Exhibit 99.1 FALCONSTOR SOFTWARE Contact: Joanne Ferrara, Investor Relations 631-773-5813 JOANNE.FERRARA@FALCONSTOR.COM FALCONSTOR SOFTWARE ANNOUNCES Q2 QUARTERLY RESULTS REVENUES INCREASE 40% FROM PRIOR YEAR MELVILLE, N.Y., July 26, 2007--FalconStor Software, Inc. (NASDAQ: FALC), the market leader in disk-based data protection solutions, today announced financial results for its second quarter ended June 30, 2007. Revenues for the second quarter of 2007 increased 40% to $17.8 million, compared with $12.7 million for the same period a year ago. Net income for the quarter was $1.4 million, or $0.03 per diluted share, which includes $1.9 million in expenses related to stock-based compensation, compared with a net loss of $1.3 million, or $0.03 per diluted share, in Q2 2006, which included $2.4 million in expenses related to stock-based compensation. Pro forma net income, which excludes stock-based compensation expense, was $3.3 million or $0.06 per diluted share in the second quarter 2007, compared with pro forma net income of $1.1 million or $0.02 per diluted share for the second quarter of 2006. For the six months ended June 30, 2007, revenues increased 56% to $34.1 million, compared with $21.9 million for the same period a year ago. Net income for the six-month period was $0.8 million, or $0.02 per diluted share, which includes $4.1 million in stock-based compensation expense, compared with a net loss of $4.9 million, or $0.10 per diluted share, in the same period a year ago which included $4.7 million in stock-based compensation expense. Pro forma net income, which excludes stock-based compensation expense, was $5.0 million, or $0.10 per diluted share, compared with a loss of $0.3 million, or $0.01 per diluted share, in 2006. Compared with the previous quarter, revenues increased 9% from $16.3 million in the first quarter to $17.8 million in the second quarter. Net income for the second quarter was $1.4 million, or $0.03 per diluted share, which includes $1.9 million in expenses related to stock-based compensation, compared with a net loss of $0.6 million, or $0.01 per share, in the first quarter, which included $2.2 million in expenses related to stock-based compensation. Excluding stock-based compensation, pro forma net income increased to $3.3 million, or $0.06 per diluted share, in the second quarter compared with a pro forma net income of $1.6 million, or $0.03 per diluted share, in the first quarter. The Company closed the quarter with $56.2 million in cash, cash equivalents and marketable securities, which is an increase of $3.9 million compared with the previous quarter. Deferred revenue at June 30, 2007, increased to $18.1 million, or by 63% compared with the same period a year ago."We are pleased with the continuing expansion in revenue, strategic partnerships and our product portfolio," said ReiJane Huai, Chairman and CEO of FalconStor. "In addition to powering the fastest, biggest and smartest VTL in the enterprise space, we will be releasing a series of purpose-built, competitively positioned data protection solutions targeting mid-range customers to broaden our channel distribution, expand our market coverage and further our business momentum." The company will host a conference call on Thursday, July 26th at 4:30 p.m. EDT, to discuss the results. To participate in the conference call, please dial: Toll Free: 1 800-240-8658 International: 1 303-262-2130 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=100393732&UID=0 Meeting: FalconStor Q2 2007 Earnings Meeting password: q2numbers Meeting Number: 486 738 639 A conference call replay is scheduled to be available beginning 7/26 at 6:30 PM EDT through 11:59 PM EDT on 7/31. To listen to the replay of the call, dial toll free: 1 800-405-2236 or International: 1 303-590-3000, passcode: 11093411#, 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 market leader in disk-based data protection. We deliver proven, comprehensive data protection solutions that facilitate the recovery of business-critical data with speed, integrity, and simplicity. Our technology-independent solutions, built upon the award-winning IPStor(R) virtualization platform, include the industry-leading VirtualTape Library (VTL) with Single Instance Repository (SIR) for de-duplication, Continuous Data Protection (CDP), Storage Virtualization, and Replication for disaster recovery and remote office protection. Our products are available from major OEMs and solution providers including EMC, SUN, Brocade, H3C, and COPAN and are deployed by thousands of customers worldwide, from small businesses to Fortune 1000 enterprises. 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. FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2007 2006 ----------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents .......................... $26,225,644 $15,605,329 Marketable securities .............................. 29,931,899 25,354,259 Accounts receivable, net ........................... 20,506,847 24,134,257 Prepaid expenses and other current assets .......... 2,044,561 1,244,937 ----------- ----------- Total current assets ........................ 78,708,951 66,338,782 ----------- ----------- Property and equipment, net ........................... 7,107,128 5,960,317 Goodwill .............................................. 3,512,796 3,512,796 Other intangible assets, net .......................... 380,169 407,316 Other assets .......................................... 2,028,606 2,011,433 ----------- ----------- Total assets ................................ $91,737,650 $78,230,644 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................... $ 1,700,825 $ 1,432,510 Accrued expenses ................................... 5,288,812 6,505,536 Deferred revenue ................................... 14,116,551 11,466,552 ----------- ----------- Total current liabilities ................... 21,106,188 19,404,598 Other long-term liabilities ........................... 133,184 137,317 Deferred revenue ...................................... 4,030,451 3,645,482 ----------- ----------- Total liabilities ........................... 25,269,823 23,187,397 ----------- ----------- Commitments Total stockholders' equity .................. 66,467,827 55,043,247 ----------- ----------- Total liabilities and stockholders' equity .. $91,737,650 $78,230,644 =========== =========== FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Six Months Ended June 30, June 30, ------------------------------- -------------------------------- 2007 2006 2007 2006 (unaudited) (unaudited) Revenues Software license revenue ............................... $ 11,980,480 $ 8,726,021 $ 22,417,985 $ 14,402,710 Maintenance revenue..................................... 4,535,780 2,908,514 8,869,319 5,499,517 Software services and other revenue .................... 1,234,284 1,033,692 2,803,918 1,974,320 ------------ ------------ ------------ ------------ 17,750,544 12,668,227 34,091,222 21,876,547 Operating expenses: Amortization of purchased and capitalized software .......................................... 24,286 101,333 49,822 253,055 Cost of maintenance, software services and other revenue ..................................... 2,462,050 2,320,065 5,206,338 4,304,662 Software development costs .......................... 5,341,481 4,905,137 10,857,666 9,512,240 Selling and marketing ............................... 7,500,433 5,686,742 14,469,184 10,590,747 General and administrative .......................... 1,922,723 1,390,140 3,860,503 2,711,434 ------------ ------------ ------------ ------------ 17,250,973 14,403,417 34,443,513 27,372,138 ------------ ------------ ------------ ------------ Operating income (loss) ..................... 499,571 (1,735,190) (352,291) (5,495,591) ------------ ------------ ------------ ------------ Interest and other income ........................... 594,376 384,009 1,093,747 670,660 ------------ ------------ ------------ ------------ Income (loss) before income taxes ............................... 1,093,947 (1,351,181) 741,456 (4,824,931) ------------ ------------ ------------ ------------ Provision for income taxes ............................. (285,621) (46,386) (83,537) 116,750 ------------ ------------ ------------ ------------ Net income (loss) ........................... $ 1,379,568 $ (1,304,795) $ 824,993 $ (4,941,681) ============ ============ ============ ============ Basic net income (loss) per share ...................... $ 0.03 $ (0.03) $ 0.02 $ (0.10) ============ ============ ============ ============ Diluted net income (loss) per share .................... $ 0.03 $ (0.03) $ 0.02 $ (0.10) ============ ============ ============ ============ Weighted average basic shares outstanding .............. 49,378,812 48,047,291 48,988,778 48,026,914 ============ ============ ============ ============ Weighted average diluted shares outstanding ............ 53,007,181 48,047,291 50,802,963 48,026,914 ============ ============ ============ ============ FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2007 (UNAUDITED) GAAP RECONCILIATION Three Months Ended Six Months Ended June 30, 2007 June 30, 2007 2007 2006 2007 2006 (unaudited) (unaudited) Net income (loss) (GAAP) ..................... $ 1,379,568 $ (1,304,795) $ 824,993 $ (4,941,681) Adjustment (1) ............................... 1,938,021 2,396,102 4,128,106 4,660,622 -------------- -------------- -------------- -------------- Adjusted net income (loss) (2) ............... 3,317,589 1,091,307 4,953,099 (281,059) ============== ============== ============== ============== Basic EPS (GAAP) ............................. $ 0.03 $ (0.03) $ 0.02 $ (0.10) Adjustment ................................... 0.04 0.05 0.08 0.10 -------------- -------------- -------------- -------------- Adjusted Basic EPS ........................... 0.07 0.02 0.10 (0.01) ============== ============== ============== ============== Diluted EPS (GAAP) ........................... $ 0.03 $ (0.03) $ 0.02 $ (0.10) Adjustment ................................... 0.04 0.05 0.08 0.10 -------------- -------------- -------------- -------------- Adjusted Diluted EPS ......................... 0.06 0.02 0.10 (0.01) ============== ============== ============== ============== Weighted average basic shares outstanding ................................ 49,378,812 48,047,291 48,988,778 48,026,914 ============== ============== ============== ============== Weighted average diluted shares outstanding ................................ 53,007,181 49,377,595 50,802,963 48,026,914 ============== ============== ============== ============== Footnotes: (1) Represents non-cash stock-based compensation charges as follows: Three Months Ended Three Months Ended June 30, 2007 June 30, 2007 2007 2006 2007 2006 (unaudited) (unaudited) Cost of maintenance, software services and other revenue $ 224,454 $ 356,159 $ 509,303 $ 699,549 Software development costs 756,294 1,078,138 1,679,950 2,133,099 Selling and marketing 714,610 684,686 1,433,527 1,345,538 General and administrative 242,663 277,119 505,326 482,436 ---------- ---------- ---------- ---------- Total non-cash stock-based compensation expense $1,938,021 $2,396,102 $4,128,106 $4,660,622 ========== ========== ========== ========== (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.
FalconStor Software (FALC) 8-KResults of Operations and Financial Condition
Filed: 26 Jul 07, 12:00am