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FalconStor Software Reports Third Quarter Financial Results

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.

FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

   
September 30,

2012

December 31,

2011

(unaudited)
Assets
Current assets:

Cash and cash equivalents

$ 12,154,409 $ 16,257,694
Marketable securities 13,201,701 20,894,328
Accounts receivable, net 10,965,296 19,314,789
Prepaid expenses and other current assets 4,716,228 1,912,831
Inventory 721,827 1,769,007
Deferred tax assets, net   175,624   177,798
Total current assets   41,935,085   60,326,447
 
Property and equipment, net 4,387,606 4,364,180
Long-term marketable securities 489,999 611,082
Deferred tax assets, net 205,879 217,771
Software development costs, net 1,243,885 1,001,530
Other assets, net 2,207,272 2,183,973
Goodwill 4,150,339 4,150,339
Other intangible assets, net   190,106   191,572
 
Total assets

$

54,810,171

$

73,046,894

 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,514,250 $ 2,883,844
Accrued expenses 11,063,649 17,609,766
Deferred revenue, net   17,526,719   19,450,966
 
Total current liabilities 30,104,618 39,944,576
 
Other long-term liabilities 4,433,219 2,587,327
Deferred revenue, net   6,098,952   7,698,053
 
Total liabilities   40,636,789   50,229,956
 
Commitments and Contingencies
 
Total stockholders' equity   14,173,382   22,816,938
 
Total liabilities and stockholders' equity $ 54,810,171 $ 73,046,894

FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

       
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012 2011 2012 2011
 
Revenues:
Product revenues $ 8,550,551 $ 10,176,275 $ 27,049,072 $ 33,045,050
Support and services revenues   8,538,462     8,680,115     25,874,214     24,398,610  
17,089,013 18,856,390 52,923,286 57,443,660
Cost of revenues:
Product 1,562,359 1,467,141 5,370,031 5,456,186
Support and service   3,318,558     3,339,448     9,570,969     9,877,256  
Total cost of revenues   4,880,917     4,806,589     14,941,000     15,333,442  
 

Gross profit

$

12,208,096

$

14,049,801

$

37,982,286

$

42,110,218

 

Operating expenses:

Research and development costs 4,643,102 5,033,211 14,115,388 16,383,318
Selling and marketing 8,272,973 9,878,069 27,302,960 28,873,468
General and administrative 3,461,880 2,904,767 9,590,909 8,463,762

Investigation, litigation andsettlement related costs

(1,353,571

)

531,507

(1,793,368

)

4,331,298

Restructuring costs   770,749     822,320     770,749     822,320  
Total operating expenses   15,795,133     19,169,874     49,986,638     58,874,166  
 

Operating loss

 

 

(3,587,037

)

 

(5,120,073

)

 

(12,004,352

)

 

(16,763,948

)

 
Interest and other income (loss), net   102,059     (71,266 )   (142,805 )   379,690  
 
Loss before income taxes   (3,484,978 )   (5,191,339 )   (12,147,157 )   (16,384,258 )
 
Provision for income taxes   83,073     206,837     490,888     869,221  
 
Net loss $ (3,568,051 ) $ (5,398,176 ) $ (12,638,045 ) $ (17,253,479 )
 
 
Basic net loss per share $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
 
Diluted net loss per share $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
 

Weighted average basic sharesoutstanding

  47,542,304     46,779,040     47,353,922     46,563,004  

Weighted average diluted sharesoutstanding

  47,542,304     46,779,040     47,353,922     46,563,004  

FalconStor Software, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

       
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012 2011 2012 2011
 
GAAP loss from operations $ (3,587,037 ) $ (5,120,073 ) $ (12,004,352 ) $ (16,763,948 )
Add: Non-cash stock option expense (1) 1,055,778 1,436,578 3,594,156 4,091,878
Legal related costs (3) (1,353,571 ) 531,507 (1,793,368 ) 4,331,298
Restructuring costs (4)   770,749     822,320     770,749     822,320  
Non-GAAP loss from operations   (3,114,081 )   (2,329,668 )   (9,432,815 )   (7,518,452 )

 

GAAP net loss $ (3,568,051 ) $ (5,398,176 ) $ (12,638,045 ) $ (17,253,479 )
Add: Non-cash stock option expense,
net of income taxes (2) 1,055,778 1,436,578 3,594,156 4,091,878
Legal related costs (3) (1,353,571 ) 531,507 (1,793,368 ) 4,331,298
Restructuring costs (4)   770,749     822,320     770,749     822,320  
Non-GAAP net loss   (3,095,095 )   (2,607,771 )   (10,066,508 )   (8,007,983 )
 
GAAP gross margin – Product 82 % 86 % 80 % 84 %
Add: Non-cash stock option expense (1)   0 %   0 %   0 %   0 %
Non-GAAP gross margin - Product   82 %   86 %   80 %   84 %
 
GAAP gross margin – Support
and Service 61

%

62 % 63 % 60 %
Add: Non-cash stock option expense (1)   1 %   1 %   0 %   2 %
Non-GAAP gross margin – Support
and Service   62 %   63 %   63 %   61 %
 
GAAP operating margin (21 %) (27 %) (23 %) (29 %)
Add: Non-cash stock option expense (1) 6 % 8 % 7 % 7 %
Legal related costs (3) (8 %) 3 % (3 %) 8 %
Restructuring costs (4)   5 %   4 %   1 %   1 %
Non-GAAP operating margin   (18 %)   (12 %)   (18 %)   (13 %)

 

GAAP Basic EPS $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
Add: Non-cash stock option expense,
net of income taxes (2) 0.02 0.03 0.08 0.09
Legal related costs (3) (0.03 ) 0.01 (0.04 ) 0.09
Restructuring costs (4)   0.02     0.02     0.02     0.02  
Non-GAAP Basic EPS   (0.07 )   (0.06 )   (0.21 )   (0.17 )

 

GAAP Diluted EPS $ (0.08 ) $ (0.12 ) $ (0.27 ) $ (0.37 )
Add: Non-cash stock option expense,
net of income taxes (2) 0.02 0.03 0.08 0.09
Legal related costs (3) (0.03 ) 0.01 (0.04 ) 0.09
Restructuring costs (4)   0.02     0.02     0.02     0.02  
Non-GAAP Diluted EPS   (0.07 )   (0.06 )   (0.21 )   (0.17 )

 

Weighted average basic shares
Outstanding (GAAP and as adjusted)   47,542,304     46,779,040     47,353,922     46,563,004  
 
Weighted average diluted shares
Outstanding (GAAP and as adjusted)   47,542,304     46,779,040     47,353,922     46,563,004  

Footnotes:

(1) Represents non-cash, stock-based compensation charges as follows:

   
Three Months Ended

September 30,

Nine Months Ended

September 30,

2012   2011 2012   2011
 
Cost of revenues - Product $ 113 $ 1,169 $ 212 $ 2,641
Cost of revenues – Support and Service 53,314 111,830 103,158 385,032
Research and development costs 127,982 235,782 572,170 1,044,193
Selling and marketing 388,167 585,814 1,272,823 1,471,093
General and administrative   486,202   501,983   1,645,793   1,188,919
 

Total non-cash stock-basedcompensation expense

$ 1,055,778 $ 1,436,578 $ 3,594,156 $ 4,091,878
(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 nine months ended September 30, 2012 and 2011, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.
 
(3) Legal related costs represent amounts in connection with the Company’s investigations, litigation and settlement related costs for each respective period presented.
 
(4) Represents restructuring costs which were incurred during each respective period presented.




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