS component was delivered two weeks ago, although we have not received payment yet, but there’s a time for that. They’ve the opportunity to review that, accept it and then subsequently pay us and we believe that sometime in June 3 this quarter now we’ll finish up on the NSS side for $1.5 million and in Q4 we’ll have the first customership available for FDS, which means we’re done.

So the total outstanding amount from Violin is $4.5 million of which we’ll believe we’ll get $1.5 this quarter and then probably the again it -- actually $3 million probably this quarter and $1.5 million in Q4.

Unidentified analyst

Excellent and then last question. Did you have any 10% customers in the quarter?

Lou Petrucelly

They have more types of customers out there.

Unidentified analyst

Excellent, thanks guys.

Gary Quinn

Operator, if you want to go to the next caller?

Operator

Certainly and next we'll go to John Zaro with Bourgeon Capital.

John Zaro - Bourgeon Capital

Hey guys. I had so many. Throw me off. I know that you guys aren’t giving guidance and you made a couple of comments and first of all I had walked out at one point. Am I correct in saying that overall you felt as if you hit your internal targets except for Asia?

Lou Petrucelly

So in Q2 John we -- our internal bookings targets for the Americas and AMEA we hit those, that's correct and felt short in Asia.

John Zaro - Bourgeon Capital

Okay. And since we all don’t have any idea what sort of the plan is and you guys aren’t giving us guidance, and I respect that at this point, when you see you felt short in Asia, how short did you fall? Are you guys just shy and then as you guys had just said they sort of rolled over into the third quarter.

Lou Petrucelly

No we fell also against our internal target is we don't give internal targets, we felt short on because obviously those numbers are not out publicly. What I said was we feel short about 24% sequentially in the booking targets.

John Zaro - Bourgeon Capital

Okay

Gary Quinn

And in Q1 EMEA and APAC were over their internal targets the Americas was up…

John Zaro - Bourgeon Capital

Okay. So can we -- I am not trying to put words in your mouth, so you can just tell me, just shut up. Were you a $1.5 million short of where you though you would be?

Gary Quinn

That’s about where the internal targets were John so…

John Zaro - Bourgeon Capital

Well, if you’re 24% short?

Gary Quinn

No, what we said was, we were 24% short of our Q1 actual bookings sequentially. So that doesn’t mean that…

John Zaro - Bourgeon Capital

That's Q2 over Q1.

Gary Quinn

That’s correct. That’s on actual not on internal targets.

John Zaro - Bourgeon Capital

Okay.

Gary Quinn

I am not trying to be cute John.

John Zaro - Bourgeon Capital

No, no, I am not trying to be cute either. I am just -- what I am trying to figure out is you guys are going through this new process of how you’re booking things and if you are $3 million short, it would be far more important than if you’re $1 million short or $500,000 short.

Gary Quinn

Understood.

John Zaro - Bourgeon Capital

So that’s the problems is, you guys put a number and it’s substantially different than where they were before that we’re just trying out where you’re going. So that’s the only reason I am asking.

Gary Quinn

Maybe to help you a little bit right, so in Q1 our bookings target, we’ve said we overachieved okay and in Q2 we were under a little bit.

John Zaro - Bourgeon Capital

Overall?

Gary Quinn

Yeah overall.

John Zaro - Bourgeon Capital

But under -- you're -- you’re talking about -- overall, you were under a little bit, not talking about missing bookings 24%.

Gary Quinn

That’s right. What he is talking about in the overachievement of APAC in Q1 versus the underachievement of APAC in Q2. That was a 24% difference to the negative.

John Zaro - Bourgeon Capital

Yeah, I got that. Okay. And at some point down the road I am assuming that we’re going to get some sort of feel of where you guy think things are going, now obviously you think the second half’s going to be better and you got these other products.

One of the things that you guys talked about before is that the benefits of what you’re doing with Violin is also in some ways, these are my words and not your words, piggybacking on products for yourself.

Gary Quinn

So I did not take your advice last time. I forgot about this to apologize. I know you asked me if I would put up a product roadmap slide for the shareholder call and so I will add that to lose deck for the next call and I will show you what products have been delivered and what products are coming but I will give it to you in a high level at the moment. So each -- the current product line for FalconStor is our product focus and one of those products is NSS, the other one is CDP and those products are in a current trajectory in path and have numbers of customers with them.

We have another product line called -- originally called, they were separate, they were VTL and FDS. They will be combined into something called OBD optimized backup and dedupe. That happened in February and that product line continues on as a number of customers and that’s the product that we sell with Hitachi and with Huawei, all right?

John Zaro - Bourgeon Capital

Right.

Gary Quinn

The third leg of that, okay, it was an engineering group that was broken of to do the joint development work with Violin. That organization or group okay basically optimized technology for their platform, which is what we’ve been talking about and hitting different milestones. It revolves around the NSS technology and the FDS technology, so we have really four pieces of technology, two of them are on their platform.

Those pieces of technology are basically going into a unified platform approach for FalconStor that will contain all of our protection services and in addition to that it will be enabled for the flash memory platform. It’ll also allow for traditional HDD spindles to coexist underneath that common platform and allow people to move applications and their data back and forth between flash and spindles or more likely from spindles to flash, all right?

In addition to that, that technology also is very valuable to people who are looking to do data migration and data migration is typically from hardware platform to hardware platform or location to location and in cases like the government who’s looking to do consolidations or in the case of moving data from your on premise environment into some type of cloud, whether its private, hybrid public.

At the moment, you’ve heard us talk about HP’s cloud system matrix. We have a few customers that are using that and they use our technology to move the data from their premise into the cloud environment and that is something that is one of the big challenges facing many customers trying to take advantage of cloud computing. So the work that is going, that has gone on with Violin has enabled us to incorporate the flash memory high speed high availability environment into our product line.

The previous technology well allowed us to move the data from location to location or from on premise to the cloud and that has also been optimized and moved into that platform. So FalconStor will be able to offer a cloud computing high speed heterogeneous environment product or offering. Also with an OpEx model that will be pay-as-you-go okay, the way that people today offer that for cloud, public cloud environments and many people who are try to build a private cloud there’s a lot of capital expenditure upfront.

So we’re giving them a very low cost or no cost barrier to entry with that new platform and will talk more about that as we get to the end of Q3 or we’ll probably talk about it more on the next call, so I will give you guys a roadmap and I’ll give a rundown of what that product is, what’s incorporated, what it’ll be in the marketplace and…

John Zaro - Bourgeon Capital

Maybe who the competitors are and how big the market is would probably help too.

Gary Quinn

Yeah. Yeah. We’ll provide you as much we can on that call. I know you asked to me show a roadmap and I forgot to actually put that in. Okay?

John Zaro - Bourgeon Capital

Yeah. No problem, and then one last, I can never get out of this without asking one of these questions.

Gary Quinn

Well I think there’re two questions that usually you can’t get away from asking but let’s see what you got tonight.

John Zaro - Bourgeon Capital

So we’ve retired the stock and we’ve reduced the shares outstanding and now we’re just waiting for various pieces of paperwork or of any other transactions to take place? Is that correct?

Gary Quinn

From our end we’re done.

John Zaro - Bourgeon Capital

Okay. Yeah that’s really was my question.

Gary Quinn

Yeah. And you know John, we actually are very pleased that we were able to finally put that situation behind us. I think it’s in the best interest of everyone and we appreciate the efforts that the other side put in to bringing that to conclusion and also that we can move ahead and that they can move ahead. As far as any other thoughts or ideas that individual investors are thinking about, that’s not really of the company’s business at this time.

John Zaro - Bourgeon Capital

Okay and I guess one sort of last big picture question unrelated to that is, in each transaction that take place whatsoever with these people, according to the rule stated in the 8-K has to be done with a filing with you guys and it’s probably only going to be done quarterly, correct?

Gary Quinn

I am not following your question John, it can be done.

John Zaro - Bourgeon Capital

In order to do -- there were many transactions and that were [banned] (ph) about right, that were going to place in the last three weeks related to the stock and lot of it had to do with -- people had -- the family needed to have filings or had to do filings with you guys or you would have to do a filing as well, and that is only going to take place on a quarterly basis, is that correct?

Actually is your 10-Q, you’re not going to file in your quarter filing.

Gary Quinn

We are not involved in any transactions that we believe we’re making any filings with them on whatever they are required to file on their own is their own business at this time. At this point in time John we’ve no relationship with them whatsoever. So anything that you may have heard from other people or maybe from them, we…

John Zaro - Bourgeon Capital

They don’t want to sell anything stock though according to the 8-K you guys still have the right of first refusal on, which you would have to file on it anyway.

Gary Quinn

That’s correct. So if something like that occurred and obviously if something took place then we would have to make the appropriate filings. As far as their own individual filings…

John Zaro - Bourgeon Capital

Yeah, I am not concerned about that because we know that's doesn’t have anything to do. Okay, great. Thanks.

Gary Quinn

And just to be clear John, the company is current on all its filing so…

John Zaro - Bourgeon Capital

No. I know that.

Gary Quinn

Okay.

John Zaro - Bourgeon Capital

Yeah.

Gary Quinn

All right. Thank you very much John. If you don’t have anything else I’ll go ask the operator if there’s anyone else in the queue. If David Cohn is back in the queue, you can bring him back on. Thank you.

Operator

Please go ahead.

Unidentified Analyst

I think what John was trying to ask was whether you are not you will register the shares in the event there was a buyer inter-quarter and he was asking whether you would go to the expense of doing that within updating the financials outside of the quarter. With respect to the…

Gary Quinn

Just be clear on thing David, per the agreement we are required to register the shares.

Unidentified analyst

Correct. With respect to the back half of the year, are there any other -- are you seeing any other developmental opportunities with the group that you have put together?

Gary Quinn

When you say development.

Unidentified analyst

The group that you have working on the Violin Memory deal. You specifically broke them out. Are there any other opportunities for that specific group?

Gary Quinn

There are no further follow-on joint development projects scheduled with Violin.

Unidentified analyst

Are there other opportunities outside of Violin?

Gary Quinn

At this time, we don’t have anything happening from a joint development perspective. We are doing some special engineering work for two partners Huawei and also DSI but those are not related to any type of payments.

Unidentified analyst

Okay. Thank you.

Gary Quinn

Operator, today what else?

Operator

We have no further questions at this time.

Gary Quinn

Okay, well thank you very much operator and ladies and gentlemen thank you very much for joining us tonight for this call. We appreciate all of your support to FalconStor and we look forward to talking to you again at the Q3 quarterly call. Thank you very much and good night.

Operator

This does conclude today’s conference. We do thank you all for joining us.

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