FalconStor Completes Merger, Joins Nasdaq

FalconStor Software Inc. (Nasdaq: FALC) said it has formally completed its reverse merger with former Ethernet switch vendor Network Peripherals, creating a new entity in the storage-networking virtualization market with $65 million in cash and a presence on the Nasdaq (see FalconStor is on the Board).

"As of today, we're a well-funded software company," said ReiJane Huai, FalconStor founder and now CEO of the new company, which will be called FalconStor and will trade under the symbol FALC. The company makes software for "virtualization" of storage networks, allowing users to pool storage for sharing among multiple applications and across multiple servers.

During a Thursday morning conference call announcing the official SEC blessing of the merger, Huai said that FalconStor now has a war chest of $65 million in cash and equivalents, which he said was enough to fund the business "from now to profitability" (which, by the way, was a terrific movie: Burt Lancaster, Deborah Kerr...).

Huai was coy, however, about FalconStor's current numbers for sales of its flagship IPStor software product, which started shipping earlier this year. "We're just in the early stages of ramping revenue," said Huai, who said he'll wait until the new company's first official quarterly report in late October to reveal revenue figures.

When pressed a bit more about finances during the call's question-and-answer period, Huai said that FalconStor's business-expense costs have been running at about $4 million to $5 million per quarter and the company's immediate goal is to reach a "break-even" revenue level. He declined to predict when he expects FalconStor to reach that level.Officially, shareholders of Network Peripherals now own approximately 13.4 million shares, or 30 percent, of the new company, with the remainder owned by stockholders of the pre-merger FalconStor. Trading on FALC opened at Wednesday's closing price for Network Peripherals (NPIX), just under $10 a share. The 52-week high for NPIX was reached last September, when the stock hit $18.

With the reverse merger business completed, FalconStor can now turn its full attention to its market competition, where its primary task will be to sign up heavy-hitting OEMs (see Virtualization Vendors Vie for OEMs). Though Huai said FalconStor has OEM deals signed with eight smaller players, it is still trying to nail down a marquee name like Hewlett-Packard Co. (NYSE: HWP), IBM Corp. (NYSE: IBM), or Hitachi Data Systems.

"There are a fixed number of companies on our short list," said Huai, who "feels confident" that some news in that arena will be coming soon.

Huai also said that FalconStor is readying a Solaris version of its virtualization software, which the company plans to officially launch on Sept. 6, in advance of the Networld+Interop show in Atlanta. Previously, the company's software had only run on Linux-based servers. FalconStor will make additional announcements about security enhancements at the same time, Huai said.

- Paul Kapustka, Editor at Large, Light Reading
http://www.lightreading.com