VISUALIZATION

FalconStor today announced financial results for its fourth quarter and fiscal year ended December 31, 2006. Revenues for the fourth quarter of 2006 increased 55% to $20.2 million, compared with $13.0 million for the same period a year ago. Net income for the quarter was $2.8 million or $0.06 per share, which includes $2.3 million in expenses related to stock options. Pro forma net income for the fourth quarter of 2006, excluding stock option expense, was $5.1 million or $0.10 per share, compared with net income of $1.7 million or $0.03 per share for the fourth quarter of 2005. For the year ended December 31, 2006, revenues increased 34% to $55.1 million, compared with $41.0 million for the year ended December 31, 2005. Net loss for 2006 was $3.4 million, or $0.07 per share, which includes $9.4 million in expenses related to stock options. Pro forma net income for 2006, excluding stock option expense, was $6.0 million or $0.12 per share compared with net income of $2.3 million or $0.05 per share in 2005. Compared with the previous quarter, revenues increased 56% from $13.0 million in the third quarter of 2006 to $20.2 million in the fourth quarter of 2006. Net income for the fourth quarter was $2.8 million or $0.06 per share, which includes $2.3 million in expenses related to stock options, compared with a net loss of $1.3 million or $0.03 per share in the third quarter, which includes $2.4 million in expenses related to stock options. Excluding stock option expenses, pro forma net income increased to $5.1 million or $0.10 per share in the fourth quarter of 2006 compared with a pro forma net income of $1.2 million or $0.02 per share in the third quarter of 2006. The Company closed the quarter with $41 million in cash, cash equivalents, and marketable securities and achieved its ninth consecutive quarter of positive cash flows from operations. Deferred revenue at December 31, 2006, increased to $15.1 million, or 26%, compared with the previous quarter, and by 57% compared with the previous year. “We are pleased with the commitment and performance of our OEMs as well as our VAR partners,” said ReiJane Huai, Chairman and CEO of FalconStor. “In addition to validating the marketing acceptance of our product strategy, the fourth quarter results also underscore the effectiveness of our leveraged business model which is built upon the success of strategic and channel partners. We are looking forward to teaming with our channel partners to accelerate sales momentum and market penetration in 2007.”