FalconStor Software Announces First Quarter 2013 Results

FalconStor Software Announces First Quarter 2013 Results

MELVILLE, N.Y., April 25, 2013 (GLOBE NEWSWIRE) -- FalconStor Software, Inc.
(Nasdaq:FALC), a market leader in disk-based data protection, today announced
financial results for its first quarter ended March 31, 2013.

Total revenues for the first quarter of 2013 were $15.3 million, a decrease of
21 percent compared with $19.4 million in the same period a year ago. GAAP
loss from operations for the first quarter of 2013 was $3.9 million, compared
with an operating loss of $2.1 million for the first quarter of 2012. GAAP net
loss for the quarter was $4.4 million, or $0.09 per share, compared with a net
loss of $2.4 million, or $0.05 per share, for the same period a year ago.
Included in the operating results for the first quarter of 2013 and 2012 were
an expense of $0.1 million and a net reduction of $1.3 million, respectively,
of investigation, litigation and settlement related costs.

Non-GAAP loss from operations was $2.9 million for the first quarter of 2013,
compared with non-GAAP loss from operations of $1.9 million for the same
period a year ago. Non-GAAP net loss was $3.4 million, or $0.07 per share, in
the first quarter of 2013, compared with a non-GAAP net loss of $2.3 million,
or $0.05 per share, in the first quarter of 2012. Non-GAAP results exclude the
effects of stock-based compensation and costs associated with the Company's
investigations, litigation and settlement related costs.

The Company closed the quarter with $28.2 million in cash, cash equivalents
and marketable securities. Deferred revenue at March 31, 2013, was $23.7
million, compared with $24.1 million at December 31, 2012.

"While governmental changes in three key Asia regions and continued economic
malaise in Europe impacted our overall number, I am happy to report that we
signed up more than 50 new logos in the quarter and we are rolling out a new
demand generation program globally," said Jim McNeil, president and CEO of
FalconStor. "Additionally, the increased interest in cloud computing has
resulted in more activity surrounding our data migration capabilities. We
fully expect our work in migration to have a positive impact on this year's
performance."

The Company also recently announced the promotion of Gary Quinn to chief
operating officer and the hiring of Rob Zecha as chief product officer. The
appointments of these two industry veterans were made to further drive the
Company's global deployment of best practices in engineering and in sales and
marketing.

Conference Call

The Company will host a conference call to discuss its financial results on
Thursday, April 25, 2013 at 4:30 p.m. EDT. To participate in the conference
call, please dial:

Toll Free: 1-800-762-8779
International: +1-480-629-9819

To view the presentation, please copy and paste the following link into your
browser and register for this meeting.Once you have registered for the
meeting, you will receive an email message confirming your registration.

https://falconstor.webex.com/falconstor/j.php?ED=20892683&RG=1&UID

Meeting: FalconStor Q1 2013 Earnings
Meeting password: q1numbers
Meeting Number: 832 216 009

If you are unable to register via the Internet, please contact Joanne Ferrara,
Investor Relations at 631-773-5813 or joanne.ferrara@falconstor.com.

A conference call replay is scheduled to be available beginning April 25 at
6:30 p.m. EDT through 11:59 p.m. EDT on May 1. To listen to the replay of the
call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030,
passcode: 4614280, or visit our website at www.falconstor.com/investors.

Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release are not prepared in
accordance with generally accepted accounting principles and may be different
from non-GAAP financial measures used by other companies. The Company's
management refers to these non-GAAP financial measures in making operating
decisions because they provide meaningful supplemental information regarding
the Company's operating performance. In addition, these non-GAAP financial
measures facilitate management's internal comparisons to the Company's
historical operating results and comparisons to competitors' operating
results. We include these non-GAAP financial measures (which should be viewed
as a supplement to, and not a substitute for, their comparable GAAP measures)
in this press release because we believe they are useful to investors in
allowing for greater transparency into the supplemental information used by
management in its financial and operational decision-making. The non-GAAP
financial measures exclude (i) costs associated with the Company's class
action and derivative lawsuits, government investigations, and related legal
fees and (ii) noncash stock-based compensation charges and any potential tax
effects. For a reconciliation of our GAAP and non-GAAP financial results,
please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in
this release.

About FalconStor Software

FalconStor Software, Inc. (Nasdaq:FALC) is a market leader in disk-based data
protection. The company's mission is to transform traditional backup and
disaster recovery into next-generation service-oriented data protection. Built
upon an award-winning platform, FalconStor solutions deliver disk-based
backup, continuous data protection, WAN-optimized replication and disaster
recovery automation. FalconStor solutions are available through a worldwide
network of partners, including solution providers, top-tier strategic
partners, and OEMs. Thousands of customers worldwide, from small businesses to
Fortune 100 enterprises, entrust their data to FalconStor solutions.
FalconStor maintains headquarters in Melville, N.Y., and offices throughout
Europe and the Asia Pacific region. For more information, visit
www.falconstor.com or call 1-866-NOW-FALC (866-669-3252).

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This press release includes forward-looking statements that involve risk and
uncertainties that could cause actual results to differ materially from the
forward-looking statements. These risks and uncertainties include: delays in
product development; market acceptance of FalconStor's products and services;
technological change in the data protection industry; competition in the data
protection market; results and costs associated with governmental
investigations; intellectual property issues; and other risk factors discussed
in FalconStor's reports on Forms 10-K, 10-Q and other reports filed with the
Securities and Exchange Commission.

FalconStor and FalconStor Software are registered trademarks of FalconStor
Software, Inc., in the U.S. and other countries. All other company and product
names contained herein may be trademarks of their respective holders.

Links to websites or pages controlled by parties other than FalconStor are
provided for the reader's convenience and information only. FalconStor does
not incorporate into this release the information found at those links nor
does FalconStor represent or warrant that any information found at those links
is complete or accurate.Use of information obtained by following these links
is at the reader's own risk.

FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
                                                         
                                           March31, 2013 December31, 2012
                                           (unaudited)    
                                                         
Assets                                                    
Current assets:                                           
Cash and cash equivalents                  $17,608,564  $18,651,468
Restricted cash                             750,000       750,000
Marketable securities                      9,805,890     10,530,942
Accounts receivable, net                   10,298,428    14,130,302
Prepaid expenses and other current assets  2,811,530     2,796,665
Inventory                                  1,068,177     642,819
Deferred tax assets, net                   425,985       464,031
Total current assets                       42,768,574    47,966,227
                                                         
Property and equipment, net                3,945,243     3,980,679
Deferred tax assets, net                   86,465        86,465
Software development costs, net            1,079,760     1,161,822
Other assets, net                          2,160,826     2,185,148
Goodwill                                   4,150,339     4,150,339
Other intangible assets, net               159,394       174,426
Total assets                               $54,350,601  $59,705,106
                                                         
Liabilities and Stockholders' Equity                      
Current liabilities:                                      
Accounts payable                           $3,184,490   $2,801,372
Accrued expenses                           14,114,587    16,720,582
Deferred revenue, net                      17,940,235    17,831,653
Total current liabilities                  35,239,312    37,353,607
                                                         
Other long-term liabilities                2,654,916     2,618,818
Deferred tax liabilities, net              171,682       167,875
Deferred revenue, net                      5,789,983     6,311,865
Total liabilities                          43,855,893    46,452,165
                                                         
Commitments and contingencies                             
                                                         
Total stockholders' equity                 10,494,708    13,252,941
Total liabilities and stockholders' equity $54,350,601  $59,705,106



FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                                              
                                                Three Months Ended
                                                 March 31,
                                                2013           2012
                                                              
Revenues:                                                      
Product revenues                                $7,759,456   $10,662,953
Support and services revenues                   7,525,361     8,705,119
Totalrevenues                                  15,284,817    19,368,072
                                                              
Cost of revenues:                                              
Product                                         1,299,654     2,020,486
Support and service                             3,008,403     3,161,356
Total cost of revenues                          4,308,057     5,181,842
                                                              
Gross profit                                    $10,976,760  $14,186,230
                                                              
Operating expenses                                             
Research and development costs                  4,648,609     4,779,175
Selling and marketing                           6,840,571     9,684,645
General and administrative                      3,247,067     3,110,875
Investigation, litigation, and settlement        114,066       (1,290,920)
related costs
Total operating expenses                        14,850,313    16,283,775
                                                              
Operating loss                                  (3,873,553)   (2,097,545)
                                                              
Interest and other loss, net                    (330,790)     (139,331)
                                                              
Loss before income taxes                        (4,204,343)   (2,236,876)
                                                              
Provision for income taxes                      176,102       212,532
                                                              
Net loss                                        $(4,380,445) $(2,449,408)
                                                              
Basic net loss per share                        $(0.09)      $(0.05)
                                                              
Diluted net loss per share                      $(0.09)      $(0.05)
                                                              
Weighted average basic shares outstanding       47,862,834    47,044,482
                                                              
Weighted average diluted shares outstanding     47,862,834    47,044,482



FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
                                                              
                                                Three Months Ended
                                                 March 31,
                                                2013           2012
                                                              
GAAP loss from operations                        $(3,873,553) $(2,097,545)
Add: Non-cash stock option expense (1)           890,735       1,448,302
Legal related costs (3)                          114,066       (1,290,920)
Non-GAAP loss from operations                    (2,868,752)   (1,940,163)
                                                              
                                                              
GAAP net loss                                    $(4,380,445) $(2,449,408)
Add: Non-cash stock option expense, net of       890,735       1,448,302
income taxes (2)
Legal related costs (3)                          114,066       (1,290,920)
Non-GAAP net loss                                (3,375,644)   (2,292,026)
                                                              
                                                              
GAAP gross margin - Product                      83%            81%
Add: Non-cash stock option expense (1)           0%             0%
Non-GAAP gross margin - Product                  83%            81%
                                                              
                                                              
GAAP gross margin - Support and Service          60%            64%
Add: Non-cash stock option expense (1)           1%             1%
Non-GAAP gross margin - Support and Service      61%            64%
                                                              
                                                              
GAAP operating margin                            (25%)          (11%)
Add: Non-cash stock option expense (1)           6%             7%
Legal related costs (3)                          1%             (7%)
Non-GAAP operating margin                        (19%)          (10%)
                                                              
                                                              
GAAP Basic EPS                                   $(0.09)      $(0.05)
Add: Non-cash stock option expense, net          0.02          0.03
ofincome taxes (2)
Legal related costs (3)                          0.00          (0.03)
Non-GAAP Basic EPS                               (0.07)        (0.05)
                                                              
                                                              
GAAP Diluted EPS                                 $(0.09)      $(0.05)
Add: Non-cash stock option expense, net          0.02          0.03
ofincome taxes (2)
Legal related costs (3)                          0.00          (0.03)
Non-GAAP Diluted EPS                             (0.07)        (0.05)
                                                              
                                                              
Weighted average basic shares outstanding (GAAP  47,862,834    47,044,482
and as adjusted)
                                                              
Weighted average diluted shares outstanding      47,862,834    47,044,482
(GAAP and as adjusted)



Footnotes:
(1) Represents non-cash, stock-based compensation charges as follows:

                                       Three Months Ended
                                        March 31,
                                                         
                                       2013               2012
                                                         
                                                         
Cost of revenues - Product              $49              $49
Cost of revenues - Support and Service  50,256            70,969
Research and development costs          134,910           318,958
Selling and marketing                   284,038           486,625
General and administrative              421,482           571,701
                                                         
Total non-cash stock                   $890,735         $1,448,302
basedcompensation expense

(2) Represents the effects of non-cash stock-based compensation expense
recognized in accordance with the FASB Accounting Standards Codification,
Topic 718, net of related income tax effects. For the three months ended March
31, 2013 and 2012, the tax expense for both GAAP and Non-GAAP basis
approximate the same amount.
(3) Legal related costs represent expenses in connection with the
Company's investigations, litigation and settlement related costs for each
respective period presented.

CONTACT: FalconStor Software, Inc.
         Joanne Ferrara, Investor Relations
         631-773-5813
         joanne.ferrara@falconstor.com

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