FalconStor: Fiscal 3Q10 Financial Results

in US$ millions)	3Q09	3Q10	9 mo. 09	9 mo. 10
Revenues	21.5	19.0	67.0	56.4
*Growth*		-12%		*-16%*
Net income (loss)	(2.0)	(26.4)	(1.6)	(35.3)

FalconStor Software, Inc. filed its Quarterly Report on Form 10-Q for the third quarter of 2010.

Total revenues for the third quarter of 2010 were $19.0 million, a decrease of 6% over the previous quarter and down 12% compared with the same period a year ago.

GAAP loss from operations for the third quarter of 2010 was $4.8 million, down from $5.1 million in the previous quarter and up from $2.5 million for the same period a year ago.

Non-GAAP loss from operations was $2.6 million in the third quarter of 2010, down from $2.8 million in the previous quarter and up from a $0.2 million loss for the same period a year ago.

For the nine months ended September 30, 2010, revenues were $56.4 million, compared with $67.0 million for the same period a year ago. GAAP loss from operations for the nine month period was $18.4 million compared with a loss of $3.0 million in 2009.

Non-GAAP loss from operations was $11.3 million for the nine months ended September 30, 2010, compared with non-GAAP income from operations of $3.7 million in 2009.

GAAP net loss was $26.4 million, or $0.58 per share for the three months ended September 30, 2010, and $35.3million, or $0.78 per share for the nine-month period ended September 30, 2010. The net loss includes tax provisions of $21.8 million and $17.0 million for the three and nine months ended September 30, 2010, respectively. During the third quarter of 2010, the Company concluded that its domestic deferred tax assets could not be realized on a more-likely-than-not basis, therefore a valuation allowance of $16.2 million was required to be recorded on these previously recognized deferred tax assets. This valuation allowance had no cash impact and was recorded within the tax provision for the three and nine months ended September 30, 2010.

GAAP net loss for the three and nine months ended September 30, 2009 was $2.0 million, or $0.05 per share, and $1.6 million, or $0.04 per share, respectively.

Non-GAAP operating results exclude stock-based compensation expenses of $2.2 million for the three months ended September 30, 2010 and 2009 and $2.3 million for the three months ended June 30, 2010. For the nine months ended September 30, 2010 and 2009, non-GAAP operating results exclude stock-based compensation expense of $7.2 million and $6.7 million, respectively.

The Company closed the quarter with $33.8 million in cash, cash equivalents, and marketable securities. Deferred revenue at September 30, 2010 was $20.5 million.

"Gartner and others agree that traditional backup is broken due to exponential data growth, server virtualization, and round-the-clock demands on mission-critical applications – and it is in FalconStor’s DNA to address this problem," said Jim McNiel, interim president and interim CEO of FalconStor Software. "We have the technology and the expertise to redefine data protection to match the way IT directors view their data center – as a collection of services. As a result, we are building the industry’s first service-oriented data protection solution for primary data centers and the cloud. It is upon this foundation that we expect to grow our business."