Exhibit 99.1 FalconStor Software Contact: Denise Tortorelli, Investor Relations 631-773-5877 DENISE.TORTORELLI@FALCONSTOR.COM FALCONSTOR SOFTWARE ANNOUNCES Q3 QUARTERLY RESULTS REVENUES INCREASE 29% FROM PRIOR YEAR MELVILLE, N.Y., October 26, 2006--FalconStor Software, Inc. (NASDAQ: FALC), the leading developer of data protection solutions, today announced financial results for its third quarter ended September 30, 2006. Revenues for the third quarter of 2006 increased 29% to $13 million, compared with $10.1 million for the same period a year ago. Net loss for the quarter was $1.3 million or $0.03 per share, which includes $2.4 million in expenses related to stock options. Pro forma net income for the third quarter of 2006, excluding stock option expense, was $1.2 million or $0.02 per share, compared with net income of $0.5 million or $0.01 per share for the third quarter of 2005. For the nine months ended September 30, 2006, revenues increased 25% to $34.8 million, compared with $27.9 million for the same period a year ago. Net loss for the nine month period was $6.2 million or $0.13 per share, which includes $7.1 million in expenses related to stock options. Pro forma net income for the nine month period, excluding stock option expense, was $0.9 million or $0.02 per share, compared with net income of $0.6 million and $0.01 per share for the same period a year ago. Compared with the previous quarter, revenues increased from $12.7 million in the second quarter of 2006 to $13 million in the third quarter of 2006. Net loss for the third quarter was $1.3 million or $0.03 per share, which includes $2.4 million in expenses related to stock options, compared with a net loss of $1.3 million or $0.03 per share in the second quarter, which includes $2.4 million in expenses related to stock options. Excluding stock option expenses, pro forma net income increased to $1.2 million or $0.02 per share in the third quarter of 2006 compared with a pro forma net income of $1.1 million or $0.02 per share in the second quarter of 2006. The Company closed the quarter with $39 million in cash, cash equivalents and marketable securities and recorded its eighth consecutive quarter of positive cash flows from operations. During the third quarter of 2006, the Company repurchased 70,000 shares of Common Stock for a total cost of $0.5 million. Deferred revenue at September 30, 2006, increased to $12 million, or by 8%, compared with the previous quarter, and by 58% compared with the same period a year ago. "We are pleased with the strong progressive results for this quarter. It is clear our teaming with leading industry storage companies to advance the market acceptance and technical excellence of Virtual Tape Library (VTL) solutions is successful," said ReiJane Huai, Chairman and CEO of FalconStor. "Our world-wide leadership position in data protection solutions will enable FalconStor business 1partners to sell the vision of a complete family of disk-based data protection solutions. This will accelerate our revenue growth and bolster our presence in the network storage industry." The company will host a conference call on Thursday, October 26th at 4:30 p.m. EDT, to discuss the results. To participate in the conference call, please dial: Toll Free: 800-240-8621 International: 303-262-2194 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=93586157&RG=1 Meeting: FalconStor Q3 2006 Earnings Meeting password: q3numbers Meeting Number: 483 077 652 A conference call replay will be available beginning 10/26 at 6:30 PM EDT through 11:59 PM EDT on 10/30. To listen to the replay of the call, dial toll free: 800-405-2236 or International: 303-590-3000, passcode: 11073710#, or visit our website at WWW.FALCONSTOR.COM/INVESTORS.ASP 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 to supplemental information used by management in its financial and operational decision-making. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our ProForma Condensed Consolidated Statements of Operations, presented in this release. ABOUT FALCONSTOR FalconStor Software, Inc. (NASDAQ: FALC) is the premier developer of adaptive data protection solutions that optimize data center efficiency and business continuity for all IT infrastructures. The company's innovative storage virtualization, continuous data protection (CDP), disaster recovery, and virtual tape library (VTL) solutions integrate seamlessly to ensure rapid data recovery and simplified storage management. Available from major OEMs, system integrators, and resellers, FalconStor products -- including award-winning IPStor(R), VirtualTape Library, and DiskSafe(TM) software -- are deployed worldwide by governments, educational institutions, and Fortune 1000 enterprises across industries including aerospace, energy production, financial services, healthcare, law, manufacturing, and telecommunications. 2 FalconStor is headquartered in Melville, New York, with offices throughout Europe and the Asia Pacific region. FalconStor is an active member of the Storage Networking Industry Association (SNIA). For more information, visit www.falconstor.com or call 1-866-NOW-FALC (866-669-3252). ### 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 storage and networking industries; competition in the network storage software market; the potential failure of FalconStor's OEM partners to introduce or to market products incorporating FalconStor's products; 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. 3 FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2006 2005 ----------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents ....................................... $12,564,588 $18,796,973 Marketable securities ........................................... 26,478,649 17,833,683 Accounts receivable, net......................................... 15,439,649 15,187,408 Prepaid expenses and other current assets ....................... 1,045,940 911,715 ----------- ----------- Total current assets ...................................... 55,528,826 52,729,779 ----------- ----------- Property and equipment, net ........................................ 5,604,105 5,277,609 Goodwill ........................................................... 3,512,796 3,512,796 Other intangible assets, net ....................................... 297,883 216,864 Other assets ....................................................... 1,852,170 2,236,725 ----------- ----------- Total assets .............................................. $66,795,780 $63,973,773 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................................. $ 1,132,011 $ 1,152,228 Accrued expenses ................................................. 4,469,176 4,522,212 Deferred revenue ................................................. 9,154,879 7,401,018 ----------- ----------- Total current liabilities ................................. 14,756,066 13,075,458 Deferred revenue ................................................... 2,825,887 2,240,208 ----------- ----------- Total liabilities ......................................... 17,581,953 15,315,666 ----------- ----------- Commitments Total stockholders' equity ................................ 49,213,827 48,658,107 ----------- ----------- Total liabilities and stockholders' equity ................ $66,795,780 $63,973,773 =========== =========== 4 FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended September 30, September 30, -------------------------------- -------------------------------- 2006 2005 2006 2005 (unaudited) (unaudited) Revenues Software license revenue ............................. $ 8,685,667 $ 7,007,075 $ 23,088,377 $ 19,940,026 Maintenance revenue .................................. 3,315,771 1,972,037 8,815,288 5,293,478 Software services and other revenue .................. 964,673 1,077,553 2,938,993 2,710,784 ------------ ------------ ------------ ------------ 12,966,111 10,056,665 34,842,658 27,944,288 Operating expenses: Amortization of purchased and capitalized software ........................................ 81,334 189,472 334,389 605,472 Cost of maintenance, software services and other revenue ............................... 2,246,085 1,666,459 6,550,747 4,462,542 Software development costs ......................... 5,067,882 3,007,337 14,580,122 8,438,473 Selling and marketing .............................. 5,809,706 3,814,540 16,400,453 11,298,883 General and administrative ......................... 1,489,537 1,103,778 4,200,971 3,121,089 ------------ ------------ ------------ ------------ 14,694,544 9,781,586 42,066,682 27,926,459 ------------ ------------ ------------ ------------ Operating income (loss) ................... (1,728,433) 275,079 (7,224,024) 17,829 ------------ ------------ ------------ ------------ Interest and other income .......................... 514,415 245,218 1,185,075 668,713 ------------ ------------ ------------ ------------ Income (loss) before income taxes ............................. (1,214,018) 520,297 (6,038,949) 686,542 ------------ ------------ ------------ ------------ Provision for income taxes ........................... 44,353 37,418 161,103 49,387 ------------ ------------ ------------ ------------ Net income (loss) ............................. $ (1,258,371) $ 482,879 $ (6,200,052) $ 637,155 ============ ============ ============ ============ Basic net income (loss) per share .................... $ (0.03) $ 0.01 $ (0.13) $ 0.01 ============ ============ ============ ============ Diluted net income (loss) per share .................. $ (0.03) $ 0.01 $ (0.13) $ 0.01 ============ ============ ============ ============ Weighted average basic shares outstanding ............ 47,990,558 47,720,496 48,014,662 47,615,182 ============ ============ ============ ============ Weighted average diluted shares outstanding .......... 47,990,558 50,531,012 48,014,662 50,715,162 ============ ============ ============ ============ 5 FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED) GAAP RECONCILIATION Adjustment to Exclude Stock Non-GAAP GAAP Option Expense (1) Pro Forma (2) ------------ ------------------- ------------- Revenues: Software license revenue .......................................... $ 8,685,667 $ 8,685,667 Maintenance revenue ............................................... 3,315,771 3,315,771 Software services and other revenue ............................... 964,673 964,673 ------------ ------------ 12,966,111 12,966,111 ------------ ------------ Operating expenses: Amortization of purchased and capitalized software ................ 81,334 81,334 Cost of software services and other revenue ....................... 2,246,085 (361,263) 1,884,822 Software development costs ........................................ 5,067,882 (1,100,510) 3,967,372 Selling and marketing ............................................. 5,809,706 (758,718) 5,050,988 General and administrative ........................................ 1,489,537 (202,782) 1,286,755 ------------ ------------ ------------ 14,694,544 (2,423,273) 12,271,271 ------------ ------------ ------------ Operating income (loss) ................................ (1,728,433) 2,423,273 694,840 ------------ ------------ ------------ Interest and other income ......................................... 514,415 514,415 ------------ ------------ Income (loss) before income taxes ................................. (1,214,018) 2,423,273 1,209,255 ------------ ------------ ------------ Income taxes ...................................................... 44,353 44,353 ------------ ------------ Net income (loss) ................................................. $ (1,258,371) $ 2,423,273 $ 1,164,902 ============ ============ ============ Basic net income (loss) per share ................................. $ (0.03) $ 0.02 ============ ============ Diluted net income (loss) per share ............................... $ (0.03) $ 0.02 ============ ============ Weighted average basic shares outstanding ......................... 47,990,558 47,990,558 ============ ============ Weighted average diluted shares outstanding ....................... 47,990,558 49,194,707 ============ ============ (1) Represents the stock option expense associated with the adoption of FAS 123R. (2) Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in this release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable GAAP measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be material. 6 FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED) GAAP RECONCILIATION Adjustment to Exclude Stock Non-GAAP GAAP Option Expense (1) Pro Forma (2) ------------ ------------------- ------------- Revenues: Software license revenue ......................................... $ 23,088,377 $ 23,088,377 Maintenance revenue .............................................. 8,815,288 8,815,288 Software services and other revenue .............................. 2,938,993 2,938,993 ------------ ------------ 34,842,658 34,842,658 ------------ ------------ Operating expenses: Amortization of purchased and capitalized software ............... 334,389 334,389 Cost of software services and other revenue ...................... 6,550,747 (1,060,812) 5,489,935 Software development costs ....................................... 14,580,122 (3,233,609) 11,346,513 Selling and marketing ............................................ 16,400,453 (2,104,256) 14,296,197 General and administrative ....................................... 4,200,971 (685,218) 3,515,753 ------------ ------------ ------------ 42,066,682 (7,083,895) 34,982,787 ------------ ------------ ------------ Operating loss ........................................ (7,224,024) 7,083,895 (140,129) ------------ ------------ ------------ Interest and other income ........................................ 1,185,075 1,185,075 ------------ ------------ Income (loss) before income taxes ................................ (6,038,949) 7,083,895 1,044,946 ------------ ------------ ------------ Income taxes ..................................................... 161,103 161,103 ------------ ------------ Net income (loss) ................................................ $ (6,200,052) $ 7,083,895 $ 883,843 ============ ============ ============ Basic net income (loss) per share ................................ $ (0.13) $ 0.02 ============ ============ Diluted net income (loss) per share ............................. $ (0.13) $ 0.02 ============ ============ Weighted average basic shares outstanding ........................ 48,014,662 48,014,662 ============ ============ Weighted average diluted shares outstanding ...................... 48,014,662 48,859,480 ============ ============ (1) Represents the stock option expense associated with the adoption of FAS 123R. (2) Pro forma amounts exclude stock option expenses recognized for GAAP purposes under FAS 123R. As discussed earlier in this release, these supplemental non-GAAP financial measures should not be used as a substitute for their comparable GAAP measures. The pro forma amounts exclude any tax related effects of FAS 123R as these effects are not deemed to be material. 7
Falconstor Software (FALC) 8-KResults of Operations and Financial Condition
Filed: 26 Oct 06, 12:00am