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FalconStor Software Announces Second Quarter 2013 Results



FalconStor Software Announces Second Quarter 2013 Results

MELVILLE, N.Y., Aug. 8, 2013 (GLOBE NEWSWIRE) -- FalconStor Software, Inc.
(Nasdaq:FALC), a market leader in disk-based data protection, today announced
financial results for its second quarter ended June 30, 2013.

"The FalconStor customer base continues to receive value in the form of
optimized storage, business continuity and lower total cost of ownership,"
said Gary Quinn, president and CEO of FalconStor. "We are strengthening our
balance sheet, and reviewing our current product portfolio for additional
investments. We are excited about our joint-efforts into the "flash memory"
market segment, we are rebalancing our routes-to-market -- both by customer
segment and geography -- and we look to rationalize our costs to maximize
stockholder value."

Financial and Business Highlights and Overview:

  * Appointed Gary Quinn President and Chief Executive Officer in July 2013.
  * Reached an agreement in principle with Hale Capital Partners on August 5,
    2013 for an equity investment of up to $15 million in the form of
    redeemable convertible preferred stock, subject to certain closing
    conditions.
  * Signed an agreement to sell the Company's investment in Tianjin Zhongke
    Blue Whale Technologies Co., Ltd., a Chinese joint venture, for $3.0
    million on August 7, 2013, subject to certain closing conditions.
  * As a result of these strategic initiatives, the Company notified the
    investment banking firm Wells Fargo Securities, LLC that the Company was
    ending Wells Fargo's retention as the Company's exclusive financial
    advisor.
  * A Joint Motion for Preliminary Approval of the Class Action lawsuit was
    filed with the courts on June 14, 2013. In January 2013, the parties to
    the Class Action reached an agreement in principle to settle the Class
    Action for $5.0 million.

Financials

Total revenues for the second quarter of 2013 were $14.0 million, a decrease
of 15 percent compared with $16.5 million in the same period a year ago. GAAP
loss from operations for the second quarter of 2013 was $4.6 million, compared
with an operating loss of $6.3 million for the second quarter of 2012. GAAP
net loss for the quarter was $5.2 million, or $0.11 per share, compared with a
net loss of $6.6 million, or $0.14 per share, for the same period a year ago.
Included in the operating results for the second quarter of 2013 and 2012 were
expenses of $0.1 million and $0.9 million, respectively, of investigation,
litigation and settlement related costs.

Non-GAAP loss from operations was $4.2 million for the second quarter of 2013,
compared with non-GAAP loss from operations of $4.4 million for the same
period a year ago. Non-GAAP net loss was $4.9 million, or $0.10 per share, in
the second quarter of 2013, compared with a non-GAAP net loss of $4.7 million,
or $0.10 per share, in the second 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.

For the six months ended June 30, 2013, total revenues were $29.3 million,
compared with $35.8 million for the same period a year ago.  GAAP loss from
operations for the six month period ended June 30, 2013 was $8.4 million
compared with a GAAP loss of $8.4 million for the six months ended June 30,
2012. GAAP net loss was $9.6 million, or $0.20 per share, for the six months
ended June 30, 2013, compared with a loss of $9.1 million, or $0.19 per share,
in the same period a year ago.

Non-GAAP loss from operations was $7.1 million for the six months ended June
30, 2013, compared with a loss of $6.3 million in 2012. Non-GAAP net loss was
$8.3 million, or $0.17 per share, compared with a loss of $7.0 million, or
$0.15 per share, in the same period a year ago.

The Company closed the quarter with $21.9 million in cash, cash equivalents
and marketable securities. Deferred revenue at June 30, 2013 was $22.7
million, compared with $24.1 million at December 31, 2012.

Conference Call     

The Company will host a conference call to discuss its financial results on
Thursday, August 8, 2013 at 4:30 p.m. EDT. To participate in the conference
call, please dial:

Toll Free: 1-877-941-6009
International: +1-480-629-9866

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=187627482&RG=1&UID

Meeting: FalconStor Q2 2013 Earnings
Meeting password: q2numbers
Meeting Number: 763105078

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 August 8 at
6:30 p.m. EDT through 11:59 p.m. EDT on August 14. To listen to the replay of
the call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030,
passcode: 4630239, 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). 

   Follow us on Twitter – Watch us on YouTube – Connect with us on LinkedIn

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.

The purchase price of the redeemable convertible preferred stock will be based
on the market price of the Company's common stock at the time of closing. Such
preferred stock will not be and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements. Consummation of the transaction is contingent upon the execution
of definitive documentation and satisfaction of certain closing conditions, of
which there can be no assurance.

Consummation of the sale of the Company's interest in Tianjin Zhongke Blue
Whale Technologies Co., Ltd., is contingent upon the satisfaction of certain
closing conditions, including the approvals of Chinese government agencies, of
which there can be no assurance.

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
                                                           
                                            June 30, 2013 December 31, 2012
                                            (unaudited)    
                                                           
Assets                                                     
Current assets:                                            
Cash and cash equivalents                    $ 13,293,780  $ 18,651,468
Restricted cash                              750,000       750,000
Marketable securities                        7,838,590     10,530,942
Accounts receivable, net                     9,737,521     14,130,302
Prepaid expenses and other current assets    2,556,121     2,796,665
Inventory                                    904,198       642,819
Deferred tax assets, net                     407,008       464,031
Total current assets                         35,487,218    47,966,227
                                                           
Property and equipment, net                  3,930,107     3,980,679
Deferred tax assets, net                     86,465        86,465
Software development costs, net              1,245,126     1,161,822
Other assets, net                            2,432,546     2,185,148
Goodwill                                     4,150,339     4,150,339
Other intangible assets, net                 178,978       174,426
Total assets                                 $ 47,510,779  $ 59,705,106
                                                           
Liabilities and Stockholders' Equity                       
Current liabilities:                                       
Accounts payable                             $ 2,076,073   $ 2,801,372
Accrued expenses                             14,363,908    16,720,582
Deferred revenue, net                        17,524,607    17,831,653
Total current liabilities                    33,964,588    37,353,607
                                                           
Other long-term liabilities                  2,689,636     2,618,818
Deferred tax liabilities, net                175,647       167,875
Deferred revenue, net                        5,174,282     6,311,865
Total liabilities                            42,004,153    46,452,165
                                                           
Commitments and contingencies                              
                                                           
Total stockholders' equity                   5,506,626     13,252,941
Total liabilities and stockholders' equity   $ 47,510,779  $ 59,705,106

 
 
FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                                                 
                   Three Months Ended            Six Months Ended
                   June 30,                      June 30,
                   2013           2012           2013           2012
                                                                 
Revenues:                                                        
Product revenues    $ 6,542,429    $ 7,835,568    $ 14,301,885   $ 18,498,521
Support and         7,431,710      8,630,633      14,957,071     17,335,752
services revenues 
Total revenues      13,974,139     16,466,201     29,258,956     35,834,273
                                                                 
Cost of revenues:                                                
Product             963,102        1,787,186      2,262,756      3,807,672
Support and         2,861,992      3,091,055      5,870,395      6,252,411
service 
Total cost of       3,825,094      4,878,241      8,133,151      10,060,083
revenues 
                                                                 
Gross profit        $ 10,149,045   $ 11,587,960   $ 21,125,805   $ 25,774,190
                                                                 
Operating expenses                                               
Research and        4,395,823      4,848,500      9,044,432      9,627,675
development costs 
Selling and         6,879,315      9,189,953      13,719,886     18,874,598
marketing 
General and         3,361,881      3,018,154      6,608,948      6,129,029
administrative 
Investigation,
litigation, and     62,392         851,123        176,458        (439,797)
settlement related
costs
Total operating     14,699,411     17,907,730     29,549,724     34,191,505
expenses 
                                                                 
Operating loss      (4,550,366)    (6,319,770)    (8,423,919)    (8,417,315)
                                                                 
Interest and other  (487,176)      (105,533)      (817,966)      (244,864)
loss, net 
                                                                 
Loss before income  (5,037,542)    (6,425,303)    (9,241,885)    (8,662,179)
taxes 
                                                                 
Provision for       169,751        195,283        345,853        407,815
income taxes 
                                                                 
Net loss            $ (5,207,293)  $ (6,620,586)  $ (9,587,738)  $ (9,069,994)
                                                                 
Basic net loss per  $ (0.11)       $ (0.14)       $ (0.20)       $ (0.19)
share 
                                                                 
Diluted net loss    $ (0.11)       $ (0.14)       $ (0.20)       $ (0.19)
per share 
                                                                 
Weighted average
basic shares        47,996,027     47,472,909     47,929,799     47,258,696
outstanding 
                                                                 
Weighted average
diluted shares      47,996,027     47,472,909     47,929,799     47,258,696
outstanding 

 
 
FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
                                                                 
                   Three Months Ended            Six Months Ended
                   June 30,                      June 30,
                   2013           2012           2013           2012
                                                                 
GAAP loss from      $ (4,550,366)  $ (6,319,770)  $ (8,423,919)  $ (8,417,315)
operations
Add: Non-cash
stock option        240,795        1,090,076      1,131,530      2,538,378
expense (1)
Legal related       62,392         851,123        176,458        (439,797)
costs (3)
Non-GAAP loss from  (4,247,179)    (4,378,571)    (7,115,931)    (6,318,734)
operations
                                                                 
                                                                 
GAAP net loss       $ (5,207,293)  $ (6,620,586)  $ (9,587,738)  $ (9,069,994)
Add: Non-cash
stock option        240,795        1,090,076      1,131,530      2,538,378
expense, net of
income taxes (2)
Legal related       62,392         851,123        176,458        (439,797)
costs (3)
Non-GAAP net loss   (4,904,106)    (4,679,387)    (8,279,750)    (6,971,413)
                                                                 
                                                                 
GAAP gross margin  85%            77%            84%            79%
- Product
Add: Non-cash
stock option       0%             0%             0%             0%
expense (1)
Non-GAAP gross     85%            77%            84%            79%
margin - Product
                                                                 
                                                                 
GAAP gross margin
- Support and      61%            64%            61%            64%
Service
Add: Non-cash
stock option       1%             (0%)           1%             0%
expense (1)
Non-GAAP gross
margin - Support   62%            64%            61%            64%
and Service
                                                                 
                                                                 
GAAP operating     (33%)          (38%)          (29%)          (23%)
margin
Add: Non-cash
stock option       2%             7%             4%             7%
expense (1)
Legal related      0%             5%             1%             (1%)
costs (3)
Non-GAAP operating (30%)          (27%)          (24%)          (18%)
margin
                                                                 
                                                                 
GAAP Basic EPS      $ (0.11)       $ (0.14)       $ (0.20)       $ (0.19)
Add: Non-cash
stock option        0.01           0.02           0.02           0.05
expense, net of
income taxes (2)
Legal related       0.00           0.02           0.00           (0.01)
costs (3)
Non-GAAP Basic EPS  (0.10)         (0.10)         (0.17)         (0.15)
                                                                 
                                                                 
GAAP Diluted EPS    $ (0.11)       $ (0.14)       $ (0.20)       $ (0.19)
Add: Non-cash
stock option        0.01           0.02           0.02           0.05
expense, net of
income taxes (2)
Legal related       0.00           0.02           0.00           (0.01)
costs (3)
Non-GAAP Diluted    (0.10)         (0.10)         (0.17)         (0.15)
EPS
                                                                 
                                                                 
Weighted average
basic shares        47,996,027     47,472,909     47,929,799     47,258,696
outstanding (GAAP
and as adjusted)
                                                                 
Weighted average
diluted shares      47,996,027     47,472,909     47,929,799     47,258,696
outstanding (GAAP
and as adjusted)
                                                                 
Footnotes:                                                       
(1) Represents non-cash, stock-based compensation charges as follows:
                   Three Months Ended            Six Months Ended
                   June 30,                      June 30,
                   2013           2012           2013           2012
                                                                 
                                                                 
Cost of revenues -  $ 50           $ 49           $ 99           $ 99
Product
Cost of revenues -
Support and         53,936         (21,124)       104,192        49,844
Service
Research and        87,028         125,231        221,938        444,188
development costs
Selling and         (11,848)       398,031        272,190        884,656
marketing
General and         111,629        587,889        533,111        1,159,591
administrative
                                                                 
Total non-cash
stock               $ 240,795      $ 1,090,076    $ 1,131,530    $ 2,538,378
based compensation
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 and six months
ended June 30, 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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