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Falconstor Software Inc. Message Board

  • wwarrenlee wwarrenlee Jul 25, 2012 10:58 AM Flag

    Resolution of SEC and related inquiry

    FALC management hasn't been entirely forthcoming. They have continuously said they had no more information available to share about the resolution of the SEC inquiry. I don't recall for sure, but I think they said the same in the Q1 2012 earnings call. And yet, they reduced their accrual for fines related to this inquiry in Q1 to $5.8 million, which per accounting rules they couldn't have done unless they had reason to believe they were over-accrued. Q1 earning were released on May 3. Interestingly, but no big surprise, they announced on June 27 that they had settled both inquiries for a total of $5.8 million. So, either the accrual for $5.8 million was a lucky guess or they already knew that a resolution for this amount was imminent. I'm sure shareholders would appreciate a little more openness overall on what is going on given the complete lack of transparency this management team has provided, and this issue provides another example of not providing meaningful information.

    One other but related question: Where on the balance sheet is the accrual for the fines? The only category on the balance sheet large enough to hold $5.8 million is Accrued Expenses, which at 3/31/12 is $13.1 million. However, at 3/31/11 that category was $17.6 million when the accrual for the inquiry was much lower. The company should explain the huge drop in the other items in this balance sheet category.

    Given the stock is now trading only a hair above 1x revenue, and given the transition the company is going through, the company really needs to do a better job on transparency, and these are only a few examples.

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