FalconStor Posts Q3

MELVILLE, N.Y. -- FalconStor Software, Inc. (NASDAQ:FALC - News), the market leader in disk-based data protection solutions, today announced financial results for its third quarter ended September 30, 2007.

Revenues for the third quarter of 2007 increased 43% to $18.5 million, compared with $13.0 million for the same period a year ago. Net income for the quarter was $6.3 million, or $0.12 per diluted share, which includes $2.1 million in expenses related to stock-based compensation and an income tax benefit of $4.5 million, compared with a net loss of $1.3 million, or $0.03 per diluted share, in Q3 2006, which included $2.4 million in expenses related to stock-based compensation.

The income tax benefit of $4.5 million recorded in the third quarter of 2007 was primarily associated with the reversal of deferred tax asset valuation allowances in response to continuing favorable developments in operating results and financial projections.

Pro forma income before income taxes, which excludes stock-based compensation expense, was $3.9 million or $0.07 per diluted share in the third quarter of 2007, compared with pro forma income before income taxes of $1.2 million or $0.02 per diluted share for the third quarter of 2006. Pro forma operating margins increased to 17% in the third quarter of 2007 compared with pro forma operating margins of 5% in the same period a year ago.

For the nine months ended September 30, 2007, revenues increased 51% to $52.6 million, compared with $34.8 million for the same period a year ago. Net income for the nine-month period was $7.1 million, or $0.13 per diluted share, which includes $6.2 million in stock-based compensation expense and an income tax benefit of $4.6 million, compared with a net loss of $6.2 million, or $0.13 per diluted share, in the same period a year ago which included $7.1 million in stock-based compensation expense. Pro forma income before income taxes, which excludes stock-based compensation expense, was $8.7 million, or $0.17 per diluted share, compared with pro forma income before income taxes of $1.0 million, or $0.02 per diluted share, in 2006.The Company closed the quarter with $59.8 million in cash, cash equivalents and marketable securities. Cash flow from operations was $6.5 million in the quarter and $18.0 million year to date. Deferred revenue at September 30, 2007 was $17.6 million, which increased 47% compared with the same period a year ago.

We are pleased with the consistent expansions of our product portfolio, strategic partners, sales channel and operating margins," said ReiJane Huai, Chairman and CEO of FalconStor. “Besides continuing growth in the enterprise space, we will be creating additional growth drivers by leveraging our software to enable our OEM partners and distributors to create easy-to-deploy turnkey appliances to expand our market coverage to include remote offices and mid-range accounts.”

FalconStor Software Inc.