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Form 8-K FALCONSTOR SOFTWARE INC For: May 11

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May 11, 2022 4:41 PM EDT

Exhibit 99.1
 
logo_colora07a.jpg

For more information, contact:
FalconStor Software, Inc.
Vincent Sita
Chief Financial Officer
vincent.sita@falconstor.com

FalconStor Software Announces First Quarter of 2022 Results

New Hybrid Cloud Reseller Relationship with IBM and Continued Managed Service Provider Adoption

•Developed new strategic reseller relationship with IBM, creating new joint solutions that enable hybrid cloud data migration, backup, and restore for IBM Power Virtual Server Cloud (IBM Power VS) clients and MSPs that will be resold with IBM Cloud sales force and partner channels
•Added four new MSP partners for the StorSafe secure backup-as-a-service solution while existing MSP partners expanded their business to protect new customers and systems, aligned with the FalconStor strategic shift to serve the MSP community
•Rolled out new initiatives with Hitachi Vantara to build pipeline for advanced disaster recovery and cloud-enabled protection that will be resold by Hitachi Vantara sales force and partner channels

AUSTIN, TEXAS (May 11, 2022) - FalconStor Software, Inc. (OTCQB: FALC), a trusted data protection leader modernizing disaster recovery and backup for the hybrid cloud world, today announced financial results for its first quarter 2022, which ended on March 31, 2022.

“Our strategic shift to recurring revenue-based hybrid cloud data protection solutions took a material step forward in the quarter as we worked aggressively to secure an important reseller relationship with IBM,” said Todd Brooks, FalconStor CEO. “IBM’s cloud push has been a centerpiece of its corporate strategy, as highlighted in its first quarter 2022 results. As we announced earlier today, enterprises can now leverage new joint hybrid cloud solutions from FalconStor and IBM. These solutions are especially important to the tens of thousands of companies around the globe that leverage IBM i environments, as they now have the ability to securely backup and restore to the cloud as well as migrate their IBM i workloads to IBM Power VS Cloud with secure backup and recovery on an on-going basis.”

“Despite the importance of this step forward in our efforts to reinvent FalconStor, our aggressive focus on advancing critical hybrid cloud relationships and our efforts to realign our sales team accordingly negatively impacted our legacy on-premises expansions and legacy on-premises new customer acquisition revenue during the quarter. We don’t view our poor legacy results in Q1 as being a signal of accelerated legacy decline in the future," stated Brooks. "In fact, legacy recurring revenue renewal rates were 86% and ARR increased 4% year-over-year during the quarter. As we continue to reinvent FalconStor, we must simultaneously focus on driving new strategic hybrid cloud ARR growth and maintaining a solid legacy on-premises revenue base.”

First Quarter 2022 Financial Results
•Annual Recurring Revenue (ARR): 4% year-over-year growth
•Ending Cash: $3.4 million, compared to $2.0 million in the first quarter of fiscal year 2021
•Total Revenue: $2.0 million, compared to $3.8 million in the first quarter of fiscal year 2021
•Total Cost of Revenue: $0.4 million, compared to $0.6 million in the first quarter of fiscal year 2021
•Total Operating Expenses: $2.7 million, compared to $3.2 million in the first quarter of fiscal year 2021
•GAAP Net Income (Loss): $(1.1) million, compared to $0.4 million in the first quarter of fiscal year 2021

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Guidance
Given Q1 2022 results, we are reducing full-year guidance as follows:

guidancetablea.jpg

*Adjusted EBITDA adds back Non-Operating and Other Expenses and Income


Conference Call and Webcast Information

WHO: Todd Brooks, Chief Executive Officer, FalconStor and Vincent Sita, Chief Financial Officer, FalconStor

WHEN: Wednesday, May 11, 2022, 4:00 PM Central; 5:00 PM Eastern

To register for our earnings call, please click the following link:

FALCONSTOR FIRST QUARTER 2022 FINANCIAL TELECONFERENCE AND PRESENTATION

As an alternative, you can copy and paste the following link into your web browser to register:

https://register.gotowebinar.com/register/4946665852509096204

Conference Call:
Please dial the following if you would like to interact with and ask questions to FalconStor hosts:
Toll Free: 877-568-4108
Access Code: 399-172-649

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) restructuring costs, (ii) effects of our Series A redeemable convertible preferred stock, and (iii) non-cash stock-based compensation charges and any potential tax effects. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our reconciliation of GAAP to Non-GAAP financial measures presented in this release.

About FalconStor Software

FalconStor is the trusted data protection software leader modernizing disaster recovery and backup operations for the hybrid cloud world. The Company enables enterprise customers and managed service providers to secure, migrate, and protect their data while reducing data storage and long-term retention costs by up to 95%. More than 1,000 organizations and managed service providers worldwide standardize on FalconStor as the foundation for their cloud first data protection future. Our
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products are offered through and supported by a worldwide network of leading managed service providers, systems integrators, resellers, and original equipment manufacturers.

# # #

FalconStor and FalconStor Software are trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders.

Links to websites or pages controlled by parties other than FalconStor are provided for the reader's convenience and information only. FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate. Use of information obtained by following these links is at the reader's own risk.
CONTACT INFORMATION
For more information, contact:
Vincent Sita
Chief Financial Officer FalconStor Software Inc.
investorrelations@falconstor.com

CONTACT US AROUND THE GLOBE

Corporate HeadquartersEurope Headquarters
501 Congress Avenue
GERMANY
Suite 150
Landsberger Straße 302
Austin, Texas 78701
80687 München, Germany
Tel: +1.631.777.5188salesemea@falconstor.com
salesinfo@falconstor.com

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FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31, 2022December 31, 2021
 (unaudited) 
Assets  
Current assets:  
Cash and cash equivalents$3,381,639 $3,181,209 
Accounts receivable, net825,598 2,855,135 
Prepaid expenses and other current assets1,264,231 1,074,972 
Contract assets, net426,264 209,936 
Inventory— 7,744 
Total current assets5,897,732 7,328,996 
Property and equipment, net128,203 153,904 
Operating lease right-of-use assets90,893 112,405 
Deferred tax assets, net29,173 30,190 
Software development costs, net41,056 42,695 
Other assets, net99,834 106,023 
Goodwill4,150,339 4,150,339 
Other intangible assets, net40,826 51,362 
Contract assets463,264 692,712 
 Total assets$10,941,320 $12,668,626 
Liabilities and Stockholders' Deficit  
Current liabilities:  
Accounts payable$638,632 $297,033 
Accrued expenses801,815 1,099,257 
Operating lease liabilities74,349 76,940 
Deferred revenue, net4,049,503 4,557,317 
Total current liabilities5,564,299 6,030,547 
Other long-term liabilities957,860 950,843 
Notes payable, net2,156,246 2,154,098 
Operating lease liabilities16,544 35,465 
Deferred tax liabilities, net500,499 500,499 
Deferred revenue, net1,395,179 1,578,769 
Total liabilities10,590,627 11,250,221 
Commitments and contingencies  
Series A redeemable convertible preferred stock14,700,124 14,384,388 
Total stockholders' deficit(14,349,431)(12,965,983)
Total liabilities and stockholders' deficit$10,941,320 $12,668,626 

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FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 
Three Months Ended March 31,
 20222021
Revenue:  
Product revenue$594,928 $2,139,729 
Support and services revenue1,454,179 1,688,597 
Total revenue2,049,107 3,828,326 
Cost of revenue:  
Product20,719 222,834 
Support and service394,549 426,173 
Total cost of revenue415,268 649,007 
Gross profit$1,633,839 $3,179,319 
Operating expenses:  
Research and development costs705,981 659,940 
Selling and marketing1,189,846 1,396,640 
General and administrative849,939 837,867 
Restructuring costs744 302,313 
Total operating expenses2,746,510 3,196,760 
Operating income (loss)(1,112,671)(17,441)
Gain on debt extinguishment— 754,000 
Interest and other expense(117,995)(283,648)
Income (loss) before income taxes(1,230,666)452,911 
Income tax expense (benefit)(121,260)44,616 
Net income (loss)$(1,109,406)$408,295 
Less: Accrual of Series A redeemable convertible preferred stock dividends300,921 277,170 
Less: Accretion to redemption value of Series A redeemable convertible preferred stock14,815 197,114 
Net income (loss) attributable to common stockholders$(1,425,142)$(65,989)
Basic net income (loss) per share attributable to common stockholders$(0.20)$(0.01)
Diluted net income (loss) per share attributable to common stockholders$(0.20)$(0.01)
Weighted average basic shares outstanding7,082,276 5,949,463 
Weighted average diluted shares outstanding7,082,276 5,949,463 
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FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited) 
Three Months Ended March 31,
 20222021
GAAP income (loss) from operations$(1,112,671)$(17,441)
Non-cash stock option expense (1)8,184 4,471 
Restructuring costs (3)744 302,313 
Non-GAAP income (loss) from operations$(1,103,743)$289,343 
GAAP net income (loss) attributable to common stockholders$(1,425,142)$(65,989)
Non-cash stock option expense, net of income taxes (2)8,184 4,471 
Restructuring costs (3)744 302,313 
Gain on debt extinguishment— (754,000)
Effects of Series A redeemable convertible preferred stock (4)315,736 474,284 
Embedded derivative fair value adjustment (7)$7,702 $14,323 
Non-GAAP net income (loss) attributable to common stockholders$(1,092,776)$(24,598)
GAAP gross margin80 %83 %
Non-cash stock option expense (1)0 %0 %
Non-GAAP gross margin80 %83 %
GAAP gross margin - Product97 %90 %
Non-cash stock option expense (1)0 %0 %
Non-GAAP gross margin - Product97 %90 %
GAAP gross margin - Support and Service73 %75 %
Non-cash stock option expense (1)0 %0 %
Non-GAAP gross margin - Support and Service73 %75 %
GAAP operating margin(54 %)— %
Non-cash stock option expense (1)— %— %
Restructuring costs (3)0 %8 %
Non-GAAP operating margin(54 %)8 %
GAAP Basic EPS$(0.20)$(0.01)
Non-cash stock option expense, net of income taxes (2)0.00 0.00 
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Restructuring costs (3)0.00 0.05 
Gain on litigation settlement (5)0.00 0.00 
Gain on debt extinguishment (6)0.00 (0.12)
Effects of Series A redeemable convertible preferred stock (4)0.05 0.08 
Embedded derivative fair value adjustment (7)0.00 0.00 
Non-GAAP Basic EPS$(0.15)$— 
GAAP Diluted EPS$(0.20)$(0.01)
Non-cash stock option expense, net of income taxes (2)0.00 0.00 
Restructuring costs (3)0.00 0.05 
Gain on litigation settlement (5)0.00 0.00 
Gain on debt extinguishment (6)0.00 (0.12)
Effects of Series A redeemable convertible preferred stock (4)0.05 0.08 
Embedded derivative fair value adjustment (7)0.00 0.00 
Non-GAAP Diluted EPS$(0.15)$— 
Weighted average basic shares outstanding (GAAP and Non-GAAP)7,082,276 5,949,463 
Weighted average diluted shares outstanding (GAAP)7,082,276 5,949,463 
Weighted average diluted shares outstanding (Non-GAAP)7,082,276 5,949,463 

Footnotes:
(1)Represents non-cash, stock-based compensation charges as follows:
Three Months Ended March 31,
 20222021
Cost of revenue - Product$227 $227 
Cost of revenue - Support and Service181 181 
Research and development costs1,879 — 
Selling and marketing4,511 2,677 
General and administrative1,386 1,386 
Total non-cash stock based compensation expense$8,184 $4,471 
 
(2)Represents the effects of non-cash stock-based compensation expense recognized, net of related income tax effects. For the three months ended March 31, 2022 and 2021, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.

(3)Represents restructuring costs which were incurred during each respective period presented.

(4)Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock, accrual of Series A redeemable convertible preferred stock dividends and deemed dividend on Series A redeemable convertible preferred stock.

(5)Represents a gain for the legal settlement of a contractual dispute with a marketing/sales firm.

(6)Represents the gain recorded when the Company's loan with the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act was forgiven on March 30, 2021.

(7)Represents the income statement (gain) or loss resulting from the change in fair value of our embedded derivative liability associated with the Company's Series A redeemable convertible preferred stock.
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