8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 29, 2010

FALCONSTOR SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware	0-23970	77-0216135
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
2 Huntington Quadrangle, Melville, New York		11747
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 631-777-5188

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On April 29, 2010, the Company issued a press release announcing its results of operations for the fiscal quarter ended March 31, 2010.

The text of a press release issued by the Company is furnished as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01.	Financial Statements and Exhibits
(c)	Exhibits
	Exhibit Number	Description
	99.1	Press release of the Company dated April 29, 2010.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: April 29, 2010	FALCONSTOR SOFTWARE, INC.
	By:	/s/ James Weber
		Name:	James Weber
		Title:	Chief Financial Officer and Vice President

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EX-99.1

Exhibit 99.1

Contact: Joanne Ferrara, Investor Relations

631-773-5813

joanne.ferrara@falconstor.com

FalconStor Software Reports

First Quarter Financial Results

MELVILLE, N.Y., April 29, 2010—FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open™ data protection solutions, today announced financial results for its first quarter ended March 31, 2010.

Revenues for the first quarter of 2010 were $17.1 million, compared with $21.0 million for the same period a year ago.  GAAP loss from operations for the quarter was $8.5 million, compared with a loss of $0.8 million in the first quarter of 2009.  GAAP net loss for the quarter was $5.5 million, or $0.12 per share, compared with a net loss of $0.9 million, or $0.02 per share, in the first quarter of 2009.  Stock-based compensation expense was $2.7 million in the first quarter of 2010 and $2.2 million in the first quarter of 2009.

Non-GAAP loss from operations was $5.8 million in the first quarter of 2010, compared with operating income of $1.3 million for the same period a year ago.  Non-GAAP net loss was $3.8 million, or $0.08 per share in the first quarter of 2010, compared with net income of $0.6 million, or $0.01 per diluted share, in the first quarter of 2009.  Non-GAAP results exclude the effects of stock-based compensation expense net of the related income taxes.

The Company closed the quarter with $40.5 million in cash, cash equivalents, and marketable securities.  Deferred revenue at March 31, 2010 was $23.0 million.

"Besides expense containment/reduction, we are also focusing on capturing growth opportunities in data deduplication, data protection and cloud-based services” said ReiJane Huai, Chairman and Chief Executive Officer of FalconStor.  “Through strategic partnerships and cloud-based services we believe we will be able to accelerate the market awareness/acceptance of our solutions and produce long term shareholder value."

The Company will host a conference call to discuss its financial results on Thursday, April 29, 2010 at 4:30 p.m. EDT. To participate in the conference call, please dial:

Toll Free: 1-866-225-8754

International: 1-480-629-9692

To view the presentation, please copy and paste the following link into your browser and register for this meeting.  Once you have registered for the meeting, you will receive an email message confirming your registration.

https://falconstor.webex.com/falconstor/j.php?ED=135513717&RG=1&UID

Meeting: FalconStor Q1 2010 Earnings

Meeting password: q1numbers

Meeting Number: 486 707 448

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If you are unable to register via the Internet, please contact Joanne Ferrara, Investor Relations at 631-773-5813 or joanne.ferrara@falconstor.com.

A conference call replay is scheduled to be available beginning April 29 at 6:30 p.m. EDT through 11:59 p.m. EDT on May 4. To listen to the replay of the call, dial toll free: 1.800.406.7325 or International: +1.303.590.3030, passcode: 4285982, or visit our website at www.falconstor.com/investors.asp.

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.  For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in this release.

About FalconStor

FalconStor Software, Inc. (NASDAQ: FALC) is the market leader in disk-based data protection.  FalconStor delivers proven, comprehensive data protection solutions that facilitate the continuous availability of business-critical data with speed, integrity, and simplicity.  The Company’s TOTALLY Open™ technology solutions, built upon the award-winning IPStor® platform, include the industry leading Virtual Tape Library (VTL) with deduplication, Continuous Data Protector (CDP), File-interface Deduplication System (FDS), and Network Storage Server (NSS), each enabled with WAN-optimized replication for disaster recovery and remote office protection, and the HyperFS™ file system. FalconStor products are available from major OEMs and solution providers including 3Com, Acer, Data Direct Networks, Dynamic Solutions International, EMC, IBM, Oracle, Pillar Data Systems, SGI, SeaChange and Spectra Logic and are deployed by thousands of customers worldwide, from small businesses to Fortune 1000 enterprises.
 

FalconStor is headquartered in Melville, N.Y., with offices throughout Europe and the Asia Pacific region.  For more information, visit www.falconstor.com or call 1-866-NOW-FALC (1-866-669-3252).

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This press release includes forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include: delays in product development; market acceptance of FalconStor’s products and services; technological change in the storage and networking industries; competition in the network storage software market; the potential failure of FalconStor’s OEM partners to introduce or to market products incorporating FalconStor’s products; intellectual property issues; and other risk factors discussed in FalconStor’s reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission.

FalconStor, FalconStor Software, and IPStor are registered trademarks, and HyperFS and TOTALLY Open are 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

	March 31, 2010		December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,598,023	$	15,752,528
Marketable securities		27,806,014		24,952,966
Accounts receivable, net		18,677,211		24,948,261
Prepaid expenses and other current assets		6,642,252		2,717,260
Deferred tax assets, net		4,320,773		4,320,773
Total current assets		69,044,273		72,691,788
Property and equipment, net		7,431,801		7,601,727
Long-term marketable securities		1,086,464		1,077,466
Deferred tax assets, net		9,706,344		9,698,859
Other assets, net		2,705,328		2,958,229
Goodwill		4,150,339		4,150,339
Other intangible assets, net		700,406		823,416
Total assets	$_94,824,955		$_99,001,824
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,147,383	$	1,570,190
Accrued expenses		6,186,372		8,454,743
Deferred revenue, net		17,316,354		16,570,076
Total current liabilities		24,650,109		26,595,009
Other long-term liabilities		615,531		608,907
Deferred revenue, net		5,677,255		5,644,994
Total liabilities		30,942,895		32,848,910
Commitments and Contingencies
Total stockholders' equity		63,882,060		66,152,914
Total liabilities and stockholders' equity	$	94,824,955	$	99,001,824

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FalconStor Software, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2010			2009
Revenues:
Software license revenue	$	8,601,951		$	13,650,062
Maintenance revenue		6,630,728			6,088,784
Software services and other revenue		1,886,977			1,282,239
		17,119,656			21,021,085
Operating expenses:
Amortization of purchased and capitalized software		179,825			178,219
Cost of maintenance, software services and other revenue		4,803,915			3,627,824
Software development costs		7,165,017			6,308,212
Selling and marketing		11,014,500			9,511,568
General and administrative		2,459,410			2,220,459
		25,622,667			21,846,282
Operating loss		(8,503,011	)		(825,197	)
Interest and other loss, net		(109,940	)		(453,413	)
Loss before income taxes		(8,612,951	)		(1,278,610	)
Benefit for income taxes		(3,082,885	)		(427,649	)
Net loss	$	(5,530,066	)	$	(850,961	)
Basic net loss per share	$	(0.12	)	$	(0.02	)
Diluted net loss per share	$	(0.12	)	$	(0.02	)
Weighted average basic shares outstanding		44,700,033			44,974,677
Weighted average diluted shares outstanding		44,700,033			44,974,677

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FalconStor Software, Inc. and Subsidiaries

Non-GAAP Operating Data

GAAP Reconciliation

(Unaudited)

	Three Months Ended March 31,
	2010			2009
GAAP loss from operations	$	(8,503,011	)	$	(825,197	)
Add: non-cash stock option expense (1)		2,702,325			2,155,114
Non-GAAP  (loss) income from operations		(5,800,686	)		1,329,917
GAAP net loss	$	(5,530,066	)	$	(850,961	)
Add: non-cash stock option expense, net of income taxes (2)		1,754,939			1,454,468
Non-GAAP net (loss) income		(3,775,127	)		603,507
GAAP Basic EPS	$	(0.12	)	$	(0.02	)
Add: non-cash stock option expense, net of income taxes (2)		0.04			0.03
Non-GAAP Basic EPS		(0.08	)		0.01
GAAP Diluted EPS	$	(0.12	)	$	(0.02	)
Add: non-cash stock option expense, net of income taxes (2)		0.04			0.03
Non-GAAP Diluted EPS		(0.08	)		0.01
Weighted average basic shares Outstanding (GAAP and as adjusted)		44,700,033			44,974,677
Weighted average diluted shares Outstanding (GAAP and as adjusted)		44,700,033			45,417,636

Footnotes:

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

	Three Months Ended March 31,
	2010		2009
Cost of maintenance, software services and other revenue	$	319,945	$	358,679
Software development costs		1,046,905		672,747
Selling and marketing		1,020,769		890,318
General and administrative		314,706		233,370
Total non-cash stock-based compensation expense	$	2,702,325	$	2,155,114

(2) Represents the effects of non-cash stock-based compensation expense recognized in accordance with the FASB Accounting Standards Codification, Topic 718, for the three months ended March 31, 2010 and 2009, net of related income tax effects.

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