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FalconStor Announces Q1 Results

MELVILLE, N.Y. -- FalconStor Software, Inc. (NASDAQ: FALC), the provider of TOTALLY Open network storage solutions, today 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:

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