Edgar Filing: FALCONSTOR SOFTWARE INC

sec document

As filed with the Securities and Exchange Commission on May 20, 2005
Registration No. 333-______

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------
FALCONSTOR SOFTWARE, INC.

DELAWARE 77-0216135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2 HUNTINGTON QUADRANGLE
SUITE 2S01 11747
MELVILLE, NEW YORK (Zip Code)
(Address of principal executive offices)

2000 STOCK OPTION PLAN
2004 OUTSIDE DIRECTORS STOCK OPTION PLAN
(Full title of the plan)

REIJANE HUAI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FALCONSTOR SOFTWARE, INC.
2 HUNTINGTON QUADRANGLE
SUITE 2S01
MELVILLE, NEW YORK 11747
(Name and address of agent for service)

631-777-5188
(Telephone number, including area code, of agent for service)

WITH A COPY TO:
STEVEN WOLOSKY, ESQ.
OLSHAN GRUNDMAN FROME ROSENZWEIG & Wolosky LLP
65 E. 55th Street
New York, New York 10022
(212) 451-2300

CALCULATION OF REGISTRATION FEE
=========================================================================================
Proposed Proposed
Maximum Maximum
Title of Amount offering Aggregate Amount of
Securities to be price Offering Registration
to be registered registered(1) per share Price fee
=========================================================================================
Common Stock,
par value $.001 3,800,000 $7.00 (2) $26,629,682 (2) $3,134.31 (2)(3)
per share.............
=========================================================================================

(1) Pursuant to Rule 416(c) under the Securities Act of 1933, as amended
(the "Securities Act") this Registration Statement also covers an indeterminate
amount of interests to be offered or sold pursuant to the employee benefit
plan(s) described herein. There are also registered hereby such indeterminate
number of shares of Common Stock, $.001 par value (the "Common Stock") as may
become issuable by reason of the operation of the anti-dilution provisions of
the FalconStor Software, Inc. (the "Company") 2000 Stock Option Plan (the "2000
Plan") or the 2004 Outside Directors Stock Option Plan (the "2004 Plan").

(2) Includes 2,573,285 shares with respect to which options were granted at
an average exercise price of $7.35 per share. With respect to the remaining
shares available for issuance under the 2000 Plan and the 2004 Plan, pursuant to
Rule 457(h) under the Securities Act of 1933, as amended (the "Securities Act"),
the offering price per share, solely for the purpose of determining the
registration fee, is equal to the average of the high and low sales prices of
the Company's Common Stock as reported on the Nasdaq National Market on May 13,
2005 of $6.29 per share.

(3) Registration fees were previously paid for the registration of
8,662,296 shares (Registration No. 333-69834) and 2,000,000 shares (Registration
No. 333-103925) under the 2000 Plan, respectively. The fee being paid herewith
pertains to an aggregate of 3,800,000 shares of Common Stock issuable upon
exercise of options granted under the 2000 Plan and the 2004 Plan.

EXPLANATORY NOTE

The Company has prepared this Registration Statement in accordance with the
requirements of Form S-8 under the Securities Act, to register 3,500,000 shares
of Common Stock, $.001 par value per share, of the Company issuable pursuant to
the 2000 Plan of the Company, and 300,000 shares of Common Stock, $.001 par
value per share, of the Company issuable pursuant to the 2004 Plan of the
Company. The Company previously registered 8,662,296 shares (Registration No.
333-69834) and 2,000,000 shares (Registration No. 333-103925) under the 2000
Plan, respectively. Pursuant to General Instruction E to Form S-8, the contents
of the prior registration statements relating to the 2000 Plan, and all periodic
reports that the Company filed after such Registration Statements to maintain
current information about the Company are hereby incorporated by reference.

This Form S-8 includes a Reoffer Prospectus prepared in accordance with
Part I of Form S-3 under the Securities Act. The Reoffer Prospectus may be
utilized for reofferings and resales of shares of Common Stock acquired pursuant
to the (i) 2000 Plan and (ii) the 2004 Plan and (iii) the Company's 1994 Outside
Directors Stock Option Plan, the shares of which were previously registered.

PART I

INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

The Company will provide documents containing the information specified in
Part I of Form S-8 to employees as specified by Rule 428(b)(1) under the
Securities Act. Pursuant to the instructions to Form S-8, the Company is not
required to file these documents either as part of this Registration Statement
or as prospectuses or prospectus supplements pursuant to Rule 424 under the
Securities Act.

PROSPECTUS

2,573,285 SHARES
FALCONSTOR SOFTWARE, INC.
COMMON STOCK ($.001 par value)

This prospectus relates to the reoffer and resale by certain selling
stockholders of shares of our Common Stock that may be issued by us to the
selling stockholders upon the exercise of stock options granted under our 2000
Stock Option Plan, our 2004 Outside Directors Stock Option Plan or our 1994
Outside Directors Stock Option Plan. We previously registered the offer and sale
of the shares to the selling stockholders. This Prospectus also relates to
certain underlying options that have not as of this date been granted. If and
when such options are granted to persons required to use the prospectus to
reoffer and resell the shares underlying such options, we will distribute a
prospectus supplement. The shares are being reoffered and resold for the account
of the selling stockholders and we will not receive any of the proceeds from the
resale of the shares.

The selling stockholders have advised us that the resale of their shares
may be effected from time to time in one or more transactions on the Nasdaq
National Market, in negotiated transactions or otherwise, at market prices
prevailing at the time of the sale or at prices otherwise negotiated. See "Plan
of Distribution." We will bear all expenses in connection with the preparation
of this prospectus.

Our Common Stock is listed on the Nasdaq National Market. On May 13, 2005,
the closing price for the Common Stock, as reported by the Nasdaq National
Market, was $6.33.

--------------------------------------------------------------------------------
This investment involves risk. See "Risk Factors" beginning at page 3.
--------------------------------------------------------------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. THEY
HAVE NOT MADE, NOR WILL THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE SHOULD
BUY THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is May 20, 2005.

TABLE OF CONTENTS

WHERE YOU CAN FIND MORE INFORMATION......................................... .1

INCORPORATION BY REFERENCE.....................................................2

ABOUT THIS PROSPECTUS..........................................................2

RISK FACTORS...................................................................3

THE COMPANY....................................................................9

USE OF PROCEEDS................................................................9

SELLING STOCKHOLDERS...........................................................9

PLAN OF DISTRIBUTION..........................................................11

LEGAL MATTERS.................................................................13

EXPERTS.......................................................................13

ADDITIONAL INFORMATION........................................................13

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES................................................13

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file at the SEC's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
further information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. Our SEC filings are also available to the public over the
Internet at the SEC's Web site at http://www.sec.gov. You may also request
copies of such documents, upon payment of a duplicating fee, by writing to the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Reports, proxy statements
and other information concerning us can also be inspected at the Nasdaq National
Market Operations, 1735 K Street, N.W., Washington, D.C. You may also find
recent documents we filed on our website at www.falconstor.com.

INCORPORATION BY REFERENCE

The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information we incorporate by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, until the sale of all the shares of Common Stock that are
part of this offering. The documents we are incorporating by reference are as
follows:

(1) Our Annual Report on Form 10-K for the year ended December 31, 2004;

(2) Our Current Report on Form 8-K filed on January 10, 2005;

(3) Our Current Report on Form 8-K filed on February 8, 2005;

(4) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

(5) Our Current Report on Form 8-K filed on April 27, 2005

(6) The description of our Common Stock contained in our registration
statement on Form 8-A declared effective by the SEC on June 28, 1994, including
any amendments or reports filed for the purpose of updating that description.

You may request a copy of these filings, excluding the exhibits to such
filings which we have not specifically incorporated by reference in such
filings, at no cost, by writing or telephoning us at the following address:

FalconStor Software, Inc.
2 Huntington Quadrangle
Suite 2S01
Melville, New York 11747
Attention: Chief Financial Officer
(631) 777-5188

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information provided or incorporated by reference in
this prospectus or any related supplement. We have not authorized anyone else to
provide you with different information. The Selling Stockholders will not make
an offer of these shares in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any supplement is
accurate as of any other date than the date on the front of those documents.

RISK FACTORS

AN INVESTMENT IN THE SHARES OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS INFORMATION CONTAINED AND INCORPORATED BY REFERENCE IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.

WE HAVE HAD A HISTORY OF NET LOSSES AND MAY NOT BE ABLE TO RETURN TO OR TO
MAINTAIN PROFITABILITY.

For the first quarter of 2005, we had a net loss of $0.1 million. The only
profitable quarter in our history was the fourth quarter of 2004. Prior to that
we had a history of losses, including the full year ended December 31, 2004, in
which we had a net loss of $5.9 million. Our business model depends upon signing
agreements with additional OEM customers, further developing our reseller sales
channel, and expanding our sales force. Any difficulty in obtaining these OEM
and reseller customers or in attracting qualified sales personnel will hinder
our ability to generate additional revenues and achieve or maintain
profitability.

FAILURE TO ACHIEVE ANTICIPATED GROWTH COULD HARM OUR BUSINESS AND OPERATING
RESULTS.

Achieving our anticipated growth will depend on a number of factors, some
of which include:

o retention of key management, marketing and technical personnel;

o our ability to increase our customer base and to increase the sales of our
products; and

o competitive conditions in the network storage infrastructure software
market.

We cannot assure you that the anticipated growth will be achieved. The
failure to achieve anticipated growth could harm our business, financial
condition and operating results.

WE HAVE SIGNIFICANT LEASE COMMITMENTS THAT COULD IMPACT OUR PROFITABILITY.

During the third quarter of 2003, we signed a lease for new office space
that commenced on November 1, 2003 and continues through February, 2012. This
commitment along with several operating leases related to our foreign offices
could impact our ability to achieve or to maintain profitability.

DUE TO THE UNCERTAIN AND SHIFTING DEVELOPMENT OF THE NETWORK STORAGE SOFTWARE
MARKET, WE MAY HAVE DIFFICULTY ACCURATELY PREDICTING REVENUE FOR FUTURE PERIODS
AND APPROPRIATELY BUDGETING FOR EXPENSES.

The rapidly evolving nature of the network storage software market in which
we sell our products, and other factors that are beyond our control, reduces our
ability to accurately forecast our quarterly and annual revenue. However, we
must use our forecasted revenue to establish our expense budget. Most of our
expenses are fixed in the short term or incurred in advance of anticipated
revenue. As a result, we may not be able to decrease our expenses in a timely
manner to offset any shortfall in revenue.

OUR REVENUES DEPEND IN PART ON SPENDING BY CORPORATE CUSTOMERS.

The operating results of our business depend in part on the overall demand
for network storage software. Because our sales are primarily to major corporate
customers, any softness in demand for network storage software may result in
decreased revenues.

WE ARE DEPENDENT ON CERTAIN KEY CUSTOMERS.

We tend to have one or more customers account for 10% or more of our
revenues during each fiscal quarter. In addition, during the fiscal year ended
December 31, 2004, one customer accounted for 16% of our revenues. While we
believe that we will continue to receive revenue from these clients, our
agreements typically give these customers the ability to terminate the
relationship upon 90 days notice. If our contracts with these partners are
terminated, or if the volume of sales from these clients declines, it would have
a material adverse effect on our operating results.

THE MARKETS FOR STORAGE AREA NETWORKS AND NETWORK ATTACHED STORAGE ARE STILL
MATURING, AND OUR BUSINESS WILL SUFFER IF THEY DO NOT CONTINUE TO DEVELOP AS WE
EXPECT.

The continued adoption of Storage Area Networks (SAN) and Network Attached
Storage (NAS) solutions is critical to our future success. The markets for SAN
and NAS solutions are still maturing, making it difficult to predict their
potential sizes or future growth rates. If these markets develop more slowly
than we expect, our business, financial condition and results of operations
would be adversely affected.

THE MARKET FOR IP-BASED STORAGE AREA NETWORKS IS NEW AND UNCERTAIN, AND OUR
BUSINESS WILL SUFFER IF IT DOES NOT DEVELOP AS WE EXPECT.

The rapid adoption of IP-based Storage Area Networks (SAN) is critical to
our future success. The market for IP-based SANs is still unproven, making it
difficult to predict the potential size or future growth rate. Most potential
customers have made substantial investments in their current storage networking
infrastructure, and they may elect to remain with current network architectures
or to adopt new architecture in limited stages or over extended periods of time.
We are uncertain whether a viable market for our products will develop or be
sustainable. If this market fails to develop, or develops more slowly than we
expect, our business, financial condition and results of operations would be
adversely affected.

THE MARKET FOR DISK-BASED BACKUP SOLUTIONS IS NEW AND UNCERTAIN, AND OUR
BUSINESS WILL SUFFER IF IT DOES NOT DEVELOP AS WE EXPECT.

The rapid adoption of disk-based backup solutions is critical to our future
success. The market for disk-based backup solutions is still unproven, making it
difficult to predict the potential size or future growth rate. Most potential
customers have made substantial investments in their current tape backup
infrastructure, and they may elect to remain with their current infrastructure
or to adopt new solutions in limited stages or over extended periods of time. We
are uncertain whether a viable market for our products will develop or be
sustainable. If this market fails to develop, or develops more slowly than we
expect, our business, financial condition and results of operations would be
adversely affected.

WE MAY NOT BE ABLE TO PENETRATE THE SMALL/MEDIUM BUSINESS, SMALL OFFICE AND HOME
OFFICE MARKETS.

We have announced plans to offer products for the small/medium business
(SMB) and small office/home office (SOHO) markets. We may not be able to design
or offer products attractive to the SMB and the SOHO markets, or to reach
agreements with OEMs and resellers with significant presences in the SMB and
SOHO markets. If we are unable to penetrate the SMB and SOHO markets, we will
not be able to recoup the expenses associated with our efforts in these markets
and our ability to grow revenues could suffer.

IF WE ARE UNABLE TO DEVELOP AND MANUFACTURE NEW PRODUCTS THAT ACHIEVE ACCEPTANCE
IN THE NETWORK STORAGE SOFTWARE MARKET, OUR OPERATING RESULTS MAY SUFFER.

The network storage software market continues to evolve and as a result
there is continuing demand for new products. Accordingly, we may need to develop
and manufacture new products that address additional network storage software
market segments and emerging technologies to remain competitive in the data
storage software industry. We are uncertain whether we will successfully qualify
new network storage software products with our customers by meeting customer
performance and quality specifications or quickly achieve high volume production
of storage networking software products. Any failure to address additional
market segments could harm our business, financial condition and operating
results.

OUR PRODUCTS MUST CONFORM TO INDUSTRY STANDARDS IN ORDER TO BE ACCEPTED BY
CUSTOMERS IN OUR MARKETS.

Our current products are only one part of a SAN or NAS system. All
components of these systems must comply with the same industry standards in
order to operate together efficiently. We depend on companies that provide other
components of these systems to conform to industry standards. Some industry
standards may not be widely adopted or implemented uniformly, and competing
standards may emerge that may be preferred by OEM customers or end users. If
other providers of components do not support the same industry standards as we
do, or if competing standards emerge, our products may not achieve market
acceptance, which would adversely affect our business.

OUR COMPLEX PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT COULD RESULT IN REDUCED
DEMAND FOR OUR PRODUCTS OR COSTLY LITIGATION.

Our IPStor platform is complex and is designed to be deployed in large and
complex networks. Many of our customers have unique infrastructures, which may
require additional professional services in order for our software to work
within their infrastructure. Because our products are critical to the networks
of our customers, any significant interruption in their service as a result of
defects in our product within our customers' networks could result in lost
profits or damage to our customers. These problems could cause us to incur
significant service and engineering costs, divert engineering personnel from
product development efforts and significantly impair our ability to maintain
existing customer relationships and attract new customers. In addition, a
product liability claim, whether successful or not, would likely be time

consuming and expensive to resolve and would divert management time and
attention. Further, if we are unable to fix the errors or other problems that
may be identified in full deployment, we would likely experience loss of or
delay in revenues and loss of market share and our business and prospects would
suffer.

FAILURE OF STORAGE APPLIANCES POWERED BY IPSTOR TO INTEGRATE SMOOTHLY WITH END
USER SYSTEMS COULD IMPACT DEMAND FOR THE APPLIANCES.

We have entered into agreements with resellers and OEM partners to develop
storage appliances that combine certain aspects of IPStor functionality with
third party hardware to create single purpose turnkey solutions that are
designed to be easy to deploy. If the storage appliances are not easy to deploy
or do not integrate smoothly with end user systems, the basic premise behind the
appliances will not be met and sales would suffer.

OUR OEM CUSTOMERS REQUIRE OUR PRODUCTS TO UNDERGO A LENGTHY AND EXPENSIVE
QUALIFICATION PROCESS THAT DOES NOT ASSURE PRODUCT SALES.

Prior to offering our products for sale, our OEM customers require that
each of our products undergo an extensive qualification process, which involves
interoperability testing of our product in the OEM's system as well as rigorous
reliability testing. This qualification of a product by an OEM does not assure
any sales of the product to the OEM. Despite this uncertainty, we devote
substantial resources, including engineering, sales, marketing and management
efforts, toward qualifying our products with OEMs in anticipation of sales to
them. If we are unsuccessful or delayed in qualifying any products with an OEM,
such failure or delay would preclude or delay sales of that product to the OEM,
which may impede our ability to grow our business.

WE RELY ON OUR OEM CUSTOMERS AND RESELLERS FOR MOST OF OUR SALES.

Almost all of our sales come from sales to end users of our products by our
OEM customers and by our resellers. These OEM customers and resellers have
limited resources and sales forces and sell many different products, both in the
network storage infrastructure software market and in other markets. The OEM
customers and resellers may choose to focus their sales efforts on other
products in the network storage software market or other markets. The OEM
customers might also choose not to continue to develop or to market products
which include our products. This would likely result in lower revenues to us and
would impede our ability to grow our business.

ISSUES WITH THE HARDWARE SOLD BY OUR PARTNERS COULD RESULT IN LOWER SALES OF OUR
PRODUCTS.

As part of our sales channel, we license our software to OEMs and other
partners who install our software on their own hardware or on the hardware of
other third parties. If the hardware does not function properly or causes damage
to customers' systems, we could lose sales to future customers, even though our
software functions properly. Problems with our partners' hardware could
negatively impact our business.

WE MUST MAINTAIN OUR EXISTING RELATIONSHIPS AND DEVELOP NEW RELATIONSHIPS WITH
STRATEGIC INDUSTRY PARTNERS.

Part of our strategy is to partner with major third-party software and
hardware vendors who integrate our products into their offerings and/or market
our products to others. These strategic partners often have customer or
distribution networks to which we otherwise would not have access or the
development of which would take up large amounts of our time and other
resources. There is intense competition to establish relationships with these
strategic partners. Some of our agreements with our OEM customers grant to the
OEMs limited exclusivity rights to portions of our products for periods of time.
This could result in lost sales opportunities for us with other customers or
could cause other potential OEM partners to consider or select software from our
competitors for their storage solutions. In addition, the desire for product
differentiation could cause potential OEM partners to select software from our
competitors. We cannot guarantee that our current strategic partners, or those
companies with whom we may partner in the future, will continue to be our
partners for any period of time. If our software were to be replaced in an OEM
solution by competing software, or if our software is not selected by OEMs for
future solutions, it would likely result in lower revenues to us and would
impede our ability to grow our business.

THE NETWORK STORAGE SOFTWARE MARKET IS HIGHLY COMPETITIVE AND INTENSE
COMPETITION COULD NEGATIVELY IMPACT OUR BUSINESS.

The network storage software market is intensely competitive even during
periods when demand is stable. Some of our current and potential competitors
have longer operating histories, significantly greater resources, broader name
recognition and a larger installed base of customers than we have. Those
competitors and other potential competitors may be able to establish or to
expand network storage software offerings more quickly, adapt to new
technologies and customer requirements faster, and take advantage of acquisition
and other opportunities more readily.

Our competitors also may:

o consolidate or establish strategic relationships among themselves to lower
their product costs or to otherwise compete more effectively against us; or

o bundle their products with other products to increase demand for their
products.

In addition, some OEMs with whom we do business, or hope to do business,
may enter the market directly and rapidly capture market share. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results may suffer.

OUR FUTURE QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD CAUSE OUR
STOCK PRICE TO DECLINE.

Our previous results are not necessarily indicative of our future
performance and our future quarterly results may fluctuate significantly.

Our future performance will depend on many factors, including:

o the timing of securing software license contracts and the delivery of
software and related revenue recognition;

o the seasonality of information technology, including network storage
products, spending;

o the average unit selling price of our products;

o existing or new competitors introducing better products at competitive
prices before we do;

o our ability to manage successfully the complex and difficult process of
qualifying our products with our customers;

o new products or enhancements from us or our competitors;

o import or export restrictions on our proprietary technology; and

o personnel changes.

Many of our expenses are relatively fixed and difficult to reduce or
modify. As a result, the fixed nature of our expenses will magnify any adverse
effect of a decrease in revenue on our operating results.

OUR STOCK PRICE MAY BE VOLATILE

The market price of our common stock has been volatile in the past and may
be volatile in the future. For example, during the past twelve months ended
March 31, 2005, the closing market price of our common stock as quoted on the
NASDAQ National Market System fluctuated between $5.03 and $9.75. The market
price of our common stock may be significantly affected by the following
factors:

o actual or anticipated fluctuations in our operating results;

o failure to meet financial estimates;

o changes in market valuations of other technology companies, particularly
those in the storage networking software market;

o announcements by us or our competitors of significant technical
innovations, acquisitions, strategic partnerships, joint ventures or
capital commitments;

o loss of one or more key OEM customers; and

o departures of key personnel.

The stock market has experienced extreme volatility that often has been
unrelated to the performance of particular companies. These market fluctuations
may cause our stock price to fall regardless of our performance.

OUR RESULTS OF OPERATIONS WILL BE NEGATIVELY IMPACTED BY THE REQUIREMENT THAT WE
RECOGNIZE THE FAIR VALUE OF STOCK OPTIONS GRANTED AS AN EXPENSE.

The Financial Accounting Standards Board ("FASB") has required companies to
recognize the fair value of stock options and other stock-based compensation to
employees as compensation expense in the statement of operations. In accordance
with SEC rules, FalconStor must implement the FASB rules effective in the first
quarter of 2006. While it is too early to tell the exact impact of this
requirement, there will be a negative impact on our results of operations.

WE HAVE A SIGNIFICANT AMOUNT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK, WHICH
MAY AFFECT THE LIKELIHOOD OF A CHANGE OF CONTROL IN OUR COMPANY.

Our Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of preferred stock on such terms
and with such rights, preferences and designations, including, without
limitation restricting dividends on our common stock, dilution of the voting
power of our common stock and impairing the liquidation rights of the holders of
our common stock, as the Board may determine without any vote of the
stockholders. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof may have the effect of delaying, deterring
or preventing a change in control. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of our stockholders to authorize a merger, business
combination or change of control. Finally, we have entered into change of
control agreements with certain executives.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS AND WARRANTS, THE EXERCISE
OF WHICH WOULD DILUTE THE THEN-EXISTING STOCKHOLDERS' PERCENTAGE OWNERSHIP OF
OUR COMMON STOCK.

As of March 31, 2005, we had outstanding options and warrants to purchase
an aggregate of 10,526,136 shares of our common stock at a weighted average
exercise price of $5.13 per share. We also have 1,697,665 shares of our common
stock reserved for issuance under our stock option plans with respect to options
that have not been granted.

The exercise of all of the outstanding options would dilute the
then-existing stockholders' percentage ownership of common stock, and any sales
in the public market of the common stock issuable upon such exercise could
adversely affect prevailing market prices for the common stock. Moreover, the
terms upon which we would be able to obtain additional equity capital could be
adversely affected because the holders of such securities can be expected to
exercise or convert them at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable than those provided by such
securities.

OUR BUSINESS COULD BE MATERIALLY AFFECTED AS A RESULT OF A NATURAL DISASTER,
TERRORIST ACTS, OR OTHER CATASTROPHIC EVENTS

In August, 2003, our business was interrupted due to a large scale blackout
in the northeastern United States. While the headquarters facilities we moved in
to in November, 2003 contain redundant power supplies and generators, our
domestic and foreign operations, and the operations of our industry partners,
remain susceptible to fire, floods, power loss, power shortages,
telecommunications failures, break-ins and similar events.

Terrorist actions domestically or abroad could lead to business disruptions
or to cancellations of customer orders or a general decrease in corporate
spending on information technology, or could have direct impact on our
marketing, administrative or financial functions and our financial condition
could suffer.

THE INTERNATIONAL NATURE OF OUR BUSINESS COULD HAVE AN ADVERSE AFFECT ON OUR
OPERATING RESULTS.

We sell our products worldwide. Accordingly, our operating results could be
materially adversely affected by various factors including regulatory,
political, or economic conditions in a specific country or region, trade
protection measures and other regulatory requirements, and acts of terrorism and
international conflicts.

Our international sales are denominated primarily in U.S. dollars. An
increase in the value of the U.S. dollar relative to foreign currencies could
make our products more expensive and, therefore, potentially less competitive in
foreign markets.

Additional risks inherent in our international business activities
generally include, among others, longer accounts receivable payment cycles,
difficulties in managing international operations, decreased flexibility in
matching workforce to needs as compared with the U.S., and potentially adverse
tax consequences. Such factors could materially adversely affect our future
international sales and, consequently, our operating results.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER.

Our success is dependent upon our proprietary technology. Currently, the
IPStor software suite is the core of our proprietary technology. We have one
patent issued, multiple pending patent applications, numerous trademarks
registered and multiple pending trademark applications related to our IPStor
product. We cannot predict whether we will receive patents for our pending or
future patent applications, and any patents that we own or that are issued to us
may be invalidated, circumvented or challenged. In addition, the laws of certain
countries in which we sell and manufacture our products, including various
countries in Asia, may not protect our products and intellectual property rights
to the same extent as the laws of the United States.

We also rely on trade secret, copyright and trademark laws, as well as the
confidentiality and other restrictions contained in our respective sales
contracts and confidentiality agreements to protect our proprietary rights.
These legal protections afford only limited protection.

OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY CAUSE US TO BECOME INVOLVED
IN COSTLY AND LENGTHY LITIGATION, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

In recent years, there has been significant litigation in the United States
involving patents, trademarks and other intellectual property rights.

We have already been subject to one action alleging that our technology
infringes patents held by a third party. While we settled this litigation, the
litigation was expensive and diverted management's time and attention. Any
additional litigation, regardless of its outcome, would likely be time consuming
and expensive to resolve and would divert management's time and attention and

might subject us to significant liability for damages or invalidate our
intellectual property rights. Any potential intellectual property litigation
against us could force us to take specific actions, including:

o cease selling our products that use the challenged intellectual property;

o obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology or trademark, which license
may not be available on reasonable terms, or at all; or

o redesign those products that use infringing intellectual property or cease
to use an infringing product or trademark.

DEVELOPMENTS LIMITING THE AVAILABILITY OF OPEN SOURCE SOFTWARE COULD IMPACT OUR
ABILITY TO DELIVER PRODUCTS AND COULD SUBJECT US TO COSTLY LITIGATION.

Many of our products are designed to include software or other intellectual
property licensed from third parties, including "Open Source" software. At least
one intellectual property rights holder has alleged that it holds the rights to
software traditionally viewed as Open Source. It may be necessary in the future
to seek or renew licenses relating to various aspects of these products. There
can be no assurance that the necessary licenses would be available on acceptable
terms, if at all. The inability to obtain certain licenses or other rights or to
obtain such licenses or rights on favorable terms, or the need to engage in
litigation regarding these matters, could have a material adverse effect on our
business, operating results, and financial condition. Moreover, the inclusion in
our products of software or other intellectual property licensed from third
parties on a nonexclusive basis could limit our ability to protect our
proprietary rights in our products.

THE LOSS OF ANY OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.

Our success depends upon the continued contributions of our key employees,
many of whom would be extremely difficult to replace. We do not have key person
life insurance on any of our personnel. Worldwide competition for skilled
employees in the network storage software industry is extremely intense. If we
are unable to retain existing employees or to hire and integrate new employees,
our business, financial condition and operating results could suffer. In
addition, companies whose employees accept positions with competitors often
claim that the competitors have engaged in unfair hiring practices. We may be
the subject of such claims in the future as we seek to hire qualified personnel
and could incur substantial costs defending ourselves against those claims.

WE MAY NOT SUCCESSFULLY INTEGRATE THE PRODUCTS, TECHNOLOGIES OR BUSINESSES FROM,
OR REALIZE THE INTENDED BENEFITS OF ACQUISITIONS.

We have made, and may continue to make, acquisitions of other companies or
their assets. Integration of the acquired products, technologies and businesses,
could divert management's time and resources. Further, we may not be able to
properly integrate the acquired products, technologies or businesses, with our
existing products and operations, train, retain and motivate personnel from the
acquired businesses, or combine potentially different corporate cultures. If we

are unable to fully integrate the acquired products, technologies or businesses,
or train, retain and motivate personnel from the acquired businesses, we may not
receive the intended benefits of the acquisitions, which could harm our
business, operating results and financial condition.

IF ACTUAL RESULTS OR EVENTS DIFFER MATERIALLY FROM OUR ESTIMATES AND
ASSUMPTIONS, OUR REPORTED FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR
FUTURE PERIODS COULD BE MATERIALLY AFFECTED.

The preparation of consolidated financial statements and related disclosure
in accordance with generally accepted account principles requires management to
establish policies that contain estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. Note 1 to the Consolidated Financial Statements in this Report on Form
10-Q describes the significant accounting policies essential to preparing our
financial statements. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures. We base our
estimates on historical experience and assumptions that we believe to be
reasonable under the circumstances. Actual future results may differ materially
from these estimates. We evaluate, on an ongoing basis, our estimates and
assumptions.

LONG TERM CHARACTER OF INVESTMENTS.

Our present and future equity investments may never appreciate in value,
and are subject to normal risks associated with equity investments in
businesses. These investments may involve technology risks as well as
commercialization risks and market risks. As a result, we may be required to
write down some or all of these investments in the future.

UNKNOWN FACTORS

Additional risks and uncertainties of which we are unaware or which
currently we deem immaterial also may become important factors that affect us.

THE COMPANY

FalconStor was incorporated in Delaware and provides network storage
software solutions and related maintenance, implementation and engineering
services. Our unique open software approach to storage networking enables
companies to embrace state-of-art equipment (based on SCSI, Fibre Channel or
iSCSI) from any storage manufacturer without rendering their existing or legacy
solutions obsolete. Several strategic partners have recognized the industrial
strength of our flagship software, IPStor(R), and have utilized it to power
their special purpose storage appliances to deliver a variety of storage related
services including Real Time Data Migration, Continuous Data Replication,
Continuous Data Protection, Virtual Tape Library backup, and other advanced
storage services. IPStor leverages the high performance IP- or FC-based network
to help corporate IT departments aggregate storage capacity and contain the
escalating cost of administering business-critical storage services such as
snapshot, backup, data replication, and other storage services, in a distributed
environment. Over 500 customers around the world have deployed FalconStor

solutions in production environments to manage their storage infrastructure with
minimal TCO (Total Cost of Ownership) and optimal ROI (Return on Investment).

Our principal executive offices are located at 2 Huntington Quadrangle,
Suite 2S01, Melville, New York 11747. Our telephone number is (631) 777-5188.

USE OF PROCEEDS

The shares of Common Stock offered hereby are being registered for the
account of the selling stockholders identified in this prospectus. See "Selling
Stockholders." All net proceeds from the sale of the Common Stock will go to the
stockholders who offer and sell their shares. We will not receive any part of
the proceeds from such sales of Common Stock. We will, however, receive the
exercise price of the options at the time of their exercise. Such proceeds will
be contributed to working capital and will be used for general corporate
purposes.

SELLING STOCKHOLDERS

This Prospectus relates to the reoffer and resale of shares issued or that
may be issued to the selling stockholders under our 2000 Stock Option Plan, our
2004 Outside Directors Stock Option Plan and our 1994 Outside Directors Stock
Option Plan.

The following table sets forth (i) the number of shares of Common Stock
beneficially owned by each selling stockholder at March 22, 2005, (ii) the
number of shares to be offered for resale by each selling stockholder (i.e., the
total number of shares underlying options held by each selling stockholder
irrespective of whether such options are presently exercisable or exercisable
within sixty days of March 22, 2005), and (iii) the number and percentage of
shares of our Common Stock to be held by each selling stockholder after
completion of the offering.

Number of Number of
shares of shares of Percentage
Common Stock Common Stock of Class to be
Beneficially Number of Shares After Owned After
Owned At to be Offered Completion of Completion of
Name March 22, 2005 (1) for Resale (2) the Offering the Offering

Lawrence S. Dolin (3) 97,805 100,000 40,000 *

Steven R. Fischer (4) 62,305 70,000 19,500 *

Steven L. Bock (5) 0 50,000 0 *

Patrick B. Carney (6) 38,829 85,000 500 *

Wayne Lam (7) 426,245 653,743 60,503 *

James Weber (8) 123,279 275,479 0 *

Bernard Wu (9) 317,919 325,100 212,020 *

Alan Kaufman (10) 0 50,000 0 *

--------------------
*Less than one percent

(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after the date hereof upon
the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such person
(but not those held by any other person) and that are currently
exercisable (i.e., that are exercisable within 60 days from the date
hereof) have been exercised. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with
respect to all shares beneficially owned by them.

(2) Consists of shares issuable upon the exercise of options both currently
and not currently exercisable.

(3) Based on information contained in a Form 4 filed by Mr. Dolin and certain
other information. Consists of (i) 40,000 shares held by Northern Union
Club and (ii) 57,805 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of March 22, 2005. Mr. Dolin is a general partner of Mordo Partners,
which is a general partner of Northern Union Club. Mr. Dolin disclaims
beneficial ownership of the securities held by Northern Union Club,
except to the extent of his equity interest therein. Mr. Dolin has been a
Director of the Company since August 2001.

(4) Based on information contained in a Form 4 filed by Mr. Fischer and
certain other information. Consists of (i) 19,500 shares held by Mr.
Fischer and (ii) 42,805 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of March 22, 2005. Excludes 1,000 shares of Common Stock held by Mr.
Fischer as a custodian for his daughter. Mr. Fischer disclaims beneficial
ownership of the securities held as a custodian for his daughter, except
to the extent of his equity interest therein. Mr. Fischer has been a
Director of the Company since August 2001.

(5) Based on information contained in a Form 3 filed by Mr. Bock and certain
other information. Mr. Bock has been a Director of the Company since
January 2005.

(6) Based on information contained in a Form 3 and a Form 4 filed by Mr.
Carney and certain other information. Consists of (i) 500 shares held by
Mr. Carney and (ii) 38,329 shares of Common Stock issuable upon exercise
of options that are currently exercisable or will be exercisable within
60 days of March 22, 2005. Mr. Carney has been a Director of the Company
since May 2003.

(7) Based on information contained in a Form 4 filed by Mr. Lam and certain
other information. Consists of (i) 60,503 shares held by Mr. Lam and (ii)
365,742 shares of Common Stock issuable upon exercise of options that are
currently exercisable or will be exercisable within 60 days of March 22,
2005. Mr. Lam has served as vice president of marketing of the Company
and its predecessor entity since April 2000.

(8) Based on information contained in a Form 3 and a Form 4 filed by Mr.
Weber and certain other information. Consists of 123,279 shares of Common
Stock issuable upon exercise of options that are currently exercisable or
will be exercisable within 60 days of March 22, 2005. Mr. Weber has
served as Chief Financial Officer, Treasurer and a Vice President since
February 2004. Prior to becoming Chief Financial Officer, Mr. Weber
served as worldwide Corporate Controller of the Company and its
predecessor entity, since April 2001.

(9) Based on certain information provided by Mr. Wu. Consists of (i) 212,020
shares held by Mr. Wu and (ii) 105,899 shares of Common Stock issuable
upon exercise of options that are currently exercisable or will be
exercisable within 60 days of March 22, 2005. Mr. Wu has served as Vice
President of Business Development of the Company and its predecessor
entity since November 2000.

(10) Based on certain information provided by Mr. Kaufman. Mr. Kaufman has
been a Director of the Company since May 10, 2005.

PLAN OF DISTRIBUTION

This offering is self-underwritten; neither we nor the selling stockholders
have employed an underwriter for the sale of Common Stock by the selling
stockholders. We will bear all expenses in connection with the preparation of
this Prospectus. The selling stockholders will bear all expenses associated with
the sale of the Common Stock.

The selling stockholders may offer their shares of Common Stock directly or
through pledgees, donees, transferees or other successors in interest in one or
more of the following transactions:

o On any stock exchange on which the shares of Common Stock may be listed at
the time of sale
o In negotiated transactions
o In the over-the-counter market
o In a combination of any of the above transactions

The selling stockholders may offer their shares of Common Stock at any of
the following prices:

o Fixed prices which may be changed
o Market prices prevailing at the time of sale
o Prices related to such prevailing market prices
o At negotiated prices

The selling stockholders may effect such transactions by selling shares to
or through broker-dealers, and all such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the selling
stockholders and/or the purchasers of shares of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).

Any broker-dealer acquiring Common Stock from the selling stockholders may
sell the shares either directly, in its normal market-making activities, through
or to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on the Nasdaq National Market or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The selling stockholders and any
broker-dealers that act in connection with the sale of the Common Stock
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act; any commissions received by them and any profit on
the resale of shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. Any such commissions, as well as other
expenses incurred by the selling stockholders and applicable transfer taxes, are
payable by the selling stockholders.

The selling stockholders reserve the right to accept, and together with any
agent of the selling stockholder, to reject in whole or in part any proposed
purchase of the shares of Common Stock. The selling stockholders will pay any
sales commissions or other seller's compensation applicable to such
transactions.

We have not registered or qualified offers and sales of shares of the
Common Stock under the laws of any country, other than the United States. To
comply with certain states' securities laws, if applicable, the selling
stockholders will offer and sell their shares of Common Stock in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the selling stockholders may not offer or sell

shares of Common Stock unless we have registered or qualified such shares for
sale in such states or we have complied with an available exemption from
registration or qualification.

The selling shareholders have represented to us that any purchase or sale
of shares of Common Stock by them will comply with Regulation M promulgated
under the Securities Exchange Act of 1934, as amended. In general, Rule 102
under Regulation M prohibits any person connected with a distribution of our
Common Stock (a "Distribution") from directly or indirectly bidding for, or
purchasing for any account in which he or she has a beneficial interest, any of
our Common Stock or any right to purchase our Common Stock, for a period of one
business day before and after completion of his or her participation in the
distribution (we refer to that time period as the "Distribution Period").

During the Distribution Period, Rule 104 under Regulation M prohibits the
selling shareholders and any other persons engaged in the Distribution from
engaging in any stabilizing bid or purchasing our Common Stock except for the
purpose of preventing or retarding a decline in the open market price of our
Common Stock. No such person may effect any stabilizing transaction to
facilitate any offering at the market. Inasmuch as the selling shareholders will
be reoffering and reselling our Common Stock at the market, Rule 104 prohibits
them from effecting any stabilizing transaction in contravention of Rule 104
with respect to our Common Stock.

There can be no assurance that the selling shareholders will sell any or
all of the shares offered by them hereunder or otherwise.

LEGAL MATTERS

Certain legal matters in connection with the issuance of the shares of
Common Stock offered hereby have been passed upon for the Company by Olshan
Grundman Frome Rosenzweig & Wolosky LLP, 65 E. 55th Street, New York, New York
10022. Steven Wolosky, a member of Olshan Grundman Frome Rosenzweig & Wolosky
LLP, holds 32,674 shares of Common Stock in the Company.

EXPERTS

The consolidated financial statements of FalconStor Software, Inc. as of
December 31, 2004, and 2003, and the related consolidated statements of
operations, stockholders' equity and comprehensive loss, and cash flows for each
of the years in the three-year period ended December 31, 2004, and management's
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2004, have been incorporated by reference in this Prospectus and
in the registration statement in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, incorporated by reference herein,
and upon the authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

We have filed with the SEC four Registration Statements on Form S-8 under
the Securities Act with respect to the Shares offered hereby. For further
information with respect to the Company and the securities offered hereby,

reference is made to the Registration Statements. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statements,
each such statement being qualified in all respects by such reference.

DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company, the
Company has been advised that it is the SEC's opinion that such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

PART II

INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

(1) Our Annual Report on Form 10-K for the year ended December 31, 2004;

(2) Our Current Report on Form 8-K filed on January 10, 2005;

(3) Our Current Report on Form 8-K filed on February 8, 2005;

(4) Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005;

(5) Our Current Report on Form 8-K filed on April 27, 2005; and

ITEM 4. DESCRIPTION OF SECURITIES

Not applicable.

ITEM 5. INTEREST OF NAMED EXPERTS AND COUNSEL

Steven Wolosky, a member of Olshan Grundman Frome Rosenzweig & Wolosky LLP,
holds 32,674 shares of Common Stock of the Company.

ITEM 6. INDEMNIFICATION OF OFFICERS AND DIRECTORS

As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director or officer to the Company for monetary damages for
breach of fiduciary duty of care as a director. Liability is not eliminated for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchase or redemptions pursuant to Section 174 of the DGCL,

or (iv) any transaction from which the director derived an improper personal
benefit.

DELAWARE LAW

The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions), or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the interested
stockholder.

The provisions of Section 203 of the DGCL could have the effect of
delaying, deferring or preventing a change in the control of the Company.

FalconStor Software, Inc. maintains a directors and officers insurance and
company reimbursement policy. The policy insures directors and officers against
unindemnified loss arising from certain wrongful acts in their capacities and
reimburses FalconStor Software, Inc. for such loss for which FalconStor
Software, Inc. has lawfully indemnified the directors and officers. The policy
contains various exclusions, none of which relate to the offering hereunder.
FalconStor Software, Inc. also has agreements with its directors and officers
providing for the indemnification thereof under certain circumstances.

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED

Not applicable.

ITEM 8. EXHIBITS

4.1 2000 Stock Option Plan, incorporated herein by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8, filed on
September 21, 2001.

4.2 2000 Stock Option Plan, as amended May 15, 2003, incorporated herein
by reference to Exhibit 99 to the Company quarterly report on Form
10-Q for the period ended June 30, 2003, filed on August 14, 2003.

4.3 2000 Stock Option Plan, as amended May 14, 2004, incorporated herein
by reference to Exhibit 4.3 to the Company annual report on Form
10-K for the fiscal year ended December 31, 2004, filed on March 16,
2005.

4.4 2004 Outside Directors Stock Option Plan, incorporated herein by
reference to Exhibit 4.5 to the Company's annual report on Form 10-K
for the fiscal year ended December 31, 2004, filed on March 16,
2005.

*5.1 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky as to the
legality of the stock covered by this registration statement.

*23.1 Consent of KPMG LLP, independent registered public accounting firm.

*23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included
in exhibit 5.1)

*24.1 Powers of Attorney (included on signature page).

------------------
*Filed herewith.

ITEM 9. UNDERTAKINGS.

A. The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:

(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;

PROVIDED, HOWEVER, that paragraphs (i) and (ii) above do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement;

(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof; and

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the termination of the offering.

B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.

C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-8 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Melville, State of New York, on the 20th day of May,
2005.

FALCONSTOR SOFTWARE, INC.
----------------------------------------------
(Registrant)

By:/s/ ReiJane Huai
------------------------------
ReiJane Huai
President, Chief Executive Officer and
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of ReiJane Huai and James Weber his true and
lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his
or her substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

Signature Title Date
--------- ----- ----

/s/ ReiJane Huai President, Chief Executive Officer and May 20, 2005
------------------- Chairman of the Board
ReiJane Huai (Principal Executive Officer)

/s/ James Weber Vice President and Chief Financial May 20, 2005
------------------- Officer (Principal Financial
James Weber Officer and Principal Accounting Officer)

/S/ Lawrence S. Dolin Director May 20, 2005
--------------------------
Lawrence S. Dolin

/S/ Steven R. Fischer Director May 20, 2003
--------------------------
Steven R. Fischer

/S/ Steven L. Bock Director May 20, 2005
--------------------------
Steven L. Bock

/S/ Patrick B. Carney Director May 20, 2005
--------------------------
Patrick B. Carney

/S/ Alan W. Kaufman Director May 20, 2005
--------------------------
Alan W. Kaufman

EXHIBIT INDEX

4.1 2000 Stock Option Plan, incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-8, filed on September 21, 2001.

4.2 2000 Stock Option Plan, as amended May 15, 2003, incorporated
herein by reference to Exhibit 99 to the Company quarterly
report on Form 10-Q for the period ended June 30, 2003, filed
on August 14, 2003.

4.3 2000 Stock Option Plan, as amended May 14, 2004, incorporated
herein by reference to Exhibit 4.3 to the Company annual report
on Form 10-K for the fiscal year ended December 31, 2004, filed
on March 16, 2005.

4.4 2004 Outside Directors Stock Option Plan incorporated herein by
reference to Exhibit 4.5 to the Company's annual report on Form
10-K for the fiscal year ended December 31, 2004, filed on
March 16, 2005.

*5.1 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky as to the
legality of the stock covered by this registration statement.

*23.1 Consent of KPMG LLP, independent registered public accounting
firm.

*23.3 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included in exhibit 5.1)

*24.1 Powers of Attorney (included on signature page).

------------------
* Filed herewith.