8-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                              --------------------

                                    FORM 8-K

                                 CURRENT REPORT


                     Pursuant to Section 13 or 15(d) of the

                         Securities Exchange Act of 1934


       Date of Report (Date of earliest event reported): February 8, 2006
                                ----------------

                            FALCONSTOR SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)

Delaware                            0-23970                    77-0216135
- ------------------------------------------------------------------------------
(State or other jurisdiction       (Commission                (IRS Employer
of incorporation)                  File Number)             Identification No.)

                2 Huntington Quadrangle, Melville, New York 11747
                     Address of principal executive offices

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

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

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

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

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

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

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


Item 2.02.        Results of Operations and Financial Condition

         On February 8, 2006, the Company issued a press release announcing its
results of operations for the full year and fiscal quarter ended December 31,
2005.

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

Item 9.01.   Financial Statements and Exhibits

(c)          Exhibits

             Exhibit Number    Description
             --------------    -----------

             99.1              Press release of the Company dated February 8, 2006.

                               SIGNATURE

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


                                   FALCONSTOR SOFTWARE, INC.


Dated: February 8, 2006            By:  /s/ James Weber
                                        ----------------------------------
                                   Name:    James Weber
                                   Title:   Chief Financial Officer and Vice President

EX-99.1

                                                                    Exhibit 99.1






Contacts: Sabrina Sanchez                       Christine Rogers
          Ventana Public Relations              Investor Relations
          925-875-1968                          631-962-1160
          sabrina.sanchez@ventanapr.com         christine.rogers@falconstor.com

        FALCONSTOR SOFTWARE ANNOUNCES Q4 AND FULL YEAR FINANCIAL RESULTS
        ACHIEVES PROFITABILITY AND POSITIVE CASH FLOWS ON FULL YEAR BASIS
                      REVENUES INCREASE 43% YEAR OVER YEAR

MELVILLE, N.Y., February 8, 2006--FalconStor Software, Inc. (Nasdaq: FALC), a
leading provider of adaptive data protection solutions, today announced
financial results for its fourth quarter and fiscal year ended December 31,
2005.

Revenues for the quarter increased 37% to $13 million, compared with $9.5
million for the same period a year ago. Net income for the fourth quarter of
2005 was $1.7 million, or $0.03 per share, compared with net income for the
fourth quarter of 2004 of $0.3 million, or $0.01 per share.

The Company reached profitability on a full year basis for the first time in
2005. For the twelve months ended December 31, 2005, revenues increased 43% to
$41 million compared with $28.7 million for the year ended December 31, 2004.
Net income for 2005 was $2.3 million, or $0.05 per share, compared with a net
loss for 2004 of $5.9 million or $0.13 per share. 2004 results included a
litigation settlement charge of $1.3 million and legal fees of $1.0 million,
each associated with patent infringement litigation that was resolved in 2004.

Revenues for the fourth quarter of 2005 increased 29% compared with the previous
quarter, from $10.1 million to $13 million. Net income for the fourth quarter of
2005 was $1.7 million, or $0.03 per share, compared with net income for the
third quarter of 2005 of $0.5 million, or $0.01 per share.

The Company closed the quarter with $36.6 million in cash, cash equivalents and
marketable securities, a $1.5 million increase from the previous quarter.
Deferred revenue at December 31, 2005, increased to $9.6 million, or 27%,
compared with the previous quarter, and by 79% compared with the same period a
year ago.

"The financial performance of 2005 underscores the strong market acceptance of
our leading-edge technology and the scalability of our business model," said
FalconStor Chairman and CEO ReiJane Huai. "We are charging ahead with an
expanded product portfolio, key partnerships, a focused sales/distribution
channel, and strategic marketing/PR initiatives. Our dedicated staff is
committed to making 2006 a banner year for FalconStor."

COMPANY HIGHLIGHTS

2005 proved to be another year of outstanding growth and achievements for FalconStor.
Deloitte's prestigious Technology Fast 50 List recognized FalconStor as one of



the 50 fastest growing technology companies in the area, based on percentage
revenue growth over five years from 2000-2004.

For outstanding achievement in technology innovation, VARBusiness magazine named
FalconStor's IPStor(R) Enterprise Edition software a winner in the storage
category of the VARBusiness Tech Innovator awards competition and included
FalconStor's iSCSI Storage Server in its Top 100 Mid-market Solutions.

During 2005, FalconStor continued to enhance the core capabilities of its IPStor
and VirtualTape Library (VTL) software. This includes a version of IPStor
optimized to run on System-On-Chip ("SOC") platforms, such as Intel
Corporation's XScale I/O Processor.

FalconStor has established a new OEM partnership with a leading computer,
networking and communications products manufacturer to offer an entry-level data
storage and protection appliance, powered by IPStor/SOC, targeting the Small &
Medium Business/Small Home Office ("SMB/SOHO") market. The launch is scheduled
for the first quarter of 2006. The SOC-based storage appliance will enable
SMB/SOHO users to perform local backup/recovery.

In the fourth quarter of 2005, FalconStor entered into a strategic OEM
partnership with a major IP-networking solution provider headquartered in
Hangzhou, China. Product launch, and an announcement detailing the scope of the
collaboration between the two companies, is scheduled for the first quarter of
2006.

The company will host a conference call on Wednesday, February 8th at 4:30 p.m.
Eastern Time, to discuss the results. To participate in the call, Toll Free:
800-366-7417 or International: 303-262-2140. To view the presentation, please
copy and paste the following link into your browser:
https://falconstor.webex.com/falconstor/j.php?ED=88689112&UID=40883257. Follow
the instructions to register and join this meeting.

Meeting Name: FalconStor Q4 2005 Earnings
Meeting password: numbers
Meeting number: 481 386 824

A conference call replay will be available beginning 2/8 at 6:30 PM ET through
6:30 PM on 2/9. To listen to the replay of the call, dial Toll Free:
800-405-2236 or International: 303-590-3000 Passcode: 11051484# or visit our
website at www.falconstor.com/investors.asp.

ABOUT FALCONSTOR
FalconStor Software, Inc. (Nasdaq: FALC) is a leading provider of adaptive data
protection solutions. FalconStor's technology optimizes the backup and recovery
of business critical data (DAS, NAS or SAN) within the data center to maximize
business continuity FalconStor's flagship products - IPStor(R) Enterprise
Edition, VirtualTape Library, and iSCSI Storage Server--are available from major
OEMs, system integrators, and resellers, and are deployed worldwide by
governments, educational institutions, and Fortune 1000 enterprises across
industries including aerospace, energy production, financial services,
healthcare, law, manufacturing, and telecommunications.

FalconStor is headquartered in Melville, NY, with offices throughout Europe and
the Asia Pacific regions including Paris, Tokyo and Taiwan. FalconStor is an
active member of the Technical Support Alliance Network (TSANet), Storage



Networking Industry Association (SNIA) and Fibre Channel Industry Association
(FCIA). For more information, visit www.falconstor.com or call 1-866-NOW-FALC
(866-669-3252).

THIS PRESS RELEASE INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE: DELAYS IN
PRODUCT DEVELOPMENT; MARKET ACCEPTANCE OF FALCONSTOR'S PRODUCTS AND SERVICES;
TECHNOLOGICAL CHANGE IN THE STORAGE AND NETWORKING INDUSTRIES; COMPETITION IN
THE NETWORK STORAGE SOFTWARE MARKET; THE POTENTIAL FAILURE OF FALCONSTOR'S OEM
PARTNERS TO INTRODUCE OR TO MARKET PRODUCTS INCORPORATING FALCONSTOR'S PRODUCTS;
INTELLECTUAL PROPERTY ISSUES; AND OTHER RISK FACTORS DISCUSSED IN FALCONSTOR'S
REPORTS ON FORMS 10-K, 10-Q AND OTHER REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.

                                       ###

FALCONSTOR, IPSTOR AND PRIMEVAULT ARE SERVICEMARKS OR REGISTERED TRADEMARKS OF
FALCONSTOR SOFTWARE, INC. ALL OTHER COMPANY AND PRODUCT NAMES CONTAINED HEREIN
MAY BE TRADEMARKS OF THE RESPECTIVE HOLDERS.



                   FalconStor Software, Inc. and Subsidiaries
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                      December 31,             December 31,
                                                                      2005                     2004
                                                                      -----------              -----------


Assets
Current assets:
   Cash and cash equivalents ...................................      $18,796,973              $15,484,573
   Marketable securities .......................................       17,833,683               18,488,616
   Accounts receivable, net.....................................       15,187,408               10,269,822
   Prepaid expenses and other current assets ...................          911,715                  629,036
                                                                      -----------              -----------

         Total current assets ..................................       52,729,779               44,872,047
                                                                      -----------              -----------

Property and equipment, net ....................................        5,277,609                4,662,269
Goodwill .......................................................        3,512,796                3,512,796
Other intangible assets, net ...................................          216,864                  307,620
Other assets....................................................        2,236,725                2,719,460
                                                                      -----------              -----------


         Total assets ..........................................      $63,973,773              $56,074,192
                                                                      ===========              ===========

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable .............................................      $ 1,152,228              $   821,433
  Accrued expenses .............................................        4,522,212                3,501,034
  Deferred revenue .............................................        7,401,018                4,097,279
                                                                      -----------              -----------


         Total current liabilities..............................       13,075,458                8,419,746

Deferred revenue................................................        2,240,208                1,290,496
                                                                      -----------              -----------

         Total liabilities......................................       15,315,666                9,710,242
                                                                      -----------              -----------

Commitments

         Total stockholders' equity ............................       48,658,107               46,363,950
                                                                      -----------              -----------

         Total liabilities and stockholders' equity ............      $63,973,773              $56,074,192
                                                                      ===========              ===========


                   FALCONSTOR SOFTWARE, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                      Three Months Ended                      Year Ended
                                                                          December 31,                        December 31,
                                                              -------------------------------       --------------------------------
                                                                   2005               2004               2005               2004
                                                               (unaudited)

Revenues
Software license revenue ..............................       $  9,604,441       $  7,594,527       $ 29,544,467       $ 21,487,866
Maintenance revenue ...................................          2,300,326          1,245,490          7,593,804          4,442,724
Software services and other revenue ...................          1,115,048            656,727          3,825,832          2,778,088
                                                              ------------       ------------       ------------       ------------

                                                                13,019,815          9,496,744         40,964,103         28,708,678


Operating expenses:
  Amortization of purchased and capitalized
     software .........................................            176,028            222,583            781,500          1,393,908
  Cost of maintenance, software services
     and other revenue ................................          1,651,570          1,069,687          6,114,112          4,150,309
  Software development costs ..........................          3,601,015          2,437,812         12,039,488          9,050,092
  Selling and marketing ...............................          4,810,557          4,030,020         16,109,440         14,277,167
  General and administrative ..........................          1,091,680          1,541,631          4,212,769          5,108,516
  Litigation settlement ...............................               --                 --                 --            1,300,000

                                                                11,330,850          9,301,733         39,257,309         35,279,992
                                                              ------------       ------------       ------------       ------------
           Operating income (loss) ....................          1,688,965            195,011          1,706,794         (6,571,314)
                                                              ------------       ------------       ------------       ------------

Interest and other income .............................             36,350            160,489            705,063            714,412
                                                              ------------       ------------       ------------       ------------


          Income (loss) before income
                   taxes ..............................          1,725,315            355,500          2,411,857         (5,856,902)
                                                              ------------       ------------       ------------       ------------

Provision for income taxes ............................             69,363             16,666            118,750             31,945
                                                              ------------       ------------       ------------       ------------

       Net income (loss) ..............................       $  1,655,952       $    338,834       $  2,293,107       $ (5,888,847)
                                                              ============       ============       ============       ============


Basic net income (loss) per share .....................       $       0.03       $       0.01       $       0.05       $      (0.13)
                                                              ============       ============       ============       ============

Diluted net income (loss) per share ...................       $       0.03       $       0.01       $       0.05       $      (0.13)
                                                              ============       ============       ============       ============


Weighted average basic shares outstanding .............         47,802,694         47,307,612         47,662,446         46,967,422
                                                              ============       ============       ============       ============

Weighted average diluted shares outstanding ...........         50,958,553         51,249,985         50,776,396         46,967,422
                                                              ============       ============       ============       ============