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FalconStor CEO: Company getting a reboot

FalconStor chief executive Gary Quinn in one of

FalconStor chief executive Gary Quinn in one of the company's server rooms on March 13, 2014. Credit: Newsday / Audrey C. Tiernan

After eight months at the helm, Gary Quinn says he's rebooted FalconStor Software Inc.

The tech veteran took over in July as chief executive of the troubled Melville data-storage company, hoping to restore its reputation after a bribery scandal and end years of losses. Now, after a sweeping restructuring, Quinn said FalconStor is stepping forth.

"What happened in the past is the past," he said during a recent interview. "It is really going forward that counts."


The 14-year-old global company, which has 302 employees and $58.6 million in yearly revenue, has lots of ground to make up.

FalconStor's stock tanked during the recession. Sales lagged. Shareholders filed a class action suit accusing the company of fraud. And in 2011, FalconStor founder ReiJane Huai killed himself as he was scheduled to plead guilty to federal bribery charges.

There are, however, signs of progress.

Last month, FalconStor reported its first quarterly profit since 2009. The stock is up 41 percent, to $1.63, since Quinn took over. (It's still a long way from its all-time high of nearly $14, in October 2007.) And analysts say the new chief executive appears to have a formula for success.

"Quinn is focused like a laser on FalconStor customers. He has a strong board and a strong team in place," said David Cohn, an analyst for Raymond James, a financial services firm based in St. Petersburg, Fla.


FalconStor makes programs for corporations, government agencies, universities and other institutions that need access to oceans of data.

The company does not actually store the info. Rather, it makes programs to copy, move, protect and retrieve it. It has more than 2,500 customers in 50 countries, including Harvard Business School, Hitachi Data Systems and the energy giant Halliburton Co.

Quinn, who spent 20 years at Islandia-based CA Technologies, came to FalconStor in 2012 to run its North American sales team, arriving after a stint as Suffolk County's commissioner of information technology.

He became chief executive after his predecessor, James P. McNiel, resigned following 12 straight quarters of losses. One of Quinn's first moves as chief executive was terminating an effort started by McNiel to sell the company. Having FalconStor on the block, Quinn said, hampered a comeback.

"Adding that in the mix wasn't a good move," he said. "Not to say we couldn't have found [a potential buyer]. But under those circumstances it would have been difficult."


Instead, Quinn pursued an effort initiated by McNiel to shore up finances by selling $9 million in preferred stock to Hale Capital Partners, a Manhattan investment firm. Then he trimmed $15 million in annual expenses by restructuring.

Quinn axed a two-year-old project to build storage software for small businesses, saying the company should focus on its traditional base of large, institutional customers.

He consolidated offices in Asia and Europe. He cut the global workforce by 30 percent. And he is shrinking the headquarters, looking to sublet as much as 25 percent of FalconStor's 60,000 square feet at Huntington Quadrangle in Melville.

"We are a little company," Quinn said. "We had way too much infrastructure out there."


Still, challenges remain. While the company managed a $875,000 fourth-quarter profit, it reported a $10.9 million yearly loss for 2013. Its annual revenue was down 22 percent.

A $5 million settlement for the class-action shareholder suit is pending before a federal judge in Brooklyn. And it was only two months ago that the U.S. Justice Department dismissed a deferred prosecution agreement with FalconStor over the bribery case, in which the late founder was accused of bribing executives at JPMorgan Chase & Co. in exchange for $12 million in contracts.

Hence, Quinn has spent much of his time traveling to meet with customers, reassuring them that FalconStor is indeed rebounding.

"At the moment," he said, "it is a lot of missionary work."


Name: Falconstor Software Inc., Melville

Chief executive: Gary Quinn

Founded: 2000

Employees: 302

2013 revenue: $58.6 million

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