Melville-based FalconStor Software reported quarterly earnings of 3 cents a...

Melville-based FalconStor Software reported quarterly earnings of 3 cents a share, excluding one-time charges. (Nov. 8, 2011) Credit: Steve Pfost

Shares of FalconStor Software, a data-protection firm in Melville, rose yesterday on hopes the company has begun to emerge from its legal difficulties.

FalconStor disclosed late Tuesday, after the stock market's close, that it lost $6.5 million in the fourth quarter on revenues of $25.4 million.

Its shares Wednesday rose 17 cents to $3.46 on a day when stocks generally were flat.

FalconStor's results come against the backdrop of a Securities and Exchange Commission investigation and the death of its founder, ReiJane Huai, who killed himself in September. Federal authorities said Huai's death came the day before he was to plead guilty in a scheme in which he allegedly paid bribes in return for $11.3 million in software contracts during 2008 and 2009.

Brian Freed, an equity research analyst with Wunderlich Securities in Memphis, Tenn., said investors were encouraged by several factors in the results. First, excluding one-time charges, the company earned 3 cents a share in the quarter, while analysts had expected a loss of 2 cents.

Second, FalconStor disclosed that the SEC had come up with a $7.5-million initial estimate of the fine it may seek from the company for alleged accounting irregularities, Freed said. That number eliminates uncertainty about the fine, and investors had feared it could have been worse, he said.

Moreover, the company could point to demand for its products, Freed said. Dell, for example, plans to resell FalconStor's products to Dell customers as they migrate data from their personal computers to Dell's cloud storage services. "That is an endorsement of the product," he said.

For 2011, FalconStor lost $22.2 million, with nearly half that amount going toward the costs of government investigations. FalconStor spent $2.8 million on legal fees during the year, and set aside $7.5 million for "the possible resolution of the government investigations," the company earnings report said.

Its sales were level year-to-year, with $82.87 million in 2011 compared to $82.84 million the previous year.

Jim McNiel, president and chief executive, said 2011 was marked by deepened partnerships with the storage vendors Hitachi Data Systems, HP and Fujitsu. The partnerships "validated our technology," McNiel said.

Latest Videos