Edgar Filing: FALCONSTOR SOFTWARE INC

sec document

As filed with the Securities and Exchange Commission on August 15, 2007
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 Identification No.)
incorporation or organization)

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

2006 INCENTIVE STOCK PLAN
2007 OUTSIDE DIRECTORS EQUITY COMPENSATION 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
Maximum
Amount to be offering price Proposed Maximum Amount of
Title of Securities to be registered registered(1) per share Aggregate Offering Price Registration fee
-----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per 312,000 $9.99(2) $3,116,880.00(2) $95.69(2)(3)
share:
restricted shares issued and
outstanding.........................
-----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share: shares subject to
outstanding options................. 149,750 $10.27(2) $1,537,932.50(2) $47.21(2)(3)
-----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share: shares reserved for future
issuance under the 2006 Plan........ 18,103,250 $9.99(2) $180,851,467.50(2) $5,552.14(2)(3)
-----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share: shares reserved for future
issuance under the 2007 Plan........ 35,000 $9.99(2) $2,347,650.00(2) $72.07(2)(3)
-----------------------------------------------------------------------------------------------------------------------
TOTAL............................... 18,800,000 $187,853,930.00 $5,767.12
=======================================================================================================================

(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
plans 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")
2006 Incentive Stock Plan (the "2006 Plan") and the 2007 Outside Directors
Equity Compensation Plan (the "2007 Plan").

(2) Includes 149,750 shares with respect to which options were granted at an
average exercise price of $10.27 per share. With respect to the restricted
shares of Common Stock and the remaining shares available for issuance
under the 2006 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 trading price of the Company's Common Stock as reported on the
Nasdaq Global Market on August 10, 2007 of $9.99 per share.

(3) Registration fees were previously paid for the registration of 1,500,000
shares (Registration No. 333-139032) under the 2006 Plan. The Company can
issue up to 20,000,000 shares under the 2006 Plan. The fee being paid
herewith pertains to an aggregate of 18,800,000 shares of Common Stock
issuable upon exercise of options or the grant of restricted stock under
the 2006 Plan and the 2007 Plan comprised of 300,000 shares of Common
Stock under the 2007 Plan and up to 18,500,000 shares of common stock
issuable pursuant to the 2007 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 18,500,000
shares of Common Stock, $.001 par value per share, of the Company issuable
pursuant to the 2006 Plan and 300,000 shares of Common Stock, $.001 par value
per share, of the Company issuable pursuant to the 2007 Plan. The Company
previously registered 1,500,000 shares (Registration No. 333-139032) under the
Company's 2006 Plan, 8,662,296 shares (Registration No. 333-69834) and 2,000,000
shares (Registration No. 333-103925) under the Company's 2000 Stock Option Plan
(the "2000 Plan"), as well as an aggregate of 3,800,000 shares (Registration No.
333-125126) under the 2000 Plan and the Company's 2004 Outside Directors Stock
Option Plan (the "2004 Plan"). Pursuant to General Instruction E to Form S-8,
the contents of the prior registration statements relating to the 2000 Plan, the
2004 Plan and the 2006 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 (iii) the 2006 Plan and (iv) the
2007 Plan and (v) 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

ITEM 1. PLAN INFORMATION

The documents containing the information concerning the Plans required by
Item 1 of this Registration Statement on Form S-8, and the statement of
availability of registrant information, employee benefit plan annual reports and
other information required by Item 2 of Form S-8, will be sent or given to
persons eligible to participate in the Plans as specified by Rule 428(b)(1)
under the Securities Act. We will maintain a file of such documents in
accordance with the provisions of Rule 428 and, upon request, shall furnish to
the Commission or its staff a copy or copies of documents included in such file.
Pursuant to the instructions to Form S-8, these documents are not required to be
and are not being filed either as part of this Registration Statement or as
prospectuses or prospectus supplements pursuant to Rule 424 under the Securities
Act. These documents and the documents incorporated by reference in this
Registration Statement pursuant to Item 3 of Part II of Form S-8, taken
together, constitute part of a prospectus that meets the requirements of Section
10(a) of the Securities Act.

ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION

Any of the documents incorporated by reference in Item 3 of Part II of
this Registration Statement (which documents are incorporated by reference in
this Section 10(a) prospectus) and the other documents required to be delivered
to employees pursuant to Rule 428(b) will be available without charge to
participants in the Plans upon written or oral request by contacting:

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

PROSPECTUS

4,727,979 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, our 2006
Incentive Stock Plan, our 2007 Outside Directors Equity Compensation Plan or our
1994 Outside Directors Stock Option Plan. In addition, this Prospectus relates
to 312,000 shares of restricted stock held by the selling stockholders and which
were issued under our 2006 Incentive Stock Plan and our 2007 Outside Directors
Equity Compensation Plan. We previously registered the offer and sale of the
shares to the selling stockholders. This Prospectus also relates to certain
underlying options and shares of restricted stock that have not as of this date
been granted. If and when such options or shares of restricted stock are granted
to persons required to use the prospectus to reoffer and resell the shares
underlying such options or the shares of restricted stock, 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
Global 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 Global Market. On August 14,
2007, the closing price for the Common Stock, as reported by the Nasdaq Global
Market, was $10.09.

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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 3.

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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 August 15, 2007.

TABLE OF CONTENTS

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

INCORPORATION BY REFERENCE...................................................1

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

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

THE COMPANY.................................................................15

USE OF PROCEEDS.............................................................15

SELLING STOCKHOLDERS........................................................16

PLAN OF DISTRIBUTION........................................................21

LEGAL MATTERS...............................................................22

EXPERTS.....................................................................22

ADDITIONAL INFORMATION......................................................23

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES..............................................................23

PART II.....................................................................24

SIGNATURES..................................................................28

POWER OF ATTORNEY...........................................................29

EXHIBIT INDEX...............................................................30

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-8 with the SEC for our
common stock offered in this offering. This prospectus does not contain all the
information set forth in the Registration Statement. You should refer to the
Registration Statement and its exhibits for additional information. Whenever we
make references in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits to the Registration Statement for copies of the actual contracts,
agreements or other documents.

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
100 F Street, N.E., 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 100 F Street, N.E., Washington, D.C. 20549. Reports, proxy statements and
other information concerning us can also be inspected at the Nasdaq Global
Market Operations, 1735 K Street, N.W., Washington, D.C. 20006. 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, 2006;

(2) Our Proxy Statement on Schedule 14a for the 2007 Annual Meeting
of Stockholders;

(3) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2007;

(4) Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2007; and

(5) 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

DUE TO THE UNCERTAIN AND SHIFTING DEVELOPMENT OF THE NETWORK STORAGE SOFTWARE
MARKET AND OUR RELIANCE ON OUR PARTNERS, 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, the degrees of effort and success of our partners'
sales and marketing efforts, and other factors that are beyond our control,
reduce 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.

THE MARKET 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 DISK-BASED BACKUP SOLUTIONS IS STILL MATURING, AND OUR BUSINESS
WILL SUFFER IF IT DOES NOT CONTINUE TO DEVELOP AS WE EXPECT.

The continued adoption of disk-based backup solutions, such as our
VirtualTape Library software, is critical to our future success. The market for
disk-based backup solutions is still maturing, making it difficult to predict
its potential size or future growth rate. If this market develops 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 important 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. 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 INFINIBAND SOLUTIONS IS NEW AND UNCERTAIN, AND OUR BUSINESS WILL
SUFFER IF IT DOES NOT DEVELOP AS WE EXPECT.

The rapid adoption of InfiniBand solutions is important to our future
success. The market for InfiniBand solutions is still unproven, making it
difficult to predict the potential size or future growth rate. 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 AND SMALL OFFICE/HOME
OFFICE MARKETS.

We offer products for the small/medium business (SMB) and small
office/home office (SOHO) markets. Our products may not be 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.

THE MARKET FOR OUR PRIMEVAULT(SM) SERVICES IS COMPETITIVE AND IT IS UNCERTAIN
WHETHER WE WILL ATTRACT ENOUGH CUSTOMERS TO PROVIDE AN ADEQUATE RETURN ON
INVESTMENT.

We have continued to make investments in infrastructure and in operating,
sales and marketing personnel for our PrimeVault disaster recovery, data backup,
and VTL replication services. The market for these services is competitive with
a number of vendors offering similar services. Despite what we believe are
competitive advantages offered by our PrimeVault services based on our
proprietary IPStor and VTL families of software, there can be no assurance that
we will be able to attract enough customers, or earn enough revenues, to cover
our investment in PrimeVault services or to provide an adequate return on that
investment.

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

Our IPStor platform, including VirtualTape Library, 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 infrastructures. 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 could result
in 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. Our other products may
also contain errors or defects. If we are unable to fix the errors or other
problems that may be discovered, 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 or VTL functionality
with third party hardware to create single purpose turnkey solutions that are
designed to be easy to deploy. In addition, in certain instances, we install our
software onto third party hardware for resale to end-users. 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 typically
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 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.

OUR OEM CUSTOMERS ARE NOT OBLIGATED TO CONTINUE TO SELL OUR PRODUCTS.

We have no control over the shipping dates or volumes of systems
incorporation of our product that our OEM customers ship and they have no
obligation to ship systems incorporating our software applications. Our OEM
customers also have no obligation to recommend or offer our software
applications exclusively or at all, and they have no minimum sales requirements.
These OEMs also could choose to develop their own data protection and network
storage software internally, or to license software from our competitors, and
incorporate those products into their systems instead of our software
applications. The OEMs that we do business with also compete with one another.
If one of our OEMs views our arrangement with another OEM as competing with its
products, it may decide to stop doing business with us. Any material decrease in
the volume of sales generated by OEMs with whom we do business, as a result of
these factors or otherwise, would have a material adverse effect on our revenues
and results of operations in future periods.

THE FAILURE OF OUR RESELLERS TO EFFECTIVELY SELL OUR SOFTWARE APPLICATIONS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES AND RESULTS OF OPERATIONS.

We rely significantly on our value-added resellers, systems integrators
and corporate resellers, which we collectively refer to as resellers, for the
marketing and distribution of our software applications and services. However,
our agreements with resellers are generally not exclusive, are generally
renewable annually and in many cases may be terminated by either party without
cause. Many of our resellers carry software applications that are competitive
with ours. These resellers may give a higher priority to other software
applications, including those of our competitors, or may not continue to carry
our software applications at all. If a number of resellers were to discontinue
or reduce the sales of our products, or were to promote our competitors'
products in lieu of our applications, it would have a material adverse effect on
our future revenues. Events or occurrences of this nature could seriously harm
our sales and results of operations. In addition, we expect that a significant
portion of our sales growth will depend upon our ability to identify and attract
new reseller partners. The use of resellers is an integral part of our
distribution network. We believe that our competitors also use reseller
arrangements. Our competitors may be more successful in attracting reseller
partners and could enter into exclusive relationships with resellers that make
it difficult to expand our reseller network. Any failure on our part to expand
our network of resellers could impair our ability to grow revenues in the
future.

WE ARE DEPENDENT ON CERTAIN KEY CUSTOMERS AND A SIGNIFICANT PORTION OF OUR
RECEIVABLES IS CONCENTRATED WITH TWO CUSTOMERS.

We tend to have one or more customers account for 10% or more of our
revenues during each fiscal quarter. For the quarter ended June 30, 2007, we had
one customer who accounted for 26% of our revenues and one customer who

accounted for 14% of our revenues. While we believe that we will continue to
receive revenue from these customers, our agreements do not have any minimum
sales requirements and we cannot guarantee continued revenue. If our contracts
with either of these customers terminate, or if the volume of sales from these
customers significantly declines, it would have a material adverse effect on our
operating results.

In addition, as of June 30, 2007, two customers accounted for a total of
25% of our outstanding receivables, 15% and 10%, respectively. While we
currently have no reason to question the collectibility of these receivables, a
business failure or reorganization by either of these customers could harm our
ability to collect these receivables and could damage our cash flow.

THE REPORTING TERMS OF SOME OF OUR OEM AGREEMENTS MAY CAUSE US DIFFICULTY IN
ACCURATELY PREDICTING REVENUE FOR FUTURE PERIODS, BUDGETING FOR EXPENSES OR
RESPONDING TO TRENDS.

Certain of our OEM customers do not report license revenue to us until
sixty days or more after the end of the quarter in which the software was
licensed. There is thus a delay before we learn whether licensing revenue from
these OEMs has met, exceeded, or fallen short of expectations. The reporting
schedule from these OEMs also means that our ability to respond to trends in the
market could be harmed as well. For example, if, in a particular quarter, we see
a significant increase or decrease in revenue from our channel sales or from one
of our other OEM partners, there will be a delay in our ability to determine
whether this is an anomaly or a part of a trend. 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 or to increase our sales, marketing or support
headcounts to take advantage of positive developments.

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.

CONSOLIDATION IN THE NETWORK STORAGE INDUSTRY COULD HURT OUR STRATEGIC
RELATIONSHIPS.

In the past, companies with whom we have OEM relationships have been
acquired by other companies. These acquisitions caused disruptions in the sales
and marketing of our products and have had an impact on our revenues. If
additional OEM customers are acquired, the acquiring entity might choose to stop
offering solutions containing our software. Even if the solutions continued to
be offered, there might be a loss of focus and sales momentum as the companies
are integrated.

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 ABILITY TO SELL OUR SOFTWARE APPLICATIONS IS HIGHLY DEPENDENT ON THE QUALITY
OF OUR SERVICES OFFERINGS, AND OUR FAILURE TO OFFER HIGH QUALITY SUPPORT AND
PROFESSIONAL SERVICES WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR SALES OF
SOFTWARE APPLICATIONS AND RESULTS OF OPERATIONS.

Our services include the assessment and design of solutions to meet our
customers' storage management requirements and the efficient installation and
deployment of our software applications based on specified business objectives.
Further, once our software applications are deployed, our customers depend on us
to resolve issues relating to our software applications. A high level of service
is critical for the successful marketing and sale of our software. If we or our

partners do not effectively install or deploy our applications, or succeed in
helping our customers quickly resolve post-deployment issues, it would adversely
affect our ability to sell software products to existing customers and could
harm our reputation with potential customers. As a result, our failure to
maintain high quality support and professional services would have a material
adverse effect on our sales of software applications and results of operations.

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.

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 the market for our software is primarily
major corporate customers, any softness in demand for network storage software
may result in decreased revenues.

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.

Historically, information technology spending has been higher in the fourth
and second quarters of each calendar year, and somewhat slower in the other
quarters, particularly the first quarter. Our quarterly results reflected this
seasonality in first and second quarters of 2007, and we anticipate that our
quarterly results for the remainder of 2007 will show the effects of seasonality
as well.

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 trailing twelve months ended
June 30, 2007, the closing market price of our common stock as quoted on the
NASDAQ Global Market fluctuated between $6.06 and $12.10 per share. 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 variance in actual results as compared to financial estimates;

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

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

o loss or addition 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 ABILITY TO FORECAST EARNINGS IS LIMITED BY THE IMPACT OF ACCOUNTING
REQUIREMENTS.

The Financial Accounting Standards Board requires companies to recognize
the fair value of stock options and other share-based payment compensation to
employees as compensation expense in the statement of operations. However, this
expense, which, in accordance with accounting standards, we calculate based on
the "Black-Scholes" model, is subject to factors beyond our control. These

factors include the market price of our stock on a particular day and stock
price "volatility." In addition, we do not know how many options our employees
will exercise in any future period. These unknowns make it difficult for us to
forecast accurately what the stock option and equity-based compensation expense
will be in the future. Because of these factors, our ability to make accurate
forecasts of future earnings is compromised.

THE ABILITY TO CORRECTLY PREDICT OUR FUTURE EFFECTIVE TAX RATES COULD IMPACT OUR
ABILITY TO ACCURATELY FORECAST FUTURE EARNINGS.

We are subject to income taxes in both the United States and the various
foreign jurisdictions in which we operate. Judgment is required in determining
our provision for income taxes and there are many transactions and calculations
where the tax determination may be uncertain. Our future effective tax rates
could be affected by changes in our (i) earnings or losses; (ii) changes in the
valuation of our deferred tax assets; (iii) changes in tax laws; and (iv) other
factors. Our ability to correctly predict our future effective tax rates based
upon these possible changes could significantly impact our forecasted earnings.

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. Further, we have entered into change of
control agreements with certain executives, which may also have the effect of
delaying, deterring or preventing a change in control.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING OPTIONS, THE EXERCISE OF WHICH WOULD
DILUTE THE THEN-EXISTING STOCKHOLDERS' PERCENTAGE OWNERSHIP OF OUR COMMON STOCK,
AND A SMALLER NUMBER OF RESTRICTED SHARES OF STOCK, THE VESTING OF WHICH WILL
ALSO DILUTE THE THEN-EXISTING STOCKHOLDERS' PERCENTAGE OWNERSHIP OF OUR COMMON
STOCK.

As of June 30, 2007, we had an aggregate of 9,856,588 outstanding options
to purchase our common stock and outstanding restricted shares. If all of these
outstanding options were exercised, and all of the outstanding restricted stock
vested, the proceeds to the Company would average $5.76 per share. We also had
903,689 shares of our common stock reserved for issuance under our stock plans
with respect to options (or restricted stock) that have not been granted
(excluding an additional 2,170,731 shares of common stock reserved for issuance
under the 2006 Plan as of July 1, 2007.) On August 7, 2007, 66,000 of the
restricted shares vested.

The exercise of all of the outstanding options and/or the grant and
exercise of additional options or restricted stock 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 our headquarters facilities 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.

Any interruption in power supply or telecommunications would be
particularly disruptive to our PrimeVault backup and disaster recovery
operations. If PrimeVault customers are unable to access their data, confidence
in our ability to provide disaster recovery and backup services will be damaged
which will impair our ability to retain existing customers, to gain new
customers and to expand our operations.

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.

UNITED STATES GOVERNMENT EXPORT RESTRICTIONS COULD IMPEDE OUR ABILITY TO SELL
OUR SOFTWARE TO CERTAIN END USERS.

Certain of our products include the ability for the end user to encrypt
data. The United States, through the Bureau of Industry Security, places
restrictions on the export of certain encryption technology. These restrictions
may include: the requirement to have a license to export the technology; the
requirement to have software licenses approved before export is allowed; and
outright bans on the licensing of certain encryption technology to particular
end users or to all end users in a particular country. Certain of our products
are subject to various levels of export restrictions. These export restrictions
could negatively impact our business.

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 six
patents issued, we have received a notice of allowance for one patent, and we
have multiple pending patent applications, numerous trademarks registered and
multiple pending trademark applications related to our products. 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 were already subject to one action, which alleged that our technology
infringed on patents held by a third party. While we settled this litigation,
the fees and expenses of the litigation as well as the litigation settlement
were expensive and the litigation 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-K 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 2006 Incentive Stock Plan,
2007 Outside Directors Equity Compensation Plan, 2000 Stock Option Plan, 2004
Outside Directors Stock Option Plan and 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 August 7, 2007, (ii) the
number of shares to be offered for resale by each selling stockholder (i.e., the
total number of shares underlying options and Restricted Stock awards held by
each selling stockholder irrespective of whether such options are presently
exercisable or exercisable within sixty days of August 7, 2007), 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 Percentage
Shares of of Class to
Common Stock be Owned
Number of Shares Number of After After
of Common Stock Shares to be Completion Completion
Beneficially Owned Offered for of the of the
Name at August 7, 2007 (1) Resale (2) Offering (3) Offering

Lawrence S. Dolin (4) 146,666 130,000 40,000 *

Steven R. Fischer (5) 101,666 115,000 10,000 *

Steven L. Bock (6) 50,544 70,000 0 *

Patrick B. Carney (7) 76,766 100,000 100 *

Wayne Lam (8) 663,180 671,743 55,837 *

James Weber (9) 251,979 294,479 6,600 *

Bernard Wu (10) 507,370 397,284 209,436 *

Alan Kaufman (11) 44,999 70,000 0 *

Alex Chen (12) ** 180,000 3,300 *

Alan Chen (13) ** 412,641 6,600 *

Eric Chen (14) ** 526,858 3,300 *

Seth Horowitz (15) ** 190,000 3,300 *

Alex Jiang (16) ** 240,232 3,300 *

John Lallier (17) ** 205,813 3,300 *

Wai Lam (18) ** 611,743 6,600 *

Prakash Manden (19) ** 69,600 6,600 *

Seth Oxenborn (20) ** 96,093 214,377 *

Jimmy Wu (21) ** 346,493 6,600 *

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

** In addition to the Restricted Stock being offered for resale by such
individuals, such individuals may also hold presently exercisable options
or options exercisable within 60 days of August 7, 2007. None of such
options are being included in the common stock beneficially owned at
August 7, 2007 because none of such employees is an executive officer,
director or otherwise an "affiliate" of the Company.

(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days after August 7, 2007 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 August 7,
2007) 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) Includes both vested and non-vested stock options and Restricted Stock
awards.

(3) Includes the aggregate ownership of the Company's common stock which may
be comprised of (i) common stock acquired from a source other than the
Company's Stock Incentive Plans, (ii) common stock acquired from the
exercise of stock options and/or (iii) common stock acquired from the
vesting of Restricted Stock awards.

(4) Based on information contained in Forms 4 filed by Mr. Dolin and certain
other information. Consists of (i) 40,000 shares held by Northern Union
Club, (ii) 101,666 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of August 7, 2007 and (iii) 5,000 shares of Restricted Stock awarded
on May 8, 2007, which have a three-year vesting period. 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.

(5) Based on information contained in Forms 4 filed by Mr. Fischer and certain
other information. Consists of (i) 10,000 shares held by Mr. Fischer, (ii)
86,666 shares of Common Stock issuable upon exercise of options that are
currently exercisable or will be exercisable within 60 days of August 7,
2007 and (iii) 5,000 shares of Restricted Stock awarded on May 8, 2007,
which have a three-year vesting period. 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.

(6) Based on information contained in a Form 3 and Forms 4 filed by Mr. Bock
and certain other information. Consists of (i) 45,554 shares of Common
Stock issuable upon exercise of options that are currently exercisable or
will be exercisable within 60 days of August 7, 2007 and (ii) 5,000 shares
of Restricted Stock awarded on May 8, 2007, which have a three-year
vesting period. Mr. Bock has been a Director of the Company since January
2005.

(7) Based on information contained in a Form 3 and Forms 4 filed by Mr. Carney
and certain other information. Consists of (i) 100 shares held by Mr.
Carney and (ii) 69,670 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will be exercisable within 60
days of August 7, 2007 and (iii) 5,000 shares of Restricted Stock awarded
on May 8, 2007, which have a three-year vesting period. Mr. Carney has
been a Director of the Company since May 2003.

(8) Based on information contained in Forms 4 filed by Mr. Lam and certain
other information. Consists of (i) 48,003 shares held by Mr. Lam, (ii)
1,234 shares of Common Stock held by Mr. Lam's spouse, (iii) 565,943
shares of Common Stock issuable upon exercise of options that are
currently exercisable or will be exercisable within 60 days of August 7,
2007 and (iv) 20,000 and 28,000 shares of Restricted Stock awarded on
August 7, 2006 and 2007, respectively, which have a three-year vesting
period. Mr. Lam has served as vice president of marketing of the Company
and its predecessor entity since April 2000.

(9) Based on information contained in a Form 3 and Forms 4 filed by Mr. Weber
and certain other information. Consists of (i) 203,979 shares of Common
Stock issuable upon exercise of options that are currently exercisable or
will be exercisable within 60 days of August 7, 2007 and (ii) 20,000 and
28,000 shares of Restricted Stock awarded on August 7, 2006 and 2007,
respectively, which have a three-year vesting period. Mr. Weber has served
as Chief Financial Officer, Treasurer and a Vice President of the Company
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.

(10) Based on information contained in a Form 3 and Forms 4 filed by Mr. Wu and
certain other information. Consists of (i) 202,836 shares held by Mr. Wu,
(ii) 256,534 shares of Common Stock issuable upon exercise of options that
are currently exercisable or will be exercisable within 60 days of August
7, 2007 and (iii) 20,000 and 28,000 shares of Restricted Stock awarded on
August 7, 2006 and 2007, respectively, which have a three-year vesting
period. Mr. Wu has served as Vice President of Business Development of the
Company and its predecessor entity since November 2000.

(11) Based on information contained in a Form 3 and Forms 4 filed by Mr.
Kaufman and certain other information. Consists of (i) 39,999 shares of
Common Stock issuable upon exercise of options that are currently
exercisable or will be exercisable within 60 days of August 7, 2007 and
(ii) 5,000 shares of Restricted Stock awarded on May 8, 2007, which have a
three-year vesting period. Mr. Kaufman has been a Director of the Company
since May 10, 2005.

(12) Alex Chen has been Vice President of Business Development - China since
June 2007. Prior to that he was Managing Director of FalconStor's Shanghai
office for at least the past three years. The shares being offered for
resale consist of (i) 10,000 and 10,000 shares of Restricted Stock awarded
on August 7, 2006 and 2007, respectively, which have a three-year vesting
period and (ii) 160,000 of both vested and non-vested stock options. The
number of shares of common stock after completion of the offering consists
of 3,300 shares common stock acquired from the vesting of Restricted Stock
awards.

(13) Alan Chen has been a Vice President of FalconStor for at least the past
three years. The shares being offered for resale consist of (i) 20,000 and
15,000 shares of Restricted Stock awarded on August 7, 2006 and 2007,
respectively, which have a three-year vesting period and (ii) 377,641 of
both vested and non-vested stock options. The number of shares of common
stock after completion of the offering consists of 6,600 shares common
stock acquired from the vesting of Restricted Stock awards.

(14) Eric Chen has been a Vice President of FalconStor and the General Manager
of the Asis-Pacific Region for at least the past three years. The shares
being offered for resale consist of (i) 10,000 and 20,000 shares of
Restricted Stock awarded on August 7, 2006 and 2007, respectively, which
have a three-year vesting period and (ii) 496,858 of both vested and
non-vested stock options. The number of shares of common stock after
completion of the offering consists of 3,300 shares common stock acquired
from the vesting of Restricted Stock awards.

(15) Seth Horowitz has been Vice President, General Counsel & Secretary of
FalconStor for at least the past three years. The shares being offered for
resale consist of (i) 10,000 and 10,000 shares of Restricted Stock awarded
on August 7, 2006 and 2007, respectively, which have a three-year vesting
period and (ii) 170,000 of both vested and non-vested stock options. The
number of shares of common stock after completion of the offering consists
of 3,300 shares common stock acquired from the vesting of Restricted Stock
awards.

(16) Alex Jiang has been a Vice President of FalconStor for at least the past
three years. The shares being offered for resale consist of (i) 10,000
shares of Restricted Stock awarded on August 7, 2006, which have a
three-year vesting period and (ii) 496,858 of both vested and non-vested
stock options. The number of shares of common stock after completion of
the offering consists of 3,300 shares common stock acquired from the
vesting of Restricted Stock awards.

(17) John Lallier has been a Vice President of FalconStor for at least the past
three years. The shares being offered for resale consist of (i) 10,000
shares of Restricted Stock awarded on August 7, 2006, which have a
three-year vesting period and (ii) 195,813 of both vested and non-vested
stock options. The number of shares of common stock after completion of
the offering consists of 3,300 shares common stock acquired from the
vesting of Restricted Stock awards.

(18) Wai Lam has been a Vice President of FalconStor for at least the past
three years. The shares being offered for resale consist of (i) 20,000 and
28,000 shares of Restricted Stock awarded on August 7, 2006 and 2007,
respectively, which have a three-year vesting period and (ii) 563,743 of
both vested and non-vested stock options. The number of shares of common
stock after completion of the offering consists of 6,600 shares common
stock acquired from the vesting of Restricted Stock awards.

(19) Prakash Manden was a Vice President of FalconStor from May 2004 through
February 2007. Prior to May 2004, and since June, 2007 Mr. Manden was an
employee of FalconStor. The shares being offered for resale consist of (i)
20,000 shares of Restricted Stock awarded on August 7, 2006, which have a
three-year vesting period and (ii) 49,600 of both vested and non-vested
stock options. The number of shares of common stock after completion of
the offering consists of 6,600 shares common stock acquired from the
vesting of Restricted Stock awards.

(20) Seth Oxenhorn has been Director, Business Development of FalconStor for at
least the past three years. The shares being offered for resale consist of
(i) 10,000 shares of Restricted Stock awarded n August 7, 2006, which have
a three-year vesting period and (ii) 86,093 of both vested and non-vested
stock options. The number of shares of common stock after completion of
the offering consists of (i) 211,077 shares of common stock for which Mr.
Oxenhorn is the beneficial owner of and (ii) 3,300 shares common stock
acquired from the vesting of Restricted Stock awards.

(21) Jimmy Wu has been a Vice President of FalconStor for at least the past
three years. The shares being offered for resale consist of (i) 20,000 and
15,000 shares of Restricted Stock awarded on August 7, 2006 and 2007,
respectively, which have a three-year vesting period and (ii) 311,493 of
both vested and non-vested stock options. The number of shares of common
stock after completion of the offering consists of 6,600 shares common
stock acquired from the vesting of Restricted Stock awards.

Alex Chen, Alan Chen and Eric Chen are not related.

Wayne Lam and Wai Lam are brothers.

Bernie Wu and Jimmy Wu are not related.

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 Global 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.

EXPERTS

The consolidated financial statements of FalconStor Software, Inc. as of
December 31, 2006, and 2005, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss),and cash flows
for each of the years in the three-year period ended December 31, 2006, and
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2006, 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. KPMG's report on the consolidated financial statements referred to
above contains an explanatory paragraph related to the adoption of Statement of
Financial Accounting Standards No. 123 (Revised 2004), "Share-Based Payment," as
of January 1, 2006.

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, 2006;

(2) Our Proxy Statement on Schedule 14a for the 2007 Annual Meeting of
Stockholders;

(3) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2007;

(4) Our Quarterly Report on Form 10-Q for the quarter ended June 30,
2007; and

ITEM 4. DESCRIPTION OF SECURITIES

Not applicable.

ITEM 5. INTEREST OF NAMED EXPERTS AND COUNSEL

None.

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 Amended and Restated 2006 Incentive Stock Plan, incorporated
herein by reference to exhibit 99.1 to the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 2007, filed
on May 10, 2007.

4.2 2007 Outside Directors Equity Compensation Plan, incorporated by
reference to the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 2007, filed on May 10, 2007.

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

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

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

24.1 Powers of Attorney, included on the signature page to this
Registration Statement.

------------
* 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 15th day of
August, 2007.

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 August 15, 2007
---------------------- Officer and Chairman of the
ReiJane Huai Board (Principal Executive
Officer)

/s/ James Weber Vice President and Chief August 15, 2007
---------------------- Financial Officer (Principal
James Weber Financial Officer and Principal
Accounting Officer)

/s/ Lawrence S. Dolin Director August 15, 2007
----------------------
Lawrence S. Dolin

/s/ Steven R. Fischer Director August 15, 2007
----------------------
Steven R. Fischer

/s/ Steven L. Bock Director August 15, 2007
----------------------
Steven L. Bock

/s/ Patrick B. Carney Director August 15, 2007
----------------------
Patrick B. Carney

/s/ Alan W. Kaufman Director August 15, 2007
----------------------
Alan W. Kaufman