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FalconStor Software Reports Second Quarter Financial Results

MELVILLE, N.Y., August 8, 2011—FalconStor Software, Inc. (NASDAQ: FALC), the provider of disk-based data protection solutions, today announced financial results for its second quarter ended June 30, 2011.

Total revenues for the second quarter of 2011 were $19.6 million, an increase of 4% over the previous quarter and down 3% compared with the same period a year ago.

GAAP loss from operations for the quarter was $6.0 million, compared with an operating loss of $5.1 million for the same period a year ago. GAAP net loss for the second quarter was $5.9 million, or $0.13 per share, compared with $3.4 million, or $0.07 per share in the second quarter of 2010.

Non-GAAP loss from operations was $3.4 million in the second quarter of 2011, compared with a loss from operations of $2.8 million for the same period a year ago. Non-GAAP net loss was $3.4 million, or a loss of $0.07 per share, in the second quarter of 2011, compared with a net loss of $1.7 million, or $0.04 per share, in the second quarter of 2010. Non-GAAP results exclude the effects of stock-based compensation and costs associated with the ongoing government investigations.

For the six months ended June 30, 2011, revenues were $38.6 million, up 3% compared with $37.4 million for the same period a year ago. GAAP loss from operations for the six month period was $11.6 million compared with a loss of $13.6 million in 2010. GAAP net loss was $11.9 million, or $0.26 per share, for the six months ended June 30, 2011, compared with a loss of $8.9 million, or $0.20 per share, in the same period a year ago.

Non-GAAP loss from operations was $5.2 million for the six months ended June 30, 2011, compared with a loss of $8.6 million in 2010. Non-GAAP net loss was $5.4 million, or $0.12 per share, compared with a loss of $5.5 million, or $0.12 per share, in the same period a year ago.

The Company closed the quarter with $38.1 million in cash, cash equivalents, and marketable securities. Deferred revenue at June 30, 2011 was $25.8 million, an increase of 18% compared with the same period a year ago.

"We continue to see some momentum in our sales as a result of our market focus and the investments that we’ve made in our sales force and our channel partnerships in the first half of the year,” said Jim McNiel, president and chief executive officer of FalconStor. “Since we adopted our current mission and direction, we have made great strides in becoming a more focused and efficient organization in all functional areas.  This discipline has allowed us to deliver the solutions our customers need today to ensure disaster-proof data protection and IT service availability, while setting the stage for our next generation of products."

The Company will host a conference call to discuss its financial results on Monday, August 8, 2011 at 4:30 p.m. EDT. To participate in the conference call, please dial:

Toll Free: 1-800-762-8795

International: 1-480-629-9644

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=153517492&RG=1&UID

Meeting: FalconStor Q2 2011 Earnings

Meeting password: q2numbers

Meeting Number: 765 068 976

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 11. To listen to the replay of the call, dial toll free: 1-800-406-7325 or International: +1-303-590-3030, passcode: 4458337, 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 ongoing government investigations, and (ii) noncash stock-based compensation charges and any potential tax effects, for all periods presented, when applicable. 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

FalconStor Software, Inc. (NASDAQ: FALC) is the market leader in disk-based data protection. The company’s mission is to transform traditional backup and disaster recovery (DR) 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 DR automation. FalconStor solutions are available through a worldwide network of partners, including solution providers, top-tier strategic partners and major 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 US and other countries. All other company and product names contained herein may be trademarks of their respective holders.




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