FalconStor: Fiscal 1Q08 Financial Results

FalconStor Software, Inc. announced financial results
for its first quarter ended March 31, 2008.

Revenues for the first quarter of 2008 increased 33% to $21.8
million, compared with $16.3 million for the same period a year ago.
GAAP income from operations for the quarter increased 306% to $1.8
million, compared with an operating loss of $0.9 million in Q1 2007.
GAAP net income for the quarter was $1.3 million, or $0.03 per diluted
share, compared with a net loss of $0.6 million, or $0.01 per diluted
share, in Q1 2007. Stock-based compensation expense was $2.3 million
in Q1 2008 and $2.2 million in Q1 2007. In Q1 2008, the Company
recorded a tax provision of $1.0 million compared with a tax provision
of only $0.2 million in Q1 2007.

Pro forma income from operations increased to $4.1 million in the
first quarter of 2008, compared with pro forma income from operations
of $1.3 million in the first quarter of 2007. Pro forma operating
margins increased to 19% in the first quarter of 2008, compared with
pro forma operating margins of 8% in the same period a year ago. Pro
forma net income increased to $2.9 million, or $0.06 per diluted
share, in Q1 2008 compared with $1.6 million, or $0.03 per diluted
share, in Q1 2007. In Q1 2008, the Company recorded a pro forma tax
provision of 38% or $1.8 million compared with a tax provision of only
11% or $0.2 million in Q1 2007. Pro forma results exclude the effects
of stock-based compensation net of the related income taxes.

The Company closed the quarter with $56.8 million in cash, cash
equivalents and marketable securities. During the first quarter of
2008, the Company repurchased a total of 1.8 million shares at a total
purchase price of $14.5 million. Cash flows from operations for the
first quarter of 2008 were $8.5 million.

For the year ending December 31, 2008, the Company still
anticipates:

• Revenues to be in the range of $100 million to $104 million
• Pro forma operating margins, which exclude stock-based
  compensation, to be in the range of 24% to 26%
• Pro forma net income to be between $0.31 and $0.36 per diluted
  share, which excludes stock-based compensation, net of income
  taxes.

"The decision by a Fortune 15 global financial services firm to
standardize on our clustered Virtual Tape Library (VTL) with
deduplication in Q1 2008 underscores our solution’s technological lead
and compelling ROI," said ReiJane Huai, Chairman and CEO of
FalconStor. "We will continue to leverage our market recognition and
channel partnerships to drive revenue growth with optimal efficiency
by cross-selling complementary solutions, including FalconStor’s
deduplication technology, Continuous Data Protector(TM) (CDP), and
others, through the enterprise channel, and by empowering our
mid-range partners to deliver competitively packaged/priced storage
appliances with quality margins and with a support infrastructure
around the world."

FalconStor Software, Inc.